From Growth to Profit: Rethinking Value Creation – Product at Heart 2024
There’s been a palpable shift in the product world over the past couple of years. It’s no longer enough to focus on our craft and on the growth our products can drive for our companies. There’s now a mandate to connect our work to our company’s business outcomes. But if you’re brand-new to the world of financial forecasting, what’s a troubled product manager to do?
This challenge was the inspiration for the themed sessions on Rethinking Value Creation at Product at Heart 2024, in addition to Product Operating Models in Practice, Realizing Your Potential as a Product Manager, and Blueprints for Collaborative Success.
This themed session featured a series of three 20-minute talks. During Rethinking Value Creation, we heard from:
Rich Mironov, Product Leadership Coach and Consultant
Fabrice des Mazery, Chief Product at Growth Officer, productROI
Felix Fichtl, CFO at SoSafe
In this post, we’ll share the highlights from each talk. If you’d like to explore any more of the content in detail, make sure you check out the recordings from each session.
Rich’s talk: Business Cases Are Stories About Money
Fabrice’s talk: Act Like an Owner, Challenge Like a VC
Felix’s talk: Profitability Unplugged: Navigating Data Gaps While Delivering Financial Insights
Rich Mironov: Business Cases Are Stories About Money
“We as product folks love to talk about our processes, backlogs, sprints, methodologies, and roadmaps, but I’m going to suggest they’re not the most useful thing for some of the folks in the executive suite,” said Rich to kick off his talk.
Imagine you’re at a cocktail party. You’re enjoying the lighthearted conversation with new acquaintances and old friends when suddenly you find yourself trapped in a corner with a guy who is obsessed with golf. For the next half hour, you can’t escape as he talks at length about his new golf clubs, his favorite golf courses, and every other minute detail of this sport that you’re really not that interested in.
When it’s framed like that, it’s easy to see how “golf guy” is annoying and really takes away from your enjoyment of the party.
Unfortunately, Rich broke it to us, when we get into discussions with our go-to-market (GTM) executives from sales, marketing, and finance, we unintentionally become that guy. The reason is that GTM executives care about different things from what we care about in product.
But now it’s our job to learn what they care about and how to speak their language.
Speaking the language of GTM executives
How exactly do you do that? Rich breaks it down into a few key concepts.
GTM executives are trying to make their numbers and they’re trying to make individual customers happy, which means they only care about getting what they want—whether that makes any sense or not. And they want to know when they can get it—not just down to the quarter, but down to the hour or minute.
Rich explained that this is especially the case with GTM executives who work with enterprise customers, because there are usually only a very small number of them in the pipeline.
Enterprise customers are so important to your company’s financial success that your CEO will be regularly checking in with the sales leaders on how these customers are doing. And the board members will also be regularly checking in with the CEO on how they’re doing. Once you understand this chain, it makes much more sense why you’re getting so much pressure from the sales leaders.
And once you understand this, it also makes sense why GTM executives aren’t that interested in hearing about the details of the product work you’re doing. Rich explained that on the GTM side, they have a short attention span. “They’re focused on the current quarter and the current revenue.”
Returning to the “golf guy” who we don’t want to be, any generic process language we say to GTM executives simply sounds like excuses to them.
So how do you avoid becoming the golf guy and learn to speak in a way that makes sense for your GTM audience? Rich puts it simply: “Any language that comes out of your mouth, if it doesn’t include a currency symbol, nobody on the GTM side is listening.”
Money stories: What you need to know
To help make this more concrete, Rich introduced the concept of scientific wild-ass guesses or SWAGs. He said that you don’t need to worry too much about the accuracy of your numbers, you just need to have a ballpark figure that’s going to allow you to compare similar concepts to each other.
Let’s look at a more specific example. Here’s how we could tell an enterprise customer about why they’d want to buy our product. You can fill in the bold type with whatever it is that you do.
Our knowledge management system will reduce your time to resolve support cases.
You currently take 9,500 support calls per year costing €80 each. We’ll reduce that by 25–35% for a savings of €190k–€250k.
Rich summarized this by saying: Your company does how many things and it costs you whatever and we’re going to magically save some portion of that.
When we multiply those out, we can tell you roughly to an order of magnitude what it’s worth to your company. You then add in what you (as a product person) expect to get paid for it, which allows you to calculate what the savings and return on investment will be.
Rich shared a few additional examples:
If the product or feature is intended to drive upsells, you multiply the audience by the increased conversion SWAG by the revenue
If the product or feature is intended to reduce support costs, you multiply the guesstimated number of tickets by the improvement SWAG by the cost per ticket
With these calculations, you should already have two out of the three numbers, which means you’ll only have to do your scientific wild-ass guess for one of them.
Rich noted that this number is not accurate, but that’s okay, as long as you get the order of magnitude right. For example, it’s not that important if you estimate that something will be a €5 million opportunity vs. a €2 million opportunity. But you don’t want to estimate €5 million for something that only turns out to be €1,000. This type of guessing allows you to sort and discard ideas and weigh different ideas in relation to each other.
Mapping your guesses on your roadmap
If you’re working with roadmaps, Rich recommended adding your product guesses for what the swimlane is worth. This gives you more leverage when someone comes to you with a request they promised to an enterprise customer. You are now able to make more reasonable comparisons since both your roadmap and the customer requests will have numbers attached to them.
Rich also noted that as you move to the right, there’s much more uncertainty on the roadmap.
A few other handy tips and tricks
Rich said pie charts are a wonderful tool to add to your toolbox, because they have a forcing function: You simply can’t fit everything in one, which means pie charts help you make the argument that you can only allocate a certain number of resources to features vs. architecture, quality, scalability, and everything else shown in the pie chart below. Plus, Rich said, “Every executive understands the portfolio model.”
Another tip Rich shared was the “magic token.” This can be an actual token or some sort of physical object (like the teddy bear shown in the slide). Whatever you choose to represent it, this token is worth one engineering week for each quarter. You can grant one to the senior sales VP and the idea is that they can only choose one thing per quarter that they believe will make the company the most money.
To close out, Rich reminded us: “When we’re talking with the folks who only care about outcomes and money and when something is going to happen, we want to use the language of money and outcomes and leave all the process discussions behind.”
A big thank you to our visual note-taker Eva-Lotta Lamm who created this sketchnote of Rich’s talk.
Fabrice des Mazery: Act like an owner, challenge like a VC
“We were all cursed in 2022 by the avada kedavra of product: profitability,” said Fabrice des Mazery to open his talk. (If you’re not a Harry Potter fan, “avada kedavra” is the curse that has the power to kill another person just by uttering the words—pretty powerful stuff.)
This curse meant many product people rediscovered that our job was actually to make money.
And many of us made a critical mistake to try to beat that curse—we turned to “produxplaining.” As Fabrice explained, “It’s like mansplaining. Talking about product theory and methodologies to people who don’t care.”
“Fighting the profitability curse with a produxplaining spell doesn’t work,” said Fabrice. “If you want people to change their behavior, produxplaining will never, ever make them think differently.”
Your stakeholders need to get skin in the game
In order for people to change, they need to get skin in the game. Fabrice shared the fable of a chicken who goes to a pig and says, “Let’s eat eggs and bacon.” That proposition means something far different to the chicken than it does to the pig!
It’s a similar situation when a salesperson comes to you and asks you to put something on the roadmap. The cost for them is 0. They might have to look at the figures or do some research to prove this is a great idea. But you will have to put money on the table. And if that doesn’t work, if the deal doesn’t close, this is your responsibility. You will have to maintain everything. They don’t.
So that means in the fable, they’re the chicken, and we’re the pig.
Getting inspiration from Jean-Claude Van Damme: Double impact
Fabrice was inspired by action film star Jean-Claude Van Damme to create the “double impact” law of product organizations.
It’s quite simple: The purpose of the product organization is to create ROI for the user AND the company at the same time.
But while it seems simple and straightforward, many of us forget this. We get wrapped up in the idea of user centricity (to the point where we forget our business). Or we focus so much on launching that we forget to go back and check if our launch was actually successful. “While we say we’re outcome driven, we’re not,” said Fabrice.
In the rest of his presentation, he shared three concepts that can help us achieve double impact:
The investment principle
The capping principle
The portfolio principle
Let’s take a brief look at each principle.
1. The investment principle
If you take the time of a product team, you can imagine that one year is worth €1 million, which means the cost of doing one week of discovery is around €15k. “Then you need to make it the same for your stakeholders, so that it’s not free for them to ask the product teams for anything,” said Fabrice.
You can transform your stakeholders from clients to co-investors. There are a few ways to achieve this:
Ask them to submit pitches to you and have them share their assumptions (which you can then derisk).
Ask them to provide access to their customers so you can test these concepts. Since many stakeholders are already sales and marketing people, you’re simply asking them to put their skills on the table.
Let them know you need their support not just in the go-to-market process, but in the go-to-customer process (which can involve things like sales enablement and publicity around new features).
Make it clear that you both need to share the responsibility. Invite them on stage with you for product reviews so you can both share your perspective on what happened, both for successes and failures.
2. The capping principle
Next up, the capping principle. This is based on the idea that you don’t want to put all your eggs in one basket. You’re not going to write a blank check to any team, so it helps to put a limit in place about how much you’re willing to invest in any single team or idea. Fabrice described it as “limiting the appetite considering the ambition.”
You consider the ambition that came from your pitch and the budget you have to determine how much something is worth. And if you decide it’s worth this much per sprint, that means you can only spend this number of sprints on it or else you’re jeopardizing the strategy. And it applies to both discovery and delivery.
3. The portfolio principle
And finally, Fabrice described the portfolio principle, which means that you don’t want to only invest in very secure things or only invest in very risky things—you want to have a good mix of both in your portfolio.
One way you can do this is to map out your ideas on a grid that weighs the potential ROI vs. the uncertainty or risk.
On the bottom left of the grid are the things that are low risk but also have low potential ROI. Fabrice calls these “low-hanging fruit” or “enablers” and recommends spending only about 20–25% of your effort on this type of task.
Moving more toward the center of the grid, you have the core of what product teams do: strategic initiatives, OKR work. These things are more risky, but could lead to more ROI. Fabrice recommends spending about 60–65% of your time on these projects.
And the final type of activity that appears in the upper right of the grid (maximum risk and maximum ROI potential) is what Fabrice refers to as “bets.” If your company is early stage and still trying to achieve product-market fit, everything is a bet. But as companies mature, many of them forget to spend that 10–15% of time trying new things. This is a mistake, said Fabrice.
Fabrice added that this example he shared is not an absolute template. Your exact portfolio allocation may look different depending on factors like market conditions and insights, your company or product stage, and your own level of risk tolerance. Take this as a guide, but adjust the percentages as necessary.
Fabrice urged us to act like financial advisors. We need to offer a glimpse of a risk that’s attached to the decisions our company is making: “If a company has decided to put €2 million on something, you need to think about the level of risk that they have and communicate that. And if they want to go on with that discovery, that’s their responsibility, not yours.”
If you’re able to adopt these principles that help you act like an owner and challenge like a VC, you might just reach that coveted ideal of double impact.
A big thank you to our visual note-taker Eva-Lotta Lamm who captured the highlights from Fabrice’s talk in this sketchnote.
Felix Fichtl: Profitability Unplugged: Navigating Data Gaps While Delivering Financial Insights
“There’s one thing that’s stuck with me throughout my career as a financial person/CFO,” said Felix Fichtl. “And those are the terms that people use for finance professionals: number-crunchers, Excel jockeys, or bean counters.”
Felix explained that he wasn’t bringing this up to get sympathy or pity from us, but because he sees a common theme—the notion that finance professionals are somehow obsessed with minute details or enjoy staring at Excel sheets all day. “I can assure you I find that super boring. And I’m actually not very good at math,” said Felix.
So why would someone who isn’t that interested in math or spreadsheets choose a career in finance? Felix explained that what he does enjoy is talking about the business, providing the context, translating the abstract into the concrete, and using finance as a tool to facilitate decisions to enable strategy.
“If I could accomplish one thing today, it’s to change how you think about finance and numbers as tools to help you accomplish your goals—whether those goals are to build more and better products, advance your careers, or get a seat at the table,” he added.
To help make this presentation more relatable, Felix said he’d be packaging it up in a story.
Meet our protagonist, Peter Product
The hero of our story is Peter Product. He’s hyper motivated. He’s just joined a SaaS company, Pioneers Inc., which has €35 million in annual recurring revenue (ARR) and is growing around 9% per year. They have 84% gross revenue retention, 16% churn, and they will need some form of funding in the next 12–18 months.
Peter was hired because they want to grow and build more products. Once he starts, Peter realizes he’s going to need more people to help him do this, so he comes up with Plan A: hire two squads ASAP and build cool stuff.
The finance team takes a look at Peter’s plan, determines it will cost €1.5 million to fund those squads, and promptly tells Peter no.
But Peter is the hero of our story so he won’t let one “no” stop him. He takes a closer look at the information he already has, such as the cost of staff, ARR, etc. Peter also knows there’s a lot of time and effort going into maintenance and fixing legacy stuff. That’s why he wanted new squads. He also calculates personnel cost, the amount of time spent on maintenance and bug fixes, and realizes it’s €2.5 million. He then looks at revenue churn and realizes they’re losing €5.6 million every year.
At this stage, Peter decides to face off with finance again. This time, he asks, “If I can give you €0.7 million in revenue (through improved retention) and €0.4 million in reducing maintenance, can you help me find €0.6 million for 6 contractors for 6 months?”
And then he gets the green light!
So let’s unpack what Peter did. He put a number to the problem of having so much maintenance and effort on the engineering side. “If you say in the abstract, ‘We’re spending a lot of time’—or even ‘30% of our time’—it doesn't stick,” said Felix. “But saying, ‘We’re spending €2.5 million on bug fixes every year’—that sticks. If you’re the first to put that label on it, people will remember. It’s powerful because everybody has a salary, everybody goes to the supermarket, everybody understands the value of money.”
At this stage, Felix also pointed out a few things that are helpful for the product person (who may not have a lot of financial background) to be aware of:
Combining one of your goals with revenue is a game-changer.
In the absence of information, finance teams tend to look at historical data. If you can offer them a concrete path to the future, that enables them to have conversations they couldn’t have before.
In order to have this type of conversation, you don’t need significant amounts of data, 100% accurate data, or extensive data. Often, the finance team won’t have time to come up with their own data, so providing your own is really helpful.
If the finance team does take issue with your data, you can ask them to provide you with better data.
The single most important KPI of product profitability: Gross margin
The single most important KPI of product profitability is something called “gross margin.” It determines how much money your company can make.
Felix put it this way: “I’ve had several conversations with investors over the years and there are just a few KPIs they care about: revenue, revenue growth, and gross margin. And if that’s not enough to convince you—it can get you budget.”
At this stage, you might be wondering how you can calculate your gross margin. Felix said we first need to understand another concept called “cost of goods sold” or COGS, which includes: your hosting and infrastructure costs, third party software or APIs to deliver the product, and customer support costs directly related to maintaining the software. All of these things go into COGS, and they are what is subtracted from revenue to come up with gross profit. Then with gross profit relative to gross revenue, you have your gross margin.
The more gross profit you have, the more that’s available for product, sales and marketing, and G&A roles (like finance).
Next, Felix offered a few tips to help you improve your gross margin by reducing cost and finding additional budget:
Understand the pricing of your hosting environment (any finance team should be able to help you with this). Does it make sense to the value proposition of your product? For example, if your product is a learning platform, do customers look at it live? Or if it replicates once or twice an hour, would that be enough?
Compare software vendors. If there are many vendors for the same service, compare and play them against each other. We tend to underestimate the sum of the little changes and how they can play out over the years. Switching from one vendor to another may be enough to pay half the salary of one engineer and if you can find a way to cut that, your finance team may be more willing to help you find a way to come up with the other half.
Consider the time and effort it takes to implement. This could be just ten minutes per customer success person, but that adds up.
To recap, Felix reminded us that hypotheses are often good enough. You can challenge others to provide other data or disprove your data. Don’t be afraid to make use of the ambiguity you have by combining your real-world observations with what you’re seeing in the numbers. With that information, you can build your case and own the business conversation.
A big thank you to our visual note-taker Eva-Lotta Lamm, who created this sketchnote of Felix’s presentation.
Want to dive deeper into Rethinking Value Creation—or any of the topics from Product at Heart? Make sure you check out our blog and video archive!