Customer value is satisfaction, experienced by taking a given action relative to the cost of that action. Typically this action is taken to achieve specific goals.
In other words: Product value is a perceived benefit that helps your customers to achieve their goals.
Knowing your customers’ goals and to address them with your product with an appropriate ratio between benefit to cost increases your chance for a win-win.
Think about your customers’ goals, not yours!
Especially in large enterprises, it is common to break down the goals into sub-goals such as to improve quality, increase innovation, reduce downtime, increase throughput, improve OEE, etc. which replace the main goal of the overall company (make money) during day-to-day operations.
While focusing the daily operations on optimizing them separately, companies are often not able to realize their full potential.
The knowledge about the goals, corporate culture, innovation strategies and internal politics of a customer helps to determine the appropriate price.
Every pitch, flyer, link, poster, and whitepaper must address these goals.
So if a product is supposed to be meaningful, it needs to provide value, and help customers reach their goals.
I wish innovation was seen more often as an opportunity to satisfy the customer instead of a necessary management activity. To fail fast is part of a learning cycle.
The entrepreneurship required should be taught with the same priority as technology related topics. Learning needs to be embraced and made an integral part of company’s culture.
An employee shouldn’t need explicit approval to experiment and to innovate; innovation implies at least some creative spontaneity and autonomy.
One important aspect in this context is less dominant in the old world which is crucial for success in digitization:
During my time in the US, I met people who lost their job, worked in construction and joined big companies as managers again.
If you’d have this in your CV in the old world, you can literally bury your career, instead of earnig the deserved respect to get back up again.
This creates an environment of fear where no one stands up and fights for an innovative idea.
In addition we are losing an important source for innovation, where thought patterns are transferred from another industry or life situation.
This is not supposed to sound like nothing is working. As a matter of fact there is a lot that works pretty well, especially in hardware centric business, where upfront planning rules.
Hardware business significantly differs in its cost structure from software business. It requires much more focus on the product cost during production, such as reducing plastic etc.
With software on the other side, cost is more or less fixed (except Ops) and the main lever is value. This is where concepts such as validated learning, MVP, etc. are so important while the product is already on the market to enable continuous learning.
How does your company make sure this learning is part of the culture? Do you embrace the fail fast mentality?
An innovative product, if monetized properly, can lead to a significant increase in market share and income. But how do you find one? Why is it important to concentrate on finding meaningful products?
Let’s have a look at what we are trying to create: An innovative product.
So why does the product need to be innovative?
Not without a reason this question should be answered first. It is often a lot harder to be the first in the market when introducing innovative, meaningful products.
Being second and adapting a certain product, for example to another market can often be more attractive than creating a new product.
Another motive might be the personal ego or the drive to leave footprints. While it feels very rewarding to create something from scratch, you should ask yourself whether it is worth it and whether this “drive” will fuel you till the end.
There are various reasons why you would want to create something innovative. And I’m the first to advocate for a “do it”, but please, be clear about WHY you do it.
The misconception about innovative minds
A widely spread misconception is that innovative minds such as Leonardo Da Vinci, Newton, Einstein, Schroedinger, Hawkins, Maxwell, Galileo, Bell, Curie, Faraday, Kepler or Charles Darwin were simply geniuses.
If you look closer though, you will find that all disruptive innovators had certain things in common:
Some of the most innovative, meaningful products and ideas are very complex behind the scenes but easy to understand with a decent model. This makes it tempting to attribute all the hard work to create the model to the pure genius of the author.
Why do customers value products?
Customer value is satisfaction, experienced by taking a given action relative to the cost of that action. Typically this action is taken to achieve specific goals.
In other words: Product value is a perceived benefit that helps your customers to achieve their goals.
Knowing your customers’ goals and to address them with your product with an appropriate ratio between benefit to cost increases your chance for a win-win.
Think about your customers’ goals, not yours!
Especially in large enterprises, it is common to break down the goals into sub-goals such as to improve quality, increase innovation, reduce downtime, increase throughput, improve OEE, etc. which replace the main goal of the overall company (make money) during day-to-day operations.
While focusing the daily operations on optimizing them separately, companies are often not able to realize their full potential.
The knowledge about the goals, corporate culture, innovation strategies and internal politics of a customer helps to determine the appropriate price.
Every pitch, flyer, link, poster, and whitepaper must address these goals.
So if a product is supposed to be meaningful, it needs to provide value, and help customers reach their goals.
Why do customers love a product?
There is more to it than “just” value that makes someone love a product. According to GoodTherapy love is:
Extreme feelings of attachment, affection, and need.
Dramatic, sudden feelings of attraction and respect.
A fleeting emotion of care, affection, and like.
Some combination of the above emotions.
All the mentioned definitions, even though made for loving another human, can be adapted 1:1 to ingenious and meaningful products
Some people check their social media every few minutes until it shows addictive behavior
Some users religiously swear on using only certain computers with fruits as logo, others religiously reject them
The amount of care given to the virtual characters for example in online games sometimes leads to less social bonds in the real world
As you see, many attributes apply to (innovative) products in a similar way.
Having that said, as you are the one designing the product, it’s up to you what character your new product shall have.
So please keep in mind while designing your products:
Technology is supposed to augment and simplify navigating life; to make it more joyful and enrich the experience. It is not the other way around, that we serve technology.
The enterprise environment
In many cases, companies had a more or less working product management which was shielding the customers from development team questions such as “what do you want to achieve”. This often prevented disruptive innovation.
The development teams were embedded in V and waterfall models, which work very well for products where components need to be put together and projects.
Software development, however, is a creative process that can better be compared to painting a picture. Even a doctor’s visit to check the reason for certain symptoms comes closer than assembling a motor.
At the same time the handover date, scope of work and resources/price need to be communicated upfront. A timeline is required to, for example, ramp up the complex marketing machine for the new product.
This is also btw, why I think it is not good to speak about projects in product development:
A project is temporary in that it has a defined beginning and end in time, and therefore defined scope and resources. And a project is unique in that it is not a routine operation, but a specific set of operations designed to accomplish a singular goal. So a project team often includes people who don’t usually work together – sometimes from different organizations and across multiple geographies.
PMI
A product team is quite the opposite. It is an in many regards well-balanced, empowered team that stays together and continuously explores innovative opportunities as long as the product is alive. The goals are defined per iteration and base on moving targets, such as KPIs.
It’s literally a clash of two systems, military command & control vs. empowered, highly trained special forces dropped behind the lines. While in military the reporting structure seems to be well integrated, in organizations they are often not.
Understanding the difference is very important if you are to build your innovative product in an enterprise environment.
The process of finding Product Market Fit
The process of finding an innovative product that fits the market looks pretty straight forward but is maybe the toughest job in a company. It often requires a lot of ingenuity.
A Minimum Viable Product is defined in many different ways and you will get 30 different answers if you ask 15 Product Managers.
For me, it is defined as a minimum increment that has the characteristics to be valuable, usable and feasible.
Please note the difference to Eric Ries’s hypothesis testing or the smallest possible experiment.
Such a hypothesis test could be a paper-fold prototype to show an aspect of the new product to customers, but it is not sellable. A hypothesis test serves exactly one purpose, to validate a hypothesis quickly to rapidly reach product-market fit.
I see the complete product development process as a path in a tree, starting from a root element, developing towards leaves. Without ever reaching an end, until the product gets discontinued (compared to a project, which has an end).
I believe both concepts work well together to find incredible solutions. In the mentioned tree, every edge, leading to a new node represents an MVP. The hypothesis testing hereby defines whether to go left or right for the next iteration / innovative leap and sets the direction with minimum investment.
In other words, there are two tracks going on in a product team at every given time:
Product Discovery (WHAT): Finding a Product Market Fit through validated learning using hypothesis testing. In the product discovery, the team is to find a market need that is scalable and valuable
Product Delivery (HOW): Smallest increment to deliver value to improve the Product Market Fit
In many organizations, Product Discovery is separate from the product team which pretty much cripples the team and degrades the whole “product team” to a feature delivery team or extended workbench. You can’t expect innovative solutions from such a team.
A truly empowered product team determines the product’s destination (within bounds) on its own with high-level targets, set for example with OKR.
The required skills are to understand the market, the domain, being able to define a business strategy, to develop a product strategy, deliver on it, make money, do consulting and often also sales as well as business development at the same time.
You could open a startup with such a team. I didn’t initially call it without a reason maybe the toughest job 🙂
The art of having ideas
There are maybe as many creativity techniques out there as people trying to have an idea.
Brainstorming, freewriting, swot, five Ws, etc. all have fancy names but do typically more or less the same, they force you to act and think outside the box, either in a group or as individuals.
Every time you take action, you allow your mind to let go of a thought it otherwise would try to groom. Taking action on an idea enables you to have more ideas afterwards.
I call this the hydra method according to Greek mythology where Heracles (Roman = Hercules) was sent out by Eurystheus to kill the Hydra. Every time Heracles cut off one of the serpent’s heads with his mace, the Hydra would regrow two new.
An activity can mean writing it down, sketching the innovative idea or creating a prototype, etc. So some form of doing or taking action. It can also mean to delegate the task of exploring an opportunity, work with a university (Capstone, Ph.D., etc) or discussing it with a team of open-minded colleagues.
You can use Hydra to increase the flow of ideas in all situations from innovative business ideas to vacation ideas. Because you just need a blank notebook to get started, you can do it everywhere, no matter whether you have a power supply or not.
The core of Hydra can also be found/combined in other techniques, such as brainstorming and slow-motion multitasking.
Must have documents
From my experience, not a lot of documents are really important in a product team, but the few remaining are so important that I would not advise developing anything without them.
The documents are centered around the following questions:
Why do I build the product?
For whom do I build the product?
What is the value I’m creating?
How it the value delivered to the customer?
What is the impact of my product?
What’s my competition?
How do I measure success?
All documents are considered living documents and should be managed with a version control system.
You will get access to vector graphic templates of the canvases I use, via the newsletter soon.
All documents should be visible in the area where the team works at any time, for example in the team room, etc. The team is supposed to be able to have informed discussions during meetings.
Most of them can be found in the Design Thinking process and SCRUM.
I hope it also gives everybody who thinks Agile means “we don’t have to plan” an idea of Agile planning.
Porter 5 Forces
To gain an understanding of the competitive landscape and the attractiveness of the market for the innovative product, M. Porters 5 Forces is a great methodology to apply.
The understanding of how the threat of new entry, buyer power, the threat of substitution and supplier power apply pressure on the market which increases competitive rivalry helps to understand patterns and often explains the behavior of market participants.
If you will, the 5 Forces show you how the sandbox looks like in which you want to play with your new product. This is why I would advise doing Porter first whenever you think about entering a new market.
Lean Canvas
20 years ago it was common to create extensive 300+ page business plans before doing anything else. Most of the time with the same result, once created, it never got updated or even used in day to day business.
The core of the one-page lean canvas is the same as the 300-page document:
You can use the Lean Canvas to architect and communicate your ideas to team colleagues or investors.
For a very good description of the different areas please see Ash Maurya’s description on leanstack.
Please note, that a Business Model is not a Revenue Model. It is helpful to distinguish wherever possible. Often though, many use the term interchangeably.
A Business Model describes what and how value is created as well as how it is delivered to a customer. It is about value. A Revenue Model is about monetization.
Typically the Revenue Model is anchored in the lean canvas in the Channel and Revenue Streams section.
The reason it is good to distinguish this is that in enterprise environments, value is typically created by the product team and the monetarization by the sales machine. The salesforce hereby addresses many different vertical markets and regions.
By making this cut, misunderstandings in responsibility can be avoided and a clear scope for discussions is set.
In a truly empowered product team, the sales role would be represented in the team as well but as the product and its target market grow, the benefit of separating this role gets clearer. So whether it makes sense to integrate this role into the team depends on your business and its maturity.
Revenue Model
A revenue model describes, how you intend to make money with your product. It sketches who pays for what and how.
I’m not aware of a standard template for the Revenue Model and typically use Visio to draw a component diagram depicting the value- and revenue flow in one view. In many cases, I visualize this as an overlay of the Lean Canvas itself to show how different customer segments interact.
User Journey
A User Journey visually shows the interaction of a user with a product, process, or in general a system.
It can be used to capture customer interaction with an existing system during the Product Discovery.
The User Journey describes step by step what the user experiences while executing certain tasks in a sequence to get a job done.
The level of detail can vary from 10000ft view down to a fine granularity. In addition to the tasks, the team notes the emotions the customer is experiencing and connects the moods with a line along the sequence of actions.
After finishing the User Journey, it is easy to detect which situations need improvement. Typically delivering solutions to improve the most negative feelings in the first iterations should provide enough value to the customer to convince to purchase. (If priced appropriately)
Personas
Personas go hand in hand with User Journeys. Personas give the anonymous, typical user a face in the team. They create empathy in the team.
During Product Discovery the team identifies different archetypical users. They represent goals, Jobs To Be Done (typically referred to as JTBD) of a large group of users.
A persona is presented on a poster-sized one-page document. Typical attributes captured are: Tech seavyness, age, occupation, location, motivation, goals, frustrations, personality, picture, etc. The captured attributes vary a lot from domain to domain.
Unspecific personas such as “user”, “customer” etc are not allowed.
Product Vision
A Vision describes the desired state or dream in the future. Watch out that it doesn’t just sound like a dream though. The Vision can be on a company level, or in large enterprises broken down to a finer granularity.
For a product team, it is helpful to use a product vision. It needs to be in sync with the corporate vision though.
A product vision must follow the overall theme of the product (line). Be very precise with your wording. For example instead of: “Create transparency and insights for cities” use “Create transparency and meaningful insights for city infrastructure“.
The differences are often small, but have a huge impact and help to drive conversions. In the example above, adding “meaningful” causes to think about what meaning for a customer means and how it can be ensured to provide that meaning, what a customer wants to achieve, etc.
Epic Map
Epic Maps structure User Stories visually in one view and allow to easily communicate progress to stakeholders and in the team.
In an Epic Map, Epics are grouped into categories and broken down into User Stories. I haven’t seen this representation in tools such as Jira, which makes it a bit tedious to maintain. But it’s a great way to improve communication.
So User Stories are created in the Epics Map, moved around, refined, split, etc. and once their position in the big picture makes most sense the stories are added to the Backlog. Starting from there, both systems need to be synchronized from time to time.
When working with colors and stickers, it is very easy to communicate overall progress towards releases and dependencies.
You can see it as a visual representation of the Product Backlog with additional structure. It looks similar to a Work Break Down Structure.
Risk
As always, risks have to be considered and proper mitigation needs to be identified and tracked.
In addition to technical risk, risks in the market (demand, financial markets, customs delays, etc), company culture the business model, revenue model, etc. has to be captured.
Because of the iterative nature of SCRUM though, the list of risks is typically not as excessive compared to traditional project management, as the team is flexible to reprioritize the Product Backlog. So risk naturally comes more often from uncertainty in the environment than feasibility.
Product Backlog
The Product Backlog is a prioritized list of User Stories written from a user (persona) perspective (requirements) by the product owner.
A typical User Story has the following structure “As a PERSONA (Who), I want to ACTION (What) so that I can BENEFIT (Why)”.
It is important to note that a User Story clearly states what’s in for the customer. In other words, it refers to values and goals.
Unspecific personas such as “user”, “customer” etc. are not allowed. The same goes for stories not having a user in focus and referring to an internal persona, for example “Product Owner”, “Stakeholder” etc.
A persona is someone interacting with the system and someone benefiting from the provided value.
User stories are estimated by the team. They describe value (What). The team pulls as many stories into the Sprint Backlog as the Velocity permits.
In the Planning Meeting, the dev team breaks User Stories down into Tasks (How). During this, the PO is only required to answer questions and doesn’t participate in the estimation.
Once a Sprint is completed, the team hands back items that meet the acceptance criteria from their perspective and the (more general) definition of done in the Sprint Review.
The PO either accepts a User Story and sets it done or adds it back to the backlog.
The sum of “done” User Stories per Sprint is called increment. An increment must be shippable to the customer. But the PO eventually decides wheter he wants to do so, or not.
The Product Owner is responsible for the Product Backlog. No one is supposed to add items, modify or reprioritize without the mandate from the Product Owner. Stakeholders can provide their input, for example their priority, but the final call is made by the PO.
One word about priority: The reason to prioritize is to reduce complexity and allow sequential processing. This means, there can’t be multiple priority 1s.
Goal Sequence
Roadmaps have one major flaw in development: They don’t work (when they are too detailed)
As said earlier, development is a creative process. Putting into a roadmap “what”, “when”, sometimes even “how” combined with the fixed team size (resources) sets the team up for failure.
Interestingly medical doctors seem to have fixed this perception with their customers long ago. Try to set up a roadmap with a doctor include payment, delivery, KPIs, and so on.
The answer you’ll get is most likely “I can’t agree to this” because: “you are a significant part of the solution” and / or “everybody is different” etc.
At the same time, roadmaps are important because they allow other entities in large enterprises, such as marketing, to plan.
So as often, the best way lies in between. The theme can be communicated and the customer value, but avoid by all means to have a roadmap of features.
To provide guidance to the team, better set a sequence of desired business outcomes instead of roadmaps.
Here is what Marty Cagan proposes: Use Business Objectives, describing the specific, prioritized objectives for each product team.
The best way to define Business Objectives I’ve seen so far is OKR. You can find a very good book about OKR here.
So create a list of OKRs and tell the team WHAT, as well as KPIs to measure success and let them figure it out.
You’ll be surprised by what a truly empowered product team can accomplish. This is where the team will need the Vision as a context.
If used properly, the same OKRs can be conveniently used in corporate performance planning.
Idea potential evaluation
Once a list of ideas has been created, a phase that requires a lot of discipline starts: To prioritize what ideas should be developed, in other words, the idea potential evaluation.
This evaluation is typically difficult because in it’s infant state it is hard to estimate the impact of an idea. The following describes a mechanism that works very well for me.
Increasing complexity and effort means higher resource usage or slower time to market with constant resources.
More gain or removed pain, on the other hand, increases the value of the solution.
If you put this in a formula, you’ll get:
As the concept focuses on customer value, combining it with Value-Based Pricing enables you to answer the question about an approximated market price, as well as the revenue potential, very early.
The idea with the highest-ranking shows the best value to effort ratio.
Do patent research
In 2018 308,853 patents have been granted in the U.S. 159,724 directly related to digitalization in data processing, Transmission, wireless, image processing, data processing, etc.
These numbers alone show, that getting a product to the market is almost impossible without violating patents if no research is done. Patent research is a central part of the product business.
To do research, use the U.S. Patent and Trademark Office (USPTO) to research prior art and note down how your idea is different. It is wise to use an IP attorney to make sure you are legally ok to sell your product and protect your own IP.
Patent research can be a great way to check how others solved a particular problem as well.
Check for standards & regulations
A topic that is often overlooked is to comply to certain standards such as FAA and FCC. Which authority is responsible depends on the country you live in, but wireless compliance is a topic in almost every country.
FCC compliance ensures your product is not interfering with other radio communication. Please note that a product doesn’t need to purposely emit radio waves (see EMI). You still have to comply.
Please note that your product must comply with every country you want to sell your innovative product in.
To export a new product, it needs to get export control (ECC) clearance. Clear means that your product is OK to be exported.
Create a prototype
Prototypes are the heart of a hypothesis-driven development. They can be used to generate proof points for a variety of different areas.
Never underestimate the power of being able to prove a point quickly!
A paper fold prototype or mockup could, for example, be used as an MVP test to be shown to a customer, collect feedback and show fast turnaround time.
A demo webpage can be used to evaluate the market resonance and willingness of customers to purchase a product or service before it is even fully built.
In yet another situation, a prototype (3D print, Algorithm, etc), is used to eliminate a technical risk and show the feasibility of a concept.
When done properly, prototypes often give the impression of a lot of progress to others. This can be dangerous at the same time if stakeholders do not understand what the purpose is and expect the same speed from the team going forward.
So be aware to maintain a certain quality standard or get the (written) commitment from everybody upfront that this deliverable will not be integrated into production.
Important KPIs
Depending on the type of innovative product you’re building, some indicators may change.
KPIs need to measure success on an appropriate granularity to provide the necessary foundation to make decisions without adding additional work.
Plan to build the product in a way, that the application automatically generates the required numbers for you in real-time.
When you define your goals with OKR, as discussed earlier, a KPI is simply measuring the key result.
Always have the primary goal of your company (“To make money”) as one of your KPIs in some form. This could be achieved by breaking it down to measuring the number of paying users while not increasing the cost.
Please note that there are times where you purposely sacrifice revenue to, for example, generate a customer base and get data for business models basing on analytics. In these cases, it is important that you have a scalable model and your cost stays more or less constant.
Also, always be sure to collect data that contains a higher density of information, even though you might not know what to do with it yet. Think about GPS positions of people for example. One can immediately think about correlation, accumulation of reported positions, distance to fixed positions, etc. to monetize in the future.
My point is, there is raw data that contains by nature a lot more possibilities than others.
Have in mind that there are also counterproductive KPIs, for example to measure productivity in lines of code. This is absolute nonsense.
Think about chess: A good chess player uses fewer moves to win. If he was measured in how many moves he uses to win, a game would take forever.
So as a general rule of thumb, set up KPIs around resource usage, proof of value and profit generators. For example, the number of connected assets, the number of users, number of uses per day, usage time, follow up actions, server time used, number of inquiries, number of requested trials, customer acquisition cost, revenue, maintenance cost vs development cost, customer rating, etc.
Lean Canvas is a pocket business plan that allows you architect your business basing on its key assumptions. It is adapted from Business Model Canvas and focuses Lean Startups. It replaces extensive business plans with a one page business model.
Business plans take lots of time to write, are seldom updated, and almost never read by others.
Lean Canvas addresses this with a 1-page business model that takes under 20 minutes to create.
Why Use Lean vs Business Model Canvas?
The Lean Canvas is simpler, but less complete than the Business Model Canvas. Whereas the Business Model Canvas aims to provide a complete business model, which can be used for testing and search in lean startups, the Lean Canvas is more focused on being a summary with “simple” business models.
Emphasis on customer segments, channels and
customer relationships
Startups have no known or tested products to
sell
Approach
Infrastructure, nature, sources of financing and
anticipated revenue streams
First problem, then a proposed solution,
channels, costs and the anticipated
revenue streams
Competition
Focus on quantitative and qualitative value
proposition
Assesses whether business has unfair advantage
Application
Fosters understanding, creativity, discussion
and constructive analysis
Problem-solution oriented approach which enables
the entrepreneur to develop step-by-step
Download the Template
There are many templates of the Lean Canvas available online. While using them on a daily basis I found that most get very blurry when you scale them to a usable size and look ugly when you need to convince someone of your business idea.
The vector graphic template you can download here for free scales to whatever size you want to have a good workshop or discussion with your stakeholders.
Use the Lean Canvas Template to architect and communicate your ideas with the team, your boss or investors.
There’s no shortage of books about improved efficiency and innovation in business. Most of them are forgettable, but here are by best books to read for business that will change the way you think about strategy, management, products and most importantly your customers.
Eric Ries defines a startup as an organization dedicated to creating something new under conditions of extreme uncertainty. This is just as true for one person in a garage or a group of seasoned professionals in a Fortune 500 boardroom. What they have in common is a mission to penetrate that fog of uncertainty
This book focuses on one question: How can large companies generate business impact from non-incremental innovation?
The situation seems paradox. Winning in non-incremental innovation should be the domain of large corporates, not of greenfield startups. Yet, 7 out of 8 corporate startups do not generate business impact . And the media is full of stories that greenfield startups are attacking and even ‘disrupting’ incumbents.
Uber. Airbnb. Amazon. Apple. PayPal.
All of these companies disrupted their markets when they launched. Today they are industry leaders. Whats the secret to their success?
An authoritative guide to the role of online platforms: what they are, how they work, and what they mean for business and economics. Platform Revolution demystifies the concept by providing clear prose, insightful examples, and practical lessons.
Inspired is THE must-read for every person working in or with products. The book explains how to create the holy grails in tech industry and focuses on people, culture, product managers, outcomes and process. It significantly influenced the way I think about products.
What is it about the top tech product companies such as Amazon, Apple, Google, Netflix and Tesla that enables their record of consistent innovation?
Most people think it’s because these companies are somehow able to find and attract a level of talent that makes this innovation possible. But the real advantage these companies have is not so much who they hire, but rather how they enable their people to work together to solve hard problems and create extraordinary products.
Dalio shares the principles used in his company, the biggest hedge fund, Bridgewater Associates. Principles is a masterpiece. The main thesis is that finding the truth is the only way to make good decisions. He advocates looking at the company around you as a machine from a higher level with the ability to be tuned.
Too many organizations today suffer from silo-centric behavior and intra-organizational conflict. Yet most don’t understand what’s holding them back from achieving outstanding performance. Value stream mapping is a proven approach to help you visualize and resolve disconnects, redundancies, and gaps in your value delivery system. More than merely a tool to eliminate operational waste, value stream mapping is a highly effective means to transform leadership thinking, define strategy and priorities, and create customer-centric work flow.
In Implementing Lean Software Development, the Poppendiecks explore more deeply the themes they introduced in Lean Software Development. They begin with a compelling history of lean thinking, then move to key areas such as value, waste, and people. Each chapter includes exercises to help you apply key points. If you want a better understanding of how lean ideas can work with software, this book is for you.
Peter Drucker, known as the Father of Modern Management Theory, coined leadership terms and strategies that are still used today. He advocated for a more flexible, collaborative workplace, and the delegation of power. Peter Drucker already anticipated the shift towards a society characterized by entrepreneurship.
Erik and Tim describe in an easy to understand way why deals get stuck in the status quo and what your sales message needs to look like to break this. Because some form of selling is part of everybody’s life, understanding the concepts of The Value Wedge, Power Positions enables you to sell products as well as ideas.
To sell requires to create value by helping clients find viable solutions to their problems. During a meeting with high-ranking people, your primary job is not to sell but to help them address their issues. Your goal is to become an adviser. This resonates very well with the co-creation concept and explains partially why it is efficient to do so.
A company’s strategy must depend on its immediately the environment of its industry. Michael describes the competitive situation in an industry as a function of five basic factors (Porter’s Five Forces). The supplier power. The level of threat from new entries. The power of customers. The threat of substitution. The rivalry amongst current industry participants.
Business Model Generation describes the blueprints of business models of major companies. The illustrative way of describing the process as well as the different models make it an easy, but powerful read.
The book explains habits highly effective people have. Even though I would have called it efficient, not effective, the mook lists some very good habits. Be Proactive, Begin with the End in Mind, Put First Things First, Think Win-Win, Seek First to Understand, Then to Be Understood, Synergize and Sharpen the Saw. The habits are outwards as well as inwards to have healthy relationships.
In The Goal, Eliyahu leads the reader through a process optimization journey of a factory floor. Three areas are hereby in focus: Throughput (rate the system generates money through sales), Inventory and OPEX (money to turn inventory into throughput). TOC clearly points out flaws that can be found in all companies such as optimization of local optima. It sharpened my thoughts on Value-Based Pricing.
Even though he describes some forms of investments, such as savings bonds which might not be as attractive anymore, Graham also explains a very valid investment methodology based on fundamental stock analysis. The goal is to learn how to avoid allowing emotions to control investment decisions. Rather, Graham provides the foundation for making businesslike decisions.
Even though I have to say that I’m not a fan of investment and money books, I find the easy to follow way in explaining the terminology around assets and liability as well as the visualization of it very helpful. The core of the book is to invest in assets, which per definition put money in your pocket, whereas liabilities take it out. Reading this book gave me a unified way of thinking about investments.
Know when to fight and when not to fight: Seek higher (moral) ground and avoid what is strong. How to deceive the enemy: appear weak when you are strong, and strong when you are weak. Know your strengths and weaknesses: You need to know the enemy and yourself. The book requires minimal ability to adapt to the modern world but has strong points.
Using Hydra and Tricks to Boost Innovation, it is easy to generate large amounts of potential business ideas in a short timeframe. Once written down, a phase that requires even more discipline starts: To prioritize what ideas should be developed. I call this also the idea potential evaluation.
This evaluation is typically difficult because in it’s infant state it is hard to estimate the impact of an idea. The following describes a mechanism that works very well for me.
The concept to perform an idea potential evaluation is actually very simple, but the variables in the formula need some explanation.
As you will see, the evaluation will be quick and give you a list of ranked business ideas. It is best to use an excel sheet for the evaluation with the following columns:
Domain
Idea Name
High-Level Concept (Lean Canvas)
Brief description (only cornerstones, not too much detail)
Pain Relief
Gain Creator
Number of users
Effort/Complexity
Ranking
Pain-Relief
Pain is a distressing feeling through negative experiences. These experiences cause negative emotions that the customer feels in the process of getting a job done.
Pain-Reliefs are features to improve unpleasant tasks a customer has to do in a user journey.
To get a clearly prioritized idea backlog, use Fibonacci numbers for the estimation similar to Story Points.
Limit yourself to 5-6 numbers such as 1, 2, 3, 5, 8, 13. The stronger the pain, the higher the number.
Gain-Creator
Gain refers to the benefits which the customer experiences, what would delight customers and the things which may increase the likelihood of adopting a value proposition.
Gain-Creators are features to make pleasant tasks a customer has to do in a user journey even better.
To get a clearly prioritized idea backlog, use Fibonacci numbers for the estimation similar to Story Points.
Limit yourself to 5-6 numbers such as 1, 2, 3, 5, 8, 13. The higher the gain, the higher the number.
Pain vs Gain
Typically, customers experience the removal of pain more intensively than adding gain.
If a customer, for example, bought a car with no wheels, the experienced pain when looking at the car and thinking about the money spent, while not being able to use it, is very high.
If compared with creating gain such as adding more speed, the pain (getting wheels) will most of the time dominate.
If a pain-relief, however, targets a pain caused by a product you sold yourself before, the customer will often require to get it for free.
Number of Users
Estimate the number of users experiencing the pain or gain. It is important to note that users are not necessarily persons you sell the product to!
This might need some more explanation: If your added value enables your customers to gain a competitive advantage using your product, the pain/gain of their customers becomes their perceived value.
To get more accurate results, use officially available data from, for example, government agencies or ask google questions like “how many pizza places are there in the US” (answer btw. is 61269).
If you are targeting multiple customer segments, add the individual numbers.
Effort / Complexity
Similar to product backlog prioritization, estimate every individual idea and take the following into account:
The amount of work
The complexity (technical and logistics)
Any risk or uncertainty
For this estimation, it is best to involve a small group of open-minded seniors (Software: Product Owner, Architect, Developer, Tester, Data Analyst).
Explain the idea, but do not get tempted to go too much into detail. 5min for every idea should be enough. Better do this upfront for all ideas.
To be honest, I believe if your High-Level Concept (Lean Canvas) is well formulated, there shouldn’t be any long talking required.
To get a clearly prioritized idea backlog, use Fibonacci numbers for the estimation similar to Story Points.
Limit yourself to 5-6 numbers such as 1, 2, 3, 5, 8, 13. The higher the effort/complexity, the higher the number.
The Formula – Putting it all together
Using the information determined above, the actual formula is simple but beautiful.
Idea potential evaluation with the concept described creates a ranked list of potential business ideas with the focus on scalability and value.
Idea Potential Evaluation – Conclusion
Increasing complexity and effort means higher resource usage or slower time to market with constant resources.
More gain or removed pain, on the other hand, increases the value of the solution.
As the concept focuses on customer value, combining it with Value-Based Pricing enables you to answer the question about an approximated market price, as well as the revenue potential, very early.
The idea with the highest-ranking shows the best value to effort ratio.
According to Samsung, the company implemented what they call a New Concept Development in 2013. At the time, this was the new product development strategy of Samsung. I’ll explain what this has to do with Digital Transformation in a minute.
As a part of Samsung’s overall innovation process, a Project Innovation Team (PIT) was born out of the need to have an incubator group to work with every business unit to provide more market insight.
Taking advantage of the Google Android operating system, the company is nowadays leading the global Smartphone market with 22% in Q2’19.
It is interesting to read Yoon’s comment on the core of the change.
The primary mission was to change our customer-facing product development process from engineer-driven to customer-driven
Yoon C. Lee
Samsung’s PIT is following a four-step process: Understand, Ideate, Concept Development, Concept Finalization.
Transformation In Progress
Around 2006, the time the team has been established, a lot of organizations made the step to customer-centric development. In retrospect, I’m asking myself why it has ever been done differently, to be honest.
Considering the sizes of enterprises such as Samsung, Microsoft (which also performed a remarkable transformation), GE, ABB, etc. it is no wonder that some large companies are still in the process of implementing the new concepts.
Thinking of the Past
In most cases, the companies had a more or less working product management which was shielding the customers from development team questions such as “what do you want to achieve”.
The development teams were embedded in V and waterfall models, which work very well for products where components need to be put together.
Software development, however, is a creative process which can better be compared to painting a picture. Even a doctor’s visit to check the reason for certain symptoms comes closer than assembling a motor.
At the same time the handover date, scope of work and resources/price needs to be communicated upfront. A timeline is set to, for example, ramp up the complex marketing machine.
This is also btw, why I think it is not good to speak about projects in product development:
A project is temporary in that it has a defined beginning and end in time, and therefore defined scope and resources. And a project is unique in that it is not a routine operation, but a specific set of operations designed to accomplish a singular goal. So a project team often includes people who don’t usually work together – sometimes from different organizations and across multiple geographies.
PMI
A product team is quite the opposite. It is an in many regards well-balanced, empowered team that stays together and continuously explores opportunities as long as the product is alive. The goals are defined per iteration and base on moving targets, such as KPIs.
Why the Digital Transformation is so hard
Until today, applying the project way of thinking, which is dominant in industrial environments, to product teams causes friction in organizations. This might also be related to the fact that development works best with budgets than cost/effort estimations.
Effort estimations and Statement Of Work-based pricing almost always lead to a lock-in of too many variables (quality, resources, time, money, scope) which lead to missing the agreed goals.
So why is it so hard in large enterprises to think of development like going to a doctor?
Everybody accepts that doctors can’t tell upfront how long it will take to heal, so why do we expect the development team to be able to do this?
Consider the pain involved in accepting this. Whole sales organizations are incentivized to sell equipment which gives a commission. If such organizations are asked to sell digital subscriptions, you are set up for failure.
When given the choice, a salesperson would always choose the one with the high commission over the low. To be honest, who wouldn’t?
On the other side, for example for co-development, it is better to use incremental delivery contracts. This enables the customer to exercise influence and get what is required with a lot less emotional pain. On top of this, it enables a faster go to market for the customer himself.
Embrace Change and move on
The sooner an organization moves on and deals with this, the sooner products can be created that really provide customer value. After adapting the required mindset, introducing digital products is easy.
Conclusion
So what’s important for a successful Digital Transformation is:
Separate disruptors / the Product Innovation Team (PIT) from the rest of the organization, while they are in their ideation to allow them to be creative without the judgment
Get the PIT regularly grounded by involving operational entities
Give the PIT market access
Understand that PITs have another working mode (explorative, hypothesis-driven vs assertive)
Incentivize everybody on the goals of the transformation
Have goals that make sense for each organizational level
Manage goals and expectations (a mindset doesn’t change overnight)
Embrace failure, but require to document what has been learned
Give everybody in the organization a voice (not via townhalls, but via collaboration platforms)
Record every meeting and hold people accountable
Reduce meetings to 6 participants and have a timebox
Note the money spent for a meeting
Trust the teams to make autonomous decisions
Digitalize internally first, then externally
Change the mindset to “You rent a team and don’t buy the outcome”
By now it should be clear, why I picked Samsung in the beginning. I think they are doing a lot right, which is why I’d like to cite Yoon again:
Without a replicable process, it is very difficult to make innovation stick within a large organization. But there is a secret sauce to it. Make the process extremely simple.
Yoon C. Lee
Print your guiding principles on the back of every business card. Why should you hide them from your customers anyways? You might, after all, have the same gole but didn’t know yet 🙂
Determining the right pricing strategy for a product the market hasn’t seen can be tricky. Set the price too low and the profit is not maximized. Set it too high and no one will buy the product and all invested marketing will be for nothing. Out of the ocean of pricing strategies, a good way to find the right price point is value-based pricing.
The too-high price hereby is even worse than too low because it takes significantly more effort to persuade a potential customer after adjusting the price to try the product again.
Pricing Strategy 1: Using a Too Low Price as Advantage
“Why’s a too low price better?” you may ask and “am I not losing money with a too low price?”
Yes, you do. And I’d recommend changing this situation as soon as possible. But until then, use it to your advantage.
If a customer is using the product, it is easier to forward additional cost, for example of development, by increasing the perceived value with extensions via in-app purchases. In this case, the product is a channel to the most important person out there, your customer. There is not even a real marketing campaign required to reach an existing customer.
An active customer gives you valuable insights into usage patterns. These patterns can be utilized to further improve the product and discover additional marketable features.
Most importantly, a customer using your product already pays with data. This data enables you to extend your offering with more advanced features (machine learning for example).
If you read the previous paragraphs carefully, you might get to the conclusion that the more functionality you release in one block the bigger the risk of failing to meet the customers’ expectations. In addition, it is more likely to miss the right price. You are right.
This leads to two important constraints:
Release small increments
Know the customer values before pricing
There are at least two ways of pricing. Cost-based and value-based pricing, which I’d like to explain separately below.
Pricing Strategy 2: Cost-Based Pricing
Using cost as a basis for pricing is a way to price a product or service by analyzing its cost structure and then applying a markup. Calculating cost includes amongst others development, operations, marketing, project management, sales, maintenance, infrastructure and overhead. The method works very well in environments with traditional project planning and component-oriented products.
During the price calculation, an estimated guess of the total customer base is used to spread the one time cost, for example development, across all customers. Coming up with the right amount of users can often be tricky.
In digital environments where a product is created once and sold to millions of users however, the cost of creating the product is typically low compared to the customer base. Customer acquisition cost (CAC) however get even more important.
Whether your price is covering the cost to provide the service should still be calculated when you do value-based pricing.
What is Customer Value?
Customer value is satisfaction, experienced by taking a given action relative to the cost of that action. Typically this action is taken to fulfill specific goals.
The action is usually the purchase, a sign-up or something similar. Cost refers to any type of payment/transfer in order to receive a benefit. This can, for example, be money, but also data, time or knowledge.
Knowing your customers’ goals and to address them in marketing with an appropriate ratio between satisfaction to cost increases your chance for a win-win.
Especially in large enterprises, this is often not clear throughout the organization due to the specialization of individuals/departments. Breaking down the goals into sub-goals such as to improve quality, reduce downtime, increase throughput, improve OEE, etc. replaces the main goal of the overall company (make money) during day-to-day operations.
While all of these sub-goals might make sense locally, it is often preventing to fully achieve the primary goal on an enterprise level.
The sum of local optima is not the global optima
As an example, you might want to think about corporate incentive systems that are typically set up around profit & loss. Two peers are for example indirectly incentivized to prevent collaboration, even though it would increase the profits for the company as a whole. Instead of collaborating, peers try to maximize individual profit (local optima).
The knowledge about the goals, corporate culture, strategies and internal politics of a customer helps to determine the appropriate price. Every pitch, flyer, link, poster, and whitepaper must address these goals.
Please note that value is perceived and therefore differs from customer to customer. Customers sharing the same values can be grouped into customer segments.
Because value-based pricing can be applied to whole segments and focuses on the customer (value), compared to on yourself (cost), the concept gets very powerful.
Pricing Strategy 3: Product Pricing basing on Customer Value
An optimal deal always creates a win win
Determine which goal the customer is trying to achieve. For example, the goal is to minimize the time a maintenance manager of a plant needs to spend checking the oil level of a machine at a remote location.
The primary objective is to save costs (Pain). Depending on the customer’s operation, faster response times might offer additional, previously untapped opportunities (Gain). If the remote reading was digital, the maintenance manager could do something else during this time.
It’s important to note that there should be something else to do for him though. If there is nothing else to do, the employee would not be required. There might still be a way to sell, but definitely not to the maintenance manager.
It is better, to create inclusive products, which require training, not to replace people. Besides providing a more human solution, this creates a positive image of the company as well as the product and helps sales. If you can provide the training, you even earn double.
Best is if a product creates multiple wins not just win win
For the example above this means there are many winners, the customer (less cost, faster response time, safer operation), the maintenance manager (higher qualification, less repetition), society (less unemployment, less pollution, fewer cars on the road), government (sales tax, qualified workforce) and you (profit, access to data).
Example Calculation for Value-Based Pricing
The goal above was to minimize the time a maintenance manager of a plant needs to spend checking the oil level of a machine at a remote location.
By determining the average distance for one trip (100km) and the number of times to drive the tour (10 times per month) the total distance for the activity per month is 1000km.
The pickup truck to drive the distance has a consumption of 15l/100km. This means the total amount of fuel per month is 150l. Assuming gasoline and one liter is 1.22 Euros, all trips per month cost 183 Euros.
Depending on the customer segment, the willingness to share needs to be determined for example in customer interviews. Let’s assume a willingness to share the savings of 183 Euros is 30%. This means the customer is likely to accept a subscription price of 55 Euros per month.
To ensure profitability, the determined price still needs to be compared with the occurring cost to provide the service.
Conclusion
For digital products with many customers, value-based pricing is the preferred pricing strategy and allows to price according to the perceived customer value. This leads to increased profit and customer satisfaction.
You can find my favorite book regarding product development here.
Please let me know what you think, either by sharing or leaving a comment below.
Every company wants its employees to meet financial targets and at the same time be as innovative as start-ups. Many try to increase innovation by incentive programs or other extrinsic, but expensive factors. Continue reading if you’d like to save some money and learn some tricks how to be more creative.
While getting money for innovation is good, creative minds are often less extrinsically motivated. Most likely other factors would boost disruptive innovation in large enterprises a lot more:
Appreciate an idea (give credits where they belong, no stealing of ideas) and be supportive (give a voice, give space).
Boosting innovation might be easier than you think and doesn’t cost a fortune.
Practical Tip 1 – Be Prepared to Document
Keep a nice notebook (paper) and a pencil next to your bed to make a note whenever the muse visits. Don’t do it on loose sheets of paper. It doesn’t have the same effect and it gets messy fast. Leave space when you start with an idea by using the right sides only for example and write down dates whenever you add info.
Enterprises should provide online space where employees can propose ideas and collaborate with others (enterprise idea management platform). Employees throughout the company can join a project, not just a specific group.
You will see that over time the book with your ideas will get very full. You will go back to ideas you had years before and supplement them over time. I started with my books 9 years ago and got several hundred potential business and startup ideas.
It also happens from time to time that you see ideas you had in your book appear as actual products. Don’t worry about it, but take it as an “It can’t be too wrong what I’m thinking if some of the greatest minds have the same idea.” Try to learn from these occurrences how the innovator brought the topic to life.
Practical Tip 2 – Provide Environment
As an enterprise, plan some money for domain experts to provide a platform for further ideation (afterburner) of topics added to the enterprise idea management platform.
Allow departments to easily fund employee projects. Introduce an innovation currency (1 coin per person) for every employee which can be spent independently.
This fixes that some topics never get fixed due to the profit/loss responsibility of internally competing departments.
Practical Tip 3 – Learn to Sketch
Learn how to sketch. It is easier to add a small sketch to an idea than to describe it, especially when you want to communicate your idea in order to gain support for example in a management review presentation.
Practical Tip 4 – Provide Resources
Make room for innovation. If you are a company, I would highly encourage you to make room for your employees to explore better ways.
Give free access to equipment in their spare time such as servers, spectrum analyzers, motors, CNC machines, lathes or whatever you’re working with.
If employees have a good idea, encourage them, connect them with resources and give credit. Treat their ideas with respect and at an appropriate time, act as a sponsor / financial angel.
Practical Tip 5 – Rapid Prototyping
Automation and fast turn around is key. If you’ve left the initial stage (sketching, enriching) of the idea, being fast to iterate is key.
In the hardware world, this means rapid prototyping with 3D printing, 3D scanning, the use of a desktop CNC router, etc.
For software try either low code platforms or ecosystems with plenty of libraries and automate as much as possible.
Try to focus on “delivering” full cut-troughs through the stack to allow potential customers to test your product. This is where you should do hypothesis-driven testing at the latest. I prefer to already start it at the beginning.
Practical Tip 6 – Understand
Observe how others solved a problem. For example read patents and ask yourself why exactly it has been solved in a specific way.
Walking the world and try to discover “duct tape” whenever you see it you have an opportunity to make it better.
Ppractical Tip 7 – Do
Being passionate about doing. Most creativity comes when you don’t force it. Sell your TV 😉
Starting to identify patterns how products solve problems.
Practical Tip 8 – Analyze Value
Starting to ask what value something provides. Try simple things first. For example: I guess you know a wooden pencil with eraser. Write down what the elements do. Graphite, wooden core, metal clip, eraser and paint. Ask yourself why wood, how could it be solved otherwise and what other things you could do with it. Graphite could be used to draw an electrical circuit. Could it be used for additive manufacturing of a PCB? Gravity doesn’t play a role, so it could be used in space. The metal clip attaches the eraser to the core and provides the value not to be able to forget it. It connects create and delete. Where could principle be used as well?
Practical Tip 9 – Embrace Process
Creativity and innovation is about a process of finding improvements and better ways to provide value. Treat it with discipline and open your mind to alternatives.
Ever since Maurice Conti’s talk, about generative design, I thought about applying this to software development. In Generative Design, CAD software explores the solution space to find an optimal solution using constraints and objectives given by the user. For software development, I call this Generative Design for Software.
When comparing software development with mechanical engineering and industry, it feels like we just finished the First Industrial Revolution.
The Industrial Revolutions:
First Revolution
Mechanical Production
Steam, Water
1765
Second Revolution
Mass Production
Electricity
1870
Third Revolution
Digitalization
IT, Electronics
1969
Fourth Revolution
Industry 4.0
Internet, VR, AR, Cloud
Now
We just made it from reinventing the wheel over and over again (fixing a spoke with hand tools) to sharing libraries via GitHub (order spokes as components) and the use of platforms and frameworks (order wheels/set of components). So in a sense, the driver (steam) is the connected world.
Software Mass Production – The Second Software Revolution
Software developers bare with me. I know development is a creative task and what’s coming next is a stretch. 🙂
Following this thought process, it would be logical to next progress using standardization towards the Second Software Revolution (software mass production). And in a way in the past this trend showed from time to time when yet another code generator or a low code platform was born.
As a result of the Third Software Revolution, the code will be generated by providing (business) objectives. The algorithm then solves for an optimum independently. By using Generative Software Design, the glue between the modules and maybe the modules themselves are optimized. A computer explores the solution space for the best design.
Software Mass Production Prerequisites
All existing libraries need to contain a standardized description and have some form of unified interface (Think swagger on steroids)
Transforming the non-compliant, existing libraries with an automatic wrapper mechanism would be incredibly helpful
Algorithms to identify common code segments to be standardized and carved out into a library
Algorithms to identify common, standardized code segments and suggest them during programming or refactoring
In a way, this scenario seems to be unavoidable. It might take time but if you compare code today with code ten years ago, there is a very clear trend towards libraries. The type of code changed as well. Where twenty years ago we implemented ring buffers, you find nowadays code defining the data flow between distributed modules.
Smart Software Libraries are the first step
Before thinking about generative design for development, smarter libraries would allow progressing and focusing on new, more complex topics. We are just at a stage right now where standardization would add structure to this. This allows companies and individuals to focus on creatively solving business problems while paying less attention to knowledge obsolescence.
Change in Workforce
This has implications. While coding gets more powerful on one end and more automated on the other end, higher skills are required to work in the industry. As of today, 18.2 million employees work as software developers.
In the First and Second Industrial Revolution, the change in the workforce was relatively slow because for example not every company was able to afford a steam engine.
Many jobs shifted toward creativity and people skills. It’s not by accident that roles such as marketing, human resources management (must read Peter Drucker), production, finance, and functions of management had to be created just for this new era.
Further Thoughts – Repeating Pattern
It might be interesting to do some research on repeating patterns in technology. While technology evolves, knowledge of these patterns might be useful to analyze and predict for example security concerns or implications for society.
Generative Design for Software Conclusion
As always, innovation requires the willingness to change. For the industry more standardization in software modules could enable enormous gains. To do this is and eventually progressing to more automated software development, if it is at all possible, will require a lot of work.
With a Second Software Revolution, the change of the required skillset can happen in a couple of days. This is why I believe, in a time of specialization, it’s important more than ever to get a broad skillset.
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