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The Product Leader’s Book of Problems — Problem VI: Your Business Plan is a Fantasy

Problem: Your Business Plan is a Fantasy


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Curtis Savage

3 years ago | 14 min read

TL;DR: A business plan is typically written with minimal input from real customers. Most of its contents are just educated guesses. To move from fantasy to reality, a Product Leader must state hypotheses, embrace learning and discovery, and commit to understanding the WHY before diving into execution.

Welcome to the sixth chapter of the Product Leader’s Book of Problems.

For those new to the series, each week I walk you through your next big problem as a Product Leader.

Based on over a decade of experience managing and leading product teams, I start with the big universal problems that exist at every organization and move on to the more nuanced and stage-specific problems that rear their ugly heads as a company evolves from startup to enterprise.

I walk you through a snapshot — a crystal ball of sorts — of the problems your future-self will be dealing with as a Product Leader while you pursue your product vision, navigating treacherous waters, slaying dragons, evoking awe, disbelief, respect and glory from developers to CEOs alike…

At this point in our journey, you’ve now spent some time discovering the unique needs of your organization and contemplated the best product approach to foster a high-performance culture and environment. Remember, this is one of the most important steps you will take in your new role since one product approach does not fit all.

For example, startups require a “nimble” product approach that emphasizes learning and discovery and supports fast iterations to help validate product-market-fit as quickly as possible.

In comparison, growth-stage companies require a more “mission-centric” product approach that aligns the organization and guides small autonomous teams in order to grow exponentially without imploding.

Finally, enterprise companies require a “high-freedom” product approach that gives teams the latitude they need to remain user-focused, scrappy, and entrepreneurial with the power to make big bets in order to minimize complacency and reduce the risk of disruption.

Once you’ve wrapped your head around the different kinds of product approaches and chosen the best one for your organization, you’re probably getting antsy to dive head-first into the product. But, not so fast, young Jedi.

First, you need to overcome your next big problem: Your Business Plan is a Fantasy

Problem: Your Business Plan is a Fantasy

You may be joining an early-stage startup to help the founding team launch a disruptive new product. Or perhaps you’re joining a more established company to help them pursue an exciting new initiative. In either scenario, one of the first documents you may be handed is a business plan.

The founders, an executive, or perhaps a newly minted MBA put together this business plan to secure funding. It captures their passion, vision, and hours of research.

It describes a key set of ideas and outlines the customer problem and a proposed solution. It promises to capitalize on a market opportunity that seems rather straight-forward and obvious. It’s all right there. Waiting for the taking.

All that’s needed is a seasoned “Product Manager” to put together a team, execute a roadmap, and deliver the final product. In fact, that’s why you’re here, in this very moment, business plan in hand.

You read it over. The business plan goes on to neatly outline your market, competition, business model, product positioning/pricing, competitive advantage, and go-to-market strategy.

For good measure, it offers some risk analysis and dependencies. Heck, it even offers up user growth projections and a financial model with helpful metrics like Customer Acquisition Cost, LifeTime Value, and P&L. Executing should be easy enough. The plan is rigorous and thorough. No stone was left unturned. It’s text-book.

Here’s the rub. This business plan is a fantasy. Business plans are mostly written “inside the building” with minimal conversations out in the field with real people or customers.

Further, whether it was backed by venture capitalists or an executive inside a larger company, the business plan and financial model needed to be sufficiently alluring while remaining believable to convince them to green-light the proposal and fork over hundreds of thousands of dollars.

That required a strategic mix of creative writing, passion, and assumption — not to mention some elaboration, wishful thinking, and a few liberties along the way. Heck, might as well throw in the kitchen sink while we’re at it.

As a Product Leader, it’s now on you to make this fantasy a reality. Here’s how.

Solution:

As discussed, the business plan outlines a vision of the new product, how the product will reach its customers, and why lots of people will buy it. But most of its contents are just educated guesses.

To turn those guesses into facts, to move from fantasy to reality, a Product Manager must test those guesses and find out which are correct and which are way off-mark. To do this, the first step is getting buy-in from key stakeholders on several fundamental rules that need to be followed for a successful outcome.

Step 1: Get Buy-In from Key Players

As surprising as it may seem, not everyone in your organization may appreciate the fact that the business plan consists primarily of educated guesses. Needless to say, explaining why certain assumptions may be questionable to an eager founder or to the executive who just hired you can be an exercise in tact and diplomacy.

Explaining the need to emphasize learning and discovery before diving into execution when everyone is raring to go and ready to ‘hit-the-ground-running’ can be challenging, at best.

But it needs to be done. To avoid the death spiral that occurs when faulty assumptions drive product development, you need to get buy-in from all the key players on each of the fundamental rules below.

Rule 1. Everyone must understand that the business plan is nothing more than a set of untested assumptions.

Rule 2. Everyone must understand the need to turn these assumptions into verifiable hypotheses.

Rule 3. Everyone must understand the importance of customer discovery. That means talking to real or potential customers.

Rule 4. Everyone must understand and accept the likelihood that there will be iterations and pivots based on new insights.

Rule 5. Everyone must agree that we only need to understand the WHY before jumping into execution.

Step 2: Stating Your Hypotheses

Hopefully, everyone now recognizes the business plan for what it is; a set of assumptions and educated guess. If this is the case, they should now view learning and discovering with real customers as a critical step before diving into execution.

They should now value the importance of understanding the WHY and the potential need to pivot if assumptions don’t match up with reality. If all this is true, you’re in very good shape.

Just remember, it may take some patience and tactful convincing to arrive at this point. This is a great opportunity to demonstrate your Leadership, practice your Influencing skills, and gain trust. Whatever you do, don’t strain relationships by losing your cool or becoming frustrated. As a Leader, this is your opportunity to educate and build consensus for your approach.

Your next step is to write down all of your company’s initial assumptions as hypotheses. Staying true to the Agile manifesto and its commitment to “working software over comprehensive documentation”, these hypotheses don’t need to be elaborate multi-page documents.

They can be short and concise. However, writing the hypotheses down on paper is really important because it now calls them out and allows you to test them and update them when you start talking to real or potential customers in the next step.

Your hypotheses will primarily fall into the following categories:

  • Customer and Problem Hypotheses
  • Channel Hypotheses
  • Customer Relationship Hypotheses
  • Market and Competitor Hypotheses
  • Revenue and Cost Hypotheses
  • Key Activities, Key Resources, Key Parter Hypotheses

For those of you familiar with Andrew Osterwalder’s Business Model Canvas, this probably looks familiar. In fact, the Business Model Canvas is a great tool to concisely translate your main hypotheses onto a single sheet of paper.

You can think of it as a much-needed front-end to organize all of a startup’s hypotheses into a simple framework. It can be used a baseline and scorecard for teams as they move through learning and discovery. <<<Only once your Business Model Canvas, is completely filled out and fully validated do you think about moving onto execution.>>>>

Customer and Problem Hypotheses

The first, and perhaps most important hypotheses, are the customer and problem hypotheses. The greatest risk — and usually the greatest cause of failure — is not in developing the product but in finding customers.

Startups don’t fail because they lack a product. They fail because they lack customers. What you really need to ask yourself is: Who are your customers? What problems do they have?

Customer Hypothesis: For whom are you creating value? Who are your most important customer segments? Are you going after a mass market, niche market, or creating an entirely new market?

In addition to defining your Customer Segments, you stating what TYPES of customers you are going after. Every sale has a set of decision-makers who are invariably involved in the process. You need to understand if there are different types of customers you should approach when discovering, marketing or selling your product. This is often overlooked.

Whether you’re selling B2B or consumer products, you need to consider the entire group of people you must satisfy to sell the product. In addition to the End-Users, who are the Influencers, who are the Recommenders, who are the Buyers, and who are the Decision Makers?

  • End-users are the day-to-day users of the product.
  • Influencers are the people who have a say in the product coming into their company or home.
  • Recommenders are influencers on steroids. They can make or break a sale.
  • Economic-Buyers control the budget and hold the purse strings. They must approve the purchase.
  • Decision-Makers could be the economic buyer, but they could also be someone higher up the food chain like a CEO who has the final say.
  • Saboteurs are waiting in the bushes. They are attached to the status-quo and try to kill any new solution that threatens their department’s stability, headcount, budget, or any other part of their status-quo.

Sometimes, these roles all fall under one person. Often they do not. For example, a departmental manager may really see the value in your B2B solution. Maybe it saves them a ton of time and hassle. But the IT department may see your product as a headache to implement and may have the power to negatively influence the decision.

Or a VP with final signing authority may have the power to veto it altogether. For a consumer product, any one of the family members may have the ability to persuade or stop a purchase so everyone needs to be taken into account.

Most customers interact with other people. In enterprise, they interact with the people they work with. In consumer situations, they interact with friends and/or family. The point is, the end-user is not your only customer.

There are other kinds of customers who are equally important so it’s best to build an organization map and/or customer influence map to understand what kind of strategy is required to satisfy each kind of customer. Otherwise, customer acquisition and product growth could become an uphill battle who don’t win.

Problem Hypothesis: For your Problem Hypothesis, you want to understand what problem the customer has. This will guide product development and how you position and market the product. Understanding your customer’s problems involves understanding their pain. What does a day-in-the-life of a customer look like? How do customers experience the problem? Why does it matter to them? How much does it matter to them? Are you solving a mission-critical problem for a company or consumers? Is your product a must-have or nice-to-have?

Value Proposition: Value Proposition is closely related to your Customer and Problem hypotheses. By solving their problems, what kind of value are you creating? Which one of the customer problems are you helping solve? This should be the MOST important problem.

The one they are MOST likely to pay for. What bundles of products and services are you offering to each Customer Segment? Which needs are you satisfying?

Your job as a Product Manager is always the same: to make someone else’s life a little bit better. You need to discover what people need or want and then create it. To do this, you need to understand what value you’re creating for them.

Minimum Feature Set: As you start to understand the customer problem and value at a deeper level, you’ll start to understand the minimum set of features customers will likely pay for.

Forward-looking, this set of features becomes your first release. You can then follow an Agile delivery approach and start iterating on this core minimum set, incrementally building a more robust product with each release.

Channel Hypotheses

Your channel hypotheses describe how you intend to reach your customers. As many of us have learned the hard way, just because you build it, does not mean they will come. Even if customers do come, it doesn’t mean they’ll stick around. Many amazing products have ended up in the graveyard because there was no solid go-to-market strategy and/or retention strategy. Product Managers and teams underestimated how hard it is to generate demand and sustain it.

The iron law of the market is cold, hard, and unforgiving: if you don’t have a large group of people who really want what you have to offer, your chances of building a viable product are very slim. Thoroughly testing you Channel Hypotheses helps avoid this scenario.

Ask yourself:

  • Through which channels do your Customers want to be reached?
  • What are the most effective and cost-efficient ways to reach them?
  • How are you integrating into the customer’s daily routine?
  • How will you raise awareness about the product?
  • How will you create demand?
  • How will you help customers evaluate your value proposition and drive them into your Sales channel?
  • How will you allow customers to purchase products and services?
  • How will you provide post-purchase customer support?
  • How will you continue to reach customers to reduce churn rates and increase retention?

Customer Relationship Hypotheses

Closely related to Channel Hypotheses, are your Customer Relationship Hypotheses. What type of relationship does each of your Customer Segments expect you to establish and maintain with them? What kind of relationship do YOU wish to have with your customers? How much does it cost?

For example, is it a high-touch relationship that requires a lot of ongoing support and/or the potential for additional add-on sales. Or is it a low-touch, one-and-done type of relationship.

If it is the latter, you will likely want to reimagine how you can transform your relationship or at least how you can drive more recurring revenue from ancillary services or supplemental products.

As any marketing team will tell you, the cost of acquiring a new customer is extremely high. Once you have them, you really need to increase the LifeTime Value generated from that customer which means trying to drive as much revenue as possible while reducing churn rates. This is especially true for Startups. What kind of relationship will be required to do this?

Market Type and Competitor Hypotheses

Market Hypothesis: In addition to the size of the anticipated market, you need to determine what TYPE of market you are entering? This is a critical — but often overlooked — question. Very different marketing and sales strategies are needed if you are entering a new market vs. an existing market vs. a resegmented niche market. And your product adoption and user growth curves will look very different.

For example, growth in an existing market is much more linear, predictable, and easy to plan for. Growth in a new market happens much more slowly. It can be outright glacial in the early stages since you need to create the market by educating customers before you can start generating demand.

New markets tend to exhibit hockey stick growth (flat for a long time with rapid uptake once the product finally clicks with users). It can be a deadly mistake to launch into a new market with an existing-market-strategy. You’ll be rapidly burning cash on marketing activities and sales teams with no line of sight to mainstream customers as you wait for the market to “catch up” and finally “get” your product.

Competitor Hypothesis: After you’ve assessed the market, you need to know how and why your product is better than your competitor’s (or the next closest thing to a competitor if you’re creating a new market). Why do you believe your company and product are different?

Maybe your product allows customers to do something they could never do before. If you believe that, what makes you think customers will care? Is it because your product has better features? Better performance? A better Channel? Better price? Etc.

The difference between winning and losing products is that winners understand why customers buy. As a result, your competitive hypotheses should start with why customers will buy your product. Then it expands to consider your competitors, constantly asking the question, why us and not them?

Revenue and Cost Hypotheses

The Revenue and Cost Hypotheses are where a viable (or non-viable) business model starts to emerge.

Revenue Hypothesis: You determine what customers are willing to pay for.

  • For what value are our customers really willing to pay?
  • For what do they currently pay?
  • How are they currently paying?
  • How would they prefer to pay?
  • How much does each revenue stream contribute to overall revenue?
  • Is revenue recurring?
  • What kind of revenue and pricing model makes the most sense? For example, subscription vs. advertising vs. freemium vs. hybrid?
  • What is the Long Term Value of each customer?
  • Have we factored in realistic churn rates?

The product could be amazing but if people aren’t willing to pay for it or if the unit economics simply don’t work, it’s time to pivot.

Cost Hypothesis: The flip side of the business model is of course your cost hypotheses.

  • How much is all of this going to cost?
  • What are the most important and non-negotiable costs inherent in our business model?
  • Which Key Acitivities and Key Resources are most expensive? (see below )
  • What are your Fixed vs. Variable Costs?
  • Are there economies of scale?
  • If so, what do those look like?
  • What is the Customer Acquisition Cost (CAC)?
  • Is there a viral component to our product that could help reduce CAC?

After comparing anticipated revenue to costs, is there a viable business model? Does it make sense to continue?

Key Activities, Key Resources, and Key Partners Hypotheses

Finally, what are the activities and resources required to reach your customers, deliver your Value Proposition, form ongoing customer relationships, and drive revenue?

Who are your key partners? Who are your key suppliers? Which Key Resources are you acquiring from partners? Which Key Activities do partners perform?

Final Thoughts

A business plan is typically written “inside the building” with minimal input from real customers. It’s usually well-intended, but most of its contents are just educated guesses and unvalidated assumptions.

To move from fantasy to reality, a Product Leader must get buy-in from key players and champion a learning and discovery approach to validate assumptions and understand the WHY before diving into execution.

Doing so could be the very thing that saves the organization from the Death Spiral that plays out all too often when product teams rush into development without sufficiently understanding the customer and their problem.

This week we reviewed the hard questions that need to be asked to start challenging your hypotheses. Next week, we’ll look at how to get out of the building and how to start validating these hypotheticals with real people and customers.

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Curtis Savage

Product Leader based in Toronto, Canada https://medium.com/@curtis.savage https://twitter.com/CurtisSavage https://linkedin.com/in/curtissavage


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