What is a successful product?

Every company wants to be a success. One key ingredient in that is successful products. A successful product will look different to different companies, but usually it can be tracked by KPIs. For any business it is very important to find the right KPI and be wary of so called vanity metrics.

What’s your “On Base Percentage”
In Michael Lewis’ “Moneyball” the Oakland A’s changed their scouting and talent acquisition philosophy to focus on only one metric. In the world of baseball and the hundreds of possible metrics you could use it sounds like insanity. Never the less the philosophy went from the premise that the number of bases is what wins games. Not number of home runs, how handsome the batter looks or stolen bases. It all comes down to one thing: “on base percentage”, how often will the player get on base. Never mind how he is doing it or how he looks. Now this insight allowed the Oakland A’s to perform above average given their limited budget and exploit some loop holes in the market.

This is a powerful reminder that focusing on one thing is very powerful. It will eliminate discussions about which of the KPIs is more important in case one goes up and another goes down. It will also ensure that everyone is one the same page and no-one is in doubt about what success looks like. So the first step towards product success is to find your “On base percentage”

Different types of KPI
There are two main types of KPIs objective and subjective. They have different properties and can be used in different circumstances.

Objective KPIs are the best, because they pick out a measure that can be verified regardless of human perception and interpretation. They are things that can be measured like: Frequency, volume, amount, duration. Most of the classical webanalytics and economic parameters fall in this class. A good example of an objective KPI is downloads per day for an app. There is no way you can argue with that. The same goes for units sold per day.

Subjective KPIs measure things depend on human subjective assessment like interpretation feeling and interpretation. That does not mean that they need to be less quantifiable. When you measure satisfaction, there are many good frameworks for doing that. It could be Facebook likes, customer satisfaction ratings, retweets, NetPromoter Score, shares etc. These are all quantifiable measures of a subjective quality, whether that is satisfaction, interest, pride or something else.

The business model determines the KPI
The absolute central KPI will always be monetary, like revenue, margin, equity and the success of a product will in most cases be measured directly by the amount of value it generates. The typical product will be measured by the revenue it generates. It could be margins as well, but it is a bit more complicated to use that since the company´s cost structure doesn’t necessarily have any connection with the success of the product. Equity in that sense is even more complicated to track (but more about that below).

Some people may object to money being the central purpose of a product, especially if they are of an idealist anti-capitalist inclination. But since money pays for salaries electricity the success of the product must somehow be traceable to this. Even if you are a non profit charity organisation you need to pay the rent, electricity and taxes. Some products are offered for free and are viewed as successes even though they generate little or no revenue, such as twitter, Facebook, snapchat. But the reason they are valuable in the eyes of investors is the promise of revenue, a kind of deferred revenue. Typically the KPI is number of users. But this figure is usually recalculated into revenue by a value that you think you can generate from them (eg. $10 per user). In that sense you are back at money as a measure for product success.

The most straight forward measure of product success is the revenue it generates. The reason is that it is the cleanest and most intuitive way. Nobody can argue with that figure – money in the bank is money in the bank. Sometimes that is more important than anything else, since you can’t argue with liquidity. Examples of these types of products are SaaS products where it is popular to track Monthly Recurring Revenue per product. That is an accepted standard. More traditional software companies may track revenue from licenses sold. Transaction based companies like credit card companies or other types of infrastructure companies who charge by transaction may track the number of transactions.

It may however occur that the revenue is not directly referable to the product in itself. That is the case for many free products (not freemium products). A good example are open source software products. If we take the database Cassandra as an example. It is free and can be downloaded. It is built and maintained by Datastax which received gazillion in funding recently $45 million ($83,7 in total). You could track Cassandras success in installed base. Then again, most people need support, since it is after all a complicated product, and guess who is selling SLAs, support and implementation consultancy for Cassandra? Datastax, so again the KPI is a proxy for revenue (more interestingly this creates a drive towards making the product more needy of consultancy, so what looks like a successful product to the company is not necessarily the same as to the customer in this case).

Revenue is a good around indicator if the business model dictates you earn money on all the units shifted.

Margins are a more precise way of tracking product success because it directly supports business success. Revenue may not, since you could be selling products for a lower cost than the production cost. More sales would therefore not lead to success for the company. Margins will almost always do that.

It is a good thing to track margins when cost per unit is easy to calculate. That is usually the case for hardware and physical products, where cost per unit is often already calculated. So, in the manufacturing industry that would be a good measure. The same goes for retail, where the cost per unit is the purchase price, plus transport and storage. Sometimes the margins are just calculated as the purchasing price minus the sales price. That is good rough measure of success.

In other industries, like the service industries, it is a bit more difficult. If we take a hotel, the cost per Unit is somewhat more difficult to calculate, since heating, cleaning and electricity is not typically calculated per room. The same goes for professional services, where one our sold may have the cost of the consultant for that hour, but also all the other hours he or she didn’t bill to any customers and that amount is very variable.

Margins are a good KPI for industries where the Cost per unit is easy to calculate and intuitive to understand.

In some cases revenue and margins may fall short as measures of success. To measure product success in terms of equity is more prevalent in isolated fields. In accounting terms, equity is the the amount of liabilities minus the assets. For a product that would mean how much you owe (for buying, producing, building etc.) minus the market value. That doesn’t make much sense in terms of serial produced products like cell phones.
If we take real estate it makes a lot of sense. If the product is a house or an apartment, the ability of investments in this apartment to raise the market value is a very good measure of success. Something similar is also the case for incubators, where the start up itself is the product. Here you may want to track the investment against the market value in order to see whether the product is successful. I would guess that Y-combinator, Rocket internet or 500 start ups would track the equity of each individual start up rather than their revenue or margins.
One problem with equity though is that market value may be very hard to assess before you sell the product. That makes it hard to use as a proactive KPI. But usually there are other proxy indicators. In consumer technologies, the standard one is number of users, downloads, visitors etc. because that can be used to calculate predicted revenue and therefore market value.

Equity is a good measure if the product is unique.

Non monetary measures
There may still be instances where you would measure product success by some other KPI, which is not monetary. One example is satisfaction. Many products from state departments are offered as a service to citizens. They are still products, but they do not generate any revenue, margins or equity, indeed, they were never meant to. Instead they generate a service, the success of which can be measured by satisfaction in one sense or another.
Satisfaction is somewhat more difficult to measure, because it depends on subjective measures. A rating scale is a typical solution, but it could also be sentiment analysis from social media or clicks on icons such as likes and smileys. Number of issues registered or complaints related to a product would be another way of tracking satisfaction. Sharing on social media is similarly usually a good indication of satisfaction, but you can’t tell whether it is shared because of a positive or negative experience. Some public sector products are however not meant to have high user satisfaction ratings: Jails will not be measured by user satisfaction either, since the users are meant to not have great satisfaction from it.

Foundations are atypical, but they will typically have a KPI that can be derived from their particular purpose. If it is investing in alternative energies, or saving the world like the Bill and Melinda Gates foundation, then somehow a KPI would be found for that use. But then again, foundations typically don’t have that many products.

Non monetary measures are good when the business does not generate it’s operating budget from the product.

Product succes is key to the success of the entire enterprise. You should carefully study the business model of the enterprise and pick just one KPI as the measure of success. The KPI should be quantifiable and possible to track continuously. Otherwise you don’t have anything to steer after.

You could and should still track other KPIs if they in some way influence the central KPI. That way you can learn the best ways to optimise your product and see early warnings of problems.

The dark side of addictive products

Are products such as Facebook, Snapchat and Flappy birds just benign habits or are they crack grade maliscious addictions? When does product “stickiness” turn from a simple habit into an actual addiction?

As anyone my age growing up, Star Wars was a huge influence on my world view. I was againstof the dark side and I trusted Luke Skywalker and Yoda to restore order to the universe. I recently found a fun infographic translating MBTi personality types to Star Wars characters and to my surprise I realised that my MBTi personality type matched Senator Palpatine or the emperor (my wife’s personality type is Jar jar Binks, which is probably the most unlikely match in the Star Wars Universe). Anyhow, it led me to realise that I have acquired a deeper understanding of the dark side in my later years. I now also really hate the furry creatures in Episode 6 and the hipster attitude of the rebel alliance is truly worthy of extinction. But let’s not get carried away here.

I was reading “Hooked – How to Build Habit-Forming Products” by Nir Eyal. The book is about how to make your product addictive. That is naturally what anybody creating a product wants. When you create a product you also want users to love it and you will try to make it sticky, but when does usability turn into manipulation? When does satisfying a legitimate need turn into creating an artificial need and turn it into an addiction? When is it unethical? When do you cross over to the dark side in product development?

Addictive products
A recent example of an addictive product is Flappy Birds, which was allegedly withdrawn because the programmer had qualms about the addictive potential of his game. People simply couldn’t stop playing it and became addicted. He was apparently refusing the dark side of product stickiness (I suspect that somebody had a serious talk with him about his game using trademarked characters like Mario and the price of doing so)

Other products are genuinely usefully addictive, like a calory counter for eating more healthy, or fitness apps like endomondo for keeping fit, although they may not really spur the same kind of addiction.

yet other products have definitely crossed the line, like online casinos and poker sites. They prey on the gamblers need for the adrenalin rush that comes with winning.

But what about Facebook, instagram, snapchat or word feud? Surely they are addictive, but have they crossed over to the dark side?

The anatomy of addiction
I remember a 90’s song by K’s choice: “not an addict”. The chorus goes like this: “It’s not a habit it’s cool, I feel alive/ the deeper you stick it in your vein/the deeper the thoughts, there’s no more pain”. The thinking here is that you are doing what you are doing because it is rewarding. You are still in control, but the ironical implication of the song is that you don’t know yourself that you are not in control. So, what is an addiction actually?

According to the Merriam-webster dictionary an addiction can be defined thus:

“persistent compulsive use of a substance known by the user to be physically, psychologically, or socially harmful”

If we abstract the essence of this, the key words here are compulsion and harmful. We could therefore say that if something forces itself upon you and it is harmful it is an addiction.

When are products good or evil?
That would seem to indicate that when a product forces upon the user a compulsive and harmful use, it should be considered addictive. The craft of doing this leads you to the dark side. Here we should notice that Facebook could be considered addictive for some people in so far as it could lead to withdrawal and paradoxically social isolation. For other people it could lead to increased reach of social ties. Consequently a product is not in itself harmful and addictive, but could be more or less appealing towards addictive use. In order to figure out if a product is good or evil we have to look at the side effects of the user. If they are positive it is merely a good habit if they are negative they are an addiction.

If you design the product for addictive use, where the side effect will inevitably be harmful, it is evil. Gambling apps are therefore evil, since the side effect (at least on average) is inevitably that the user will loose money. The compulsion forces the user to keep loosing money.

Fitness apps are good because the side effect is good: increased health. The same could be said for learning games or citizen science games.

Flappy birds? if reports of intense disgruntlement with the difficulty of the game is to be taken at face value, it is the workings of the dark side. But I suspect that flappy gamers quickly regained their previous mood and were not severely negatively affected by the game.

So, if you are learning the art of creating habit forming products, be sure not to drift into the the dark side. Make up your mind about whether the product has a benign or malign effect on its intended users.

Product Roadmaps – Comet Landings or Soccer Games?

A product roadmap is a plan, but a plan can be many things. At one extreme you have the kind of planning that just brought Philae to the Comet 67P/Churyumov-Gerasimenk where everything is calculated down to the smallest detail. At the other end is the plan for a soccer game, where you may not even know which players will be available due to chance injuries, penalties and much less how well they will play.

So, the real question is what KIND of plan should your roadmap be?
are you landing on a comet?
The “Comet-Landing” type of plans are meant for very predictable environments like outer space. Here, in virtual vacuum, all forces, objects and their trajectories are well known or possible to calculate. That is why you should calculate all the details that are possible and plan for them. You want to know at what time the satellite will be in what position relative to the comet and with which velocity. Before this you have measured the payload and documented every little detail down to the weight of every single fibre on the satellite (I even heard from a colleague who worked in the space industry that they once had a discussion about whether code could theoretically weigh anything).
are you playing a soccer game?
The “Soccer-game” type of plans are meant for very unpredictable environments. Thus a good plan cannot be too specific or detailed. you can’t plan that at 61.24 Ronaldo should make a cross with an angle of 47 degrees from 50 yards out to the right. It simply would not make sense. Instead you plan for a game concept, like possession based football, and find players that know and fit in that concept. You train situations that will reinforce that concept in pre-season and more specific ones related to the opponent the week before the match. That’s it: a concept and some generic patterns, that will be applied as we go along.
What type of plan to select
The difference between these two types of plans is the environment they should interact with. Both (the solar system and a soccer match) are dynamic systems, but they have very different levels of predictability. There is actually a mathematical term for this: Lyapunov time, the time it takes for a dynamical system to become unpredictable, or chaotic. For the solar system it is about 50 million years, the weather is 3 to 9 days and for a soccer game I would guess it is a few seconds.
So, obviously the key question in figurative terms is “what is the Lyapunov time of the environment your product is being developed into?”. That answer may very well differ quite a bit depending on industry and markets you serve. If you work in the space industry you inherit a longer Lyapunov time, since everything is more fixed and orderly. Contracts are made on long term basis and objectives are not changing that often (I am not saying they are not changing and the everything is very predictable. It is purely a comparative statement). If on the other hand you work in a start up in the social media space, chances are that you can barely predict what to do tomorrow and the Lyapunov time is very short.
If you are forced to plan 1 year ahead you should reflect on the nature of your product before you decide what level of detail and what type of plan you will do. Since scrum is from rugby, similar to soccer a flow type of game, it may make more sense to decide on a play concept and some vague patterns. You can and should probably plan something, just not in too much detail and with too much commitment.
I usually say that all my plans are back up plans in case nothing more interesting and pertinent happens. I live with a very small Lyapunov time.

How to manage a globally distributed product team

Building a product alone is difficult. Building it with a team is harder, but building it with a distributed team is even harder. Still, today it is rare that any company is building any product with a 100% local, in-sourced on site team. That is why one key ability in building a succesful product is to be able to manage a globally distributed team. That is not easy and there are some crucial differences between being a small start up and an established enterprise. Here is what I learned from teaching this at the University and doing it in practice.


Specific challenges – Startups vs Established Companies
A start up typically differs slightly in the way globally distributed work is carried out, from how more established companies go about it. A start up will typically have:

More freelancers compared to full time resources. An established firm will typically have an offshore team with a local project manager either through an agency or if it is a larger company an independent legal entity. Start ups don’t typically have those resources, so they rely on freelancers. The primary challenge of a start up is to locate the right freelance resources. Luckily services like oDesk, Elance and Fiverr makes it easy to get in contact with skilled people in off shore destinations. They also have a system of ratings to spot the good from the bad freelancers. You can get very far in identifying good prospects, but it is still difficult. If you need someone to code, do research or write you may want to check how they work first. It is common practice to do a tender for a small test task if it is a bigger (say, more than 50 hours of work) task you need to get done. Just design a task that will be similar to what you need and invite three people to do it. It is important that you remember this is a test, so you need to guide and inform them in exactly the same way. Also, don’t expect to use this: keep recruitment and operation separate. Another thing you need to do in advance is to list the criteria important to you and rate each contestant in the tender and compare them. This way you can also hold it against the price. It is also important to decide in advance whether you are looking for commodity or premium services. Even out there in off shore countries there is a relation between price and quality. Invite people according to this. If you need a premium copywriter, you will usually not be happy with the $5 per hour vietnamese freelancer. Even if he has four stars. You may on the other hand be very happy with him if you need a researcher to do product reviews, that you will yourself edit.
More specific individual tasks compared to a continuous flow of tasks. larger companies have a continuous flow of tasks. They may still work on projects, but when one project finishes resources are transferred to another. In a start up you will usually be restricted in funds and have much more defined tasks to be completed by off shore resources, like: design a landing page, implement an algorithm in PhP, define a colour scheme, set up a server etc. This shifts the management focus to being very clear and precise about what you want. If it is a specialised task you will usually not have the luxury of working with a resource who has any knowledge of what you do, so they need to be told very precisely what you want from them. This means you have to do a lot of work in preparation. This is by the way where most people fail and get a bad experience with off shore resources, but although the skill level may differ between the US and India it does not differ as much as you would think. The reason why you tend to hear about bad quality from India or other off shore destinations has more to do with them not being instructed in enough detail what to do.

General challenges
There are also some general management challenges when you work globally that are the same whether it is a team, a freelancer or an entire division they are:

Timezone differences. Timezones are usually a problem, but they can actually be an advantage. The best companies manage to build an organisation that works 24 hours a day. That means you can have 24 hours support and develop new functionality twice as fast if you do it right. You need to set up a rhythm for your company where you define the hand offs between timezones. For example a morning meeting in New York with the off shore development team team in Ukraine (where it is the afternoon) where progress and new tasks are discussed. And then again an afternoon session with the Singapore team who have just started working.
Cultural differences. yezz, let’s talk about the elephant in the room. Different countries have different patterns of behaviour, but they all expect everyone to behave like themselves and interpret behaviour in that light. There is ample research that specifies particular countries culture, which would be worthwhile to become acquainted with if you expect to do a lot of business with that country. From a management perspective the first step is to become aware that you may not make sense to your off shore team because of how you frame it. Working with many different cultures it may not be feasible to get to know one in detail, so a little sensitivity will take you a long way and do try to read something about that culture, maybe even on quota. On the other hand for core tasks I would strongly suggest to pick just one destination, that you are either familiar with, or is ready to become familiar with. For my own company I chose Moldova for the core development tasks. I know the country from travels, speak some Russian and it is a similar size to my Native country, Denmark. These things for me resulted in a close cultural match where we have a really good connection. For Western countries I usually recommend Eastern European countries although they are usually a bit more expensive, but you earn it back really fast by not having to do everything three times because of misunderstandings. They are generally very familiar with Western culture as well.
The human factor. Off shore resources are human too and you need to show that you care. If you can, go there every once in a while or invite them to you. No Skype/webex/hang out will ever replace face to face interaction. When we talk face to face there is so much more information and you build bonds. This is important in any type of collaborative endeavour and especially in software development. I went to stay with my off shore team for a week on several occasions. I think they thought it was weird that I was there in the office, but we do have a really good relationship today.

Development phases. it is important to think about what development tasks are carried out close to the home market and which can be carried out elsewhere. A rule of thumb supported by empirical studies is that the earlier design phases are best and most often placed in-house or close to the target market. The middle phases where solutions are developed according to specification are more commonly performed by off shore resources, but the later phases such as integration and deployment is again best performed in-house. In research you talk about tightly and loosely coupled taks. Design is tightly coupled because every change can effect everything else. Coding a module designed properly with an interface definition is loosely coupled since changes to the module does not affect the workings of the whole system. Integration is again tightly coupled because one small change can make everything fail. Tightly coupled tasks also need more and quicker iterations which is intractable at large distances. For my own company I do all web and front end design with local resources although it is much more expensive.

Tools. Having a particular tool is not important (difficult as it is to admit since my company supply such a collaborative tool), but having the same tool across everyone who work together is very important. One common source of problem is the two versions of the truth problem. If everybody is not on the same page the product will not work and you will spend endless time clearing up what is the correct version. So by all means have only one system of record for one type of information. Deciding which tool to use you should consider several things: the functionality of the tool, the familiarity with the tool by the team members and yourself. Even if you have the greatest tool in the world an inferior tool that does the job is better. If the people you work with are used to work with Trello and you are a die hard Basecamp fan: ditch base camp and learn Trello. For each type of information decide which system to use. It could be lucid chart for mock ups, google docs for spread sheets, Jira for issue tracking etc. For example I went with my off shore developers choice of Redmine although I preferred to work with Jira.

Processes. People are used to working differently and you need a pragmatic approach to how you are going to work that will work for everyone. How do you plan a release or sprint? how will you test? How will you do status reports etc. Again it pays off to go with how your off shore resources are used to working rather than forcing the latest scaled agile framework down on their heads.

This is not an exhaustive list, but I do believe that it covers some of the more important ones you should keep in mind. It is difficult to work with a global team, but not impossible. It can actually be very rewarding. Just don’t expect it to be like working with a local team.

Is Microsoft the new IBM? a tale of two pivots

Microsoft and the advent of the PC caused the hardware giant IBM to pivot away from their original core business, hardware, to professional services. Now Microsoft itself is forced to pivot because its core business is being disrupted: it used to be consumer oriented software, but that game is now lost to Apple and Google. But what will Microsoft pivot to? the answer is not cloud computing although they seem to think so themselves!

The beginning of the end of the machine pusher
In the 80s people had perms and danced around with coloured leather ties to “Hungry Like the Wolf” by Duran Duran and IBM was an unrivalled giant in tech, famously portrayed in Apples 1984 commercial. Life was good. A near monopoly on computers, high barriers of entry and large margins made IBM a safe bet in any investment textbook. The name stood and still stands for International Business Machines. So, it is not too much to say that hardware was their core business. They famously also made the transit into the consumer world with the PC and all was good. They didn’t think much of this stuff that made the machines functional and sensible to humans: the software. Therefore they logically let a subcontractor supply their machines, with the software. At that time the thinking was that whatever you could put on computers to help sell more computers was a good thing. After all, they were a machine company and they wanted to sell machines.

The subcontractor, of course, was Microsoft. They supplied the operating system and user interface to the machine. Microsoft gradually improved the interface and since this was what humans perceived as their computer it became central in the PC experience. Inevitably other companies started to produce cheaper versions of the desktop computer. Similarly to IBM they also needed something to turn the computer from a big hunk of silicon and plastic into something that made sense to humans.

Since IBM had an early lead, the logical thing was to move consumers from the IBM world to a cheaper world. What better way to do that than to present the potential customers with an interface that was identical to what they already knew? Thus Microsoft became the default platform for the PC or desktop computers for decades to come. Whether cheap or expensive all computers had to have Microsoft operating systems and software. IBM was stuck in the innovators dilemma and couldn’t live from the small margins of the desktop computer, so they had to abandon that division altogether.

As the computing power of the desktop computer grew, the market grew increasingly sour and started to threaten IBMs heartland, the mainframe computer. In the end they had to completely re-orient their business towards professional services and therefore they are not the same company they started out as. What happened was that changes in the underlying circumstances for their primary products were undermining their market feasibility.

Is Microsoft the new IBM?
Now something similar is happening to Microsoft and it will be interesting to see where that leads them.

For years the PC and its familiar interface, Microsoft Windows, has been the primary interface to computing resources for consumers, but a decade ago cell phones started to be able to do some of the same things: you could play games on your Nokia 3210, you could calculate, write electronic messages etc. Very simple things, still far from the desktop computer.

Then came the smart phone. I remember the attraction of the first smartphones was to sync your calendar with your outlook calendar, write notes and to do lists and eventually browse the internet although very slowly. As processing power increases, something similar to the obsolescence of the mainframe happened to the PC. The smartphone could do more and more of the things the desktop computer used to do.

Then came the tablet in full force and with increased processor power and screen size even more things you would normally do on the desktop computer. Now the only problem for Microsoft was that hardware producers had not selected Microsoft’s software for these new devices that the consumers used. The interfaces were called android and iOS. This is now what consumers are used to as portals to their computing power.

Microsoft has struggled to bring their user interface on these new devices, like IBM tried to keep track with new hardware producers, but so far with little success. The user interface between the computer and the consumer, which used to be Microsoft’s heartland business, now seems just as lost as the production of machines seemed to IBM when they made their big switch to professional services.

So, what will Microsoft do? the mirrored fates of IBM and MS
Therefore it is now interesting to follow Microsoft and see if they have the same courage as IBM had. To completely rethink their business and reason for being? Will they be able to shift away from software and operating systems into something else like IBM did?
So far it seems that their professional services could be cloud computing in general. The question is just whether their offering will be strong enough to keep the leadership.

IBM lost their heartland products but kept their customer segment. To this very day the same customers buy from IBM. They just buy something else: development services, software, the occasional strategy report etc.

For Microsoft it will probably be even more up hill. They may not have lost out on the product, since many units are still shifted every second and the percentage of OS on desktop computers is still a majority. But they have lost something even more important their heartland customer segment: the consumer. For decades now they have tried to build a lead in a new costumer segment SME businesses. Here they sell similar products (OS, software etc.) as they did to the consumer.

A tale of two pivots
In short it seems that IBM stuck with the customer segment and changed the products because they were disrupted by Microsoft and Microsoft stuck with their products and found a new customer segment. This move is not complete and it is too early to tell whether they will carry it through, but that could be what will save Microsoft. Not that Microsoft appears to be a company in need of saving, but let’s face it. No matter what they will try, consumers will never flock to Microsoft for an operating system on their mobile devices. That battle is lost. Just like the Machine battle was lost to IBM years or decades before they realised it.

Borrowing a term from the lean start up movement, you could say that IBM made a product pivot and Microsoft is attempting a customer pivot. Only time will tell if they succeed.