Understanding product development economics - why it matters?
- 1. Twitter: #TuTe2016 Understanding Product Development Economics – Why it matters? Henri Hämäläinen, Contribyte
- 2. Leading Expert in Product Development Optimization Since 2006 we have helped over 300 companies on improving their software based product development through processes, tools and organizational models. We are located in Finland and work globally based on the customers needs.
- 3. Introduction - Henri Hämäläinen • Principal Consultant, CEO of Contribyte • Helped tens of companies on building more productive Product Development • Inventor of Tulevaisuuden Tuotekehitys™ -series My Public References
- 5. Shipping container was not adopted by logistic companies, because it seemed to ruin their business.. and it eventually did.
- 6. The same way, companies don’t want to change their business models due to software, because it will ruin their business.
- 7. So, let’s get back to basic product development economics
- 8. Product Development Cash Flows ProfitCost Sales Revenue Operating Profit Net Profit Break-even time Investment (incl. maint)
- 9. Profitability of Product ProfitCost Operative efficiency determines when the curve turns Slope of the curve comes from Business capabilities Subjective and Objective Quality tells the product longer term success
- 10. Business Agility needs to have Operative Efficiency Subjective & Objective Quality Business Capabilities Operative Efficiency • Agile working methods • Building Quality In • Smaller Patch Size • Continuous Deployment • Lean SW & Lean Manufacturing Business Capabilities • Understanding Market & Customer Problems and Needs • Marketing Innovation and Efficiency • Suitable Sales Models • Service Design methods • Lean Startup Quality • Usability and Customer Experience • Good working methods • Craftsmanship attitude • Customer Focus
- 11. In organizational level the same laws apply as a result of multiple products or features
- 12. Many companies solely focus on operative efficiency! ..or zero defects as quality focus!
- 13. Business nowadays can come from so many other factors: new business models, surprising customer value, customer experience or many other
- 14. no sales, easy to start for teams with small investment • Atlassian does not have a traditional sales team. All prices, information about products, documentation, support requests, and training materials on its website • They don’t offer discounts • Licensing starting at $10 for 10 licenses
- 15. Why PayPal succeeded and all the others failed? • Was it the email money approach? • Was is it 3rd party API’s and tools • Was it the idea? • Was it the simplicity? • Was it eBay? • Was it because the understood the internet technology rather than payment business The percentage represents the number of websites using given technology divided by the total number of websites using any of the technologies - Datanyze 10/2016 There are as many explanations as there are articles. Product development economics are not easy.
- 16. BTW.. Have you ever heard of a successful software company tell, that the reason for their success is that they are so good at coding quickly.
- 17. Twitter: #TuTe2016 What has changed?
- 18. From Gaussian world to Paretian world
- 19. Normal Distribution Power Law Small wins available for everyone Winner takes it all History and statistic based Try and learn Well defined business cases Value vision Predictable Hard to predict
- 20. In Paretian world unlikely success happens
- 21. With software one product or product feature can create 1000x more value than something else. Product development economics optimization is all about probability and risk handling
- 22. What about the long tail? Same logic applies in there.
- 23. Twitter: #TuTe2016 Why this is important?
- 24. Iterative development is forgotten. Sprints are just readymade planning intervals, without much room for aiming for better.
- 25. Large Agile initiatives are run with a project plans called agile release trains
- 26. Production line Kanban is used for developing non-linear creative solutions
- 27. Lean is misunderstood for, only cutting down the waste for fastest possible release.
- 28. If we ever want to start creating great products again..
- 29. We need to fix this..
- 30. We need start understanding our business much better..
- 32. The only way to get these right, is to work together. Business, development, quality, sales and marketing create value together. Organize your future around that.
- 33. Product Owners and Product Managers play huge role in product businesses of companies.. And most of them suck at understanding the economics
- 34. Create great balance between these. Challenge your people to understand these! Operative Efficiency Subjective & Objective Quality Business Capabilities
- 35. And then you can create products that are successful for their full lifecycle! ProfitCost Operative efficiency determines when the curve turns Slope of the curve comes rom Business capabilities Subjective and Objective Quality tells the product longer term success
- 36. Thank you! Henri Hämäläinen CEO, Principal Consultant, Contribyte www.contribyte.com +358 50 487 3291 henri.hamalainen@contribyte.fi fi.linkedin.com/in/henkkahamalainen
Editor's Notes
- With no background in financial services but with a deep understanding of the nature of the Internet, founders CEO Peter Thiel and CTO Max Levchin have built PayPal into an eCommerce payments engine that handles $10 million per day in online payments. Despite an increasingly sluggish Internet economy, analysts still project that $3.5 billion in online payments will flow through the PayPal network in 2001.