The New Toolset of Product Strategy

“Companies fail all the time. And product strategy is the best defence you have against this.” — Des TraynorIntercom

[This article is adapted from various presentations given in London in 2017, including Products that Count and the London Product Strategy Meetup. If you prefer listening to reading, you may want to check out the video of one of those events (with slides) here>> & at the end of the article]

For anybody who works in a small company, especially a startup, discussion of ‘product strategy’ is seldom top of the list. In fact, it rarely makes the list at all. The prevailing viewpoint is that it’s ‘just theory’ that has little value in the real world.

In environments where resources (eg time + money) are limited, there’s an overwhelming preference for execution over discussion, for ‘doing’ over ‘talking’. As a result, a lot of product teams end up coding and shipping (and coding and shipping…) without a clear sense of where they’re headed. And, as the Cheshire Cat observed, “If you don’t know where you’re going, any road will take you there.”

Companies fail all the time, that’s startup economics. But, in today’s hyper-competitive landscape, not knowing where you’re headed is the fastest route to failure.

Product strategy is, for me, the art and science of knowing where you’re trying to get to before you set off. It means transcending the notion that a product is about screens and features. It’s about starting with your user’s desired outcomes and working backwards to the technology. This is not new thinking. Steve Jobs was fond of saying this decades ago. But it seems every generation needs to relearn this, as every generation is susceptible to the assumption that technology is the answer.

A partner from a London-based venture capital firm recently drew a chart for me that encapsulated how his firm evaluate the hundreds of startups, grow-ups and scale-ups they encounter every week. He labelled the y axis ‘Unique market insight’, the x axis ‘Differentiated technology’ and drew a cluster of dots in the bottom right of the chart and two dots in the centre.

98% of the companies his firm encounters are in the bottom right cluster, he said. They all have ‘deep tech’ expertise, are at the leading edge AI or VR for instance, but they lack genuine insight about who will actually use the technology they are developing. They are answers looking for questions.

The only companies worth investing in, he continued, are the ones able to combine the two. Unique market insight, he emphasised, is always more valuable than leading edge technology.

Players on the new Product Strategy board.

Rarely observed, and much less documented, over the last few years is the emergence of a number of individuals who have developed their own school of thinking (or their own ‘lens’) on product strategy. None of them are household names to the extent that Marc Andreessen or Sam Altman have become, but all have established their own ‘school’ of thinking. Each has their own group of disciples, all of whom co-exist in splendid isolation.

This article provides an overview of those different product strategy ‘lenses’ which, collectively, constitute a new toolset for product managers and product-focussed founders of software startups.

These lenses can be applied to any product by any team and can clarify its purpose, value proposition and the desired outcome of its user. They require no training, little preparation and deliver more or less immediate results.


Product Strategy #1: The Big Idea

Let’s start with the biggest idea right now in product strategy. It’s the brainchild of someone who is still comparatively unknown, although many will have encountered him indirectly. His name is Ben Thompson and he’s the founder and author of Stratechery, the best source of insight on strategy in the technology sector by some margin.

Much of the analysis of the tech world originates from Ben Thompson. His weekly analyses get picked up and disseminated by most of the leading news publications. Many of the articles that you read in The Wall Street Journal, Forbes or the New York Times about events in tech quote him directly.

From what I can work out, he never sleeps. He lives in Taiwan, reads everything imaginable before anyone in the West is awake, and produces long-form analysis of every notable event in technology 3+ times per week. He’s one of those people that’s more talked about than actually read. And that’s mainly because the sheer volume of content he publishes each week is beyond what most people can absorb.

Ben Thompson: the legend that is.

Ben Thompson’s Big Idea is ‘Aggregation Theory’. It’s about three years old and he’s evolved it over time. Aggregation Theory is like Einstein’s General Theory of Relativity. It’s the foundational paradigm that makes sense of everything else.

Aggregation Theory has two tenets. The first is that owning the direct relationship with the user is the most powerful thing in the market.

The second tenet is that the cost of adding users and distributing digital goods is now zero.

Once upon a time, the business of distributing information or content (like magazines or music) came with huge barriers to entry as production and transport cost a lot of money. Now, thanks to Amazon (via its virtualised hosting service, AWS), it costs almost nothing at all.

In Ben’s parlance, the marginal cost of adding an extra user is now zero. This means it costs as much to serve a billion people as it does to serve one person. Economically, this is transformative and has made much of what we call ‘disruption’ possible.

Thanks to Ben Thompson.

Although ALL aggregators own the relationship with their customers, there are three distinct ‘types’ according to Ben.

The first are companies that aggregate supply via acquisition. Netflix is the best example. By methodically aggregating access to supply, Netflix aims to become the best place to see any film. It achieves this by licensing content from established studios and investing heavily in original content.

Netflix’ ‘power’ derives from its position as the #1 place where people connect to films.The more films it can offer, the more users it acquires. As this cycle repeats, its position becomes stronger and stronger.

The second type aggregate supply indirectly, ie. they don’t ‘own’ the supply side. They do incur some cost acquiring suppliers (known as supply transaction costs) but their power extends from an ability to connect the biggest group of suppliers with the biggest group of customers. The best example of a ‘type 2’ aggregator is Uber.

The final aggregator are those that connect users to content although they neither own the supply nor do they incur acquisition costs. Type three is best exemplified by Google. Newspapers used to own access to content but Google has blown this channel wide open.

There’s a final category of aggregator, known as a super aggregator. This type is best exemplified by Facebook. Super Aggregators don’t just connect consumers with suppliers at scale. They own both sides of the equation. They’ve got the most users, the most content and a self-serve advertising model that allows them to reap massive profits simply by enabling those interactions.

Super-Aggregators: the ultimate money-making machines.

To appreciate how powerful (and profitable) the super aggregators have become, look no further than the recent US Senate hearings into possible Russian interference during the last presidential election. Despite the General Counsels for Twitter, Facebook and Google getting hauled over the coals, the hearings mainly served to reveal just how painfully clueless most of the political establishment is about how the super aggregators make money. And how profitable they really are.

The self-serve nature of the super aggregators’ business means that they don’t know who is advertising on their platform. They just sit in the middle and pocket the profits. This is why they’ve become powerful (and valuable). It could also be their undoing. What has, until now, been the most amazing profit machine is now creating serious regulatory problems.


Product Strategy #2: The Job

The next lens is our old friend The Job to be Done, recently renamed the Customer Job by Alan Klement, author of When Coffee and Kale compete.

Jobs to be Done (JTBD) is the oldest ‘new’ idea in product and has enjoyed a tremendous ground swell of interest amongst Product Managers in 2017.

Understanding the concept of Customer Jobs requires an understanding of progress and the extent to which your product helps users become better versions of themselves. Almost everyone is familiar with JTBD’s central tenet that, “Customers don’t want your product. They rent your product to make progress in their lives.” The thing that everybody forgets is that the products themselves don’t have jobs.

Thanks to Alan Klement.

Users (ie. people) have jobs, struggles and aspirations. And it’s users who hire products to enable them to achieve those desired outcomes.

If you find yourself talking about what job your product does (which is surprisingly easy to fall into) then you’ve got the meaning twisted. It’s people that have the jobs. A product is a solution for a job.

Alan Klement is fond of using the analogy of Fireball Mario. As a product team, it’s a great question to constantly stay focussed on, “How are we making our user awesome? How can we help them become Fireball Mario?”

Thanks to Alan Klement.

To answer this question, you need to know what awesome means for your user. You need to know the outcome they’re trying to achieve or the progress they want to make in their life. It’s unwise to discuss any other aspect of your product until you can confidently answer this.

When I run strategy workshops, we start with Customer Jobs then explore how to enable them with product. The best tools for facilitating this are the canvases developed by Strategyzer, the innovation consultancy co-founded by Alex Osterwalder.

Strategyzer’s Value Proposition Canvas is a great method of deconstructing the pains and gains that constitute specific Customer Jobs and identifying how they can be enabled within a product or service.

Strategyzer’s Value Proposition Canvas.

Once this exercise has been completed, usually for a variety of customer segments, I recommend using the Lean Product Canvas that Ash Maurya adapted from Alex Osterwalder’s Business Model Canvas.

Ash’s version is more product-focussed, cannily focussing the discussion on how product and market fit together. It obliges teams to start with customer segments and their problems (not features and screens), then identify solutions, channels to market and the unique value proposition. It’s a great exercise that even the most sceptical can embrace and apply without fanfare.

Ash Maurya’s Lean Product Canvas.

[Incidentally, I’m well aware there are fearsome academic disagreements within the JTBD community. I don’t want to get into them here, but if you want to understand the counterview, here’s a good place to start>>]


Product Strategy #3: The Switch

One of the most popular quotes I’ve ever used in my presentations is from Whale’s Justin Kan. He once observed that start-ups mostly don’t compete against each other, they compete against no one giving a shit. This neatly encapsulates the overwhelming choice of products, services and content that app stores and the web now present to consumers.

Startups are often so focussed on building their product, they forget just how unlikely it is that anyone is ever going to care less about it.

The app store offers millions of new options every day. The harsh reality is that we’re full. Our minds are full. Our devices are full. Our lives are full. We have more information and more content than we need.

Our attention has coalesced around a very small core. 80% of people’s time is spent in just three apps. The top eight mobile apps are owned by Google and Facebook and 50 per cent of people, at least in the US, download zero new apps per month. Product adoption is a far bigger challenge than most founders realise.

It’s interesting to explore the evolution of thinking in respect to new product adoption. Initial orthodoxy originated from a guy called Everett Rogers. It was Mr Rogers who coined the term ‘early adopter’ and ‘late majority’ in the context of a curve he called the Innovation Adoption Cycle. Everett’s curve paved the way for Geoffrey Moore’s chasm. But Everett himself has been largely forgotten.

Everett’s explanation of new product adoption was refreshingly simple. It was basically this: the best product wins.

Consumers evaluate each new product qualitatively against existing options and switch to ones they judge to be better. Very logical and rational. This was accepted wisdom for about 30 years.

Then, sometime in the 1980s, along comes Daniel Kahneman, who most of us now know from his 2012 book Thinking Fast and Slow. He turned Everett’s thinking completely on its head and proved that new product adoption is highly irrational and entirely constituted within our sense of loss and gain.

This is now known as Prospect Theory and Kahneman won the Nobel Prize in economics for his groundbreaking ideas.

The three tenets of prospect theory are:

1. Outcomes are judged in terms of gains and losses.

2. Judgements are relative to our individual situation. (A big reduction in the price of petrol in France would still be viewed as expensive to someone in the US.)

3. We hate losing stuff far more than we like gaining something new. (This is known as Loss Aversion.)

Our innate tendency to overvalue the status quo is called the Endowment Effect.

When we switch products, we feel the pain of what we are losing much more than the pleasure of the gain. Time is a factor in this as losses are experienced immediately but the gains aren’t felt until much later.

Our innate tendency to overvalue the status quo is called the Endowment Effect. This helps to create what John Gourville dubbed ‘the 9x problem’ of new product development.

If you multiply the degree to which the average consumer over-values their existing products (3x) by the degree to which innovators over-value their new products (3x), you get a 9x differential. This, claims Gourville, explains why so many new products fail despite offering demonstrable advantage. They are better, but not by enough.

Why it’s not enough to simply be better, as explained by John Gourville.

Alongside Clay Christensen, Bob Moesta has been described as ‘one of the key architects’ of Jobs to be Done theory. He’s extended the initial theory in multiple directions, one of which is his Switch workshop, which he delivers under the banner of the Re-Wired Group.

Moesta and his team believe strongly that consumers don’t simply adopt a product, they switch from something else. Each time you ‘hire’ a product, you ‘fire’ the incumbent. And, during this period of change, there are four forces that act upon you which influence your decision.

Two forces incline you towards making a change and two incline you against doing so.

First is the push. This starts with frustration with your current situation, a sense that the ‘as-is’ is sub-optimal, or even downright broken. This triggers the action of looking for something else.

Then, there’s the pull. When you hear about something else that’s better, you want to check it out. I’m old enough to remember when Google’s search engine was first released. The word of mouth was incredible. People would just tell you ‘This is so much better than anything else’ and you only needed to try it once to jump onboard.

There are also two forces that preserve the status quo.

The first is habit, which is a huge thing to overcome. As a new product developer, ‘Good enough’ is your biggest enemy. Many Product Managers still use Excel to manage their backlogs because it’s good enough. There isn’t enough of a push to cause them to switch to Trello, Jira etc.

Next is the anxiety which accompanies loss aversion, the innate fear of the new.

Re-Wired’s ‘Progress Making Forces’ Diagram.

An analysis of the 4x ‘Progress Making Forces’ that consumers experience as they consider your product is another activity I would encourage all product teams to undertake. If you don’t understand the switch moment for your product, you won’t understand how to market it effectively or iterate upon it over time.

Switch analysis can also transform your understanding of the competition. This is best exemplified by Reed Hastings’ quote about Netflix competing with a bottle of wine.

I believe Reed has since observed that his new competitor is sleep. Either way, his comments illustrate the diversity of the actual competitive landscape. Brands like Netflix, Facebook, Snapchat etc are now locked in an epic battle to monopolise your time. All other activity undertaken during the day now competes with them directly.


Product Strategy #4: The Pyramid

Here’s a tip: if you want to appear knowledgeable, it never hurts to talk about your product’s ‘unit of value.’ Value has been a popular trope in product for some time. And Eric Almquist, has done more than most to develop our understanding of this concept.

Eric is a partner at Bain and Company and has spent 25 years consulting to large corporations in various sectors. During that period, he’s conducted a huge amount of research about how product value is constituted and understood by management. His conclusion was that value is complicated, amorphous and hard to quantify. Everyone is an expert on price, but no-one’s an expert on value.

As a result, managers tend to focus on cost reduction and supply-side efficiencies rather than the demand side which remains poorly understood.

Bain & Company’s Eric Almquist.

To progress our understanding of product value (and communicate what they learnt from their research), Eric and his team produced a ‘Pyramid of Value’ that visually identifies 30 separate value units which products and services can deliver to consumers. Using a recognisable framework ‘borrowed’ from Maslow’s Hierarchy of Needs, the pyramid stacks the units in four layers: functional, emotional, life changing and social impact.

Base heavy, like any pyramid, most units congregate further down the stack while a single unit (self-transcendence) resides at the peak.

Most products (in fact, most startups) tend to compete solely within the functional layer. They save time, money or inconvenience for their users. Not that there’s anything wrong with that. It’s worked well as a strategy for Amazon and Uber, but it’s extremely competitive as most companies operate in this layer.

Eric believes there are bluer oceans, better opportunities and wider profit margins, to be found by setting ones sights further up the pyramid. Take Apple as an example. They rarely compete on features or functionality, the iPhone is almost always behind the curve in this regard. Instead, they compete on an emotional level, on less tangible brand qualities. And their margins are eye watering compared to everyone else. Despite recent decline, they still capture about 79% of global smartphone profits.

The Pyramid of Value represents a great opportunity for all product teams to assess what units of value they compete upon. Eric is keen to point out that trying to compete on all elements would be prohibitively expensive, even for the most affluent. Success, he concludes, is the result of carefully defining on which elements of value your product should compete. Then ignoring the rest.

Even elite companies (think Amazon and Apple again) only over-index on about 10 units. On the remainder, they’re no different from every other company. The challenge is knowing exactly where you compete and to focus accordingly.


Product Strategy #5: The Journey

Chamath Palihipatiya is one of the most quotable people in tech. And 2017 has been no exception. He was part of the top team that can claim credit for helping Facebook achieve the extraordinary scale it now enjoys. Chamath once observed that product development is about state change. About moving people from never having heard of your product, to thinking about it, to actually using it.

The next product strategy lens means understanding the journey users undertake as they move between states.

At first, the user doesn’t even know who you are. Then, they’re considering you and trying you out. Next, they understand you and use you regularly. Then, once they’re locked in, they want to customise you around their own specific needs. Every user moves through this journey in the same sequence.

The journey itself can be viewed from a variety of angles, or lenses. One is the value lens. Initially, your product has to communicate its value promise. Then, it must demonstrate this value. Next comes value delivery; every time someone uses the product the value is delivered consistently. Finally, you extend the value for each individual user and, eventually, into other products.

What does this mean in practice for the product team?

Getting the first stage right requires close interaction with the acquisition or growth team, ensuring you communicate exactly what the product does in the most succinct manner.

Next comes onboarding, very much part of the product, when you need to convince interested trialists of the product’s value as quickly as possible.

Next is core task completion, when your product has established a role in someone’s life and you need to embed that position further.

The final stage is administration, so users can customise and change the product to suit their needs.

Each stage requires coherent planning and feature development, to ensure each user need state is catered for. Most products start with core task completion but overlook the other states that need supporting.

In terms of measurement, the this lens maps neatly against the Pirate Metrics established by Dave McClure.

The first stage are the acquisition metrics, next is activation, the third stage is retention and revenue and the final one is referral.

(Like Hollywood, Silicon Valley has been confronting its sexual predators and Dave McClure has been one of the casualties. Unlike Harvey Weinstein, he confessed pro-actively. I guess it’s too early to know how long he’ll remain on the blacklist.)

It’s worth pointing out that, if your product is B2B, there are two different journeys to consider. Buyers and users of software are typically different individuals within organisations. Their needs and desired outcomes are different, so the acquisition, onboarding, task completion etc. must differ for each accordingly.

Priorities also vary greatly. Buyers typically place much more value on administration capabilities, something that’s easily overlooked by the product team in the early days.

If you’re buying a product for 15,000 or 20,000 users at your company, the most important thing is to understand who is using it and how often. Next, you need reporting tools in place so you can demonstrate to the CFO (or the Finance team) how you’re getting a return on this investment.

It’s too easy to focus on the users (and their needs) and to overlook the buyer who, at the end of the day, is the actual customer who is writing the cheque.

A critical element of the onboarding stage is that it is the location of the now-legendary event known as the ‘Aha! Moment’. This occurs when the user suddenly understands your value proposition and realises how it can help them achieve progress (or desired outcomes) in their life.

The ‘Aha! Moment’ is generally accepted as a tangible reality in technology companies; certainly Facebook and Twitter take it very seriously. Chamath has been vocal in describing how the Growth Team at Facebook measured ‘time to Aha!’ in fractions of a second and were hyper-focused on reducing that time further.

For Chamath, growth starts with an understanding product value and is about moving new users to the ‘Aha! Moment’ as quickly as possible.

A great exercise in product strategy is to ask, “What’s the ‘Aha! Moment’ for our product?” and, more importantly, “How long does it take for our ideal user to reach it?” How many interactions or sessions should it be? then, “How can we shorten it further?”

Few can expect to measure it in seconds, as Facebook does. If you manage a B2B SaaS product, time to Aha! could take months. For most products it’s probably somewhere in between the two.


Product Strategy #6: The Story

Still on the margins, but gaining ground, is the notion of ‘Product as Story’. This lens has been pioneered recently by Donna Lichaw in her book ‘The User’s Journey: Storymapping Products that People Love.

Donna was a scriptwriter in Hollywood before making a career pivot into user experience design. By comparing what she learnt across the two disciplines, she observed that the narrative arc (how a typical screenplay is structured) can be used to document a user’s ‘story’ with a new product.

The classic ‘Narrative Arc’ of a novel or screenplay.

The narrative arc aligns neatly with how the JTBD school describe the Customer Job. Just as there is scene-setting and an incident in the narrative arc, there’s a ‘current state’ and a ‘trigger’ in the Job Story espoused by Bob Moesta and Alan Klement.

To compare the two more directly, a standard narrative arc would include the following steps:

1. Exposition

2. Inciting problem (or trigger)

3. Rising Action

4. Crisis

5. Climax or Resolution

6. Falling Action (or ‘denouement’)

7. End

In Donna’s methodology, the user’s story follows a similar trajectory.

1. User problem

2. Trigger / Call to action

3. Flow

4. Impediments / Obstacles to success

5. Problem Solved

6. Value delivered

7. Finish Flow

8. Goal Met

Donna calls the application of this technique ‘storymaking’ rather than storytelling.

It’s been commonplace for sometime for companies to write their ‘brand story’. Instead of placing your company at the centre of the narrative, Donna advocates making the user the hero instead. She encourages every product team, especially those developing a new product, to write 3 stories : the concept story, the origin story and the usage story. And she’s kindly made templates for these available for free.

To avoid falling into the trap of building technology without any market insight to justify its existence, it’s important to start with a human story. A story in which your user is the hero.


Product Strategy #7: The Hook

Nir Eyal has made as much contribution (and impact) as anyone to our understanding of product strategy in the last few years, via his lectures, essays and book, Hooked: How to build Habit Forming Products.

Like any great artist, he steals liberally from other pioneers and absorbs their thinking into his own.

In Nir’s case, the kernel of his thought originates from Dr. BJ Fogg, his former tutor, who directs research and design at the Persuasive Tech Lab at Stanford. The lab itself is proving to be well ahead of its time, pre-empting key debates in tech that are only now emerging.

Fogg’s research focuses on the impact that computers have on our habits and behaviour, the intersection of psychology and technology, and the ethics that arise as a result. One of his many insights is a formula for influencing behaviour, which he calls a ‘Behaviour Model for User Design’, also known as the FBM (Fogg Behaviour Model).

The FBM states that human behaviour is constituted by three factors, motivation, ability and triggers. By considering (and harnessing) these elements in product design, it’s possible to effect long-term behavioural change in the user.

BJ Fogg’s Behaviour Model.

Nir extended Fogg’s model, added insights from his own observations of products like Facebook and Linkedin, and established a new design formula he christened ‘The Hook’.

The Hook explains how product developers can create habit-forming behaviour in users by cycling them through a loop of interactions consisting of a trigger, an action, a variable reward, then continued investment.

The trigger is what interrupts your train of thought and brings your attention back to the product. The trigger most familiar to us currently is a notification, either on your phone or in your browser. The trigger compels you to interact with the product, and that interaction brings some form of reward.

This series of interactions generates increasing investment of self into the overall product experience. Over time, you may add details and customise your profile which serves to deepen your relationship with the product long term.

Nir’s thesis is that the most successful tech companies (Facebook, Google, Linkedin) have consciously designed their products to perpetuate behavioural change (and serious habits)amongst their user base via careful application of the Hook Model.

Critical to the efficacy of the model is the fact that the rewards are variable. This means not only that they are unpredictable but ultimately unsatisfying too. In Nir’s words, “they scratch the itch but leave you wanting more.” This is why notifications are frustratingly obtuse. “Did you see what 7 people said about Jay’s post?”

This is product design powered by FOMO. And the extent of the dopamine release in our brains from responding to these triggers has been shown to be equivalent to crack cocaine.

The tactics used to achieve this are simple, yet effective. A good example is autoplaying videos, allowing you to keep watching content (and adverts) indefinitely. This is the natural evolution of pages that infinitely scroll, a tactic that has been used by publishers and social media for some time.

Nir’s thesis received a huge fillip in 2017 from our old friend Chamath (again!) and a number of his ex-colleagues who seem to be experiencing a collective phenomenon known as ‘Facebook guilt.’

Chamath, as candid as ever, explicitly warned users of tech and social media products that “you are being programmed”, going on to conclude that Facebook (and other products) are “tools that are ripping apart the social fabric of how society works.”

Justin Rosenstein, a former Facebook engineer who birthed the ubiquitous ‘Like’ button, concurs. He alleges that “our minds are being hijacked” with the result being that “All of us are distracted, all of the time.”

It looks like Tristan Harris, who pioneered the debate about the ethics of behavioral design and the ‘Attention Economy’ as part of his ‘Time Well Spent’ initiative is set go mainstream in 2018.

Ethical concerns aside, it remains a valuable exercise for any product team to consider the Hook Loop and the Fogg Behaviour Model in the context of their own product. Do you know the internal and external triggers that precede engagement? Do you know which motivation (6 types, according to Fogg) you are acting upon?


Product Strategy — Summary

So, there you have it, a new Product Strategy Tool Set for the digital era. Seven lenses that can be instantly applied by any Product Team (or founding team) to clarify their true purpose. If nothing else, each should ensure the team moves beyond thinking of the product as simply a set of screens and features. It’s about a journey, a story, a switch. It’s about delivering value and above all, it’s about making your user awesome; helping them make progress in their lives.