Understanding product development economics - why it matters?

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Understanding Product Development Economics – Why it matters?

Henri Hämäläinen, Contribyte

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.

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

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Product Development Economics

Shipping container was not adopted by logistic companies, because it seemed to ruin their business..and it eventually did.

The same way, companies don’t want to change their business models due to software, because it will ruin their business.

So, let’s get back to basic product development economics

Product Development Cash Flows

Profi

tCo

stSales Revenue

Operating Profit

Net Profit

Break-even timeInvestment (incl. maint)

Profitability of ProductPr

ofit

Cost

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

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

In organizational levelthe same laws apply as a result of multiple products or features

Many companies solely focus on operative efficiency!..or zero defects as quality focus!

Business nowadays can come from so many other factors: new business models, surprising customer value, customer experience or many other

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

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.

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.

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What has changed?

From Gaussian world to Paretian world

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

In Paretian world unlikely success happens

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

What about the long tail?Same logic applies in there.

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Why this is important?

Iterative development is forgotten. Sprints are just readymade planning intervals, without much room for aiming for better.

Large Agile initiatives are run with a project plans called agile release trains

Production line Kanban is used for developing non-linear creative solutions

Lean is misunderstood for, only cutting down the waste for fastest possible release.

If we ever want to start creating great products again..

We need to fix this..

We need start understanding our business much better..

..and our customers

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.

Product Owners and Product Managers play huge role in product businesses of companies..And most of them suck at understanding the economics

Create great balance between these. Challenge your people to

understand these!

Operative Efficiency

Subjective & Objective

Quality

Business Capabilities

And then you can create products that are successful for their full lifecycle!

Profi

tCo

st

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

Thank you!Henri Hämäläinen CEO, Principal Consultant, Contribytewww.contribyte.com

+358 50 487 3291henri.hamalainen@contribyte.fifi.linkedin.com/in/henkkahamalainen

www.contribyte.fi