NOTE: The following is a guest post by Christine Midwood. If you want to submit your own guest post, click here for more information.
Recently, I’ve been mentoring an engineer who has recently completed his MBA. He’s interested in exploring product management, and has been contributing to market research and product strategy discussions. He made a comment that the real world is very different from case studies in business school: you don’t always have all of the information available to you.
After years of Product Management, I’ve gotten used to running with my best assumptions during a decision process. But I can see where this would be a surprise, especially to someone as logical and detail oriented as an engineer.
So how do you make solid decisions in the absence of all the facts?
1. Prioritize the key drivers to any decision
There’s an endless number of metrics related to any business and market, so the first task is to decide which ones are critical to your success.
For example, you’re preparing a business case to add a new, exciting feature set to an existing B2B product. You’re trying to decide whether to add it to the existing product at no charge, or if you could create a premium product package to generate revenue from those features. What and how would you charge for the premium product package?
It’s important to understand:
- Market Demand: Will your product now solve a problem that your customers know that they have? Have your customers specifically requested these features? Or, is this new, ground-breaking technology that will deliver the “Ford Model T” rather than just a “faster horse”?
- Target Market: Is this new feature set compelling to all of your customer base, or just a specific segment?
- Competition: Do your competitors already offer these features, or will they in the near future? What do they charge? What is their pricing model?
In addition, there many other interesting data points that you could research if you had the time – but they may be less critical:
- Customer Satisfaction: Are your customers currently happy with the product? Do you deliver a significant ROI for their purchase? Or, do they think that they’re “buying a Cadillac when they just need a Hyundai”?
- Time to Market: What amount of time has passed between customer requests and when you will have the feature available in the market?
- Impact on sales cycles: Will these product features extend or shorten the time to purchase? For a B2C product, will the additional features distract buyers such that they don’t complete the purchase at all?
2) Gather all the information that you do have at your disposal
Sometimes this takes some digging, which is why it’s important to prioritize first. Talk to your customers – if possible, select those that represent different constituent groups. Explore all sources of metrics: Finance, your CRM tool (such as Salesforce.com), and any support or operational metrics are usually great places to start. For market info, explore what the analysts and your competitors have to offer.
3) Make your best assumptions in the absence of concrete facts
Now that you know what you don’t know, it’s time to fill in the blanks as best as you can. Be sure to document any assumptions so that it’s clear not only where you’ve made assumptions, but how you derived your best guess.
For example, you are considering selling your B2C product in Australia. The product allows users to store and track personal information such as account passwords, membership information, and credit cards. The product is delivered as a hosted service that can be accessed via a smartphone app. It’s been widely successful in North America. You need to determine the market demand for this type of product in Australia.
You think that your target market is comprised of smartphone users who have purchased a mobile application within the last 3 months. Unfortunately, the only metrics at your disposal are the number of smartphone users in Australia as of January 2011…let’s say it’s 1 million. The number of smartphone users in Australia has been growing at a rate of 20% per year, so you expect that the market will reach 1.2 million users by the end of 2011.
And, you have data that shows that 90% of smartphone users have purchased at least one app since they bought their phone. However, you don’t have metrics to show the number of users that have purchased an app within the last 3 months.
You could make an assumption that 90% of the 200,000 new users in 2011 will purchase an app = 180,000 application purchasers. In addition, you expect that 60% of the existing smartphone owners will purchase an app in 2011 = 600,000. (This number is estimated to be lower than the 90% who have purchased ever, as many owners might buy an app during the initial period of excitement after buying the phone itself.) Therefore, the target market for your product is 780,000 users.
(There’s probably another level of detail here to determine which of these users would be interested in your product specifically, but you get the point…)
All of these calculations should ideally be variable inputs to your free cash flow analysis so that you can easily adjust the calculations. At a minimum, the assumptions should be documented and visible in notes, not just embedded within the formulas themselves.
4) Make the decision!
After reviewing all the data that you’ve gathered and the assumptions that you’ve made, take an educated guess based on the data at hand and prior experience. Unfortunately, there isn’t a formula for this one! However, I’ve always found that a healthy dose of common sense goes a long way.
5) Determine when to revisit the decision and key assumptions
Once the decision has been made, the team will go into execution mode. It’s easy to get caught up in all of the details, so it’s a smart idea to plan in advance when you’ll check in on your progress. And, be prepared to make adjustments as necessary if the situation has changed or your initial assumptions need tweaking.
Any other suggestions? How do you make decisions in an ever-changing market?
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Christine Midwood has significant experience defining and marketing Software-as-a-Service (SaaS) products that help companies distill large amounts of information into key findings and actionable recommendations. She can be reached at cwm at midwood dot net.