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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
Twitter: #TuTe2016
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 [email protected]/in/henkkahamalainen
