When it comes to any potential opportunity that lies before us, one of our jobs as Product Owners is to determine the value in solving a problem and whether or not it's a problem worth spending ours (and others) time and energy in doing so.
What do I mean by value? The likelyhood that in solving a problem you will:
a) Be able to understand and generate enough demand for the solution.
b) Be able to create some intrinsic value for people for whom you are solving it.
c) Be able to capture some of the value you create (hopefully in revenue).
To this end I created a simple formula that serves as a guide to inform many of the decisions I make and can guide you as well.
The formula came about after studying people who in varying ways focus much of their time on demand and value, including: Marc Andreesen, Des Traynor (Intercom's Chief Strategist) and Brian Balfour (VP of Growth at Hubspot and Publisher of CoElevate, a growth blog) and many more.
I call it "The Value Formula" and it contains 3 key parts:
i x d = v
Defining the formula
"i" is for Importance (why, to whom, how much)
Why is this important, how much, to whom AND in what way. In what way is particularly important as it can determine whether you become Hotel Tonight or AirBnB - two very different solutions to a similar question of "where should I stay tonight?"
What it is that your product is being hired to do and is that job important enough to build a product around. Or is it just a nice to have? Is there a good enough substitute that already exists and if so, how is what you are doing important enough for those people to switch?
The level of importance drives how big a market is, how big of the market you can capture (addressable vs. obtainable market) and how much revenue you can derive from that market.
Track and measure the importance during customer research and development using a standard 1-5 scale. Are you willing to commit time and resources to anything less than a 4?
1 = Not at all important
2 = Slightly important
3 = Moderately important
4 = Somewhat important
5 = Extremely important
NOTE: One thing I would add to the importance part of the equation is the concept of blockers. Blockers (not to be confused with usability "friction points") are the things that keep a customer from using your product, even if a customer deems the product as potentially valuable or useful. Try to identify potential blockers early on.
"d" is for difference (what sets us apart and creates a 4x - 10x difference)
Difference is about x-factor. The less your x-factor, the harder it will be to have a higher or more variable pricing strategy than competitors (the "v" side). Additionally, the less the x-factor, the more confusion it will create for customers when trying to make a choice (the dilution of perceived difference & value).
The goal is to move a customer from awareness -> consideration -> preference as fast as possible. The more differentiating your product is in both tangible and perceived value (i.e.: the higher the x-factor), the faster you will be able to move the customer through their decision funnel.
One thing you can quickly do is to fill in the following mad libs and then use the 4 "Ps" to check yourself using the (8) areas of differentiation below.
Only ___(your product)___ brings ____(differentiating services)____ to ____(customers - be specific)____ in order to deliver _____(end benefits / key outcomes)______.
Looking at the problem from the perspective of Product, Process, Positioning, People, think about the following. How many are true or false. In what way are they true or false? Try answering 1-8 by actually describing how your product, people etc. differentiate themselves in each area.
With each of these you do, give yourself a rating of 1-2x, 4x, 8x or 10x. What are your strengths? What are your weaknesses or gaps?
- You / your team are uniquely suited to delivering it.
- You have a unique take on the problem / solution. For example you "see" it differently than incumbents who might be burdened either by institutional knowledge or industry "best practice" (innovation often happens by disrupting commonly accepted "industry best practice").
- You have unique / intimate domain knowledge of the problem space itself (this can be good or bad depending).
- You have unique insight or information others don’t or isn't widely known.
- You have unique expertise (for example an expert in weight loss).
- You have a unique process (UBER, AirBnB are examples).
- You have a unique business model or market strategy.
- Competitors are not adequately addressing it.
There's probably more you could add to this list, but these are the main ones. Ask yourself, what is your overall x-factor? Is it 1-2x? 4x? 8x? 10x? And what from above contributes to your x-factor?
"v" is for value
The value part of the equation, which is driven by importance and difference can help to show its market potential both in how valuable the service is, how much customers are willing to invest in it (time, data - the more the better obviously) and those customers willingness to pay (including how much).
It also can affect the immediacy of your product, which is the speed (and frequency) at which a customer recognizes your products potential value to them and consumes the products' core value proposition.
Ask yourself (and your customers!):
From a Product / Business perspective:
- What specifically is the service that customers are hiring us (our product) for?
- Who is most likely to pay for this type of service?
- Why would I pay for this type of service?
- How much would I pay for this type of service?
From a Customer perspective:
- What are you looking for in a service of this type?
- What would you expect out of a service of this type?
- Would you pay for a service like this and how much?
- Would you be likely to recommend this service to others? (is it a good perceived value for the price?)
For Customer question 1, I recommend putting yourself in your ideal customer's shoes and listing out some of the things they might be looking for in the very beginning. If you can't, then you're not clear on the job your product and products like it are potentially being hired to do.
I know that's a lot of detail but by keeping i x d = v on the top of your mind, you can give yourself a simple framework to guide you as you poke and prod at the problem(s) you are trying to solve.
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