18
Sep 14

What Is The Business Value Of A Product Manager?

I have not been able to find an answer to the question “what is the business value of a product manager?”

So, I did some arithmetic, and here’s what I came up with:

A product manager is worth between $5 and $10 million of annual product revenue.

That’s an educated guess, a stake in the ground, a challenge to you.

Simple Ratios

I arrived at that value working bottom up using familiar financial ratios from software product companies:

  • The normal ratio of development resources to revenue is roughly one developer per $1 million in revenue.
  • The normal ratio of product management to development resources is one product manager per 5-10 developers.

Combining those ratios results in one product manager for every $5-10 million in revenue.

I’ve taken a leap and assigned this as the business value of the PM – if you hire a product manager, then you are looking toward increasing your revenue by $5-$10 million annually.

Raises Questions

Once you put a stake in the ground about the business value of a product manager, you can ask interesting questions.

If you are a product manager, you can ask:

  • How well am I doing? Is what I’m doing going to result in $5-10 million a year in new revenue?
  • How much would it be worth to the company if I got 10% better at my job (answer: maybe as much as $1 million).

If you manage product managers, you might ask:

  • What’s the return on investment if I help my product managers become 10% more effective, and it costs $10,000 per product manager? (Answer: pretty high!)

And here are two questions for you:

  • Does this analysis make sense to you and is it valuable?
  • Do you have a top-down analysis – to go with my bottom up calculation – for the value of a product manager?

I’m curious to see how this conversation ends up. I believe that putting software product management on a concrete business value foundation could be transformative for the profession.

What is your take on the business value of a product manager? Does this concept make sense to you? Do you think my figure is correct? Way off? Unmeasurable? Let me know.


11
Sep 14

Revenue Up-And-To-The-Right – That’s The Goal

The Business of Software blog just posted my latest essay! Here are some excerpts, and you can read the rest there:

Most of you have the ambition to get big. How do you do that? The only way to get big as a product company is for people to buy your product. Preferably a lot of people, for significant amounts of money at a time. Duh!

But why would people buy your product? We know there are products that people don’t buy. We don’t want those – because you can’t get big, or even grow at all. If you look at the revenue line for a product that no one buys – it’s nasty! We don’t like that line!

Solves-a-Market-Problem-vs-Doesn’t

Revenue Lines For Products That Do – and Don’t – Solve A Market Problem

 

 Why Do We Get Revenue?

Compare it to our desired revenue line – up and to the right – and accelerating as it goes up. If our product sells like that, it means it’s solving an important problem for some people – important enough that people will pay for the solution.

You can have a beautiful product, beautifully engineered and architected, and totally rocking in usability – but if it doesn’t solve a big market problem – flat line.

But a product can have some warts, not quite work as the user expects all the time, have some typos, use a 1998 style UI – but if it solves a big problem better than anything else – up and to the right.

Read the rest, including thoughts about the real definition of product management (it’s not just about finding problems)  at the Business of Software blog.


31
Jul 14

Love the Problem, Not the Product

DeathtoStock_Wired6I’ve got a couple of great essays in the hopper (I know I promised a followup on why Excel is not great for product managers), that will be baked soon, I hope.

But in the meantime, I wanted to let you know about an essay I wrote recently for Mike Smart’s PM 2.0 blog.

What’s the most important thing you should worry about as a product manager? I think you’ll be surprised by my answer – and my examples of markets who have figured that stuff out.

Product managers often place the cart before the horse. We love to think about the product, the features, how “cool” the UI is, and how we can make the product better.

But when it comes right down to it, your product is the third most important thing you should be worrying about.

Yes, you read that correctly. There are two much more important things than your product you should focus on if you want your company to be successful.

Read the rest of the essay here: Love The Problem, Not The Product.

Let me know what you think of this (not so) radical position in the comments!