Sunday, April 17, 2022

Gambling or Groceries?



Following on the post about sustaining software, here’s an opposing argument. 

Go big or go home. Deliver shocking value. Focus attention on exponential results instead of linear ones. Leverage your investment into the biggest possible return.

All of those exciting phrases are exciting because they mean increasing risk. Some are drawn to that risk, preferring to be a dead eagle than a live turkey. “No one ever achieved greatness by playing it safe” said Harry Gray. There’s truth to this statement: taking risk does not guarantee a reward, but a high degree of risk avoidance can guarantee the absence of reward.

And so, the question becomes how to balance pursuit of risk against safe bets, which luckily is the sort of thing that businesses have been thinking about for a long time. Unfortunately, some of the tools available to the finance department may not work as well for a product team. For instance, diverse asset allocation makes a ton of sense for a financial advisor, and is a legitimate company goal up to the point of market saturation, but becomes less great when you’re spreading your development efforts across unique and unrelated product efforts. The essence of strategy is making choices, after all, and it's potentially hard to be unified behind a single strategy as well as diversified in your investments. Still, the idea of isolating risk budget from non-risk budget has merit.

Therefore we think of gambling versus groceries, or more prosaically, Research and Development. The gambling side of the house does research into ideas that become new products, and the groceries side of the house develops and maintains the products that already exist. A very sensible model, but one that has been known to produce a house divided. If internal political pressures or external market drivers shift an R&D organization into full groceries or full gambling, then another organization will most likely be formed or funded to solve the other need.

Saturday, April 16, 2022

When to use Design Discovery Patterns


 

People love one size fits all patterns and models, but it is usually better to use the correct tool for the job at hand.

So you need to solve a problem. You’re going to build a solution to solve the problem with. It’s going to have users, who will configure it, give it their problems, and get solutions out of it. You’ve written some product requirements, you’ve got personas, you’ve got ideas. Then you start talking with other people and are faced with a dilemma:

* Do you Double Diamond explore the whole space of potential?

* Or do you “thin steel thread” to a Minimum Viable Product, then expand as demand drives?

The designer: “You’re suggesting an approach that covers left-to-right languages, but I see in your meeting notes that some of your customers do have operations in countries with right-to-left languages, and are you sure you won’t have need for that some day?” 

The architect: “I see you’re thinking under a dozen simultaneous admin-level users but are you sure it won’t need to be architected for thousands?” 

The engineering manager: “There’s an export data function here, what if instead of raw data dump we support PDF with an accessible color template?”

This is double-diamond thinking, and each of those ideas represents a quarter of work that you didn’t account for in your timeline.

Alternatively, the project manager comes in with “why don’t we do a non-working prototype and see what people do with it?”

And the team lead suggests: “if we constrain to a single type of conversion, we could get this done by end of the quarter.”

This is thin steel thread, developing an MVP (Minimum Viable Product), and each of those ideas is removing a big chunk of what you wanted from the first release (in the non-working case, the chunk is “everything”). Digression: a popular model for explaining MVP is the “from scooter to bike to car” blog post — which I have to say I hate, because it’s not an effective metaphor. Making and selling physical objects that don’t optimally solve a problem is tremendously wasteful, especially if you take the problems of disposal into account. Making and selling software that doesn’t optimally solve a problem is considerably less wasteful. The problem is that while software ages like milk, the cost of producing it is considerably more expensive than milking a cow.

All that said, the George Box quote that “all models are wrong, some are useful" is certainly applicable here. Both models are the right choice at different times, and the distinction is in whether your development team has the right tools in their bench for solving the problem that needs solving. 

To do the thin steel thread trick efficiently, you need to be using off the shelf components. It doesn’t matter if they are in house or OEM or open source, it only matters if your dev team is knowledgeable and comfortable with the components. If the engineers aren’t using tools that they’re comfortable with, then they aren’t able to efficiently produce successful solutions to problems. So, first job is to get the toolbox you’ll need, and that’s a double diamond job. In order to build or select and learn a good set of tools, you have to know the whole problem space that you’re going to work in.

A second factor that leads to is domain expertise, which can be a product manager’s problem. Developers spend a lot of time learning software engineering, and not the problem space that your customer is trying to buy a solution for. The purpose of these design discovery patterns is to build a minimum level of expertise in the domain, sufficient to produce useful software tools. Like any tool, they are limited to the use case that their designer intended (consciously or otherwise) and may not function properly in others scenarios. 

Saturday, February 26, 2022

Continued Improvement in Software Products

What’s more valuable to the software vendor: improving what you’ve already delivered, or building something new?

At first it might seem like building a new thing will have the highest return on investment. After all, new customer growth being equal, the finished product is only going to get support, renewal, and expansion dollars from existing customers. A new product could be sold for full price to existing customers, so more potential. This view neglects the sad fact that software ages like milk, and requires constant attention to maintain its value. An enterprise software product exists in an ecosystem of supply chains, changing standards, and data flows with adjacent products. The ecosystem changes continually, and a product that doesn’t keep up weakens and eventually dies. There are exceptions, but by and large when products stop working, customers stop paying for them.

This is why growing and sustaining software can actually have higher business value for an enterprise vendor than new projects, because it is churn prevention. The easy benchmark in sales is every dollar churned is two you have to make in new business. But in enterprise businesses that's more like 1:5 or 1:10. Why? There’s a strong chance that product failures don't just churn a product, they churn the entire relationship. Failing to maintain or add features to software that your customers are still using leads to customer churn. 

You could argue that's not true or not important if you're on a one-and-done perm license model… you’re only risking your support contract renewals, reputation, and any expansion opportunity, but you’ve sold the software and that’s all done. "Just risking reputation" or "won't get expansions" ought to give any company serious pause, but this straw man position is that it's okay to ignore software maintenance if you primarily sell perpetual licenses. However, perpetual licenses make a lumpy revenue stream. If your business is primarily living on them, then your CFO is probably pushing for a recurring subscription model such as SaaS right now, to smooth out the lumpiness. And if you’re a SaaS, you are not very likely to keep subscriptions if the software starts breaking and you’re not fulfilling your end of the contract.

New projects have potential to disrupt industry and make 10x or 100x annual ROI. Every baby also has potential to be an Olympic athlete or famous musician. The odds are against a particular new project instantly becoming a world-changing 10X, and pretty good for a much more modest rate of return that gradually improves with the application of more effort. New products that don't immediately fail are often legit businesses that could steadily grow into serious revenue generators, if they’re sustained at the appropriate tempo. Leaving them unsustained or not adding features hurts the vendor. Or they can be shut down, leaving disappointed customers and opportunities for competitors.

Squad development models can exacerbate this form of “almost made it” product failure, by encouraging shift of resources away from product that is “finished” or not driving 10x right now. Another way to produce a stagnant product is to build with assumptions that someone else will take care of content, but then never build the partnership conditions for that to happen.

Sustaining and feature growth teams are churn prevention teams, and they're very probably making more money for the company than higher profile projects. The product manager’s challenge is to make that visible and exciting. A new product with its own license has an easy path to show exponential growth; after all, it’s not hard to double and triple your yearly sales when the starting point was zero. It takes at least a year in enterprise software to recognize if that early growth will hit a plateau. Sales of big ticket software take time to complete, license bundle definitions might have changed, and feedback or demand might be muddled by context loss. Arguments for how much money an existing product makes can get bogged down in soft accounting of pull-through dollars.

Anecdata can be a powerful tool in this situation. A financial argument is always your foundation, but you can support it with positive customer quotes about what the product means to their businesses. It can be tempting to go negative and pull quotes indicating intention to churn if features aren’t built: my advice is to avoid engaging your own leadership’s fight-or-flight response. Tell a positive story of account building, value retention, and license expansions instead.

Since you’re making an argument about the future, using a probabilistic model can help reveal the opportunity (or opportunity cost). Douglas Hubbard’s How To Measure Anything has a good set of examples to follow. The inputs are current and projected business per product, probability of partial churn, probability of complete churn, and planned cost of sustaining engineering over the same time frame.

Update: more thoughts here