Overcoming the Barriers To Building Great Products

OVERCOMING THE

BARRIERS TO BUILDING

GREAT PRODUCTS

Mike Chowla Twitter: @mchowla

Silicon Valley Product Camp

March 14, 2015

Copyright © Mike Chowla 2015

Slides available at

http://www.slideshare.net/mchowla

My Background

• Education

• BS, Electrical Engineering and Computer Science, UC Berkeley

• MBA, Wharton

• Experience

• 10 years as software engineer and architect building high

performance infrastructure

• Previously Product Management for AOL Mail, StrongView, Aeris

• Currently Sr Director of Product Management at Rubicon Project


Can you win on product? [From Last Year]

Clearly yes, but seems to be the exception rather the rule

Why is it rare?

My best answer is that it’s hard to build a culture that creates a superior product

Culture Eats Strategy For Breakfast

Peter DruckerMark Fields, Ford Motor Company


We all believe in building great products

In 2015, everyone thinks that great products are good for

business

Every one says they want to make a great product

But very organizations succeed at it


Why?

Apple Has Made The Case

• iPhone has a 38% operating margin1

• 90%+ of the profits in the industry

• Samsung has 8% operating margin

and 9% of profits

• Phones are highly competitive but

has built a better product and

captured the majority of the spoils

1Q4 2014 Canaccord Genuity


So Has Telsa

• Telsa has 27% gross margin

• #1 selling large luxury vehicle

• After only 2 years on the market


The Oatmeal:

Google Search Is Another Proof Point

• 67% US Market Share

• 85% of all search revenue worldwide

• With 18% market share, Bing is losing money


• Even after massive effort from Microsoft Bing, Google’s search results are still better

What is a great product?

(for the purposes of this talk)

A product that market the prefers because the experience

is better and that preference drives superior financial

results (in the absence of other competitive advantages).

Ability to charge higher prices for similar functionality is a

good indicator


Characteristics of Great Products

Frictionless

Great UX

Outstanding Support

Attention to detail

Emotional Connection

Just Works

Simplicity

Does the job it was

hired to do


Most companies competitive advantage is

not in a better product


Network Effect Cost Advantage

Economies of

scale and scope

(Desktop Era)

How Rare Should Great Products Be?

• Exceptional products are by definition well above average and therefore rare

• But, it’s so extremely rare see a new superior product take over a category that it’s exceptional


• As product managers, we’ve all tried to make our

products excel over the competition

• But it’s really really hard

Why is it hard to win on product?


Is culture the problem?

Definition in Merriam-Webster

Culture (noun): the beliefs, customs, arts, etc., of a particular society,

group, place, or time

When people talk about culture and business, they usually mean

the culture of a particular company

Example: Company X has toxic culture

But for great products to be rare because of “culture”, it can not

be the idiosyncratic culture of particular businesses as the hand

of the market would reward the good cultures.

Has to stem from a common element of how businesses work


Classical Business Thinking

• What’s the ROI?• Finance people compute Net Present Value (NPV)

• All activities need a business case• Reductionist in nature

• Evaluates each activity isolation

• Difficult to evaluate second order effects especially cumulative ones• The first bad product decision is impossible to measure

• After a lot of them, your product is now a bad product that customers hate

• And fixing one issue or even a few doesn’t solve anything


Discounted Cash Flow

• Great if you are thinking about capital investment or an

acquisition

• If no one pays attention to the finances, companies go out

of business


But Not So Good For Product Decisions

• Can you quantify the financial impact of an individual

product improvements?

• Usability Improvement

• Improved Visual Design

• Better materials (physical products)

• Features you left out to reduce complexity

• Even more difficult to quantify the cumulative effect of 10

great product decisions


End Result: Products People Hate


Many of these kinds of companies make a lot money

But not by having better products.

These businesses have a strategic & competitive situation where their

customers do not have to like them

Back to great products that people love


Original iMac example


• The first big product introduction after Steve Jobs returned to Apple

• Apple is critically low on cash, bankruptcy is a possibility

Extra Costs in the Case

• The cost of each case was more than $60 per unit, three times that of a regular computer case.

• At other companies, there would probably have been presentations and studies to show whether the translucent case would increase sales enough to justify the extra cost. Jobs asked for no such analysis.

• So I thought, if there’s this handle on it, it makes a relationship possible. It’s approachable. It’s intuitive. It gives you permission to touch. It gives a sense of its deference to you. Unfortunately, manufacturing a recessed handle costs a lot of money. At the old Apple, I would have lost the argument.

• What was really great about Steve is that he saw it and said, ‘That’s cool!’ I didn’t explain all the thinking, but he intuitively got it. He just knew that it was part of the iMac’s friendliness and playfulness.”


How Steve Jobs' Love of Simplicity Fueled A Design Revolution

Smithsonian Magazine, September 2012

Math on the Case

• An original iMac was around $1000

• So an extra $40 on the case, which lowers gross margin by 4% points• In 1998, Apple’s gross margin was 27%

• Four points is a lot!

• Your CFO is going to want to know how colors and a handle justify 4 points of gross margin

• And your competitors will ridicule it:

The one thing Apple’s providing now is leadership in colors. It won’t take long for us to catch up with that, I don’t think.

- Bill Gates


Was the case worth it?

• History say yes

• 800,000 units sold in 139 days

• Apple returned to profitability

• Market cap went from $4.1B in 1998 to $725B today (+17,500%)

• Microsoft went from $245B in 1998 to $335B today (+37%)

• But the problem is that you can not prove it

• Even in hindsight, how can you prove the extra $40 was

worth it. Maybe the iMac would have sold well with a

boring case


“I’m Feeling Lucky”


• Took the user directly to the first result, there by skipping

all the ads

• Estimated that it cost Google $100M a year in ad

revenue

• Justified as keeping Google from looking “too corporate”

• Was it worth it?

Products are more than the sum of their parts

• Your product is not a bundle of attributes with a price

• A great product has 10,000 good decisions, small & large,

that people make people love it

• No silver bullets to get there

• Not based on more functionality

• Great products often do less than the competition


Imitation


Imitation is the enemy of business strategy

If your strategy can be imitated, it ceases

to be a competitive advantage

Great Products are Beyond Imitation

• If the advantage of a great product was a few discrete

attributes, it could and would be easily imitated

Imitation being difficult is what makes winning on product a

defensible business strategy


Apple vs. Samsung


So similar, that Apple sued Samsung

As we saw earlier, superficially looking the same is not enough

vs.

• Similar catalogs

• Both have original content

• Similar device reach

• Netflix charges $8 a month for just streaming vs. Amazon bundles it with Prime• Netflix price is higher, $96 a year just for streaming vs. $100 for the

whole Prime bundle

• To make the streaming service what it is today, Netflix split streaming from the DVD service which tanked their stock price


What kind of decisions are needed

for great products?


The Hard Product Decisions

• The hard ones make the product experience better but

have negative direct business impacts

• Drive cost or reduce revenue without direct offsetting impacts

• Example: Fewer ad slots in an ad supported product

• Example: No bloatware pre-installed on a laptop

• When product improvements have direct positive

business impact, these are easy decisions

• You & your competitors will make the same decisions


How do you even know you are right?

• Really understand the customer impact of your choices

• Resist thinking “more” is always better

• Keep an eye on the aggregate impact

• Monitor how your customers feel about your product

• Maybe you don’t

• Creative works (movies, books, etc) even for the best creators are

hit and miss


How do persuade your management?


Convince people you are a product genius

Sometimes even the best are wrong


Where does this leave us?


A Paradox

• Business thinking is necessary

• You have to care about profitability else you will go out of business

• All the roles that drive business focus are necessary

• Companies will go bankrupt without them

• Great products need decisions that go against business

thinking

• Too many of these that don’t pay off are disastrous

• Thinking too much about financial impacts makes it

impossible to generate superior financial results through a

better product


Ideas on What To Do

• Get the Product Management Fundamentals Right

• Really understand your customers, what they need

• Only way to know when it’s worth it to take the short run hit

• Sweat the details

• If do you don’t care about the little things, you’ll never get to a great

product

• Go as far as you can without endangering the business

• And be right that you are really improving the experience is a real

way


Things I’ve Said

• “That customer can’t leave because of X so I’m not going

to fix their problem”

• “The competition is not any better in this regard”

• “I have too many other product problems to fix that major

pain point with the product”


Was I being expedient or did I compromise the product?

[email protected]

Twitter: @mchowla

www.linkedin.com/in/mchowla


Overcoming the Barriers To Building Great Products

Business

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