If you’ve ever been part of an organization that has adopted agile approaches you’ve heard some variation of this phrase:
You must prioritize based on business value!
Every agile coach, scrum master, SAFe consultant always, everywhere
“Great!” you may have responded, but at least thought, “I’ll do that. Just as soon as you tell me what the heck business value is… in terms I can use to make decisions on this product.”
And if you ever actually asked for a specific description of business value, you may have had a conversation like this (just replace “business value” for “write-off”):
I know that happened because I was one of those agile coaches. And before I go further, I’d like to apologize to everyone I gave that less than helpful advice.
Explaining business value
So now it’s time to actually explain business value in a way that’s useful.
For profit businesses want to sell products that solve problems for customers and that generate revenue for the organization.
Revenue (along with profit) often becomes a measure of how well a business is doing. But if you’re working at one of those businesses, you’ll find it’s difficult to decide what to do based on impact to revenue.
Revenue is a lagging indicator and there are several factors that determine how much revenue an organization makes. Most of those factors are outside of your team’s control.
To address that problem, tech companies have started adopting North Star Metrics for their products. As Jenny Booth points out, a North Star Metric has three characteristics:
Leads to revenue – is a leading indicator for revenue growth
Reflects customer value – shows that your helping customers solve their problems
Measures progress – is measured over a short time frame (days or weeks) and provides a short feedback cycle.
Some examples of North Star Metrics include:
E-Commerce: Value of daily purchases
Consumer Tech: Daily Active Users
Media: Total read time
The folks at Finmark put together this list of over 80 North Star Metrics from a variety of tech companies.
If you can find a metric that meets those characteristics and everyone working on your product knows what that metric is, you now have a way to measure business value for your product.
But you probably don’t have something that you can directly use to make decisions with yet.
Getting business value you can prioritize with
A North Star Metric is a great start for building a concrete representation of business value, but it’s generally not usable for your product team. Just like revenue, the North Star Metric is probably too broad for a single product team to directly influence.
You need to break it down into a set of product metrics that your product team can directly impact. Product metrics should be leading indicators of the North Star Metric and finite enough that they can be impacted by a product team.
To find your product metrics by decomposing your North Star Metric as if it were a math formula.
Most North Star Metrics have 3 out of the following 4 components:
Breadth – # of user doing that critical action
Depth – Depth of engagement with that critical event
Frequency – How often does the event happen
Efficiency – How quickly do they go through that loop
For example, consider Spotify’s North Star Metric: time people spend listening to Spotify.
You can break that down into these components:
Listeners(Breadth) * ContentEngagement(Depth) * ListeningFrequency(Frequency)
TrialUsers * AverageHoursPerSession * SessionsPerWeek
Subscribers * AverageHoursPerSession * SessionsPerWeekProduct teams then identify leading indicators of one of those components which become their product metrics.
Where does prioritization fit into this picture?
So let’s bring this back full circle.
North Star Metrics and product metrics represent business value. You pick which actions to take (add new features, change existing features, remove features) based on the actions’ assumed impact on the product metric.
That means you decide what to do based on what you think will solve the problem and drive revenue. You don’t use prioritization frameworks and you don’t use “value points”.
Read on to see more perspectives about business value as outcomes.
More on prioritizing based on business value
Empower Product Teams with Product Outcomes, Not Business Outcomes
Good discovery starts with a clear desired outcome. A well-defined outcome provides a focal point for the product team and serves as a guiding light for their discovery efforts. It helps the team quickly identify and conserve their time and energy for the initiatives that matter most.
However, most teams are responsible for driving business outcomes. Hope Gurion rarely sees teams that are responsible for driving product outcomes. To clarify the difference between these two terms: A business outcome is a metric that moves the business forward, while a product outcome is a metric that helps us understand if the product is moving the business forward.
Using Data to Set Product Strategy – Justin Bauer
The way businesses are being built is shifting right before our eyes. Whole industries are being disrupted in real time and those that are able to take advantage are reaping massive returns. Justin Bauer, shares his advice (Video form | blog post) from working with dozens of the world’s fastest growing companies on how to:
Create clarity using a clear and measurable north star metric;
Integrate behavioral science into their decision making frameworks to build deep user empathy;
Rapidly iterate to drive systematic and efficient growth.
Every Product Needs a North Star Metric: Here’s How to Find Yours
The product north star is easily the most powerful and misunderstood product strategy framework in use today. More product teams are dealing with the consequences of not defining it at all or defining it the wrong way and leading their team down an unintended path.
Sandhya Hegde provides this deep dive on the north star metric. It’s intended to serve as a guide to product leaders and managers around the world on why this metric matters, how to define it and how to use it to drive your long-term product strategy and growth.
How To Align OKRs to Roadmaps
One of the ways to express those components and product metrics I mentioned earlier is to express them as Objectives and Key Results (OKRs)
This article I wrote for airfocus explains what OKR’s and roadmaps are so you can understand how they work together. Spoiler: OKR’s help you put some metrics around the problem you’re trying to solve. Roadmaps help you communicate the things you’re going to use to reach your outcome.
Prioritize Opportunities, Not Solutions
Teresa Torres cringes every time she sees product teams use a spreadsheet to rank the ideas in their backlog based on some made-up math formula usually consisting of things like business value, user value, and technical difficulty.
While this exercise is pervasive, it misses the point entirely. Your job is not to prioritize solutions. A product team’s job is to create value for the customer in a way that creates value for the business. This is rarely done by fixating on a ranked idea list.
Prioritizing solutions is a left-over side effect of being output focused. When you’re judged by what you deliver, the key decisions are focused on what to build when. But when you’re judged by what outcomes you drive, it’s less about what solutions you deliver and more about what problems you solve for our customers.
Product teams should stop prioritizing solutions and instead prioritize opportunities.
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Talk to you next week,
Kent