How to think and talk about business impact

About 8 years ago I had just started in a new product role. I wanted to get to know my key stakeholders and understand this organization’s business. I was lucky that the CFO and me both worked in the same office, physically close to each other. I wanted to understand what kind of business case would move the needle in that organization. So, I went straight to the person in charge of financials, knocked on the door of the CFO and asked. Her reaction really surprised me, and it took me a long time after that to fully appreciate how that one conversation may have helped my career, and instantly built trust and credibility with a powerful business stakeholder. The conversation went like this:

Me: “Hello Lynette, do you have a minute?”
Lynette: ” Of course (coupled with a mix of surprise and curiosity why the new PM would want to talk to her).”

Me: “You know that I just recently started here. And I’m curious to hear from your perspective: What kind of a business case would move the needle here? Are we talking USD 50K / USD 500K / USD 5 million? What size product initiative results would make a material impact on our bottom line?”

Lynette looked positively surprised and puzzled. And rather than answering the question straight ahead her first response was this:

Lynette: “I’m so happy you’re asking this question. I really wish your manager had even once asked me a question like this about our business.”

This in turn took me by surprise. I honestly thought asking about business impact is common sense and I was just doing my expected homework in onboarding to a new organization whose financials I did not yet fully understand.

What I only realized in hindsight is what enabled me to ask this question:

Speaking her language on financials came from both my business background and me being unafraid to ask the person in charge of Financials about her work. Asking that one simple question built instant trust, credibility and connection. Lynette met a product person who she felt cares about the larger financial picture of their organization and who is capable of thinking about business impact that matters. It made her trust me more.

In a subsequent round of layoffs my boss was sacked, and I was given his role. And while I would not credit this one conversation as being the only reason for being considered for my promotion, it certainly helped in building a connection with a key decision maker in an organization that was private equity owned and VERY focused on their bottom line.

The truth is: every executive team is focused on the Financials. They care about revenue and the financial results of their organization. Understanding how to relate the value of what we do in product in storytelling about business results and money is a key factor in getting teams funded and being trusted with our roadmap priorities. Ideally product initiatives make sense strategically AND financially to really deliver value to the business.

Why business impact matters

Very plainly speaking: An organization has to make (or raise) more money than they are spending. Else they become insolvent or bankrupt.

Without having enough money, they are not able to pay payroll for their team or invest in cool new initiatives. That money has to be earned (or come from an investor who believes that you can earn it in the future).

Investors ultimately want to see how the organization can make enough money to make their investment worthwhile, so without showing a money earning story and proving some traction with paying customers it is very hard to get funding.

This is also the reason why marketing and sales have so much power in many organizations: They are seen as the providers of revenue. While the product team is often seen as a cost center.

An executive team typically reviews their profit and loss statements every month. On their profit and loss statement (sometimes also called Income statement), the revenue lines are often explained in terms of marketing and sales success, while product and Tech teams typically show up with substantial payroll, hardware and server cost. In a business person’s mind it feels better to create revenue than to cause cost. It’s simply more fun to show growing revenue rather than rising costs to your board. Rising revenues might also secure your next round of funding or allow you to eventually sell your business for a profit.

Understanding this also offers an opportunity for product teams: When we learn how to frame the outcomes of our work in stories about revenue creation, cost savings and the building of assets, we are positively adding to the financial picture of our organizations. A lot of the work we do does contribute to that, we simply don’t always speak about it this way.

Our own storytelling can shape the image of our product organizations as revenue and value creators for the business. Sadly many super talented (and often technical) PMs don’t articulate business impact at all. But it is easy to learn and get started.

How to articulate business impact

This really is just storytelling. It is stories about money. We are very good at expressing stories about what it is we want to build (likely because that is the part our engineering and customer care teams are interested in). We just have to add an estimate of a monetary value to the stories we tell. They usually contain a small calculation and some intelligent assumptions about their monetary value: Here are a few examples:

Revenue story in a Saas subscription business:
When we change the onboarding experience of our Freemium model to an initial period of free premium access, collect the credit card upfront and then ask people to pay after 60 days (rather than trying to upsell from Freemium to Premium) we expect a 25% increase in Premium subscriptions. This translates into (number of monthly new signups x subscription price x added subscriptions x 12) = XYZ USD in additional revenue annually.

Cost savings story for an automation of frequent key customer requests:
The average time one of our customer care representatives is taking to respond to this kind of a request is 30 minutes. We get an average of 20 instances of this kind of request per day and can run an automation that will enable the representative to respond in 5 minutes in the future. We’ll invest three days into development and save (20 instances x 25min x payroll cost for 25min x 365 days) resulting in an overall cost saving of XYZ USD. In addition, we are having faster responses and fewer errors in these repetitive requests resulting in a better user experience for clients from our strategic growth segment. This will make it more likely for them to recommend us to their peers and lead to more sales.

Data asset / revenue creation story:
Having a unique data asset is allowing for more personalized upselling recommendations a strategic advantage in our industry. We believe that we will win 10% more sales than the competition in the coming years based on the unique comparison feature we are building powered by our proprietary data. We need to invest XYZ into building this comparison feature today and it will pay off with (number of additional sales x average deal size) resulting in XYZ in additional revenue plus the opportunity to add an immaterial data asset to our balance sheet in the future.

How to learn business acumen

The two most important business skills to learn about as a product person is Direction Setting (Vision, Strategy, Goals) and literacy with business Financials. And the good news is that some of the same techniques help with acquiring both skillsets:

1. Learn the basics from a book, a training, a podcast or a blog
   • On Strategy: e.g. “Good Strategy, Bad Strategy” by Richard Rumelt or “Playing to Win” by Lafley & Martin. Both of them also have excellent one hour podcast episodes on Lenny’s podcast to get you started. There is also great content on the connection of Vision with Strategy, Objectives, Opportunities and the underlying principles from Martin Eriksson and The Decision Stack Group.
   • On Financials: e.g. “Accounting Fundamentals: A Non-Finance Manager’s Guite to Finance and Accounting” by Shihan Sheriff or “The Accounting Game: Learn the Basics of Financial Accounting – As Easy as Running a Lemonade Stand” by Darrell Mullis and Judith Orloff. You could also take a class on basic financial accounting concepts online.
2. Learn about your business context from your peers wo already work on this in your organization:
   • On Strategy: speak e.g. to the CEO or if you have one the Chief Strategy Officer and ask for explanations and mentoring (and if your organization is too large to access those people, then speak e.g. to your Business Unit Lead or Group Lead about Strategy for your part of the organization)
   • On Financials: speak e.g. to the CFO, a VP or Director of Finance and ask questions about the main revenue drivers, the main cost drivers, your current business model, their thinking on pricing and if they are willing to explain and partner with you
3. Learn how to ask good questions related to your product role about it. Examples of those kind of questions could be:
   • On Strategy: What assumptions drive our main business strategy? Where are we playing (markets/segments)? How did we pick this segment? How are we winning? (on price? on competitive advantage?) What is our strategic advantage in this segment/market?
   • On Financials: What business case would be an exciting addition to our revenue or serve as a valuable cost savings? What are the main drivers of our revenue and business model? What would need to happen to get our data or software evaluated as an asset? What do you see as our main revenue drivers? (e.g. average shopping cart value, average deal size, conversion rate to subscription, minimized churn rate, etc…)?

What can you win by learning those business skills?

Learning about business concepts like strategy and financials will help you get more trust and buy in from your business stakeholders. It will allow you to get projects funded and it is a powerful way to justify your roadmap choices when there are loud voices in sales that want to pressure you on shipping things for individual deals.

Ultimately, this also allows you to show the value your teams are creating for the business and can help you shift that perception of product being a cost center to product being an intentional revenue driver.

At that point the worst pressures of being “sales led” or “tech led” will die and a product team will have more trust from the business in creating their own strategies and roadmaps.

If you’d like to learn more: join me for a free masterclass on some basic financial concepts for product people that I’ll be hosting on Thursday November 7th 2024 at 5pm CET. You can sign up here: https://www.linkedin.com/events/7255221683127566337/comments/

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If you would like to explore this even more: reach out for a free coaching session with me.
I coach, speak, do workshops and blog about #leadership, #product leadership, #AIEthics #innovation, the #importance of creating a culture of belonging and psychologically safe teams.

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