Product ROI & expected value
Why investing in product can 9X your ROI
Most of us have been through the wringer this planning season. On the back of a strange and difficult fifteen months in tech, hard questions are being asked about the value that product teams generate. I've been in many difficult planning, ROI, and forecasting conversations with clients over the last six weeks, and want to share some lessons learned.
One common question from non-product execs is: "what's the ROI of this ‘product discovery’ thing? Why do we need it?”
TL;DR: investing in your product culture can 9X+ your ROI and expected value (EV), if not more.
Here's why… 👇
My current favorite way to answer this question is by looking at it through the lens of expected value (EV).
The EV of product work can be thought of as: size of outcome * likelihood of outcome.
In the product context, this equates to: product strategy quality * product discovery quality.
The base rates for successful ideas are very low. Industry-wide, among the strongest product cultures, it might be as high as 30% of ideas that deliver the intended value.
If you aren't in one of the best product cultures in the world, I suggest you set a baseline assumption of 10%.
This means that even if you are right on the money in terms of choosing the problem to solve (strategy), only 1/10 ideas is likely to work for that problem in a way that delights customers and works for the business.
This is why we need product teams that are good at discovery: they can efficiently find the small fraction of ideas that can actually work to solve the problem and drive our intended outcome. Because the base rates say that our pet ideas from the exec team—while worth considering—are unlikely to be the ones that actually work in the end.
A related question is, "what's the ROI of improving our product practices?" (Whether via coaching, training, communities of practice, or other approaches.)
This is simple: this investment increases the likelihood of achieving your outcomes, and the size of those outcomes.
Establishing world-class discovery practices can 3X your expected value (EV) by bringing your likelihood term up to world class levels.
Building a real company and product strategy—which the majority of companies do not actually have—can easily 3X the size of your outcomes, and likely far more (the upside of real strategy can be far, far higher).
Therefore, investing in your product culture can 9X+ your ROI and expected value (EV).
This isn't the only way of looking at the ROI, but I like that this approach links product strategy and discovery, quite literally showing that strategy—which determines the size of outcomes—is a force multiplier on execution.