Many companies specifically look for product manager candidates with an MBA degree, however, not everyone has the time, opportunity, or resources to pursue one. Why do companies want product managers with strong business acumen, and how could you hone your business skills to prepare you for your product role? Let’s start by understanding what type of business skills are useful for general product management.
Key business skills for product managers are:
- Validation of business ideas
- Go to Market Strategy (GTM)
- Market and competition analysis
- Defining metrics to align to business goal
- Translating business goals into technical requirements
- Monetization Strategy
- Pricing, Negotiations, Contracts
- Understanding Profit and Loss statements
Depending on the maturity of the company and the domain, the scope of your role as a business leader can vary widely. However, having a strong foundation in the core concepts listed above will prepare you well for the challenges ahead. Let’s dig a bit deeper into some of these concepts.
Validating your Business Ideas
Product managers look for ways to bring value to the customer by fulfilling a need that isn’t being met, or by offering higher value above their competitors. So in many ways, products are built like businesses and success depends on getting the problem statement, the solution, and the execution right. So how can you validate your ideas? The best way is to build a hypothesis based on what you know and don’t know, and by testing them intentionally and systematically.
By building a system to systematically validate your business ideas, you are able to de-risk early and reduce waste. Let’s look at the two phases of building a business idea, the discovery phase, and the validation phase.
In the discovery phase, you are trying to define both the problem statement and solution (hypothesis). Some key questions to ask yourself at this stage are:
- What is the pain point we are trying to solve?
- What is the root cause? (5 Why Method)
- How is it being met today (what are our competitors doing)?
- What can we do to bring more value over the competitors?
- What are the consequences if this is not solved?
- What is the ideal situation?
- What is the proposal
Once the problem statement has been defined, we can move on to the validation phase. The goal of this phase is to validate as much as you can, with as little effort as possible. Here are the key questions you should ask yourself at this stage:
- What is the hypothesis to the proposal?
- What must be true in order for the proposal to be true (assumptions)?
- What do you need to measure when testing your hypothesis?
- What does success look like (specific metrics)?
There are many ways to gather these data points and test them, but they will almost always involve going out and talking to your target customers. By going out and talking to them with a specific problem statement and proposal, you will very quickly start to see if it has any grounds.
Based on the results of your test, there could be three paths forward. If there is a clear indication that your hypothesis is correct, move forward. If there is a clear indication of failure, scrap it. If it is gray, then pivot and try again. I know these are very general guidelines for how to validate your business idea, but I hope some of these questions can help guide you in the right direction.
A great tool to help you in this stage is also the Test Card Method from Strategyzer.
Market Research and Competitive Analysis
Having a grasp of how to conduct market analysis is a key skill for product managers. Market analysis is essentially broken up into two parts- market research and competitive analysis.
Market research is understanding what the customers need, and what factors influence their decisions. Essentially, this is the playing field to the game you’re playing, with its own set of rules which you need to know in order to win.
Competitive analysis is looking at direct or indirect competitors in your space and gaining insight into both the market and trends. By looking at what the competition is doing today, you can gain insight into where they may be tomorrow. Lastly, understanding how your competitors are approaching a problem statement will show you the gaps. Through gap analysis, you can find a niche segment that is not being addressed, even in the same market. This will set you apart from your competitors, giving you an advantage in your sub-market segment.
Looking at the competitor landscape is another great way to validate that your problem statement actually exists, and sometimes when you are on the right path, you will become a benchmark for competitors to follow. This is another way you can validate that you’re on the right path with your value proposition/solutions.
Go-To-Market Strategy (GTM)
Once you have validated that the problem exists and that there is a segment of users who are willing to pay for it, the next step is figuring out how to quickly and effectively launch your product to the world.
A strong GTM strategy answers the following questions:
- Who is the target audience?
- How will you reach that audience?
- How will you sell your product to that audience?
- How will you repeat this process?
There are many handy tools and frameworks to help guide you through the process of building a GTM strategy- but a good place to start is by looking at the comprehensive GTM playbook offered by Hubspot.
During this stage, you will need to speak to your customers extensively to understand what their values are, and what features/capabilities make brings the most value to them. Not only will this help guide your roadmap and backlog, but it will also inform you on what kind of pricing model is right for your audience. For some markets, a “pay as you go” model would make more sense over a “subscription” model. Depending on your GTM strategy, maybe you want to offer a “freemium” model to encourage growth.
These are not simple decisions to make, as it will be very difficult to change your pricing model later on. However, it doesn’t mean that you have to get it right exactly the first time. In fact, it is common for businesses to update their pricing strategy as they mature and grow into new markets. Just be aware that the process is often met with great resistance, and may also have large implications for the technical architecture of your product.
Aligning to the Business Goals
At the end of the day, your company needs to make money in order to stay afloat. So using your strong business skills, not only must you understand your monetization strategy, but the product must align with the overall business goals of your company. Unless you are a startup, your product often lives within a complex ecosystem of other products and services that all align to key business objectives and metrics. These are often called Objectives and Key Results (OKR’s) which are measured using Key Performance Indicators (KPI’s).
A strong product manager is able to transform the business objectives into product objectives and define explicit and measurable metrics to track the performance. It is easy to get carried away and overly ambitious here, but the more due diligence that is done on properly aligning and realistically setting OKR’s, the easier it will be for the rest of your team to align to the vision.
Even if your company does not use these two frameworks to align your product and business goals, it is important to be able to measure the outcomes against set criteria. This can help to bring a shared sense of understanding, which is key to gaining influence without authority.
Understanding Profit and Loss
As a product manager, you need to understand the implications of product decisions to the bottom line of the business. Understanding the key terminologies will help you build context for understanding the business impact of your decisions. These metrics should be aligned to the definition used internally by your company.
|Revenues||Money generated from the business||Revenue = sales x average price of the product|
|Direct Costs||Tells you the cost of producing the product||Direct Costs = sum of direct material costs and labor costs|
|Gross Margin||Tells you how much profit is left after the cost of the goods or services||Gross margin = Gross profit / Revenue|
|Operating Margin||Measures the efficiency of the business.||Operating Margin = Operating income / Revenue|
|Net Profit Margin||Tells you the percentage of every dollar in revenue translates to profit||Net Profit Margin = Net Profit / Revenue|
A product manager must be able to validate their business ideas, understand market and competitor trends, define a go-to-market plan, align to the business objectives, and have business literacy. However, there is no need to feel like you need an MBA to be successful in your career in product management.
To be honest, most of these skills can be learned by watching how your organization operates its business and through learning through your competitors and your customers, you can build all of the hard and soft skills you need to excel.