PRODUCTHEAD: Basics of finance for product managers
PRODUCTHEAD is a regular newsletter of product management goodness,
curated by Jock Busuttil.
million dollar product
Free, online courses are available to help you become more literate in the basics of finance
There are three key financial metrics to track in a recurring / subscription business
Gain a competitive advantage by interpreting annual corporate accounts
Challenge received wisdom about key financial metrics and ratios to reveal hidden insights
a favour: please share this with other product people
every PRODUCTHEAD edition is online for you to refer back to
There are countless articles emphasising how important it is for product managers to focus on the needs of their users. And until many more companies are doing that by default, I’m sure there will continue to be plenty of writing on the topic.
In comparison, a seemingly less sexy topic is financial literacy.
I share the belief with many others that a good product manager should have a balanced blend of skills that focus on how to:
- discover, validate and meet the needs of users;
- exploit the potential of technology to solve problems as effectively as possible in the given context; and
- do all of the above while establishing a business model that allows the product to self-sustain (at the very least) and ideally to turn a healthy profit.
We all come to product management from different disciplines, and if you don’t come from a background in finance or from successfully scoring funding for a startup, it can be a little daunting to decipher the meaning behind the numbers on a balance sheet.
Whether you’re in a startup or a massive multi-national organisation, a good product manager should always have a sense of how their product is performing financially. It certainly helps to be able to have a sensible conversation with your Finance team or persuade your senior management team to back your idea if you can speak confidently about ‘the numbers’.
In a startup, the financial performance of the product is often closely tied to success or failure of the company as a whole, so it’s crucial to have a handle on it. In a larger company, organisational quirks and opaque accounting practices may make this more difficult. Regardless, I believe a product manager still ultimately should know whether their product is paying its own way, even if they’re not formally responsible for their product’s profit and loss.
Sometimes this is easier said than done. I hope my personal experience doesn’t reflect the general case, but I’ve sometimes found it difficult to get access to financial information for my products. The reasons you may encounter for this may vary. I’ve found myself on the receiving end of excuses like:
“We don’t break down the numbers by product.”
“We can’t pull that kind of information out of our bookkeeping systems.”
“We’re not happy for financial performance reports to leave the Finance team in case they’re published and misinterpreted.”
“Finance is complicated. You won’t understand the information.”
I did eventually manage to obtain the information I needed, though I’ll confess I had to put in a fair amount of leg-work to establish the trust of the Finance team. To help with this, I put myself on a ‘Finance for Non-financial Managers’ training course so I could speak their language and ask better questions.
It also helped that the data team Finance relied on to generate their reports were so sick and tired of their workload that they implemented a way for people to query the financial data simply and easily for themselves.* And with that, Finance ceased to be the gatekeepers of the sacred financial information :-)
Hopefully you’ll find it easier than I did to become immersed in the financial performance of your products. To get you started, this week I’ve gathered some primers for you on the basics of finance.
Speak to you soon,
* An Online Analytical Processing (OLAP) cube, if you’re interested
what to think about this week
Managing finances (free online course)
The management of finances is crucial to a successful business; financial information provides the evidence to support your decisions about a business and helps to justify those decisions when you present them to other people. Whether you have an idea for a future venture or you already have a side-line business whilst studying, this course will introduce you to key financial information and gives you a chance to discuss your ideas with others.
[UNIVERSITY OF LEEDS / FUTURELEARN]
Visualizing the interactions between CAC, churn and LTV
Anyone that has taken an accounting class or learned basic business financials knows the interaction between key elements of a P&L (revenue, cost, expense) and a balance sheet (assets, liabilities, equity). But it’s surprising to me how many companies with recurring/subscription revenue don’t understand the interactions between the elements that make up customer acquisition cost (CAC), churn and lifetime value (LTV).
See the effect of a few key metrics
[GORDON DAUGHERTY / A SMART BEAR]
Product Management Coaching
Whether you’re new to product management or have been a product manager for years, a coaching session can help you to step up your career.
We’ve coached people wanting to get into product management, product people with nobody in their organisation to manage them, and experienced product managers preparing to apply for a promotion.
We can help you prepare for your product manager interview, including mock interviews.
“Jock has been instrumental in my personal growth as a product leader but also as a person.”
Co-founder & Chief Product Officer, Napo
A proportion of the fees from every coaching session is donated to charity. Just reply to this email if you’re interested in finding out more.
Why product managers need to be able to read 10-K* filings
* For non-US readers, a 10-K is the annual statement of corporate accounts.
One of the key themes I have reinforced over my 15 year career in product management is basic financial literacy. It is a tool like others in their product management tool box. There is a ton of information in public filings that customers and competitors must disclose. This information can make or break a sales deal, competitive steal away campaign, or even a product roadmap.
How to read the annual corporate accounts
[JOHN MECKE / DEVELOPMENT CORPORATE]
Why I don’t like the LTV metric
A metric summarizes tons of processes, causes, and effects into a single number. It’s a two-edged sword.
It’s powerful because it lets you reason about complex systems, especially how it’s changing. It helps you focus on what’s important at a macro level.
But it’s dangerous when it combines so many disparate and disjoint processes and systems that the number loses precision. Because then you think you understand something that you don’t. That’s how bad decisions are made with confidence.
I argue that for many SaaS businesses, the incorrectness of the LTV metric outweighs the value it supposedly confers.
What information is hiding behind your metrics?
[JASON COHEN / A SMART BEAR]
Mission to Mars
Imagine you’ve just been told that you’ll be a member of the team responsible for the first manned mission to Mars.
Now imagine someone asks you how much the mission’s going to cost. The whole thing. There and back. By close of business on Thursday.
[I MANAGE PRODUCTS]
The neverending quest for product-market fit
Often the biggest barrier to your product’s widespread adoption is going to be whether it reaches product-market fit early on. Even if you do, you’re wrong if you think you never need to worry about product-market fit again.
[I MANAGE PRODUCTS]
I’m overwhelmed — can you help?
I’m 4 weeks into a new job, having moved states for it, and I’ve recently become a parent for the first time. Currently, I am feeling overwhelmed.
[I MANAGE PRODUCTS]
upcoming talks and events
One of the few silver linings of the recent year is that it’s much easier (and cheaper) to get a product expert to speak at your organisation by video call.
I’ve spoken at various product management and technology conferences around the world. I share ideas primarily on the topic of product management, and this tends to overlap with agile and ethical product development, digital transformation, and fostering healthy product cultures and communities.
“Day 2 saw an impressive presentation by Jock Busuttil on user testing. He asked the attendees to lend each other a smartphone and take a picture. What a turmoil that caused ;-) ”
Marketing & Business Development Director, BlueGlass Interactive
If you’d like to book me to speak at your event, please get in touch.
can we help you?
Product People is a product management services company. We can help you through consultancy, training and coaching. Just contact us if you need our help!
Helping people build better products, more successfully, since 2012.
PRODUCTHEAD is a newsletter for product people of all varieties, and is lovingly crafted from a lifetime of spreadsheets.
Read more from Jock
The Practitioner's Guide To Product Management
by Jock Busuttil
“This is a great book for Product Managers or those considering a career in Product Management.”— Lyndsay Denton
Agree? Disagree? Share your views: