Product teams need to understand how the work they are doing impacts the business. It’s up to product leaders to share this strategic context with their teams. Our 2022 CDH Benchmark Survey exposed some gaps in this area.
Product teams need to understand how the work they are doing impacts the business. It’s up to product leaders to share this strategic context with their teams. – Tweet This
We asked teams: “Is your product intended to grow revenue, reduce costs, or other?” Most participants were able to answer this question, but 6.6% chose “other.” When we asked them to elaborate on their “other” answer, we were surprised by some of the responses.
I sat down with fellow Product Talk coach and instructor Hope Gurion to discuss these responses and why they expose a gap in how leaders are helping their teams understand the business context in which they work. You can watch a video of our conversation or check out a lightly edited version of the transcript below.
Teresa Torres: Hi everyone, I’m Teresa Torres.
Hope Gurion: And I’m Hope Gurion.
Teresa Torres: We are here today to talk through some of our survey responses. So in the fall we ran our inaugural CDH Benchmark Survey. That’s a mouthful, but we basically asked teams about their discovery habits, trying to understand how different habits impact product success.
And one of the questions we asked people was: Is your product intended to increase revenue or to reduce costs? The reason why we ask that question is most companies, especially for profit companies, are looking at growing profit. The input to that is increasing revenue and reducing costs. For most products, we can look at which side of the equation they are focused on.
Most companies are looking at growing profit. The input to that is increasing revenue and reducing costs. For most products, we can look at which side of the equation they are focused on. – Tweet This
What was surprising is a number of people selected “other,” meaning they didn’t think it increased revenue or reduced costs. But then when they selected “other,” they had to enter what their “other” was.
And so what Hope and I are going to do today is talk through some of those responses, because some of them are really fascinating. They definitely show that teams aren’t always able to connect the dots between their product outcomes and their business outcomes. So we want to use some of these as examples. All right. Hope, are you ready?
Hope Gurion: I’m ready.
Increasing Video Consumption for a Large TV Channel
Teresa Torres: Let’s do it. So the first one I think is interesting because we’ve seen it a few times. Somebody wrote in, “We’re seen as the future of video consumption for a large television channel.” Do you want to react to that one about whether that’s increase revenue or decrease costs?
Hope Gurion: A lot of television channels are advertiser supported, in which case driving up viewership or consuming more videos leads to an opportunity to have more ads seen or ads seen by an increasing number of people that can drive up revenue for a company if it’s an ad-supported model.
Teresa Torres: Yeah, I think for most TV channels—in fact, I’m not sure there’s any exceptions—you need video consumption to drive whatever your business model is. That’s how you are generating revenue, right? Either advertisers are paying to get their brand in front of your viewers or your viewers are paying a subscription to consume that content.
We’ve seen a couple times now a little twist on this, which is what if that TV channel is public, like it’s owned by a government or it’s funded by a government?
Hope Gurion: Yeah, so when this comes up, typically the way that a company might be trying to drive their viewership or reason they might be trying to drive that viewership is to justify continued government funding. So again, there’s probably a lot of nuances, government to government and media outlet to media outlet. But typically, if there’s nobody watching that television network anymore, the odds of it being funded by the government, of that being seen as a good use of government funds, is low. So typically that’s the relationship. It may be securing the same level of government funding or perhaps increasing viewership might lead to an increase in government funding.
Teresa Torres: Yeah, so on the for-profit channels, we see if you have a larger audience, you might generate more ad revenue or if you have a larger audience, you might generate more subscriptions. For that public-funded model, maybe you have to keep your audience and/or grow your audience to secure that government funding. So I think in both situations, I would argue these teams are on the increase revenue side.
Content Documentation for a Company’s Products
Teresa Torres: All right, let’s look at another one. This one is a little interesting. So this person wrote in, they work on a website for content documentation of their company’s products. So product documentation, API references, grab and go marketing. Tell me your thoughts on that one.
Hope Gurion: Well, what I’m hearing is that it is either an internal-facing team, like given that example, it’s for the sales or marketing team to grab screenshots or feature lists, or I’m not sure what. I’m also thinking that it could be some customer-facing documentation, like how to guides or references, or maybe if there’s developers in their customer group and it’s developer-facing documentation. Again, I don’t know exactly. I don’t know if there’s enough detail. So it either could be an internal team or it could be a customer-facing team.
But when I hear that level of scope, it usually is around cost avoidance or cost reduction. We want to make our internal teams more efficient, or we want to make our customers more self-sufficient so they don’t require as much training or as much support resources. That’s typically where my head goes when I hear that’s the scope of responsibility of that team.
Teresa Torres: Yeah, I think this one depends. I could actually argue both sides. So let’s say this is customer documentation. If we do a good job and we have really good customer documentation, we filled out a knowledge base, maybe we’re reducing costs for our support team, and I can clearly show how the better our documentation gets, the fewer support tickets we get.
But I also could argue, the more we help our customers, the more value they get out of our product, the more they spend with us. So this is one that I actually genuinely understand why they wrote “other,” right? Because it might be a little bit of both, and I would be really curious to see how this team is setting outcomes for that company. Is it more important for them to help alleviate support or is it more important for them to supercharge their customers and grow revenue?
And what’s really interesting is, I think it’s actually important that this team get clarity on which is which, because how you document what you tackle in that documentation probably changes, right? If you’re trying to reduce support, you might be focusing on things like, “I need to reset my password, I can’t log in. I don’t know where to find things.” Whereas if you’re focusing on increasing revenue, you might be writing documentation like, “Here’s the best practices for how to do this thing with our product.” So even though that same team might be on one side or the other, what they pick is going to change how they work.
Hope Gurion: That’s exactly right. And I love that you use that example because I sometimes have teams that are like, “It’s both. It’s everything. It’s to grow revenue and it’s to reduce costs.” I encourage them to challenge that. Okay, so you’re saying if we did nothing to improve revenue, but we did effectively reduce the ratio of support people to the ratio of customers that we have, would that be enough impact on our business? Or if we did nothing, we kept the exact same number of support tickets and support people for our customers, but we got customers getting more value, utilizing it more, would that be success? And if they can’t distinguish, then I think their company hasn’t given them enough strategic context and they need to go push their leadership for clarity.
I sometimes have teams that say about their outcome, ‘It’s both. It’s everything. It’s to grow revenue and it’s to reduce costs.’ I encourage them to challenge that. – Tweet This
Teresa Torres: Yeah, we see a lot of like content teams that are focused on growth. They’re not focused on reducing costs, they’re not reducing support tickets, they’re increasing the number of customers and the effectiveness of those customers and the average spend of those customers. That is solely on the revenue side.
We see other content teams that are more focused on reducing support tickets. I think it’d probably be very hard for a team to do both well at the same time. And I think that’s the value of an outcome; it really sets the focus.
An Open Source Community That Shares Knowledge & Solutions
Teresa Torres: All right, let’s look at another one. We’re a public benefit OSS company. We generate value for open source communities by sharing knowledge and solutions.
Hope Gurion: When I think about this, I’m hearing that it’s a community—I’m thinking like Wikipedia or some other open source where there’s lots of contributors. There’s usually still a revenue model, though. It could be donations, it could be premium access subscriptions, something like that. But it sounds like it’s a bit of a marketplace and I don’t know enough about that particular company’s context, but I’d want to get clarity on where the money comes from.
If it’s a marketplace where it’s like the bigger the community, the richer the best practices, the more likely somebody is to donate, or the more likely somebody is to buy a subscription, then that helps you connect the size of the community to a way that your company makes money. That’s how I think about it.
Teresa Torres: We start with this sort of formula for for profit companies of: Our goal is to grow profit. The inputs to that are: increase revenue and decrease costs. I think for nonprofits or not for profit organizations, usually that top line outcome is grow impact. And then the inputs to that are, we still have to generate revenue. It’s just our revenue is donations or development dollars or grant money, right? It’s still dollars coming in. And then we obviously see in these organizations reducing costs as a much bigger factor because they’re often evaluated or graded based on their percentage of their costs as part of their operating budget.
For nonprofits or not for profit orgs, usually the top line outcome is grow impact. And the input to that is to generate revenue. It’s just revenue is donations, development dollars, or grant money. – Tweet This
What’s interesting about this one is we generate value for the open source community by sharing knowledge and solutions. So they’re building products or knowledge products for an open source community. I’m going to guess that the more value they offer that community, the more they see donations come in, or the more they see grant money come in because they’re serving a population.
And so I can imagine this one is a lot like the previous one we discussed, where if they’re focused on making that community more successful and that’s increasing donations, then they’re on the increase revenue side. If they’re focused on creating that knowledge and those solutions to reduce incoming sort of support requests, then they might be on the decrease cost side.
A Consulting Company That Contributes to Revenue Generation and Cost Reduction for Clients
Teresa Torres: Okay, let’s look at our next one. This is a mistake I see often, so I’m going to read this one out loud and just let you reply. We are a software consulting company, so we have internal service offerings as well as contributing to both revenue generation and cost reduction for our clients.
Hope Gurion: So yes, if you’re in a consulting business, typically when you’re engaging with a client, they have some sort of business objective. Could be on the revenue side, could be on the cost reduction side. So what I’m hearing in that answer is: Across our portfolio of clients or of products that we work on, sometimes it’s about driving revenue and sometimes it’s about reducing cost, depending on our client’s business outcomes that they care about.
And so this is why a team might flip-flop if they’re serving multiple clients, but we know that most teams make the most progress on their outcome when they focus on one at a time. So in that case, a consulting company, I’d want to at least make sure that they were clear the company that they’re working with, the client that they’re working with, what that client’s desired business outcome is, so that they make sure when they’re setting product outcomes for that team, it’s clear are we on the revenue side or are we on the cost reduction, cost avoidance side.
Teresa Torres: I look at this a little bit differently. Again, here’s the thing, if I work at a consulting firm, my company’s business outcome is related to my company, not my client’s company. So what this one sounds like to me is if I’m the consultant and you’re my client, you might be focused on reducing costs, but I’m focused on increasing the revenue I get from you, right? So in this one, they wrote something like, “We are a software consulting company, so we all have internal service offerings,” which I’m assuming generates revenue “as well as contributing to both revenue generation and cost reduction for our clients.”
So I think we see this a lot where people confuse customer outcomes with business outcomes—obviously both matter. But there’s this distinction between, in consulting we’re almost always focused on increasing revenue. We might have some teams looking at building systems to reduce costs, but if you’re working directly with a client, you’re probably generating revenue, right? You’re probably tracking hours because that’s what generates revenue. And then there’s the second order layer of what’s your client’s goal, but that’s probably not your team’s outcome. The benefit to your client is you might help them reach that goal.
I think we see this a lot where people confuse customer outcomes with business outcomes—obviously both matter. – Tweet This
Hope Gurion: Yeah, the distinction I think is—and it’s not clear from the way they answered the question—are they setting goals for their teams based on the consulting company’s desired business outcomes? Or is that implied, if we help our customers, our clients achieve their desired business outcomes, that will feed our company’s desired business outcome, which is typically revenue growth. So yeah, not clear.
A Platform Fulfilling Team
Teresa Torres: Yeah. Fascinating though. Okay. This one has no detail whatsoever, but I’m going to raise it anyway because we see this come up a lot. And I think it can also be both. So we are a platform fulfilling team.
Hope Gurion: I think about it in two ways. One is they may actually share an outcome with one or more of the teams that they’re enabling. If it’s truly an ingredient, like I see this with data teams a lot. They’re not just creating data for data’s sake for other teams to ingest, it’s because it is intended to deliver value to our customers. And so they may share an outcome with a team that they’re closely related to.
If it’s something sort of more broadly like authentication that’s covering a lot of teams, then typically I would consider the customers—those in other internal product teams—to be the customers whose behavior they’re driving. And it’s usually around some sort of adoption, utilization of that authentication service as an example. And that’s really cost avoidance, but I’m going to get even more specific. It’s opportunity cost avoidance. If the teams don’t have to manage all the authentication work themselves, they’ll be able to spend more of their team’s time on what is probably a revenue-driving oriented business outcome and product outcome.
And not having to do that work themselves is what increases the probability of those outcomes being reached while this team is really on opportunity cost avoidance for those teams. So it’s not really cost reduction, it’s opportunity cost avoidance.
Teresa Torres: You know, this is an interesting one for me because again, I could argue both sides, but I think I have a preferred side. So I could say, okay, you’re a platform team, you’re working on authentication, every product team is integrating your product into theirs. I could make the argument, like you just said, with opportunity cost: We’re saving every single one of those product teams time and therefore we’re on the reduce cost side. We need fewer teams, etc.
What I don’t like about that argument is it’s really steeped in the IT model. The engineering and product teams are cost centers and we’re trying to be as efficient as possible with our resources. I think instead I prefer to think about it as, look, we’re building products to create value for customers that should generate revenue. And anything we do that helps us get better at that is to generate revenue.
I would include most platform teams on the generate revenue side. I think where maybe I have an exception is, let’s say you’re working on a platform team to support your call center agents and you’re allowing your call center agents to take more calls, right? Because you’re building your own call center software. That’s solidly on the reduce cost side of your business. And I think I would argue that’s harder for you to increase revenue with that platform, but I think if you’re building the product that’s creating value for your customers, you’re probably on the increase revenue side.
Hope Gurion: Yeah. And that’s why I guess I would say it’s more likely that they are contributing to the sharing of the outcomes towards those other teams that they’ve just enabled.
Teresa Torres: Yeah. This is a tricky one though, right? It sort of exposes that internal mindset of how we think about our product teams: Is it about efficiency or is it about value creation?
Hope Gurion: Yep. Absolutely.
Aiming to Reduce Churn
Teresa Torres: All right, let’s find another one. Oh, this one. See, when I read things like that, I just want to send everybody to a basic business fundamentals class. So I’m going to read this one and let’s just talk through it. Remember this person was asked: “Is your product intended to increase revenue or reduce costs?” And instead of picking one of those options, they said “other,” and then they wrote, “We aim to reduce churn of our users.”
Hope Gurion: Yes. So you’re right, it’s unfortunate that they don’t have an understanding of how reducing churn relates to the revenue side of their equation. But typically reducing churn is a desired business outcome. Typically, the way I think about that in terms of revenue is we have the number of customers we have times whatever they pay for our service times however long they stay a customer. And if your leadership is saying we want to reduce churn, the good news is: You’ve got clarity about what they want to do. They want to keep customers longer. The bad news is: That is a terrible product outcome for a team because it’s usually a lagging indicator and there’s usually a bunch of preceding behavior or lack of preceding behavior that occurs or doesn’t occur that leads to churn. So in this case, they are being tasked with a business outcome clearly on the revenue side of the equation. And unfortunately they’ve been tasked with a lagging business outcome and they’re going to have to work to translate that into a product outcome.
If your leadership is saying we want to reduce churn, the good news is: You’ve got clarity about what they want to do. The bad news is: That is a terrible product outcome for a team. – Tweet This
Teresa Torres: What surprises me about this is that reducing churn is directly tied to increasing revenue. So what I struggle with is: How does this person not make that connection? And there’s a couple things I can consider. Maybe their users don’t pay for the product, right? If I work at Facebook, and I’m focusing on reducing churn of consumers, maybe it’s hard for them to connect the dots to say, when we lose users, we lose ad revenue. But I can’t think of a product where losing users wouldn’t lead to revenue loss. So reducing churn is definitely tied to increased revenue. This is one that really jumped out at me. We have to help people connect these dots, because what’s obvious to us is not obvious to everybody.
Hope Gurion: Absolutely.
A Value-Added Product
Teresa Torres: Okay, here’s another one that, again, I kind of get why they struggled, but it is very clear to me as well. So this person just wrote, “Value-added product” and I’m going to assume they’re writing that because their product is free and adds value to a paid product. That’s my assumption with that. But if you read that differently, I would love to hear an alternative interpretation.
Hope Gurion: I actually don’t know what to think about that. I don’t know if that is, like you said, sort of like a freemium that they expect to pay for or if that means really add value to the product to keep people or does it mean like a services component to an existing product? I don’t know. I’m struggling on that one.
Teresa Torres: Yeah, so it definitely says “value-added product,” so I’m assuming they’re building a product. Now here’s the thing: it’s either value added because you pay more for it, in which case you’re definitely on the increase revenue side. So the reason why I’m assuming it’s free is maybe that makes it confusing. Like we don’t generate revenue, our product is free, we give it away, but lots of companies choose to give away a product because it helps to sell another product. So if your product’s free and it’s a value-added product that’s helping you sell another product, you’re still on the increase revenue side.
Hope Gurion: That’s right. So what I’m hearing you say is it might be part of a bundle and it’s one of the free products in the bundle or it’s some sort of an entry product, but ultimately the company is going to get paid for some other product, even if it’s not the product that this particular team works on.
Teresa Torres: Yeah. We see this a lot, where companies build the free entry product that gets you in their ecosystem and then you buy the add-ons. I think this is a really important strategy for a lot of companies.
This was one where I wish I knew who these companies were, so I could just be like, “Spend a little bit of time with your product teams and walk them through how the pieces fit together. They really will build better versions of your product if you just do that.”
I want to tell more companies: Spend a little bit of time with your product teams and walk them through how the pieces fit together. They really will build better versions of your product if you do that. – Tweet This
Reducing Security Risk
Teresa Torres: Okay, let’s see. Let’s do a couple more. Here’s one that I think comes up quite a bit that’s a tough one: reduce security risk.
Hope Gurion: Okay, so this to me—because I’ve seen this come up as well—sometimes people phrase it as protect the brand, something like that. Or if you think about what would happen if we had some sort of catastrophic security event, typically what that would mean would be less customers, right? Customers would leave or it would be difficult for you to acquire new customers. They wouldn’t trust you as much. And so if the problem they’re aiming to solve—and maybe that’s the security team, like it absolutely could be like the number one thing that they’re looking to solve—it is absolutely on the revenue side of the equation as it relates to customers.
I’ll give you one other example. It could also be on cost avoidance because if that might lead to some sort of triggering some regulation or a lawsuit or something else that could cause the company to have a lot of expense. It might also be a way to mitigate that risk of a huge unforeseen expense dealing with the fallout of a big security risk. But I would say more often than not, this is about acquiring customers and keeping customers because we keep their data safe, our products are safe to use, etc.
Teresa Torres: Yeah, I think I agree with you on that one. Let’s look at a real company. So LastPass recently just had a major security breach. They’re a password protection software, so that’s kind of a big deal. If you’re working on the security team at LastPass and you are not reducing security risk, you are directly causing your company to lose revenue. An event like that directly leads to revenue loss. So I think that type of team where you’re saying, look, we can’t offer our product without security is on the increase revenue side.
I think what’s interesting is you brought up sort of this like cost avoidance on the fine side. So what if there’s a regulation like GDPR and we don’t comply? Now it’s going to cost us money. But I think even that one’s a little gray.
Let’s say we’re a US-based company, like MailChimp. Maybe all of our customers are in the US. I don’t think that’s true of MailChimp, but let’s just say that. Do we have to care about GDPR? Well, we don’t—we’re not going to be fined by the EU because we’re a US-based company with US-based customers, but our customers have subscribers in the EU, which means our customers are not going to use our product unless we’re compliant. I would still put that on the increase revenue side. Now once we have EU customers, now we’re either going to get fined, in which case there’s a little bit of cost avoidance, but honestly more likely we’re going to lose customers.
Hope Gurion: Yeah. I think it’s absolutely right. It seems like it’s most likely on the revenue side other than if you feel like it’s imminent that you’re going to get fined.
Teresa Torres: You know what’s interesting is what’s in the back of my head right now is: Why does this matter? Why can’t we just say the security team does both, they increase revenue by supporting things that our customers want and they reduce fees? I think the challenge there is: What are we building for primarily? Are we just building to meet the letter of the law and avoid the fee or are we building to satisfy our customers? And the difference between the two is incredible, so I think that’s where you might get a little benefit over here, but it’s important to know that over here is your primary outcome.
Hope Gurion: And I think this is also where it is critically important for the team to have context from their leadership. Because I personally have worked at a company where the legal team had a lot of influence over every possible risk. The legal team wanted to make sure that that risk was mitigated and it had very little to do with growing the company. It was really on the risk mitigation side. And that can swamp your entire backlog if your company isn’t clear about its tolerance for the level of risks and whether it prefers to mitigate risks and cost avoidance or whether it prefers to focus on growing revenue.
Teresa Torres: Yeah, we see this a lot in regulated industries in particular. They tend to have bigger compliance teams, legal teams, security teams that check off on literally every single thing. And there’s good reason for that. There are fines involved, but it really can put a burden on getting anything out the door.
Replacing a Risky and Inefficient Paper Process
Teresa Torres: Okay. Let’s see if we have a couple more we can do here. Okay, here’s a really fascinating one because this one, when I first read it, I was like, “Oh, it’s definitely on one side.” And then the more I thought about it, I was like, “Oh, it could be on either side.” So they wrote, “It replaces a risky and inefficient paper process.”
Hope Gurion: It replaces a risky and inefficient paper process for whom? I guess that’s the question. Is it for our customers? Is it for our internal users? It doesn’t say.
Teresa Torres: Exactly.
Hope Gurion: Yeah. So if it was an internal, I don’t know, people are calling in their credit card numbers and our support team are writing them down on paper and then typing them into a database, that to me could be cost avoidance, security risk avoidance, right? We could have some problems with that. But if it’s a paper process that currently is happening outside of your digital product experience that your customers are doing, it almost to me sounds like it’s an opportunity that the team is choosing to solve. And again, the way that we’re going to measure success from a business standpoint is more customers choosing to use our product, our digital product experience, instead of that risky paper process feels like it’s either increasing retention of our existing customers if it’s something they do with our current product, or it’s acquiring new customers because we have a better solution in our product.
Teresa Torres: Yeah. I think that you’re helping me uncover maybe a guiding principle here, which is if your product is creating a benefit for a customer, you are on the increase revenue side, regardless of whether that customer pays for it. So if this process that we’re replacing is a customer process, it is generating revenue for you or it is intended to generate revenue for you eventually.
If your product is creating a benefit for a customer, you are on the increase revenue side regardless of whether that customer pays for it. – Tweet This
If it’s internal and it’s for employees, it probably depends on the purpose of those employees. Are those employees increasing revenue, in which case you’re on the increase revenue side, or are those employees focused on cost reduction? In which case it’s cost reduction, right? So maybe that’s a good way to generalize when you’re thinking about how your team is having an impact on your business outcomes. Who are you serving: Customers or internal? And then if it’s internal, who are those internal folks serving? If it’s customers, you’re still on that increase revenue side. And then if it’s internal, you still might be on the cost reduction side.
Okay. One thing I want to highlight before we wrap this up: I’m not making fun of anybody who wrote in these answers. I actually don’t think this is the fault of the individual people who took the survey. I think what we’re trying to highlight here is that business leaders need to do a much better job of setting the strategic context and helping each team understand how the work that they’re doing is creating value for the business. So please keep that in mind. We are not trying to make fun of anybody who wrote any of these things. We’re just trying to expose this need and inspire our leaders to help close the gap. All right. Thank you, Hope.
Business leaders need to do a much better job of setting the strategic context and helping each team understand how the work that they’re doing is creating value for the business. – Tweet This
If you found yourself unsure of how to define outcomes for these teams (or your own), you’re definitely not alone! Come join the next cohort of Defining Outcomes where you’ll have plenty of opportunities to hone this skill.