What Our CEO Wants Us To Know
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Today, I’m going to talk about your CEO.
What they care about. And why it’s important for you to know.
Unfortunately, many product managers end up talking AT their CEOs instead of speaking WITH them. I did this once.
Boy, was I stupid.
My fail.
Years ago, as a young product manager, the CEO asked me to update the reporting feature of a product I was managing.
"We have an Executive Account Review with Big Customer Z coming up in a month," he shared.
"We need to report on Metric X," he continued. "I just got off a call with them and the lack of visibility into this metric has been a real sore point for them."
"It's imperative this meeting is successful," he stressed. "We just need a handful of fields added to the existing report. That should solve the problem."
And then it came:
"Can we get those fields added in the next three weeks so I have time to review the output before I finish the slides?"
I took a deep breath.
I answered:
"That would jeopardize the current projects we're working on and delay Release Elephant. We agreed that projects Dog, Cat, and Mouse would be the priorities for this month. If we move away from those now, Account Management and Client Implementation may be upset. Besides, it will take some time to identify the right set of requirements. I'd love to talk to other customers to see if this is a need for them too - that will take time too. And then we'll need to take it through grooming to get a story point assessment and then schedule it for a sprint."
And then I added the pièce de résistance:
"We need to take this through our prioritization process."
Sounds reasonable, right?
Guess what happened?
We ended up doing it anyway.
Why?
The CEO just went directly to the CTO and pressured him to do it.
I lost credibility and I had taught the CEO it's just best to go to Engineering directly to make things happen.
Where did I fail?
I didn't speak the language of MONEY.
We speak an entirely different language in product management.
We live in the world of requirements, stories, personas, prioritization, backlogs, sprints, engineering capacity, UI/UX, tech debt, and releases.
That's our lived reality.
Guess what?
Our CEO doesn't really care about any of those things.
They understand those are operationally relevant.
But they are not what our CEO is focused on.
Knowing how to speak with our CEO – and any senior executive, for that matter – can be the difference in:
- Getting our proposals approved.
- Gaining credibility.
- Being appreciated.
- Getting promoted.
Our CEO knows the business. And expects us to know it too.
The CEO knows which are our most profitable products.
They understand how the business works. How our product flows through the business to customers.
And how that process makes money for the company.
When making decisions and communicating, they don't use fancy terminology.
They stick to the fundamentals of business – i.e., the basics of money making:
- Growing profitably.
- Return on invested capital - i.e., net profit margin * velocity.
- Cash generation.
- Customers – i.e., satisfying customer needs better than the competition.
They focus on these money making fundamentals to:
- Set company priorities.
- Identify gaps and flaws in the business model.
- Evaluate new money making opportunities.
- Pursue the best bets by taking what already exists and combining it in a different way to fill a customer need.
Let's talk about these in turn.
Growth
Your CEO's #1 goal is growth.
Increasing revenue profitability in a sustainable way. Year over year.
This is their primary goal not just because they're held accountable to it, but often they're also personally invested in it.
Because, almost always, their compensation is tied to growth.
Examples:
- In a VC-backed company, the CEO's bonus may be tied to hitting a revenue number.
- In a public company, the CEO's compensation may be tied to the company's stock performance in the form of stock options. If the company performs well, the stock goes up, and so does the CEO's wealth.
Your CEO knows that the best growth is often (1) organic, flowing naturally out of what the company is already doing, and (2) differentiated – i.e., not a commodity.
So when we come to our CEO with a proposal or response, they're looking to see how what we're saying and doing helps with the company's growth goals.
ROI and Cash Generation
Cash is critical to the ongoing operation of a business.
Cash pays for operating expenses – the lights, the lease, the janitorial services, our paychecks, our benefits, all of it.
Cash pays for taxes and any interest payments on money borrowed by the business.
After that, if there's any cash left over, it can be used to re-invest in the business:
- Develop a new product.
- Build new manufacturing ability.
- Scale operations.
- Acquire another company.
(Note that in a public company, cash can also be used as a return to investors in the form of dividend payouts.)
Your CEO (and CFO) are tracking cash and the ability to generate cash very closely.
A way to track cash generation is return on invested capital (ROI).
Return on invested capital is net profit margin * velocity.
So:
- The more margin grows, the more cash the company generates.
- The faster the business achieves profitability, the faster the business can generate that cash. (That's the velocity part.)
In a physical goods company, inventory velocity (turnover) is critical to cash generation. The longer a physical good isn't sold, the longer it takes to turn the investment in that product into cash.
In a software company, the faster a feature is delivered to a customer, the sooner revenue can be recognized and ROI can be achieved on the investment that went into the development of that feature.
There are two parts to this:
- Product development.
- Sales enablement (a.k.a., go-to-market).
The longer it takes to develop a product or feature, the greater the investment required and the longer it takes to generate revenue (cash).
Similarly, the quicker marketing and sales can be ramped up, the easier it is for them to sell the product and get it into customers' hands.
Hence, CEOs are often focused on investing energy into sales enablement. It's often worth it.
And this is also why they're always focused on how long it will take to go from concept to launch. The faster that is, the faster the ROI.
Customers
Our CEO knows who are our most profitable customers, which customers or customer segments are most strategically (i.e., financially) important, and how satisfied they are.
Our CEO knows our customer's business. And they know how our product will lead to quantifiable improvements for customers.
Our CEO is focused on:
- Trying to satisfy customer needs better than the competition (differentiation).
- Satisfying those needs in a way that takes advantage of what the company is already good at doing - because this is usually a more cost effective approach that leads to better margins.
As product managers, we need to learn to speak the language of business: Customers and Money.
In order to have an influence, we need to:
- Learn how our company's business model works – how it makes money and how our product helps do that.
- Learn our customer's business – how their business model works.
- Understand how our product meaningfully impacts our customers – beyond just user satisfaction and usage.
- Tie product activities to key metrics – those of the business and customers.
- Message proposals, responses, and recommendations in economic terms.
Speaking of that last point, here's how I should have answered:
"Big Customer Z is $450K in ARR, so I get the importance here. And the change does seem relatively small – although, I would need to verify that with Engineering...
"As you may recall, we're currently working on Dog, Cat, and Mouse, which are meant to cut our long customer implementation cycles by half, enabling us to implement 5 more clients this year and allowing us to recognize $5M more per year in top-line revenue.
"So even if we did make this change, it would jeopardize Release Elephant by, I’m guessing, 3-4 weeks (again, to be verified with Engineering), which represents a $1M delay in recognizing that top-line revenue this year. With due respect to the customer sensitivity here, I would recommend we look to implement this change after Release Elephant."
Now, the decision may still have been to move forward with the change anyway and risk impact to Release Elephant. But at least:
- The CEO and everyone would have been fully aware of the business implications of the change.
- I would have earned more credibility with my CEO, because my answer would have told him that I understand how the business works and what's important to the business.
This not only would have made it less likely for him to bypass me in the future, but also more likely for the CTO to support requests to be triaged by product management before coming to Engineering.
Summary
By learning to speak in economic terms, we’ll be better positioned to:
- Get our recommendations and proposals approved.
- Gain respect and credibility.
- Be seen as a valued partner.
- Improve our chances for career advancement.
See you next Saturday.
