Justifying Your Existence
Read on my website / Read time: 9 minutes
Harsh truth: As Product Managers, we need to be generating 3x-50x returns on our compensation.
If not, we'll find ourselves diminished to task-based delivery work, sidelined, ignored, undervalued.
Ultimately, we risk losing our job and - worse - stagnating in our careers as we struggle to communicate our impact in job interviews.
"But, Shardul," I can hear the protests now, "we're not sales or marketing, so we can't be responsible for revenue. We're not engineering or operations, so we can't control costs."
Wrong.
Every function in a company is an investment. Every person is an investment. That investment must deliver some sort of return.
Product Management is no exception.
Product Management has the responsibility to drive the financial performance of the product.
The Accountability Problem
The last 10-15 years has seen an explosion in the number of folks becoming PMs.
The demand came from three primary sources - not mutually exclusive:
1. Cheap Money
Zero or near-zero interest rates allowed companies to invest heavily. Particularly, Big Tech and tech startups. They needed engineers, designers, and product managers. And paid them handsomely.
Big Tech firms launched APM programs, hiring folks early in their careers, even college graduates, into junior product management roles.
An entire generation of PMs learned how product management was done at Big Tech or Silicon Valley, where salaries were fat and there was no pressure to have a clear line from the PM's work to P&L.
They learned their product management at companies with:
- Unlimited resources
- Massive budgets
- Easy access to cheap capital
- A surplus of technical talent
- Brand recognition
- And, in many cases, years, even decades, of market dominance and success
A number of these PMs reached Senior PM, Group PM, or Director level and then launched careers as "product coaches" and consultants - able to trade on their former employer's brand to promote what they had learned as the right way - the ONLY way - to do product management.
Naturally, people listened. "This guy was PM at BigTechCo and worked on Name-Brand-Product, so obviously they must know everything product management."
These PMs were trained in valuing things like long discovery, A/B testing, "iterating", and buzzwordy frameworks like build-measure-learn, MVPs, "validating hypotheses", design thinking, growth hacking, "lean product management", user journey mapping, and product-led growth.
So that's what they taught. And so, the cycle continued, breeding more PMs in their image.
Unfortunately, their disciples quickly hit obstacles when they found the advice of these "experts" didn't work at their companies with:
- Limited headcount
- Budget constraints
- Brand challenges
- Technical debt
- Immediate revenue pressure
Because what those "experts" were not trained on - nor held accountable for - was commercial outcomes.
2. CTOs
The last 10-15 years has seen a proliferation of unqualified CTOs.
Two drivers for this:
- One was the increasing number of tech startups who needed a CTO.
- The other was the digital revolution, as brick & mortar and non-tech companies scrambled to "digitize" themselves.
Senior engineers and Engineering Directors were hired as CTOs. These CTOs had little to no commercial acumen, let alone true senior executive level leadership skills.
They needed someone to write requirements and manage development. So they hired a bunch of PMs.
They said they wanted PMs who could "understand the business" and "be the voice of the customer". They said, "PMs should be spending time with customers."
In reality, these PMs were pushed into more project management type roles, with closer ties to engineering than to the commercial side or with customers.
These PMs were trained to value things like task management, technical skills, wireframing, prototyping, "engineering speak", stand-ups, delivery timelines, engineering velocity, DevOps, and release management.
And Jira.
Many of these PMs elevated into Director and VP roles (often still reporting to the CTO), and trained PMs under their stewardship in the same mentality.
So that's what they taught. And so, the cycle continued, breeding more PMs in their image.
What they were not trained on - nor held accountable for - was commercial outcomes.
3. Agile
Everyone started hating Waterfall.
Development folks got fed up with long project timelines and shifting requirements. They didn't want to read big documents. They tired of having things "thrown over the wall" and wanted more collaboration with the business side.
"We need a more customer-focused approach," they declared. Executive and commercial folks could not have agreed more enthusiastically.
And, so, Agile was the answer.
"We need a lightweight framework to implement Agile," declared some. And so, Scrum was born.
And Scrum realized it needed someone to "ensure the team backlog is aligned with customer and stakeholder needs" so as to "maximize the value being produced by the team."
And, so, Scrum declared: "Let there be a Product Owner".
And, voila - the Product Owner role was created.
Executives didn't really get all this. And they really didn't care. What they wanted was fast and cheap.
Companies want to move faster. Companies always want to move faster. Always will.
So, despite the best intentions of the Agile-Scrum community, what executives heard was, "Agile is promising me we can get more for less. Sounds good to me!"
With explosion of startups and "digitization" strategies by non-tech companies - even the US government (a la the US Digital Service) - everyone was looking for a cheaper and faster way to ship product.
This created a massive opportunity. An entire industry of Agile coaches, consultants, associations, and trainings sprung up.
And then came SAFe.
With the increasing demand for PMs, a Certified Scrum Product Owner certification was an entry ticket to a product manager gig.
(Cue the endless meaningless debates between "Product Manager" and "Product Owner".)
These PMs were trained in valuing things like user stories, acceptance criteria, grooming, sprint planning, velocity, burn down, burn up, agile ceremonies, and backlog management.
And Jira.
Faced with unwieldy backlogs, they reached for quick fix formulaic prioritization methods to plug into their spreadsheets.
This led to a generation of PMs drunk on the Agile Kool-Aid. Challenges with product success wasn't the fault of product management. The organization just "didn't get it."
"If they just implemented Agile correctly," they cried, "good outcomes will follow."
They built up an Agile-splaining vocabulary to justify their existence and make themselves sound smart.
Many of these PMs elevated into Director and VP roles, and trained PMs under their stewardship in the same mentality.
So that's what they taught. And so, the cycle continued, breeding more PMs in their image.
What they were not trained on - nor held accountable for - was commercial outcomes.
The Accountability Problem Redux
These PMs and PM managers, along with a cottage industry of coaches, consultants, and podcasters, infiltrated companies, telling them:
"Product Management isn't commercial people. We can't be held accountable for short-term commercial outcomes."
And:
"We also can't be held accountable for any deadlines or dates."
(Now-Next-Later roadmap anyone?)
This was a head scratcher for executives and commercial folks. But they went along with it. Why?
Product people like to think it's because they successfully sold them on the proposition that, "We're about making customers successful and longer-term horizons."
In reality, it was because engineering was saying they needed someone who could write the requirements and "translate between the business and technical." This made more sense.
And, sadly, PM managers and leaders went along with this. Ceding their agency to CTOs and Engineering.
So, now, we had a bunch of product managers - and their managers - earning salaries with zero accountability for commercial success.
How long was this going to last?
Dissonance
Soon, PMs were feeling jaded.
Bouncing from task to task.
Pulled in different directions.
Jerked around by stakeholders.
Sidelined from the important conversations.
Ignored.
Feeling undervalued.
Getting no support or mentorship from their managers.
Many in the Product Management community blamed their organizations.
But when you point one finger, four fingers point back to you.
I was once asked point blank by a CFO:
"We're spending $6M on your product team. But your product represents less than 5% of our business. What are we getting from this investment?"
In my free 1:1 mentoring calls, I often hear PMs complain that their budget was cut or the company won't give them more resources. I ask them: "Do you know what your product team costs?"
Often they have no clue.
If a Product Manager doesn't know how much is being invested in their product, how are they supposed to measure the impact of their efforts?
Breaking Even
Take a typical team of 1 PM, 1 designer, and 5 engineers. With salaries and overhead, that's a cost of $260K per quarter, or a bit over $1M per year.
Let's say this team generates $2M in revenue, as measured by new customers won and existing customers renewed as a result of their efforts.
That's a 100% return. Sounds good right?
Nope. This team is not even breaking even.
Recently, a CPO shared with me that he made his team do a review of all features launched in the previous 12 months and identify which ones had made an impact on the company's business results.
75% were waste.
As in, 75% had zero impact.
If we apply this 25% success rate to our example team above, it would mean, only $250,000 worth of that team's cost is associated with generating the $2M revenue.
That may sound impressive on the surface. But $750,000 is spent on failed efforts.
So, to justify the full $1M investment, the team would need to generate $1M / 25% = $4,000,000.
This means this team needs to generate twice as much value as it's currently producing to justify its spend - or a 4x return on its cost.
Because the successes must cover the losses to offset the failures.
A CFO / COO / CEO will think like this:
- Either we need to get more from this team (replace the Product Manager?)
- Or, we can eliminate some head count since we only really need to spend 25% of what we do today.
The team could up its success rate to 50% and still fall short of its target of the $4M.
The Hidden Cost of Failure
Now, we can never get a 100% success rate on product ideas.
Even the best PMs see at least half their bets flop.
So, in our $1M example team above, realistically they would need to generate a 4x return from at least 50% of their efforts.
They are woefully short of this.
Sadly, many product teams are failing in this way.
➜ And many product leaders miss this entirely.
If Product Management's job is to get more out of engineering capacity, then this is an extremely poor record.
Is it any wonder then that product managers and product leaders struggle to advocate their value?
Is it any wonder that companies question the value they get from product management?
Missing Deadlines
Product Management, Design, and Engineering hate dates and deadlines.
I'll be honest: I do too. And I've been guilty of pushing back against them.
At the same time, we need to realize there is a material commercial cost to missing deadlines.
Let's say our example $1M team from above needs to deliver a feature to reduce churn, worth $1.25M. It's a 3-month effort, which means it costs $250K. That's a 5x return.
But the project stretches to 6 months. Here's the impact:
- Doubled Cost: The project has now cost $500K - half the annual budget.
- Delayed Revenue: It's still worth $1.25M (assuming no one churned in the meantime), but now that can't be realized until an entire quarter later. An incremental cost of delay worth 100%.
- Depressed ROI: $1.25M on a $500k spend = a 2.5x return - we lost half the return we could have gotten or 50% of the economic value.
- Brutal Outcomes: Furthermore, the delay pushed out the next quarter's project that would have provided $750K in net economic benefit - a -33% erosion in economic return, creating a cascading total impact of -1.5x return.
THIS is why stakeholders get frustrated. Missed deadlines turn valuable opportunities into net negative outcomes.
And then when we spew our agile-speak and techno-babble about processes and prioritization schemes, and are dogmatic about "no dates on roadmaps", we're seen as obfuscating at best, tone deaf at worst.
This is why speed-to-market matters. It's why executives push dates and hold us accountable to them. It's not just about beating the competition. It's about getting to revenue and profitability fast.
Teams that chronically miss dates are seen as liabilities, regardless of output quality or sprint velocity.
And everyone always wants to eliminate liabilities.
Action
I list actions for what you can do as a:
- Product Manager
- A manager of PMs (Group PM, Director+)
- A product executive / CPO
What you can do as a Product Manager:
- Know what outcomes are meaningful to the business. Examples: Enterprise B2B startup? Quarterly ARR/ACV bookings. SaaS? CAC, LTV, net MRR, churn. E-commerce? Average order size, shopping cart abandonment rate. Ad-driven mobile game? DAU/MAU, engagement, session length. Insurance? PMM, claims metrics, loss cost.
- Know what your team costs. Per year, per quarter, per sprint.
- Size ideas in terms of impact. Economic Benefit - Cost of Development. Be sure to factor in things like testing/QA and pre-production, not just core code-writing time.
- Prioritize strategically. Don't just plug in a prioritization formula. Prioritize based on the strategy and business goals above to maximize returns. An easy place to start is churn-reduction and customer-retention bets, as they're easier to quantify or attach to account ARR.
- Deliver on time. Delays will happen. You just don't want to gain a reputation for being habitually late. Bake buffers into estimates (or have engineering do so). Make ruthless scope vs. time trade-offs. Where necessary, build a plan that shows how ROI can be realized over time.
What you can do as a manager of PMs (Group PM, Director+)
- Teach the business to your PMs. Failure to do so is a dereliction of duty.
- Align on business outcome goals with executive leadership. Work with them to break down the top-line company objectives into tangible goals for your product line, domain, and team.
- Align people and team budgets with those goals. Hitting dates are fine. Just be sure to tie them to tangible outcomes. Set business goals, not task output ones.
- Establish product processes that encourage and enable strategic prioritization. It's your job to set up the right structure, framework, and conditions for success.
- Mentor and guide your PMs on strategic thinking and execution. Failure to do so is a dereliction of duty.
- Report on outcomes and impact. The #1 way to justify your team's (and your) existence and showcase their (and your) value.
What you can do as a product executive / CPO:
- Make sure every PM on your team understands the business. Failure to do so is a dereliction of duty.
- Tie R&D investment to top-line company goals and product lines. Product Management needs to be shown driving ROI. That's your job.
- Bake failure rates into budget asks. E.g., a $1M team with a 50% success rate needs $3M - $5M in outcomes.
- Set broad outcome targets for your team leads. Every PM Director or VP under you should be accountable for helping deliver on the company goals for their respective product lines.
- Champion how Product efforts are driving the top-line and bottom-line at the executive level. One of most powerful ways for you to support your team.
Key Takeaway
If your product team isn’t generating 3x–50x of its cost annually, you’re operating at a loss.
Teams that grasp this survive layoffs.
Product Managers and product leaders that master this enjoy unlimited career growth.
Those who don’t? They're on the street.
That's all for this week.
