Designing a Winning Product Strategy for the year ahead
Stay ahead in 2025!
As product leaders and founders, it is that time of the year when we are busy drawing up our products’ strategy for the next year. Setting a clear strategy and communicating it ensures that all decisions the product team makes are aligned in the direction the company wants to progress in. Without a clearly communicated strategy, employees may be pulling the company in different directions, resulting in poor business results.
Here are the 3 most important factors and related frameworks that will help you strategize for the year ahead.
Anticipate the Future with Lifecycle Curve
Every industry or product goes through a life cycle of development, growth, and eventual decline. This lifecycle can be plotted as an S-shaped curve for SAAS companies that have annual recurring revenue.
The three stages of this S-curve and the common strategies are outlined below.
Introduction Stage
The focus at this stage is to get to product-market fit by continuously learning and iterating.
Ensure adequate feedback channels are in place for both qualitative and quantitative feedback.
Discover the right target customer.
Discover the right GTM channel.
Invest in customer acquisition.
Growth Stage
The focus at this stage is rapid feature development.
Measure and improve retention and engagement.
Invest in product-led growth and build a culture of experimentation.
Maturity Stage
The focus at this stage is catering to the target segment by offering vertically integrated features and services specific to the segment.
Build strong relationships with the target segment.
Communicate value by onboarding customers to new features.
As you set strategy for the new year, anticipating and planning your strategy ahead for the next stage in the lifecycle is important. Part of a product leader’s job is to figure out where you are currently on the life-cycle curve and how quickly you will get to the next stage. The pace of the life-cycle depends on the industry. In highly competitive and dynamic industries, you get to the maturity stage very quickly. By plotting ARR figures on the vertical axis of the life-cycle curve, you can actually see how the curve is trending.
Prepare for Profitability Shift with Value Chain analysis
One of the earliest signs of an industry threat is the reduction in pricing power or profitability. Profitability is closely tied to commoditization. If many competing products in the market are good enough, then there will be downward pricing pressure and erosion of profits (e.g., Hotel and airline industry have low differentiation and many good-enough competitors). This is called commoditization. We are seeing commoditization starting to happen in SAAS as well. Usually in SAAS, commoditization will result in bundling of the product into a larger unit (e.g. Bundling of Teams into Microsoft Office makes it difficult for communication players like Slack to maintain high prices).
The focus of strategy setting should be to figure out which parts of the value chain are getting commoditized and which will be profitable. Harvard Professor and father of Innovation theory Clayton Christensen has presented a beautiful framework to figure out which areas in the industry will see profits. See Where Will the Profits Be? Essentially, if the competing products in an industry are good enough to get the job done, then the industry is getting commoditized. In such scenarios, companies are unable to differentiate based on innovation, leading to the industry becoming price-sensitive.
What should industry participants do in a commoditized market?
Integrate Vertically
Companies like Apple developing their own chips shows the potential of owning the still profitable part of the value chain (i.e. chips). Smartphone markers are commoditized, but chips are still profitable. Microsoft expanding from game development to gaming hardware with Xbox is another example of vertical integration within the ecosystem.
In the SAAS world, we are seeing the emergence of Vertical SAAS companies. For example, Madwire provides business management and marketing products for small businesses and franchises. Classy is a vertical SaaS company that provides an online fundraising platform specifically for non-profit organizations.
Multi-Product Bundle
One of the sure-shot ways to beat commoditization is to bundle products into a compound offering. This has been highly successful for companies like Microsoft and Adobe with Office and Creative Cloud bundles respectively. Bundles are a powerful moat against competition as competitors cannot replicate all products in your bundle.
In SAAS, we are seeing the idea of a “Compound Startup” emerging with companies like Rippling offering multiple products within the HRMS space. This offers high durability in a competitive world.
Catch the Next S-curve of Growth
While it is important to focus on the current business, it is equally important to diversify and focus on catching the next growth wave that is adjacent to your current business. This is especially true if your product is in the maturity stage of the industry life cycle. Allocate a percentage of your R&D budget to new bets that will pay off far in the future.
This is how Apple shifted from PCs, to Smartphones and then to smart watches all the while leveraging their core strength which is to own the entire stack from hardware, operating system to the user interface.
In India, we are seeing food delivery companies invest in quick-commerce, leveraging their core strength of 10-minute delivery.
In The Art of High Tech Management (MIT Sloan Management Review), Modesto and Robert explain how investing in catching the next growth wave also means that the company has to adapt from a culture of process and efficiency to one of risk-taking and experimentation. This inherent conflict of change is what led to the downfall of many companies. Being cognizant of this conflict and having different expectations for risk and efficiency for new products versus existing products is an important part of strategic leadership.
Operationalizing your Strategy
The three methods described above allow you to think strategically about your products and set the roadmap for the year ahead.
In order to operationalize this strategy, here are a few steps to follow:
Go Big on a Few Focus Areas
After you have decided on the focus areas for the year ahead, it is important to strictly prioritize the top three areas and put the maximum resources behind these priorities. The best investing ideas are pointless if you have allocated only 2% of your portfolio to the idea. Similarly, your best bets need substantial investment to grow. Investing based on sound strategic principles will give you the conviction to place big bets on new investments.
Set Up Goals to Ensure Alignment
Now that you have a great strategy, how will you ensure everyone in your company is aligned with the strategy? Convert the strategy into initiatives and assign measurable metrics (Key Results in the OKR framework) to each of these goals. This will ensure teams are aligned toward the strategy.
Communicate
A great strategy will remain on paper if it is not communicated in every meeting. Is everyone on your team making decisions that are aligned with the strategy? If not, you need to do a better job of communicating strategy and asking questions to ensure the roadmap aligns with the strategy. Strategy needs constant communication.
About the Author
Teja Vepakomma is a Product Strategy and Growth consultant to companies. He has many years of experience working in Product Management leadership roles in Global SAAS companies. He’s currently based in Bangalore, India.
In his free time, Teja loves to travel the world and indulge in Landscape photography.