Understanding Products impact on the business KPI's is always imperative and even more so during periods of economic uncertainty. In brainstorming about these issues with my colleague?
Lisa Schneider
, we realized that there are many newer CPOs now who have not dealt with a downturn, and that we were able to find themes in our brainstorming that could be helpful.?
Please check out part 3 in our 4-part CPO Series on Leading in a Downturn, which Lisa and I are alternating posting, and please share your thoughts and comments!
This is part of our CPO series on Managing Through Periods of Uncertainty. If you haven’t read the two articles, Please check out our Strategy and Leadership posts. Below, we cover Commercial and Finance, and the last article will cover User Focus.
Key stakeholders: CFO/CEO, investors, and board
Investors and Customers all change their risk tolerance levels during times of uncertainty which usually means conserving cash. This inevitably increases focus on financial metrics into all facets of the business including R&D. These metrics are always present but R&D is usually consumed with Innovation, usage and opening up new markets, TAM and SAM. Placing smart ‘bets’ is the norm. But what do you do in a macro-economic headwind? It is imperative to show how your function (R&D) is actively contributing to the financial and commercial performance of the enterprise. Note: This exercise may be part of a normal planning cycle, but it can come at the request of the board generating an off planning cycle. You should be ready for the latter.
- Invest in the CFO relationship. They are the critical business partner at all times, but even more so during uncertainty. Building your plans and recommendations with them will increase their weight and help with acceptance by CEO and Board.
- Budgeting and plan with conservatism, clear prioritization, and alignment to financial goals. An overly aggressive and aspirational budget is tonally wrong which hurts your brand, it also carries a greater risk to the company. Depending on the outlook and the company goals, this can either be a scaling back on growth in R&D spend or in some cases an absolute reduction in spend. Be prepared for both. If you don’t do this well, the CFO will and you won’t like their result. They will cut the biggest ticket items first and typically go deeper than required. The CFO is there to ensure that resources are being used effectively. If your case does not clearly tie to financials, they will cut it, that is their job.?
- The roadmap should reflect what can be achieved within the budget and it should be tied directly and explicitly to key financial performance metrics: Growth, Retention, COGS and OPEX. If you need help with thos terms, check out Financials Intelligence or similar book to get familiar with key financial terminology.
- Overall - Do a base case and worst case plan with clear identification of the assumptions for both. Make it easy for the Executive team and Board to understand.
- Retention - This may be controversial but we recommend prioritizing retention first. Retaining is typically easier than selling new logos so make sure you are doing everything to retain every dollar.
- Growth is always important, just be sure to look at historical adoption rates and other historical metrics when building your assumptions.
- COGS (Cost of Goods Sold) Reduction - When growth is high, it makes sense to defer some automation and other COGS reduction efforts. When the outlook softens and R&Ds ability to materially impact Revenue is lessened, this presents an opportunity to make the investments required for the next level of scale. This will position your products and company for more growth once a more favorable environment returns.
- Tech Debt - Like COGS, if your ability to impact revenue is lessened, you may want to make the case to address now…assuming you have any capacity left after Retention and Growth.
- Leadership - Make sure the definitions for base and worst cases are agreed by all beforehand. Then share your plan with key assumptions and trade-offs. Alignment is key with your cross-functional team and the plans should support one another.
- Board - Be sure your presentation is clear on how it supports the plan, especially in terms of Cash Consumption, ARR Growth, Retention, and Costs. Roadmaps are great, delivery is interesting, but what they are looking for is a steady hand that knows how to weather the storm.
- Team - Much like the Board, your team is looking for a steady hand. Assuming the plan represents a change in what they have been told previously in terms of focus, levels of investments and big bets, focus on providing the rationale. Convey that rationale in terms and with detail that match the group and as always, update them on how things are moving against the plan. That transparency will be helpful if further adjustments are required.