Product Management is the business role which – in most industries – decides which problems their products are supposed to solve for consumers. It is a practice which, when applied in a specific business, generates 30% greater profits – on average – over other firms in that industry which operate without Product Management. The hard part is uncovering solvable problems which either many potential customers would pay a little to solve, or a few would pay a lot to solve.
The central directive of Product Management is to “listen to the market” – which often requires that one stop listening to oneself. In recent years – namely with the growing pervasiveness of online, in-browser product solutions – Product Managers have become even more adept at determining the most pervasive problems to solve for prospective consumers; no longer limited to consumer feedback. In fact, many Product Managers now value observation over feedback.
Specifically, observation of human action. If one accepts the a priori premise that man acts with limited means to achieve scarce ends – always aiming to maximize his utility – then by extension one can reasonably assume that consumers will readily buy any solution which maximizes utility to the greatest degree. Those companies whose Product Management teams most comprehensively observe the Axiom of Action in practice, and act accordingly themselves, simply do better.
Eric Ries, a true innovator in the realms of both Product Management and Product Development, has documented and built a method around the concept of innovation accounting in his masterful work, The Lean Startup. The book lays out a framework for a quantitative measure of validated learning derived from providing minimum viable products to actual users, then refining those products incrementally and testing user behavior through innovative methods such as split-testing. Data driven decision making is key to success within the lean startup model.
Ultimately, the goal in any deployment of the method is to maximize return on investment as early as possible through observations of a minimum viable product starting as early in the process as possible – without investing large amounts of time and capital only to find out that no one wants the solution.
Ries also describes other companies as roaming in the “land of the living dead” – turning a profit, but not as big a profit as perhaps it could or should. As such, these companies drift into complacency fueled by merely satisfactory margins and increasing negligence of the evolving needs of the market.
Perhaps such a company used to visit consumers in the environments in which they employed the solution in order to observe user behavior, but no longer does: how is it deciding to improve its products for greater sales and profits? Based on the whims of those at the top rather than on a scientific and careful measure of customer preferences? Companies consistently making decisions based on assumptions and anecdotes generally fail in often dramatic fashion – albeit after varying amounts of time. BlackBerry and Nokia come to mind as soon-to-be victims added to the list of examples of creative destruction.
Beyond a deference to human action, Product Management inherently recognizes the principle of economic profit with one of its own: that it is not worth remaining in an industry unless one can dominate – securing the top or at least the number two spot (and correspondingly significant market share). Generally, Product Managers must prepare themselves to determine when this situation occurs (or is imminent), and make the hard choice to pivot into another market segment or persevere within the current one (to use Ries’ terms).
To disambiguate Ries’ use of the term startup, he defines it as an organization dedicated to creating something new under conditions of extreme uncertainty. So any change, whether a retail product or service or a policy change within an organization, benefits from employing the lean startup model.
Lastly, like Leonard Reed in I, Pencil (as well as Milton Friedman), Ries recognizes that the sum of the whole in the business world is greater than the whole of its parts – in the sense that some of the most effective businesses are those who measure efficiency on their ability to figure out what solutions consumers value the most in as quick a manner as possible, even if that means having individual staff in the overall process who have extended idle periods.
Whereas Austrian Economics represents an academic philosophy of the driving force behind any market, human action, Product Management is the corresponding practical implementation centered around observing that action and optimizing it.