When I first started as a Product Manager, I was overwhelmed by the multitude of Product Strategy frameworks and tools available. Every time I need to create a Product Strategy, I’d question myself:
- Should I use the Opportunity Canvas, Lean Canvas, or Business Model Canvas?
- What about the Product Vision Board or the Product Strategy Canvas that everyone talks about?
- How do all these fit into the GLEE framework from Gibson Biddle?
- Or should I go more traditional and go with the 3 Horizons framework?
I remember feeling so anxious that I’d often skip creating a product strategy and just let my stakeholders call the shots. (Spoiler alert: that’s not how you create a good strategy!)
Then I came across these wise words of Richard Rumelt, the author of Good Strategy/Bad Strategy:
“Good strategy…does not pop out of some ‘strategic management’ tool, matrix, chart, triangle, or fill-in-the-blanks scheme.”
I realised that I must learn the mindset behind the tools. In other words, the hammer is only as good as the craftsman wielding it.
So here are 3 strategic mindsets that I’ve learnt over the years. These mindsets have allowed me to become less reliant on frameworks and return to first-principles thinking.
I call these the 3Ps of Strategic Mindset:
- Profits mindset: “Aim to make long-term, above-industry profits”
- Powers mindset: “Create multiple defensible powers for your product”
- Positive-Sum mindset: “Expand the market through positive-sum competition”
Now let’s dive into these mindsets in more detail…
A product needs to produce long-term, above-industry profit for the company and its investors.
The days of growth at all cost is gone. An unprofitable product without a view to profitability is a money furnace.
As a PM, you must understand the profit margins of the industry you want to play in. Some industries have high-profit margins, such as Finance, Railroads or utilities, and others with low-profit margins, such as Airlines, Real-estate, and Consumer Electronics.
When you’ve found an attractive market, you need to focus on a specific set of customers that will give you above-industry profit margins. These customers will provide you with the cash flow to out-invest your competitors.
Don’t be afraid to let your competitors take less profitable customers; marketshare does not always mean good returns. This is why Apple has a 14% mobile marketshare but makes $96bn net income a year. Compared to Samsung, it has a 20% mobile marketshare but only makes $29B a year.
The second keyword is Long-Term. You’ll need to think long-term and consider how you can earn above industry profits in 3–5 years. Then work backwards to plan when you want to drive growth, engagement and monetisation.
Revenue, Expenses, ARPU, Profit Margin, and other product metrics are all levers you can pull to achieve long-term, above-industry profits.
For example, You might want to grow your users in the first 2 years, optimise your conversion in year 3, and increase the price to create above-industry profits in years 4 to 5. Or you can flip the plan around and make profits first, then boost growth. It’s up to you to decide.
“Product Powers” are defensive moats that make it harder for customers to switch to competitors. The more power you have, the more defensible your product will be.
In the book 7 Powers: The Foundations of Business Strategy — the author Hamilton Helmer states there are 7 different moats you can create in a business. These are:
- Network Effects: Network effects refer to where the value of a product or service increases as more people use it. A classic example of a business with strong network effects is TikTok, which became more valuable to users as more people joined the platform. Other examples include online marketplaces like Facebook, eBay and Uber.
- Scale Economies: Scale economies refer to the cost advantages a business gains as it increases production or output. Costco is a great example of a company that has leveraged scale economies to create a defensible business model. Costco’s moat comes from its direct-to-consumer wholesale model. Through their large membership base, they are able to negotiate lower prices for their customers and win over their competitors.
- Switching Costs: Switching costs refer to the costs that a customer incurs when they switch from one product to another. Microsoft, for example, has made it difficult for enterprise companies to switch to Google Docs by creating a defensible position with its Microsoft Office products.
- Branding: Branding refers to creating a strong identity or reputation for a product. Apple is a company that has demonstrated strong branding power with its focus on high-quality products with a simple user experience. This has allowed Apple to charge premium prices and maintain a loyal customer base.
- Cornered Resources: Cornered resources refer to the ownership or control of a critical resource that is difficult for competitors to replicate. Google is a company that has leveraged its power of search algorithms to create a defensible business model. Even though ChatGPT is an emerging threat, Google still owns 95% of the Search market.
- Process Power: Process power refers to the ability of a company to create efficient and effective processes that are difficult for competitors to replicate. A good example of process power is Tesla’s Gigafactories. These factors have allowed the company to produce affordable, high-quality electric vehicles faster than its competitors.
- Culture: Culture refers to the norms, values, and beliefs that shape the behaviour of individuals within an organisation. Companies like Airbnb have fostered a culture of community and belonging. They created a platform where travellers can connect with local hosts and experience a destination like a local. This strategy has allowed Airbnb to differentiate itself from competitors in the crowded online travel space and build a loyal customer base.
As a Product Manager, you need to stack multiple moats over the lifecycle of your product. You can mix and match these powers together to create a power stack.
Think about the following:
- What powers do you want to launch with?
- What powers do you want to create as you grow?
- What powers do you want to create as you hit maturity?
- And what moats do you want to create as you hit the decline phase?
The more powers you have, the more defensible your product will be.
When we create products, our teams are often asked to outrival similar products in the market. “The next product must be better and cheaper than our competitors!”
However, “better, cheaper and shinier” is not a strategy but a Zero-sum mindset. The zero-sum mindset assumes markets are finite, resources are limited, and it’s a winner take all market. But that’s not true at all.
New markets are often created, new resources are always found, and humans have always found ways to innovate. In fact, our GDP per capita has been growing exponentially over the past 50 years.
A better mindset to take is a Positive-sum competition mindset. Positive-sum competition means each rival that enters the market is expanding the addressable market for you. You don’t need to win by crushing your rivals. You win by creating your own game. (By expanding the GDP of the world)
It’s like musicians in a band. Each artist brings in their own style and captivates a specific audience. It’s a win-win for everybody.
Chat Apps are great examples of a positive-sum competition:
- WhatsApp solves the customer needs for simplicity and reliability of communication in emerging markets.
- Facebook Messenger solves the problem of chatting with general friends or acquaintances.
- Telegram solves the problem of chatting in secure public chat groups
- Snap is all about sharing moments with your close friends
All of these apps have a specific use case and do not compete directly with each other.
See your competitors as inspiration and potential collaborators. Refrain from competing on features or price, as that’s a downward spiral.
Elevate your thinking to solve customer needs that can expand the market. If you help everyone to grow the pie together, you’ll undoubtedly get a larger share.
So that’s it — these are the 3 strategic mindsets I’ve learnt to help me develop a better Product Strategy.
Remember, the key to mastering Product Manage is: Mindset -> Process -> then the Tools. So the next time you fill out a Product Strategy template or try out a new tool, remember these 3Ps of Strategic Mindset:
- Profits mindset: Make long-term, above-industry profits
- Powers mindset: Create multiple defensible powers for your product
- Positive-Sum mindset: Expand the market through positive-sum competition
Once you train your mind to think from first principles, you’ll become a true Product Master in no time.