The second basic principle in Habitat Level Management is Revenue focus. There can be no product management without revenue focus. Product Management without Revenue focus is like a Sword without a handle. However sharp it is, it cannot be used effectively.

As one would see in the following paragraphs, Cash flow is the oxygen to any product or business. A primary responsibility for the product manager is to ensure oxygen supply to his product and business.

In many organizations, Products or in Internet services, Product managers concentrate on margins and do not monitor cash flow. In my experience, I found that cash flow monitoring and management is as important as revenues and margins in terms of product management to drive Sales, Technology and Delivery teams.

The challenges in Revenue focus are 1) Business environment Determination 2) Price Determination 3) Selling the Price to customer 4) Revenue Categorization 5) Earning Parameters focus

Determining the Business Environment

Running a product business is like sustaining a fire.

Customer need is the fuel for this fire. Basic value of the product is the actual fire. The distance between fire and us (our business) is the margin. Our business needs to assimilate the light and heat out of this fire, so that it becomes strong and blows oxygen into fire. Cash Flow is the oxygen for this fire. Effective Revenue collections is the assimilation of light and heat. Oxygen supply depends on this effective revenue collections.

Product managers have to understand the environment in which they are operating. Is it day or night, is it hot summer or cold winter. Every geography will have its own nuances in terms of seasons.

Day is like severe competition; Night like nil competition. Summer indicates decent affordability for our product with customers; Winter like un-affordable. And then there are various shades and combination of these that are possible as an environment.

Too close to the fire, we will be left with nil margins to do business. Our business will get burnt up. Too far off from the fire, we will not receive light and heat to sustain ourselves. This means we can’t pump oxygen (cash flow) back into business and it will die again.

Determining the Business environment is the job of Product Management at Environment level management. The product manager operating at habitat level management has to understand the environment as understood by his management. If there are differences, he should highlight it and ensure synchronization of the environment perception across management levels.

If this synchronization is not there, then business cannot run coherently for long.

Business Winter

Winter is the environment, where affordability is tight with the customer. Environment will fluctuate between day and dark lonely nights, competition and almost nil competition. Product Manager should have developed a complete idea on how long the winter will last and how severe it will be.

The severity of winter determines the distance which we can stay away from fire. If it is severe, we need to be closer to the fire. Our margins are going to be tight. If it is not, our margins can ease. But there is a limit to which he can go close to fire, beyond which the fire will start hurting.

The length of the Winter will determine if it really pays to wait through the winter. If it is too long, may be there is no fun in waiting out for the winter. We may need to exit the environment as our nomadic ancestors did and seek out better climes.

And soon day could break out, even in winter. Our product value may get greatly diminished in competition. Still we may need to keep on with the fire burning to wait out the day. And that requires enough oxygen (cash) supply to the fire.

During the day, we cannot burn the same amount we burnt during the night, when we burnt alone. We need to re-tune our burning to ensure that we burn lower, adjust to an also-ran position, but keep the future in mind and ensure enough oxygen supply to burn for long.

In wintry times, definitely days will be short and night will be long. Competition will fade much faster. It all depends on our ability to sustain the oxygen flow.

Product managers have three options to handle Business winters. They can exit the climes with different product positioning. Through product positioning it is possible to position the product in a different environment. It may not be possible in all cases. This should be the first choice.

In case we need to sustain in the same environment, Product Managers need to ensure enough and right margins. This is important. We cannot burn ourself up. At the same time, not too far way from the fire.

Third, they need to ensure correct payment terms and conditions. This is very critical. Assimilation of light and heat of the fire is very important in wintry conditions. Hence revenue collections are the most important and the tools for revenue collections start at setting the correct payment terms and conditions.

Business Summer

Summer is the environment, where affordability of customers is decent. But here also environment will fluctuate between day and night, high competition and low competition. Definitely days will be longer than night. It depends on market geography. You may have Sun shining in the middle of night too.

Everyone aspires for Summer Night. But it is short. Creating a product positioning for Summer Night should be the dream/ideal of every Product Manager. But then, there are limits to our wishes becoming reality. Even if a product manager succeeds, by very definition that summer night will be short and end soon.

Days in Summer could be scorching. Our product value may get greatly diminished. Again here too, the basic necessity is to keep the oxygen supply (cash flow) up and running smooth.

Business Summers could lead to a lot of competitive fires running. Competitive fires are those running their business from the same customer need as we are running. Since affordability is not an issue in summer, competitive fires could reach high temperatures. Surviving in summer is different from surviving in winter.

One way to handle summer is to re-define our product with better product positioning so that we shift towards summer nights. It is easier said than done. A product manager should seriously attempt it along with his technology teams.

Another way to handle competitive fires is to start several smaller fires that could cut off oxygen supply to competitive fires. But then it is rather said than done. The competitive fires are huge in numbers and we cannot deal with them one by one.

The best way to handle them is to join hands with some/several of our competitive fires so that they hurt not our oxygen supply but our competitor’s oxygen supply. This could be done either in terms of Sales Partnerships and alliances, OEM relationships or Key Value Adding Channel partnerships.

The key is not to cut off competition, but to ensure that our oxygen supply is least disturbed through strategic sales alliances and partnerships.

Why not these alliances and partnerships in Winter..? Why in Summer..? Partnerships and alliances are always welcome. But they increase the distance between the producer and consumer, there by increasing the transactional costs.

In our summer definition, affordability is not a problem, pricing can sustain such transactional costs. In our winter definition, affordability is an issue and it may not sustain such transactional costs.

Questions and Answers

Product Managers need to answer themselves several questions at different points of time. Is this Day or Night or between what is the transition happening..? Is it Winter or Summer or between what is the transition happening..? Should we exit and seek better climes..? Given our oxygen is precious, what is the right amount to burn..? What is the right distance to maintain from the fire, during the day and night..?

All these questions need to be asked and understood across management. The top management and middle management should synchronize on it. Sales and Technology should synchronize on it.

But this is where I see a big challenge. Many times, I have seen that this perception is not uniform across organization. At times, the perception is not common across top management.

Business processes play a great role in synchronizing this perception across organization. A product manager at Habitat Level Management in his own interest should ensure that the perception of environment for his product is common across him and his senior management.

Pricing

There are various issues that get debated with respect to pricing a product. Should it be always cost+? Should it be geography based or Customer based..? How to handle fluctuations in Exchange Rate or Inflation..? How to handle sudden overhead increases ..? Should pricing fluctuate..? What should be the life of a quotation, given the pricing instability..?

I had a product Manager, who used to argue that pricing should always be Cost+. It is simpler that way and moralistic. Or otherwise we would be cheating our customers.

I told this story once to him.

Ramu had a cow, which he treated as Goddess Lakshmi and which got him 10 litres of milk everyday. He used to tie it up in his shed and feed it over there. He used to take it for grazing in the evenings.

Once one of his friends told Ramu, that tieing up his Cow in the Shed seems like imprisoning Goddess Lakshmi. Instead he can raise fence levels and allow it to roam freely and tie it up to a post only during milking. Ramu implemented the idea. But the cow which got used to roaming freely inside the shed, resisted any attempt to tie it up to a post. Ramu found it difficult to milk.

Another friend then suggested that Ramu should tie it up not inside the shed, but just in front of his house. This way Cow will have enough free air and sights. It will also be always tied and milking is not a problem. Ramu implemented the idea.

That night, a thief stole off the cow. Since he could not sell it, he killed it and sold its meat.

Pricing is like this cow. If tied up in an open market, it will get killed by competition. If allowed to roam around freely, it would go out of control. Your own sales team will run it off the course.

It has to be tied up, but at different places based on the geography. Inside the shed it is tied to a post, when it is grazing, it is tied to a tree with a longer rope or roam around freely inside the product manager’s vision.

More on pricing vagaries in my next blog..

-Balajee Rajaram

/* Some people did not read my first blog where I classified Product Management into different levels. They started asking me about role of Market Research, Market Communication etc in Product Management. For them I wish to clarify, I am still talking about Habitat Level Management, which is at ground level. When I discuss Environment level management these also will come in. Ofcourse this structuring is my own philosophy*/

/* I welcome one and all to use the principles and practices mentioned here at their own risk, as long as the usage is not talking, writing or CCPing (Cut Copy Paste) about these. The Intellectual property behind these is mine and based on my personal experiences in the industry */