The Strategic Product Manager and the CFO

By Jon Gatrell, John Mecke
December 05, 2009

Give your CFO an opportunity to contribute, participate in the day-to-day workings of your product as a business, and you may just get a business partner who can help you and your product be more successful in the marketplace.

 

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Pragmatic Marketer Volume 7 Issue 5

Where are you from in the company again?

Too many technology organizations promote from within—product managers, solutions consultants or outstanding support persons. This behavior has pluses and minuses. The pluses are evident—those employees know the product, the market, and they understand how the product is actually used versus how the product is marketed.

While technology DNA abounds in most product management organizations, the soft spots often emerge when it comes to managing a business. Ultimately, product management isn’t about delivering features, it’s about bringing profitable products to market.

Marketing metrics

How often is a product manager asked about average unit price of a given product, profitability of the product group or cost of support? How many product managers are forced to piece together anecdotal data from multiple systems in order to {fill in the blank}?

Practicing product management with partial data sets is the norm. In many organizations, Product Management’s view of the data is different than Support, which is different than Sales, and definitely different than Finance. So where do you start?

The best place to start is Finance because they typically use the same numbers the board of directors use to validate your product’s performance. While the finance team may not have all the data a product manager needs, their numbers are what your organization ties back to, not that of Sales and Support.

Got to know your numbers

Microsoft Excel spreadsheets are everywhere; what’s a product manager to do? It’s not just the numbers that you work from, but also the way you work the numbers to deliver value for your CFO. There are effectively two kinds of CFO’s—strategic and non-strategic. One’s a leader; one’s a bean counter. It’s a shame. Finance is supposed to be about the strategic use of money, but too often, only focus on counting the top-line dollars.

Do you have a strategic CFO or a tactical bean counter? This very much depends not only on how the CFO behaves, but also the leadership team and the rest of the business. If you expect a bean counter that creates pretty Excel tables, which are essentially scorekeeping for the CEO and board of directors, then that is what you get. Give the CFO an opportunity to contribute, participate in the day-to-day workings of your product as a business, and you may just get a business partner who can help you and your product be more successful in the marketplace.

Litmus test

Conducting a litmus test to determine whether your CEO is a bean counter or a strategic leader is fairly simple. The following questions and answers directionally identify which type you might be working for:

Q How many customers abandoned the product last year versus new buyers?

Bean Counter We lost 2% revenue.

Strategic CFO You lost 4% of your customers, which is 2% of the revenue. Can you help find out how we might accelerate this trend with other customer segments?

Q What was the average deal size last quarter? Is it lower than the previous quarter?

Bean Counter We did better last quarter than the previous quarter in number of deals and bookings.

Strategic CFO The average deal size has gone down, but we closed more deals and bookings. Can you find out why and what is  the change in the deals?


Q What was the gross margin of new customers last year?

Bean Counter Your P&L was running at 68% gross margin.

Strategic CFO Your new customers are at ~62% gross margin or dilutive to the rest of the business. Check with Support  to see if there are new things driving up costs and work with Sales to see if we are still selling that product? It has a steep learning curve for customers and drags down the business.

Yes, the strategic CFO wants to know more and if you bring back the right data, you gain a partner at the company. The challenge is if you have a strategic partner, you need some basic skills, not just so you don’t get buried in the boardroom, but so you can speak less marketing and more finance and even more business. In this article, we use every-day concepts and regular speak to demystify the wonders of finance, at least enough to help a product manager gain the basic modeling skills so you aren’t discredited when you go back with the answers.

Product management is all about getting your organization to make the best business decisions—to achieve monthly, quarterly, and annual objectives. Good decisions are based on information—not data. A spreadsheet containing summary product line bookings by month is data. Understanding the key drivers behind monthly sequential changes or year-over-year changes is information. Technology companies tend to get lost in their data. Differing political factions in the company often try to use point pieces of data to justify their positions or tear down their opponents’ positions. Strategic CFOs have seen this game played before and recognize that at the end of the day, it rarely moves the business forward.

The strategic CFO plays the role of translating data into actionable information. Help your CFO and the entire organization become more strategic by adopting strategies and techniques that automatically translate data into information that can be applied on a daily basis.

Strategic product managers should add the following four proficiencies to their repertoires.

  • Financial literacy
  • Flux analysis
  • Tier analysis
  • Money wheel analysis

Increasing your skills in these four areas enables you to help the CFO and your company become more strategic and effective in the marketplace.   

Financial literacy

Typically, at best, most product managers have a superficial understanding of basic financial concepts. While product managers may know a few of the financial terms, they generally struggle to apply the terms in business situations to explain or justify the financial value of a specific product, service, or proposal. How many times in the past quarter have you heard your sales team say a prospect “just didn’t see the value” in acting now. How many times have you heard your marketing team say “we’re surprised that the campaign generated such little interest—you’d think in these tough economic times any company would want to save money by using our solutions.”? CFOs see the world through numbers, financial statements, and cash flow. If you cannot speak their language, how will you ever become a strategic asset to them? How can you honestly deliver a compelling ROI statement for your product if you can’t find your way around an income statement or a balance sheet? In fact, financial illiteracy costs technology companies far more than they care to admit.

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About the Authors

  • Jon Gatrell

    Jon Gatrell brings more than a decade of experience in product management, marketing, sales, and corporate development to Pragmatic Marketing where he is an instructor. Prior to Pragmatic Marketing, Jon served in senior product management and marketing positions at a number of companies, most recently at Stonebranch and Inovis. He has successfully implemented the Pragmatic Marketing Framework at multiple companies, and integrated it into several acquisition plans. He has held leadership positions in numerous industry organizations.

    In addition to his role at Pragmatic Marketing, Jon writes the Spatially Relevant blog on product management and marketing best practices.Reach Jon at jgatrell@pragmaticmarketing.com

  • John Mecke is Managing Director of Development Corporate, an Atlanta-based corporate development advisory firm. He specializes in mergers, acquisitions, & divestitures as well as working with startups/late stage technology companies to transform their businesses. John blogs at developmentcorporate.com on private equity, product management, and the monetization of social media. Contact John at john.mecke@developmentcorporate.com.


Categories:  Roles & Activities Leadership


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