The Definitive Guide to Product Strategy
A clear definition of what a product strategy is, a broader model that makes it meaningful, a few strategy archetypes, and a framework to think about them.
As a product manager, you have an obligation to define and drive a product strategy but for many it's not clear what that actually means. In this post, we'll not only define strategy, but we'll describe it in terms of a broader model that includes critical concepts without which strategy means very little. Since we can't tell you how you arrive at a specific strategy for your product (because, you know—"it depends"), we will also describe product strategy archetypes and a framework to think about them.
By the end of this post you will:
- Have a clear definition of strategy
- Know the different ways to document, articulate and present a product strategy
- Have a good grasp of different strategy archetypes and how to know if they fit your product
- Get insight on effective ways to present a product strategy
What is a product strategy?
We define strategy as "a course of action that leads an entity toward success". This definition is an extension of one that is included in the Object Management Group's Business Motivation Model (more on this later). The entity can be a company, business unit, product, or even an individual (like you!). Strategy is about doing or executing.
We will, of course, focus on product strategy in this post.
Inherent in this definition is the idea that there must be a definition of success for the strategy to be meaningful. After all, a course of action is aimless if it's not leading to a defined state of success. This means a "solo" strategy (outside the context of success) is of little value. We will address both the definition of success (called "ends") and how we achieve success (called "means") in the context of a broader model that addresses "business motivation".
In our experience, few product organizations have a clear definition of success or a strategy. We all seem to have an intuition of what a strategy is, but without a common definition, there is a tendency to talk past each other, making alignment of our efforts toward success difficult or even impossible.
Our Case Study: PrioProd
We'll use a case study assembled from our experience to provide examples of key concepts in this post. PrioTech is a small tech company that offers SaaS products that help engineering and product teams manage their work. Their flagship product, PrioProd, is aimed primarily at product managers and product owners working in organizations that fall under 2 broad market segments: "small teams" (20-40 users) and "enterprise" (50+ users). PrioProd offers the following key capabilities:
- Capturing and prioritizing product input from stakeholders, both internal and external
- Backlog management (capturing user stories, prioritizing them, and tracking their status)
- Roadmapping (creating simple Gantt- and Kanban-like representations of what we'll deliver to the market over time)
Small teams generally subscribe using a credit card on the site. Enterprise customers sign a contract after engagement with one of PrioTech's sales professionals.
(We know this is somewhat meta—using a fictional tool for Product Managers to describe PM concepts—but we want to use a subject that our audience can more easily relate with.)
So if a strategy is meaningless without a definition of success, how can we capture and express success? In this section, we'll explore 3 concepts that can comprehensively describe the success you would like to achieve with your product.
The first concept we'll explore for defining success is a goal. Goals are general things we would like to accomplish. The following are examples of goals:
- Increase revenue
- Decrease churn
- Be seen as a thought leader
- Expand global Business
Goals have two parts:
- a vector which describes direction and magnitude, e.g., increase, descrease, expand
- a metric, which is the relevant unit of measure, e.g., revenue, churn
Here are a few examples of PrioProd's goals:
- Increase new revenue from enterprise sales
- Grow Customer Lifetime Value in the enterprise segment
- Radically reduce customer acquisition costs for the small teams segment
There are many metrics we can use to define success, and we can group them into categories:
This list is by no means exhaustive, and exploring the kinds of metrics and when to use which is beyond the scope of this article. Many metrics are used by most product teams, e.g., revenue, profitability; others are associated with delivery models like SaaS, e.g., conversion, customer acquisition cost.
Beware Vanity Metrics
Vanity metrics are units of measure that can be tracked and provide a sense of progress, but actually provide little indication of meaningful business performance. The classical example of a vanity metric is measuring installations of a mobile app rather than the number of active new users. The former might be an impressive number but, if costs are involved in making the app available, could result in undesirable business outcomes; the latter, active users, represents an outcome that is likely correlated with the success of our product business. Here are a few other potential vanity metrics:
- Time on page (if no desired action is taken)
- Revenue (if profit is not considered)
- Market share (if share of revenue/profits is not considered)
Leading and Lagging Metrics
When defining success for your product, you should consider adopting metrics that look "back" at past performance (lagging indicators) and "forward" into the future (leading indicators). For example, last quarter's revenue is often an important lagging indicator, but doesn't necessarily indicate trends in future revenue. A metric like quality of the sales pipeline, a "leading" indicator, should imply future revenue (good leads are more likely to become customers).
Which metrics are right for my product?
There is no set of metrics that is relevant to all products. The metrics that are right for measuring your product's success depend on many factors such as:
Product Lifecycle Stage
Early in the lifecycle, some product may emphasize adoption (getting customers even though little revenue is generated). Later in the lifecycle, revenue and gross margin become important for almost all products.
In a highly competitive market, a company may emphasize margin (to avoid lowering prices below a profitable level) or market share, especially when network effects are important to growth.
Leaders and founders are motivated by a wide variety of factors. It is critical that you understand how they measure success for the organization before you define success for your product. Failure to align goals and objectives can result in effort on your part that ultimately isn't valued by your leadership.
If you're unsure what metrics to use for your product, here are some things to consider:
- Most products are trying to make a profit so traditional financial metrics like revenue and gross margin can be good places to start. Some products, especially new ones, may be more concerned with broad usage so measuring adoption may be more relevant than financial measures.
- If your company has other products, look at how their success is measured and adopt the metrics that make sense for your product.
- Ask senior leadership, your founder(s), or your executive sponsor what they consider success and choose metrics that contribute toward the ends leadership values.
Are goals enough?
Goals allow us to define success but are they enough? If we specify a number of goals for our product are we done? As you might expect from Betteridge's law of headlines, the answer is "no".
If someone reporting to you said "Our goal is to increase revenue next year.", what would your first questions to them be? It turns out that goals are missing two important elements: a target value and a time limit. Luckily, there's another concept that includes this critical information: the objective.
Objectives represent success but include a target (value) and a time limit. That is, objectives are measurable and time-bound. Here are some examples of objectives:
- Increase Net Promoter Score to +40 by the end of this fiscal year.
- Increase average margin to 30% by end of 2025.
- Decrease churn by 4% by July 2022
Note that each of these objectives is time-bound and has a target. Objectives, like goals, have a vector and a metric, but add the attributes of a target and time-frame.
We can think of goals and objectives as forming a hierarchy in which a set of related objectives help quantify a goal. The following objectives have been defined to support the PrioProd's goals.
- Increase new revenue from enterprise sales
- Increase qualified enterprise leads by 30% by Q2
- Increase conversion of qualified B2B leads by 15% by Q3
- Grow Customer Lifetime Value in the enterprise segment
- Decrease churn by 10% by Q2
- Increase add-on subscriptions by 20% by Q3
- Lower Customer Acquisition Costs for the "Small Teams" segment
- Achieve a 0.5 referral ratio by Q3
- Reduce Customer Acquisition Costs to 30% of Customer Lifetime Value by Q4
Other Motivational Frameworks
There are several motivation-related frameworks that have gained popularity in the last several years. In this section, we'll describe them and demonstrate how they can be easily mapped to the Business Motivation Model (BMM). Don't worry: we'll discuss the BMM in more detail once we covered a few more concepts.
Objectives and Key Results (OKRs)
OKRs originated at Intel and were later popularized at Google and other successful tech companies. If you use OKRs, you'll be glad to know that they map beautifully to the model we've described. In an unfortunate case of terminology overloading, what OKRs call an "objective" is what the BMM calls a goal. BMM "objectives" map to Key Results. By "plugging in" OKRs to the BMM, you get the benefit of an overarching vision and means that OKRs don't include (strategy, tactics, and mission, as you'll see later in the article).
North Star Metric
A North Star Metric (NSM) is a single metric selected as a rallying point for the product team. Focusing on a single metric provides simplicity and clarity to the team, allowing them to prioritize their efforts to influence the NSM. By the way, defining an NSM does not mean that the product or organization doesn't have other goals and objectives! NSM is about focus.
You can look at the goals and objectives comprising your definition of success and choose one to be the NSM. This doesn't mean that the other goals and objectives will be ignored — it means the NSM will be the center of attention and help rally the team to move it in the right direction.
Pirate Metrics are a set of measures that form an acronym that sounds like a pirate's growl? The graphic below depicts these metrics as a funnel, providing a brief definition of each.
Any of these metrics can form the basis of goals and objectives.
The Business Motivation Model is comprehensive and coherent, allowing its concepts to be mapped to other, similar models, thus avoiding disruption or confusion when the BMM is adopted.
Goals and Objective Attributes
Goals and objectives share some attributes that help the team focus its efforts, communicate its confidence in attaining the goal, and create accountability:
The Priority attribute allows us to clearly communicate that some goals and objectives are more important than others. For example, a goal related to reducing churn may be deemed more important than one related to establishing thought leadership.
The Confidence attribute allows us to express as a percentage (0%-100%) our assessment of the likelihood of achieving a goal or objective. For example, a "stretch objective" may be defined to encourage members of the product team to challenge themselves but may have little chance of actually being attained (that's what a stretch goal/objective is!). Typically, the higher the priority of a goal or objective, the higher the confidence we should have in it.
The Accountable attribute specified who is accountable for making sure a goal or objective is attained. Accountability means that the named person will be held to account for achieving the goal or objective, not necessarily that they are doing all the work to reach it. For example, a team leader may be accountable for reaching an objective even though the leader's team is actually doing the work to achieve it.
The Other "End": Vision
Goals, objectives, and one other concept, "vision", are categorized as "ends". They represent the final state we want to achieve. A vision describes the ultimate aspiration for our product. Here are some example vision statements for well-known companies.
Amazon: Our vision is to be earth's most customer-centric company; to build a place where people can come to find and discover anything they might want to buy online. Ford: "...to become the world's most trusted company, designing smart vehicles for a smart world.” IKEA: To create a better everyday life for the many people. Google: To provide access to the world’s information in one click.
Good Vision Statements
A good vision statement has the following characteristic
- Inspiring and motivational (not obvious and boring, e.g., become market leader)
- Simple/succinct (not long and complicated)
- Unlikely to become dated/stale (referencing the latest technology fad that may seem irrelevant in the near future)
The Best Vision Statements
We think some of the best vision statements come from non-profit organizations. We find it inspiring that they can communicate such noble outcomes with so few words. We hope you find them inspiring too!
- Human Rights Campaign: Equality for everyone (3 words)
- Feeding America: A hunger-free America (4 words)
- Oxfam: A just world without poverty (5 words)
- Alzheimer’s Association: Our vision is a world without Alzheimer’s (7 words)
- Habitat for Humanity: A world where everyone has a decent place to live. (10 words)
As business types, we often focus on traditional metrics that directly reflect financial business performance or adoption. However, you should consider taking a more balanced approach, encouraging the team to explore some "non-obvious" ends:
- Social Impact
- Thought Leadership
- Market Disruption
- Employee engagement
- National Goals
Outcomes vs. Outputs
Goals and objectives should focus on desirable outcomes versus outputs. Outputs are things we produce; outcomes are the ultimate consequence of our actions. For example, we could set of goal of translating our product into 5 new languages (output). If this work doesn't result in significantly more people using non-English languages versions of the product, the work was of little value. As a matter of fact, such work probably generates the opposite of value. Here are a few examples of related goals representing outputs and the corresponding outcome:
- Decrease page load times vs. faster end-to-end user experience
- Number of downloads vs. new active users
- Online referral form vs. number of new customers from referrals
Validating the Ends
Defining the ends (vision, goals, and objectives) we'd like to achieve is a first, critical step in defining a meaningful product strategy. Before defining the "course of action" leading to our definition of success (our strategy), we as product managers need to validate our definition of success with our most important internal stakeholders. Our goals is for stakeholders to commit to this definition of success and contribute to its achievement.
We recommend pursuing validation of the definition of success (vision, goals, and objectives) in steps. Start with other PMs on your team and your leadership. It's important to avoid messaging a definition of success outside your that is not aligned with your management. Once the team is bought in, you can consider other important stakeholders like engineering and sales. If engineering doesn't believe in your definition of success, they might resist building the product you envision. If sales doesn't find your definition of success credible, you will be missing important validation that will be expected by yet another important constituency, senior management.
At the beginning of this article, we defined strategy as "a course of action that leads an entity toward success". We've already described the concepts you can use to define success for your product. Now, let's talk about how to express how you'll achieve it.
Strategy Elevator Pitch
A very useful way to develop and refine your strategy and make it "consumable" to stakeholders is to articulate an "elevator pitch". If you're not familiar with the concept, the goal is to communicate an idea within the time an elevator ride takes. Every PM should be able to describe their product strategy in under 30 seconds, by creating (and practicing!) an elevator pitch. All it takes is to use your strategic pillars and framing them into a few sentences in a compelling way. Going back to our PrioProd example:
We foresee our future revenue growth being driven by a focus on increasing our enterprise business and reducing our cost of sales in the "small teams" segment. To facilitate this growth, we will increase our enterprise sales team in key geographies and prioritize product features that serve this market segment. As we increase sales efforts in the enterprise space, we will focus on launching add-on features (up-sells) for that segment, creating opportunities to grow our Customer Lifetime Value. We will also define a compelling referral program so that our happiest and most engaged "small teams" customers recommend our products to other accounts, thus reducing our cost of sales in that segment.
Strategies are sometimes described in terms of key elements or "pillars". Pillars are identified by a single word or phrase and provide a very concise, consumable representation of your strategy. Think of pillars as your strategy communicated with bullet points. We might identify the following pillars of PrioProd's strategy:
- Sales expansion
- Up-selling enterprise features
A strategy (and its pillars) can be decomposed into tactics. These are the lower-level, specific actions we will take to achieve the ends we've defined and should directly contribute to at least one objective. Continuing with our example, we could decompose the pillars above as follows:
Expand the sales team and improve lead qualification
- Hire additional salespeople for each target geography: NA, EMEA, APAC
- Integrate product data with CRM
- Integrate CRM with Clearbit for better lead qualification
- Concierge onboarding for key leads
Launch enterprise feature add-ons
- Single-Sign-On (SSO)
- Portfolio roadmapping
- Customer feedback portal
- Support for product discovery artifacts and plans (notes, experiment results, etc.)
Leverage (and reward) our most engaged customers to bring high quality leads
- Find the best incentive structure for referrals
- Integrate product with referral management (3rd party SaaS)
- Launch an affiliate marketing program
Associating tactics with pillars can help others link the strategy with the detailed actions you plan to take to enact it. Each pillar should clearly map to at least one goal, and all goals should be driven by at least one pillar. This is how we'll know that we can tell a compelling (and well-supported) story of what success looks like, what we'll do to get there, and why.
Priority and accountability attributes
Similarly to objectives, tactics can also have a couple of important attributes:
- Priority: tells us how important each tactic is relative to others, which essentially equates to the sequence we'll pursue them. That is, if we have 2 tactics with the same priority it means we're pursuing them simultaneously. If they don't, then we're pursuing them sequentially.
- Accountability: you will notice in the strategy and tactics above that not all elements are the product team's accountability (there are sales- and marketing-related activities). That's one of the powerful things about this model—it provides a single, cross-functional view of a product's goals and a strategy to enable alignment.
The Third Mean: Mission
Strategy and tactics are defined as "means" in the Business Motivation Model. They are how we achieve the "ends" we described in the sections on defining success. As we're defining how we'll achieve success, we can consider a statement that describes the "ongoing operational activities" undertaken to achieve our ends. While the vision is aspirational, the mission is a simple expression of what we do. In our research, we found that a far greater number of companies publish a mission statement than their vision. Here as some example mission statements:
- Tesla’s mission is to accelerate the world’s transition to sustainable energy.
- Salesforce: to empowers companies to connect with their customers in a whole new way.”
- Facebook's mission is to give people the power to build community and bring the world closer together
- Telenity's mission is to serve as full partners in the success of its communication service provider (CSP) clients by delivering legacy and next-generation value-added services and products.
Our research has demonstrated that the definitions of vision and mission we've shared are not universally accepted. Many companies have mission statements that are aspirational and would thus be considered as vision statements based on the BMM definition.
Mission Statements that are Vision Statements (by our Definitions)
- Microsoft's corporate mission is “to empower every person and every organization on the planet to achieve more.”
- Nike's mission: "Bring inspiration and innovation to every athlete in the world"
The product strategy and product roadmap are very closely related but should not be confused. We can think of the roadmap as an expression of strategy which tells stakeholders when we plan to deliver value to the market based on our product strategy. A product roadmap not based on a strategy is simply a series of tactical or reactive deliveries that don't necessarily lead to the attainment of any goals or objectives. Although we strongly advocate capturing your product business motivation explicitly, if you only have time to define the strategy or the roadmap, we recommend creating a solid roadmap as it can at least imply a strategy.
Some say that by looking at past releases to the market you can infer a product strategy. We believe that strategy is intentional — things that "just happen" are not strategic. Looking back at past releases for your product can potentially give you some insight into the organization's priorities but may not reflect a conscious strategy (or, for that matter, meaningful priorities).
Connecting the pieces: The Business Motivation Model
So far, we've described concepts for defining success (ends: vision, goals, and objectives) and others related to achieving success (means: mission, strategy, and tactics). As we've mentioned in this post, these concepts are defined as part of the Object Management Group's (OMG) Business Motivation Model (BMM).
The following diagram shows the full hierarchy of BMM concepts.
The BMM is defined in a spec and includes more concepts related to business planning. We highly recommend downloading the specification and reading about these concepts as they were originally defined.
What do you do with your product strategy?
Once you define and align your product's business motivation, you will see that it supports some critical PM activities:
Aligning the Team
Just as you must validate your definition of success before you define how you'll achieve it, once you've specified both means and ends, you should share it with your important stakeholders, adapt it based on their feedback and get their commitment to help you execute it.
Defining the Product Roadmap
As we stated previously, the roadmap should an expression of your strategy, indicating when you plan to deliver value to the market based on it. Building a roadmap without a strategy tends to result in questionable, piecemeal value that reflects a reactive posture rather than intentional execution.
Product Release planning
The releases represented on the roadmap should make incremental progress toward our definition of success based on our strategy. Having a definition of success and a path to achieving it are at the foundation of being able to do meaningful prioritization. All things being equal, you will pursue product development investments that are more likely to help you achieve success.
Level of Detail
The appropriate level of detail is often a question regarding business motivation for a product. While there's no universal guideline, your product's business motivation should be sufficiently detailed to help the product team, PM, engineering, sales, marketing, and others, to make decisions that are likely to help the product achieve success as we've defined it.
We suggest you create a high-level visual "one-pager" that connects your goals and strategy, and then create a supporting set of documents elsewhere, for those who want to dig into the research and rationale behind your motivation. Here's an example of what it might look like for PrioProd.
Color coding lets you connect Goals & Objectives, to the Strategic pillars and Tactics that contribute to each of them. It's a much richer story to communicate why we're working on something (since tactics map to lower-level roadmap and backlog items).
Hierarchies of Business Motivation
Business motivation can exist at multiple "levels" within a product company. The hierarchy below shows typical levels of business motivation:
- Business Unit
- Business Unit
Business motivation at these levels should be aligned, meaning that the product motivation clearly contributes to the success at the business unit level which, in turn, contributes to the success of the company. Not that not every goal/objective at a lower level will map to goals/objectives at a higher level. However, there should be at least an indirect association between one level's ends and those of its "parent".
All this talk of models, validation, and metrics can seem overwhelming. Luckily, you don't need to define a comprehensive business motivation to get value from the concepts we've described. We've spoken to product managers who said that simply defining a product vision was a game-changer for the morale and effectiveness of their product team. We recommend the following steps to define a "minimum viable business motivation".
- Identify your product's three most important goals
- Identify a couple of objectives that support each of these goals (make sure the objectives are time-bound and measurable)
- Share the goals and objectives with others, e.g., other PMs, and incorporate their feedback as necessary
- Identify the key activities you'll undertake to achieve the goals and objectives. These will form the basis of your strategy.
- Draft a product strategy elevator pitch
Over time, you can elaborate this "core" model with a vision, more goals and objectives, and additional strategic pillars and supporting tactics.
The concept of strategy has been studied extensively, resulting in the definition of patterns that are referred to as "archetypes". While there is copious information about growth strategies, models including non-growth archetypes are much rarer. We have synthesized the following types of strategy based on multiple models with the intent of putting growth strategies, our area of focus, in a broader context. We consider three types of "general" business strategy:
- A maintaining strategy (also referred to as a "maintenance" or "hold" strategy) comprises measures to sustain the status quo, primarily in circumstances when a firm perceives short-term risk of a negative trend in metrics like market share, adoption, or revenue. We use the term "maintaining strategy" as the term "maintenance strategy" is overloaded (it also refers to maintenance of physical plant, for example). A maintaining strategy may entail developing "economic moats" to shield a company from the threat of market entry by a competitor.
- A retrenchment strategy implies radical cost-cutting and possible divestment relative to a product category or market segment. Retrenchment strategies are almost exclusively associated with extreme measures undertaken to save a business that is perceived to be at risk of short-term failure ("turnaround" strategy) or with companies freeing themselves of parts of their portfolio that have stopped or are expected to stop providing desirable business results.
- With a growth strategy, the overarching goal is (as the name denotes) to increase the size of the business based on metrics such as market share or revenue. As every tech company we have worked with is highly interested in growth, that is the strategy archetype we will focus on in this post.
Approaches like "product-led growth" and "growth product management" demonstrate the popularity and focus on the growth topic in product circles. There has been significant research on growth strategies, resulting in a set of related archetypes. One of the most popular growth strategy models is the Ansoff Matrix.
The Ansoff Matrix
The Ansoff Matrix is a tool that categorizes approaches to growth based on the nature of the market served (new or existing) and whether new or established products are being offered to the market. These distinctions can be represented as a simple two-by-two matrix with each intersection point (cell) describing a category of growth strategy, i.e., an archyetype.
A Note About Markets
The term "market" is used rather loosely in literature regarding growth archetypes. We define a market as all the entities with the means and interest to buy a product category. These entities, companies, people, and governments, are interested in products of a given category because they perceive value in them and have the means to buy it, e.g., physical availability, sufficient money to make the purchase. Entities with an interest in your product who can't afford to buy it are not part of your (current) market.
How you classify a growth strategy can be influenced by your definition of the market. For example, Chipotle, an American restaurant specializing in burritos, is often included as a player in the fast food market. The company itself and others see them as a "fast casual" restaurant, a distinct segment.
Growth Strategy Archetypes
Market Penetration is a growth strategy involving getting further traction with market segments you serve using products you already have in your portfolio. It is essentially synonymous with increasing market share. Market penetration is therefore considered the least risky of the four approaches described by the Ansoff Matrix.
In our experience, this is the default mindset of many product organizations and product managers: they are naturally trying to sell more of what they are developing to the market segments they are familiar with. Market Penetration has the benefit of knowledge of market segments and the product but can lead to commoditization if lowering price is used as a tactic, for example.
Common tactics include:
- lowering prices
- increasing promotional or sales efforts
- adding new features to satisfy your customer base or known prospects
- acquiring a direct competitor.
- Mobile phone manufacturers like Apple and Samsung (and network operators) compete aggressively to increase their market share
- Cable entertainment companies offer enticements to get consumers to switch services
- For our case study: In pursuing a market penetration growth strategy, the PrioProd team might consider addressing its biggest functional gaps relative to the enterprise segment or increasing the size and reach of its enterprise sales force as market penetration tactics.
Product Development is a growth strategy involving introducing new products to the market segments you already serve. Coke Zero and Salesforce's Customer Success Platform are examples of new products introduced to existing markets. Often, these product address problems adjacent to the ones already being addressed by a product or portfolio.
Common product development tactics involve:
- Creating product variants which serve existing market segments with additional specificity
- Launching a product that addresses "adjacent" needs
- Acquiring complimentary offerings or the companies that deliver such offerings.
- Coke Zero was a new soft drink intended to served Coca-Cola's existing market
- Tchibo expanded from coffee and cafés to consumer goods
- Amazon offers music and video content to consumers of its other wares
- For our case study: The company that creates PrioProd (PrioTech) introducing an independent product to meet the UX/design needs of product teams.
Market Development is the logical opposite of Product Development: it describes the approach of taking existing products to new market segments. The National Basketball Association in the United States promoting its offering in the Chinese market is a good example of market development. The game (~product) is the same, but the NBA is attempting to get traction with a segment they feel is underserved: people in China.
Common market development tactics employed with a Market Development strategy are:
- geographic expansion, e.g., the NBA in China
- Repositioning the product to be more attractive to unserved market segments
- Offering discounts to unserved market segments, e.g., attracting college students to corporate productivity too
- NBA in China
- Facebook began serving college students, expanding to other segments to fuel growth
- For our case study: The PrioProd team could consider more aggressively marketing the product to government agencies, a market segment that accounts for a very small proportion of sales.
A Diversification growth strategy involves, as you may have guessed, delivering new products to new markets. It is therefore considered the most risky strategy defined as part of the Ansoff Matrix.
- General Electric grew from electronics to a wide range of products including airplane engines
- Apple entering the car market (new product to a group of consumers looking for mobility rather than devices)
- Disney moved beyond animated films to theme parks and TV networks (like ESPN)
- Amazon began selling IT infrastructure (Amazon Web Services) to tech companies and IT departments
- For our case study: To pursue a diversification growth strategy, the company that creates PrioProd (PrioTech) could decouple the chat function integrated into its products and sell it to companies outside the market it currently serves.
Summary of Ansoff Matrix Growth Strategy Archetypes
The Ansoff matrix provides a simple but powerful way to consider growth based on whether new or existing markets are served and whether new or existing products are offered. This table provides a summary of the growth archetypes the Ansoff matrix defines:
Mixing and Matching Growth Strategies
It may have occurred to you that a company could be employing multiple types of growth strategy at the same time. Apple is trying to increase market share in the mobile phone market (market penetration) while simultaneously considering entering the car market (a diversification approach).
Choosing the Right Growth Strategy Archetype
The right growth strategy for your product business's context cannot be reduced to a formula. The best archetype for your situation will depend on the following factors (among others):
The Ends You Want to Achieve
How you measure success influences what type of growth strategy you adopt. For example, trying to grow in a saturated market might encourage a company to adopt a Diversification growth strategy.
You should understand what you're good at as a company or product organization and manage the risk of trying to introduce new products or address a new market segment. Apple's dominance in computing devices may not translate into dominance in the car industry.
How much risk are you and your leadership comfortable assuming? Risk averse organizations, for example, should probably avoid the Diversification approach and the "double risk" (new product and unfamiliar market) associated with it.
Resources to Invest
Developing a new product is an inherently costly endeavor. Increased marketing can also tax financial resources. Organization should carefully assess their ability to sustain their business while they wait for increased investment in a new growth archetype to deliver expected returns.
Where the market is in its lifecycle will likely influence the growth strategy archetype you adopt. Mature markets, i.e., those that are not growing quickly, make market penetration, for example, a risky approach.
Product Maturity vs Market Maturity
Where the product is in its lifecycle (and how it relates to the market maturity) has a huge effect on the optimal growth strategy related to existing and new products. Are you a late market entrant? Are you creating a new market? In both cases, product strategy through the lifecycle will be driven by that the dynamics associated with your product's maturity phase and that of the market(s) you serve.
The Product Strategy Document
Constructing your business motivation is an important part of defining your product strategy but is insufficient to communicate your plans to important stakeholders as the business motivation alone lacks important elements of business context that further inform the business motivation's content and priorities. We recommend collecting this information, which we refer to as "business context", in a single artifact. We also recommend that our clients and students start with a presentation rather than a word processing document as you will almost always present your strategy to various audiences.
(By the way, we provide a template for this document along with a PDF version of this briefing when you sign up using the form at the top or bottom of this article)
Strategy Document Table of Contents
Here are sections of a product strategy document you should consider:
- Business Motivation: goals and objectives
- Product Definition: The problems the product solves and its key capabilities
- Market and Target Segments: A description of the market served and target market segments
- Delivery Model: How you'll deliver the product to customers, e.g., on-premise, SaaS
- Product Positioning: How should the market think about your product relative to alternatives, especially competitive alternatives.
- Sourcing: Where will you acquire the components you'll need, both physical and virtual
- Financials: Summary of revenue, costs, investment metrics
- Roadmap: What value will you deliver to the market via your product when?
You should add additional sections that are relevant to your stakeholders. For example, some strategy documents could include a section on the product ecosystem.
Presenting Your Product Strategy
Building and validating a great strategy is of limited value if you are unable to present it convincingly to your product's most important stakeholders, e.g., executive leadership. Here are a few tips that we hope will help you to make a better strategy presentation.
Tell a Story
Research storytelling and use related techniques to present your strategy as a story. Describe a threat or opportunity for the product team and describe how the team together can win. You should also make it clear how your product's success also drive success of the company.
Share Supporting Facts
Make sure your key assertions are backed up with data. For figures regarding future revenue, make sure sales is willing to stand behind the numbers.
Demonstrate Alignment with Stakeholders
Explicitly Align Your Product Strategy with organizational strategy, demonstrating how it will help achieve broader success.
Reduce your strategy pitch to its essence, avoiding extraneous information and formalities. A valuable exercise is reducing your growth strategy to a 3-minute pitch. Reaching this level of clarity is difficult but will help you isolate what is critical from what is merely important and make your pitch easier for audiences to understand internalize.
Share the Product Roadmap
A product roadmap demonstrates deliver to the market based on your strategy, providing approachable examples of the interplay between strategy and delivery.
Keeping Your Product Strategy Fresh
As the business and technological environment around you changes, your product strategy must be adapted to reflect the new reality. You should strongly consider defining a regular schedule for reviewing your product's business motivation and updating it as necessary. Often, little or no change will be required. You should also develop the "reflex" of revisiting your motivation as soon as a there is a significant change in your product, company, or the market it serves.
Culture and Strategy
We hope we've convinced you of the criticality of defining an explicit strategy (business motivation) for your product. However, you should keep in mind that the cultural context in which you develop and promote your strategy is powerful and has massive influence on your ability to execute your strategy. As Drucker allegedly said, "Culture eats strategy for breakfast."
We've covered a lot of ground in this post! We started by defining strategy as a course of action leading to success and then described how to think about strategy in terms of a broader model that first defines success then articulates the path to reaching it. Here are what we consider the most salient points:
- As a course of action, a strategy is execution-oriented and essentially meaningless if defined outside the context of a clear definition of success.
- Success should be defined in terms of your vision and supporting goals and particularly objectives. To be meaningful, success should be based on clear metrics with associated targets within a defined timeline.
- There are many strategy "archetypes" you can use as inspiration to define your strategy. Consider the pros and cons of each given your operating context. Continuously evaluate success and adapt your strategy (and the associated definition of success) as you learn.
- You must package your product's business motivation in broader context to allow others in your organization on whom you must depend to achieve success to understand why you're pursuing that strategy, what is entailed in executing it, and how you will generate success with it.
It's your turn now
Take the part of what we've described that you find relevant and capture your product's reality. Start with a few goals and their associated objectives. Gradually increase the audience with whom you share your product business motivation and keep an open mind regarding their input. People are more likely to commit to a product business motivation they feel they played a role in defining.
As product strategy is such an important topic, we see this as a living post that will evolve as we make new discoveries, including the ones that come from your feedback! Please share your experiences with this approach. If you have comments or questions, don't hesitate to contact us at firstname.lastname@example.org. One last thing: Make sure to use the template that goes along with this article by filling out the form below.