Building Products & The Importance of Focus

Kazuki

Hatched by Kazuki

Aug 12, 2023

5 min read

0

Building Products & The Importance of Focus

In today's fast-paced and ever-changing business landscape, it can be tempting for Product Managers to constantly chase after new ideas and opportunities. However, in my years of experience, I have observed that the Product Managers who truly succeed are those who stick with one idea for an unreasonable period of time. This level of focus is not only crucial for building great products but also for gaining the trust and support of investors and stakeholders.

Founders, in particular, are often asked to dedicate themselves to building one idea for an extended period of time. This requirement may seem daunting, especially in a world that encourages constant innovation and pivoting. However, the reason behind this demand becomes clear when we consider the perspective of venture capitalists (VCs) who fund these ideas. VCs seek conviction and focus in the founders they choose to invest in. They want to see that the founders truly believe in their product and are willing to dedicate their time and energy to its success.

When a Product Manager is constantly jumping from one product to another, they become like a used car salesman with a wide range of products to pitch and sell. This lack of focus not only dilutes their efforts but also hinders their ability to build great products. Building a successful product requires deep understanding, continuous iteration, and a relentless pursuit of excellence. These qualities can only be cultivated when one has the time and focus to truly immerse themselves in the product.

Now, let's delve into the importance of metrics in running a successful business. While many may see metrics as a means to raise money from VCs, their true value lies in enabling founders to understand how and why certain things are working or not. Good metrics provide founders with insight into the health of their business, allowing them to address and adjust accordingly.

One crucial metric that investors highly value is the proportion of total revenue that comes from product revenue as opposed to services revenue. The reason behind this preference is clear - services revenue is non-recurring, has lower margins, and is less scalable. By focusing on product revenue, founders can build a sustainable and scalable business model.

When it comes to estimating the Lifetime Value (LTV) of a customer, a common mistake is to calculate it based on revenue or gross margin alone. Instead, the LTV should be calculated as the net profit generated by a customer over the entire duration of their relationship with the company. This approach provides a more accurate representation of the true value that a customer brings to the business.

Another important metric to consider is the Contribution Margin LTV to CAC (Customer Acquisition Cost) ratio. This ratio helps determine the CAC payback period and enables founders to manage their advertising and marketing spend effectively. By understanding the relationship between customer acquisition cost and the lifetime value of customers, founders can make informed decisions about scaling their user acquisition budget.

When evaluating the growth and health of a SaaS (Software as a Service) company, billings can serve as a useful proxy. Billings are calculated by taking the revenue in one quarter and adding the change in deferred revenue from the previous quarter to the current quarter. This metric provides insights into the company's growth trajectory and overall health.

While blended CAC (total acquisition cost divided by total new customers acquired across all channels) is a commonly used metric, it may not provide a clear picture of the profitability of paid campaigns. Investors often consider paid CAC (total acquisition cost divided by new customers acquired through paid marketing) to be more important in evaluating the viability of a business. This metric allows founders to determine whether their user acquisition budget is profitable and whether they can scale up their marketing efforts.

It is important to note that cumulative charts, while visually appealing, may not be a valid measure of a company's growth or health. These charts tend to go up and to the right for any business that shows any kind of activity. However, they can be misleading and do not provide a true indication of a company's performance. Monthly revenue and new user metrics offer a more accurate reflection of a company's growth trajectory.

In conclusion, the importance of focus cannot be overstated when it comes to building great products. Product Managers and founders must resist the temptation to constantly chase after new ideas and instead dedicate themselves to one idea for an extended period of time. This level of focus not only allows for deep understanding and continuous iteration but also instills confidence in investors and stakeholders.

Furthermore, metrics play a vital role in running a successful business. By understanding and utilizing metrics effectively, founders can gain valuable insights into the health and growth of their company. From the proportion of product revenue to the calculation of LTV and CAC, each metric offers unique perspectives that inform decision-making and drive business success.

To harness the power of focus and metrics, here are three actionable pieces of advice:

  • 1. Embrace the power of focus: Dedicate yourself to one idea or product for an extended period of time. Resist the urge to constantly jump from one project to another. Deep understanding and continuous iteration are key to building great products.
  • 2. Utilize the right metrics: Identify and track the metrics that truly matter to your business. Understand their implications and leverage them to gain valuable insights into the health and growth of your company. Avoid relying solely on cumulative charts and instead focus on metrics that offer a more accurate reflection of your performance.
  • 3. Prioritize product revenue: Investors highly value companies where the majority of total revenue comes from product revenue rather than services revenue. By focusing on building a sustainable and scalable product, you can create a solid foundation for long-term success.

By combining the power of focus and metrics, Product Managers and founders can navigate the complex landscape of building and scaling successful products. These principles, when applied consistently and with conviction, can set the stage for impactful innovation and business growth.

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