Weeknotes (1) — finance for product leaders, is Google broken?, why the financial downturn is impacting SAAS
I’ve decided to start writing weeknotes. I’ve just joined Vypr as their first Head of Product. I’m returning to work 4 days a week (80% not compressed hours) after 8 months of maternity leave with my second son. These notes are for me; to help me learn, reflect and grow as a product professional and a working mum. I’ve been reading and thinking about so much interesting stuff recently, but I have a tendency to forget the details! So the format I’ve chosen is to focus on the things I’ve been reading/listening to and what I’ve learned and how I’m applying them in my job.
Finance acumen for product leaders
This podcast from Melissa Perri (in conversation with Giff Constable) is absolute gold. It feels so relevant to me right now, joining a small company in a product leadership role where ‘the business’ and the product are really one. It’s a massive growth area for me. They talk about how financial skills are the glass ceiling in product. When you become a CPO, your cross-functional team becomes the other exec members, and that means you need to start learning the language of finance, not just the language of technology. But don’t worry if finance is not your wheelhouse — they argue that interest is more important than expertise.
These folks just want to see that you care about the same things they do — how do I grow and protect the value of this business?
Giff’s recommendation is to actually create your own FP&A model (a spreadsheet that describes the engine of your product, with variables you can play with to estimate the financial impact of changes you make). So you’d include things like how you acquire customers, how you keep them, how you monetise them (and any other revenue streams) and then your cost structure (the money you spend to make, maintain and sell the product), so that you can demonstrate how that translates into profit. He stresses the act of creating it is as valuable as the thing itself, so don’t just find one on the internet and put the numbers in. At the end of the day, the numbers will always be estimates — the model is the thinking. It will demonstrate to you something that might feel uncomfortable as a product professional (and that might explain decisions exec teams make).
The pricing model is the biggest lever for changing your customers’ behaviour, over and above any feature you can build.
There’s a whole bit at the end about how VCs and the market value companies. It’s not a perfect science, but really it all comes down to demonstrating supply and demand. Valuations are usually just based on a multiplier of your top or bottom line (so your revenue or your profit). For high growth young companies they’ll often take the top line because they aren’t actually turning a profit yet (think Twitter and Snapchat).
So if you want to increase your valuation you either need to grow your revenue (which will give you linear growth) or try and impact the multiplier (which can lead to exponential growth).
The multiplier will be affected by things like your rate of growth, gross margins, market position, whether you’re in a hot new space, defensibility and NRR.
Another thing worth understanding is how ownership affects expectations. Family ownership vs. VC vs. private equity vs. public markets. They have different attitudes to risk and are aiming for different returns. For example, VCs tolerate high risk but are looking for 10x returns. A family run business may be most interested in ethical practices or sustainability. Private equity tolerate less risk but would view lower returns as successful.
Is Google getting worse?
This Stephen J. Dubner/ Freakonomics Radio episode is really interesting. Stephen is clearly personally invested in the conversation, which always makes for a good podcast. Plus he’s managed to speak to some serious Google folk, past and present, to help give a balanced view. It’s always good to get a reminder of some key market stats…Alphabet still makes 81% of its total revenue from paid search, Google have 90% of the global search market and the Chrome browser is used by approximately 65% of people (with Safari being only 20%).
The obvious discussion points were, does Google have a monopoly? And are they prioritising profit over users? Larry Page and Sergey Brin’s original research paper about their search engine stated ‘advertising income often provides an incentive to provide poor quality search results’, so is that what’s happened? Google say no. An accidental longitudinal study they ran with 1% of searchers over 8 years suggests paid results actually increase searches. Ultimately the only other way to monetise would have been subscription (which some competitors are now doing) but that would have compromised the universality that is key to Google’s vision.
Stephen makes a good and interesting point about how Google used to be a way to learn things, and now seems like it is a place to buy things. Though I think Google make a good counter point, that this serves a lot of users’ needs and behaviours.
I think the most compelling argument that Google isn’t just a principled company doing well for itself comes from Jeremy Stoppelman, CEO and co-founder of Yelp. His is one of many complaints being heard in courts around the world about competition. Google created their own local reviews service after failing to buy Yelp and he argues they have used their search monopoly to prioritise Google reviews over Yelp. Google also pays Apple a lot of money to be the default search engine used if you type into the browser bar of Safari, which disadvantages competitor search engines.
Why the economic downturn is disproportionally impacting SAAS businesses
This is actually a sports podcast, but the second half (from about 46 minutes) is a discussion with Derek Thompson about tech economics. I love Bill Simmons. He’s such a smart guy and has a great way of explaining complex stuff. He’s also refreshingly opinionated. If you haven’t quite wrapped your head around why the interest rate increase is impacting technology companies then this is for you. TL:DR debt isn’t cheap anymore and VCs want to see profits. They are less willing to fund a race to become the biggest player. Hence social networks, in particular, are needing to rethink their business models. He talks about how news sites have embraced online subscription models as an example of this type of sea change. And then floats an idea for social media monetisation — metering! By which he means a freemium option, with charged tiers for super users! Interesting in the context of anxiety around overuse of social media…could this be an example of a business model that also encourages moderation?? Or is it just sin-taxing your own product?
I won’t always have this much to share. Sometimes I’ll have weeks where everything I read or listened to didn’t add much to my thinking. Orrrrr, the kids will be keeping me up at night and I’ll be struggling to get my day job done, let alone some personal development reading. But I’ll keep sharing and see whether this helps keep me focused on growth…