Why thinking commercially is now an essential skill for product managers

It’s a cry you hear from product leaders all over Europe - product people need to improve their commercial skills. They should be able to understand and navigate the business, financial, and market dynamics of a company’s success so that they can make decisions to maximise revenue, profitability, and market growth all the while aligning with customer needs and business goals.

It’s worth thinking for a moment about why product people might be weak commercially. Product managers often come into their role from the tech side of a business - they might have once been an engineer or a designer and have focused on things like roadmaps and user stories rather than revenue models and pricing. Perhaps companies haven’t expected their product people to think commercially and ownership of revenue, pricing, or go-to-market (GTM) strategy may sit with marketing, sales, or finance teams rather than product teams. Equally a focus on business impact is a relatively recent departure for many product teams - they’ve been expected to concentrate on features, roadmaps and releases, rather than profit margins, customer acquisition costs or pricing strategies.  

By all accounts, the problem is more acute in Europe, because Product as a discipline is still some years behind the US. Product coach Dave Wascha points out that Product in Europe in its early days was effectively product marketing for the European outposts of big US tech businesses. “As a consequence of that they spent a long time explaining why they can't be held to commercial metrics and deadlines,” he says.” In the past I've definitely been one of these people to try to avoid commercial accountability.” 

Commercial accountability often works on a shorter time horizon from Product so this makes for a natural tension between Product and other departments. As Dave says, product people might be working on something that is three, six or 12 months out, whereas commercial people and marketing people work on much shorter time horizons. “Commercial and marketing people look for much more precision in their predictions and forecasts, whereas product people - if they're doing it right - can’t have that level of predictability unless they’re very conservative what they build, in which case, what they build won’t be that interesting.”

For many reasons then, commercial acumen has not historically been at the forefront of the skills needed to be a successful product manager, so why the current shift to focus on commercial skills? It’s simple: in order for your work to make an impact, you need to understand how the business works. Failure to be accountable can lead to product people ignoring the commercial context of the business, and we’ve seen many companies burned by this in recent years. Leadership coach Nacho Bassino talks about this in this episode of the Product Experience, How to prioritise your work for impact. He says: “If you're solving a customer problem… and you have no idea how it connects to a business metric, why are you even doing it?” Dave Wascha adds: “I’ve met a lot of people who can't actually explain how the company they work at makes money.”

Let’s drill down a bit to understand what is meant by commercial skills for a product manager. Here’s a list of what they might include:-

Market and competitive analysis

Do you understand market trends, customer needs, and competitor moves so you can identify gaps and position your product accordingly?

Revenue and monetisation strategies

Can you define pricing models - subscription, usage-based, freemium and so on? Do you understand customer lifetime value and how to maximise it?

Go-to-market (GTM) strategies

Do you understand what’s involved in planning product launches, sales enablement, and marketing campaigns, and how different teams might need to be aligned for success?

Financial acumen

Do you understand the business’ profit margins, cost structures, and revenue streams, and what trade-offs between growth and profitability might mean?

Customer and sales enablement

Do you work with sales teams to drive adoption and reduce churn and do you understand how to translate product features into business value?

Business communication

Do you justify product investments with data-driven business cases?

None of this is rocket science, it’s knowledge and understanding that can be quickly acquired with a bit of thought and effort. You should be able to understand your contribution to your company’s success and what you might do to improve it. Dave Wascha cites an example from his early days as CPO at Zoopla. Zoopla’s revenues come from estate agents looking to promote their properties for sale, and because so many people dislike estate agents the product team would often want to conduct agent reviews. The company’s commercial functions reacted with dismay at this suggestion, saying that estate agents would simply cancel their subscriptions if they got a poor review. He says: “Most companies are commercial endeavours, and if you are not growing and driving profit, then you're doing it wrong, you're not achieving the company mission.” 

With commercial awareness comes more effective use of your time and greater impact on the company goals. A good product person knows how much time to spend on that which is less predictable and less precise, and how much time to spend on the more predictable stuff. Says Dave Wascha: “I used to joke at Zoopla that someone would want to run 1,000 A/B tests because we wanted to move a button by 10 pixels.”

Wouldn’t it be great to be able to draw on best practice or a framework or two for business impact? Unfortunately, as product coach Matt LeMay highlights, this is a bit of a non-starter, because every company’s business model and goals are different. He says: “It's also more complicated than that, because the things that matter most to a business are things over which most product teams have limited control.” For example, revenue is an obvious marker of business impact, but is influenced by market and customer dynamics beyond a product team’s control.  

As businesses increasingly question the value that their people deliver, Matt is emphatic about the practical need for product teams to be commercially aware. “Historically, product teams have felt that if they build what they're told to build, and if they follow best practices and build it the right way, that their positions are secure and their work is defensible. But as we see more rounds of layoffs and more scrutiny placed on businesses, that's no longer true.” He feels the product community at large has been too concerned with doing things the right way and not concerned enough with doing the right things. “Product people are ultimately accountable to a business,” he says, “so they can't alienate that business and do the work that they need to do.” 

Matt has just published a book, Impact First Product Teams, which looks at this issue of product teams being disconnected from the business impact of their work and what can be done about it. He argues that impact-first product teams choose to put impact first when deciding what goals to work towards and can therefore prioritise their work more effectively. This of course is tough: “The challenge for teams is to subtract and simplify their goals, not to add more complexity, more goals, more layers, more cascades,” he says. “It’s really hard to do, it takes a lot of courage and a lot of thoughtfulness.” 

Matt runs workshops to help the product teams meet this challenge. He says that companies typically set too many layers of goals - there will be the company goal, the department goal, the big team goal, the small team goal, the smaller team goal, the individual goal - so that “by the time you get to those individual goals, there's no way of knowing if they actually add up to what the company needs to see. Each level of abstraction gives us that illusion of control”. 

Matt’s work with product teams involves finding and setting  goals that are no more than one understandable step away from company goals. He says: “When you have 50 goals, there's always some goal you can point to and say you're doing a good job. I shouldn't have to do 10 mathematical operations to figure out why your team goals matter. They should be one mathematical operation away from the unit of measurement that matters most to the company.”

In summary then, what practical steps can be taken to improve a product team’s commercial awareness and optimise for business impact? Here are a few:

One final note - Matt LeMay says that in researching his book he discovered that the most commercially aware product managers are also the happiest product managers. The happy ones said, ‘I work for a business, and my job is to deliver value for that business. I do what I can do to help the business achieve its goals’. The unhappy ones said, ‘I'm fighting the business to try to get us to a product operating model. We're not doing product the right way. We're not doing enough discovery, and I am on a mission to change the way we build Product’. As Matt says: “Those people are miserable because they're fighting a battle they're going to lose. They cast themselves as righteous crusaders against the company that signs their pay cheques.”