profitable-product-blog

Upgrading Value Streams to Profit Streams

Fri, 05 Apr 2024 08:47:59 GMT

We can design sustainable business by leveraging the Software Profit Streams framework to upgrade the concept of Value Streams.

In today’s world of disruptive innovation, Product Management of Software Enabled Solutions is about taming the exponential complexity of technology into something that helps customers. Rooted in industrial manufacturing, the concept of Value Stream Mapping is still foundational to understand how solutions work and interact with internal and external stakeholders, end to end.

Designing Profit Stream starts with understanding Value Streams

A value stream is the sequence of activities that organizations undertake to design, produce, deliver, maintain and/or extend a product or service to customers. Agile and Lean Software Development methodologies in the late 1990s and early 2000s adapted the principles of lean manufacturing to the software development process with a focus on continuous delivery, efficiency, and adaptability.

Source: Scaled Agile , Inc.

Value Stream Mapping (VSM) became a tool not just for analysing operational processes but for understanding the flow of value through stages of software development from concept to delivery. DevOps and Continuous Delivery practices apply VMS to visualize and identify bottlenecks to optimize development through automation and collaboration. SAFe and other scaling frameworks use Value Stream concepts at the enterprise level, aligning teams and resources around the delivery of value through complex systems and across large organizations.

Yet the domain of software enabled solutions with all its technological complexities, non-linear dynamics and integration dependencies can escape many value mapping approaches.

Source: Scaled Agile , Inc.

Modelling Profit Streams is about commercially capturing the upside of solutions

Now, the Software Profit Streams™ framework flips the script, away from identifying delays and other operational downsides, towards the business upside of solution profitability management. The concepts of Development and Operational Value streams remain, however the VSM focus on lifting cost efficiencies and process bottlenecks is augmented with a big attention to monetization derived by Operational Value Streams.

As explained in Quantifying Value to Maximize Profit , a Profit Stream is achieved once solutions generate revenue in excess of the costs required to serve users over time. This revenue is generated through a chosen profit engine and defined by the top layer of the Profit Streams canvas. For a good reason, the framework starts with the customer quadrant of solution sustainability to identify and quantify all dimensions of value that have the potential to generate revenue as the upshot.

Quantifying Value to Maximize Profit

Thu, 04 Apr 2024 13:47:28 GMT

Understanding value in quantifiable terms is key to unlocking desired outcomes for both providers and customers of sustainably profitable solutions.

In our previous blog post Profit is Sustainable Value, Part 3 we explored the three pillars of sustainability within the Software Profit Streams™ framework, developing a comprehensive understanding of what makes a solution truly profitable. The Profit Streams canvas ensures that we evaluate the benefits of a solution from the user's perspective, as well as the unit economics for providers of software-enabled solutions.

Value is the benefit customers receive less their total cost of ownership

While the equation "Value = Customer Benefits - Total Cost of Ownership" might seem straightforward, it requires a detailed quantification of the economic benefits for customers. This entails extensive user research and an in-depth understanding of the market and competitive landscape. The true strength of the Profit Streams framework lies in its interdisciplinary approach, where insights from Marketing, Sales, Product Operations, and other stakeholders converge to define and quantify customer benefits accurately. It's important to recognize that value perception varies among different user segments; some may highly value certain features as direct benefits, while others may see the same features as indirect benefits that have little impact on their purchasing decisions.

An often overlooked aspect in conducting a Customer Benefit Analysis with the Profit Streams canvas is the inclusion of intangible benefits. Although challenging to quantify the perceived value of certain solution aspects initially, it's imperative to fully capture the extent of the benefits enjoyed by end users. This should be reflected in the pricing and licensing strategies to ensure that they fully represent the value delivered.

As the upshot, a Profit Stream is achieved when this value equation is net beneficial for customers and the revenue monetized exceeds the provider’s cost to scale the solution over time to a mass audience of potential users.

Profit is Sustainable Value, Part 3

Thu, 09 Nov 2023 18:57:24 GMT

All profitable products have three things in common: They generate superior value thanks to the three dimensions of economic sustainability, solution sustainability and relationship sustainability.

Understanding this sustainability trifecta is critical for providers of software enabled solutions to succeed.

Economic sustainability hinges on the balance of value and cost: It demands that the revenue generated from a software solution consistently exceeds its development, maintenance, and operational costs. This aspect is deeply intertwined with strategic pricing, cost management, and understanding market dynamics.

As a prerequisite, solution sustainability focuses on the long-term viability of the product offering itself. It requires that the functionality not only addresses current customer needs, but is also adaptable to future market changes and technological advancements. This involves ongoing innovation, user feedback incorporation, and lifecycle management.

Lastly, relationship sustainability is about fostering enduring, mutually beneficial contractual integration with all stakeholders such as customers, suppliers, employees, and regulators. It emphasizes trust, compliance with legal and ethical standards, and the nurturing of partnerships that support and enhance the overall value proposition of the software solution.

Profit is Sustainable Value, Part 2

Thu, 09 Nov 2023 18:54:37 GMT

Sustainable solutions deliver business value, systematically.

We’ve established in Part 1 of "Profit is Sustainable Value" that the Agile domain tends to view value through an upstream lense, with an understandable heavy consideration for customer benefits.

This brought the notion of viability into the spotlight. A viable product means that it works for the business which provides it. Viability is a sensible additional dimension in product thinking, especially since the Agile domain in the past has put too much emphasis on the delivery angle of product development. However, it still only offers a static perspective on product development. More crucially, there is ambiguity whether viability is an additional consideration, or rather the result of achieving a useable, feasible and valuable solution.

Enter solution sustainability, powered by Profit

Sustainable solutions deliver business value, systematically.

We’ll all agree that competing in the software industry is not a one-off game where victory is declared at product launch. The Software Profit Streams™ framework gravitates around the practical necessity of providing sustainable solutions over time and under dynamic market conditions. Solutions are sustainable if they earn a profit, passing the test of time!

The key insight here is that sustainable businesses must use a variety of models, frameworks and maps to navigate complex challenges such as business model design, pricing, licensing, feature prioritization, exploiting emerging technology or assessing the impact of external forces onto their solutions. Profit Streams™ leverages design thinking to map all these interdependent choices on an ongoing basis, as multiple provider and product variables are constantly battle tested in the marketplace with fierce competition, ever-changing customer needs and accelerating technologies. We’ll unpack the dimensions of solution sustainability in Part 3 →

Profit is Sustainable Value, Part 1

Thu, 09 Nov 2023 18:52:23 GMT

Let’s move past platitudes that products must create value, obscured by many interpretations. Sustainable solutions generate PROFIT. Systematically.

Recently, I upgraded to a new smartphone and chose to manually download my apps again. Browsing to the bottom of my Android installation history was a nostalgic blast from the past. I’ve long forgotten many discontinued mobile games, tools and services. This begs the question: If these apps provided customer value through functional utility, why aren’t they still installable? Certainly, these apps had overcome engineering feasibility challenges and cracked usability hurdles to land on our devices many years ago.

Source: Jeff Patton Associates

Current notions of value neglect the bottom line

Let’s unpack the term value, which suffers from inflationary use and varying definitions. At its most basic level, Agile primarily views value in terms of customer satisfaction and delivering working software that meets customer needs efficiently. Agile promotes a steady development pace with continuous improvement through delivering value in iterations. The SAFe framework elevated the Agile concept of value to an enterprise level, focusing on delivering the most valuable products to the market continuously. It introduced Lean-Agile principles for aiming at long-term growth and operational efficiency, ensuring the organization's longevity and resilience. In the Scrum framework, Professional Agile Leadership and Evidence Based Management in particular, value is supposedly already delivered when users are happy and engaged with a product. It goes so far as to explicitly stipulate that the profitability of a product does not indicate if it provides value or not!

I beg to differ! As a product manager with past commercial responsibilities in multiple roles, it's safe to assume that none of these apps unlocked sustainability in the form of profit to invest in maintaining the product lifecycle. So much value, and still none of these apps are to be found on our phones? Obviously, we need to talk more about Business Agility. Too little attention is paid to the downstream value which providers of software enabled solutions should capture in order to not only survive, but to prosper and serve customers even better.

We'll get into that in Part 2 →