Every product team wants to build that unicorn they can sell for a billion dollars.
Some won’t even make a penny.
But that doesn’t necessarily mean that they haven’t been successful.
So what does determine success?
How will you know when you’ve achieved it?
And how will you prove its success to the powers-that-be?
While there’s no hard and fast formula, at Lighthouse we measure and prove a product’s success by the value it adds to our clients’ organisations.
How you measure this depends upon several nuanced factors.
While the default, especially for startups, is to track the value of the product’s revenue; the value (and success) of a product can also show up in less tangible ways.
Regardless of how you track it, measuring value is non-negotiable.
There’s no room in this world for products that can’t prove why they exist.
Plus, without measuring, how do you know which products to focus on, push and grow?
In this article we explore the different ways of setting metrics for product success.
Prefer to listen instead? Hear Dan and Tom get into the nitty gritty of “How to Measure the Four Types of Value Created By Digital Products” on the Lighthouse London Podcast.
Four ways to measure the value and success of your product
1. Direct Value – what does the bank account look like?
Simply put, does your product make or save your company money?
When most organisations invest in a product they want to see a return in the form of revenue or efficiency gains; to prove it’s worth pushing forward.
This is also relevant for start-ups who need to be able to measure and demonstrate revenue value to their investors.
One of our favourite examples of a successful direct value adding product is Basecamp, created by 37 Signals back in 1999.
Originally a web design agency, 37 Signals built Basecamp to replace email for project management.
Clients loved the new tool and wanted to use it too, so they polished it up and launched it as a product on the agency’s blog.
Within a month they had 100 paying customers.
Within a year they were generating so much revenue that they ditched Photoshop in favour of building products full time.
It’s worth mentioning here that software-as-a-service or subscription products may take a year or more to generate direct value. You need to factor that in when you’re tracking revenue.
Likewise, don’t forget to track profit rather than income.
Many startups fall into the trap of spending more on acquiring their first users than those users will ever bring in revenue. It’s easy to blow the budget on Adwords and never see the return.
2. Additional Value – look at the bigger impact on your business
Sometimes you need to look beyond the direct value of a product to measure how much revenue it generates elsewhere in the organisation.
The right products can increase your brand’s value by building credibility and awareness.
A product can also give potential customers a taste of your offerings without the need to commit huge amounts of time and money. If they have a good experience they are then more likely to commit to higher value offerings, services or products.
This is the case for a product we created for our client, Event Safety Plan.
They created a tool for managing safety plans and risk assessments for events. This is a niche product that solves a very specific problem, so it doesn’t contribute much by way of direct value.
However the interesting thing is that a good majority of customers that buy this small product, go on to book consultancy packages; bringing considerable additional value into the business.
By the same token, at Lighthouse we create products that help us grow our business in subtle ways.
These include Plexi (a tool for estimating project costs more accurately) and Livewire, our collaborative wireframing tool.
They do generate direct value for us but, perhaps more importantly, generate additional value by showcasing us as creative problem solvers and product experts.
3. Influence Value – the value of engaged fans
As we all know, millions of eyeballs don’t equate to millions in revenue.
That said, when you’re seeking investment as an early-stage start-up or proving demand for a new public service, the number of engaged users you have can be a useful yardstick.
Facebook, Instagram, Twitter and just about any social network you care to mention built their empires on influence value rather than generating revenue from the get-go.
Of course most of us aren’t going to build the next Facebook. But influence value still holds sway.
Particularly for smaller companies and individuals, creating an engaged fan base or audience around the problem you’re trying to solve can be the gateway to launching successful products down the line.
Thought leaders such as Ash Maurya and Simon Sinek have built healthy businesses by creating a community around their work and then creating products and tools on the back of their influence value.
4. Innovation Value – practice makes perfect
The hardest to pin down, but the most important measurement of value, is the way in which developing the right product can help you to create a more innovative culture and organisation.
But how do you prove the value of an idea?
How do you measure the value of learning?
Or the value of an innovative culture?
The best way we’ve found to track innovation value is to create a stream of multiple product prototypes and then measure which products move the needle.
While your first ever product may not create enough value to be deemed successful, the Product Leadership skills you gain in the process will lead to better ideas, better products and long-term value from successful products further down the line.
History bears this out.
To take a well-known example; the team behind Slack (the massively successful messaging app now valued at $2billion) previously built Flickr, which itself was created accidentally as part of a massively multiplayer game that never took off. In actual fact, Slack itself originally began life as the messaging tool they used to collaborate on the game.
The point is, no successful startup came out of nowhere.
No successful product team did the right things in the right order the first time around.
It was only as a result of generating ideas, testing and iterating them that they eventually hit the jackpot.
In the short term, look at which products are generating value and how.
Where do you need to focus your efforts? Are you giving your innovation team all they need to develop?
While your ‘innovation value’ may be tricky to track, it’s vital that you do so; your ability to remain relevant in a fast-changing world may depend on it.
Need a helping hand getting started?
Check out our Innovation Days and kick-start your own steady stream of valuable product ideas.