June 2, 2023 | InBrief

How Chief Product Officers should respond to the evolving economic landscape

As the tech industry shifts to cost optimization, Chief Product Officers are finding themselves in a new role with new tasks

How Chief Product Officers should respond to the evolving economic landscape

The tech industry is undergoing a significant transformation. Economic volatility and declining venture funding is shifting the sector’s approach from “growth at all costs” to “optimizing the cost of growth.” It’s not uncommon to find news articles that highlight optimization initiatives and layoffs at companies—most recently at Amazon, Meta, Shopify, and LinkedIn.

This shift is forcing the Chief Product Officer (CPO) to now do more with less, level-up processes, and balance research and development (R&D) spend. 

This is especially true for CPOs operating in an increasingly competitive private equity/portfolio company environment. The good news? CPOs are well-positioned to be more strategic players in this evolving landscape. Here’s how they can seize the opportunity.

Where new CPO priorities are shifting

In today’s resource-constrained moment, CPOs will need to have greater financial fluency, meet key data-driven metrics, and collaborate with other C-suite leaders to drive strategic growth. The CPOs that succeed are focusing on the following:

Stewarding R&D spending

Together with the Chief Technology Officer (CTO), CPOs need to ensure that R&D spending—which typically ranges from 15 to 25% of annual recurring revenue—is focused on areas with the highest ROI within their product portfolio to    increase value to customers and differentiate from competitors.

Enabling high growth and retention

Since the cost of retaining and expanding sales with existing customers is just a fraction of bringing new customers on board, retention is key to profitability. In collaboration with the Chief Commercial Officer and Chief Revenue Officer, the CPO can leverage consumer insights and analytics to effectively differentiate on product price, features, packaging, and delivery to bring in new customers while engaging existing ones.  

Driving gross margin maximization

These margins are heavily dependent on product architecture, meaning the CPO—in partnership with the CTO and Chief Financial Officer—must rationalize products in a way that balances investments in foundational platform architecture (e.g., hosting costs) with the development of new features.

Best practices for CPOs to find product success

As CPOs develop their strategies around these new priorities, they should focus on these best practices: 

Create the right conditions for your team

This begins with a clear product vision and framework so that everyone can align around and prepare for what’s coming next. As part of this exercise, CPOs and their executive teams should agree on the key outcomes—and, just as important, clear metrics—that define success. Examples include: We will improve gross margins by X; we will impact churn by Y; or we are going to reduce R&D spend by Z.

Ruthlessly prioritize to deliver on these outcomes: With a clear vision and metrics in place, the next step is establishing priorities to ensure goals are met. Customer data and analyses of existing market offerings should be the CPOs’ north star.

For example, we recently worked with a marketing automation company that was bringing on new customers but struggled with retention. After a customer segmentation analysis, we collaborated with the leadership to restructure their product pricing and packaging, introducing targeted feature bundling that increased cross-sell and up-sell opportunities, improved retention, and supported new growth.

This laser focus on outcomes and key priorities is critical for prospective portfolio companies or tuck-in acquisitions, too. For instance, platform rationalization is an increasingly important component of due diligence during M&A deals; if done effectively early on, it can underwrite significant platform consolidation savings. 

Increase data fluency

Data is essential to a CPO’s success. Investing in the right platforms to track product use and adoption can yield insights that inform decision-making and roadmap tradeoffs and drive day-to-day operational efficiencies.

For instance, we recently worked with a marketing analytics software company that concentrated its product investment on winning new customers and reducing churn. They had extensive data about their customer base and usage but weren’t leveraging it to investigate the cause of high turnover.

Once they conducted a detailed churn analysis with this data, they saw that the new customers they were targeting—particularly in the commercial segment—were most likely to churn. Their most profitable customers in the enterprise segment, meanwhile, tended to have challenges around the second or third year of using the product because their sophistication evolved after years of using it. Features that were “sticky” at first had lost their luster.

Using these insights, the team redirected product investments around the features and bundles that improved user experiences with time—leading to better outcomes among their most profitable customers.

These analyses aren’t a once-a-year project. It’s a continuous measurement process that ensures portfolio investments remain aligned with product performance and market demand. 

Evolve team culture

CPOs can have the right data, goals, and vision—but people drive success. Creating a culture where team members feel comfortable learning, asking questions, and adapting to challenges helps build a sense of belonging and can improve individual contributions to product goals.

To that end, performance incentives should align with desired behaviors—and feedback should always be actionable and tied to the product vision. Organizational culture should also support the focus on customers and growth as tech companies look to build a business that returns value to shareholders.

The new opportunity for CPOs is just beginning

From building next-generation products to playing an instrumental role in maximizing resource deployment across the company, the role of the CPO continues to expand. These executives are particularly important in today’s uncertain economic climate.

Optimizing the cost of growth can be a challenge. But this moment also presents a valuable opportunity for CPOs to improve their teams, double down on  data-driven insights, and play a pivotal role in steering their companies towards continued, optimized growth with an eye on customer value and return on investment.

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