How products create value
A product succeeds when it is valuable to the people who use it and also works for the business that pays for it. This lesson shows how value flows from users to business results, how common business models capture it, how to put a number on the value of an internal tool, and how to check an idea against the four risks before you build.
By the end you can
- Trace how user value turns into revenue, lower cost or lower risk, and spot the broken link
- Explain the common business models and which number each one depends on
- Estimate the value of an internal tool in time, errors and money, and say which part is cash
- Check an idea against value, usability, feasibility and viability risk, and pick the cheapest test for each
- Write a one-page value and risk summary for a proposed feature
The everyday picture
You plan a food stall outside a busy bus station, selling hot breakfast wraps. Four questions decide whether it lasts the year.
Will commuters buy a wrap instead of their usual tea and biscuit? Can they order, pay and eat it in the two minutes before their bus, with a bag in one hand? Can you make 200 wraps between 6 and 9 am with one griddle and one helper? And does the price cover ingredients, rent and the market committee's permit, and is food even allowed at that spot?
Most stalls that close didn't fail at cooking. They failed at one of the other questions, and nobody checked it before buying the griddle. Products fail the same way. The four questions have names: value, usability, feasibility and viability. A PM's job is to answer the uncertain ones cheaply, before the expensive part starts.
Two kinds of value, one chain
Value has two sides. User value is what the product does for the person using it, minus what it costs them: money, time, effort and the risk of trying something new. Business value is what the company gets back: more revenue, lower cost, lower risk, or a stronger position against competitors.
The two are linked by behaviour. A product creates user value, so people do something differently: they use it, pay for it, come back, or finish a task faster. That change in behaviour produces the business result. The chain only works if every link holds:
- A feature that users love but that doesn't change what they do creates no business value. Partner shop owners may like a new catalogue screen and still phone their sales rep.
- A feature that changes behaviour in a way the business doesn't benefit from is a cost. A free delivery offer that brings orders smaller than the cost of delivering them loses money on every order.
- A feature the business wants but users get nothing from will be ignored, or for internal tools, worked around.
When an idea looks good, trace the chain out loud: "Store staff get X, so they do Y, which means Mangrove gets Z." If you can't fill in Y with something observable, you have found the weak link. This is also why the first lesson, What a product manager actually does, insists on outcomes: an outcome is the behaviour link, made measurable.
Quick check
In tests, partner shop owners rated a new one-tap reorder screen 4.6 out of 5. A month after launch, the share of orders placed in the app hasn't changed. Which link in the chain is broken?
The users saw value, but their behaviour didn't change, so no business result followed. The next step is to find out why they still phone, which might be the sales rep, credit limits or habit. A 4.6 rating is high, and wholesale reorders clearly do make money. A month is enough to see an early move in ordering habits.