How to create a product strategy: step-by-step guide and an example

Product strategy definition

In this article, you will learn about a product strategy stack, in which the strategy itself is only one of the levels. Let’s define a product strategy:

A product strategy is a document which main purpose is to show what we will focus on in a designated period of time in order to embody the product vision and to help a company to achieve its goals.

Product strategy is not:

• A list of cool features we want to add
• What our competitors do, just 2 years later
• Wish list from stakeholders for solving tactical problems

Why do you need a product strategy

The main goal of the product strategy is to form a focus of what a team will do in the designated period of time. Product strategy helps stakeholders understand what a team will be doing over the next year or several years, what they plan to implement and what to achieve. And also to get an idea why this product is needed by users and stakeholders.

If we are talking about a specific product within the company, through our product strategy, we show how we will help to achieve the goals of a company, and how we will support its strategy. The strategy can be short-term, medium-term and long-term. Product strategy shall not go beyond company strategy.

• Short-term strategy — strategy for 1 year
• Medium-term strategy — strategy for 2-3 years
• Long-term strategy — strategy for 5-10 years

Typically, strategy comes into effect at the beginning of a calendar or fiscal year. It is subject to revision once a year and is checked for relevance once a quarter. In the USA, fiscal year starts on October 1.

It should be noted that due to emergency circumstances, strategy may be completely revised or cease to be relevant. For example, many companies began to revise their strategy with the introduction of a lockdown in connection with COVID-19 in 2020.

Product strategy stack levels

Within a product strategy stack, there are the following levels:

• Mission and vision of a company
• Company strategy
• Mission and vision of a product
• Product strategy
• Product roadmap
• Goals and metrics

At the same time, when creating and defending a strategy, it is necessary to go through a number of additional levels:

• Resources needed to implement a strategy
• Risks that affect implementation of a strategy and ways to avoid and minimize them

Mission and vision of a company

A company is always gathered around a fundamental idea, an idea is stated in a mission and a vision of a company. A business of an entire company is subject to this idea, therefore, when creating a product strategy, we must follow a mission and a vision of a company.

I know from my own experience that many people confuse mission and vision. Let’s clear up the terminology:

Mission is a statement that describes, for what common good, employees spend their lives working in a company or in a product.

To wrap up, I will give a few examples of the missions of well-known companies:

• Google’s mission is to organize the world’s information and make it universally accessible and useful.
• [blue social network] mission is to give people the power to build community and bring the world closer together
• Uber’s mission is to help people go anywhere and get anything and earn their way

Vision is a statement in which the role of the company or its product in future is described.

Let’s wrap up with a vision:

• Google’s vision is to provide access to the world’s information in one click
• People use [blue social network] to stay connected with friends and family, to discover what’s going on in the world, and to share and express what matters to them
• Amazon’s vision is to be earth’s most customer-centric company; to build a place where people can come to find and discover anything they might want to buy online

Company strategy

Unfortunately, a company’s strategy is a thing that is kept under the NDA and is not made public. At the same time, certain pieces of information about strategy could be found in the documents of a company, aimed at investors. The essence of the company’s strategy is the same as a product strategy — to show what we will focus on in order to embody our vision and achieve our goals.

We were lucky to get the idea of Stripe’s strategy, one of the most valuable startups in the world, with a $95 billion evaluation in 2021. The letter to the company’s stakeholders contains the following information:

Stripe’s mission is to grow the GDP of the internet. That means both helping existing economic activity migrate to the internet and enabling completely new undertakings that couldn’t exist in an offline world. We’re part of a larger ecosystem of other infrastructure companies, SaaS tools, indie developers, bootstrappers, investors, open-source projects, engineers, marketers, accountants, supportive partners, parents, and educators that are playing a part in this growth!

In this quote, we clearly see the company’s mission — to grow the GDP of the Internet, and the company’s vision of what role it plans to play in the future. The following statement in the letter is about strategy:

We think we can help grow the internet economy in four primary ways:

1. Increasing the rate of new business creation by lowering the cost and complexity of getting started
2. Helping established enterprises adapt their business models to the internet
3. Increasing cross-border commerce by simplifying and standardizing the complex international payments landscape
4. Lowering the costs of scaling by providing simple, reliable, secure, and developer-friendly APIs and services

In the strategy, we already see what exactly the company will do in order to embody the vision stated above. Unfortunately, we do not have the quantified values ​​that Stripe is aiming for, but I am sure that each of the goals stated above has its own key indicators.

Mission and vision of a product

Let’s try to guess the strategy of one of the Stripe products — Stripe Checkout. First, let’s guess the mission and vision of the product.

Looking at the positioning, it can be assumed that the mission of the product is similar to the following:

Our mission is to make it possible to accept payments on the Internet without writing code.

The vision, based on the description of the product’s features, could be as follows:

Create a universal page for accepting payments that will be optimized for conversion and allow you to easily and securely accept payments online.

I want to emphasize that companies that are focusing their activities on the mission and vision, are building a business for decades to come. If a company doesn’t think so far and focus on annual and quarterly KPIs, that is, an increase in some metric by X% at the moment, then this company is on the road to be out of business in mid-long term. Sustainable business focuses on building value, not just metrics.

Product strategy

We will do the same with the Stripe Checkout strategy, by learning about the product, we will try to understand what the team that developed it was going for. We can assume that the strategy could be like that:

In the next 2 years, we plan to simplify and speed up the checkout process, as well as radically expand our geography. As part of this strategy, we will focus on the following opportunities:

1. Reduce the amount of manually entered information by the user
2. We will make it possible to use our product in other languages ​​and regions

As a result of the implementation of this strategy, we will decrease CES by X%, increase checkout conversion by Y% and get Z% of the market share in money in LATAM and EMEA.

I think it’s important to note that the strategy is focused on value-adding opportunities and solving user problems, not end-to-end solutions with a fixed scope. Another note is that metrics are not that significant as the strategy itself. Metrics only show that we have correctly used opportunities that we have in our strategy.

Product roadmap

If mission, vision, and strategy are the strategic level of product development, then roadmap and metrics are the tactical part of a product strategy stack. In product roadmap, we commit an order and timing of implementation of initiatives and testing of hypotheses, which are based on our strategy.

Here are a few tips on how to approach to product roadmap creation:

• Use swimlines, break a roadmap into parts — by an impact on certain metrics, by product teams, functional departments or user segments
• Do not specify people names, people in a company can change
• Do not go too deep into decomposition, it is best to use either a sprint or a week as a basic time unit
• Try to calculate the capacity of initiatives, for a high-level assessment, use T-shirt measuring. Add x1.5-2 to capacity estimates your colleagues give you. With a 99% probability, something will go wrong due to subcontractors, illnesses, layoffs, needs for additional research or changes that will have to be made during implementation or based on the results of tests
• Consider team velocity. Look at previous experience, how long it took to implement other initiatives and what difficulties you had to overcome
• Use business days calendar and vacation schedule
• Leave % of a team’s capacity for technical debt and a bug fix. Depending on the maturity of a product, reserve for technical debt and a bug fix have to be at least 20% of the development time
• Try to estimate resources in mandays (md) or story points, not hours
• Reserve some time for communication, waiting time and team meetings, often in a 10-day sprint 2 days are spent only on communication
• Keep some time for sickness and time off, at least 10 days per person per year
• A cycle of hiring a new employee takes an average of 2 months, an initial adaptation is another 1 month. Consider these things if you plan to expand your team
• Consider staff turnover. Depending on a size of a team and staff turnover, consider that at least one person will leave the team (not only layoffs count, rotation within the company or maternity leave can also leave you without a resource)
• Get commitments from subcontractors and colleagues that they are ready to do in advance those tasks that can become blocking for you. If you live by the SAFe methodology, use PI Planning to fix commitments
• Allow time for approvals if needed. You may have dependencies on the security department, accounting or lawyers
• Don’t forget about critical path because some tasks can be done in parallel. But do not parallel too much, otherwise something will need to be redone later
• For defense of strategy, make several versions of roadmap, show that speed of implementation depends on the amount of resources. If stakeholders are not satisfied with implementation timeline, try to get necessary resources

Roadmap example:

Goals and metrics

We have already stated metrics that we will get as a result of strategy implementation. This section decomposes these metrics and their proxies by initiatives and hypotheses. Goals and metrics are often done in the OKR format: objectives & key results. The core idea of this framework is that we don’t just do our tasks, but also describe what a completed task means to us, what metrics or conditions must be met in order for us to call it a success.

Example:

• Add address autocomplete in checkout
  • This function works in all regions where the product is present for 100% traffic
  • This function is used by X% of the audience when filling in the address in the checkout
  • Thanks to this function, we will decrease CES by Y%
  • Thanks to this feature, we will increase checkout conversion by Z%
• Add the most popular payment methods for LATAM region
  • This function works in LATAM region for 100% traffic
  • Adoption Rate of this feature is X% in LATAM
  • Thanks to this feature, LATAM checkout conversion will increase by Y%

Resources

It is obvious that even the best strategy will not work if there are no resources to implement it. Resources are needed to achieve goals stated in a strategy. In order to protect a strategy, it is necessary to evaluate its implementation with available resources, as well as to consider what additional resources can be used to accelerate implementation of strategy.

Sometimes you need new roles and resources, so that strategy has a chance to be implemented. These roles and resources must be defended, otherwise the strategy will have to be revised.

All necessary resources are converted into money and placed either in CAPEX or OPEX. For simplicity, one must imagine that CAPEX is a long-term, strategic investment that is difficult to withdraw — the opening of new warehouses, stores, purchase of equipment, land or patents. Operating expenses fall into OPEX — wages, consulting, services, consumables.

Budgets are often defended for a year, so estimation of resources must also be done for a year, taking into account social payments and bonuses.

Let’s assume a budget of a small product.

IT infrastructure and software:

• Cloud hosting — 24 000 dollars
• Software licenses — 24 000 dollars

Team:

• Product manager — 1 FTE, 240 000 dollars
• Designer — 0.5 FTE, 70 000 dollars
• Analyst — 0.5 FTE, 120 000 dollars
• FE developer — 1 FTE, 240 000 dollars
• BE developer — 1 FTE, 300 000 dollars
• QA engineer — 1 FTE, 190 000 dollars

Total: 1 208 000 dollars per year.

When defending a strategy, you need to show what you can achieve with current budgets, and how a situation will change with an increase in budget for specific resources.

Risks

It is very important to work with risks and communicate them to stakeholders. I have often seen how this part is neglected, and as a result, a company loses enormous resources, not getting an expected result on time and spending much more money than originally planned. Hundreds of millions of dollars were poured into pipe.

Risks must be dealt with in the following way: first, they must be identified and evaluated by probability of occurring and criticality of consequences. After that, you need to think over a strategy for how a team will work with risks. Some risks can be neglected, and for some it is necessary to draw up an action plan: what will we do to minimize a likelihood of a risk occurring and how are we going to minimize consequences. After risks have been worked out, it is necessary to agree on acceptance of these risks by stakeholders.

To work with risks, there is an excellent tool — risk matrix:

Steps to create a product strategy

Creating a product strategy is done in 7 steps:

1. Gather initial information to create a strategy:
   1. Study mission, vision and strategy of company. Product strategy cannot go against them
   2. Get to know your customer: conduct CJM research, conduct JTBD interviews, create personas, research feedback on you and competitors, research products used by customers. Goal is to understand what kind of pains your customers have that you can help with, what are their behavior patterns and what values do your customers have
   3. Research and estimate your market: Porter’s 5 forces, market size estimation — PAM, TAM, SAM, SOM
   4. Get to know your competitive environment: conduct CJM research of interaction with your product and competitors’ products, conduct secondary research on competitors, decompose their strategy and search for information on how successful they are in market, SWOT analysis
   5. Learn about external factors that can affect your strategy: PEST Analysis
2. Assess customer needs and product capabilities, use Kano model, compare your product and competitors according to this model. Prioritize customer needs, define value proposition of your product
3. Create mission and vision of your product
4. Create product strategy, define key success metrics
5. Refine strategy: prioritize hypotheses and initiatives, estimate their potential impact on success metrics
6. Create roadmap, estimate resources and risks
7. Defend strategy to stakeholders

Final strategy document often includes only product-specific information. Minimum set includes vision and strategy itself, extended set includes roadmap and decomposition of initiatives and hypotheses by metrics. Mission and strategy of a company should already be available to stakeholders, so they are rarely included in the document itself.

Product mission is an optional part, which is needed when company’s mission is too vague or the product is so isolated that it is better to have its own mission, but in any case it should support company’s mission. Resources and risks are needed to defend strategy and ensure its implementation. Sometimes customer information is included in strategy, this is relevant when your product focuses on separate segments (for example, if you are responsible for a specific vertical: auto parts at Amazon).

Final thoughts

Having good strategy distinguishes companies that eventually become leaders. If your company focuses only on revenue and profits here and now and does not work to ensure its leading position in the future, then most likely it will face crisis at one point — this can be either technological crisis due to accumulated technical debt or existential crisis, when a company simply did not have time to adapt to changing market. Market is changing, but basic needs of people remain the same, few now sell horses, have their own taxi company or sell landlines.

Helpful further reading

Reforge on product strategy stack: https://www.reforge.com/

Marty Kagan’s book Empowered: https://www.amazon.com/

Video recording with Dan Olsen on how to create a lean product strategy: