Balancing Revenue Generation and Product Development
Managing two goals that are seemingly at odds with each other.
Most technology companies struggle with balancing revenue generation and product development at some point in their maturation, especially in companies that serve larger enterprises, where early customers are critical to prove traction, but also start to drive product development that fits their specific (and often unique) needs. CTOs are often asked to focus on providing professional services because they generate short-term revenue - at the expense of product development that they believe will raise revenue in the future. It’s a resource balancing act and pressure from the board, CEO, or owner (e.g. private equity) can really raise the stakes. LA CTO members gave advice on how to manage revenue generation and product development to make sure you’re satisfying your revenue needs while investing in the future of your business.
Any decision on the topic at hand has far reaching business implications. As such, the CTO’s job is to facilitate the conversation so it’s grounded in technical and product reality, while removing any semblance of “technophopia” from the decision-making process. This means that we can articulate the options and their pros and cons clearly and concisely in business terms while remaining neutral to the decision, unless specifically asked, “What would you choose?”
Divide and Conquer
Professional services and product development are two different businesses and should be run that way. Assign a P&L to each, define their goals, and, if possible, assign dedicated teams. By separating the two from each other, everyone will have a better view of the resources being allocated to each and the returns they are generating.
Evaluate and Adjust
Once you’re clear on the allocation of resources, you can evaluate them against the realities of your business. How much revenue do we need now, and what resources can we afford to invest in the future? Financial models can help you illustrate the impact of more or less investment over time and give your organization confidence in the allocation that makes the most sense. Tracking actuals against your models will help you adjust over time and, maintain the confidence of all stakeholders.
You won’t be able to do all of this alone. It will take allies on all sides to sell your plans and execute them. The financial models mentioned above may work well in converting key decision makers, but you will need to identify and motivate engineering and others to implement your plans. Find the people who are already aligned with your product roadmap and empower them. You may need to develop different compensation models for team members working on product development as opposed to those focused only on revenue generation. The goals and success metrics you set for each will be helpful here.
Following these tips, will make balancing revenue generation and product development easier, while driving the success of your organization. If you have any comments or suggestions you’d like to share, post them on our LinkedIn or members-only Slack channel.