Five ways to mitigate product risks

I had a great discussion recently with a group of product managers where we discussed this question:

As a product manager, you always seek to achieve impact with your products. However, in order to achieve significant impact, you need to take risks — sometimes big risks. Are there any best practices to mitigate product risk? How can you pursue risks while still maintaining credibility with your team?

If you ever plan to innovate or do something original, you’re likely to encounter failure. As Ed Catmull of Pixar has written:

“Mistakes aren’t a necessary evil. They aren’t evil at all. They are an inevitable consequence of doing something new (and, as such, should be seen as valuable; without them, we’d have no originality)… If you aren’t experiencing failure, then you are making a far worse mistake: You are being driven by the desire to avoid it.”

In our discussion, we identified five best practices that you can use to balance impact and risk in product development:

1. Identify the greatest risks
2. Frontload testing these risks
3. Use human-centered design (HCD)
4. Pursue a portfolio of product bets
5. Focus on learning

Identify the greatest risks

The first step to balance impact and risk in product development is to identify what the greatest risks are to your product’s success. The type of risks that you are most likely to encounter are:

• Customer risk: Is there a real customer pain point? Is the customer looking to hire a product to fulfill a job in their life?
• Solution risk: Does your solution address the customer’s problem? Is your solution both valuable and usable?
• Competitor risk: Is your solution superior to the customer’s alternatives? Is your solution sufficiently differentiated to withstand competition?

If these risks don’t go the right way, they can tank your product completely. So be very explicit about identifying these risks and writing out your hypotheses.

Frontload testing these risks

Your goal here is to test these risks in your product early, and with as little cost as possible. If you learn information that doesn’t support your hypotheses, you can abandon the project with minimum time and resources invested. On the other hand, if you learn something that removes these risks, you can proceed with greater confidence.

For these types of risks, test them up front with as little engineering effort as possible. Use design research and low-cost wireframes and prototypes to test these risks. Although there is still some cost at this stage, the cost is far less than investing significant engineering resources.

Use human-centered design (HCD)

The best approach for reducing product risks is to follow the principles of human-centered design (HCD). Don Norman in his book The Design of Everyday Things describes HCD:

“Human-centered design is a design philosophy. It means starting with a good understanding of people and the needs that the design is intended to meet. This understanding comes about primarily through observation, for people themselves are often unaware of their true needs, even unaware of the difficulties they are encountering.”

Jeff Bezos in his 2016 annual letter to shareholders wrote the following:

“Good inventors and designers deeply understand their customer. They spend tremendous energy developing that intuition. They study and understand many anecdotes rather than only the averages you’ll find on surveys. They live with the design.”

Pursue a portfolio of product bets

You can also take a portfolio approach to balance impact with risk. Within the portfolio, you should have some product bets that are low risk as well as some that are high risk. That way, your team can absorb some failure if the high risk product bets don’t pan out, because your low risk product bets produce impact.

Ideally, you would want to take the portfolio approach at all times — a mix of low and high risk bets simultaneously. However, you may not have enough resources to pursue a mix of low and high risk bets simultaneously. In that case, you can pursue the portfolio over time. You pursue a high risk bet, followed by a lower risk bet, then a high risk bet, etc. Over a longer period of time, you are able to show momentum and forward progress even if some of your high risk product bets don’t pan out.

Focus on learning

Even if you follow all of the four best practices above, you may still encounter failure when you’re taking risks. You can maintain credibility with your team (and your management, investors, etc.) if you set the right expectations with them up front. When taking a high risk product bet, focus the team’s attention on learning, rather than success or failure. What do I mean by this?

Be transparent that there are indeed risks with what you are pursuing. Set expectations that there will be setbacks and failures along the way. Your immediate goal is to learn, not necessarily to achieve breakthrough success.

After talking about the product this way, if you do encounter a failure, no one is surprised. You definitely want to avoid surprises like this with your team. When your team is surprised by a product failure, they may think that you were also surprised — and they will begin to question your judgment.

With any type of new product innovation, you will inevitably be taking some risks. Are there any best practices to balance product impact and risk? How can you pursue risks while still maintaining credibility with your team?

In this post, we explored five best practices for balancing product impact and risk:

1. Identify the greatest risks
2. Frontload testing these risks
3. Use human-centered design (HCD)
4. Pursue a portfolio of product bets
5. Focus on learning

The first three practices help you to mitigate product risks with the minimal amount of time and resource investment. You want to identify the key customer, solution, and competitor risks. Then you should frontload testing your hypotheses with as little engineering investment as possible. If you learn information that contradicts your hypotheses, you can abandon the product with minimal costs. If you learn information that supports your hypotheses, you can proceed with greater confidence. The best way to reduce product risks is by pursuing a human-centered design (HCD) approach.

The final two principles help you handle the inevitable failures when they occur. By pursuing a portfolio approach of low and high risk product bets, your team can absorb some failures from high risk bets. Over a longer-term trajectory, you will show forward momentum and progress by having your low risk bets drive impact even if some of your high risks don’t pan out. And by setting the right expectations with your team and having them focus on learning rather than on immediate success or failure, you will maintain credibility with your team when you do encounter failures along the way.

As Ed Catmull mentioned, if you’re doing anything innovative, you’re taking risks and you will encounter some setbacks and failures. So don’t be driven to avoid risks — follow these best practices to mitigate risks and absorb failures instead!