Product development is a betting game

The value of knowledge acquisition

What do Poker, the shell game and Product Management have in common ? They are all about taking decisions in the face of uncertainty.

More precisely they are about committing resources in the hope of later payoffs. They are betting games.

Uncertainty is not the same as randomness though. It means that the problem space cannot be completely known, and therefore that one cannot find a set of predetermined steps that would yield the highest payoff with absolute certainty.

There is no definite winning strategy. But it does not mean there’s no strategy at all.

The experienced poker player knows his odds, and can compute the expected value of calling, folding or raising. There is no definite strategy on a single game, but consistently betting according to the expected value of one’s own hand is a winning strategy in the long run.

Let’s consider for a moment the 3-cup shell game with a 30 $ pot. The expected value of a random guess is 10 $.

Consider now that a 3rd party offers to remove 1 losing cup. The expected value of a random guess jumps to 15 $.

What does it tell us ? That knowledge has monetary value. Would you pay to acquire that knowledge ? Sure, up to 5 $ it has a positive ROI.

When playing a shell game or poker, one knows what one does not know, because they are finite-state games. This knowledge allows for the computation of an expected value.

Problem is : product management is not a finite-state game.

When you start building a product you don’t know :

  • What the winning criterion is or even what the rules are (the problem space)
  • What the value of the pot is (the market size)
  • Who your (real) opponents are (competing solutions)
  • What are the possible moves (solution space)

Knowledge acquisition is a way to reduce uncertainty. It increases the expected value of a product in 3 different ways :

  • Reduced risks : knowledge about the problem to solve mitigates the risks of missing the problem, or addressing a problem of low potential value
  • Increased payoffs : knowledge about the problem enables to create solutions that make most of the problem value
  • Reduced costs : knowledge of the problem enables to focus the solution on what really holds value
Value of Knowledge Acquisition

Conclusion

Discovery activities are not sunk costs. Quite the opposite. Knowledge has monetary value. That’s why the Lean-startup framework has made knowledge acquisition front-and-center.

The Discovery field is still in its early days but there is a growing number of tools and techniques (Jobs-to-be-done, user research, prototyping,…) to address knowledge acquisition.

Like the betting games, in the face of uncertainty Product development admits no definite winning strategy, but consistently betting on experiments that provide knowledge is a winning strategy in the long run.