Product Management Trade-offs for a Technology-Enabled Service
In a three-part series of posts, I plan to demystify the art of product managing a technology-enabled service. In this post, I explain the core tenets of building a technology-enabled service and making product trade-offs.
My first product management job was an unconventional one. After college, I joined a small strategy consulting firm named Applied Predictive Technologies (“APT”). APT was disrupting strategy consulting with an analytics platform that automated a lot of repetitive data modeling. As a consultant, I was a power user of the software and was able to influence the direction of the product by giving feedback to the engineers. Eventually, I joined APT’s newly-minted Product Management function.
After leaving the firm, I never thought about the differences between Product Management at APT and other companies I would go on to work at. That is, until last year, when I joined Carta as a Product Director on their Valuations team.
I first encountered the term Technology-Enabled Services at Carta. Our CEO, Henry Ward, enters services businesses to create value, lower costs, and drive margins with software. Much of what I have learned about the topic comes straight from him.
Product Strategy for Technology Enabled Services
As the product manager for a technology-enabled service, your goal is two-fold:
1. Create differentiated value in order to capture market share
2. Create leverage for service providers to drive margin
Creating a differentiated offering
To win market share in a service business, you need to convince customers that your offering will be better because it’s backed by technology. For example, Redfin was one of the first real-estate agencies that allowed home buyers to look at properties online. Redfin’s home browse/search experience allows buyers to peruse home inventory and easily schedule tours. It lowers the barrier to starting a new home search and gets prospective customers through the doors. Traditional real estate agents rely on word of mouth and relationship-building, but Redfin acquires customers by making it easy for them to find their dream home through transparency and a great UX.
Creating leverage
In tech-enabled service businesses, product managers solve for two primary audiences, end users and service providers. Creating leverage means building tools for service providers. For vertically integrated companies, these service providers are employees of your company. They are your internal stakeholders. By observing their practice, you can systematically start to automate parts of their workflow. Automation can eliminate human error and take much of the drudgery out of the job. Service professionals can optimize their output, both in terms of volume and quality. For example, Pilot is an outsourced accounting service that turbo-charges their bookkeepers through software.
Making trade-offs between Growth and Leverage
Product managers need to focus on making trade-offs between the growth/customer experience features and leverage features targeted towards service providers. The healthy balance between these two investments correlates with the maturity of the product.
Zero to 1
In the beginning, you should focus on creating a differentiated experience. Why should customers move from a traditional service provider with an excellent reputation to your offering? You need to build something traditional service providers can’t offer.
Last year, when Carta entered the Fund Administration business, one of the first projects the team worked on was a real-time schedule of investments (SOI). The SOI allows VCs to track their investments in terms of cost, ownership, and value. It’s one of the most important outputs of the Fund Admin service. Traditional Fund Admin shops provide VCs updated versions of the SOI once a quarter. We wanted to show our customers why Carta can build a much more compelling offering. Brokerage accounts are real time, so VC portfolios should be too. This early win helped us tell a compelling story about Carta Fund Administration.
Product Market Fit
When your offering has traction with the early adopters, you need to think about scale while continuing to build out the customer facing experience. As a general rule of thumb, it is a bad idea to cut corners while building leverage features. When you are scaling the business, being short-sighted will come back to bite you. Steer clear from MVPs because you have already validated your product offering. You know what the process looks like without product, and so you can take a holistic data-driven approach to solve problems. These are long term investments so think about the ideal solution and work backward. What are the building blocks you need to create a solid foundation for the future of the product? You also want to revisit features built during the zero to one phase. Pay down your technical debt early and be thoughtful about how you scale.
For customer-facing features, ask your self what your product needs to cross the chasm between early adopters to the early majority. Your early adopters were willing to envision how the throne you’ve built would turn into the most fantastic castle. The early majority will need to see a structure with a roof. Think about how you deliver a complete product experience as you move into the mainstream market.
Scaling
Technology-enabled services can grow to be much bigger than traditional services businesses. Carta is now the biggest provider of 409A Valuations in the industry. As you get buy-in from the greater market, scaling becomes a more significant focus for product development. To build a strong business, you need to grow your margins and get more out of your service staff.
The good news is that you have data. Data will help you identify leverage opportunities in the tools you’ve built for your service providers. Data also allows you to develop AI to automate even the more nuanced parts of the service providers’ job.
Tomaz Tunguz, a General Partner at Redpoint Ventures, wrote about the concept of “AI agencies” on his blog.
The AI Agency aims to leverage technology to break free from the linear relationship between revenue and people. Starting an AI Agency has two important benefits for machine learning companies.
First, they create a data advantage. As they operate, AI agencies create high quality data for training machine learning models. In its early days, an AI agency operates identically to its less sophisticated cousin. But as it scales and as it grows, the AI agency replaces human hands with software. They accelerate workflows, and eventually automates some fraction of them.
AI-powered automation will help widen your competitive advantage and give you the option to pass on the cost savings to your customers.
At Carta, on the 409A valuations product, we’ve leveraged machine learning to alleviate burdensome tasks. For example, we created a tool that recommends comparable public market companies, a key input to valuing a private business.
Investment in customer-facing features continues to be important in this phase. The market traction should allow you to justify all overall increased investment in R&D. Think about usability as your product becomes bloated with features. If you don’t, incumbents will have the opportunity to steal market share with superior user experience.
While you are scaling, you also need to think about where your product could go next. The greater market share gives you the power to change the game. I’ll cover some of the strategic frameworks to employ for this next phase of innovation in my third post of this series.
Are you building a technology-enabled service? What have been your biggest learnings? I’d love to hear from you.