How to Shift Your Funding Structure to Ensure You Don’t Run Out of Time and Money
When leading your organization through an Agile-based product transformation, a key decision you’ll make early on in the process is determining how your products are funded.
A project is not a product.
Projects are intentionally finite and have a tightly managed scope and timeline. There’s little room for changes to the plan, even when the team learns new information that can help them better meet customer needs, scale their platforms, or shift business contexts.
Once a project ends, the team disbands, and so does all their newly amassed knowledge. If and when a new project is established, there’s no guarantee you can “get the band back together” and quickly regain maximum velocity.
What is a product funding model?
While projects are fundamentally finite, products are ongoing and persistent. When you fund a product throughout its lifecycle, you’re funding a team that will be held accountable for identifying opportunities that deliver the best value using the least amount of team resources. By removing rigid project scope and a finite timeline from the equation, you’re allowing the team to focus on what the “right work” is right now.
As long as the product delivers sufficient value, the funding source should be consistent. On the flip side, once that value drops, the product may naturally come to the end of its lifecycle. It may be time to sunset the product or invest in the next phase, such as merging it with another product. Product teams ebb and flow based on the value of the product and the resources required to sustain or grow that value. Investment dollars are used strategically to ramp up for a large push or scale back when appropriate. When funding is applied across product teams, every team has a dependable resource model to plan against, eliminating the need to fight over resources.
Why finance should embrace a product funding model
Engaging your finance partners as collaborators in the transformation early on helps resolve any objections to change and ultimately help detractors become advocates who are armed with an understanding of why the change is needed to support innovation. Throughout this transformation period, the best way I’ve found to coax others to willingly adopt change is to listen to their input and feedback and to show that I’ve heard them. The number one thing you can do to show your finance partners you understand their pain is to speak their language. Come ready to show how you’ll measure progress and prove a favorable ROI.
Here are two things product leaders can do to show that ROI will happen:
- Make sure everyone understands how ROI will look during different phases of a product. For example, when the business is allocating funding to a new product or adding features to an existing product, this commonly results in a temporarily negative or neutral ROI. When you’re running the product as business as usual (BAU), and are focused on refining functionality and removing tech debt, ROI will likely be maintained or may even incrementally improve.
- Following each code release, identify the measurable attributes that can immediately show value (e.g. number of daily active users, amount of use or session time, or even a reduction in ticketed issues).
The limits to the product funding model
Being funded as a product does not provide a blank check that lets the product team add any resources they want. Instead, an effective product team has an appropriate mix of business and technical roles that are proportionate to the size of the product ––and the expected ROI–– during each funding cycle.. Just as always, the team is held accountable for delivering results since their funding levels are directly tied to established ROI expectations articulated via KPIs.
Here are some examples of the benefits organizations see when they move to product-based funding:
- It eliminates the disrupting “stop-and-start” whiplash and expensive ramp-up time associated with large projects. Continuously funded product teams retain knowledge and understanding of why certain features were prioritized and how it was built. Knowing “what’s under the hood” allows teams to efficiently keep track of all the moving parts and maintain their velocity of delivery.
- It enables teams to be truly customer-obsessed. By now, every company claims to have the customer at the center of their strategy, but evolving customer needs are often sidelined in the name of timelines and milestones. By adopting a customer experience and feedback loop within the product management framework, teams can adapt quickly to new information while adhering to the overall strategy. The concept of “innovation” becomes a core part of “business as usual.”
- It reinforces accountability for delivering value. Product managers and their teams are keenly aware of the cost of each sprint, and an Agile-based approach helps them calculate value versus effort.
- It shifts the discussion around what to fund. Requesting funding for a product now becomes a conversation about how much value it’s expected to deliver within the next funding period. It’s not about how effectively the team hits project milestones. Instead, the proof is measured by how effective the team was at delivering value in the previous funding period(s).
Where do I start?
A simple way to test the efficacy of product funding is by applying it to a single product team. . Framing this as an experiment gives the team permission to stumble (they will) and learn (they will) in order to achieve success (which they also will). During the setup phase, identify innovative finance partners to serve on these product teams. They will be instrumental in both in the definition of what is valuable to your audience and articulating how that translates to a business ROI. Better yet, this will mean they have skin in the game for this pilot to succeed.
Examine the results throughout the trial period, so you can understand how the things that these teams learned can extend to other teams in your organization.
Continue to engage your finance team as contributing partners in the transformation. This includes encouraging cross-team collaboration by bringing finance and product teams together during key planning and Agile meetings. Continue to conduct annual strategic planning to establish a baseline product budget and assess the both the team’s size and structure. In addition, leverage quarterly roadmap-level planning sessions to review and confirm you’re monitoring the right metrics, understand how much value was delivered in the previous period, and agree to how much value is proposed to deliver in the upcoming period. Depending on your release cycle, it is also important to include your finance stakeholders in a product increment review to getfeedback and use it to adjust your plans accordingly.
Trying to run before you crawl generally results in false starts and setbacks, so don’t bite off too much in your initial tests. Acknowledging that this is a journey and the desire is for everyone to benefit by moving forward together will help reinforce this is a team effort. Taking this approach will arm your finance partners with the capability to budget and plan for supporting Agile products at scale. Once the transformation begins to take root, it becomes easy to accelerate adoption across all teams.
