The Magic Behind Self-Funding Products

150 150 David DeWolf

The principle of the Product Mindset I am most fond of is the “Self-Funding Product.” I tend to throw it out in conversation and expect others to know what I’m talking about. I’ve likely mentioned it in blogs, but I’ve never taken the time to explain the concept in detail.

A product that is self-funding pays for itself. In other words, the revenue generated from the product (often directly, but sometimes indirectly) exceeds the cost of getting it to and keeping it in-market. You may think it would be common sense to build a self-funding product. You’d probably be surprised to learn many companies don’t approach product lifecycle management that way.

The cost of getting a product to market, and maintaining it once it’s there, is not limited to the development, maintenance, and operational costs. Sales, marketing, and several other business areas must also be taken into account. Building a self-funding product is not easy.

The best way to build self-funding products is to treat pre-revenue expenses as I would treat credit card debt (notice I didn’t say how many Americans would treat credit card debt, since racking up more and more without being able to pay it down is far too common). Credit card debt stinks. The more you have, the harder it is to get rid of. Pre-revenue expenses are the same.  The greater they are, the more difficult it is to realize an ROI.

To build a self-funding product, release early and release often. This provides two benefits. First, early releases allow you to begin generating revenue to pay for future enhancements. Additionally, they allow you to capture feedback and learn what customers like and don’t like (i.e. are willing to pay for or not willing to pay for).

At Three Pillar Global, we attempt to release product, in some form, to market within 3 months of engagement. From there forward, releases typically follow every 4-6 weeks.

Following this pattern allows you to build valuable features (those that people are willing to pay for) and to subsequently capture that value (by generating revenue). Once revenue generation begins, look to rapidly bring your ongoing development, maintenance, and operational costs to a budget based on actual revenue.

In order to stay relevant, product teams must continually innovate and, as a result, a second factor in reaching self-funding is optimizing your development costs into a sustainable burn rate. Your best bet here is to deploy a cross-functional, shore-agnostic strategy. In other words, create small, high-performing teams of cross-functional resources regardless of their location. These should include functional, managerial, analytical, technical, and quality assurance skill sets. Certain skill sets are best performed locally. Others may be best performed halfway across the world. The key is to leverage global skill sets, talent, and economies for your benefit. The cheapest labor is not always the most cost-optimal. Neither is the most expensive. Focus on building a team optimized for sustainability.

By building sustainable teams and following a “release early, release often” product lifecycle, you will be quickly generating revenue and covering your costs, or you’ll at least improve your chances. This is the essence of self-funding product and just good old-fashioned business sense.