S4 Ep. 4 Weighing the options: How do product leaders allocate resources to products in Explore and Invest?

Are you a product leader who is struggling with how to effectively staff and resource an avalanche of new initiatives, while ensuring that your most promising new products have the resources they need to scale?

You’re not alone.

In the fourth episode of our Resource Allocation mini-series, we answer the question: How do product leaders allocate resources to products in Explore and Invest? 

Hope Gurion: Welcome to the Fearless Product Leadership podcast. This is the show for new product leaders seeking to increase their confidence and competence. In every episode, I ask experienced and thoughtful product leaders to share their strategies and tactics that have helped them tackle a tough responsibility of the product leader role. I love helping emerging product leaders shorten their learning curves to expedite their professional success with great products, teams, and stakeholder relationships. I’m your host and CEO of Fearless Product, Hope Gurion.  

For product leaders who’ve been able to add budget to hire or contract new teams or free up their teams and time away from products that they’ve sunset or moved to maintain, they likely made these changes because they have emerging products in their portfolio either at the Explore or Invest stage of development.

These are the products that often receive the most attention from leadership and other customer-facing teams. Products in Explore are fueling innovation for future revenue growth. Products in Invest are contributing significant revenue growth or are mitigating significant risk for the company’s continued operations.

In this fourth episode of the Resource Allocation mini-series, we’re going to discuss the resource allocation decisions product leaders face for the Explore and Invest products in their portfolio.

We’ll answer:

• What are the considerations for leaders as they are allocating resources to Explore stage products?  

• How big should an Explore team be?

• How much time should they allocate to explore an idea?

• What are the roles on the team and goals for the team working on an Explore stage product idea?

• Should they be dedicated to a specific innovation idea or explore a lot of hypotheses?

• How do you know a product is ready to scale and for significant resource investment?

• How can incentives, mindsets, and the fear of cannibalizing other more mature products in the portfolio impact a leader’s resource allocation decisions?

You’ll hear these questions and more answered by 3 experts on product innovation and scaling product: Jonathan Bertfield of Lean Startup Co, Barry O’Reilly of Nobody Studios and the esteemed Troy Anderson, multi-time Chief Technology and Product Officer.

First, we'll tackle resource allocation decisions for Explore stage products. These aren't even products at all. They're hypotheses, ideas, initiatives, and bets. But they do require resource allocation to fuel future growth for our company.

Jonathan Bertfield shares his perspective on allocating resources to the Explore stage products.

Hope Gurion: Let's talk about this early stage. We've got a problem identified. We don't feel like we've got a solution in place, but we think there's great potential for our organization to develop something, might become a product someday. What do you think about in terms of the makeup of the team that is in that early? I think about it as the exploration stage of a product life cycle. It might be a product or just a problem, a problem that's too small for us to even care about solving, too small a market. What do you think about the team needed? It like roles, responsibilities, mindset, goals. What do you think about the team structures for that early stage in a product's life cycle?

Jonathan Bertfield: So I tend to think about it less as one stage that we think of exploration. Like there's within the explore side of the life cycle. So if we think about explore and exploit is some language or search and execute, right? Within that first half, let's call it, although it's obviously not half, there's a series of milestones that we expect a team to transition through. If there's traction, if they're able to understand the value to the market, and if they're going to get to whether it's product market fit or the capacity to scale, whatever is that transition more into exploit and execute. And within that, there's quite a bit of change that happens from the perspective that I come from in terms of how teams are oriented and structured. So very early on, so day one, right? Maybe they've just got a strategic framing for the work that they might do, or they might just have an early inkling of the customer problem. It's a really small team. And so we often talk about that as a small, cross-functional, single-digit team. And whatever that translates to, because in some organizations, you need more technical expertise. Sometimes you can avoid bringing in technical until a little bit later. So it depends on the domain exactly how that's going to be structured, but the key driver is small because we don't want to over invest in those early moments because more than likely we're going to be wrong. More than likely we're going to either have to pivot to a different orientation or kill the initiative because we found out that customers don't actually care about the problem in the way that we thought. So if that happens, we haven't over-invested. pretty modest amount of time, maybe six to 10 weeks, right, of a small team, great. We can afford to do many of those and still have a viable opportunity in the marketplace. So once we start transitioning from the problem discovery, the problem exploration, then we can start adding a little bit more subject matter expertise, because we understand which subject matter expertise is gonna be relevant, because we've started to think about maybe we... understanding of the solution and we need the right people in the room to be able to contribute to that conversation and offer their skills. So that first phase is the smallest and the most specialized, if you like, in the sense of like they're just really focused on learning from the customer in a very, very problem-oriented way. Then we move into starting to create maybe our first MDPs, maybe we're starting to create proof of concepts. And ultimately we're moving from small to slightly bigger to pre-scale. And the transition that is supported by a growing body of resources that we need in order to affect those deliverables. So to me, that's the biggest distinction is that first problem stage versus now we've got a product that is emerging and we need to specialize resources to support it.

Hope Gurion: So I love what you're saying in terms of small, single digit sized teams. Sounds like a lot of flexibility on their historic roles and responsibilities. Really depends on the domain that's being explored. Do you have a rule of thumb or something that you use to sort of at least think about how to take that first pass? Meaning, should it be like a few small teams each with like a different hypothesis that they're exploring, maybe a different problem that they're sizing or figuring out the validity of, versus teams with multiple hypotheses that they're exploring simultaneously, or maybe a different construct that you've seen work best?

Jonathan Bertfield: So I'm not sure that there's a consistent answer to that. It really, from the companies that I see, it really depends on appetite, right? Like how, what is their appetite for going after an innovation and growth strategy? And how comfortable are they focusing in multiple teams on one area versus spreading their bets and really kind of. looking at a number of different opportunities and seeing which ones emerge from the discovery work the teams are doing. So I worked with a medical devices company a while back and they were focused on large hospital groups as their customer. And they were exploring a number of problems in that space. And it made a ton of sense for them as an organization to have a single team with kind of a fairly flexible group of people that they would pull in. So still small, but enough access to resources. So primary team was kind of really discovery focused and kind of tightly oriented around the discovery activity. And then a secondary group of subject matter expertise that they could pull in as they needed to. So they were focused on one hypothesis at a time. So we think there's a problem in this particular area, let's explore that. And if we get to the solution validation area, then we can pull in resources that are relevant to that. If we get to a block there and we have to kill that particular approach and we're going after another one, so then we drop some of those resources and pull in a different group. One of the things that is starting to emerge for us as an opportunity has been us supplying expert resources in the process of discovery to support the domain experts. So when an organization is early in its innovation muscle building, they don't yet have the expertise internally in the process, they do in the domain. And so meshing those two together has been a really powerful recipe for accelerating the organization's journey, right? So it can be one hypothesis or multiple, but the focus is on how do we move as quickly as possible to validate those so that we can know what resources we need to bring in and whether we should expand that initiative or not.

Hope Gurion: And have you seen, I don't know if there are anti-patterns or risks around if you're a team that is exploring a hypothesis or maybe multiple hypotheses, that the team has some uncertainty about its future, right? Are we going to stay a team like this? Is this going to be a big enough opportunity? How do you help as a leader make sure the team doesn't fall into? confirmation bias or maybe overestimating the potential just so that they have a future versus maybe indefinitely exploring hypotheses that maybe don't have sufficient traction. So how have you thought about that as a leader or help leaders navigate that?

Jonathan Bertfield: Yeah, so this definitely comes back to innovation strategy, and this comes back to having a backlog of problems that we've identified that we want to go after. And whatever number of teams and hypotheses we can explore, let's say in our first pass, we've got a backup of X number of hypotheses and problems that we might get to. They just didn't rise to the top at that particular moment. And they're waiting there for the teams to pick them up in the sense of a traditional sense of what a backlog is supposed to do. It's available to be drawn on as necessary. And so in this context, what that tells a team is we have confidence in you to explore as long as the leaders are really comfortable saying that initiative that you went after got to a dead end. We didn't find traction with the customer. And therefore, that's a win. We found that out in six weeks rather than investing six months, six years of resource. Fantastic. Now, as a team, let's take some of that process learning that you developed as a group and understanding how to move quickly and really find the customers and learn from them as best as possible, synthesize those results, all those muscles that take a little bit of time to get used to. Now, let's go to initiative number six that was in the backlog. We haven't gotten to it yet. Let's deploy you against that. That builds that sense of confidence that you're talking about because organizations suddenly are freed up from the, I'm invested in my self-worth is invested in the success of this particular initiative, regardless of the fact whether the customer cares about that or not. And instead, we're moving to our job is not to execute on this initiative. It comes back to what we were talking about a little bit earlier in terms of outcomes and the problem orientation. It's to solve problems for the customer and deliver outcomes for them as well. So... Let's find another place to deploy our expertise and our enthusiasm. Um, and having that backlog available, huge sense of comfort for teams and for kind of a portfolio orientation.

Hope Gurion: So it almost sounds like maybe pre-existing conditions for an innovation team exploring hypotheses is that:

• there's more than one hypothesis to explore

• the exploration is time-boxed, whether six weeks or whatever is the right amount, 

• some agreed-upon criteria that signifies that there is or isn’t traction

If there isn’t traction, we should go back to our list of hypotheses and maybe draw on another so that there isn't any sort of over-investment of love, feelings, time, energy in things that are not likely to serve the company and customers.

Jonathan Bertfield: Yeah, you said something really important in the middle of that phrase, which was pre-existing criteria, right? So a key element is the transparency that teams, what teams are expected to do, what they're expected to deliver and what leaders are looking for in order to support a recommendation that team is making about progress and advancement through the life cycle. And so it's not necessarily a given that an organization knows what are those criteria. We have to spend a lot of time kind of customizing in this organization's context, in the domain that they're in, with the types of products. What are the right questions that teams should be answering? And obviously, not obviously, but this comes up a lot pushing the organization to delay the business case as the driver of that advancement, which is often a very unnatural way of thinking about it. Let's talk about money, but let's not talk about it yet. Let's talk about market share, but we don't know what market we're in or how we might get share or how much it costs. So let's hold off on that a little bit. And so making that transparent to the teams, this is what you're going to be assessed on. This is what we're looking for in that conversation that we're going to have. Again, that's a huge driver of kind of freeing that creative spirit. I was working with a car, a vehicle OEM, and one of the leaders there was kind of pushing back on the idea of a process and criteria. And he's like, “well, creativity doesn't kind of flourish in the context of a structure and a process.” And we're like, “no, no. I think the opposite is true.”

Hope Gurion: Constraints are good.

Jonathan Bertfield: If you've got no guardrails, right? Then, A, you don't know if you're going way off. piste and the leaders are going to be like, why did you go and explore over there? Why did you come back with the answers to questions that we don't care about? Right. It allows teams to say, we've got comfort in the fact that we know that we're going after the right types of questions. We know we're looking for this right area because it's been stated as strategically important. Therefore we can get creative in that space. We don't need to know what the answer is going to be. We don't need to know what the solution is going to look like, but we can explore with that freedom. that gives us the opportunity to innovate, the opportunity to make progress much more quickly because of those constraints and those, as you say, pre-existing criteria.

Hope Gurion: And now we hear Barry O'Reilly and I discuss team composition for Explore or innovation-driving products

Hope Gurion:  How do you think about the differences in team composition or roles, if at all, between a team that is in Explore? Like maybe there's not even a product yet. It's an idea or a hypothesis or a problem to solve versus something that there is an existing product and we're exploiting it in some way or investing in its ability to scale. 

Barry O'Reilly: When you're thinking about the different types of teams that make up almost like cultures, if you will, of what explore versus scaling or exploit and sustain and retire domains look like, there is a different typical measure of success, incentives, and then structures and teams. Right. So in explore, I always say you want almost like people who are very comfortable and just working on ideas that are messy, that are unclear, and are really fast at like standing up early prototypes and iterating quickly. Now, there's two ways to manage it, right? You should assume that if you do 10 of these ideas, that nine of them are going to suck and not work. So thinking about like assigning more like an investment fund, if you will, for teams to be able to form quickly, work on ideas, see if it has traction. If it does potentially grow with it, if it doesn't, great. The teams aren't like fired and disappear. They just go back into a pool of people that are available to tackle these initiatives. So I always describe like measures of success in that domain are very much around the ability to like stand up and define concepts and test them quickly. That's what you want. And often the technologies are cloud-based, no code-based, stuff that allows rapid iteration. 

Hope Gurion: Next, we'll discuss resource allocation for products in the Invest stage of their lifecycle. These products receive the majority of resources because they have traction and are ready for significant investment to scale and exploit their potential. How do product leaders know when a new product is ready for this level of investment? And when scaling a product, how can incentives, mindsets, and the fear of cannibalizing other more mature products in the portfolio impact a leader's resource allocation decisions?

Jonathan Bertfield answers these questions and more:

Hope Gurion: So thinking about teams that have made it past this point of whatever the criteria is, we feel like there's a there, there. There's some market potential to solve this problem. We think it's worth it now, whether it's making a business case or whatever it is, to get more investment to pursue this. So it might be exploit. It might be execute. It might be some sort of whatever stage of the product's life cycle you want to call it. How do you think about how the team structure or goals or mindset shifts when it is looking like we are going to develop a solution and try to get it in the hands of customers?

Jonathan Bertfield: Yeah. So ideally, before we get to that transition through product market fit, and we're getting into at scale execution, we've crossed a number of other milestones, which tell us we understand who the customer is, we understand how to grow this business, we understand what the business model looks like and what's working. And that's a signal to the teams. exactly what is going to be involved when this transitions out of startup environment, out of high uncertainty into more, let's execute against a five-year P&L here because we need to grow this business and we need to deliver returns that are clear and understandable to the company. Not everyone's up for that. Some people are better suited at being at the front end of that process and enjoy the uncertainty and are comfortable with the process. being uncomfortable, et cetera. They're not really great operators. They're really good explorers, and they're really good at navigating those different areas. So what we want to make sure of as we're transitioning, and this isn't necessarily kind of, let's get an adult in the room, right? Because we're not at, like, we're going to IPO level yet. We're just building a business, and we're growing a business, and we're understanding how we acquire customers, and churn rate, and... cohort analysis and all those kinds of things that are really about growth, we want to make sure we've got the right people in the room. So understanding where we're heading is going to be really important for a team. And making sure that the people who want to be part of that earlier stage can transition to some of those other backlog initiatives. I think there's another really important dynamic that happens a lot here. the team that is innovating, the team that is coming up with a new product idea, is going to transition that idea into a core business unit. It's going to become part of the overall P&L. And if there isn't clear skin in the game from the business owner who manages that P&L as early as possible in the lifecycle, there's a lot of opportunity for organ rejection, for not invented here. because what we're doing with those new products often is cannibalizing sales resources, it's often cannibalizing customers, it's often cannibalizing revenue in a slightly more uncertain way than the existing product mix. So we've got to make sure that as we start transitioning to that larger at scale deployment, the owners of the business who are going to be incorporating those opportunities are really bought in. They believe in that opportunity. It's strategically important to them. We're gonna deploy our best resources and our best leaders to support that opportunity and maybe take over that opportunity. What we don't wanna do, and I've seen this a number of times, teams that are successful with customers and with the market are crushed by the organizational dynamics of the larger business of which they might become a part of if they were able to grow and build a substantial revenue base. So we've really got to make sure that as much as the team is ready and excited and the right people in the room, the leaders who are going to be taking ownership of that opportunity are bought in and supportive.

Hope Gurion: I love that you called that out because while we're talking about team and people resource allocation along the product lifecycle, you're absolutely right. There's also this company resource allocation when you have existing products in your portfolio that already have a customer base and still have maybe growth opportunity, taking in the newbie into that portfolio. if it's to the same customers that we already have, we as the sales team, marketing team, how are we creating mind share awareness without putting at risk the opportunity for growth with the existing products in our portfolio, right? Like it's not always 100% incremental just because it's a new product. And so I think you're right, as a leader, it's important to be mindful of that. Even if you have product market fit signal, doesn't mean that your organization is going to be able to take it to customers while balancing their existing commitments and opportunities. 

What do you advise for leaders to navigate those hard discussions about the right amount of Go to Market attention to newly launched products with other customer-facing teams?

Jonathan Bertfield: Well, it's all about incentives, right? Because if the incentives are aligned for the short-term revenue goals that the existing product base is oriented towards, then salespeople are not gonna give up the opportunity to talk about those current revenue-generating opportunities in favor of something that is small and not yet really a substantial part of their personal compensation or their group's compensation. And the same for the leaders of those groups. If they're oriented towards Sometimes it's share price, other times it's other strategic initiatives. If they're oriented towards the success of those other things, and this is kind of a nice to have but not really relevant, very, very difficult, if not impossible. So this again comes back to strategy and making sure that the innovation strategy that's been developed isn't this outlier and orphaned from the larger business strategy that is in place. the goals of the larger business have to incorporate and have to be focused on the opportunities that those new to market, smaller revenue, smaller customer base today have the opportunity to really develop into something really powerful that can impact us down the line and have to be set up to take on the patience that is required and the long-term thinking is required to nurture those and let them become part of something real. So if we don't have innovation, strategy built into our larger business strategy. We set ourselves up for real challenges with that transition.

Hope Gurion: Yeah, and I imagine for leaders and companies that haven't had a new product in their portfolio that has gotten, like if they've come from a place where they've had a long tail of things that just sort of petered out, not recognizing the sort of conditions and decisions required can be something that they need guidance from somebody like you to help anticipate and navigate those obstacles that they didn't even realize they were putting into place just through their current incentive and management structures.

Jonathan Bertfield: That's right. That's right. And you know, often, there's not a lot that can be done because of the timing of where leaders are. Right? Sometimes the CEO has set up an opportunity that is really looking out into the future, sometimes that the end of their cycle, and they're not willing to take on a lot of uncertainty and longer term opportunities in their strategy, because just not really relevant to them. So in those cases, you've really got to recognize that and understand we're not going to be successful if our strategy is let's just drop these new initiatives into this larger bucket and hope it works out, right? So understanding the dynamics of where leaders are and how you can time that, sometimes you can control it and other times it's just got to wait.

Hope Gurion: Next Troy Anderson and I discuss how he knows where to invest the lion’s share of resources using his “bullseye framework”

Hope Gurion: Let's talk about the sort of maybe the middle ground of products that are maybe they're past some sort of market fit validation, there's a there there, or we've gotten to some point of maturity. So we're either sort of scaling, I don't know what terms you use, maybe you can describe it, but like, how do you think about, we're past like, testing the waters to see if there's a need for this idea that we have, to we are getting some customers using it and we're scaling those customers versus a more mature product where maybe the growth has slowed, but there's still quite a bit of value to be captured. Do you think about those in any sort of categorization of life stage of product?

Troy Anderson: Well, I think those are fine ways to categorize it. And every organization tends to have different terminology, but they're essentially describing the same thing. The key is, where should you be deploying your resources? Where should you be deploying your people? And I have a very regular rule for that, which is the most critical IP and the most critical projects need the most resources, or the best resources. And so if you were looking at it from a concentric circle standpoint, that middle of the bullseye is going to be the place where your best and most valuable resource is going to be. And then as you go out from that, projects can go in and out of that circle. So my framework is more of that kind of bullseye framework. of, you know, what do we really need to focus on? OK, now that what do we secondarily need to focus on? Tertiarily need to focus on, you know, what do we not really need to focus on? That's where I would say my focus is more so maybe than. kind of where it is in its life cycle. Something could be really late in its life cycle, but absolutely valuable, right? If you're a bank, then it's security of customer accounts, right? That has to be the middle bullseye. Because otherwise you know, you're gonna lose trust with the customer. I suppose if you're asking me for a framework, that's one of my ideas.

Hope Gurion: Okay. I love that. And if I'm, maybe to paraphrase, it seems like even if the incremental value might be low, like the security example at a bank, the cost of it going wrong, is substantial. And so the expected continuity or reliability of something should be considered also center of that Bullseye in terms of best and or most resources allocated.

Troy Anderson: Right, and that has to be part of your hypothesis equation, in my opinion, is risk, right? So the risk of you doing something or not doing something is one thing. But if you're not weighing the risk of it going wrong, you're not paying attention. You could say, you know, if we don't go into this market, where all these competitors are going you know, we're gonna lose out on all this revenue. Okay, well, the revenue that we get today, which is the hardest to get, was you don't have to spend as much from a CAC perspective, customer acquisition cost perspective. You know, that's, that's the revenue you really need to protect the brand new revenue that you know, competitors are going after. Sure. Yeah, let's let's see if it makes sense for us to be in that business. But if you're going to take resources away from the you know, the low CAC for sure, this is our brand, this is this is our focus, you know, middle of the target. You know, you better paint that equation like really seriously, and you better have really good certainty that you know, we're going to be a market fit for it.

Hope Gurion: Products in Explore and Invest often receive the most attention because they are expected to fuel significant revenue growth or value to a company. These teams, especially those working on an Invest product, are usually the easiest to justify incremental resources for. But when you’re a product leader who has to redistribute your existing teams across products in the portfolio at various life stages and a broad range of value contribution, how do you take that initial cut of what role and how many should be allocated to each product?

In the next brief episode, I share my rule of thumb about how to right-size resources based on a product’s life stage with Barry O’Reilly, author of Lean Enterprise: How High-Performance Organizations Innovate at Scale.

If you’re a product leader seeking to fearlessly lead your product teams through resource allocation decisions, I’d love to be of help. Please reach out on LinkedIn or send me an email to hope@fearless-product.com. I’ll respond with an FAQ about my coaching programs and a link to sign up for a free mini-coaching session about a challenge you’re facing.

Fearless Product: confidence through evidence.

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