How to Define Your Product Strategy by Gibson Biddle Foreword by Connected

The Frame Game:

Great products have a way of appearing to fall out of the clear blue sky.

One minute the world exists one way, then as if by Which is why we at Connected have partnered with magic the reality of daily life has been reconstructed Gibson Biddle, the former VP of Product at Netflix, by a product that you can’t imagine living without. to put together a step-by-step guide and exercise book on defining your product strategy. However, in reality, truly great products are usually designed and invented as a result of great product The guide takes you through Biddle’s time at Netflix strategy. The idea of a product might pass through with exercises designed to help you leap out of your a person’s brain in a microsecond, but bringing it day-to-day mindset and into a space of creativity. to life, refining the approach, and even creating the Much like any great strategy guide, this e-book can right space for inspiring the winning idea requires be viewed very much as a game. It stretches you to a strategic intentionality that filters product thinking reimagine what’s possible, while working within the through a funnel. reality of what you, your team, and your business can feasibly achieve with the resources, expertise, For large organizations in particular, getting and technology at your disposal. this strategy right is the difference between obsolescence and leading. However, coalescing Whether you choose to fill in the exercises as a the competing views of different business units into group or as an individual, bringing your team together a concerted, thoughtful effort is a huge challenge. to work through your ideas is a powerful way of ensuring that everyone feels a sense of ownership In the era of disruption, it is all too easy for toward the strategy. businesses to find themselves chasing too many opportunities at the same time and at random— The Frame Game works to help businesses in much like an excitable dog in a squirrel-infested their pursuit of building better products that create park. The lack of direction will simply leave heads commercial and real-world impact by giving you the spinning and pivoting, wondering which direction tools for designing the right framework for success. to invest time, energy, and resources.

2 Contents

01 “The DHM Model”...... 5 02 “From DHM to Product Strategy”...... 11 03 “The Strategy/Metric/Tactic Lock-Up”...... 16 04 “Proxy Metrics”...... 18 05 “Working Bottom-Up”...... 24 06 “A Product Strategy for Each Swimlane”...... 26 07 “The Product Roadmap”...... 30 08 “The GLE Model”...... 33 09 “The GEM Model”...... 37 10 “The Quarterly Product Strategy Meeting”...... 40

3 The Frame Game: How to Define Your Product Strategy Introduction

Early in my career as a product leader, I learned to execute quickly, leading to success in building games and children’s software. But two things reinforced the value of strategic thinking for me. One good, another bad:

The Good. I learned to accelerate progress by thinking strategically. In building children’s software, I anticipated the value of brands and signed many of them to long-term exclusives. I also learned to appreciate the value of grade-based positioning (Elmo’s Preschool, Reader Rabbit’s 1st Grade), as well as the emerging internet opportunity. The Bad. I was a co-founder of Creative Wonders, which we sold to The Learning Crisp execution and high-cadence experimentation are critical, but having a Company (TLC), and then sold TLC to Mattel for $3.5B. But two years later clear product strategy supercharges your efforts. Strategic thinking enables Mattel spun TLC back out of the company for one-tenth its value. We had you to think ahead, to effectively “skip quarters,” and to build enduring value. failed to build long-term, enduring value. Which led me to design The Frame Game and help leaders define a product Fast forward to 2005 when I joined Netflix. I shifted my focus from strategy that positively impacts both revenue and the end user. Each step satisfying customers to delighting them. I also learned about the balancing takes you through my experience to show how we at Netflix revolutionized act of delight and margin, and what makes products hard to copy. And I the entertainment and content industry. Along the way there are exercises learned to articulate a product strategy—a set of hypotheses for how to that equip you with the framework necessary for turning great product delight customers in hard-to-copy, margin-enhancing ways. thinking into impactful product strategies.

4 The Frame Game: How to Define Your Product Strategy Step #1: The DHM Model

When I join a company as a product leader, advisor, or board Delight customers member, my first action is to brainstorm the answers to three key questions: Think about how your product delights customers, both now and in the future. As an example, think about how Netflix delights you today. How 01 02 03 could it deliver even more in the future? How will the What will make What are the Here is a list of ideas Netflix explored in the past, along with potential product delight the product hard business model future experiments: customers today to copy by your experiments — Next day delivery of DVDs — 4K video with surround sound and tomorrow? competitors? required to build a profitable business? — Instant delivery via streaming — Available on all devices, “anytime, anywhere” — A large selection of movies and TV shows — Personalized choices for each family member — Easy to find and watch videos — Download videos for playback — An entertaining website experience — Interactive, branching stories The answers to these questions provide high-level hypotheses for your product strategy. — Unique movie-finding tools — Live sports Netflix has explored most of the ideas to the right. Some delighted — Movie suggestions from friends — News and current events customers, others didn’t. For your product, what’s your list of “delighters”? — Original content — 3D/VR immersive stories

— Episodic TV binge watching

5 The Frame Game: How to Define Your Product Strategy Step #1: The DHM Model

Creating a hard-to-copy advantage

What makes it hard for companies to compete with Netflix? The answer: Eight powers. Hamilton Helmer’s book, 7 Powers, outlines the seven hard-to-copy advantages—and my own extra one thrown in makes the eight.

Brand. Counter-positioning. Building trust with customers takes years of delivering value with a minimum This power is rare. In 2004, however, Netflix advertised “No Late Fees.” of “trust busters.” Today, more than 150 million members trust Netflix with their Blockbuster could not respond as late fees generated nearly all of their profits. credit cards. The Netflix brand provides a significant hard-to-copy advantage. Blockbuster could not afford to make the same offer.

Network effects. Switching costs. Starting in 2008 with Xbox, Netflix built a device ecosystem. Today, nearly all This hard-to-copy advantage exists when a customer invests so much in one TVs, DVD/Blu-Ray players, game systems, set-top boxes, and mobile devices product that it’s hard to switch to another. To a small degree, Netflix customers are pre-wired to stream Netflix. don’t turn to Amazon or Hulu because it’s too much work to recreate profiles for each family member.

Economies of scale. Process power. Netflix members enjoy original content, enabled by the company’s economies Netflix has many unique, hard-to-copy processes. One example: they encrypt of scale. Because Netflix can amortize content cost across 150 million tens of thousands of titles each year at multiple bandwidths for thousands of members, it can invest significantly more than its smaller rivals. different hardware devices.

Unique technology. Captured resource. Helmer’s 7 Powers book does not list this attribute, but I think it’s essential. An The clearest example of this power is a patent. Another example is a close-knit example: Netflix’s personalization technology. Because Netflix knows the movie team not available to other companies. The Netflix startup trio of Reed Hastings, tastes of 150M members, they can generate accurate forecasts of streaming Neil Hunt, and Patty McCord—who all worked together at a previous startup— hours for each potential title, and spend accordingly. They is an example of a captured resource. effectively “right-size” their investment in original content.

How will your product build a hard-to-copy advantage?

6 The Frame Game: How to Define Your Product Strategy Step #1: The DHM Model

Margin enhancing

How will your product generate margin? You’ll need profits to invest in innovation to build an even better product in the future. Below, are the many business experiments Netflix executed:

— In 1998, Netflix launched a DVD site where customers could buy or rent — When streaming first launched in January 2007, Netflix placed a cap DVDs. About 90% bought DVDs, and 10% rented. Netflix stopped selling on monthly streaming hours, corresponding to the price of a member’s DVDs as they correctly anticipated Amazon would dominate online DVD plan. Members with the $23, three DVDs at-a-time service could stream sales. The initial rental model was $4 per disk, but the service attracted 23 hours/month. Netflix quickly tested an unlimited offering and switched few customers. to an “all-you-can-eat” model for streaming, too.

— In 1999, Netflix bet the company on a three disk-at-a-time DVD-by-mail — The Qwikster disaster (when Netflix attempted to separate its DVD rental subscription, which cost about $25/month. This “all-you-can-eat” and streaming services) was an attempt to establish a higher price for a model succeeded. streaming-only service. Netflix never executed the plan, but instead, let the DVD-by-mail program die through natural obsolescence. — In 2004, Netflix began to offer lower-priced plans—$10 for one DVD at a time, $17 for two disks at a time, and $23 for three DVDs at a time. Over — Netflix continues to experiment with both price and plans. Today, time, Netflix lowered its prices, based on ongoing price test results and the prices range from $8.99 to $15.99. Higher-priced plans have higher company’s ability to reduce costs through its automated DVD delivery hubs quality video and the ability to watch more streams simultaneously. Today, and economies of scale. Netflix is testing lower-priced mobile-only plans in international markets.

— In 2005, Netflix experimented with advertising on both its website and DVD envelopes. It also sold “Previously Viewed” DVDs. Both of these efforts generated profit, but Netflix eliminated both in 2008 as its core DVD-by-mail service began to generate higher profits.

You’ll need to experiment to evaluate different prices and business models over the life of your product. You’ll never be “done.”

7 The Frame Game: How to Define Your Product Strategy Step #1: The DHM Model

Product Strategy Exercise #1: Take a moment to jot down how your product delights customers today, then add a few ideas about how you might delight them even more in the future.

How does your product delight customers today? How will your product delight customers tomorrow?

8 The Frame Game: How to Define Your Product Strategy Step #1: The DHM Model

Product Strategy Exercise #2: Using the eight hard-to-copy powers below as a springboard, list ways your product might create a hard-to-copy advantage in the future.

Brand. Unique technology.

Network effects. Switching costs.

Economies of scale. Process power.

Counter-positioning. Captured resource.

9 The Frame Game: How to Define Your Product Strategy Step #1: The DHM Model

Product Strategy Exercise #3: For your product, list a few price and business model experiments you might explore over the next 1-3 years.

Year 1 Year 2 Year 3

10 The Frame Game: How to Define Your Product Strategy Step #2: From DHM to Product Strategy

The next step is to tease out high-level hypotheses that combine delight, hard-to-copy advantage, and margin. Achieving two or three of these objectives with a single strategy is at the heart of good product strategy.

Below, I outline a dozen high-level theories that Netflix explored over fifteen years, along with a brief description of each. Half of these strategies failed. But many of the winners combined all three of the key components.

Personalization. High-quality video and sound. Today, Netflix personalization delights customers in hard-to-copy, margin- One of the early lessons at Netflix was the importance of staying focused on enhancing ways. Over two decades, the percentage of recommendations that making the core product better. Netflix’s continued effort to improve both video customers choose increased from 2% to 80%, making it easier for customers and sound quality is a good example, and the technology required to do this is to find movies they’ll love. Personalization also supports the business by quite hard to copy. Additionally, today, Netflix generates higher margin through enabling Netflix to predict the number of members who will watch original its higher-priced, Ultra HD plan. content, allowing Netflix to right-size their original content investment. Easy. Streaming. Netflix has become simpler over time. Netflix learned to add features that It’s an obvious win today, but it was unclear when Netflix should launch its customers value and remove those that do not. A surprising example in 2018: streaming service and how to acquire content. Today, there’s hard-to-copy the decision to remove movie reviews. Now that members can quickly hit “play” advantage in the technology that Netflix employs to encrypt and deliver video. or “quit” at any time, they no longer need reviews. And customers love watching movies instantly—anytime, anywhere. Price and plans. Original content. Given the need for ongoing business model experiments, there was constant Netflix launched its first episodic TV series,Lilyhammer in 2012. By 2013, price and plan testing. its $100M investment in House of Cards delivered a hit.

11 The Frame Game: How to Define Your Product Strategy Step #2: From DHM to Product Strategy

Next-day DVD delivery. Unique movie-finding tools. A source of delight for members: DVDs arrived In 2005, the vision was that personalized the next day in the mail. Netflix achieved this previews would begin to play on each member’s through a network of automated shipping hubs. It homepage, delivering both delight and margin. took Blockbuster years to replicate this capability. (The personalized choices would be lower- cost, long-tail titles.) The effort failed, however. Device ecosystem. Customers found the previews annoying, and the Netflix launched streaming in January of 2007 on experiment did not move any of its proxy metrics. PC-based computers. The Mac followed shortly but members wanted to stream movies to their Ads and used DVD sales. TVs, which required partnerships with hardware In 2006, Netflix explored two alternate business manufacturers. In late 2008 Netflix launched on models—advertising and used DVD sales. Both Xbox. Later, Playstation, Wii, Roku, Samsung, businesses generated profit but were killed and nearly all DVD and Blu-ray manufacturers in 2008 when Netflix began to deliver higher followed. By 2012, Netflix had critical mass with margin through its core DVD rental business. hardware partners; they created a hard-to-copy network effect that also delights customers who Entertainment. enjoy watching “anytime, anywhere.” In 2005, the Netflix product team worried it was building an undifferentiated, “automated vending Social. machine.” Ultimately, Netflix tested “Max”—an Netflix experimented with “Friends” for six years. animated host on the PlayStation—but the The hypothesis was that friends would suggest experiment failed. The incremental increase in great long-tail movies (creating both delight and delight did not outweigh the cost of the effort. margin) but also create a hard-to-copy network And “an automated vending machine” was on- effect. The effort engaged only 6% of members, brand for a service whose brand promise however, so Netflix cut it in 2010. is “movie enjoyment made easy.”

12 The Frame Game: How to Define Your Product Strategy Step #2: From DHM to Product Strategy

Open APIs. Interactive stories. In 2006, when Facebook, LinkedIn, and In 2019, After experimenting with children’s others opened their Application Programming “choose your own adventure” videos, Netflix Interfaces to enable partners to innovate on their launched an adult branching story movie: Black platforms, Netflix followed suit. The intent was Mirror’s Bandersnatch. It’s early days for this to let a “thousand flowers bloom,” but none did. experiment, so it’s hard to evaluate its effectiveness. Later, however, the APIs became the foundation We do know, however, that an interactive version of for Netflix’s device ecosystem. The Unbreakable Kimmy Schmidt will launch soon.

Exclusive DVD content. All of the efforts above are motivated by the desire to improve customers’ experience in ways that During the DVD era, Netflix tested exclusive build a hard-to-copy, margin-enhancing experience. content via Red Envelope Studios, but without In the chart below there is a quick summary the economies of scale Netflix has today, the of what worked, and what didn’t, along with effort failed. analysis against the DHM model. (An “X” means it accomplished the goal.) Note the strategies that deliver against a combo of delight, hard-to-copy advantage, and margin—these are the ideas that are building substantial long-term value for Netflix.

13 The Frame Game: How to Define Your Product Strategy Step #2: From DHM to Product Strategy

Product Strategy Evaluation

Strategy Delight Hard to copy Margin

Personalization 3/3 Success

Streaming 2/3 Near success

Original content <1/3 Fail

Video and sound quality Fifteen high-level product strategies and Simple/easy an evaluation of each strategy’s ability to delight, provide hard-to-copy advantage, Price and plans and deliver margin. Netflix did not test all of the ideas above Next day DVDs in parallel. Each year Netflix took on about four to six product strategies. Here were Device ecosystem the significant efforts in 2005:

Social — Personalization

Movie-finding tools — Easy/simple

Ads/Used DVDs — Social — Margin-enhancement Entertainment — Unique movie-finding tools Open APIs — Next-day DVD delivery Exclusive DVDs Each of these efforts had a dedicated pod Interactive stories made up of engineers, designers, product managers, and data leaders.

14 The Frame Game: How to Define Your Product Strategy Step #2: From DHM to Product Strategy

Product Strategy Exercise #4: Given your product’s potential “delighters,” hard-to-copy advantages, and business model explorations, list the four to six hypotheses you’d like to test in the next year or two.

Hypothesis 01 Hypothesis 02 Hypothesis 03

Hypothesis 04 Hypothesis 05 Hypothesis 06

15 The Frame Game: How to Define Your Product Strategy Step #3: The Strategy/Metric/Tactic Lock-Up

In 2005, Netflix explored six key product strategies. For each strategy, we had a team focused on experiments to prove or disprove each theory. Here’s the 2005 high-level product strategy for Netflix, coupled with metrics and projects:

2005 Product Strategies Metrics Tactics/projects Each of these strategies had a clear % members who rate at least Personalization Ratings wizard, star widget proxy metric to determine if the high-level 50 movies by end of 6 weeks product strategy delivered, or not. And there were typically two to three projects % members who add > 3 Simplify Day 1 experience —think of these as tactics—that worked Easy/simple titles in 1st session to deliver against the strategy.

In retrospect, we know that four of the % members who connect Social Friends network high-level product strategies worked, and to at least 1 member two failed (social, movie-finding tools). Over the years, we learned to double Margin-enhancement Gross profit per member Used DVD sales, ads, down in areas where we moved our proxy price and plans tests metrics and demonstrated retention improvements. We also learned to cut % of members who add Personalized previews, our losses when projects didn’t deliver. Unique movie-finding tools > 1 title/month via previews previews on synopsis

Next day delivery of DVDs % of first choice disks Automated hub expansion delivered the next day

16 The Frame Game: How to Define Your Product Strategy Step #3: The Strategy/Metric/Tactic Lock-up

Product Strategy Exercise #5: Using the Netflix Product Strategy as a guide, articulate each of your high-level strategies, the proxy metric for that strategy, along with projects against each strategy.

Product strategies Metrics Tactics/projects

17 The Frame Game: How to Define Your Product Strategy Step #4: Proxy Metrics

At Netflix, the metric we used to evaluate overall product quality was monthly retention. This North Star product metric improved significantly over 20 years. In the early days, about 10% of members canceled each month.

In 2005 the monthly cancel rate was around 4.5%. Today, it is close to 2%.

Using retention as a metric for all projects isn’t How do you measure simple? focused our efforts on new members as a large feasible, however. It’s a hard metric to move, and One of our hypotheses was that a simpler number of potential customers at the top of the proving a retention improvement requires large- member experience would improve retention. sign-up funnel provided a substantial business scale A/B tests. Lower-level metrics—proxy But how do you measure simple? And how do opportunity. metrics—are easier and faster to move than a you demonstrate that it improves retention? high-level North Star metric. Ideally, moving a proxy We talked to new members in one-on-one will improve the high-level metric (e.g., retention for We began by exploring customer service data. sessions and focus groups. We asked a small Netflix)—there is a correlation between the two. Why do members call or email Netflix with group of customers to write a journal describing Later, you can prove causation via an A/B test. questions or complaints? What links do they their weekly activity with Netflix. Last, we looked click on when they visit the help pages? Where at existing data for the new member sign-up flow, do customers get confused? Over time, we as well as their first few weeks with the service.

18 The Frame Game: How to Define Your Product Strategy Step #4: Proxy Metrics

One point of confusion among new members: our early DVD-by-mail service required customers to create an ordered list of movies that we would send to them. But some new members failed to add any videos to their Netflix Queue. Some new members chose a plan, entered their credit card information, then asked, “now what?” The notion of adding at least three titles to their Queue confused many new members.

It was clear we needed to simplify the sign-up process and make it easier for customers to create a list of movies. Eventually, we executed a series of day one projects focused on eliminating steps, reducing cognitive overload, and providing clarity about how the service worked.

The proxy metric we devised was “the percentage of new members who add at least three titles to their Queue during their first session.” When we first looked at the data, 70% of new members added at least three titles to their queue during their first session. By the end of the year, after a series of fast- paced experiments, we increased this percentage to 90%.

Over the same period, we drove month one retention from 88% to 90%— both retention and our simple metric moved together. However, we chose not to take the time to execute a large-scale A/B test because we were confident that the more straightforward experience improved retention.

19 The Frame Game: How to Define Your Product Strategy Step #4: Proxy Metrics

The right proxy metric

Proxy metrics are a stand-in for your North Star product metric. First, you seek a correlation between your high-level metric and the proxy metric. Later you work to prove causation.

Here’s a simple model to define proxy metrics:

Percentage of (members/new customers/returning customers) who do at least (the minimum threshold for user action) by (X period of time)

Some examples of proxies for retention at Netflix:

Percentage of members who add at least one Percentage of members who stream at least member to their “Friends” list within six months. 15 minutes of video a month. The Netflix “Friends” feature launched with At the launch of “Watch Instantly” in 2007, this 1% of members using the feature, grew to 6% metric was 5%. Today, it’s north of 90%. We over 3 years, then Netflix killed the feature. The chose 15 minutes because this was the smallest assumption was that the “Friends” proxy metric increment of value—the shortest TV episode needed to surpass 20% to achieve a meaningful was 15 minutes. (I’m sure Netflix measures a retention improvement. similar proxy today but at a variety of much higher hurdles—likely the percentage of members who watch at least 10/20/30 hours a month.)

20 The Frame Game: How to Define Your Product Strategy Step #4: Proxy Metrics

Percentage of members who add at least six DVDs to their queue in a month. The merchandising team’s job was to make it easy for members to find and add movies to their list. Initially, the metric was 70%. With effort, we moved it to 90%.

Percentage of new members who rate at least 50 movies in their first 6 weeks with the service. This metric was our proxy for our personalization efforts. The theory was that if customers were willing to rate movies, they valued the movie recommendations Netflix provided. We drove this metric from the low single digits into the high 20s over a few years.

Percentage of first choice DVDs delivered to members the next day in the mail. One of the early insights about our DVD-by-mail service was that delivering the first choice DVD the next day was critical. At first measurement, the metric was 70%. We drove this metric to 90% by setting up 50 automated DVD delivery hubs throughout the US. We also integrated the inventory data from each delivery hub with the merchandising system. We only merchandised titles that were available in a member’s local shipping center.

21 The Frame Game: How to Define Your Product Strategy Step #4: Proxy Metrics

As you evaluate potential metrics, make sure the proxy…

...is measurable. ...specifies new vs. existing customers. At Netflix we made decisions quickly, but isolating You can find, collect, and measure the data. As Netflix grew, we learned to focus our effort the right proxy metric sometimes took six months. Ideally, you assess the metric in an A/B test, and on new members. We believed that to become It took time to capture the data, to discover if we the metric helps answer the question, “should a sizeable worldwide service, we needed to could move the metric, and to see if there was we launch this feature, or not?” In evaluating a optimize for new members. We would test causation between the proxy and retention. Given new product strategy, ask yourself, “In an A/B features with new members, then roll out to all a trade-off of speed and finding the right metric, test, what metric would we use to make a go/ members based on positive results. Existing we focused on the latter. It’s costly to have a team no-go decision?” members sometimes noticed the change, focused on the wrong metric. complained about it, but rarely canceled. Eventually, each of the product managers on my ...is moveable. (Occasionally, if we believed there was a real team could measure their performance through risk of hurting retention, we ran an A/B test You can affect the metric through changes to one or two proxy metrics that contributed to with existing members, too.) the product experience. improving monthly retention.

...is not an average. ...is not gameable. The danger of averages is you may move the One product manager focused on customer metric by inspiring a small subset of customers service. Their job was to make it easy for to do a lot more of something. But this may not members to help themselves and not call our affect enough members to improve the overall customer service team via our 800 number. product experience. The metric that defined their role was “contacts per 1,000 customers,” and the goal ...correlates to your topline North Star metric. was to lower this metric below 20 contacts per 1,000 customers. But they quickly discovered For Netflix, successful proxy metrics and that they could game the metric by hiding the retention moved together. Long-term, you hope 800 number. Consequently, we revised the to prove causation via a large-scale A/B test. proxy: “Contacts/1,000 members with the 800 number available within two clicks.”

22 The Frame Game: How to Define Your Product Strategy Step #4: Proxy Metrics

Product Strategy Exercise #6: Identify your North Star metric—the equivalent of Netflix’s monthly retention. Now re-look at your work from the last essay (The Strategy/ Metric/Tactic Lock-Up) and re-evaluate your proxy metric for each high-level strategy against “The Right Proxy Metric” outline above.

North Star Metric:

...is it ...is it ...is it not an ...is there North ...does it specify ...is it Metric measurable? moveable? average? Star correlation? new vs. existing gameable?

23 The Frame Game: How to Define Your Product Strategy Step #5: Working Bottom-Up

The key to the Strategy/Metric/Tactic Lock-Up is to identify a high-level product strategy, assign a proxy metric to measure the strategy’s effectiveness, then brainstorm a set of projects that will move the metric. If you get stuck in this process it sometimes helps to turn this process on its head.

I often ask a team to list all the projects they believe are important, then sort the projects into buckets of ideas. The label for each of these buckets often indicates the implied strategy. For instance, in the case of the simple product strategy, there were a set of projects that the team believed were important:

— Reduce text and explanations

— Provide step-by-step guides for new members

— Use customer support dispositioning data to isolate mistakes

— Eliminate unused features or functions

— Provide context-sensitive information (progressive disclosure)

— Provide easy access to self-help systems

Looking at this list of ideas, we discussed common themes and isolated the simple hypothesis.

In contrast, personalization efforts at Netflix are an example of a top-down approach. We decided that the high-level hypothesis—creating a personalized experience will improve retention—then identified a proxy metric and brainstormed projects to move the metric.

24 The Frame Game: How to Define Your Product Strategy Step #5: Working Bottom-Up

Product Strategy Exercise #7: Look at the list of projects you believe are essential, then sort them to identify high-level themes. These themes are potential product strategies. Now re-evaluate your “Product Strategy/ Metric/Tactic Lock-Up” to see if it warrants changes or edits.

Essential projects Themes / Potential product strategies

25 The Frame Game: How to Define Your Product Strategy Step #6: A Strategy for Each Swimlane

So far, our focus has been on defining the overall product strategy for a company. It’s essential that each product leader within an organization also articulates their pod’s strategy. I’ll provide an example from the personalization team at Netflix, circa 2006. At the time, Todd Yellin was the product leader of a group of engineers, designers, and data analysts. (Today, Todd is VP of Product at Netflix.)

Todd understood that the goal for the product team was to improve retention and hypothesized that a personalized site experience would help to accomplish this. His topline proxy metric was: The percentage of new members who rate at least 50 movies in their first 6 weeks with the service.

The theory was that if members were willing to rate lots of movies, it meant they valued the results of their rating: personalized movie choices.

26 The Frame Game: How to Define Your Product Strategy Step #6: A Strategy for Each Swimlane

Here is a simplified version of Todd’s strategy, along with proxy metrics and projects:

Strategy Proxy metric Projects/tactics

% of new members who rate > Explicit data Ratings, demographics 50 movies in 6 weeks

Implicit data % of members who add > 6 titles Use Queue add data to to Queue each month inform taste preference

Matching algorithms RMSE (difference between Collaborative filtering, Netflix predicted and actual rating) Prize, category interest

The product strategy for the Personalization swimlane, circa 2006

27 The Frame Game: How to Define Your Product Strategy Step #6: A Strategy for Each Swimlane

The thinking at the time was that:

Netflix would gather lots of taste data from its In 2005, I had a product leader focused on members—either through explicit ratings or each of the following areas: implicit behavior (titles they hovered over or added to their queue). — Personalization

The team would gather lots of data about each — New member acquisition movie—genre, actors, directors, whether it was a — Social (“Friends”) “feel-good, leave-your-brains-at-the-door comedy,” and other detailed attributes of each film. — DVD merchandising

Given an in-depth knowledge of members’ movie — Help and account tastes, and data about each movie, matching algorithms would connect members with — Used DVD sales personalized movie choices. — Advertising Over time, Netflix moved the proxy metrics, and Each product leader worked with a dedicated in the long-term proved that a highly personalized team of engineers, designers, and data experience improved retention. Today, I describe analysts, and could articulate their own North the personalization effort at Netflix as a ten-year Star metric, along with the key strategies, “leap of faith.” It took more than a decade to prove proxy metrics, and projects for their area. that personalization improved retention. A steady improvement in the proxy metrics provided a strong signal that we would eventually succeed.

28 The Frame Game: How to Define Your Product Strategy Step #6: A Strategy for Each Swimlane

Product Strategy Exercise #8: For each swimlane in your product organization, identify the proxy metric each product leader will move—their North Star metric for their pod—along with strategies, proxy metrics, and projects. Ideally, this work is done by the product leader for each swimlane.

Swimlane Strategy Proxy metric Projects/tactics

29 The Frame Game: How to Define Your Product Strategy Step #7: The Product Roadmap

Roadmaps are a richly debated topic. On the one hand, they help teams to see how all the projects fit together. And with technology teams, who have long lead-time plans, it’s good to have advance notice of upcoming projects. On the other hand, a four-quarter roadmap provides false confidence, given uncertainty about what will work, or not. It’s especially hard to guess the timing of projects, given this uncertainty.

When I share a roadmap, I express confidence about the next quarter’s projects but highlight that the content and timing of the subsequent quarters are highly speculative. There’s lots of near-term learning that will cause plans to change.

30 The Frame Game: How to Define Your Product Strategy Step #7: The Product Roadmap

Q3 (2005) Q4 (2005) Q1 (2006) Q2 (2006)

Personalization Ratings wizard Demographics Algorithm tests Star ratings

Easy/simple Day one experiments Contextual help Simplified Queue Day one DVD merchandising

Social Friends list Movie ideas from See Friends Queue Invite wizard Friends

Margin Price and plan testing Used DVD sales Advertising test Cost-based algorithm

Movie-finding tools Previews on home page Previews on MDP Movie Genie Filtered search

Next-day DVD delivery Hub expansion Integrate local hub Ship extra disk if skip “DVD received when?” survey inventory

The roadmap articulates the focus and best guess of timing. What’s missing in the Netflix One note on organizing product teams: I favor organization of the product team. Once the teams example above is the technology infrastructure structures where each product leader has a clear define the strategies, proxy metrics, and projects work. I also chose not to include the work in help proxy metric that communicates what success for their swimlanes, it’s straightforward to complete and account. looks like in their area. Todd, the product leader the exercise. The roadmap is an artifact—an for personalization, had his “percentage of expression—of your product strategy. The roadmap tells a story about how the overall members who rate at least 50 movies in their first strategy for the product team might play out over 6 weeks” metric. Meghan, the product leader The roadmap does not have to show all the work, time. When I put together the roadmap, I think of focused on creating a simpler experience, had her however. It is a high-level view that outlines the the company’s board as the primary audience— “percentage of members who add at least three key projects in each swimlane, along with the they don’t need all the details. titles to their queue” metric. Proxy metrics provide radical role clarity.

31 The Frame Game: How to Define Your Product Strategy Step #7: The Product Roadmap

Product Strategy Exercise #9: For each of your product swimlanes (pods), outline the projects against each strategy over four quarters. Put all of the projects into a roadmap like the one shown in Step #7.

Strategy Q _ Q _ Q _ Q _

32 The Frame Game: How to Define Your Product Strategy Step #8: The GLE Model

As companies grow, there are three common criticisms The exercise also helps product leaders avoid the “one and done” phenomenon articulated by Jeff Kagan, a financial analyst who reflects on about the product strategy: Yahoo!’s demise:

— Teams see and understand the projects, but not how they fit together Every successful company rides the growth — Investors complain that there’s not a big enough product vision “wave until it crests and falls. The secret is to — The product team feels too focused on the short term create the next growth wave before the first

The GLE model helps product leaders to form a product vision to address one collapses.” these criticisms. The model encourages teams to think big, to think long term, and describes a phased, step-by-step approach to build a product Jeff Kagan, that “dents the universe.” Financial Analyst

Here is an articulation of Netflix Product Vision: the Netflix product vision, 01 02 03 as described in 2005. (To Get big on... Lead... Expand... understand why I call it the DVDs downloading worldwide GLE model look carefully at the first letter of each word.) The model is deceptively simple; but it came from our desire to do something truly transformational.

33 The Frame Game: How to Define Your Product Strategy Step #8: The GLE Model

Netflix began as a DVD-by-mail service, but the During the streaming chapter of Netflix’s life, the initial business plan anticipated digital delivery company also expanded its device partnerships in 2002, but streaming did not launch until 2007. to nearly every TV, game system, DVD/Blu-Ray At this time internet connections were finally fast player, and mobile device in the world. By 2012, enough to move beyond postage stamp size video. Netflix finally established a hard-to-copy network And by 2007, Netflix could afford to pay the license effect through its device ecosystem. fees for reasonable quality streaming content. In 2012, the fourth chapter of Netflix’s life We expected each of the three phases to last three began: original content. In 2007, Netflix had to five years. The first phase, “Get big on DVDs,” experimented with exclusive DVD content corresponded with both the launch of DVD players via “Red Envelope Studios,” but failed. But in and the growth of e-commerce—two significant 2012, Netflix launched its first original content, trends to “surf.” The initial “Get big on DVDs” phase Lilyhammer. The next year, a $100M investment enabled Netflix to establish product/market fit and in House of Cards delivered a worldwide hit. In afford the time to build both a brand and economies 2018, Netflix’s hard-to-copy economies of scale of scale—two critical, hard-to-copy advantages. powered its $10B investment in original content.

The second phase, “Lead streaming,” began in Like product strategies, these three phases are January of 2007, and by 2010, Netflix started its high-level hypotheses; they help tell a story of international expansion with a streaming-only how a company might develop over 10–15 years. service in Canada. Global expansion required You’ll occasionally get the stages wrong, but a digital-only service as it would have been too putting a stake in the ground enables teams to challenging for Netflix to integrate its DVD-by-mail see how things fit together and to imagine how service with postal services around the world. big the product might get.

34 The Frame Game: How to Define Your Product Strategy Step #8: The GLE Model

The GLE model also reinforced that we didn’t have — As Netflix expanded globally, to do everything at once. Netflix focused on its DVD- personalization helped connect members by-mail service for eight years before it launched with movies they loved, regardless of streaming. And they needed to transition to nationality. streaming before they could expand globally. On top of this, Netflix needed the economies of scale that — Today, with original content, personalization international expansion enabled to make significant helps Netflix right-size its investments. investments in original content. Based the knowledge of its 150M members’ tastes, Netflix could reasonably When you look at the three phases from the GLE forecast that 10M members would watch model together with your product strategies, things Bojack Horseman while 100M members get interesting. Note the importance of Netflix’s would stream Stranger Things. Well personalization strategy over the four stages of informed forecasts let Netflix invest Netflix’s growth: intelligently. Presumably, they spent one tenth as much in Bojack as Stranger — As Netflix got big on DVDs, personalization Things. The ability to forecast streaming powered the merchandising of high-quality, hours based on member tastes enables high-margin titles. Netflix to build lots of great niche content, — In the early days of streaming, when Netflix as well as an occasional worldwide hit. had limited content, personalization helped Finding a high-level product strategy that members zero in on the small number of supports multiple phases of a company’s growth titles that were “just right” for them. is rare. But if you accomplish this, it builds a huge, hard-to-copy advantage.

35 The Frame Game: How to Define Your Product Strategy Step #8: The GLE Model

Product Strategy Exercise #10: To outline the GLE model for your product and company, ask yourself three questions: 01 02 03 What is the initial product that enables the company What will you “Lead”? Three to five years in the Once your product establishes a leadership position, and product to “Get big on” over the first three to five future, what is the next wave your product or how might it “Expand” even further? Given the years of its life? Are there trends that the product company will ride—the equivalent of internet brand, network effects, economies of scale, and can “surf,” much like Netflix rode the wave of DVD video for Netflix? unique technology your product will have at this players and e-commerce? What are these trends for point, what is the next wave of activity? your company and product?

Reflecting on your answers to the questions above, complete the GLE Model for your product and company:

Product Vision 1 - Get big on: 2 - Lead: 3 - Expand:

36 The Frame Game: How to Define Your Product Strategy Step #9: The GEM Model

As companies grow, product strategy helps teams GEM Prioritization for Netflix (2005) maintain focus. But misalignment, especially across product, marketing, sales, and finance organizations, 01 02 03 Monetization Engagement Growth happens often. One of the biggest causes is differing opinions on how to prioritize growth, engagement, and As measured by As measured by As measured by monetization. The GEM model forces cross-functional Lifetime Value (LTV) monthly retention year-over-year teams to prioritize these factors and helps build a and gross margin. (Think of this as a member growth metrics-focused organization. proxy for product rate (30% in 2005). quality). In 2005, Netflix had nearly 2M members, was growing 30% year- over-year, and monthly cancellation—the proxy for product quality Based on the forced-rank prioritization above, we put some new projects and engagement—was about 4.5%. The key challenge at the time at the top of our prioritized list. In 2005, we started testing advertising, we was how to build a profitable business. So, a force-rank of growth, experimented with selling previously viewed DVDs to members, and we engagement, and monetization, along with the metrics we used to initiated lots of price and plan testing. Our priority was monetization to measure each, looked like this: answer the question, “How can Netflix deliver a high-margin business?”

37 The Frame Game: How to Define Your Product Strategy Step #9: The GEM Model

Eventually, we figured out how to By 2008, we were confident that we could deliver a GEM Prioritization profitable business, and we flipped the priority as for Netflix (2008) deliver a more profitable DVD rental we set a goal to achieve 20 million subscribers by service through the introduction of 2010. We wanted to convince investors we would 01 Growth lower-priced plans. We maintained have a big, profitable business in the long term. our $22/month, three-disks-at-a-time By this point, we had reasonable confidence that 02 Engagement plan, but added $15 and $9 monthly we could deliver higher margins, and the priority shifted to growth. At different times in a company’s 03 Monetization plans for two and one DVD at a time. life, the priorities change. It’s an excellent habit to Both of these lower-priced plans reassess the priority of these three factors every six generated a higher lifetime value. months, or so. Here was the forced rank in 2008:

38 The Frame Game: How to Define Your Product Strategy Step #9: The GEM Model

Product Strategy Exercise #11:

Thinking about the overall needs of your Now compare notes with your CEO and leaders in other parts of the company to see how they prioritize the three factors. If company, how do you prioritize growth, the answer is different, find ways to debate the prioritization engagement, and monetization? Which and reach an agreement. Doing this every six months will metric will you use to measure each? dramatically improve cross-functional alignment.

Priority Attribute How is each attribute measured? Which metric for each? (assign 1, 2, or 3)

Growth

Engagement

Monetization

39 The Frame Game: How to Define Your Product Strategy Step #10: How to Run a Quarterly Product Strategy Meeting

Step #10: How to Run a Quarterly Product Strategy Meeting

An essential part of the Netflix culture is to enable teams to become highly aligned and loosely coupled. “Highly aligned” means each group understands the overall product strategy and how they contribute to the company’s success. “Loosely coupled” means teams occasionally check in with each but avoid the trap of ‘tight coupling’—consulting multiple teams for every decision they make.

Another Netflix principle is “context, not control.” The intent is to provide context through strategy so that focused teams make decisions without consulting anyone.

To provide both context and high-level alignment, I brought the leaders of each swimlane together for quarterly product strategy meetings. The goals of this meeting were to:

— Provide context through product strategy, metrics, and tactics

— Ensure alignment across the entire product organization

— Share results and learnings

— Articulate theories and hypotheses for the future

— Determine the level of investment in each swimlane

40 The Frame Game: How to Define Your Product Strategy Step #10: How to Run a Quarterly Product Strategy Meeting

There was also a set of guiding principles, consistent At Netflix, there were three indirect results of the quarterly product with the Netflix culture: strategy meeting: — Use CEO-level communication—don’t dumb it down 01 02 03 — Engage in lively debate The meeting became The meeting created You began to learn a mechanism for the a results-focused which product leaders — Use slides, but don’t polish them. Slides are a good company’s culture. organization. If your were effective, and over conversation starter, but you don’t want “death by Powerpoint.” By participating in the product area moved time, which leaders’ The goal is to deliver a crisp articulation of strategy, hypotheses, meeting, leaders learned its proxy metrics, it got skills were not scaling as and results to inspire discussion and debate the skills, behaviors, and more resources. the company grew. values that embodied — Limit attendance. Once you have more than 15 people in Netflix’s culture. the room, the meeting becomes less effective. The session can include a few key “C” and VP-level leaders, product All three of these outcomes meant the quarterly meetings had managers, plus critical consumer insight, data, design, and a direct effect on the overall culture of the company. technology partners

— It’s NOT a decision-making meeting. If product leaders have successful A/B test results, encourage them to launch the new experience before the meeting. The goal is to enable fast-paced decision making, not slow it down

41 The Frame Game: How to Define Your Product Strategy Step #10: How to Run a Quarterly Product Strategy Meeting

How QPS meetings work today

From time to time, I help companies prepare and execute quarterly product strategy meetings. The head of product owns the meeting, determines its attendees, and manages the schedule.

The day before the meeting, the head of product shares the In turn, the product leaders for each swimlane share these following materials, using Google Slides or Docs: materials in advance:

— A re-articulation of the overall product strategy, including the product — The product strategy for their swimlane, including their strategy lockup vision (GLE), product strategy lock-up (strategy/metrics/tactics), high- and rolling four-quarter roadmap level priorities (GEM), and the rolling four-quarter roadmap — Results and learning from the past quarter. These materials are both — Key projects for the upcoming quarter—those projects that require design and data rich. For instance, you can see A/B test designs through cross-functional coordination the eyes of customers, along with detailed data to describe results — Any insights relevant to the entire product team—usually shared by the — Key hypotheses for the next quarter and how the product leader will leader of the customer research, design, or data teams evaluate success/failure — often through a progression from existing data, to qualitative, and A/B test results. As before, the work is both design and data rich

Sharing the materials the day before enables broad participation. The expectation is that everyone will read the documents, then ask questions and make comments within the shared docs. My message to the team is, “If you want to play, you’ve got to pay.”

42 The Frame Game: How to Define Your Product Strategy Step #10: How to Run a Quarterly Product Strategy Meeting

Crafting the agenda

Here is a rough outline for your first quarterly product strategy meeting:

Articulation of the high-level strategy by the head of the product team. 30–60 minutes Key team members can also share insights relevant to everyone in the room.

The strategy for each swimlane, presented by each product leader. 30 to 60 minutes per swimlane Rather than share all materials from the day before, each leader presents a subset of materials. What each product leader discusses is informed by the questions and comments from the shared docs. The goal is a 50/50 balance of presentation and discussion.

A wrap-up at the end of the session. 60 minutes This time provides an opportunity for general discussion, to debate unresolved issues, and to frame which information should be shared broadly outside the room.

Meaningful breaks throughout the day. 4 x 15-minute breaks, plus a 30 to 60-minute lunch break Essential for keeping everyone alert and engaged during every part of the day.

43 The Frame Game: How to Define Your Product Strategy Step #10: How to Run a Quarterly Product Strategy Meeting

Post-meeting: Conclusions I have participants complete a Net Promoter Score survey to A good meeting is like a movie. There’s a script, good and bad understand what went well and what could be better. The intent is surprises, drama, and a denouement (that old-fashioned movie to make each meeting better than the one before. moment when a couple smokes a cigarette in bed—much like dinner and beers after the meeting). It’s good to have all the participants share a meal afterward. You need time to rebuild relationships after heated debate. At Netflix, the quarterly product strategy meeting became a cultural mechanism. It: Sometimes it’s hard to sort out all the issues in real time. There’s often a short-list of topics that require discussion with a smaller — Reinforced the company’s values of intellectual curiosity, team. courage, and candor It’s an excellent habit to summarize the events of the day— — Provided a means to enhance context through strategy especially results and learning, changes in direction, or other decisions that will impact the rest of the company. You can share — Enabled fast-paced decision making by individuals expert this list at an upcoming company, board, or executive meeting. in their areas It’s also good to reference this list at the next quarterly product strategy meeting to reinforce progress.

44 The Frame Game: How to Define Your Product Strategy Step #10: How to Run a Quarterly Product Strategy Meeting

Product Strategy Exercise #12: Create a list of the people who should be in attendance and what swimlane they will be in charge of/participate in.

Name Job title Swimlane

45 The Frame Game: How to Define Your Product Strategy Step #10: How to Run a Quarterly Product Strategy Meeting

Product Strategy Exercise #13: Produce five key talking points that you would want to cover from the strategy work you’ve done in the other exercises—distilling all of your headspace work down into digestible soundbites is the quickest way to get buy in across the organization.

46 The Frame Game: How to Define Your Product Strategy Last Words by Connected

If you’ve worked through this guide and worked with your team to do each of the exercises, you should now have the raw materials to build and execute your product strategy. But great strategy work never really ends.

The Frame Game is a resource you can return to time and time again. As your team digs up new insights, builds deeper data, and responds to shifting consumer habits, the exercises included here should be revisited to pressure test your strategy.

Because pressures will come with execution. Bringing your strategy to life can often reveal an issue with knowledge transfer across an organization. From a once clear vision, the products companies develop end up being disconnected from the initial intention.

It’s a problem we see many companies suffer from at Connected, especially when the only information that product builders are given is a brief to execute. Using the exercises in this guide to bring your product builders along for the ride ensures that the product that goes to market is an expression of your strategy, rather than a distinct project for your delivery teams.

Creating a seamless process from strategy to discovery and through to delivery ensures that the full weight of your organization’s brainpower and creativity is focused on solving the same problem. The Frame Game is one of the tools in your repertoire to help you design an end-to-end product development process that creates commercially impactful products.

It’s a tool that turns the heavy lifting of product strategy into a team game, a game worth playing over and over again until you win big.

To gain a deeper understanding of Gibson Biddle’s work or to speak to Connected about hosting a product strategy workshop with your team, 47 write to us at [email protected]. About About Gibson Biddle Connected

In 2005, Gibson Biddle joined Netflix as VP of Connected is a software product development Product—helping them grow from 2 to 20 million firm. Combining the expertise of a strategy firm, the subscribers. In 2010, he became Chief Product delivery quality of an agile development shop, and Officer of Chegg, a textbook rental company that the human centricity of a design agency, we partner went public in 2014. Today, he’s an adviser for with ambitious companies across the product multiple consumer tech companies and teaches lifecycle to deliver products that drive impact. entrepreneurship at Stanford, and hosts talks & workshops all over the world. Learn more at connected.io

Learn more at gibsonbiddle.com [email protected]

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48 The Frame Game: How to Define Your Product Strategy 49 The Frame Game: How to Define Your Product Strategy