Book SummaryProductize, by Eisha Tierney Armstrong

1-Page Summary1-Page Book Summary of Productize

The Productization Imperative

In this section, Armstrong introduces the idea of productization and highlights its importance for service businesses in today's evolving market. She argues that a shift towards a product-focused approach is imperative for businesses aiming to thrive amidst increasing digitalization and competition. This section consists of two main points: the advantages of embracing a product-based approach and the key drivers motivating productization.

Advantages of Focusing on Products

Armstrong outlines several key advantages that businesses offering services stand to gain by embracing a product-focused approach.

Scalable Products Drive Revenue Growth Without Equivalent Cost Growth

Armstrong points out that unlike custom services, which require hiring and training more staff to serve more clients, scalable products enable revenue to grow at a faster rate than costs. She explains that if a firm wants to expand its impact and reach more customers, a model based solely on services is inherently limited by its dependence on adding more people to deliver the service. In contrast, well-designed products can cater to a broader market with less reliance on increasing headcount, leading to significant growth potential.

Context

• Many scalable products incorporate features that allow customers to serve themselves, reducing the need for extensive customer support and lowering operational costs.
• As the number of clients increases, the complexity of managing and coordinating a larger workforce also grows, potentially leading to inefficiencies and increased overhead.
• Once developed, intellectual property such as software or patented technology can be sold repeatedly with little additional cost, enhancing revenue potential without equivalent cost growth.
• Unlike product-based models, service models have fewer opportunities for automation, as many tasks require human interaction and customization, limiting efficiency gains.
• Some products benefit from network effects, where the value of the product increases as more people use it, encouraging organic growth without additional marketing expenses.
• Products can be standardized to ensure consistent quality and performance, whereas services can vary significantly based on who delivers them.

Productized Offerings Yield Higher Profit Margins than Custom Services

According to Armstrong, companies centered on offerings enjoy significantly higher profit margins compared to those heavily reliant on bespoke service delivery. She observes that the typical gross margins for product companies are generally between 60 and 90 percent, while businesses offering professional services usually hover around 40 percent. Although productization may require initial investment in development, its long-term scalability leads to decreased per-unit costs and, consequently, expanded margins.

Other Perspectives

• The cost structure of custom services can sometimes be more flexible, allowing businesses to adjust their pricing and costs more dynamically in response to market demands, which can lead to higher profit margins.
• The statement does not consider the potential for high-value niche services that, while custom, can be systematized and scaled in a manner similar to products, thus offering high profit margins.
• Gross margins can vary widely depending on the industry, and not all product companies will fall within the 60 to 90 percent range.
• The figure does not reflect the impact of regional economic conditions, regulatory environments, and market saturation, all of which can influence the profit margins of professional services.
• The initial investment in product development can sometimes be offset by strategic partnerships, external funding, or pre-sales, reducing the financial burden on the company.
• The focus on productization and decreased per-unit costs may lead to a reduction in quality if cost-cutting measures compromise the integrity of the product.
• The costs associated with maintaining and updating a productized offering can erode profit margins, especially in fast-paced industries where continuous innovation is required.
• Scalability can be limited by external factors such as regulatory changes, supply chain disruptions, or competitive innovations that render the product less desirable or obsolete.

Subscription-Based Products Offer Clear and Predictable Revenue

Armstrong argues that the shift towards a subscription economy offers service businesses the chance to improve revenue transparency and predictability. Unlike one-off or ongoing work agreements, subscription-based models provide a steady stream of ongoing income, enabling businesses to better forecast their financial performance. This improved revenue forecasting makes planning for upcoming expansion and investment more accurate and less reliant on securing new project wins.

Practical Tips

• Offer a subscription-based tutoring or coaching service in a subject you're knowledgeable about. If you're good at a language or a musical instrument, set up a plan where students can subscribe for weekly lessons. This can be done virtually, which allows you to reach a wider audience.
• Experiment with creating a 'subscription box' for friends and family using items you make or curate, like homemade candles or curated book selections. Charge a small fee to cover costs and observe how this regular income stream differs from one-time sales.
• Use a spreadsheet to simulate a subscription-based model for a hypothetical business. Imagine a service or product you're familiar with, and create a mock business model around it. Input variables like subscription fees, number of subscribers, and churn rate to see how changes affect revenue. This exercise can help you grasp the financial implications of subscription models without needing a background in finance or business.
• Collaborate with a local university...

Productize Summary Creating a Culture and Organization Focused on Products

In this section, Armstrong moves from the reasons for productization to the "how". She explores the critical steps required for businesses offering services to transition their organization towards a culture and structure that emphasizes products. This transition encompasses leadership alignment, new skill development, organizational design changes, and fostering an experimental mindset.

Establish a Transparent Direction and Lead Through Example

Armstrong stresses that the success of a plan for products hinges on a powerful, clearly expressed vision. This vision should be clearly communicated across the company and guide decision-making. Additionally, it's crucial for leaders to actively model the desired behaviors associated with a product-centric culture.

Strategic Vision for Scaling Impact Through Productization

Armstrong emphasizes that the plan should not solely revolve around revenue targets, but should additionally highlight the positive impact the organization seeks to create through its products. She advises executives to articulate how scaling their solutions through productization enables them to serve a broader customer base and maximize their...

Productize Summary Understanding and Defining Customer Requirements

This section, as Armstrong explains it, lays the groundwork for successful product development. It emphasizes the imperative task of articulating and validating customer needs with clarity before jumping into solutions. She emphasizes the importance of not just solving a "problem," but specifically an "immediate and costly" problem for the customer, as these are the types of problems customers are motivated to pay for solutions to.

Answers to Costly, Pressing Problems

Armstrong recommends starting the work of understanding customers' challenges by developing clear hypotheses about what those issues are and which customer segments experience them most acutely.

Techniques Like "Five Whys" to Discover Underlying Issues

To get at the heart of customer problems, Armstrong recommends using the "5 Whys" technique. This involves repeatedly asking "why" to peel back layers of symptoms and uncover the underlying cause of an issue. The author argues that solving the root cause, rather than just surface symptoms, is key to creating truly valuable products.

Practical Tips

• Integrate the 5 Whys into your daily journaling routine to uncover personal patterns. When you...

Productize Summary Collaborative Product Development

This section explores the collaborative process of developing products, emphasizing co-creation with clients and teamwork across various organizational functions.

Cataloging and Using What's Available

Armstrong recommends utilizing your current IP and assets as a starting point for developing new offerings. This includes revisiting frameworks, data sets, and processes already developed as part of service delivery to identify those that can be transformed into scalable products.

Unique Frameworks, Data Sets, and Processes for Productization

Armstrong advises analyzing current intellectual assets to find frameworks, data sets, or unique procedures that can form the foundation for fresh offerings. She argues that building on already-established strengths and expertise offers a faster track to creating products and strengthens positioning in the market.

Practical Tips

• Utilize your family recipes to start a niche catering service or food blog. If your family has a collection of unique recipes that have been passed down through generations, these can be your intellectual assets. Share these recipes through a blog that also offers catering services for events,...

Productize Summary Introducing and Managing Products

This final section delves into the critical steps involved in bringing something to market, effectively managing its lifecycle, and ensuring ongoing consumer satisfaction and advancing the offering.

Addressing Concerns About Cannibalization With the Three C's Framework

Armstrong tackles the common fear of cannibalization, experienced by organizations concerned that their new products will take away from their existing services or products. She provides a system to help analyze and manage this fear effectively.

Customer Segments and Similar Needs

Armstrong advises first identifying and analyzing the intended customer groups for both current offerings and the new offering. If the segments overlap significantly, the offering might diminish current income. However, if the segments are distinct, there's less likelihood of cannibalization.

Other Perspectives

• This approach may not take into account the influence of competitors' actions, which can alter the attractiveness of the new offering to the intended customer groups.
• Overlapping customer segments can provide opportunities for cross-selling and up-selling, which might increase the average revenue per...

Shortform Exercise: Embracing Productization in a Service Business

Consider a service business deciding to adopt a product-focused approach. Reflect on how they might implement productization to enhance scalability, increase profit margins, and achieve predictable revenue.

How can transitioning from a service model to a product model allow a business to scale more efficiently?