A case study: How to develop product and business strategies

Product and business strategies – what’s the difference?

Before we delve into the analysis of mistakes, let’s make sure we have a clear understanding of what product and business strategies entail. A business strategy reflects the company’s goals and the means of achieving them as defined by the owner and top management. It includes:

1. Goals formulated through metrics: company valuation, revenue, market share, etc.
2. Time horizon: how long the strategy is developed for, whether it’s three, five, or ten years.
3. Description of markets on which the company will operate and grow: listing of markets, boundaries, volumes, development stages, dynamics, competitive analysis.
4. Description of the business model, commercial, product, and marketing approaches: extracts from commercial, product, and marketing strategies.
5. Business plan: the company’s financial model taking into account income and expenses.
6. Risk and opportunity analysis of the strategy.

This approach protects the company from setting goals that are inherently unachievable. From the early stages, the attainability of these goals is tested: whether the market volumes are suitable for expansion, whether there are enough resources, how the economy aligns with different approaches, and so on.

The simpler and more concise the business strategy is formulated, the better it fulfills its function – ensuring synchronization and a unified context between owners and the management team, as well as providing a unified coordinate system for decision-making within the entire team in the future. Elaborate strategies written in complex language may look impressive but create significant barriers to understanding.

Ideally, a business strategy should be a 10-20 slide document that explains in accessible terms the direction in which the company intends to develop employees at any level. In its most general form, it is a description like: “The company plans to capture 25% of the market and intends to do so through a product line that focuses on products A, B, and C, utilizing specific marketing approaches.”

The product strategy focuses on how the company will develop its products. It includes the following elements:

1. Target market and customer segment, analysis of their needs and barriers.
2. Unique selling proposition, product positioning — the answer to the question of how the company’s product differs from competitors.
3. Product architecture — which parts of the product have the greatest impact on the customer experience. For example, in e-commerce, the customer experience is influenced equally by the performance of the delivery service, website convenience, and product assortment. If the store has a limited product range and the courier service performs poorly, even the most advanced search engine in the market alone cannot help achieve high conversions and sales.

The planning horizon in product and business strategy

On mature markets, such as heavy industry, the strategic business planning horizon can be 10 or 20 years. In digital companies, where processes, technologies, and the market itself change rapidly, it is sufficient to limit the business strategy planning to five years. However, planning ahead for five years at the product level is challenging — customer structures, their needs, and the market change much faster. Therefore, the optimal horizon for a product strategy is 1-2 years.

Mistakes we made in designing the strategy at Netology

In our work with strategies at Netology, we approached the process iteratively, making classic mistakes and learning from them. Let me tell you about some of them.

Mistake #1: Creating a strategy for only a part of the product

What we did: We designed a strategy for an isolated part of the product. Yes, we had a formal business strategy, but it was very high-level, lacking the depth of decomposition that would have helped us formulate a cohesive product strategy. By skipping the alignment with the business and several logical levels, we designed a strategy for a separate part of the product — the digital environment. In it, we emphasized the importance of practical tasks. As a result, we implemented many new interactive formats for practicing, such as quizzes, tests, and peer review of students’ homework. Technically, we achieved the goals set in the strategy. However, in practice, it made no sense: the strategy of the neighboring instructional department, which was responsible for creating the actual content, diverged from ours — the functionality turned out to be unnecessary, and the end user did not receive any value.

What this led to: We wasted time designing and implementing product features without achieving significant results. One of the teams achieved their goals, but the product and the company as a whole did not.

What we learned: We need to start working on product strategy by designing the product architecture, gathering all the components that influence the user experience. For example, at Netology, the product architecture consists of:

• Program lineup: what we teach
• Digital environment: technical solutions where students learn
• Content and methodology: how we teach
• Customer service: how we help and support students in their learning process.

The strategies for each component are interconnected and aimed at achieving common goals. We should involve all departments in the product strategy work, set common goals, and synchronize approaches among them.

Mistake #2: Designing a product strategy without a business strategy

What we did: We designed an excellent product strategy, building the product’s architecture, studying the target audience, selecting positioning, and forming a roadmap to achieve annual goals. However, we completely overlooked aligning with the company’s business goals and failed to understand what the business owner expected in the long term.

What this led to: We focused on working with a narrow segment of the audience. Yes, we achieved our annual goals, but the segment’s capacity would not be sufficient to achieve the business’s long-term goals.

What we learned: We need to start designing product strategies by formulating long-term business goals. We should also synchronize with business owners regarding business goals. For designing product strategy, we need to research the market not only from the perspective of customer needs and the competitive environment but also in terms of market volume, potential, and development stage. If there are no existing studies, we should conduct them ourselves, iteratively test and improve our understanding of the markets we operate in.

Mistake #3: Relying more on business goals than product goals

What we did: We delved into the process of designing the strategy and focused on business goals at the expense of product goals. Essentially, we excluded part of the vision and value of the product from the business strategy.

What this led to: We believed that our main task was to work on the business’s efficiency. For example, we decided to replace some live webinars with pre-recorded videos to save a significant portion of the budget. However, we realized in time that such an approach could significantly lower the product’s quality in the long run. We had to find other ways to improve business efficiency without compromising the product.

What we learned: The product is the foundation of the company, and its goals are equally important as the business goals. Therefore, the goals of the business and the product should work in constant harmony.

Find a balance: build strategies from both top-down and bottom-up approaches.

Currently, we have reached a structure where both business and product strategies are equally important to us. They rely on and complement each other. Every year in August-September, we enter the process of updating and validating our current strategies: business, product, marketing, and commercial.

The first stage is information preparation and gathering in three directions. Firstly, we collect market information: overall market changes, competitor and customer needs, and emerging trends. Secondly, we conduct an internal retrospective: how close we are to long-term goals, what each department is already doing well, and what can be improved. Thirdly, we review how business owners’ goals and expectations have transformed. This stage can take up to a month.

The second stage is the design of the strategy itself. In a series of strategic sessions involving the CEO and functional leaders, we analyze the information collected in the first stage and sequentially discuss each component of the strategy. This process involves multiple feedback loops, typically comprising 7-10 meetings on average. The result is a comprehensive document with updates on the company’s overall goals for the next five years, as well as the product and marketing strategy components.

Since key department leaders are involved in writing the strategy, it becomes easier for them to transmit the information to employees and collaborate with them on creating annual plans. These plans should not only be synchronized with each other but also contribute to achieving the desired results within five years.

Once the strategy is formulated, it is presented publicly within the company. Typically, the CEO takes on this task and provides updates on the current status every six months to show how close the company is getting to the desired outcome.

How to maximize your results

1. Product and business strategies should be developed in sync with each other: both the business and the products should strike a balance between quality and economic efficiency. It is important to consider the goals of the owners, the needs of the customers, and the overall market trends.
2. The company’s strategy should protect employees from making incorrect global decisions. Even if you later decide to deviate from the initial strategy, you will already have an understanding of which direction to move in and which mistakes to avoid.
3. The strategy should be a simple document that is understandable to all employees. It is crucial to publicly highlight and discuss it within the company: any strategies created without the involvement of the people who will implement them have no value.
4. When building strategies and annual plans, it is important to avoid the trap of “my team” versus “their team”. In complex products, all elements of the company impact the overall results and user experience, making synchronization a key component of all processes.
5. There is no need to fear the daunting word “strategy”. Any strategy is better than no strategy at all.

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