One of the biggest responsibilities of a Product Manager is to make sure that all of your business units are playing nice and decisions are being made. This can lead to many judgment calls throughout the typical workday, including decisions where we do not necessarily have all of the facts.

Mental Models are thinking strategies that are used, typically in conjunction with one and other, to help you come to the most rational decision based on the facts available. They are cross-disciplinary, rooted in studies such as psychology, economics, and science. The great thing is that they are designed to help you evaluate, so even though a Mental Model is rooted in one field of study, it can be used within any field.

The following list of Mental Models are aimed to help both aspiring and seasoned Product Managers view decisions in a new light.

The Basics

Bottlenecks or Single Points of Failure

A bottleneck is a spot within a workflow where if there is an issue all work is stopped, and no further action can be taken until the bottleneck is removed. Bottlenecks can happen in any process, so it’s important to constantly evaluate both your product and business processes to make sure that you’re guarded against bottlenecks. If an unforeseen bottleneck appears, removing it becomes priority number one.

80/20 Rule

The 80/20 focuses on cause and effect. The theory is 80% of outcomes come from 20% of causes. Or simply, if you have 10 issues that you are currently facing, addressing the top 2 issues will have a greater impact than addressing the bottom 8 issues combined.

As a Product Manager you will be required to do a lot of prioritization, which is where this concept shines. This rule is great for prioritizing feature requests. Rank your feature requests based on frequency requested. Committing to the top 20% of requested features will meet 80% of your customers needs. Focusing on the bottom 80% is ‘busy work’. You will be doing a lot of work, but the impact will be less. Work smarter, not harder.

Opportunity Costs

You can’t be two places at once. The time that you have is fixed, choosing to do one thing with your time means that you can’t be doing the other. This choice is a trade-off.

In practice, if you choose to build feature A this month, you sacrifice building feature B until next month. If you think feature A will bring in $10,000, and feature B will bring in $5,000, the opportunity cost for building feature A is $5,000 (the value of feature B).

Time is your most important asset, use it wisely.

Root Problem Resolution

When presented with a problem, it is often a surface problem that is the result of an underlying root problem. By asking ‘Why?’, generally up to five times, you will be able to reach the root problem. For example:

• I can’t drive my motorbike. Why?
• The tire is flat. Why?
• I ran over a pothole. Why?
• The road is in bad shape. Why?
• The city is not maintaining its roads.

Fixing my flat tire will not resolve the underlying issue of the city not maintaining their roads. If I fix the tire and then hit another pothole, I’ll have the same issue all over again. The goal is to not waste time on surface issues, but instead fix the key point of failure in the first place.

Thought Experiments

Thought experiments are focused on the outcomes of concepts, ideas, or potential solutions prior to coming to a decision on it. It’s essentially applying the scientific method to concepts or ideas.

Littlefinger from Game of Thrones summarized the advantages of Thought Experiments well:

“Everyone is your enemy, everyone is your friend. Every possible series of events is happening all at once. Live that way and nothing will surprise you.”

Take a concept, think through all possible outcomes. Figure out what the best possible outcome is, and work towards it. The advantage of Thought Experiments is that they allow you to work through scenarios that you can not yet test.

Product Strategy

Niches

Niche is a term borrowed from evolution. In nature, resources are limited, and for organisms to survive they need to find a Niche. Organisms survive in a Niche because they aren’t competing against other organisms for resources. Life becomes dangerous when other organisms try to get in on a Niche, as there are only so many resources to go around.

The same goes for business. Finding a Niche market allows you to fulfill the needs of businesses that are currently not being tended to. Look for customer groups that have a need, go fulfill it, and then protect it. This is creating a new market space, which is the ultimate goal for products.

If there is already an established competitor in a Niche market, it may not be worthwhile to enter it unless you have something new to offer. Imitation leads to commoditization which drives out profitability, as customers will simply buy based on price.

Churn

Churn seems simple at first, you lose some customers, you need to replace them because it hurts your recurring revenue. But there’s more to it.

Churn is based on the Red Queen effect, the same Red Queen from Alice in Wonderland who said, “Now, here, you see, it takes all the running you can do, to keep in the same place.”

Typically spending grows in parallel with customer growth, and to stay one step ahead of the competition. As you grow your profit margins will stay relatively similar.

But there are a limited amount of consumers in a market. Consumers will be attracted to the best product in the market, if that is not you they will likely not choose you. This leads to fewer sales and less market share. If a product is not careful, the costs will increase past the point of growth, and it will no longer be profitable.

The Red Queen effect impacts multiple groups:

• Sales — if you lose customers you must replace those customers before you can grow.
• Roadmap — if your development stalls, or you waste time on unnecessary things, you fall behind the competition and will have to work twice as hard to catch up and get ahead.
• Support and Development: the more features you add, the more support and maintenance required. If resources don’t grow along with the product you will not be able to keep growing.

First Mover Advantage

The product that first addresses an issue in the marketplace has a leg up on the competition. This is likely from a combination of multiple cognitive biases that humans have. Cognitive biases are thought to be the result of evolution where our brains conserve energy.

• First Conclusion Bias: Humans tend to settle on the first conclusion they have about a subject.
• Consistency Bias: It takes a lot of effort for humans to change their mind. People who change their opinions are often distrusted.
• Cognitive Dissonance: Humans seek out information the validates their existing beliefs, and ignore information that goes against it.

The combination results in humans naturally becoming very stubborn about their first conclusion, and it takes a lot of effort to change their minds. This is why first mover advantage is often critical.

Your customers naturally want to see you succeed, because having to change products requires a lot of mental energy. But this can work against you, once a consumer purchases another competitive product it is hard to get them to move away from it.

Disruptive Technology

Disruptive technology has become a huge buzzword, so most people have a general idea of what it is. The theory is that entrepreneurs are driven by incentives to constantly one-up each other. These incentives can range from money to the desire to be the best. This is what leads to innovation.

However, it is mostly viewed on a macro scale, and focused on the technology of a product. Disruption is more likely to happen on a micro scale and can happen within any business area.

Macro disruption is often a combination of many smaller disruptions. If a product falls behind in a single area they may be able to overcome it. If they continue to fall behind in other areas they will likely hit a critical point of no recovery. This is when major market disruption happens.

For example, the iPod disrupted the music industry in the early 2000's. Most people attribute it to the design of the product, but this is just part of it. Apple underwent multiple business model innovations, including the launch of Apple Music, which gave users an easy and cheap way to download high-quality music. The iPod wasn’t the first portable MP3 player, but it was the first one that made using an MP3 player easy.

Just remember, your product as it currently is has a shelf life. Look at both your product and business models for efficiencies. With technology always improving, It’s a never-ending arms race with your competition.

Comparative Advantage

To build or not to build, that is the question. Rooted in economics, the theory of Comparative Advantage is that two entities will benefit from trade even if one entity is better at doing everything themselves.

This is because both entities can focus on what they are best at. It is opportunity cost in action. If you are very good at a few key things, anytime spent not doing those key things creates an opportunity cost.

The amount of hours you have for development is limited by your resources. Specialization is often more efficient, especially if you have a small team.

Occam’s Razor

When faced with multiple explanations or solutions, often the most simple solution is the best. This is because the simple solution is easier to understand, and more likely on average to be correct.

This comes down to managing risk. The more complex a solution to a problem, the higher the chance of something going wrong. Often the option that has the least amount of risk the best choice. Over time complex solutions compound, and this can make resolving bugs and adding new features more challenging and time-consuming.

Scale

As your product and business grow, there are benefits and drawbacks. The benefits are economies of scale, your costs will decrease on a per-user basis — you can buy in bulk, and your base costs are split amongst many more users. The negatives are that the larger you grow, the harder it is to grow further. This is due to the complexity of your business models and of the product itself.

A startup can grow at a rapid pace because there is limited bureaucracy within the business models, and the product itself is less complex. According to Ashby’s law: if a product becomes more complex, the organization must also become more complex to maintain it. It’s much easier to get 50 people working towards a common goal, than it is to get 1,500.

This is why simplicity is often the best choice, it limits the complexity which allows a product or business model to remain agile through growth. Decisions made during the startup phase should consider the impacts of scale. If the solution will not scale well, chose one that will.

User Experience

Rewards and Motivation

The human brain has evolved to produce chemical responses to specific behaviors. From a biological standpoint, the brain releases dopamine when an individual performs an action that increases its chances of survival.

When the brain determines something as a good behavior (something that historically increases our chances of survival), it releases dopamine, which in turn makes us feel good. This is the basis of motivation. We want to feel good, so we continue good behavior.

Incentives

Knowing that people are conditioned to repeat behaviors the brain views as positive, it is possible to associate the desired behavior with positive incentive, Pavlov demonstrated this through his famous Pavlov’s Dog experiment.

Incentives in product design can encourage users to use the product again, which is the main goal of any good designer. By providing a small reward, you can incentivize people to come back and use your product again. I’ll go into more detail within ‘feedback loops’ below.

Network Effects

The more users that are using your product, the more useful it is for the individual. The telephone is the best example, if only one person has a telephone it is not very useful. But as more people begin to use a telephone, it becomes exponentially useful.

Network effects can also impact your business. The more people that are using your product, the more useful it becomes to users, and the less likely it is to fail. This provides incentives for your users to get other users to join. Once a product reaches a critical mass, a tipping point happens and rapid growth begins. From a Marketing standpoint, this happens once your product meets the needs of the mainstream market.

Feedback Loops

By definition, a feedback loop is when action A causes action B, which in turn causes action A to happen again. This causes a loop in behavior. Feedback loops can be positive or negative. The best example is the stock market.

When things are going good, people want to get in on the action, so they invest money (action A). The markets keep rising (action B) Fear of missing out ensues, and they then invest more money (action A) which causes the market to go up even more. This is a positive feedback loop. The opposite, a negative feedback loop, happens when the markets are going down. People sell out of fear, and the market goes down. Fear is a powerful incentive!

For products, you can use feedback loops to help incentivize users to use your product. When a user completes a certain action, they receive the desired reward, which in turn encourages the user to repeat the action again. Social media is the best example: A user posts a picture, the social validation causes dopamine to be released, they decide to post again. The larger the users network, the more likes they receive, the more dopamine is released.

This is Just the Start

There are literally hundreds of mental models aimed to give a framework for making better decisions. The models outlined in this article are a great place to start. Begin by consciously using the models when making decisions, and in no time it will become second nature.

If this is an area of interest for you, I’d suggest reading: ‘Hooked’, by Nir Eyal, ‘Principles’, by Ray Dalio, and ‘Thinking Fast and Slow’, by Daniel Kahneman.

Thanks for reading!

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