Let’s Talk About the F Word — Features
Why budgeting for features leads to product failure.
For as long as products have existed, product teams have been pushed for features when what matters is outcomes. The push for features is especially prevalent around annual budgeting in most companies that have yet to move to product-based budgeting and even in some that have. It’s natural to ask, “What are you giving me for my money?”
Unfortunately, most of the time, the expectation is a feature. And even when a product manager pushes for outcomes, finance pushes back.
I vividly recall a rather heated Microsoft Teams meeting, my colleague appearing as a small angry sqare — someone I had never met in the real world. Unfortunately, as many experienced during the pandemic, the human connection was lacking, making the conversation even more challenging.
For those who did not have the ‘pleasure’ of the COVID virtual experience, imagine having to work out an important disagreement with someone you never met over a video screen in thirty minutes. Think it was easily resolved?
“So tell me what I am getting for the money we are investing.”, my colleague spits out with anger and frustration.
“I don’t understand what you’re using the money for.”, he said for the third time, varying his attack slightly each time.
On the flip side, I couldn’t see a way to state it more clearly. “A twenty percent lift in user completion of the core dialog.”
Does anyone experience a conversation like this as a product manager?
Clear misalignment of expectations.
Value vs. features. Budgeting for output in the form of features instead of outcomes. It’s incredible how many times I have lived through this conversation throughout my career in organizations large and small as an employee and a consultant.
Everyone wants to know the ‘thing’ they are getting by a ‘date certain.’
We eventually worked it out, and I convinced the team to move toward product-based, outcomes-focused budgeting. But the road was hard and fraught with challenges. For some reason, people feel a sense of comfort in widgets, buttons, specific flows, functions, etc. More so than an outcome — because ‘things’ are tangible, you can see them when they are done. Outcomes are not visible until you infer, calculate, or measure the value.
Why are we in this cycle of ‘pay for features’?
It comes down to one word — certainty.
Everyone seeks certainty in an exponentially uncertain world.
And many designers, developers, and product managers came up in or at least touched waterfall in the past.
Unfortunately, waterfall has this intoxicating air of certainty, even though deadlines and deliverables are almost always missed. Product development is uncertain. Once you accept this and convince your teams to accept it, you can shift away from ‘pay for features’ to ‘pay for outcomes.’
To add fuel to the fire, companies, and teams often seek certainty on return on top of product release certainty. And product teams consistently deliver a beautiful hockey stick of growth. Growth in users, growth in engagement, growth in revenue. Pick the metric important to your company. This desire for certainty, in return, leads to a business case filled with guesses, most of which are wrong.
The desire for concrete, tangible deliverables, release certainty, and clear financials leads to a team committed to delivering what was funded and paid for.
We need to break this cycle.
So how exactly do we break this cycle?
Product-driven, outcomes-based budgeting. What exactly does that mean?
Product-driven means your budgeting process happens at a portfolio and then product level. Funds are not allocated to functions or teams but to products and product managers. Those product managers decide how to apply the funds through prioritization and outcomes. The highest priority, highest value outcomes get funded. The lowest priority, lowest value outcomes do not.
In a ‘pay for features’ budget, functions and teams are allocated money to deliver specific capabilities, regardless of priority or outcomes. So you often wind up with a product full of low-value features just because they were funded.
Now that you know, the first step to breaking the cycle is to initiate a conversation with the finance team (or CFO is a small organization). Talk with them about the shift to product-based budgeting. In most organizations, you will need the support of senior leaders before doing this. Finance must agree, alter processes and initiate changes to systems. Without the support of the finance team, there will be no change in budgeting.
Preparing for a product-driven, outcomes-based budget
Once finance is on board with the shift, work to define the outcomes for the year (or however long your budget cycle runs). The OKR (objectives and key results) framework is the best way to do this. Through OKRs, your goal is to capture what you want to accomplish during the next 12–18 months (objectives) and the measures of success (key results).
For example, you might set an objective (O) to enter a new market segment — Enter the New York Metro area and end the year with a 5% market share in the fast-casual dining space. To know you are on track in Q2, you might add a key result (KR) like — two restaurants open in five highest-density counties.
After you’ve defined your OKRs, the next decision is how you will bucket the funding requested. Bucketing is a critical second step to getting finance onboard, especially during the transition to product-based budgeting. Generally, there are four buckets.
- Continuous Discovery — Funding for exploration, learning, and testing ideas, concepts, and prototypes. Consider this R&D funding. Depending on your company and industry, this can be as low as 2% and up to 20+ %. Continuous discovery funding has three purposes — 1) prototype and test the prioritized backlog to support outcomes; 2) conduct research to discover unmet needs and problems to solve; 3) build a validated backlog for future development.
- ‘Keep the lights on’ (KTLO) — Funding used to keep the product running even if there are no sales or users. This funding typically includes minimum staffing, support, infrastructure, etc. Anything is required to keep the product running as is. The amount can vary but is right around 20–40%.
- Core Enhancements — Funding used to enhance the existing core product. This funding includes items such as reducing technical debt, minor enhancements to existing functionality, service upgrades, etc., and typically runs 10–20%.
- New Development — Funding for everything else — typically 20%.
What’s important as you begin this new budgeting process is to tie funding to outcomes, not features. Be clear and adamant that you only want funding to achieve your OKRs, not to build specific functionality. You will be tempted to switch to features based on pressure, comfort, and many other factors. Do not give in.
Getting your roadmap funded using this approach
Once you have finance on board, you’ve built the budget and reviewed it with them, and you have an initial consensus, your next step is conversations with your stakeholders. Stakeholders are often the ones guilty of driving a ‘pay for feature’ mentality.
I cannot overstate the difficulty of convincing stakeholders for an ‘internal’ product. The discussions are somewhat easier in a company where the product is sold externally.
But in both cases, it comes down to your ability to tell a compelling story. A story about the shift, its benefits to stakeholders, how it will work, how they will know they are getting a return on their capital invested, and how they will know what you are building to enable the highest priority outcomes.
An important note is that funding in a product-based model is put in a pool for the product based on agreed performance targets. Funding performance means outcomes and features are chosen based on value, not always a specific stakeholder’s need. This change will undoubtedly cause contention early on and may cause some stakeholders to pull out over time. Cross that bridge when you get there.
And remember, your ultimate goal is to convince the company to fund the product directly instead of allocating it to stakeholders. Doing so will eliminate stakeholder influence and push to shift priorities based on the funding the stakeholder provides.
Continuous Optimization and Governance
Budgets are never done and locked. Receiving the funding is only the beginning. Continuous prioritization and reprioritization based on your learning loop are critical. Funds can and must be reallocated to features proving their ability to deliver the best outcomes. Funds should be pulled from features that do not. The worst outcome of the shift to product-driven, outcomes-based budgeting is to manage using a waterfall budget that is locked until spent.
To manage continuous prioritization and continuous budgeting, you need a way to consistently manage oversight, funding decisions, and stakeholder updates related to these changes. How to do this? It depends. Each company is different. Each finance team has different expectations. Each stakeholder has different levels of engagement. You need to map the right oversight and governance process for your company.
There is, however, one rule of the road — consistency. Whatever governance, oversight, decision-making, and stakeholder management framework you use, do it consistently. Without consistency, you will be questioned. To support consistency, publish your process and guidelines so everyone is clear and working from the same knowledge base.
Complete transparency on the framework and decision-making is critical for ongoing support of the product budgeting approach.
In conclusion
Shifting to a product-driven, outcomes-based budget is a monumental change. A change, however, is critical to optimize product development and success.
Anecdotal evidence suggests that companies that fund features through functional budgeting do not get the most out of their products. This evidence and best practices support the conclusion that funding “outcomes” through products leads to a higher return. My personal experience also validates this.
I’ll leave you with an analogy.
Imagine you’re shopping for ingredients to cook a meal. You don’t just toss everything into the cart; you carefully select items based on your budget and the outcome — a delicious dish that comes together as part of a meal, creating joy for your family. The same concept applies to our products; we must plan and shop smart!
Too often, companies fund new and often innovative features in their products without planning at a big-picture level or defining the outcomes. That’s like buying random ingredients without knowing what meal you’re cooking. The secret ingredient for success is focusing on the result, serving the “meal that creates joy” — in business terms, the “outcomes.”
So, what’s the recipe for success? Product-driven, outcomes-driven meal planning, err, I mean budgeting.
Finally, remember, you’ve got to keep tasting and adjusting as you go, just like in cooking. Ultimately, it’s not just about the sides; it’s about serving up real value and mouthwatering results.
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