The CPO view: When To Build Your Startup’s Product Team

The question of when to start building a product team is an important one for startups. Some argue that you should have a CPO in place right from the very beginning, while others say the CEO should lead until Series A. We spoke to some of the best product people we know to get their take.

Software startups are product companies. The appeal of building a software business lies in the fact that you can build something once and sell it an infinite number of times.

That’s the theory at least, but often the real world is a little messier. The temptation for a startup just starting out is to try and give early customers everything they ask for. This is great to get the first few buyers in the door, but do it for too many and you’d find yourself running a services business, which doesn’t scale as easily as pure-play software.

Companies avoid the services trap by building a product team. Sitting between sales and engineering, the product team’s role is to work out what to build for customers as a segment, rather than a customer as an individual.

Product management is an unusual discipline. In some ways it has existed for as long as the personal computing industry – Steve Jobs was a product person, after all, a customer-obsessive who understood the technical, design, business and marketing aspects of building something great.

A great product manager is a mix of a few important traits: empathetic with the customers, analytically minded to understand the implications of the product data, technical enough to understand what and how to build, and commercial enough to understand what will sell.

It’s a rare person that can combine all these traits, so we spoke to some of the best product people we know to find out their thoughts on what makes a great product manager, how to know when you need to hire one, and what to look for when you do.

When researching this piece, we gathered insights from Johan Dek of Mobietrain, Mark Holleman from Sprinque, Fabian Heiss from Banxware, Magnus Berchtold from Blockpit, and Rich Mironov from Product Bytes.

 

What is a product manager?

The idea of product management as a formalized discipline has only really gained momentum over the past decade or so. In fact, back in June 2013 the r/productmanagement subreddit counted just 126 members. Today it has more than 119,000. Product management has become a popular career option, spawning a number of articles complaining that “everyone wants to be a product manager”.

Despite this, it is still worryingly common to see founders misunderstand the role, appointing people whose real expertise lies in something other than product management. It’s important that they are familiar with engineering, design, marketing and so on, but a being a good product manager is about managing the balance between these areas, and ensuring that the customer is represented.

This is a common mistake for companies. It’s all too common to see startups appoint someone to lead product based on their subject expertise or connections, rather than their expertise in product management specifically.

Rich Mironov, a former CPO and startup adviser, agreed: “Almost all the founders I work with and some of the investors forget that product is a real discipline,” he said.

It’s important to make the distinction between advocating for a customer vs advocating for customers. The CPO’s role is to ensure your startup is building something that can be sold dozens or hundreds of times, which means some standardization is required. The product you build needs to appeal to your customers as a segment or a market, rather than as individuals.

Dedicating too many resources to building non-repeatable parts of the product is a quick way to become a services, rather than a product business. A company’s org chart is often a good warning signal of the direction a company is headed here: When the bulk of developers are working on the core product, that’s a good sign. But, if most of them are focused on customer success, tailoring and tweaking the product for individual customers, that’s a sign that the company is building custom software.

This is a particular concern for fintech companies that sell to big banks and financial institutions, as there is a tendency to overestimate the similarities between big customers and their back-office systems, leading fintechs to make adaptations to the product that are effectively wasted in the larger market.

So what is a product manager?

A product manager is the person who advocates for customers as a segment, rather than a customer as an individual. This means they spend time understanding who your customers are and what they need in general, so the product you build is the one you can sell again and again and again.

To put it in the words of Fabian Heiss, CPO of Banxware: “The main role of the CPO is to make sure that you don’t make things that nobody wants.”

However, knowing what a product manager does isn’t a guarantee you’ll be able to identify those that do it well…

 

What makes a good product manager?

We’ve already mentioned that product management requires the ability to synthesize a number of different areas, from customer needs to business strategy, to engineering capacity and so on. Because product managers sit between a few different parts of your startup, they need to be conversant with each of them. But it’s a balance, and the optimal balance will change depending on the company in question.

Generally any product manager will exist somewhere along the continuum between two poles: at one end there is a pure business focus, which leans more toward researching and understanding the users and their needs. At the other end is a pure technology focus, which leans more towards taking a requirement and being able to spec it out so the engineers know what to implement. People who are equally strong in both areas are extremely rate, so it’s important to identify what your company needs most.

The idea of PM-startup-fit gets quite a lot of attention in product management circles. In fact, Elad Gill, entrepreneur, investor and author identifies four distinct types of Product Manager in his (excellent) book High Growth Handbook:

  • Business-focused: more conversant with product pricing, customer segmentation and understanding customer needs. Their strengths tend to be working with sales, presenting to customers and taking customer requests and formulating an internal product road map. This type of PM usually thrives at enterprise software companies
  • Technical: Usually more comfortable with the engineering side of things, and can work well on areas like infrastructure, machine learning and other ‘inward-facing’ work
  • Design-focused: most comfortable working on user experience, and may even have worked as a designer previously. Typically work best on consumer products, though may need training in managing the trade-offs between UI/UX and marketing
  • Growth-focused: numbers driven, and very focused on finding the critical levers to pull to drive adoption and growth. Tend to be quantitative and analytical, but Gill notes that the best ones are also “wildly creative and aggressive”

There are a number of different frameworks on the ‘types’ of product manager, but the overarching message is the same: the right balance of skills needed will depend on what you’re building, who your customer is, and the skills your organisation already possesses. A less technically complex product might benefit from a PM with stronger business or design skills, while a deep-tech offering will likely need someone with a full understanding of the underlying technology.

Ultimately, a good PM is “somebody who has a very clear vision for the team and the product, and communicates it very well to the team,” said Mark Holleman, CPO at B2B fintech Sprinque. “They also need to be able to say no”.

More or less every good product manager agrees on the last point: a large part of a good product person’s strength lay in their ability to say no and manage expectations. Different stakeholders in your startup will have differing views on what your priorities should be, a good CPO should be able to wade through those countervailing opinions to decide what is truly important.

 

When should you hire a CPO?

Every startup needs somebody who is responsible for the product vision, but the cost of hiring someone on a C-suite salary to oversee this can be prohibitive at an early stage.

This makes the question of when to hire absolutely critical: leave it too late and the money you save in salary might easily be eaten up by time wasted building the wrong things.

Luckily, there are a few common indicators that it’s time to hire a CPO:

  • The first is that you’re ready to scale, and want to move away from a sales-driven approach.
  • The second is when you’ve hired a few engineers and need to ensure you aren’t wasting any time. At an early stage you can afford to have flexibility in the roadmap, but as your engineering team expands the cost of mistakes grows. A team of 30 engineers working on the wrong thing for two months is an awful lot of money down the drain.
  • Finally, CPOs are invaluable for setting the priorities and direction, so if you feel you’re getting too reactive, that’s a sign it’s time to hire.

Some people suggest more formulaic ways to tell whether it’s time to hire, such as hiring your first product manager when your engineering team reaches 6-8 people. Our view, however, is that it depends heavily on the type of product being built. A deeply technical, back-end heavy product can afford to have a lower product-to-engineering ratio than less technical, more user-experienced focused areas.

Magnus Berchtold, CPO at cryptotax company Blockpit, said making product hires could feel daunting early on, but was worth it.

“Our experience was that a product team provides a noticeable increase in efficiency in the implementation,” he said.

 

How the CPO role changes over time

We’ve already mentioned how the role of a CPO can vary widely from company to company, but the role also changes dramatically as a company scales.

At an early-stage startup, the role can be incredibly varied, covering everything from customer interviews and pricing strategy to marketing, support and even sales. As a company grows, the scope of the role typically narrows as people are brought in to own many of the functions that would previously have fallen to the CPO.

The company’s priorities typically also change. At an early-stage company, acquiring new customers is the primary focus, but as you grow, retention becomes an ever more important part of the mix. It also becomes more difficult to gather customer feedback.

A product manager at an early startup can often still talk to all of their customers one-on-one, but as the company scales, this becomes more difficult.

“The more you grow, you more you need to make sure that you have processes in place to stay organised and make sure that your decisions are going to be based on data,” said Johan Dek, CPO at Mobietrain. “Otherwise there’s a risk that you end up only listening to your loudest customers.”

Of course, sometimes the role can change enough that the person doing it is no longer suitable. A CPO who is great at being hands on during the initial prototyping phase may struggle to transition to a leadership role that is focused more on strategy and vision.

We’re creating resources to help Seed and Series A founders thrive. If there’s something you’d like us to write about, get in contact with Tom here.

If you have a startup that you think we might be interested in, you can send your details to the team here.

 

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