We recently interviewed Stephane Chatonsky, Brainmates’ latest facilitator who will be training the Financial Fundamentals for Product Managers course.
We sought out Stephane to teach our Financial Fundamentals for Product Managers course because he has an extensive background in teaching Private Equity, Venture Capital and Valuation and Financial Modelling to post-graduate students in Australia, Singapore, and China. He is an Adjunct Faculty of the Australian Graduate School of Management (AGSM), as well as an Honorary Fellow at Macquarie University and Tsinghua University.
In addition to his academic teaching pursuits, Stephane is also an investment and strategy leader. He has a blend of private equity, venture capital, investment banking, strategy consulting and corporate experience across a broad range of industries, including financial services and insurance, healthcare, education, media, telecommunications, retail, consumer and business services.
As a both an investment practitioner and academic, you interact with senior executives, corporate professionals and entrepreneurs. What advice do you have for product and marketing professionals who want to increase their financial literacy?
No sound investment decisions are ever made without financial analysis. Product professionals who want to do well in their job and who want their organisation to fund their products and projects, need to know how to use the right financial language to convince financially minded people and senior executives.
If a Product Manager is more creatively inclined instead of financially inclined, how may they start to enjoy engaging with their product’s financial data?
Product Managers who struggle with being more financially focused can engage with their product’s financial data with the mindset that it is a way to get immediate feedback on the performance of their product. Financial literacy means that they will become more successful obtaining resources and generating enthusiasm within the organisation so that they can do more of what they like to do such as Product Design. That in itself can be exciting.
What are the consequences of Product professionals prioritising other skills and knowledge over financial literacy at an individual level?
All companies look at financial performance – in particular, the Finance team and the C-Suite focus on the financial performance of their products and services. If Product professionals can’t explain in financial terms what’s happening with their product to management, such as why it’s not performing, they are unable to present a holistic view of their product and enable rational decisions to be made.
Without being financially literate, Product professionals will have a hard time convincing the finance professionals and getting anything impactful done within their organisation, whether it is to invest in more resources to enhance the performance of existing products or to create new products. They run the risk of not getting the resources they need.
What are the consequences of whole Product Teams lacking financial literacy at an organisational level?
There are a few possible dire consequences:
- Not having new products coming out of a Product Team
- Product lines or business units may shutdown when they shouldn’t be shut down or they prematurely shut down
Those two consequences will in turn negatively impact growth of the overall organisation.
What tools can Product professionals use when estimating business potential from a financial standpoint?
First of all, product professionals need to have a clear understanding of the revenue, costs and capex of their products, including what drives these.
Then, Product professionals need to be able to communicate the business potential of their products in accepted concepts among financial and C-Suite Executives: concepts such as NPV, IRR and payback.
What are the pros and cons of using the Business Model Canvas versus learning how to develop a business model from the ground up?
The Business Model Canvas is the first step to presenting your idea or product. It describes what you are going to do. The information contained in the Business Model Canvas is not sufficient to decide whether to invest or not or to convince your Finance counterparts that your idea is worth while. You need to manipulate that information so that they can make a decision from a financial standpoint.
I’m concerned about out-of-the-box solutions when making financial decisions. The Business Model Canvas provides guidance to how people can present their information. When determining whether an investment is worthwhile, I always start from first principals. I look at the potential revenue stream, cost structure over a period and how much investment is required.
What financial instruments or data are most useful when negotiating with stakeholders to get the Business Cases signed off faster?
Senior executives are interested in revenue, costs and capex – not just the increase in volume of customers/sales. Product professionals can assist their Executives make investment decisions by presenting their ideas and products with the right financial data to help tell the story.
Ongoing investment evaluation involves understanding ongoing performance of the product. The way a product generates revenue and the volume of customers/sales is a small part of the bigger picture. The product’s actual financial performance including its cost and margins, against the budget, are also important.
Other factors to consider in a Business Case:
- Qualitative and quantitative market validation of a product idea
- Evidence that the product is going to be successful or go to the next stage
- A clear outcome of the idea that you’re trying to sell
- Total investment required
- Estimated return over a period
Most importantly, decisions made by the C-Suite are driven by NPV & IRR so you need to demonstrate this in your Business Case.
This applies to business cases for government organisations as well which may be looking at other benefits such as social welfare or tax revenue. They are willing to carry a loss if there are other tangible benefits.
The other important financial tool is the Driver Tree, which looks at revenue & costs.
How do you get your stakeholders excited about your product’s financial performance?
If you explain to your stakeholders what the current baseline performance of your products is – the actuals, forecast, the differences and where you are going against the financial performance targets, you will capture their attention and gain their buy-in.
Do you have any final tips to change the world of Product Management from a financial perspective?
Product Management needs to understand how their product will contribute to the overall business objectives so that they can obtain more funding & resourcing support from the company.
If a Product Manager explains their requests for investment in terms of NPV, they will go a long way in terms of getting the resources that they need. NPV is important because businesses are about investing resources & generating more return for shareholders. Investing is for the purpose of generating more revenue.