Agile, agile, agile, that’s all I hear. Ridiculous. When did not being a robot blindly following a set of rules become so unusual? Seriously, applying critical thought to your work everyday, should not be the exceptional bar it should be the min bar. If you don’t ask yourself everyday what is and is not working and then fixing what needs fixing, you cannot call yourself an engineer.
I have been practicing agile development for a long time. I started using a form of it when I started my company in the late 90s. Then I was one of the first to use it at Microsoft to run a large scale project in 2005 on Ohana. OK, yes, Agile rocks at getting people productive but it so sucks at driving strategic prioritization. You know the drill, grab your back log, often nothing more than a glorified to do list, and pull the things off the top you think you can accomplish in the next couple of weeks. This leads to the #1 complaint of agile, our team is getting lots of work done but we are not making enough strategic progress. We have all seen this, lots of movement + lots of entropy = inefficient progress. This is the moral equivalent of a dog chasing their tail.
When I was running the 2013 release of MS Access I realized that ‘back log hammer’ I had been using to pound in every nail in sight, was not meeting my needs. I needed a new tool… So I went down to the handy dandy agile hardware store and bought myself a new tool… The tool is a simple portfolio risk mapping grid used to diversify your investments:
The vertical axis lists 4 stages for a product or technology maturity:
- Inventing – when the boss man mandates you run off and invent something amazing that will make the company millions and demands you git-er-done this weekend, the risk of failure is super high. By failure I do not mean we sucked it up and failed to deliver anything, failure is more often the result of missing critical features, delivering the wrong features, targeting the wrong market, et al… An organization must invest in this stage because it builds a defensive moat, this is where real competitive advantage is built. Sadly, most organizations either significantly over or under invest in this stage depending on the leadership mindset. Depending on your current situation you should invest 15 – 30%. Going over 30% means you are ignoring key existing assets. Its like ignoring your first child because you are confident you can coach your youngest up to be a doctor, a champion golfer, or CEO. Sure, maybe, but probably rather than developing your youngest into the next Michael Jordan you will just turn your oldest child into Jeffery Damer.
- Completing – Thank goodness, you went off over the weekend and invented sliced bread! Now you can eat bread with your water, but lunch is still lacking… You need to work adding some great features that are really just a further iteration on bread. Think sliced ham, cheese, toast, jelly, oh and peanut butter, my favorite! These additional features make bread truly enjoyable. After an organization hits on that competitive advantage they must immediately work to flesh out the offering with the target market feature set. If you have done a good job inventing you should be able to spend significant time in this space expanding your product to cover new scenarios. Expect to spent 25-40% of your available investment here.
- Maturing – Now that your product is loved by all, it is time to start expanding into new target markets. It is time to mature your offering. This means adding features that are requirements of an expanded set of target customers. If you go to any VC they are going to say you have to target the Millennials. Oh seriously, them again? They are so hard to please, cant I just go back to the baby boomers? All boomers want is to stay connected with the family while retiring in Belize since they have no savings to retire in Phoenix. They were too busy spoiling their future Millennial to save for retirement. Maturing your product leads to your next cash cow, don’t under invest, think 25-40%.
- Maintaining – Your product area or feature is over the hill just like Hank Hill. It is also the cash cow and you need to keep the $$$ flowing so you can go invent something amazing this weekend. You are no longer expanding the list of scenarios or target market, you are simplifying, you are integrating with new and improved market leaders, you are adding a new button to the ribbon. In short you are getting customers to pony up for new versions or keeping their subscription running by adding features that sound critical but have limited practical value. Invest 10-30% of your resources here.
Really these stages are just more interesting words for the stages of Technology Life Cycle: R&D, Ascent, Maturity, Decline. The following chart shows the impact the product lifecycle has on corporate gain. The Inventing phase loses money, Completing sees rapidly growing profits, Maturing sees profits plateauing, and Maintaining sees the end of the plateau followed by rapid decline in profits.
This line represents the net benefit to the company, so in the R&D phase lots of spending with little revenue = negative return. As your product matures you move into cash flow positive territory. If at any point you reduce your investment, your product is moving to the next life cycle stage. The question here is, did you move the product to the next stage or did the market move it to the next stage? In other words, your product will take the lower of the two curves defined by the market or your investment. Note you cannot increase investment and cause the product to live longer but you can cut investment and cause it to die sooner. Reducing your investment flattens the product life cycle curve.
Investment in projects are ranked as Small, Medium, or Large by relating the current project size to the project leaders largest successful project. In other words, a large investment is defined as a project that approaches or exceeds the project leaders largest successful project size. Large is anything 90% of their largest effort ever and up. Small is anything 15% of their largest effort and down. And Medium is between 15 and 90… Most people say the Medium window is too large. Well, I determined these breakpoints based on observed project failure rates. When a person manages a project close to and exceeding their largest project ever their tools and processes are not setup to scale to that high a level. As such their rate of failure significantly increases. Conversely at the other end of the spectrum, a project does not see significantly reduced risk until the project gets so small the leader can literally run the project in their sleep. You will also find that when a project is in the range where the leader is comfortable and has tools and techniques that scale appropriately, their delivery rate will be fairly consistent. Additionally, note that any project involving more than 20-25% of the total development org is always considered large given failure consumes such a large % of the portfolio.
So, does a bigger R&D risk have a direct correlation to a larger gain later in the life of the technology? No. In fact, often the inverse. Larger bets often have a larger risk due to investments in architecture or bets on companion technology which is also being invented. This is not always the case, but like monetary investments higher risk does not universally mean higher returns. Even worse than $, large software projects have an inherently higher risk of failure because they have more moving parts AND the leader is approaching their capacity.
What to do?
Like any portfolio, managing risk means having enough bread and butter investments that you can eat, then enough medium investments that you achieve reasonable returns and enough big bets that you have a shot at retiring in Phoenix or building the new feature that will be the future revenue engine for the company.
Small Inventions, generally not worth the risk so minimize your investments in this box.
Medium Inventions, now you are getting into your bread and butter of invention. By putting at least half of your invention budget here you will mitigate your risk.
Large Inventions, what is key here is not investing big $$$s, its all about targeting your investment with a small number of resources so a miss is not so devastating.
Completing, your level of investment in this row will be directly based on your success in the inventing stage, if you cranked out some amazing stuff this weekend then you will have lots of opportunity to complete on your inventions, if not then…
Small Completions, really? this is your future bread and butter, don’t go small.
Medium Completions, you will have a number of these, they are incomplete feature sets that don’t take an army to complete. Spend at least half of your completing budget here.
Large Completions, while risky these are likely your best competitive moat, expect to invest heavily here but also be prepared for this bucked to be a complete failure. It will happen a lot, so make sure the failure does not sink the boat. You do this by not letting a single team take a dependency on anything in the large bucket until it ships. Do not break this rule under ANY circumstances or things will go poorly.
Small Maturing, at this stage you will have a big backlog of 90% complete feature areas so you will often make a big block of small investments to complete a group of feature areas. This will pull in new markets as well as the laggards in your original market.
Medium Maturing, like its small counterpart, completing a number of investments in this box will be critical to expanding target markets as well as winning over the laggards.
Large Maturing, you will not make large investments here. Buy its very nature a maturing product is about to be a declining product as a result large investments here are a waste and you will not see a return on investment. This is where everyone makes the mistake, they say if I do not invest heavily in this box my core product is going to die so they take on a bunch of large investments in this area and a bunch fail. Here is the pisser, like it or not your core product is going to die and no amount of investment is going to change that. Your only hope is to make the right inventing investments and have those pay off so you can transition the companies revenue to the next new thing. How do you find that next new thing?
Small Maintaining, because this is a declining product all of your investment in a product you are maintaining will be here. Virtually every company does a great job limiting investment in a product they see as Maintaining so that is not the problem. The problem companies face here is moving a product into the Maintaining life stage too early thinking they have already won this market. Microsoft and Internet Explorer is a great example here. As a company, to move a product into the Maintaining life stage you must have resigned yourself to riding its profits down to zero. If it is critical this product continues to live indefinitely then it must stay in the Maturing life stage or you will be sad when you loose market share and have to invest heavily in attempting to win back the market, which of course you never will because you will have alienated your loyal user base and they will NEVER come back.
Medium and Large Maintaining, you are milking this product for everything it has DO NOT make medium or large investments in these products as they will never experience an ROI.
Here is what your total R&D portfolio of feature/product investments should look like:
What you should do next is list out every component you budget and rank them for maturity and size then list the total heads/$ for each. Then fill out this chart. If you have imbalances then simply rebalance your portfolio as you would your 401k.