How you need to think about product strategy in the age of AI

0:00You might accelerate output by 100, but sooner or later you will realize, Does any of the things we're doing make a difference for customers or the business? But then it comes back to what do we want to achieve, which is essentially strategy and metrics. The fundamental questions you answer in product strategy do not change. You need to be careful where you use AI and how you differentiate with AI. Meet Tim Herbig, product strategy expert, a PM for eight years turned advisor, coach, and author of Real Progress. He's worked with hundreds of PMs to make sure their product strategy actually makes an impact.

0:33AI by itself in your strategy is not a value proposition. Everyone has access to the same frontier models. You can't compete on that technology alone. Would there be some companies where AI could be the value proposition? Companies get easily lost in very machine-centric metrics. They tell me about, you know, tokens used, language, model efficiency. Point is, tokens used is not a value exchange for your customers. It's a value exchange for anthropics. So then you haven't really made a strategic choice. Yeah, but that's the thing. One of my favorite things that I look at to pressure test whatever people put in front of me is this quote from Roger Martin.

1:05And honestly, this quote, it's one of those light bulb moments that whoever I'm showing it to, you will never look at strategy the same. So here's this great quote where he says.

1:17Before we get into today's show, please take a second to check that you're subscribed on YouTube and following on Apple and Spotify podcasts. If you want access to all of my favorite AI tools, I've gotten them to give you an entire year of their paid plans. Check out bundle.akashg.com for an entire year of Bolt.new, Airtable, Speechify, Descript, Magic Patterns, Linear, Dovetail, Arise, and Mobbin. And now, into today's show.

1:48in the era of builder pms and cloud code everybody is focused on how do you build ai but for my money a much more effective use of a product manager's time than trying to become an engineer is to actually influence the strategy to make leaps on what problems we should be solving how those impact the business, how we do things at the edge of what's technologically possible. And all of that comes back to building a great strategy. That's why I've brought in my friend for over five years, Tim Herbig. I've been following his work in product practice, on LinkedIn, and he has consistently been putting out the most thoughtful stuff on how you actually do product strategy in the age of AI.

2:35So today we are giving you a masterclass filled with anecdotes from his real work with Real PMs so that you can do better with your strategy work. This is one of those areas we keep hearing about. PMs don't focus too much on execution, focus on strategy. But how do you concretely do that? Today, we're going to walk you through everything you need to know. And if you stay to the end, you'll learn how you can get one of five free copies of Tim's book that I'm giving away. Tim, thanks for being on the podcast. Thank you so much for having me. We've been trading emails online for years, so it is my pleasure.

3:11And I want to get right into it. What do PMs need to know about strategy in the AI era? I love that question. And I love even more that I'm just going to show you what I think the real deal has to be these days. So I think the problem is, how did we get here? Why do we even debate this question? And I think what we really have to understand is what happened over the last couple of years. So years ago, a limiting factor for most of product managers' work was, well, it takes too long to do this and we have to be really ruthlessly prioritized what we're working on to spend all those precious engineering resources.

3:42These days, as everyone probably know, producing features get kind of cheap, especially for greenfield products, but even established companies can get stuff out the door much, much faster. But the problem, downside of that is, when features get cheap, not having chosen the right feature, funnily enough, gets more expensive. Because suddenly you're flooding your product with all this output, all this fluffy stuff, all these great, bi-coded, lovable things, and everything you do to circumvent the complex engineering work or even accelerate it to your engineering department. But this can come as a cost, because you still have to make people use the features you produced.

4:18So that's where the expansiveness comes in. And so what we're currently seeing, what I'm observing in the work that I'm doing, is that companies are excited about amping up the output 100 times, but somewhere down the line they have to ask themselves, did any of that make a difference? And you have to look at it from two sides of course. You have to look at it from the side of did it make a difference for customers but even more importantly did it make a difference for the business. And so essentially when we talk about product strategy and especially strategy and AI, these two terms people love so much, I believe we have to actually take a step back to really think about well what is the essence?

4:54What do we mean when we talk about that? What we really have to come down to is do we have something in place that actually helps us say no to things and do we have something in place that allows us to measure if we succeed. And you might recognize that, but these fundamental practices and core questions get buried under all the shiny object stuff we see these days. And upon preparing for this podcast, I stumbled upon this quote from our mutual friend Ravi Mehta, who has this brilliant quote where he says, difficulty prioritizing is often a strategy issue and not an execution issue. And I think these days more and more people are actually feeling the pain of that.

5:29And I love that because this is like four or five years old, it is as timeless and valuable as ever. That it's not about execution. Execution never was the issue. So if we dive into that, what is actually the point of strategy? Why do we believe strategy is impossible? I believe that we have to think about product strategy like we think about a product. We have to be clear about for whom is this trying to solve a problem and how would we know it has worked. We're told to do this for the product work that we do, we rarely do it for our way of working. And I believe if you really break it down, your product strategy has to help teams and stakeholders to intentionally say yes or no to opportunities over the let's say six to 18 months, three to six, doesn't matter, whatever time horizon works for you.

6:13And you basically know the strategy makes sense if the majority of the team's effort and energy is spent on work connected to strategy. And this sounds so painfully simple, but believe me, I've seen so many companies where first of all this understanding is not in place and second they definitely operate like that so whatever you're thinking your strategy is whatever shiny deck it is whatever one page it is whatever framework think about does it help me say no to things that's all that matters it doesn't matter if it's like in the book if it looks pretty or how much time you spend working on it the point is did it help you to say no to things so it sounds like you can't come up with a list to 14 priorities, which was the strategy I was actually once handed when I was a product leader.

6:57You need to come up with things that allow you to say no to a lot of things. Exactly. And that's kind of the hard point because this removes all the fluff, you know, all the fluff, the shiny object thing, how it looks like, what the process is. In the end, it has to withstand the test. Does whatever we're calling strategy help the teams say no to something? If it doesn't, it's not a strategy. Agents and assistants are browsing, shopping, and transacting alongside humans, while fraudsters use AI to build faster, cheaper, and more sophisticated attacks. Technical teams need device intelligence that evolves as quickly as these attacks do.

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8:43continuous memory, it actually gets smarter the longer I use it. It's not a chat window. It's one AI partner that knows my whole working life and it keeps me prepared for all of it. If you're tired of being your own chief of staff, try Ari at ariso.ai. That's A-R-I-S-O dot A-I slash A-A-K-A-S-H. What is it then? Basically just a plan or just an idea or goals? The way I would summarize it is essentially, I think you have to, what we're going to get to in a second is you have to make somewhat informed choices around, I would call, the core key questions of your product strategy. Like the core questions the strategy has to answer.

9:18And your answers to these questions have to be opinionated enough so that you can actually enforce the no. And that's what we're going to look at next. Because the problem is, most of the time, you look at strategy as this big monolith. You say, this is the strategy, this is the deck, this is the one-pager. And I believe, if you really boil it down, if you look at all the smart stuff out there, that from different strategic thinkers. It all comes down to the same core movements. You want to have some kind of narrative in place. You want to have a narrative in place that allows you to express why should we do this, why should we act on this now.

9:54Then you want to use some kind of playing field definition which is a product strategy fancy term for basically the market. So for whom are you trying to solve what problems and who else is solving these problems, your alternatives, your competition. And then you have to decide, okay, in this narrative and this playing field, well, how do we win? How do we plan to win on this playing field? So what value do we provide and how will we differentiate? And especially these last two bits are most affected by AI, in my experience, and we're going to look at this closer later on. So if we take this to heart and we say that these are the core dimensions every strategy should answer, it hopefully clicks a bit more for you because that means that it doesn't matter what form or visual you use to answer these questions.

10:40It is that you answer them and then you can rearrange them whatever shape you actually enjoy it. Because then you have those dimensions and then you can pick whatever component you need. You can then say how do I want to describe my strategic narrative? How do I want to describe the playing field? How do I want to describe the winning moves? It doesn't matter. It matters that you answer them in a way, like we just talked about, you need to answer these in a way that allow you to say no to things. So that's the important test we have to, things have to pass. So if we take this too hard, it gets a bit more clear to say, if you look at all these fancy things, the business model canvas, the lean canvas, the strategy kernel, whatever pitch or glorify PowerPoint, structure your boss loves.

11:34All of these are basically just windows. All of these are windows into the actual work of strategy. The actual work of strategy, and that's the difference. Everyone who has worked on strategy will tell you, it's basically a messed up chaos. It's messed up chaos, and it's supposed to be. Because the pretty structured, neat kind of stuff you see at the end, that's just a very curated snapshot into the actual world. That has to be clear. Don't start with a polished structure. Embrace the messiness. Work through these questions, whatever way you have to work through them. And in the end, I will promise you, you are always able to assemble the actual strategy work into whatever shape your strategy, your boss or your frameworks require.

12:15So the fundamental questions don't change. Strategy creation stays non-linear, it's messy, and these canvases allow you to look at them. But they are not the strategy itself. So make sure that when you are asked about product strategy, don't fall for the trap to start with the framework, start with the template, start with the core questions that every strategy needs to answer in a way that they enforce a no, and then it's just painting by the numbers you assemble. So let's see those core questions. You can look at it in more detail, right? So you can take everyone's favorite thing, the business model canvas.

12:48And I love this post from David Blunt, who once had this great post, because the question is now okay tim with all these dimensions we have these things how to answer things how does ai fit in there like where does ai influence things the most and i talked about parts of value proposition differentiation are most affected by it so what i love here is that ai by itself in your strategy is not a value proposition and almost no technology in history has been a value proposition on its own instead technology or something like ai becomes a resource you can use it becomes a new resource you can leverage to really hopefully amplify the core value why your customers come to you they don't come to you to see the 15th glorified chat gpt embedded window that's why they come to you because everyone can spin this up like it's not a differentiator everyone has access to the same frontier models or open source models you can't compete on that technology alone you have to make sure that what other things remain which we're going to look at later which differentiators actually remain so if i just try to play devil's advocate here would Could there be some companies where AI could be the value proposition?

13:52Like Levels.io has this company called Photo AI that does 83K revenue per month for him as a solo operator. And I guess it's just about generating photos that look like you or maybe like chat PRD Clairvaux has like that. Would you say AI is the value proposition for those tools? I think I would challenge that in a way to say like, I think what's important is what is layered on top of ai technology for example the levels io product i mean i think his name is peter right the operator who runs this like he has this incredible personal branding like he's this incredibly branded solopreneur operator i think people love rooting for him people love the products he's building and i think if you are above a certain quality threshold then your brand can carry you all the way and i think by that by being the solopreneur thing he has created his own blue ocean like he's not compared with like the companies um in that space so i think that's the that's how i would see us or you mentioned uh claire with uh what's it called the uh chat prd i was just talking to the president of hp i was asking him hey what ai tools do you guys use for your pm team he said chat prd i was like wow my bet is i think that would be the part like why do people choose chat prd my bet is they choose it because of claire's product experience that is leveraged through ai in there because in theory you can write prds everywhere but like claire adds her cpo background value to that to really amplify um ai as a technical resource so it's still really a resource that those people are tapping into and the strategy or the business model canvas they're filling around it is their brand their alpha their distribution those are the things that allow it to succeed i think there was a great podcast i don't know it was a year ago or so from brian balfour from reforge and he chatted to i think to robbie meta and they talked about what are remaining differentiators in this wild wild west and they were like look essentially it's the it's the same differentiators that have always been the only ones it's brand and it's data and they just get they just get so amplified right now because nothing else is a mode anymore nothing else is the mode anymore.

16:04And I think that shows even more and more. Like you can be incredibly well branded company like Notion or all these other favorite tools we have out there. The brand is amazing. They have a gazillion data history about you to leverage AI into a fantastic product experience. Very interesting. So where do we go from here? We go from here to take a closer look as like, okay, so we talk about AI as a fundamental thing. Before we dive into the case study for today, I want to lay out a few things for people to understand. What are the impact points? What I think it's important to say on the one hand, of course, you can use AI to create your product strategy as a tool for resource for operation.

16:39But of course, the other part is where does AI appear in your product strategy? So what we talked about. So just to point out some of the obvious things, like, for example, when you talk about using AI to create a product strategy, there are obvious things like researching markets and competitors. That's an obvious one. Or we can talk about synthesizing customer evidence. We can talk about generating, comparing scenarios. We can talk about how do you pressure test strategic scenarios. So we can use these things and they should be part of your workflow. It would be stupid not to do it. So don't put in your blinders and be aware of these tools being available to you for strategy creation.

17:19The thing that you can't replace, that people oftentimes might fall for, is you will still be held accountable for the consequences of your strategy. You can't say, no, chat GPT told me this is a great strategic bet. It's not my problem that we lost 10 million in the market. You can't do that these days. If you have that, and of course, the thing is, when we look at AI as part of your product strategy, as we talked about before, you have to come to these core realizations. AI as a technical resource on its own, it's not a mode. the resource is widely available, it's not differentiatable. You have to understand how you can use AI as a resource to amplify existing value propositions and become appealing to new audiences, if that's what you want to do.

18:07And you have to understand that as easy it is to spin up AI as part of a product strategy and to use it because it's so widely available, the only sustainable differentiators in product strategy are the ones that take the longest to build. We just talked about brand and data and these things you cannot speed up. You cannot speed up brand or reputation. You can destroy it incredibly quickly. You cannot build it up overnight. If you look at these things, that's what we can do. That's what's available to us. We can continue to work from here and dive deeper into how do we work through product strategy.

18:45One of my favorite things that I look at to pressure test whatever people put in front of me is this quote from Roger Margin. And honestly, this quote, it's one of those light bulb moments that whoever I'm showing it to, you will never look at strategy the same afterwards. You just can't. So here's this great quote where he says, well, the question is, is the opposite of your choice, of your strategy choice, stupid on its face? if the opposite is stupid it's you haven't made a real choice and he uses things like if you say our strategy is to make our sales people more efficient well what's the opposite of that it's like to make sales people slower that's pretty stupid that's a pretty stupid idea that's a pretty stupid idea so then you haven't really made a strategic choice because anything could fall in the bucket of making salespeople more efficient.

19:39So you need to find something where the opposite might be stupid. Like we are trying to make salespeople spend less time in software and more time with people. I guess the opposite of that too is stupid though. Spend more time in software and less time with people. So it's not easy to generate off the top of your head. Yeah. But that's the thing. If it would be easy, that strategy would be easy. And we all know that strategy is not easy. So I get what you're saying. The thing is, you can easily tweak this. You can say, we want to make salespeople more efficient, but then the question is how? Like, that's what strategy should answer.

20:14And you could say, we want to make salespeople more efficient by shortening the preparation time for meetings, right? For example, this could be something, if you believe this is the best bet you have. You could also say the opposite would be, we want to make salespeople more efficient by sending more AI bots to sales calls. It's an alternative right who knows if it's the right one but it's one you could do or you could even say we want to make sales people more efficient by having every sales rep focus on fewer accounts how do you do this so that's the part that strategy should be able to answer so it's almost like having a point of view about not just what your product is going to accomplish but how you're going to accomplish exactly how do you want to do this and the beauty is that the problem is we all know that strategy is not just this one sentence.

21:01Strategies never make salespeople more efficient. It's much more complex and we look at the individual building blocks of strategy. So invite people to do it. Don't get frustrated about your product strategy being stupid on its face fully. Pick up what is a part of your strategy. What is a part, what is an individual component you can do? And one person I worked with in one company, I showed this to her, she started calling this the stupidity flip and I love this it's one of my favorite exercises so she basically says if you decompose your strategy for example a part of your strategy is you talk you want to make choices about your audience or you want to make choices about how you wanting to win the playing field we talked about and so she worked on a meal kit product and she said okay I can make a choice by saying the audience I focus on are people who regularly cook at home but they struggle with inspiration.

21:55I could flip this into I could also focus on people who never cook at home or people who are extremely proficient home cooks. Legitimate alternatives. No one knows if it's right, but I have made a choice that makes sense. I could also say for the winning moves, well my value prop will be end-to-end home cooking from inspiration to inventory. You could also say I'm going down the HelloFresh route, I'm going to be a meal delivery service, or I'm going to be super high-end I'm going to say I deliver complex recipes with specialty ingredients. And that's it. So you can pick individual parts of a strategy and flip them and think about, can I make one part more tangible?

22:33Can I make one part of my strategy more no enabling, so to speak, that I can then work with it? So just to clarify, because I didn't totally follow, where is the flipping happening here? The flip happens like you'd say one part of the strategy would be you have to make a choice about what's the audience I'm focusing on. That's part of your strategy. You want to say for whom am I solving a problem? Like that's part of the strategy. It's a strategy component you would focus on. And so you would make this choice by saying I'm going to focus on people who regularly cook at home. What could be flips of that?

23:05So I could flip it into people who never cook or who are extremely proficient. and in this case the stability flip worked right we could say yeah these are actual choices like these are not stupid choices you could focus on these but you chose to focus on these people so that's the part of a strategy that you're flipping you're picking an individual component and you're flipping that and just to play devil's advocate on this now isn't there like i also felt this sometimes when i was a product leader implementing a strategy that i would get like Like one strategy I had when I was at Apollo.io from the CEO was, hey, let's only focus on paid users.

23:43And I think he was kind of going off of a similar sort of reasoning here, which is like there needs to be a stupidity flip example. But then the strategy kind of ignored free users, right? But actually, as a product leader, I can't just ignore free users. And so I would have to make decisions like that don't just nerf the free users. So is there a component where strategy should be giving you myopic focus on certain segments of users? And is that good? I would say it's two things. Like the first thing that people have to understand about strategy is that I strongly believe that strategy does not have to cover everything that you're doing.

24:25I think it's okay that, as you said, the focus might be paid users. that does not mean that you're turning off the product for free users. It's like, okay, that's the first thing people have to understand. And for me, the second part is that it has to fit what we talked about, the strategic narrative before. It has to fit the narrative. What is the reasoning for focusing so strongly on paid users? Is it because the company has a retention problem with paid users? Is increasing retention the biggest bet to improving revenue? or is it, like what is it? Like what's the bigger thinking behind it? So I think the choice of a segment has to match the narrative.

25:05That's what I mentioned before. These components you have here, they have to form a coherent. I used to think I had a retention problem. Turns out I had a messaging problem. I was sending the same onboarding emails to every new user, whether they activated on day one or never logged in again. I had no idea who was slipping or why. Customer.io changed that. Every message I send is now based on what users actually do in the product. Someone hits a key activation moment, they get nudged to the next one. Someone goes quiet, they get a different path entirely. Their AI agent makes it fast. I describe the campaign I want and it builds the full journey form.

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29:10So if you were to tell me, Well, the company's biggest strategic priority is to grow revenue by improving retention for paid users. Therefore, we're going to focus on acquiring more free users. We'll be like, well, I don't know how the math on that checks out. 100%. Makes sense. Okay. And that was actually the reasoning, was they wanted to focus on retention as the biggest lever. So it's interesting that just by knowing paid users is the focus, you were actually able to figure out what the larger narrative was. Exactly. And that's the beauty of strategy. is like it's not a top-down thing you can start anywhere someone could throw at you it's focused on the segment and all you have to do is well why why this segment or you could say someone might tell you are we're really trying to differentiate through in-store experiences it's like okay great who do we how will we reach through in-store experiences and is this the segment we want to focus on right now so because all of these things are a web of things you can start anywhere.

30:11So to make this all a bit more tangible, right? We already ran through some stuff, so I don't have to repeat it. But essentially what you would do is, okay, so the choice might be make salespeople more efficient. The opposite would be make salespeople more inefficient. So right, make salespeople more efficient doesn't make sense. Opposite, people who are inefficient, salespeople are more inefficient. Obviously, stupid idea. We say, make salespeople more efficient by being in person with clients, right? This could be one thing. And you could say, well, the opposite would be make salespeople more efficient by being in virtual contact with clients.

30:47It's not always stupid. So it could be legitimate alternative. We could focus on that. Yeah. So now you've made a real choice. So what you want to do is you want to flip it and then you want to say, is it stupid? That's the simple way to validate. That's the simple, yeah, that's the stupidity flip. And so I want to make this a bit more tangible. And what we're going to do is we're going to work through a fictional case that represents lots of the clients I'm working with and it's a fictional marketplace product. We're going to use it a bit as a run through here. So I'm calling it Fair Mile and it's essentially it's a used car marketplace.

31:16What we have here is a traditional marketplace kind of situation. You have sellers and dealers, you have Fair Mile as the company in between, you have buyers. And of course sellers and dealers want what everyone want, they want qualified buyers, they want to sell the car quickly and they need low friction listings and verification of the products of whatever they're putting up there. We as Fair Mile we have to facilitate all this inspection, we have to create this trust, we have to connect supply and demand and on the buyer side we have people who come through for search for Google or different AI search.

31:51There might be first-time buyers who are very uncertain and of course it might be difficult to purchase a car sight unseen online. So And they don't really trust the quality of your car enough to commit remotely. So these are some of the landscape. And, of course, they have a few interesting challenges ahead. Of course, they could do everything what everyone says, like just throw AI everywhere for the product, expand to all the countries, all the categories, accelerate growth, trying to build everything. And we talked about this before, but this is basically an all-yes strategy. It doesn't let you say no to anything.

32:25It's just like do whatever you have to do it. If there's a suggestion, do it. Just say no to sleep. Yeah, exactly. Just say no to sleep, say no to capital, say no to margins, say no to quality. And of course, then you could say, okay, we could also make a specific focus, right? We could say, hey, we could pick first-time buyers. We could focus on that. And this would be another example of the stupidity flip working. You could say, we focus on first-time buyers. you could also say we flip it and we focus on second and more time buyers. So we focus on experienced car buyers. It's a choice. So the question will be for Fairmile, okay, what do we do?

33:06Like what do we do and what do we choose not to do if we would choose trust to make sure we actually focus on these first time buyers? So that's the thing I want to use as a bit of an example for us to work through things. And so you could talk a little bit about what are the questions we could work through. So if you take some of the choices that Fair Mile has already done, they might say, okay, the strategy is to become Europe's most trusted used car marketplace by using AI to deliver a seamless buying experience, delighting buyers, blah, blah, blah, blah, blah. And you could say, well, again, you could flip all of that and it's obviously stupid, right?

33:45Because you don't want to be mistrusted. You don't want to, well, AI or not doesn't really matter. You don't want to create a hard-to-use buying experience. You don't want to not delight buyers. Everything is there. It's like, well, it's nothing. It's not a strategy. It doesn't give you things. So we talked about this before. Europe's most trusted car marketplace, flip it. It's like the world's most not trusted used car marketplace. Well, you shouldn't do that. So we don't want to be Europe's least trusted car marketplace. so obviously stupid

34:20right buyers and sellers alike well of course without buyers or sellers it doesn't make sense so no buyers no sellers also obviously obviously stupid yeah exactly that's not a marketplace i think you could look at some of these things right you could say okay accelerating buyer growth through automated AI verification well you could say taking our time on buyer verification through human-led call center verification. You could do it, right? Not super stupid. Yeah, it could be, right? So it's not obviously stupid. Because it could be a play. If you really want to become trusted, it might help you with your trust play, right?

35:02So it's okay. This might be actually a bet we could try out. Yeah, improving recommendation algorithm through AI enhanced start page feed for first-time AI visitors. Well, I don't know. Make the first-time start page feed experience worse for SEO visitors. Could be one flip, of course you could flip more, but it's also not super. Of course, maybe that's a bit too much devil's advocate. You could also say provide a static start page feed experience for first-time SEO visitors compared to an AI optimized one.

35:40You So I think it's something in there. And we're going to take a look at some of these parts of components of your product strategy of what you can do to break things down. So one of my favorite ways to do it, because we talked about audiences a lot, we talked about audiences in segments. And an important part that I love is an exercise called audience trees. And so audience trees borrows from this idea. There's Andy Jones, who's a former head of growth at Facebook. and he says basically your target audience has to be comically narrow. Like it has to be almost ridiculous how narrow you are. And I think you have to be between very broad and very comically narrow.

36:22So if we were to take the fair mile example, let's just say all potential car buyers in Europe, that's very broad. That's probably a bit too broad, right? And we could narrow this down to say, first-time buyers of vintage Mercedes cars in southern Germany. Like, okay, that's oddly specific, right? So that's probably comically narrow. So what you want to do with an audience tree is you want to figure out, well, what are the things by which I could break things down? An obvious one is, of course, is region. You could do something like by income to say for cars, it might be important. It might be car value, like people looking for high-end cars or low-end cars, where they want to go.

37:13We already established it's about first-time versus repeat buying. This is another category. So what I recommend companies do is they take the broadest one and maybe a comically narrow one. Then you think about by which aspects could I slice my audiences. And then you can rearrange things. You could say, okay, let's say Europe. Europe is great, but maybe we're going to go for, we love Germany because they're crazy about cars. So we're going to have Germany and maybe you have UK and then you have the rest of Europe. This could be a segmentation you might play. So we have region out of the way. Put this up here and you say, look, we're going to go for Germany.

37:52Okay. So within Germany, what could I do? Within Germany, I could say, well, I want to make sure between first-time buying, repeat buying. Because Germans love cars. They often buy new cars. So, first time repeat buyer. This could be a segmentation question I'm using as well to break things down. I might say, well I don't want to deal with the hassle or the inexperience of first-time buyers. I want to go for repeat buyers. They might be easier to convince, to buy online. Then you might say, okay, I don't also want to make a big margin on what I'm making per transaction. I don't want to play the volume game.

38:27I want about quality. So, the higher the car value, let's say car value above 100k and car value below 100k you might say well we're going to focus on above 100k because then every transaction makes us it's real fun to make facilitate each transaction and so you could you could do the funny the beauty is of this you could rearrange these things as you want you could start with car value and then the region it doesn't really matter it leads you to the same thing. But in the end then what you land on is, okay, for FairMile we could say, we focus on repeat buyers of cars worth more than 100k in Germany.

39:08And then you have something that is something you can say no to, something that gives you focus, and if it fits in narrative, you can hopefully have a narrative why you made these choices. This is for example the beauty of where AI would be really helpful, to really assess these criteria. Like which thing like how big is the market what is the difference in uh in trust issues for repeat versus first-time buyers how many cars exist in competitors more or less than 100k like you can do all you can speed up all this research and so you can but in the end you will then land on a segment that you can actually work with and how do you know that that segment's big enough it's not comically narrow yeah so that's what i'm saying of course you have to like do this i don't want to say sanity check sounds too easy but of course you still have to say well is that is Germany a good market or would you say oh let's say let's say Luxembourg like well look this is like I don't know I don't want to do injustice to Luxembourg it's like I don't know there's like 10 ,000 people it doesn't make sense so of course you still have to go through it like okay what does it mean so and that's what I'm saying this is where the acceleration of this breakdown can happen you can easily get access to saying how many car owners in Germany how often does a German buy a new car?

40:20What is the average value of the cars they're buying? Like you can get the data on that very quickly. You can run this decision through some AI assisted progress here to back up the data and make sure, well, okay, this is a market of, I don't know, 50 ,000 people we could reach every year at this expected transaction size at the margin we're taking. Then you can just see, well, do the numbers make sense? Is this a business model or do we need to broaden it? Do we need to say it can't just be Germany it has to be Germany Austria Switzerland so you can then tweak the dial so to speak to make the choice here so AI really helps in the market sizing component yeah exactly and again what we what I've been banging the drum on you have something that you can say no to right you can say we can we can flip this and the opposite would still make sense we could go for first-time buyers for lower value cars different markets it allows us to say no to things and I I believe getting your audience in place is such a...

41:15Because having your audience in place has so many downstream consequences. If you have your audience dialed in, the problem space you're focusing on will become very focused, because you can only solve problems for the audience you've chosen. In this, obviously, in the marketplace scenario, we have another interesting component, because we could also have to say we have to focus on sellers of cars worth more than 100k. Maybe not Germany, we could sell across Europe. But then we have this link, you know, we have the buyer and the seller side clarified at the same time. So we have this lock of these two strategy components we can now use for the team working on the buyer side and the team focusing on the seller side.

41:58So we know what we focus on in acquisition, how we will measure success. you have all these things in place. So that's why I recommend so many people to actually get the audiences right. Don't get lost in the super comically narrow one, like don't go for vintage Mercedes cars in southern Germany, but do the run-through, do the slicing and focus. Another strategy part, and I teased this a bit, I teased this already that I believe that winning moves and differentiation is the trickiest one, that's the most influenced. And again, I'm someone, I love to go back to the original concepts that are out there.

42:32I don't believe anyone needs to reinvent strategy work. What we do have to reinvent is coming back to the fundamentals and staying true to them. And one of the most timeless concepts in differentiation of strategy is from Hamilton Helmer, Seven Powers. If you haven't heard of it, I recommend you go read it. Timeless stuff, really good. And so he says that essentially if you boil it down, there are seven things you can do to differentiate from others, from your competition. And so you have to understand what each of these powers is doing in general, if it's feasible for your company to execute, and most importantly, does it even help you differentiate from your competition?

43:13And so to give you some color, what do some of these mean? For example, I mean switching costs is probably the most painful one for everyone. You know, like the blue bubble problem, you can't leave the iOS ecosystem, like you don't want to leave all the iOS data behind, you have that. That's a painful one. Or switching from Spotify to somewhere else, or the playlist, all the algorithm stuff. Process power, process power, like how quickly, what kind of internal efficiency do we actually have? Can you have that in place? Counter positioning one, it's a very interesting one. Favorite example across history was from Netflix versus Blockbuster, but the funny thing was Blockbuster made a lot of money on the late fees of the rental of the rented movies and when Netflix waived the late fees, Blockbuster couldn't compete on it because it was a, their business model relied on it.

44:04Of course we have brand, we have network effects and so what I said before comes true, it's the only sustainable differentiators these days are the ones that are the long, take the longest to build, which is for example, on the one hand we talked about it, we have brand, right, hard to build, you have network effects because you can't copy and paste network effects, whether that's offline distribution, whether it is the number of people, the buyers and sellers on the marketplace. So this would really work for Fairmile. Switching costs, probably not a good one for a car marketplace. Process power.

44:45Sorry, I lost you for a second. Are you still there? Yes. Yeah, okay, good. Process power, how easy do your internal wheels churning? Well, it's easy to copy. People can catch up, companies can catch up to that. It might take them a while, but it's easy. And other things like captured resource, which is an old school way of using technology. Well, not sustainable. We talked about this before. Everyone can tap into the same models, so this is difficult. So some of these things again if you look at Fair Mile our product again it's the the brand I think the network effects like getting the buyer and seller side really in place get them really locked in.

45:32Switching costs again I don't see them they shouldn't focus on building on switching costs for a car marketplace because it doesn't really make sense. The funny the good interesting for them for economies of scale I believe would be in the case of maybe working with dealerships in Europe. So can you get dealerships in place that have multiple offerings, multiple locations that really blow up your inventory? This could be a really interesting one. Again, captured resource. So just getting crazy about you are the AI market, you're the car marketplace with the AI search. It's probably not really sustainable.

46:08Yeah. So that's what I would say. Looking at the winning moves, the seven powers, I think really it's about brand. It's about network effects, maybe getting the dealership in place. They shouldn't get lost in trying to build up a fancy AI search. I mean, you might do it. It's not painful, but it won't really help you differentiate. Like no one will buy the car with you because you have an AI search on the marketplace. And does seven powers come after audience? Is there a sequencing to this that makes the most sense when you're building your strategy? I would say it does not. It's not a sequence because if you look at it, if you look at these core questions we talked about, essentially you can start anywhere.

46:49So like Joe from marketing might come in and tell you all about, we now differentiate on price. That might be a new statement. Like, okay, thanks. A, that's a bit hard, but okay, we do not differentiate on price. The big question is, do we focus on the price sensitive audience? like what's the link? Is that a link? Is that a strategic link? Is that a link in our strategy that actually makes sense? And probably that then points out like who is our audience? And even further so, once you understand that, what makes our audience choose a solution these days? And you can take this even further and say, why do people choose our competitors?

47:33Is it not predators why do customers choose our competitors if it is a price I would say if people are choosing competitors for pricing I would say get out of this market because price is one of those other things you cannot win you can't win on pricing you might can, there are these outliers of course these days we see that Google, Microsoft, Anthropic and OpenAI, they can compete on price for a while by cutting down the cost and not charging you the real AI cost. Because they can swallow it, because they subsidize it. But that's not… no one else can do that. No one else has a business to subsidize these incredible costs that you don't have to pay for.

48:15So, to come back to your question, I don't think it doesn't have to be a sequence. Because again, you might start on this wild differentiation guess and you can link it back up to all these other strategy components you should be able to answer. Yeah. Does that make sense? I dived a bit deeper into the audience and the differentiation because again I said on the one hand audiences are most impacted by the idea to, or it's most impacted by you can do a lot of AI assisted work here to really get things down and nail things down. Differentiation is the one that is the most affected by can you actually use AI to differentiate your product anymore and what does it mean for those other differentiation possibilities that you have as a fundamental layer.

48:57and we talked about, okay, how do you link all these things? And we can talk about this a bit more by saying, okay, if we take these things aside, like what can you do to really articulate those things? So I think for your narrative, for example, you want to use things like your vision, your mission, business model, company strategy, if you have it in place. We could do something like North Star Metric. These are all components you can utilize to really describe the strategic narrative you're going after. So this is what you can use. You don't have to use all of these. Please don't use all of these, but you can use them.

49:41When we want to describe the playing field, we have to be clear on buyers, users, especially in B2B, buyers versus users. Of course, we have to say what are the jobs, the buyer jobs, the user jobs. We have to get clear on these and we have to be really clear on the alternatives. Like be clear who are users and buyers using to get the job done today. So these are things we need to have in place to articulate our playing field. And for the winning moves, you can talk about things like value crop. You want to talk about distribution channels. You want to talk about differentiators. So these are just some of the, let's say, these are things in your toolbox you should be able to pull out to articulate winning moves, to articulate playing field, to articulate the strategic narrative.

50:33As I mentioned before, all of these are linked inevitably. You can't make a choice about distribution channels without being clear on the users and buyers you're serving. You can't make a choice about differentiators without knowing who you're competing against. Like all of these things are so incredibly interlinked. You might start anywhere, but be prepared for the messy work you have to do to figure all of this out together. And when you were talking about strategic narrative, you mentioned don't do all of vision, mission, business model, North Star Metric Company strategy. Why not? Well, I believe that you can so often get lost in them because the thing, the problem, my problem is that people and companies especially, companies love these terms, but they are really rarely used the way they are intended to use.

51:16Like, just a North Star metric. North Star metric is one of those things, like, people put it on the wall, and they just say, EBTA is a North Star metric. It's like, well, it's not. It's an outcome, I guess. It's like a lagging metric, right? Yeah, exactly. That's the problem. And I think the, you know, like, again, I love to go back to the inventors of concepts. And Sean Ellis, who came up with the North Star metric, he had a very clear definition. Like he said, a North Star metric is the metric that represents the experienced value your customers have from your product. Like, that's what it is.

51:52And of course, an increase of this metric has to lead to an increase in the business metrics, of course. But the business metric itself is not the North Star metric. And I think that's so easy to forget. So, coming back to your point, of all of this, people love to debate, oh, is this a vision, is this a mission, like, what is it exactly, it's not written correctly, and, oh, this North Star metric, etc. I would just say, I don't really care what you use, as long as you can really tell me, why should we act now, and why is it us who should act. If you, whatever you use up here, you can only use the North Star metric, only the vision, I don't care.

52:30Because the problem is, your users don't care about your vision. your strategy. Your colleagues, your teams care about your strategy. So if you can inspire them to think about, yeah, this is why we should act now, just with a vision, be my guest. I'm not going to police your strategy framework. Makes sense. We talk a little bit about strategy and we have to talk about, has strategy worked? The beauty is, I mentioned this honeymoon period, like many of my clients have it. It's like, yeah, let's have so much output and so much, you know, everything, everything is happening now and everyone's more efficient.

53:02But I have so many clients who told me a year ago they have issues with feature adoption. They have issues getting the customers to use the features. So tell me exactly how 10 or 100 times more features helps you with adoption from your customers. I haven't heard a good answer on that, to be honest. So you might throw more things out, but you don't really know what happens. Now, the problem is, people then say, yeah, let's write more OKRs or let's get lost in the metrics, frameworks, whatever. And just like with every framework, I think it's important to, let's go back to the basics. And if we go back to the basics of saying, hey, explain to me if our strategy has worked and how do we know the strategy has worked.

53:47I don't tell people, let's write OKRs, let's write North Star metrics. I don't do that because then people focus on the framework. What I have them do is, okay, plain English. First, tell me what you want to do differently in the next quarter or six months. Just tell me what you will do differently, which is the essence of strategy. What will you do differently? Don't talk to me about business as usual. Don't talk to me about bug fixing. What will you do differently? And differently from what you have been doing? Yeah. What will change? Because you cannot expect a revenue increase of 20 % by continuing to do the thing you did before.

54:23Like you have to do something differently probably. So, and this applies to B2C, to B2B, to customer facing, to internal teams. It doesn't matter. Everyone needs to have an answer to the question, what will I do differently in order to achieve the business results, the business goals that I've been given. So once you're able to say that to me in plain English, then we can talk more. Then we can talk about, okay, now tell me, how will you know it has worked? How will you measure that what you did differently has worked? Tell me how you did, how you will measure it. And once we have this conversation, then we can talk about, okay, now we can translate that into whatever metrics framework your boss wants you to fill out.

55:05Whether it's a dashboard, whether it's OKRs, whether it's balanced scorecard, I don't care. But it's like with the strategy template. Filling out the template doesn't make it a strategy unless you get the fundamentals right. And for metrics and OKRs, it's always what's differently, how will you measure it, and then translate it. And if teams struggle with that, especially in the AI concept, these days companies get easily lost in very machine-centric metrics. They tell me about tokens used, language, model efficiency, blah, blah, blah, blah, blah. The point is, that's no value exchange. Like, tokens used is not a value exchange for your customers.

55:47It's a value exchange for Anthropic. Like, they make more money off you using their tokens. So you still have to go back to the core question as well, we're building a product ultimately for now humans, maybe agents in the future, but still explain to me whose behavior do you want to change? Like whose behavior has to change to tell you that this idea you had has worked? Whose behavior do you want to change? By how much? And this should be at the core question. Like even if you tell me, you know, we want to increase AI feature output by 20x next quarter, it's like, okay, what should change for whom as a result of that?

56:26Like, why do you want 20 times more? Is it about an internal metric? Do you want people to be more AI fluent, AI this or that? Or do you actually want customers to be more effective, more efficient, more or faster in the problem solving. Make that the actual goal, how you measure the success of your strategy and not a random AI output metric. So is it better to have a metric that's more of like a leading product usage sort of metric? That's a good question. And I think the, let me see if I have something. What I like to go back to, there's this great quote. I don't know who has it before. There's this great quote is, there are no solutions, only trade-offs.

57:02The problem is there is no this one perfect metric. I think ultimately you have to decide, okay, let's say you pick a most customer centric metric, but it takes you nine months to figure out if the metric has changed. Well, that's not great. That's not a good metric. So then you have to reverse engineer. You have to go from lagging to leading indicator. Okay, what is the earliest signal I can detect? And it's a little bit like what we did with the audience tree. You might have this comically narrow metric where you say it's like number of tokens used per day might be comically narrow and it's super leading you can track it every day but it doesn't tell you anything about the value you have produced and so that's the balance we have to strike ultimately to say okay we have a very lagging on the one end of the scale you might have very lagging customer change in behavior On the other hand, you have this very leading work output indicator.

58:00And the thing is, there might be a time where you might have to work with this leading work output indicator, but honestly, my biggest pain is always, why do we do all this AI stuff if it doesn't lead us to faster products in the hands of customers and therefore measuring things faster. If it still takes you nine months to measure customer behavior changes, but you're burning through all these tokens, what exactly is the point of that? So how do you create the right strategy in Metrix Loop then? So the way you do it, we're going to revisit now, we're going to package things up, we're going to revisit some of the components, some of the things we talked about before.

58:40So we have this fundamental idea of what we do, and we can go through the full picture. So we put it here and we say this is what our strategy should answer. It needs to give us some context on why us, why now, for whom, which problem, etc. Then you would say, okay, let's say our narrative is... let's skip the narrative for now. Where are we going to use these the first time buyers of these ones? We use the strategy choice, for example. It's something you would do. Okay, we have these as our playing field, part of our strategy. So what we want to do now is, okay, the core question to answer is, which metrics will tell us that this strategy choice has worked?

59:22So of course the second part we still need to put in place, just having the segment doesn't really make it a strategy. We still need to make a choice of how we will serve this market, how will we win this market. Maybe let's take a bold bet and say, what's the value we provide? we provide white glove on-site inspection and car delivery services. So you might say this, maybe this is the winning move we believe will help us win this market. Who knows if it's right? So if we have this in place, the question is then still, okay, which metric would tell us that the strategy has worked? And the last thing we have to put into place is, okay, why do we want to focus on repeat buyers of cars?

1:00:01Essentially, the narrative might be this case, coming back to the example you gave is grow company revenue without losing margin by focusing on high-end markets. So maybe these are the three things that we have in place and we have a somewhat coherent strategy. Now, if we have this in place, okay, what kind of metrics could we set up here that tell us if this strategy has worked? Of course, on the one hand, we might, something simple. It's something like share of cars sold larger 100k. This would be an obvious one. We would also have something like average profit margin per transaction from German buyers.

1:00:42Could be another one. This should go up as well. Like we don't just want to have more cars, we want to sell them at a certain profit. We want to have, let's say, and to prove that the white glove thingy has worked, recommendation score larger 8 among German buyers of cars larger than 100k. So that's how we know we were able to be successful in the high-end market. These are some metrics we could put into place here to see, okay, has this strategy worked? What we want to avoid is we don't want to use generic metrics. We don't want to say something like increase in revenue or increase in inventory.

1:01:19These are great KPIs but these are not great OKRs you would use to execute the strategy because they could change through all kinds of stuff. You want metrics that are specifically tied to those strategy choices that you made. The strategy choice to focus on repeat buyers, the strategy choice you made on providing white glove on-site inspection and car delivery, and you want metrics that really tie to that. Because if these metrics don't go up, if they don't improve, then, well, then you made the wrong strategy choices and then you have to course correct and the game begins again. And so that's why it's a loop.

1:01:52After you come up with your strategy, you figure out what are these right metrics. You use those metrics to feed back into your strategy. Exactly. Because you mentioned the point of leading lagging. It's exactly the point. If I only look at generic metrics like increase in revenue, the problem is with these metrics, there's too much noise and too much delay for these metrics to tell me actually if this particular strategy has worked. And that's the difference between something like OKRs and something as generic as KPIs. Makes sense. That's how it brings things full circle. We talked about what is the point of strategy.

1:02:30We talked about why it's important to being able to say no to things as a result of your strategy. What are the different core questions you have to be able to answer? What kind of components, what kind of tools can you utilize to answer all of these potential parts of your strategy? how easy then is to really distribute them into different strategy frameworks and templates and whatever you want to use, and how vital it is to being able to flip them and do the stupidity flip to make sure they allow you to say no to things, how you can break things down like audiences or differentiators using very simple but incredibly effective tools, and ultimately how you have to make sure that strategy execution happens through specific metrics tied to those concrete choices of your strategy.

1:03:14What should some PM who has strategy work, they need to define the strategy for their next half in their product area, what should they go do on Monday after this episode? What they should do on Monday is if they have an existing strategy, I think the first important thing I would remind them to, the first thing I would encourage them to do is to do the stupidity flip or whatever they have in place at their strategy. Like, what are my choices about audiences, value proposition, differentiation, and are the opposites obviously stupid? So have I essentially not made a choice? That would be my first thing.

1:03:50And then depending on the result, I would encourage you to think about, can I break down the audiences much more? can I create, can I provoke focus through the audiences of my product strategy? And how does that influence the parts of value proposition and differentiation? And the third thing I would recommend to do is, okay, do I, if my current strategy has me believe that people come to me because of AI, please think again and think about people won't just come for AI to my product. instead what is it actually that makes people come choose my product and how can i use ai to leverage that reason much much more to have people keep coming back so let's say we're at fair mile and there's three people working on strategy at three different levels right there's the ceo probably defining a lot of these seven powers and core user group then there's like the head of product whatever they are vp of product or chief product officer kind of defining some of the more nuanced elements and then maybe let's say there's a pm who's sitting group product manager on buyer and then there's a individual icpm within the buyer experience who's focused on okay this is what the delivery experience is so if we think about those four these are four different people who probably can't all make these choices.

1:05:20Like if you are just that PM on buyer experience, how do you think about building your strategy? What do you inherit versus what do you kind of create yourself? Yeah, I love that. So a great concept that I always keep coming back to in this multilevel thing of product strategy, of course, is also from Ravi Mehta, is the product strategy stack, right? Where he talks about at the top, you have your mission, your company strategy, you have your product strategy in between, you have your roadmap, below you have your goals. And what you have to really think about is when you look at these levels, and I love that you used the word inherit, you have to think about each of these levels of strategy as like funnels.

1:05:59It's like a funnel you have to narrow down each level. So you mentioned you might have the company level, you might have a product strategy, maybe you have a level below. And you want to think about which choice from the level above can I just inherit the way it is. Like if the company says we're betting big on brand or SEO, I can probably inherit that very easily. If the company just says, you know, car people in Europe, if you're the head on the buyer side, you have to break it down. You will say, okay, what is the biggest leverage on the buyer side, the biggest segment we should focus on to really choose down here?

1:06:35And yeah, I think that's the core message I would give. Like look at the choice you have from the level above, does it allow you to say no yet already? Or do you have to break it down one level further? And the best concept I've heard about this, a friend of mine works at Personio, which is like Europe's largest HR software operating system. And when I talked to him for my book, he talked about an idea at Personio where people are encouraged when they think about product strategy to think about something that they call evergreen benefits. and evergreen benefits is essentially well what is something the company is already incredibly good at and how will you leverage it for your product and that's why it's a great example for me how things have to carry through through those different levels by saying what is the company already pretty good at and how do you leverage it because you don't have to reinvent the wheel on the product level or feature level if your company has mastered a certain distribution channel or has tech available or integrations in place.

1:07:37So it sounds like we kind of go back to that first fill in the blank statement slide that you had and you look at what of this have I inherited already? Where have people already made decisions? And then you apply the stupidity flip and you apply that does it allow me to say no for my area? And if you need more specificity, those are the places you're working in and figuring out this is our strategy. Exactly. And yeah, you can always run it back. Does it help me say no? If it doesn't, I have to narrow it down further. I have to make a more opinionated choice. And once you have an opinionated choice that really works, then you translate it into metrics to ensure it will actually be executed.

1:08:21So there's some component then, I guess, of strategy work where you might want to have an idea of what your roadmap choices are so that you can really sort through and say oh does this allow me to say no to these certain items? I think the the beauty is essentially I mean we all know it's an imperfect world but ideally I would say after you are clear on how does my strategy look like if I translate it into metrics the question you should be able to answer is what things... thank you Mauro... the thing you have to answer is okay which solutions and roadmap items will help me achieve these goals.

1:09:05So you should be able to map whatever is on your roadmap to the metrics that have resulted from your strategy. So you want to be clear to saying, okay, I'm going to build this, I don't know, I'm going to build a new detail page with a larger photo view of cars. And you might say, okay, does this help me get people on board to want to sell expensive luxury cars. And then the question is, well, what's the evidence for that? Do I have evidence that this is a problem of sellers of more than 100 ,000 K cars? So you want to be able, basically the metrics are your proxy link of your roadmap items back into your strategy to make sure that you have a narrative for, does the work I'm doing fit the strategy I set out to achieve?

1:09:54Amazing. Tim we could probably go another two hours on this topic this has been so insightful if people want to get more of you where should they go online the easiest way is to say hi on LinkedIn you will find me there is Tim Herbig and alternatively you can check out my my weekly newsletter herbic.co slash newsletter where you get all the good stuff every week in your inbox it's one of the few newsletters I have been reading for years and years guys so I highly recommend it at the beginning of this video we tease if you want a free book if you want tim's real progress book here's what you have to do now okay it's a three-step process step number one you have to subscribe to my youtube channel and you have to comment on this video step number two you have to follow on apple or spotify podcasts step number three you take a picture of your comment and your follow on Apple or Spotify and you DM me on LinkedIn.

1:10:50So it's three steps. It's a lot of work. But the first five people who do that, I'll reply and say, what's your address? And we will send you the book. Tim, thanks for being here. Thank you so much for having me. It was a real pleasure. See you guys in the next episode. I hope you learned as much from today's episode as I did. If you can do one thing that's totally free that would help the show, it would be to check that you're following on Apple and Spotify podcasts. Check that you've left ratings and reviews on those platforms. Check that you're subscribed on YouTube. Leave a like and a comment on this video and then share it with your friends.

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