How a Product Manager Can Shift to Business Thinking

In my work, I often notice that product managers tend to focus on individual features and do not know how the business they are creating the product for works. In this article, I want to explore how product managers can develop a business-oriented mindset, and why it is important.

Let's start with the question "Why?". Why should a product manager care about how the business works?

Here is an example from my experience. As a hiring manager, I’ve conducted many interviews for product manager roles. During the interview, I often ask a version of the same question: “How would you improve product N?”, where I use different products, depending on the situation.

The answer to this question perfectly shows the level of the manager. Juniors and mid-level managers often open a website and start listing features — here you need to add a filter, here change the call to action on the button. Seniors and lead managers first ask themselves — Who are the users? What challenges are they facing? and How can I solve their problems? The former fail the interview and remain in their position for a long time. The latter — grow and constantly improve.

Without understanding how a business operates, product managers cannot grow and improve in their profession.

What is Business Thinking

What is business? I formulate it this way: Business is solving real problems of users or creating new opportunities for them, and making a profit from it. Business Thinking means understanding who your users are and what their needs are, knowing the goals of the business and how it works.

User is a king

Let's start with users. Why is it essential to know your users and understand what problems and needs they have? The answer is simple — if your product does not address a real problem or task, then users simply will not use it and will go to competitors.

How do you get to know your users? Probably everyone has already said that it is important to talk to your users through UX research, deep interviews, and A/B testing. I also suggest looking at your users through analytical lens. Divide users into groups by frequency of use and identify a core group. Understand what distinguishes it from others and whether other users can be transferred to the core category. Or you can segment users by geography and use cases, then focus on one group and build a product for them. In this case, you need to keep in mind that the group should be large enough, with potential for scalability.

Goals and KPI-metrics

The next step is to look at the goals and KPIs of your product. As a mid-level PM, I repeatedly found myself in this situation — I was working on a feature, my team and I argued about it for a long time, polished it, and it seemed to me that this was the best feature in the world. We launched an experiment and saw that the product metrics at best remained at the same level, and most often even fell.

Why did this happen? Because when working on a feature, I focused on a metric only for this feature and did not build a connection between this metric and the KPI of the entire product and business.

How to fix this? Start by understanding the KPIs of your product. As you grow in your role, you’ll have more influence over these KPIs, but even at the beginning, you need to know what they are. Break down these metrics. For instance, GMV (Gross Merchandise Value) — is the total value of goods or services sold. GMV can be broken into average order value and the number of orders.

For each feature that you are thinking of, you need to conduct a thought experiment, estimating whether its launch will affect the key business indicators or not. It’s not easy — more than half of what you come up with will not affect the KPI metrics in any way, but this is the only way you can develop a sense and understand what works and what does not.

Understand the Business Model

The second important part of the equation is business. Remember, business is not only solving users' problems, but also making a profit. Few businesses can survive without making money, or it is unlikely that it can exist for long enough. To contribute meaningfully to growth, you need to understand how your business operates. Start with the basics of your business model by answering four key questions. Let me mention that the answer to these questions will not give you a complete understanding of how the business works, but it will allow you to push off and start to understand it.

Let’s break this down using a taxi service as an example:

• Who is our target audience? Two key groups—passengers and drivers.

• What are you offering them? Reliable and convenient rides for passengers; earning opportunities for drivers.

• How do you create value? Developing a mobile app, investing in marketing, and providing solid support.

• Why do you make money from this? Earning commission on each ride.

  
  

Know Your Competitors

We talked about the importance of solving real user problems (or creating new opportunities for them), and that you need to understand how your business makes money, but this is not enough to move to business thinking. It is also important to remember about competitors. A rare service exists in a vacuum and is the only one. Even if you don't have direct competitors, you most likely have indirect ones — services that solve the same user problem as your product. To grow, you need to keep an eye on what your competitors are doing.

How to do this? The easiest way is to use your competitors' services by yourself. When you use different services, you need to ask yourself — What are the strengths and weaknesses of my service compared to them? It is also important to read reviews in stores to understand what users like and don't like. And read competitors' blogs to understand in which direction they are developing their product.

Beyond the Product

Finally, I would like to talk about going beyond the product. People often say that a product manager is a mini CEO of a company. But this is only true for those product managers who think of their product as a business. And business is not only revenue, but also people, costs, risks, and other not very pleasant things, such as lawyers.

To truly switch to business thinking, you need to look beyond the product:

• Understand what costs your product has, is it profitable or is only planning to break even, and if so, when?
• Learn how development resources are allocated. Can you influence this distribution? If you get more resources, would you be able to do more or faster?
• Collaborate with marketing. Know their strategy, target audience, and acquisition tactics. When product and marketing are aligned, results are better.
• Dive into operations, especially in online-to-offline services where offline experiences significantly impact user perception.
• Learn more about legal risks. This is something that can one day close your service entirely, so you need to build a relationship with legal teams, know about legal risks and be able to work with them.

The Shift to Business Thinking

To summarize, business thinking involves:

1. Understanding who your users are and what they need.

2. Knowing your business goals and key KPIs.

3. Understanding your business model.

4. Monitoring your competitors.

5. Going beyond the product.

   
   

In conclusion, I would like to share the results of my experience. Before implementing this approach, my backlog was filled with bugs and untested ideas. After that – I began to create a product that solves real user problems and brings profit to the business.