Key concepts every Product Owner must understand

Let's take a look at some key concepts every Product Owner should understand:

Manage options

As Product Owner, you receive ideas for things that your product could do. Each of them is an option of something that could be done.

There's usually a flood of ideas, some are better, others worse. You need to sort them through, typically by ordering them in a backlog.

You choose the ideas: Good ideas, bad ideas - big ideas, small ideas. Your call.
As far as possible, avoid promises to anyone - they reduce your freedom of choice.

Each of those ideas requires you to make a certain investment in order to turn it into a Product.
That investment is, first and foremost, money. You need to secure this investment, lest your idea dies before it is realized. That's funding.

Spend to Gain

As Product Owner, you have a development team doing the work of making ideas happen. It's not important for you how they do this. That's what they are experts for. What matters for you: what they work on, and in which order.

Your team has a finite capacity - how much work they can do per time. If you feed more ideas to the team than their capacity, they won't get all of them done. So choose wisely how you want to use this capacity.

Development work is fuelled by money - salary, infrastructure, you name it. The rate at which your team spends money is your burn rate. There's a one-way correlation between burn rate and money - a slight reduction in burn rate often significantly reduces capacity, while an increase in burn rate often has no predictable influence on capacity.

With a stable team, your burn rate is constant. Once you know your capacity and burn rate, you can figure out an approximate investment required for an idea. Your estimates will usually be wrong, and  a better crystal ball will only reduce your capacity.

Outcome Focus

The Return on Invest is how much money you made off realizing the idea. Oftentimes, it's elusive (you can't really know at all), and usually it's entire guesswork before you're done. So keep the investment low until you actually see this Return on Invest and turned an assumption into hard cash.

Look for small product increments that allow you to generate a constant flow of value.
Don't get blinded by big numbers: It's better to get $100 every month, starting tomorrow - than to get $5000 once, two years from now. There are many reasons for that - the biggest one being that you can't know if you'll get that money until you did.

Entrepreneurship

You must compare your Return on Invest (ROI) with your Investment. Let's assume it's your own business. You'd understand immediately that if the ROI is lower than your investment, and if your cash flow is worse than your burn rate - it's just a matter of time until you have to foreclose.

And that's exactly what a Product Owner needs to do:

1. to ensure that the product generates a positive Return on Invest, by eliminating bad ideas and prioritizing good ones.
2. to ensure that there's a positive cash flow by feeding a constant stream of ideas that can be realized with a controlled investment before making a "pivot or persevere" (build something else or more of the same) decision 
3. to prioritize ideas against one another, by figuring out which ones promise the best Return on Invest

Your job

First and foremost, you have to understand money to be a Product Owner.

The development work is the experts' job. Even on prioritizing and formulating ideas, they could be the experts. 

As long as the ideas the development team realizes result in an overall positive cash flow, the team can continue and grow - the business is healthy. And that's your job. Everything else, you can delegate.

A fictional scenario

To employed Product Owners, I like to give this thought experiment:

Imagine that you were on a bazaar.

1. You can buy the product for the investment required.
2. You get the product delivered after the development time has elapsed.
3. You can sell the product for the ROI it generates in your organization. 
4. The difference is your income.

Would you build the same product?