CHAPTER 4

STRATEGY

Connecting the Why with the How

Now that you’ve clearly articulated your vision, you need a product strategy to identify how you’ll achieve this vision. The story of microcredit illustrates the importance of connecting your vision to your product strategy.

In 2006, economist Muhammad Yunus and Grameen Bank shared the Nobel Peace Prize for pioneering microcredit with the vision that it would eliminate poverty. But as microcredit was commercialized beyond Grameen Bank, studies in recent years show mixed results. Not only was the take-up of microcredit lower than expected, but even for those who took the loans, the effects weren’t transformative in alleviating poverty. What went wrong? The vision around eliminating poverty was clear and purposeful, but it turned out that issuing microcredit wasn’t the right strategy for bringing about that change.

The fundamental assumption behind microcredit as the solution to poverty was that most poor people were entrepreneurs at heart. Yunus believed that the pain point for the majority was that they lacked the small amount of capital they needed and that if they just had access to credit, they could start small businesses.

Anecdotal case studies illustrated how a $20 loan, for example, allowed a woman to start a small business making cane baskets and expand into making cane furniture. It seemed that by rolling out microcredit on a large scale, we could lift entire communities out of poverty.

Thirteen years later, 2019 Nobel laureates in economics Esther Duflo and Abhijit Banerjee pioneered a scientific approach to economics. In their book Poor Economics, they argue that anti-poverty policy has often failed over the years because of an inadequate understanding of poverty. Their studies showed that in the case of microcredit, some of the core assumptions around poverty were flawed.¹

In planning microcredit as the strategy to address poverty, the assumption that most poor people are entrepreneurs was a generalization. Microcredit could address the needs of the entrepreneurially inclined, but it was never going to be the solution to all poverty. The assumption that access to credit was the pain point for most poor people was flawed.

The second major assumption about microcredit was that by investing in their business, borrowers could increase their income levels. However, just as some startups succeed while others don’t, not all borrowers saw returns from investing the microloan into their business. On average, the effect of microcredit wasn’t transformative.

Further, as any founder would attest, being an entrepreneur is all-consuming. Duflo and Banerjee’s research indicated that those who invested their microcredit into their business were spending more time on it. So even when the business was going well, the borrower no longer had the time to work a second job. The end result was that on average, their net income remained roughly the same.

Instead of being a solution to poverty, microcredit started to become a problem when it was commercialized beyond Grameen Bank. Many social entrepreneurs saw microcredit as an opportunity to build personal wealth while alleviating poverty. For example, Compartamos Banco, a Mexican bank, went public in 2007, and SKS Microfinance in India raised $358 million in an initial public offering.

These institutions focused on optimizing for financial metrics, and the vision behind microcredit became disconnected from the strategy and execution. When Grameen bank offered microcredit, the organization invested in educating borrowers on financial literacy and the effects of compound interest. In contrast, companies commercializing microcredit focused on aggressive marketing and debt collection.² Without financial literacy, borrowers didn’t understand the implications of compound interest and often took on more debt to repay existing loans. While companies viewed loan repayment as a measure of success, in reality, many borrowers were stuck in a cycle of increasing debt.

The final nail in the coffin for microcredit came when the companies commercializing microcredit increased interest rates to increase profits. This move effectively changed the business model of microcredit, putting it in direct conflict with the goals of the people it was supposed to help. A higher interest rate also led to a thriving loan-shark industry. It eroded trust with borrowers who felt like the companies were taking advantage of them and stopped paying back their loans, taking the microcredit industry to the verge of collapse.³ Yunus, who once saw microcredit as the solution to poverty, sharply criticized how the model evolved to essentially profiteering from poverty.

The example of microcredit illustrates that even when driven by a radical vision, a product can go awry in the absence of a cohesive strategy.

In the RPT way, product strategy means asking the following four questions with the mnemonic RDCL (pronounced “radical”):

1. Real pain points: What’s the pain that triggers someone to use your offering? In the case of microcredit, the assumed pain point was that most poor people were entrepreneurs who needed access to capital to start or grow a business.

2. Design: What functionality in your offering solves that pain? Microcredit was designed as the solution for the pain point above so entrepreneurs could lift themselves out of poverty. Duflo and Banerjee showed that while microcredit was helpful for some entrepreneurs, it wasn’t the right design for solving poverty. Their scientific approach to understanding the problem of poverty showed that real pain points and design cannot be based on assumptions alone—they must be validated in reality.

3. Capabilities: What capabilities or infrastructure do you need to deliver on the promise of the solution? For microcredit to work, Grameen Bank invested in financial literacy for borrowers. Companies commercializing microcredit invested in a different capability: aggressive marketing and debt collection. Their capability wasn’t aligned with the design or the real pain points and microcredit took a turn for the worse.

4. Logistics: How do you deliver the solution to your users? Aligning a sustainable business model with the real pain points, design, and capabilities was important to Grameen Bank, so it charged low interest rates and kept costs low by having staff live in dorms. Companies commercializing microcredit raised interest rates, and the logistics of the business model became disconnected from the vision and strategy.

When our real pain points, design, capabilities, and logistics aren’t aligned with the vision, it can spell doom for our product, like it did for microcredit.

HOW TO CRAFT YOUR OWN RDCL STRATEGY

A good product strategy must comprehensively address RDCL and be grounded in reality by testing any assumptions. You can use the RDCL strategy canvas in figure 2 and follow these four steps to document your own. This canvas is also in the Radical Product Tool Kit, which you can download from RadicalProduct.com.

Step 1: Discover Users’ Real Pain Points

To create the change you envision through your product, people must engage with your product. This, in turn, requires a deep understanding of who needs to interact with it and what pain points they are trying to solve when they turn to it.

Looking back at the case study of Lijjat, we see that the organization has given financial independence to 45,000 women because the founders deeply understood the social conditions of the women they wanted to empower—they understood the real pain points.

To arrive at real pain points you need to identify who will use your product and understand the pain that makes them engage with your product. What are they trying to achieve?

The founders of Lijjat never intended to empower all women. They were specifically addressing the needs of women in low-income households who wanted to earn a living but whose job prospects were grim because they lacked education. Most of these women lived in a profoundly entrenched patriarchy that required them to be mainly at home and be caregivers for children and elderly parents living with them. They could take a job only if the family approved of it, which in turn would be possible only if the women were able to work from home and meet their caregiving obligations. Lijjat was able to change the lives of so many women because its operational model was based on a deep understanding of these real pain points.

How can you apply these lessons in defining your target if your customers are other businesses? Describe your target customers and their pain in detail. For example, in my conversation with Jana Gombitova, product manager at Akvo, a not-for-profit technology and data tools company, she could have described her target market as IT leaders. Instead, as a Radical Product Thinker she described her target market as “IT leaders in governments and NGOs [nongovernmental organizations], most often in remote areas, who want to get better at data-driven decision-making but don’t have in-house expertise in data analytics.”

It’s tempting to define your market broadly. But products that try to do everything for everyone risk working for no one. Founders often worry that being too specific about their target customer segments will limit their potential market size. This worry is understandable—it’s important to think of your future expansion trajectory. However, if you can’t drive initial adoption in a small population of well-targeted customers, that future you’re preparing for will be moot anyway.

In defining your target customers and their pain points, it’s important to verify that a pain point is real. The RDCL acronym is conveniently pronounced “radical,” but Nidhi Aggarwal, Geordie Kaytes, and I chose R for “real pain points” (instead of P for “pain points”) very deliberately. To be real, pain points must be validated. Microcredit went wrong because the pain points pursued were not validated. If you do not validate the pain points, the rest of your strategy is built on a shaky foundation.

To be validated, a pain point must be both valued and verified. Here’s an easy-to-remember formula:

Validated = Valued + Verified

For a pain point to be valued, your user must be willing to give up something in exchange for having the problem solved. This exchange can be in the form of a fee to use a product that solves the problem. But even in the example of free products such as social media, the user is giving up privacy and time in exchange for using them.

If the pain point is not valued, monetizing your product becomes hard. In the startup ecosystem, the common refrain goes “First get traction, then think about monetization.” The inherent risk with this approach and ignoring whether users value a pain point is illustrated by the following example.

Medium, a blogging platform founded in 2012, raised $132 million in venture funding over a period of eight years. Yet it was never clear who would pay for content on the site. The platform’s initial growth was fueled by quality content created by writers who were paid from Medium’s war chest of funding. However, as it became clear that this wasn’t a sustainable strategy, the company made several failed attempts at an ad-based business model before finally settling on charging users a subscription fee of $5 per month. However, Medium had never validated that users valued its “well-researched explainers, insightful perspectives, and useful knowledge with a longer shelf life” enough to pay for it.⁴ A Nieman Lab article in 2019 described the first seven years of Medium as “countless pivots” and “an endless thought experiment into what publishing on the internet could look like.” In other words, Pivotitis.⁵ In 2020, Medium was still not profitable.

In addition to being valued, to be real, a pain point must also be verified. Have you observed that others feel this pain, or do you assume that customers have this need? This verification is especially important if you’ve felt the pain personally—scratching your own itch can be a powerful vision motivator, but you have to confirm that others share that itch too!

Jeremy Kriegel, a UX designer I’ve had the opportunity to work with on several occasions, shared with me his experience at a medical startup. The founder was a doctor and was sure that the solution he had developed for note-taking was exactly what doctors wanted. After all, he himself was a doctor and he would have used it. Only after observing other doctors did he realize that his pain point wasn’t the same as others’. Kriegel shared his lesson from this: “To verify that the pain point is real, you must start with a crack of doubt and the feeling that maybe, just maybe, you’re wrong about what your user needs.” This crack of doubt is the basis for your research.

Esther Duflo and Abhijit Banerjee found that governments and NGOs are often so sure about their assumptions on poverty that they forget to test these assumptions scientifically. Microfinance fell into this same trap. The techniques and best practices for interviewing and observing users are out of the scope of this book, but you can look to Interviewing Users by Steve Portigal and Just Enough Research by Erika Hall for practical tips and techniques for user research.

Once you’ve identified the target customer segments and their validated pain points, you can begin to prioritize them. In developing a new product, especially a radically innovative one, chasing multiple customer needs across different customer segments will drain your resources and slow your progress toward achieving your vision. It’s unlikely that you could address all pain points at once: by acknowledging this and prioritizing pain points, you’re giving your team an actionable strategy.

Step 2: Design Your Radical Product

Design helps you solve your users’ pain by answering these questions: “What are they interacting with to solve their pain?” and “How do they feel when they interact with your product?”

Ever since Steve Jobs gave us the delightful phrase “Design is how it works,” design has played an increasingly big role in product strategy. However, beyond some basic principles, it’s difficult to say what constitutes a “good” design for your product.⁶ It’s easy to evaluate design in hindsight: were your customers able to use your product easily and did it make them happy? However, these questions don’t necessarily do you any good when you’re trying to figure out how to design it in the first place.

The Radical Product Thinking answer to “What is good design?” is relatively straightforward: a “good” design is one that fits into and advances your overall strategy. When we talk about how a product is “designed,” we are talking about how we can intentionally shape how people use our product (the interface) and how they perceive it (the identity).

Interface design is how you expose your product’s underlying capabilities to your users. When paired with an enabling capability (such as data, expertise, or algorithms), the details of an interface are often called features.

One feature of Lijjat’s operational model is that women roll pappadums at home. If the women had had to work at a factory, they wouldn’t have been able to meet their responsibilities as primary care-givers and their families would not have been supportive of their work. Without this feature, the organization would have engaged very few women.

Another key feature of the design is that women get paid every day for the pappadums they roll—this enables them to influence day-to-day household spending. By contributing to daily income and being able to influence daily spending, they develop confidence and have a voice in directing household income toward their children’s education. These features reflect the deep understanding of the real pain points.

We’ve come to think about interfaces as the visual user interface for a product. But your user might interact with your product in several different ways. For example, if you go to your bank to deposit a check, the interfaces you experience include the physical interface of standing in line to wait for the teller, the human interface when you speak to the teller agent, and a paper interface in the form of the paper deposit slip that you fill out.

To discover all the interfaces for your product, start by understanding the motivations of your end users and what they’re trying to get done. What features would support users in accomplishing their goals?

Do not get stuck in the tasks that users are doing today to get the job done. For example, if bank users’ motivation is to deposit money in their accounts, a bank that is trying to optimize the status quo might make the waiting area more comfortable so users can have a seat while waiting for their turn. Instead, focusing on the motivation allows us to rethink the design. We must ask the question, “How do we support users in what they’re trying to get done?” In this example, a bank could support tech-savvy users trying to deposit their checks by allowing them to accomplish this from the comfort of their homes through an app.

In addition to thinking about how users interact with the product, in designing a product we have to think about how users perceive the product and how it makes them feel.

The look and feel of a product are often treated as if they are unrelated to solving customers’ actual problems. In fact, the visuals, voice, and overall feeling of the product can have a dramatic impact on your product’s usability: UX researchers at Nielsen Norman Group have found that beautiful products are given higher usability ratings than they “deserve.”⁷

Beyond aesthetics, matching your product’s voice and tone to your customers’ expectations is critical. This can greatly affect the desirability of your brand, impacting both buying decisions and day-to-day usage in the same way that visual design can.⁸

The importance of a product’s design identity doesn’t mean you should strive for form over function. It just means that for maximum impact, your product design should take into account the humanity—social, emotional, even irrational—of your users, prospects, and customers.

Lijjat’s design identity takes into account how member sisters want to be perceived. Beyond earning a dignified living, member sisters want to feel self-reliant and valued as members of society. Lijjat has developed educational programs for member sisters, providing literacy and basic financial skills to them. These programs are designed to address their identity needs so that when women educate their kids, they themselves shouldn’t feel left behind.

To work through the identity of your product, start by looking at the real pain points you have identified, and consider the following questions:

• What emotions are your users experiencing when they face these pain points?

• Given those emotions, how should using your product feel? Exciting? Relieving? Fun?

• What can you do with visuals, audio, text, or other experiential aspects to create these desired feelings?⁹

Defining the “right” design for your product’s interface and identity is a strategic task. You should leave the actual designing up to expert designers, but if you provide them with the right strategic guidance, you are much more likely to end up with a marketable product that effectively solves your users’ pain points.

Step 3: Define Your Capabilities

Defining the capabilities in your RDCL strategy means answering the question, “How will you deliver on the promise of your design?” You can think of your design as the body of your car—it’s both form and function. The design includes the unique look and the curves of the exterior of your car. It also includes function—it’s the number of doors your car has, the finish of the seats, and how much space you have in the back. Design determines how you interact with your car on an everyday basis. Capabilities are what lie under the exterior: they include the engine, the electronics, and all that powers your car.

If you’ve ever fundraised, most likely investors have wanted to know, “Why are you the right people to deliver this solution?” They’re essentially asking you about capabilities. Capabilities are the special sauce you have (or need to develop) in your organization that powers your design.

Your capabilities can be tangible, such as data, technology, architecture, and infrastructure, or intangible, including relationships, partnerships, and processes.

An example of a tangible capability at Netflix is its viewership data, which powered the company’s recommendation algorithms. Competitors didn’t have a similar volume of viewership data to replicate the accuracy of Netflix’s recommendations.

A tangible capability that was key to Netflix’s success in its early years was the iconic red envelope it used to ship DVDs to customers. This simple envelope looks trivial, but it represents one of the earliest patent applications Netflix filed, and it powers the company’s design of shipping DVDs to consumers and processing returns.¹⁰

The post office typically processes and stamps 40,000 standard size envelopes an hour in crushing metal drums—a DVD would be easily damaged by this violent treatment. Envelopes classified as “flat mail,” however, are spared this treatment.

The patented red envelope is a tangible capability Netflix developed so its DVDs could be mailed at the price of one first-class envelope and be classified as flat mail.

Your design could also be powered by intangible capabilities such as trust or relationships. When Airbnb was started, its founders realized that to deliver on the promise of their design (a marketplace where anyone could offer or rent temporary accommodations), they needed both guests and hosts to trust the platform. Consumers are accustomed to seeing reviews before making a purchase. But when Airbnb was starting out, it had very few users and, as a result, very few reviews, which in turn made users hesitate to try it out.

To break this vicious cycle, Airbnb needed to invest in an intangible capability: getting consumers to trust the listings on the website by having someone from Airbnb visit the properties listed and take high-quality pictures to verify the claims in the listings. This wasn’t sustainable in the long run but was part of a strategy to increase trust in the system until the review mechanism was self-sustaining.

Capabilities lie under the hood and power the design. When you’re driving your car, you enjoy the feeling of the ride, the bass on your sound system, and the seat warmers on a cold night. But you rarely ever think about what’s under the hood—except when your car doesn’t turn on or starts coughing.

The design should abstract the capabilities so that users can enjoy their experience through the interface and how the product makes them feel rather than worrying about what’s under the hood. Your users should experience only the design. But capabilities enable you to uniquely deliver on the power of your design.

Step 4: Define Your Logistics

Defining the logistics means answering questions about the customer experience surrounding product acquisition—that is, the path that your product takes to your customer. Our traditional definition of product as the hardware or software we deliver often leads us to overlook the logistics component of strategy. When product is defined as a physical or digital object, we focus narrowly on building the object—elements of the product experience such as installation, pricing, and support become afterthoughts.

If you were building a house, you’d think about pricing and maintenance as integral to the design. For example, for a family with kids, you wouldn’t build a family room with white carpet. If you were developing a property to rent out, you’d pick different appliances than for a house you planned to live in. When you think of your product as a mechanism for creating change, your pricing plan, support, training, and maintenance become part of your comprehensive strategy and guide your decisions.

Here are some questions you could consider to define the logistics for your product:

• How does your product get into people’s hands? Through what channels will you sell it?

• On which platform will they be using your product—for example, is it a paper-based form or an app on their mobile device or a web page that they’ll primarily access from their desk?

• Will people need training in how to use your product? How will you support them if they have issues?

• What’s your pricing and business model?

It’s important that the logistics for your product are aligned with the real pain points for customers. Often companies try to layer on popular approaches to pricing or delivery that are favorable to them, even if they are not particularly well suited for the specific product or the customer. For example, the recurring revenues from a subscription pricing model make it tempting to impose subscriptions on every product. As a result, sometimes products that may be perfectly suited for one-time payment get unnecessary features tacked on to justify a recurring pricing model.

Juicero illustrated the danger of this approach. Consumers would typically expect a juicer to be a one-time purchase of a kitchen appliance. However, because a subscription model was more attractive to the company, Juicero’s product wasn’t designed to squeeze fruit. Instead, it slowly squeezed expensive juice pouches that the user had to purchase on a subscription basis. While this model was doomed for failure, the product died an accelerated death when a viral YouTube video illustrated that a person’s hands could squeeze these pouches more efficiently than the Juicero “juicer.”¹¹

Logistics can, if used strategically, help differentiate your product from your competitors, and should be an important consideration from the inception and development of a product. Defining each logistics element with your sales and marketing teams upfront is a great way to align the product strategy with the go-to-market plan.

THE ROLE OF ITERATION

Instead of being iteration-led and finding local maxima by optimizing for financial metrics, a good RDCL strategy helps you stay vision-driven by anchoring your iterations around the real pain points your users face, your solution to these, and your business model to support it.

The abundance of credit during the economic boom of the 2010s led to an overreliance on iteration. We often had the luxury of trying what works without a comprehensive strategy that answered the four RDCL questions. But now that you understand the importance of a RDCL strategy, you see why it’s hard to arrive at the right answer to each of the four questions through iterations alone.

You can iterate more efficiently by thinking through the RDCL questions and validating assumptions through observing and speaking with your users. In crafting your RDCL strategy, do not expect to get all the answers right the first time but rather to put a stake in the ground based on what you’ve researched. You’ll then need to test your strategy against reality.

This is where iteration comes in. You can iteratively test and improve on the RDCL strategy you crafted. Through your execution and measurement, you’ll test how well your design is working to address the real pain points. You’ll refine the capabilities that help you deliver on the promise of the design and improve how you deliver the solution to your customers through logistics. Just remember to regularly review your RDCL strategy to update it based on the learnings from your iterations. Your RDCL strategy is the bridge between your vision and your tactical activities.

In the next chapter we’ll learn how to prioritize tactical activities in a way that aligns with the vision for the change you want to bring about. It’s an approach that you’ll be able to use more broadly in your organization to balance progress toward the long-term vision against the reality of your everyday business needs.