There is a long-simmering debate in the product management community revolving around product managers and P&L statements. Do product managers really need access to the product P&L statement? Does each product line need its own P&L statement? Should product managers “own” the P&L and be the CEO of their product?
Where Did It All Begin? The Neil McElroy Memo
Neil McElroy was an executive with Procter & Gamble. As a junior executive managing the advertising campaign for P&G’s Camay brand of soap, McElroy wrote a famous 3-page company memo that laid out the principles of modern brand management. In the memo, McElroy argued that companies should assign a separate marketing team to each individual product brand as if it were a separate business. This innovative system of brand management would eventually be adopted by consumer product companies all throughout the U.S.
McElroy became Secretary of Defense in 1957 under Eisenhower. He also advised Stanford University where he had a significant impact on two entrepreneurs – Bill Hewlett and David Packard. “They interpreted the Brand Man ethos as putting decision making as close as possible to the customer and making the product manager the voice of the customer internally. In the seminal book The Hewlett-Packard Way, this policy is credited with sustaining Hewlett-Packard’s 50-year record of unbroken 20% year-on-year growth between 1943 and 1993] This approach became the foundation of tech product management.
The Debate Accelerates
In 1998 Ben Horowitz, of Opsware and Andreessen Horowitz fame, penned a piece entitled “Good Product Manager/Bad Product Manager” where he asserted:
“A good product manager is the CEO of the product. A good product manager takes full responsibility and measures themselves in terms of the success of the product. They are responsible for right product/right time and all that entails. A good product manager knows the context going in (the company, our revenue funding, competition, etc.), and they take responsibility for devising and executing a winning plan (no excuses).”
Ben’s post was the launching pad for the belief that contemporary product managers should have access to their product’s P&L.
While Ben’s comments make a lot of sense, there was an inevitable backlash against the idea. Google “Product managers are not the CEO of their products” and you will only find about 1.8 billion possible posts that explain why.
Ale Carlos’ piece Stop saying Product Management is like being the CEO of your own product sums it up nicely”
“We have all heard this analogy about Product Management. Either on meet-ups or General Assembly, Lean Startup, Design Thinking or whatever your latest thing is, there is someone who will mention the awesomeness of being a product manager and how you get all this ownership and it’s like being a mini CEO. (Queue: young “product” guy with *** all over his eyes) To be true, yes product management is amazing, but please for the love of whoever you believe in, don’t say the CEO crap again. ( Actually I’m on a crusade to ban this.) There is something shameful for me on this line, maybe it’s the bragging maybe it’s the cynic in me (which coincidentally has increased since I got into Product Management).
In any case my objective is to clarify and dispel the notions of why Product Management is seen as a role where you, millennial, can be “the CEO”. At its best, this statement transmits in an extremely simplistic manner this very ambiguous and amorphous role and at worst it sets incorrect expectations to people who have never done the role and/or attracts the wrong people.”
The Ben versus the World debate boiled down to authority and control. CEOs have the authority and control to set spending levels, establish strategy, hire and fire employees, etc. Product Managers may influence these decisions, but they cannot make and execute the decisions themselves. As noted by a long-time product management executive ”Product managers inherit constraints that are set by the CEO or other executives in the company. A core challenge for product managers is to use their influence to optimize how all parts of the organization work together to achieve the product and company’s goals.”
Marty Cagan – A Third Way
Marty Cagan of the Silicon Valley Product Group proposes another way to resolve this debate. In his 2018 post CEO of the Product Revisited Marty states:
“I want [product managers] to be ambitious, and hungry, and I want them to be confident enough in their abilities to take responsibility for decisions, and I want them to understand they need to worry about all aspects of the business, but I also believe strongly in the importance of humility for a product manager, and I need to make sure they’re not thinking the title gives them anything beyond a shot at earning the respect of their team.”
“The key is that, like the CEO, the product manager needs to have a solid understanding of the many aspects of the business, and assimilate all of this information to make informed decisions.”
CEO of the Product Revisited
Marty points out what the schedule of a true product manager could look like over a two week period:
- a discussion with the legal counsel to better understand potential privacy issue
- a discussion with sales, marketing and finance regarding new pricing strategies
- a discussion with industry analysts around competitive landscape
- a discussion with sales and marketing around the capabilities of the sales channel
- a discussion with finance and legal about tax implications and considerations
- a discussion with marketing around alternative acquisition strategies
- a discussion with finance around costs, budgets and planning
- a discussion with business development around contracts and commitments
- a discussion with product marketing on launch timing and sales training
- a discussion with technology leadership on upcoming re-platforming efforts
- a discussion with the CEO on the status of specific reference customers
- a discussion with the data analyst on understanding some unusual user behavior
- a discussion with customer success on issues with the current product
- a discussion with the CISO about security considerations for a new effort
The Reality Check
One way to settle this debate is to do a little field research. Anytime there is a gathering of Product Managers, such as at any of the Product Camp events around the country, ask a room full of product managers a simple question: “Pull out your smartphones and bring up the latest P&L for your product line.” History shows that out of 100 product managers maybe 1 or 2 will have access to pro forma product line P&L information. Ask the same group of people to bring up a copy of the latest Sprint burndown chart for their team, and over half of them will be able to do so. If you ask them to bring up a summary of the latest sales pipeline for their product, at least a quarter will be able to whip out their Salesforce.com mobile app and show you something like a product line sales pipeline.
Pro Forma is as Good as it Gets
Most enterprises can track revenue at a product line level, but face significant challenges on the expense side. Some expenses, like commissions and developer headcount, are directly tied to a specific product. Many expenses, like customer support, finance, and HR support many products. As a result, the finance team must allocate these expenses amongst the various products. There are many ways to perform the allocations, but it is an exercise in pro forma reporting.
Product managers should be aware of how the finance team is allocating expenses to their product lines. Under/over allocation impacts the profitability of a product. This in turn may impact how executives decide to invest or allocate resources to a specific product line. Check out Why Product Managers Should Become Best Friends with Finance Team
Product Manager Financial Literacy
I have led product management teams for over 25 years. Many of the people that worked with me have moved onto senior roles like Chief Product Officers and Chief Operating Officers. One of the things I always stressed is that product managers should have basic financial literacy. They need the ability to read and interpret basic financial statements like Income Statements, Balance Sheets, and Cash Flow Statements to understand how their product contributes to the overall success, or struggles, that their company faces.
Product Managers do not need to have a Master’s level understanding of finance, but they do need to understand basic concepts like revenue, revenue recognition, deferred revenue, cost of revenue, operating expenses, amortization, and EBITDA. Product Managers need to be able to speak the language of financial statements, especially with senior executives. Financial statements are the lingua franca of executives – they might not understand the nuances of story points or planning poker, but they always can understand the impact a program or strategy has on the company’s financial condition.
Here are four articles that can help improve product management financial literacy:
Why Should Product Managers Care About Income Statements? There’s more to them than what they taught you in business school.
Why Should Product Managers Care About Balance Sheets? Deferred revenue and goodwill impairments could kill your product.
Why Product Managers Should Care About Cash Flow Statements? They cut through the complex nature of actual accounting
Why Product Managers Need to be Able to Read 10-K Filings. They’re a goldmine of data about customers and competitors
The product management P&L is a myth. If they do exist, they are most likely pro forma only. The debate over whether product managers are the CEO of their products was over almost as soon as it started. While some product managers eventually became CEOs like Susan Wojcicki| CEO, YouTube, Stewart Butterfield CEO, Slack, and Sundar Pichai, CEO, Google, today’s product managers are not the CEOs of their products. As noted earlier ”Product managers inherit constraints that are set by the CEO or other executives in the company. A core challenge for product managers is to use their influence to optimize how all parts of the organization work together to achieve the product and company’s goals.”
Also published on Medium.