Even among experienced product professionals, a common misconception in business holds that product strategy and business strategy mean the same thing. They don’t. Product professionals need to understand the distinction between business strategy vs. product strategy. Knowing how these two spheres of strategy differ and how they fit together plays a role in your ability to build successful products and articulate a clear product vision.
Business Strategy vs. Product Strategy: The Key Difference is Granularity
We’ll get into the details about business and product strategy below. For now, though, the critical concept to understand is that the distinction comes down to granularity.
A business strategy sets the company’s approach at the highest levels—the vision, the playbook, the boundaries. The product team must then develop and execute its product strategy within those boundaries.
How Business Strategy Shapes Product Strategy: A Quick Example
Imagine a software startup. The founders choose not to take any outside funding: no angel investors, venture capitalists, or business loans. Instead, they fund operations from their bank accounts. The founding team sees long-term value in not having to make decisions based on the demands of outside owners. But in the near term, this aspect of their business strategy will place important limitations on the product strategy. Here’s one example.
Business strategy: Ramp up revenue as quickly as possible.
Product strategy: Roll out an aggressive marketing campaign—and limit the free-trial period.
With limited funding, the startup will need to generate revenue quickly. The company cannot take the patient approach of giving away its app to users for extended periods. Nor can it rely on the product-led growth model—allowing the product to sell itself and counting on users to find it on their own.
Product-led growth can be a great way to build a business. But it works only to the extent that the organization has the time and money to wait for organic customer adoption.
Cloud communications leader J2 Global takes the patient approach with its virtual phone solution, eVoice. The company lets users try eVoice free for six months. J2 can afford to do this because the company’s other products—such as eFax—provide a solid financial foundation.
Our hypothetical startup does not have the payment from other products, or any outside funding, to support the ramp-up in revenue of its new app. In other words, the company’s business strategy of self-funding dictates essential elements of the product strategy.
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A Closer Look at Each Strategy
What is a business strategy?
Business strategy is about establishing the company’s objectives and setting out a comprehensive plan to achieve them.
Who sets a business strategy?
The senior leadership team is responsible for establishing the business strategy and communicating it across the organization. The product team will need this context, for example, to create a product strategy that supports, rather than conflicts with, the business strategy.
What does a business strategy include?
The details that make up a business strategy will include the answers to questions such as:
- How will the company be funded?
- What will company culture look like? For example, will the team be office-based or remote?
- Will the company sell through an in-house sales team or create a self-serve purchasing process?
- Should the business build a corporate brand or instead brand each product?
- Does the company want to build awareness through paid advertising, earned media, or a combination?
- Which key performance indicators (KPIs) will the business focus on? Revenue, market share, trial downloads, customer acquisition, customer retention, etc.?
What is a product strategy?
Product strategy is a high-level plan outlining what the company hopes to achieve with its product and how.
Who sets a product strategy?
In a brand-new company, the founding and executive team will set the product strategy. But in a going concern, the product team is responsible for establishing product strategy and communicating it across the company.
What does a product strategy include?
Developing a product strategy will involve answering questions such as:
- Who are our crucial user and buyer personas?
- What challenges do our prospective users have that we can help them solve?
- Will we create a freemium model, offer a trial-download period, sell through an assisted sales force, or a combination?
- Do we want to mirror some of the popular functionality in our competitors’ products or build a completely different feature set?
Will we build and release our products using the agile product management framework or the waterfall approach?
Why Business and Product Strategy Must Align
A successful company needs both a business strategy and a product strategy—and the business strategy should come first. As Annie Dunham, ProductPlan’s VP of Product wrote in an article for ProductCraft called How to Maintain a Coherent Product Roadmap, “Objectives should always come before strategy.”
The ideal process works like this: The executive team sets a business objective of X. Then, the product team helps to achieve that goal using product strategy Y.
Annie notes that product and business strategies need alignment. As she explains:
“To me, this means establishing a repeatable, communicable process for very clearly tying product strategy to business strategy, and clearly defining the associated metrics that will indicate success BEFORE creating your product roadmap.”
Read Annie’s new book: IMPACT: Spark Your Product Success with an Impact-First Focus
The need for alignment between business and product strategies becomes more evident when you see what can happen when they are misaligned. Here are two examples of how this can lead to big strategic problems.
1. Trying to sell an enterprise product with a self-serve sales process.
Imagine a SaaS company that makes a file-sharing app for individual consumers. The product team wants to create a more sophisticated version of its product for the enterprise market. But also imagine that the company’s existing business strategy is to use only an online buying process. The business has no sales team.
If a SaaS app maker wants to sell subscriptions one at a time using a self-serve model, that can work. Most people are used to signing up for software without having to talk with a sales rep.
But enterprise technology buyers are different. IT decision-makers at large corporations prefer to have deep-dive discussions with technology vendors before making large purchases of those vendors’ products.
Suppose a business spends $100,000, or $5,000,000, buying thousands of app licenses. In that case, that enterprise customer will have many questions about support, functionality, and security before buying.
The misalignment here between business and product strategy creates a real problem for the enterprise-app initiative. In this scenario, one of two things must happen:
- The product team must persuade the executive staff to build a sales team to handle enterprise accounts.
- The product team will need to find another initiative to focus on—such as targeting an adjacent market with its single-license product.
2. Trying to outsource support for a product that needs more hand-holding.
Now imagine a tech company whose executives decide not to build an in-house customer support team. Instead, they opt to outsource product support to a third-party company.
If the product team doesn’t consider this support issue when they build their product, this could lead to frustration and terrible product experiences among users. The more complicated the product, the more of a risk this will be.
It won’t matter how much the product team trains the third-party support firm, either. That company’s call center agents will also be taking calls from users of many other clients’ products. They can’t possibly be as well versed on this company’s app as an in-house support team would be.
Knowing their executives’ business strategy established a less-than-ideal customer support operation, the product team will need to develop its app accordingly. That will mean, for example:
- Making the product more user-friendly.
- They are building in-app training tools to make the onboarding process more accessible.
- Publishing helpful support materials for users, such as video tutorials.
Conclusion: Tie Your Product Strategy to the Business Strategy
As a product manager or product leader, you won’t have control over your company’s business strategy. Moreover, that playbook, those boundaries, will outrank your product strategy and might constrain your team’s ability to do everything you want with the product.
As ProductPlan Co-Founder Jim Semick explains in his article—Help! I’ve Been Handed a Bad Product Strategy—it’s not uncommon for a product organization to find itself stuck with a product strategy they wish they could amend. Sometimes the problem lies with an earlier product team. Consequently, other times the issue is a conflict with the executives’ business strategy.
3 tips for making your product strategy work for your team
- Persuade your executive team to adjust their business strategy based on evidence that doing so can help make your products more successful.
- Adjust your existing product strategy to let your team take the strategic steps you want within the confines of your current business strategy.
- Lastly, understand that your product strategy exists to support the business strategy, that that business strategy limits your team’s options, and that you aren’t responsible for everything.