You’re a solid Product Manager.
You discover customer problems and map them to fitting solutions with ease.
You rally cross-functional teams towards a shared mission, and manage diverse stakeholders like it ain’t no thing.
You qual, you quant. You iterate.
You’re the salt of the Product earth.
But how do you take it to the next level? What separates a good Product Manager from a great Product Manager? What pushes a mere advanced Product individual contributor on a path to an executive?
I’ll let you in on a little secret that separates the basic from the advanced.
Connect your art of building product to the art of building business. Level up your “financial intelligence”.
What Do I Really Need to Know?
The thing is, the world of business can be very intimidating. Over decades, the vocabulary of economics has evolved into a confusing mess. Acronyms, overlapping concepts, and scary-sounding labels seem designed to keep “normals” an arm’s length away.
But what they don’t tell you is that a lot of the core concepts don’t need an MBA to understand. Sure, the art of finance and economics has some scary corners and depths that requires quite advanced wizardry. But achieving business-literacy requires far less.
All it requires is taking an active interest, a tiny bit of basic math, and the tenacity to read a book or two.
Some basic things you should be able to master with a little bit of practice:
1. Learn to Read the Simple Bits of an Operating Statement (P&L) and a Balance Sheet
These are the terrifying-looking documents with tons of acronyms, scary words and numbers that publicly traded companies share quarterly. They always contain a ton of confusing line-items, like “non-current assets”, “amortization of intangible assets”, or “goodwill”. Followed by the one-two combo of scary acronyms like “EBITDA”.
The thing is, the main things in these two documents are quite simple. Especially for smaller companies. They just require some tenacity to decipher.
Being able to understand at least the fundaments of how well the company is doing is important. How is the growth? How are the unit economics (the viability of a single business transaction in isolation)? How much money is the company sitting on? How is their cash flow?
True financial wizards can derive incredible depths of information from a P&L and a balance sheet. But for us mortals it’s enough if we can get the highlight reel.
2. Don’t Let Basic Acronyms and Terms Scare You
ARR, FTE, COGS, ASP, YoY, TTM, OPEX, WTF, LOL, GTFOHWTBS.
While acronyms are nice and efficient, much like in tech, they’ve clearly taken over clarity in the language finance.
It takes a bit of time to learn to parse what these terms stand for. But doing so will remove a major hurdle and deterrent from being financially literate.
Don’t let them scare you away with them anymore.
3. Dig Into the Basic Concepts
Parsing the acronyms is just the beginning. You must also learn to understand at least the basics of what hides underneath them.
Sure, you don’t have to understand exactly what the D and A in EBITDA (depreciation and amortization) are in detail or how to account for them. But being able to draw a line from “top line” (revenue) all the way down through costs to it is essential.
Especially from a Product perspective, some concepts are of high value:
- Understanding the difference between CAPEX (capital expenditure) and OPEX (operational expenditure).
- If you’re in the SaaS / subscription space: Recurring revenue (ARR / MRR), net and gross (dollar) retention.
- Total Addressable Market (TAM) and Serviceable Available Market (SAM).
Don’t try to boil the ocean. Figure out what the meaningful terms are in your company and what variations are in use. Start there and expand your expertise little by little.
4. Get Comfortable With the ART of Finance
A surprising fact about finance is that it’s laced with assumptions, rough estimates and accepted inaccuracy. Or to put it a nicer way, “creativity”.
Learning to balance out what you know and what you don't know and bridging those into plans and models is a key part of finance.
This is a critical component of learning to bridge product to business. You need to know when perfect is the enemy of done and when a little bit of extrapolation and guesstimation is a-ok!
Cool, But How?
There’s an ocean of material out there online to dive into. But you’re a grown person and I’m sure you can use Google as well as I can.
Here are a few other tactics I’ve personally employed to inch my understanding of these things up little by little.
1. Read a Book
My personal hockey stick moment with this stuff was reading Financial Intelligence by Karen Berman and Joe Knight.
I can’t remember how I came across it, but I’m sure a trusted advisor recommended it. There are tons of similar books out there and I’m sure they all have their merits.
What I loved about this book was that it is written specifically for the non-financial manager in mind. It drills into a lot of the key concepts at the perfect depth. It doesn’t try to make you into an accountant or business analyst. It simply gives you the tools to navigate financial plans, models and documents.
If you have a favorite book of this nature, please say so in the comments.
2. Make a Friend
Guess what? Business folk like to talk shop just like the rest of us and they too love someone taking an interest in their craft.
Try to find a GM, an analyst, someone from Biz Dev or go straight to your CFO and show an active interest. If you’re lucky (and work in a healthy organization), you’ll find a willing guide to the wilderness of business in no time.
Some of my biggest break-throughs in understanding this stuff have come through observing business professionals practice their art. Even better, trying to contribute to the work under expert supervision.
If finance people are not into hanging with you, your next best bet is the sales department. They are usually very advanced in these topics and are always happy to make a Product friend.
3. Just F’ing Do It
Time to break out the spreadsheets.
Build a simple model. Forecast some numbers. Calculate some ratios. Open some financial docs and drill into the formulas. Tweak them.
Your first stabs won’t be amazing. Nothing new ever is. We know this as Product folk.
But slowly, like Bambi on ice, your legs will start carrying you. You’ll be able to create more elaborate models. Before you know it, you’re mapping product engagement metrics with operational data all the way through to financials like a boss. A literal boss.
Also, if you work for a public company, dive into the of vastness of information provided by the company’s quarterly SEC filings.
4. Map Product KPIs to Financials
Use your newfound skills and try building out a KPI framework that maps all the product metrics you know and love to this new world you’ve discovered. Building out a framework on how product metrics ladder up to financials is a great way to enable quantitative prioritization discussions.
Sure, But Why?
It keeps amazing me how common it is for Product folk to not have a firm grasp on this. Or to be more specific, how long I rolled along happily in Product while struggling to even remember the word “amortization”. Let alone understand why “revenue minus cost” isn’t the same thing as “money in and money out”.
As you climb the ladder of Product, especially if your goal is landing in the executive team, this stuff matters. Your ability to articulate Product’s output in real financial impact terms a real measure of your seniority. Even better if you can map out future R&D costs with headcount ramp-up models.
Bonus! You’ll get a leg up in learning how to efficiently communicate with those often overlooked, but important stakeholders, like the exec team, the board and even investors.
This doesn’t mean that all the stuff we obsess about in Product-land isn’t important. Engagement metrics, customer needs, funnel conversion and all that good stuff is the foundation you build on.
But if you can add on a solid layer of financial intelligence, you’ll be ahead of the pack in no time.
Just don’t let them scare you with the superficial complexity.