Valuation. 

It’s widely believed that investors are only concerned about the quality of the team, the problem they’re solving, and—the end goal—the value of solving that problem.

That leaves out one crucial thing. The actual product. As one tech journalist put it, “the dirty little secret of fundraising is that your investors are extraordinarily unlikely to care about your product.”

In early-stage companies, product management is more often than not organic, with little product process or rigour. And so, when investors look at the company, they are primarily interested in that holy trinity of team, problem and value.

But as that company grows, so should investor interest in the product. The trouble is that few investors know how to ask the right questions about product - and how it maps to team leadership, customer problems and ultimately value creation.

Lacking the tools

There are a number of signs that investors and leadership teams don't know how to properly scrutinise product development:

• Senior executives want to focus with investors on the business strategy, but they find they are forced to make decisions at an execution level far below where they’re comfortable
• Investors struggle to advise on strategic direction without dictating a solution
• Investors often lack the frameworks to measure product success beyond ticking things off as delivered on time against the roadmap and whether customer needs are being satisfied

Asking the right questions: These types of missteps are indicative of a scatter-gun approach to product development. They result in investors being unable to properly validate how the team is performing, whether the product is really solving customer problems—or if it’s fully addressing the total market.

This is problematic because to be successful, companies need a clear vision that all invested parties use to interrogate and influence direction. They need to make constant course adjustments and thousands of micro-decisions.

A web of stakeholders auditing product decision-making is vital. This is true no matter how big the business is. Take Meta’s $9bn investment into metaverse, which screams of poor product leadership and a CEO who’s too close to recognise the warning signs.

The most successful companies meet these challenges and scale by decentralising product decision-making. However, investors typically lack the tools and frameworks to participate as stakeholders and query their portfolio companies’ product decisions.

In short, they're unable to ask the right questions. So if you’re an investor and want a way to add more value to your portfolio’s product discussions, follow these three steps on what to ask and where to focus your product attention.

“How does this feature create customer value?”

Start-ups can be guilty of creating unwritten or badly defined value assumptions on how a feature will create customer value. There needs to be a clear understanding of what the key customer problems are, and what high-level user behaviours need to be created or modified to overcome those problems and deliver customer value.

• Ask what these customer problems are and how features feed into this—and look out for a lack of understanding of the customer's problem or very broad user behaviour showing a lack of clear focus.

“What evidence do you have to support the value assumptions?”

Once value assumptions are set, investors should try and gauge their validity.

• Ask for the evidence that informed these value assumptions. The aim is to weed out ‘gut feeling’ as a guide, because subject matter expertise is very rarely enough to create something better than the competition, and a lack of evidence-based product decisions does not bode well post-funding.

“What items are still relevant on the roadmap?”

Now we’re getting to a stage where questioning the roadmap is useful—because we have high-level user behaviours rather than gut-feel assumptions to evaluate against.

• Discuss the product roadmap with user behaviour in mind - some items on the roadmap will stand out as irrelevant or not fitting. This prevents the roadmap becoming a feature factory for one demanding customer, and the common problem of developing solutions that aren’t likely to scale across the target market.

As Carl Jung said, “to ask the right question is already half the solution to a problem”. These three questions make board-level product discussions more productive for founders and investors, while  ensuring development drives the greatest value.