Agile Dreams on a Waterfall Budget

Whenever I connect with other product executives, there’s a singletopic that nearly always earns a knowing (and often defeated) head nod: tryingto get annual budget cycles to work for an agile product team.

There are familiar themes to these discussions: financeleaders who want to know the next 12-18 months of features and backlog items, capitalplanning that runs on a strict fiscal year calendar, product teams with a laserfocus on the next 12 weeks and not much else, and product leaders sandwiched inthe middle, usually dependent on foundational architecture that’s still runningwaterfall.

This is the crux of running agile product development withintraditional budget planning. It often it feels like dancing the tango with anelephant on roller skates. Just when you think you’ve got your arms around it,it takes a sudden turn and you realize it just might be an impossible task. Andyet — if you don’t do the dance, there’s a strong likelihood you won’t havesufficient funding in the year ahead to get the product where it needs to go tomeet customer or competitive demands. What’s to be done?

Start With Trust

The first priority must be to build trust between product,executive, and finance teams. The latter two groups tend to ask questions like“what’s the total cost of building this?” and “when will it be done?” Theseproject-based mindsets will leave you high and dry just as you’ve got thematurity plateau in your sights. The focus has to instead focus on building ashared understanding of the business value of the product across its entire lifecycle— from Minimal Viable Product (MVP) to Minimal Marketable Product (MMP) to fullyscaled product.

The question for all parties to agree on is: What is thatvalue…exactly? Direct revenue contribution? Increased market share? Customerretention? Additional customer lifetime value? Optimized operationalefficiencies? Improved satisfaction and advocacy scores? It may well be a fewof these, or something particular to your business.  Asserting the in-year and multi-year value derivedfrom product enhancements demonstrates that ongoing funding based on feature valuewill yield ongoing long-term benefits, especially to the bottom line.

Three Phases ofInvestment

Breaking the funding down into three distinct and iterative phasescan help leadership increase their comfort with a more flexible funding model thatincludes appropriate checks and balances to manage risk.

Seed/Discovery: Thisphase requires a relatively small investment for customer research, definingpersonas and journey mapping, prototyping, architecture, scope/roadmapdefinition. Defining a benefit story based on these initial elements can helptake a new product idea and add enough definition to warrant following up witha more refined budget ask later in the year. Note, however, that this is thephase least likely to yield hard-dollar benefits as there’s not a product toput into the market yet. But more diligence here will increase the certaintythat the next phase will yield the right product features to deliver thepromised value to the business.

Build: This phaseshould get you from initial kick-off, through MVP and on the path to MMP, andthe elapsed time depends entirely on the appetite to fund for speed to market.This is also when the funding is most concentrated, though it doesn’t have tobe — it’s really all about managing the three simple levers enabled by funding:team size, timeframe, and scope of work to deliver — which then becomes about establishinga predictable team velocity to deliver the work.

Run: At the pointof MMP launch, this is the time to cement the mindset that you are funding theproduct, not the project, and where the discussion around what “value” means ismost critical. If continuous improvement through a design/develop/release cyclecan bring $X in annual value to the company, is it worth it to continue fundingthe team at 1/2X? 1/4X? This will allow the team to self-manage their backlog,knowing that their funding is fixed and that they can prioritize accordingly.

Fixed Funding CyclesProbably Need to Be Broken

Assuming you time the Seed/Discovery phase against annualplanning, the Build & Run phases are almost guaranteed to need fundingoutside of the annual budget cycle. A foundational discussion around value canhelp set a starting funding level for the upcoming year with dollars releasedaccording to the demonstrated completion of a phase to ensure accountability.

That being said, once a product approaches maturity itbecomes easier to consistently plan and resource for, as long as leadership getscomfortable with funding the product team to focus and prioritize on valueadded without being strictly held to detailed 12+ month roadmaps. The annualfunding cycle can then be used to allow product teams to articulate the valuein the backlog, and advocate for adjusting resource levels accordingly.

Organizations that are willing and able to test new funding modelsoutside of the annual cycle will find that both their speed to market andagility in meeting consumer demand increases. The risk-induced nerves this mightcreate with finance and executive teams can be mitigated with quarterly productreviews where enhancements are demonstrated and clear measurement of the deliveredand planned value-added results are communicated. So long as the value is maintainedor increased, the funding keeps on coming.