In the last article, I went over the company-level concepts such as business models, business strategies, and company health.
In this article, we’ll dive into the product level and talk about:
Let’s get started.
It’s advantageous for designers to get really well-versed in understanding and breaking down numbers... (Ian Spalter, Head of Design @Instagram)
If you’re into UX, you’ve probably heard of the term prototype.
A prototype is a great way for designers to validate an idea without spending too much money and time.
And as designers create visual prototypes, businessmen create financial prototypes to test viability. For this, we’ll go over the Discovery Driven Planning (DDP).
What’s special about DDP is how it differs from conventional planning. In conventional planning, you make tons of assumptions and hope they’re right. In short, your plan is correct if the outcome resembles your projection.
Yet in DDP, it’s assumed that your plan projections may change as new information is revealed. It systematically uncovers, tests, and (if necessary) revises the assumptions.
In short, it’s well-suited to ventures/projects that are uncertain from the start.
And it’s currently the foundation of the lean startup movement.
Now, let’s go over the process:
The list you just read might look like a string of words that don’t mean anything. So let’s break them down.
In the first step, we want to define what success looks like.
You do this by creating a reverse income statement.
In short, an income statement lists out your profit (how much you earn) and expenses (how much you spent/need to pay). In the end, a net profit is calculated, or how much you can bring home.
Well, a reversed income statement is that but reversed.
You can start by asking yourself:
How much do I need to make per year in net profit?
Then you go backwards from that. You determine the profit margin required (at least 10%). Then you calculate the revenues needed to deliver that 10%.
Then, you need to figure out how realistic your reverse income statement is.
To do this, compare the key revenue and cost metrics in your business against the market & competitors. This will help you access how realistic your plan is.
You have to think very critically about what has to be true. (Rita McGrath, creator of the DDP)
Lay out everything required to produce, sell, and deliver the new product or service to customers.
A good question to ask yourself is:
How are you going to get your first five sales?
This step is an essential difference between conventional planning and DDP.
A lot of times, company leaders don’t see that they’re based decisions on big assumptions.
To avoid this, list out all the assumptions behind your profit, revenue, and more. Remember: identifying an assumption right now that turns out to be false can save you A LOT of pain (and money).
Now, it’s time to lay out a plan.
Plan only as far out as you have knowledge. (Rita McGrath)
What’s important is you identify a series of checkpoints (”milestones”). And at each point, you’ll determine whether your assumptions are holding true or need to be redefined.
If your assumptions need to be adjusted, update your reverse income statement (step 1) and operational requirements (step 3).
Most designers shy away from analytics.
...including myself (trying to change that!)
Here are a few mindset shifts for this:
More data means more informed design decisions. It helps us avoid opinion-based discussions and align the team in the same direction.
To build your credibility, focus on measurable parts of the design.
But, you may be asking:
How do I make sure that I’m doing the best for users and not just driving business results and chasing numbers?
While most business metrics measure value captured (revenue, profit, costs, growth), design metrics measure value created for users.
To find your design metric, answer these two questions
Can you provide an example?
Of course! But, instead of me explaining, I’ll recommend reading Alen’s Google Calendar example in “Design Metrics” here.
When you present your work to non-designers, you have to use their language.
They don’t care about how things look or feel. They care about the effect it’ll have on the business. (Alen Faljic)
And that is expressed in business metrics. Let’s go over some of the most common ones.
This is a popular measure of the efficiency of investments. It’s calculated by diving the profit/loss by the money invested. Generally, we want to put more resources into projects with higher ROI.
This is relevant for companies that have a subscription model. It shows how much revenue a company makes per month or year.
The amount of $$$ a business spends to acquire a new customer. To calculate this, add marketing & sales costs. And then divide them by the number of customers acquired.
Costs that don’t change regardless of the number of goods produced.
Example(s): Rent, utilities, insurance, interest expense, etc.
Costs that do change with the number of goods produced.
Example(s): Direct raw materials, credit card fees, commissions, etc.
A total number of active users in a given time frame. This is usually in the form of
The definition of an active user depends on the product. For example:
A rate at which customers are unsubscribing or no longer buying from a company. Ideally, this should be as low as possible. A good annual customer churn rate for SaaS (Software as a Service) companies is around 5-7%.
And if you ever come across a new metric or want to learn more, look it up on Investopedia.
This wraps up my three-part series of “Business Thinking for UX & UI Designer.”
Honestly, I’ve learned so much from writing this series. Even though I know I can’t remember everything, it’s still good to expose myself to these new informations.
And I hope you’ll get something of value from these articles.
Thank you for being awesome and reading this far! :)