Investors ultimately think of whether to buy, sell, or hold a company’s stock or some other asset. They consider alignment of investment opportunities with their goals, expected returns, costs to acquire and hold, and risks over the time frame and their conviction level. Thinking like an investor can help product teams dispassionately drive towards their company’s business outcomes. 

Suppose you have access to funds of $1M to invest over a year. This is roughly the cost of a small team of developers. 

The first question is: What is the best source of funds and what is the best use of funds? 

These $1M funds could be sourced in two ways. 

  1. Sourced from new funds, acquired from internal sources such as additional budget for recruiting a new team, or from external sources such as partnerships, community, acquisitions, etc. 
  2. Sourced from existing funds, for example, by reallocating teams or resources within your function or across functions.

After acquiring the funds, you, thinking like an investor, want to know the best use of funds and to have conviction about this use. These funds could be used in a variety of the company’s initiatives: make products, sell products, or support corporate programs. (Theoretically, these funds could be held in cash or invested in public markets.) 

Alignment, returns, costs, and risks over the desired time frame and confidence level are what you would like to understand about your potential investments. 

Examples questions related to alignment:  

Example questions related to returns and ROI (return on investment) over a desired time frame: 

  • What return is expected over the intended time frame? 
  • When will this investment break-even? What is the cadence and timing of the returns? 
  • What might increase the return beyond what is expected (upside)?

Example questions related to costs: 

  • What is the total cost to acquire or start (cost basis)?
  • What are the recurring costs? 
  • Is this ROI better than those of other opportunities (opportunity cost)?
  • Is this ROI better than the cost of capital of the company (hurdle rate)?

Example questions related to risks and confidence level: 

  • What might decrease the return versus what is expected, or eliminate it entirely (downside)?  
  • What risks might occur if this investment is not made? 
  • What’s the confidence level in realizing the returns and ROI? 

Thinking like an investor helps product teams dispassionately drive towards the company’s business outcomes. Such an investor’s viewpoint helps to see the forest, and not just the trees and shrubs of product development. 

PS: Check out more articles on building products. I write to pay it forward and to clarify my thinking.