This article was taken from a presentation given at the Product-Led Summit in June 2022. Get the full talk on demand here.
My name is John Fontenot, and I'm currently a Principal Product Manager at Lendio, which is a small business loan marketplace. I also founded a startup called Path2Product, a three-sided marketplace for PMs. On top of all that, I also host the Lessons in Product Management podcast, so I'm pretty bought into the whole product management thing. It's pretty much all I spend my time on.
One of the things that often comes up within product circles is OKRs. I’m willing to bet that most of the people reading this article use OKRs in their organizations. As for how many people find those OKRs particularly effective, that’s a different matter. In this article, I’m going to show you how to enhance your OKRs with another framework to drive a successful product strategy.
To set the agenda, the first thing that we're going to do is define what OKRs are. If you’re familiar with OKRs, hopefully, our definitions are similar. But in case they are a little different, the first step in alignment is speaking the same language, so I want to make sure we're doing that. If you're not familiar with OKRs at all, this definition will help clear things up.
Next, we're going to talk about the problems with how we use OKRs. I spent four years at Intel Software Group, where OKRs were born, so I'm very familiar with them. However, I've often seen OKRs being used ineffectively, and I'm going to call out why that happens.
Finally, I’ll share with you the solution that I stumbled upon to our OKR problems, and I’ll give you an example of how I've seen the framework used successfully.
My objective is for you to walk away from this article with something that you can implement in your organization to make your OKR practice more effective and create the alignment that OKRs are built to achieve.
Key topic areas:
The trouble with OKRs
OKRs are objectives and key results. Objectives are qualitative goals that you're trying to hit, typically within a 12 to 18-month horizon. They’re the big things that we want to accomplish within a given timeframe.
Key results are measured quarterly. They’re quantifiable measures that give us an indicator as to whether we’re on track for the overall objective we're trying to hit. Reaching these milestones quarter over quarter gets us closer to our objective, which ideally gets us closer to the company’s vision.
OKRs sound great, right? So what's the problem? The problem I've seen is that there's sometimes a misperception that OKRs represent strategy. They don’t. OKRs are incomplete as an execution framework, and even more so as a strategic framework.
When it comes to execution, OKRs don't do a great job of alignment. Let’s look at why. In practice, cross-functional dependencies often go ignored. A few years ago, an organization came to our company to train us on how to manage OKRs with their software. I asked, “What do you do about cross-functional dependencies?” And they said, “Oh, you just document them.” That is not going to solve our problems.
We have to be able to align our functional departments around something other than OKRs, especially when we need resources from other teams to be able to hit our goals.
Another problem I sometimes see, although less often, is that the key results have no coherence to the objective. The objective might say one thing; meanwhile, you're looking at a key result like, “How does that help us get closer to the objective?”
My point is that there are a lot of potential pitfalls in the OKR-setting process. The result is that you have continued misalignment, and you either miss or you underachieve on your goals. I know this sounds like a downer, but it's the reality, and I’m here to help you fix it.
Solving for alignment
If you're familiar with Richard Rumelt’s book, Good Strategy, Bad Strategy, the next part might sound familiar to you. If you're not familiar with the framework, these are what Rumelt argues are the kernels of good strategy: your challenge, your guiding policy, and coherent actions.
When I was reading the book and thinking about how it could work with OKRs, I noticed that if you make the objectives and the key results the bookends of this framework and plug Rumelt’s kernels of good strategy into the middle, it works really well.
If there's an objective you haven't reached yet, that’s probably because there’s a challenge in your way. And so the first step to alignment, whether it's on your team or at an organizational level, is being clear about the challenge you need to overcome before you can hit your objective. Once you’ve identified that challenge, you have the first step towards alignment.
But the problem remains. Now that you know what the challenge is, how do you attack it? And does everyone agree on how to attack it? If not, are marketing, sales, product, and customer success running in different directions, trying to solve the same problem in five different ways?
That can happen all too easily, so you need something to constrain our decision-making. That constraint should be formulated in a guiding policy. It could be a few words; it could be a couple of sentences, but it has to provide you with a lens to look at potential decisions so you can check that they align with the overall “how” of how you're going to attack this challenge to meet your objectives.
From there, you and your team can decide on the actions you need to take and the initiatives you need to prioritize. And then, throughout the rest of the organization, other teams can do the same, ensuring that the actions they take are aligned to this guiding policy to meet that same outcome.
Finally, the key results will allow you to define success upfront. You've taken actions through the lens of the guiding policy to overcome the challenge, and the key results are the quantifiable outcomes of success you can expect. You have to document and measure those key results to ensure that you’re taking the right actions, you have the right guiding policy, and you’re progressing towards overcoming the challenge.
I’m going to talk you through an example of how I’ve combined the OKR framework with Rumelt's strategy model and successfully applied it to a product strategy.
Product-led growth takes more
Once upon a time, I worked for an HR SaaS firm. The firm was 20 years old and not seeing the growth it wanted. The business had always gone to market through a partner channel, so it didn't really have its own brand. We wanted to shift that. We saw an opportunity to go direct to businesses while maintaining our partner channel. This would help us to create a brand of our own and mitigate some competitive threats.
Many of our competitors were following a product-led growth motion. Meanwhile, we were still very enterprise sales heavy, with an SMB audience and SMB pricing. Needless to say, the unit economics didn't work very well at scale, so our scaling efforts failed.
We had built a brand new product for this brand new channel around a supposed PLG motion. It was built on critical assumptions that hadn’t been tested or validated, and we all but ignored the customer feedback we got from our customer development program because we had product launch deadlines to hit. Even once we knew there were problems, we still decided to launch with a large marketing budget. We were all but doomed to fail.
Ultimately, we fell prey to the “build it and they will come” fallacy. The thought was that PLG just meant a free trial with some self-service features. Anyone who's been a part of an organization that's successfully executed PLG knows that it takes a whole lot more than that.
Another problem was that we didn't have alignment. It was clear that the organization wasn't bought in because this new product was sitting on the shelf while everybody else was focused on the legacy products that we had been selling through an enterprise sales-led motion for the last 20 years.
If we were to have any chance of success, we needed to come back to our OKR framework and reassess our objective. The objective didn't change: we still wanted to go direct to business and leverage a product-led growth motion. However, we needed to define clearly what product-led growth was and how marketing, sales, and customer success had to support this model for it to be successful.
And so we looked at not this new product that was doomed to fail from the beginning, but at our core products to see what made them successful, where we had product-market fit, and what our core differentiators were.
Finding the right market
We found that the part of the market we served best was the SMBs, who had complex HR needs that our competitors couldn't handle. We weren't set up to have a large market share, but the market that we could serve we served really well, and we were the only ones positioned to do so. We wanted to double down on that and serve the same market first but through PLG.
With our objectives defined, it was time to identify the challenges we’d have to overcome. The major challenge was time to value. It was taking us six to eight weeks to get a customer onboarded. The process involved five different customer success calls to onboard users to three different products, two of which were acquired and gave a totally different user experience.
Next, we had to establish a guiding policy. We resolved that every decision we would make, whether they related to the roadmap, resourcing, or marketing, had to help us remove friction. We weren’t going to invest in anything that wouldn’t help smooth out that onboarding process. We aligned on that as an organization.
Now for the coherent actions
First, we had to deal with the user interface. On top of our legacy products, we’d acquired two products, each with its own mobile app. The result was that we had SMBs using three different mobile apps for the HR suite we were trying to take to market. That's just not going to fly in today's age of technology. To smooth out the friction that comes with having to learn how to use three different products, we needed to unify the UI.
We still needed self-service settings too, and we wanted to double down on the highly customizable stuff that we could do and our competitors couldn't. We had to make it super simple for users to get into the product, configure most of it for themselves, and be able to reach out to a human if they needed help. That way, users would feel fully supported.
Finally, we needed to streamline the onboarding experience, cutting down the time taken to reach the aha moment from about seven weeks to a couple of days at most. We tracked our key results against that time to value.
Leveraging this framework to execute against something tangible was, perhaps unsurprisingly, a lot more effective than putting a faulty product on the market with a large marketing budget and no product iterations for 12 months. We were a lot more successful than the previous year, thanks to combining OKRs with Rumelt’s strategy model.
If you’ve been struggling with OKRs at your organization, I hope this article has given you something tangible yet simple to implement right away. Rumelt is a professor – he knows his stuff – so hopefully, combining his framework with the OKRs will yield some benefit for you.