1. Uncertainty

Introduction

Welcome to this bonus session on the unique challenges of product leadership within large and traditional companies. While this may not apply to your current context, understanding these dynamics is valuable, as many of us encounter similar situations at some point in our careers. Today, I’ll share insights on handling these challenges and offer practical tips for navigating complex environments.

We’ll focus on five key challenges in product leadership for large companies:

Uncertainty
Leadership and non-digital-savvy teams
Business demands vs. technology implementation
Resistance to discovery processes
Delivery date pressure

Let’s dive into the first of these challenges: uncertainty.

Understanding Uncertainty

Uncertainty is a common issue in product development, particularly within large, traditional companies that may have lower tolerance for it. I’ve faced this challenge firsthand, especially in companies that haven’t traditionally invested heavily in digital innovation. To provide a framework for understanding this uncertainty, I’ll introduce a model that maps two types of uncertainty.

The Uncertainty Matrix

This model uses two axes to represent different types of uncertainty:

X-axis (Horizontal): Technology Uncertainty, which reflects the percentage of revenue invested in technology and R&D. This axis follows a logarithmic scale, starting at 0.05% and increasing to 50% or more.
Y-axis (Vertical): Demand Uncertainty, which represents revenue volatility and fluctuating customer demand over time. This is also a logarithmic scale.

In this model, different industries fall into distinct quadrants based on these variables:

Digital Products (e.g., software): Located in the upper right corner, digital products have both high technology and demand uncertainty. Companies in this space invest significantly in R&D (20-30% of revenue), resulting in frequent testing and a strong focus on discovery, given the volatility of demand.
Real Estate: This industry typically has lower technology and demand uncertainty. Revenue tends to be more predictable, influenced by factors like interest rates and housing demand, allowing for a more stable, less dynamic approach.
Banking: Banks have minimal technology uncertainty and lower demand uncertainty. This stability enables them to weather economic fluctuations with resilience.
Other Sectors (e.g., e-commerce, healthcare, restaurants, and hotels): These industries have low technology uncertainty but some demand fluctuation, which affects their approach to digital innovation.

Digital Products: Navigating High Uncertainty

The digital product sector experiences high levels of both technology and demand uncertainty. This dynamic leads to constant experimentation and iteration. In traditional companies that operate with lower uncertainty, such as real estate or banking, adapting to a digital mindset can be challenging.

To illustrate, let’s compare traditional and digital companies and examine how understanding their fundamental differences can help us lead digital transformations.

Case Studies: Amazon and Nubank

Amazon: A Long-Term Vision

Founded in 1994, Amazon is a classic example of a company with a long-term digital vision:

Amazon went public in 1997 after raising an initial $8 million in Series A funding in 1996.
It received additional investments after the IPO and achieved profitability four years later in Q4 of 2001.
The journey from its founding to profitability took nearly seven years and required significant investment, illustrating that digital investments often take time to yield returns.

Today, Amazon’s market capitalization exceeds $1.3 trillion (as of 2022), showing the potential impact of sustained investment in digital growth and innovation.

Nubank: A Modern Success Story

Nubank, a digital bank, followed a similar path:

Founded in 2013, Nubank raised almost $2 billion across multiple funding rounds from Series A to Series G.
It went public in December 2021, raising an additional $1 billion.
Although it was still reporting a loss in Q2 2022, Nubank’s market cap had grown to nearly $23 billion by August 2022.

The journey from founding to IPO took about eight years, showing how long-term investment in digital capabilities can drive high valuation, even if profitability takes time.

Both Amazon and Nubank illustrate the financial commitment required to build a successful digital company. In these cases, a commitment to growth precedes profitability, reflecting a high-uncertainty digital approach.

Digital-First Companies vs. Digital-Enhanced Traditional Businesses

There’s a difference between pure digital companies and traditional businesses enhanced by digital capabilities. Companies like Amazon and Nubank, although fundamentally retail and banking businesses, were built on digital-first principles, using technology to transform their industries. Meanwhile, digital transformations within traditional companies face different challenges.

For example, when I joined Gympass in 2018, the company had over 800 employees worldwide but only 32 in the product and technology teams—less than 4% of the workforce. This disproportion highlighted the need to strengthen digital capabilities, showing that Gympass was still in the early stages of its digital transformation.

Such transformations require time and a shift in mindset, especially for employees coming from traditional industries who are unaccustomed to digital investment.

Leading Digital Transformation in a Traditional Company

When leading digital transformations in traditional companies, the digital shift itself is relatively straightforward. Access to technology and best practices is readily available. However, transforming mindsets and company culture can be more challenging. Both demand and technology uncertainties common in digital industries can make those from non-digital backgrounds uncomfortable.

For example:

At Lopes, a real estate company, many employees were unfamiliar with technology investment and the uncertainty that accompanies it.
Even within Gympass, many employees came from traditional industries, including banking and consulting, and had limited exposure to the nuances of digital markets.

The key challenge, therefore, is to help stakeholders from non-digital backgrounds understand and appreciate the long-term value of digital investments.

Practical Advice for Product Leaders

Based on my experiences, here are some strategies for managing uncertainty in digital transformations:

Educate Stakeholders on the Digital Value Proposition: Share examples of successful digital companies, like Amazon and Nubank, emphasizing that initial investments may take years to show results but can yield substantial returns.
Highlight Industry-Specific Uncertainty Levels: Use models like the uncertainty matrix to explain why digital products require different approaches than traditional industries, helping stakeholders understand the necessity of continuous testing and iteration.
Set Realistic Expectations for Return on Investment: Be transparent about the time needed to see results from digital investments. For example, explain that technology initiatives are unlikely to yield immediate returns, but over time, they can create significant competitive advantages.
Cultivate a Growth Mindset in the Team: Help the team focus on learning and adapting rather than fixating on immediate financial gains. A mindset shift is essential for a successful transformation, especially for those coming from stable, low-uncertainty backgrounds.
Demonstrate Early Wins: Show short-term successes where possible. Even small wins, like successful product launches or incremental revenue gains, can help build confidence in digital transformation efforts.

Conclusion

In summary, navigating uncertainty in large, traditional companies requires product leaders to build a bridge between digital and traditional mindsets. By educating stakeholders, setting expectations, and fostering a growth mindset, we can guide teams through the complexities of digital transformation.

Product leadership in these environments means embracing the challenges of digital uncertainty and helping others see its long-term value. As digital product leaders, it’s our mission to unlock the potential of digital solutions and support companies in leveraging technology to reach their goals.