2. Value Risk in Product Development

Introduction

In product development, one of the critical challenges teams face is ensuring that the product or feature they are building is valuable to the user and to the business. This is known as value risk. It refers to the possibility that the product may not solve a real problem or provide enough value for users to adopt it. Without successfully addressing value risk, even the most well-designed and technically feasible products may fail in the market.

This document explores the concept of value risk, key questions to consider, and examples of strategies to mitigate this risk.

What Is Value Risk?

Value risk centers around two fundamental questions:

  1. Do users see enough value in the product to use it?
  2. Is there enough demand from a sufficient number of users for the product to be worth developing?

Addressing value risk means ensuring that your product solves a real problem for your target audience and that enough people find it compelling enough to use, purchase, or invest time in it.

If a product does not offer clear value, it won’t attract or retain users, even if it works perfectly and is easy to use. Therefore, mitigating value risk is essential in the early stages of product development, especially when determining whether a product or feature is worth pursuing.

Key Questions to Ask to Mitigate Value Risk

To mitigate value risk, product teams must ask themselves the following questions during product discovery:

1. Does the Product Solve a Real Problem?

This is the most fundamental question. The product must solve a tangible problem that users experience in their daily lives or work. The team needs to validate that this problem is widespread and that solving it will make a meaningful difference.

Example Questions:

2. Is the Problem Big Enough to Be Worth Solving?

Even if a product solves a problem, it may not be worth solving if it’s not significant enough to users or if it doesn’t occur frequently. To ensure your solution will succeed, you need to validate that the problem is painful enough for users to actively seek and adopt your solution.

Example Questions:

3. Are Users Willing to Pay for or Adopt the Solution?

A key aspect of value risk is determining whether users are willing to adopt the solution. For some products, this means users are willing to pay for it. For others, it may simply mean users are willing to invest their time in using the solution. The product must provide enough value for users to take action.

Example Questions:

Mitigating Value Risk: Strategies and Examples

Example 1: Ifood’s Restaurant Retention

At Ifood, the team identified a value risk related to restaurants that joined the platform but quickly churned. Many restaurants were canceling their services early, which led to high acquisition costs with no return on investment.

Strategy: The team developed an automated onboarding system to help restaurants optimize their presence on the platform and stay engaged longer. They began by using a “fake door” test, where they added a feature that allowed restaurants to express interest in receiving optimization recommendations. This allowed the team to gauge interest and gather feedback before fully developing the tool.

By testing whether restaurants would engage with this automated tool, Ifood could measure interest and demand, validating that restaurants saw value in the optimization services and reducing the risk of building a solution that no one would use.

Example 2: eduK’s Subscription Model

eduK, an online education platform, transitioned from selling individual courses to a subscription model. However, this shift led to higher churn rates, and the team needed to determine whether users were still finding value in the new model.

Strategy: To identify the root causes of churn, the team first conducted qualitative interviews to explore the reasons why users were canceling. They then conducted quantitative surveys to understand how users perceived the value of the platform and whether it was helping them achieve their educational goals.

Through these insights, eduK was able to reframe its content offerings to better meet user needs, such as reorganizing course categories based on feedback. By improving the relevance of their course content, eduK mitigated value risk and reduced churn.

Tools and Methods to Mitigate Value Risk

  1. Problem Interviews: These interviews help product teams validate that the problem they are addressing is real and significant. By speaking directly with users, teams can confirm that the pain point exists and understand how users currently attempt to solve it.

  2. Fake Door Testing: This method involves adding a call-to-action or button that suggests a feature or service but doesn’t actually exist yet. By measuring how many users click on it, teams can determine whether there is interest before investing resources in building the feature.

  3. Surveys and Polls: Surveys can provide a larger sample size for understanding how widespread a problem is and whether users are willing to adopt the proposed solution.

  4. Prototyping and Usability Testing: Early prototypes allow teams to test whether users understand and are willing to engage with a solution. This can provide insight into whether the solution effectively addresses the value risk.

Conclusion

Mitigating value risk is critical in the early stages of product development. By ensuring that a product solves a real problem, is worth solving, and is something users are willing to adopt, teams can avoid building products that fail to gain traction in the market.

Through interviews, fake door tests, and feedback loops, product teams can continuously validate and refine their ideas, ultimately creating solutions that users find valuable and impactful.