Prioritize based on customer value too

Very few organizations involved in software development, and in many other industries, get to the point where they prioritize the work they do based on the value it will create. Most work is prioritized based on one person’s opinion about what should be done next. It might be something they perceive as important, something that will solve a problem they’re plagued with, the hot potato, or simply a non-validated idea. Non-validated in the sense that nobody has validated if it’s worthwhile. Let alone if it’s the most worthwhile thing to do next.

Those that make the leap to prioritizing the worth of an endeavor as a means to select what next to work on, realize that prioritizing on value increases the probability of picking work that will have an impact. For most that do this, the worth is measured in terms of the impact on their own organization. It’s framed in terms of how much money we stand to gain (or lose) by action (or inaction). That’s a great start, and much more likely to lead to picking worthwhile work. But, it falls short of a much better indication of worth.

In business, or at least in sustainable business, both parties gain from doing business. A provider creates value that they share with the buyer. Actually, it can be somewhat murky as both sides can be involved in creating the value and reaping the value created. Regardless, value is the net worth of doing business. The value to the provider, what makes it worthwhile to the provider, is only half of what makes doing business worthwhile. Well it’s some ratio actually, but it’s half the picture. The value to the buyer is the other half of the picture. Percentage wise, the buyer tends to take a larger share as they usually provide the financing for the endeavor.

Take money out of the equation for a minute. Each party gets something and each party expends something. In the best of business, each side gets more than it expends. So why wouldn’t a better metric of value be to consider the net gain for everyone involved?

Let’s say you have two opportunities to do business sitting in front of you. In both opportunities, the profits are likely to be the same for your organization. But, the potential profit to the customer is a difference of 10 to 1 between the opportunities. In other words, one project is going to be 10x more valuable to one of your customers. Wouldn’t it make sense to do that project first? You’re going to gain so much more in intangible value from providing that service to that customer. And the customer will too.

If you’re bothered by the disparity in your share of the profits, 10 to 1 instead of 1 to 1, you always can negotiate a better share. Perhaps double your share of the profit for a 5 to 1 split.