The bucket model of product management
All possible features can be placed in 3 buckets: gamechangers, showstoppers and distractions.
A gamechanger is a feature solving a previously unsolved problem for a customer. That’s why people buy.
A showstopper is a flaw preventing people from buying. Fixing them is important, but it’s not the reason why people buy.
A distraction is a feature that doesn’t affect sales.
So the actual problem is a resource allocation problem: spend no time on distractions, as little time as possible on showstoppers and spend the rest on the gamechangers.
But what about people?
The same framework can be applied for individuals: the more prestige the job – the more showstoppers have to be eliminated (good education, dressing up, speaking well, etc.); IT is another extreme: as long as your code is excellent (gamechanger) – that’s all that counts. All showstoppers can be reasonably ignored.
But for most people it’s a mix between the three features above.
The right strategy (I read about it 9 years ago in a wonderful book “Different”) is not trying to fix all the weaknesses (showstoppers) – just do enough to be able to pass that test, but focus on demonstrating the strengths (gamechangers) and spend more time on perfecting them.
Focusing on fixing all weaknesses is a poor strategy and is a waste of time.
Beyond GAAP, or Not?
GAAP is an easy target to criticise as it allows for a relatively relaxed treatment of revenues and expenses timing by the management. This “creative accounting” (all legal, more or less) is a management tool to manipulate the share price (inflate profits, reduce revenue volatility or conceal the true revenue composition), incentives (which drive management behaviour) and the cost of capital (better numbers improve the negotiation position with banks, making leverage look more innocent).
Ratio-loving finance analysts can get confused by the firms understating their asset sizes in order to show higher return on assets.
Defining and calculating the size of the intangible assets is an art, but not science, because subtracting a book value of all tangible assets (an exercise in accounting judgement) from the market value of the firm (an exercise in the investor / speculator judgement) has nothing scientific about it.
Creating own intangible assets (via R&D spend and labour) and correctly identifying the potential of a spend to produce attributable economic value to the firm for longer than a single accounting period (to be qualified an asset) is also an art requiring lots of assumptions, forward-looking statements and bargaining with the auditors. There’s no rational way to correctly predict the consumer behaviour shift associated with a successful product, pushing the product adoption rate and the associated revenues up.
The larger the R&D budget, the bigger the reason to disguise or obfuscate it from the competitors is.