The Portfolio Strategy often goes unnoticed. It is written up as a strategy document and distributed to the senior management team at the start of the planning cycle. For the remainder of the planning cycle all funding decisions are then made totally contrary to the stated strategy. For example, a company may have decided to adopt a recurring revenue strategy but the product development for the largest accounts is still focused on the legacy product of those three large accounts.
The value of a portfolio strategy is to steer the spending of a business. A small number of decision-making components is sufficient for this purpose, not a lengthy document that describes the portfolio but delivers nothing.
Objectives that name a trade-off, not an ambition
This is different from how you might express your investment objectives, i.e. As targets that you hope to hit (e.g. ‘Grow ARR by 30% over the next year’). For Portfolio Objectives it is better to express what you are trying to achieve and what you are willing to forgo in pursuit of your goals.
Stating your portfolio objectives as constraints (not goals) can be very powerful. For example, “Maximize gross margin expansion. Hold net revenue retention above current levels. Accept slower-than-current logo growth in mid-market.” This creates a set of rules that immediately disqualifies a large set of investments and then you have all of this arguing on the record for exceptions to those rules.
Set a target shape for the portfolio
But stating the desired mix of investment will do. Even the numbers stated need not be realistic, as long as they are revisited every quarter. If you don’t review your portfolio against your stated portfolio objectives on a regular basis, your portfolio will immediately fall into a completely defensive posture.
Market analysis that segments by economics, not by industry
Market work for a portfolio is quite different from competitive analysis for a product. As opposed to asking who your competition is for a particular product, the real questions for portfolio work are where does structural profit reside in a market, and which of your segments will be competitive in some number of cycles?
Look at the market based on economic characteristics of customers (willingness to pay, switching costs, sales cycles, support needed). The fact that two companies of roughly the same size are in your portfolio does not mean that they are in the same part of the portfolio. One company may be buying through a long corporate procurement process (11 months) while the other is buying with a corporate card.
Test the assumptions that would break the strategy
Identify 1-2 conditions that need to be true for your investment thesis to work in each segment of customers. These can be decreasing infrastructure costs, a near term regulatory change, or the continued reach of key channel partners. Track these as leading indicators for the rest of the company, rather than hoping to ‘discover’ them in a Quarterly Business Review.
Prioritization with a scoring model people can argue with
Single number scoring systems for prioritizing are usually pretty bad. The best framework is one where each input is challenged independently.
| Criterion | What it measures | Common failure |
| Strategic fit | Alignment with the stated portfolio constraint | Scored generously for every proposal |
| Value at stake | Revenue or margin affected, not created | Counts the same revenue twice across items |
| Confidence | Evidence quality behind the estimate | Omitted, so guesses outrank tested cases |
| Cost to serve | Ongoing support, compliance, and infrastructure | Ignored until after launch |
| Option value | What the investment makes possible next | Used to justify anything speculative |
The force ranking is very valuable even for products with “tied” scores. Someone has to make a call. It’s not fair to leave it to the person that currently has the most headroom.
Performance measurement across the whole portfolio
Rolling up product-level metrics is generally poor for measuring a portfolio. Measuring if a product is working or not (i.e. Adoption, activation, feature usage) is very different from measuring if a portfolio is balanced or not.
- Revenue concentration, meaning the share of revenue from the top three products and top ten accounts
- Contribution margin by product line, including support and infrastructure allocation
- Cross-sell rate between lines, which tests whether the portfolio is more than a collection
- Investment mix against the target shape, reported as actual spend rather than plan
- Time from funding decision to first customer evidence
Build in a kill criterion before you fund
Having written conditions under which to stop funding an initiative (the so-called “cease & desist” conditions) as key decision points for future funding (e.g. “does the metric cross the threshold by that date?”) helps. Without such conditions, your best bet is to continue funding it.
Resource decisions that follow the strategy
As noted above, reallocation of funds to support new initiatives tends to fail within 9-12 months as prior budgets are simply rolled forward and current initiatives receive continuing support from existing product teams. Treating previously allocated funds to initiatives as if they had been zeroed out each year or so is unpopular but typically required to try to reallocate funds. If your measurement layer is still immature, this ultimate guide to product portfolio planning is worth reading before you set the metrics you will defend budgets with.
A few practical constraints apply when you reallocate.
- Move whole teams rather than individuals, since split allocation destroys throughput
- Fund at a level that can produce evidence, not at a level that keeps a project technically alive
- Sequence sunsets before launches, because support capacity is the real bottleneck
Working through the details of these decisions can be facilitated by establishing a structured process for product portfolio planning. However, your strategy only becomes real when it is translated into your funding cycles.
