Strategy From A Clean Sheet

November 19, 2019
Ridgeline Staff Writers
 min read

Ridgeline staff writers sat down with Product Strategy manager John Hoehn to discuss the Ridgeline approach to defining and executing a product strategy. John is one of Ridgeline’s first 10 employees and has become a master at pro formas, segmentation, and SEC data. We wanted to learn how he makes sense of a complex market and arrives confidently at strategic decisions. The interview has been edited for clarity.

Ridgeline didn’t start out planning to build software for asset managers. Once that path was chosen, however, what was the challenge for the Strategy team?

That’s true. You can actually read about how we arrived where we did in Jack Lynch’s blog. Once that decision was made, our team had to shift our work from deciding our industry to choosing a winning strategy in our industry.

Making this choice wasn’t easy as our industry is very diverse. Our potential customers range from two-person businesses who manage a few million dollars to thousand-person corporations who manage trillions of dollars. Their clients range from individuals who have fifty thousand dollars to institutional clients with billions to invest. Our competitors range from point solutions that solve for one particular workflow to platforms on which a firm can run large portions of their business.

This is a huge range of customers and products, and there are many theoretically sound paths for building a successful company. However, we didn’t want to find a path that could lead to a reasonably successful company; we wanted to find the best path for Ridgeline to win.

So how did your team go about defining our products?

Designing our product strategy involved a lot of ambiguity. Not only is the investment management industry diverse, but we were new to the industry and a startup with a blank sheet.

To help cut through this lack of clarity, we turned to different frameworks we had learned about or used throughout our careers. In particular, we wanted a framework that could help us align our general strategy with our company’s strengths, would allow us to easily explain our strategy to both industry insiders and our own employees, and eventually be flexible enough to be used at both the corporate and product level.

When you Google “strategy frameworks”, the list of search results is long and opinionated. Which approach did you choose and why?

We turned to a framework by Roger Martin from his book Playing to Win. The approach in this book forces strategy teams to answer five important questions:

  1. What is your winning aspiration?
  2. Where will you play? (Who is your customer and what products are you building for them?)
  3. How will you win?
  4. What capabilities must be in place?
  5. What management systems are required?

One reason we like this framework is it forces teams to find answers that reinforce one another. This creates cohesion across organizations and departments. For us, our winning aspiration was fixed — to be the highest value, end-to-end platform for investment managers. Our capabilities and heritage are fairly fixed as well. Our team has deep experience building back office enterprise software on the cloud.

We spent time on the fifth question but initially focused on questions two and three. Simplifying our most strategic decisions to two reinforcing questions was incredibly powerful, which is why we ultimately chose this framework. Another huge benefit with “where to play, how to win” is that it’s easy to explain to employees and prospective customers while providing future flexibility.

How was this framework flexible?

It was flexible in that it can be used in a lot of contexts, and it’s compatible with multiple methodologies. For example, take the question of “where to play”. This question is about which customers to pursue and which product components to build for them. The answer to those questions can be arrived at in many different ways. There is the blue ocean framework, Porter’s Five Forces, and those are great in isolation, but having the overarching framework allowed us to bring many different frameworks together into a cohesive strategy.

It’s also flexible in that it’s usable at multiple levels in an organization. We started by using it across the whole company for corporate strategy, but now we can use it for individual products. This ensures that our answers at the product level reinforce each other but also reinforce the broader, corporate strategy.

Getting into specifics, how did this framework allow you to segment the asset management industry?

Bear with me, I have a lot to say about this.

There is an interesting relationship between our initial work on segmentation, the framework we used to evaluate possible strategies, and the strategy we ultimately decided on.

A lot of segmenting the market was what you’d expect — we cut the market based on quantitative attributes like assets under management and number of clients. We also tried qualitative segmentation methods to identify firms with similar goals; for example, firms focused on generating alpha based on a superior strategy versus those focused on holistic wealth management based on a client’s long-term goals.

Through this work, we started to see some major segments emerge. In evaluating these, we were able to find quite a few viable strategies to build a successful business both within and across the different segments. The problem is that we are building one company and, to be successful, we had to commit to one strategy (at least in the short run). So, we knew we had to find a way to evaluate and rank the different strategies. This is where “where to play, how to win” was helpful.

When we evaluated potential customer segments using this framework, it helped us frame our decisions based on what we knew about our company ( “What is our winning aspiration?” and “What capabilities must be in place?”). When deciding which segments (“Where will we play?”) and value propositions (“How will we win?”) to focus on first, we knew our choices had to reinforce Ridgeline’s aspiration to build the highest value, end-to-end platform for investment managers. They also had to be compatible with our capabilities as a team — our unique experience building back office, enterprise platforms.

This led us to a fundamental segmentation choice: If we want to eventually serve the entire industry, do we start with wealth managers or asset managers? Initially, we thought we’d start with wealth managers. Based on conversations with industry experts, the back office needs of wealth managers appeared less complex than those of asset managers — meaning we could start with a lighter-weight product there before building a more complex offering for asset managers. However, as we dug deeper, we learned two things. First, wealth managers’ back offices are “less complex” because they outsource many of those functions. Second, the most interesting value proposition to wealth managers is related to transforming their client experience via front office systems. “Where to play, how to win” helped us consider what was needed to win wealth managers and whether it was compatible with our winning aspiration. Given our mission to build an end-to-end platform that starts with the back office, wealth managers didn’t seem the best place to start.

That discovery brought us back to the asset management segment. While wealth managers were likely to be outsourcing their back office functions, many asset managers were keeping these functions in house. In fact, we noticed back office efficiency had an impact on a firm’s expense ratios, which in turn impacts the return a firm can provide to clients. A value proposition related to back office systems is more likely to resonate with this segment. It quickly became clear that this segment aligned with our aspirations and capabilities while also offering a feasible place to start.

To summarize a bit, the “where to play, how to win” framework helped us to focus on the segments we are best suited to serve today. Knowing what was fixed — our winning aspirations and our capabilities — we were able to eliminate strategies that, while strong, weren’t compatible with who we are.

How will you measure success for Product Strategy?

Two ways: The first is the response we get from both existing and new clients. Our strategy forces us to be very clear about what we’re building and the kind of company we hope to be. When customers hear our strategy, they should nod their heads.

The second way we’ll know we’re successful is if we create alignment across departments. As you start building multiple product lines across multiple teams, it can be difficult to remember the highest-level goals. Each team will have slightly different priorities. Without an overarching strategy across departments, you might dilute the value provided to customers. Our strategy should minimize this issue.

What’s next for you and your team?

First of all, we just opened a new office in NYC. As one of the first Ridgeliners here, I’m excited to help grow the team and replicate the magic we have in Tahoe. We’re also focused on hiring more people with industry experience. Like I mentioned, there are many opportunities within this industry, so as we continue to add more experience, we’ll get more insight into those opportunities and be able to make better and better choices about our products.

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