Ayoconnect’s Tek Talks: Value Creation Through Product Development
March 28, 2023
Welcome to the first episode of Ayoconnect’s webinar series, Tek Talk: Let’s Talk Business. Today, we have invited our VP of Engineering, Manfred James Ekbald, to share his insights and experience on how to create value through product development, applicable to listeners both within and outside of the tech industry.
Over to you, Manfred.
Okay. Thank you so much, that's a great introduction. Thanks, everyone, for joining. Super excited to do this presentation. We only have around 25 minutes, so I'll try to make sure that it's concise and clear enough.
Maybe before we start, I'll just give you a quick introduction. I'm the VP of Engineering here. I'm 45 years old. I moved to Indonesia 13 years ago. I stayed in Jakarta now, for the last four years. Before that, I was in Bandung. I've been doing software development since I was seven. I started on my dad's really old computer. It was super cool at that time, but now it's a vintage computer.
I started my career in 1999. I was still in university, but I got a job at the university while I was studying, doing websites and portals and all fun stuff. I've been a software developer, project manager, and team leader. I've had some C-Level positions in small startups. I've even found a few startups myself, and most of them crashed eventually.
But I've learned a lot from that. I'm sticking to engineering at the moment, which is what I mostly enjoy actually. I worked on-site in Sweden, the Netherlands, and Sri Lanka. I came to Indonesia through a project in Sri Lanka actually and met people in Indonesia and then started working here as well. I've worked with the US, Australia, and many other companies in many countries.
Definition of Value
We'll talk about value creation through product development. I was asked to keep it non-technical and high-level. I've tried to make it as tangible as possible over a Zoom call. Let's start to talk about something that is basically about value. In the value creation process, let's first talk about what's value. Feel free to ask questions anytime.
Value is so many different things. For a farmer, the cow is of very value to him because that's how the farmer makes his money by taking care of his cows. For someone who owns a milk factory or someone who owns the Ultra Milk company (PT Ultrajaya Milk Industry), of course, for them, the milk is the value. That's an asset for them. That's how they can capture value by selling milk. For a family, of course, having a moment, sharing a glass of milk, and having some cookies, that's valuable.
Even if it's not monetizable, it's still considered valuable... All of these things are connected, of course. Does anyone have an idea of what this represents? Feel free to put it in the chat.
What Goes into a Value Chain?
…Actually, in the value chain, which I show here, there are so many different things. I don't think value chain is a good word to represent it because it's more like an ecosystem. There are so many people involved in just bringing one glass of milk to the table of a family. There are the farmers. There's, of course, everyone who helps the farmer, the company that manufactures the fertilizer, the veterinarians, the people who work on the farm, and everyone who contributes to that.
Then, of course, there's the packaging of milk and the extraction and the factory that has to be built, the machinery that has to be created to automate the factory and all this, and then things like the delivery of the milk, the logistics, the whole logistics, the storage (refrigeration), and other things that are needed. Then, there’s also the actual place where people can buy milk and pick up the milk.
This is called the value chain, although it's actually more like an ecosystem. But simplified, it's a chain of events and a chain of people and companies involved to deliver value. Actually, there's value created, delivered, and captured here at every single step.
The farmer makes money by selling his milk to a company like Ultra Milk (PT Ultrajaya Milk Industry). Ultra Milk makes money by packaging and distributing milk all over Indonesia and even some globally. Of course, the family lives happily with children, well-fed and strong. There's value created and extracted all across the chain here.
What is Value Creation?
Value creation is basically a process that creates outputs more valuable than inputs. If you think about this whole process, doesn't matter if it's milk or if it's creating something technical like an API at Ayoconnect. It's all about the process where we create an output more valuable than the input.
Basically, what we deliver has to either decrease the cost for someone or increase productivity or, for example, sales. If we at Ayoconnect create an API, that API is only valuable if it helps our customers to decrease their costs or increase their productivity. Productivity can also include sales, of course.
Some examples of value creation here would be in a simple value chain like this would be for some, maybe some DNA researchers, breed a more productive cow, or the scientists can find a better fertilizer or the company who builds machines that can help improve the farmer to be more productive. Also, of course, better logistics, better trucks, and so on.
I think logistics has supply chain overall have been a big part of the last couple of years with e-commerce and all that. I think that's very relevant as well.
Second Important Concept: Value Delivery
Of course, all of this is ultimately about value creation and putting value into an ecosystem. But then there are a couple of concepts that are quite relevant for this as well. Actually delivering that value and making sure that the customers are satisfied, that's all about value delivery.
As an example, as a software developer, I've many times created valuable software, but then I didn't really know how to sell or distribute the software. My business was not very successful because I had a missing step there in the value. There was a gap in the value delivery. I think everyone who has ever tried to be an entrepreneur typically focuses on one or two of these areas, and then they need to partner or co-found a company together with someone who is an expert on the other parts. Value delivery is all about getting the product or service into the hands of the paying customers and then keeping them happy so that they keep paying.
Third Important Concept: Value Capture
Value capture. That's about actually capturing a part of the value. If they sell a liter of milk for around IDR 20,000, actually not all of that goes back to Ultra Milk’s company as a profit. Some of that goes to the factory and factory workers, some of that goes to the farmers, and so on. So capturing the value is about making money on every transaction or every deal that is made. It's the process of getting paid, basically, and keeping as much money as possible.
However, today, we're only talking about value creation. I think value deliveries and capture are topics for another session.
Things to Consider Before Product Creation
1. Predict the Product Market Fit
Product market fit, that's also a super important concept. Basically, how well the product matches what the market needs. If we deliver a product today doesn't necessarily mean that it's going to be the same product that the market needs next year or even next month. Product market fit is super important because the value of the product that we create is not determined by the company that sells the product, it's determined by the buyer and how much are they willing to pay.
If I, as a software developer, create software that is super awesome in solving some technical, complicated problem, unless someone is willing to pay for that, it's only like a value for me, for my ego that I feel good that I've created a nice product. But there's no value being exchanged. There's no value exchange, no value capture.
Product market fit is how to make sure that the product fits into the market and matches what the market needs. All these, I hope it's not completely new topics, new concepts. I think if you've done some economics or business 101, you've probably heard about this. I'm just giving a quick overview. All right.
Then, there’s setting something up for success. We want to create value through product development. We already know what is the value, the value chain, and how to create the value, but we need to look at this from a business point of view. How do we know that the product or service that we launch will be successful?
Well, we don't really know until we've tried, but at least we should do market research. We predict a strong product market fit. We can do surveys, we can do questionnaires, we can ask people, we can look at the competitive landscape, and so on.
2. Set Pricing for a Reasonable Profit Margin
We know that there's a chance for a successful product. Pricing needs to be good if we have a product that everyone wants but the price is too high, so they're still not going to buy it. The pricing needs to be competitive and attractive to the customers.
Also, there needs to be a reasonable profit margin. Why is that? Because people have invested in the company or there has been a lot of time and effort going in. Unless there is a profit margin that is reasonable, maybe there would be other products that are more profitable and then it's better to focus on other products. Not only does the product needs to be attractive, but also the price needs to be attractive and the profit margin. The sales and marketing teams are ready to push and ready to go out and sell the product and talk about the product and create brand awareness and all that.
A Real-Life Example: Ultra Milk
When all of these things are in place, basically the only thing that's missing is the product. We'll talk a little bit about the product development lifecycle. Back to the example of milk, we have Ultra Milk. They have been around for more than 50 years and they still keep launching new products, new flavors, new packaging, and new pricing.
Of course, the milk business, the dairy business looks very different now compared to 50 years ago. Even though you might think a liter of milk is the same product as it was 50 years ago, they have kept improving the value chain. They have kept improving their distribution, their logistics, everything. They had, I think, a revenue of more than IDR 1 trillion per quarter. They're doing well.
Steps of Value Creation in a Product Development Life Cycle
What is the product development lifecycle? This is the easiest. This can be discussed. A lot of people put it in five or six or seven steps, but here's a summary. There's the value creation step, the value delivery, and the value capture. This talk is about value creation. Part of value creation is these five steps.
Basically, it is common sense that you need to have an ID and you need to take that ID from the ID stage to something that you can put in the consumer's hand. In software development, especially, but also any other industrial product development, it starts with ideation, and conceptualization, and then goes to a design and then an actual build, and then delivery. Basically, delivery in this context means delivering the product and packaging it, and making sure it's available.
But the value delivery happens later, typically by distribution and sales team and marketing and so on. For delivery here, we're talking about the delivery of the product. We'll go into the steps here a little bit more.
The value delivery happens when, for example, our product is the API and it can be made available in different merchant applications like Ayopop or Mandiri Livin' or anything else. The value creation, we've created, for example, an API or a web view or anything that is basically a product that can be consumed by our merchants who then provide this product to end users, consumers. What we are doing in Ayoconnect is when, especially in product and tech, we are focusing on the value creation part.
Step 1: Ideation
Of course, ideas don't necessarily come from the product team. They can come from requests from merchants or looking at the market, looking at competitors, what they are doing, looking at new ideas and new trends in open banking and open finance, and so on. From there, we can brainstorm and figure out new products. That's the ideation stage. I've asked the ChatGPT here and it actually had a surprisingly awesome answer. I was happy to see the quality of their answer.
Basically, the goal of the ideation is to have a lot of product ideas and look at them and see which one we want to focus on. Not only coming up with a lot of ideas but also selecting which idea to focus on. I'm sure everyone knows we could probably build 50 different APIs for 50 different products, but we have to build a few of them at a time. We cannot do everything at once, so we have to choose the ones that we think are the best. That's the ideation stage.
Step 2: Conceptualization
Then going over to the conceptualization, it's more about creating a business case and the deck where we explain the product. Even if we haven't built anything, there has to be a flow, maybe a couple of simple mockups, a user flow, all of these things, but also discussing the business case around it.
Step 3: Design
For the design, of course, I think everyone knows there are a couple of different parts. There's the user experience design, which is not so much about the user interface, but more about the overall flow and how the user interacts and so on.
Then there's the user interface design, which is more about the colors and styles and basically the tangible physical user interface that the user interacts with.
In Ayoconnect, we also have to consider something that is the API design. Our product is not only used by end users using a user interface, but we also have developers who are using the API design. When they integrate, we have to think about making it as easy as possible and as good as what you call as easy as possible and user-friendly for developers. I guess you could say developer-friendly APIs. All of these things need to be smooth and feel easy and useful for the user.
Step 4: Building
The next part is, of course, the actual building. I try to find on YouTube a video of someone coding, but they were very boring videos. Actually building the product ground up from zero, from scratch is quite a tedious process. There are a lot of things that can go wrong. It's all about setting up a proper architecture, designing the front-end and back-end flows and all this, and also, of course, writing a lot of code. One of the assets and intellectual properties of Ayoconnect is, of course, source code and all these things.
Step 5: Delivery
That's what happens during the development stage. That's where we build the actual product. Then delivery is all about making sure that this product is available. I think as you know, Abhi was talking about the Ayoconnect Super API. Basically, making all our products available under this Super API and we're using something called Apigee on Google Cloud.
But basically, the concept is like Ayoconnect Super API becoming the alpha mark. There could be five APIs or 50 APIs all being distributed or accessible by the Super API where everything is available. Our job in product and tech and DevOps as well is very much getting the ideas, the concepts, and the design into something tangible that can be delivered through an API or a web view.
What Happens Next?
Then this process keeps repeating. It doesn't stop with that. It keeps going on. Then once something has been delivered, we get feedback, we get user requests, we get feedback on the user interface, and then we come up with new ideas and new improvements and so on, just like Ultra Milk has done for the last 50 years with their milk.
A summary, I think I'm on time. Summary. There are three main steps. Horizontally, there's value creation, there's value delivery, and value capture.
In product and tech, we mostly focus on value creation and we have our own product development process to do that. There are a lot more details, of course, that goes into all these five different stages. We could do another presentation about agile development and so on.
But basically, the point that I want everyone to remember after this presentation is that value creation is a process where we create something more valuable than all the resources consumed while we build it. More valuable, the outputs are more valuable than the inputs.
The solution, whatever we mix, should either help decrease cost or increase productivity.
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