Uses: define state of business and helps decide investment decisions.
You are in a new job and your responsibilities include growing the company (or your product) and influencing what’s next. What tools would you use in the first 60 days? This question came up recently in a brainstorming session with fellow PMs and growth guru Brian. It reminded me of a framework I’ve used since b-school and comes very handy in defining state of the union for any business.
The Activities, Value, Appropriability and Change framework (AVAC) can be used to make investment decisions in large companies, define state of business in pre-product-market fit and post-product-market-fit startups, and even to some extent in evaluating partnership/M&A decisions. As a product manager I use frequency-density-pain model for day to day 1000 feet prioritization, while frameworks like AVAC help in 10000 feet “lets take a deep breath and a step back” or “where do you want the product/business in 36 months time” or “let me draw you a napkin diagram” situations. AVAC is not a collectively exhaustive way of looking at a business but it does help frame key questions about a product or a business. And if you do not know the answers to those key questions then your product or business is flying blind. Not that it is a bad thing.
AVAC is pivoted on defining the value users see in a firm or a product, and tries to determine if activities of the firm help enhance that value, whether the firm can monetize the value users perceive and whether the firm will react well as the world changes.
AVAC has four pillars –
Activities – can the firm perform activities efficiently to translate resources into user benefits and complementary assets. a simpler way to put it would be are the firms activities helping in –
- Creating value for the users.
- Monetizing the value users perceive for the company.
Examples: A large ecommerce company with a treasure trove of data about users should invest in ‘machine learning’ activities since it would help convert the ‘data’ asset into user benefits and in turn long term sustainable profits for the company. A social network with billions of users can invest in ‘building content creation tools’ activities which will be a ‘complementary asset’ helping launch a firehose of original content. Activities also help answer what capabilities need to be built within a team or a company.
Value – value to the user and also value of the user. As in –
- Does the firm or the product have/create unique perceivable value for the user.
- Are these users valuable? Do we have good users. [Good product managers fire their customers].
This is the most important part. Do we have a resource (network effects for Facebook) or a capability (customer service for Amazon) which
1. makes significant contribution to benefits user perceive in a product
2. difficult to imitate and extendable to other products. (Amazon’s retail customer service can be extended to customer service for Amazon cloud).
Appropriability – can the firm make money from the value it creates.
is the value users see in the firm hard to imitate, there are few substitutes out there for the value the firm provides and the firm or product has complementary assets which provide sustained competitive advantage.
Example: is it like twitter.
Change – Things change. There is new technology, macro economic trends shift, competitor response and capabilities change, customer needs and expectations change. Is the firm or product well placed to take advantage of opportunities that come with change.
Further reading – Allan Afuah’s New Game Strategies. It’s a great book for keeps sake.