How Finance Makes You a Better Product Manager

I was a programmer. By some coincidence, I entered the realm of product management a few years ago. The technical background made me confident in communicating with developers easily. Studying a few books and working with a couple of designers helped me contribute to user experience design.

But speaking of financial numbers would make me silent. Silence is not inherently bad. What made me upset was my inability to comprehend what they talked about. Or my inability to understand how investors estimate the value of a business. I felt disappointed.

To tackle this challenge, I eventually immersed myself in finance fundamentals. Fortunately, it was a great experience. This article explains why learning finance matters from a product person's perspective, especially if you're a product manager or business developer.

1. Understanding Business Viability

A product manager's principal job is to help build a product that customers love and that is viable. In other words, a PM's job is to create value for the customer and the business.

But what is business viability in essence? Many PMs don’t fully understand this. In the finance realm, viability means building a valuable product that beats the cost of capital and sustains itself for a long time.

It's perfectly normal if the term 'cost of capital' feels unfamiliar or confusing; a good incentive to learn about finance fundamentals. It helps you gain a clearer understanding of business viability and do your job better as a PM.

2. Preparing for the Next Role

Stepping into certain leadership roles requires you to communicate effectively with the CFO, CEO, investors, and board members, most of whom are financially fluent. They expect you to understand their concerns, often communicated through key metrics like EBITDA, gross margin, or payback period.

Becoming a Chief Product Officer (CPO) is one such path. Some product leaders even go on to serve as CEO. Others contribute to startups as angel investors or by launching their own ventures.

Without a solid grasp of finance, it’s difficult to take on these new challenges and opportunities as your career evolves.

3. A Garment for Every Season

Assessing situations from multiple perspectives is a key skill for product managers. But much of what you learn tends to be specific to certain types of businesses.

For instance, your experience with B2B, B2C, platform, or social media products might not translate well when working in other domains. Finance, however, is a garment for every season. Once you learn the fundamentals, you can apply them across nearly any kind of business.

4. Reinforcing the Decision-Making Muscle

Finance is about the future of a business. Evaluating future outcomes requires both intuition and a solid grasp of the numbers—a blend of art and science. Learning finance strengthens your decision-making muscle. It helps you discuss trade-offs, such as short-term revenue vs. long-term growth.

Many product decisions are rooted in financial strategy. HubSpot, for example, bundles multiple services to sell upfront, generating immediate cash. These bundles encourage prepayment, effectively financing the company's working capital. Such decisions support business viability and can directly impact profitability.

Finance also plays a critical role in understanding the competitive landscape, analyzing competitors, crafting monetization strategies, and much more.

Final Words

Financial analysis is anything but trivial. It requires years of experience and education. This is why you need a finance expert to support you in making financial decisions. However, its fundamentals are both practical and surprisingly engaging. It creates a more versatile and effective product manager.

Start with the basics, then dive deeper as you grow more comfortable. I’ll soon share a follow-up on what product managers should focus on learning.