To 10x Your Profits Start With Retrospectives

20% is boring

As many of you know, the Scrum methodology – and many other agile methodologies – use a practice called “retrospectives.” In other, non-software domains, they might be called debriefs or after-action reviews.

After each sprint the team spends a short amount of time reviewing what went well, what could be improved, and what they should stop doing. The goal is for the team to learn quickly from each sprint.

Regular retrospectives have been shown to improve team performance significantly.

So, let’s say I really wanted my team to start doing retrospectives, and the team is unwilling. I might share this little bit of research with them:

In a meta-analysis of 46 studies on debriefs (also called after action reviews or lessons learned), Scott Tannenbaum and Christopher Cerasoli found that when appropriately conducted, debriefs can lead to a 20-25% average improvement in performance.  The authors found performance improvements in the use of debriefs with both teams and individuals.  (Thanks to the Center For Evidence Based Management for sharing this study.)

Obviously, based on this data, retrospectives and debriefs should be a no-brainer. They are easy and they make your team 20% more effective. But this data still doesn’t motivate most teams to act.

Why not?

It’s simply that a 20% improvement isn’t enough to get the team to change its behavior.

How to get a 10x benefit from your retrospectives

This is a general problem for product managers. 20% improvements aren’t interesting to people, whether they’re your customers or your team members.

One of my product management rules of thumb is the “Factor of 10 rule” – people aren’t willing to make a change – to a new product, to a new process – unless they get a 10x benefit on a metric they care about.

Back to my problem. I still think retrospectives are a good idea because I want my team to learn faster.

So I need to figure out how retrospectives will make an order of magnitude difference to something important to the team.

Somehow, I have to make 20% appear to be 1000%.

When does 20% equal 10x?

And that’s what this post is about. (It’s not really about retrospectives.)

Let me tell you one of my favorite stories. At NetIQ we improved the uptime of Windows servers by 20%. That’s nice, but as I said above, it’s not compelling.

But by improving uptime, we also reduced downtime. If you do the math, we reduced it by a factor of nearly 100 – two orders of magnitude! And I can assure you that our customers cared a lot about having less downtime. That’s a story you can tell, and indeed at NetIQ we told that story well.

Can we apply the same kind of thinking to “20% performance improvement?” Somehow turn it into an order of magnitude improvement?

Well, here’s one way. It’s similar to the “downtime/uptime” calculation we did at NetIQ.

Retrospectives help teams learn faster

How fast will the team learn if they don’t do retrospectives? I assume the team’s performance will increase over time naturally, but kind of slowly. Let’s call it 2%. So, if retrospectives increase that rate to 20% … I get a factor of 10x right there.

With this data I can say, “I recommend the team start doing retrospectives – your performance will improve 10x faster.” Retrospectives accelerate the team’s learning, and they accelerate it by a factor of 10. That’s a much better pitch. And learning faster is a benefit that most teams consider important.

How does 10x faster learning affect the bottom line?

But now let’s make the problem a little harder. I don’t just want the team to do retrospectives, which are free. I want the company to buy the team a tool to support retrospectives. And unfortunately, the execs don’t care that much about team learning, no matter what they say about “the company’s people are our most important asset!”

So I have to go to the next step. I need to show a dollars-and-cents business benefit for retrospectives – for “improving performance 10x faster.”

What happens when you accelerate your learning by a factor of 10? Well, the whole point of having a higher performing team is to release higher quality products faster.

And what happens when you introduce higher quality products to market faster? You get more revenue faster.

What happens when you get more revenue faster, but with the same team and the same level of effort? All the additional revenue goes straight to the bottom line. So your profit grows, and it grows faster than it would have.

You can triple profit for almost no cost with retrospectives

Let’s put some numbers around that. Let’s say that improving the team’s performance results in a 10% improvement in time to market, which results in a 10% improvement in being able to close sales. In any period I get 10% more sales than I would have.

Let’s also assume that our profit margin was 5% before. If I had $10 million in revenue in a quarter, our quarterly profit was $500,000.

With my improved team performance, all the costs are the same, except I’m spending a little bit more on a tool – say that’s $3,000 per quarter. Otherwise, all I’m doing differently is having another short meeting every few weeks. I didn’t add anyone to the team. But now my revenue is $11 million in the quarter because I got a better product to market faster. My profit is now $1,497,000.

Improving the team’s performance by 20% tripled my profits!

Oh wait – did I say “triple?” How about 10x my profits?

This is even more impressive if the company is barely profitable. If our profit margin is only 1% before improving the team, then improving the team’s performance using retrospectives can increase my profits by a factor of 10.

Making the pitch

To pitch retrospectives in my company, I’m going to use these ideas.

If we implement retrospectives and a good retrospective tool:

• The team will learn 10x faster
• Therefore, we will get better quality products to market faster
• The result will be as much as 10x the profits

Turn 20% into 10x

I illustrated this powerful idea in terms of retrospectives. But you can use the same approach to justify – and get investment in – many other kinds of improvement.

How to do it

1. Find the baseline, call it X. In the example the baseline is the rate at which the team is improving without doing retrospectives. They’ll naturally improve some, but not as much. Let’s say it’s 2% (per year).
2. Find the improvement to the baseline, call it Y. For retrospectives, it’s 20% per year.
3. What’s the ratio between the improvement and the baseline (X/Y)? For retrospectives it’s 10. This means that in the retrospective case, the team is getting better 10x faster.
4. Optional next step: What does that 10x improvement mean in terms of business results? There are a few big ways to improve the business: get to market faster, win more of the deals you get into, get into more deals, open a new segment, increase the total addressable market (TAM) of the segment you’re in. Improving the effectiveness of the development team can impact four of those five.
5. Figure out how impacting one or more of those factors affects revenues and profits. Especially for profits, and especially if you are starting at a point of low profits, you can often get amazing multipliers for just improving your processes a little bit.

How do you pitch value?

Have you used this technique of changing the perspective on a metric that’s “not quite good enough” to get a factor of 10 improvement?

I’d love to hear how you pitch improvement techniques, especially when they involve tools, to your management.

Please leave a comment or note below with your approach – or if you have additional questions.