We’ve been through the first four phases of your traditional new product development cycle over the last 6-9 months, which seems about right in terms of where we’d like to see the development and launch effort take us. The following recipe has generally been our guiding light:
- Opportunity Identification
- Opportunity Analysis
- Idea Genesis
- Idea Selection
- Concept and Technology Development
To be honest, we probably iterated over stages 1-3 a dozen times (some more formally than others) to get to the idea that made it to Stage 5. I want to talk a little bit about how I approach each of these phases and some tricks I used for defining some quantitative ways to compare and make decisions at each stage.
I look at this stage as your traditional SWOT for a vertical or customer segment you are considering. You’ve maybe generated a hypothesis about what you think a market looks like without diving into the numbers of it yet. Its a great opportunity to take a hard look at your organizations strengths and weaknesses in an introspective way. Asking questions like: Do we have the necessary core competencies to address this market? Do we have the right resources? Should we go and find the right ones? …are all good deal-breaker type questions that can save a lot of time (and money) later on.
Numbers. In our case, we’re more in the B2B camp for the offerings we’re developing so things like labor statistics and employment numbers from the US Bureau of Labor Statistics is a great resource for getting some course grained numbers to work from. If you’ve got competitors that are public companies its great to read their 10-K reports because they usually not only include their strategic outlook (which is great for understanding the pulse of the market), but also a reasonable breakdown of where their revenues are coming from and what product successes they’ve had. Have competitors that aren’t public? If you can guess their relative size/number of employees, you should be able to work backwards to figure out the revenue earned for each employee based on comparable public companies. Its not perfect, but it gives you a good way to put some numbers to paper. I’ve been known to call customer support and chat up sales people to get this kind of information as well. From these numbers you should be able to cobble up a total addressable market size (portion of the market you think you can make a product for) and what percentage of that market is currently being addressed by your competitors. This will give you an idea of both the “green field” opportunity and the conversion sales opportunities in the market. These numbers are important because in later phases, once you figure out what you think you should actually build and how much it will cost, you can figure out if it makes actual business sense to do so. There are many ideas that sound great, but just don’t have the market to support them.
Have some domain expertise? Or some advocates for your company in the market your looking to get into? These are great places to start in my opinion for initiating broad ideas and finding pain points you might be able to address. Market news and macro trends in related industries or the vertical you’re evaluating also create great ways to generate ideas. Personally, I like to look for ways to apply ideas that have had success in seemingly unrelated industries and look to apply them to the problems that seem to exist in the space we’re evaluating. During this phase, you should have a ton of terrible ideas, some not bad ideas, and a few pretty good to great ideas. I think the more people you talk to about ideas you’ve generated both internal and external to your organization, the better your categorization becomes to help inform what ideas you really want to analyze further.
Back to numbers. What is it going to cost to build? What could we reasonably expect to sell it for? How long is the expected product life? How many can we sell? And then of course the penultimate, what’s the return on our investment? I like to assume 10 years for product life, use the market size numbers from earlier to calibrate for the price per unit, make a reasonable guess at what percentage of the market we can reach in total (based on market testing that may have been done or based on the penetration competition already has), and project over the product life to get a net present value. Do this for each idea and you’ve got a way to quantitatively evaluate business decisions. Yes there are tons of assumptions and risks built into those models, but hopefully you’ve been able to minimize those through primary and secondary source research. If not, the next phase can help more as well…
Concept and Technology Development
I should state that we’ve just made it here for the first time in our process and in fact are moving ahead with multiple ideas. Based on the models generated in previous steps, I think we’ve got one that is a clear winner but needs some validation and one that could be a nice investment if customer reaction supports it. Our general plan is to work this process in parallel. Concept development is taking the form of marketing collateral and briefings (to evangelize and explain to potential beta test customers what we’re building) as well as functional specifications to hone in on our actual costs and formulate our technical implementation plan. The plan is to be as fluid and flexible as possible through this phase and to adapt to customer requests without sacrificing longer term success for short term returns. In this stage, we’re developing an initial road map for the technology development, ensuring our key marketing materials and communications happen at times when we’ll have industry events relevant to our offerings, and looking to establish our early adopters for beta versions. Following iteration after beta, its commercialization and hopefully well on our way through the Introduction phase of the Product Lifecycle.