It’s all about breaking the old business model and innovating new models. In with the new, out with the old is every innovator’s mantra. The perfect example is Dean Kamen. You remember Dean, don’t you? He had this product called the Segway that was ready to revolutionize the way we traveled in cities. However, it failed to do much of anything other than become a great innovation. Remember, The Delorean Motor Company? I think they make money selling garment bags now more than cars. There are many that we could list, most forgotten.
These products are just examples of great innovations that were slightly ahead of their time and maybe even still ahead of it. I attribute by saying maybe they thought too far out of the box. I sometimes liken this to the fact that when you take Blue Ocean thinking:
- Raise: Which factors should be raised above the industry standard?
- Create: Which factors should be created that the industry has never offered?
- Reduce: Which factors should be reduced well below the industry’s standard?
- Eliminate: Which factors that the industry has long competed on should be eliminated?
You might just build a value proposition that customers cannot associate to other products. It becomes just too large of a step or too much risk taking for them. Even a simple thing like marketing; Customers will always ask for out of the box thinking and that new creative idea. In the same breath, they ask, where has this worked before. They want evidence.
I seldom go a day that I am not in contact or see a request about a product ready to be launched, and all that is needed is a marketing plan. The newer a product is; the more work that needs to be done before launch. The work is not about events and marketing collateral; it is about understanding the behaviors of your target market. In a podcast with Bill Aulet (author of Disciplined Entrepreneurship: 24 Steps to a Successful Startup.) Not 4-Hours but 24 Steps to Successful Entrepreneurship, I asked:
Joe: Another part I enjoyed about your book, and it was in the later stages, is that you actually start putting numbers and quantifying things for people – calculating lifetime value, acquisition costs. I can say you’re one of the very, very few books about entrepreneurship that start addressing those issues.
Bill: In our class when you get a paper back, “this isn’t specific”, “this is too general” – this is some kind of MBA BS, we want numbers and give us numbers, relevant numbers, because, at the end of the day, business is about numbers that you need to make. If you don’t make it economically, you don’t have oxygen and can have all these other things. Now that doesn’t mean that those should drive the business – you can be a mission driven business, a customer driven business, but at the end of the day the numbers have to work. You think this obvious, Joe, and people talk about it but what we’ve found was that people didn’t know how to calculate the cost of customer acquisition. One of the character’s in the book you’ll see, and he’s got wine and seems a little bit tipsy and that’s because he is tipsy because entrepreneurs pathologically lose their rationality when it comes to cost of customer acquisition; how much does it cost for me to acquire a new customer? They just think “oh, if I build it, they will come”, that’s not how it works.
There’s a whole process that customers have to go through to buy a product and entrepreneurs need to understand that process and understand whether the sales cycle is three weeks, three months, six months, nine months, a year and a half because that very data right there could absolutely kill a company. If you’re sale cycle is a year and a half it’s very, very hard, but if it is a year and a half it might be possible but you need to know that and not think that it’s three months and then you need to make sure that your lifetime value of the customer is very, very high to support such a high cost of customer acquisition.
Understanding the existing behaviors of your customer’s markets is imperative in product launches and extending markets. You must be able to pull upon examples that the customer’s understand and can relate to. If you distance yourself to far away from competitors (which you may think is a perfect strategy); you create a barrier to purchase. You may remember for Edison to sell a light bulb, he had to build a power plant. Are you prepared?
Joe: lots of ideas in your blog – some I agree with. Others – if I understand them correctly – are a little harder to wrap my head around. Any innovation must blaze sales trails, so it’s difficult or impossible to know how long the sales cycle will be, or how much it will cost to acquire a customer. The answers to the second question, at least, depends on the answer to the first. You can forecast and predict, but without prior experience, it’s hard to know. Even with prior experiences, you’re still working with probabilities.
This, of course, is the conundrum people face, because as you write, ” at the end of the day the numbers have to work.” Stakeholders, particularly investors, want certainties, and innovators often pander to that need, offering “concrete” forecasts and predictions about customer behavior that really aren’t concrete.
In any case, what I find that successful innovation somehow optimizes providing these four attributes:
– more features/ more sophisticated than existing choices
– easier to use/ implement than existing choices
– low cost (or lower cost) than existing
– easy to buy (or readily available)
Seldom can all of these attributes be combined in the same strategy.
Thanks Andrew, I appreciate your comments. I agree with your comments and especially one, “it’s hard to know”.
The struggle I see and work with is that so many entrepreneurs when they reach out to the marketplace, even if the have found product/market fit, they look for instantaneous sales. They really do not understand acquisition cost or the market well enough from the perspective of their customer. They see that the solution works, and may even meet several, or all the attributes you describe but understanding the buying habits of their market are seldom addressed.
My example; If the product or service, lets say a boat, typically takes the marketplace 6 weeks from the time of introduction to closing the sale why would a new boat style take any less. Common sense dictates it should take more time. If it too far in left field, it could take 2 to 4 times as long and you may have to go through at least that many more at the top of the funnel as the other guy to find early adopters.
The question becomes can your business model support it.
The question ‘can your business model support it’ has been a burning issue, and one that is not easy to solve for most companies. In fact, it’s mostly unasked, for reasons I can’t explain. For any organization, your question involves risk capacity, and weirdly, most companies don’t think in those terms.
Mismatches between risk capacity and market strategy are rampant. Many thinly- capitalized firms develop a product, expect the market to offer a massively high price for it, but are unable to sustain the long (and costly) sales cycles that are associated with their offering. The answers for risk capacity are found in liquidity ratios, cost of capital, burn rate, and investor expectations. There is no single number or factor which is ‘acceptable.’ – risk capacity depends on every company’s unique situation, but it must be considered as part of the product rollout strategy.
Risk Capacity is a good title for what I was really after. Thanks for your input.
I quoted Bill Aulet as he is one of the few start-up gurus that address this as you can see in my excerpt form the podcast I had with him.
The other part of Risk capacity that I was trying to get at is the predominant thinking that we need always to think out of the box. I am not against that but for existing companies or as you describe moving to far away from your core competencies can be disastrous. You can have a small percentage of product risk and should limit your exposure by prototyping but Andrew in your experience is that done well? Have you seen organizations adjust risk exposure on a “great” idea?
There are many creative models for managing innovation risks. Some products are developed by independent companies but the costs are almost fully underwritten by a larger organization – so the word ‘independent’ is probably best thought of as surrounded by quotation marks. In other situations, two or more companies can agree to co-develop products, as is frequently done in manufacturing, when trading partners have a mutually-beneficial stake in the successful launch of a new product. Both of these situations involve shared risk, which can be more viable than a ‘go it alone’ approach.