I thought I would use this shortened week's blog post to share a recent discussion I had with a client of mine. I felt compelled to share with my connections as there are some tidbits of great advice that can help anyone with their particular business model.
Don: Let me get this straight, you already built the factory in the North pole
Don: ...and you've already agreed to a contract that provides full lodging and meals to your workers....including unlimited dessert?
Santa: Of course. Happy workers make better toys!
Don: Ok...and to meet your year end goals you need to travel around the world within 24hours to each of your 108M customers residences so you can deliver all your inventory in the course of one evening...for free.
Santa: ....but I get 31 hours with the time zone changes....and yes...
As you can probably tell, Santa didn't really check with any business consultants as part of his go to market planning. You, on the other hand, are trying to make money with your solution and there is some advice that I am certain will help you deconstruct the problem and get you well on the way to enjoying a more profitable holiday season.
Follow the money
Now, I'm pretty sure we can all agree that Santa does not have a great business model and can only survive based on a really rich angel investor that is playing a very long term game. However, there are some lessons we can learn from this really bad business model and it starts with understanding your revenue, margins and expenses for your product line. A lot of small and even medium companies get very excited with orders for their products from real customers. It feels great to have someone not related to you buying into your idea and placing orders. Before you wear out your shoes dancing, it is important to take a step back BEFORE you take orders to really understand the Profit and Loss (P&L) for the product line or service. You have basics like cost of goods, shipping, and duty. Forget to add in line items for things like funding payment terms to your vendors while you wait to get paid by your customers, warranty accrual and ongoing support costs could result in some really good revenue and horrible profitability. Every business I talk to starts with a discussion about how they make money. Not all of us have a mysterious angel investor who is more interested in volume and not interested in profitability.
Go talk to your customers
We aren't all in the luxurious situation where we have our customers line up to visit and tell us exactly what they want from us....down to the UPC code in the case of my kids. This means we need to get out and talk to actual human's who are already getting the product from a competitor or we believe will be a target for our pain killing solution. Many of our ideas start off with a pain we are feeling and have not been able to find a solution on the market today. This is a great data point and can certainly validate the need for further investigation. However, it should not be the only data point used as part of a customer discovery plan. From watching customers purchasing behaviours in the wild to asking people if they could spare a moment to share their decision making process, you need to get data before you invest a lot of money developing a solution. Failing to do this increases your probability of ending up on the naughty list without a home for your inventory even if Santa is giving it away for free...
Create recurring business
Every year at the same time our jolly old friend comes like clockwork to deliver his unwanted inventory on the world's children. It's a great concept minus the profitability. As entrepreneurs, we need to be focused on not just the initial sale, but a recurring annuity type profit margin that continues to deliver month after month. This can be in the form of replacing after it has been used a number of times like printer ink or can be a level of service support that customers find recurring value in the use of your product. Either way, we want a sticky solution that builds brand loyalty and trust that we can continue to deliver month after month not just once a year. A lot of this comes down to how you've planned to build your business model, what you have done to understand your customer needs and how much homework you have done to understand your competition so you can disintermediate them in the market place. Don't use Santa as the example of how to create a loyal and rabid fan base unless you intend to give away the inventory every year and go for a new round of funding...
In summary, before you get too excited by the product or solution idea you have make sure you create a sustainable business. One where your bottom line is well understood, your potential customers are involved in the decision making process and is built for the long term. Happy Holidays and all the best for the New Year!
No matter what has been keeping you busy for the last year, I am pretty sure you have all heard that a new Star Wars movie is due out on Dec 18th. Based on this momentous event, I felt it would be a great opportunity to look at five quotes of wisdom from the series and how they can relate to our product ideas as we get them ready for the market.
“Never tell me the odds.” – Han Solo
The first statistic you'll hear as you begin to think about starting your own business is that 8 out of 10 entrepreneurs who start businesses fail within the first 18 months. A whopping 80% crash and burn. Not great odds for you to be successful, right? Well, through the series of blog postings, we have been sharing a steady stream of tips to make sure you do not end up on the wrong side of the statistics. From focusing on ensuring you have a pain killing solution as a new entry into the market to spending time speaking to actual humans during your product development, you have many opportunities to increase your product success when it launches. Don't become a statistic and make sure you have your customer in mind through all your critical decision points.
“In my experience there is no such thing as luck.” – Obi-Wan Kenobi
No truer words have been spoken. There are common misconceptions by some that believe the success of a product was based on luck and I would beg to differ. Certainly, there is an element of good timing required, but I wouldn't consider that the same as "luck". Anyone that has actually gone through the hard work, late nights and gut wrenching setbacks along the critical path from concept to launch ... knows "luck" had nothing to do with the success. Having personally gone through the process of launching many hundreds of new products to the market globally, the success or failure has been based on relatively consistent themes. You have to target the right customers with the right product and message at the right time. Easy, right? :)
“I find your lack of faith disturbing.” – Darth Vader
Ah yes, sometimes overwhelming confidence is necessary when you are faced with unbelievers. As an entrepreneur, you are constantly putting yourself out there whether with investors, business partners, mentors or friends. You pour your heart and soul into following your dream and feel you are being told why you shouldn't instead of how you can. There are plenty of times that you should absolutely stop putting good money after bad, and there are also many times that overwhelming confidence in yourself, your ideas and your vision is required. If you have done your homework related to your value proposition and have spent the needed time speaking with humans you will be well positioned to back up that confidence with real tangible results.
“Stay on target.” – Gold Five
So many opportunities, so little time? It is incredibly easy to get distracted by shiny things on the periphery of your product development. A new customer adds a different twist to how your product could be used or you see a new market opportunity open up from some new research. It is important that you consider these data points along the journey and take the opportunity to slow down to do some investigation. It is much more important that you leverage all that hard work you've done in the early days of your product definition related to the usage model, market and customer to keep you focused. Make sure you capture the new information as part of your roadmap and don't jump to add them as part of your minimal viable product. It is really easy to get distracted by shiny things and it is critical that you stay on target.
“Do. Or do not. There is no try.” – Yoda
Is there any better advice? The classic tough love statement that every one of us needs to hear, as it is inevitable roadblocks will be hit along the journey. No matter how much value proposition work you have done, or how many customers you have spoken too along the journey, you will absolutely hit roadblocks that will feel overwhelming. No matter how frustrated you are, or how impossible the situation feels, take a step back and lean on your network. Seek advice from trusted advisors and friends. There are few things you will embark upon in your life that will be as all consuming as being an entrepreneur.
So, as some of us dust off our Chewbacca outfits from the last movie launch hoping it still fits, I encourage you all to take the words of wisdom from episodes 4 thru 6 (the prequels don't count, right?) and continue developing your pain killing idea for the market.
...is to convince 5 experienced professionals in the next 15 minutes that your idea is ready for an $8,000 investment and acceptance into the University of Guelph College for Business and Economics (CBASE) Hub incubator program. Last week, I had the opportunity to be part of the panel of industry professionals for entry into the CBASE program. This program focuses on helping startups develop a strong business model that can be rigorously tested and intelligently scaled. It was my first time being part of a judging panel for new businesses and I was very impressed with the diversity of ideas, as well as the different business models being proposed by these entrepreneurial companies. There were three key takeaways that I had from the day which I believe can help others as they come up with their pain killing solutions for the market.
Know your financials If you are a "for profit" business, the reason you have an idea that you would like to mature is you believe there is a way to make money. There is no more awkward moment when you are presenting your product idea than to be asked fundamental questions such as customer sales price, product cost and channel margin and not being able to easily answer. One of your main roles as the entrepreneur CEO of your concept is to know your financials. In the early stages, you do not need to know the exact costs down to the penny. What you do need to know is roughly how much your idea will cost you when you launch, how much you believe you can charge your customer for your solution and how much you believe the sales channel will require in order to want to sell for you. Without knowing how the different pieces of the value chain come together to get your idea out to the market, you really just have a neat idea, not a business.
Know your customerRegardless of whether you are selling a physical product, providing a platform for service, or creating a new patentable technology for an entirely new industry, it is absolutely essential that you have a very clear picture of your customer. What do they look like? How old are they? Are they technical? Should they be? Will this product be in a physical store or will it be sold online only? Are you selling to other businesses or to consumers? At the most base level, you need to know the in's and out's of how your product is going to solve your customer's pain. If you cannot clearly articulate why this customer is going to buy what you are selling, you really need to take a step back and think deeper about your really cool idea. Remember, to develop a solution that your customers care about, you must be solving a pain that your customers care about. To get it right, you need to know as much as possible as early as possible about your customers.
Know your competitionSo, you have a great idea, know roughly how much it will cost and approximately what you can charge. You have a pretty clear picture of what your customer looks like, what they like and also dislike. The other leg of this stool, at this stage, is to get a clear idea of both primary and secondary competitors in the marketplace. Who is selling a similar product in the market today? What other choices could your customers explore? How much are they charging customers? How much margin are they providing to the channel? Where are they marketing their product and how much do you think they are spending to keep the product moving in the channel? What are the strengths and weaknesses of the solutions that exist both in the primary and secondary competition? Spend time early to go to school on the competition that exists today. They have spent time and money on the market already, so you might as well take their investment to study and learn as much as possible for free.
At the end of the day, it is really easy to get caught up in the excitement of your concept without having a clear enough understanding of the landscape. Take a step back before you go super deep into developing your pain killing idea and ensure you understand the rough financials, your customer and the competitive landscape. From this solid foundation, you will feel a lot better about the future investment required to bring your idea to the market
No, that isn't a spelling mistake. It stands for Nothing Important Happens in the Office and is a part of the Pragmatic Marketing course. I'll spend this post talking about the principles of getting out of the office in more detail, as it is of fundamental importance when trying to launch your painkilling solution to the market. More importantly, it outlines an important principle of our product development cycle as we continue to mature our value proposition. What the principle of NOHITO means is very simple...absolutely nothing important is going to happen in the office, especially when you are trying to develop your next great solution for customers. Whether it is a first generation eureka concept or a follow on product to a previous generation, I cannot stress enough the importance of getting out into the wild and actually talking to customers. However, there are some fundamental things to consider as part of this data gathering effort for your product development. The ultimate goal is to make this a valuable use of your time.
First, you need to take what your customers tell you as data points not as gospel. You want to ensure that you are looking for trends and patterns to the feedback vs. simply taking what one customer says is their particular pain killing solution as the answer. You hear all the time, especially in the tech industry, that you are suppose to lead and tell the market what it wants vs. listening to customers and that is not what I'm saying at all. What you want to do is make sure you are asking the right questions, gathering patterns and developing a solution that fits the problem the customer is trying to solve. The best quote that epitomizes this idea comes from Henry Ford.
If I had asked customers what they wanted, they would have said "faster horses" - Henry Ford
Second, you need to organize your customers into the buckets that align with your value proposition. There is no point getting feedback from customers on your idea when, in reality, these people wouldn't be customers at all anyway. You can easily make changes to try and appeal to everyone under the sun instead of staying laser focused on your true target market. I am not saying that you should ignore feedback and if you have put the effort into the customer discovery work early in the value proposition development, than you have a very good understanding of what your customer looks like. There are many new opportunities to create products for other types of customers. Stay on task to ensure you have the right solution for your defined target market for this particular product. There is nothing stopping you from jotting the information down for the next product idea.
The last, but not final, point to make on this topic today is to ensure that you have respected your customer’s time through this process. This means coming into the interview prepared with questions, spending more time listening, so you are getting feedback instead of leading the witness, and ensuring you are following up on actions taken during the process. Remember, you do not need to take everything each customer says as gospel, however, you do need to show respect for other opinions as part of the process and be thankful for the time they are spending to share their perspectives.
There are a lot of different branches we will cover in the future in relation to getting out into the wild and enjoying a strong NOHITO. Feel free to share your best stories of getting out into the wild and talking with actual customers in the comments section or directly to me!
It's been a crazy product development cycle. You've poured your heart and soul into your offering, suffered through all the ups and downs along the critical path and the day has finally arrived.
If you are like most, you immediately begin wondering if all the hard work you have put into the solution will resonate with customers. Will they understand why you did what you did? Will they get it? Most importantly, will they part with their hard earned money and buy it? The good news is if you followed the steps we discussed in our other posts you are well on your way to being successful with this new offering.
Finishing the product is really only part of the story. The other things we need to consider as we prepare to go out into the market are Pricing, Placement and Promotion strategy. Let’s use the rest of this post to touch on these elements of a full product strategy.
Pricing strategy is more than just how much you charge a customer for your product or service. As you come up with your pricing, you need to consider things like the channel margin structure. For a physical product, it’s looking at your retailer and distributor margin; for software it would be how much you being charged by the app store and if it’s a service, it would be how much your service provider needs to make as part of the deal for this to be interesting. Ultimately, the most important thing as part of a pricing strategy is to ensure everyone in the mix is making MORE money with your product than with the competitions. This one tip alone will help demystify why some products win and others lose in the marketplace.
Most commonly, people think of this as how often they put their product on sale and that is just a small part of the equation. When you are thinking about product promotion, you need to consider various elements of promotion through your channel. How much are you going to allocate from your revenue model for things like pricing reductions for customers, online ad placement, physical flyers, point of sale marketing material and cruise packages for the top sales person…yes, those do exist… The key tip to remember as part of any promotion strategy for your product is that promotion dollars are NOT just used to cut the price. Ultimately, promotion dollars are about increasing the sales rate during the promotion period and after as well. If you think of this as an investment in the ongoing and future success of the product line, you will be further ahead than most. Remember, it is not always about cutting the price…
Placement is exactly what it sounds like. You want to be where people are going to find your product. Better yet, you want them to find your product when they are ready to spend money for your solution. This could be an investment in an end cap within a traditional storefront or getting placement on the first page of Amazon.com. One thing to remember, as part of this placement process, is that the company who is going to sell your product for you is typically measured on how much money they can generate on a monthly basis from placement fees. It is in their best interest to maximize your placement budget, regardless of how many units you will actually sell through this investment. Realizing that the other person is actually a sales person, and is therefore measured by gathering promotion dollars, will give you more leverage in the negotiation. It is easy to be overwhelmed by the myriad of opportunities to place your products in front of your customers, just make sure you keep an eye on the business equation. The units you sell in these high traffic areas are going to build your brand, help you get your product to your customers and ultimately lead to further sales down the road. No matter what sales people tell you; if you sell each unit for a net loss you can never make it profitable no matter what the volume…
In summary, we’ve touched on the 3 of the 4P’s of product management aka Product, Pricing, Promotion and Placement. The product piece is one that most SME’s consider the most important and we’ve touched on that in the last posts. Remember that it represents only ¼ of the overall equation. Keep in mind that the most world changing product that is mispriced, can’t be found or is not profitable for everyone in the value chain is going to fail.
In our last post, we talked at a high level about the four phases of a product lifecycle; from concept, to development, thru launch and out to end of life. We deconstructed the concept phase a bit in order to stress the importance of creating the customer value proposition for your product early in the lifecycle. The ultimate goal here is to not over invest before having a good understanding of why someone would want to pay you for your solution. Whether you are delivering a complex piece of software, hardware product, solution offering or even cupcakes there is a tried and true cadence to how we develop the “product” even if some of the names look or sound a little different in your particular industry.
Market Requirements – This phase includes things like the value proposition, customer demographics, addressable market sizing, high level go to market planning and financials with enough details to determine if this is a good investment. We’ll continue to mature these items during the development of the customer offering as we learn more, refine the product and tweak the market plan. However, without a full view of the product from concept to customer, you risk repeating the product development all over again as you will miss a feature, mis-price or simply estimate the market incorrectly.
“If I had 8hrs to cut down a tree, I’d spend 6hrs sharpening the axe” – Abraham Lincoln
Engineering Validation – This phase is all about whether what was outlined in the market requirements document is actually deliverable in the time required, at the cost needed and to the quality level expected by the customer. Other than maturing the product concept in this phase, we need to be reviewing whether there is any new information from the market that needs to be incorporated while we still haven’t spent too much money. The goal of this phase is a contract of sorts between the development team and the business showing an aligned product strategy with agreed upon delivery expectations for our customers. Focus on ensuring you have a well-defined customer identified, and can deliver a product that they want to the specifications previously outlined.
Design Verification – The fundamental importance of this phase is to determine whether you can deliver on your commitments as outlined in the specification. It is here that we perform specific and comprehensive product verification tests to ensure we can create a shippable product. Whether this is validating our physical product specifications, verifying the interface specifications or ensuring you are compliant with all regulatory requirements for the system, this can be the longest part of your overall product development. There will be many ups and downs you go through as it feels like you just figure out one part and something else now needs to be fixed. Slow down and plan each step through this phase or you can easily see yourself going off the rails.
Production Validation – We now have a product, produced in reasonable quantities to an acceptable feature set in compliance with any regulatory requirements. Now, what happens when we scale for production? When we make 1,000 units instead of 100 does our yield drop precipitously? When we install on multiple platforms and corner case test longer than a night, does the smoke get out? And, when I try to make more than 10 cupcakes, does the recipe scale in line with my measuring instruments? This is the phase where we answer all these very important questions. As an SME business owner, you can easily get caught up in your success of the DVT phase you just exited and get moving to customers and you’d be well justified in wanted to do so. You’ve been through the ups and downs of the product development phases and want to get your game changing solution out to customers. You’ve spent money; you’ve lost sleep and desperately want to get your pain killer solution out to the market. Take a step back and ensure you’ve covered the bases of validating your steady state product through this phase. Remember, you don’t get a second chance to make a first impression!
So, now you’ve defined a pain killing solution, you’ve documented your value proposition and now you’ve developed it for the market. Now, we just need to launch it! We’ll cover that section of the ride in a future post.
I had an interesting discussion with a technology startup owner last week that I feel can be useful for others as it is not a unique issue and there are elements of these challenges with every idea big or small. You may recognize the symptoms:
What’s occurred here is we have a product that hasn’t been thought through from the concept to development to launch and out to end of life. We have a product that is following a strategy of if I build it they will come. Solving a pain point only means you’ve identified a problem that may have customers since you’ve found value in the product. What hasn’t been thought through are things like pricing or how to drive eye-balls to the solution nor have we considered what an effective promotional campaign could look like to maintain interest through its inevitable lifecycle. For this post, we’ll cover the early concept definition phase of the product development as it is one that passionate entrepreneurs tend to breeze through as they are more excited about delivering than planning.
As mentioned above, a lot of entrepreneurial ideas start out as something that will solve a problem for an army of one…you. What we need to consider now is whether there is really value here for anyone else, how much those customers would potentially pay for this product/solution and whether you have the ability to get out to these customers with the world changing solution. All of these roll together to form important aspects of the value proposition for your customers. Said differently, the value proposition is something that boils down all the elements of your solution into a customer facing pain relieving “product” in which customers would be willing to part with their hard earned money to solve.
“The most important output from the concept phase of your product definition is the Value Proposition”
Many start-ups and small businesses fall down in this early stage by simply not spending enough time up front truly understanding what value they are going to provide to their customers and whether the tradeoff they are asking for in return will be worth the investment by you in developing it for the market. As entrepreneurs, it is hard to slow down and step back out of the weeds to truly see if the market will accept this wonderful solution. Spending twice as much time in this phase than you think you need too is a great use of your resources. As tough as it may be to slow down and think a little bit more before jumping into developing the world changing idea it’s an important use of your time.
We’ll cover the Development, Launch and End of Life phases in future posts.
Fundamental to every new product is whether you are a painkiller or a vitamin. Put simply, painkillers’ are those that solve an acute and immediate problem for your customer where a vitamin tends to be a feel good improvement of an existing line or service. We could argue back and forth about the over use of pain killers in today’s world vs. preventative and holistic life methods, but that wouldn’t be a great use of this particular discussion. What we can do, though, is review the relative merits of this approach as we define our solution and determine if we should be focusing on one versus the other. I’ve broken this down depending on the stage our business is in currently to review the two different types of product classifications and draw some conclusions that I believe will help any new product or service as a first offering or a new product in a mature business focus for success.
As mentioned above, this is the solution you go to when you have a headache. There are typically moats and barriers to entry for other participants (ex: brand trust, patents, technical expertise), which provide time to help any new product succeed. Conversely, the challenge here is also the amount of branding effort to differentiate the offering, credibility building that must be done to prove your solution works and development investment to break through to the solution. Depending on the maturity of your business, there are some nuances you should consider when approaching your “pain killing” solution:
As children, we are told to take our vitamins. They will help build lasting health and support you as you grow. If we all just listened to our mother! From a product perspective (hardware, software or service) a vitamin is something that represents a feature improvement or service offering tweak, not a new platform or vertical market. With this understanding, let’s discuss the relative merits of taking our vitamins based on the relative business maturity for our operation:
Don is a new product development executive with 20 years of experience delivering great solutions to customers globally. If you would like to learn more about how we can help you with your product or service, please contact us at email@example.com or visit us at www.prismaticglobal.com
Last weekend it was Scouts apple selling weekend. It is the time where kids 12 and under stand outside various businesses in the local community asking for a donation to help them go to camp. In exchange for a small donation you’ll get a shiny apple and a big smile. This is the first year my kids have been enrolled in scouts and I was interested to see them in action trying to sell apples for funding their activity. It’s a great learning opportunity for kids, as young as 6 years old, to learn important sales skills to further their cause. After spending hours in the cold with both of my boys selling apples over the course of 2 days, I had the opportunity to observe their sales approach and provide my own coaching/encouragement between customers. Seeing the similarities in the general sales principles from apples to products/services we sell every day as professionals, I thought it was a great opportunity to share this experience with others.
Don is a new product development executive with 20 years of experience delivering great solutions to customers globally. If you would like to learn more about how we can help you with your product or service, please contact us at firstname.lastname@example.org