80% of new Products Fail. How do you Beat the Odds?

2014 © Jama Software, Inc www.jamasoftware.com | 1.800.679.3058
build great
products™
FAILURE: ANALYZE IT,
DON’T HUMANIZE IT
How taking the speculation, emotion and anecdotal evidence out of failure improves
product ideas, development, delivery and marketplace results.

INTRODUCTION
As a serial entrepreneur and an early Google
employee, Alberto Savoia has experienced great
market successes and a few inevitable failures.
While at Google, he became a serious student
of failure in new and innovative products. After
analyzing dozens of studies and hundreds of new
products, Alberto identified the main reasons
why most new products fail in the market, and he
developed a set of sought-after techniques, which
he calls pretotyping, to minimize such failures.
Jama Software commissioned Alberto to present
his research at our 2014 Product Delivery Summit
and to pen this paper, broken into four parts. You
can also watch a video of his presentation here.
Alberto is an original thinker and a dynamic
presenter, and he makes a compelling case
for pretotyping as a best practice for all
makers. Learn more about him on his website
and follow him on Twitter @Pretotyping.
2 2014 © Jama Software, Inc

PART I: THE LAW OF MARKET FAILURE
If you’ve been involved in developing and launching new products, you’ve probably experienced a few flops along the way. But beyond the anecdotal evidence, how common is product failure? Two principles lead us to the answer: 1) Data beats opinions, and 2) Say it with numbers.
For example: Nielsen has been analyzing thousands of worldwide product launches for a long time. Here is a sobering summary from one annual report:
ONE YEAR: 24,543 NEW PRODUCTS* Failed27% 16% 37% 14% 6% 100% DisappointedCancelledSuccessStarTotal 80% *Nielsen

Staggering, isn’t it? Nielsen’s “historical new product performance” analysis found that around 80% will fail, no matter how lenient the definitions of failure, or how accepting and open- minded the markets. But beyond the finger pointing, what’s the explanation for all these failures?
Unfortunately, the causes behind market failures—bad design, poor reliability, subpar performance, unlucky timing, etc.—can’t be quantified or categorized as neatly as the number of market failures, but the odds for failure still trump (and trample) previous records of success and competent execution.
WHY DO YOU 4 2014 © Jama Software, Inc

2014 © Jama Software, Inc
THE LAW OF
MARKET FAILURE:
Most new products will fail in the market,
even if they are competently executed.
But the data we do have is so
compelling and consistent that I
formalized it into a law: The Law
of Market Failure. In criminal law, a
person is presumed innocent until
proven guilty. When it comes to
market law, we should presume a
potential new product will fail until
we’ve collected enough objective
evidence to convince us otherwise.

The tough stuff is out of the way. Once
we acknowledge and accept The Law
of Market Failure we can stop reacting
to it emotionally and can start studying
it and developing ways to deal with it.
THE GOOD NEWS:

PART II: F.L.O.P. Analysis —
Why Most New Products Fail
In the Market
Between 2009 and 2011, while at Google, I became a
student of market failure. It was a great environment
for doing that, because my colleagues—having worked
for hundreds of companies in dozens of markets—
eagerly compared “war stories,” much like Quint and
Hooper compared battle scars in the movie Jaws.

After a while, I noticed a pattern. Most new product failures could be attributed to one or more of three main causes: Failure in Launch, Operations or Premise. This, incidentally, makes for a convenient and appropriate mnemonic: F.L.O.P.
Let’s look at a typical scenario for each of these causes in isolation. For illustrative purposes, let’s assume that the team got two out of three things right in the Launch, Operations or Premise trio. If you’ve been around long enough, some of these scenarios will sound familiar.

FAILURE IN LAUNCH
In this scenario, products were well thought-out, met a market need, had the right features and were properly designed, engineered and manufactured. However, the timing, pricing or positioning was such that there was no buzz or product traction. People didn’t respond to the “launch” (i.e. the concerted marketing, PR and social- media efforts). Recap: We built the right product. We built it right. But we launched it wrong.
FAILURE IN OPERATIONS
Here, products were well thought-out, met a market need, had the right features and design and launched successfully. However, operational problems (reliability, usability, performance, etc.) soon followed. Early adopters questioned product quality, a few bad reviews appeared in the press and failure was cruelly snatched from the jaws of victory. Recap: We built the right product. We launched it right. But we built it wrong.
FAILURE IN PREMISE
In this final scenario, products were built well (solid, reliable, stable) and the teams responsible for the launch did a great job; there was a lot of buzz and even strong initial sales and adoption. But after a short while, even though the product did exactly what it was designed to do, people realized that they didn’t really need or want it after all. Those who’d already bought it stopped using it, and those who were considering it pursued the next new shiny thing. Recap: We built the wrong product to start with.
WHY DO YOU F.L.O.P.?WHY DO YOU F.L.O.P.?WHY DO YOU F.L.O.P.?

SO WHAT CAN BE FIXED?
When we look at patterns of new product failures through the F.L.O.P analysis lens, one thing should become clear:
Scenarios 1 and 2 can be remedied, and they probably should be.
The caveat: The remedy may not be easy, quick or cheap, but the very same product can be relaunched or re-engineered.
WHAT’S A DEAD END?
Scenario 3. If the launch was successful and the product worked well, the most likely conclusion is that we built the wrong product.
As I researched, another thing became clear: Scenario 3 was not only the hardest one from which to recover and regroup, but also it was the most common. The message—now my mantra—for new products was loud and clear:
Make sure you are building The Right It before you build It right.

Part III: Don’t Tell. Don’t Ask.
Data Beats Opinions.
All new products begin with an idea. But if all you have
is the idea, the most you can do is solicit opinions. When
you do, you’re likely to run into problems that seriously
derail your decision-making process, such as…

An idea is an abstraction, and a
subjective one at that; it’s something
that you imagine or picture in your
head. The challenge is translation.
The way you imagine the new
product and its uses may be
completely different from the way
the customers you seek imagine it.
THE LOST IN
TRANSLATION PROBLEM

Even if your audience’s abstract
understanding of your idea matches
your vision, people are notoriously
bad at predicting whether they
would actually want, like or use
something they have not yet
experienced. Your idea lives in a
place I call Thoughtland, alongside
other unrealized and untested new
product ideas. In Thoughtland, every
idea can be a winner or a loser
depending on whom you ask and how
you ask, increasing the possibility
of two dangerous outcomes…
THE PREDICTION
PROBLEM

People like your idea, they think they
understand it and can see themselves
using it. They give you a thumbs-up
and tell you, “Build it! We’ll definitely
buy and use it.” Fueled by such
positive feedback you implement the
idea. But after you launch it, all that
enthusiasm and all those plans to buy
and use your product are nowhere to
be seen. False positives can lead you
to believe that your idea is immune
to The Law of Market Failure, so you
invest too much too soon in a new
product that will eventually flop.
FALSE POSITIVE

Your idea baffles people: “Have random
people follow you as you write 140
character blurbs? You’ve got to be
kidding!” As a result, you drop your
idea and move on. And a few months
later another company launches a
similar product and you read the
headline “Twitter Shares Skyrocket.”
False negatives can scare you away
from giving your idea a chance, and
you can end up prematurely scrapping
the next Twitter, or Google or Tesla.
FALSE NEGATIVE

You need something more substantial
and objective than opinions—especially
opinions from people with no skin
in the game. And the only way to do
that is to transport your idea from
Thoughtland to a more concrete
environment called Actionland.
In Thoughtland you use abstract
ideas to ask hypothetical
questions and collect opinions.
In Actionland you use artifacts to
prompt actions and collect data.
THOUGHTLAND:
IDEAS -> QUESTIONS -> OPINIONS
ACTIONLAND:
ARTIFACTS -> ACTIONS -> DATA

Let’s say, for example, that you have
an idea for a computer monitor
stand with sensors and motors that
automatically moves and adjusts for
optimum ergonomics. Let’s call it The
Last Stand, as in: “You can now last
longer working at your computer.”
If all you have is the idea and a drawing,
you’re stuck in Thoughtland. You can
explain the idea to your colleagues
and ask them their opinions. You can
reach out to other companies and
talk to HR departments. You might
learn a few things. But what will
you get? Subjective answers from
people with no skin in the game.

You need objective evidence. You can get it by building
a costly, time-consuming proper prototype of The Last
Stand with sensors, motors and software. Working
prototypes are great for determining the feasibility of
a new product, but they’re insufficient for determining
if there is a viable market for a potential product.

Wouldn’t it be wise to objectively test
and gauge the potential market for The
Last Stand before prototyping it? Are
there other artifacts (simpler, cheaper,
quicker to build) we can use to collect
market data before investing in a
prototype? Yes, between abstract ideas
and proper prototypes are pretotypes:
Pretotype, noun: An artifact used
to test hypotheses and collect data
about the market appeal and actual
usage of a potential new product
objectively and with a minimal
investment of time and money.
Pretotypes help you to “make sure
that you are building The Right
It before you build It right.”

Part IV: Pretotype Before You
Prototype
Why coin a new word for this concept? Two examples
led me to realize that between ideas and what most
people think of as prototypes exists a wonderfully
efficient and effective intermediate step.

Dear Mr. Jones,
I’m writing today
to inform you...
Dear Mr. Jones,
I’m writing today
to inform you...
Dear Mr. Jones,
I’m writing today
to inform you...
Dear Mr. Jones,
I’m writing today
to inform you...
EXAMPLE 1: THE IBM SPEECH-TO-
TEXT PRETOTYPE
Decades ago, IBM was years away from being able
to prototype speech-to-text technology because
the hardware was significantly underpowered
for the task. So, the company utilized a very
clever solution to test and validate some of its
ideas and hypotheses: They set up a room with
a microphone, a computer monitor—and no
keyboard! IBM asked participants to try their
speech-to-text machine; all they had to do was
speak into the microphone and their words
would “magically” appear on the monitor.
Fig. 1: What users thought was going on.

EXAMPLE 1: THE IBM SPEECH-TO-
TEXT PRETOTYPE
How did IBM pull this off? They hid a fast
typist (with a keyboard) in another room.
The microphone was fed to a speaker, and
the hidden typist translated the speech into
keystrokes which appeared as text on the
monitor with amazing speed and accuracy.
With this clever solution IBM discovered
some fundamental user interaction issues that
would have seriously impacted its chances
for market success: Participants’ throats got
sore after a while, loud working environments
made speech-to-text unappealing and the
lack of privacy surfaced as an issue.
The first time I heard this story I was left—ahem—
speechless. IBM could not build a proper prototype,
so they pretended to have one. I thought that
something this clever and unique deserved its
own name, and the word pretotype was born.
Fig. 2: What was actually going on.
Dear Mr. Jones,
I’m writing today
to inform you...
Dear Mr. Jones,
I’m writing today
to inform you...
Dear Mr. Jones,
I’m writing today
to inform you...
Dear Mr. Jones,
I’m writing today
to inform you...

EXAMPLE 2: THE PALM PILOT PRETOTYPE
In the mid-90s, brilliant innovator and entrepreneur
Jeff Hawkins had an idea for the personal
digital assistant (PDA) that would eventually
become the Palm Pilot. But before investing in
building an expensive prototype, he wanted to
validate some of his assumptions. He knew he
could build it, but would he use it? What would
he use it for? And how would he use it?
His solution: Cut a block of wood to match the
intended size of the device and use paper sleeves
to simulate various user screens and functionality.
Seeking insights into how he would use it, Hawkins
carried the block of wood with him for a few
weeks and pretended it was a functional device. If
someone asked for a meeting, for example, he’d
pull out the block and tap on it to simulate checking
his calendar and to schedule a meeting reminder.
Fig. 3: The Palm Pilot Pretotype

EXAMPLE 2: THE PALM PILOT PRETOTYPE
With the help of his pretotype and simple
experiment, Hawkins learned that he would
actually carry such a device with him, and that
he would be using it mostly for four functions
(address book, calendar, memo and to-do lists).
After pretotyping validated key assumptions
about device size and functionality, investing
in building a proper prototype was justified.
Eventually, the Palm Pilot not only became
incredibly successful, it also established the form
factor and paved the way for smart phones.
Fig. 4: The Palm Pilot Prototype

THE PRETOTYPING EFFECT
You can’t escape The Law of Market Failure, but not all failures are created equal. If you
fail fast, you can make a few changes, re-test your assumptions or move on to the next
idea. By allowing you to validate core hypotheses about new products quickly and cheaply,
pretotyping lets you evaluate more ideas which, in turn, helps you increase your success rate
and minimize the number of missed opportunities. I call this The Pretotyping Effect:
WITHOUT
PRETOTYPING
Ideas Tried Slow Failures Fast Failures Successes Missed
Opportunities
Ideas Tried Slow Failures Fast Failures Successes Missed
Opportunities
WITH
PRETOTYPING
The Pretotyping Eect

Whether you’re a wildly successful
innovator or an ordinary person with an
extraordinary idea, it’s been a pleasure
sharing these concepts of The Law of
Market Failure and Pretotyping with
you. May you always find The Right It in
life, work and every dream you pursue.
THANK YOU

ABOUT JAMA SOFTWARE
From concept to launch, the Jama product delivery platform helps companies bring complex products to
market. By involving every person invested in the organization’s success, the Jama platform provides a
structured collaboration environment, empowering everyone with instant and comprehensive insight into
what they are building and why. Visionary organizations worldwide, including SpaceX, The Department
of Defense, VW, Time Warner, GE, United Healthcare and Amazon.com use Jama to accelerate their RD
returns, out-innovate their competition and deliver business value. Jama is one of the fastest-growing
enterprise software companies in the United States, having exceeded 100% growth in each of the past
five years, during which time both Inc. and Forbes have repeatedly recognized the company as a model
of responsible growth and innovation. For more information please visit www.jamasoftware.com.
Jama Software commissioned Alberto Savoia to present his ideas on pretotyping at its 2014
Product Delivery Summit. This ebook, a condensed version of the blog series Savoia penned for
Jama, explores why products fail and how companies can be sure they are building the right “it.”
When you’re ready to build your “right it,” contact Jama for help at hello@jamasoftware.com.

80% of new Products Fail. How do you Beat the Odds?

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80% of new Products Fail. How do you Beat the Odds?