Bootstrapping New Product Development without Risk
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An introduction to disciplined entrepreneurship and endjin's new product development methodology.
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Bootstrapping New Product Development without Risk
- 1. Innovation Bootstrapping New Product Development* *without betting the farm
- 2. There’s an app for that…
- 4. PRODUCT |> CUSTOMER -> VALUE
- 5. PRODUCT |> CUSTOMER -> VALUE
- 6. PRODUCT |> CUSTOMER -> VALUE
- 7. PRODUCT |> CUSTOMER -> VALUE
- 8. PRODUCT |> CUSTOMER -> VALUE
- 9. PRODUCT |> CUSTOMER -> VALUE
- 10. PRODUCT |> CUSTOMER -> VALUE
- 11. NOT ‘WATERFALL’
- 12. Unknowns -> Knowns | Unknowables
- 13. Start with introspection not a product idea
- 15. Focus on customer value
- 16. This product will do… for… which transforms their life because…
- 17. 3 minutes | days | months before & after
- 18. Old Idea Established Market Old Idea New Market New Idea Established Market New Idea New Market
- 19. The Core
- 20. End of the first morning… Should we stop?
- 21. Brainstorm all the people EVERYONE
- 22. Craft maker on e.g. Etsy Furniture designer Lamps & Lighting designer Jewellery designer/maker Toy manufacturer TV & Film Brand Manager Jewellery brand manager (e.g. Boodles) Fashion brand manager (global brand) Fashion designer/retailer (SME) Wedding supplier Eyewear designer Home products manufacturer (e.g. furnishings) Pharmaceutical manufacturer Video games publisher Fancy dress retailer Watch manufacturer Cosmetics manufacturer Ceramics manufacturer (global brand) Ceramics designer/maker Fine Art Copyright Holder Electronic control systems (e.g. heating/lighting)
- 23. Should we stop?
- 24. Pick five (or ten) Don’t agonize Just pick five (or ten)
- 25. Persona Young mother, working part time Fictional name Naimh McCormack Job title Family lawyer Demographics 28 years old Living with partner Renting One child, 3yo Professional Works in the City 2 days/week Works from home 1 day/week Mainly works on divorce cases Reviewing documentation Negotiation and arbitration Technical Familiar with Skype/Lync, remote working tools Uses Facebook socially and Twitter professionally / socially. Underused LinkedIn account Proficient with Office tools, including Google Docs & Office365, both of which are used by clients Goals Manage, organize and search documentation from case load Make sudden transitions seamlessly from home to office, including working on the move Ensure security of documentation in all locations Ensure personal information about clients is protected Primary use case She searches, reads and edits her documents on desktop, laptop and tablet, using her standard tools, wherever she happens to be, and shares them with colleagues over Skype/Lync. Primary benefit Assurance that information is secure at rest and held only within the EU jurisdiction, without any change to her standard document browsing and editing workflow
- 26. Score them -2 -1 +1
- 27. Should we stop?
- 30. For every £1 your customer invests give them £10 of value
- 31. For every £1 it costs you to acquire & deliver get £10 of value
- 32. Persona Young mother, working part time Fictional name Naimh McCormack Total discretionary budget £500/month Channels UK Legal Partner Mailing List Law forums 10x value Ability to collaborate securely with colleagues from work/home with zero friction – which significantly reduces her childcare/office tension Compelling reason to buy She’s just experienced a late night dash to the office with the kid in pyjamas, to send a confidential document to a colleague for a morning meeting. She doesn’t want to do that again. Whole solution? This solution as proposed integrates with the office suite and Office365 platform, so they would need to be sold on this too. Competition There are other collaboration suites available of which this offering is a part of the proposition. They do not have good uptake in the market. Adjacent segments If we get traction in this market, we could look sideways to local government, social services, barristers, law enforcement, who all collaborate with this user. (See personae X, Y, Z…) Alignment Our corporate knowledge and connections are in the legal profession, and we fully understand the needs and motivations of a junior solicitor.
- 33. Score them -2 -1 +1
- 34. Pick one Don’t agonize Just pick one
- 35. Beachhead
- 36. Can we easily pivot?
- 37. Can we easily grow?
- 38. Is it cohesive? Can we access it? Can we dominate it?
- 39. Should we stop? Or pick another one?
- 40. Is it big enough? Is it small enough? Total Accessible Market
- 41. Not the bullsh*t number $13bn global opportunity!!!
- 42. Not predicated on your ability to execute “We think it is £2m but we’ll only get 5%”
- 43. Top Down Middle Out Bottom Up
- 44. Average Spend Per Customer = ~$500/month Number of customers = ~10,000 Total Accessible Market = ~$5,000,000/month
- 45. Total annual spend in segment = $50m Proportion of spend on product area = ~1.5% Total Accessible Market = ~$7,500,000
- 46. Should we stop? Or pick another one?
- 47. Assumptions
- 48. Hypothesis: Change based e.g. If we do x, then y will happen Fact based e.g. Persona A spends £#.## on B
- 49. Define your experimental method (you want to be able to repeat it)
- 50. Metrics: Measure {a,b,c} in this way
- 51. Success criteria: {a,b,c} will be | change in the following way
- 52. Budget: How much are we prepared to spend to find out?
- 53. Can we do it? Technical Does the customer care? Value Will the customer pay? Revenue & Pricing Can we afford to support it? Cost of delivery Can we afford to sell it? Cost of customer acquisition
- 54. Can we do it? Technical Does the customer care? Value Will the customer pay? Revenue & Pricing Can we afford to support it? Cost of delivery Can we afford to sell it? Cost of customer acquisition
Editor's Notes
- Most prod dev guides start with technical MVPs. Most start-ups come to us with “we’ve got an idea for an app. Here’s how it works.” This is now so ingrained in our culture that it is the basic joke at the core of HBO’s “Silicon Valley”. The reason it’s a good joke is that it is rooted in the truth that this is a recipe for wasting time and money.
- I’m a tech person. Look at me. Noone will mistake me for a shiny-shoed sales guy. But this methodology is a very non technical approach. People get hung up on innovation being a technological process, but it isn’t. The technology is often (but not always) the driver, or the enabler. But a business is all about selling. And selling is all about making a proposition to a customer, where they feel that the value they are getting exceeds the cost to them. The product is the realisation of this proposition – encapsulating the whole customer experience from their initial awareness, through their usage, to the end-of-life. You can, for example, make different propositions to different customers for the exact same product. (Excel can manage your family birthday list, and much more. Subscribe to Office365 for £9/month; see how you can build your actuarial risk models in Excel and your corporate EA is only $25k a year) You can deliver the exact same product using different technology (e.g. a manual, human implementation v. an automated, machine-driven implementation).
- Let’s encapsulate that definition of a proposition on a glib-looking slide. A proposition is the way we describe how a product, when delivered to a customer generates value (for the customer, and for us).
- To make this work., we need to understand the product. Not just the features, but the whole product lifecycle from cradle to grave.
- We need to understand the customer. Their needs, wants, desires, pains and pleasures.
- We need to understand the value (for us, and for the customer)
- This is where we start to get into the nitty gritty. We need to understand how the product delivers value for the customer (and for us)
- And we need to understand how we are going to match the product up with the customer (how we specifically are going to make the new piece fit into the existing jigsaw puzzle of the customer’s life) That’s your ‘product market fit’ if you’ve heard that expression. This bit is the most important thing.
- It is the iterative process of refining our understanding of the customer and their perceived value on the one hand, with the product on the other, and how, therefore, we can make a compelling proposition of the one to the other. All of these are moving parts. That’s why it is so difficult to get right.
- That’s all about analysis and understanding. We’re not talking about analysis paralysis though. We need just enough knowledge, with just enough fidelity and just enough accuracy to answer the next question we have, and then we move on. The process is about getting to what’s critical quickly, making a judgement and deciding whether to stop, iterate, or progress. We’re painting that picture with increasing fidelity in the places where it is important. And leaving the unimportant bits hazy.
- While we’re on the subject of analysis, this is a bit of an aside really, but you can think of this process as a way of managing risk. We start out with a few knowns, and a lot of unknowns. This is a measure of risk. We want (as cheaply as possible) to reduce the current number of unknowns (more will keep appearing) and classify them as knowns (hooray) or unknowables (whatever that might be). Lots of projects fail because they spend a lot of money trying to turn an unknown into a known when it is, in fact, unknowable – within the constraints of time, budget and human endeavour. By resource-boxing everything, we can avoid this problem. We’ll look at that later.
- So, where do we start. There’s no point in trying to do something well beyond our capabilities. Or missing opportunities because we don’t play to our strengths. So we start with some introspection.
- Build a map of your capabilities. Not of “the organization” in some abstract sense, but of the specific people within it – their history, experience and expertise. And we’re honest about what we’re really good at. For example, if we have a legal team, but they are 100% consumed by BAU, then “legal” is not a capability. We’re no better off than someone who doesn’t have a legal team. But if one of our team has worked on product licensing of exactly the type we might need in a previous organization, then that’s some great experience to bring to the table (even if they are not a legal specialist themselves).
- When we understand ourselves – our “organizational landscape” we then want to focus back on the right hand side of that proposition slide we saw earlier – how customers derive value. And we’ll have a first stab at couching a “sort of” proposition in those terms.
- Obviously, this is a really broad-brush sentence. But we’re focusing on the transformative nature of the product. Why is it amazing for the customer?
- Good way of exploring that, if you’re struggling, is the Tool of 3. What is the customer doing 3 minutes, days, months before they use (or maybe become aware of) your product, and what are they doing 3 minutes, days or months afterwards. How has it changed them. How did it fit with their life.
- Then, try to understand the risk profile you’re going for. We’re trying to build consensus about what we’re doing so we’re all on the same page. New idea in new market -> lots of risk. New idea in established market, less risk, Old idea in old market -> “me too”, so what’s your differentiator
- While we’re trying to get everyone in the room aligned with what we’re doing, we can also look at “the core” of our proposition. The touchstone that we will defend at all costs. In formula 1, Team X defined its core as “we make a car and a driver go round a track faster than anyone else”. That’s a defensible position to take. And everything they do can be tested against it “does this make the car [and driver] go faster” It’s just as applicable if you are a coffee shop, for example. You might say that your core is “Starbucks, but half the price” – you can test everything you do against whether it replicates a starbucks feature, but at a specifically lower cost Or “100% ethical coffee” Or “Fair trade at a fair price” Each of those businesses is measuring itself by a different standard, and that gives their propositions a different flavour, even though they all sell containers of coffee to consumers. The core doesn’t talk to product features, or differentiators exactly, but defines the essence of what it is that you do, that you will never give up on. You might find that there is some disagreement in the room about the core, and it is a very useful tool to get alignment not just at this early stage, but right through the business lifecycle.
- To focus on the people, we need to understand which people we might choose to focus on. Don’t be stingy. List everyone who might be touched by your proposition. All the segments, all the markets, all the actors. Everyone you can think of.
- Build out some basic personae. Look at their basic goals, budgets, and how they would interact with the product.
- Now, let’s look a the value again. And think about it in purely monetary terms. It’s all very well focusing on leading indicators like “satisfaction” and “happiness”, but ultimately, you need to move the revenue line. (Lots of early stage businesses forget this – look at the huge downround market revaluations of the Unicorns for this problem writ large). The value is a shared resource. The value derived by the customer, and the value derived by us.
- So we have two so-called “10x” rules of thumb.
- It’s very easy to sell on a 10x ROI. That’s a real game changer.
- We need to make sure we’re going to be profitable (and still profitable after we’ve sunk our R&D costs) – if we’re making £10 for every pound it costs us to acquire a customer, deliver the product and support them over their lifetime, we’re probably going to be OK on that front too. These are empirical rules of thumb. Your mileage may vary (you might be a pharma company, or a widget retailer).
- Build those into some more detailed personas around the top 5.
- Now we’re going to test the beachhead by a number of criteria.
- We almost certainly won’t have picked the exact right beachhead the first time. Are there easy pivots available that means we won’t have wasted all the work we’ve done up to this point?
- If we exploit it successfully, is it a good jumping off point for other market opportunities.
- Does one sale in the market beget others? Can we reach the people we need to? Do we stand a good chance of winning *all of it*.
- Is the market big enough to be statistically significant. Would dominating this market tell us anything about our product / proposition. Will it pay its own way? It it small enough to be manageable with the resources we’ve got. Can we legitimately expect to be able to dominate it? To determine the answer we need to calculate the Total Accessible Market.
- It’s also not the lowball, contingency-ridden hedging-your-bets number. You’re not baking in an expectation of failure.
- Too important a judgement, so we take a belt and braces approach.
- Bottom up is talking to customers to get a feel for what they spend and multiplying by the number of customers. (Yes, talk to real customers. You’re supposed to have good access to this market. Prove it.)
- Top down is taking market data (e.g. government or industry reports), and dividing down by the number of customers, and seeing if you get to the same numbers.
- We’ve already built up a bunch of assumptions – that TAM calculation being a biggy. From now on, everything is about testing these assumptions.
- To do that, we recast our assumption as a hypothesis.
- This is the timeboxing that allows us to classify an unknown as either a known or an unknowable, without betting the farm.
- Common types of assumptions are actually baked into our process – but others will emerge on the way, specific to your particularly proposition.
- Look – we’ve got a technical assumption here! But we don’t necessarily need to go head down to prove that we can do it technically. That might be expensive. Can we think of non-technical ways to answer all our other questions first, before we start burning the cash.
- The rest of it is all about discipline and process. Have the courage not to throw good money after bad, but the tenacity to go after the opportunity until you’ve convinced yourself (with data) that it is the wrong thing to do right now, or, it’s a proven success!
- That’s really just skirted over the inception phase – but it lays out the core principles that we then apply throughout the whole product lifecycle. (We’ve just covered the highlighted bit) You can find a lot more information on our website. Thanks.