Building Enterprise Products - For Moving Targets of Customer Needs and Outcomes
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Building new product is an exciting phase in the career of every Product Manager and each Product Manager would yearn for an opportunity to conceptualize, build and launch new products. The primary goal of every product manager is to ensure the commercial success of new product. Yet, only 50% of new products succeed [1]. New product development is definitely a challenge and Product Manager falters somewhere during the course of building new product. In order to provide some guidance to build new products, I decided to drop my experiences of building new product. Please note that some of the information listed as part of this guide may be biased because of my experiences of building and sustaining B2B HW product of an existing product line. The primary reason for drafting the guide is to streamline my experiences of building a new product and share actionable points as part of the guide. I have learned about Product Management by reading books, blogs, articles etc and primarily through my role as a Product Manager. The guide is a way of giving back to my fraternity and sharing my experiences. I would be deeply humbled if someone finds the guide helpful and I am open to comments to make it better. The information shared in this guide is already available in my blog @ www.ProductGuy.in. I appreciate if you could visit my blog and drop your thoughts/comments.
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- 62. LEVERAGE LEAN CANVAS TO COMMUNICATE THE VALUE OF NEW PRODUCT
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Editor's Notes
- The copy of the guide could be downloaded from www.ProductGuy.in/eBooks/
- The primary reason for drafting the guide is to streamline my experiences of developing a new product and share actionable points as part of the guide. I have learned about Product Management by reading books, blogs, articles etc and primarily through my role as a Product Manager. The guide is a way of giving back to my fraternity and sharing my experiences. I would be deeply humbled if someone finds the guide helpful and I am open to comments to make it better. The information shared in this guide is already available in my blog @ www.ProductGuy.in. I appreciate if you could visit my blog and drop your thoughts/comments.
- Source: http://www.stage-gate.com/resources_stage-gate_latestresearch.php
- Every idea is born out of a problem statement. We are starting the journey with a presumption that customer problems are known and the idea to address those problems is formulated, next eventual step is to validate the idea. The idea validation is all about verifying the idea on the basis of 3 parameters. Desirability - Do product to be built will be desirable by customers to address their existing needs or problems. Viability – Will customers be willing or can afford to pay to solve the need or the problem? Is there a sizeable market for business viability Feasibility – Can the product to address the need be built in most optimal and economical way? Desirability, Viability and Feasibility was elaborated by Tim Brown in his book ‘Change by Design’
- Derive product idea(s) that would resolve the unmet needs of the customers
- The process of ideation is to focus on all the possible unmet needs of the customer
- Look for signs that could possibly indicate existence of a need. Looking out for signs is critical especially in case of addressing emerging need to verify the existence of drivers creating the need. Let us consider the emergent need for luxury products (for instance cars) in developing countries. What might be the possible signs that indicate the existence of real need – Quite obviously the reliable reports indicating the rise of high net worth individuals in the developing countries along with confirmation of their penchant for luxury goods is sufficient indication that companies like Bentley can sell their cars in developing countries.
- Robert Kennedy co-founder of MaxMyTV pitched the idea of Interactive TV at a startup event at Pittsburgh in 2012. Encouraged by the positive responses from the attendees (including Andrew Moore, VP at Google) at the event, Robert Kennedy began working on his product idea along with his other co-founders. Some naysayers still insist on not sharing the idea with anyone citing that idea would be either stolen or ridiculed. The value of the idea lay in execution and not in the idea per se. Instances as illustrated earlier only prove that there is lots of value in sharing the idea. But the idea should be shared at the right forums to the right set of people to fetch far more effective feedback especially if the idea belongs to absolutely new category like MaxMyTV. Every major city has startup forums that invite people to share the ideas, such forums could be leveraged to get substantial feedback about an idea even without any initial prototype. Scott Weiss, co-founder of IronPort (an email security company) did something similar to validate his idea. Instead of pitching his idea in a startup event, he handpicked industry experts and reached them through emails, cold calling etc. to validate his idea and his analysis about the email security market. IronPort was later acquired by Cisco in 2007. Source: http://yourstory.com/2014/09/maxmytv/ Source: http://blogs.wsj.com/accelerators/2014/10/20/scott-weiss-round-up-the-experts/
- Prototype can be a product concept, mockup or wireframe screens, video or 3D design or workflow diagram of the product idea to validate the product idea among prospective customers. The prototype is also a means to secure funding to further expand the idea into a full-fledged product. Prototype is required if the idea is entirely new and prospective customers need something physical to understand what they can expect when the product idea is converted into a full-fledged product. Prototype is ideal mechanism to fake the product and gather feedback until the product is fully built.
- MVP can help validate whether the product is addressing the need as desired by customers, by evaluating the behaviors of select few early customers while using the product. Product Manager cannot complete the development of new product with a bunch of requirements and assumptions about customers’ behavior. In case of new product going beyond the boundaries of existing product categories, Product Manager might not be sure whether the product is actually addressing a genuine need. Even otherwise, Product Manager might not be sure whether the product being built is in alignment with the expectations of the customer. Products are always built with assumptions involving customer behaviors. Instead Product Manager has to outline all the assumptions on how customers will use the product to address their needs. Later construct hypotheses and identify methodologies to test them. MVP is one of the methodologies to validate those assumptions and ensure that the product workflow is customer friendly and excites them to use the product. If assumptions involving either customer needs or customer behaviors are false, then the Product Manager has to pivot the product development and should formulate new hypothesis to proceed further.
- Later on, we need to figure out whether product idea would address those needs in a much more effective, efficient, optimal, user-friendly manner and at an attractive price point that is economically viable to customers. In addition, we need to evaluate the affordability or willingness of the customer to pay for the product. Ability to afford or willingness are two different things, even though your target customers can afford to buy the product they don’t buy unless they feel that the value obtained is worth the price. On the contrary, the customers might be willing to pay the price but they could not afford. So it is essential to look at both the factors and ensure that the target customer is willing to pay and he is also affordable to pay. Once your target customer is identified, estimate the total population of your target customer (we generally call it as TAM - Total Addressable Market) and finally estimate how much of entire TAM can your product penetrate. Available statistical data or guesstimates could be used to estimate the TAM. Finally, conclude whether TAM is big enough to ensure profitability
- Evaluate whether the new product is aligned with the organizations goals and strategies. The new product development would not be approved unless Product Manager establishes how the new product would align with overall goals and strategies of the organization. Next is to evaluate whether the organization has the required capability and experience to build the new product.
- In addition to establishing the veracity of the need and the ability of the product to address the need as per the expectations of the market, Product Manager has to assess whether product could be built. In collaboration with architect team, Product Manager has to ensure that there are no technical challenges and the product could be built adhering to all the required compliances (if any). During idea validation phase, a high level estimate of the feasibility to build the product should suffice. Product concept is a nice way of validating the feasibility if any technical challenges are foreseen and it would be a critical parameter to secure the funding for new product. Feasibility is not only about evaluating the technical feasibility but also the feasibility to build the product within estimated cost structure. Irrespective of the pricing model, Product Manager should always strive to keep the costs low while maximizing the value rendered by the product. So evaluating the ability of building new product as desired initially and within the limits of estimated cost structure is critical.
- During validation phase of new product idea, the larger discussion that needs wider attention is to figure out the right time to start new product development or the focus is more towards understanding why it is now the right time to develop new product. Timing is one of the most critical factors that can determine success or failure of the product. Product Manager therefore has to answer the most pertinent question – WHY NOW? Why it is now the right time to translate the idea into a full-fledged product, so (s)he can ensure that the product is not too early or late to the market.
- For detailed overview of Pipes vs Networks, please refer to the following link: http://www.wired.com/2013/10/why-business-models-fail-pipes-vs-platforms/
- We need to understand the segment contributing to the growth and how are we positioned to capture that segment. Probably if segment contributing to the growth is not the traditional customer base of the organization, then Product Manager need to outline a plan to position the product effectively and sell the product to the new market segment. Please take a look at my previous blog for more details http://productguy.in/attacking-white-space-identifying-growth-opportunities/
- Along with the growing market, size of the market is critical because market attractiveness is not universal and it might vary with overall size of the organization. For some companies $100M market might be attractive while for other companies anything less than $1B is not attractive. So understanding of your companies priorities is critical.
- Analysts can provide precise information on overall size of the market and ability of the market to grow. If it is a growing market, what is the CAGR? Growing market alone is not a sufficient reason to invest, unless the new product does not have all the required ingredients to capture the growth. Product capabilities to capture the market would be addressed as part of product analysis. If there is no sufficient analyst data about the market size and the ability of the market to grow, look for alternate ways (even though crude) to establish whether the market is growing. Google trends tool could be used to identify how a trend is evolving based on key word search trends. In case of B2C, after identifying the ideal target customer. Use the census data provided by the governments of each country to determine the overall size of target customers and at what rate it is growing. Alternately use guestimates to determine the size of the market. For instance, what is the total population travelling through a particular highway – To estimate the TAM for highway motel. In case of B2B, use the existing customers’ data for new products introduced to existing category. For products added to new category, use perceived alternative products to estimate the market size. The rate at which existing products are sold should provide Product Manager an estimate of the potential market growth in future. Alternatively establish cause and effect relationship between the growth of existing products and the dependent factor(s). Increasing adoption of smartphones and easy payment options (like CoD) has contributed to growth in mobile ecommerce. Do not merely rely on analyst data, ideally Product Manager had to look at more than one data point to emphasize the existence of growing market. Doing so, Product Manager can avoid errors in evaluating the overall size of the market and judging the ability of the market to grow. It is not pragmatic to target the overall addressable market initially, identify the serviceable market that could be targeted by new product. Probably, the focus could be on specific geo market so the marketing efforts will be focused to reap better benefits.
- There should be one or two defining attributes that should be aligned with product differentiation outlined under ‘Competitive Analysis’. The defining attributes can be as simple as one or some of the following Cost effective Best performance Feature packed Highly intuitive and user friendly etc The defining attributes are required for two simple reasons It helps in constant messaging of the value proposition of the product both within and outside the organization It would also act as a guiding force while making decisions or trade-offs regarding product features. In case of cost effectiveness, we might opt for a lean team and cost effective components may be compromising on performance but not on quality
- What is the unfair advantage that the new product has that cannot be either copied or replicated by competition. The unfair advantage need not be restricted to product functionality. Unfair advantage can also exist on the periphery of the product that makes it attractive for customers to buy the product. Efficiency in building products at low cost, unmatched distribution or partner network, brand loyalty, and endorsements by industry experts can also be termed as unfair advantage.
- Depending on the high level requirements of the product, value proposition and competitive positioning, the architect team has to outline whether the new product(s) could be built on existing platform or new platform has to be developed. In case of new platform, Product Manager has to be deeply involved in the design/decision of new platform to ensure that the new platform will lay a perfect foundation for all the upcoming products in the product line. Effective platform strategy provides the capabilities to create a product line by reducing cost (both development and maintenance) and TTM (Time to Market), while ensuring consistent value proposition, differentiation across different products in a product line.
- In case of existing product almost in sunset mode and the urgency to launch new product is really high, then probably buy decision would make sense. In case of buy, I am referring to acquisition. I am not a big expert of the decision process involved in acquisition, so I will probably focus on either completely make or partial make/buy. First and foremost, we need to understand the list of components (both SW and HW) required to build the new product. Later we can assess whether in-house competencies exists to build those components (both SW and HW). During business review, we only make high level assessment and if some of the components (either HW or SW) are to be acquired from external vendors, we derive the possible vendors and approximate cost to acquire those components. Decision to buy can be based on various parameters such availability of in-house competencies, cost to develop, time to develop etc. IMO, the guiding principle for make or buy decision is that all the core components contributing to the value proposition should be built in-house, otherwise you will face troubles with differentiating the product.
- Asses the current position of the competitors from the perspective of their revenue potential and market share. What products do they sell currently and what are their specifications. What are their strengths and weakness (evaluate both product and non-product attributes). In case of non-product attributes, I am referring to items such as support, distribution channel, partners etc. Please note that technical strength of the product alone cannot win a deal, so evaluating strengths and weakness from the perspective of non-product attributes is critical.
- Based on the analysis done earlier, Product Managers have to carefully derive the unique value proposition that can provide the confidence that new product can make the money beating the competition and the efforts to build it were absolutely justifiable. If it is a new product to the existing product line, we can also validate our findings by sharing them with your top customers who can be your potential early adaptors.
- Quick analysis of how competitor might react to the new product development plans has to be analyzed, it would be really dumb if we hope that we will develop the product and capture the market while competition would sit idle. Basically the idea is to outline to the Sr. Management on how new product will succeed against competition when it is shipped to the market.
- I believe it is a simple math, the development cost was derived earlier and based on the COGs, we can compute the break even and NPV for X years (no of years will be based on the product life time) based on approximate sales estimate. Each organization would have its own way of computing the ROI. But deriving the development cost, sales forecast for X years and COGs of the new product would be the main elements required to compute ROI. Irrespective of the price model (cost based, value based, xAAS) that would be adapted for the new product, for ROI calculation I would suggest to adapt simple cost based model (estimated product COGs + x% margin) to derive the breakeven and NPV. So we could keep the ROI calculations really simple.
- The entire presentation to the Sr. Management should be like a story telling – “It is growing market with huge potential and target segment contributing to growth is X and their business needs are Y. Current competitors addressing the segment is A, B and C and the value proposition delivered by them are E, F and G. Our new product D with capabilities M and N etc can better address the requirements of target segment”
- Product Manager need take a look at the entire sale process and understand what factors would influence the sale process. Product capabilities alone would not influence the entire sale, there would be other parameters such as reputation of the company, quality of post-sales service, availability of support, reference customers, availability of trained engineers (for B2B products) etc. Whole product approach is to list such factors that are critical for a sale and plan to fulfill them.