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Consultant Feature Article, November 2004
Myths vs. Reality: What does it really take to launch
a new business?
By Patrina Mack
 A
recent study of companies (ranging from startup ventures to large established
corporations) examined business leaders' beliefs about how to be successful
in launching a new product or business and how successful those beliefs were
for both new and existing businesses. The results debunked some of the beliefs
that many people continue to incorporate into their everyday business practices,
and are relevant to consulting practices as well as startup and seasoned businesses
large and small. Moreover, this information can effectively support certain
project recommendations you suggest to your clients. The questions included:
- How are investments prioritized?
- How often should strategy be revisited?
- How important is first-to-market advantage?
- How much process is needed in the product development life cycle?
- Does customer
input matter?
Based on the study results, five myths were identified regarding launching
new products or businesses and the reality behind successful companies.
Myth #1: If we build something cool, venture capitalists will fund it,
people will buy it, and we'll make money.
In reality, identifying products that can realistically generate a profit
is critical to getting funding and generating the sales needed to secure follow-on
funding and overall success. Conservative, highly probable forecasts are required.
Companies that use rigorous financial analysis to assess profitability are
more likely to gain incremental market share and meet or exceed revenue projections
for a majority of their products than companies that don't follow this
process.
Reality #1: If we build something people will buy, everyone will
make money.
Myth #2: Success is dependent upon a constantly evolving business model.
Companies that have not adequately thought through their business model, including
rigorous financial analysis are likely to spend time taking corrective action and
rethinking their business model. This takes precious time and resources
away from executing strategy. Companies that develop a comprehensive business
model/strategy at the start enjoy faster time-to-market and incremental market
share gains. Companies that spend little or no time changing their business
model, because they took the time to get it right at the beginning, are likely
to meet or exceed their revenue projections.
Reality #2: Success is dependent on a business model with well-designed,
stable, corporate and product strategies.
Myth #3: Being first-to-market is everything!
This is common folklore. The obvious drawback is that companies whose primary
motivator is being first-to-market frequently cut corners. Ask the critical
questions: "Are you best to market?" and "Have you timed
the market?" Introducing products faster often supports gaining incremental
market share, but this has proven to be an unreliable predictor of meeting
revenue projections. Companies often find themselves making price concessions
to make up for missing features or inadequate performance. It is also possible
to be too early. Some companies are first-to-market, yet they fail to realize
sales goals because they neglect to ensure that their product or service overcomes
the market's inherent resistance to a product that is ahead of its time.
Reality #3: "Being first-to-market" does not ensure
success. Having a clear strategy for which products to introduce and when,
given your competitive environment, does.
Myth #4: Market success depends upon rapid iteration rather than formal
process.
There are two schools of thought about developing new products:
1. Rapidly prototype, iterate often, and design
robust architecture later.
2. Define thorough requirements first, build
interdepartmental consensus next, and then build out a robust
architecture and a comprehensive solution.
Both processes fare about the same in terms of market share and revenue goals,
though the 'define thoroughly' camp has been much more likely to
meet or exceed revenue projections. Process choice is often a matter of culture
or life cycle stage of the company. Today, processes are being compressed,
and many shortcuts are being taken in the product development process. Important
portfolio management steps seemingly are missing in the new product development
process. For most companies, the product development cycle has evolved from
a lengthy sequential process to a more concurrent, highly flexible process.
Both approaches, however, would benefit from incorporating more robust portfolio
management into their processes to help achieve their profitability goals.
This is true even for early-stage companies with only one product; understanding
where your growth will come from through future products is critical to securing follow-on
funding rounds.
Reality #4: Rapid iteration and formal development processes are
equally viable methodologies, provided a robust, portfolio strategy management
process is in place.
Myth #5: Innovation comes from within, not from customers.
Companies often believe their product category is so new that customers cannot
understand it, let alone identify innovations for their product. Engineering-driven
companies frequently believe breakthrough ideas occur as a result of a deep
domain expertise of a particular technology. This belief may drive the
limited application and use of customer input that we often encounter. These
companies frequently miss important aspects of usability or serviceability
that customer research would have identified. In contrast, the companies that
invest time in talking to their customers show an attractive success rate as
measured by increased market share and faster time-to-market.
Reality #5: Customers can help drive innovation—all you
have to do is ask, listen, and interpret. More importantly, when you listen
to what customers say, you develop the most profitable products.
The moral of our research is "go slow to go fast." If
you do need to shorten your time-to-market, the following shortcuts appeared
to be the most successful.
The shortcut used most frequently, by 43 percent of respondents, was reducing
the feature set to lessen development efforts. Only one-third of those respondents,
however, gained incremental market share and met or exceeded their revenue
projections for more than half of their products. Reducing the feature set
was used most successfully by companies who had little or no competition. Shortcuts
used by companies that introduced products faster and gained incremental market
share were, in order of frequency:
- Increased engineering resources to meet major milestones
- Implemented use of product development life cycle software tools
- Increased marketing research efforts
- Acquired companies or product lines
- Improved internal processes
- Used off-the-shelf software
- Out-sourced development
Interestingly, some of the 'shortcuts' that companies used to introduce products
faster and more efficiently than they previously did required more
time. That additional time was spent implementing the new processes
or tools. By putting more process or tools into place, companies
ultimately reduced their time-to-market.
Patrina Mack is the founding partner of Vision & Execution, which
is a marketing consulting firm focused on helping companies optimize value
throughout the product life cycle. For the full report of this study, please
go to http://www.visionandexecution.com/paper_strategic_marketing.html and
select Industry
Survey, After Internet Time. You can contact Patrina at pmack@visionandexecution.com or
visit her website at www.visionandexecution.com
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