Your team does a great job of developing new products that meet all the requirements spelled out at the beginning of a project. But does every product you launch go on to meet its revenue forecast? Or does it sometimes get a little foggy from there?
There are lots of reasons this happens, but organizational pressure and a lack of transparency in the approval process (governance) play a big role. That pressure can come from customers, salespeople, and even leaders forcing their wishes into your new product pipeline. While well-meaning, that pressure clouds organizational judgment with more time spent on selling the opportunity than on finding opportunities that sell themselves.
Read on for three questions to help you break out of that fog and get crystal clear on whether a new opportunity deserves to be funded.
1. Does The New Product Address an Unmet Need?
One of the biggest frustrations product executives share with me is when new products flop and it turns out that it was an internally sold idea or a customer request.
Everyone understands the value of getting out to understand what customers need, but the biggest mistake you can make is to ask them what they need. Even worse is to ask them what they want. They’re smart people but this is the wrong question. Instead, ask about the problems and challenges they face in doing their jobs or in meeting their customers’ needs. What are the company’s top goals and what are the top issues keeping them from achieving them? You can come up with many more, but they are all about problems. A problem they have and don’t want or a result they want and don’t have.
If the new product isn’t rooted in one of these, it isn’t likely to be a success. And if the need you uncover is to not be single-sourced, be careful. There’s a good chance the other supplier will defend the business and all that plodding along the me-too path will have done is helped the customer get a lower price from their existing supplier.
2. Do We Have The Right to Win? Essentially this question is about understanding the potential obstacles in your way. There are two key elements to this question. 1) Is it a fit in terms of the necessary technology and supply chain capabilities and 2) Is it a fit in terms of the market and channels that you serve?
If a new product is going to require PPM-level quality for millions of parts when your operation is set up for high-mix production, that is a big change. Or maybe the product is intended for an overseas market where you don’t have any sales channels and where no one has ever heard of your company.
None of these is necessarily a third-rail issue. After all, Pfizer and Moderna created a supply chain with the ultra-low temperatures required by their Covid vaccines in an amazingly short timeframe. But if you don’t have a pandemic creating market demand and the government throwing billions of dollars at you, it’s important to be realistic.
Showing those factors on a heat map like the one below can be a great way to make the discussion more transparent.(1) We can see that the higher the stretch, the lower the success rate/higher the risk. Projects in the new/new category are of course the riskiest and not very likely to succeed.
New Product Probability of Success Based on Technical & Market Stretch
But it’s also important not to be too risk-averse. Sticking to your core technology and your core markets can work for a while, but eventually will doom you to line extensions and cost savings projects. The most successful companies learn how to bring adjacent technologies into their core markets and how to move their core technologies into adjacent markets. A healthy stretch, but one that pays off handsomely in long-term growth.
3. Do the Right-Side-Up Economics Make Sense? Too often new product economic justifications are upside down – all about what’s in for us. That starts with the NPV/ROI we need to justify a new product project. Then what volume and price are required to deliver that given our target margin? And maybe VOC calls to justify the pricing.
But there are only three reasons a company will buy a new product. Because it helps them sell more, reduces/delays their investment (working capital or plant assets), or decreases their operating expense. So right-side economics starts with the economic impact of the problem. How would solving it benefit the customers’ economics in any of these three ways? Then you can calculate what they should be willing to pay for the product by comparing the benefit to the cost of adoption. Basically, you are looking for the price that would give them a 1-2 year payback. Then you can proceed to look at your internal costs and returns.
By turning the economics right side up, we get a much more realistic picture of how attractive the new product will be – both to customers and to us. I’ve seen this play out in a range of ways. On one end, uncovering clear winners that we would have underpriced with target margin pricing. On the other, identifying and shutting down clear losers before they burn too many resources.
Implementing these Questions
Put these questions in place and you’ll start to see a new level of transparency emerging as well as far more successful new product programs. But don’t just add them to the documents in your new product development process. Make sure the folks that need to understand these questions get some training on what is expected. And rather than making it a form-filling exercise, make sure everyone is ready for a robust discussion on why they answered the way they did. It can be uncomfortable at first, but as people come to understand what is expected you’ll gain momentum.
Our free Clear Winner Accelerator Template can help in these discussions. It’s an easy-to-use Excel template you can start with right away to lead that challenging discussion and see the amount of stretch and reward for each opportunity in your new product portfolio.
(1) Adapted from the Real-Win-Worth framework of George Day