A quick estimate of market acceptance is important when selecting an idea to move out of the fuzzy front end of a company’s product development process. The major sources of knowledge on market acceptance are outside the company. A product developer must “get out of the building”. At the heart of subsequent fieldwork is framing an answer to prospective customers’ primary question.
“If I’m your ideal prospective customer for this idea, why should I buy your new product rather than the next best alternative?”
Guide pre-development fieldwork with three rule-of-thumb helpers … Search … Stop … Select.
Specialty products are sold in niche markets, one or two links down the value chain from the end customer. They are incorporated in small amounts as indispensable building blocks in the next highest product in the chain. To prospective customers, price of a new specialty product adds a minor bump in the cost of producing the customer’s product. More important than price is the rule-of-thumb dialogue going on customer’s mind to estimate the benefits of switching to the new product.
- Customers’ rule-of-thumb for estimating economic value of developer’s new product:
(Value of new product – Cost of new product)
is much greater than
(Value of next best alternative – Cost of next best alternative)
Search guides pre-development fieldwork by targeting, for interviews, subject matter experts and gatekeepers in an attractive niche markets. These individuals are interviewed for their understanding of where they see your new product idea might be of high value. Well-informed people in these markets usually number less than three hundred. Common titles of potential interviewees are: VP, R&D, Chief Engineer, Plant Manager and Product Manager. After the first 30 seconds of contact, skilled interviewers can start to draw from these respondents’ estimations of the value of the idea.
Stop, after completing from 40 interviews with subject matter experts and gatekeepers. Begin to use the customers’ words and preferences to build a compelling value proposition for the idea. (The Central Limit Theorem of statistics is the underpinning of this rule-of-thumb. The theorem uses two statistics tools, probability and a simple random sample of interviews. Following this rule-of- thumb captures 95% of the knowledge needed for building the proposition.)
Using similar pre-development fieldwork is the focus of Steve Blank’s emerging Lean LaunchPad development process for the NSF’s Innovation Corps startups. Lean LaunchPad teams must “get out of the building” and interview at least forty prospective customers before framing the value proposition for their idea. Large companies are also applying Lean LaunchPad’s standards for choosing ideas and guiding product development (General Electric currently has 200 FastWorks projects underway).
With skill, interviewers can estimate how each prospect values the idea over the next best alternative to do the job. The benefit, its “why” and its estimated value, help developers build a compelling value proposition for the idea. The developer can choose to develop the idea now, put it on the shelf, or abandon it.
A three-sentence template for a specialty-product idea’s compelling value proposition.
First sentence: For those (prospective customers in the new product’s value chain) who are dissatisfied with (competitive products)
Second sentence: Our new product provides (a unique ability for solving customers’ key gain/pain problem)
Third sentence: Unlike (competitive products) our new product solves this problem with a gain/pain ratio > 10
Gain = competitive advantage the new product delivers to customers
Pain = total cost for customers to adopt the new product
Gaining knowledge from prospective customers, fast
When building a compelling value proposition, there are many ways to gather knowledge from prospective customers. I prefer, for its speed, low cost, and global reach, to elicit insights on benefits and economic value through phone interviews.
Since 1985 I’ve worked with development teams to help build compelling value propositions for winning specialty-product ideas. My clients are specialty product companies and private equity firms in North America and Europe.
Contact me at 203/323-4075 or firstname.lastname@example.org so we can explore how gaining knowledge from prospective customers can pay off in revenue and profitability growth.
(2014) Clough, R. General Electric Wants to Act as a Startup http://mobile.businessweek.com/articles/2014-08-07/ge-taps-lean-startup-ideas-for-faster-cheaper-product-rollout
(2013) Blank, S. http://goo.gl/rjHmVa and http://steveblank.com/2013/10/26/300-teams-in-two-years/ Steve Blank has worked with 300+ I-Corps teams in the past 2 1/2 years. 60% of these teams received commercialization funding.
(2014) Castellion, G. Building C-Suite support for your new product idea www.georgecastellion.com
(2013) Albar, F. An Investigation of Fast and Frugal Heuristics for New Product Project Selection, Dissertations and Theses PDXScholar Paper 1057
(2013) Wheelan, C. Naked Statistics: Stripping The Dread From The Data W. W. Norton & Company, NY, NY
(2012) Sant, T. Persuasive Business Proposals 3rd Edition AMACOM NY, NY
(2010) Hubbard, D. W. How to Measure Anything: Finding the Value of “Intangibles” in Business 2nd Edition John Wiley & Sons