Innovate or Die
“In this world, you’re either growing or you’re dying, so get in motion and grow.”
–Lou Holtz, Football Coach
When I ask CEOs about their top growth priorities, many executives focus on finding growth through optimization levers. How can we get just a few more subscribers to our existing products using existing marketing channels? How can we shave a few cents off our cost of goods? How can we reorganize to reduce payroll? I’m not saying these are bad ideas, but growth through core business optimization is not sustainable. The only truly long-term growth strategy includes innovation and new product development.
New products are the lifeblood of an organization. Given changes in technology, consumer preferences, and cost structures, if you don’t innovate you will die. Don’t believe me? Out of the companies that were in the Fortune 500 in 1955, only 61 are still on the list. 88% of the companies have gone bankrupt, merged, or have fallen in stature. What makes you think you are immune to this phenomenon?
I have found that too many complacent content companies do not take advantage of rigorous New Product Development (“NPD”) techniques, that the best and most innovative companies apply.
New Product Development is a Must – and It’s Fun
New Product Development is risky and complex – it’s also vital to long-term success and fun! It’s a mix of left brain analytics and right brain creativity.
The challenge is breaking through the natural resistance to change that permeates many industries. Companies who refuse to change and try new things will join the 439 companies who fell off the Forbes 500.
Advances in data science and software development methodologies, along with the framework developed by The Sterling Woods Group, have made it possible for media companies to reduce the risk and increase the success of new initiatives.
This process incorporates best practices from across industries. I have used this NPD framework to drive double and even triple digital growth at various companies.
Here is a brief overview of each of the five phases.
Phase I: Strategic Planning
During the first phase, you should get grounded in your ABCD’s: Audience (or end consumer), Business partners (e.g., advertisers, channel partners), Content (needed to build your brand and audience), and Dynamics of industry (i.e., competition). This is where research, analysis, and interviews (with employees, customers, and partners) come into play. Once the ABCDs are fully understood, you should then decide where you want to grow and why.
Phase II: Concept Generation and Selection
We define a concept as “a statement of what problem you are solving, for who, and how.” Products in search of a problem are rarely successful. Companies should have a clear understanding of what customer segment (sometimes called a “persona”) they are targeting. It’s critical to identify key attributes of a product (both emotional and tangible) as part of concept generation and selection. You can use a mix of both qualitative tools (creative brainstorming, improvisation techniques, interviewing protocols) and quantitative tools (RFM models, cluster analysis, conjoint analysis, perceptual mapping) to identify new concepts and determine the potential of each.
Phase III: Economic Evaluation
You could argue this is the most important phase, because it is the last stage-gate before the company makes a significant investment. The go/no-go decision at the end of this phase is the most important. In this phase, it’s critical to build three models to aid in the go/no-go decision.
- Business model. First, decide how you will monetize the product or service. Advertising, subscription, pay per unit, or hybrid: each model has its own pros and cons.
- Financial model. Then, build a model that includes the initial investment, ongoing costs, growth in customer base, and (most importantly) revenues. This will help you understand how long it will take to break even on the investment, and what the eventual return on investment might look like. It also lays the foundation for target setting.
- Sensitivity model. As we do not yet know how to predict the future, you should test the key assumptions to gauge the financial impact of things not going according to plan. What if it takes twice as long to acquire the first 5,000 customers? What if CPMs are only 50% of what you thought? What if payroll costs exceed plan by 20%? By understanding which of the assumptions are the most precarious, you can build proper contingency plans to guard against such potential sources of failure.
Phase IV: Development
This is when the heavy lifting occurs. Developers write code, designers create the user experience, and marketers line up the launch campaigns. We advocate that all development should follow an agile methodology, meaning work is broken down into short periods of time (called “sprints”) so the team can assess progress incrementally as we respond to uncertainties.
A few years ago, when I taught at Boston College, I used to go though the pros and cons of the agile approach versus the “waterfall approach,” which is the more classic project planning approach. Under waterfall, the project manager maps everything out for the entire duration of the project (e.g., the next three or six or twelve months). Then everyone executes according to the plan. The problem is the world is so unpredictable. As such, the waterfall method rarely produces expected results. At this point, I no longer see the need to even consider the waterfall approach for digital product development.
Phase V: Launch
In this phase, put the product in the hands of customers and see how they react! Warning: do not expect an overnight success. The idea is to get as much real world feedback as possible and continually make course corrections. A key tool for this phase is the diagnostic dashboard. With a well-constructed dashboard, you can measure the top five to seven metrics that are critical for success. For a digital membership, for example, typical metrics would include site traffic, number of email sign ups, conversion to membership, email churn rate, membership churn rate, and campaign effectiveness. If one or more metric is off target – either favorably or unfavorably – you can dig deeper into the numbers to determine more precisely what is going right or wrong.
Reaching a Decision Point on New Products
At 12 weeks after launch, call time out to evaluate performance. At this juncture, there are four options:
- Invest in scale. All targets are met or exceeded. You have a firm understanding of customer economics (acquisition cost, lifetime value). You can comfortably invest in expanding product development and marketing activities.
- Stay the course. Initial results are favorable, and there are a few open questions that need to be answered before investing heavily. Give the new product another 12 weeks and re-assess (i.e., come to another decision point).
- Pivot. There were parts of the project that worked, and parts that did not. No one is comfortable investing to scale the business unless substantial changes are made (e.g., key feature missing, customer target was not precise). Take a step back, re-assess, and re-launch.
- Shutter. Countless keynote speakers have said, “It’s ok to fail, but fail fast.” Sometimes despite best research and efforts, the market does not accept a new product, often for reasons beyond anyone’s control. It is better to cut losses, and move on to the next thing armed with everything learned from this experiment. Thomas Edison once said, “The real measure of success is the number of experiments that can be crowded into 24 hours.”
What is the last new product you launched? Did you follow an agile process? What worked well and what didn’t? We want to hear from you – please post in the comments below.
