A ‘new product’ can actually be a product or a service. For instance, it could be a revolutionary mobile app, or a new holiday package put together by a travel agent.
This briefing focuses on what to do once you’ve a new product idea. It covers:
- Reducing the risks as early as possible.
- Setting a spec, a price and a schedule.
- Running the project team and keeping costs under control.
1 Can you create your product?
Apart from a great idea, there are three essential ingredients for successful new product development.
1.1 You need the relevant skills.
- For example, if you are developing a new food product, having a technician create the right look and taste is only the start.
Other issues include sourcing ingredients, the mass production process, quality control, packaging, customer trials, costing and pricing, and so on.
You may need external expertise (see 4).
1.2 You need to commit sufficient resources.
- If you can only afford a half-hearted attempt, do not begin. Without a critical mass of people, time and money invested, your project will fail.
- If you commit too many resources, the rest of your business may suffer.
- You may need finance.
1.3 You need personal commitment to the success of the project.
- Though teamwork is important (see 4), in a smaller business it is often the owner-manager who must drive the project.
In practice, most new product development is incremental. This means you improve an existing product. Compared with starting from scratch, this is relatively straightforward.
2 Reducing the risks
Identify major risks early on, so you can decide if the overall risk is worth the potential reward.
2.1 Analyse all market risks. For example:
- How big is the market? Also identify the marketing and sales cost of making a sale.
- Is your target market growing? Identify potential market changes that could affect your product’s success. For instance: new product safety legislation.
- Could any competing products block your route to entry? What are the strengths and weaknesses of your competitors? Can you offer something unique?
The killer blow for a new product will often be something you have not even considered.
2.2 Analyse the technical risks.
- For example, do you need in invest in new equipment to produce your product?
2.3 It is helpful to have a working prototype to test. Creating this need not be expensive.
- For mechanical devices you may need both a ‘works-like model’ and a ‘looks-like model’. If you are improving on an existing product, you may only need to model the new features.
- Start with a simple prototype such as a drawing. Good feedback at this stage can save time and money.
Potential customers, suppliers and members of the development team can give valuable feedback once they see what your product is and how it works.
2.4 Avoid learning everything the hard way. Look for evidence of what others have achieved before you.
- Look at recent developments in related products. Visit trade shows to see forthcoming products and trends.
2.5 Work out how to reduce each risk to an acceptable level.
- For example, can your new design be patented or protected in some other way?
2.6 Be wary of underestimating risks. For instance, launching a new online service may seem less risky than creating a physical product, but in reality the risks may be similar.
2.7 Consider taking a ‘lean’ approach to product development.
- Instead of setting out to build a finished, fully-featured product, you first create a ‘minimum viable product’ (MVP).
- The MVP lets you collect valuable feedback from customers without requiring enormous product development effort.
- Lean product development aims to minimise waste by focusing on obtaining customer feedback and using this to determine a product’s direction.
- You have to be ready to receive feedback that will challenge your assumptions about how your finished product should look.
- The Lean Startup website and accompanying book provide an excellent introduction to the principles of lean development.
While a good product idea is no guarantee of success, a bad product idea is a guarantee of failure.
Here are some of the fatal flaws.
You cannot sell at the price or volume necessary to make a profit.
- For example, UK shoe manufacturers face cut-throat price competition from firms at home and abroad. Even stylish new lines may have to be discounted.
Your product can easily be copied.
- For example, you may invest heavily to develop a new service and build a market for it. But once you’ve paved the way, competitors can launch similar services at lower prices.
You lack market power.
- For example, a new piece of software may be the best available, but it could be doomed to failure if you lack an effective route to market.
Your product is over-ambitious.
- For example, a new methane car would require breakthroughs on several fronts - engineering the car itself, persuading petrol stations to offer methane fuel, persuading consumers to buy the car and persuading someone to finance the project.
3 Know what you are doing
You need to know the what, when and how much of your new product before you can turn your idea into a project.
3.1 Define a basic specification (‘spec’) for the product. List the features and how they translate into specific requirements.
3.2 Make sure you have a unique selling proposition (‘USP’). This is a reason for customers to switch to your product.
- What will make customers choose your product over a rival’s?
3.3 Plan the design of your product. This can be crucial to its success.
- Don’t skimp on design. Professional designers can bring a wealth of expertise to your idea.
- Get external designers to sign confidentiality agreements.
3.4 Pencil in a launch date.
- When should the product be ready?
- How would a delay affect pricing, sales volumes and profitability?
Unless you and a competitor are racing to launch similar products, hitting a deadline may not be vital.
- Plan to launch a pilot product with a few favoured customers, to identify and fix the inevitable problems before the main launch.
This also helps you build up your order book before the launch.
- If you need approvals or certification (eg for an electrical product), book the product tests. Ask if the approvals body can test your prototype to identify any problems earlier.
3.5 Decide on the likely selling price for the product. Based on this, work out what your maximum unit cost of production can be.
3.6 Estimate volumes and delivery demands.
If you wish to sell in volume, aim to achieve a low unit cost. To do this, you may have to invest heavily in the development stage.
When selling a physical product, develop manufacturing plans as you design your product.
Test designs to see if they can be manufactured cost-effectively.
Design products with an eye to minimising the number of components.
- Try to reduce the complexity of assembly.
Use standard parts wherever possible. These are inexpensive and easy to source.
- Standardisation is especially important if production volumes will be low.
- Consider using parts that you already use in existing products.
4 Your team
Hand-pick your team to suit the project.
4.1 Every new product needs a product champion to lead the team.
This individual should regard the product as their baby.
- Without a champion, the project will lack the perseverance to overcome setbacks.
- Give the team leader authority to run the project (within an agreed budget and timetable), without continual interference.
4.2 Create a team with the skills needed to make the project a success (see 1.1).
4.3 Make sure team members agree the main objectives based on the spec (see 3.1).
4.4 Be prepared for negativity and keep the team motivated.
- If anyone has a ‘can’t do’ attitude, this can have a corrosive influence on the team.
- Most projects go through a honeymoon period, while you are generating ideas. Putting these ideas into practice can be a long and tiring process.
- Make it clear that there will be failures along the way. Team members should not be afraid of making mistakes, nor depressed by setbacks when they occur.
5 Developing your product
Having formed the project team and agreed that the new product is commercially and technically viable, you need to get the details right.
5.1 The team leader should decide the key parameters for the product specification.
- For instance: this new coffee machine needs to make six cups at once.
5.2 Where appropriate, allow individuals to decide detailed specifications within these parameters.
- For instance: the exact size of the coffee machine’s water reservoir and jug.
5.3 Giving individual team members more responsibility will help keep them motivated.
- Use a series of SMART objectives (specific, measurable, agreed, realistic, time-limited) to control progress. This helps identify problem areas to focus on.
5.4 Draw up a critical path that shows the order in which tasks must be completed.
Using a management tool makes it easier to identify delays and bottlenecks. It also gives all team members a view of key conversations.
5.5 As the project proceeds, you may need to adjust the spec and planning assumptions.
- When you show customers the prototype, you may be forced to re-think the product.
- Keep asking yourself if the project will meet its commercial objectives.
6 Cost control
Without planning and monitoring, costs can spiral out of control.
6.1 Use top-down cost estimating if you have done a comparable project before.
- Using the previous project as a benchmark, you might double the cost (if the new project will take twice as long) then add an inflation factor.
6.2 Use bottom-up cost estimating if there is no comparable project.
7 Long-term planning
You need to adapt constantly to stay ahead of the competition.
7.1 Plan for new product development on a scheduled basis.
- Extend product life cycles by repackaging, adding features and finding new ways to use your product.
- Do not wait until competitors launch their ‘next generation’ product before starting your own.
7.2 Budget for new product development.
- Put aside funds to make improvements and for totally new products.
- Set yearly targets for the number of improvements or new products you aim to complete.