Part 1
According to Rob Adams, author of If You Build It, Will They Come, more than 65% of new products introduced by established companies, with already entrenched products, will fail; for start-up companies the failure rate is over 90%.
The probabilities for success, with a new innovation, increase dramatically when a Jobs-to-Be-Done analysis is done. Ulwick & Bettencourt claim an 80% innovation success rate when that analysis uncovers what customers really want (see Step 4: Generate Game Changing Ideas). That analysis focuses on individual customer needs. We can drive that 80% success rate even higher by looking at market analysis and segment examination.
Where to Jump In
Adams tells us markets can be analyzed from the perspective of four significant types of buyers: early adopters, early majority, late majority, and laggards. In the early adopter stage of market development, costs are high, volumes are low and the manufacturing learning curve is huge; it is very hard to make money because of the high initial costs of (1) manufacturing the innovation, (2) marketing from scratch, and (3) selling it through new channels and people. The learning curve is filled with expenses from experimentation.
Fast-Followers often jump in when a product hits a 5% share of the market. At this point, end-user demand is just starting to move towards mainstream. A significant problem is being solved so the user is willing to pay a premium price. Investment costs for sales and marketing are typically lower than the early adopter stage, but still substantial. The early majority stage is the most lucrative because high-margin products step onto a rocket ship of demand. The profitability eventually attracts aggressive competitors usually from companies in adjacent markets. In these hot markets, a land grab for market share is the norm; the strategy is to grow share at all costs.
Where Not To
The late majority stage occurs because the market approaches saturation and user demand begins to slow. Competition forces prices to drop and market share increases seem to come, not from new customers, but from grabbing them from competitors. Brand recognition and differentiation with features is the motif for survival. Niche innovation and disruptive services become the only islands of profitability that have the potential to create entirely new markets.
In the laggard stage, the market is completely saturated. Oversupply is everywhere. Only the consolidators survive. The only effective strategy is to become a consolidator or to sell out to one. Customers are acquired, not created.
The lesson to be learned about this four-stage market lifecycle, in terms of innovation, is that it is much easier to sell a product or service to a new customer than to go after competitor’s customers. So we can see where the greatest return for the least investment can be found. Also notable is that the early adopter stage is too expensive for most companies in terms of time, money and risk. It is better for us to look for opportunities in the early majority stage where markets are expanding and where, in particular, certain sub-sectors are growing at an amazing clip. While at first glance this may seem obvious, the vast majority of businesses neither understand nor heed this lesson. And, therein is the difference between a low and a high probability of success with new products and service innovation.
Proven Winners Quickly
Being a fast follower means knowing how to imitate products and services already “out there” that are starting to win; in other words, they are proven or near proven. With that proof, our innovation risk falls even further.
Oded Shenkar in Copycats tells us the principles of imitation are not only consistent with innovation, their practice enables even more innovation. Further, copycatting means being able to move at an even faster pace than doing pure innovation. In a world where our markets change so fast, our survival may depend on learning how to imitate effectively.
Part 2 next month