Foolproof: De-Risking New Ventures

Whether it’s a start-up or a product line extension, next to having the right team on board, validating your market prior to developing your product is the best way to increase the probability of your success.

Often I hear the cry “oh, this doesn’t apply to us”…. “We do disruptive technology like Steve Jobs… “our customers don’t know what they need till we show them”.

Truly successful disruptive technologists use research to back up and tune their visionary thoughts. They study their target audience’s behaviour to the point where they can create powerful product insights based on a combination of research and creativity to de-risk their investments. Without this behavioural research you are simply guessing.

It’s no wonder we have such a high failure rate with companies in this country when you hear facts like – “only 20% of companies approaching MOVAC for investment have completed market validation, which is a perquisite for us to invest” – Dion Mortensen

85% of those completing market validation will fundamentally change the functionality of their product, ultimately creating a product that will be more profitable and actually sell!

Jenny Douché has just released her latest book “Fool Proof – How to find and test great business opportunities”.

“This easy to read book is full of great tips and guides, it should be compulsory reading for all new ventures and product managers”.

Jenny has included some insights from New Zealand entrepreneurs (Rode Drury’s Xero, Campbell Gower, Phil & Teds buggies, etc) and a few local investors who have experienced the fruitful outcome of performing market validation.

Foolproof is an easy light read, designed for entrepreneurs – 2 aeroplane trips should have it read with no bullshit or big theories. It will be one of those books that you will refer back to.

Unlike other books on this topic, Jenny actually gives you plenty of actionable content, rather than just theory, including lists of questions for all participants of market validation including: target end users, distributors, market influences and enablers. She covers both desk research and engaging with stakeholder groups, including how to talk when interviewing and surveying.

Too many entrepreneurs  fail to look at the wider macroeconomic factors that will influence their business both now and in the future. It’s amazing what insights you can gain from mapping and studying your market place’s value and supply chains along with current trends. (Note: value chain mapping is one of the key activities we do in Business Dominoes – strategy programme). By performing this type of research, you can save yourself the embarrassment of being blind sided down the track, or worst still investing in the world’s best mouse trap that no one will ever buy.

Just because what we have created is faster or better than the existing market alternative, it is not a right of passage to easy sales. As creators of new products, we easily forget the life of a consumer; where we are faced with better and newer products and services, yet we choose to ignore them and use what we consider easy, safe and predictable.

Clearly getting there is a balance between “no market validation” and “doing so much research you never do anything”. Either extreme is going to be a recipe for failure.

Some takeaways on Market Validation:

1. Market validation before undertaking any major investment is an essential risk mitigation tactic
2. If you are seeking investment, doing market research will put you ahead of the pack
3. Do both desk and personal research – yes, talk to potential customers
4. Map out your market place (value chain and trends), make sure you are not missing any opportunity or trend merging – a lot of this can be done by desk research and validated by contacting key industry commentators
5. Engaging key stakeholders in the industry in market validation often builds loyal evangelists for you and your new business
6. A quick prototype or sketch can help discussions
7. Market validation is not a one-off exercise, it is a crucial part of improving your business and product over its life
8. If you are developing disruptive technology then you need to be doubly sure of your target audience’s “pain” and more importantly motivation to change behaviour to adopt your new product. Do some behavioural research.
9. Be warned if you have been in the industry or are a target user – you do not know enough.
10. Doing market validation will often open your eyes to a better product than the one you have conceived by yourself.
11. Buy Jenny’s book

I have already purchased 10 copies of the book and are handing them out to clients as compulsory reading.

Test your BHAG

What is the uniting force in your business? Running and working in high growth companies is hard work and we are often losing sight of what we are all about.

Daniel Pink in his book Drive he outlined three core drivers for people: Autonomy, Mastery, and Purpose.  (Note:  For those who have not read this great book watch the 10 minute animated summary)

Nothing binds a business like a clear and succinct BHAG (Big Hairy Audacious Goal) and a clear purpose.  I am not talking about the traditional boring mission statements that lime the walls of corporate offices, full of: Corporate blah blah… typically lots of words taken from a corporate speak bingo competition.

What I am talking about is a mantra or Big Hairy Audacious Goal (BHAG) that is worth waking up for in the morning and going the extra mile.

Ingredients of BHAGs that work are:

• Compelling and gripping: people understand straight away
• Action orientated
• Bold: bordering on arrogant and unattainable
• Clear: who, what, where, by when
• Types: target, common foe, role model, internal transformation
• SUCCINCT: The power of message is inversely proportional to its length

Have a look at some of the founding BHAGs for some of industries great companies noting this is what they started with…

• Microsoft: “A computer on every desk and in every home”
• Amazon: “Every book, ever printed, in any language, all available in less than 60 seconds. Also: Earth’s most customer centric company”
• Ford: “Democratize the automobile”  (1900’s)
• Twitter:  “To become “the pulse” of the planet”
• Giro Sport Design: “Become the Nike of the cycling industry”
• Nike: “Crush Adidas” (1960’s)

Brian Gaynor spoke at Springboard this month citing “New Zealand  business owners, in comparison to Australian counterparts, lacked ambition”.  Check your BHAG against the above list. Do not fall into the trap of being another conservative Kiwi company without big ambition.

Here are a few ideas from local examples (note: not their actual BHAG)

• Biomatters:  “Tools on every biologist’s desktop”
• E-spatial : “THE location intelligence behind all major New Zealand enterprise solutions”
• Sale finder: “New Zealand’s ultimate consumer research tool”

When it comes to purpose statements – these are just clear concise versions of your value proposition in the language of your clients. More on this later – a topic for another blog post.  In the meantime, you can read value propositions revisited, creating succinct messages, No value proposition = No business from old posts.

Example Purpose: Spike mail: “Building qualified and engaged buyers versus creating lists”  – note no reference to their core craft of email marketing.

Product Marketing – the missing discipline…

An effective Product Marketing team is most probably the best insurance policy for any new venture.   For a trading company the Sales team and CEO’s all have tunnel vision on next quarter’s revenue.  The role of product marketing is to build next year’s revenue and ensure that any investment in product development produces a measurable return. 

The finite definition of product marketing’s function is variable, but it unanimously does include the full range of marketing activities, rather than just promotion activities. Noting that for too many business people, marketing is just a promotion activity.

Key activities of pure product marketing that are often absent in businesses include:

• Assessment and validation of markets.  Will someone actually buy this product once it is created?
• Access to channels to market – smart go-to market strategies and distribution agreements that are workable and will not conflict with potential company exit strategies.
• Return on Investment – working out if this is the best use of the company’s capital and when and how will it get a return.
• Development of effective sales collateral and messaging – that communicates what is relevant to customers, rather than a feature or technology list.

Check your company’s marketing activities against this great list from www.pragmaticmarketing.com

This is one area we have a lot to learn from American technology companies. New Zealand technology companies often make the first move of appointing product managers, to manage product road maps, product requirements definitions, and act as the referee between sales and development teams.

My suggestion following on from my recent  Rule of 10’s post is, at the very least, budget an equivalent amount of money in the complete list of marketing activities as you do in product development. Likewise, balance your marketing spend between strategic and tactical activities.

I would encourage CEO’s of companies, Crown Research Institutes and universities to explore this missing discipline. I would also welcome the Ministry of Science and Innovation to begin to invest in this crucial area of commercialisation, rather than just the science part.

Don’t spend all your money on development

The process of selling costs and it takes time…
A company without sales and a go-to market plan is a science project, not a business.

It blows me away every time I come across yet another business that has a product all finished, patents applied for, accounts done, but no go-to market strategy or any sales to speak of – AND NO CASH LEFT.

Worst still, licensing deals that have not taken into consideration cash flow and go-to market issues – AND STILL NO CASH LEFT.

It disgusts me that all the lawyers and accounts that the business spent money with never encouraged the business to save some money for sales and market.

Whether it’s science, technology, or products, too many businesses are running at Death’s door, because they have failed to budget for and spend appropriately on marketing of their products.

 

Rule of 10’s

One of the most basic rules any new product based venture should take into consideration is the Rule of 10’s.  If it takes $1 to create a business concept, it will take $10 to build a product, $100 to market it, $1000 to build a brand, and $10,000 for an international brand.

Please make sure you have some time, energy, and money left for taking your product to market.

As an ex-engineer I get it guys, you want it finished and perfect before you go sell it – but get over yourselves, go sell vaporware. Trust me, the sales cycle will take 10 times as long as you think and cost you 10 times as much.

STOP spending on technology and products. START spending on marketing and sales NOW.  It appears that most professional out their patent attorneys, accountants and the like have no knowledge of product commercialisation – otherwise they would be advising businesses to save some cash for this crucial activity.

At very least, consider how you are going to sell and market your product and budget for it now.