Product Development: Hope vs. Reality

I recently read Clayton M. Christensen’s The Innovator’s Solution (sequel to his The Innovator’s Dilemma) and re-read Geoffrey Moore’s Crossing the Chasm. I have also been involved in the development of two fledgeling businesses which faced some of the challenges described by these authors. Based on these experiences, I developed a simple model contrasting the hope of product development with the reality.

Product developers frequently hope that incremental addition of features will grow revenue, that certain sets of features will allow entry into new markets, and that entry into new markets will cause jumps in revenue. Graphically, this hope could be represented as below:

The Hope

Unfortunately, such a hope is frequently rewarded by investors eager for entry into new markets and revenue growth in general. What tends to happen in reality is that, with the addition of features, the product becomes “jack of all markets, master of none”. It may get a few customers in new markets, due to its general applicability. However, it fails to meet key needs of the vast majority of participants in each market. In pursuing a miniscule number of customers in brand new markets, product developers increase their management and overhead costs and find it increasingly difficult to satisfy the diverse demands of existing customers. The result looks something like this:

The Reality

Preoccupation with entry into new markets through the addition of features leads product developers to throw good money after bad, neglecting benefits that could be gained from investments in marketing instead of product development. Marketing here means more than just advertising campaigns. It means a deep understanding of customer needs, what Christensen calls “the job” for which the product is to be “hired”. Continued investment in product development also creates maintenance costs and constraints on pricing.

The key lesson to take from Moore and Christensen is that product developers must focus on incremental growth in the addressed market, not incremental growth in product features. Revenue growth comes from meeting the needs of the majority of participants in larger markets.

The Solution

Product developers must overcome three key challenges:

  • Shift focus from product development, which is an internally-facing function whose results are relatively easy to control, to product marketing, which is an externally-facing function whose results are relatively difficult to control.
  • Resist the belief that a market is captured when the first participant becomes a customer. The revenue growth from market domination will required additional investment to meet the needs of the majority of participants in new markets.
  • Overcome fear of the sudden increases in product features that are occasionally required to address even a slightly larger market. Channel partnerships, packaging changes, and marketing communication changes are all relatively cheap ways to reposition an existing product for additional markets. Technology partnerships and acquisitions can help rapidly build up feature sets required by the majority of participants in new markets.

Tags: Business

Created at: 30 November 2005 12:11 AM