How to create good products?

“If something cannot be measured, then it cannot be improved.”

Lord Kelvin, a British scientist, engineer and businessman, author of 250 scientific articles and 70 patents for devices, for the use of which he received several million dollars from business (the annual income of scientists as professors at that time was about 1.8 thousand dollars).

If Lord Kelvin lived in modern times, he would probably be called a technology entrepreneur. At the same time, Lord Kelvin himself preferred to devote his time to science and engineering – the application of science to solve the pressing problems of his time. For example, when the first telegraph cable across the Atlantic burst and, out of desperation, the authors of the project were already ready to pull the cable from Europe through Siberia, the Bering Strait and Alaska to America, it was Lord Kelvin who proposed a technical solution to the problem and the businessmen managed to save a significant amount of money.

As it turned out later, laying a cable was not enough for the telegraph to work: the signal was attenuated, reflected and distorted, making transmission at the desired speed impossible. And here Lord Kelvin proposed a technical solution by creating devices of an original design.

None of these instruments are now in use, having been replaced by better designs, but at the time Lord Kelvin received several million dollars for the use of his patents, which at the time was equal to his income as a professor for 1,000 years.

This money allowed Lord Kelvin to do science and teach.

Today: what should be a successful product practice?

The example of Lord Kelvin and many other technology entrepreneurs shows that the age of the product is not long. The product is invented and patented. Production and commercialization of the product begins. Scientists invent new technologies. New technologies give impetus to the creation of new products. The cycle is repeated.

In 1976, the Product Development Management Association was founded, a non-profit association whose purpose is to collect and publish information about the development of new products.

One of the members of the organization is Robert G. Cooper, author of several books and over 130 articles on R&D and innovation management.

In his study, he compared successful product companies to unsuccessful ones and made six recommendations.

1. Estimate what proportion of sales new products generate

In the best product companies, the share of sales from new products is 49.2% compared to 25.2% in the rest of the companies.

New products are products launched within the last 3 years.

2. Study what share of profit new products generate

In the top companies, 49.2% of profits are generated by new products compared to 22.0% in the rest of the companies.

3. See how well your product process stops funding unsuccessful ideas.

In the best companies, to get a successful product, you need to bring ideas from development to commercialization 3.5, while in other companies, to get a successful product, you need to bring ideas from development to commercialization 8.4.

The determining factor is not the quality of the ideas on which development is started, but the ability of the product process to effectively identify and cut off future unsuccessful products at one of the early stages of the product process and redirect the saved resources to create successful products.

4. Compare your understanding of successful product investments to the industry

The average ROI of a successful product across the industry is 96.9%.

The median value is 33%.

5. Evaluate how quickly a successful product investment returns

The average return on investment in a product is 2.49 years.

The median value is 2 years.

6. Calculate the market share occupied by your product

A successful product occupies an average of 47.3% of its market.

The median value is 35%.

And what to do with the received figures further?

It is easy to see that most of the proposed figures work on the horizon from two to three years.

Such a horizon is suitable for reflection in the company’s strategy – on the horizon of 2,3,4,5 years, but they cannot be used in any way to make decisions about which products to invest in now, and which products need to be stopped right now.

Fortunately, there is an answer to this question.

Compare your product practice with that of your competitors

1. At great product companies, every second idea is launched into development, the rest are postponed.

Putting every idea to work is a so-so undertaking. The initial idea evaluation stage takes up 20% of the project time and requires less than 5% of the total resources required to create and launch the product. Weeding out 50% of bad ideas in 20% of the time and 5% of the cost is a highly effective investment.

2. At great product companies, 40% of products never go from development and testing to commercialization

Not all products can be made and not all products perform well in tests. At the same time, development and testing take about 60% of the cycle time from the inception of an idea to the launch of a product and require more than 80% of the resources.

Successful companies liquidate almost every second product without bringing it to commercialization and thus save time and resources.

The most outstanding companies build products iteratively, testing the riskiest assumptions of the product business model in each iteration.

3. Great Product Companies Have Product Practices

Product practice is a process, information, technologies and people who create products.

An outstanding company practices on each product, improving its product practices and learning from its mistakes.

And what are the criteria for cutting off products in the early stages?

1. Me too, or tired new products

The product that entered the market first has 60% of the market share.

Each subsequent product-copy takes about 2 times less than its predecessor.

You should not create a product for a market where you are late.

That is why big companies prefer to buy startups rather than create copy products.

2. Weak preparatory work

Poor assessment of the market or technology leads to the creation of zombie products that either do not need anyone, or do not work as they should, or both at the same time.

You may have seen this with Google Glass.

3. Lack of customer feedback or market insights

Observing the work of potential users of a product is one of the strongest signals that your product will be in demand, but this is only one of the methods.

It is for this reason that startup incubators often provide new rounds of funding based on data on the dynamics of the client base and sales of a startup, and Steve Blank regularly encourages entrepreneurs to “Get out of the company’s office building, because there are only hypotheses in the building, and the facts are where clients are located.

4. Unstable product specification or scope creep

Building a product is all about finding a successful business model. It does not allow the resource to be scattered in all directions at once. If you cannot identify the riskiest hypotheses and focus on solving them, then you will fail.

5. Non-functioning cross-functional team or wells

Without a cross-functional team, the product launch time will increase by 4 times.

The team must be allocated all the specialists necessary to create and launch the product without exception.

6. Too many products in view or out of focus

Smearing the resource will not lead to anything good, time2market will become unacceptably high.

7. Lack of competencies, skills or knowledge

Creating a product will require exploring a new market and new technologies.

The more competent the professionals on the product team, the faster they will move forward.

What practical experience in applying product practice can the author of the article share?

The product practice was introduced by me as a director for high-tech products in the Moscow Exchange group in 2018-2019.

The pilot project included 5 products, three of which were stopped at one of the early stages of the product process, and two were successfully commercialized.

Successful products that have gone through the product process online API for security reference data:

Transit 2.0: OpenAPI for BaaS between corporations and banks based on EDI NSD

What to read additionally?

In most cases, the translation is either missing or suffers from inaccuracies. I recommend reading the original editions.

  • Winning at new products: accelerating the process from idea to launch, Robert G. Cooper (Amazon)

  • Running Lean: iterate from plan A to plan that works, Ash Maurya (Amazon)

  • The launchpad: inside Y combinator, Randall E. Stross (Amazon)

  • The startup’s owner manual: the step by step guide for building a great company, Steeve Blank, Bob Dorf (Amazon)

  • Corporate Lifecycles, Ichak Adizes (Amazon)

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