Picking winning new product ideas is really difficult if not impossible. Research abounds on the high failure rate of new products and business ventures. By some estimates, less than 15% of new consumer packaged goods make a profit, less than 3% of patents ever generate revenue for the inventor, and over 70% of US startups stall at some point in the VC process and fail to exit or raise follow-on funding.
Most innovations fail, not from a deficit of technology or failure in product development, but from a lack of paying customers. That sounds obvious but when you think about it, most times a new business venture fails it’s because there wasn’t enough customers willing to pay, or the company didn’t know where or how to find paying customers. In comparison, developing, testing, marketing, and selling a product is much more deterministic and well understood.
The success rate for established companies developing new products that are evolutions of existing successful products is higher since the company knows lots about who the customer is, their needs, and how to find them. However, when developing new products or businesses that are not related to the existing business, established companies run the risk of short-circuiting validating the opportunity in the market and instead, moving ahead with the thing the organization is most primed to do: execute.
Lean Innovation emerged as a response to the above challenge. It focuses first on testing the appetite for a new product concept with customers and validating the new business model before significant resources are dedicated to the expensive tasks of fully developing, launching, selling, and marketing the product.
Lean uses the scientific method of experimentation to validate the hypotheses that the product’s business model is built upon by conducting hundreds of in-market experiments with customers, users, buyers, partners, and other ecosystem players to arrive at an evidence-based perspective on the attractiveness of the proposed new product. It does this with speed and urgency, thereby reducing risk and minimizing cost and time.
The Business Model Canvas (BMC) is a tool used in Lean Innovation where each of the key components of the business model are identified and represented graphically on a single diagram. At the heart of the business model is the Value Proposition for the product (the key product features and benefits and how they solve customer problems) and the Customer Segments (who the product creates value for).
“Product-market fit” is attained when a value proposition for the product has been determined that enough customers are willing to pay for. Reaching product-market fit is an iterative process. More often than not, the original product definition will not be what the market is looking for, and it takes a number of iterations before converging on the right product definition. Once product-market fit is attained, the other aspects of the business model are likewise tested, refined or outright changed until the overall business model is determined to be viable. However, product-market fit is the foundation upon which the whole enterprise rests.
When you’re working on new product ideas, take the time to properly validate the value proposition in the market and gain product-market fit. You’ll significantly increase the chances of success and avoid costly and time-consuming new product development in the wrong direction.
Read more about market validation and other key product management topics in my book, Mastering Product Management: A Step-By-Step Guide, available in paperback and eBook.