Most experts group entrepreneurial or business risk into the following categories:
- Market. Are there enough customers who will buy your product so you can create a business? Do you have your product placed where they can find it?
- Competition. Is there a sizable opening in the competitive landscape? Once you get rolling, can your competition slow you down or stop you, or even take your opportunity for itself?
- Operations (manufacturing). If things take off, can your product be made in high quantity with acceptable quality?
- Finance. Can you make enough money selling your product to have a viable business? If it takes time to turn a profit, can you raise funding from investors to run your operations until then?
- Team. Does your team have the skills and experience to get its product to market? Can they do it fast enough, before they run out of money?
Two of these categories — team and market risk — stand apart from the others. They represent the highest risk associated with new product development, precisely because they are the most difficult to control. If you want to mitigate new product risk overall, concentrating heavily on market and team risk is the third of three universal strategies.
Between the two, we like starting with market risk. If you can somehow put yourself in a situation in which customers are buying your product (and you have headroom to grow), you will then have the time to fix almost any other problem you encounter. That includes bad partners, substandard technology, and even a weak team.
However, having a strong team is the single most important element to ensure the success of your new product development. Without a strong team mitigating any of the other four risks is extremely difficult, if not impossible. The organization is unable to execute. There may be great ideas, but hell is filled with good intentions.
To mitigate market risk, the first step is to understand the common issues for product failure. According to The Kellogg School of Management, the main reasons are derived from the improper understanding of customer input and the ineffective differentiation and positioning of your product.
We hear these words all the time, but few technical managers understand what they mean or how to address and manage them. Anyway, they are “marketing words.”
Once you choose a market, which probably the most important development decision of them all, addressing the bulk of the rest of market risk is substantially about aligning the benefits of a product with the needs of the customer. Benefits are communicated through messages, and differentiation and positioning are tools of proper construction.
After you’ve spent all that time understanding what your customer wants and matching those wants with a set of product features, you’re only halfway done. You still need to be able to explain your product and its benefits to potential customers — and put those selling messages where they can be readily received. This is true whether you are communicating with customers or channel partners.
Messaging (and, therefore, differentiation and positioning) is also the single most effective defense against competitive encroachment.
Developers always gloss over messaging. They assume the product will speak for itself and that the customer will naturally be able to understand what it is that’s being said. That customers will know what they know. It rarely happens that way.