Tips for New Product Development

Keep innovative products and services in the pipeline to avoid obsolescence.Small companies seem to fall into one of two problematic groups when it comes to new product development: either they are too optimistic and aggressive, launching their organizations on what often amount to wild goose chases, or they tend to ride their existing product lines into the ground, being unwilling or unable to make the investments necessary to expand through product-line growth.

In today’s world, where the lifecycle of product advantages is becoming shorter and shorter, either of these can spell trouble. Here are some tips for how to approach new products:

There is a difference between an entirely new product and a product line extension // The latter is simply a modification for new or alternative uses of existing products. Since these are based on what the company is already doing to some extent, development cycles are generally shorter, investments smaller and the risk is
less. All new products carry costs that often are underestimated.

Focus on the market first // Do some extensive work with live customers (current and prospective) to understand their needs, how they buy, what influences their buying and user behaviors, and who your competition is. A good rule of thumb is that a new product should be able to generate at least 10 percent of your current sales within a year or two from launch to make it worth your time and to assume the risk of new product launches. Don’t plan new products just to cover your costs, because there is a good chance you will underestimate them.

Look at all of the costs // Some costs that are often overlooked in introducing new products include refitting machinery or plant layouts, training, packaging, marketing and sales, administrative overhead, capacity utilization and opportunity costs. Drink large amounts of truth serum as you consider these costs.

Treat it like a separate business // Build a realistic pro forma and business plan for the new product, as if it were a stand-alone business. This will prove to be a good check and balance once you go into production or launch phases.

Consider the “make versus buy” alternative // Sometimes the best thing you can do is have someone else either produce the product for you (outsource it) or sell it for you (choose alternative distribution). Remember, each element of the distribution chain causes complexity, and complexity costs money.

Treat problems, not symptoms // Have you properly identified where your performance issue resides? Ask yourself if your sales problem is actually related to your product line and can be remedied by new products.

Enter the Matrix // Finally, develop a strategic product grid to help you map your product strategy. Put a four-cell matrix together labeled with “New Products” and “Old Products” at the top, and “New Markets” and “Old Markets” on the left side. Then, fill in each cell with strategic ideas and thoughts. This simple exercise will cause you and your team to think about product strategies differently.

No matter how good their quality or their history has been, all companies need to refresh their product and service lines over time to avoid becoming obsolete. If you can make product development a core competency, you will be far ahead of most and much the happier for doing so.