The vast majority of new businesses fail. According to research conducted by E-myth Worldwide, about 40% of small businesses in the US fail within their first year, with 80% failing before year five. Similarly, the vast majority of new products fail.
While this can go wrong for many reasons, a lot of the time it boils down to a delay in shipping a product because of unnecessary analysis and guess work. In fact, some businesses spend months and sometimes years perfecting a product before it is shared with potential customers, only to find out that what they assumed would be of great interest to customers was not the case.
With any product launch or upgrade, there is a very real element of uncertainty. While analysis and focus groups can help understand customer preferences, they only go skin deep and don’t uncover actual behavior.
In 2011, social entertainment website IMVU made $50 million in revenue, but the company didn’t start out that way. Formed in 2004 with a team of highly motivated high-tech entrepreneurs, they spent six months researching and forming their product before its launch. Under huge pressure from investors, employees, and their own families, they speculated and predicted how customers would use the site and built their product accordingly.
When the big day of the launch came, their fear of low customer uptake was realized. Their first and second months of sales amounted to $300 and $350 respectively, coming mostly from their friends and family.
In follow-up tests with users, IMVU wanted to gather perceptions of their product. One feature that IMVU was particularly worried about was the fact that their avatars couldn’t move around their virtual environments as fluidly and intelligently as competing software products could. The time and money to develop the technology to allow avatars to walk, avoid obstacles, and take the most intelligent path to a destination was simply out of their reach at the time.
Feedback from customers was consistent – they wanted the ability to move their avatars around. But before IMVU committed to that path, they tried a low-budget short-cut: they changed the product so that customers could click where they wanted their avatar to go, and the avatar would teleport there instantly. No walking, no obstacle avoidance. The avatar disappeared and then reappeared an instant later in the new place. They couldn't afford fancy teleportation graphics or sound effects.
The developers couldn’t believe their surprise when they learned that customers liked the idea of teleporting. They weren’t even asked directly about this feature, as the developers were too embarrassed and perceived it as a real weakness in their product. But customers consistently listed the teleport feature as one of the software’s best characteristics, outperforming much more expensive and time-consuming features of the software!
Risk and uncertainty can be reduced significantly, as identified in Eric Reis’s book The Lean Startup. Many businesses fail when they start by asking, “Can this product be built?” as opposed to “Should this product be built?”. According to Reis, the best way to answer this question is to develop what he calls an MVP or Minimum Viable Product. This is a very basic form of the product that allows customers to interact with it before it is finished and launched.
When you develop an MVP, your business can then assess if this product is what customers would want (and more importantly, would pay for). By getting customer feedback early in the development process, businesses minimize the risk of the unknown, and increase their chances of making an amazing product.
A friend of mine opened a retail store three weeks ago. As he was new to the industry, I asked him what he had learnt in the process of creating and launching his business. He replied, “I’ve learnt more in the last three weeks than in the one year it took to set up the business. I wish we launched sooner.”
A successful launch is simply about confronting the unknown, in a low-risk way rather delaying shipping by over-analyzing. This can be done in three simple steps:
Take action. Even if you don’t go in exactly the right direction at first, you at least get started. You move forward, with eyes wide open to any looming dangers and possibilities
Learn. By sharing features of what you want to sell to customers and not the finished product, you gather feedback that can be used to build even better future versions
Build. Repeat steps 1 and 2 until you accomplish your goal, realize you can’t, or opt to change direction on the basis of new information
To see how this process works, here’s an example from Mary Jo Cook and Suzanne Sengelmann, Vice Presidents at Clorox’s laundry and home care division. As committed environmentalists and mothers of small children, they wanted to change their company’s involvement in natural, greener products, which in 2005 represented only 1% of the industry’s $12 billion in sales.
Their goal: to produce an effective, marketable, green cleaner. They started out by playing around with products at home, and reached out to other working moms that shared similar interests in the idea behind their vision of the product. Their work attracted interest from Clorox’s new ventures group, opening doors for them to test existing green products, which turned out to be mostly ineffective.
By convincing their bosses to allow for some time and a small percentage of an existing budget to work with, and without making any promises, they went to work with their R&D team and eventually produced a formula that was 99% free of petrochemicals and worked ask well as the company’s chemical-based products. But instead of investing heavily in market research and figuring out how to sell it, they opted to prototype the product with a small group of consumers, which kept within their low-risk product development methodology.
Many of these users rated the product as highly effective. It also didn’t change their opinion of the company’s other chemical-rich offerings - they already knew those contained chemicals - but it did change their views on the efficacy of natural products: if Clorox was behind an environmentally friendly brand, it must work. Cook and Sengelmann now had early results on which to build. This eventually led to a product launched as Green Works, which in 2012 was a $60 million brand for Clorox.
Launching a new product or business does not need to be a high-risk venture. The key here is to learn as fast and as early as you can. Customers don’t care how long it takes to build a product, they care only if it serves their needs.