Sometimes it is just as important to know what not to do as it is to know what to do. Ignoring product development will result in your business going away. This may seem like an obvious statement, but it happens much more often to small companies than it should, and let me try to explain why. Small companies have very long development cycles. They are not in a hyper-competitive world – they are in a niche market. In these types of companies, a product is developed, and then many years are focused on manufacturing, marketing, and servicing the product. During this time, product development is not essential.
No one will spend capital to compete with a niche product that just came on the market, as that would only erode margin. However, just like the proverbial frog in the slowly boiling pot of water, at some point, it will make sense to develop a new product. As technology decreases cost, both developmental and unit costs, the ROI from such an investment gets more and more attractive. Eventually, someone launches a more modern product to the niche market, and almost overnight, the old product stops selling. The key is to make sure that someone is you. Now, I certainly do not want to be accused of being an alarmist, and I am not suggesting you drop everything and start designing the next generation of products.
In niche markets, product life cycles are long, so the likelihood that you need to develop a new product this year is low. However, the likelihood that you will need to design a new product some year is 100%. So the question is, is it this year? Here are a few tips to help make the decision:
1. Set a time each year where product development is formally analyzed:
Not making a decision (either yes or no) is a mistake. Half the battle is just making sure “a” decision is made at least once a year.
2. Determine the benefits of new technology:
Often, an enabling technology can have a substantive impact on niche markets. These technologies come from industries outside the niche market, so make sure you are connected to technologists from other industries. Work to keep your technology network as broad as possible.
3. What are competitors doing:
Especially competitors from tangential industries, as they often seem to come out of nowhere.
4. What would a new development cost, and what would the investment bring:
That is, calculate the ROI
of new investment and compare and plot the year-to-year growth. By projecting the growth rate in this ROI, you can make a rough estimate of when the ROI will be enough to justify the investment and plan for the upcoming cash burn.
5. Generate a Requirements Document and update it each year:
This can usually be done with excess capacity in the organization and can save months of the development schedule. This will also force a discussion about how the industry needs are changing and how this change affects the product’s requirements.