Developing products in a large company with seemingly unlimited financial resources is interesting. With internal product design or R&D teams and huge project budgets, product feature sets can be pre-defined by quantitative and qualitative market research. Prototyping for validation happens continually. On some projects, these companies can create “anti-products” – prototypes that include the opposite of the target feature set, for specific testing purposes. Moreover, manufacturing processes are also developed in parallel, which means that short-term and long-term production scenarios could be quantified as product characteristics change. Robust risk-management and development processes (such as Stage-Gate) are in place and adhered to without exception. So surely product development efforts always resulted in successful products right? Not necessarily.
While product development teams in large businesses enjoy engineering resources and design capabilities that startups can only dream of, there are often some challenging hurdles to overcome in that environment. For example, in large companies, product design review meetings don’t just consist of the creative people trying to develop awesome products. It can include accountants, attorneys, branding managers, sales managers, and of course, senior leadership. All of these individuals have the ability to say “no”, but few really have the power to say “yes”. This group becomes the de-facto development committee. The product review meetings end up being dominated by topics like “shareholder value” and “synergy”. Product design ends up becoming a compromise to make everybody on the committee feel as though they are included in the process. By the time the product launches, it is hardly distinguishable from other products on the market.
Product development executives in large companies often envy small companies because of their ability to take chances and quickly pivot. In a large company, you may hear senior leaders talk about the need to become more nimble, and to be willing to fail. But with larger budgets, willingness to fail can be unrealistic. How can it be unrealistic when your leadership is telling you that is ok? Well, let’s say that the board of directors has approved $5 Million for the development of a given product, would anyone be willing to take the blame for that effort failing? Whereas developing products with a $50,000 budget might have forced more creative approaches and decreased the fear of failure while risking fewer development dollars. This philosophy is in line with newer development approaches, such as lean startup and the concept “fail fast, fail cheap”.
Small companies do have an advantage when it comes to developing products. It is the culture of the startup that still lives in many small companies: limited budgets and short time-frames are the norm for startups and can be great drivers of product innovation. We now find that large companies outsource product design to help with product development efforts, specifically to bring a “startup mentality” to their internal teams.
So, how do smaller companies and startups typically develop new products, and which (if any) of the big-company approaches can be adapted to the startup environment?
Developing products: strategies for small companies
Small businesses (and especially startups) rarely have large budgets that can be dipped into for developing products. It is not uncommon for product development efforts to be funded by the business founders themselves in this environment. Even if a startup has been able to secure a round of angel funding, the sum of an angel round is typically only a fraction of what a large business would spend to develop a new product.
What can a startup / small business learn from how big companies develop products?
- Form a hypothesis, test it, repeat (like the big companies): Developing products can be viewed as a series of hypotheses that are systematically tested. The big companies are testing many, many product theories and hypotheses at any given time. These tests often take the form of prototypes and market tests. The startup equivalent of this is rapid product iteration cycles and user tests. Prototypes can be rough, and may only contain some of the intended features. But validation (or invalidation) of these products features is really the goal here. Low-cost 3D printers, cardboard, exact-o knives, glue sticks, and spray paint are all perfectly acceptable tools for creating early product prototypes. Everything that the startup can learn with a rough prototype, is something that they will not have to pay for somebody else to discover in the development process. By the time the startup engages professional designers, engineers, and manufacturers, the feature set will have been validated and locked down. This saves time and money.
- Know your market (like the big companies): The big company became big by successfully developing, marketing, and selling products. The company has strong internal knowledge of the market they serve, distribution needs, business systems, user trends, etc. These are critical to the successful development and launch of new products. The successful small company also needs this market knowledge to be successful. If this does not exist at all in your startup, you may have an issue. Larger companies have developed some of this knowledge over time, and have hired some of it as well. For the small business/startup, it is important to objectively analyze the skills and knowledge of the team, and find ways to fill the gaps. The gaps can be filled by consultants, mentors, or even by spending time researching the topic. Perhaps the most under-utilized tool for startups is the local library. Many city libraries have access to nationwide market databases, which are a treasure trove of market data.
- Pivot (unlike the big companies): Leadership in big companies often envies small companies because they perceive small companies are better able to react to market trends and new information more quickly. This is true. Large companies develop momentum, which makes it harder to pivot. The term ‘pivot’ in developing products refers to a change in direction related to the product itself or the market served by a solution (or both). As a small company/startup, take advantage of your ability to pivot. The further along the development you are, the more costly a pivot will be. Be open to pivots, but apply the proper amount of discipline to the decision.
The underlying assumption for developing products is that the startup / small business has identified a market need and related solution that is sufficient to justify the development effort. Developing a new product is costly, even for the savviest of startup founders. Many people describe product development as placing a bet. Before making the first bet, make sure that the time and money you place on the line is justifiable based on at least a basic business case. Then use the development process to prove or dis-prove the assumptions in your business case.