LAUNCHING NEW ventures – AN ENTREPRENEURIAL APPROACH, 7e Kathleen R. Allen LAUNCHING NEW ventures – AN ENTREPRENEURIAL APPROACH, 7e © 2016 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.

Prototyping and Validating a Solution Chapter 6 © 2016 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.

Chapter Objectives Discuss the current trends in new product design and development Describe the product development cycle Understand the requirements of a minimum viable product Compare the advantages and disadvantages of outsourcing product development © 2016 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.

Prototyping and Validating a Solution Every business is involved in design and development at every stage of its life cycle The goal: to bring new products to market at the right time and cost so that customers will pay a price that reflects value to them But this task is limited by budgets, people and time And the importance of intellectual property protections cannot be overstated © 2016 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.

6.1 Entrepreneurs and New Product Design and Development Product design is the activity that transforms a set of requirements into a format that brings all elements into an integrated system The system consists of form, texture, color, fit, user interfaces, production and assembly processes, and methods for joining all these parts together Design is critical because it determines the features and performance, reliability, price and appeal to the customer – and cost © 2016 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.

The probability of success at launch is 60% 6.1a New Product Failure The probability of success at launch is 60% Figure 6.1 shows the typical percentage of new products that succeed, fail, or are killed during development Kill rate during development is higher for best performing products, so failure rate is lowest Research reveals that the principal reason for new product failure is lack of good market and industry analysis © 2016 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.

Figure 6.1- New Product Successes, Failures & Misses © 2016 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.

Lack of resources for new product development results in 5 problems: 6.1a New Product Failure Lack of resources for new product development results in 5 problems: 1. Poor execution 2. Time-to-market increases 3. First-to-market opportunities are missed 4. projects are made simpler so that more can be done with less 5. Team morale declines These are demonstrated in Figure 6.2 © 2016 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.

Figure 6.2- The Consequences of Resource Shortfalls for NPD © 2016 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.

6.2 Overview of the Product Development Cycle Entrepreneurs who develop products usually go through a process much like that shown in Figure 6.3 The product development cycle consists of a series of tasks which appear linear, but are not 1 Customer identification or discovery 2. Customer validation and design 3. Business creation © 2016 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.

Figure 6.3- From Idea to Market © 2016 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.

6.2a Customer Identification or Discovery Identify a problem that potential customers have This may lead to: a market niche not served, a potential improvement in an existing product or an opportunity for a breakthrough product or process This “front end” of product development is most impactful; unclear product definitions result in higher costs and higher rates of failure © 2016 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.

6.2b Customer Validation and Design When you validate a customer, you are conducting preliminary research to determine whether you have the right customer and solution Does the solution currently exist? Is it a way to actually solve the problem? Can you solution be produced, protected? How much will it cost to produce? How much time will it take to bring to market? © 2016 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.

6.2b Customer Validation and Design Early on, determine the potential for intellectual property protections, and plan to file for patent protection at the best time Learn how your development process will be affected by laws or regulations You need preliminary drawings to estimate costs and manufacturing processes, and to apply for a patent, if patentable From these drawings come the prototype or model © 2016 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.

Table 6.1- New Product Checklist © 2016 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.

The final phase is go-to-market or launch strategy 6.2c Go-To-Market The final phase is go-to-market or launch strategy Determine the means by which you will commercialize your technology or product: License the technology to another company Develop it into applications Start a business to make and distribute the product Sell the technology Joint venture with another firm © 2016 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.

6.2d Product Development Tradeoffs Tradeoffs must be made among all the factors that affect development: Product features, Cost Capital expenditures Development costs Timing Tradeoffs must also be made among stakeholders who have input into development and who are affected by it © 2016 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.

Table 6.2- Some Product Development Tradeoffs © 2016 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.

6.3 Building a Minimum Viable Product (MVP) An MVP contains enough functionality and value proposition to attract early adopters They provide feedback and help develop a final product for the mass market An MVP test is appropriate when the solution lies on the innovation scale from incremental to disruptive © 2016 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.

Figure 6.4- The Innovation Spectrum © 2016 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.

6.3a Customer Value Propositions Validating the solution with customers is absolutely critical to startup success Most think about value propositions in terms of three different approaches: Total benefits Points of differentiation Focus on a key value But others do this, so that they are similar to those of competitors; less than optimal © 2016 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.

6.3a Customer Value Propositions Those who focus on favorable points of difference try to stand out from the crowd But requires that the point of differentiation actually matters to customers A third way is most optimal, but requires that the entrepreneur understands the critical needs of the customer Providing a solution with unique and high value is the best way to insure demand from customers © 2016 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.

6.3b Outsourcing Product Development Becoming more common for entrepreneurs to outsource all or part of product development to third parties, domestic or offshore because it: Improves the quality of software development Preserves the ability to be flexible to adapt to uncertainty Enables rapid scaling © 2016 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.

6.3b Outsourcing Product Development But important to remember: Do not outsource the design and development of your product to the same firm; these tasks require different skills Spend enough time on the design of your product before you begin to build or code If you can break your product development into meaningful parts, you will be able to do early tests at low cost before the expense of complete development © 2016 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.

6.3b Outsourcing Product Development Finally: Never choose an outsourced partner based solely on price; lowest prices carry highest risk Keep your core R&D people close to the customer to provide a product they will buy Managing product development teams from afar is difficult; costs go up If you have intellectual property to protect, it will be difficult to do so if you have outsourced to regions of the world where privacy is rampant © 2016 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.

New Venture Action Plan Validate that your solution is solving a real and compelling problem for customers Find ways to incorporate customer input into the design of your products, processes and services Lay out the tradeoffs you may have to make Locate independent contractors who can help in the construction of a prototype © 2016 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.

New Venture Action Plan Determine whether your solution requires MVP testing or a complete product © 2016 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.