1. LAUNCHING NEW ventures – AN ENTREPRENEURIAL APPROACH, 7e
Kathleen R. Allen
LAUNCHING NEW ventures – AN ENTREPRENEURIAL APPROACH, 7e
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2. Prototyping and Validating a Solution
Chapter 6
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3. 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
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4. 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
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5. 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
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6. 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
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7. Figure 6.1- New Product Successes, Failures & Misses
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8. 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
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9. Figure 6.2- The Consequences of Resource Shortfalls for NPD
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10. 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
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11. Figure 6.3- From Idea to Market
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12. 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
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13. 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?
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14. 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
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15. Table 6.1- New Product Checklist
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16. 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
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17. 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
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18. Table 6.2- Some Product Development Tradeoffs
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19. 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
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20. Figure 6.4- The Innovation Spectrum
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21. 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
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22. 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
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23. 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
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24. 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.

25. 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.

26. 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.

27. 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.