Beyond Lean: Creating the customer-driven feasibility study

Your feasibility study should match customer expectations with your investors’ demands for profitability.

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When it comes to launching new products and services (let´s call them collectively the offering), no matter big corporation or startup, there is always a phase, conscious or not, when a feasibility study is set in motion.

The feasibility study is intended to reveal whether the new offering is headed to delivering commercial and financial success or not. However, in most cases, it is narrowed to testing the offering at low scale. It ends up testing the functionality of the product or the acceptance of the service in controlled environments. The Lean startup methodology is, no doubt, a customer-oriented vast improvement in the right direction. However, I still think it is too offering-oriented without taking into account all the aspects that the management or investors should expect.

From the literature and my own experience I can recommend that any feasibility study should contain and clarify the following elements beyond testing the intrinsic specifications of the product or service :

Proof of product / service demand– There must always  be a quantitative proof of the future demand of the offering. Classic market research is not dead, and most of its concepts can still be used, like a logical segmentation of the potential market. In addition, live pilots, the MVP (Minimum Viable Product) concept and split testing have added new more accurate ways of  segmenting and measuring the expected demand of the new product or service.

Description of a healthy balance between Market and Industry attractiveness – I guess everyone agrees Spotify is a wonderful music stream service delivering a great customer experience. So why is the company still losing money in the hundreds of millions after soon 10 years in operation? The answer lies in the imbalance between market an industry attractiveness. The potential market of Spotify is obviously gigantic («Music for everyone» is Spotify tagline), so the market is obviously very attractive. Sadly, everyone knows that and there is no lack of powerful competitors: Pandora, Apple Music, Tidal, Amazon, Youtube… In addition, music has essentially become a commodity in the hands of a handful of labels that exercise their power without regrets. The music streaming market potential is extremely attractive. The industry it operates in is however terrible. Profits vaporize.

The readiness of the organization – Sometimes, the management (or investors in the case of startups) and the innovation team are deeply disconnected when it comes to innovation. Both sides may have different approaches or even different definitions of what innovation is at all.  Once I was at a meeting where a CXO startet talking enthusiastically about how another subsidiary of the corporation had merged two different ERP systems, saving substantial amounts of money. He ended the story dramatically stating » THAT IS INNOVATION!». His audience was a well seasoned innovation team with the theoretical mandate of creating new products and services. Obviously, our concepts of innovation where incompatible. You can imagine the rest of the story.

The reach of the available resources to be deployed – Stretching resources beyond reasonable is a typical disease among established companies and startups alike. To prioritize up projects, but never down prioritize them is a soul-eating monster to be avoided at all cost. I have mentioned it several times on this blog that regular project portfolio management exercises should be one of the paramount points in the agenda of any management. When teams know how much resources they can count on, discpline  follows suit and unrealistic projects die.

The potential financial feasibility of the offering – Which is the total cash needed for each planned phase in the development, testing and launching? Is the gross profit in line with the expectations or even policy of the management or investors? Will it be enough to support the expected scalability? Are the basic financial KPIs related to the offering realistic when compared with competitors or substitutes? A comparison with peers, competitors and substitutes must always reveal a sufficient profitability. Contrary to the myth, Kodak tried really hard to compete in the digital camera arena. For a while it was eating market share away for competitors at a fast pace. However, the razor-thin margins of making digital cameras where not sufficient whether for management nor shareholders. The rest is history.

A feasibility study goes beyond testing the specifications of the product or service. It is an essential first step in order to proof the match between the value of the offering for both customer and company investors alike. Only when this match is proven should the new offering be scaled up and invested in.

Interesting? Share it with your peers!

Forfatter: Salvador Baille

Daglig leder ved Intelis, et rådgivingsfirma med fokus på Innovasjon og teknologiledelse.

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