Building new product – My experiences (Part I – Business Review)

After the new product idea is formulated, Product Manager has to start drafting a strong business case that would highlight the need for new product and justify it financially by providing appropriate RoI. In some cases, RoI alone cannot be a deciding factor if the new product is of strategic importance to retain customers and cross sell other products. In order to provide compelling reasons to the senior management to invest in the new product, I tried to draft the queries under 4 broader categories (Market Analysis, Product Analysis, Competitive Analysis and Financial Analysis) and started framing responses to those questions in the form of PPT. Queries is a nice form of formulating and streamlining your thoughts, so wherever possible I would adapt the strategy of first formulating the queries and later try responding to them. Doing so, I first position myself in the role of the reviewer while drafting the queries and start responding to them as a Product Manager. Please note that the business case is a collaborative effort along with account managers, sales team, BDMs, engineering, analysts etc.

Market Analysis:

  • Is it growing market?
  • What is the potential impact of not having new product(s)?
  • What is the total addressable market?
  • Where is the current product positioned in the product life cycle?

Product Analysis:

  • What are the high level specifications of new product(s)?
  • What is the defining attributes of the new product?
  • What is the platform and product line strategy? Are we leveraging existing platform or creating newer platform?
  • What is the total cost incurred to develop new product(s)?
  • Make or buy decision?
    • If make?
      • What is the competence required to build new product(s)?
      • Do we have such competency or does it has to be acquired?
      • What is the timeline to develop new product?
    • If buy?
      • Are their potential vendors to acquire?
      • How much does it cost to acquire?
    • What is the release date for the new product(s)?
      • In case of multiple products, outline the product line strategy along with release dates for each of the product
      • In case of multiple products, outlining a single platform strategy for all the product would be more ideal

Competitive Analysis:

  • How would new product(s) be positioned against competition? What would be vector of differentiation of new product(s)?
  • How the competition is currently positioned?
  • Are we imbibing any new technology into the new product(s)?
  • How potentially could competitive landscape change before the new product is released?

Financial Analysis:

  • What is the ROI of the new product(s)? How much revenues could be forecasted by new product(s)?

The above queries would definitely provide a holistic view of what needs to be considered while preparing a business case irrespective of whether it is a HW or SW product. It gives directions and guidelines to prepare an effective business case. Subsequent section focuses in detail on each of the above items.

Market Analysis

  • Is it growing market?

Analysts can provide precise information on whether the market is stagnated or growing. If growing, what is the CAGR? Growing market alone is not a sufficient reason to invest, unless the new product would have all the required ingredients to capture the growth. Product capabilities would be addressed as part of product analysis. But product capabilities alone cannot capture the market; we need to understand the segment contributing to the growth and how are we positioned to capture that segment. Probably if segment contributing to the growth is not the traditional customer base of the product line, then Product Manager need to outline a plan to position the product effectively and sell the product to that segment. Please take a look at my previous blog for more details Attacking White Space – Identifying Growth Opportunities

  • What is the potential impact of not having new product(s)?

In case of adding new product to the existing product line, it is critical to outline the impact of not developing new products. So management is aware of the negative impact, please note that both tangible and non-tangible impact should be outlined. Firstly outline the revenue impact to the existing product line, more often customers don’t invest if the product line is not evolving. Secondly outline the non-tangible impact of losing the customer base on the other products (different from existing product line under discussion)

  • What is the total addressable market?

Along with the growing market, size of the market is critical because market attractiveness is not universal and it might vary with overall size of the organization. For some companies $100M market might be attractive while for other companies anything less than $1B is not attractive. So understanding of your companies priorities is critical.

  • Where is the current product positioned in the product life cycle?

This would highlight the urgency to develop new product depending on the positioning of the product in the product life cycle, so management could understand how quickly the new product decision has to be made.

Product Analysis

  • What are the high level specifications of new product(s)?

High level product specifications has to be derived taking into consideration both market and customer requirements. Please take a look at my related earlier blog posts
Requirements has to be understood, not queried – It is very important not to ask customers to draft the product specifications, instead engage in conversations on how their business might evolve and what problems they might probably anticipate. The blog provides more details on understanding customer requirements.
Market focus vs Customer focus – New product is all about addressing future problems, so it is essential to take a look at how market will evolve, what trends are critical and how they will shape the requirements of the target segment.

  • What is the defining attributes of the new product?

There should be one or two defining attributes that should be aligned with product differentiation outlined under ‘Competitive Analysis’. The defining attributes can be as simple as one or some of the following

  • Cost effective
  • Best performance
  • Feature packed
  • Highly intuitive and user friendly etc

The defining attributes are required for two simple reasons

  1. It helps in constant messaging of the value proposition of the product both within and outside the organization
  2. It would also act as a guiding force while making decisions or trade-offs regarding product features. In case of cost effectiveness, we might opt for a lean team and cost effective components may be compromising on performance but not on quality
  • What is the platform strategy? Are we leveraging existing platform or creating newer platform?

Depending on the high level requirements of the product, value proposition and competitive positioning (will be elaborated later), the architect team has to outline whether the new product(s) could be built on existing platform or new platform has to be developed. In case of new platform, Product Manager has to be deeply involved in the design/decision of new platform to ensure that the new platform will lay a perfect foundation for all the upcoming products in the product line.
Effective platform strategy provides the capabilities to create a product line by reducing cost (both development and maintenance) and TTM (Time to Market), while ensuring consistent value proposition, differentiation across different products in a product line.

  • What is the total cost incurred to develop new product(s)?

High level cost estimation to develop the product has to be estimated, it involves engineering cost and cost of equipment(s) required for development. COGs of the new product also have to be estimated to derive profit margins during ROI estimation.

  • Make or buy decision?
    • If make?
      • What is the competence required to build new product(s)?
      • Do we have such competency or does it has to be acquired?
      • What is the timeline to develop new product and how potentially could competitive landscape change during this period
    • If buy?
      • Are their potential vendors to acquire?
      • How much does it cost to acquire?

In case of existing product almost in sunset mode and the urgency to launch new product is really high, then probably buy decision would make sense. In case of buy, I am referring to acquisition. I am not a big expert of the decision process involved in acquisition, so I will probably focus on either completely make or partial make/buy.

First and foremost, we need to understand the list of components (both SW and HW) required to build the new product. Later we can assess whether in-house competencies exists to build those components (both SW and HW). During business review, we only make high level assessment and if some of the components (either HW or SW) are to be acquired from external vendors, we derive the possible vendors and approximate cost to acquire those components. Decision to buy can be based on various parameters such availability of in-house competencies, cost to develop, time to develop etc. IMO, the guiding principle for make or buy decision is that all the core components contributing to the value proposition should be built in-house, otherwise you will face troubles with differentiating the product.

  • What is the release date for the new product(s)?

In case of multiple products, Product Manager has to draft product line strategy to list the delivery timelines for each product in the product line in alignment with the market and customer expectations

Competitive Analysis

  • How the competition is currently positioned?

Asses the current position of the competitors from the perspective of their revenue potential and market share. What products do they sell currently and what are their specifications. What are their strengths and weakness (evaluate both product and non-product attributes). In case of non-product attributes, I am referring to items such as support, distribution channel, partners etc. Please note that technical strength of the product alone cannot win a deal, so evaluating strengths and weakness from the perspective of non-product attributes is critical.

  • How would new product(s) be positioned against competition? What would be vector of differentiation of new product(s)?

Based on the analysis done earlier, Product Managers have to carefully derive the unique value proposition that can provide the confidence that new product can make the money and the efforts to build it were absolutely justifiable. Since it is a new product in the existing product line, we can also validate our findings by sharing them with your top customers who can be your potential early adaptors.

Quick analysis of how competitor might react to the new product development plans has to be analyzed, it would be really dumb if we hope that we will develop the product and capture the market while competition would sit idle. Basically the idea is to outline to the Sr. Management on how new product will succeed against competition when it is shipped to the market.

  • Are we imbibing any new technology into the new product(s)?

To support the vector of differentiation, Product Managers along with architect team has to evaluate whether any new technology has to be introduced. Several products fail because of the inability to integrate new technology, either the technology is not mature or the initial assessment of the technology has gone terribly wrong. In any case, the risk is higher and hence it is appropriate to explicitly list new technology introducing during business review.

Financial Analysis

  • What is the ROI of the new product(s)? How much revenues could be forecasted by new product(s)?

I believe it is a simple math, the development cost was derived earlier and based on the COGs, we can compute the break even and NPV for X years (no of years will be based on the product life time) based on approximate sales estimate. Each organization would have its own way of computing the ROI. But deriving the development cost, sales forecast for X years and COGs of the new product would be the main elements required to compute ROI. Irrespective of the price model (cost based, value based, xAAS) that would be adapted for the new product, for ROI calculation I would suggest to adapt simple cost based model (estimated product COGs + x% margin) to derive the breakeven and NPV. So we could keep the ROI calculations really simple.

The entire presentation to the Sr. Management should be like a story telling – It is growing market with huge potential and target segment contributing growth is X and their business needs are Y. Current competitors addressing the segment is A, B and C and the value proposition delivered by them are E, F and G. Our new product D with capabilities M and N etc can better address the requirements of target segment. I was just attempting to build an ‘Elevator Pitch’ for the new product.

Other non-tangible factors to take into consideration is whether our sales channels, delivery channels can effectively position and communicate the value of new product to the target segment X. It need not be elaborated in-detail during business review but worth mentioning, so we complete the entire story in a more convincing manner.

Final Word: New product cannot be a wishful thinking, Product Managers have to be doubly sure that the new product will make $$$ even before it is built and Product Managers do own the bigger responsibility for the success of new product.