In the last article, I discussed the importance of innovation and new product development. If you aren’t growing, you’re dying – innovate or die! Now, let’s talk more about how to launch new revenue streams.
At The Sterling Woods Group, we developed a New Product Development (“NPD”) process tailored specifically for content companies. This process incorporates best practices from across industries. I taught NPD at Boston College and have used this NPD framework to drive double and even triple digital growth at various media companies.
Here is a brief overview of each of the five phases. We will go into more detail on each phase in future articles.
Phase I: Strategic Planning
During the first phase, companies should get grounded in their ABCD’s: audience, business partners, content, and dynamics of industry. This is where research, analysis, and interviews (with employees, B2B customers, and readers/viewers) come into play. Once the ABCDs are fully understood, firms should then decide where they want to grow and why.
Phase II: Concept Generation and Selection
The Sterling Woods Group defines a concept as “a statement of what problem you are solving, for who, and how.” Products in search of a problem are rarely successful. Companies should have a clear understanding of what customer segment they are targeting. It’s critical to identify key attributes of a product (both emotional and tangible) as part of concept generation and selection. We use a variety of both qualitative tools (creative brainstorming, improvisation techniques, interviewing protocols) and quantitative tools (RFM models, cluster analysis, conjoint analysis, perceptual mapping) to identify new concepts and determine the potential of each.
Phase III: Economic Evaluation
You could argue this is the most important phase, because it is the last stage-gate before the company makes a significant investment. The go/no-go decision at the end of this phase is the most important. In this phase, we build three models to aid in the go/no-go decision.
- Business model. First, we decide how we will monetize the product or service. Advertising, subscription, pay per unit, or hybrid: each model has its own pros and cons. Business model selection should be grounded in understanding of the marketplace.
- Financial model. Then, we build a model that includes the initial investment, ongoing costs, growth in customer base, and (most importantly) revenues. This will help us understand how long it will take to break even on the investment, and what the eventual return on investment might look like. It also lays the foundation for target setting.
- Sensitivity model. As we do not yet know how to predict the future, we should test our key assumptions to measure the financial impact of things not going according to plan. What if it takes twice as long to acquire our first 5,000 customers? What if CPMs are only 50% of what we thought? What if payroll costs exceed plan by 20%? By understanding which of our assumptions are the most precarious, we can build proper contingency plans to guard against such potential sources of failure.
Phase IV: Development
This is when the heavy lifting occurs. Developers write code, designers create the user experience, and marketers line up the launch campaigns. We advocate that all development should follow an agile methodology, meaning work is broken down into short periods of time (called “sprints”) so the team can assess progress incrementally as we respond to uncertainties.
A few years ago, when I taught at Boston College, I used to go though the pros and cons of the agile approach versus the “waterfall approach,” which is the more classic project planning approach. Under waterfall, the project manager maps everything out for the entire duration of the project (e.g., the next three or six or twelve months). Then everyone executes according to the plan. The problem is the world is so unpredictable. As such, the waterfall method rarely produces expected results. At this point, I no longer see the need to even consider the waterfall approach for media product development.
Phase V: Launch
In this phase, we put the product in the hands of customers and see how the marketplace reacts. We do not expect an overnight success. The idea is to get as much real world feedback as possible and continually make course corrections. A key tool for this phase is the diagnostic dashboard. Here we measure the top five to seven metrics that are critical for success. For a digital membership, for example, typical metrics would include site traffic, number of email sign ups, conversion to membership, email churn rate, membership churn rate, and campaign effectiveness. If one or more metric is off target – either favorably or unfavorably – you can dig deeper into the numbers to determine more precisely what is going right or wrong.
Reaching a Decision Point on New Products
At 12 weeks after launch, we reach a decision point. At this juncture, there are four options:
- Invest in scale. All targets are met or exceeded. We have a firm understanding of customer economics (acquisition cost, lifetime value). We can comfortably invest in expanding product development and marketing activities.
- Stay the course. Initial results are favorable, and we have a few open questions that we need to answer before investing heavily in the idea. Give the new product another 12 weeks and re-assess (i.e., come to another decision point).
- Pivot. There were parts of the project that worked, and parts that did not. We’re not comfortable investing to scale the business unless substantial changes are made (e.g., key feature missing, customer target was not precise). Take a step back, re-assess, and re-launch.
- Shutter. Countless keynote speakers have said, “It’s ok to fail, but fail fast.” Sometimes despite best research and efforts, the market does not accept a new product, often for reasons beyond anyone’s control. It is better to cut losses, and move on to the next thing armed with everything learned from this experiment. Thomas Edison once said, “The real measure of success is the number of experiments that can be crowded into 24 hours.”
What is the last new product you launched? Did you follow an agile process? What worked well and what didn’t? We want to hear from you – send me your story.
How The Sterling Woods Group Can Help
We work with clients to develop new products in one of two ways. One option is to have The Sterling Woods Group do everything for you, while you focus on your core business. For those who prefer a more “DIY” approach, we offer training and coaching services, through which we teach you our methodologies and help you develop a team to make you more successful at new product development.