De-risking New Products: Steps to Product Formation and Validation
Maximizing your odds with iterative validation
Moving fast is not the same as going somewhere.
— Robert Anthony
There’s something magical about a new idea. It gets your mind moving, blood flowing, and jolts you into a mysterious, excitable state. You’ve discovered a gap where something should clearly exist, but somehow it doesn’t. It just feels so right, so you better get there first.
Now you can do one of two things: You either take this cloudy, bubbling notion, this fever dream, and ask your engineers to crank out thousands of hours of code. Or you step back and carefully sculpt the idea into a compelling product that is immediately coherent and graspable by your fellow humans.
Too often we go right from the idea stage straight to coding. We fail to transform our ‘internal idea’ into a well-fortified, value-creating ‘product’ concept that can be developed. The struggle is universal — from “solopreneurs” to large corporations — and can have devastating consequences: a thing nobody wants, a service that isn’t deliverable, countless hours and dollars thrown into a pit, etc.
Worst of all, for the idea holders there’s the lost opportunity of watching their seed wither instead of bloom.
While failure can never be eradicated, it can be minimized. There are certain practices that gradually refine a hazy picture into high-res image. Value begins to shine through, first touching the customer then the product’s creator.
1. Formation: How to Shape Your Product?
What is a product? At a market level, it’s an exchange of value between a producer and a consumer. Borrowing from design-thinking, a product should be ‘desirable, feasible and viable’. Firms must deliver enough ‘chargeable value’ to more than offset their costs. Since almost anything is feasible at some cost, it’s usually desirability and viability that make or break a product.
a. Making the Product Desirable
Taking Clayton Christensen’s view, people ‘hire products’ to make progress in their lives. Products are tools that help us ‘get jobs done’, i.e. achieve certain contextual goals. When I’m tired after a long week, I might hire a ‘movie theater experience’ or a ‘dance class’ to cleanse my mind whereas my buddy might hire the ‘movie experience’ for excitement and the dance class to find a romantic partner.
Desirability is always contextual and relative. People hire products to achieve progress and fire them when needs are left unmet or when better alternatives arise. This product fitness should be developed and refined upfront (well before any code) and put against user and market pressures. The risk of undesirability cannot be removed but can be thoughtfully navigated.
b. Guaranteeing Viability
A product is viable when it can generate a profit in the long-run. For simplicity, let’s say viability has three main ingredients:
- Pricing power
- Market size
- Cost structure
Pricing power is closely linked to ‘desirability’ or product fitness. At the very minimum, to charge anything and be retained, a product must deliver some value to some customers. But maximizing pricing power (relative advantage) is another story. There are generally three levers:
- Differentiation: Targeting unmet needs or under-served markets.
- Focus: Prioritizing known needs better than your competition.
- Ingenuity: Designing superior solutions for known needs.
Tapping into these levers requires a rich understanding of the market, users and competition. But pricing power is only half the battle. Now onto scale.
Market size represents the scope of the problem or opportunity. There’s often a tension between market size and pricing power. The broader your target market, the harder to achieve relative advantage for specific customer contexts (hence ‘the riches in the niches’). But on the other hand, some niches are too small to cover costs and generate attractive returns. The key to product and market fit is achieving the right blend of specificity and scope.
Finally, there are the costs: cost of development, of goods sold, of customer acquisition. Development is most intense for physical products, large platforms or offline networks. Goods sold can be onerous when you’re embedded or reliant on partnerships, e.g. data or advertising products. But acquisition costs remain the most common challenge and risk. How can we acquire enough customers at a low enough cost to keep the business alive?
Validating desirability and viability upfront is the crux of new product development. The goal is to shape an idea into a product through iterative definition, feedback and recalibration. Most of this refinement can and should happen before any coding. Deep validation will save time and money and gives your product the best chance for success.
The key to product/market fit is achieving the right blend of specificity and scope.
2. Validation: The Path to Value
Let’s break down product validation into three phases:
- Opportunity Definition: Why is this opportunity worth pursuing?
- Product Calibration: How will this product win in X market?
- Go-to-Market: How can we achieve traction?
Every product or scenario is unique, but these themes are nearly universal.
a. Defining Opportunity
Imagine some vague, yet compelling idea. An opportunity analysis will put meat on the bones of your hazy concept.
- What problem are we trying to solve? And for whom?
- How are users solving this problem today? What needs are unmet?
- Why should they choose our product vs. alternatives?
- How large is the problem? Is the market worth pursuing?
- What are the greatest risks and unknowns? How do we mitigate them?
These questions require a fair amount of reflection, analysis and discussion. Market research, sizing, surveys, competitive analysis, expert and user interviews, financial modeling, and team brainstorming are all pieces of the puzzle.
Form an Opportunity Thesis that captures why the opportunity is worth pursuing and how you will win.
b. Product Calibration
Next you need to prove you have a winning product. Here are some questions that you need to ask:
- Are we focused on the right problem, context and customers? Have we properly prioritized their needs? Will our solution effectively address these pains or desires?
- Is our product usable and does it deliver what’s promised?
- Are user interviews focused on problem validation? What is the origin of the problem or desire? How intense is it? How are they addressing the challenge today? Where are they getting blocked? What are they missing?
- Once the problem is distilled, you can craft a compelling offering. What is the value proposition? What is uniquely distinct and delightful about our product? How should we position it vs. the alternatives?
You can pitch your ‘product offer’ with a deck, marketing website or even verbally. But the primary goal is to stress-test your value prop and product; identify what resonates, what flops, and what is missing.
Start defining your Minimum Viable Product (MVP) and prioritize the highest-yielding features (delighters) and ‘must haves’ while ignoring the noisy temptation of feature parity.
Take this prototype to sample users and see how they respond to it. Is it usable? Are there dangerous tripwires and false assumptions? Does it deliver on your value proposition? Keep getting feedback and iterate until it excites your test-users.
c. Go-to-Market Success
Your product roadmap (MVP iterations) should be tightly linked with your go-to-market (GTM) plan. In fact, your GTM objectives and KPIs should guide MVP iteration-planning. Which features are needed to prove value, monetize, and scale?
Desirability and viability (pricing power, acquisition costs) are the greatest risks. We can mitigate these through a series of tests or pilots. Let’s call them Free, Paid, and Growth pilots. The goal is to obtain maximum learning in each phase to inform the next.
Free Pilot
A controlled, concierge experience with a small set of users. The main goal is to prove that the product (adoption, usability, value) causes more pleasure than pain (harder than you might expect). The key focus is to resolve tripwires and gaps and prove your delighters. Take these learnings and fortify the product for paid testing.
Paid Pilot
The goal is to gauge the perceived and actual value of product. Are customers willing to pay at least X for this offering? Are they willing to continue paying X next month? What’s missing that’s preventing them from paying X amount? Where are they getting the most value? Use these findings to refine pricing and packaging options to get ready for marketing.
Growth Pilot
By this point, your product should be strong and stress-tested. It should cover all the major needs and exceptions that could arise in your market. This next growth phase is fraught with danger, especially for early-stage startups.
The goal is to test which growth tactics yield the best results. So you allocate a limited budget to high-impact ‘growth hacks’ (virality, referrals, influencers) and to more traditional marketing techniques (direct-selling, paid search, Facebook ads). Spend at short intervals and carefully measure the results. When the budget is spent, you stop and recalibrate.
Recalibration could impact your product strategy and roadmap, positioning, growth model, monetization and investment plan. This period of reflection will help you lucidly calibrate the opportunity and prepare you for acceleration and scaling.
It Takes Time, But It’s Worth It
Product validation takes time and effort. It requires intense thought, probing and challenging your own assumptions. It requires an extra 2–3 months upfront, but compare that to 3–6 months of wasted development and hundreds of thousands lost.
With scarce time and money, being bold and rash is an expensive luxury.
