How Not to Digitize your Products
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andWe work closely with established companies who made their fortunes with physical products and now want to move into digital business models. This is potentially a good idea because these companies can harness their existing assets to secure a competitive advantage over greenfield startups.
So far, this sounds intuitive and straightforward, because, in theory, all you need to do is find your product-market-company-fit and you’re good. In practice, however, many managers feel lost amidst a multitude of pilot projects that are not successful but are kept alive.
The root of this problem is usually that corporate leaders think (a) that they must leverage their existing assets and (b) that they restrict their thinking about assets to the products they have instead of thinking more holistically about their overall capabilities linked to the product.
Imagine a company producing and distributing surgical equipment. The obvious thing to do if you want to become a digital player would be to put sensors into the surgical equipment or to have a computer vision solution that helps count your surgical tools in the operating room to avoid anything being left in the patient. Understandably, the thinking, typically, goes: “We have to go digital so let’s use our physical products as the entry point into a digitally enhanced customer journey — this is where we have a strong footprint already and where we know our customers.”
The problem with ‘starting from the product’
But there’s a problem with this thinking: if your mental starting point is your physical product, you risk running into the following challenges:
1. You might run into a “product in search for a problem to solve” situation
With this “start from an existing product” approach to digital innovation, companies often do not start thinking from a customer’s point of view and their needs but rather focus on their company’s perspective and desires to become a digital leader. However, the customers do not care about your ambitions, they care about the problems you solve for them.
If you start the process by thinking “from your products”, you risk overlooking the fact that 1) you’re not addressing an actual unmet need in the market that is truly worth solving, and 2) your digital add-on could change your main target segment.
So, for example, while you might have a lot of surgeons using your knives, only a subset of them might be interested in a computer vision solution that helps them keep track of the tools they use during an operation. Some will have a clear process in place already or might never have had problems with devices left in their patients — these surgeons will probably not be willing to pay for your solution even if they’re your customers for the existing product. Whenever you change your target segment, you add an additional layer of uncertainty. This is generally fine but adds risk and needs to be managed.
People tend to overlook these aspects and then end up with a digitally enhanced product in search of a problem to solve (that it might never find).
2. Delivering products when the market really asks for a solution
Secondly, with this approach, companies tend to still offer products. Even if they are digitized, they are still products. However, in our globalised world with its increased complexity and interdependency, customers are not any longer looking for products but for solutions. Going back to our fictional surgical equipment company: The need of the customer, in this case the hospital, is to cost-effectively cure their patients through surgery. This includes having the right high-quality surgical equipment at their disposal when they need it. Some hospitals might struggle to maintain an adequate stock of all the diverse equipment needed to perform a big variety of surgeries at any given time of the week. Just having digitally enhanced surgical equipment might not do the trick, perhaps they are more looking for an end-to-end ‘surgical-equipment-as-a-service’ solution that delivers just the right equipment just in time and takes away the mind space required to keep the right amount of stock in-house. Once again, this is the mantra of ‘people don’t want to buy a drill, they want to buy holes’ — so don’t get yourself stuck within your products.
3. Becoming a digital fashionista
When you start looking at digitization from a product perspective, the next problem is that companies often start digitizing for the sake of digitizing. In this way, they want to ensure that all their products are ready for the market and that no technological trend is missed. This usually takes the form of pilot projects and ends up in what is known as “pilotitis”, where projects are hoarded. However, this gives companies a false sense of belonging, as these pilot projects do not follow a clear logic and are often misaligned within the company. Those who chase every technological trend may be digital fashionistas, but their companies are no more future-proofed than others. So forget about adding bells and whistles on every product in your portfolio and instead figure out what unmet needs your core customers have and see where you can serve them.
How to avoid ‘product bias’
So far so good — most people we speak to agree with this reasoning and yet still fall prey to the ‘product bias’ we just described. It seems logical that you should focus on solutions rather than products, but again, in practice it seems easy to again end up in thinking ‘from the existing products’. To make sure you seek new solutions that fit the market, rather than the other way around, here are some heuristics we recommend.
1. Clearly understand your subsegments
The first, most important task is that you aim to deeply understand your customers. You will surely have a deep understanding of them already given that you are already in the business for a long time. But when you are introducing something completely new, your ideal target segments might change. This means that you need to re-assess whether your assumptions are still valid.
Here, you need to get very specific. For example, instead of saying “our customers are young mothers”, we would go further and seek to understand the difference between first-time and experienced mothers, between single moms and those in a relationship, working full-time, part-time, and non-working. We would differentiate between those who have parents and other family members nearby and those who live far away, etc.
For each of these characteristics, we will be able to tell you exactly why certain subsegments will love our new solution and why others will not care at all. So, forget about the Total Addressable Market (TAM), which is notoriously inflated to make a market look interesting and instead obsess with your Serviceable Addressable and Obtainable Markets (SAM and SOM). Don’t say “if we only get 1% of the TAM, we’ll have a lucrative business”, instead aim to seize the SAMs that are most interesting and estimate what happens if you manage to dominate these segments. If that size isn’t interesting from a financial perspective, then the only argument to invest your time in it is if it makes it easy for you to ripen a solution that you can bring elsewhere (trolleys, for example, were first developed for the aircrew before they became mainstream).
2. Get real feedback from your customers. Seriously.
If you don’t want to end up with various pilot programmes, it is important to be very clear about what learnings you want to draw from each pilot and what KPIs you need to decide whether to proceed with the solution you’re piloting. These ‘early-stage’ KPIs are different from the KPIs you will be using for the products that you have already established in the market. This is because in the early stages your main task is to reduce uncertainty — to explore rather than to exploit. A good first pointer on what to scout for can be found in this article. Start running tests early on and be disciplined in your focus on the riskiest assumptions that need to be true for your digital innovation to take off. Don’t try to convince people with intellectually charming rationales and visions — few people will truly challenge you on this but the only thing that really matters is real data, quantitative and qualitative, in support of your riskiest assumptions.
3. Get atomic about your solution ideas
More often than not, pilot projects for digital innovations are connected to a big visionary narrative. This makes sense because strategic alignment between individual innovations and the bigger corporate north star is crucial to success. However, there’s one common risk here: often, if one pilot fails to deliver, the temptation is big to justify its shortcomings as an investment that is dwarfed by the solution’s contribution to the grander vision. However, the solution should bring measurable benefits by itself and not only function within a wider ecosystem that does not exist yet.
Instead, aim to make your pilots atomic, meaning that you can’t split them further into various, separate value propositions that can each be tested independently against the riskiest assumptions you have on each. In other words: don’t justify shortcomings in idea A with its (not yet validated) benefits for idea B. Unbundling is the name of the game.
4. Redefine assets. It’s not just your products.
Oftentimes, when we discuss assets with our corporate partners who grew big with physical products, they equate assets with products and move from there. Going back to the theatre equipment example one can see that by just putting some digital bells and whistles on the products you narrow your view, and you might not find something that is of real value. You should instead frame your assets as your capabilities. This could include your sales force and the insights they get from talking to the surgeons or their ability to share information on your digital products with them. It could also be the space you have in your packaging that you can use to deliver vouchers for an app download. Or it could be the QRs code you could add to your products. Or perhaps clients already have a software package of yours installed on their computers from which you could expand to other services. The bottom line is that anything that gets you a foot in the door or protects you from the competition can be helpful. If you only think ‘from your products’, you’ll be fairly limited.
5. Kill your inner digital fashionista
As discussed before, we frequently see leaders wanting independent digital solutions or digital upgrades for their core products simply because they feel digital has an intrinsic value. This is dangerous if there’s no real customer value attached to it. Often, you don’t need something digital to make it work for your consumers. Ensure that you don’t fall in love with a solution but instead with solving a real problem you identified. If you don’t kill your darlings, you’ll end up with pure actionism that leads to the ‘pilotitis’ problem again.
Parting thoughts
It’s not enough to just understand (and agree with) the recommendations in this piece. As we go forward in product development, complexity increases, and humans tend to fall back to well-trained thinking patterns. We can only overcome them by constantly reminding us of the risk of ‘product bias’.
Make it a commitment within your innovation team that every one challenges one another on the principles listed above. Always go back to the exact needs of your precisely defined consumer subsegments. Discipline yourself to stay specific every time as more and more perspectives come in.
And finally, don’t make your life unnecessarily complicated. It’s already risky to add a digital solution to your product. If you then at the same time try to conquer whole new markets or very different customer segments, you add additional layers of risk. The more risk frontiers you open for yourself, the more you will find yourselves overwhelmed. So, aim to only tackle one uncertainty at a time.
FoundersLane, the leading Corporate Venture Builder for climate and health, was founded in 2016 by Felix Staeritz, Andreas von Oettingen, and Michael Stephanblome. The team develops digital business models in the health and climate sector by combining the agility and the mindset of technology entrepreneurs with the strength of corporations. FoundersLane draws on more than 20 years of experience by the founders in building up new companies.
FoundersLane creates new, fast-growing digital companies in categories that are highly topical and current. FoundersLane counts more than 100 founders, experts and entrepreneurs with great expertise in the fields of medicine, health, climate, disruptive technologies such as IoT connectivity, AI, and machine learning. Clients and partners include SMEs and corporations as well as more than 30 Forbes listed companies, such as Trumpf, Vattenfall, Henkel and Baloise. FoundersLane is active in Europe, MENA and Asia with offices in Berlin, Cologne, Vienna and London.
Dr Sven Jungmann is a doctor-turned-entrepreneur. He is a partner at FoundersLane and an advisor to health start-ups and investors. Handelsblatt listed him among Germany’s smartest innovators. Sven has consulted Wellster Healthtech, the D2C health success case in Germany and continues doing so via an advisory board role. Wellster Healthtech has been promoting D2C in health early on.
Laura Küng has a business background with a strong passion for healthcare. She is currently a Venture Architect at FoundersLane and works on building new ventures with renowned companies in the healthcare sector.
