7 Rules of Product Innovation
My experience from working with many high growth tech companies, is that maintaining the pace of product innovation as the product matures needs careful thought and attention. This article details 7 rules to consider to keep innovation at the forefront.
In the early days of a new product, the majority of development work can be considered innovation. Once the product is in market and customers are using it, innovation can slow down dramatically. There are three main reasons for this:
- Development focus shifts onto scaling the product (and other non-functional requirements).
- Customers demand incremental improvements to existing features to make them more useable, or integrate better with their processes.
- Sales teams demand customer acquisition focused features to help convert customers more easily.
So against that backdrop, how do you ensure that you are still innovating, and how do you make sure that innovation (eventually) translates to revenue? Here are 7 rules that I put together for a recent seminar to help maintain the pace of innovation:
- Know your ‘one thing’
- Have a clear value proposition
- Innovation doesn't have to mean new
- Understand and leverage adjacencies
- Choose your enemy carefully
- Listen to your customers
- Don’t listen to your customers
Let’s dive into each of these.
1. Know your ‘one thing’
For most startups, focus is the most important thing. The clearer and more consistent the company can be about the vision and goals, the easier it is for the team to rally behind those things and deliver great product. I think it is useful to distil this down to single ‘distinctive competence’ — or the ‘one thing’ that your company is about.
The best example I can give you this is the car manufacturer Volvo. Whenever I’ve asked an audience what Volvo’s ‘one thing’ is — they always come back with ‘safety’. Even when Volvo makes a sports car — you know it’s going to be a safe sports car. But it goes deeper than that. Whenever a tricky choice has to be made in the company, whichever choice is going to lead to a ‘safer’ product is going to be the right one. Whereas it is impressive for a brand to project its ‘one thing’ externally, as Volvo have managed to do, having a common understanding internally is the first step.
How does this help innovation? It provides framing for ideas and concepts, and helps to steer ideation processes in the right direction — think of it as a mental nudge.
2. Have a clear value proposition
So many companies skimp on taking the time to really build out their value proposition(s) — and this is a huge mistake. A good value proposition usually focuses on a small segment of the market, and articulates the ‘centre point’ of that segment. What I mean by that is — rather than being vague and broad, it has a laser focus on the ideal company and/or people the product is going to target, removing as much ambiguity as possible.
A common short-form framework for value propositions that I like to use is borrowed from Geoffrey Moore, of ‘Crossing the Chasm’ fame, and looks something like this:
For [Customer] who [has need/problem], our product is [category] that provides [benefit] unlike [the competitive alternative]
Once you’ve nailed that statement (or series of statements for each segment you’re addressing) — there is a lot more homework to do. I like to first of all create a long-form document, based on a ‘fill in the blanks’ template to really get into detail around the market sizing, customer personas, the problem space, existing way of working, the journey your product enables to ‘nirvana’, etc… I’ll be covering this in some detail in a later post. The advantage of using a template is that it becomes clear where all your ‘unknowns’ exist — and makes it much easier for the team to focus on filling in the gaps. If you don’t have a clear picture of the unknowns — it is easy to kid yourself that you have the right answers.
Once that document is in good shape, it is time to simplify, and condense all that information down into a sales playbook on one or two sides of paper. This is essential — because this is the document you’re going to make sure everyone in the company has read and understood.
These playbooks then become a communication tool for whole company and ensure that everyone understands the customer and their pain/need. It ensures that everyone uses the same language, which can dramatically reduce misunderstandings both internally and externally. Finally, it means the whole team now has situational fluency — and can really talk about what your company does from the perspective of your customers.
Whereas this might feel as if it is restricting the scope of innovation, what it enables is a clear, common understanding within your team of who customers are, what their pain points are, and what the benefit to solving those problems actually is. It really puts your team into the head of your customers — which then makes coming up with innovative solutions to that problem far easier and more likely to succeed.
3. Innovation doesn’t have to mean new
A common misconception of ‘innovation’ is that it has to deliver completely new products, and that innovation therefore has to happen in an ivory tower divorced from the regular product development team. In reality, most of your product innovation should be happening on your core product.
Google’s product innovation mix looks something like this:
- 70% existing products (e.g. Google Search)
- 20% adjacent products (e.g. Gmail)
- 10% new products (e.g. driverless cars)
The vast majority of innovation effort is focused around the core product, with some effort focused on new products.
For existing products, 95% of what the product does is pretty much going to be what everyone else in the market offers, especially as the market matures. It is in the remaining 5% of carefully orchestrated gold dust that differentiation is created. What that means is — make room for innovation by standardising, and reusing existing components for that base functionality, and focus brainpower and effort on the 5%.
When deciding which new product to back, I find it helpful to consider the goals of innovation — usually, ultimately to deliver more product revenues (either directly or indirectly). The horizon on this revenue materialising is going to depend on the disposition of your company, product set and investors, however as a rule of thumb, I like to see the revenue starting to appear within 12–18 months maximum for a SaaS product.
4. Understand and leverage adjacencies
We talked about the need to be very clear on value propositions, and the segments those value propositions address. Generally speaking, it is wise to implement a small number of those value propositions at once (ideally, just one!) to maintain maximum focus and speed of delivery. For any value proposition, as much as possible we’re looking to solve a ‘complete problem’ for the customer to minimise complexity and to remove any need to jump back to the old way of doing things (and risk them not coming back to your product).
Once you’ve sufficiently covered one value proposition for one segment — you can look at addressing another one. So which to choose?
Geoffrey Moore (again in ‘Crossing the Chasm’) uses the concept of a bowling alley — where each pin is a value proposition/segment. You start with the head pin — your initial market — and once that is knocked over, try to use the momentum of that pin to help knock over the next one. This requires the value propositions/segments for subsequent pins to be ‘adjacent’ to the value propositions/segments of the pins in front of them. For example — the lead pin might be providing a way of finding and communicating with groups of friends for Harvard Students. The next pin might be either providing a way of finding and communicating with groups of friends for Yale Students, or might be a method of sharing content for groups of friends for Harvard Students. In other words, the value proposition/segment of the adjacent pins should be a small leap from the preceding pin to maximise chances of adoption and success. The leap can be product focused but could just as well be a marketing and sales effort.
It can be tempting to jump around — solving quite different problems for different segments. This can be dangerously defocusing for a resource-strapped company, and as confusing for employees as it is for potential customers who are trying to work out what you actually do. If you subscribe to the concept of innovation really being the 5% of the product that differentiates you — then you don’t want to dilute this — make sure your current target segment ‘gets’ the value of your innovation before you broaden.
5. Choose your enemy carefully
Back in 1976, BCG came up with a concept called ‘the rule of three’. Essentially it says that in any one market, there will be 3 major competitors, and this heuristic has been shown to be pretty accurate. Actual market share will obviously vary, but will be something like 40% for the number 1, 20% for the number 2, and 10% for the number 3. The remaining 30% is fought over by a long tail of niche players. It is great to be number 1 — they generally have the best margins of the top 3, however despite spending more on R&D, they tend to innovate less than the number 2 and 3 players.
So if we’re looking to disrupt a market with new innovation — should we attack the big incumbent?
To answer that — let’s look at Clayton Christensen’s Innovation S-Curves (from his book ‘The Innovator’s Dilemma’)
Clayton hypothesises that innovation tends to happen along s-curves. At the start of a product’s lifecycle — adoption tends to be slow as early adopters try it out. Then as the mainstream picks the product up, adoption experiences a growth spurt. Finally, as the market saturates, growth starts to tail off. However, by this point the ‘next generation’ of technology has arrived, which aims to change the way things are done. At first, the new product will often have less overall utility than the incumbent product, but for a core set of customers will deliver big enough benefits in a core area of innovation that they’re willing to put up with that pain (which is why solving a ‘complete problem’ is important). Eventually, the product is ready for the mainstream, who will hop over from the old way of doing things. This cycle repeats ad-infinitum.
So what does this tell us? Generally — going after the number 1 in the market head-on is a bad idea at first because the mainstream will likely not be ready for the innovation you’re bringing to market. Far better to find a good niche segment that is currently being underserved by the incumbent and get that right — and maybe knock over a couple of other bowling pins too. That can create the head of steam, and referenceability to then attack the leaders.
Of course, this is a generalisation, and sometimes it is appropriate to go straight for the market leader, or in a genuinely brand new area, there may be no market leader to speak of. Beware though — attacking an incumbent head-on will often require a significant war chest.
One important factor to note in all this is that although from a go-to-market perspective you may not be targeting the incumbent initially, they can still make a very good enemy to rally your company and early customers against — being clear that this is from a vision perspective. It is far healthier to see the incumbent as the enemy rather than fixating on immediate competitors (i.e. those riding the same new S-curve as you) because your ultimate job is to migrate customers to your new way of doing things, rather than playing technical kung-fu with an immediate competitor who has no actual customers.
6. Listen to your customers
As we’ve discussed, the initial phase of development of a new product is usually innovation-heavy as it focuses on ‘strategic features’ and fulfilling the purest expression of the founder’s vision.
Assuming the product then gets some traction, innovation starts to get crowded out by acquisition focused features. These are the features that sales and marketing teams clamour for to get customers to seal the deal. Sometimes these features are actually not very important in solving the problem at hand. In enterprise products — this might be an executive reporting dashboard with pretty charts that the senior manager approving the purchase will understand and love, but the team who will actually use the product will barely touch. These features are, however, important to get customers signing up to the product and using it.
Now you’ve got customers using the product, growth features become very important — these are generally features that fill the gaps around being able to complete a whole process or task in the product or improve usability. These features are essential to getting customers to actually replace their existing way of doing things with your new way.
So now there are lots of customers jumping on board, the infrastructure is starting to creak. As they say ‘in software, scaling is the only problem — everything else is a sub problem’. Now a lot of time needs to be devoted to refactoring for scale. Although this work often delivers little in the way of features to the customer, without it, the user experience will degrade and customers will churn.
As you can see — as we go through this cycle, strategic features get rapidly crowded out of the roadmap, and the holders of the big vision can get very spooked at the seemingly far less sexy roadmap that forms. What is important to note is that although strategic features clearly deliver major innovation, acquisition, retention and growth features can certainly incorporate plenty of innovation too. A lot of this innovation is discovered and delivered by listening to customers and deeply understanding how using your new product impacts their life both positively and negatively and taking the opportunity to react creatively.
7. Don’t listen to your customers
OK, so this is the corollary to rule 6. Customers will always ask for new features, often supplying you with a big ‘shopping list’ — however many of these features are simply not necessary. Some will come from either a user who hasn’t quite got used to the new way of doing things, and still clings onto unnecessary relics of the old way, or perhaps from an over-enthusiastic cheer-leader for your product who has gone native. In the diagram above, the shaded red area is what we need to be shooting for — features that are needed and delivered. Of course, the centre of the chart is the sweet spot where customers have got what they want BECAUSE the feature requested is valuable.
Features in the Delivered but not requested or needed area should be ruthlessly prevented from happening. This is often where misplaced innovation happens — and happens because the value proposition, and how it applies to the customer, hadn’t been sufficiently understood (see rule 2).
For enterprise-focused companies, sales people are often maligned by the technical team, who sometimes wonder what value they really add. Well, in the early stages of a product — this is a large part of it. How do you persuade a customer that they DON’T need everything on their shopping list? That the ‘needed’ and ‘delivered’ features are going to give them plenty of value? That ‘requested’ and ‘needed’ features are common across enough of the customer base to be productisable? And finally, that ‘needed’ but not ‘requested’ features are going to take them to a brighter and happier future (once they’re delivered). That is true salespersonship!
Focus and Prioritise
Delivering great products that customers love without losing your innovative edge is a balancing act, especially when resources are scarce. Being clear on what your company is about, your ultimate vision, who your customers are and their pain points, is essential to driving focus in delivering a solid core product. It also provides the framing for the whole team — from marketing and sales, to finance to engineering — that allows them to deliver innovation that genuine value to the product (the ‘5%’) rather than being a scattergun of ideas that can be seriously defocusing. Hopefully these 7 rules will spark ideas as to how your company can deliver innovation that meets REAL needs, provides competitive differentiation and moves you closer to the ultimate vision.
Let me know your thoughts in the comments below.
