CHAPTER 1

INCEPTION

A journey of a thousand miles must begin with a single step.

—LAOTZU

Every day you are assaulted with new products. You might start your day with anew variety of corn flakes. Perhaps you are considering buying an electronicbook reader. Or your lawyer calls to tell you that he now does estate plans inaddition to wills. New products come at you all day, every day.

How can you join the fray with your new product? More important, how can yourise above the fray?

This book describes the entire product development process from first idea tosuccessful launch. It explains basic concepts from strategy and engineering todesign and finance using real-life examples to illustrate both successes andfailures.

People enter this path for many reasons. Maybe you are a born entrepreneur whois captivated by the vision of creating something out of nothing. Perhaps youare a product manager in a large organization and have just learned that marginson your existing products have shrunk, leading to the terrifying conclusion thatyou need something new. Or you could be an inventor toiling away in a laboratorywho has just stumbled on a development that could actually change people'slives.

You may be a lawyer, an accountant, or a consultant whose clients have asked youto provide a novel service—and you may be able to standardize your newproduct, reproducing it quickly and profitably. This is why people talk aboutturning products into "cookie-cutter models"—products that are identicaland quickly replicated.

Historically, product development has been taught on an ad hoc basis, with mostclassroom work involving team projects. That is obviously not the approach takenin this book, although it can be used in conjunction with team activities.Instead, it focuses on helping you develop insights on your own, taking hintsfrom examples in the current business press.

DEFINITION OF A PRODUCT

There are many ways to consider a product. A simple definition is that a productis an independently priced item that provides value to a customer. Sometimes itis a service, such as a private school that offers new after-school care inaddition to regular classes. In other cases, it may be different packaging of anexisting product, such as the Hershey's Kiss, which is made from the samechocolate as the company's classic candy bar but in a smaller size and differentshape.

CONCEPT

What Is a Product?

A product is an independently priced item that provides value to acustomer.

HINT

Products for Service Providers

Service providers still offer products if they offer independently priced itemsfor a set fixed fee. Examples include an accountant's fixed price for an auditor a lawyer's standard fee for creating a will. This explains why hourlyconsulting can be problematic; if your product is an hour of time, you need todemonstrate that your hourly output has value greater than the hourly rate.

In its most basic form, a product must link a capability and a solution, asshown in Figure 1-1. There are many other ways to think of a product.For instance, from a strong marketing viewpoint, a product provides another linkbetween the provider and the customer. This works for companies with strongbrands seeking to offer a suite of solutions to the same customers. Somecompanies don't have powerful consumer brands but still maintain goodreputations in a narrow technical niche, such as electronics manufacturing or alegal specialty; they may seek to cultivate their relationships with theircustomers by offering another product.

Who Makes Products?

Broadly speaking, three categories of professionals make products:

• Product managers: Managers in large organizations who are responsiblefor a single product line or group of products. These people are typically partof a complex hierarchy and respond to larger organizational dynamics.

• Entrepreneurs: Individuals seeking to launch new companies based on aninitial product. These people often moonlight, using their spare time to refinetheir product ideas and evaluate the feasibility of different business models.

• Service providers: Accountants, lawyers, consultants, bankers, andother professionals who provide services rather than manufactured goods. Thesepeople can develop new products rather rapidly because they do not have thelimitations of capital equipment or inventory, but they must still be aware ofall the other management elements required for success.

Throughout this book, all of these groups will be described as "innovators."However, when issues with different implications for each type of businessarise, they will be addressed independently.

Some Innovations Are Not Products

Every year, BusinessWeek and Boston Consulting Group jointly produce alist of the 50 most innovative companies in the world. They then classify thecompanies with respect to the innovation: process, product, business model, orcustomer experience. In 2009, only 15 of the top 50 appeared on the list becauseof product innovations; the rest innovated in other aspects of their business.

Consider some of the entries. As you might expect, the top company, Apple,appeared on the list for its product. General Electric, which was number 6 in2006 for product and process, dropped to number 17 in 2009 for process alone.Google came out at number 2 in 2006 for its business model and in 2009 for itscustomer experience. Meanwhile, Wal-Mart appeared on the list at number 20 in2006 for its innovative processes, but by 2009, it had vanished.

Following the gyrations of these companies shows us two interesting dynamics:

1. Innovation is not limited to product design.

2. Even creative companies can become complacent and lose their edge.

MINICASE

To Italy for a Cappuccino!

When Starbucks founder Howard Schultz went to Italy in the early 1980s, he wascaptivated by the Italian café experience and wanted to bring it to the UnitedStates. At that time, his partners, who were focused on coffee roasting, werenot so enthralled. Ultimately the management team split, and Schultz continuedto refine his model. His revelation transformed how we experience theneighborhood coffeehouse; at the same time, he transformed the economics ofcoffee drinking, as customers...