If you build it, they will come.
If they come, build it.
That’s pretty much the message I try to ram into new startups, imploring them to use the lean canvas, or some such method, to ‘just get out there’ and be nimble and responsive to customers’ needs, building up their business along the way.
These days, you can get a new startup going on credit card debt, build an MVP (minimum viable product), work with your first paying customers, get revenue coming in as soon as possible, laying the ground work for a possible scale up later on.
That way, you don’t risk piles of cash. Having less money also teaches you to work smart, fast and love your early clients to death. You’ll learn the fine art of on-boarding, and how small tweaks to your landing pages can make massive differences to your conversion rates and first revenues.
The fact is that most products fail.
Studies show that, depending on the category, 40% to 90% of new products don’t last. Every year in the US 30,000 new products are launched, but 70% to 90% of them are no longer sold after 12 months.
It’s also a myth that you have to be first to market. 47% of first movers don’t make it. Sometimes, even better products don’t cut through. Better, as in ones that have distinct advantages over incumbent offerings.
A classic Harvard Business Review paper (“Eager Sellers and Stony Buyers” by John Gourville) a dozen years ago laid out the reasons, yet we still see people ignoring the advice.
Gourville’s paper is a must read for anyone looking to develop and market a new product.
People are not always rational. I’m not talking about some crazy guy you see on a train or shuffling down the street. I mean all people, as a rule. Irrational.
For example: studies have shown that if you give people a 50% chance of winning $100 and the same risk of losing $100, most people won’t take the bet. In fact, you have to offer most folks a two to three times gain over a possible loss before they are swayed.
In other words, if they have 50% chance of winning $300 and 50% chance of losing $100 then more will go for it than not. But not if the 50:50 chance of winning was $100, or even $200.
The reason, says the theory, is that losses loom larger in our minds that wins. We may know what we have is not all that great, but the costs of switching means we are happier to stay with our current lot, than strike out and go for something potentially better. Unless the odds are stacked more heavily in its favour.
Put it another way, better the devil you know than the devil you don’t.
“Loss aversion”, says the paper, “leads people to value products they already possess more than those they don’t have.”
This bias is called the ‘endowment effect‘. And it is quite strong.
The implication is that if you are trying to get people to change their behaviour (use your bright shiny new object rather than the one they are used to), then your new product better have massive advantages, well communicated and understood, before your potential clients make the switch.
In 2007 and 2008, I was happy with my Blackberry. It had email, allowed me to surf the net (chunkily, but it kinda worked) and the keyboard was on the outside, much like the PC I was used to. It was way better than my old flip top Nokia phone.
Then came the iPhone. No keyboard. I heard rumours the batteries did not last. It took me til 1999 to make the move, but after I’d started using it, I never dreamt of going back to Blackberry. Nine years on, I still use iPhone.
Many millions did likewise. Blackberry subsided and never recovered. Apple went on to become the richest companies on the planet, and is inching its way to a trillion dollar valuation (it will be the first company to do so, if it gets there).
The fully electric car may seem like something fantastic (no more petrol pumps) but if you are not sure there will be charging stations, are you really going to switch to the Nissan Leaf?
The 9x Effect
Company executives tend to over emphasise the benefits of the new product (by a factor of 3) while the consumer tends to over emphasise the benefit of their existing product (also by a factor of 3).
This means that the new product actually needs to be better by a factor of NINE if it is to be viewed as equivalent to the incumbent.
Which is why you hear of innovators talk about the ’10x’ effect, which means their new product may have a chance.
I recently saw a new agtech service that would (at least) save the user 10 times the cost of the product itself. It should stand a chance. If they were going for 2 or 3 times uplift, little chance.
The best new products are those that require little change for the consumers, while providing massive improvements on the existing product.
Maybe this is why hybrid cars have made a greater impact than fully electric ones. The consumer gets the benefit of better fuel consumption, but still has the knowledge that a petrol tank exists, which is something they’ve been used to all their lives. In time, perhaps the fully electric car will out, but for now, the hybrid serves a purpose.
Another implication is that you need patience. Patience is a virtue, as I tell my children at every occasion, much to their annoyance. Customer acceptance of a new way takes time. Google, Facebook & AirBnB all took several years to take hold.
It also means that you should strive for 10x improvement. Find believers, get them to be evangelical about the new product and spread the word.
But, whatever you do, do not believe that simply because your new mousetrap is better, it will sell. It will most likely fail.