Most companies, large and small, recognize that they need to constantly develop new products or revisions to existing products to stay ahead of the herd.
Ideas for new products come from multiple departments: Sales, Engineering, Marketing and occasionally the people who manufacture the product might speak up too.
Sales and Engineering generally butt heads during new product development, especially in the concept phase. Sales goes and talks to customers and brings back highly optimist views of what will sell. This might be based on a compilation of many customers, or it might be based on one customer, or it might be based on something that someone dreams up and thinks it is a good idea. Because it’s Sales, this department always has a say and will get their New Product Idea heard.
It is Engineering’s job to tell Sales how long it will take and how much it will cost to build. Engineering departments are often overworked and the last thing they need on their plate is another bright and shiny learning curve.
A typical New Product Conversation between Sales and Engineering:
Sales: I just talked to 500 customers and they all need this Doohickey to go with their Boohaha that they purchase from us already! It’s a definite win! I can sell this right away!
Engineering: That Doohickey requires a wireless interface, medical certification and will cost 150k to develop.
Sales: Well everything has wireless, how hard can that be? And our competitor has medical certification already! We are going to lose market share if I don’t get this product!
Engineering: You’ve piled X, Y and Z projects on me just this month alone, when am I supposed to work on this?
Sales: Can’t you just work more hours? I’m doing MY job, pulling in orders.
With this kind of combination of blind optimism, time constraints and development costs, it’s necessary to analyze whether or not the New Product Idea actually has some merit. It is important to do this before you have engineers starting to design it. I use a Market Analysis procedure for doing this and it works like this:
- Do the obvious first, looking to see if it exists already.
- Ask if it existed already and failed.
- If it did exist and fail, was it because it was:
- Too expensive?
- Too hard to build?
- Too hard to certify?
- Something else entirely?
The next step is to look at the total available market, whatever that might be. For example, you want to invent a new kind of motor with a wireless interface and have it medically certified. So you look at the amount of people who buy motors to be built into products that will meet medical specifications. Units can be in potential customers (# of people), potential dollars (total money in the market) or percentages of market to be won. The idea here is to see if this project is even worth analyzing further. Especially the idea here is to define the project BEFORE you waste an engineer’s valuable time.
Once it is determined that there really are people who purchase motors for medical devices and you have some kind of number, you then look at all the people who already buy motors from competitors. This is called the served available market. This number is what you can get if you got 100% of competitor business. Actually winning the entire market is unlikely and unrealistic, but this can be thought about in terms of five year plan. How much of this business can we take within the next five years? Say you already know from talking to customers that 10% aren’t happy with their current supplier; that means you have a group ready to be convinced that that they should buy motors from you.
Now that it’s been determined that there is a total market and that some of it is ripe for your company to take, there needs to be a plan to convince customers to buy the motors from you. It needs to be figured out how you are going to do that. It doesn’t make sense just to say the normal things like “We will sell it at a trade show” or “We’ll just advertise it in a magazine”. Specifics are needed. WHO exactly is going to sell it? What are the distribution channels? (yeah, that’s some sales lingo right there) Most importantly, who specifically is going to buy it?
This kind of procedure can loosely be performed in a day or two, saving an engineering department time and money. It also saves the whole company from moving forward on a product that there is no market for, or a product that costs too much to develop. With sales people like this, what’s not to like?
I doodled that picture myself.