The Glidepath of New Product Development or New Market Entry
“This is a three-billion-dollar market; if we can capture just one percent of that, we will crush it!”
This is the type of statement often heard from champions of a business expansion effort.
For companies introducing new products or services, or extending into adjacent markets, there is often a sense of anticipation and excitement. After all, achieving profitable growth through innovation is what all companies should be doing, right? As the business case progresses, there is a lot of work to do, and some challenges along the way. Commonly, the collective belief in the concept among your team propels the initiative beyond all these obstacles.
In the excitement and the zeitgeist of the moment, it is possible that the necessary rigor slips away. For example, with market sizing, it’s usually a simple exercise to posit a certain market size, and to guess at market share within it. However accurate these back of the envelope assessments might be, it is critical to apply some discipline about market sizing.
In a rigorous analysis, a projection of market share capture includes an evaluation of the available market. An available market analysis seeks to determine how many active buyers of the category are realistically obtainable as customers. This sizing adjustment takes several things into account, including buying drivers, switching behavior, brand loyalty, interoperability with current systems, and simple growth of the category. The list is long, and these are just a sampling of what you should be querying.
Whatever share of market you hope to capture, your expectations should be tempered by the number of early adopters, or brand switchers in the case of an established category. Early adopters are a very small segment of any market; most entrepreneurs have found that moving beyond these early adopters toward a serious share of the market requires an outsize effort and takes longer than anyone expects.
When asking customers or channel partners what they think of the idea, you might expect distortion to skew to the upside. These customers or partners have a relationship with you. They have an incentive to give you false hope. You need devil’s advocates, not cheerleaders. One idea is creating a beta version for them to try. This will give you a better sense of how willing they are to abandon legacy products and solution, to embrace yours.
Because any set of assumptions will drive your pro forma P&L, you will want to use some risk assessment tool, such as a Monte Carlo analysis, which will show your stakeholders you are taking a cautious view of the upside.
There are many more aspects of this that should instill some sense of caution and humility about this process. There are a few paths that lead to an eventual success formula, and countless ways you could go wrong.
Getting professional support is a good idea. Let us know how we can help.
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