Existing Market
• An existing market is just like it sounds -
- it has the following:
• customers,
• competitors,
• products serving the market
• The size of the opportunity can be
measured by the following:
• number of current customers,
• total revenue, growth rate, etc.)
• You win in an existing market when
• you are better or faster on
metrics that customers have
told you are the basis of
competition.
o Hence, you use a
Customer Development
process to get out the
building and talk to
existing customers of
incumbents’ products.
Customers will tell you:
1. What the basis of competition is (speed,
convenience, performance, price, etc.)
2. How satisfied they are with the current
incumbents
3. What it would take to get their business
Gauge Existing Market
• Customers have told you that they will
switch,
• The cost they have told you it will take
to acquire them and,
• The amount of capital you can spend to
do so.
Re-segmented Market
• This type of existing market a company
needs is to find a way to re-segment the
existing market –
o that is to find some
characteristic of customers in
an existing market that
incumbents are not addressing.
o Entering via a niche strategy or
blue ocean strategy makes
sense.
• You win in a re-segmented market
when
o the product features
differentiate your startup from
the existing market incumbents
because of your understanding
of specific customer needs (not
your opinion) in this niche.
o Hence, with re-segmented
market strategy, getting out of
the building and talking to
existing customers of
incumbents and understanding
their unmet needs is essential.
o Customers will tell you:
• what needs the
incumbents are not
fulfilling
• how important the
incumbents’ feature set
is
• how satisfied they are
with the current
incumbents
• what it would take to
get their business
Gauging market Demand in existing and re-
segmented markets
• Gauge demand by Customer Discovery.
• Meet potential customers
outside and face-to-face to test
whether anyone other than you
believes that you are solving a
problem or fulfilling a need.
• If potential customers agree
that it is a problem they want
solved, then you can go to the
• next step and test your
proposed solution and see their
level of interest/enthusiasm.
Simple ways to test your proposed solution
1. Create a blog or simple inexpensive
website
o discussing/describing your
product or the problem it
solves.
2. Interview 50 people in a day
o Showing a simple picture of
your product or package and
ask them 3-5 questions.
3. Create a variety of Google Adwords
campaigns
o try and drive people to a
specific, simple website.
4. Create a "dry test.“
o Testing the waters and gauging
customers demand
New market
• It has no customers,
• no competitors,
• there are no products currently serving
the market, and
• You cannot measure the size of the
opportunity
Note:
• Getting out of the building and
asking customers what they
want is futile. You’re the
visionary, not them
• Getting out of the building and talking
to future customers is still essential.
• Your goal is to understand:
• The day in the life of the
customer today
• The day in the life of the
customer after your product
arrives
• What other changes need to
happen (cultural, buying
habitats, technology shifts,
economic, etc.) to make your
business succeed
Clone Market
• It is where entrepreneurs in one
country copy an existing market, i.e., a
successful business model from another
country (typically the U.S.)
• The “knowns” in a clone market
are an existing business model
that works and a market that
exists in the U.S.
• The unknowns are whether the
same set of business behaviors
will be true in the host country.
Gauging Clone Market
• Gauge demand in a clone market by
customer discovery
o Meet customers outside and
test them whether your
product is fulfilling their needs
or solving problem.

o If potential customers agree

that it is a problem they want
solved, then you can go to the
next step and test your
proposed solution and see their
level of interest/enthusiasm.
 What is a Product Life Cycle?
https://articles.bplans.com/what-is-a-product-life-cycle/
By: Arlene Soto

The life cycle of a product is associated with marketing and management

decisions within businesses, and all products go through five primary stages:
development, introduction, growth, maturity, and decline. Each stage has its
costs, opportunities, and risks, and individual products differ in how long they
remain at any of the life cycle stages.

1. Development
The product development stage is often referred to as “the valley of death.” At
this stage, costs are accumulating with no corresponding revenue. Some
products require years and large capital investment to develop and then test
their effectiveness. Since risk is high, outside funding sources are limited.
While existing companies often fund research and development from revenue
generated by current products, in startup businesses, this stage is typically
funded by the entrepreneur from their own personal resources.
2. Introduction
The introduction stage is about developing a market for the product and
building product awareness. Marketing costs are high at this stage, as it is
necessary to reach out to potential customers. This is also the stage where
intellectual property rights protection is obtained. Product pricing may be high
to recover costs associated with the development stage of the product life
cycle, and funding for this stage is typically through investors or lenders.

3. Growth
In the growth stage, the product has been accepted by customers, and
companies are striving to increase market share. For innovative products
there is limited competition at this stage, so pricing can remain at a higher
level. Both product demand and profits are increasing, and marketing is aimed
at a broad audience. Funding for this stage is generally still through lenders,
or through increasing sales revenue.

4. Maturity
At the mature stage, sales will level off. Competition increases, so product
features may need to be enhanced to maintain market share. While unit sales
are at their highest at this stage, prices tend to decline to stay competitive.
Production costs also tend to decline at this stage because of more efficiency
in the manufacturing process. Companies usually do not need additional
funding at this stage.

5. Decline
The decline stage of the product life cycle is associated with decreasing
revenue due to market saturation, high competition, and changing customer
needs. Companies at this stage have several options: They can choose to
discontinue the product, sell the manufacturing rights to another business that
can better compete or maintain the product by adding new features, finding
new uses for the product, or tap into new markets through exporting. This is
the stage where packaging will often announce “new and improved.”

Successful manufacturing companies generally have multiple products each

at different points in the product life cycle at any given time.
Three key advantages for defining your Target
Customer
1. Focus on exactly who (and who you do
not) serve
• If you don’t know who your target
customer is, you risk one or more of
five poor outcomes:
o Creating a “one-size-fits-all”
product that isn’t sensitive to
your customer’s preferences
o Creating a product with too
many features, but one that
does nothing particularly well
o Making product decisions
that favor short-term
business needs (often at the
expense of your customer’s
long-term needs)
o Over-optimizing for one
customer or user type, over
the needs of others – this is
3. Build empathy with customers
particularly destructive for
marketplaces (where you
must balance the needs of
buyers and sellers) and in
media products (where it
might be easy to give way to
advertisers’ needs over those
of your readers).
o Creating the
product you want (because
you mistake yourself as a
proxy for the customer)
2. Draw attention to hidden customers
and users
• You may have an “obvious” target
customer. But in conducting more
thorough analysis you may discover
other types of users are
unexpectedly using your product.
They need not be large in number,
but may indicate a new opportunity
you can explicitly address.
• Product that Target high school
students
o Consider
• Teachers, parents,
principals and school
districts
• Medical product that targets
patient
o Consider
• how nurses, doctors,
hospital
administrators, and
insurance companies
are also served by, or
perhaps resistant to,
the product.
• By usefully describing your
customers, their lives, and their
environment, you can create a
picture that will allow you to “walk
in their shoes”.
• When product and design decisions
are being taken, you are then more
readily able to reflect on the impact
these decisions will have on your
target customer. Furthermore,
when conducting user testing, these
attributes become useful for
qualifying users or discovering
additional unmet needs you might
address.
What is the Minimum Viable Product?
• The Minimum Viable Product is the
narrowest set of features and
functionality for which you will deliver
the first valuable, usable, differentiated
and feasible version of your product.
• An MVP is a product with a basic set of
features that are enough to capture the
attention of early adopter user and
make your position on the market.
• Build Smart, Not Hard
MVP Satisfies Three Criteria
1. The customer gets value out of using
the product (value + usability)
2. The customer pays for the product (or
you have a demonstrable commitment
or path to monetization)
3. The product starts a customer feedback
and iterative improvement loop
Reason why we should release an MVP
MVP is a smart way to release your product in
the shortest time while also reducing the
development and capital cost.
1. Test Market Demand.
It lets us test the business concept early
before we commit to the actual product
with heavy feature that cost a lot of
effort.
2. Launch Faster.
Since you’re going to market with only
core product features, meaning you will
spend less time on doing the
unnecessary research and development
3. Decrease Risk & Cost.
With MVP you’re making risk easier to
manage by spending a smaller amount of
effort to test the market. This also
affords you room to react quickly to
unexpected changes based on user and
market behavior.
MVP (as smallest possible product)
Three Critical Characteristics
1. Valuable
people choose to use it or buy it
2. Usable
people can figure out how to use it
3. Feasible
we can deliver it when we need it with
the resources available
Right and wrong way to build MVP
• One of the best ways to understand
MVP is to see the concept visualized.
• The following image by Henrik
Newber illustrates agile and lean
product development:
HOW NOT TO BUILD A MINIMUM VIABLE PRODUCT
o
1 2 3
o illustrates a common misconception
about iterative and incremental product
development, that is often the reason
so many projects fail.
o It focuses on the components in an
incremental way instead of the problem
to be solved (a.k.a job to be done)
ALSO HOW NOT TO BUILD A MINIMUM VIABLE PRODUCT
o In this scenario, the focus is on the
problem, getting someone from point A
to B as quickly as possible. Each
iteration (1-4) highlights a possible
solution. This approach allows you to
 validate, and invalidate your from alternative solutions
hypotheses, to define the solution available to the customer.
space, to quickly develop proof of
3. Co-creation
concepts and prototypes.
• Involves customers as quickly as
o While this approach allows for user
possible in the early stages of
testing, feedback, and refinement of
the process. It informs the
the solution, it doesn’t address the fact
prioritization of features and
that our user needs a car.
functionality on the product
HOW O BUILD A MINIMUM VIABLE PRODUCT roadmap

1 2 3 4
4. Rework

o illustrates the approach to MVP • Significantly reduce potential

(minimum viable product). In this rework, or abandoning features
scenario, each iteration is a refinement that go unused by quickly
to the solution that meets the needs of validating the product
our prospective user. experience, value delivery, and
market fit.
o From the first iteration, a user is
presented with a solution that meets 5. Speed to Market
their needs, providing a
• Increase the velocity at which
minimum viable product that is
you can deliver value.
valuable, usable, and feasible.
Categorizing Features

• Minimum Product (Supporting)

Features
i Usable
k A Usable
k
A k A k On their own don’t create value. Your
A Reliability
k A Reliability k
A k A k users don’t buy your product because you
A k A k
i
Functionality
k i
Functionality
k do these things. However, they are
Wrong way to build MVP Right way to build MVP necessary to support achieving your users’
goals.
5 Benefits an MVP can provide
• Minimum Viable Product features
1. Insights
These add real value. They are reasons
• Gather preliminary insights to to buy your product. They achieve your
validate if your product is users’ goals.
successfully addressing a need
• Mature Product
or solving a customer problem.
Deliver more value so your users achieve
2. Value Proposition
more of their goals. Not required to
• ring focus to defining the minimally meet their goals. They are
product’s core value reasons to continue buying and using your
proposition and differentiates it product.
“Top-down” MVP Definition c. “MVP” features that will deliver on
your value proposition and
1. Describe the Problem you are solving
differentiation
a. State the problem as a hypothesis;
d. “Mature Product” features that can
and write a (single) value
wait
proposition in customer centric
terms Simple guide to build MVP
b. Recall: Example Value Propositions
2. Set an Overall MVP Business Goal
a. What one business objective are
you trying to achieve
3. Usefully Constrain your scope
Create the complete
*
36
Decide which Identify the key
a. Depending on what is appropriate list of user goal to build, eliminate metrics and make sure
and actions the unnecessary you have the tracker
to your product, pick as few
dimensions to start as you can
1. Create the complete list of user goal
b. Target one Customer segment
and actions
c. Focus on a limited
a. Always start with defining the
Market/Geography
ultimate goal of your user.
d. Build for one Device, Platform or
b. You should be solving a pain
Channel
point for a user. Once you have
e. Explore only few partnerships or
the ultimate goal,
channels
c. now create a list of user action
f. Deliver on one key value
to achieve that goal.
proposition first
2. Decide which to build; eliminate all the
g. Tackle sub-sections of your product
unnecessary
in turn
a. Once you have both user goal
4. Select the Core User Stories for focus
and actions,
a. Given previous steps, write 2-3
b. you can go through the details
high-level user stories. These need
on what you should and
to be interesting enough to deliver
shouldn’t bother to build.
on the value proposition and
c. The goal on this step is to
differentiation.
eliminate all of the unnecessary
b. User stories are short, simple
things, be it actions, pages, or
descriptions of a feature told from
the platforms.
the perspective of the person who
3. Identify the key metrics and make sure
desires the new capability, usually a
you have the tracker
user or customer of the system.
a. These metrics would be highly
They typically follow a simple
critical as it will determine the
template.
future of your MVP.
5. Brainstorm features given User Stories
b. Your product, for example,
a. Group them into
might define success by
b. “Supporting” features necessary
reaching a 20% increase in
just for the product to work
revenue, contribute 30% of new
 user acquisition, and reducing
the ticket by 10%.
c. There are case when it doesn’t
work out,
d. Shift the focus to the other
product and put more priority
on which have the most impact.
e. And never forget to put any
tracker to measure it later.
Common mistakes on building a MVP
as a »)
Overloaded with Cut the key Taking early -adopter 's
features functions feedback
1. Overloaded with features.
a. When MVP becomes
overloaded with features, it just
beat the purpose and increase
the cost and risk of the
development
2. Cut the key functions.
a. Common mistake is thinking
that basic feature are equal to
raw product. We should
provide users a viable and
actually working product to
complete their goals.
3. Taking early-adopter’s feedback.
a. Sometimes early user doesn’t
represent the majority of the
user. Any improvement should
be based on the proper
research and analysis which
require some time to do so.
Building feature based on early
user might drag you away from
the ideal product.
Best Practices : MVPs
Include only necessary scope in the MVP plan
Valuable Refuse to cut necessary scope to hit a deadline
Manage scope-creep aggressively
Usable
Maintain high standards of user experience design
Imbed validation throughout development
Explicitly prioritize differentiating benefits in the
Differentiated
MVP
Evaluate whether your product qualifies to use an
Feasible MVP
Delay setting deadlines until you complete discovery
Examples
 Virgin Airlines
Virgin Airlines is one of the
largest British airlines operating
internationally that was established,
and is owned, by Richard Branson.
What was the minimum viable product
for Virgin Airlines? It was just one route
and one plane flying between Gatwick
and Newark.
 Yahoo!
What was the MVP product for
Yahoo? Yahoo was represented as an
MVP website, a single-page website
that contained a list of links to other
sites. This was a sufficient amount of
functionality to satisfy the users and
retain early adopters of the system.
Today, the system is the second most
popular search engine in the world.
 Airbnb
Airbnb was started as a
concierge MVP. Back in 2017, there was
a great design conference in San
Francisco. The Airbnb team decided to
offer their cheap accommodations
during this event and posted the
information on a simple website. Within
a short period of time, 3 guests were
interested in paying for this minimum
viable service. This supported the
 market insight that potential customers
would be willing to pay to stay at
someone else’s home rather than in a
hotel.

 Facebook
In late 2004, Facebook was the
definition of MVP on social media.
Users had a simple profile and a great
opportunity to connect with their group
mates. This one feature was enough to
provide an awesome boost and turn a
small project into one of the largest
public tech companies in history.
Product design and development
6 ways entrepreneurs solve problems
differently
1. They identify problems first.
a. Misconception about
entrepreneurs are creative
b. most successful entrepreneurs
Are those who first identify a
key problem in the market,
then work to solve that
problem.
2. They stay calm.
a. When you allow your emotions
to get the better of you when
facing a problem, you subject
yourself to reactive decision-
making, and lose touch with
your logical side.
3. They start with the general and work
toward the specific.
4. They adapt
a. willing to adapt to solve a
problem
5. They delegate and distribute.
a. they aren't the most effective
problem-solvers on their own
6. They measure outcomes and reflect.
a. Learning from the approach
they've chosen, whether it
turns out to be a success or
failure, is what equips them to
make even better decisions in
the future.
Product
• It is the bundle of satisfaction
• It is the conceptual creation of a
producer approved by the consumer
• It is anything that can be offered to a
market for attention, acquisition, use or
consumption. (by Philip Kotler)
Product Selection
• It is the process in which retailer choose
the shape or material of the product as
per market demand.
• A decision process, in which the design
team selects one or few product
concept for further development
Product Lifecycle
1. Stage 1. Market Development
a. This is when a new product is
first brought to market, before
there is a proved demand for it,
and often before it has been
fully proved out technically in
all respects. Sales are low and
creep along slowly.
2. Stage 2. Market Growth
a. Demand begins to accelerate
and the size of the total market
expands rapidly. It might also
be called the “Takeoff Stage.”
3. Stage 3. Market Maturity
a. Demand levels off and grows,
for the most part, only at the
replacement and new family-
formation rate.
4. Stage 4. Market Decline
a. The product begins to lose
consumer appeal and sales drift
downward, such as when buggy
whips lost out with the advent
of automobiles and when silk
lost out to nylon.
Marketing Implications of each stages in
Product Lifecycle
 Introduction Growth Maturity Decline
• Develop a unique and superior product
Shake-out * –with better quality, new features and
Saturation
r.
greater value (value for money)
Take-off , • Clear definition of market and product
concept
•Low sales •Increasing sales •Peak sales •Falling sales
Time • Meeting segmented market needs
•High cost per
customer
•Cost per customer falls ]•Cost per customer
•Profits rise lowest
•Cost per customer low
•Profits fai • Senior management commitment
•Financial losses •Increasing No. •Profits high •Customer base contracts
•Innovative customers of customers
•Few (if any) competitors 1 •More competitors
•Mass market
•Stable number
•Number of competitors
fdl
• Relentless pursuit of innovation
•
of competitors
New product planning
Product Launching Challenges • Systematic product design and
development process
• Estimates of Failures at launch
o 35% Crawford FRAMEWORK
o 65% Cooper

•
o 50%-70% most other studies
Attrition
Ay
I
The Product A
Product

^
W Design
Costae
w Needs
Concept Product
Q
W Development w Specification - -
In life
product

o 33 new ideas, 21 into

development, 4 into launch, 3 Products of Interest
• Agricultural Products
successes (14.3%) • Marine Products
• Energy (Biofuel, Solar, Wind, Hydro, etc.)
o 8 into development, 3 to • Software
• Plant-Based Food
launch, 2 successes (25%) • Artificial Intelligence

• 46% of NPD and commercialization • Mobile Phone

resources spent on products that don’t

yield adequate returns (USA) New Product Development (NPD)
• But, 20-30% of firms managed 80%
Inputs Corporate objectives Outputs
success rate, (80% of resources went to • Financial objectives
• Budget
product winners; 20-80 Rule) • Operational targets
• Technology strategy
• Regulatory requirements Revenue
growth
Causes of Failures Market Image
Transformation

r
Position
New Product

•
Development Better Financial
Sales are too low customer
expenence
Rewards

• Lack of fit with company Cross functional contributions (examples)

Efficiency
targets

•
• Customer needs and perception
Not new or different • IT delivery capability
• Changes for field force and Operations’capacity to

• Positioning issues /
train
• Process changes in Services
• HR issues
• Product design problems
• Cost of product development Benefits of NPD
• Competitive reaction
• Market position
• Supply changes
• Resource Utilization
• Lack of repeat purchase
• Renewal & Transformation
• Not meeting financial goals
• Financial Rewards
• Forecasting error
• Lack of channel support Product Design Process
• Bad timing

How to overcome challenges

 Idea
Generation
Idea
Screening
Concept Dev.
& Testing
Business
Analysis
Product
Testing
Technical
Implementation
Product
Commercialization
Benchmarking (Mobile Phone)

SX 0
:
Decisions
- System

Product
Detailed
Level Design Ijr Design
:

Final design
o Test &
Refine o Production
Ramp-up
Benchmarking ( Mobile Phone )
No . Needs Feature and Rank
should be should be Functionality
The most specification Market Test Mass
based bn the basedbn the
important should be ( alpha and produce and HP iPAQ 112 1 Good user interface Controllability 1
priority, technical A
stage to decided both beta) the ensure Handh
needs of the capacities, 2 Handy Portability 2
successfully by the product and quality
stakeholders available
start or engineering make product 3 Low-cost Affordability 3
or customers resources,
expand a and significant (goods and
in a j and financial 4 Robust design Performance 4
business marketing refinements service)
segmented consideratio
workforces HTC Touch Crui 5 With IP Capability Connectivity 4
market n
B
C
. :
6 Expandable Memory Expandability 5

Front End Activities Palm Treo 680

C Smartphone
F iMate Ultimate 6150

Establish Generate Select

Refine
Target System System
Specs
Specs Concepts Concept

Analyse Perform
I
Plan
Design Specification
Competitive Economic Remaining
Systems Analysis Development
Design Specification
Customer Needs Concept Development
Need Marginal Ideal
Features & Functionality Imp Unit
No. Value Value
Includes customer needs analysis, concept development and specification 2 Cost 3 A$ >377 <1199
development. Speed 1 MHz >312 >624
RAM 3 MB >64 >128
5 Performance ROM 3 MB >64 >256
Product Design and Development (Ulrich & Eppinger, 1995, p. 58) Battery 1 mAH >1200 >2200
OS 3 list Windows Mobile 6 classic Symbian OS
Display size 2 inches >2.4 >4.00
Video Resolution 2 pixels >240 x 320 >640 x 480
How to determine customer needs 6 Portability Camera 2 Mpixel >0 >32
Weight 3 grams <190 <124
Dimension 2 cm <13.39 x 7.54 x 1 75 <10.6 x 5.5 x 1.7
• Define the scope Integrated WLAN
Bluetooth
2
2
list
list
802.11bh
1.1
802.11bb/e/i
2
3 Connectivity
• 3 list mmi-USB
Synchronization ExtUSB
Gather raw data from customers GPS 2 binary No Yes
Touch Screen Finger scrolling &
• Interpret raw data in terms of customer 1 Controllability
Control Device 1 list
& Stylus Panning
Keypad 1 list QWERTY QWERTY
needs 4 Expandability Expansion slots 2 list SD microSD

• Organize the needs into a hierarchy

• Establish the relative importance of the 5-Step Methodology
needs • Clarify the problem
• Reflect on the results of the process a. Use the PDS (product design
Concept Development specification) to define critical
customer needs.
Transition Activities b. Problem decomposition
c. Focus on critical sub-problems
Concept Development: Transition Activities
• Search Externally
Generate Select
Refine
»
- System System
Concepts Concept
Specs
a. Interview lead users

Perform
I
Plan b. Search patents
Economic Remaining
Analysis Development
c. Search published literature
Customer Needs Concept Development

"A good concept is sometimes poorly implemented in subsequent d. Benchmark related products
development phases, but a poor concept can rarely be manipulated to
.
achieve commercial success " Ulrich and Eppinger (1995, p.78 )
External searches are primarily to learn about
Product Design and Development ( Ulrich & Eppinger, 1995, p. 58)
existing concepts
 • Search Internally a. Is the team confident the
a. Brainstorming in group or solution space has been fully
individual explored
b. Are there any alternative
Internal searches are done to generate new
function diagrams?
concepts
c. Are there alternative ways to
• Explore Systematically decompose the problem?
a. Concept classification tree d. Have external sources been
b. Combination table thoroughly pursued?
c. Catalog Common Problems that limit the
d. Sort (affinity grouping) Concept Generation Process
e. Combine
f. Post on a wall • Insufficient external search
g. Revisit • PDS not well defined prior
to concept generation
Classification Tree
• Existing concepts not
Fuel- Air Systems
leveraged
•
Chemical
Not enough ideas (think
Explosive Systems
100+)
Pneumatic
• Judgment occurs during
Store or
Accept
brainstorming
•
Energy
Hydraulic Going with the first idea
Wall Outlet

Functional Decomposition
£ .) Battery
Electrical Note: This concept will fit in many but not all
Fuel Cell
types of systems.
Nuclear

Exhibit 6-7
"Product Design and Development"
By Ulrich and Eppinger Product,
Process,
Classification Table Problem
System, •••
Convert Apply
Electrical Energy to Accumulate Translational
Translational Energy Energy Energy to Nail

Rotary motor with

transmission
Spring Single impact
Concept Selection Inputs

•
Linear motor Moving mass Multiple impacts
Design concepts from concept
Solenoid Push nail generation
Rail gun
• Customer needs and metrics
• Target specifications
-
Exhibit 6 9
"Product Design and Development"
By Ulrich and Eppinger
Concept Selection

• Reflect on the Result and Process • Choose the first concept you think of
• Use the customer or client for external
decision
 • A product champion drives their JU tfBII «J »
•
preferred concept through intuition
• List Pros and Cons and make a
1
subjective judgment
• Prototype and test all concepts
• Decision matrices to quantify strengths
and weaknesses of concepts EdgeCAM

Product Design Process

Mission Statement
Test & Production
Refine 0 Ramp up -
Davao Mobile Plioue
: A mobile cell phone or a lightweight personal digital assistant
: Product Description •
:
i Key Business Goals
( PDA) that performs specific and usable tasks
Product to be introduced in the fourth quarter of 2009
Final deign 50% gross margin
Decisions should Product
The most be based on the specification
should t% based
on die technical
Market Test Mass produce -- -
5% of state of the art mobile phone market in 2010
important stage priority needs of should be
capabilities,
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Computer Aided Manufacturing

Target Customers Best Practices
Defining your target customers is not a one-off exercise – as your product grows you may acquire entirely new
customer segments you hadn’t initially intended to attract. Or you may learn more information, identifying
flaws in your original assumptions about who your customers are and what they need.

Best Practices: Target Customers

You likely have MULTIPLE,

Attribute Examples
COMPLEMENTARY target
customers Age Range
Gender
SUB-SEGMENT target customers ,
Socio-economic
even if you will deliver the same
product solution to them Geography
Goals and Values
Constrain your target customers
Motivators and Inhibitors
by their ATTRIBUTES
Technology Comfort and
Create a PERSONA to bring them Preferences
to life

1. You likely have multiple, complementary target customers

You may have several target customer types, with different but complementary needs, that you serve
simultaneously with your product. Each will require a separate value proposition and different parts of your
product solution should be designed to meet their needs. Their interests may even compete with each other,
requiring you discuss trade-offs and perhaps rank one customer type as having greater importance than
another.

Customer combinations are often two-sides of the same coin:

 Enterprise services: The economic buyer is the purchase decision maker. This person usually requires your
product to serve a business need in both a secure and cost-effective way. The end-user is the person
operating or using the purchased system – perhaps employees of the company. The end-user needs the
functionality to achieve their work goals efficiently and easily (much like a consumer). They may have little
say, however, in the solution the company purchases. Poor enterprise services pay little attention to the
end-user experience, optimizing primarily on delivering sales. Unfortunately, these products build a
negative reputation, might go unused (shelf ware), and struggle to retain customers when the product is
up for renewal.
 Media sites: Consumers of content from media, social media, gaming and other ad-supported products
make up your audience (or readers, traffic, or visitors). They want to be kept interested, informed and
entertained. Advertisers pay for access to and the attention of your audience, usually to promote their
brand or for a direct response (usually clicking on an ad to go somewhere else).
 Marketplaces: Buyers want to find, purchase and secure reliable delivery of a quality merchandise or
service at a reasonable cost. Sellers want trouble-free transactions, a good price for their merchandise,
minimal returns, and to receive payment quickly. Marketplaces are everywhere. Think, for example, of a
job search website: it provides candidates the ability to search and apply for jobs, while businesses use
tools to manage applicants and the recruiting process.
 Non-profits and Social Enterprises: The end-user receives some service at a discount or for free. But to
make these types of offerings sustainable they require funding from agencies or donors. Agencies and
donors are customers too – they are expecting some value from their generosity (such as recognition or to
achieve a policy goal).

2. Sub-segment target customers, even if you will deliver the same product solution to them
For consumer products, the same product may serve different end-user segments using it to achieve different
goals. GoPro, a light water-proof camera, for example, serves sports enthusiasts, divers, hikers, and travelers.
LinkedIn’s Lynda.com, an online education subscription service, serves hobbyists (such as amateur
photographers), small business owners, self-employed consultants, and creative professionals. While there
may be much in common with these segments, their goals for using the product are different. Create unique
value propositions and messaging for each.

Another way to “slice” consumer product users into segments is to map them into their lifecycle stage. It may
be useful to think about them in this way if you are undertaking specific enhancements to a product designed,
say, for a highly-loyal expert user as well as a first-time novice.
Lifecycle segments might include:

 A First-time Visitor is someone considering your product, learning more about what you offer
 A Trial User has completed some task that might lead to purchase of your product, perhaps signing up for a
free trial or setting up an account
 A Paid Customer is someone who values your service enough to pay you at least once
 A Loyal or Repeat Customer is an ongoing payee for your service. They’re happy with the value you deliver,
and are adept at using your product and its advanced features.
 A Lapsed or Former User is a user who has stopped using your product for any number of reasons. They
can be a wealth of information and a target for re-acquisition.
Enterprise services can also be segmented. One common approach is by size. However, there is no definitive
classification system for size: some define categories by headcount, others by revenue. The following
segments are proposed by market research and analysis company SMB Research.

Segment Employees

Self-employed professionals (who may contract or outsource

Sole Proprietors
occasional help)

Small Businesses <100, but the majority have less than 10

Small-Medium-Business (SMB or SME) 100 – 1000

Medium-sized Businesses 1000 – 10,000

Large Enterprise > 10,000

Sole Proprietors and Small Businesses make up 98% of all businesses in the US. They often act more like
consumers in their behavior and product purchasing habits. The larger the enterprise the more attractive they
appear. However, they can also be more demanding, take longer to progress from lead to client, and require
you to build specialized sales and support organization

A second method for enterprise segmentation is by Industry Classification. The North American Industry
Classification System (NAICS) [http://www.census.gov/eos/www/naics/] as of 2017, map industries into 17
top-level and 99 second-level categories.

For enterprise products, your target customer (or market segment) should have the following in common:

1. They buy/need similar products with the same value propositions, benefits, and features. Can you
productize a single solution for them?
2. They have similar sales cycles and decision makers. Can you create a sales process that is largely
standardized?
3. When you gain key customers in a particular segment, others in the same segment view it as a validation
of your product. Are prospective customers likely to respond well to your reference customers? Will they
talk with each other (creating word-of-mouth)?
Keep segmenting until your target customer largely shares these three things in common. Remember that
“Fortune 500” is not as useful a segment as “Financial Institutions in the Fortune 500”. Fortune 500 financial
institutions tend to have the same needs, similar processes for decision making, and want to see you’ve
completed successful implementations for companies like them.

3. Constrain your target customer by their attributes

Broad and all-encompassing target customer definitions, such as “students” or “parents with small children”
are usually not useful. To focus on a more specific target, add qualifiers:

 Demographics such as Age Range, Gender, and socio-economic factors (education, social, occupation,
income, industry).
 Geography if you are focusing on a specific market (country, state, city); or environment (urban, suburban,
rural).
 Goals and Values such as their aspirations and interests (relative to the problem you are addressing).
 Motivators and Inhibitor – intrinsic factors such as personality, frustrations, incentives, or work culture.
 Technology Comfort and Preferences which may inform the kinds of solutions you should pursue.
When defining attributes, resist the temptation to do so in terms of your proposed solution – your solution
isn’t being explored at this point, the market opportunity is. For example: “Lynda.com is for creative
professionals seeking online video content delivered through a web browser” is stated in terms of a solution.
Better – although not perfect – is “Lynda.com is for creative professionals seeking to learn new skills who
prefer a self-guided, self-paced approach accessible anywhere and anytime.”

4. Create a Persona to bring them to life

Personas are intended to describe your target customer as a stereotype or archetypal user. They are designed
so you can empathize with your intended target audience by describing them as a person with busy lives,
competing priorities, and needs, wants and desires. Personas help you look at the world – and your product’s
role in it – through the customer’s eyes.

They also provide a language for effective communication within your team. When designing and
implementing your product, personas are a convenient short-cut to discuss trade-offs. Ask, for example,
“What would Debbie think about that?”. Immediately everyone can reference your persona, Debbie, and
imagine her using your product.

Personas are closely related to but not identical to your target market. Generally, the target market is much
more diverse than the average or typical user. Personas capture many of the common attributes within that
target, but not all target customers will have all attributes. For example, your target market might have the
age range from 24-39 and be 70% women. Your principle persona should be 29 (assuming that is the median
age) and be a woman.

Build secondary personas for one or two others – but only if they represent a large segment of your user-base.
(If they make up a small percentage then you should not make explicit product trade-offs in favor of them.) In
this example, the 39-year-old male in the target may not be representative of the average user but might
warrant their own persona if they exhibit materially different behaviors or needs. Create a persona only

Personas aren’t just for consumer products. You can also them when selling in enterprise environments (as
you sell to people, not companies). Use them to describe both the economic buyer of your product (the
person making a decision to acquire your service, often a senior manager) and the end-user of your product
(the employees who will use your product day-to-day).

End-user personas are particularly helpful in sales-driven enterprise companies where the client relationship
centers on the economic buyer. When end-users have little choice over whether they use your product or not,
product priorities tend to favor the economic-buyer’s needs. End-user requirements might be ignored. Create
an explicit end-user persona and you can raise awareness of their needs, making sure their experience and
satisfaction is considered by your team too.

Internal users can also have personas. Think, for instance, of the people responsible within your organization
for product support, marketing, business operations and development and create personas for them where
warranted.
Finally, when creating personas don’t focus on how they will use your product. Keep specifics of the solution
out of it – especially features. Concentrate on the overall context in which your target audience lives and
works.

You can build your own personas using the framework here.
 War story – Using Personas

My ecommerce client had developed a powerful set of personas. One was a detailed definition of the life of a busy mom –
dropping her kids off to school, working full-time, and how she made key purchasing decisions for the family.
Convenience and simplicity were of upmost importance to her.

Another persona described the motivations and values of a comparison shopper – wanting to review options side-by-side,
making trade-offs, and shopping across a variety of online and offline stores (with little loyalty to any of them). Choices
and low prices were of the upmost importance to this persona.

Although both personas used the same ecommerce site, their needs (and the product features required to support them)
were different.

Impressively, these personas were ingrained into the client’s culture. Large posters were displayed on each floor. Rarely
did a meeting go by when one or other persona was not invoked to determine which decisions stayed true to the needs of
the customer. Even though many employees were not similar to either persona themselves, they had developed true
empathy and sensitivity for their target customers.

War story – Using Personas

My ecommerce client had developed a powerful set of personas. One was a detailed definition of the life of a busy mom –
dropping her kids off to school, working full-time, and how she made key purchasing decisions for the family.
Convenience and simplicity were of upmost importance to her.

Another persona described the motivations and values of a comparison shopper – wanting to review options side-by-side,
making trade-offs, and shopping across a variety of online and offline stores (with little loyalty to any of them). Choices
and low prices were of the upmost importance to this persona.

Although both personas used the same ecommerce site, their needs (and the product features required to support them)
were different.

Impressively, these personas were ingrained into the client’s culture. Large posters were displayed on each floor. Rarely
did a meeting go by when one or other persona was not invoked to determine which decisions stayed true to the needs of
the customer. Even though many employees were not similar to either persona themselves, they had developed true
empathy and sensitivity for their target customers.
Target Customer MOTIVATORS AND INHIBITORS

Customers come first – they’re the life • Personality

blood of any company • Happiness and Achievement

• You likely have MULTIPLE, • Frustrations or Fears

COMPLEMENTARY target customers • Personal Discipline and Challenges

• SUB-SEGMENT target customers, even • Local Environment

if you will deliver the same product • Communication Style

solution to them • Social Trust and Safety

• Constrain your target customers by • Other Motivations or Inhibitors

their ATTRIBUTES TECHNOLOGY AND PRODUCT PREFERENCES

• Create a PERSONA to bring them to life • Product Ownership

DEMOGRAPHIC GOALS AND VALUES • Adoption Tendencies

• First name • Technology Comfort Level

• Photo • Typical Product Usage

• Age and Gender • Preferred Brands

• Location • Preferred Messaging Channels

• Education and Work • Other Technology Considerations

• Income and Financial Stability Customer Development Model

• Health
Customer Customer Customer Customer
• Other Demographics Discovery Validation Creation Building

GOALS AND VALUES

Product A Repeatable Rapid and
Found Sustainable Scalable
• Aspirations Sales Process Growth

• Values
Three Types of Market
• Relationships: Family, Friends, Coworkers
New Market
• Vocation/Career
• You vs. Competitive incumbents
• Hobbies and Interests
Re-segmented Market
• How they spend their time
• Finding a niche
• How they spend their money
New Market
• Other Behaviors
 • Creating a new product or customer Dynamics of Existing Markets

Type of Market Defines Everything o Current players will defend their turf
• Price wars
Customers
• Shutting you out via relationships
• Customer needs Adoption • Laws and standards
• FUD (Fear Uncertainty and Doubt)
Marketing
o You have to be clever and fast
• Market Size • “They’ll never catch up” is a false
• Cost of entry hope
• Launch type Re-segmented Market
• Competitive barriers
• Positioning Attacking an Existing Market through
differentiation
Sales
o Low-end Resegmentation: New, lower
• Sales model cost segment (Freemium games)
• Margins o Niche: Branding strategy (Starbucks,
• Sales cycle nike)
• Chasm width
Resegmented Market – Complex Sales Growth
Finance
o It takes time for customers to learn
• Capital needs Time of profitability about your Resegmented opportunity
o Then comes growth
Existing Market
Crossing the Chasm
• Faster/Better → High end
•
THE CHASM
Existing markets are fastest for early
growth
Early Market I Mainstream Market

• Best when customers need the most

performance possible
• New customers and upgrades
-
Whole roou 1
*

Existing Market – Linear Sales Growth

• Timeframe is market dependent( Innovators Early Adopter! Early Majority Lata Majority Laggards
2.5% 13.5% 34% 34% 16%

Weeks, Months, Year)

• Pour fuel on the fire to make it all grow Paopla Who Want Newest Things People Who Want Complete Solutions and Convenience

(Funding, Marketing & Sales, Resources) New Market

Rogers Adoption/ Innovation Curve o Innovative/never existed before
• Innovators 2.5% o Seeking a large customer base who
• Early Adopters 13.5% couldn’t find this before because of:
• Early Majority 34% • Technology
• Late Majority 34% • Business Methodology
• Laggards 16% • Geography
New Market Curve

o Early Adopter phase

Product launch
o Valley of death <s>
(0
9
.
Technology transfer Success as a new product
o
2
“Hockey Stick” growth «=
2
Q . Research Development
o
<x> O
New Market Chasm 15
3
V
Commercialization
Time

E
3
u Success as a business
Valley of death
*

Target Market

o Identify your target market

o Find a sliver who needs you more

Market Size
Innovators Early Adaptors Early Majority Late Majority Laggards

o Startups should approach large &

New Markets have huge risks growing markets
o How do you size the market
Must be unique enough that:

o There is a large customer base who

couldn’t do this before o TAM - Total Addressable Market
o They can be convinced they want or o SAM - Serviceable Available Market
need this o SOM – Share of Market (Serviceable
Obtainable Market)
Company needs to manage adoption burn rate
Product-Market Fit
o Patient investors with deep pockets
o Good Product + Small Market = Small
Timeline for Customer Development
Business
o Existing Market Fast Entry 1 to 6 o Good technology + No Market = Not a
months viable startup (research project)
o Re-segmented Market Repositioning 3 o (Ideal) Good Product + Huge Market +
to 12 months Great Team + Huge Luck = Huge
o New Market Education 1 to 4 years Opportunity

Product Lifecycle TAM – Total Addressable Market

How much money could you make if:

o Every possible customer in the world

used your product?
o How much money is being spent to
solve this problem every year?

SAM - Serviceable Available Market

 o How much of that market can we serve
with our specific product?
o SAM is the “internet savvy shaving
population” that may buy online
o Generically investors like to see $1B
markets
o ”Aim at a small target and you may
miss”
o “Aim at a large target and you increase
the likelihood of a hit”

SOM - Share of Market

o How much money will you

REALISTICALLY be able to make?
o SOM is a through Bottom-up analysis

Five ways to build a $100M Company

o 1,000 Enterprise customers Paying you

$100K+ per year each; or
o 10,000 Medium-sized companies paying
you $10k+ per year each; or
o 100,000 Small Businesses companies
paying you $1k+ per year each; or
o 1 Million Consumers $100+ per year
each; or
o 10 Million Consumers $10+ per year
each
 THE NEW PRODUCT DEVELOPMENT PROCESS (NPD) –
OBTAIN NEW PRODUCTS
Written by Maximilian Claessens

In order to stay successful in the face of maturing products, companies have to obtain
new ones by a carefully executed new product development process. But they face a problem:
although they must develop new products, the odds weigh heavily against success. Of
thousands of products entering the process, only a handful reaches the market. Therefore, it is
of crucial importance to understand consumers, markets, and competitors in order to develop
products that deliver superior value to customers. In other words, there is no way around a
systematic, customer-driven new product development process for finding and growing new
products. We will go into the eight major steps in the new product development process.
Product Development Process

1. Idea generation – The New Product Development Process

The new product development process starts with idea generation. Idea generation
refers to the systematic search for new-product ideas. Typically, a company generates
hundreds of ideas, maybe even thousands, to find a handful of good ones in the end. Two
sources of new ideas can be identified:

 Internal idea sources: the company finds new ideas internally. That means R&D, but also
contributions from employees.
 External idea sources: the company finds new ideas externally. This refers to all kinds of
external sources, e.g. distributors and suppliers, but also competitors. The most important
external source is customers, because the new product development process should focus
on creating customer value.
2. Idea screening – The New Product Development Process
The next step in the new product development process is idea screening. Idea screening
means nothing else than filtering the ideas to pick out good ones. In other words, all ideas
generated are screened to spot good ones and drop poor ones as soon as possible. While the
purpose of idea generation was to create a large number of ideas, the purpose of the
succeeding stages is to reduce that number. The reason is that product development costs rise
greatly in later stages. Therefore, the company would like to go ahead only with those product
ideas that will turn into profitable products. Dropping the poor ideas as soon as possible is,
consequently, of crucial importance.

3. Concept development and Testing – The New Product Development Process

To go on in the new product development process, attractive ideas must be developed into a
product concept. A product concept is a detailed version of the new-product idea stated in
meaningful consumer terms. You should distinguish

 A product idea à an idea for a possible product

 A product concept à a detailed version of the idea stated in meaningful consumer terms
  A product image à the way consumers perceive an actual or potential product.
Let’s investigate the two parts of this stage in more detail.

Concept development
Imagine a car manufacturer that has developed an all-electric car. The idea has passed the idea
screening and must now be developed into a concept. The marketer’s task is to develop this
new product into alternative product concepts. Then, the company can find out how attractive
each concept is to customers and choose the best one. Possible product concepts for this
electric car could be:

 Concept 1: an affordably priced mid-size car designed as a second family car to be used
around town for visiting friends and doing shopping.
 Concept 2: a mid-priced sporty compact car appealing to young singles and couples.
 Concept 3: a high-end midsize utility vehicle appealing to those who like the space SUVs
provide but also want an economical car.
As you can see, these concepts need to be quite precise in order to be meaningful. In the
next sub-stage, each concept is tested.

Concept testing
New product concepts, such as those given above, need to be tested with groups of target
consumers. The concepts can be presented to consumers either symbolically or physically. The
question is always: does the particular concept have strong consumer appeal? For some
concept tests, a word or picture description might be sufficient. However, to increase the
reliability of the test, a more concrete and physical presentation of the product concept may be
needed. After exposing the concept to the group of target consumers, they will be asked to
answer questions in order to find out the consumer appeal and customer value of each
concept.

4. Marketing strategy development – The New Product Development Process

The next step in the new product development process is the marketing strategy
development. When a promising concept has been developed and tested, it is time to design an
initial marketing strategy for the new product based on the product concept for introducing this
new product to the market.

The marketing strategy statement consists of three parts and should be formulated carefully:

 A description of the target market, the planned value proposition, and the sales, market
share and profit goals for the first few years
 An outline of the product’s planned price, distribution and marketing budget for the first
year
 The planned long-term sales, profit goals and the marketing mix strategy.
5. Business analysis – The New Product Development Process
Once decided upon a product concept and marketing strategy, management can
evaluate the business attractiveness of the proposed new product. The fifth step in the new
product development process involves a review of the sales, costs and profit projections for the
new product to find out whether these factors satisfy the company’s objectives. If they do, the
product can be moved on to the product development stage.

In order to estimate sales, the company could look at the sales history of similar
products and conduct market surveys. Then, it should be able to estimate minimum and
maximum sales to assess the range of risk. When the sales forecast is prepared, the firm can
estimate the expected costs and profits for a product, including marketing, R&D, operations
etc. All the sales and costs figures together can eventually be used to analyse the new product’s
financial attractiveness.

6. Product development – The New Product Development Process

The new product development process goes on with the actual product development.
Up to this point, for many new product concepts, there may exist only a word description, a
drawing or perhaps a rough prototype. But if the product concept passes the business test, it
must be developed into a physical product to ensure that the product idea can be turned into a
workable market offering. The problem is, though, that at this stage, R&D and engineering costs
cause a huge jump in investment.

The R&D department will develop and test one or more physical versions of the product
concept. Developing a successful prototype, however, can take days, weeks, months or even
years, depending on the product and prototype methods.

Also, products often undergo tests to make sure they perform safely and effectively. This can be
done by the firm itself or outsourced.

In many cases, marketers involve actual customers in product testing. Consumers can
evaluate prototypes and work with pre-release products. Their experiences may be very useful
in the product development stage.

7. Test marketing – The New Product Development Process

The last stage before commercialization in the new product development process is test
marketing. In this stage of the new product development process, the product and its proposed
marketing programme are tested in realistic market settings. Therefore, test marketing gives
the marketer experience with marketing the product before going to the great expense of full
introduction. In fact, it allows the company to test the product and its entire marketing
programme, including targeting and positioning strategy, advertising, distributions, packaging
etc. before the full investment is made.

The amount of test marketing necessary varies with each new product. Especially when
introducing a new product requiring a large investment, when the risks are high, or when the
firm is not sure of the product or its marketing programme, a lot of test marketing may be
carried out.

8. Commercialization
Test marketing has given management the information needed to make the final
decision: launch or do not launch the new product. The final stage in the new product
development process is commercialization. Commercialization means nothing else than
introducing a new product into the market. At this point, the highest costs are incurred: the
company may need to build or rent a manufacturing facility. Large amounts may be spent on
advertising, sales promotion and other marketing efforts in the first year.

Some factors should be considered before the product is commercialized:

 Introduction timing. For instance, if the economy is down, it might be wise to wait until the
following year to launch the product. However, if competitors are ready to introduce their
own products, the company should push to introduce the new product sooner.
 Introduction place. Where to launch the new product? Should it be launched in a single
location, a region, the national market, or the international market? Normally, companies
don’t have the confidence, capital and capacity to launch new products into full national or
international distribution from the start. Instead, they usually develop a planned market
rollout over time.
In all of these steps of the new product development process, the most important focus is on
creating superior customer value. Only then, the product can become a success in the market.
Only very few products actually get the chance to become a success. The risks and costs are
simply too high to allow every product to pass every stage of the new product development
process.
Market Research Methods

• Initial market research has to do with

understanding buyer’s pain (unmet
need) and very little to do with your
“solution” to that need

Important Questions

1. Is there a real unmet need in this area

(where your products address the
problem)?
2. How does he/she want to see this Your Customer do not care if you have
problem solved? • The best technology, plan or team
3. Why have they not solved this until now
– what issues are preventing the Your Customer do care if you have
problem from being solved?
• Provide value proposition
4. If a solution (or a product) existed, what
• Target customer segment
would it look like?
• Customer relationship
5. Who will use this product (or service) –
• Revenue
what are these users looking for? How
badly do they want it? Conducting market research
6. What is the buying process (in other
words, who needs to approve this • Surveys, talk to people, group sessions
purchase)? Conducting interview
7. What are usually the selection criteria?
8. What price point will make this decision • Introduce yourself
a no-brainer? At what price point are • Do not sell (do not even describe your
we likely to find resistance? idea!)
9. What are the reasons somebody would • Tell interviewee how useful their input
decide not to buy? will be & how important is it to you
10. Why hasn’t the customer bought this • Remind them (& yourself) you are here
solution from someone else until now? to learn
11. Who else may be interested in solving • Ask open ended question … let them
this problem? talk!
12. Who in the organization is the most
Interview structure
likely to champion solving this problem
– can I get an introduction to them? 1. Prepare the test
2. Develop materials
3. Select participants
4. Conduct the test(record)
5. Analyze the data
6. Report findings & recommendations
Interview Structure • understand any problems they
encounter.
• Note: Since users often perform tasks
differently than expected, this
qualitative method helps to uncover
why users perform tasks the way that
they do, including understanding their
motivations and needs.

How A Rite Study works

1. The sample size, and

2. Immediately addressing issues as they
Rite Usability Methodology are found

Rite

• is a usability testing method where you Designing Interview Questions

evaluate a solution to a usability
problem multiple times in a rapid and Design your interview questions using the
iterative manner. fishbone diagram

Goal 1. Brainstorm problems that could lead to

an issue
• It is to identify not just usability 2. Group problems into categories
problems, but also to react quickly on 3. Identify research questions and
identified issues and test new solutions prioritize
that cater to them

Result

• an experience (along with solutions to

usability issues) that has been fully
usability tested

Usability Testing Develop & prioritize questions

• It is the process of evaluating a product 1. Based on each piece of the fishbone

experience with representative users. 2. Prioritize based on risk (# users,
• AIM: It is to observe how users criticality)
complete a set of tasks and to 3. Plan research to provide answers
 5. Edgar & sec.gov
6. 10Kwizard.com
7. www.census.gov
8. Google AdWords

A fishbone diagram is a visual way to look at Prototyping

cause and effect. • It is an iterative process involving
analysts and users where a model of
the proposed system is built then
rebuilt according to user feedback
• Brings design to life for designers and
users
• Can be as sophisticated or as crude as
you want
• Allows you to explore ideas
• Used properly, it is at the heart of
human centered design

The fishbone diagram method is used to truly

get to the bottom of an issue by using a process
where you ask why five times in order to get to
the root cause of a problem. Here is an example
of completing a fishbone diagram by using the
five whys: Why build a prototype?

• Visuals may enhance user feedback,

reminder of requirements

When do you prototype?

• Before the beginning

• In the beginning
• After the beginning
• In the middle stages
• In middle and later stages
• In the later stages

What are prototypes used for?

8 Essential Techniques & Resources • Learning

• Communications
1. Online surveys
• Integration
2. LinkedIn search
• Milestones
3. Twitter search
4. Trade organizations When Is Prototyping Most Useful?
 • User requirements are not clear
• User and other stakeholders involved
• Complex design requires concrete specs
• Communication problems
• Tools available

Drawbacks of prototyping
• Informal documentation
• Idiosyncrasies with initial users
• Ignoring external integration
Types of Prototyping
• Evolutionary
• Throwaway
• Paper
Evolutionary Prototyping
• Specification, design and
implementation are inter-twined
• The system is developed as a series of
increments that are delivered to the
customer
• Techniques for rapid system
development are used such as CASE
tools and 4GLs
• User interfaces are usually developed
using a GUI development toolkit
Throw-away prototyping
• Can use special “prototyping
technologies” to build quick prototypes
• Don’t have to design prototype
carefully
• Coding can be more freestyle and
unconstrained
• Need to redo all the work
Wire frame
• Conceptual functionality, layout, and
interactions between pages (sates)
• Medium: High level sketches
• Cost: Cheap, highly iterative,
“throwaway”
• Purpose: Validate concepts and flow
options and Communicate options
Mockup
• Static, visual design detailing
functionality, layout and interactions
• Medium: Linked (clickable)PDF’s
Photoshop, images
• Cost: UX-level designs with rough
images and copy
• Purpose: Validate interaction and visual
design and communicate direction
Prototype
• Simulation of the full user interface,
representing the final planned product
• Medium: Semi-functional front-end
(Design + HTML)
• Cost: “10%” of the code: no back-end,
business logic
• Purpose: Validate usability as if product
is built and Communicate requirements
WIREFRAME EXAMPLE

Example Design and User Testing Tools
Business Model: A Definition
• summation of core business decisions &
trade-offs employed by a company to
earn a profit
• describes the rationale of how an
organization creates, delivers, and
captures value
• Well-known business models can
operate as "recipes" for creative
managers.
Osterwalder, Pigneur and Tucci (2005)
• “ Business model is a conceptual tool
that contains a set of elements and
their relationships and allows
expressing the business logic of a
specific firm. It is a description of the
value a company offers to one or
several segments of customers and of
the architecture of the firm and its
network of partners for creating,
marketing, and delivering this value and
relationship capital, to generate
profitable and sustainable revenue
streams.”
Business Model Fundamentals
• Whom do you have to pay
• Who pays you
• How much money will you make per
transaction?
• What are your gross margins
Fundamentals
• What is my customer acquisition cost
• What is my revenue per customer
• Lifetime Customer Value (LTV)
Business Model Clarity
Gross profit
• how much you make per transaction or
per unit(subtract variable costs from
revenue)
Net profit
• Money left over after paying for fixed
costs from grossprofit (rent, salaries,
R&D…)
If your gross profit is poor, it does not matter
how efficiently you run your company
Business Model Everywhere
 • Bricks & Clicks • Preferred by professionals or
• Collective technicians with expert knowledge and
• Cut out the Middle Man • Connecting buyers and sellers
• Direct Sales • Profit from Arbitrage
• Distribution Model • Examples: eCommerce, Lead,
• Value-Added Reseller Generation
• Free-in, free-out
Trade
• Freemium
• Auction / Online Auction • Connect Buyers and Sellers
• All-in-One • Requires both supply(goods) and
• Low-Cost Barrier demand(customers)
• Loyalty • Key supply relations often key to
• Monopolistic stability and builds barriers to entry
• Multi-level Marketing • Online platforms improve efficiency and
• Network Effects lower costs
• Pro Open Source Secondary Business Model
• Pyramid Scheme
• Razors & Blades • Created by combining the primary
• Servitization of Products business modes ingroups of two or
• Subscription three.
• And more, and more Brokerage
Primary Business Model • Sourcing on behalf of a client for a
Product retainer or per transaction fee.
• The client then profits from any
• Tangible Solution arbitrage spread rather than the
• Develop a tangible good and sell on a sourcing partner.
one-time fee basis (purchase or • Trading for Clients
license). • Paid by retainer, not arbitrage
• Requires high up-front sunk capital but • Example: Real Estate broker, Ad
is able to leverage economies of scale. network
• Up-front Investment
• Sell for One-time Fee Marketplace
• Highly Scalable • Create a platform that facilitates trade,
• Examples: Clickers, Fidget Spinner, rather than actually trading.
Software and Content • This is a network effects business that
Service depends heavily on bringing together
sufficient demand and supply.
• Custom Solution • Network Effects
• Intangible work for a client, monetized • Build-Trade Platform
on a per-use basis. • Examples: Products Marketplace,
• Low sunk costs but high float cost Service Marketplace
requirements.
Subscription
 • Building, maintaining, and supporting
ongoing use of a product, rather than a
one-time sell.
• Customers pay a monthly subscription
service and benefit from continued
improvements.
• Monthly Billing
• “Freemium” pricing
• Ongoing updates
• Examples: Software as service, Content
as service
Ecosystem
• A mature market leader may expand as
a result of success. They develop a
marketplace and/or community for
customers and/or service/support
vendors to offer augmented solutions.
• User Community
• ISV or Dev Community
• Enhanced Product Marketplace
• Examples: Tech Platform, Media
Platform
Ecosystem Business
• Can monetize from any of the three
resources
o Product purchasers
o Service consumers
o Trade beneficiaries
• With proper leverage, can extract
monopolistic rates
• Licensing platforms typically need to
conform to “fair and equitable
treatment” doctrines
Not the End
• This is just a framework
• Many more ways to turn value into
profit or into social good and be
creative
Business Model’s Place in the firm
Business Model
Chesbrough and Rosenbloom specify six
functions of a business model:
• to articulate the value proposition–
value to customer
• to identify a market segment
• to define the structure of the firm’s
value chain
• to specific the revenue generation
mechanisms
• to describe the position of the firm in
the valuenetwork
• to formulate the competitive strategy.
Osterwalder :a business model describes a
company’s:
1. Value propositions: Bundle of products
& services that creates utility for the
customer.
2. Customer segments: The customer
segments a company wants to offer
value to.
3. Distribution channels: how a company
goes to market. marketing and
distribution strategy.
4. Customer relationships: The links
between the company and its customer
segments.
5. Value configurations: The configuration
of activities and resources.
 6. Core capabilities: The capabilities and
competencies necessary to execute the
business model.
7. Partner network: The network of
cooperative agreements with other
companies necessary to efficiently offer
and commercialize value.
8. Cost structure: The monetary
consequences of the means employed
in the business model.
9. Revenue model: The way a company
Thinking about Disruptive Business Models
makes money through a variety of
revenue flows. • We are used to thinking about
disruptive technologies
Business Model Template
o Internet, SMS, RFID, P2P, VoIP,
WIFI, etc.
• We are used to thinking about
disruptive processes
o Just-in-time, business process
outsourcing (BPR), etc.
• But how do we reason about disruptive
business models?
o E.g. no-frills-airlines
o E.g. online brokerage

Technology Roadmap
Elements of the Business Model–Examples

• Working hypothesis: it is the business

model of an insurgent that replaces an
incumbent.
• We studied and compared the business
model of an insurgent and an
incumbent in the telecommunication
industry

Disruptive Technology Scanning

The Business Model Triangle of Skype

The Business Model Triangle for Snappy

Comparing Distribution & Communication

Channel
Disruption phases: Delphi Study

Comparing Value proposition

Comparing Business Models (similarities and

differences)
 • Value propositions: Bundle of products
& services that creates utility for the
customer.

Customers

• Target customer segments: The

customer segments a company wants
to offer value to.
• Distribution channels: how a company
Summary of Skype’s Disruptive Business Model
goes to market. marketing and
Elements
distribution strategy.
• Customer relationships: The links
between the company and its customer
segments.

Finances

• Cost structure: The monetary

consequences of the means employed
in the business model.
• Revenue model: The way a company
Summary of Skype’s challenges/ incumbent’s makes money through a variety of
retaliation revenue flows

Nine Business Model Building Blocks

Osterwalder’s BM elements

Infrastructure
Walmart: 1962 Hamlet Aransas
• Value configurations: The configuration
• Giant competitors in big box stores
of activities and resources.
o Observation: overhead of store
• Core capabilities: The necessary
& employees adds to cost
capabilities and competencies.
structure
• Partner network: The network of
o There are big stores in big cities
cooperative agreements with other
o Small city folks have to drive ~4
companies
hours to a big city once a week
Offering to go shopping
• Innovation: New Business model
 o Give up personal service in
exchange for lower prices on
branded merchandize
o Learn from grocery stores (since
1930s)
o Cut costs by fewer sales clerks,
handle larger crowds & cut on
amenities
Walmart
Execution strategy
• Locate in smaller cities, beat others by
being 1st
• Configure store for large volume/traffic
• Brand names at lower prices by
employing:
o Superior IT infrastructure
o Supply chain optimization
Dell Computers
• Crowded PC & laptop market in the
1990s
o Low gross margins
o Heavy inventory losses with
obsolescence
o High cost of sale
• Business model innovation:
o Sell direct (customer intimacy &
no channel cost)
o Minimize inventory cost (&
obsolete inventory)
• Strategy:
o No way for competitors to copy
this model without alienating
channel
o Sell exclusively to business
customers
o Sell higher end machines (not
to first time home user)
o Higher profits
Dell became the most profitable & largest PC
company in the world in the 1990s
Deconstructing Business Models
1. Revenue sources
a. Relative size & importance
2. Cost drivers
a. Fixed, semi-variable, variable
3. Investment size
a. Startup needs, working capital
to sustain
4. Critical success factors
Business Model of Grateful Dead
• Highest grossing band of the 60s & 70s
Formed in 1965 in SF Bay Area
• Music industry pays musicians semi-
annually after all costs are accrued
&subtracted
• Distribution &production takes most of
the profits
1968-95: 2,318 Shows in 27 Years
• But record labels have no claim on
concert revenues (paid within 30 days)
Cost Drivers: 7-11 Japan
• COGS reduced cost of product by side-
stepping traditional layered structure
• Better IT Introduced Point-of-sales cash
registers, electronic order-booking &
handheld scanners. Outsourced key
components & asked for 2-year
exclusivity
Biz Model of Medical Device Mfg.
• Equipment required to perform
procedure
• Disposable product needed for each
procedure
• How much to charge for fixed
equipment?
Cumulative Cash Flow of Medical Device
Company
Business Model Examples Let the crowd evaluate

Google – All about Collecting Data

New business model

Selling info business Model

Collaborative Consumption

GOTO MARKET (G2M)

The old Way to Buy & Sell
PRODUCT-PIPE-PROCESS: 9 DECISIONS • Usually trained at a big company
• Require support staff to succeed
1. Price
• Good at taking orders & building
2. Packaging
relationships
3. Name
• Expensive
4. Geo focus
5. Segment TIMING
6. Channel
7. Alliances • You will need different people at
8. Promotion different stages
9. Sales funnel SALES FUNNEL
COST & SCALABILITY OF CHANNEL

The sales Process

SALES
• Understanding a customer’s problem
• Solving their problem
• Fulfilling their orders
DIFFERENCE BETWEENSALES & MARKETING
• Not everyone can make the transition
TYPES OF SALES PEOPLE
• GLADIATORS
• PROFESSIONAL SALES PEOPLE
GLADIATORS
• solo hunters
• They go away, don’t check-in
frequently, bring back customers having
sold “the product”
“THE PROFESSIONAL SALESPERSON”
1. Suspects
a. Responded to your overtures
2. Prospects
a. Met with them, have pain,
timing is now
3. Qualified
a. You can meet needs, have
budgets, identified or met with
buyer
4. Closing
a. Meeting objections, seeking PO
How many suspects do you need if you want to
close 6 deals per quarter?
900! = 900/10 = 90; 90/5 = 18; 18/3 = 6
THE SALES PROCESS
• Tell prospects about the benefits of
your offering
• Ask if any of these resonate with them
 • If not then ask what would Methods for B2C Marketing
• Then listen as they just told you how to
• Video
sell to them
• Social media
SELLING IS A CONTINUOUS PROCESS • Celebrity & opinion makers role
• Advertising
• Alliances
• Outbound marketing vs. Inbound
marketing
• Lead generation
• Analysts role Video/Social media
• SEO & SEM
• Trade shows
• Strategic alliances
NEW DIGITAL MARKETING
WHY DO FINANCIAL MODELING?
• Create awareness
• To answer the most important &
• Lead generation
fundamental question: Does this make
• Branding & market positioning
sense?
It’s no longer just about marketing your • You need to know more than anyone
product, it’s about letting everyone else Tweak basic assumptions until it does!
market your product.
BUILDING A FINANCIAL MODEL
TWO-WAY MARKETING
• Financial model is clarity about your
1. Outbound business it is built from common sense
a. Push message out o Sources of revenue
b. Attract with offers they may o Sources of expenses
favor o Net income
c. Traditional 1-way and
CONTENT
marketer-to-customer
interactive media • Background (including assumptions)
2. Inbound • Timeline
a. Pull prospects in • R&D and Marketing Assumptions
b. Attract with content they need o COGS
c. Contemporary social media and o Salary
peer-to-peer content sharing • Revenue Assumptions
New Rules of Communication • Projection
• Products or Services
Social media & the Internet has changed the • Headcount
rules, selling & marketing is about: • Salaries
• Engaging users & customers • Other Expenses
• Amuse, annoy, educate, confront, • 5 year Profit and Loss (P&L)
infuriate ….. But never “sell” BASIC STRUCTURE OF P&L
 • Sources of revenue o Start with a hiring chart by
o Hardware, software, or dept.
services ▪ Whom do you need &
o Realistic & conservative in year when
1&2 o Predict expected salary
o “Hopeful” in year 4 & 5 o Add ~22% to 35% for payroll
• Gross profit taxes, benefits, overhead
o Revenue minus direct cost of o Additional expenses (if any)
sales (COGS) ▪ List legal expenses in
• Sources of expenses G&A
o G&A (General and ▪ List trade shows,
Administrative) marketing campaigns in
o S&M (Sales and Marketing) S&M
o R&D (Research and ▪ Licensing fees or tools
Development) (if any) in R&D
o OTH (Capex or any other big expenses
expense peculiar to your
GETTING STARTED
business)
• Net profit • Salaries & headcount

SALESFORCE.COM INCOME STATEMENT

BUILD EXPENSE SIDE

WHERE TO START

• Revenue
o Work from your time line
o Look at proxies
o Look at competition’s pricing
o Look at what people will be
willing to pay
o List assumptions
o Figure out ASP (average selling
price) & units sold OTHER EXPENSES
• EXPENSES
 • Per bed
• Per table
• Per city

UNIT ECONOMICS

THE TALE OF TWO BROTHERS

1. House of Nanking
2. Chinois on Main

ONE IS A LOT RICHER!

BUILDING AN INCOME STATEMENT

THE INVENTORY TURN

SAMPLE P&L
FIXED COST

UNIT ECONOMICS

• Does the business make sense?

• Examples of unit economic calculations FIXED COST PER UNIT
• Per store
• Per car
• Per cup of coffee
 have to pay until you calculate your net
income. Don't include taxes in fixed
expenses or variable expenses but
make these a separate category.
• Estimate sales LOW and expenses HIGH.
Everything always costs more and takes
longer than you think it will, and it will
take longer to get sales going than you
think it will

UNIT ECONOMICS

CHEAT SHEET

• Make sure that Year 5 revenue is

between $50m to $100m (unless you
are after Angels only)
• State assumptions
• Net income typically does not exceed
30%
• Don’t under estimate Y5 expenses
• Ask for enough money to get to the
next stage of de-risk (tell us what it is)

TIPS ON CREATING A STARTUP BUDGET

• Most lenders require three years of

cash flow statements on a month-by-
month basis, and three years of
quarterly and annual Income
Statements (P&Ls).
• Income taxes are a variable expense,
and you don't know what taxes you will