Learn and DEPLOY FastR&D

Innovation and R&D

Search or Execute using Business Model Canvas

Article 6

Read Time 4 minutes

Many years ago, when I was in college, my aunt’s relative, an uncle, said, he has a “secret” preparation for teeth cleaning. You use it for three days and it will stop bleeding from gums. The family was excited. They started blending the ingredients in a clean kitchen, and distributing 50 gram samples in small bottles. Feedback was overwhelming. “It works great.” So the family started producing more, started charging a few Rupees. The tiny business started growing. After about two years or so, the kitchen-factory was too small, not convenient, they needed a bigger place. So the family started exploring many possibilities. An expert told them, they need to register the formulation as an herbal medicine and get government permission before buying and starting a factory. Family discussed the scenarios. They were all gung ho. All except one. “Well, the uncle, with the secret formula, said I will not publish the formula. It is my secret. Gurus have said you do not publish; lest it may go in wrong hands.” The Family discussed, debated, tried to persuade the uncle, to no avail. The business stopped.

New Product Development is not new product development, but new product AND new business development.

A business fails if you fail to resolve a critical detail. You do not know a priory what that critical detail is.

Every new product development project begins with a promising idea. An idea so promising that people want to spend three to five years of their work life, struggle with the idea and take it from concept to commercialization. As Derek Rance, VP of R&D at ICI and Akzo Nobel, would say “from ideas to dollars.”

When I was at BF Goodrich Chemicals R&D, we, the R&D Managers, used to run brainstorming sessions, to generate a list of ideas for new product development, improve upon these ideas and cull them into a ‘most promising ideas’ list. This list will become a starting point for new product R&D funding. The product groups would make sure that their marketing and sales counterparts attended these brainstorming sessions and shared their ideas. We would also keep Suggestion Boxes to solicit ideas throughout the year, compile and review them periodically. Every year we would cull through several thousand ideas, about 50 or so will make it to the top and most of them will get funded yearly. In addition we would rely on patent searches, our university research contacts, experiment with Edward de Bono’s lateral thinking methods for generating new out of the box ideas. Some groups would try newer methods from Harvard and MIT, TRIZ, and so on.

Regardless of the methods used, the winning ideas would be converted into project proposals, budget estimates, project and resource plans, cash flow projections and ROI estimates. Stage-Gate® Method, pioneered by Prof. Robert Cooper, was considered the de facto standard then, and the preferred approach.

These project proposals would be ranked by ROIs, and best projects/ideas would be reviewed with senior management for funding. We will get feedback from them, modify our proposals, and go through second and sometimes a third iteration for budget approvals.

If you are a seasoned R&D manager, you recognize there are problems galore in this approach.

People inflate ROIs with rosy scenarios.

In Stage-Gate® Method you go from Concept to Commercialization, through a series of Go/No-Go Gates. Since “we do not want to fail” we add a lot of requirements/hurdles as ‘critical’ details. Bureaucracy goes up, cost of new product development goes up. Scientists get frustrated. And success rate does not increase despite a better methodology, but decreases.

We need a different approach.

Search strategy: What is it?

In early 2009 Steve Blank, a professor at Stanford, who had started or participated in eight startups and was helping startup companies in Silicon Valley, had an epiphany. He recognized that there was a problem in using this “BIG Company New Product Development” approach for start-ups. Listen to Steve Blank in an excellent two minute audio summary. http://steveblank.com/2009/02/

Steve Blank identified that there are two types of business development and growth problems.

1. Execute

2. Search

Execute:

An existing business has an existing product and typically sells to an existing market segment and an existing customer base. For an existing company product, market, sales approach, distribution, etc. are well defined and only problem is revenue growth. They put additional effort into sales, marketing and manufacturing and increase the sales. There is fair degree of certainty in their methods and estimates. They need to repeat/scale their proven, predictable methods. This is an “Execution” Problem.

Search:

A new startup that is developing a new product has many uncertainties: product, market, customer base, distribution channel, pricing, costs; essentially everything is ill-defined. This is a “Search” problem. The startup is searching for the right product that it can sell to the right customer at the right price, make it at the right cost, make money and grow. It needs to SEARCH and figure out what “right” means for its unique case.

So, it is inappropriate for a startup company that has a very high degree of uncertainty to assume they know what they are doing and mimic the Execute model used by large companies. It is very likely the startup company’s initial model is wrong and really off-base. It is much better for the startup with a new product to assume, they know very little, and they are searching for good answers to many unknowns.

The same Execute vs. Search problem is faced by existing large companies when they diversify and try to introduce a new product in a new market.

Ansoff Matrix

An Ansoff matrix, provides a 2x2 matrix to view two market types and two product types.

Almost all new business startups and new product startups require a Search strategy for growth.

This Search approach, as it has much lower capital risk, has developed considerable momentum and is now being tested and promoted by National Institute of Science and Technology(NIST), National Institute of Health(NIH), and over two hundred incubators worldwide. Chances are there are startups and incubators in Mumbai, Delhi, Bangalore and Hyderabad that are practicing the Search model for new product/business development.

Search strategy: How to use it?

Steve Blank says to find answers, “We need to Get out of the Building.” Go to the market place, talk to potential customers and learn. Is it critical? Is it “right?”

Whenever we develop a new product, we are not only developing a new product but also a new business. We are addressing two problems at once.

A good way to address both problems is by using a Business Canvas, a framework developed by Alexander Osterwalder and Yves Pigneur.

Steve Blank proposed the use of Osterwalder model, Eric Ries, one of Steve Blank’s disciple, and a very successful entrepreneur, started promoting this idea and integrated with his own software startup experiences using Toyota’s Lean methods and Agile software development methods. Ash Maurya, has further streamlined and simplified these ideas.

Figure 2 shows Ash Maurya’s version of the Business Canvas template.

A business canvas identifies 9 key areas that need to be addressed for product/business development. These are: (1) Problem, (2) Customer Segments, (3) Unique Value Proposition, (4) Solution, (5) Channels, (6) Revenue Streams, (7) Cost Structure, (8) Key Metrics and (9) Unfair Advantage.

Ash Maurya suggests:

Create a one pager – one PowerPoint slide for the whole project! Do not write a formal proposal. It tends to be too long.
Describe each area/block in 3-5 bullet points, each bullet point in 5 to 7 words.
Spend about twenty 20 minutes on 1st iteration.
Rewrite a few times for clarity.
It is a standard template; can be read in 3 minutes, presented in 5 minutes.
This is a “work-in-progress” document. It will evolve/change/improve as potential customers are interviewed and information evolves.
Each bullet is really a hypothesis to be refuted/validated using real data.

For a startup the validated business model is THE Product.

Things to Do for R&D

For your new products, what is your batting average – five year ROI? How can you improve that?
Do you use idea suggestion boxes? Do they work? How do you make them better?
Do you have a small discussion group of scientists and managers who are exploring new methodologies? Let me know if you need a catalyst?
What will it take to pilot a project using the Search approach?

So crank up your Product Development engines... Let us speedup new product development and growth rates. And let the fun begin!

References

1. Edward De Bono, Lateral Thinking, Creativity Step by Step, 2015

2. Robert G. Cooper Winning at New Products, 2011; Access 53 papers by Cooper and Edgett http://www.stage-gate.net/downloads/wp/wp_53.pdf

3. Steve Blank, Bob Dorf, The Startup Owner’s Manual: The Step-By-Step Guide for Building a Great Company, 2012

4. Eric Ries, The Lean Startup: How Today’s Entrepreneurs Use Continuous Innovation to Create Radically Successful Businesses, 2011

5. Alexander Osterwalder and Yves Pigneur , Business Model Generation: A Handbook for Visionaries, Game Changers, and Challengers, 2013

6. Ash Maurya, Running Lean: Iterate from Plan A to a Plan That Works , 2012