Launching a Product - What are the Risks Associated with New Product Development?

Hello, my name is Ian Peterman. I'm CEO and founder of Peterman Design Firm, and on today's episode, I'm going to talk about the risks associated with new product development. So this is a question I have been asked countless times. And talked about with clients. It's something that when we go through feasibility and road mapping with clients on projects, it's kind of the core of figuring out what are the risks associated with a specific product and how to mitigate those risks. So this is going to be split into kind of 2 general parts. The first part is pre-launch. And things like manufacturing's not— legal, cost, market, and delays are all kind of areas in there that we're going to talk about. And then there's post-launch, and post-launch is sales, durability, supply chain, and positioning of products time-wise. So to start off, we're going to talk about Pre-launch. First thing here is manufacturing, and one of the risks that every product has is not being able to be manufactured. So there's a few different ways that it could not be manufactured. First being it's just not technically feasible. Now, there's very few things that can't be made, but at scale, it doesn't always make sense to make a specific product as it's designed. So one of the risks is that you go through the process, you get to the manufacturing, and it's just not going to be possible either technically, or it is technically possible, but the investment level— you have to create a new manufacturing process in order to create the product. and that's just outside of the scope and budget of the product and the project, or just, you know, it's definitely feasible, people are— it's using known manufacturing techniques, it's not anything, you're not pushing any boundaries, so to speak, but you are going to be too expensive. And while that's never happened on the products that I've worked on, I definitely know of products that have been Killed, and it's because the cost was just too high, uh, and relative to what they could actually sell the product for. Uh, so manufacturing is one of those areas that can have some risk. There's obviously ways to mitigate it, and there's ways to move through it and, and make it possible. There's an entire design for manufacturing process that is part of figuring out how to make sure it is manufacturable. And you definitely want to make sure that you understand in general whether it's going to require this huge investment upfront of developing a new manufacturing technology or process, or if it's something that already exists. And that will help in determining what the risk is. Well, that'll tell you whether it's going to be a high risk low risk for this area. Second part of pre-launch is legal. So this can happen in the beginning, it can happen at the end. It doesn't really have a specific area where it will impact time-wise. It can impact at any time. And that is, there's a few different parts of legal that can impact. And the risks associated with those areas. And so one of those areas is patents. So there's always a risk that you are developing a product that is patented or someone is in the process of trying to get a patent. So you, of course, can mitigate that risk by engaging attorneys early on, making sure that you do the research, But you also should be ongoing doing that research because if it takes you 12 months to develop the product and you don't have anything in place to protect you, someone else could be developing or submitting patents during that process. And so you just want to be aware of those, that area, because— and be aware of those things because that could potentially block, and you don't want to get 80% done and find out that you can't move forward because there's a patent or some other legal protection on somebody else's product that won't allow you to move forward. So another area is in regulation. So you can be legally stopped from developing a product if regulation has changed, if there's regulation you weren't aware of. And so again, mitigating this is really a research-intensive process to make sure that you aren't going to cross any lines or break any laws that have to do with regulation and regulating your product field. So it really is all navigable. You can get through it. You can avoid a lot of issues, but Legal can be a huge block and it can be a very expensive block. So being aware of those risks there will allow you to figure out a better path forward. The next area I want to talk about is cost issues. So there's, of course, I mentioned manufacturing, the first part that your cost might be too high to develop the product. It could be too high For per part cost. Cost issues also come down to whether you have the funding to actually produce the product and make it all the way through. And this is something that I see a lot of times is that companies or people will start a new project and they don't do the due diligence upfront to look at actually the entire long-term cost. of the actual product and what it's going to take to really get it to market. They, you know, maybe talk to a firm and get a nice lowball offer that seems reasonable, and they work through it and they get change ordered up until you run out of money. And that unfortunately happens. It's a practice that I don't participate in. I think it's not a good way to land projects, but People do that in order to get business, and its impact can impact your cost. So doing a cost analysis at the beginning and understanding, yeah, the development may cost this and production's gonna cost this. So I've seen, I've seen unfortunately quite a few projects get through product development and they didn't set aside any money to actually market it or do a successful Kickstarter or other crowdfunding campaign or even pay for production. And so you can end up running into cost issues there if you don't have the right budget for your project. The next area is market. So you want to make sure— there's always a risk associated with there not being a market for a product, the market shifting enough so where your product is no longer going to fit. And so obviously this is ongoing. The market is always changing. People want different things. People have different problems. It all changes. It all shifts. Typically, it's not quick enough to where an entire market disappears overnight, but there are market opportunities if you're developing something for a short-term market that is only going to exist for a couple years and then, you know, it's going away, or even if months on really specific markets, then you wanna make sure that that can be a risk. There can be a risk of, well, we're developing a product and the product is gonna take too long to develop it. And by the time we get it to market, things will have shifted or, you know, somebody else's product will come out and the advantages that we have aren't enough to really keep going. So you want to be aware of the market and the risks associated with, of course, launching a product into the market and there not being any interest. So those are all things that can be mitigated. You can do market research, and you can do all that research up front and then ongoing as you work through it. The last area that I want to talk about is project delay. So there's many reasons why a project can be delayed. It can be due to finances, legal, manufacturing issues, product feedback from potential customers and users giving you feedback that kind of sends you back to the drawing board a bit in order to make sure your product is what it needs to be for launch. All of those, they have happened to someone else. They, they do happen. Delays are sometimes part of the project. And so that's one of the risks that we look at is trying to, as best as we can, understand what are potential delays that could happen to the project and what are the potential causes of those delays. And obviously there's a rather infinite list of reasons that a project could be delayed, but You want to be aware of as many of those potential risks as possible so that you can mitigate and hopefully sidestep those, those actual risks and be able to move forward without delays. Now I want to talk about post-launch. So in post-launch, I mentioned before, is sales, durability, supply chain, and product timing. So first is I want to talk about is sales. So one of the risks that with every product, whether it's a new product or even old products, is sales not being where they need to be. So obviously when you launch a product, you need to have a certain number of sales in order to make it a return on your investment that is worth spending everything to do a new product development.

Uh, so Those—

the risk in sales not happening is, it's an ongoing risk. And there's many different things that could impact it. And that's a whole separate conversation on what can impact it. But sales, you want to make sure that your process for sales and your tools and marketing and everything is really well set up to give sales the best chance possible and make sure that you have a good idea that sales are going to happen before you launch. Because the risk with no sales or not good enough sales is that you end up launching a product for a loss, and you never want to do that. So it's always good to be aware of sales and how to mitigate risks there. Next area is durability issues. So one of the risks that you can associate with new product developments is product hasn't been in the market, and as much testing as you do, people will always use a product in different ways than you ever thought of. They will use it for longer, they'll put it in places that you never thought of because You're going to work with a small group to test it, or even a large group, but that's nowhere near the population that your product will probably be going out to. So you'll do as much durability testing as you can, and there's always a risk that there is some use that you weren't aware of, or people start using it for your product for a lot, uh, that starts to cause durability issues. And you want to be as aware as possible. You want to do as much testing and ensure that your product is going to last as long as you say it is. And be careful about what you promise in terms of durability, because the risk there is that you end up with products that are failing, products that are getting returned, products that are coming back to you that should not have failed or were used in a way that you weren't expecting. And so you want to be aware of those risks and, and make sure you build in a plan for you to be able to handle those risks. Next, I want to talk about supply chain issues. So there can be some supply chain issues pre-launch, but those typically just get worked out. They may cause delays, but they don't cause typically a lot of risk. In, in the pre-launch. However, issues in your supply chain post-launch are a huge risk. If your supply chain is impacted negatively, if they're not able to deliver the parts and product to your customers, this can turn into your customers being really unhappy and not getting their product, and you want to avoid that. It can turn into a PR issue, and it can also cost a lot of money in order to compensate for that. So if your main supplier is down and you don't have a backup supplier already put together, you run a risk of having to pay a lot of money to expedite production through a different supplier just to be able to meet current demand. And while you want sales to be really good, you also want to make sure your supply chain doesn't break down in the middle of growth, because that can be a killer. Next, the two— these are kind of two twin areas— is product timing. And both early and late are risks. So if your product is too early, you run the risk of launching a product into the market and having not enough people grab it and start using it yet because it's a little bit to advances. There's a bell curve of adoption for products. There's really early adopters. They're the people who paid hundreds and hundreds of dollars for the first VCRs, and they paid thousands of dollars for the first flat screens. They are there, they do exist, but they are a very small percentage of the population. And if you are too ahead or your product is not adopted quickly enough, you run the risk of having really bad sales. You run the risk of not having enough people even care or know about the product because it's just not something that people are engaged with. And so too early can end up being detrimental to your product launch. And your, your sales after that. Um, the other area is being too late. So you never want to be the last person to a party when you are launching new product. You want to be somewhere in the middle, in the right spot, the Goldilocks zone, where you are going to be— there's There's adoption, adoption rate is good, people are buying it, but it's not a tail end of a fad. It's not a tail end of a season of something. You want to make sure you are in the middle because too late means that the market has already probably moved on to the next product. You could be a little bit better, you could be a lot better, but unless there's enough market there for your product and you're really at the tail end of market demand for a product or product type or category, you're not going to have runway in order to have sales and grow and return on your investment because the market is at the point where it's shrinking. Now, of course, it could rise again. So Maybe it'll come back in popularity or that problem will reappear and your product will be needed more. And that happens, you can definitely be that person that kind of positions in what will be a really smart place to jump into the tail end when there's still some market, wade through the lean portion, and then ready to pounce as soon as things are picking up again. That can be really smart. However, it's also really risky because if you're too late and it doesn't come back, you've just invested a whole bunch of money. Unlike your competitors or anybody else who's been putting out a product in that area who has started early in the profitable area with the most number of people interested in the product, Those people were making money and selling product and doing really well, and they're at the tail end, so they've had a really good return on your investment. Launching a product too late is not going to give you that runway for return on investment that you're going to want with the cost that comes with producing a new product. Hopefully this outlines few of the different risks associated with new product development and give you some broad strokes on what those areas are and a little bit on how to mitigate or avoid some of these risks. And of course, every project and every product is different, and the minutiae of exact risks with each one is different. That's why we do feasibility studies and people do market analysis and cost analysis and all that work, because No product unless they're really, really close to each other, and no one's going to share all of these studies and market research with each other. It's yours. So every time a new product's developed, it's likely going to get all of this research done in order to avoid these risks. Hopefully you know about these risks now too.

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