If You Build It Will They Come? E-Book

Rob Adams

• Herausgeber: John Wiley & Sons
• Kategorie: Fachliteratur
• Sprache: Englisch

Seitenzahl: 280

Veröffentlichungsjahr: 2010

Beschreibung

Know if you'll hit your targets before pulling the trigger on any marketing plan

More than sixty five percent of new products are commercial failures, and if you compound this with a recession, now more than ever you can't afford to be wrong. In If You Build It Will They Come, business professor and strategy consultant Rob Adams shows you how to make sure you hit your target market before you spend a lot of money. He shows you the fast, systematic and proven approach of performing Market Validation in advance of making a large product investment.

Adams outlines a simple and effective market validation and testing strategy that is proven, giving entrepreneurs and managers the ability to dramatically improve the prospect of product success. He explains how to quickly gather information on competitors, directly interview members of your target market, and figure out what the market really wants to buy, versus what customers say they want.

• The steps to quickly understanding the viability of your market
• Where to go to gather the information needed to hit the market requirements
• How to follow through with the right product launched in the right way
• Adams cuts through the fancy terms and expensive market research that gives lots of data but no real product oriented information about usage, pricing, features and competitive forces. In the end you'll produce results on your first release of a far more mature product, shipped in a faster timeframe with features customers will actually use.
• This book is for anyone involved with designing, developing and launching new products. Its examples and advice cover everything from the fledgling start-up that needs their first product to work just to survive to the successful Fortune Class company establishing new worldwide markets. Examples cut across all major industrial sectors including consumer, retail, manufacturing, technology, life sciences and services. This book offers the step-based guidance you need to make sure failure is not an option.

Leseprobe

Table of Contents

Title Page

Copyright Page

Introduction

WHY YOU NEED TO READ THIS

WHY MARKET VALIDATION MATTERS NOW, MORE THAN EVER

THE IRIDIUM EXAMPLE

OTHER EXAMPLES OF THE NEED FOR MARKET VALIDATION

WHAT ARE THE BENEFITS OF MARKET VALIDATION?

WHAT KIND OF COMPANY BENEFITS?

LEVEL OF EFFORT—HOW LONG DOES IT TAKE, AND HOW MUCH DOES IT COST?

THE “OF COURSE I WOULD DO THAT” FACTOR

WHAT’S SO HARD?

SALES AND MARKETING AS A FACT OF LIFE IN TODAY’S WORLD

APPROACH AND LAYOUT OF THIS BOOK

TERMINOLOGY

STEP 1 - READY—COULD THIS IDEA FLY?

CHAPTER ONE - Ready

CHAPTER TWO - Domain Knowledge

EVALUATING YOUR IDEA: WHERE DID IT COME FROM?

JOB EXPERIENCE

EXPERIENCE AS A CONSUMER

THE LAW OF LARGE NUMBERS

CHAPTER THREE - The Market

SIZE: IS THE MARKET BIG ENOUGH FOR YOUR AMBITIONS?

GROWTH RATE: IS IT HAPPENING IN THIS MARKET?

WHAT TO MEASURE YOUR GROWTH RATE AGAINST

EVALUATING MARKET SEGMENTS

CHAPTER FOUR - Lifecycles and Trends

MARKET LIFECYCLES: WHERE’S YOUR ENTRY POINT?

MARKET LIFECYCLES: A SUMMARY

BROAD MARKET TRENDS: HOW DOES YOUR IDEA PLAY?

CONSUMER SECTOR

MANUFACTURING

LIFE SCIENCES

TECHNOLOGY

SERVICES

BUYING PATTERNS

SOURCES OF CAPITAL

POPULATION TRENDS

TECHNOLOGY TRENDS

CHAPTER FIVE - Your Competitors

ANALYZING YOUR COMPETITORS: YOUR MOST VALUABLE TOOL

COMPETITIVE ANALYSIS

SUBSTITUTE ANALYSIS

ECONOMIC ANALYSIS

CHAPTER SIX - The Experts

OTHER PEOPLE’S DATA: A TOOL FOR SIZING UP YOUR OPPORTUNITY

SECONDARY MARKET RESEARCH

WHAT IF THERE’S NO DATA?

REPORTS: GET YOUR HANDS ON ONE

ACCESSING THE ANALYSTS

CHAPTER SEVEN - The Ready Checklist

1. DOMAIN KNOWLEDGE: WHERE DID YOU GET YOUR IDEA?

2. THE MARKET: HOW BIG IS IT AND HOW FAST IS IT GROWING?

3. LIFECYCLES AND TRENDS: HOW ARE THESE AFFECTING YOUR MARKET?

4. YOUR COMPETITORS: WHAT ARE THEY DOING?

5. THE EXPERTS: WHAT DO THEY SAY?

STEP 2 - AIM—WHAT DO YOUR FUTURE CUSTOMERS THINK?

CHAPTER EIGHT - Aim

HOW AIM WORKS

THE RESULT OF AIM: A ROBUST OFFERING

CHAPTER NINE - Research

PRIMARY MARKET RESEARCH: YOUR #1 TOOL

TYPES OF PRIMARY MARKET RESEARCH

FACE-TO-FACE INTERVIEWS

PHONE SURVEYS

INTERNET SURVEYS

OTHER TECHNIQUES

DIRECT INTERVIEWS: A REAL-WORLD EXAMPLE

CHAPTER TEN - Interviews

THE FUNDAMENTALS

THE STARTING INTERVIEWS: BROADLY ASSESSING THE MARKET

THE MID-POINT INTERVIEWS: ANALYZING THE GAP AND NARROWING YOUR CONCEPTS

THE FINISHING INTERVIEWS: FINALIZING AND TESTING CONCEPTS

CHAPTER ELEVEN - Who Are You After?

TARGET AUDIENCE FUNDAMENTALS

SOURCING NAMES

MAGAZINES AND LIST BROKERS

TRADE GROUPS

TRADE SHOWS

BROADER SOURCES

SOCIAL MEDIA

COMMERCIAL DATABASES

CHAPTER TWELVE - Turning Data into Results

CONDUCTING INTERVIEWS

ANALYZING THE DATA

INTERPRETING THE RESULTS

USING THE DATA TO TARGET YOUR MARKET

USING THE DATA TO DESIGN YOUR PRODUCT

CHAPTER THIRTEEN - Outside Help

CHAPTER FOURTEEN - Countdown

CHAPTER FIFTEEN - The Aim Checklist

1. RESEARCH: LEARNING WHAT YOU REALLY NEED TO KNOW

2. INTERVIEWS: GETTING TO THE MARKET PAIN

3. WHO ARE YOU AFTER? FINDING YOUR TARGET AUDIENCE

4. TURNING DATA INTO RESULTS: HOW TO PRACTICALLY APPLY ALL THAT YOU’VE LEARNED

5. OUTSIDE HELP: USING RESEARCH PROFESSIONALS

6. COUNTDOWN: PREPARING THE MARKET FOR YOUR PRODUCT

STEP 3 - FIRE—BLASTING INTO THE MARKET

CHAPTER SIXTEEN - Fire

CHAPTER SEVENTEEN - Sales and Marketing

CHAPTER EIGHTEEN - The Details

PRODUCT SPECIFICATIONS

PRODUCT SCHEDULES

THE PRODUCT MANAGER

CHAPTER NINETEEN - Fast to Market

MINIMALLY ACCEPTABLE FEATURE SETS

FAST PRODUCT ITERATIONS

QUALITY DOESN’T ALWAYS MATTER

KILLING FEATURES EARLY IN THE DEVELOPMENT PROCESS

CHAPTER TWENTY - Early Customers

HELP TO DESIGN THE PRODUCT

RECRUIT PARTNERS ALL ALONG THE WAY

PARTNERS AS EARLY CUSTOMERS AND TESTERS

EARLY PIPELINE

SOURCES OF PUBLIC RELATIONS CASE STUDIES AND MEDIA REFERENCES

KEEPING THEM UP TO SPEED EFFICIENTLY

BOARDS OF ADVISORS

CHAPTER TWENTY-ONE - Showtime

LAUNCH

EXTENSIVE KNOWLEDGE BASED ON EFFORTS

EARLY CUSTOMERS, SUCCESS STORIES

CYCLE BACK TO INFLUENCERS FROM EARLIER CHAPTERS

SUSTAINED SALES AND MARKETING EFFORTS

MARKET VALIDATION AS A CULTURAL ATTRIBUTE

CHAPTER TWENTY-TWO - The Fire Checklist

1. SALES AND MARKETING: BUDGET FOR IT

2. THE DETAILS: WRITE PRODUCT SPECS AND SCHEDULES

3. FAST TO MARKET: GET A MARKET-ORIENTED PRODUCT OUT QUICKLY

4. EARLY CUSTOMERS: RECRUIT DESIGN PARTNERS AND ADVISORY BOARDS

5. SHOWTIME: LAUNCH, MARKET, AND SELL THE PRODUCT

ABOUT THE AUTHOR

Index

Copyright © 2010 by Robert J. Adams, Jr. All rights reserved.

Published by John Wiley & Sons, Inc., Hoboken, New Jersey. Published simultaneously in Canada.

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eISBN : 978-0-470-61058-9

INTRODUCTION

Market Validation

WhyReady, Aim, FireBeatsReady, Fire, Fire, Fire, Aim

If you’ve picked up this book, you have a new product on your mind.

You’re working with an established company and looking to launch a new offering; you’re a new company trying to muscle its way into a market; or you’re a savvy business person trying to figure out more about the markets around your existing products.

Regardless of the seat you’re sitting in or the time frame you’re looking at, you’re searching for every advantage you can find. You want to blow the market away with your offering.

WHY YOU NEED TO READ THIS

If any of these descriptions fit you, let me tell you why you need this book. More than 65 percent of new products fail. And that’s just in established companies with other established products and deep resources. If we switch over to start-ups, the failure rate takes a huge leap to 90 percent. The amazing part is that we’re not looking at data related to recessions or other tough business circumstances. These numbers have been stubbornly constant for 30 years.

Here’s the bottom line: These numbers are simply not acceptable by any measure, especially when you multiply the failure rates by the money invested in research and development every year all around the world. Do the math and you’ll get and annualized investment in failed products of $260 billion in the United States alone. Expand this worldwide and new product failures add up to trillions of dollars; dollars right down the drain. What a phenomenal waste of time, effort, capital, and business resources.

This book addresses the issue head-on. It will show you how to cut your chance of failure. It’s not a magic bullet—just a big step toward significantly improving the likelihood you’ll succeed. Neither is it a theoretical method—but it is a pragmatic system I’ve used with great success.

The process is Market Validation. It’s a series of common business practices assembled in a unique way that prove the validity of a market before you make the product investment.

The concept was introduced in my first book, A Good Hard Kick in the Ass: Basic Training for Entrepreneurs (New York: RandomHouse/Crown, 2002). In that book, I covered Market Validation basics in one chapter. The response to that treatment has been significant, with demand coming from around the world for speaking and consulting on the topic which has continued since that book was published. The continued interest and demand have led me to write a book exclusively dedicated to Market Validation.

As you will see, there is nothing esoteric or magical about the Market Validation process. Like everything in business, there are no easy answers; if there were, business would be easy, and all new products would flourish. Conceptually, Market Validation is easy to understand—but it takes discipline and effort to get it done.

It is most important to remember that regardless of whether you are designing, building, or selling products, whether you’re in a large corporation or a tiny start-up, or whether your business is service or product based, Market Validation will significantly increase the likelihood your product will succeed in the market.

Before we delve into Market Validation and all it encompasses, let’s take a brief look at a key question: Why do products fail?

They fail because they don’t generate enough money, enough revenue—of course. But why don’t products generate enough revenue?

Because they don’t sell well enough. Customers aren’t willing to pay for them. Customers feel they’re not compelling enough or not worth the value, given the price. They can’t generate enough revenue to cover their expenses. Not, as many urban legends suggest, because the parent company or outside investors won’t fund them. As an experienced investor and former corporate executive, I can assure you that corporations and investors will back promising products and services that show market traction. But companies have to prove customers want the products for this to happen.

Clearly, if a company’s first product fails, that’s the end. If a new product fails in an established business, the company may or may not survive; it all depends on the strength of other revenue streams and on how many resources were burned on the failed product.

The theme here bears repeating: A company fails because it doesn’t sell enough product or services. Outside investors or a parent company might cover shortfalls for a while, but ultimately, the offering must stand on its own. It must generate returns that justify the capital—and the risk—that went into creating, marketing, and selling it.

So, whether you’re in a start-up or an established business, if you want your company to succeed, you need to consistently get your product or service offering right.

And if you want to know how to get your products and services right, follow the advice in this book. Use Market Validation to probe, test, and validate your market opportunity—before you invest all that money in product development. It is a systematic, proven approach. And it will make or break your business.

WHY MARKET VALIDATION MATTERS NOW, MORE THAN EVER

The majority of jobs in today’s economy fill some role in the designing, building, or selling of products or services. The ubiquity of these three business functions to business careers is driven by the global economy and the dizzying array of products and services now available in our business and consumer lives. These choices are great news to us as consumers on the personal and business products fronts. On the flip side, as suppliers of these products or services, we are put constantly on point to understand the dynamics of the markets we serve.

In today’s global economy, the rules have changed dramatically. During the twentieth century, manufacturing capabilities were frequently a company’s source of competitive advantage. Market knowledge mattered, but the ability to effectively design and subsequently manufacture products was the key to serving markets, and these were relegated to larger organizations because of the large amount of capital required. Market knowledge was secondary and came with the territory of the vertical integration needed to service markets.

Twenty-first-century rules are considerably different. The global economy and the efficiency that it brings with it have made outsourcing an integral part of any effective company’s strategy. If you’ve discovered a market need, you can outsource the design and manufacturing of the product or service to meet that market demand. No longer are design and manufacturing proprietary to large companies. If you can find strong market demand, your only real constraint is access to the capital that can buy the design and manufacturing services.

Clearly, this dramatically changes the rules of enterprise. Now, insight into a market is what matters. It is the new competitive advantage. Find me a market that is interesting, and I will find a way to build a product to serve that market.

How can you uncover market demand and use that knowledge to your advantage? That’s exactly what this book is about. It provides a systematic framework that will help you develop an objective and realistic assessment of the market. In the end, the ultimate proof of your market is getting buyers to open their wallets and part with their money. Market Validation is a system that mimics that process without risking all the capital it takes to build the product.

THE IRIDIUM EXAMPLE

My favorite example of the need for Market Validation is best illustrated by Iridium, a satellite-based phone system from the 1990s. I’ve used this example on a regular basis for years, because I think it best illustrates the need for Market Validation. It also shows how big companies with strong industry backing and experienced investors can easily be led astray from understanding the fundamentals of their markets when faced with stimulating business and technical challenges.

Iridium was conceived in the late 1980s as a worldwide, voice-based phone system and an alternative to existing copper telephone line and cellular phone systems. The idea was to put in place a low-earth-orbit satellite system to deliver the same phone services that cell and copper line systems did.

These satellites were placed to blanket the earth for global coverage. Given that the satellites had to communicate both with each other and with ground stations and Iridium handsets on the ground, the system originally was thought to require 77 satellites—the same number of electrons as the Iridium atom, hence the name. Since radio waves can only travel in a straight line, the satellites had to be placed in orbit in such a way that one satellite could always see another to relay its phone call.

These technical challenges, along with many others, were clearly daunting. Not only was there the expense of building and putting into orbit all those satellites, but there was also the technical challenge of building the satellites to survive in the austere conditions of space, getting all the programming right, and enabling the satellites, ground stations, and headsets to talk to each other. The company also faced the innumerable legal and regulatory challenges of building out a system in the highly regulated telecommunications industry that cut across countries and continents in a way that had never been done before. In the end, all these significant technical, regulatory, and business challenges were overcome. The system went live in the early 1990s. There was just one problem—a big one: Nobody called.

The original design target for the system had been the international business traveler, who Iridium thought would pay a premium for a single phone number and single voice mailbox that worked anywhere in the world. Based on my experience working with companies developing products, I’m sure the company analyzed that market to size how big it was, then ran a number of models to forecast how much revenue could be generated. But I strongly suspect they stopped there, because there are more than a few shortcomings of the target market analysis that could have been easily overcome using fundamental Market Validation principles.

Before going into what Market Validation techniques could have been used here, let’s look at some of the product characteristics of the Iridium phone system and contrast those with its target market.

First, as the system was being designed and built, from the late 1980s to early 1990s, cell phone usage in business was fairly ubiquitous. Even in the United States, with its older, analog-based system of the time, cell phone handsets were small and could fit in shirt pockets. Also at the time, a worldwide business traveler could get worldwide cell phone coverage using three different cell phones to get coverage on the three different cell phone infrastructures that existed at the time. It’s doubtful that business users would need coverage in areas not covered by cell phone or copper lines, such as in the middle of the ocean or in remote wilderness areas. Given this, I would suggest that the Iridium system’s competition within its stated target market was the usage and cost of three different cell phones the business traveler would need for worldwide coverage—if indeed their market hypothesis was correct to begin with.

The next step is to compare how the Iridium system stacked up with its competition (this again assumes the stated target market was accurate). This comparison, to put it bluntly, came out poorly. It’s important to highlight that these shortcomings could have easily been known before the company spent the billions necessary to put the system in place.

The first big issue was the handsets. The initial versions were large and bulky and came with a briefcase full of attachments that had to be inserted into the headset, depending on where the phone was being used. It also had a 200-page operator manual and talked of the user’s dexterity being important to using the system. Not a good way to compete with cell phones.

The second major issue involved all those satellites and the distance the phone calls had to travel to be relayed up from the ground, thrown across a bunch of satellites in space, and then returned to the ground. The sheer distance the signals had to travel meant there was a Houston-to-space-station propagation delay, making it impossible to have an interactive conversation. You had to pretty much say “over” when you were finished talking, wait for the person at the other end to hear what you said, then wait for them to respond and say “over” to indicate it was your turn to respond. Not a good way to compete with cell phones.

A third major issue was the fact that the phone could not be used indoors. Yes, that’s right: In an age when cell phones had been around for quite a while, Iridium did not consider the fact that the satellite signals could not penetrate buildings. To work, the handset had to have a clear line of sight to the sky and the satellites in it. This also meant the phones could not work outdoors in urban areas where buildings blocked the sky.

The last point I want to emphasize is the system’s cost and operating expense. Initially, you had to buy the handset for several thousand dollars, attend two days of training on how to use it (and remember all those different configurations it needed to be used in various places), and then pay for calls at anywhere from 5 to 10 times what a cell call would have cost.

There were other significant drawbacks to the system, but these are some of the major ones. I highlight them for the simple reason that Iridium could easily have understood these shortcomings before any development work was undertaken. The fact that the system wouldn’t work indoors and would have a propagation delay could have been grasped in your average high school physics class; even at the speed of light, if the distance is far, you will have a delay, and radio waves from that far up in space don’t have the energy to go through a building. The need for a complex handset configuration to communicate with the satellites and base stations could also have been understood, given the complexity of the electronics to make the system integrate.

I speculate that the bottom line on the Iridium experience was a tendency I see a lot of companies display. Give them a challenging technical or business problem, and they will rise to the occasion and overcome it. But ask them to define a target market, come up with a set of compelling features, and build a market-oriented solution, and many business people know they want it but aren’t sure how to do it. This book is about doing all of this before you invest in an Iridium—only to have no one use the system.

Back to the Iridium story. How could Market Validation techniques have been used to uncover these issues before building the product? Motorola and some significant telecommunications-systems companies backed the original investment. Surely these people had the talent necessary to know if this would work.

This book will go through the entire process of Market Validation, which certainly should have been followed, given the $5 billion investment Iridium required. For now, let me highlight two methods that could have been used to validate this market before building the product.

The first would have been a survey pointed at the proposed target market of international business travelers: a simple survey—given in person, over the phone, or even electronically—pointed at 100 people in our target market of international business travelers. The purpose of this survey would not be to see if they wanted the Iridium system but to better understand their usage patterns and how they currently handled international phone calls for business.

A sampling of the questions would look like this:

How many days a year do you travel internationally?

When you travel internationally, how to you handle phone communications?

How much do you spend annually on international phone communications?

Would you find it valuable to have one phone number at which to be reached when travelling internationally?

Would you be willing to pay a premium for one international phone number?

If yes, how much would that premium be?

In my experience doing Market Validation work, this would give us a very strong early indicator of the pricing premium, if any, that international travelers would be willing to pay for this one-number, all-access service. This would not be a final indicator of price by any stretch but an early indicator of what kind of premium the user would be willing to pay versus his or her current system. In the line of questioning, we captured both how he or she handled international calling currently and how much it cost; we went on to ask how much of a premium he or she would be willing to pay. Simple but powerful stuff.

Armed with the data, we would have a baseline to compare what the target audience currently pays and what premium they would be willing to pay (both captured in the customer survey). This could be measured against the cost of the substitute system then in use including service with three different cell phone infrastructures. We then would have estimated the cost of our services based on the amount of money required to build the system.

Experience would suggest that in the surveys, respondents would come back willing to pay some premium for one-number international access, but it is doubtful it would have been more than the cost of coverage that was available as a substitute for the Iridium system at the time, which was three times the then current cost of cell phone coverage. Given that the implemented cost of Iridium was 5 to 10 times the cost of a cell phone call, the company clearly missed the mark here. Even if it wasn’t sure what the final cost would have been early in the process, they could have easily known, based on substitutes, that to be competitive, they could not exceed the cost of the substitute or three times the cost of cell phone usage.

Following this user survey, I would have gone to a local lunch spot popular with business people, armed with a clipboard and pen, ready to make an offer. My offer would have been based on what we knew about the Iridium system before it was built and would go like this. First, I would screen to find people who were international business travelers. If they made that screen, I would offer to pay their cell phone bill for the next three months, regardless of how many calls they made. In exchange, I would ask them to tape a brick to their cell phone (to approximate the size of the original Iridium handset) and to only use their cell phone outside (to approximate the indoor limitations of a satellite system). Then, I would show them their cell phone bill to represent their bill marked up by 5 to 10 times. Based on experience, I seriously doubt I would have had any takers.

Is this an overly simplistic example? Yes. It glosses over many complexities and subtleties that will be covered in depth later in this book. At the same time, it drives home the power, and the necessity, of Market Validation.

Let me provide a short postmortem on the Iridium story, just to reinforce several points made here.

Given the capital requirements of $5 billion to build the system and the few users the system actually generated, the company went through a few product changes in an attempt to address some of the product shortcomings. In the vernacular of Market Validation, I like to use the metaphor of “Ready, Aim, Fire” as the correct process as opposed to the typical “Ready, Fire, Fire, Fire, Aim” process most companies actually do. While Iridium tried valiantly to address these shortcomings while they were in the Fire, Fire, Fire step, ultimately the company was forced into bankruptcy by its creditors.

The company was purchased out of bankruptcy for half a cent on the dollar of the original investment. The new company was able to analyze the market and realized that the real market demand was around a submarket of the original target market. Real demand existed in remote areas without any phone communications, in disaster and war zones where the existing phone infrastructure was not functioning, and at sea as emergency communications backup for ships and ocean-based oil rigs. This new target market was willing to pay the premium for the system over the cost of cell phones, because they had no other option. So, in the end, the company had demand, just not at the level the original investment demanded in order to make a profit.

OTHER EXAMPLES OF THE NEED FOR MARKET VALIDATION

The need for Market Validation has shown itself in many ways across many industries. In many cases, companies pursued products or services based on accurate market research data. The problem was that they did not dig deeply enough into the details to understand the nuances of the market. Using a Market Validation framework, they performed the Ready phase but did not go on to push through the Aim and Fire steps.

The Ford Edsel is a famous example from the late 1950s. Ford was flush with cash from its successful Thunderbird offering and was feeling the pressure of multiple product families available from its competitors. It embarked on an aggressive market research campaign to develop a new division with flagship offerings that could satisfy a broad market segment. Extensive market research and focus groups were used, and the results drove the new car division’s brands, features, and options.

The Edsel was developed in direct response to the market feedback it had so carefully collected. These features included many new and innovative offerings for the time. A new line of dealerships was developed to carry what would become the Edsel line from Ford. The company aggressively advertised the car and its innovative features before its availability. The car came out. And the car flopped.

The challenges? Like most products, many things were done well, and many things could have stood improvement. But ultimately, the market judges by voting with its money. The new features that were expressed in market research came out in a car that the consumer viewed as overpriced. The advertising that tempted consumers with a completely new offering came on a platform that looked like other Ford offerings and at a price point that was the same as other Ford offerings, confusing the target audience.

The Edsel conclusion, using a Market Validation prism? When offering consumers a new product, it’s important not only to meet customers’ product expectations but also to have significant differentiation or price performance to get consumers to switch over to a completely new offering. The Edsel offered neither and has gone down in the annals of business history as a buzzword for product failure.

New Coke provides another example of how analyzing broad market data can yield one set of conclusions that does not match what you can find when you go deep into understanding your market.

Coke was smarting from the Pepsi wars of the mid-1980s. In those, Pepsi would do blind taste tests of affirmed Coke drinkers to see if they could tell Coke from Pepsi. Pepsi would typically win these tests by a small margin. Coca-Cola had an understandably strong reaction to this campaign, feeling that they were losing share to a new generation of Cola drinkers based on Pepsi’s sweeter taste, and their share numbers were starting to back up this view.

Coca-Cola’s reaction was to reformulate its offering to a sweeter taste, what it saw as a key reason for its losing share to the younger Cola market that was actively forming its nascent brand preferences. The results were dismal.

The company suffered a significant negative reaction to the newly formulated taste in the market. Despite an expensive and well-crafted rollout campaign, market share plunged almost immediately. The company was in turmoil and under heavy pressure to react. It ultimately did, brought its original formula back, and eventually regained market share against Pepsi.

What happened here using a Market Validation prism? Yes, on the surface, the company would lose to Pepsi in a taste test—and the emphasis needs to be on taste test. If you dug beneath the taste test, you would find that sweeter cola drinks definitely have appeal in the first few sips; but most of the discrimination between a sweet Pepsi and a not-as-sweet Coke comes through over the course of consuming an entire glass of the drinks, not just on the first impression. So, Pepsi would win most taste tests, but Coke drinkers preferred that a beverage be less sweet over the course of an entire glass. Here again, it is always critical not to get stuck at the first level of data; you need to go deeper and understand the entire customer experience.

A similar experience on a less public scale occurred after the purchase of Tivoli Systems by IBM in the mid-1990s. Tivoli Systems was a scrappy start-up in the systems management space that built a strong user base and followed through its innovative framework. IBM purchased the company and for a while let it continue to operate on its own. Tivoli aggressively leveraged the IBM brand, experienced considerable growth in sales, and continued to release innovative products.

Over time, IBM began to assimilate more and more of the company in an attempt to mainstream the Tivoli culture and spark the larger company with the scrappy start-up’s ethos. When left alone, Tivoli was great at leveraging IBM’s resources; once the mainstreaming process began, Tivoli started losing some of its product innovation.

Talking to insiders, what you learn is that much of this had to do with the differences between how IBM and Tivoli conducted their market assessments and competitive intelligence in developing new products.

Within Tivoli, gathering market information and competitive intelligence was an integral part of the product team’s life. They worked aggressively to assess the market and to understand, through direct interaction, customer issues and competitive products. This competitive analysis frequently involved sitting with customers who had competitors’ products installed and understanding all the subtleties of how they used them and what they liked about them. In the eyes of the scrappy Tivoli start-up environment, there was no one else this critical function could be performed by.

Fast forward to postmerger, post-IBM-assimilation Tivoli. Analyzing markets, user requirements, and competitive offerings was now done by a centralized function that specialized in this service and that was outside of the group actually owning the product. The centralized group conducting this research was very capable and very dedicated. There were, however, two cultural attributes that could not be overcome with this type of structure.

The first attribute was the dagger-in-the-teeth, take-no-prisoners approach that permeated the Tivoli culture from its days as scrappy start-up. The product managers who analyzed potential new markets knew their livelihoods depended on getting their new products right, and they analyzed their markets with this same do-or-die intensity. They simply would not trust their livelihood to someone who was doing the analysis while never having to live by the conclusions.