Author: Narjeet Soni

TL;DR: “How can you prevent your idea from failing? How can you identify all your assumptions? Prioritize and test them? Is there a system to de-risk your potential product?“ 

Most new products will fail in the market, even if they are competently executed.

Says who? Alberto Savoia, the innovator behind The Law of Market Failure.

Even VC data tells us that it takes more than 250 ideas to create a multi-billion $ return.

Following the law of market failure, we should presume a potential new product to be a failure UNTIL we’ve collected enough evidence to make us believe otherwise. Let data silence all opinions (including the ones from HiPPO). Let numbers speak. Let there be evidence.

In our experience of developing and launching new products, we have hit upon several failures. And it’s easy to blame them on Execution.

Every unsuccessful idea once looked great on a spreadsheet and PPT.

What goes wrong then?

It usually starts with living permanently in a solution space (a.k.a. Dreamland). You would have heard that pitch from a friend:

“What if there is an app that can…………”

“Imagine you are entering your car and ……………”

We usually fail to mention – what PROBLEM are we trying to solve and WHO has the problem. We simply assume that

“if we build it, someone will use it, buy it and we will be rich”

And even if the idea is defined around the problem and a customer segment, it’s still filled with BIG unknowns. Most products are built with assumptions. Some so critical, that, if not true, will totally FAIL the product in the market.

So if you want to increase the certainty of your success, or want to de-risk your investment, you need to identify all the unknowns (assumptions), prioritize them and validate them by generating your own data (remember NO amount of market research will shield you from this failure).

Here’s what you could possibly do:

Step #1: Define your IDEA in 1-sentence

Let’s say you come up with an idea of creating special masks for people who wear glasses during this pandemic. You talk to your team, some of them wear glasses themselves. They empathize with the problem of how breathing through masks fogs up their glasses, leading to a blurry vision and awkwardness around strangers.

Your first instinct might be, This is it! Best idea ever! Let’s build it.

But hang on, think about The Law of Market Failure. And let’s assume that these masks will be a failure UNTIL you have evidence to prove otherwise.

So far you just need two post-its:

Post it 1: Idea: Masks for glass-wearers. We are calling them Clear Masks

Post it 2: Problem: Glasses get fogged while wearing normal masks

Step #2: Create a “We believe” Hypothesis

After you’ve zeroed in on the idea and the problem that you are trying to solve, you need to create a hypothesis.

A good hypothesis is one that is testable and precise. It is the assumption on which your whole idea/product is built on. In other words, what is it that you need to learn for your idea/product to work?

You can begin by writing the phrase:

We believe that…target market A…has a problem B….and will do C (action)

In Clear Mask case, the “We believe” Hypothesis would be:

We believe that people who wear masks with glasses suffer from foggy glasses and therefore would like to buy Clear Masks to have a clear vision. 

Step #3: Create an XYZ Hypothesis

“We believe” hypothesis can be hard to test with concrete evidence. How can you possibly test that all people wearing glasses with masks suffer from a foggy vision around the world? You can’t. That’s why you need to be more specific and you have to say it in numbers.

A testable hypothesis is what you need. It must contain:

X: A specific percentage of your target market. 

Example: At least 20%

Y: A clear description of your target market.

Example: People wearing glasses with masks in the age group 30-45 in the US

Z: How you expect the market to engage with your idea.

Example: Will pay $25 for a Clear Mask

Your XYZ Hypothesis would be:

At least 20% of people wearing glasses with masks between the age of 30-45 in the US, will pay $25 dollars for a Clear Mask.

Step #4: Break your XYZ Hypothesis into PROBLEM and CUSTOMER Segment

At this point, you need to break your XYZ Hypothesis into Problem and Customer Segment.

You can simply do that by mapping your insights on the Problem and Customer Segment Canvas given here. (Download it)

Remember this is a very high level exercise. So don’t worry if you don’t have all the information.

Step #5: Flesh out your ASSUMPTIONS

Now you need to flesh out the underlying assumptions in your defined XYZ Hypothesis, Problem Canvas and Customer Canvas through 3 key filters:

DESIRABILITY – Do they want this? The focus here is on the problem and customer. Start by answering these questions:

1. Who are the target customers of our solution?
2. What problem do they want to solve?
3. How big is the problem for them? Are they frustrated or are they ok to live with it?
4. How do they solve it today? Or are they actively looking for a solution?
5. Why is the current solution, if any, not awesome?

For Clear Masks – this is how we would answer them:

• Target customer: people with glasses in the age group 30-45
• Problem: People wearing masks with glasses are suffering with foggy vision and discomfort
• Problem size: It is a discomfort for almost 8 hours a day
• Any alternative solution: Don’t use glasses with masks; keep cleaning it throughout the day; buy expensive non-foggy glasses
• Big dis-satisfaction: It’s a constant discomfort to clean glasses throughout the day. To solve this problem there is no cheaper alternative.

Put these down on RED stickies (or your favorite color that represents danger)

VIABILITY: Should we do this? The focus here is on having a viable business model. Is it a solution that will make money?

Try and answer these questions:

1. How big is the target market?
2. Who is our main competition?
3. How will our solution generate revenue?
4. How would we acquire our customers?
5. How would we ensure they will actively use our solution?

For Clear Masks – this is how we would answer them:

• Market Size: 164 million people in America wear glasses
• Competition: Anti-Fog spray for $18; limited use
• Revenue Stream: We will sell clear masks for $25
• User acquisition channels: Partner with optical providers, sell on amazon, sell on website (via ads on Facebook and Instagram)
• It will last for 6 months after that they will have to buy a new one; we will create them in fancy designs

Put these down on YELLOW stickies

FEASIBILITY: Can we do this? Here the focus is on engineering, development, legal and compliance challenges?

Try and answer these questions:

1. What is the biggest technical or engineering challenge?
2. Are there any legal, compliance or regulatory hurdles?
3. Do we have enough funding to do it?
4. Do we have access to the right skills required to make it happen?
5. Is there any internal bureaucracy/hurdle that we need to address?

For Clear Masks – this is how we would answer them:

• Technical Challenge: Could we 3D print a nose bridge that is comfortable and looks cool?
• Legal challenge: There is NO legal challenge. We might have to check whether this kind of product falls under the category of medical products? We also have to check if we can patent it?
• Funding: We have $250.000; we should check if it’s enough
• Skills: We have a product designer, but we have to check how we will produce it and where?
• Internal Hurdle: Our leadership might kill this because this does not fit into our core business model

Put these down on BLUE stickies

Step #6 – Find your CRITICAL UNKNOWNS

After you’ve got a bunch of red, yellow and blue stickies stating your desirability, viability and feasibility assumptions respectively on the white board, you’ve got to map them on an x-y axis.

On the x axis, you have known and unknown i.e. depending on how much evidence you have or don’t have in order to support an assumption, you place it on the x-axis.

You place an assumption on the left, if you are able to produce relevant, observable and recent evidence to support an assumption. And remember, your evidence should not come from research data.

For instance, the Feasibility assumption that you can secure and manage all technologies and resources that are required to build Clear Masks, including patenting and human, financial and other resources will be on the left because you are already in the business of producing medical masks. You have plenty of relevant, observable and recent evidence to support your assumption.

You place an assumption on the right side, if you do not have evidence to support an assumption, and thus would need to generate it.

For instance, the Viability assumption that you can get customers to pay $25 for a Clear Mask will be on the right because you have no evidence to support it.

On the y axis, you have critical and uncritical i.e. depending on how critical an assumption is for your idea to succeed, you place it on the y-axis.

You place an assumption on the top, if it is absolutely critical for your idea to succeed. If that assumption is proven wrong, your idea will fail and all other assumptions will become irrelevant.

For instance, the Desirability assumption that people wearing masks with glasses are suffering with foggy vision and discomfort will be on the top. This problem needs to be a BIG pain point for your customer because it is absolutely critical for your idea to succeed. If this assumption fails, all your other assumptions become irrelevant.

You place an assumption at the bottom, if it is not one of the first things you’d go out and test.

For instance, the Feasibility assumption that you have the right channels to market Clear Masks will be at the bottom. This assumption can be tested later.

Once you’ve mapped out your assumptions in the four quadrants, stay away from the bottom left quadrant. No point wasting energy on running a lot of experiments on assumptions that you already have evidence for and are rather uncritical.

You’ve got your riskiest assumptions in the top right quadrant. They are critical yet unknown. This is where you want to put your time, energy and focus.

Next you will have to Design experiments and drive out the uncertainty in your idea.

Innovation is vital for any company to grow. The biggest challenge for the companies while innovating is spotting the right opportunities. No company is smart enough to know what to do with every new opportunity it finds, and no company has enough resources to pursue all the opportunities it might execute.

One of the best ways to spot opportunities for your company is to use growth box.

Thinking about opportunities in these four quadrants can trigger ideas for Innovation and align the innovation teams on the problems they want to solve and the customer segment they should target, which is the most critical and riskiest assumption.

Existing Customer Segment with Existing Problems

In this quadrant, you are trying to expand the pond in which you fish for business by redefining what you do more for your customers, while still remaining true to your core. Your product vision remains the same, the customer segment you are dealing with remains the same. The attempt could be to increase the lifetime value, increase the monthly activations, improve the user experience, product performance, attempt to get a greater share of the customer wallet by adding more features, services that are still aligned to the product vision and the core of the business.

Existing Customer Segment with New Problem

In this quadrant, you look for places where neither you nor your competitors are solving a customer problem. You are observing the behavior of your customer segment to determine what their need is. This might be like solving a completely new problem for your existing customer which is nowhere linked to your existing product or service. You might have a completely new product vision/purpose for this product which may be aligned to your company vision. In this case, your company vision becomes a constraint. Let’s take the example of Toyota when they created a luxury car, Lexus. They observed that their existing loyal costumes were moving upscale and when they wanted to have the luxury, they didn’t even consider Toyota as an option. So, Toyota created a car that was better than Cadillac and had more value than a Mercedes, still keeping the cost low to satisfy changing customer needs.

New Customer Segment with New Problem

In this quadrant, you are thinking of a completely new business. You might go into this quadrant when your current strategy is in trouble or if a sudden change in the marketplace has rendered your old strategy obsolete. Nokia for example sold more mobile phones than anyone. But after being bought over by Microsoft in 2014, the company has been focusing on selling high-end networking equipment and software to telecom companies across the world. This is the quadrant where disruption happens. This is where your Architectural or Radical Innovation happens.

New Customer Segment with Existing Problem

In this quadrant, you try to identify a new customer segment for your existing product. You don’t change the product vision, instead, you try to identify a customer segment, who might have a similar need as your existing customer segment. For example – Avon was initially into selling cosmetics and fashion accessories to women aged 20- 35 before they identified a new customer segment (teenagers), who had the same concerns about looking their best as its traditional customer segment.

It’s not just your company that is struggling with innovation. According to a McKinsey poll, 94% of the managers across companies surveyed said that they were dissatisfied with their company’s innovation performance.

One of the biggest reasons for failure of innovation is a lack of or unclear company and innovation strategy.

In most companies, those responsible for innovation do not know which topics have priority or simply what to look for when coming up with ideas. The basic knowledge of the direction in which a company wants to develop is missing.

When you don’t have a clear strategy, your innovation efforts may look like the board above. Every division might start its own innovation effort, moving in its own direction, without knowing what value their initiatives bring.

Ask five people in a company what innovation means, and you are likely to get five different responses.

Is coming up with a new shade of post-it notes innovation? Is putting the same sauce in a new squeeze bottle innovation? Is coming up with the original iPhone innovation? Innovation can look and mean different things in a company.

So the first thing is to agree on a single definition of innovation across your company. And that can only happen when you have a clear company strategy. Because the starting point for any innovation activity has to be your company strategy.

Every innovation has to be in line with the company strategy and contribute to achieving company’s goals.

So if you have a clear company strategy in place, defining your innovation strategy becomes easy.

What is an ideal innovation strategy though? A strategy that answers these three big questions is on to a killer start:

1. Where are you now?
2. Where do you want to be?
3. How will you get there?

An innovation strategy should state a common mission and the key activities that will help you get there. It has to be a bridge between your high level company strategy and the day-to-day team activities i.e. how they translate to achieving the overall company’s innovation goals.

The best innovation strategies are those that are simple and clear. Everyone in the company can understand them.

And the upper management has a complete buy-in.

Everyone knows where they are and where they are going.

A great innovation strategy usually contains the following ingredients:

• A powerful innovation mission statement
• List of activities with the highest impact on your business
• The “how” of your new innovation initiatives
• Challenges and opportunities to be encountered
• Resources needed to succeed with innovation strategy

Here’s a step-by-step breakdown on how to develop an innovation strategy by bringing in all the ingredients mentioned above:

Start with Innovation Assessment

This is the ‘where are you now?’ part of the strategy. In this, you find out what already works in your company for innovation. You will have to find out all the innovation initiatives that are running and see which of those initiatives are really producing value and what needs further improvement. This is where you list down the activities that have the highest impact on your business.

Basically, you try and gain an understanding of how and why innovation is currently functioning within your company. What are your existing barriers/challenges to reach your innovation goals?

Innovation is all about understanding the market and technologies that could disrupt the market. Start by answering the following questions:

1. What are the new, most hyped technologies?
2. What are the technologies that could affect or disrupt your industry?
3. How is the current market changing? Are there any new customer behaviours developing? (for example due to COVID-19)
4. Are there any new markets you would want to target? (new customer segments or new geographies?)
5. Are there any threats you have from the market? (competition, new startups?)

Find your innovation objective/goal

This is the ‘where you want to go’ part of the strategy. And this will shape your innovation mission statement. In this, you will look at two different dimensions:

First dimension is to define the main motivation behind the innovation for the company.

There can be 3 different motivations:

Strategic Motivation

Here your motivation would be looking at long term goals that will help the company grow in future.

• It could be bringing in cultural DNA change within the company to bring back innovation mojo
• It could be to educate employees on new processes of innovation – so that they have all the tools and resources to innovate
• It could be to re-define current business model in light of new technologies and market changes
• It could be creating a new business model for the company so that company can diversify its portfolio and NOT be dependent on only one business model

The most important goal here is to prepare the organization from inside and outside for future changes in technologies and markets. In the short-term this might not produce any financial returns.

Financial Motivation

Here your motivation would be to increase revenues and profits for the company or in some cases cut costs for the current business. These initiatives would not necessarily have any impact on company culture but can generate a good boost to current business.

Hybrid Motivation (Strategic and Financial)

Here you balance both your strategic and financial goals. These initiatives are strategic and work on changing the company culture with the goal to create new business models with clear financial objectives.

The second dimension is to decide where would your innovation initiative sit within the company?

• Internal – This means you want to generate innovation within the company. For example, by setting up intrapreneurship, innovation labs or internal hackathons.
• External – This means you want to build it externally via strategic partnership, acquisitions or investments. For example, external startup collaboration, strategic investor or only financial investor.

Or it could be a mix of both based on the objectives

Find your innovation type

This is the ‘how will you get there?’ part of the strategy. This is where you map your company’s objectives with the types of innovation you want to execute. We’ve broadly divided them into six categories, three of them being internal and three external:

This structure is motivated by the paper by Prof. Dr. Tobias Gutmann: https://doi.org/10.1007/s11301-018-0148-4

1. Internal + Strategic 

If your objective is strategic, and you want to run innovation inside your company, then you should be looking at the following initiatives:

Hackathon and Bootcamps Ask yourself: How might we engage our internal employees in coming up with new innovative ideas?

Example: MIT COVID-19 Hackathon and Microsoft Hackathon

Intrapreneurship Ask yourself: How might we provide an ecosystem to our employees to test new business ideas and launch new products in the market?

Example: – Airbus Bizlab and Bayer – Catalyst Fund

2. Internal + Financial

If your objective is financial, and you want to run innovation inside your company, then you should be looking at the following initiatives:

Exploiter Ask yourself: How might we use existing resources of the company in new business creation?

Example: Excellence program from BASF

Re-packager Ask yourself: How might we change our product or sell our existing IPs to offer this to a new customer segment?

Example: Siemens Technology Accelerator

3. Internal + Hybrid

If your objective is both strategic and financial, and you want to run innovation inside your company, then you should be looking at the following initiatives:

Train workforce Ask yourself: How might we increase the knowledge of innovation practices within our company so that employees can startup applying that within their work?

Example: Training on Lean Startup practices and Design Thinking

Venture Builder Ask yourself: How might we create an ecosystem to involve our employees in building new business models which become their own company (or spin offs) and give us good returns in future?

Example: Watt X (Viessmann) and ING Labs

4. External + Strategic

If your objective is strategic, and you want to run innovation outside your company, then you should be looking at the following initiative:

Open Innovation Ask yourself: How might we engage with external startups in our industry to learn from them and keep an eye on disruptions happening in our industry?

BMW start up garage and Bayer – Grant4Apps

5. External + Financial

If your objective is financial, and you want to run innovation outside your company, then you should be looking at the following initiative:

Financial Investor Ask yourself: How might we use our extra cash to invest in interesting companies that will give us good financial returns?

Example: SAP Sapphire Ventures

6. External + Hybrid

If your objective is both strategic and financial, and you want to run innovation outside your company, then you should be looking at the following initiative:

Strategic Investor Ask yourself: How might we invest in startups that are strategically aligned to our company strategy, so that we can be part of the new disruptions happening in our industry?

Example: BASF Venture capital; ING Ventures

Now depending on your resources, you can aim to bring about one or all 4 types of innovation mentioned below in your company:

Incremental Innovation: It’s the kind of innovation that builds upon your existing technical competencies. And it always fits with your existing business model. In fact, about 75% of companies succeed at Incremental innovation.

Ask yourself: How might we make our existing product or service more efficient, more valuable for our customers?

Example: Amazon continuously improved its warehousing and logistics to make it possible to ship goods in 1-day and this incremental innovation made their core business really strong.

Adjacent Innovation: It’s the kind of innovation that requires entering a new market or connecting with new customers by leveraging on what your company already does well.

Ask yourself: How might we reshape our existing products/services in a new space? or How might we create a new product/service for our existing customers?

Example: Apple created a cheaper iPhone – iPhone SE – leveraging existing knowledge and resources to create a new product and to capture a new customer segment, that want an apple product but don’t want to burn a whole in their pocket

Transformative/Disruptive Innovation: It’s the kind of innovation that requires an entirely new business model that mostly has no connection with the company’s core business model. Such innovations deserve a spin off or the birth of a new company eventually.

Ask yourself: How might we generate new business models that can establish new revenue channels for us?

Example: When Netflix entered the home entertainment industry as a mail-order DVD rental service, it was looking to disrupt physical stores. But by launching its streaming services, Netflix disrupted not only the terrestrial and cable TV industry but also transformed the entire movie going experience.

Radical Innovation: It’s the kind of innovation that requires a new technology – which eventually creates new market and new business model. These innovation disrupt complete industries.

Example: Tesla creating an autonomous cars – requires a new technology and disrupted the whole auto industry

If you want to create your company’s Innovation Strategy or are dissatisfied with the performance of your existing one, download our Innovation Strategy Canvas