Product or Service Development
The development stage is where you set into motion the value creation process. By its very nature, a product or service serves or purpose or objective that another person entity is unable to fulfill. This process involves the technical skills to design, organize, or construct the service or process, as well as the vision and understanding of the who, what, when, where, and why of the business concept.
Product and service development (PSD) is more than simply manufacturing a product or devising procedures for carrying out at service. PSD involves strategic assessment of your concept and how it delivers value to the customer. Likewise, you will have to compare the value delivered to customers against the value received for the product.
In the previous lectures, you examined the needs and wants of your target customers. Your job in PSD is to develop a product or service that meets those needs or wants without including additional features that don’t earn additional return from customers. This concept is known as developing a Minimum Viable Product (MVP).
We begin by examining in detail the research and development process for a product or service. Process generally includes the following steps:
- Initial Research and Development
- Alpha Testing
- Strategic Assessment
- Beta Testing
- The Launch
The above process is most commonly associated with products rather than services and is most commonly used in the technology field. This is due to the high need for continued research and development of technology products. In any event, this process can be applied to a product or service.
Initial Research and Development
In previous lectures we made the distinction between entrepreneurs and inventors. Often, these two individuals are not the same person. If so, however, the inventor often partners with another entrepreneur who can work on building a business while the inventor entrepreneur works on further developing the product.
The non-inventor entrepreneur should serve as a source of input and sounding board for ideas about the product. The market analysis helps determine the need or want that the product solves, but it takes a great deal of trial and error to develop the product to a stage that adequately meets customer expectations. This is why the product concept from the feasibility analysis is so important and is a continuously changing item in the business plan.
Once you have a product that meets the needs and wants of the customer, it is time to test the product for functionality and other necessary changes or modifications necessary to meet customer expectation. This process can be tricky because, in any product, there is a point where additional features do not add to the value that certain target customers are will to give for the product. That is, at some point there are diminishing returns for investing more time and capital into adding features to the product. This is generally known as developing a “Minimum Viable Product” (MVP).
The manner of arriving at the MVP is through product testing and continued development. The following sections outline the typical process for testing and developing a new product or service.
Following the initial development phase, the first phase for testing the developed product is the Alpha Test. The main purpose of the Alpha test is to test the functionality of the product and to note necessary modification or improvements. So it is more closely tied to the research and development process than later stages of testing, which are focused more on fine-tuning the product.
The actual Alpha test involves having developers, business members, or outside individuals use and thoroughly evaluate the product. Here are some simple steps to make certain your Alpha Test runs smoothly and provides valuable feedback for the idea:
- Introduce the Product – Do not explain the product in detail. Give a simple explanation of the product and gauge their reaction and interest in the product.
- Information About Product – Allow the testers to use the product with as little information and instructions as possible. You should record any problems the testers have in understanding and using the product.
- Functionality of Product – Observe the testers to make certain the product functions as intended. If it fails to function as intended, do not interrupt the test. Also, do not provide information to the testers explaining how the product should work. Simply note the functionality failure as a point of departure for correcting the issue.
- Candid Feedback – Make certain that you incentivize the testers to point out things that they do not like about the product or that could use improvement. Establishing a testing environment where testers want to be in agreement with the entrepreneurs or where they are reluctant to voice concerns about the product invalidates the results of the test.
- Timing of Test – Testing should take place once the product reaches a substantially useable state. Make certain that the testers have adequate time to fully explore the product. This could mean extending the test over a period of hours or days. Often, the issues associated with a product do not appear until after considerable use. Remember also, it is common to put the product through several iterations before arriving achieving an acceptable product outcome. You want to make certain the initial exploration is as thorough as possible.
- Individual Testers – The individuals in charge of product development control the Alpha Test. developers, business members, outside individuals (such as friends, family members, of potential customers)
Following the Alpha Test you should have identified many of the problems with the product and identified the critical issues that must be addressed. You may also have new insight on features of the product that customers would prefer changed, added or removed. Your next step is to return the product to the development stage to explore options for making changes and, if possible, make the changes. Remember, the Alpha test is a method. You should have well-defined benchmarks for the product going into the Alpha test. To the extent that the product fails to meet those benchmarks, you should be ready and motivated to make the necessary changes.
By following the above guidelines you will glean important information about your product or service prior to introducing it to your customer base. This avoids the negative effects of introducing a product that is poorly received or does not function as intended. Such an occurrence can torpedo your efforts to establish the product in the market. With this in mind, you want to have the product as apparently close to ready as possible before the Beta Test.
During the Alpha test sequence (all iterations) you will uncover a great deal about customer expectations and wants. It is doubtful that your product will be able to meet all of the wants or expectations of your customers. That being said, you must work to prioritize those expectations. One manner of doing so is by noting the number and frequency with which a general recommendation for a particular change or modification is made. This shows a greater general concern for the issue by your potential customers. Effectuating his change or modification should be a higher priority. Features that add little to the product or are not widely valued should be subordinated.
Minimum Viable Product (MVP)
As you measured in the feasibility analysis, you want to add features that add to the priority level of the product. Further, you want to make certain that the features of higher priority are incorporated. Features with lower priority should be added only if the return (value received form the customer) is greater than the cost of adding that feature. This process is known as developing the “Minimum Viable Product” (MVP). Below is a diagram that illustrates that logic that goes into the MVP.
The Feedback Loop
When you introduce your product to testing (particularly from customers) your purpose is to receive feedback. This is generally known as the feedback loop. You hope to receive information that allows you to gauge customer perception and value of your product or service. Prioritizing the wants of customers allows you to weigh the value proposition of adding a new feature to the cost of doing so.
Side Note: Think of the last time you purchased a personal computer (PC). If you purchased the PC online, you likely had to choose from a number of different options. Manufacturing the PC to allow additions or modifications is a manner of allowing the customer to control his or her own value proposition. By doing so, you are able to serve multiple customer segments that value different feature differently. Including all of the features on every machine would lose some of the more cost-conscious consumers and may not derive sufficient premium from other customers to justify the costs.
Perhaps most importantly, employing the feedback into the design process allows you to mold the product to meet your customer needs. You will be able to tell at the development stage that the concept, feature, or overall product does not work or needs modification. In some cases this may require an adjustment of the overall business model.
Pivoting means to halt a strategy or path of research and development and change to a new direction. The change is necessary to accomplish your purpose or meet the customer’s needs or wants. Pivoting generally takes place during and after the Alpha test, but prior to the Beta test. This is the period when you can use acquired information to improve, redesign, or otherwise change your product or service. The result of pivoting is to put yourself on the path of meeting your customer needs and wants and developing a minimum viable product.
Once you are comfortable that your product is ready to introduce to the customer market, the next step is the Beta Test. The Beta test is where you introduce the product to a limited number of customers. Unlike in the Alpha test, the test subjects do not have prior knowledge of the product or special expertise in the field. Think of it as a test run for the product. The customers should receive the product in the same manner as if it were being offered to the public at large. You observe or the customer records his or her impression and input about the product. You will use this input in making certain that the product is ready for the consumer market and for putting the final touches on the product.
The Beta test generally takes place or ends very shortly (sometimes just days) prior to the general release of the product to the public. However, the Beta test itself can take a long time. You have to give customers sufficient time to use and provide input on the product. Then you have to take that input and determine what modifications should be made to the product. Sometimes you will note the input for future versions of the product. Other times you will attempt to make the modifications prior to releasing the product. You may need to run and second or third iteration to test the effect of any modifications made to the product based upon an earlier Beta iteration. It is not uncommon for the Beta test to last for several weeks.
Recall that the Alpha test is primarily for product developers to obtain information. The Beta test, on the other hand, is of interest to the entire team. For example, the person in charge of sales will want to note have the product is received and the major selling points for customers. Also, the person in charge of marketing will want to understand the most valued attributes of the product for purposes of marketing (advertising and targeting customer segments). In any event, the Beta test provides valuable information to various team members as this is the last step before product launch.
The Beta Process – Attracting Beta Testers
The beta process involves several steps and objectives. Initially you will have to convince the Betas subjects to test your initial product. Often times you will seek to entice testers to purchase your product for testing. This generally increases the expectations and criticality of the testers. You will have to deal with the issue of delivering the produce, monitoring use, potentially customizing it to meet the user’s specifications, and recording feedback. In any event, the beta tester is eventually granted a discount on the final product. Of course, many product are the subject of free beta testing.
Establishing the Scope of Expectations
Often times the Beta test is the subject of a very controlled, limited testing environment. This may necessitate a user agreement regarding use, communication, and feedback about the product? There may be expectations by both the business and the tester. While the company demands information and feedback, beta testers often require support for using the product (such as technology updates).
Feedback – Product Quality
The business will specifically require information about how well is product working and how easy is it to use? It will seek to obtain both qualitative and quantitative information.
Quantitative Factors include:
- Who’s buying the product (this may include diverse groups or types of people)?
- What are the features attractive to each tester?
- What is the timing of delivery and capability of use?
- What was the tester’s priority for the product (i.e., what quantity did the tester purchase)?
- What was the actual revenue from the sale and how much would the tester be willing to pay?
Qualitative Factors include:
- What did the tester like best?
- What feature or attribute is missing?
- What needs improvement?
- Would the tester purchase the product again?
How guarded should an entrepreneur be in disclosing his or her idea?
It depends on how secure your idea is protected and to whom you disclose the information. Aspiring entrepreneurs often face this difficult decision early in the life of their startup. Letting people know about your business idea is a great way to conduct primary research on the demand and appeal of the idea. Likewise, there may be a strategic advantage to disclosing your idea later in the development stage. At the same time, you run the risk of presenting your idea to an opportunist who will steal or compete with your idea. Below are some advice and considerations on When, How, To Whom and Why to disclose your business idea.
Overview of Disclosing Your Business Idea or Concept
You may have heard the logic that you shouldn’t worry about disclosing your idea, because nobody is willing to do the work to steal it. This emphasis the truth about entrepreneurship, it is 99% effort. The vast majority of people, even if you make them aware of your idea or concept, don’t have the drive to turn a concept or idea into a viable product or service business. Unfortunately, there is a great deal of truth in this statement. Most people either do not have the knowledge, means, or drive to start a business or create value around a new concept or idea. However, you have to understand that there are situations where you should do your best to protect your idea or concept from disclosure.
While most people will not or do not have the ability to exploit your idea, there are others who are well equipped and actually prone to take advantage of new ideas. For example, you wouldn’t want to announce your big idea to a company that manufactures or deals in similar products or services. Such a business or individual may be strategically situated to capitalize on your idea. In fact, they may have the subjective intent to search out new ideas to implement – regardless of the origin. So there is a need to strike a balance between bragging to the world about how you are going to be rich and successful and huddling in a corner like Gollum and his magic ring (I hope you pick up the Lord of the Rings reference).
Determining When to Disclose Information About Your Idea
A good rule to follow is to disclose your idea to others only when it offers some practical advantage to your idea development or business formation. Disclosing information early in the idea phase can help the entrepreneur to develop the idea in a way that addresses the trust need or want of the public. This step is often absolutely critical in assessing the potential of the idea to develop into a profitable venture.
You may also need to disclose your idea at a latter state in the business development as part of a deal or negotiation. As an entrepreneur you will rely on lots of people (suppliers, lenders, service contractors, employers, etc.) to develop and carry out your business operations. This reliance generally comes on the heals of negotiation to establish that relationship. Certain aspects, if not the entirety, of your idea will necessarily be disclosed. In such situations it is important to measure and record the specific information that is disclosed. The key to enforcement of any agreement or understanding is through documentation. Likewise, documenting the amount of information that you transmit to a third party may serve to protect your idea from intellectual property theft or competition.
Disclose Information Strategically
Above we mention the disclosure of information to gain some advantage from doing so. There may be numerous ways in which to selectively disclose your product or idea to gain a strategic advantage. Examples of strategic advantage is disclosing your idea in order to solicit strategic partnerships with other businesses. Another example would be to disclose portions of your idea to creation marketing buzz around your business.
The important thing to remember is that you can disclose information to the extent you are able to protect your interest. If you hold a federal patent, copyright, or trademark on your idea or business concept, then you are better protected than if you are relying on general common law principles of ownership. These property rights can be used as much as a sword as a shield. Any infringement on the rights that you have in an idea or concept may give rise to a cause of action against that person.
Who Can You Trust with Your Business Idea?
An important consideration in any relationship is trust. This principle holds true in any relationship that requires the need to disclose a guarded business idea or concept. Obviously, some relationships will be less worthy of trust than others. You wouldn’t discuss your business idea with a known competitor without having significant protections in place. However, you may feel comfortable disclosing your idea to suppliers who will supply the components or resources necessary to carry out or bring about the idea. The concept is completely subjective and any generalities should be ignored. Only you can assess who is worthy of your trust and who you should keep at arms length.
Alway be cautious when broadcasting your product, service, or idea early in the development. Your ability to laud your concept will come as you develop the idea and establish some form of protection, such as a patent or other competitive advantage factor.
Intellectual Property Considerations for Product or Service Development
Part of a competitive strategy includes establishing rights in a product or service method that is not subject to copy or complete imitation by competitors. This may require capturing intellectual property rights in the form of a Patent, Copyright, Trademark, Trade Secret. Each of these forms of intellectual property protection has different requirements for securing those rights. Refer to our Legal Resources for more information about securing intellectual property rights in a product or service process.
Investors are particularly interested in business that possess secure, intellectual property rights in their product or service. Securing intellectual property rights provides the ability to deter others from copying or imitating your intellectual property for commercial gain. As such, intellectual property rights are a form of security that similar to physical assets.
Considerations for Hiring Individuals for Product or Service Development
The product or service development stage is an extremely risky time for loss of intellectual property. At this point the product or service is under development, rapidly changing, and is likely not subject to intellectual property protection. Individuals working on developing the product or service may be tempted to copy or reproduce the product or service for her personal gain. This could be transferring or selling the design, process, or information to third parties or exploiting their knowledge as part of their own business venture.
Several contractual agreements or provisions are common used to deter the theft or infringement upon intellectual property.
- Work for Hire – This is an agreement with workers or independent contractors. The agreement essentially states that the worker understands that she is working on a project that has potential value as intellectual property. The worker thereby agrees not to copy, disclose, or transfer any information learned during the work project.
- Non-Compete – This is an agreement where an employee (possibly an independent contractor) agrees not to compete with the employer in the same area of business as that employer. This assures that the employee will not acquire knowledge or sensitive information and immediately begin to compete with the employer. Non-compete agreements must be reasonable in time and manner restrictions to be enforceable in most jurisdictions.
- Non-Disclosure – Non-disclosure agreements (NDAs) are agreements whereby information is disclosed to a third party and she agrees not to copy or otherwise communicate that information to other third parties. These documents are used to dissuade third parties from disclosing business secrets learned during a confidential meeting or presentation.