Three steps for commercializing your nascent innovation
Our definition of innovation commercialisation involves three steps:
- Step 1- Innovation desirability: involves the recognition of new markets or demands for innovative products.
- Step 2- Innovation feasibility: involves the production and quality control of innovative products.
- Step 3- Innovation viability: Involves selling and generating cash and profitability.
We want to draw your attention to the fact that we focus here on disruptive products that target non-existing markets and customers; however, sustainable products and services deal with existing markets and customers, making the commercialisation of innovation a straightforward task.
Step 1- Market recognition of innovation(Development stage)
Recognising a new market for innovation involves many activities like observing, understanding customer segments, identifying a problem and ideating a solution, delivering problem-solution fit, developing a product prototype, testing the product-market fit, and scalability test. Here are some steps to identify a market for your innovation:
- Observation: the first step in ideating an innovative solution begins with observing and understanding the customer segment and identifying their hardship jobs to perform, the pains that challenge them to conduct the jobs, and their gains expressed as desired benefits from the innovation product.
- Understanding: is about analysing the information of the jobs-to-be-done, pains, and gains to create value propositions that customers will accept to get to solve their jobs. The outcomes of this stage are identifying problems and customer profiles, paving the way to solution development.
- Customer-value fit: any value proposition is valueless if customers do not accept it. Thus, you need to test the customer-value fit to learn in the early stages and before you invest more resources whether your identification of jobs and solution are a proper fit for customers. Developing a prototype for the solution is necessary to show it to customers, collect their feedback, and learn and pivot or validate your assumption on the product you innovate. Product prototypes can vary from a small drawing, land page on a website, brochure, or dummy app, to a functional prototype. The degree of prototype completion depends on the solution nature and the stage of validation (e.g., problem-solution fit, product-market fit, or scalability).
- Product-market fit: The next stage is to test your product in the market and ensure the traction of your innovation. To do so, you will need to: (1) arrange the product prototype and specification, (2) identify the selling price and payment terms, (3) choose the distribution channels (direct, agent, distributor, or online), (4) identify your product-offer hypotheses, (5) arrange experiment design, (6) set criteria for accepting/rejecting hypothesis, (7) identify of a group of potential customers to collect their feedbacks on the product-market fit. Then implement the testing design, collect and analyse feedback, and accept or reject hypotheses on product-market-fit.
- Scalability test: involves ensuring the business model for scalability. The scalability test reveals the growth potential of a business concept. You can do so by: (1) identifying hypotheses of growth for the business model of your innovation, (2) crafting a prototype of your product, (3) collecting feedback from potential customers on your hypotheses and (4) concluding a decision on whether to accept or pivot your hypothesis. As explained previously, the business model- canvas comprises nine business blocks: customer segment, value proposition, channels, customer relationship, revenue streams, key partners, key activities, resources, and cost structure.
Step 2- Production and quality control of innovation (Implementation stage)
At this stage, the implementation processes of the innovation begin and comprise activities like research and development, technology development and licensing, getting the value chain involved, product development and production, team (roles and responsibilities) and resources management, quality management (quality control and assurance), inventory management, risk management, and deploying an operating management system. This stage is called the implementation phase, converting conceptual ideas into reality and managing resources – time, energy, money, and above all, mobilising knowledge of different kinds – against a background of uncertainty (Joe and John, 2009)1. Geoffrey Moore’s ‘Crossing the chasm’ identified the implementation stage as the spot phase of launching the breakthrough technology and technology products and applications made by innovators (or techies) and early adopters (or visionaries). Here are some key activities to develop, produce and quality control innovations:
- Research and development: involves activities focusing on identifying problems and developing technological solutions (on paper only). Entities practise research and development when gathering knowledge to create new products, services, processes or improve existing ones. Universities, independent labs, or large business corporations usually perform research and development for internal or external uses. The outcome of this stage is a technological concept that is searched for and initially tested for the problem-solution fit.
- Technology development and licensing: once the research and development are successful and the technology concept is developed, it’s time for this concept to be further developed and tested in the market and registered by the intellectual property authorities. By this, the technological invention is developed as a prototype, licensed and ready for manufacturing. Technology developers are innovators (or techies) looking for start-ups or entrepreneurs (or visionaries) to buy this new technology and develop more technology-fit products to the specific needs of the market streams or early streams. The outcomes of this stage are the development of new technology, new products and applications trying to launch them to the market streams. However, selling the new technological products to the market streams is facing challenges or ‘Chasms’; therefore, visionary start-ups that develop the new technology products will need to focus efforts to overcome this chasm and penetrate the market streams by satisfying the specific needs of early majorities.
- Creating a production business: this stage is necessary for mass production and traction, and start-ups must be formally structured or established to take the new technology products to the market streams. Hence, the new business will grow by selling new technology products to the early-majority customers and enjoying the growing customers. Steve Blank also named this stage the customer-creating and company-building stage in his book ‘The four steps to the epiphany. Customer creation aims at creating demand and driving the distribution channels, whilst company building aims at transforming the company, including building a formal organisational and management structure and hiring staff and management.
- Deploying an operating management system: once the business is formally structured, it is time to arrange a management system to govern activities toward the vision and plans. It comprises policies, procedures, forms and work instructions necessary to conduct the company’s activities. The management system will cover the major business fields like operation, human resources, marketing and sales, finance and management. There are many ways to guide you in developing a management system like the ISO 9001-2015.
- Getting the value chain involved: for any technology innovation, it’s critical to map the value streams of the new technology and identify the materials and supplies that support the created value proposition. In a technology project, the network should include the participation of, for instance, applied research, technology developers, experts on the raw material chain, customers, investors, suppliers, start-up companies, and end users. Such involvement of those value-chain parties will provide you with great insights on developing the value proposition related to your products that stand in the crowd and what customers want.
- Product development and production: this is straightforward and involves manufacturing technology products using equipment, tools, human resources and facilities. For any new technology, product development involves three distinctive angles: technical components and design, commercials (e.g., selling price, payment terms, or channels), and viability inputs (cost, selling prices, revenues, and profitability). The level of success for the new product depends on how successful the business is in making a product that carries the value propositions asked by customers, entrusted with the right selling offer like selling price, packaging, promotion and channels, and making a decent profit to sustain the company’s operations.
- Team (roles and responsibilities): this includes developing the organisational structure, roles, responsibilities, headcounts, grades, salaries and benefits, recruitment, training, motivation, and leading teams to conduct activities and achieve the business’s objectives.
- Resources management: it includes getting the resources required like human resources, capital (money to finance equity, loan and working capital), assets (e.g., machines, tools, buildings, offices, vehicles, or furniture) and non-assets (e.g., good-will, know-how, patent, knowledge, or trademark), and using these resources with higher efficiency, higher productivity, lower costs, and elimination of wastes.
- Quality management (quality control and assurance): involves four levels of quality management: quality planning, quality assurance, quality control, and total quality. The quality of a product or service is determined by the standards imposed by customers and quality authorities. Quality planning involves developing a plan of targets, quality metrics, checks list, systems, and resources to ensure the quality of products and services. Quality assurance aims at ensuring the readiness and ability of a firm to perform the plan quality and includes activities like appointing talented staff, training staff, developing quality metrics, checklist and production processes, investing in technologies, and so forth. Quality control aims to bridge the gaps between the quality targets and actual results and includes activities like setting quality and operation targets, measuring performances, sample testing, appointing internal and external auditors, data analysis, and taking corrective actions. The third approach to ensure quality is total quality, which promotes the concept that the quality issue is the responsibility of all staff and management.
- Inventory management: includes planning, buying and storing raw materials, products in progress and finished products that a company carries to fulfil its production and sales requirements. There are two approaches to managing inventories, Just-On-Time and Just-In-Case. Just-on-time aims at no stock or minimum stock of the company and appoints supply chains to supply the company with raw materials when it needs such inventories. Just-On-Case is when a firm carries inventories sufficient to face any sudden demand or risk of supply delay. The basis for such approaches is to eliminate waste and reduce the cost of inventories.
- Risk management: When developing new technologies, moving from a laboratory-scale innovation to a commercial-scale plant often includes too many risks. Risks are the outcomes fluctuation around the mean or expectation, and when the fluctuation range is widening, the project becomes riskier. Managing risks is necessary to reduce causes of risks and include strategic options like appointing a risk-management team, handling the risk register, setting strategies to eliminate causes of risks, facilitating pilot tests, and involving value chain stakeholders from the beginning of the innovation project and more.
Step 3- Selling innovations and profitability (Operation stage)
By this stage, the company is ready to sell its innovative products and looking for customer development, the right set of distribution channels and selling the products for profit making. Monetising values and achieving the breakeven point and beyond are all the objectives of this commercialisation stage. A firm achieves those objectives by developing customers, choosing distribution channels, selling innovative products, and making profits.
They are activities that focus on discovering, validating, creating, retaining, and growing customers. Typically, the discovery of customers goes back to the beginning of the business concept, identifying customers who accept the problem-solution fit (or care about the solution of the problem). Validating customers is when the business successfully delivers the product-market fit, where the selling road map is tested and proven workable. Creating customers is when the company is formally established and gets involved in selling to market streams and growing.
Deciding on the distribution channels
Channels define the ways a firm distributes products to customers and include direct channels (e.g., owned by the company, sales forces, or own website), non-direct channels (e.g., agents and distributors); physical (e.g., showroom), and online channels (e.g., website). The type of channel chosen to distribute a product depends on several criteria, like the product nature, costs, exclusivity, market, and competition. Channels typically act to:
- Raise awareness of a company’s products and services.
- Help customers evaluate a company’s value proposition.
- Allow customers to purchase specific products and services.
- Deliver value propositions or products to customers.
- Display products and manage inventories.
- Provide post-purchase customer support.
- Manage distribution financials.
It involves capturing values, monetising, traction and transferring products’ ownership from suppliers to buyers. Selling refers to persuading persons and organisations to buy something. If you are selling a product or service, you need to focus your selling efforts on communicating the benefits of your products to the buyer. Selling new products results from the company’s efforts to develop products and customers, customer relationships, choose distribution channels, and implement sales and marketing strategies.
Turning innovation profitable
It is making the innovation project profitable. Business innovation aims at making decent profits and cash flows to sustain the business and maintain growth. Here are some practical tips to enhance profitability:
- Leadership: empower the leadership role in organisations. Leadership can take the business to a better place by crafting vision and missions, leading teams, developing profitable businesses, creating disciplined culture, developing systems, and building values to last.
- Core advantages: build on your core advantages like talent teams, experiences, location, brand, IP, location, networks and so forth to make profitable decisions and stand out from the crowd.
- Innovation: engage in innovative decisions and projects; create innovative products for unmet needs and incremental innovations that customers want.
- Efficiency: improve efficiency and productivity of resources for your venture and eliminate waste. You can meet this milestone by recruiting talented management and teams, human development and management, investing in technologies, planning and control, focusing on satisfying customers’ needs, and improving value offerings.
- Strategies: work on marketing and sales strategies to make awareness and sales. You can reach this by drawing a marketing strategy, building a powerful brand, developing customers, selling products, strengthening market positioning, and growing your market share. Plan, implement, and control activities, manage resources, focus on achieving high-priority milestones, and improve efficiency.
- Costs and revenues: control costs and enhance revenues by budgeting, growing sales, and maximising profitability.
- Investments: control capital expenditures (or investments) to reduce depreciation expenses and fixed costs or overhead. To maintain this, you study any investment project carefully before deciding, reduce the breakeven point as sales, and strengthen your marketing positioning.
- The breakeven point: is where revenues and costs are equal and result in zero profitability. The breakeven point is a function of three key elements selling prices, fixed costs and variable costs. When fixed costs are kept at the lowest and revenues and the highest, the breakeven point becomes easy to reach on lower sales levels. Try to achieve your breakeven point early and at low selling levels; so, you enjoy profitability afterwards.
- This post is sourced from my new book- Your Guide To Reach Innovation.
Final note: the book- Your Guide To Reach Innovation, is an actionable guide to innovation from beginning to end. Enjoy reading the book, and I look forward to your reviews.
Author: Munther Al Dawood
- Joe Tidd and John Bessant, 2009. MANAGING INNOVATION, Fourth Edition, John Wiley & Sons, Ltd, UK.
- Everett Rogers, 2003. Diffusion of innovations, fifth edition, Free Press, New York.
- Blank, S. 2013. The four steps to the epiphany, Wiley, New Jersey.
- Steenburgh, T. and Ahearne, M., 2018. How to sell new products, Harvard Business Review.
- Moore, G. 2013. Crossing the chasm.
- Moore, G., 2005. Dealing with Darwin, Penguin Group, New York.
- Shane, S. 2009. Handbook of technology and innovation management, Wiley, USA.