Prototype to Product:Taking a new product from prototype to commercialisation

July 2011

Commissioned by Wellness and Health Innovation, Scotland’s national initiative designed to support Scottish companies developing innovative products or services for the wellness and health sector. www.wellnesshealthinnovation.org

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Prototype to Product: Taking a new product from

prototype to commercialisation A WHI White Paper

INTRODUCTION

Developing and launching a new productor service is a risky venture, with failurerates of up to 95% being quoted (1). Thereare many reasons why companies fail, but certain themes keep recurring across allsectors:

• failure to listen to customers• failure to plan• sub-optimal design• failure to consider business model• ineffective processes • changing skills and knowledge needed

Typically entrepreneurs in spinouts andstartups have the motivation and financeto take their concept through to prototype,only to run into difficulties. However, manyproblems encountered at this stage actuallyoccur earlier in the process, only emergingat a later stage. By taking these issuesinto account early, companies will not onlyimprove the chances of success in takingany new product or service to market, butwill reduce their costs and also the time tolaunch.

This paper discusses the challengesorganisations face when developing newproducts and provides guidance and recommendations as to how they might be overcome.

LESSON 1: LISTEN TO YOUR CUSTOMER

Developing a new product without carrying out marketresearch to understand the needs of your customer is ashortcut to failure. You may think that you know what thecustomer wants, but is this a representative view? Is thisan unmet need, or can customers easily find an alternativesolution?

Voice of the Customer (VOC) is the term used to describethe process of gathering customers’ needs, expectationsand preferences. It provides both qualitative and quantitativeinformation that can be fed directly into your productdevelopment process.

Figure 1: Identify What Your Customer Values

Flexibility& Options

Timeliness

Ease of Use

Accuracy

Aesthetics

Customer

Price

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The benefits of VOC are:• Faster cycle time• Lower product development costs• Able to uncover both stated and unstated customer

requirements • Market success and profitability.

The steps to implement VOC into your design process are:

1. Select the customer groups to researchIdentify the customer segments that will most likely beyour target customers.

2. Select the research methodYou could make use of existing information (e.g. comments gathered from existing customers) orcarry out your own research by means of Interviews,Surveys, Focus Groups or Observations.

3. Uncover the needsFind out the needs of the different groups, what theyvalue, what they do not value and, particularly, wheretheir needs are not being met.

4. Define the benefitsQuantify how, if these needs were met, customerswould be better able to carry out the task in hand.

5. Identify barriers and constraintsWhen developing new products or services, you shouldbe always seeking to push out the boundaries.However, there are always technical and financial constraints to be taken into consideration.

6. Translate the needs into design requirementsCollate the needs and translate them into designrequirements, taking the barriers and constraints intoaccount. For example, if you were designing a new pilldispenser, a customer need may be “easy to pick up”.This can be translated into design features based onsize (e.g. “fits into palm of hand”) or weight (“no morethan 200 grams when empty”.

7. Feedback to your customer groupFinally you need to constantly refer back to your customers at each stage to ensure that you have the requirements right, that you are meeting theirexpectations and that this product or service will be valuable to them.

LESSON 2: OPTIMISE YOUR DESIGN

When developing a new product the temptation is to rushinto the design and prototyping stage. However, withoutproper planning, this is likely to lead to failure. Whendesigning your product, there are five areas to consider(Figure 2) (2).

Figure 2: Optimal Design

CUSTOMER READINESS

TECHNOLOGY READINESS

DESIGN READINESS

MANUFACTURING READINESS

BUSINESS READINESS

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1. Customer Readiness• Is there is an identified need for the product;

as discussed above, the new product needs to addressan identified need in the market.

• The product meets the customers’ price expectations;a new product will not be accepted if it is more expensive or (less common) less expensive than thecustomer expects.

• The product has sufficient differentiation; your productneeds to be sufficiently different from the competitors’product – it needs to be faster, more reliable, lessexpensive etc.

2. Technology ReadinessAble to demonstrate proof of concept for the components, subsystems and system.

3. Design Readiness• The design meets customer requirements as

identified in the VOC research.• Design has considered warranty, material selection,

commonality, manufacture, test, repair, end of life and regulatory requirements.

4. Manufacturing ReadinessBasic manufacturing implications have been identified,e.g. capability, documentation and supply chain).

5. Business ReadinessThe business model for supply, manufacture, routes to market and logistics and distribution has been identified (see Lesson 3).

LESSON 3: PLAN YOUR BUSINESS MODEL

There is a common misconception among entrepreneursthat once you have a prototype, it is a short step to launch.However, there is more to product development than theactual product or service – to be successful you need tobuild a whole business model around the concept:

1. Value Proposition Core to your business model is the concept of how youdeliver value to your customers. Your VOC researchshould feed directly into your design, allowing you toidentify how your customer benefits from your productor service, what value you deliver.

2. Target CustomersSegment your market (by demographics, geography,behaviour) to identify the most attractive segment bysize and growth potential, access to segment and window of opportunity. Then craft your marketing material for that target segment; show your customeryou understand their situation and how your productwill help them.

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3. Choice of business modelFew companies design, develop, manufacture and selltheir product. Lack of resources and expertise meanthat most companies adopt a model partnering themwith third parties. There are many options and the final choice depends on resources and personality ofentrepreneur. Common approaches include:

– license the design– design, market and sell the product, using

third party manufacture and distribution– design, market, sell and carry out final assembly

and testing, using third party manufacture of the subsystems.

4. Route to MarketHow are you going to reach your customer? Whatchannel(s) are you planning to use? Does this fit in withyour customer’s routines? Identify the ‘touch points’along the customer journey – Awareness, Evaluation,Purchase, Delivery and After Sales – and ensure that youhave the optimal channels in place to manage each stage.

5. ResourcesWhat resources will you require to deliver your productto your customer – to develop, manufacture and distribute your product? What Intellectual Assets will you have (e.g. brands, patents, trademarks or copyrights)? What funding will you require to take yourproduct to market and support the company until it has positive cash flow?

6. CostsWhat will your fixed costs be (e.g. salaries, rents, utilities)? What variable costs will you have? How quickly can you implement economies of scale?

7. Revenue streamsWhat value do customers attach to your product? What are they willing to pay? What type(s) of revenuecan you expect (e.g. sale, usage fee, subscription,licensing, leasing or advertising)? What offers or negotiations do you have available?

All the points above need to be addressed in order to besuccessful with any new product or service.

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LESSON 4: INTRODUCE EFFECTIVEPROCESSES

As an entrepreneur, flexibility and speed of response aretwo of your greatest assets. In the early stages you are fartoo busy ‘doing’ to have time to develop procedures.However, as the company expands you will start to repeattasks. At this stage, you should consider setting up systemsfor improved effectiveness, efficiency, internal control andto comply with regulations.

There are three types of business processes:

1. Management processes: for governance and control,e.g. strategy development, corporate governance.

2. Operational processes: for management of day-todayactivities, e.g. Purchasing, Manufacturing, New ProductDevelopment.

3. Supporting Processes: for managing activities thatsupport the core activities, e.g. Accounting andRecruitment.

The steps involved in developing new processes are shownin the diagram below.

Figure 3 - Lifecycle for Business Process Management

1. PlanCreate a vision for the process. Scope it out and createSMART objectives (Specific, Measurable, Achievable,Realistic and Timed).

2. MeasureCreate a process map of how you currently carry outthe activity with all those involved. If possible, measurehow long each element takes on average in order toquantify any improvement.

3. DesignDevelop the ‘future state’ process and decide how bestto implement. There are many software packages available with off-the-shelf solutions (e.g. for CustomerRelationship Management, Accounting, Sales, etc).Otherwise you can design your own systems usingstandard tools such as Excel. The important point is todocument, communicate with the rest of the team andcarry out training if required. Assign an administrator to each process.

4. Optimise Carry out a pilot project if possible in order to trial outthe new system. Measure and adjust if necessarybefore rolling out fully.

5. MonitorOnce implemented, the new system will need to bemonitored to ensure that it continues to operate efficiently. Identify appropriate Key PerformanceIndicators (KPIs) and measure on a regular basis.

Mon

itor

Plan Measure

Optimise Desig

n

BUSINESSPROCESS

MANAGEMENTLIFECYCLE

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LESSON 5: UNDERSTAND WHAT SKILLSAND KNOWLEDGE ARE NEEDED

As for processes, then the skills and knowledge within theteam needs to adapt as the company expands.

The main skills that help an entrepreneur at the start of thejourney are:

• Creativity: ability to search and find new solutions• Intuition: be able to predict future development from

own experience without analysis• Goal-oriented: be able to set SMART goals and work

towards them• Self-confidence: belief in own strength and ability to

achieve goals• Independence: the courage to make decision based

on own judgment• Discipline: self-control and focus• Persistence: tenacity needed to overcome barrier

when achieving goals• Optimism: orientation towards positive goals • Fantasy: creation of visions about future• Realism: know your limitations.

Useful knowledge for the entrepreneur centres round:

• Technical: based around the new product or servicebeing developed

• Practical: knowledge of e.g. basic accounting, computer skills, completing grant applications

• Networking: knowing who to speak to for furtheradvice and contacts.

As the business develops, the skills required change:

• Interpersonal: know how to lead people, how to motivate them and solve conflicts

• Decision-making: knowledge of the business arena,and ability to make good, decisive decisions about thebusiness

• Organisation: excellent organisation skills, includingplanning, time-management and able to meet deadlines

• Communication: able to communicate well not justwith team members, but also external stakeholders,such as investors, customers, partners, etc

• Delegation: know when to take on a task and when it is best delegated; have a trust that your team candeliver

• Negotiation: excellent negotiation skills• Cross-cultural training: empathy and excellent

listening skills, able to operate in different situations

As for knowledge, the ability to network and develop partnerships is still important, but the practical and technicalskills will become less of a priority as more specialist members of the team take up these functions. The aim is to take on the role of business leader, guiding the organisation to success.

And if you take all these tips on board, the chance of success with your new product or service is very muchhigher.

©2011 Wellness and Health Innovation

To access our FREE services contact:Wellness and Health Innovation www.wellnesshealthinnovation.orgTel: 0845 607 8787 Email: wellness@innovationcentre.org

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REFERENCES

1. Grow Your Own Business www.sme-events.com2. Adapted from product readiness tool from the Product Realisation Centre www.productrealisation.org.uk/index.php?/solutions/131

Wellness and Health Innovation projectWellness and Health Innovation is anational initiative designed to supportScottish SMEs that are developing innovative products, services or applications for the growing wellness and health market, and generating a community of WHI companies and partners. We are supporting Scottish companies to grow and take advantage of the opportunities that exist in thisexpanding market through our core services.