This article, and the one related one which goes into more depth on the same subject, provide a way to think about realistic uptake for innovative products. Numerous references are made to other articles in the Customers section of the website, so read them first.
A number of implicit assumptions are made, which you may wish to accept or challenge, but, as ever, whether you concur or not, the important thing is that you provide some data to defend the assumptions you do make.
Innovators and Imitators
The market for your innovation can be divided into two broad groups who behave differently- innovators and imitators. Innovators will buy your product knowing they are among the first people to test and purchase it, whereas imitators will only do so once others have. This is a form of customer segmentation by purchasing behaviour, and should be done within the segments you have identified through your regular segmentation (article here).
Thus, the total number of sales you make is a curve itself made up of the sum of two curves; that of the sales to innovators, and that of the sales to imitators.
This analysis can be performed over different timeframes or across other lenses, each requiring a different allocation into the two categories. For example, imagine you are selling a new vitamin product.
In the short term you might consider pregnant women your innovators and other women your imitators, but then on a long-term view the entire B2C market as your innovator and the B2B market as your imitator.
The 80-20 Rule
The rationale of an innovator is different to that of an imitator and that can be used to your advantage. Innovators tend to like being the first users, as they may be influencers of imitators. They are interested in innovation, not in perfection, and so they are happy with an 80% solution.
A common mistake entrepreneurs make is to spend too long perfecting their product before releasing it at all. Until the market has used a product, any idea of what might be perfect is a guess anyway, so this is a wasted effort. By releasing your unfinished product a little earlier, you can save time and money fiddling with details that may be changed later, and get important feedback (to show investors as well as for yourself) on the core product functionality and price.
This approach ties in to lean business principles. Quick prototype, (innovator) market feedback, adjust, perfect, release (imitators). In the early days, the CEO performs the customer service function, as that gives him or her a closer knowledge of how customers are finding a product as well as keeping costs down.
Once the tests and innovative users have informed you of what to change in your product, you can spend the time and money making those changes- the last 20%- before releasing it to the wider community.
The transition between prototyping for innovators and manufacturing for imitators is a hard one to make and deciding when to stop making big changes and go to market is difficult. Defining the metrics for transition with your investor in advance will help you in making the decision, and will prevent your learning phase from being interpreted as failure.
Uptake Waterfall
These graphs have lots of names- uptake waterfall, filter, customer churn- but they all show the same information. They plot the customer journey by steps along the x-axis, from the total addressable market on the left through to making a purchase on the right, with any relevant steps in between: know about the site, visit the homepage, view a product, add to basket, and so on. They should be modified according to your customer journey.
On the y-axis you have the percentages, with total addressable market at 100%. At each stage a number of customers will fall away for some reason, so the subsequent stage has as its maximum the remainder from the previous stage.
The waterfall lets you identify where your big drops are, so you can investigate and remedy them. Very generally, innovative products that achieve a good product market fit in theory and address the usual issues of awareness, price, etc., tend to fail for one of three issues. The article entitled Head, Heart, Hand provides one way to think about remedying them.
An understanding gap means people don’t really know how your product differs from the competition. This leads to a dynamic tension for you to solve. The more you differentiate your product in the early days, the harder it is for your customers to understand what it is (frames of reference, points of parity, points of difference from the article on brand positioning) and the larger your understanding gap will be.
On the other hand, the less you differentiate, the closer you remain to your competition and so the less reason there is for a customer to take the risk of buying something new from someone new.
An attractiveness gap means that customers understand what the product is and does, but they don’t see the benefit to themselves of switching. This may be in part due to the risk-reward payoff of novelty just mentioned, or because they have not been fully educated on the benefits by you.
A behaviour change gap means that they simply don’t want to buy it. Ask yourself if you are approaching the right customers at the right stage. For example, if you have a great piece of software that could save hospitals lots of money each year, and you go to meet a trust and make your first sale, then you are treating hospitals as your innovators. In your opinion, what is the appetite of trustees of hospital trusts in the NHS on trying out new software? If they are not innovators, maybe they would become customers as imitators, so perhaps you could start with private hospitals or B2C.
Don’t guess at the solution and then spend money rebranding before re-emerging in the hope of a huge sales victory. Ask the market for the answer. Each of the options open to you will have a few assumptions behind it, and good entrepreneurship involves thinking of accurate and cheap ways to test those assumptions.
Part 2 of this article goes into further depth on innovation uptake curves.