New Product Risk… Sharing the Burden

For new product efforts (we’re including services here as well) to have even a Club’s chance (of winning the pennant) of success, there are some fairly well known requirements. Included are three big C’s we can’t ignore:

Commitment of Senior Management.
Champion to Make it Happen
Cash or other resources

Let’s assume the simultaneous occurring of the above three factors. This happy (and rate) state of affairs provides the encouragement to continue with the effort given a certain level of risk. And the level to which management is comfortable with the risk involved will usually dictate how far the effort may go before it must demonstrate significant indicators of “success.”

The first point of the discussion, therefore, is that most good ideas (quantified opportunities) die aborning, due to the lack of comfort management has with the risk involved.

Curiously, management commitment does not always provide a cushion, for management many be committed to new products generally. Without necessarily being willing to fall on their collective swords for your project.

The second point is that the smart manager absolutely minimizes risk in new product efforts. Fine…how?

Share.

Just as participative management is becoming the rage in business and manufacturing environments, risk sharing is a “contemporary” solution to the up-front scariness of new product costs (financial and emotional).

Here are my seven steps to sharing new product risk:

1) Involve the key players early on.

Get them all vested in the excitement and enthusiasm of the project. When it succeeds, you will share the glory. When it fails, you share the blame. You have already minimized your personal risk.

2) Negotiate ways to minimize all coats.

Ask manufacturing/sales/engineering/marketing to volunteer manpower to help with the brainstorming. Ask purchasing to pass on any saving from economics-of-scale purchases of materials to the new product effort, rather than to the corporate bottom line. Ask accounting and finance not to charge the project fixed costs or overhead for a certain period of time. Ask the advertising agency to develop the campaign at cost, or less than cost, in return for a bonus or enhanced commission if the product is successful. Ask brokers/distributors to take reduced commissions in exchange for bonuses later. Ask management to allow the product to contribute zero to the bottom line for a certain period of time, with the operating profit funding increased advertising/promotion efforts. Etc.

3) Act like every dime you spend is your own.

Probably good advice anyway, but it really counts here.

4) Establish realistic expectations for the products and report on progress frequently.

Nothing heightens management paranoia more than lack of information, and following that, failure to meet goals. If a product is only a .5 share point product, set appropriate goals. If it is a zero net margin contributor, but will utilize some extra capacity, develop a plan to demonstrate the progress.

5) Think small.

The fact is that while economies of scale are generated through some efforts by going bug, the risks are disproportionately higher. Stay with a small test market and take the hit from manufacturing on changing lines or the advertising upcharge of printing only 300 brochures versus 3,000.
With success, you can expand, and the notion that competitors are going to grab your idea and rub with it that fast is unlikely. You should have such a good idea.

6) Nurture.

One of the biggest risk enhancers is to turn a new product loose on the world too soon, stripping away its support and attention. The sink-or swim mentally is macho but risky.

7) Deliver.

The biggest risk minimizer is to have done this and gotten it right. With these principles and lots of luck, your success better prepares you to set out again. And management will be better prepared to go along with your radical ideas if they not only reduce risk, but increase the chance for success.