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Jan Bosch is a research center director, professor, consultant and angel investor in startups. You can contact him at firstname.lastname@example.org.
There’s a wonderful “not safe for work” quote stating that assumption is the mother of all eff-ups. Many of the things that went wrong in my life can, when doing root cause analysis, be directly blamed on me having the wrong assumptions about the situation at hand or reality at large. Of course, this isn’t just true for individuals but for companies as well.
Companies are successful because the people on the inside know something that the people on the outside do not. There’s a set of beliefs and associated behaviors that come with every company and that are at the heart of their success. For instance, in automotive companies, the ability to design vehicles based on platforms and create premium as well as low-end products from the same basis allows for cost-effective scaling of production beyond a product-centric approach.
The challenge is, of course, that successful innovations are eagerly copied by competitors and the initial differentiation is commoditized. As a consequence, companies need to continuously innovate to maintain their differentiation. Innovation is a highly overloaded term in many ways, but in the end, it’s concerned with a new idea and the ability to monetize this new idea. At the heart of the ability to monetize is the desirability of the idea in the eyes of the people who would be benefiting from it. The only way to assess desirability is to actually present the offering to customers and users and gather feedback.
In my experience, providing access to customers and users for innovation teams to gather feedback on new concepts is challenging in most companies and especially so in B2B companies. The reason is that the current customers are the ones paying the bills and are viewed as the ones we serve with our offerings and associated customer support. This means that everyone interacting with customers because of the existing product portfolio is highly skeptical of providing access to these customers as it may upset the current relationship.
A second reason to limit access to customers is that we don’t just want to show new concepts to them but also measure their behavior as they use the implementation of the concept. And one likely result is that some, but too few, customers love the potential product, resulting in a too small addressable market. Especially if the positive customers are also key customers for legacy products, it becomes quite a challenge to shut things down. This is exacerbated in the cases where we’ve managed to make customers pay for the new offering as they’ll easily feel entitled to continued support.
Both challenges lead to a situation where innovations are developed for way too long based on little or no feedback from customers. That causes the cost for each innovation experiment to become very high and as a consequence, we can’t afford for innovations to fail as the sunk cost is too high. This is exactly the opposite of where we need to be, ie testing as many ideas as possible against the lowest cost per experiment.
So, the consequence of lack of access to customers is that within the company, we all start to act based on our assumptions, rather than based on reality. Difficult as it is, we need mechanisms that allow innovators to gather true customer feedback throughout the process. These mechanisms need to cover at least four phases.
First, we need to be able to be around customers and use ethnographic techniques to build empathy with and understanding of them. Many companies I work with limit their customer interactions to the negotiations table during sales and customer support in case things don’t work as they should. This may give suggestions for new product features but will most certainly not lead to new insights that result in breakthrough offerings.
Second, innovators need the ability to talk to customers to get verbal feedback on problem hypotheses that were identified as well as on solution approaches that they would like to explore. The challenge is of course that customers, as well as any other humans, tend to exhibit socially desirable behavior. Telling someone that you think their idea is stupid and won’t work is hard for people, so we need to be smart in how we ask the question, but the cheapest way to invalidate an innovation concept is to not build anything at all.
Third, we need to put (very) early-stage prototypes in the hands of customers to measure if what they say they’ll do is really what they do in reality. There are numerous examples of products that failed despite the most promising verbal feedback from customers. The world of fast-moving consumer goods is littered with failed products of this category. Hence, we can’t rely only on what customers say, but we need mechanisms to measure how people behave.
Fourth, we need to be able to measure willingness to pay. There are many offerings that customers happily use if there are no associated costs but that deliver insufficient value for them to pay for it. One of my favorite definitions of innovation defines it as invention + monetization. If you’re unable to monetize, you haven’t innovated. So, confirming that customers aren’t only using your offering but are also willing to pay for it is critical for successful innovation.
Many traditional companies limit access to customers for the majority of their staff. The consequence is that everyone in the company operates based on beliefs and assumptions about the customers rather than facts, which easily causes high investments in innovations that are flawed from the beginning. Instead, companies need continuous interaction with existing and potential customers for verbal feedback, observing behavior and measuring willingness to pay. It’s not innovation if you can’t get paid for it. Remember, assumption is the mother of all eff-ups, so make sure your assumptions are validated!