Making the Case Part 4: Building the Business Case

The “job” of the business case is to create a compelling argument backed by evidence to make an informed judgment as to the validity and vitality of the subject opportunity amongst all other opportunity choices in the project portfolio. But let’s not get the cart before the horse!

Recall from our previous post – it’s the process of transforming a “good” idea into a wining business strategy that is the true value of making-the-case. The process is based on validating the idea's potential against the established criteria your company uses to make the best judgment possible in giving the green light to develop and commercialize the concept. The point is:

In “making-the-case” a very possible and for that matter – desirable outcome is to kill the idea off during the discovery phase when evidence begins to prove the idea can’t be transformed into a winner. Don’t present “dogs” to the executive screening team! They are depending on you and your team to do the upfront work to identify winners not losers.

As Dr. Cooper has stated (paraphrasing) “kill those puppies early in the process!” Harsh as that sounds, this is a good outcome versus falling in love with an idea too early on and force fitting data to make the case. While we definitely want to “sell” our concept to the executive screening team in the best light – don’t hoodwink them. If you do you will lose your credibility which will bring undesirable consequences for your future.

The process of collecting data to fit our believe system is called “cognitive bias” and it happens all the time, not just in product development. Cognitive bias can skew data collecting and interpretation to suit and justify any argument one way or another. This is often what gives market research and the “scientific process” a bad rap. I have seen some amazing manipulation of research to rationalize poor decisions. A topic for a future blog thread. Suffice to say the way out of the trap is to establish in the discovery phase (i.e. before the formal product development go/no-go gate) a structure that establishes and validates the core market and business criteria:

· The need/pain or job to be done

· The proposed solution, benefits, or desired outcomes.

· Why the customer will buy from us

o competitive advantage

· The business case:

· Market scope who, what, where and how.

· Potential business opportunity (rough order of magnitude)

· Strategic fit

The bullet points above represent a typical template to create an initial Product Opportunity Statement and provides a good starting point for making the case. I am assuming the Product Opportunity Statement is an output in your Phase 0 opportunity discovery and screening process – and some level of thought and energy has been applied to establish that the idea under consideration is worthy to apply resources in making-the-case.

While we shouldn’t expect a lot of detail at this step, and recognize that there are more questions than answers to be resolved, we should expect that we have applied our best judgment in deciding which concepts to move though the idea-to-launch framework. This is how the iterative process works and is the fundamental principle behind an idea-to-launch framework.

Next blog I’ll talk a bit more about the scope and attributes of a making a good case. In the meantime start thinking on how to integrate your idea-to-launch framework in “making-the-case.”

Cheers!

Kevin

Making the Case Part 3: Elements of a good business case

In my last post – “Making the Case Part 2” I established that a “business case is made through the preparation and presentation of a business plan.” We could therefore infer a good starting point in making a business case would be to find a format of a business plan to start building your case. There is plethora of good business plan outlines, how to books, and software tools we could find to benchmark by doing a simple search on the web.

However, using a generic business plan outline as a starting point may prove to be ineffective (it may yield more work than value for you) and worse yet – may not be relevant to the task at hand. Remember that our goal is not to create a fancy document but to go through a defined process of doing upfront homework in making the best case as to why the identified opportunity makes good business sense, and documenting the results for decision makers and a reference source for the project team in the development and execution phases of NPD lifecycle.

Assuming your company has created a go/no-go project decision criteria – I recommend you design the business case template to specifically address the project selection criteria. Typical selection criteria will score an opportunity against these key critical factors:

• Strategic alignment and importance

• Product and competitive advantage

• Market attractiveness

• Leverage core competency

• Technical feasibility

• Financial reward

With the scoring criteria in mind, the business case should articulate the following:

• How the project will enhance our ability to deliver value to our target markets?

• Who needs it?

– Customers job to be done and the value placed on successfully getting the job done

• How much will they buy?

• Why will they buy from us vs. the competitor?

• Can we execute and exploit the opportunity?

– What technology is required to win the business?

• What are the risk and how will we mange it?

• Is there a solid financial case for the investment?

• What’s the optimum path to commercial success?

So while I do encourage you to reference best practice business planning “how-to” resources to help build your planning framework, I recommend streamlining your business case process to fit your NPD idea-to-launch framework and focus your planning activity in answering the critical criteria in making the ultimate decision to “go” or “kill” the project.

In part four of “making the case,” I’ll talk about the level of detailed required to make the case and the characteristics of a good business case.

Cheers!

Kevin

Making the Case Part 2: What is a Business Case and How Is It Different from a Business Plan?

I often hear the terms business case and business plan used interchangeably in conversations. As I was starting my career in the field of product planning and management I wondered if these really are the same or are they different.

It turns out these terms do mean different things to different folks, so as always I advise we don’t get hung up on terminology but we do create common terminology inside our organization that we all agree on for better execution. Having said that let’s see if we can clarify the terms and put them into a useful context and definition to accelerate the time from ideas to profits. After all that is the whole reason for us in “making the case.”

Wikipedia defines a business case as: “A business case captures the reasoning for initiating a project or task. It is often presented in a well-structured written document, but may also sometimes come in the form of a short verbal argument or presentation. The logic of the business case is that, whenever resources such as or effort are consumed, they should be in support of a specific business need. ….”

So far so good, definitely when deciding to make a go/kill decision for developing a new product opportunity, we are asking our executive team to commit real resources for a very specific reason: Exploit an opportunity to create new customers resulting in new business growth and shareholder value. So do we need a business plan too? Let’s see:

Wikipedia defines a business plan as: “a formal statement of a set of business goals, the reasons why they are believed attainable, and the plan for reaching those goals. It may also contain background information about the organization or team attempting to reach those goals….”

The definition goes on to say: “Business plans may be internally or externally focused. Externally focused plans target goals that are important to external stakeholders, particularly financial stakeholders…. Internally focused business plans target intermediate goals required to reach the external goals. They may cover the development of a new product, a new service, a new IT system, a restructuring of finance, the refurbishing of a factory or a restructuring of the organization.”

All righty then it kind of sounds like the same thing doesn’t it? Assuming of course you accept Wikipedia’s definitions – which seem reasonable to me. Perhaps a better way to think about business case vs. business plan may be to define it as:

“A business case is made through the preparation and presentation of a business plan.”

Further it’s helpful to put the activity in the context of the product development lifecycle time line – activity to justify investing in an opportunity is called the business case which creates a business plan that is used to execute the development and launch phases of the new product.

Frankly it’s a bit pointless to get hung up the definition because it is the activity and framework of going from an idea to launch that counts. Call it whatever you want but do be clear on what the activities will be to best go from idea to profit. We build a business case to justify the allocation of resources to invest in a product opportunity, and once the case is made and accepted, we plan the activities that follow in executing the launch and commercialization of the product concept.

So let’s think of the business case as the activity that happens before the portfolio go/kill decision point and in building the case a very useful artifact is the creation of a business plan that is used to execute the opportunity post decision point.

That’s my advice and I am sticking to it. What’s your opinion?

Cheers!

Kevin

Making the Case: Choosing the Right Products Opportunity to Develop & Launch

Perhaps second only to setting the strategic business direction, choosing the “right” product opportunity to develop and launch is the most important strategic decision a company makes. After all – “you are what you sell.” In other words: what you choose to launch and sell defines who you are in the eyes of the customer.

There are a lot of factors that go into making a go/kill decision for funding a product development project. The core question that needs to be answered at the new product portfolio decision gate is:

Why is this opportunity better than the rest of the opportunities competing for development resources?

To answer this question the pre-development project team needs to build a business case to demonstrate the merits of their opportunity and “sell” their recommendation to the portfolio decision team. The business case needs to clearly answer:

1) Why should the company build this product? (i.e. the strategic fit)

2) Who needs it? (i.e. who’s the customer and what’s their pain)

a. Confirmation of the need/ "job-to-be done"

b. The value placed on successfully getting the job done

3) How much will they buy? (i.e. market forecast)

4) Why we can execute and how we will manage the associated risk

a. The likelihood of winning the business – (why we will win this battle)

5) What our payback and ROI will be

I put the word “sell” in quotations because in actuality it is the job of the pre-development project team leader (often a Product Manager or R&D Manager) to put his or her opportunity in the best light against all other opportunities the portfolio decision team will evaluate. Note too – it is acceptable and preferable that in the course of creating a business case, if the project team discovers the opportunity is flawed it recommends to the portfolio board a “kill,” or a “hold” for additional R&D (i.e. maybe the concept is good but there are technical gaps that need to be addressed).

So how does one build a case to fund a product opportunity in view of the fuzziness and uncertainty of early stage product concepts? Many companies assume that the front end of innovation (a.k.a. the fuzzy front end) is inherently messy and unmanageable and thus true innovative product selection is based on gut feel or fiat (“go” decision dictated by a charismatic leader- “it feels right – just do it”). This simple is not the case for “best-in-class” product innovation companies who consistently launch a steady stream of new products.

Best-in-class companies have learned how to manage the front end of innovation by creating an execution framework and process to transform ideas into winning product opportunities efficiently and effectively. The best-in-class companies have learned to “front-load” pre-development phase projects by doing proper marketing and feasibility due diligence. As Cooper and Edgett point out in their whitepaper “10 Ways to Make Better Portfolio and Project Management Selection Decisions.” – “The best project selection system in the world is worthless unless the data are sound.”

The business case is a core element/tool to managing the fuzzy front end successfully. It provides an execution framework and process to transform ideas into commercial successful new products. Over the next several blogs I will explore and answer these questions about making-the-case:

1) What is a business case and why it an essential activity for NPD execution

2) Why the “process” of making the case matters more than the business case that eventually emerges.

3) Explore the core elements of the business case and best practices in making the case

4) How to make the business case activity a powerful tool to increase your odds of launching commercial successful new products and services

I will also explore in other core elements of managing the fuzzy front end that will help you improve your odds of launching commercially successful new products.

Stay tuned!

Kevin

What is the Difference Between Goals and Objectives?

An essential if not the most critical element of integrated new product development (iNPD) is setting a clear direction as to where to compete and how to win. At a macro level, direction is set by creating a vision and mission statement. To execute the vision and mission we define our goals and objectives and create a strategy to achieve them.

As with vision and mission, the terms goals and objectives often get confused and used interchangeable. While on the surface it seems like it’s just a semantic difference, and I am not one to be a stickler on semantics, I thought it would be worth defining the difference between the two in the context of strategic & product planning so the next time when you engage your troops in setting goals and objectives, you can explain the difference.

The main difference between goals and objectives is the level of specificity. Goals are broader than objectives in the sense that goals are general intentions and are not specific enough to be measured. Objectives are narrow and are set for certain tasks in particular.

Goals are general guidelines that explain what you want to achieve in your company or product line. They are usually long-term and represent global visions such as “be number one or number two leader in the markets we serve.”

Objectives are developed to help achieve goals by defining them into manageable components. Unlike goals, objectives are specific, measurable, and have a defined completion date. They outline the “who, what, when, where, and how” of reaching the goals. For example “we will launch 3 new products in 2010 using VOC best practices in developing new products that the market values and wants.”

Frankly it really doesn’t much matter whether you differentiate between goals and objective in your planning activities; the real “objective” or “goal” is to provide the specific direction for your business activities described in both long-term and short-term time frames. According to the management sage Peter Drucker:

“The basic definition of the business and of its purpose and mission have to be translated into objectives. Otherwise, they remain insights, good intentions, and brilliant epigrams that never become achievement.”

Here are some “SMART(s)” guidelines that you should follow when setting your objectives:

Specific: Objectives must be specific and provide a precise statement of what is to be accomplished by the business’s marketing strategy.

Measurable: Objectives should be measurable and stated in quantitative terms.

Attainable: Objectives should be attainable and

Realistic: realistically achievable with the resources you have.

Time: Objectives should be related to time so that everyone knows when the objectives are to be achieved.

Simply Stated: Objectives should be stated in simple, understandable terms so that everyone involved in carrying out the strategy knows exactly what is to be achieved.


Hope this helps and good luck on setting your goals and objectives for the New Year!

Cheers!

The Free Economy Part 2: Freemium Rules!

Boy I don’t know about you but I am tickled pink with a business model called “Freemium,” where businesses provide a free version of a product/service to the masses and is supported by a “paid for” premium version by a sufficient number of subscribers.

I am sure like me, you are reaping the benefits of this model with a host of services ranging from “free” phone calls (Skype), “free” website hosting (Go Daddy) to “free” on line storage (SugarSync) and great services like Linked-in (Go Daddy and Linked-in are also add supported – see my previous blog dated October 9, 2009 on the add supported business models).

According to Wikipedia: The freemium business model was articulated by venture capitalist Fred Wilson on 23 March 2006.

Give your service away for free, possibly ad supported but maybe not, acquire a lot of customers very efficiently through word of mouth, referral networks, organic search marketing, etc., then offer premium priced value added services or an enhanced version of your service to your customer base."

As to the name “freemium” – it was a name suggested to Wilson by a blog reader (Jarid Lukin) after Wilson posted his original blog describing the model. The name Freemium has stuck.

As described in Wilson’s blog – the concept isn’t all that new. There have been many successfully companies using what is essential the same business model called “shareware” for years. CuteFTP is a product that I used for “free” (also add supported) until I discovered FileZilla (an open source business model we’ll talk about in a future blog). The Internet makes this model a whole lot more doable though.

For the freemium business model to work the free version of the service has to provide sufficient value to attract a base of loyal fans that after using the free version, become hooked on the service and are wanting and ready to pay a premium for a more advanced and functional version – at least this is the goal. Other spins on the model also rely on paid enterprise users (with significant more utility) to support the free users.

Freemium is a great marketing strategy and to work, it should have no “strings attached” to the free version. It’s also got to be a hassles free and nonthreatening (e.g. don’t ask for credit card information to sign up for free and honor the free users’ privacy from spam and scams). Don’t stipulate and expiration date either - this is not a freemium model but a “free trial” model – also an effective marketing strategy but it’s not a freemium model.

Freemium is a viable business model being adapted by many web 2.0 firms. It provides a lot of advantages especially in the early stages of achieving market acceptance and adoption. To work though, it must create a large enough base of loyal users who can be converted into loyal paying users by offering them advance features that they value and are willing to pay for. In other words, the service must solve real problems the market wants and values.

The title of my blog is a bit misleading: “Freemium Rules.” I am not attempting to provide you the “rules” of launching a freemium product but rather stating from a consumer point of view – “it’s an attractive model.” But for your business to thrive: free is not enough, it also has to be matched with paid.

Having said that then, here are some rules you need to know to be successful: Rule # 1 you need to know if you chose to use a freemium business model: “whatever strategy and pricing decision you choose to use, freemium or otherwise – make money!” And to borrow from Warren Buffet: Rule # 2 is: “Don’t forget Rule # 1!”

So have fun, create loyal customers and make some money doing it!

The Free Economy: Ever Wonder How to Make Money by Giving Valuable Things Away?

I often scratch my head wondering how companies can continue to give away all their core products for free and expect to build their top and bottom lines. Priced at “free” doesn’t seem to support conventional wisdom, after all, history is full of companies that created their demise by competing on price. Price at “zero” doesn’t sound like a winning strategy to me.

Competing on price has only one direction to go, that’s to zero. Zero is good for the consumer (or maybe not?), but definitely bad for the producer. At the end of the day, if a company does not create a profitable revenue stream, it will cease to exist – plain and simple – unless, of course, you are GM or BoA and have the Tax payers to bail you out – but let’s not go there shall we.

The notion of the “free economy” (giving things away) revolves around the idea that companies aren’t really giving everything away but rather giving enough away to attract a sufficient number of users (the minority) who will pay for the service while subsidizing the rest (the majority) who do not.

Sound crazy? Maybe not. In his book “Free” Chris Anderson provides good examples as to how “free” models can work beginning with brick-and-mortar examples including Gillette and the famous razor / razor blade model which is basically give the razor away (or make it so cheap that it’s virtually a give away) and make up the difference by selling lots and lots of blades at a very attractive profit margin.

I love this business model and am always looking to apply it. The desk top printer industry is a good example of how this model works. This is how HP and its printer competitors can throw in their ink jet (or is that ink junk?) printers as “free” when you buy their PC because they are relying on the consumable (printer cartridges are equivalent to Gillette’s razor blade) to make money over the long run.

So yes – the razor/razor blade model can work. Can you think of other models that are based on the razor/razor blade? The wireless carriers use a similar rational by heavily subsidizing the phone and making their profit selling voice and data packages. Not a bad strategy.

But wait-that’s not all! There are several other “free” models that have worked and should continue to work. Anderson describe the “gratis/advertising model which I know you are familiar with:

“The minority of customers who pay subsidize the majority who do not. Sometimes that's two different sets of customers, as in the traditional media model: A few advertisers pay for content so lots of consumers can get it cheap or free.”

Traditional television, radio and to a large extend print media (the majority of revenue is generated through ad dollars – not subscription revenue) base their business models on advertising. And of course the “new-economy” web companies like Facebook, MySpace and Google use the advertising model (o.k. Google has an added spin on their ad revenue model – but it’s still ad revenue).

But is the advertising model really sustainable? How many add dollars are there to go around to support all the “free” sites and content out there? The answer is simply “not enough.” And consumers have become fatigued by all the ad noise out there. We don’t particularly want to see more ads – and in fact we do a pretty good job of just tuning them out.

One of several reasons why the ad model is having problems in providing sufficient revenue for online content businesses. Also what makes it hard is that unlike TV and radio, it’s pretty easy to measure the effectiveness of an ad campaign through “click-throughs” and “pay for click” models. With clear data in hand, advertisers know if a site is producing results for them and are apt to abandon marginal sites for sites that produce results – oh those “picky” advertisers – don’t they know that ignorance is bliss?

I suspect advertising will continue to work but only for sites and media properties with reasonable scale (any one like to take a crack at what “reasonable” scale is?). I also know from work I did during my early StickyJam days (see PATH advertising) that the digital ad model will continue to evolve and become much more personalized.

So my prediction (ah, yes, my amazing forecasting gift) is that the advertising model will continue to flourish especially on larger content sites and advertising methods (widgets) will continue to evolve into a much more personalized and hopefully “inviting” or perhaps better way to say it “invited” sponsor for the consumers.

There are more business free models to explore, but that’s all for now – my “free” time is valuable!

Cheers!