Mike Collins in the News

Developing New Products

Do you want better mousetraps or sales?

By Michael Collins, President, MPC Management
Product Design & Development - January 12, 2009

In his 35 years in manufacturing, Mike Collins has helped companies make the transition from being defenders — focused on process change and cost-cutting — to prospectors focused on finding new markets and profitable growth.

Original Article

New product development is a high stakes game that can catapult a company into riches or plunge it into bankruptcy in a short period of time. Studies by the Conference Board and other research organizations show that approximately one‑third of all new products introduced to the marketplace are failures. When you include all of the new product concepts that never made it to the commercialization stage, the success rate is even lower. Another recent study of both large and small manufacturers shows that 1/3 of new products (prototypes) fail at market launch. We have to find ways to reduce the failure rate.

The Big Idea Or Mousetrap Approach

Emerson once wrote “if you build a better mousetrap the world would beat a path to your door.” This unique idea approach to new products is a very popular method. In fact, I think it is the favorite method used by most small and midsize manufacturers (SMMs). It appeals to our entrepreneurial instincts to believe that you can invent a better mousetrap and riches will follow. I call this approach to new product development, the “Mousetrap Approach.”

The fact is that just having a good, or even brilliant, idea is not going to reduce the new product failure rate, unless you sell enough new products to justify the costs. Having a good idea is important but there are five questions that you need to ask yourself:

Does the customer really need this product or does it solve a specific customer problem? Just because you can invent a better mousetrap, doesn’t necessarily mean anyone wants to buy it.
Are there competitive products or substitute products that are already in the marketplace and essentially do the same thing as your idea? Many SMMs find out the hard way that there are already many similar mousetraps that offer the same benefits. Examine all known competitor products thoroughly enough to compare them to your product in a matrix in order to see whether you can gain a competitive advantage.
Can you estimate, early in the process, what the new product will cost, and the market price customers will pay? Even if it is a clever or unique, users may not want to buy it if the cost exceeds the benefit. (Nobody wants a $10,000 mousetrap that catches an occasional mouse).
Do you have any proof that there will be enough customers within your geographic reach? Hope is not a strategy. How much market information do you need? Enough to do fairly accurate sales forecast that investors or owners would believe.
How will you finance the project? Once the developmental and marketing costs are known, it seems practical to find out early on whether the company can finance the project through profits or if it will have to borrow money.
When will you get a return? It takes a simple one-page spreadsheet to project the sales, costs and margins to see how many years it will take to pay for the project.

The Industrial Product Range

I have been asked many times “What is the best method for developing new industrial products?” My answer is always the same: “It depends on the type of industrial product.” Here is a look a three situation-specific examples:

Simple, Low-Cost Product

With Standard Margins Several years ago I met an inventor who had invented a special vise I will call the Visetek. The Visetek offered adjustments in two directions for wood or metal, and was a precision machine tool built with superior craftsmanship. The inventor told me it was the best of many ideas he had come up with in his 30 years of inventing, and he was convinced the idea was unique.

The vise he developed was a simple design, with a price of less then $200. It was as small as a bench vise, and could be sold as a standard item in a hardware or retail store. The inventor could not answer any of the five questions listed above, but he was convinced that if he showed prospects the new product everybody would buy it. Since the prototype cost very little money to build, it only required his time to do some market testing in order to answer the five questions.

Complicated Custom Product With Varying Costs And Margins

The idea for the SeaLift Crane was to design a ship mounted hydraulic crane. The project question was: Is there a market with enough sales potential to justify the SeaLift development project?

The markets for this type of marine crane were totally unknown, the competitors were mostly truck mounted cranes, the gross margins would be variable, because it was assumed there would a lot of custom engineering, and the prototype cranes were going to be fairly expensive to design and test. It was a risky project in that nobody knew if enough customers could buy enough cranes to justify the development costs.

Complicated Leading-Edge Product With Huge Development Costs

Leading-edge products are new to the manufacturer and totally new to the marketplace (maybe even new to the planet). In 1981, Gerry Langeler and his partners left the electronics giant Tektronix to start a new company. Their plan was to develop a new software product for the emerging computer aided design market. They had little funding and worked out of their homes. They named the company Mentor Graphics. Their idea for a leading edge product was the initial development of a high tech product called "Computer Aided Engineering (CAE)."

Like many leading edge new products, this product idea would take years of experimentation and millions of dollars of investment to perfect. The idea was very risky because:

Markets were totally unknown and had to be developed.
Potential customers were only vaguely known.
Applications had to be developed from experimentation.
Sell prices and costs were unknown.
Demand was only a vague estimate of potential.
A great deal of capital had to be raised to even build and test a prototype.

Different Methods Used

Developing new products differs greatly in terms of risk, investment, marketing and strategies depending on the type of industrial product. Each example company and product required different methods of new product development.

Simple Low Cost Products

The problem with inventor products like this Visetek is that they are new to the inventor, but are seldom unique in the marketplace. Because the Visetek product was low cost, the inventor could spend a lot of time and little money market testing the product to see if customers saw the value: how it matched up to competitors product, how much customers would pay, and defining a market niche.

Instead he invested what little money he had in manufacturing the new product in China, only to find out later that there were hundreds of similar products at lower prices that have the same functions.

Complicated Custom Product

The first industrial marketing research project I was ever involved with, was to develop a hydraulic marine crane in 1970. These are the methods I used:

Ideation: Since most vessels used a traditional lift boom with ropes or cables as a hoist, my new idea was to replace some of the old style booms with hydraulic knuckle-boom cranes (like a backhoe). This was essentially replacing an accepted and cheap design with a new technology.

Price Cost Demand: The price, costs and margins were set by a product committee based on an engineering assessment of my design ideas. The sell price for the medium capacity Model 81M was set at $10,000, which I thought was justifiable in less than one year on a salmon tender or tuna.

Desk Research: I used the 1967 “Census of Commercial Fisheries” and another government document, “Fisheries of the U.S. 1969,” for the initial market investigation. I wanted to find out the total number of commercial fishing vessels by region, types of fishing with corresponding vessel, vessels by type of gear, and lengths, list of all fishing ports by number of vessels, and a list of influential fishing companies and managing owners. This data gave me a macro market potential of 9,000 vessels.

Competition: Most vessels at that time still used hoists and there were only four competitors offering hydraulic cranes. All of the cranes were truck mount hydraulic cranes, which were not adapted to be used on a vessel. But, none of the competitors had designed a true marine crane that would withstand salt air corrosion. I did a competitive matrix that compared all of these models in terms of specifications and price with my design specs.

Field Research: I spent time visiting ports in San Diego, Long Beach, Portland, Seattle, and Alaska and found that there had been many attempts to replace old style hoists with hydraulic type cranes. There were potential applications on tuna seiners, salmon tenders, Coast Guard vessels, crab boats, oyster dredges, elevating barges, offshore supply vessels, tugboats and research vessels.

Financial Plan and Sales Forecast: I needed to get better demand numbers for the board and had to do a budget and sales forecast for five years. The sales projection had to be believable. A sales call in San Diego put me in touch with the most influential owners of the U.S. Tuna Fleet. I spent the time to get interviews with the six most influential owners, who owned 50 percent of the fleet, and who were building all of the new modern seiners. One of the owners purchased four prototype cranes with options on ten more. From this success, I estimated we could sell at least 20 cranes per year in the Tuna industry alone and made a conservative forecast for five years.

Prototype Testing: The first two prototypes were installed on a brand new tuna seiner, and I was on this new vessel during trials in the Pacific off San Diego. The cranes worked very well and the owners committed to more purchases of the SeaLift crane

Results: I made the first year sales forecast and we continued to sell SeaLift Cranes to the tuna fleet and many other marine markets. I learned the value of comprehensive market information and the importance of doing very good field research before spending a lot of money.

Leading Edge Methods

Unlike the founders of many high-technology start-ups, Langeler and his partners knew they had to get a reaction from the marketplace before they asked people to invest the large sums of money that would be needed to launch the product. After spending weeks developing the specifications for the new product, the partners had progressed to a point at which they were convinced that their invention could revolutionize the CAE market. They visited 20 companies in the U.S. that they considered potential customers in this emerging market niche, and discussed their product idea with these companies.

The target companies not only told Langeler and his partners about their needs and problems but also helped in the process of changing the specifications to meet their future needs. After a whirlwind customer trip, the partners returned home with a completely revised software product and several potential customers. There was still a lot of work to be done, but the founders of Mentor Graphics had defined customer needs and the product well enough to estimate costs, selling prices, sales potential and market segments. And to develop a business plan to raise venture capital.

Mentor Graphics achieved phenomenal success. In its first year of business, this customer-driven company achieved revenues of $1.7 million. Within eight years, it had grown to $400 million in sales.

The whole idea of developing new products is not to come up with big ideas, it is to sell new products. Remember that all industrial products are different. Look at the product range and determine where your new product is in terms of risk, investment, complexity, prototype costs, size and price.