Product Development is Learning, not Predicting

December 27, 2011

New products—or new businesses—should not make predictions early on, like predicting what features customers will value or how much revenue will be generated from a new product or business. These are questions that need to be validated as quickly as possible by getting in front of actual customers, not by making projections using a crystal ball.

Even if you capture “data” in a spreadsheet, it’s still wishful thinking until proven otherwise. Everything has the illusion of being real when reduced to numbers that add up in a spreadsheet. But just because the math works doesn’t mean that reality is being represented.

That’s not to say that some thinking up front isn’t helpful. You need to have a clear articulation of the problem that you believe needs solving—based on keen observation and thinking on your part—coupled with an assessment on whether there are enough potential customers in the market who are willing to part with their hard-earned money to purchase your solution to make their lives easier or better. And you need to be able to offer a solution at an attractive price point that will also make you a profit.

This is all part of your homework, but it is only one step in the full learning process. You need to make informed decisions on what to pursue, but once you start down a path, the reality is that you are heading into uncharted territory. And the information that you collect along the way may cause you to alter your course.

Metaphorically speaking, innovators are explorers that blaze new trails that settlers follow. Even if you are following, you are hopefully seeking some type of differentiation from your competition, taking an established trail up to a certain point and then splitting off from that trail.

Taking established routes allow for a greater degree of predictability, but at the point where you begin exploring, don’t waste too much time and energy attempting to predict very uncertain outcomes, like how much money you’re going to make. Likewise, excessive planning designed to exert control over your destiny to “ensure” (and predict) the success of an initiative is misguided.

Instead, invest your time and energy in discovering what those potential customers value. Use a low-cost, low-risk, fast approach to drive your learning to uncover the truth that I wrote about in How to Fire a Business Bullet. Learning obtained as a result of this discovery process may validate the direction that you were originally headed in, or it may cause you to adjust your course or it—with the benefit of leading you towards unanticipated growth and greater profitability than you originally projected.

This implies that we should follow traditional investment advice: Make what looks like a sound investment by doing your homework and invest only what you are willing to lose. Count your profits later, when you have satisfied customers who are paying you in real dollars.