Assess the potential
Once you identify opportunity in the marketplace — directly from customers, through trends or from gaps in your competitors’ offerings — you need to assess the potential.
“It’s kind of like that disclaimer on the securities: ‘Past performance is no guarantee of future results,’” Etzler says. “But it’s constantly just touching those three areas — sales, marketing and industry analysts — and seeing what they all say and then just making your best guess.”
Actually, it’s more of an informed guess. To get information on how internal capabilities match external possibilities, Etzler brings together a team of senior executives who represent the entire product process. It includes vice presidents of product management, product development, infrastructure IT, marketing, finance and customer service.
“So you have literally the whole life cycle of how does it come in, how is it executed, what’s the market and how do we bill it?” Etzler says.
Those varied perspectives will help you understand each step of the internal process for getting an idea to market. The group is especially helpful when you’re considering ideas that are outside of your core offerings.
“The first thing is, ‘How much revenue [will we get] from that customer?’ and the second thing is, ‘How replicable is that service; can we turn it into a product?’” he says. “And if we can, it’s a lot easier answer. And if we can’t, you’ve got to decide, well, if we don’t do it, what’s the risk to the customer?”
Basically, you need to determine how badly customers want it and what it will take you to provide it. Use your customers to test the need in the marketplace as well as the potential revenue it could bring.
To some extent, you can do background research. For example, InterCall comes out with more expansion services than brand-new offerings, so Etzler can simply look at who’s already using the service he’s expanding and what they’re currently paying. Then he can look at customers from other similar companies of comparable size to extrapolate who else may be interested.
But the research doesn’t replace communication, even though your goal through communication is to land on a number.
“The discussion that usually drives a new product or service, 90-plus percent of the time, comes out of our global marketplace,” Etzler says. “We go to the global executive team and go, ‘If you think we need to do this for XYZ Co., we’re not seeing it in other areas. You better get your sales folks out and ask some of their peers, at least in the vertical, ‘What do they think of this and is this going to be useful?’ and then we need to try to put a number on it.’
“You always try to wrap a number around it. To me, that’s part of the discipline of putting a stake in the ground. Instead of going, ‘Hey, it’s going to be really big,’ you go, ‘No, no, no. That’s good to know, but how big is it going to be?’ ‘Oh, it’s going to be a $100 million market.’ ‘Really? Well, how much of that’s addressable to what we’re talking about here?’ You try to just keep funneling it down to get as specific as you can.”
That’s the key for Etzler. He needs someone to champion the idea and uncover the business case behind it.
“The biggest red flag is if no one’s willing to put a stake in the ground of how much revenue we can drive, … who’s going to buy it and when,” he says. “If you can’t get something specific around the upside and the price points, if you can’t put it in form of an ROI, that’s a real red flag.”
Getting those specific numbers requires back-and-forth communication from your team. The sales executive may present the ROI for a certain product, then the IT executive may reply that it will take five additional people to handle the billing. So then you have to subtract that cost from the return.
“Not only do you have your cost of doing that, but … you only have so much of a resource,” Etzler says. “So then you’ve got your opportunity costs that you have to weigh against the request, because if you’re doing project A, that means project B or C or D [is] not getting done. … There’s always a push-pull because you only have so much resource, but you just try to measure where the market’s going tactically and where it’s going strategically.”
That prioritization of projects is a function of basic business. It’s easy when one project yields 10 times the revenue of another project. But, because of subjectivity, some projects can start to look pretty similar. So while boiling down ideas into numbers can help you make decisions, it’s not that simple.
“If it were just a math problem, it’d be easy,” Etzler says. “Then there’s the subjective questions of, ‘Well, how much can we really sell?’ and, ‘How upset are they going to be if we don’t do it?’
“It’s not as much if we’re right; it’s that someone’s willing to put their credibility on the line and give that number. Even if six months later, we go, ‘Wow, we sure overevaluated that,’ we at least have something that’s concrete on which we base our assumptions.”
