How to Build Innovative Products That Sell

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Scenario: "Dude, we'll beat Google's new productivity application by incorporating more features in ours. We'll steal their market share, for sure. Yay!" A notable Web 2.0 startup just sold its company on eBay after getting crushed by Google's engineering team. Its competitors are suffering too at the hands of Goliath; yet, they continue their fight thinking persistence will pull them through.

It's a blah attempt.

Recently, we've noticed numerous Web 2.0 startups -- as well as ambitious founders in other sectors -- trying to compete with those big Fortune 500 bastards head-on. It's a fruitless attempt folks, not to mention: a notoriously super-bad business move. Why? Three points:

  • Goliath has more money, more resources, and a viciously stronger client base than your business.

    You add features. They'll add features. You advertise. They'll advertise. You create a nice design. They'll create a nice design. Goliaths scan how their small competitors are doing well, and they'll quickly replicate those results using the ridiculous leverage they have.
  • Goliath has a lock on its customers, who won't switch to you.

    According to Harvard's John T. Gourville, consumers overvalue products they own by a factor of 3 -- while product developers overvalue the products they create by a factor of 3. That results in a 9x mismatch -- meaning you better create a product that's 10 times better than the incumbent product or they won't switch over to you. Normally, that rarely happens. And that's why you won't see a mass movement to your product.
  • Goliath ignores highly-profitable customers, who you carelessly neglect too.

    All widely-distributed, mass-produced products overlook a number of customer segments who according to Harvard's Clayton Christensen:
    1. Find the products too expensive for their needs, and
    2. Find them too difficult to use

    That leaves a tremendous amount of untapped opportunity for some other wise company, who understands fighting Goliath upfront is a useless attempt.

The Solution

What do you do then?

  1. First, admit you can't beat Goliath.

    Admitting you're an alcoholic in Alcoholics Anonymous drives you to seek solutions. In the same vein, admitting Goliath can kick your ass upfront drives you to seek areas where you can win.
  2. Take the back-door approach.

    Marketing dude Christensen call this the disruptive innovation approach. All products leave a certain market segment dazed, confused, and ripped-off. The "biggies" aren't targeting them because these customer segments aren't profitable to them. That leaves a sweet spot for your innovative product. If you can kick-ass, you'll slowly but surely capture more customer segments. Then, more. And, more. (Remember: All sweet, mass-consumed, products start with small niches.)
  3. And remember the key to everything: Just focus on really helping people.

    It's the most ridiculously cool mindset we've ever adopted. When you get into the mindset of helping people, you make some sweet business decisions:
    1. You won't compete against those you can't beat because they provide better solutions for your customers, and
    2. You'll build products that improves people's lives or businesses only -- and in turn, create only those products that people will buy.

The template:

"We can't beat Goliath here: _________. But, because the bastard is ignoring this customer segment who we can really help: _________, we can beat them here: _________. Yay!"

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Posted on September 05

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