This is the first of several ‘Innovation Perspectives‘ articles we will publish this week from multiple authors to get different perspectives on ‘How should firms identify innovation opportunities and predict market potential at very early stages and in new areas (“green fields”) and ambiguous environments?’. Here is the initial perspective in the series:
8 Ideas for Better Identifying & Forecasting Early Stage Innovation
by Mike Brown
With various factors stacked against successfully identifying and accurately forecasting demand for brand new markets and radically different offerings, this month’s Innovation Perspectives topic seems like a slam dunk. No, not “slam dunk” as in easy; “slam dunk” as in you’re likely to be slammed for whatever you project and even more likely to see your new product dunked in the cold reality of a very inaccurate forecast.
There’s no single answer to doing this more successfully, so here are 8 ideas for improving your efforts:
1. Explore Once and Repeat, then Do It Again
Speculating and forecasting about the unknown can be unsettling for an organization and the people doing the work. This great strategic quote from a 1999 Business Week article says volumes about doing it more effectively, though:
“Forecasters who extrapolate from today inevitably get tomorrow wrong…(but) by pitting multiple scenarios of the future against one another and leaving many different doors open, you can prepare yourself for a future that is inherently unpredictable. Brainstorming pays off. And the more possibilities you can entertain, the less likely you are to be blindsided.” – Business Week, August 30, 1999
With nothing seeming to get more certain, there’s even greater value in bringing smart, multi-disciplined people together to consider multiple collective views of the future.
2. Don’t Ask Customers Directly about What You Want to Know
Customers aren’t necessarily thinking about how your brand can solve their challenges. They don’t get paid to form fully developed product or service ideas for you to write down at focus groups and then immediately reap business success.
Instead of hitting potential users straight on with “how would you solve this situation” questions ask them about their challenges, what confuses or frustrates them, and the work arounds they’ve developed to solve what current products won’t do. Ask about the benefits they seek in particular situations. From these raw materials, bring your insights to the table to interpret future solutions today’s customers are hard pressed to imagine or describe.
3. Inject Pain into the Process
With early stage opportunity identification research, you can wind up with some dangerously misguided results. Customers presented with little frame of reference to estimate their expected use of a new concept may agree or (state outright) they’d buy all kinds of what you want to sell them in the future. One way of minimizing that possibility is to inject some “pain” into the evaluation process. By this, I mean forcing trade-offs or attaching “costs” to options so participants have to at least consider some real world-like limitations on their willingness to expend resources in solving a problem. As you get into the prediction phase, it will reduce the number you’ll have to use to deflate customers’ over-anticipated purchase activity estimates.
4. Spend Time Imagining Radically Delivered Benefits
When identifying brand new market opportunities, expect future product offerings and competitors to look completely unfamiliar relative to today. Quick example – think about the companies, industries, and business models Apple has disrupted. Ten years ago, music companies, record stores, phone hardware providers, cell phone companies, television networks, and portable CD player brands wouldn’t have likely considered Apple a threat because it didn’t look like them. Wrong.
Thinking more radically about undefined market opportunities can spring from considering a benefits-oriented look. Answer questions such as:
- What customer benefits does our company deliver? If we didn’t deliver them, who else currently would / could deliver the same benefits?
- If our industry never existed, what alternatives would develop to satisfy customer needs?
- Who outside our industry is poised to deliver benefits our customers seek? What other benefits could these new substitutes also deliver?
Strategically addressing these questions will yield additional insight about fundamentally new market dynamics.
5. Even Better than Asking, Observe Instead
Even better than asking questions of customers is actually observing current and potential users actively performing in the situations you have an interest in trying to address. If it’s a situation existing today, you can use ethnographic research to formally observe customers and augment answers they provide about their intentions. If your area of interest isn’t a reality today, explore online environments as a way to simulate situations which don’t exist. This creates the opportunity to still use observation as an important input strategy.
6. Try Getting a Bunch of Experts to Agree or Not
Behind any assumption-based forecast on a brand new market, there are going to be differing perspectives on what marketplace needs and demands will be. And the calculations behind a forecast can’t help but reflect the biases of anybody coming up with the estimates or interpreting them. As a result, when building a new market forecast, reach out to a broad range of experts for their estimations on the various inputs going into the forecast.
Getting inputs from multiple people on the forecast’s “parts” (i.e., its component estimates) allows you to surface areas of agreement and disagreement on assumptions. This strategy helps identify critical areas where you need to pay particular attention to sensitivity analysis and account for differences in the range of forecast inputs being considered. It’s important to remember that with a new market projection, don’t too readily dismiss outlier perspectives. When nobody’s that sure what might happen, the outlier could be the person who really has a handle on what’s going to occur. You never know.
7. Parts Are Parts Until You Make Them a Whole
It’s easy for new market assessments to regurgitate detailed charts and tables, yet stop short of taking the risky but necessary step of aggregating everything and predicting the future. For decision making purposes that clearly falls short.
One strategy to estimate market potential in brand new markets is hypothesizing the component numbers behind the mathematical equations created to project an expected market size. Breaking the market potential into components allows:
- Understanding the certainty attached to individual estimates.
- Clearly stating assumptions you’re making and letting them be openly challenged or confirmed.
- More easily testing sensitivities of critical components of the forecast equation.
Great strategic thinkers are able to go to the edge of the data, formulate a sound next set of assumptions stakeholders can comment on & agree to, and then keep going to expand understanding & get to revealing insights.
8. Work with Lots of Numbers, but Don’t Show that Many of Them
Be cognizant of the underlying certainty when presenting a forecast or size estimate. Multiple decimal points in a speculative forecast invariably imply a phony level of precision. When you’re estimating something, understand up front how precise the answer has to be, and present the result accordingly.
Doing a near-term estimate for a production forecast is one thing. But if the question relates to a completely new market’s expected demand, it may be appropriate for your answer to be a range, and maybe a pretty wide one (2x or 3x differences between the low and high end may even be reasonable). The key is understanding the ultimate decision criteria. Will the decision be made based on a break even analysis – where the work is all about understanding certainty in the conservative or worst-case demand estimate you’re devising? Or will the decision be made based on specific growth expectations – where the key is confidence in the market’s take rate for something which may not have any current market comparison?
The best strategy is to avoid investing all your efforts in devising a single estimate. Instead, approach it with multiple methodologies or sets of inputs to create credible boundaries for your estimated range. That “precision” is much more valuable than any level of phony decimal places.
I started this piece with a quote, and here’s another great one to keep in mind:
“There’s no sense in being precise about something when you don’t even know what you’re talking about.” – John von Neumann
Doing the analytical forecasting, decision making, and implementation for a brand new market is challenging and highly speculative. But ideally, all the articles from this Innovation Perspectives topic will help you to better consider a variety of options and settle on the assumptions and projections allowing you to implement and grow successfully into very new market segments.
You can check out all of the ‘Innovation Perspectives‘ articles from the different contributing authors on ‘How should firms identify innovation opportunities and predict market potential at very early stages and in new areas (“green fields”) and ambiguous environments?’ by clicking the link in this sentence.
Mike Brown is an award-winning innovator in strategy, communications, and experience marketing. He authors the BrainzoomingTM blog, and serves as the company’s chief Catalyst. He wrote the ebook “Taking the NO Out of InNOvation” and is a frequent keynote presenter.