Platt Perspective on Business and Technology

Building a startup for what you want it to become 12: adding in disruptively innovative products and product portfolios 7

Posted in startups by Timothy Platt on February 18, 2016

This is my 12th installment to a series on building a business that can become an effective and even a leading participant in its industry and its business sector, and for its targeted marketplaces (see Startups and Early Stage Businesses and its continuation Page 2, postings 186 and loosely following for Parts 1-11.)

I have been focusing, over the course of the last six series installments on single innovations as they might be developed and offered. This can mean producing, marketing and selling essentially one product type and model, around at most one single innovative advancement. But to at least begin connecting those installments and their flow of discussion to this one, that also can mean building what is more loosely considered a single overall product that is partitioned in its production and marketing into numerous distinctive models that sell, for example at different price points and that are either build to provide differing sets of options, or to appeal to different market demographics. So when I write of single innovations here, I do not necessarily mean single marketed and sold products, and certainly not at the single “one size fits all” model level. And depending on the “complexity” of models and options offered, a single basic product that can come in several or many models might or might not be seen as constituting a product portfolio per se. That determination can be more a marketing decision than a production decision.

I turn here in this posting to consider larger and perhaps more complex portfolios of products. Yes, that can mean multiple distinct model variations on some single basic innovation, and even with essentially zero real difference in the underlying technology that goes into them, as just noted above. I would refer to that list of product offerings as an innovatively simple product portfolio. But many innovative businesses do not stop at developing or otherwise acquiring one single innovation, and bringing that to market. Many and even most truly innovative business enterprises actively seek to develop or acquire and refine an ongoing succession of innovations, and even game changing ones that would reshape their industries and their marketplaces. They seek to develop, built products for, and sell innovatively complex product portfolios.

But before delving into that complex of issues, as just touched upon when drawing this distinction, let’s start by reconsidering product portfolios per se. And I do that by drawing some connections between this series, and more specifically this part of it and some relevant series that I have already offered here in this blog. And as one other point that that I would offer up-front to this discussion for orientation purposes: I devoted a great deal of my discussion of single innovations in the last six postings to this series, on mature businesses and their products and how they have competed for market share and profitability. Then I reframed some of the key issues raised in that discussion in a more strictly startup and early business context.

I turn here to consider product portfolios and how well managed portfolios can help balance risk and benefits as a core due diligence requirement. And for purposes of this portion of this series that means focusing entirely on how a portfolio approach would and would not work in the initial startup and early business stages of a new enterprise, and I add here, for a business that has just transitioned out of those first initial-step development stages and into early profitability.

To put that into context, for a background discussion of product portfolios per se, see:

• Building for an Effective Portfolio of Marketable Offerings (at Macroeconomics and Business, postings 196 and 200, for Parts 1 and 2, and that directory’s Page 2 continuation, postings 204 and loosely following for its Parts 3-6), and
• Innovation, Disruptive Innovation and Market Volatility, Parts 9-13 (at Macroeconomics and Business 2, postings 215 and loosely following.)

And for a background discussion of startups and their financial constraints, see my series:

• Understanding and Navigating Burn Rate: a startup primer (at Startups and Early Stage Businesses, postings 67-78 for its Parts 1-12.)

Both sides to that are important here, where the first two of these series discuss systematically planned portfolios per se, and the third of them discusses the stringent financial constraints that a new business faces when it has to take shape and form and with all of the cash expenditures that this calls for, before it has reached a point where it is bringing in significant off-setting new revenue to cover that.

These financial constraints effectively limit new businesses to be lean and focused if they are to successfully form and survive to become profitable. And this certainly meshes with the approach that I offered in my above-cited series where I discussed an approach to developing balanced, effective portfolios. So how does this apply to the startup and early development phase business that seeks to build itself as an innovator in its markets and among its competitors?

• Consider new manufacturers. I have advised in this blog, and in this type of context against attempting to start such a business with too widely complex and diverse a portfolio of separate and distinct products. Start with a small, constrained number of products that you can build from essentially the same assembly line resources, so as to limit your production expenses while you are still pre-profit. And only expand out what you offer to your target market as prudent due diligence considerations dictate.
• But this leaves a lot unsaid, and both for what that “small constrained number of products” might consist of, and what those “prudent due diligence considerations” would consist of too.

The key here is in thinking through and pursuing a very tight focus on doing one thing better than your competition can, and according to criteria that your customers and perspective customers would see as offering value to them. And then expand out to offer more, but in a coordinated way where everything that you offer fits together; think and plan and execute in terms of offering product and service synergies, where together what you offer creates more value for your customer base than the simply sum of your offerings would when considered separately. But start with a simple, tightly focused marketplace offering, that you can build a reputation and brand loyalty from and then build from there.

As a point of comparison if nothing else, let’s consider new startup retail businesses and their product inventory needs. And for purposes of this discussion let’s leave out of consideration (at least for now) retail businesses such as local bakeries that are primarily manufacturers that happen to directly sell what they produce to end user consumers. And let’s also leave out of consideration, franchise and related businesses that start out with an established, centrally determined product and/or service inventory that they are in effect required to carry and offer. As a working example here, let’s consider a small bodega or convenience store.

• They purchase what they decide to offer primarily if not exclusively from one or a few wholesalers, who select and aggregate what they have to offer to the retail businesses that they sell to. Risk management concerns might mean some diversity there, but a premium is also in most cases going to be on buying from single sources in sufficient volume so as to secure better per-item inventory costs and better terms of payment.
• Such an enterprise would not face special add-on expenses from their wholesaler suppliers from their having to increase or change the stocked inventory range that they have to carry.
• But these retail businesses do have limited shelf space and inventory storage space, and they do face the costs of holding their financial resources in non-liquid inventory form. And this dictates that they need to focus in what they stock and sell, on what will sell quickly and certainly before any product expiration dates are reached.
• So while they might carry a fairly wide diversity of product types, the still need to keep their overall inventory lean and consumer-focused. They bring in and offer a much wider range of products than any single small or new manufacturer would be able to cost-effectively and profitably produce but they have to plan what they offer just as carefully too.
• What products make sense to the customer as going together?
• Are there combinations of products that those customers would look for and want to buy together, or that a customer would be likely to purchase together more on impulse if they went into the store to buy just one of those linked items? Think “a can of ground coffee” and “a jar of coffee creamer” as a working example of that.

Now let’s consider a small startup manufacturer, and here that might mean a business such as a local bakery that sells directly from their ovens and cooling racks to end-user consumers. And with value-added in mind here, let’s consider two of the bullet points that I just offered above:

• What products make sense to the customer as going together?
• And are there combinations of products that those customers would look for and want to buy together, or that a customer would be likely to purchase together more on impulse if they went into the store to buy just one of those linked items?
• Now, think a cup of fresh brewed coffee that a customer could drink while eating a fresh pastry, and this local bakery setting up a few tables up-front in their sales area as a way of building a loyal customer base – by building a community space for them to eat a treat and drink coffee in – and under circumstances where they would be likely to buy more to bring home with them too.

This is not just about machine parts manufacturers or similar businesses that would not sell directly to end users. But even there, where might such a business build its sales synergies that would hold value to the businesses that they produce for and sell to?

And I leave off this posting with a question: where are the “we’re a bakery, let’s set up some tables and sell fresh brewed gourmet coffee too” options and opportunities for an industry like that – for a business such as a machine parts manufacturer? Always think in terms of finding disruptively new and different ways to create value for your customers, that will help to drive business for your enterprise for offering it.

And this brings me to a word that I began this posting with and then set aside, while building a foundation for further discussion of it: innovation. I am going to turn in my next series installment to discuss that in the contexts of innovatively simple product and innovatively complex product portfolios. I will at least begin a discussion of what would go into these two types of portfolios, and what types of business models would lead specific businesses to seek to pursue one or the other of them, long-term.

Meanwhile, you can find this and related material at my Startups and Early Stage Businesses directory and at its Page 2 continuation.

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