Myths and Misconceptions with the Prevailing Mindset

Myth #1: If you simply build a great new product, customers will pay fair value for it. “Build it, and they will come” is the mantra.

It is a hope-sustaining mindset for innovators who face long odds. And it warms many other hearts as well. Can we ever get enough stories about the underdogs who were told “it will never work” until it does? The books Catch-22 and Gone with the Wind were rejected by dozens of publishers before achieving best-seller success. Vincent Van Gogh died in poverty, but his paintings now sell for tens of millions of dollars.

Many critics made fun of the movie Star Wars when it came out, as did director George Lucas's friends and fellow directors (with the singular exception of Steven Spielberg). Nonetheless, it became one of the biggest movie and merchandising blockbusters of all time. The first Harry Potter book was rejected 12 times before one publisher saw hope in J.K. Rowling's manuscript.

And like most people, Fred Smith's business plan for FedEx earned a failing grade in business school.

We all love these stories. But we love them, in part, because they are exceptions to the rule. No one talks about the 95 percent of cases where the exact opposite happened. We all love to hope. This book is about switching from hoping your innovations will find market success to knowing they will.

Myth #2: The new product or service must be controlled entirely by the innovation team working in isolation. These corporate “artists” need to work by themselves, sealed off from others who might pollute their ideas. Bringing in outside voices—market data, customers' perspectives, and financial considerations—risks compromising innovation, even ruining it.

Customers' perspectives? Many businesses believe, like Henry Ford did, that customers don't really know what they want, so asking them is a useless exercise. Developing a robust product first and leaving monetization to the very end of the process makes sense to these executives. After all, they're the experts; they know their customers' needs as well as (or better than) the customers themselves. Besides, innovators hear enough negative voices in their own heads. Throwing cold water on hot ideas will result in ugly compromises—or worse, nip great ideas in the bud by upsetting the geniuses building the next new thing. Or so the thinking goes.

Myth #3: High failure rate of innovation is normal and is even necessary. To use baseball terminology, today's businesses believe the more often you step up to the plate, the more swings you take, the better your chance of hitting a home run. Executives in established businesses believe this is how it's supposed to work; the few winners bail out the many losers. If the product fails, there will be many more after it, and some of those have to succeed.

Myth #4: Customers must experience a new product before they can say how much they'll pay for it. Businesses believe it defies the law of nature to determine how much customers would be willing to pay for an innovation before the innovation is complete. How could customers possibly know what they're willing to pay for something until they see it?

Myth #5: Until the business knows precisely what it's building, it cannot possibly assess what it is worth. Especially if the business is operating in a cost-plus environment (where it applies a percentage markup to a product's manufacturing and shipping costs to arrive at a price), it has to understand all the costs that will go into the product before deciding what to charge customers.

Embracing a New Paradigm

All of these are attractive arguments. They seem to make eminent sense. In fact, to many in the world of innovation, they seem like laws of nature. It's not surprising that they've shaped innovation practices at companies around the world for decades.

They have also played a role in the 72 percent failure rate of monetizing innovation. The point of this book is to get you to embrace a new paradigm: Understanding if customers are willing to pay for your invention, before you commit too many resources to building and launching it, will dramatically increase your likelihood of success.

By designing your product around a price, your innovations will stand a far greater chance of surviving and thriving. Figuring how much customers will pay for your product when it is still in the concept stage will make your innovation process far more reliable. You and your company will be far more likely to succeed.

You won't hope your product takes off in the marketplace after you launch it; you'll know. And you'll know this because you've designed it with features that customers got genuinely excited about when you described the benefits and because they also embraced a certain price for the product.

Those nervous, nail-biting weeks of wondering whether your new product will actually sell according to forecast will come to an end. You'll know about the market viability of your new product long before you put it out to the market. You'll have a rigorous assessment of your product's true market potential at the front end of innovation, not at the back end.

Oh, by the way: We will be sure to debunk those five myths in the rest of the chapters!

The bottom line is we will show you that putting monetization front and center in the product development process is not antithetical to innovation by any means. If you give it a try, you'll see the myths and misconceptions we have mentioned in this chapter fall away. In fact, you'll come to understand how bringing up monetization early can spur a product development organization to new heights. Eventually, you'll wonder how product development could be run any other way.

Introduction to Part 2

In the nine chapters of Part 2, we lay out the precise steps your company must take to rigorously assess the potential of your new products, as well as the path to realizing that potential: truly satisfying your customers and thus generating a big hit.

As the comedy troupe Monty Python used to say, “now for something completely different.” The nine rules for monetizing innovation will be counterintuitive to what you have learned about product innovation from your professors and from your career. You won't have read about these rules in your college textbooks on innovation or in the dozens of innovation books penned by consulting firms over the last few decades.