More and more companies are discovering this Lean innovation either Lean startup can help them better streamline their innovation processes. Especially for totally new product development, the application of Lean innovation principles results in a more efficient and successful innovation pipeline.
We started with part 1, with this we introduced our blog series, the writers and structure of the blog series. In part 2, we discussed the basic principles of Lean Innovation and IP Strategy. Then we took you in part 3 in our (fictional) business idea and we went into it part 4 continue with our voyage of discovery. Then we deploy part 5 a number of experiments, and we are satisfied with the results! In part 6 we started with a physical product and learn from the feedback from our customers. Now, in this penultimate part 7, we face the challenge of continuing to grow in such a way that we can achieve the intended scale. The last part will be a summary of our steps.
A new target group
Until now we have only sold our product online. We have seen that we are not very successful in the US market. Fortunately, it does in Europe, but we have noticed that growth through this channel has stopped.
We have now returned the results of the patent application. The novelty report - drawn up by the European Patent Office - is mostly positive. We do have to adjust something, but the protection that remains is more than enough to stop competitors.
In any case, we want protection in Europe. We still have doubts about the US, because the product is not successful there. But we now have to make a choice, the so-called priority year is almost over. A difficult choice, because we want Europe, but it does not offer growth, and the US is difficult.
We ultimately decide - on the advice of our patent attorney - to file a separate patent application for both countries. Total costs are around EUR 8.000, but that is how we shield at least 70-80% of our total market. And we are hopeful that our product - with an adjustment - can still be successful in the US. We also take into account patent costs that will come in the coming years; our authorized representative has informed us well.
We have managed to reach the “early market”, now we have to try to win over the mass market as well. We now know what production will cost, how much online distribution will cost and what margin we can make. Current sales levels are not sufficient to achieve our revenue and profit targets. So we will have to look for growth!
Crossing the chasm
“Crossing the chasm (1)” teaches us that the mass market places completely different demands on products than the early adopters. The transition from one group to another is not smooth.
This new phase creates new requirements in terms of marketing, production and personnel. Where the early adopters were still open to a new brand and completely new technology, the 'pragmatists' mainly look for confirmation that they are making the right choice. Pragmatists will always be looking for references, preferably from people who hold them high in a certain domain. In addition, they seek confirmation that there is a 'good brand', including warranty, etc.
We must ensure that we become more visible within our target group and achieve a substantial market share within the foreseeable future. We do not want to offer an exclusive niche product, we want to achieve as much scale as possible. As a market, we define “mobile outdoor toys for teenagers”.
Get out of the building
Naturally, we test every next step we take with our customers. Now that we already have a working product on the market, it becomes easier to test this with our new target group. After all, we can show something that already works and is being sold. The average teenager cannot perform all the tricks and moves of our original target group, the skaters. But they do look up to them. That's why we organize a youth event where we sponsor our first target group and ask them to show what is possible with our Fantoytic scooter. In addition, these young people provide master classes.
In the meantime, we keep our eyes and ears open and question the young people about the use of the scooter, what they think is good and what is less good about it, and test what they think of the price.
According to Crossing the Chasm, you should choose your first market in such a way that if you win it for you, you can easily push through to linked markets. We apply this principle to our intended distribution channel: toy stores.
With our online shop we had already made contact with a number of buyers from large toy chains. At that time we were not ready to scale up our production and we had not yet set up our logistics network. Now we are ready!
We approach the buyers ourselves and manage to make agreements with one large Dutch chain for the launch in the Dutch market. With our input from the youth events, we know in which area our stepboard needs adjustment. We therefore agree to produce a slightly modified variant, the Dutchie. This scooter is made of a bit more solid but heavier material and has a cool appearance with Dutch flags and lions. The technique is the same, the appearance is different.
The first two months we promise exclusivity to this chain, we contribute to part of the promotion and commit to buying back 80% of the unsold copies after 4 months at the purchase price. We do keep the initial delivery limited to 1.000 scooters nationwide. A risk, but we now know so much about our market that we are convinced of our chances of success. Our internet shop will remain active as usual, the sales price is slightly lower than the chain, and here we only sell the regular version.
Result of this experiment
Fortunately, this experiment is successful and better than expected! Within 1 month, the entire first order is sold out and a shortage is likely to arise. We are able to increase our production and sign a new, improved contract with the chain. Moreover, we learn that such a special edition has a lot of appeal among young people. So we hire a number of designers and develop 2 more variants. One more focused on girls, the other on boys, but all tough.
We are soon approached by a number of other toy chains, including a large American chain that has branches all over Europe. We also conclude a contract with them. Within 6 months we succeeded in being in the range of the main toy stores both offline and online. We make a 'national' variant for each country. The sales figures are very good, both the stores and we are very satisfied. Our internet shop is also doing well, and even the United States is starting to catch on.
We keep improving our product. We have built a community of Stepboard users who share their coolest moves and tricks on YouTube. Through this community we learn what they think is good and what is less good and we ensure that we adapt our product accordingly. But always only after we have thoroughly tested whether it is worthwhile, we do not follow our customers blindly.
We want more! After all, in the beginning, we had also explored another business model, the leasing concept. This did not catch on within the group of early adopters, but who knows, might this business model be interesting for our new target group? The leasing concept should be carried out through our distributors. This concept is certainly interesting for our distributor, the toy stores, because it creates a lasting bond with their target group. Together with our first toy store chain, we conduct a number of experiments until we have refined the concept so that it works!
In addition, we started working on a completely new concept, in which it is actually possible to float above the ground based on magnetic forces. However, that initiative is only at the beginning ...
In short, we continue to apply our lean startup principles, even if we are already successful. After all, for our current successful product, the hype may be over in a few months. We must continuously innovate and improve, product development and completely new business models. A balance between these three ensures that we can continue to be successful in the future.
(1) Crossing the Chasm, Geoffrey Moore, 2014
About the authors of this series
Senior European and Dutch patent attorney at AOMB IP Consultants(firstname.lastname@example.org)