New Product Risk Hurdles
There are several risk hurdles at different stages for releasing a new product, especially when it comes from a new company. They include:
- Technical Hurdle – A product that is the integration or evolution of existing technologies has little risk versus something that has never been done before. For instance, Uber has no technical secret sauce; it’s a mobile app that passes messages and uses location services. The Segway is all secret sauce…. making a highly stable, highly maneuverable urban transport that no one needs was pioneering higher-risk technology.
- Market Validation Hurdle – A better, faster, and cheaper product in an already validated market is considerably less risky than a product in such a new space it creates instead of disrupting a market. Color TV, while more expensive than Black and White TV, provided enough utilitarian improvement that the slightly higher cost didn’t hinder market adoption. On the other hand, the Segway offered no benefits over its existing three-wheeled competitors. The fact that it was more unique and had a slight wow factor didn’t warrant a two to three-times cost premium.
- Two-Sided- Market Hurdle – Could facebook attract enough eyeballs of enough value that advertisers would be willing to spend money for access? A two-sided market is an if then else Two-Sided Market Hurdle. The more difficult hurdle is a Two Ifs and a Maybe Hurdle. If Uber could attract enough riders Could Uber attract enough drivers so riders could be confident they’d get a ride, and could drivers feel confident they could earn revenue? Two-sided markets are an order of magnitude more complex.
- Execution Hurdle – Is the leadership team competent? Do they work well as a team? Have they ever done this before? Have they ever worked together before? Do they have relevant experience? Is anyone a convicted felon?
When a company has a working prototype and can prove there is a large enough Total Addressable Market, prove and demonstrate the Cost of Acquisition is significantly less than the Lifetime Value of a Customer. They have crossed multiple hurdles.
These are just four examples of risk hurdles that every startup faces. If you can’t raise money for your startup, perhaps it’s not because the investors don’t get it… maybe it’s because they do get it, and it is the Risk Hurdles you haven’t yet crossed.