Introduction Stage of the Product Life Cycle: How to Get Through It Successfully
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You’ve probably heard that a good beginning is half the battle. This proverb describes the introduction stage of the product life cycle.
Launching the startup on the market evokes many doubts and implies taking risks.
According to the Most Fascinating Startup Failure Rates in 2020 only 40 percent of startups bring profit. In the long run, 90% of projects end up with failure and about 20% of them break down during the first year of their existence. What makes the product go through the introduction period successfully?
Eleken is a product design agency and we work a lot with startups. New entrepreneurs often assume that an interesting idea plus a catchy website design will bring lines of customers wishing to make a purchase. We agree that a good product and appealing design are vital for your further prosperity, but it is not all you should know when bringing the product to the market.
What is waiting for me at the introductory stage? What if I fail? Why do startups fail? How to prevent my product from shutting down at the beginning of its lifespan? We guess these and some more questions arise in your head when you are about to launch a new product.
In this article, we are going to find answers to these questions. Let’s start with the basic characteristics of the introduction period.
Key features
The product or brand life cycle consists of four stages, and the introduction period is the first one. How to identify that your product is in the introduction phase? It’s simple, once you launch it on the market and ready to start selling you are there.
Sometimes the research and development stage is distinguished as the one that precedes the introduction. At that time you come up with an idea of a product or service and start working on it with a team of researchers, designers, and product developers. However, as soon as the product is ready for sale the introduction stage begins.
The introduction is considered to be a risky phase that can bring either very significant gains or losses in the following product stages. Its main characteristics are:
- Low sales. When a new product is in the introduction phase the awareness of it is low and sales grow slowly.
- High spendings. To increase sales you need to acquaint as many people as you can with your product. You have to monitor the reaction of the audience to your product and search for different places of distribution. These actions need constant expenses.
- Low competition. The great advantage of this period is a low competition or even the absence of it. It allows setting a beneficial price and gain a monopoly.
- Little profitability. Even if in the case of highly effective marketing at this stage the sales go up rapidly this is not enough to cover production and promotion costs.
There is no need to prolong the introduction period, as its main objective is to build enough awareness of the product to move to the growth stage. To do this quickly and efficiently you have to be familiar with challenges you can face during this stage.
Challenges during the introduction phase
If your products are in the introduction stage, it means they are new and nobody has heard about it before. You just start finding out whether the audience accepts the concept of your service. This fact creates some challenges your startup has to face.
Solid investments
The first great challenge is to have enough money to launch the product on the market. You’ve probably already spent a fortune on your project during the development stage. Of course, you can’t wait till it starts bringing profit. Be patient, further success requires solid investments.
Not all the customers will be aware of your product at the beginning of its lifespan, in fact, most of the target audience won’t be. You need to spend heavily on the introduction of promotional strategies to spread the word about the product among potential clients.
As well, you shouldn’t forget about the budget on distribution at this stage. Showing up in front of your customer in the right place raises the chance of sales. There are various online distribution channels like Amazon, eBay, Instagram, etc. Testing these platforms to choose the best variant for your product costs money.
Read more about Go-to-market strategies to make sure your product will bring revenue.
No profit or losses at the beginning
The second challenge is no profit or losses at the beginning. Initially, there is a low demand for the launched product. As is said above, most of your spendings goes on advertising and promotion. That’s why the product does not bring profit yet. Even if the sales go up, they actually don’t generate cash but only cover the cost you spend on promotion. You have to be ready to get over this period to move to the next stage. Monitor the growth rate to be sure the company's revenue increases and you are moving in the right direction.
Small market
The third objection is a small market. When first launching a product on the market you start selling it to early adopters. People won’t compare your product with somebody else’s, so you need to create a primary demand. Being a pioneer requires taking risks, finding distribution channels, testing the target audience, and attracting their attention. Obviously, sales usually grow slowly under such conditions and there is no guarantee for success.
Even taking into account all the risks, entrepreneurs make mistakes that lead to the fail of the project at the initial stage. In the next section, we are going to analyze these miscalculations for you to be able to prevent them.
Common mistakes in the introduction period
At the beginning of the article, we’ve mentioned that 90 percent of new projects eventually suffer a defeat. Let’s figure out the reasons for this disappointing statistic to be able to foresee them before creating the product.
The product doesn’t meet the need of customers
The main reason companies in the introduction stage go off the trail is they create the product that nobody needs. Of course, founders have done a great job developing their idea, but customers want to have their problems solved and won’t pay money for unnecessary things.
Pets.com
We can’t help mentioning Pets.com here. Pets.com was an online platform that allowed users to choose all the necessary stuff for their pets on the web site and get it delivered right to their houses. It was launched in 1998. They did a great job with marketing (their slogan and the logo were catchy) and gained great popularity by February 2000. In November 2000 Pets.com announced itself bankrupt.
The problem was that at that time you could easily find everything for your pet in the nearest local store. People had a choice to order online and wait for delivery, or to buy it in the nearest pet shop. As you can guess, most customers chose the second variant. Nowadays, Amazon provides similar services very efficiently, but back in 2000 that startup wasn’t in demand.
Lack of financing
Very often newly launched projects close down because they run out of money. Allocating funds correctly among each component of the project is a difficult task.
If you’ve already read the article up to this moment, you understand that in the initial cycle the new product launch requires much spending on promotion and distribution. The mistake that businesses tend to make is they don’t calculate the cost they’ve spent on attracting the customer vs value that the customer brings them. The first index should never exceed the second. Otherwise, you risk suffering losses.
Peppertap
Peppertap has made the mistake of spending too much on customer acquisition. Pappertap was a grocery delivery service set up in 2014. They started cooperating with local stores and managed to find the first customers very quickly. Peppertap set a goal to create a solid base of dedicated clients. To reach this objective they provided users with beneficial discounts. This way they were working at a loss hoping it would bring them a long list of loyal clients. Eventually, this delivery service ran out of budget and shut down. Indeed, new product intro requires a lot of financing, but you should be very careful with your budget.
Poorly matched team
The next mistake you can make at the beginning of the product’s lifespan is choosing the wrong people for your team. No business will be profitable based on the idea only, it is the execution that contributes to the product’s future success. People who work with you should be diverse and possess different skills. Sometimes the founder thinks that he or she will be able to run the project only with the technical team. They try to perform all other duties on their own. Keep in mind, running a startup involves not only engineering but also many business aspects and it is very difficult for one person to cope with it.
Devver
One of the reasons Devver, a cloud-based software tool for enterprises, shut down was a team issue. Due to the fact that both founders were technicians, they measured the progress of their startup by the quantity of written code. They didn’t pay attention to non-technical tasks like analyzing customers’ feedback, searching for new distribution channels, etc.
In the Devver Blog, one of the cofounders writes: “Dan and I are both technical founders. Looking back, it would have been to our advantage to have a third founder who really loved the business aspect of running a startup”.
It’s better to be responsible when creating a team and make sure that each member does his job.
Underestimating the competition
It’s true that one of the key features of the launching stage is the low competition level. Still, not paying attention to the competitors at all can lead to the failure of your startup.
If the launched product is interesting and people start paying attention to it, be sure that very soon you will see similar offers on the market.
If you decided to create a competitive product get ready that it would be difficult to make people stop using the service they get accustomed to.
Learning about red and blue ocean strategies can help you cope with the competition.
Vidme
Vidme is a video platform that was introduced as a new product in 2014. Its simple interface and ability to embed this player in any social network made it a potential competitor to YouTube. Vidme managed to gather more than six billion views and seemed to attract users’ attention. Still, they failed to convince the audience to stop using familiar platforms and switch to a new one. In 2017 Vidme’s team announced they close the project.
These stories about startup failures are here not to terrify you, but to help you learn from others mistakes. Launching a new product is risky but it is still worthy. With good preparation, you will be able to cope with the introduction period successfully. Here are some tips for it.
How to prevent the failure of your startup
You should understand that there is no secret key using which will definitely save your startup. It’s all about being passionate about your idea and working hard. Still, there are some recommendations that can help.
Create a business plan
Writing a business plan is important as it can help with other aspects we are going to discuss in this section later. Think of a plan as a map that leads you to the final goal - transforming the startup into a profitable business. A well-prepared business plan guides you on how to operate your project and grow it successfully. A plan usually outlines up to 5 years of the product’s life.
You can divide it into several parts, that is to separate marketing goals, from sales goals, etc. It will help you to view the objective picture of your business and prompt you to make the right decisions for further project development.
A business plan is also very useful in encouraging investments. It helps to persuade a potential partner that a project is profitable and worth his or her attention. Funding is the next key to prevent the failure of the startup.
Provide appropriate funding
It’s clear that running a business without enough capital is impossible. The sum of money you need for a startup varies in different industries and range from several thousand dollars to several million. Writing a business plan will help to determine the number of expenses for your specific case. The question is where to get this money?
The graphic shows that the main source of fundings comes from personal savings. Very often the needed cost is much higher than the entrepreneur initially expects. Your business plan will be useful here again. It usually contains a financial plan which provides alternative funding sources.
In case you need to find investors you may start aking your friends or family. You can also post info about your idea on special platforms for finding investors, like Product Hunt, Angellist, Republic, and others.
Note, before presenting your startup to investors make sure you have an effective pitch deck design. It’ll help to make the right impression and get an immediate understanding of the core of your project.
It’s impossible not to mention Airbnb here. Airbnb is an online platform that allows people to find and rent suitable apartments around the world. Its success story is amazing and shows how to grab the audience. Airbnb’s pitch deck had become a perfect sample for entrepreneurs all over the world known for its simplicity and clarity.
As soon as you’ve found enough money for your startup, you can think of the next aspect.
Talk with experts
Most startups have a small team at the beginning of their life. The team usually consists of up to 5 people. These can be a founder, a couple of employees, and sometimes a manager.
Starting a business includes more than creating a product or service. You need to register your company, get a federal tax ID number, and many other financial and law issues. That’s why it would be a great benefit to consult with a lawyer, accountant, and financial expert before launching a product. These people can help you save money and explain your obligations and responsibilities.
They may not be a part of your team, but talking with experts can help your business to avoid some unpleasant issues in the long run.
Take care of the marketing aspect
We’ve already said that having a great product is essential, but there is no use of this product if nobody knows about it.
Traditional ways of promotion like paper ads, advertising on TV, billboards, and so on are rather expensive and not so effective in today’s digital world. You have to learn more about SEO, SMM, SEM, email marketing, content marketing, and other digital marketing techniques. Distribute your budget on promotion among different channels to reach more people.
One more recommendation here is to think well about the design of your website. In case the ad campaign is effective and the lead is interested in your service a properly designed page promotes the user to try out your service/product. To understand better why the design is helpful here check the article Inspiring SaaS Landing Page Examples that Convert.
Conclusion
Product introduction to the market is not an easy task. There will always be some situations you can’t predict and control. Still, taking into consideration all the tips from this article will make you one step closer to a successful startup launch. While difficulties and challenges during the introduction phase will give you a valuable experience you will need later at the growth stage.
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10 Principles of Great Product Vision to Guide Your Product Team
Have you ever wondered how to create a product vision that doesn't look like a cheap motivational poster but actually makes sense? Then, this article is just for you.
For years, we at Eleken have been creating UI/UX design for different kinds of SaaS companies, from startups to the ones that have been on the market for a long time. And one thing that we've learned is that product vision affects many aspects, including design. That’s why you should be thoughtful about creating it: an impactiful vision should be based on strict principles.
What is a product vision?
The simplest explanation of product vision is that vision states the future that we aim to create. It reveals the purpose of your product, and the why behind it.
What product vision is NOT
A strategy
Strategy explains concretely the milestones that lie on the way to fulfilling product vision.
A product specification
While product vision is more abstract, specification tells in detail the tech requirements of the future product.
A mission statement
Mission is more abstract than product vision. “Making the world a safer place” is a mission, while “providing a safe and reliable opportunity for students to find accommodation” is a product vision.
3 signs of a good product vision
If you already have a raw version of product vision, I recommend checking it against these three criteria to see if it needs some improvement.
1. Easy to communicate and understand
The downside of inspirational phrases is that they can easily get too abstract and ambiguous. A good product vision is something that all team members understand in the same way.
To avoid the “curse of knowledge”, show the vision statement to a person outside of the team and ask how they understand it. If it coincides with what you think, the criteria are met.
2. Aligned with company goals
One can argue that the company goals are what must be aligned with product vision, but it doesn’t change much. In fact, the two must be coherent. That’s why “making the world a better place” is typically not a good mission statement.
This rule is a good reminder that a product vision must not just repeat the current company goal. If you are developing a fitness tracker app, for instance, the vision shouldn’t be “to create a great fitness tracker”. You can’t argue with this statement, true, but is it helpful..?
3. Open to changes
Many professionals would advise having a stable product vision, but we could argue with this position. Even the constitution changes sometimes, and so does the product vision. Sticking to the same no matter what means you assume you can never make a mistake. However, as the product goes through different stages of evolution, the vision must evolve, too.
Product vision must be reviewed from time to time (once every 3 to 5 years) to align it with the product development process. Strategic planning sessions are a good moment for that.
This is what makes a good product vision. Now, let’s see how to create one.
10 principles of great product vision
This is not a step-to-step guide, but rather a list of rules. Additionally, I suggest you get acquainted with the 10 principles of great product vision from Marty Cagan, author of Inspired: How to Create Tech Products Customers Love
- Start with why
There is a book written by Simon Sinek, whose title summarizes its plot. It tells how you should focus not on what you are doing, but on why you do it. Finding the why requires asking yourself many questions to get to the essence of the product.
- Focus on the problem, not on the solution
Marty Cagan uses “falling in love” here, but “focus” is quite enough. Why is it so important to think of a problem before anything else? When you are obsessed with the solution, you risk sticking to it even when it has proven to not be working. It’s like riding a dead horse.
To find the best solution, you need the courage to accept the fact that some of your ideas don’t work and abandon them. That’s why you shouldn’t be too much in love with your solution.
- Don’t be afraid to think big with your vision
Product vision is not a KPI. If the vision doesn’t come true in five years, it doesn’t mean that you failed. If you got a few steps closer to the vision, consider it a success.
That’s why one shouldn’t try to make vision “realistic”. If it is realistic, good, if it is a big dream, that’s fine, too.
- Don’t be afraid to disrupt yourself
(Or your competitors will, says Cagan). Again, it means not sticking to one solution, and leaving some room for experiments and innovations. Many successful companies create new products that compete with their own, and that’s what helps them keep up with the competitors.
- The product vision needs to inspire
It’s a joke, but only partially. The mission statement should be something that makes employees feel that their work has a greater purpose. Let’s face it, the product team’s work has many boring tasks that can decrease motivation. A vision statement must remind people what they are working for.
When a prospective employee is invited to a job interview, they see the mission statement and can immediately feel if it resonates with their values. That way, the company will get a motivated team united by something more than corporate parties.
- Determine and embrace relevant and meaningful trends
Even though each product has its own unique way, they all exist in a certain time and place. Success often depends on how well the product is adapted to the environment, and how it fits with the current trends. Being aware of what’s happening around is important to create an app that is well perceived by the public.
- Consider how things will change in the future
Or, as Marty Cagan wrote, “skate to where the puck is heading, not to where it was”. If you’re not fond of hockey references like myself, just keep in mind that the product vision is all about the future, but the world around will be different from what it is now.
Consider the trends around and try to place that vision in the world that is yet to come. Don’t worry if you can't guess in the years to come: remember, no one in 2019 could guess what turn the following year would take.
- Be stubborn on your vision, but flexible on the details
In other words, you can change some things, but don’t change the main idea. The rule is taken from the words of Jeff Bezos, so it’s safe to say it is more relevant to big companies.
If you are at the beginning of your way, being flexible is natural. On the contrary, big companies are afraid to change their fundamentals, such as vision. This rule has to remind them that it’s OK to be flexible when it comes to details.
- Realize that any product vision is a leap of faith
Nobody knows if you will fulfill your vision and whether your vision is even good. We can judge in retrospect, but when you start formulating the vision, there is no objective measure to qualify it as good or not.
Even though we give a big piece of advice here, and even provide a product vision template, you have to be aware that it is a rather subjective matter. In the end, how well it resonates with the team will be one of the most important criteria.
- Evangelize continuously and relentlessly
The product vision should be communicated well. It’s often said that product vision is a “North Star” of the product. But to guide the team, it has to be visible. A common mistake is to leave it on the board after the strategic session and never get back. Don’t do that, get the most out of your product vision.
What is an example of a product vision?
In general, companies prefer sharing their mission publicly on their website, while the vision is not always that visible. Here is an example from one of our clients for whom we provided redesign services.
Gridle is a CRM platform that helps businesses store client information and manage sales. When they came to us for a redesign, they presented the product vision that became the North star for our designers just like it is for all their team.
This vision is short and concise. It focuses clearly on the target audience – small businesses – instead of claiming that they want to make the world a better place. It inspires employees, reminding them that their work helps small businesses owners. It also spoke to Eleken designers, since good UX design is something that can work processes more efficiently.
The result was the design that helps to automate working processes and make them as easy and fast as possible. To learn the details, read the full case study.
To sum up
Product vision principles are numerous, but to make a quick summary, here are the most important rules that will help you create an awesome product vision:
- Dare to dream big and think of something that inspires you and the rest of the team
- Start with why you’re doing this and what problem you want to solve
- Always remain flexible and open to experiments
Ready to create a product vision? Check out the product vision templates!
Rule of 40 for SaaS: Tips and Tricks for Healthy SaaS Development
SaaS companies need some metrics, such as customer and revenue churn, customer health score, and lead-to-customer rate to analyze their success. Just like any other product, the software relies on statistics and various economic indicators to define their place and role in both the market and economy. Such an analysis is a reliable way to check if your SaaS solution is healthy or whether it requires changes.
The first people to talk about and discuss the rule of 40 back in 2015 were Brad Feld, Techstar’s founder, and Tomasz Tunguz, a famous venture capitalist. As for now, the larger part of SaaS companies has adopted it even though it was introduced only a few years ago.
Tunguz and Feld claim that a simple formula for the evaluation of the SaaS business should be used. This rule of thumb includes only 2 parts: growth percentage added to the profit percentage of your company should make up 40% in total. For example, when generating a profit of 30%, your growth ratio can be 10% but they will still add up to 40%.
But why is this principle so important? Does anything else have to be considered apart from profit and growth? As a SaaS design agency, we know very well how much product managers care about metrics.
Growth vs Profit
At first, let's get into growth and profit ratios and how to calculate them. With different ways to measure these numbers, each enterprise has to decide on its own way of calculations.
The growth rate is defined as the percentage change from one time period to another. It is most often measured by year-over-year (YoY) or by monthly recurring revenue (MRR). However, some companies consider by growth the increasing number of employees or even market share.
The profit margin percentage is the amount by which sales revenue exceeds your business costs. To calculate it, you should use EBIDTA which can be deciphered as earnings before interest, taxes, depreciation, and amortization. Currently, most software companies rely on this principle to find out their net margin without considering taxes.
Don't worry if all these metrics sound overly complicated: it is hard to explain all in one article. That is why we made a list of top books on SaaS metrics.
The rule of 40 is quite a challenge for enterprises that are in the game for a few years already. Their growth ratio might fall down but they remain profitable.
The most successful companies rock this principle due to high profitability. For example, Adobe, a computer software corporation, was founded almost 40 years ago. Adobe balances its growth and profit, with the last one reaching 23,71% as of 2019. Such figures demonstrate the enterprise’s steady development and progress year after year.
At the same time, startups, in most cases, have no revenue right after the launch and throughout the whole introduction stage of the SaaS solution life cycle. Nevertheless, they still have all the chances to fit in within a 40% margin as the growth rate of prosperous new products tends to be constantly rising.
CultureIQ, a startup that allows employers to receive feedback from their employees, showed unbelievable results. Founded in 2013, this company reached a 165% growth ratio during the first half of 2019. Thus, despite no revenue, their economic indicators still satisfied the rule of 40 SaaS.
Now, let’s talk about the very formula of the rule of 40 SaaS, which is quite simple.
The best thing about this financial framework is balancing the percentage of both growth and profit. For instance, the growth ratio can be 10% while the net margin 30%. It can even happen that the profit makes up 50%, which allows you to have -10% in growth.
In the picture below, we can see the graph showing the profit and growth ratios of SaaS businesses as of 2019. Additionally, there is a line separating the projects that “hacked” the rule of 40 (marked with green) from the ones that didn’t manage to do it (red).
It is evident that in the formula of the rule of 40, both components are interconnected variables. Even with minus profit, your SaaS application can have a huge growth percentage and vice versa.
A clear advantage of this rule is more space for creativity and a variety of strategies for your SaaS product development. For instance, you can choose the time to focus on leveling up the growth ratio, while the net margin will remain stable enough to stick to this principle.
When to start counting and what time periods to count
This is the question that remains quite complicated for many software companies. Right after launching your project, it may be unnecessary to apply the rule of 40 because things may turn either splendid or terrible at any minute. So, you better take it easy and start getting into this financial framework a few years after you’ve launched your product.
An additional formula to be applied here is known as the T2D3 approach. Within this framework, the annual recurring revenue (ARR) should be tripled for two years and then doubled for the next three years. Most software companies use this formula, and only after the first 5-6 years, they start applying the rule of 40 for SaaS.
T2D3:
During all this time, your product will likely be passing the first stage of the product life cycle — the introduction stage with no profit and moving to the next phase — the growth stage. Even though it can be a challenging and unstable period, you will finally be making some revenue, so that you can evaluate the prospects of your software business properly by applying the rule of 40 for SaaS.
Why do we need the rule of 40?
At first sight, this principle for SaaS aims at comparing the service to the other ones in the market. By such observation, you can double-check if your business is profitable or whether it needs improvements. However, this rule of thumb goes much deeper than just a brief analysis and, in fact, each SaaS company should use it to maintain steady development.
Despite getting deeper into financial risks and prospects, the rule of 40 aids with preparing a plan for future development. By analyzing growth rate and net margin, you can map the strategies for the next years or even come up with new methods for your business development.
Why does the rule of 40 apply mostly to SaaS products?
The answer is simple: it best describes and fits the dynamics of SaaS product development. Unlike many subscription services, the software is probably the only product that can both grow and decline incredibly fast. That is, both the net margin and growth ratio can surpass even 100%.
Of course, you can analyze even non-digital products using the same formula, but the eventual figures will probably be irrelevant as these projects grow slower. Even if they fail to reach 40% as per the rule, it does not necessarily mean that they are loss-making or will have to be closed soon.
Two main components of the rule of 40 are the company’s net margin and growth. With many popular software products skyrocketing within the first few years, 40, as the sum of these indicators, is a totally achievable figure to strive for.
Is the rule of 40 for SaaS enough?
Without a doubt, there are many ways and opinions on how to evaluate and measure your SaaS solution. The software’s rule of 40 has become the ultimate most common framework for this. By applying this formula, you do not only compare and contrast the service to the other ones but also check if your business is in perfect condition.
Similarly, it is quite difficult to move forward without any plan or directions. The rule of 40 for SaaS also makes a certain guideline on how to run your SaaS company and make both short and long-term growth plans.
When it comes to economics and financial success, the rule of 40 is the main indicator of a robust developing company. Still, if you want to get a full picture of your SaaS application’s position on the market, its prospects, and earnings, you can also take notice of other metrics and the tools to keep track of them in our blog-post about SaaS dashboard.
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