The Law of Market Failure
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The following guest post is the first in a series of four articles by innovation agitator Alberto Savoia. Throughout his career as a serial entrepreneur and Google employee, Alberto has experienced great market successes–along with a few inevitable failures. In this series he’ll share his knowledge about why products fail and provide recommendations for beating the odds.
I am going to begin this series of articles on new product delivery by tackling the rather difficult and unpleasant subject of market failure. It may not be the gentlest way to start, but the odds for market success are heavily stacked against any new product. The best way to beat the odds is to be aware of them and to understand the causes behind them — know thy enemy.
If you’ve been involved in developing and launching new products for a while, you have probably experienced a few flops along the way. Welcome to the club! But how common is failure for new products? There is a lot of anecdotal evidence, but what about actual numbers to backup and quantify our experiences? During my tenure at Google I’ve participated in many product discussions and I now have two of the company’s guiding principles embossed in my brain: 1) Data beats opinions, and 2) Say it with numbers. Fortunately, when it comes to new product failure there is plenty of data available.
Every year, companies launch thousands of new products of all types and in all markets–with each team believing and hoping that “This is the one.” All of these launches are carefully followed and tracked by various market research companies. One such company, Nielsen, has been analyzing thousands of worldwide product launches for a long time. Here is a summary from one yearly report:
Nielsen Research
The results are remarkably consistent from year to year. There may be minor annual variations, but Nielsen summarized its many years of research and analysis of what it labels “historical new product performance” and assigned it a failure rate of around 80%. Ouch.
Now, it may be true that some research companies define failure/disappointment or success differently, and that some markets may be more or less brutal and competitive than others. Even with the most lenient definition of failure in the most accepting and open-minded markets, the overwhelming majority of new products will fail.
But why is that? Is there a primary cause for all these failures? The most common response is to blame “execution” somewhere along the way. But whose execution? At what stage in the process? Answering these questions is a challenge because after a market failure there is a lot of finger pointing. As the saying goes, success has many fathers while failure is an orphan. What does the research show?
Unfortunately, the causes behind market failures cannot be quantified or categorized as neatly as the number of market failures. There is little doubt that bad design, missing key features, poor reliability or performance, wrong pricing, a bad marketing campaign, a poorly timed launch, etc., …can doom a product. An inexperienced team may make one or more critical mistakes in any of those areas; but many new products fail in the market even when they are competently executed by experienced teams. Double ouch.
There are, in fact, many cases where the same company and people responsible for a hit product fail to achieve even mild success with one or more follow-up new products. Same company, same team, same resources and expertise, same market knowledge, goodwill, etc., and very different results. Past performance may still be the best predictor of future performance; but the odds for failure still trump (and trample) previous success records and competent execution.
The numbers and the data are so compelling and consistent that I decided to summarize and formalize them into a law:
The Law of Market Failure:
Most new products will fail in the market,
even if they are competently executed.
In criminal law, a person is presumed innocent until proven guilty. When it comes to market law, we should presume a potential new product to be a failure–at least until we’ve collected enough objective evidence to make us believe otherwise.
You may be thinking, “Thanks for that morale booster, Alberto. Now what?”
I had warned you that this series of articles would begin on a somber note. My goal is not to discourage, but to provide a realistic assessment of the odds faced by anyone involved in delivering new products to market.
The great news is that we got the tough stuff out of the way early and once we acknowledge and accept The Law of Market Failure we can begin to study it and develop ways to deal with it. And that’s exactly what I will cover in my next article; we are going to look at “F.L.O.P. Analysis” – a way to categorize the most common causes of new product failure, so we’ll know where to strike. It will be the beginning of our journey from likely victims of The Law of Market Failure, to likely victors over it.
Read the next installment in this series, F.L.O.P. Analysis – Why Most New Products Fail In The Market
About Alberto Savoia As a serial entrepreneur and an early Google employee (where he led the development and launch of Google’s AdWords), Alberto Savoia has experienced great market successes–along with a few inevitable failures. Most entrepreneurs and innovators respond to failure by licking their wounds and moving on to their next idea. But Alberto decided to first deal with the sting of failure by stinging back. Between 2008 and 2011, while still at Google, Alberto became a serious student of failure in new and innovative products. After reading dozens of studies and analyzing hundreds of new products, he was able to identify the main cause for why most new products fail in the market, and developed a set of techniques, which he called Pretotyping, to minimize such failures.
The concept, techniques, tools and metrics of pretotyping were an instant hit within Google; and soon Alberto found himself teaching pretotyping at Stanford University and at many companies, from startups to Fortune 500. His handbook “Pretotype It–Make sure you are building The Right It before you build It right” has been translated in many languages and has become an invaluable guide for thousands of innovators and entrepreneurs world-wide. Alberto’s work on innovation has been recognized with numerous awards, including The Wall Street Journal Innovator Award. Learn more about Alberto on his website and follow him on Twitter @Pretotyping.
Latest posts by asavoia (see all)
- Pretotype It - September 24, 2014
- Don’t Tell. Don’t Ask. Data Beats Opinions. - September 15, 2014
- F.L.O.P. Analysis – Why Most New Products Fail In The Market - September 9, 2014
Great article, Alberto! I’m a big fan of your book and philosophies. But this article begs the question: what are some key examples of a product that was well executed, but failed?
Any examples of a product at Google that had all the right resources, talent and financing and still failed?
Hi Michael,
Thank you for your comment.
Now to your question: “Any examples of a product at Google that had all the right resources, talent and financing and still failed?”
The example that first comes to mind is Google Wave.
Wave was the brainchild of the brilliant team leaders behind Google Maps. At the Wave introduction at Google I/O 2009, Vic Gundotra, then VP of Engineering, introduced the team as follows: “The engineering leadership behind what you’re about to see is the work of two brothers and an amazing engineering team with them … Those two brothers are Lars and Jens Rasmussen. You might remember those names because those were the same amazing people that did another magical app, called maps … Google Maps.”
The launch was, to say the least, VERY successful: Everybody in tech was talking about it and people were begging for invites (it was invitation only at first).
There were, to be fair, some operational and reliability issues with the earliest versions, but that’s to be expected; if a product is “The Right It” people will put up with a fair amount of initial issues (remember the Twitter “Fail Whale”?) The problem was that even when those issues were addressed and Wave reliably did what it was meant to do–which was A LOT–it wasn’t compelling enough for people to use it.
Let’s apply F.L.O.P. analysis to Wave:
I believe that we can agree that it was not a Launch issue (for it’s hard to imagine getting more visibility and coverage than Wave received at its launch.) And even when the initial Operation issues were addressed, users did not care. So the main culprit has to be the Premise.
Wave was meant to be the evolution of email (“What email would look like if we invented it today.”) and a “wave” was explained as follows: “A wave is a live, shared space on the web where people can discuss and work together using richly formatted text, photos, videos, maps, and more.” It’s tough to be The Right It when there are some many “its” in it. As with other notable market failures in high-tech (Apple’s Newton comes to mind) Wave tried to offer and do too much too soon.
Another example, in a completely different market, is the McDonald’s Arch DeLuxe. According to Wikipedia: “The Arch Deluxe was a signature hamburger sold by McDonald’s in 1996 and marketed specifically to adults. It was soon discontinued after failing to become popular despite a massive marketing campaign and now is considered one of the most expensive flops of all time.”
McDonalds knows how to advertise and reportedly spent a staggering $150M on the Launch. No problem there. The Arch DeLuxe actually tasted good, just like you’d expect a more upscale and “adult oriented” burger from McDonalds should taste. And, of course, McDonalds had no Operational problems in delivering it in quantity and with reliable quality. Once again, the main culprit has to be the Premise.
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In both of these cases (Wave and the Arch DeLuxe) you have companies that are market leaders, have extremely talented and experienced people (domain leaders), huge financial resources and market reach–all the operational expertise to properly execute their plans. That’s what I mean by “competently executed.” Unfortunately, even the best execution will not help a product that is not “The Right It”.
Thank you again for your question, and I hope these two examples are helpful. I could go on for pages with other examples, but the stories will be essentially the same.
Alberto
I have a question please, what if you talk about the new starting companies in business?? The company is new and it introduces the new product in the market will it face the same difficulties??
Hi Leonis,
Thank you for the question.
You ask: “The company is new and it introduces the new product in the market will it face the same difficulties??”
Absolutely. If you are a new company, you typically have only one product/offering so your product IS your company. Established companies have a range of products to fall back on. Google continues to do great even after Wave, but if you are a startup and your first product fails, then the entire company may go down with it.
And, as you probably know, most startups fail … and the failure rate numbers are very similar to the failure rate numbers for new product introduced by established companies (i.e. 70-90% depending on how you count.)
Bottom-line: If you are a new company, making sure that your initial product(s) are The Right It is doubly important.
Best wishes!
Alberto