In the life sciences, the value of any asset under development (e.g., novel therapeutic, diagnostic, platform technology, or health analytics software) will be mainly a function of risk – because cash flows from successful products can be fairly well benchmarked for a given category [1].
As an investor, entrepreneur, or manager in a growth-stage venture, your greatest risk comes from uncertainty about market demand when introducing a new product/service into an environment where neither vendor nor customers have a good grasp of the customer’s (i) actual underlying needs to guide innovative new product development, (ii) ability to consume the product in the context of their work processes (i.e., fit), and (iii) process to build consensus to acquire new technologies.
Understand the True Source of Market Risk
Part of this information deficit has its roots in neurobiology: wants/needs are decided subconsciously; only then does the left-hemispheric “interpreter” rationalize preferences [2]. A landmark study by pharmaceutical researchers demonstrated that severe cognitive bias afflicts even the most skilled scientists [3].
Therefore, if you ask a customer what they need, they will invariably regurgitate feature-based solutions based largely on existing competitive products [4].
An even larger contributor to this information deficit arises because companies historically have segmented their markets along the traditional boundaries of product and customer categories, which ignores the perspective of the job a customer hires a product to do [5]. Innovations fail to have impact when you ask the wrong questions in the wrong way to the wrong people.
Both of these factors lead to commoditization, price wars, and wasteful Red Ocean hyper-competition. Conversely, introducing exciting innovations into markets that can’t consume them leads to an Innovator’s Dilemma, where companies lose when they innovate and lose when they don’t [6]. Without meaningful differentiation as a guide, consensus-based B2B acquisitions most commonly default to (i) no decision or (ii) lowest common denominator decisions based on feature check lists and price [7]. The consequences have been costly: Booz & Company reports that 66 percent of new products fail within two years, and Doblin Group says a startling 96 percent of all innovations fail to return their cost of capital [8].
True differentiation comes from being the first to (i) identify critical customer needs that neither they – nor your competitors – were aware of, and (ii) convincingly articulate why customers should be motivated to address them.
Peer Behind the Customer Curtain
The information required to de-risk market adoption can’t be obtained from sales calls, presentations, conferences, industry reports, C-level summit meetings, surveys, focus groups, or A/B testing – because the necessary insights are buried inside individual customer experiences in the context of actual jobs-to-be-done. Ironically, even enterprise-level corporate databases filled with information that relate customer attributes with product attributes often obscure prediction or explanation of why a customer would “hire” your product/service to do a specific job.
At IOI Partners, we unearth these buried nuggets of gold by employing an ethnological market research platform that includes Voice of Customer (VOC) [9] and Jobs-to-be-Done (JTBD) theory [5]. By observing customers in their native environment without disturbing the natural flow of events, we can efficiently help you:
- Identify landscape of core jobs-to-be-done by customers,
- Segment customers along lines of job-defined markets to pinpoint actual target market and competition,
- Extract a complete set of partially or wholly unmet customer needs for a given job to be done (expressed in the customer’s own language),
- Cluster and prioritize customer needs (in terms of their effect on outcome of the job to be done),
- Know your customers’ world better than they know it themselves; be the first to teach them about a problem they didn’t consciously know they had – one that you can solve better than your competitor [10],
- Target your product development on functional, emotional and social dimensions of the specific job that customers need to get done, which constitute the circumstances in which they buy,
- Specify which existing products/services need to be “fired” in order to “hire” your product/service, and
- Help customers think differently about your company by providing insights into helping them to think differently about their company.
You can learn more in two weeks by observing how customers actually perform jobs-to-be-done in their functional, emotional, and social context than you can in five years by interacting with them through normal sales/technical interactions.
Our experience also allows us to efficiently conduct 1:1 guided discussions in which we transport customers back in time into specific situations to “relive” vivid experiences and feelings as they were trying to solve certain problems. The founder of behavioral economics – Daniel Kahneman – has pointed out that most stories emanate from the “remembering self,” whereas our method taps into the deeper “experiencing self,” which is much less biased [2].
See How You Can Lower Your Market Risk
To avoid wasted time and costs, VOC/JTBD would be ideally performed before product development commenced. However, because our approach is focused on underlying needs – not on the present state of a solution – it can be applied at any stage of product development (including post-launch). In one notable case, a beta-testing stage product was repurposed to fit a newly discovered differentiated need by simply removing a handful of features. The following examples illustrate the scope of innovations where the VOC/JTBD platform was used to identify “white space” to successfully steer clear of “me-too” product development:
- Product with an “app-like” user experience to penetrate non-expert market segment
- Decision support tool that guided design of drug candidates during discovery in pharma
- Laser-based, blood flow velocity diagnostic for objectively predicting surgical outcomes
- Collaborative software platform to de-siloize drug discovery
- Enterprise software platform to democratize big data analytics
- Synthetic biology service focused on low-cost expression systems for high-value proteins
In the case of a blood-flow diagnostic, research uncovered a hidden need that was completely counterintuitive: an innovative user experience using the device would be expected to affect clinical outcomes more than by marginally improving analytical measures of accuracy/precision.
In another case, qualitative research uncovered three major jobs to be done. Segmenting the customer space around one of the three jobs, 50 needs were extracted and clustered into five strategic bundles. Subsequently, customers quantitatively ranked each strategic bundle according to importance to accomplishing their mission and how well each need was met by their current workarounds for getting the job done (i.e., performance).
After carefully examining the left-hand quadrants (above), where important and/or unacknowledged needs are found, our analysis revealed that solving strategic need #1 would also address a hidden opportunity represented by strategic need #5. Focusing solutions on the right problem(s) lead to early adoption by major pharmaceutical companies.
Grease the Skids for Market Adoption
Most startups are frantically chasing financing and early adopters, while growth-stage companies are occupied with “crossing the chasm” from early adopters to mainstream markets with product in hand. Most will be well into beta testing or full commercialization before they realize there isn’t sufficient differentiation in the eyes of their target market to create enough energy to surmount the activation barrier (i.e., inertia) for adoption. Worse yet, marketing and sales materials are typically generated only shortly before a new product launch and mainly serve to highlight “novel” features. In stark contrast, our approach allows relevant marketing and sales materials to be generated early in the development process, because we focus customer conversations on differentiating aspects of the problem – not details of the solution.
This head start creates a first-mover advantage that can pre-empt RFP’s and long procurement processes.
Our paradigm both utilizes and lays the ground work for the Challenger Sales Model [10], where market adoption requires that your marketing and sales efforts demonstrate alignment between your motivations and that of the customer segment.
Our platform for de-risking market adoption can be summarized by the diagram above. Analysis of primal insights from ethnological studies of a customer segment that needs a particular job to be done, allows you to (i) create products that solve critical customer problems in a way that fits strategically into their flows, and (ii) provide fresh insights back to customers in order to align motivations between companies. This “fit” organically leads customers towards business development discussions about your innovative solution, which completes the cycle.
This phenomenon was nicely illustrated by a computationally based drug discovery company. For two decades, software companies selling predictive modeling tools directly into pharmaceutical companies observed that they were often applied to the wrong problems. Armed with insights gathered from observing pharmaceutical companies in context, this company was formed to challenge and reframe modes of thinking for best use of these tools. Their success has resulted in major pharmaceutical alliances that can create a stream of valuable assets. Within five years, they achieved >$1B in revenues.
Most life science based ventures fail to achieve escape velocity because they lack the resources to de-risk their business model before running out of cash while operating in an inherently low information environment. Business Advisory firms with cross-disciplinary teams experienced in ethnological studies offer a systematized approach for extracting key customer-based insights in a timely and cost-effective manner to give emerging companies or business units the same ability to de-risk innovation and adoption as established enterprise-level companies.
[1] Booth, Bruce. (2011, Nov. 18). Risky Business: Late Stage vs Early Stage Biotech [Web log post]. Retrieved Nov. 17, 2017 from https://www.forbes.com/sites/brucebooth/2011/11/18/risky-business-late-stage-vs-early-stage-biotech/#596e1ce262cd.
[2] Kahneman, D. (2011). Thinking, Fast and Slow. Farrar, Straus, and Giroux.
[3] Kutchukian, P.S., Vasilyeva, N.Y., Xu, J., Lindvall, M.K., Dillon, M.P., Glick, M. et al. (2012, Nov. 21). Inside the Mind of a Medicinal Chemist: The Role of Human Bias in Compound Prioritization during Drug Discovery. PLoS ONE 7(11) e48476. Retrieved Nov. 17, 2017 from https://doi.org/10.1371/journal.pone.0048476.
[4] Katz, Gerald M. (2004). Chapter 7, The Voice of the Customer. The PDMA Toolbook for New Product Development (p. 170). John Wiley & Sons.
[5] Christensen, C. M., and Raynor, M. E. (2003). The Innovator’s Solution: Creating and Sustaining Successful Growth. Harvard Business School Press.
[6] Christensen, Clayton M. (1997). The Innovator’s Dilemma. Harvard Business Review Press.
[7] Schmidt, K., Adamson, B., & Bird, A. (2015, March). Making the Consensus Sale [Web log post]. Retrieved Nov. 17, 2017 from https://hbr.org/2015/03/making-the-consensus-sale.
[8] Meehan, Mary. (2014, March 24). Flux: New Rules for Innovation and Growth [Web log post]. Retrieved Nov.17, 2017 from https://www.forbes.com/sites/marymeehan/2014/03/24/flux-the-new-rules-for-innovation-and-growth/#3dba1df3299e.
[9] Griffin, A. & Hauser, J. (Winter 1993). The Voice of the Customer, Marketing Science 12(1), 1-27.
[10] Dixon, M. & Adamson, B. (2011) The Challenger Sale. Penguin.
