Running A Business

Is It Time To Add A New Product?

May 13, 2022 • 10 min read
new product development small business
Table of Contents

      Evolve or die—that’s the key to companies’ long-term success. Responding smartly to market changes, customer needs, technology advances, unexpected opportunities, or unforeseen challenges usually means expanding a business’s offering.

      Why Would A Business Expand Its Offerings?

      One obvious benefit is generating more revenue, especially by cross-selling or upselling. Think about your last cell phone purchase. The “base” model probably had an under-sized memory card (upsell opportunity) and didn’t include a charger (cross-selling opportunity).

      Sometimes an expansion may seem counterintuitive. Imagine a steakhouse that adds vegan menu items. Doesn’t that dilute the restaurant’s core brand? Maybe, but that’s OK if it reactivates dormant customers who reduced their red meat consumption for health reasons.

      Expanding offerings can also improve a company’s reputation. A flower shop could enhance its image as a one-stop shopping place by adding birthday cards to its inventory. A strategic partnership with a bakery could further seal the deal—allowing a customer to order a bouquet, a card, and a cake in one place.

      How To Decide When To Expand Offerings

      No magic eight-ball tells a business when it’s the right time to expand offerings. However, there are some steps that are part of the decision process. Let’s take a high-level look at how to decide whether it’s time to add a new product or service.

      new product decision tree

       

      1. Identify A Problem

      First, find a problem worth solving.

      You can start by asking customers, via informal conversations or structured surveys, their pain points. Engaged customers will eagerly relay what they like and dislike about your offerings.

      Your team can pass along opportunities, too. For example, the employees of a company focused on siding repairs noticed that many customers also needed deck repairs. They let the business owner know that was a potential new service opportunity.

      Next, listen to dissatisfied customers (yours and your competitors) by reviewing social media comments and online reviews. Any internal database that tracks reasons for returns can also be a goldmine of ideas.

      Performing a SWOT (Strengths, Weaknesses, Opportunities and Threats) analysis of your offerings and competitors can also generate ideas. That may include a product breakdown (disassembling an item into its sub-pieces) to reveal additional insights such as safety issues, cost inefficiencies, or even opportunities to implement new technology.

      Keep in mind that a customer may not even know what they’re missing until you show them. For example, I bought a bike light that recharges by plugging directly into a USB socket—no cable required. Before that purchase, I never questioned the need to carry multiple charging cables. Today, I want that perk for all my electronic gadgets.

      2. Stress Test Your Solution

      Does it have a clear benefit (otherwise known as a value proposition) that motivates buyers to switch to your answer? If not, the customer has no reason to try your new product.  For example, a pizza joint may introduce a Chef’s Choice pizza to alleviate the pain points of  3+ people arguing about toppings. Ease is clearly the Chef’s Choice value prop: 3+ friends will have an easier time ordering pizza.  

      That SWOT analysis completed in step 1 helps here, too. Perhaps you own a zoo, and your competitor got a black bear (a competitor’s strength). Maybe a solution to your problem of having a “boring” animal lineup (a weakness) is to add a Bengal tiger to your inventory.

      Also, sketch out your ideal customer in your mind, right down to the car they drive and the shoes they wear, and try to picture them using your solution. Can you see it? Can you see barriers? In marketing, this is called using customer personas.

      3. Does A Market Exist For Your Solution?

      Next up, does a market exist? In other words, will anyone want to buy your solution?

      Use market research techniques—such as asking existing customers or sending surveys to a potential new market—to get detailed opinions about your existing product, proposed solution, and competitors.

      You can also snoop at trade shows and other events by scoping out what competitors offer and asking attendees about their current frustrations. Just be prepared to walk the fine line between getting information versus sharing your ideas with your competitors.

      4. Create The Product Development Team

      Developing a new product or service shouldn’t be a solo effort.

      Who’s on the team depends on your business’s size and the new offering’s scope. A business considering a significant investment in a new manufacturing line will have a larger team than a breakfast-only cafe contemplating adding a dinner menu.

      Not every project requires all these roles, but your team might include:

      • Project manager: facilitates collaboration, tracks scope and timelines, and corrals go/no-go decision
      • Sales and marketing: provide customer insight and smooth transitions during product launch
      • Designers: develops the product or service (e.g., an industrial designer for a product, a subject matter expert like an HR professional for a service)
      • User experience (UX) designer: focuses on customer journey
      • Product lawyer: identifies potential conflicts with existing patents, helps patent your idea
      • Key vendors/suppliers: can help co-design new products
      • Boots-on-the-ground people: anyone who builds the product, delivers the service, or operators. For example, the servers at the breakfast-only cafe may point out that dinner means more carry-out orders

      Remember that you can always use contractors or freelancers for these roles. 

      A freelancer is brought in for a specific amount of time to do a job. Going this route is good when you either can’t or don’t want to hire full-time people.

      5. Develop A Prototype

      A working prototype is required for the testing phase. It might begin as a proof-of-concept model (think fake parts and duct tape) and evolve into a model that allows for feature validation and customer experience testing. A services prototype may begin as a “what if” framework.

      The key is to make the prototype tangible enough for testers to use, feel, and see without breaking the bank when revisions are needed. Your prototyping costs will be determined by what you’re building and how you use it. And while you can save significant money by building it yourself, remember that you get what you pay for.

      6. Test

      Testing is an iterative cycle that includes refining the prototype (e.g., build-test-refine-test). The goal is to ensure you solve a problem without introducing new ones.

      That happens more than you might imagine. A bikepacker described a product purchase (an air mattress/sleeping bag combination): “I love 75% of this product. However, the other 25% makes me regret ever buying it.” The feature that solved his original problem (rolling off the mat) introduced a worse issue (a noisy layer to sleep on).

      Start with internal testing. Give the product development team first dibs, then branch out to employees who haven’t been involved in the development for fresh insight.

      Next up is beta testing, which is where you launch your product for the express purpose of working out the bugs through real-world usage. Beta testing could be as easy as a restaurant featuring a potential new menu item on their daily specials board to gauge customers’ responses.

      Finally, demo the refined prototype at pop-up markets, reseller locations, and trade shows or other events. Remember to check with your lawyer to ensure you aren’t sharing ideas before your patentable idea is locked down.

      7. Identify How To Deliver It

      In your initial expiration, you’ll have already considered the general feasibility of producing, packaging, and shipping. At this stage would be the time to dig deeper. Questions to consider include:

      • Will it cost less to produce than the price boundaries?
      • Do you have the capacity or equipment to offer it? If not, are you willing and able to secure financing?
      • Does this replace an existing item in your lineup? If so, what’s the phase-out plan?
      • Are there any regulatory or environmental factors to consider?

      You won’t have all the answers yet, but thinking through delivery challenges helps during the financing and launch phases.

      8. Can Your Prototype Be Priced Competitively?

      Usually, the goal is to make a profit, in which case you’ll choose pricing models like cost-plus, lowest price, or tiered pricing.

      Depending on the strengths/weaknesses of the product and the business objectives, one model may fit better than another. If customers perceive the offering as high value, they may be willing to pay a higher price. But in a highly competitive market, the lowest price may be the differentiator.

      “Free” may be a valid price if the goal is customer retention. A pet microchip company discovered that long-term customers abandoned them for a competitor’s product. When they asked why, customers responded, “You don’t offer integration with my rescue software to auto-upload microchip information. I switched to a company that does.” The company created a free integration service to win back its customers.

      Whatever price you choose, expect it to evolve. Initial prices may include discount codes to woo 1st-time buyers, while inflation costs may cause later price increases.

      FAQs

      Do I need a business plan to add a new product or service?

      No, you don’t need a business plan to add a new product or service. But business plans can help ensure a new offering meets your short- and long-term goals. Having a business plan may also help if you decide to apply for specific types of financing or work with investors.

      How do I keep someone from stealing my idea?

      It’s hard to keep someone from stealing your idea, especially if it’s not unique (free shipping, anyone?). But for potentially one-of-a-kind ideas, check with your lawyer before sharing your idea or involving others. It’s common to have employees or contractors sign non-disclosure/compete agreements.

      How much does it cost to add a new product to my line?

      The cost of expanding your product line will depend on many factors. An offering similar to something you already offer may cost less than branching out into new territory. Think of it this way: a lunch-focused food truck business that expands its services by adding breakfast will spend less than adding a second truck to reach a new part of town. Be sure to calculate the ROI on any new product before proceeding.

      Are there experts that can help with new product development?

      Yes, you can find all sorts of product development experts! Check for mentors at your local SCORE or Small Business Center chapters. Or consider using a design and product innovation consultant.

      Are there financing options available?

      Yes, financing is always an option for funding new product development and other expansion products. You can see what your small business is eligible for by completing the short, online application at Lendio.com.

      I know my customers will love this. Do I really need to test?

      Yes, you do need to test your new product, even if you’re convinced your customers will love it. Successful product launches are built on a foundation that includes testing. It helps refine the product or service and provides insight into marketing communication strategies.

      Start Your Product Development Engine

      Now you understand how to make the call on whether to expand your offerings. For more details of the process, review our step-by-step guide.

       

      Disclaimer: The information provided in this blog post does not, and is not intended to, constitute business, legal, tax, or accounting advice. All information, content, and materials available in this post are for general informational purposes only. For advice specific to their situation, readers should contact their attorney, business advisor, or tax advisor to obtain advice with respect to any particular matter.
      About the author
      Katherine O'Malley

      Katherine O'Malley is a contributor to the Lendio blog. A technology geek at heart, she splits her time between traveling, freelance writing, database administration work, and implementing SEO on her travel blog. In her free time, she loves to research the challenges small-to-midsize tourist suppliers face and find ways that technology can help them out.

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