Product development and distribution
Product is where passion and an experience intersect. Either can come first, but both need to be there.
How you sell is different. The “how” can often make or break a product. How involves the distribution of your product or service as well as the customer service element and the supporting components of your product. Collectively I call this “operations.”
In building a business you need to focus on two elements—building the right product and nailing the operations. Having a great product can make up for a lot of bad operations. But if your product isn’t the absolute must-have item of the year, bad operations can really hurt your bottom line.
In the case of Sphero, we started with an experience: controlling objects in the real world from a phone. Cofounders Ian Bernstein and Adam Wilson entered startup accelerator Techstars armed with this idea and made a series of app-controlled items from lights to robots to garage door openers. Eventually it was time to focus on one thing, and a mentor asked them what they’d like to do. They debated a bit, thinking a door lock might be the easiest to monetize. Their mentor said OK, but is that what you are passionate about? “What do you actually want to make?” Their immediate answer was robots.
Three ‘bots, a wearable, and one Droid from a galaxy far, far away later, and here we are.
What started as an app-enabled ball from Boulder has become a line of products sold in over 18,000 locations all over the globe!
Making version 1.0 (V1)
Making V1 is cake. Not really, it’s actually hard, really hard. But V1 will also likely be the easiest product that you will ever make. Here’s why.
V1 is all about passion. It is the reason the company was founded. The initial team is like-minded and just as passionate as the founder(s), and everything you do every day is about getting V1 out the door. If you have outside investors, that’s all they care about—shipping V1. All early customers from a Kickstarter campaign want is the product you promised to build. The entire world is all about you shipping V1. No one cares about revenue, costs will naturally contain themselves as you can only spend what you have, and you will pace yourself to spend just the right amount of money to ship V1.
For V1, the product development process is chaotic but extremely focused. It is like water running downhill—it can gush a bit to the left or right, but it will always flow downhill. So if you’re at this stage my advice is don’t fight it. It works— it’s not efficient or without frustration—but it generally gives you a great product. Embrace the chaos and be maniacal about driving the focus towards shipping product.
Once V1 is shipped you now have customers. You also have revenue and can develop sales targets if you haven’t done so already.
V1 customers will be vocal but generally supportive. You will get a few trolls that will go out of their way to say how crappy your product is, but mostly you’ll get some great feedback if you hit the market’s expectations for your idea. Regardless, if the feedback is a bunch of angry people or criticism of the product’s capabilities, you must develop a thick skin—no product receives perfect reviews 100 percent of the time. You should look at the instant feedback as a wonderful gift. Within days of launching your product you will know if your vision for V1 has met the expectations of your consumer. Most likely you fell short somewhere.
That is OK and you need to allow yourself a pass— things will get better with V2.
As soon as V1 is shipped, start on V2. Knowing that this is what you are going to do at the onset will allow you to push a lot of “scope creep” into V2, which will help you get V1 out the door. But now that V1 is out, what should go into V2?
With V1 in customers’ hands, gather all feedback and match that to the backlog of features that you wanted to put in but didn’t have the time or money to complete. When looking at the list of what needs to be done, something will become very clear: there is either enough positive momentum to continue moving forward with this product or the response is so poor you need to kill it.
At Sphero we made the mistake of building a V1.5 vs. going straight for V2. At the time we thought we were being smart to fix the few things we didn’t get right as the product went out the door, such as packaging and some minor cost reductions. What we realized too late into the process (this may be more true for hardware products vs. software) is that V1.5 took just as much time and energy as V2 would have, which ended up being a greatly improved product at a much lower cost.
Killing a product
If the feedback is overly negative or the sales well below your expectation, you may decide to kill the product altogether. So how do you know when the news is too bad? For me there are three indicators that say the product is done:
- Your investors won’t put in more
- The sales are dramatically off expectations, like 10 percent of plan (not 10 percent off plan).
- The team is so demotivated that no one wants to work on
If you have all three, then it is time to move on to something else. Two out of three, you need to do some soul searching because clearly several things aren’t working. If you only have one of the three, you should forge ahead if YOU believe in the product (remember, it was that passion that got you here in the first place).
A thought about reviews
If you have the type of product or service where you can get unsolicited feedback from customers (such as Amazon or app store reviews), value them for trends and insights but do not hang on every word. Just because you have a 4.8 star rating on Amazon does not mean your sales will rocket forward. High ratings just mean you made a good product—congrats!
A low rating, on the other hand, can definitely hurt your sales (below 3.5 stars). Negative reviews can come from many places and many of them may not be your fault. At Sphero we received poor reviews for all kinds of crazy reasons, like Amazon was out of stock, or a competitor’s product didn’t work with our app, or the product didn’t work on a device that we clearly said we did not support. Somehow you have to make sure these low reviews do not overwhelm the good ones. The best way to combat that is to build a rating function into your app or encourage your registered users to rate you. That said, you need to use caution; paying for positive reviews, even by offering a discount on future products, is a dangerous game and dilutes the value of the feedback.
Buried in all the reviews will be “votes” for future product features and bugs to be fixed. Use them to define V2.
Making V2 and beyond
If you get to make V2, something is going right. Now things get really hard; you must deliver a product that grows to meet the expectations of your investors and your future customers—V1’s success is the bar you must clear by a big margin with V2.
Your organization is stressed at this point because part of your team is spending time supporting your current customers, while the other part is working on the New Thing that will be so much better than what is out in the market. You may even have people complaining that you have to support the folks that gave you money vs. betting on some future new version. This is normal. The best you can do is try to divide and conquer. You cannot leave one side to starve; you must split the baby and take care of those customers using your current product while driving focus towards version 2.
You will realize that a chaotic, water running downhill approach to building product no longer works at this stage, and you will need to put some structure in place. Things like scope definition, schedules, sales forecasts, release dates, marketing support, and budgets all start to come into play. This is a good time to read a book on product development; winging it from this point forward gets pretty risky (trust me, I know from experience).
One thing I wish we did at this stage was to really focus on developing product managers (PMs). In the beginning, the founder or CEO typically serves as the PM but once V1 is out the door this function needs to be delegated in order for the company to grow. If you develop a culture where the PMs rule the product and get to act like mini-CEOs for the product—that is, they own the profit and loss, the development costs, and the features—then you build a foundation for the next stage, which is making multiple products simultaneously.
Product managers are worth their weight in gold. They are hard to find, difficult to develop, and generally require a larger salary than you budgeted. Great PMs have a true passion for the product—they love it, they care about it, and most importantly they care about your customers. They talk to your customers, read every review, and understand the costs and opportunities of improving or making a product. The best ones run their product like they are the CEO—they are concerned about all aspects of the product, not just the features and software, but also the sales, marketing, and support. They are generally well liked but most importantly they are well respected and are viewed as being very fair. When you find a great one you will know it, and you will try to duplicate this PM over and over again.
Making more than one product
If your first product is a success, at some point you will need to make something else in order to grow your business. You may choose something that leverages the same customer base but maybe not, depending on your business model. You may have a product for men and then choose to make a product for women. Or you have a product for men and you choose to upsell them on something else.
Whatever your choice on what new product/ service to make, you should start to become more disciplined about using the numbers to decide your investment. Chances are you got V1 and V2 out the door before you started to think about product #2. The first product was the basis of founding the company, the promise, but the next product is delivering on that promise. Sphero 1.0 was the app-enabled ball that started it all, but now that we have a suite of products, they all focus on connecting the digital and physical worlds of play.
It is typically at this time where investors start looking at the economics of the business and how it scales. A key driver to building a scalable company is making sure the economics work for each product. This is where having a robust product management function in place will help you pick the right idea for product #2 as the numbers will point the way.
We use four criteria to choose what product to work on:
- Does it align with our strategic vision?
- Does it make economic sense?
- Does it leverage our existing assets (tech or distribution)?
- Does some group of people have a deep passion to bring this product to market?
While these criteria work for us, you need to find the right questions to ask when selecting product #2 and beyond.
Making product is one thing but getting it into a customer’s hands is another. Regardless what you make, be it a physical product or perform a service, you have think about the entire customer purchase lifecycle.
Distribution is really the “where can customers get your product.” If it is a physical product, it refers to where consumers can buy it, what stores or online sites. If it is a service, it may refer to what geographic area, language, or applications you support. The focus in this section will be physical products, but I’m sure there are some lessons for service companies as well.
Distribution can really make or break a product. Unless your product is so phenomenal that folks will seek it out no matter where it is sold, having a poor distribution model can really hurt your sales. While great distribution seldom creates demand for your product, it will certainly ease the friction of buying your product if the demand exists.
The best practice is to benchmark yourself against a top-notch competitor or top- performing company you wish to emulate. For example, at Sphero we are in 18,000 stores worldwide. To benchmark we looked at major toy and consumer electronics companies; they are in well over 30,000 stores—so we have a way to go but we are off to a good start.
Not all distribution points are equal. Make sure the places you sell target your consumer and reflect well on your brand. For us, we sell to a premium toy buyer. That means deep discount stores are not where we launch our newest products. We launch our newest products in premium stores like Apple, Brookstone, and Best Buy. We launch our licensed products in stores such as Toys R Us, Target, or Walmart.
If you are selling a new product or trying to redefine an old category, you may want to choose a select few distributors/retailers to launch your product, brands that share common values or have a common customer base that you would like to reach. For our first entry into retail distribution we chose two key partners to launch our first product (Apple and Brookstone) and then gradually expanded out from there.
The only exception to this thinking is Amazon— virtually everyone sells on Amazon. Amazon should be part of your physical launch plans for every product if you goal is to reach a broad customer base.
“No” is never no in retail and a “yes” is never forever. If you sell a physical product through retail channels, remember their motivation: retailers want to move products that are staples or new to the market, that turn over at a high rate, and have a good margin for the category.
No one cares that you have the hottest new gizmo if it doesn’t sell off the shelf in the store. Buyers will look for products that they think will move, and if they get it wrong because they passed on your hot item, they will bring it in next year. If it doesn’t move, they will move you out.
Retail is all about what is new, so before you go into retail channels make sure you can feed the product development beast with new updates on a consistent basis. How often you should update your product is a function of what category you are selling in. If you sell into floor cleaners, maybe once every five years works, but toys need new products every year.
A successful product sells at a rate faster than the other products on the shelf. For us, makers of a physical consumer electronic/premium toy, our goal is to sell on average one unit per store per week per year. Obviously our business is oriented towards the holidays so that is the metric we want to hit on an annualized basis with the bulk coming in Q4.
Customers are going to have questions and problems, and your response will determine how happy they are with the product.
Having excellent customer service isn’t free. It requires people to answer questions and policies to make customers happy when things go wrong. You have to determine the level of customer service you want to provide. That being said, a little bit of love from customer care can go a long way.
Some companies barely have any support because the expectations are easily matched. For example, for a box of nails, it’s unlikely many customers will have any issues, so it is safe to say customer support needs are low. Other products are sold largely based on the level of support, like a complex piece of machinery for a factory. Where does your product live on that spectrum and can you use it to your advantage?
For Sphero, selling high tech toys, we opted for a high level of customer support because we knew some folks may have issues with their software or hardware. It is unusual for toy or similarly priced consumer electronic companies to operate with such a high level of support, but we want to make sure we maintain high ratings and deliver a premium experience.
While customer service costs money, it can also make money if it elevates your sales or makes consumers more confident when they are making their purchase decision. At Sphero, we have employees who applied to work at our company because of the level of service they received as customers. I think selling premium product requires a premium level of service, but that is just my philosophy.
Ultimately customer service needs to reflect how the organization thinks about the customer and the value they are delivering. We promise to deliver joy and fun—we don’t want any child to be unhappy playing with our products—so we invest in service to ensure we make good on that promise, and if we can’t, we give them their money back.
Paul Berberian, CEO, Sphero