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Avoiding the Innovation Death Spiral

The new product launch is always an exciting time, whether in a startup or an established company. A time great promise.

But it is also the most challenging stage of the product life cycle and presents the greatest risk — a determinative moment for companies big and small.


And for disruptive products (i.e., a novel technology and/or opening of a new market), both the upside opportunity and downside risk are at their extreme.


THE INNOVATION DEATH SPIRAL


All too often, the new product launch marks the beginning of what I call the “Innovation Death Spiral.” It’s an all-too-familiar story that goes something like this.


A big media splash accompanies FDA approval. Market expectations are running high, since for years, everything has been building toward this moment. Leadership establishes goals arbitrarily (lacking historical data upon which to base them), and the organization gets busy executing the launch plan. Marketing loads the plan with untested tactics. The sales VP gets busy hiring salespeople. What might start off promising, all too often takes a disappointing turn. Salespeople miss quotas. The company misses the plan. Leadership cranks up the pressure, spurring the sales team to double down on their efforts and close, close, close! New marketing strategies, special price promotions, and other scattershot tactics ensue — but a quagmire of failure to meet expectations persists. Eventually, the executive team is replaced, and optimism gives way to disillusionment.


Under heightened pressure, management teams often retreat to the safety of what they know, rather than risk trying new strategies. They tend to press on with what’s not working rather than stepping back to craft a new, more effective, yet unfamiliar, approach.


TWO CRITICAL MISSTEPS


Two critical missteps often spark the innovation death spiral.


The first is premature scaling of the sales and marketing effort. Sales and marketing leadership jump into executing the launch plan, precipitating a huge increase in the sales and marketing spend — typically millions for a startup, and even more for established companies. This is based on the expectation of reasonably executing a launch plan rooted in critical assumptions around the target market, an effective marketing plan, lead generation, the sales cycle, sales team onboarding, clinical outcomes, user behavioral change, product adoption and acceptance, and more. The more your product is a market disruptor, the more deeply your launch plan is based in untested critical assumptions. The net effect is the inefficient use of critical resources.


The second critical misstep is operating the wrong stage of the product life cycle. The product life cycle has four distinct stages: introduction, growth, maturity, and decline (see image with the first three stages). Revenue drives valuation at scale or the growth stage and efficiency drives valuation at maturity. Product launch teams often operate (mostly inadvertently) as if they are in the growth stage and use revenue as their primary metric of success for the introduction stage. But focusing on revenue often prevents the learning required to discover a proven repeatable sales process (RSP) to reach scale.



I watched this scenario play out a few years ago with a client. The company launched with some early market success, so they hired an experienced sales VP who built a national sales team. This drove up the sales and marketing burn rate overnight — but within a few quarters, they were missing their targets. Ultimately, the management team was replaced. Eventually, we helped them get back on track but not before incurring heavy costs.


The primary goal at launch is to reach scale (the upward inflection in the revenue curve) as efficiently as possible with respect to both time and capital.


So what is the remedy?


SLOW DOWN TO SPEED UP


Rather than executing a predetermined launch plan, the appropriate framework for managing through the introduction stage (from launch to scale) is a discovery- and-learning process leading to distilling the optimal repeatable sales process (RSP). This is particularly critical for disruptive products.


A product launch will advance through the following stages. First, a controlled launch with a coordinated (relatively low) sales and marketing burn while the repeatable sales process is discovered and codified. As confidence is gained in a proven RSP — demonstrated by consistent and reliable market results — a product will transition from the introduction to the growth stage and the upward inflection of the revenue curve. At this point of the product life cycle, revenue will reliably and predictably scale with an increase in spend.


During the controlled launch, the purposeful “slowing down” of the sales and marketing burn conserves critical capital resources. Because sales and marketing teams cannot operate effectively without a sound repeatable sales process, the use of this strategy will lower your early burn rate while also making the resulting revenue stream more efficient, reliable, and sustainable.


I helped found and led the sales effort for a genomics specialty CRO. While our competitors made grandiose claims, raised 10x more capital, had much larger sales and marketing organizations, and were darlings of the media, we started out more slowly. We methodically applied the principles and practices discussed above to forge strong relationships, sustainable growth, and a reputation as the market leader. We reached profitability within two years, and — unlike our competitors, who were eventually acquired for less than 25 cents on each dollar of their initial capitalization — our little company was acquired for 20x return on investment and is now Q2 Solutions, the genomics services division of IQVIA.


THE PRIMARY BENEFITS

  • lower (or controlled) burn rate in the early stages of product launch, appropriate to navigating more efficiently through the introduction stage of the product life cycle

  • achieving scale (the inflection point of the revenue curve) in less time

  • less stress and more success within in your sales and marketing teams

  • greater customer satisfaction

  • ultimately greater enterprise valuation

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