Time to Market and the Hunt for Product Profitability

Business

Tweet about this on TwitterShare on FacebookShare on LinkedInShare on Google+

Thirty years ago, McKinsey published a report analyzing the relationship between time to market of new technology products and profitability. Included was a remarkable finding: products that ship six months late are on average 33% less profitable than products that ship on time.

Granted, the report is so old that it can’t be found online, and much has changed in the world of technology since its publication. But the report — which has been widely cited by academics and the business press at large — lays out some fundamental benefits gained by being fast to market, namely:

1. The sooner you get to market, the sooner you get customers

2. The sooner you get customers, the sooner you start generating revenue

3. The sooner you get customers, the sooner you get feedback

4. The sooner you get feedback, the sooner you can start improving your product

5. The sooner you start improving your product, the sooner you get customers who love you

6. The sooner you have customers who love you, the sooner they’ll tell their friends

 

Before long, you’ll own a big chunk of the market — or so the theory goes. This virtuous process looks something like this:

blog-thehunt-03

But why is a product that ships early more profitable than products that are slower to market? Simply put, they generate revenue sooner and over a longer time period. More specifically, accelerating time to market moves up the point at which your product starts generating revenue, gives you first mover advantage vis-a-vis competitors and, most important, lengthens the time period over which revenue accrue. Like this:

blog-thehunt-01
Scenario A
blog-thehunt-02
Scenario B

Getting to market faster doesn’t just happen, of course — it requires hard work and collective effort. In Scenario B, you can see that the initial development costs are actually bigger than in Scenario A. But these early outlays are more than made up for by the subsequent revenue streams that result from the product in Scenario B being “in market” for a longer time period. Or, as the McKinsey report found, going over budget on development by as much as 50% reduces profits by only 3.5%.

Take these findings with a grain of salt — but, all else equal, they suggest that it’s better to go over budget to launch on time than be a slowpoke.

Adam Sewall Posted by Adam Sewall on Monday, August 8, 2016.

Comments

Leave a Reply

Jul 24, 2017

Your email address will not be published.
Required fields are marked *

*

Brought to you by Wizeline LEARN MORE