42% of startups die because they work on products with no market need. 72% of all new products don’t meet their revenue targets. Why do companies continue to work on products and services nobody wants? Are they stupid? Most certainly not. They use the wrong processes. Let me explain.
The data analytics and research firm CB Insights continuously updates a list of post-mortems identifying the top reasons why start-ups fail (269 Startup Failure Post-Mortems, updated August 13, 2018). The #1 spot continually goes to tackling problems that are interesting to solve, but with “no market need” (42% of companies).
This phenomenon is not limited to startups alone. Previous research by Simon Kucher shows that 72% of all new products don’t meet their revenue targets.
One of the main reasons for this type of failure is based on flawed innovation & entrepreneurship processes. Rather than first testing desirability (do customers want it?), many startups and corporations test feasibility (can we build it?).
Worse even, in established corporations the processes are often optimized for execution and implementation, rather than the search for customer value propositions. Teams are asked to write business plans, which are then funded if they look attractive, only to find out later that there is no market need. When I ask people at conferences if anybody is working on something nobody wants there are always a couple of hands that go up. Isn’t that crazy?
This phenomenon would go away if companies learned how to Systematically Reduce The Risk & Uncertainty Of New Ideas in innovation & entrepreneurship projects. Risk is not related to feasibility alone. There are other crucial dimensions such as desirability, viability (can we earn more than we spend?), and adaptability (is the timing and competitive environment right?).
All of these risk dimensions can be tested before investing in, or before implementing an idea. That’s the main difference between Innovation Metrics vs Execution Metrics.