YOUR CUSTOMER DOESN’ KNOW WHAT HE WANTS

By Rick Williams

Board and advisory services for middlemarket, technology companies Helping Leaders Succeed

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A shorter version of this thought leadership article was first published in CEO World.

© 2018 Rick Williams, all rights reserved

YOUR CUSTOMER DOESN’ KNOW WHAT HE WANTSBy Rick Williams

© 2018 Rick Williams, all rights reserved 2

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The sign in my usual coffee shop says, “The customer isalways right!” Business advisors tell us to match ourproduct or service to what the customer wants. If HenryFord had asked his customers what they wanted, a fasterhorse is what he would have heard. Steve Jobs built oneof the world’s largest companies saying, “The customersnever know what they want until we show them.”

Entrepreneurs, product developers, and CEOs live withthese conflicting messages. Investors, your division’sGM, and your board want you to prove that there is a paying customer for the new product. “Will the dog eatthe new dog food?” But a generation of entrepreneurshave been inspired by Steve Jobs’ view that creating aNew Product Category based on emerging technologiescan be a path to profitable products for which there isnot a present customer demand.

PATHS TO PRODUCT INNOVATION

Product Evolution -- Faster, Better, Cheaper

Incremental improvements to well established productsare the lowest risk new products. McDonalds adds astrawberry shake to the vanilla and chocolate options.Dell introduces a desktop computer with a graphicsprocessor for gamers. Companies chasing customer pref-erences and fads can also fail. Commercial aviation con-tinues to cycle through the pattern of chasing the mostdemanding business flyers only to be undercut by lowcost competitors providing simple location-to-locationtransportation. IBM and DEC chased power computerusers only to be undercut by the PC for individual users.

EXECUTIVE SUMMARYThe iPhone was not just a mobile phone.Steve Jobs created a New Product Categoryoperating on the principal of “The cus-tomers never know what they want until weshow them.” Incremental improvements towell established products are the lowestrisk new products, and successful NewProduct Concepts are rare. But the wave oftechnology innovation now underway cre-ates many opportunities for New ProductCategories across a broad spectrum of hightech and traditional businesses. Brave en-trepreneurs who recognize how emergingtechnologies and business practices whenapplied in innovative ways to solve cus-tomer problems will advance our society inways hard to imagine today.

© 2018 Rick Williams, all rights reserved 3

In the US, fundamental R&D without commercial productsin mind is often funded by government agencies and re-searchers are mostly university-based. Some large corpo-rate R&D departments with a basic science focus canalso be found. From these efforts, a new product idea willemerge with a wonderful display of technological innova-tion. But little attention was paid to whether the new prod-uct will solve an important customer problem andwhether the customer is willing to pay for this solution.

My first job after college was working for Itek Corporationin Lexington, Massachusetts. Itek made the cameras onthe U2 reconnaissance planes. Lasers were an interestingnew technology, particularly for an optics company. As anexample of innovative technology searching for an application, Itek had a Department of Defense contract to find military laser applications but could notidentify any.

While lasers had few early applications, they are every-where today including the scanner at the grocery check-out and the power of anti-missile weapons. The R&Ddirector will argue that laser technology would not havebeen created if the funding criteria included a clearly de-fined paying customer.

Company funded R&D, particularly in smaller and mid-sized companies, is justified by an expectation of nearterm commercial product development. Keeping the tal-ented R&D staff focused on projects with realistic com-mercial potential is a challenge for the leadership of thesecompanies.

Accidental Product Development

The underlying drug for Viagra, sildenafil citrate, was cre-ated to treat hypertension. During human trials, the curi-ous side effect of an enhanced male erection wasnoticed. Treating erectile dysfunction became the corebusiness application for the drug.

The Post-it Notes adhesive technology is a famous prod-uct development failure at 3M. The 3M scientists were at-tempting to develop a new strong adhesive. The resultingproduct had poor adhesion properties. A 3M scientist,Spencer Silver, then asked if there were any products thatwould benefit from low adhesion glues. Post-it Notes wereborn.

WHAT STEVE JOBS GOT RIGHT

Two lessons are often drawn from Jobs. The first is thatJobs succeeded by ignoring shortsighted customer prefer-ences. Instead, new ventures should pursue their technol-ogy and customers will ultimately find the new product.The second is that Jobs was such a unique individual thatthere is nothing to learn from his example. If anything, ac-cording to this view, he is a bad example for virtually everyinnovator and entrepreneur.

Both of these conclusions are wrong. Steve Jobs was a rare example of someone who spanned both technological innovation and market/customer acceptance innovation.

Steve Jobs did not decide one day to build an Apple I com-puter when anyone with the same idea could have built asimilar small computer three or ten years earlier. SteveWozniak built the first Apple I bringing together several re-lated and unrelated technology developments based onspace and defense demands for miniaturized electroniccircuit boards and programmable memory. Steve Wozniakthen showed the small personal computer to Steve Jobs.

Jobs’ insight was to recognize the potential for a personal-ized computer that individuals could use for business andnon-business applications independent of centralizedmainframe computers. Jobs recognized the potential ofthis New Product Category utilizing technologies comingonto the market that had not been available before. Woz-niak built the personal computer. Jobs saw the potentialmarket. The combination of those two became Apple andits huge success story.

The real lesson from Jobs’ and Apple’s success is thatboth technology innovation and a keen understanding ofcustomer acceptance are required for major New ProductCategory success.

NEW PRODUCT CATEGORIES -- CONCEPT AND EXAMPLES

Here are other examples of companies that created suc-cessful New Product Categories building on underlyingtechnology developments.

SpaceX - Since the beginning of space explo-ration, building and launching rockets to put satellites intoorbit and reach into outer space has been the exclusivejob of NASA and other government agencies. Elon Muskrecognized that the underlying technology had developedto the point where a commercial company could build itsown rockets and offer a new product concept - the serviceof launching hardware and people into space, independ-ent of governments, and at a lower cost.

Uber - Taxi services predated automobiles. TravisKalanick and Garrett Camp believed a new product cate-gory was possible if cell phones could instantly connectcustomers with a locally available car service. Connectingmostly non-regulated independent car owners who areavailable as a car service via a software platform to indi-vidual customers who otherwise would use a taxi or theirown cars is the Uber product category.

Airbnb - Hotels, motels and apartments arewidely available. The Airbnb founders, Brian Chesky, JoeGebbia, and Nathan Blecharczyk, recognized that manyowners of homes and apartments are willing to offer shortterm rentals of their bedrooms or the whole apartment.The widespread acceptance of software platforms for indi-vidual-to-individual transactions created the opportunityfor Airbnb to build a successful business in a new productcategory as the intermediary between homeowners andthe traveler.

23andMe - Decoding the human genome is anhistoric scientific achievement. The U.S. spent $3 Billionfor the first human genome sequence (1991 dollars). Afterthe first DNA sequencing, faster and less expensive se-quencing became the goal. In the following decades, spec-ulation of a $1,000 sequencing was seen as unrealistic.Plans for $100 sequencing are now proposed. Anne Wojci-cki, Linda Avey, and Paul Cusenza recognized that the un-derlying DNA sequencing technology could allowinexpensive genotyping and profiling each individual’sfamily history. They founded 23andMe believing that indi-viduals throughout the world would pay $200 to knowmore about their family history.

Commercial Jet Engines As a Service - The jet en-gine we see out the window of our plane is expensive andexacting to maintain. While engine technology graduallyadvances, the technology now available to measure en-gine performance while in flight and communicate per-formance data to the ground created the opportunity for aNew Product Category. Malaysian Air did not buy its jet en-gines from Rolls Royce. The airline bought a service con-tract from Rolls Royce under which RR guaranteed toprovide operating engines on each of their planes. The ad-vancement of measurement and communication technol-ogy allowed RR to create a “power by the hour” product.The Malaysian Airline lost over the Indian Ocean wastracked for a longer distance by the engine maintenancecommunication than by land radar.

© 2018 Rick Williams, all rights reserved 4

© 2018 Rick Williams, all rights reserved 5

TECHNOLOGY REVOLUTION TODAY -NEW PRODUCT CATEGORIES TOMORROW

Incremental product change with established customerswill remain the lowest risk and far more common form ofproduct innovation. But the wave of technology innovationnow underway will create many opportunities for NewProduct Categories. For those entrepreneurs and companyleaders who are prepared to take on the challenge of cre-ating a new product concept, here are examples of largescale technology developments where these opportunitieswill emerge• Moving data into the cloud• Rapidly decreasing data storage costs• Access to many categories of “big data”• Growing power of artificial intelligence (AI)• Almost universal availability of cell phones and their

computational power• Introduction of 5G wireless-technology with much

faster data transmission• Understanding human health and disease at the

molecular level• Solar and other renewable energy sources becoming

competitive with oil• Close to worldwide real-time communication• Movement from text communication to visual

and image communicationThese and other technology advances will be incorporatedinto incremental new products. But they also create oppor-tunities for New Product Categories and new businessmodels. Here are examples of product categories emerg-ing from current technology developments.

Personalized Precision Medicine -- Diagnostic proce-dures, drugs, and treatment methods used for broad cate-gories of patients will change to specialized testing,diagnosis, and treatment for well characterized groups ofpatients and in some cases individual patients as the un-derlying science is understood for the first time at the mo-lecular level. From a better understanding of thecharacteristics of each patient, drugs with a high probabil-ity of success for that patient will be possible.

New models of healthcare delivery including specializeddiagnostic and treatment centers outside major hospitalsystems are emerging today and changing the role of largehealthcare centers. Measurement of electronic signalsfrom patient bio samples using microchips for fast, decen-tralized measurements can become a new product cate-gory replacing central labs growing cultures in petridishes. The emergence of Urgent Care Centers is an exam-ple of a new product concept with the potential for dramat-ically lowering the cost for routine healthcare.

Service As The Product -- Rolls Royce believed their cus-tomers would pay for “power by the hour” on their air-planes rather than purchasing and maintaining theengines themselves. The concept of switching from sellinga physical product to selling the service that product pro-vides to the customer has potential in many markets.

Uber is competing with taxis. But Uber is also selling indi-vidual transportation as a substitute for owning a car. Inan earlier article (What Business Are We In?), I describeda company’s move from selling liters of saline to hospitalsto selling the service of maintaining the saline inventory ineach department of the hospital.

At a Distance Specialized Professional Services -- Ad-vances in measurement techniques, digitizing the meas-urements, analyzing and storing huge amounts of data,and making this information quickly retrievable createsmany new product category possibilities. When combinedwith almost instantaneous worldwide communication,many expert professions, including medical specialists,lawyers, and accountants, will have their roles as expertschanged in fundamental ways.

New product concepts based on artificial intelligence, ex-pert systems and big data will become the “centers ofknowledge.” With 5G high speed data transmission, sur-geons will have close to instantaneous connections withrobots performing surgery at remote locations. Other spe-cialized maintenance and high risk jobs will be done re-motely. Think of manufacturing drugs in zero gravity spacewhere the cost of maintaining humans is very high andstill risky.

© 2018 Rick Williams, all rights reserved 6

Non-Bank Financial Intermediaries, Blockchain, and Bit-coin -- Will national currencies be replaced by cryptocur-rencies? Will banks disappear as intermediaries betweencompanies transacting business? Or is this just a fad?Some utilities are using blockchain to trade energy fu-tures. Markets have emerged to trade cryptocurrencies.And cybersecurity products are using blockchain con-cepts. Banks are seen as custodians of public money re-quiring high level regulatory control. With high regulationcomes high cost and the opportunity for new less expen-sive products. Companies that develop new products andservices incorporating the blockchain technology whichtake transactions outside the conventional banking andtransaction system may, over time, make blockchain andcryptocurrencies transformative technologies.

Experience as a Product -- Virtual Reality and AugmentedReality -- When the Gutenberg Bible was first printed in1455, no one imagined the impact the new printing tech-nology would have on civilization, much less the businessopportunities the new technology created. Experience is aproduct. Bostonians go to Fenway Park to watch a slowpaced baseball game rather than have a better view of thegame at home on high definition TV. The fans at Fenwayare buying the experience of being at the park with friendsand other people on a nice summer day while a game isbeing played. High quality TV images at home and sum-mer night at Fenway are competing experiences.

Consider the combination of high resolution visual dis-plays (TV-like devices and headsets with individual dis-plays) and communication by visual images rather thantext. Emerging virtual reality technology will change thecompetitive balance between our entertainment choices.And new product concepts will be created.

Product Categories will Disappear -- We talk with bemuse-ment about buggy whips as a business that went awaywhen automobiles replaced horses. What are the buggywhips in the current era? Phone booths have already be-come obsolete. In much of the developing world, landlinecommunication networks have not been installed becausecellular services satisfy the demand. What will be the future of the hardwired networks in the U.S.?

We usually do not associate the real estate business withtechnology innovation. Go into the central offices of majoraccounting firms and you see few “offices” for the ac-countants. You will find many small visiting rooms with atable and chair, but the idea of having an office is disap-pearing as technology enables remote work.

Think about parking as a real estate business. A singleparking space in Boston can sell for $600,000. What ifUber, Lyft, and Zip Car make owning a car the exceptionrather than the norm? What will today’s parking garagesbe used for? Where will the driverless cars be garagedwhen they are not used at night? Center city parkinggarages may go away, but remote driverless car storagecould emerge as a new parking product category.

ABOUT THE AUTHOR

Rick WilliamsWilliams Advisory Partners, LLCManaging DirectorDirect: (781) 396-9700

Rick_Williams@WilliamsAdvisoryPartners.com

ABOUT WILLIAMS ADVISORY PARTNERS, LLCwww.WilliamsAdvisoryPartners.com

Great leaders create the future

Williams Advisory Partners is a Boston based CEO and board advisorypractice focused on helping leaders make the critical decisions that will create the future for their companies. Building on Rick Williams’ nationally published thought leadership on what leaders can do tomake their companies more successful, Williams Advisors works withtechnology based firms in the business-to-business space.

Broad business experience with a CEO and board perspective is brought to each client assignment. Asking the right questions, defining the problem, developing and evaluating options and finallyhelping leaders making the right decisions

Rick Williams serves on the board of directors of technology companies. His CEO and board advisory practice focuses on important inflectionpoints. Raising capital, overcoming barries togrowth, and maximizing the value of the companybefore offering it for sale are examples.

© 2018 Rick Williams, all rights reserved 7

CREATING A NEW PRODUCT CONCEPT

CAN BE A VALUE ACCELERATOR FOR

YOUR COMPANY

Creating a New Product Category following the path of SteveJobs’ creation of Apple I and the iPhone may seem impossi-ble. In fact, that process is very much alive today and willcreate the world we experience tomorrow.

Creating a New Product Category and introducing it to themarket is a high risk venture. But success can be more re-warding than incremental product improvements. Here aresteps you can take to develop new product concepts andimprove your chances for successfully introducing them tothe market.

1. In the world you know well, look at the underlyingtechnologies, relationships, methods of communication,product concepts and business models. Can you use emerg-ing technologies or business models in an innovative way toempower or engage customers in new ways, and can thenew product find wide customer acceptance?

2. Engage both technology and market perspectivesfrom the start. Your core competency must include technol-ogy and a deep understanding of client requirements. Bothperspectives are required to carry the project through to anexcited paying customer.

3. Demonstrate quickly that there is a paying cus-tomer for whom this new product or service satisfies aMUST HAVE requirement and not just a NICE TO HAVE re-quirement.

4. Ask which customers and potential customers willmost benefit from the capabilities of the new product. Thesemay not be the customers you are currently serving or plan-ning to serve.

5. Fundamentally new products require a passionatechampion and a committed team. This is the strength of afocused startup or early growth company and the vulnerabil-ity of a large company bureaucracy. Leadership of a largercompany with a department or team engaged in a funda-mentally new product concept needs to ask whether theright team and right leadership is engaged to be successful.

6. A final point. Don’t pretend to be Steve Jobs - youdon’t have to be. In truth, the right small, committed teamwith complementary skills can bring the same capabilitiesto the table and create, launch, market, and sell genuinelyinnovative products.