Having product orphans or a product languishing in development for years and years is a sure-fire way of losing money! An entrepreneur needs to chart out a path for full commercial development of a product. They must demonstrate substance by providing investors with clear, focused plans for the development of the product over time including enhancements, extensions, or new developments. Investors are often loath to assume development risks without having seen product plans in place. It is rare to have a product in the market without later having some additional development work undertaken to keep it competitive and meeting the evolving needs of customers. Therefore, astute entrepreneurs prepare product roadmaps to express the most likely evolution of the product.
A product roadmap serves as a longer-term value creation vision than simply achieving an obvious description of the product’s development plans. A good company will make a detailed assessment of the improvements it will make to the product over a period of time and the capital required to achieve this. Having a tight but flexible plan in place allows for decisions and further plans to be benchmarked.
Having a product roadmap in place also allows the entrepreneur to assess the lifecycle of a product, considering factors such as anticipated market needs and obsolescence, the phase out of certain product elements, and/or plans to replace them. In addition a good management team will simultaneously assess the financial impact of the roadmap over time and capture this in capital requirements of the business plan. Such plans provide the company and its investors with much-needed short and long-term visibility of the company’s future.
If you haven’t already wondered, a “product roadmap” is not just a “product roadmap!” In the early stages of a company’s development, a roadmap provides a useful tool for an entrepreneur to keep the company focused on a development target. But the underlying aim of a product roadmap is also to serve as a financial roadmap. The result is increased visibility: capital requirements, the timing of revenue receipts and expenditures and cash flow – all of which define the amount of investment required over time. Investors use a financial roadmap, more than a product roadmap, in order to make their investing decisions. A good roadmap demonstrates to potential investors that the company has carefully considered product lines and target markets, as well as creating a financial plan to pay for development needed along the way.
In order for both a product and investor roadmap to be workable, the company needs to have a product (or a few) with which to plan, set goals, and work to achieve development deadline targets. Let’s explore the relationship between product development and investment.
Post startups will begin with the production of one or two core products. This early activity is a relatively easy task, but no less important than future development plans that the company wishes to undertake. It is crucial to set a time-frame in which the first prototype can be rolled out and tested by customers. Why is this important? It avoids the wanton expenditure of sacred cash and keeps stakes low when high uncertainty exits. Getting to the first prototype is a significant milestone and much can be gained by seeing customer reaction and attaining technical viability. This information is invaluable in determining whether the product and the business have a possibility of being successful. It also lowers risk, and risk management is the name of the game for investors. This is a tried-and-proven old gambling rule!
The additional benefit in focusing on the first prototype development is that as a release deadline is set, the development team can decide on only the core product features necessary in shaping the first product release – hopefully with customer input – and then reserve some add-on features for later releases. The KISS principle—Keep It Simple, Stupid—is a good principle in typical product development startup situations. Entrepreneurs should resist spending too much time in the early development stage thinking about the all of the bells and whistles they might add to their product since this creates false economies and consumes capital.
Budgets and deadlines
Entrepreneurs should prepare detailed budgets for each product release and adhere to these plans. Product rollouts have the best impact on business only when they meet both time deadlines and a budget. Companies pay a heavy price for missing deadlines—loss of revenues and possibly time to market advantages. But most importantly, in the context of raising capital, current investors can get impatient when delays happen as the burn rate keeps consuming cash. The longer the delays, the more capital will have to be raised. This increases the risk and the ante for investors, both current and potential.
Stay tuned for Part 2 in the series on building enterprise value.