Entrepreneurs Need to Carefully Plan Significant Transitions Between Types of Products

We have written frequently to this blog on the topic of “ready, fire, aim.” This topic is well known. The core concept is that, for some businesses, it makes sense to plan products by marketing various versions of a product until a winning combination is identified. Despite the fact that this product development approach is well known, we need to note here that entrepreneurs should establish clear limits on the type of business opportunities that warrant a “ready, fire, aim” product development plan, in contrast to those that do not. A blanket application of this approach to any/all business opportunities to develop products is not only dangerous, but potentially disastrous.

Businesses that need to transition from a revenue model based on product sales, to one based on sales of services, should proceed very slowly and carefully. In other words, this type of serious change in revenue, which is the most critical component required for a business to manage its own operating costs (not to mention its profitability), requires a “ready, aim, fire” approach if it is to be successful. Therefore, management should commence planning for this type of change well in advance.

Unfortunately, in many cases necessity is the driver, which obliterates any opportunity for management to plan the transition successfully. If conditions are at hand that threaten the continued operation of a business around a product sales revenue model, it makes more sense to discontinue operations than to rush into a services revenue model. Simply charging into a radically different type of business, that is largely unfamiliar, makes little sense. Nevertheless, lots of early stage businesses follow this dangerous route.

Where there is time to put together a plan of action, it makes sense to engage with as many knowledgeable people as possible to gain insight. Of course, an ability to network with peers, industry spokespeople, and even potential customers is very important. As plans coalesce, it will make more sense to go back to some of these contacts to test assumptions and ensure that plans are, in fact, promising. It almost never makes sense to simply rush, blindly, into this type of transition.

A best case scenario for a radical change in revenue strategy is a business that is expanding; for example, a product manufacturer opting to add a services group. IBM Corporation is an excellent example of a business that successfully implemented this best case scenario. A current example of a business attempting to follow this model is Dell. In the next post to this blog we will look closer at how Dell’s move is actually a hybrid amalgam of product type transition, and business growth through acquisition.

© IMB Enterprises, Inc. & Ira Michael Blonder, 2012 All Rights Reserved

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