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The Importance of Business Models in New Product Development

Reading the Financial Times today (Tuesday 18th of September 2018) I spotted a couple of terms that threw me. In an article entitled Investing in female founders is good business not charity, Jana Bakunina referred to"product market fit" and "minimum viable product" (MVP). As the author of a book on business frameworks, I was discomfited by my ignorance as to their meaning.

Wikipedia helped me out. It tells me that "product market fit" refers to a product that people really love. In fact, it is defined as a product that at least 40% of customers would say they would be "very disappointed" if they could no longer get hold of it. Wow! That really is a very good fit.

Wikipedia also helped with the definition of "minimum viable product". It seems that this is a product that is almost the opposite of "product market fit". It is a product that just scrapes a minimum amount of demand, usually from those keen customers that Rogers would describe as early adopters. It is a definition of a product that has come out of the chrysalis of being a prototype and is becoming a fully fledged marketable product, though one with very limited demand.

These terms are the jargon of investors who look at start-up companies and decide whether they justify their backing. For us in business to business marketing they are a reminder of things we have known about for a long time. The new product development teams who are familiar with the diffusion of innovation know that innovators normally account for 2.5% of any market and the early adopters make up an additional 13.5%. This leads to "the chasm" which needs to be breached if the product is to be embraced by a much larger group of customers. It is one thing knowing that your product is viable at the niche end of the market but it is of critical importance to know whether it is going to stay there or jump the chasm.

As for the "product market fit" we business to business marketers have always been obsessed by loyalty. James Heskett, the Harvard Business School professor, has long taught us that we should aim for 50% of our customers giving us a score of 9/10 for customer satisfaction and 9/10 for "likelihood to recommend". These people would most certainly be disappointed if that product was no longer available.

So, it is good to see that investors are using business models even if they are inventing new names to describe our old and trusted frameworks.

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