If you run a business, every now and then you will be tempted to develop a new product, just because. Maybe it thrills you, it’s something you’re passionate about or it’s a creative challenge to ease the boredom.
Whatever the trigger, there are financial implications to bear in mind when you develop a new product:
1. Products for personal fulfilment: You don’t require external validation to embark on this pet project. Everyone can jump into the sea for all you care. However, if you don’t have disposable income to burn, DO NOT begin this product. Chances are your passion will blind your judgement so the development life cycle is highly risky.
2. Products to make money: Here, the customer’s wants or needs define the product features. Nothing gets produced without a clear business case to validate the need for the product and its likely payoff period. Investor funds are usually spent here or the nest egg you’ve set aside for business expansion. Every penny must be accounted for.
3. Genre defining products: Here the consumer doesn’t know what he wants so you have to make the decision for him/her. Your idea or invention will revolutionise the world and make you a truckload of money if it succeeds. BUT, you must have enough funding from other sources so that if the project fails, you can save your organisation or reputation and live to fight another day. Remember the iPad was a risky proposition for Apple but the company was cash rich and could afford the experiment. It also had a stellar reputation it could leverage for future products.
So before you start a new product or project, just for the heck of it, think about the financial implications for a moment.