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How to Expand Your Business Through New Product Development

“How to Expand Your Business Through New Product Development”

Adding new products or services to your current offerings can serve as the catalyst that drives your business to higher levels of success. New product development doesn’t have to be a long and costly endeavort


New product development can be a long and costly endeavor, but it doesn’t have to be. This Business Builder will provide you with a fundamental process that will help you successfully develop and bring new products to market without jeopardizing the financial stability of your business.


The decision to develop a new product can mark the beginning of an extremely difficult process for many businesses. Adding new products or services to your current offering can serve as the catalyst that drives your business to higher levels of success. In fact, new product development is often considered to be the cornerstone for building any successful business. Without it, businesses tend to stagnate, then eventually decline. This is particularly true for businesses that primarily focus on the short-term bottom line.

To successfully develop new products or services for your business, you will need to coordinate your new product development activities as effectively as possible. By productively performing each of these activities, you will be able to develop new products or services from concept to market introduction sooner than you thought possible.

Here are a few things to keep in mind as you get started:

  • Determine who will head the effort. This person essentially owns the product development process. He or she is responsible for taking the product from concept to market. If you are an owner of a small company, you may want to lead the effort. This may mean that you will have to entrust others with some of your current duties while you champion the new product. If you have a larger organization, then you may want to assign the position to someone on your staff. Be aware that this can be a full-time job. Don’t take on too many other responsibilities or your new product development effort may suffer.
  • If you have the available resources within your organization, you should charter a small team to help you develop the new product.
  • Always stay focused on the customer’s needs! If possible, involve your customers in the design phase of your product development. They can help you stay focused on their needs as you design the product.
  • Make sure you document your development process. This information will be very useful during and after the process. By periodically reviewing your progress, you can determine if you are headed in the right direction. Reviewing this information at the end of the process will also help you to streamline and improve future product development efforts. The documentation will also be important if you ever need evidence that you developed the new product when you did.


A systematic approach is the best way to design and develop a new product. Without it, you can waste a lot of precious resources. The following steps will effectively and efficiently guide you through the new product development process:

  • Develop the Concept
  • Screen Against Established Criteria
  • Plan Your Development Process
  • Test The Concept
  • Design Your Product/Service
  • Develop a Marketing Plan
  • Scale-Up
  • Continually Improve Your Product/Service


All new products start with a concept. If you don’t already have a concept for a new product, then you will need to develop one. This step will provide you with a fundamental approach to developing a new product concept.

Identify A Need

Most good concepts begin with either a perceived, or a measured need. Ways to identify needs are:

  • Talk with your customers. Ask them what additional products they feel you should offer. Although this can be subjective, it can reveal some gaps in your current product line.
  • Conduct brainstorming sessions with key employees. Those who deal with your customers every day should have some sense of what may be a good product to add to your current product line.
  • Listen to your own instincts. If you’ve already developed a successful business, then you have some insight about what your customers want.
  • You’ll probably have several needs from which to choose. Pick the one with the greatest impact on your customers. After all, they’re the ones that are going to buy your new product/service. Once you have identified the need, capture it in writing as clearly and concisely as possible. Describe the need and why it exists. Be sure to describe who the customer is.

      For example, the ABC Sandwich Shop managers were looking to broaden their product offering. Rather than immediately introducing a sandwich that they thought had appeal, they decided to survey their customers to determine what their needs were. After analysis of the survey results, they found:

      A need exists for a great tasting, low-fat sandwich that would appeal to customers who are concerned about maintaining a healthy diet. This sandwich would also appeal to customers that were not health conscious as long as it didn’t taste "healthy."

      Summarized: "A need exists for a sandwich, low in fat, tastes great but not ‘healthy.’"

Now, identify a customer need that you are not currently satisfying. Although you may have an idea of what is important to your customers, make sure you ask them for suggestions. You may be surprised by your findings.

After you have thoroughly defined the need, summarize it and post it where most of your product development work will be conducted. Review the summarized need regularly as you develop your new product. This will keep you focused on the customer throughout the development process.

Develop A Concept

Next, you will need to develop a concept for a product that will meet the need. Again, your customers’ and employees’ inputs are valuable here. Most likely, when you are soliciting feedback on needs, they will offer suggestions on products and services that will meet those needs.

In addition to your customers and employees, other organizations may be sources for new product ideas. Such resources include patents, concepts, or ideas that you may want to license or develop further:

  • Patents
    Ask for help with a patent search at your local SBA office or contact the U.S. Patent Office. The weekly Official Gazette published by the U.S. Patent Office lists patents granted. It is available with cumulative indexes at many large libraries. Check with patent attorneys, as well.
  • Government research reports
    Government Reports Announcements and Index is an index to government sponsored research reports. It is available online at large libraries, or a subscription can be purchased from the National Technical Information Service (NTIS). Among the GRAI listings, for example, you’ll find the semiannual NASA Patent Abstract Bibliography, that lists NASA-owned patents. NASA Tech Briefs are one or two page descriptions of ideas, patents and concepts available to the general public.
  • Large corporations
    Large companies often have hundreds of patents for products that they haven’t commercialized. A check with large companies in your industry that could be sitting on a patent could reveal your gold mine.
  • Inventor Shows
    Large metro area chambers usually sponsor Inventor Shows in their regions. Call your chamber to find when the next one is scheduled or contact the Office of Inventions and Innovations for a listing.

Now, describe each of your prospective products and include the following:

  • What is the need? Use the need description that you developed earlier.

  • How will this product meet the need? Describe its features (product characteristics) and benefits (value the customer derives).

  • Is it unique, or are there other products like it on the market?

  • Are there products in our current offering that it will compete with?

Going back to the ABC Sandwich Shop, they came up with the following three potential sandwiches based on the identified need —

  • A fresh, roasted turkey sandwich with cranberry sauce and low-fat stuffing
  • A low-fat grilled salmon sandwich with low-fat toppings
  • A low-fat vegetable burger


You can’t work on every great idea so you’ll have to decide on criteria to help narrow your selection. There is no standard set of criteria that is best in all cases. You need to establish your own to suit your own company’s needs. The following questions may help decide what criteria are best for you:

Company’s Strengths

  • What strengths can you exploit to produce your product/service?
  • What are your technological capabilities?
  • What are your sales force capabilities? Are you staffed adequately? What are your sales force’s skills?
  • What is your company’s current cash/credit position?
  • What is your company known for? Reputation?

Market Preference

  • Do you prefer a particular industry?
  • Do you prefer a product sold to retail users, industrial users, government, etc.?
  • Do you prefer a product with a long usage or would you consider a fad item?
  • Do you have a distribution preference?
  • Do you want to distribute internationally?
  • Are you willing to create a new sales and marketing team to support the product?

Sales Volume

  • What is the sales volume you expect?
  • Do you have any pricing expectations?
  • Will this product need to be self-sustaining (support all of its operations)?

Product Status

  • Does the product need to be internally produced?
  • Will you consider licensing?
  • Would you joint venture with another company for a new product?

Product Make-up

  • Are there any physical limitations to a new product or service? Size, weight, volume?
  • Are there any operational limitations? Equipment, storage?
  • Do you have personnel trained to support the new product?


  • Have you established a budget?
  • Has a timeline been set for when the new product must be profitable?
  • What kind of profit margin is expected?
  • Can the product have seasonal cycles?

Source: Adapted from Starting Up Your Own Business — Expert Advice from the U.S. Small Business Administration

After you’ve determined your criteria for your new product development process, test your prospective products. This is your company’s acid test. Be objective. Narrow down your choices until you have one prospective product on which you will focus you product development efforts.

For example, after considering their own special needs, Wacky Widgets developed the following criteria for their new product:

Wacky Widgets

Market — Product had to be used by industrial firms. Retail was inappropriate and the government was out of the question.

Product — At least 50 percent of the manufacturing costs had to utilize current equipment. New product must have patent or be patentable.

Price — Since they were known as a low-cost supplier, the company’s new widget must fit within their current price ranges.

Volume — More than 10 million pieces sold by third year.

Finance — The budget available is $75,000.

Now, take some time to determine your new product criteria and choose the product that your company plans to develop.


It is wise to plan your development process before you become too attached to your new product concept. If you fall in love with a new product concept before you have a development plan, then you may not make sound business choices as you work through the development process. This is not to say that you shouldn’t feel emotional or passionate about a new product, but establish some guidelines early in the process so that you don’t lose sight of your objective — to develop a new product or service as cost effectively as possible. This plan will keep you focused throughout the new product development process. Use the information in this Business Builder as a guideline for developing a plan. This Business Builder should also help you to estimate the amount of time and money you should invest in each of the development steps. The plan should include:

Creating a timeline

A timeline will provide the impetus to complete your product development in a timely, cost-effective manner. Product development efforts that have no schedule for completion tend to be unnecessarily long and extremely costly. If you don’t have a product release date that you must meet, then estimate the amount of time it should take to complete each step, and add the steps sequentially to the timeline. This will give you a good idea of when you should be able to release the product to market. If you are developing a product that must be released by a certain date, then develop your timeline by working backward from that date.

For example, if you are developing a new line of Halloween costumes that must be ready for release by early summer so that retailers can order them and receive them by September, then start with an early summer release date and work backward. This can be tricky since it often means that to make the release date, you must compress the amount of time it will take to complete some of the steps. Compressing steps may put a strain on your resources by requiring more overtime hours than you would have normally anticipated. If this is the case, then be sure to estimate the extra time in the resource needs portion of your plan.

Now, create a timeline for your new product development. Include target dates and milestones.

Estimating your resource needs

Estimate the number of work hours and the amount of money you will need to invest in each step. Be sure to include any outside services (i.e., marketing and research consultants) that you may need. Estimating resource needs will give you some idea on the types of resource strains you can anticipate throughout the project. It will also serve as the basis for developing a budget for your development efforts.

Developing your budget

Your plan should include a budget for the entire development process. Budgeting your resources (time, money and people) will help you maintain fiscal responsibility during the development process. Use the resource needs estimate as the basis for your budget.

For example, The ABC Sandwich Shop wants to add a new sandwich to its menu. The following is a list of the expenses the owner expects to incur in developing a new sandwich and bringing it to market. He and one other employee will do most of the work. Since he is the owner, he is not including his time as an expense.

Employee time (10 hrs @ 6.50/hr) 65
Materials (miscellaneous supplies) 50
Outside services (needs survey) 200
Total $315
Employee time (20 hrs @ 6.50/hr) 130
Materials (miscellaneous supplies) 100
Outside services (test survey) 300
Total $530
PRODUCT DESIGN (developing the recipe) $
Employee time (30 hrs @ 6.50/hr) 195
Materials (sandwich ingredients) 200
Outside services 0
Total $395
Employee time (20 hrs @ 6.50/hr) 130
Training cost 75
Materials (ingredients) 300
Outside services 0
Total $505
Employee time (30 hrs @ 6.50/hr) 195
Materials (ingredients) 300
Outside services 0
Total $570

Develop your budget. Remember to include estimates for all the resources that you plan on using.


It is important to test your concept before you invest a great deal of time and money in the development process. Testing the concept should give you some solid indications about the product’s technical feasibility (Is it technically viable and can it be produced?) and commercial feasibility (Will people buy it?). At any time in this testing process you may decide to scrap a concept and look for a better one.

Technical feasibility

Testing for technical feasibility requires a review of your own operational capabilities as well as whether the product/service technically does what it is supposed to do.

For example, Wacky Widgets developed a prototype for a new widget that when attached to a normal light bulb would extend its useful life 10 times. They were able to manufacture the new Weely Wacky Widget on one of their machines that had been sitting idle. The problem, however, was finding an adhesive that would withstand high temperatures. After they spent more than one year trying to develop such an adhesive with the world’s largest adhesive company, they had to scrap the project. They were able to produce the product; however, the product was not technically viable.

Depending on the nature and complexity of your product/service, technical feasibility could be a series of controlled experiments or just a few tests. Whatever the case, this testing should help you determine if you can make the product with your current capabilities, or if you need to invest in new production equipment or service capabilities. These types of considerations could be very critical to your decision to go ahead with the new product concept. After you are satisfied that you can produce and deliver a new product, you need to determine if it is a product that your customers will buy.

Commercial feasibility

Testing for commercial feasibility, or marketability, in another critical step in testing your product concept. The results of this testing should confirm whether there is a market for your new product or service.

For example, Shrinkos 24-Hour Laundry Service decided to add a health club to each of their facilities. They felt it was a natural — providing their clients with something useful they could do when waiting for their laundry to be cleaned. After conducting some focus groups that provided very favorable feedback on the combination, they decided to test market the concept at their Philadelphia location. The response was incredible, encouraging them to proceed further with their new product development plans.

There are various methods for testing your customer base to determine if enough interest exists to make a new product marketable:

  1. You could invite customers to participate in focus groups or answer questionnaires concerning the desirability of your new product.
  2. You could send out samples of your new product to customers and have them try it out.
  3. You might also want to run a small-scale test market to determine its market potential.
  4. Whatever you decide to do, your marketability testing should answer the following fundamental questions:
    • How unique is your product? Uniqueness is a desirable characteristic for any new product or service. It usually indicates that little or no competition will exist in the marketplace. On the other hand, it could indicate that you will need to spend more on your promotional efforts to establish what will essentially be a new market.

    • Is the target customer interested in the product? The results of the testing should help you determine the level of interest that exists in your target market. This doesn’t necessarily mean that interest to purchase exists. It merely indicates that the product has potential.

    • Does an interest to purchase exist? Determine if the product has enough purchase appeal to make it viable. If there is interest, but the customer isn’t sure if he would purchase the product (for any number of reasons that may be revealed by your test results), then you may want to redesign the product concept to increase its purchase appeal.

    • How much would the customer be willing to pay for the product? Knowing how much the customer is willing to pay for a product will help you determine the product’s profitability. If there is strong purchase interest, but, if given your current capabilities, the product doesn’t have good profit potential, then you may want to reconsider how you would produce and deliver the product to the marketplace. This information will also help you with your pricing strategy.

    • What will the competition be? It is critical to have a good understanding of the type of competition your product will face in the marketplace. This will help you decide how you should position your new product in the market. If your testing reveals that the market is already saturated with similar products, then you may decide to either redesign it with more unique features, or scrap it and try something else.

The amount of concept testing that you employ depends on your available resources and the amount of substantiation you require to make a commitment to develop the new product. Find a middle ground that will meet your needs. Not enough testing could cause you to spend time and money developing a product that is not feasible or not marketable. Too much testing could cause you to miss the opportunity to get a good product or service into development and onto the market in a timely manner. This could result in a competitor beating you to product release, or a missed release for a seasonal product.

Decide on your plan to determine technical and commercial feasibility for your product.


Assuming that your concept testing revealed that you have a potential winner on your hands, the next step is to design the product. Once again, the length of time and the resources required to design the new product depends on the nature of the product and the size of your organization. Now is the time to review your development plan to help you assign the necessary resources to the design process.

Your new product design activities will, of course, be driven by the nature of the product. However, in most cases, your design should include all the specifications needed to produce the product. For instance, if your new product requires discrete parts assembly, then you will need to have detailed engineering drawings, parts specifications, and assembly instructions. If your product is food related, then you will need to develop a recipe and preparation instructions.

IMPORTANT: It is critical that throughout the design phase you review your progress so that you can:

• Verify that the product design is being driven by the customer needs. Identify and resolve any resource issues such as increased funding or manpower requirements. Identify any capacity constraints that could restrain you from introducing the product or service onto the market by your targeted introduction date.

• Develop a working prototype that can be examined and tested by potential customers. Make sure the prototype meets your requirements for quality, customer satisfaction and cost. It may take several tries before you get it right. However, if your design activities are thorough and well coordinated, you may only need to develop a few prototypes before you have a finished design.

• Consider production techniques and costs when you design your product. If you can design the product so that it can be produced with fewer process steps, then you will be simplifying your process and decreasing the cost of production. It is essential that you DO NOT release your new product from design to production before it is ready. Rushing a new product onto the market before it is ready could turn a potential winner into a bomb very quickly. After the product has been released and is on the market, it is very difficult and costly to change customer perception of your product. It is better to delay the release, if possible, and deliver a quality product.

For example, the ABC Sandwich shop owner remembers the last new sandwich that he introduced — the Hawaiian Special. He believes the sandwich failed because he rushed it onto the market before he had the right combination of ingredients. Back then, he felt that he could fine-tune it while he sold it. However, he learned a rather costly and unfortunate lesson: instead of achieving a recipe that his customers liked, they were so turned off by the early version that they were never willing to try the later, improved version.

If you are offering a new service, the same advice holds true. Do not offer your new service to your customers on a large scale until the design is complete. This includes making sure any equipment or supplies you may need to perform the service are available when you offer it.

For example: The Tidy Home Cleaning Service decided to branch out and, in addition to residential homes, offer cleaning services to large offices. Unfortunately, their equipment (vacuum cleaners, floor buffers, etc.) was geared more for home cleaning than office cleaning. Nevertheless, they landed a few big offices contracts. The owner couldn’t afford new equipment so he sent his employees off to do the work with inadequate equipment. Within two weeks, the offices canceled the contracts because, with the equipment they were using, his employees couldn’t adequately clean the offices within the allotted time. This left the company with a bad reputation among the local offices in the market area. Consequently, the owner ruined any chances he may have had to expand his business beyond cleaning homes.

List the critical design specifications for your new product or service. What is the current status of your design efforts? Are you on track with your development plan?

Step 6: Develop a Marketing Plan

While you are designing your new product, you will need to develop a good marketing plan for promoting your new product and delivering it to the market. This step should be performed simultaneously with your design efforts. Your marketing plan should focus on three key areas:

Pricing your new product

Your pricing strategy can have a strong impact on how well your new product performs on the market. If you are competing with some established products, then you may need to introduce your product at a lower price. The results of your concept testing should help you determine your pricing strategy. If you need more information to develop your pricing strategy, you may need to do some additional market research. This will give you a better idea of where the competition is and how you should position your new product in the existing market.

For example, as part of his concept testing activities, the ABC Sandwich shop owner visited his competitors’ stores to see what they had to offer in the way of low-fat sandwiches. He found out that although his product was unique, some of his competitors offered "health-conscious" sandwiches. They were priced a little higher than their other sandwiches. He decided that he could price his sandwich a little lower and still make a reasonable profit. If the sandwich became as popular as he suspected, he could cut his costs by buying larger quantities of the ingredients. This would allow him to increase his profits without raising the price of the sandwich.

Promoting your new product

Develop a marketing plan that explains how you will introduce and promote your new product to the target market.

This plan should include any media, point of purchase, mailing, telemarketing or other advertising you plan to use. If you market through a sales force, then you will need to develop some sales strategies and prepare your sales people with all the promotional tools and information they will need to promote the new product. These include items such as brochures and updated price lists. Since you are already in business, you should have some idea of what has worked for you in the past. If you use a marketing or advertising agency, then involve them in this process after you have decided to develop the new product. They will be able to help you determine the best marketing methods for promoting your new product.

Effective techniques for promoting a new product include introductory offers such as giveaways, contests and coupons. Do some early promotions before the product is released so that customers know that it will be on the market soon. If done effectively, this can build consumer anticipation and result in a successful release.

For example, to promote his new product, the ABC Sandwich shop owner decided to have some point-of-purchase advertisements developed by a small graphics company. They designed some hanging mobiles that could be produced in limited quantities at very little cost. The owner also had the graphics company design a coupon that was printed in the local newspaper. The coupon offered a free drink with the purchase of the new sandwich.

Delivering your product to the customer

You will need to develop a delivery plan for getting your products to the customer. If you sell to retailers, then you will need to have their orders and establish a delivery method ahead of time. If you are offering a new service, make sure your employees are trained well enough to deliver the service effectively. In short, create a detailed plan addressing all the logistics of delivering your new product to the market.

For example, the Pedal Power Bicycle Shop decided to offer customized Italian bikes in their small mail-order catalog. Prior to this offering, they sold only bicycle components through the catalog. Pedal Power purchased the bicycle frames and had their employees assemble the frames to customer specifications. In order to deliver the products, the company had to purchase special shipping boxes and establish a shipping contract with a delivery service that could handle packages of that size.

Review the preliminary market data you’ve gathered so far and decide what’s missing. Create your marketing plan which details your pricing strategy, promotional activities, and delivery logistics.


After you have designed your new product or service, it is time to scale it up for market introduction. If you have involved all crucial functions in your organization during the development process, then this transfer should go smoothly. Your marketing plan should already be in effect and you should have orders for the new product before you schedule the first production run or offer your service for the first time. Make sure you have all the equipment and materials available to meet the early production demands. Problems early on could leave a permanent scar on your customers.

For example, after an aggressive sales campaign that highlighted the many benefits of their new Wow Widget, Wacky Widgets made sure they would be able to fill their customers crucial orders by making sure that all the tooling and production materials needed were available and ready. A slip-up here could spell disaster to the success of their Wow Widget.

Consider establishing a product-or service-based process that is based on actual orders rather than forecasts. By doing so, you can reduce your finished product inventories or service support materials to a minimum. Establishing a streamlined process for a new product or service up front is much easier than trying to reengineer an existing process after it’s designed.

For example, the Pedal Power Bicycle Shop arranged to have bicycle frames shipped to them overnight on an as-needed basis from three different Italian frame builders. Cost-effective shipping fees and special purchase arrangements with their suppliers allowed them to offer custom bicycles while maintaining little or no inventory. This was a departure from the normal method of producing custom bicycles. Bicycle mail-order companies would typically forecast their sales and purchase large quantities of frames in various sizes. They would then draw from their inventory as needed. At the end of a season, they would have to sell their extra frames at reduced prices to move the inventory. Because Pedal Power developed a system that was driven by customer demand, they didn’t have to maintain costly inventories. They were also able to respond quickly to orders and meet their customer’s needs.

As you get ready to scale-up, what do you need to do to make the transition a smooth one? What materials, supplies and equipment are needed for full-scale startup? Are you staffed appropriately? List what you need to do before you provide your first product or service to your customer.


As you begin to capture market share with your new product, you must remember to stay focused on meeting your customers’ needs. Conduct customer surveys to find out what they like and dislike about your product. Talk to them personally and ask them what they think. If your business is driven by a desire to continually improve your products so they meet your customers’ needs, then you will always be successful.

Now, outline your plan to determine your customers’ ongoing and future needs. Will you use surveys, interviews? How often will you collect this information?


Measure your success by applying standard business measures to the performance of your new product. You should be tracking your sales, market share, profit and loss, and all other key measures that apply to this product. Use this information along with customer and employee feedback to improve the quality of the product. Learn from your new product development efforts so you can improve the process when you develop future products.


When you have completed this Business Builder, you should have a general understanding of the following key elements:

___ The process for identifying an existing need

___ Techniques for developing a new product concept

___ The process for designing a new product and scaling it up

___ Marketing requirements for introducing a new product to the market

___ The importance of establishing a continuous improvement program for your new products and your new product development process



How to Set Up Your Own Small Business, 9th edition, by Max Fallek. (American Institute of Small Business, 2003).

Bringing Your Product to Market by Don Debelak. (John Wiley & Sons, 1997).

Lightning Strategies for Innovation: How the World’s Best Firms Create New Products by Willard I. Zangwill. (Lexington Books, 1993).

Internet Sites

"Innovation Factor: A Field Guide to Innovation," by Leigh Buchanan et al. Inc. 24:8 (August 2002), 63 (7).

"Where Great Ideas Come From," by Susan Greco. Inc. 20:5 (April 1998), 76+.

Product Development. Entrepreneur.com.

"Lesser Royals: the Customer May be King, but too Often He’s Given Less than the Royal Treatment," by Richard Osborne. Industry Week 251:3 (April, 2002), 65 (3).

"Transfer Technology To Boost Your Business," by Bari Faye Siegel. StartUp Journal. WSJ.com.

Writer: Glen Greene

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