Why do so many high tech products and companies fail? We’ve had the opportunity to evaluate the strategies and practices of hundreds of high tech companies and the following summary highlights the primary reasons for failure.
The ultimate success or failure of a disruptive product or technology (and the company that makes it) will depend on how management shapes and manages their new offering as it is potentially adopted by different groups in a defined market. See Fundamentals of Technology Adoption for more information.
Struggling high-tech companies often do anything possible to generate revenue and in the process try to be all things to all people. Worried about losing business they avoid segmenting the market and refuse to focus on one or two key segments. As a result the company is unable to adequately serve any one market segment and management is suddenly swamped with support problems and competitors.
High-tech equipment is generally used over an extended period of time, is integrated with complimentary products, and imposes learning costs on the end user. As such, customers require time to digest and recover their investment in high-tech products and the overall systems in which the products are used. The rapid introduction of new and improved versions can make a customer regret a previous purchase, delay all new purchases, and agonize over similar purchases in the future, none of which are in the long-term interest of the producer.
Somewhat related to the previous cause of failure (Excessive Pace of Product Improvement) is the common mistake of leaving customers behind. Many high tech companies ASSUME their target audience has the technical skill needed to adopt and utilize a new product. Unfortunately, many of the technologies we see in the world today actually leave more people behind than they pull forward. So the market adoption you were planning on (which is driven by word of mouth) doesn’t materialize because significant numbers of people are saying negative rather than positive things about you.
Customers view products very differently than the people who create or supply them. In technology-based companies the tendency is to try to sell products on the basis of price, special features and technical specifications. These technical factors are often favored by the engineers and scientists who typically run high-tech companies. The problem is that most customers consider factors such as product support and company reputation to be more important. So the feature rich products created by techies are seen as incomplete in the mind of the customer. Rather than competing on features alone a company should focus on the “intangible” factors that are especially attractive to most customers.
Many high-tech products that fail do so because of a lack of differentiation, which in high-tech often mean “no technological advantage.” Successful companies differentiate their product from all other products on the market. Differentiation is possible on the basis of five fundamental factors: function, time utility, place utility, price, and perception. These five elements can be mixed into an almost infinite variety of patterns.
There’s more to channel management than just matching distribution to your target customer or segment. Specific skills are required to effectively manage each type of distribution channel and those skills must be developed internally before significant selling can begin. For example, success with a dealer channel requires a top-flight sales vice president or leader who can guide account or market development, and can introduce dealers to key buyers. And once leadership skills have been developed, it is then necessary to overcome the inherent weaknesses of the dealer channel.
Traditional barriers to competition, as defined by economists, are of little value in high-tech. These conventional techniques are mostly designed to prevent market entry and tend not to work in technology-based business. The most effective competitive barrier in high-tech is the perceptions held by customers, prospects, and the supporting infrastructure.
It is easy to misinterpret the role price plays in market transformation. And it is a mistake to believe that a high-tech product would be widely used and adopted if its cost was low enough. Price reduction alone does not guarantee mainstream market acceptance. See The illusion of price-driven market acceptance.
There are two versions of the technology adoption lifecycle model. The original version (introduced in 1957 at Iowa State College) describes the market acceptance of new products in terms of innovators, early adopters, early majority, late majority, and laggards. The process of adoption over time is illustrated as a classic normal distribution or “bell curve.”
The second version is an adaptation of the original that includes a gap in the bell curve, between early adopters and the early majority. This essentially splits the adoption process into three distinct phases, an early market and a mainstream market, separated by a period of time called the valley of death.
Both versions of the technology adoption lifecycle are useful tools for understanding the way markets unfold and mature. However the second (valley of death) version typically applies to discontinuous innovations, meaning the product forces the user to change behavior.
This is an area of great confusion because not all high-tech products are discontinuous, in which case the original technology adoption lifecycle applies more than its successor.
Another misinterpretation occurs when marketing folks refer to a market as characterized by “all late adopters.” Because both technology adoption models are expressed in terms of a standard bell curve, it means statistically, a random sample of any given market or population must contain: 2.5% innovators, 13.5% early adopters, 33.4% early majority, 33.4% late majority, and 16.0% laggards. So even if an industry is conservative by nature, there will always be a sequence of adoption by different types of buyers.
In both cases—continuous or discontinuous—companies often make the mistake of believing that because early buyers understand their cause, all buyers will understand their cause. In reality, innovators and early adopters have a clear reason for adopting your product, but mainstream buyers do not.
Companies routinely perform the wrong type of market research. Statistical surveys of customer demand do not provide the qualitative information that is needed most. Because the judgments of your target audience often rely as much on perceptions as on facts, qualitative research intended to identify existing perceptions has much greater value in assessing, planning and executing a company’s marketing strategy.”