This White Paper maps out the issues that need to be addressed when deciding whether to re-launch a failed company or its failed product offering. Key take-aways from the White Paper include the following:

The uncertainties in evaluating whether to re-launch appear less complicated if new product success rates are understood. There exists enough data about what makes a new product successful that a more disciplined approach to changing products and executing re-launches is available.

Assessing the state of the technology and the quality of its front end in particular is a critical task in deciding whether and where to invest resources available for a restart.

The evaluation of the technology is likely to be incomplete without market research and segment testing and evaluation. Such segmentation can be used to improve interactions with critical customer classes and achieve dramatic increases in functionality and perceived value in relatively short periods of time.

Strategies that focus upon segmentation and shortening sales cycles need to be driven by explicit attempts to increase the value offering of the product or web service.

Turning around a company is often perceived as a “seat of the pants” or intuitive exercise. A senior executive with a track record of success is brought in. He makes judgments about the people, the strategy and business model, quality of implementation, competitive positioning and the long-term sustainability of various strategies. Often a good turn around manager has lots of experience in multiple industries and as a result is able to apply successful business models from one industry to another.

In many cases, short-term survival is the issue and typical triage is done focusing upon the retaining the good managers, focusing upon the key activities in the value chain, and changing the mix of customers in a direction that will support a profitable business.

However, there are more formal frameworks available and consulting services such as user interaction design that can be used to speedup strategic, marketing, and technology choices. These frameworks and models can guarantee that rapid implementation of change can be done. These formal frameworks are particularly useful for existing high tech business where the downsizing of staff can jeopardize core company competences. In such situations, the bets placed by investors tend to be larger.

In the aftermath of the dotcom explosion and melt-down, many companies and their investors find themselves with difficult choices about how to turn around companies.

This White Paper maps out some of the choice and analyses that can help a firm prioritize the key activities in its re-launch strategy. It is targeted primarily at high tech firms such as software firms, e-commerce sites and web-services. The White Paper also briefly addresses the issue of handling a failed high tech expansion into a foreign market e.g. a non-US firm that has difficult in its first attempt at launching in the US.

Investors tend to prefer management teams who have prior experience in a business because they assume that past learning will reduce the amount of uncertainty about what works and what does not work in a new market. However, surprisingly, many investors do not take advantage of well-proven data about what kinds of launches will likely work.

Research on new product successes over the past twenty or so years provides an essential framework for evaluating whether re-launches are likely to be successful and what types of business changes are required to maximize chances of success. New product forecasting models such as NewProd or Danprod correlate about .8 with actual success (where 1.0 is a perfect modeling of why new products succeed).

However, in pioneering businesses, the assumption that past industry experience is the only requirement for a re-launch is often not correct. In a pioneering business, past assumptions and experience may be incorrect and testing of assumptions, messages, markets, and technologies becomes more important. In these markets, managers with multiple, serial startup experience have developed “sampling skills” that managers with apparently good track records may not have developed.

Founding entrepreneurs often experience difficulty from the commitment to one way of looking at the business. This “functional fixedness” makes it difficult for them to question the assumptions upon which they have launched their business.

The eight areas of uncertainty in a re-launch clearly have interdependencies, but they are also amenable to a deliberate strategy of analysis and marketing measurement/sampling.

The author's personal rule of thumb is that around 60-80% of turnaround software situations will have a significant technology problem - the core product will be incomplete, poorly tested, unreliable and will frequently have an interface or overall set of customer interactions that do not help sell the product or service.

Problem software and Internet companies tend to fall into two categories. For most, the product developed has been technically driven and not customer goal and need focused. The smaller category consists of companies whose product development has failed due to technical incompetence or poor technology choice. In most cases, the need for professional services and support has been underestimated.

Experience and new product research suggests generally that poor market research and product problems are the two most important reasons for product failure. A variety of studies by Bob Cooper (Winning at New Products)puts poor market research as the reason for 45% for new product failure. Product problems account for 29% of new product failures.

However, if we accept the notion that many product problems can also be driven by a failure to research customer needs, then it is not unreasonable to assume product development failures account for many technology based new product failures. The general experience is that between 33% and 90% of new products fail.

Failure rates in venture capital and software projects are very high relative to traditional new product success rates. This higher failure rate is likely a result of both the riskiness of software projects and the lack of marketing focus in venture-backed investments.

Source	Business Failure Rate
NewProd Studies (Robert Cooper)	33%
IT projects in Fortune 500 companies	60-80%
Venture portfolios	Conventional wisdom of 70-90% failure depending upon definitions.
Technology Business/Product Failure Rate Consensus Estimate	50-75%

Typical software development budgets for a new product run a wide range from a low in the $2.5M range to a high in the $25M range. (It is worth pointing out that large software projects are always riskier than small software projects. As a result, re-launch strategies that require large development budgets are often doomed.)

Reevaluate the market opportunities and examine the available re-positionings of the products e.g. improving the front end, changing the underlying architecture, reducing functionality, changing the target audience, opportunities to joint venture or distribute through other vendors.

Cold heartedly treat the revised product as a new product and determine whether the opportunity can justify additional investment. In the majority of Silicon Valley situations, the problem frequently results from an overly technical management team with weak sales, business development, and professional services/solution selling capabilities.

In this situation, most companies focus too much on the “fix the technology “ problem and not enough on the “Will people pay to have this problem fixed?” issue. But clearly there is little point in completing a technology for which there is little demand, or where the cost of marketing and launch poses a significant barrier to entry.

Many foreign companies entering the US market discover, to their horror, that the US market is highly competitive and that their product is not offering a particularly high value to customers. A strategy that should be pursued in this case is to team with an American firm whose functionality or service is complementary to the product being launched and which will raise the value of the offering.

Offering a high value differentiated product has a 5X higher launch success rate and generally results in 5X higher revenues. However, a key insight is that value varies by segment. As a result, it is pretty much impossible to fix a technology problem, evaluate the value offered by the software, hardware or services solution, unless market research (formal or informal) is part of the re-launch process. Such market research should also drive user interaction design improvements.

	Initial R&D Cost	Cost to Fix	Value Offered on a 100 Point Scale	Market Size
R&D Generation 1	$2M	$5M	30	100%
Interface	$500K	$250K market research $500K programming	50-60	100%
Segmentation refocus- cost of market research		$150K market research $250K programming	80-100	20%

In the above example, the figures illustrate three different classes of “fix”. Fixing the architecture is clearly going to be expensive in any situations. Cleaning up a bad general interface can also be expensive, but is likely to be less effective than producing a Goal-Directed interface targeted at a particular customer segment (and its personas or types of users), in the manner made popular by Cooper Interaction Design (www.cooper.com) .

For the same amount of money, a more targeted interface improvement might well simultaneously produce a “higher value product” and also reduce the marketing dollars necessary for support. The market costs for re-launch could be as little as 1/5th the amount required for a full market re-launch. In the above example, where development costs were perhaps in the $5M range for a full market re-launch and $1M for re-launch to 20% of the market, the re-launch consequences might looks as follows:

	Total Development Cost Include Revisions for Relaunch	Marketing and Sales Launch Costs at 100% for Full Revision and 20% for Targeted Revisio
Full Revision	$5M	$57M
Targeted Revision	$350K	$11.4M
Cost Advantage of Targeted Revision	$4.6M	$45.6M

In the early days of software development, a rule of thumb was that product launch and marketing typically cost between 5X and 10X the development budget for a piece of software.

As the software business has matured and the Internet has grown, the economics of marketing clearly varies widely. Launching a successful competitor to MS-Office is a large scale consumer and industrial marketing problem that is very different than the problem of introducing a first of breed technology targeted at a segment.

People may disagree over the size of a launch budget, but it is clear that a larger marketing budget (in competent hands) is better than a small one. Most high tech marketers would agree that a US launch budget for a new product and a new business would typically run around $3-10M and higher for a consumer launch. This figure would include setting up sales and distribution, marketing, web site development and public relations.

Clever marketers will occasionally be able to come up with marketing and sales strategies that cost less, but they are the exception rather than the rule. Viral marketing, outbound tele-marketing, low cost entry versions of products to obtain trial are all excellent low cost strategies for launch, but they are not appropriate for all high tech products.

In the current environment, many firms are unable to raise sufficient funds for a large scale traditional product or service launch. Fund raising is only an option for companies who have exceptional value propositions and often requires demonstration of commercial success, i.e., customers who actually purchased, use and like the product.

And of course, having an exceptional value proposition (for a particular segment) offers two benefits: (1) lower cost of revision, and (2) higher probability of success. The key metric here will always be acceleration of the sales cycle.

Improving sales cycles has two key benefits. First, the cost of launch is typically reduced and funding requirements are lowered. Second, and more importantly, more customer usage experience is a potential source of major competitive advantage. Sales strategies that create rapid customer experience, can lead to huge increases in the value proposition for a rapidly evolving product. And the more that the value proposition improves, the faster that sales should close.

If a company focuses its efforts upon rapid software evolution that is based upon superb measurement practices, it has the opportunity to rapidly outdistance its competitors. And user interaction design is a way of rapidly altering the value proposition of a problem product. The new product research in this area suggests that doing your marketing homework (which we would argue needs to be translated into more targeted user interface design) has a 2.5X higher probability of success and generally produces at least 2X the financial returns.

Pricing strategy is a key weapon in any re-launch. For most foreign companies, the conversation always seems to revolve around protecting the price in their home market. But the reality is that price is underused both as a launch weapon and for gaining market share.

The absolute amount of the price. Clearly there are fewer organizations that can buy a $1M product than there are organizations that can buy a $100K product.

The importance of the product. For example, an oil company may well pay a premium for equipment on which an oil rig is dependent and where the cost of downtime may be measured in the tens of millions per day.

The perceived commitment to the product. A month-to-month lease that can be cancelled any time for e.g. a copier lease or ASP service, is a lot easier to sell than a $10,000 purchase.

Changing the pricing levels for a product also involves perception. At the beginning of the recession beginning in 2000, In-Focus, the well known developer of LCD projectors did a clever e-mail campaign promoting one of their portable systems for $99 per month - perceptually, a whole lot easier to digest than $4000 purchase in uncertain times.

In a more sophisticated view of technology, a business consists of a series of business initiatives or projects which combine a business with technology TCO. The risk adjusted projected increase in value (triggered by a new technology) from the new revenues, costs savings less the total cost of ownership represents the (shareholder) value created by the decision.

Organizations increasingly evaluate purchase decisions based upon financial payback or in the most sophisticated organizations through ranking of the consequences of proposed projects upon balanced score card measures.

Understanding this emphasis upon TVO and payback measures, most companies will have to change their marketing materials away from endless feature lists. Different types of risk sharing and gain sharing relationships with customers will also prove attractive in many cases.

We, at Eclicktick Corporation, believe very strongly that managing the length of the sales cycle is a key management task. In any re-launch, the challenge is typically to shorten the sales cycle. Generally, shortening the sales cycle is more important than increasing the price. Increasing the relationship revenues is normally more important than the upping the initial purchase.

Generally, there is a tight relationship between value, pricing strategy, product strategy and sales cycle. As a result, many managers' opinions about pricing acceptability are too narrow. For example, dropping your price and offering reduced functionality or value does not necessarily jeopardize the high value version of the product. And in many cases, low-end versions of the product represent ways of reducing the perceived risk of purchasing an expensive product.

Adobe PhotoShop LE, a low end version of the well known digital imagery software has, we are sure, triggered sales of higher end versions of the software such as PhotoShop Elements or the full Photoshop product.

Bundling, which reduces the effective cost of software has also proven remarkably successful as a tool for e.g. Microsoft and Adobe. We would argue that bundling is equivalent to a Costco/Sam's Warehouse strategy where the retailer only sells large sizes. The absolute dollars of the purchase are higher than with a single product. The percentage profitability is lower, but the absolute dollars are higher.

And because a bundled product offers more perceived value, innovators like Microsoft have gained huge market share, a result consistent with the new product research that high value leads to high success rates and higher market shares.

A common misunderstand of re-launch strategies (raised by founders) is that targeting an initial segment does not prevent later penetration of other segments. For example, the Japanese auto manufacturers originally succeeded in the small economy car market - a segment that US auto companies did not bother to defend because it was unprofitable for them. The volume achieved and infrastructure created to service the small car segment allowed Japanese vendors to move up market into mid-size cars. And success with high quality mid-size cars gave Japanese firms the ability to launch high-end luxury products such as Lexus, Infiniti and Acura.

This strategy confirms two key finding in the new product literature - (1) that an entry strategy into an attractive market is beneficial (an undefended segment is almost by definition attractive), and (2) that synergy promotes new product success. Being able to launch a new product as a variable cost without having to incur the setup costs of a new market entrant increases the probability of success.

The first time entrant will often trade off use of an intermediary such a distribution company, distributors, commissioned sales representatives not only to minimize up front costs, but also to take advantage of the existing relationships that existing players have developed.

Clearly the cost of getting the product sold to the customer is only one part of the equation. The other side of the equation is customer profitability. The analysis of customer profitability is often a source of great dispute in turnaround companies.

Because there are different ways of looking at costs and profitability, we, at Eclicktick, would argue that how you evaluate customer profitability is a strategic decision that is going to be affected by your resource availability.

Experience/Learning Curve Strategy: If you are a well-funded organization, there is a legitimate argument for evaluating your cost structure over the life cycle of a proposed product. In the hardware industries where experience curves dramatically affect the cost per unit, a decision to price below today's costs but above future per unit costs (based upon descending a learning curve) may well be an attractive strategy. In this turnaround situation, the assumption is that the company has overpriced its product by basing its pricing decisions on current volumes. The classic logic behind this pricing strategy is to pursue volume to drive down per unit costs; lower units costs will increase margins and permit heavier R&D and marketing costs to maintain a dominant position.

Trojan Horse Strategy: An alternative strategy for the well-funded firm is the Trojan Horse strategy. Selling a low cost entry level product can set the stage for an installed base upgrade strategy, where clients purchase the initial product because of its low cost, and upgrade once they become accustomed to the product and want more functionality.

Pareto trimming. The company eliminates products, services, transactions and customers that are not profitable. It focuses on the 20% of customers that account for most of the profitability (sometimes the 20% of profitable customers account for more than 100% of the profitability).

Value chain modification. The company is ruthless in pruning its activities. Wherever possible, it out-sources or out-tasks activities to organizations that can create more value than it can. In software businesses, this often means licensing other companies' technology, exploiting outsourced suppliers economies of scale, seeking less capital intensive distribution approaches.

Price alterations. Raising prices for core products or for additional services may also be appropriate under some circumstances. Testing is critical in some market to discover the demand-elasticity for a product - in other words as your raise your prices per unit, do your overall revenues increase due to higher prices on lower volumes?

Better execution. In many high tech firms, the focus of the startup has been on development. The skill sets of the team in managing and growing the business are often poor. Costs are often out of control due to inexperience of the management team and execution quality is a key variable for performance improvement that can be fixed relatively easily by bringing in outside expertise. The impact of marketing execution for example is estimated at roughly 2X higher probability of success and almost 2X greater revenue success.

With a scope economy, adding a product to your product line adds little to your costs, but increases either your probability of closing a sales or your revenue per close. However, at a certain point, the complexity of developing, selling and supporting too many products introduces so large a need for management that cost advantages start to disappear. Scope economies suggest that problem companies should distribute additional products to reduce their sales cost and increase their revenue run rate.

Time-based competition is one of the most interesting drivers of costs. The basic argument comes from the world of manufacturing and quality improvement. Some companies have found that if they separate production and testing, a mistake in large batches of production can be very costly. Smaller batches not only limit the downside to a mistake, but more frequent measurement of quality can improve the knowledge of an organization about what contributes to quality.

In the field of software development, time-based competition has also become popular. Often called “iterative prototyping”, the assumption is that building a large specification is often too complex, so the best approach is build part of the project and then evolve it, learning from users as you go.

As with manufacturing, there are good and bad ways of pursuing iterative prototyping. When done well, the predictability of the project is higher because the project is delivered in small pieces that can be tested early in the project. When done badly, testing is delayed until the end of the project and quality problems are harder to detect.

We would distinguish between rapid prototyping and rapid generational evolution or RGE. RGE rapidly improves the value proposition of a software product or web service and increases the likelihood of success.

Writers such as Alan Cooper (About Face; The Inmates Are Running the Asylum) argue forcefully that design is too often left to programmers, resulting in difficult to use software. Interaction designers like Cooper push for simplification of design to match the goals and objectives of targeted users. They point out that different users have different goals when using software. Research by Eclicktick on the impact of user interface design with Cooper Interaction Design suggests that the perceived value of improved design is higher (by some measures improving from 30 to 80-100 on a 100 point scale). Just as interestingly, crisp design often save 20-35% wastage on software development. And in exceptional circumstances it can reduce development costs by 95% (author's personal experience).

The new product literature (e.g. Robert Cooper, Winning at New Products) points out that crisp and early product definition not only increases the probability of success but statistically increases market share achieved. Failure to use market research in driving design is also the major cause of new product failure and certainly explains the horrible state of user interactions for most software.

When a crisp and clear design is combined with fast to market, numerous benefits emerge. One estimate suggests that being 6 months late to market can cost 32% of after-tax profits over a life cycle, so logically being early to market offers more upside, provided your product works well. And while a generalization, it does appear that being early to market with a good product is associated with higher profitability. An example of this type of success is Roxio, a firm that took a leadership position in CD-burning.

The final connection is the monitoring of usage patterns. Building software and web sites, and designing user interactions is a complex task. But without measurement, improvement is likely to be relatively random. Tracking usage and key performance measures is a critical element in improving the quality of user experience, identifying new opportunities and retaining customer loyalty.

At the simplest level, support calls can indicate problem areas - ones which should guide some portion of product development. However, revenue-oriented and customer satisfaction data is increasingly important - the interaction is, in effect, a service business that needs to be managed like any service business.

Fixing software and Internet companies generally challenges managers who are incapable of managing both the technology and the marketing side of the business. The two areas are inextricably linked. The classic response of investors of bringing in a marketing and sales oriented individual often causes missed opportunities on the technology side. Fixing the technology will not work without a strong marketing and sales orientation. User interaction design represents a key area for product value improvement and value improvement is normally critical to successful re-launch of a failed product.

The reciped for failure is a traditional cost reduction strategy where marketing and technology strategy are not linked and where general, unfriendly user interactions are part of a product or service.