Customers buy holes, not drill bits

Familiar story: One day Joe comes up with what he thinks is a killer new product app for his company that he is certain will rock the market.  So he takes the half-baked idea and spends a few days drawing up a provisional plan to present to his product team.  He works on the product development team so of course his colleagues like the idea with a few changes – mostly enhancements and expansions as they get excited and brainstorm over the concept.

Next Joe takes the idea to the sales manager, because of course you can’t take anything to market without the support of the sales group.  The sales manager takes a look and says, “There’s no way I can get my salespeople to focus on this.  The price points are too low and our commission structure, based on your proposed pricing, won’t motivate them.  And besides, your product requires a different buying point with our customers.  My people don’t have relationships with who you need to sell to.  My guys won’t even glance at this.  It looks cool on paper, but let me know when you have something we can actually sell.”  So Joe makes some price modifications and product changes so it is more appealing to both the sales group and their existing relationships.

Next Joe has a meeting with the CFO who says, “I’m not sure you recognize this, but we have a financial plan and margin goals here and your product doesn’t come close to meeting these targets.  You’re going to need to optimize the cost structure around your product before we can introduce it.  Come back to me when you can make it fit our financial model.”  So Joe and his team figure out how to optimize the cost and materials structure, and margin values of the product and finally the CFO approves.

Meanwhile Joe and his team have been having discussions with the engineering group to develop specifications to build the product application.  And the lead engineer says, “Your requirements exceed the talent and capacity of our team.  You’re gonna need to find some money and identify an external resource to build this thing.  Not only that, it will take us 18 months to integrate any external efforts to make your product market ready.”  So Joe and his team make more modifications to reduce the enhancements, scale back the performance, etc.. so it can be built for less, using internal resources, and on time.

Eventually what comes out in product release is laden with the constraints of the company’s business model and is no longer recognizable as what Joe and his team dreamed up.  And of course the product no longer looks like something that will satisfy consumer demand, but more like something that satisfies internal mechanisms.  Well, the customer doesn’t buy what is best suited to the business model conveniences of the manufacturer.  They buy to get a job done.

Clay Christensen makes the case that it’s the business model that needs to innovate to allow innovative products to emerge.  Business units do not evolve, but companies can.

When product development people dream up new products and services they typically think in terms of product market segments and/or customer market segments.  For example, car companies think in terms of compact, mid-size, luxury, SUV, mini-van, light truck, etc… Pharmaceuticals might think in terms of customer market segments – low-income/high-income, 18-24 year olds, married/unmarried, internet access or not, etc…  Christensen suggests that the most successful products answer a need for what the customer is trying to do.  In other words, think in terms of what job needs to be accomplished.  Scott Cook, founder and Chairman of Intuit said, “Looking back on it, whenever we failed with a new product, we followed a conventional marketing paradigm, of segmenting by a product attribute, or customer demographic.”  In other words, when Intuit created products that failed, they didn’t necessarily evaluate what job the customer was trying to accomplish – they thought instead of who they might be able to sell to, or how the new product might fill a narrowing niche in an already compressed market.

The original marketing guru Ted Levitt famously said, “People don’t buy a quarter-inch drill bit, they buy a quarter-inch hole.  You’ve got to study the hole, not the drill.  The drill is just the solution for it.”

Dr. Christensen illustrates the point in this amusing story about milkshakes.  Enjoy!