Even though an extreme product launch may sound like a new idea, it’s just a name for something already happening on a wide scale. There are many sites which promote selling a product before you have it. Kickstarter for products. LeanPub for books. Enroll.io for courses. Thanks to the take-down of private company funding regulations in the US, there’s even websites for funding businesses which don’t exist yet.
The main business benefit you accrue from an extreme launch is that you truncate your cost of delay to zero. In high growth industries like technology, timing is crucial. Once the technical inputs for a product are easily accessible and affordable for the players in a niche, the first mover will earn the greatest benefit from introducing the product.
By selling to confirm you have a good offer, you do more than confirm your intuition about the offer. You start earning revenues immediately, which is the whole point of creating your business. Granted you will almost certainly sell less, or at least get more refund requests if you don’t have the product yet. But…and this is crucial…you won’t have any cost of delay. Because you start selling earlier, you make it more likely that you’ll grab a greater share of the market. You also discover whether you might be too early potentially. Even though the technology may have matured enough, it’s possible your users aren’t ready to accept a new gadget which solves a specific problem.
It’s basically a cunning ploy on my part to elevate the status of the lowly pre-order. While an extreme launch may be uncomfortable for you, you either build a lot more confidence in your idea based on pre-order sales, or you blow up much earlier so you actually waste less money when learning your product idea is a dud.
Why is delay such an important factor? Just because you can’t see it, doesn’t mean it’s not there. Just like blood pressure.
In the case of a startup, there is a very real opportunity cost of releasing late. You risk making fewer sales if your competition beats you to a market. Even if they have more bugs, they will already be earning cash. In most markets, according to Ries & Trout’s booklet the 22 Immutable Laws of Marketing, there is space for three players in your users’ mind. How many brands of toothpaste can you come up with, without checking a store? More poignantly, do you know who the second person to cross the Atlantic was, without checking Google or Wikipedia? (Hint, it wasn’t Charles Lindberg or Amelia Earhart). You are up against the limits of human perception and memory, at least within your niche.
According to Doug Hall in “Jump Start Your Marketing Brain”, based on his proprietary studies across thousands of product launches:
Having the courage to be the first to market nearly doubles your sales versus being the fourth to market. On average, brands that are second to market generate 71 percent of the sales of the pioneer. Those that are third generate 58 percent, and those that are fourth some 51 percent of the sales of the brand that is first to market.
Most companies simply don’t explicitly take the cost of delay into account, because they think it’s given. It’s obvious. They don’t think about how big it is, usually because it’s hard to estimate.
Moreover, this loss of sales revenues will typically be significantly greater than the cost of accelerating development, to finish the product faster. So for example, getting to market faster with a full blown product may cost more to execute; however, the additional sales you generate will compensate for far more than the additional development costs incurred.
Product development expert Don Reinertsen popularizes the cost of delay as a highly relevant metric when launching new (read:greenfield) products, both in large and small companies. When running in-house training sessions, within most product teams the range of initial cost of delay estimates is about two orders of magnitude. Each time it’s the same company, the same product, the same target market, the same technologies, and the same group of people. Nonetheless, this lack of estimate agreement is consistent across companies. Presumably, no one even bothers bringing it up, so everyone just assumes that everyone else has the same assumptions. And then they can’t figure out why they disagree on how and when to launch the product.
So if you’re an entrepreneur creating a new product, your best bet is to launch immediately. You won’t have any cost of delay. You will start making sales, which implies cash to finance the rest of your business growth.