Predictable Winners: A Handbook for Developing, Forecasting, and Launching New Products and Services

Predictable Winners

A Handbook for Developing, Forecasting, and Launching New Products and Services

STUART E. JACKSON and ILYA TRAKHTENBERG

STANFORD BUSINESS BOOKS

AN IMPRINT OF STANFORD UNIVERSITY PRESS • STANFORD, CALIFORNIA

Stanford University Press

Stanford, California

© 2025 by Stuart Edward Jackson and Ilya Trakhtenberg. All rights reserved.

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ISBN 978-1-5036-3885-3 (cloth)

ISBN 978-1-5036-4212-6 (electronic)

Library of Congress Control Number: 2024047845

Library of Congress Cataloging-in-Publication Data available upon request.

Cover design: Martyn Schmoll

Cover art: iStock

Typeset by Newgen in 10/15 Minion Pro

Contents

Acknowledgments

PART I: Configuring for Success

Eighty to ninety percent of new product and service innovations fail. But these long odds can be improved with a systematic approach at each step of the innovation journey, constant reevaluation of the opportunity in light of new information, and the right leadership mindset.

1. Use a Systematic Approach to Beat the Odds

Why Investing in New Products Is so Difficult and so Important

How Risk and Uncertainty Can Be Systematically Managed

The Benefits of a Systematic Approach

Who This Book Is For and What You’ll Find Inside

How Did We Come to Be Leading This Tour?

2. Manage Risks by Evaluating Multiple Indicators of Success

Benefits and Challenges of Fast Fail Innovation

Barriers to Change for Established Companies

Lack of Resources for Entrepreneurs and Emerging Businesses

The Catch-22 of New Product Investing

3. Avoid the Seven Behaviors that Reduce the Odds for Many Innovators

Overrelying on Intuition, Rather Than Objective Evidence

Rushing into New Areas Where You Have No Right to Win

Fearing Failure If Products Are Not Absolutely Perfect

Prioritizing Product Features over Customer Needs and Solutions

Focusing Only on the Short Term or the Long Term

Trying to Own It All

Failing to Flex

PART II: Developing Product and Service Concepts

Proven low-cost approaches are available to identify high-potential innovation concepts worth further assessment. Digital businesses have unique product development requirements, while most traditional businesses can enrich innovation with digital. Large organizations can take steps to ensure that breakthrough innovation ideas are not stifled.

4. Look for What’s Broken, Who’s Not Being Served, and How to Leverage Your Strengths

What’s Broken?

Who’s Not Being Served?

How Is Your Company Special?

The Edge Strategy: Leveraging Unique Capabilities

5. Take Advantage of Direct Market Feedback and Rapid Prototypes

The Value of Early Market Feedback

Benefit from Lean Development and Low-Cost Prototyping

Leverage a Variety of Early Signals to Assess Potential

6. Embrace Continuous Upgrades and Lean Development for Digital-Led Businesses

Design Sprint for New Concept Development

Trialing the User Experience

Proof of Concept for AI Products

Use Platform Customers for B2B Solutions

Manage Risks for B2B Customers

Network Benefits for Digital Businesses

A Special Context for Innovation: Leaner, Faster, and Networked

7. Move Up the Detect-Analyze-Act Pyramid to Enrich Products Using Digital

Applying the Framework: Collins Aerospace

Detect, Analyze, and Act

Create Effective Digital Customer Connections

8. Use a Start-Up Mindset for Breakthrough Innovation in Large Companies

Build a Dedicated Team

Balance Risks and Rewards for Team Members

Allow Accelerated Decision-Making with Guardrails

Define Clear Milestones and Tie Budgets to Achieving Them

Example of Breakthrough Innovation Challenges at a Large Corporation

Be Aware of the Challenges of Corporate Venture Capital

Alignment and Investment

PART III: Forecasting Revenue

A compelling revenue forecast and business case for a new product or service concept are critical to winning support from investors and other stakeholders. A rigorous research and forecast development process covering opportunity size, target customers, realistic adoption expectations, competitive threats, and pricing will generate conviction in a revenue forecast and lay the groundwork for a successful commercial launch.

9. Build a Business Case to Avoid the Product Graveyard

The Five Elements of a Robust Business Case

Avoid the Product Graveyard

10. Size the Prize and Identify the Customers You Will Win

Define a Big Enough Market Opportunity

Identify Growth Tailwinds

Segment the Universe of Potential Customers

Build a Customer Runway

11. Gather Customer Insights, Not Voice of Customer

Know Your Tools for Market Insights

Get Full Value from Market Interviews

Know How and When to Use Surveys

Derive Insights, Not Data

12. Never Take Market Research at Face Value

Getting Adoption Estimates Right

Pressure Test with Analogs and Triangulations

13. Assume Your Competitors Are at Least as Smart as You Are

Define Your Current and Future Competitive Set

Understand Your Competitors and Their Advantages and Disadvantages

Use Wargaming to Predict and Prepare for Competitive Responses

14. Price to Unlock the Full Value of Your Innovation

Price to Win the War, Not the Battle

Always Start with Value

Select the Right Pricing Model

Determine Your Pricing Strategy

15. Build a High-Confidence Revenue Forecast

The Fundamentals of Building Revenue Forecasts

Develop Your Model Methodology

Defining Adoption Curves

Adjusting for Competitive Impacts

Assessing Risk with the 3S’s: Sensitivities, Scenarios, and Simulation

The What You Have to Believe Sense Check

16. Create a Bulletproof Business Case

Put the Case Together with a Strong Narrative

Define Your Ask

Framing Your Ask for Your Audience

PART IV: Ensuring Commercial Success

A deep pre-launch understanding of customer decision-making and adoption barriers is critical for the successful launch of a new product or service. Creating a flexible but sufficiently detailed launch plan that proactively aims to overcome adoption barriers is well worth the effort. This launch plan needs to incorporate decisions on the right scale of launch and the right channels to reach customers. Finally, configure the organization optimally to execute a successful launch.

17. Identify and Lower the Biggest Barriers to Adoption

Understand How Customers Buy and Which Stakeholders Will Matter

Proactively Overcome Expected Adoption Barriers

Learning from Uber

18. Plan Enough but Not Too Much

The Importance of a Goldilocks Launch Plan

Creating a Living Launch Plan

19. Take the Shortest Path to Value, Not to Market

Go Big or Go Home Launches

Limited Launches and the Art of the Lean Launch

Tradeoffs of Direct vs. Distributor Channels

Manage Channels, Don’t Let Them Manage You

20. Prime the Organization for a Successful Launch

Organizational Priorities for Start-Ups

Organizational Priorities for Established Companies

Importance of Building Internal Alliances

Organizational Best Practices for Launch

PART V: Creating Long-Term Value

Traps that cause many organizations to destroy value after the first launch can be avoided, while incremental innovation can be used to build on the success of a breakthrough in the long term. The requirements for driving sustainable success from innovation vary for different types and scale of businesses.

21. Turn a Single Success into an Enduring Franchise

Five Areas Where Many Companies Fall Short

The Challenge of Going Beyond the First Product

The Value of a Multi-Platform Product Plan

22. Make Use of Acquisitions and Partnerships to Accelerate Innovation Value

The Five-Point Framework

The Power of Partnerships

Breaking New Ground: A Nonprofit Enterprise Bets on a New Subsidiary

23. Embrace Proven Pathways for Long Lead-Time Innovation

Managing Your Business as a Series of Inflection Points

A Different Pathway: Aviation

Balancing High-Risk, Long-Term Innovation with Near-Term Wins

24. Use Incremental Developments to Complement Breakthrough Innovation

Incremental Innovation: What’s Required?

Incremental and Breakthrough: Conflicting Imperatives?

The Role of Execution in Determining Whether a Product Becomes a Breakthrough

Incentives in Large Organizations

Innovation Challenges for Large Organizations

25. Turn Gaps into Strengths for Start-Ups and Entrepreneurs

How Entrepreneurs Can Turn Weaknesses into Strengths

Configure to Maximize Advantages

Knowing When to Exit or Find a Partner

Appendices

Appendix 1: Tools for Market Research

Appendix 2: Real-World Data Resources to Complement Market Research

Appendix 3: Estimating Purchase Intent

Appendix 4: Revenue Modeling Best Practices

Notes

Index

Acknowledgments

The journey of writing a book is in many ways like the journey of creating a successful innovation—things have to go right at each step along the way and you need the right people alongside you. And there have been many people alongside us on this journey, helping make this book a reality.

We are indebted to all those who have made it possible for us to earn a living doing what we love: helping companies create value through innovation and growth. We would like to thank our clients, who have supported us, often over ten or twenty years, covering hundreds of different initiatives. In addition to our clients, we would like to thank the board members, investors, advisors, and L.E.K. Consulting colleagues whom we have had the privilege of working alongside, and who have all contributed to the body of knowledge that forms the basis of this book. A special thanks is due to those who contributed ideas and examples to this book, including John Goddard, Pierre Jacquet, Rob Rourke, Harsha Madannavar, Darren Perry, Eileen Coveney, Jeff Marrazzo, Erin McCleave, Gil Moran, Andrew Rees, Hatem Sellami, and Craig Wills. Additionally, a wide range of colleagues served as sounding boards as we iterated on the many topics in this book, including Rob Haslehurst, Dominic Perrett, Katlin Erines, Nathalie Herman, and Matt Taylor. It was humbling to have the unconditional support of such a brilliant set of colleagues and friends on this journey.

In turning our ideas into a book, we would like to thank Geoff Gill and John Nichols-Daly for their research support and enthusiasm and our editor, Jeff Cruikshank, for his tireless efforts to make sure the book delivers for our readers. Further, a heartfelt thank you to our reviewers Paul LaViolette, Ed Keller, Alan Lewis, and Dan McKone, who provided invaluable feedback for which our readers will certainly be grateful. A special thank you goes to Richard Narramore for giving us the encouragement to take on this project and guiding us along the way.

Finally and most importantly, we want to share our deep gratitude to our families, especially our stalwart champions Marisa and Marina, who patiently provided support, understanding, and encouragement, both in the writing of this book and on our broader journeys. Thank you for making this book possible.

Stuart Jackson and Ilya Trakhtenberg

PART I

Configuring for Success

Eighty to ninety percent of new product and service innovations fail. But these long odds can be improved with a systematic approach at each step of the innovation journey, constant reevaluation of the opportunity in light of new information, and the right leadership mindset.

ONE

Use a Systematic Approach to Beat the Odds

Innovate—or die trying! has become the watchword for many organizations, as the lifespan of companies on the S&P 500 has plummeted from sixty years in the late 1950s to under twenty years as recently as a decade ago.¹ For this reason and others, organizations today are making tremendous efforts to become more innovative.² Globally, some 3.4 million patents were filed in 2022 alone, including more than 650,000 in the United States. So by this measure at least, companies have embraced the innovation imperative.

Why Investing in New Products Is so Difficult and so Important

But here’s the rub: It turns out that creating a sense of urgency about innovation and generating new ideas toward that end are not where companies are truly struggling. The real problem they face lies in generating an attractive return on their investments in product and service innovations.³ The track record is daunting. Between 1926 and 2019, fewer than 0.2 percent of businesses accounted for 40 percent of all value creation.⁴ According to the late Harvard Business School professor Clayton Christensen, there are more than thirty thousand new product launches each year, on average. Of those, something like 95 percent fail. True, other studies aren’t quite as gloomy; even so, they generally peg the failure rate at between 70 and 90 percent. Successful launches are particularly difficult for those new-to-the-world breakthrough innovations that potential customers may not even know they need. In recent years, this has become only more difficult given the growing complexity of products, the ever-increasing sophistication of customers, and the extraordinary ballooning of data available to inform (or confuse) decision-making.

And finally, the odds are even more stacked against new market entrants. For example, as we pointed out in an earlier book, the success rate in grocery product introductions was seventeen times higher for large companies than for smaller players.⁵

To balance the need for innovation against its obvious risks, many large companies seek to improve their odds by focusing their innovation on close-in product extensions and variations, which leverage existing customers, production processes, and sales channels. There are well-established approaches to managing this type of innovation, most notably the Stage Gate Process first adopted in the 1980s and 1990s. But as highlighted by the work of Christensen and many others, organizations that focus only on incremental innovations sooner or later face the risk of being disrupted by a challenger.

How Risk and Uncertainty Can Be Systematically Managed

Fortunately, there are better solutions. This book describes evidence-based insights and perspectives on how successful companies embrace the need to go beyond incremental product and service innovations while still maintaining attractive investment returns. The approach we advocate is to systematically identify and retire risk at each step of the innovation journey from concept development to commercial launch and beyond. Importantly, success requires getting not just one or two steps right, but all the steps right along this journey. This approach and our perspectives in this book are grounded in a vast body of insights derived from thousands of growth-oriented projects the authors have led for hundreds of management teams over several decades at L.E.K. Consulting, as well as the experiences of numerous successful practicing innovators and dozens of case studies in the public domain. At the same time, we draw lessons from several proprietary L.E.K. resources and analyses. These include (a) a ten-year look-back database covering over one hundred innovations with more than $20 billion in peak revenues; (b) a longitudinal analysis of public company performance following their first product launch; and (c) evaluations of the role and share of new innovations in different sectors of the economy. This unique base of material allows us to compare, for example, the systematic disaggregation and management of risk in the biotech industry with the value of lean prototyping in digital innovations. It allows us to objectively contrast the role and value of internal versus external (acquisition-based) innovation, and it helps us to explain why most successful first-launch companies fail to create value in subsequent years. Many of the insights shared throughout the book synthesize lessons from this dataset with a wide range of case studies.

So, how does it work?

First, successful companies embrace what might be called an agnostic approach to internal or external ideas. In other words, they focus on finding the best ideas—wherever they come from—and helping those ideas take root and flourish. They seek early customer feedback on new concepts through rapid prototyping to define a minimum viable product and then validate, refine, or let it fail fast. They then use quantitative tools to disaggregate and manage distinct risk factors in concept development, revenue forecasting, and launch planning. They thereby not only develop a much more realistic assessment of a new product’s true potential but also define the kinds of requirements that are needed to overcome critical areas of risk and uncertainty.

What else? They maintain a focus on capital returns and value creation by managing innovation spending through a series of value-inflection points, with a focus on the costs, benefits, and option value of getting to the next milestone. They look beyond the first product and keep an eye toward continuing launches that can turn a one-hit wonder into an enduring franchise. This includes maintaining a healthy view of internal and external value-maximizing opportunities after product launch, as well as before. The importance of this kind of post-launch handholding cannot be overstated. For example, according to a 2022 study by our L.E.K. colleague Pierre Jacquet, over the past two decades more than 50 percent of public biopharma companies with a single product destroyed value in the first twelve and twenty-four months after product launch. We argue that in many cases, it didn’t—and doesn’t—have to go that way.

The Benefits of a Systematic Approach

In our experience, most companies can eliminate many of the potential sources of failure and, by so doing, achieve a success rate for innovation well above 50 percent. This means constantly tilting spending toward innovations in which risk factors are being successfully managed. To illustrate the point: if a company’s innovation success rate is 60 percent but spending is three times higher on the winners, then more than 80 percent of spending is going toward successful innovations.⁶

Who This Book Is For and What You’ll Find Inside

This is not a book for dreamers wishing they could come up with the next brilliant new product or service idea. It is for people whose livelihoods depend on being able to take on all the uncertainties related to launching new products and services and turning them into predictable winners. They may be entrepreneurs, product developers, R&D directors, marketing directors, business development leaders, business unit heads, CEOs, and investors. They are people who recognize that for most breakthrough concepts, there are multiple inventors with similar ideas, most of which will fail. The winners are those who can manage the risks and eliminate the sources of failure at each of the key steps in the innovation journey that are covered in the five parts of this book:

1. Configuring for success. Embracing a systematic approach to managing every step of the innovation journey, with constant reevaluation in light of new information and with the right personal mindset on the part of those leading innovation teams.

2. Developing product and service concepts. Sourcing and developing high potential innovation ideas, taking advantage of lean approaches to concept development and assessment, including tactics large organizations can use to embrace breakthrough innovation.

3. Forecasting revenue. Developing a realistic forecast and business case for an innovation—including understanding opportunity size, target customers, adoption expectations, competitive threats, and optimal pricing and pricing models. If the forecast isn’t robust enough to convince management or investors or if the necessary product or service concept doesn’t appear to be achievable, then you’re better off walking away at the outset.

4. Ensuring commercial success. Taking the key steps and overcoming the hurdles involved in going from fully developed concept to successfully launching and generating revenue, including proactively identifying and addressing adoption barriers, creating a launch plan, and preparing the organization for successful launch execution.

5. Creating value for the long-term. Avoiding the traps that cause many organizations to destroy value after the launch and using product innovation as part of the broader corporate development agenda for different types of organizations.

Figure 1.1 provides an overview of the topics we will cover in this book and serves as a systematic checklist of the key steps to maximizing success along the innovation journey. Depending on whether you are the person responsible for making your organization more innovative, sourcing new ideas, assessing product potential, or overseeing the whole enterprise, you may pay more attention to some sections than others but we expect everyone to benefit from understanding what’s involved in the complete innovation journey.

Innovation Journey Checklist

Throughout the book, we will use the terms product or product development, but this is meant to encompass both products and services. We’ll also reference many real-world situations—both reassuring and cautionary—to make our points. One particularly notorious example demonstrates the overarching premise of getting things right along the entire innovation journey. In the mid-1980s, in major metropolitan areas, cell phones were starting to take off. Motorola, a proud company with an enviable history of innovation and already one of the leaders in communications technology, came up with an amazing new product concept: Iridium. Iridium would provide cell phone–style communications anywhere on earth using seventy-seven low-earth-orbit satellites, to be launched at a cost of $5 billion. Motorola did its upfront research, interviewing more than twenty-three thousand people from forty-two countries and surveying more than three thousand corporations.⁷ Then came a full decade of development, with key constituencies, particularly international business executives, continuing to support the concept. Launched in the late 1990s, the newly spun-off Iridium Communications saw its stock price triple in less than a year. There was much fanfare. Vice President Al Gore made the first Iridium call—to Gilbert Grosvenor, the great-grandson of Alexander Graham Bell and the chairman of the National Geographic Society.

The sky was the limit—or so it seemed. But as soon as Iridium’s commercial service was launched, worrying shortcomings began to pop up, quickly reaching critical mass. A year later, in 1999, the spun-off company filed for bankruptcy.

What went wrong? Well, during those ten long years of development, the world changed, with cell phone service becoming available in most countries, including much of the developing world. Cell phones offered smaller handsets, better indoor service, lower pricing, and more agile service operators than Iridium. For Motorola as a whole, the failure of Iridium proved to be a devastating blow, and the parent company has never fully recovered from the episode.

With the benefit of hindsight, Motorola got one thing right and many things wrong. It started with a brilliant concept that filled a gap in the market and was rigorously tested by market research. But it failed to think through how, in real time, expanding cell phone usage would shrink its base of target customers—namely, underserved international executives. As a leading technology supplier to the cell phone industry, Motorola knew that competitors were expanding their capabilities. But it failed to link that awareness to its implications for Iridium. For its sales channel to customers, moreover, Motorola relied on legacy telecom partners that were slow to embrace and promote Iridium. The ten-year development cycle and associated capital costs made it very challenging to deliver an attractive investor return. Finally, even with Motorola’s intimate knowledge of mobile communications technologies, Iridium failed to anticipate demand for next-generation products with broadband streaming capabilities. To summarize, Motorola got it right in terms of embracing the initial concept, but it failed to anticipate and manage the full suite of risks from concept to launch.

Of course, sometimes expectations are wrong in the opposite direction. The Merck oncology drug Keytruda was originally discovered by accident as scientists looked for a way to block the PD-1 (more formally known as programmed cell death protein 1) part of an immune response for patients with autoimmune disease. The scientists noticed that adjusting PD-1 unlocked the potential for the body to fight cancer using its own immune system. But it was originally seen as a long shot, and the program barely survived through two mergers. After Merck acquired it in 2009, the company—not having cancer as one of its priority disease areas—put it on the out-license list. Only after seeing early results from a similar program by cancer specialist Bristol Myers Squibb did Merck, at the last minute, pull the term sheet. By 2023 Keytruda was already the world’s top-selling drug; it is expected to continue growing annual revenues to exceed $30 billion by 2028.

This book is aimed at all those people who have found themselves involved in difficult decisions about planning or investing in product and service innovation and have wound up wondering: Is this worth the risk? What am I missing? And maybe it includes you—in your current role or in that job you’re aiming for. While this book may not give you the answer to what you’re missing in a specific circumstance, it will give you the right questions to ask and the right tools to use. In the following chapters, you will find what adds up to a handbook for how to systematically manage innovation risk for all types of products and services at every stage of the innovation journey—concept evaluation, target customers, potential adoption, pricing, revenue forecasting, investment funding, sales planning, promotion, and next-generation products.

We are well aware that specialized texts and other resources exist in each of these areas, and many of them are outstanding. But this book complements those resources by providing a holistic, sequenced overview—one that will help you understand and navigate the full range of issues and challenges involved in translating product and service ideas into successful revenue-generating businesses.

How Did We Come to Be Leading This Tour?

So how did the authors get to the point where we can offer these sweeping prescriptions?

The authors—Stuart Jackson and Ilya Trakhtenberg—have spent their entire careers as growth-focused consultants, acting as coaches, advisers, and researchers working alongside hundreds of different management teams. Stuart Jackson joined L.E.K. Consulting when it was a ten-person start-up in 1984 and helped it grow into one of the world’s leading growth-focused management consulting firms, with more than two thousand professionals and a global network of twenty offices when he stepped down as chairman nearly forty years later. Ilya Trakhtenberg is a leading partner in several L.E.K. industry practices who joined the firm more than fifteen years ago and brings special expertise in the fast-growing areas of healthcare, product launch excellence, and sustainability. L.E.K. Consulting first developed a reputation for new product forecasting in the 1990s. The Human Genome Project was underway, prompting massive investments in biotechnology. But as we saw it, the approach by most investors—of applying a 30 or 40 percent discount rate to optimistic projections—made no sense. L.E.K. therefore pioneered the use of quantitative tools for concept and clinical risk (what are the odds of a drug candidate moving from Phase 2 to Phase 3?), customer risk (what is the potential patient population if the drug only applies to non–small cell lung cancer discovered before it metastasizes?), competitive risk (what share of the market can we expect to retain if there are drugs with similar attributes launching two to three years later?), and capital risk (how long will it take to reach commercialization and how will value change during that time?). This last question apparently was one that Motorola never asked during its ten years of Iridium product development.

This rigorous approach created demand for much more