NPD Investment for the ‘Boom’ Product
Recessions are periods when most businesses batten down the hatches and go into survival mode. There is an old saying that “you should always go into the winter with some extra fat on the bone”. There is some truth in that statement. However, more importantly, the business that stops investing in products during a recession will be overtaken rapidly by new entrepreneurs entering the market place when conditions improve.
Recessions tend to change people’s buying habits and force businesses to rethink what their real requirements are. As a result product obsolescence can be a very real problem as businesses come out of recession.
It is always worth using some of that “added fat in the winter” to develop new tools to catch more food in the next summer. Of course the decision to invest is a relative one. A business that can develop a new product in 2 days, like a recruitment company creating another sector specialism, will have a different perspective on the investment decision to that of a pharmaceutical company which typically has a 5 year development cycle and £1m in clinical trials and regulatory costs. The former will always wait until the time arrives and the fastest mover will be the winner. The latter has no choice except to invest.
Furthermore, businesses need to understand their development process completely as many product developments will be phased with the last phase, eg. tooling being very cashflow hungry whereas the early stages are more about salary costs and management time.
One major factor to consider when developing a boom-time product is to ensure you have a clear understanding of the a) product requirements or b) buyer behaviour. Consider the lead-in time for development as both these elements can change as people’s attitudes to consumption move in line with the economic situation. If these factors aren’t taken into consideration, the product may end up being a misfit.
In essence the benefits of investing in boom time products during a recession are as follows:-
- You will be first to market when the good times come with product that is tried and tested. This will allow you to utilise marketing channels more easily, open up new distribution for the unique products and gain first mover advantage.
- The cost of developing and testing new products during recessionary times is generally cheaper. For example a consumable goods company considering a new product range would find consumer research (although relevance may be an issue) and packaging design costs considerably cheaper during the recession.
- Recruiting product development staff is cheaper during recessionary times and a better grade of staff will be available in the market.
For some businesses where product development cycles are more protracted, you have no choice except to invest in boom time products during a recession. As an experienced finance director I have often been presented with new product ideas requiring investment during a recession.
For those businesses that have a choice you need to balance up the benefits of investing with the risks of developing a misfit product. In some cases the best decision is to take a number of boom time projects to a certain stage in the development cycle during a recession and then decide, when the market turns, which ones to complete.
For further advice on new product development during a recession and ensuring your business is equipped to do so, contact the FD Centre. As the largest provider of part-time Finance Directors in the UK, we help businesses meet their strategic objectives.
The FD Centre