Stay on Top With Fresh Products The downward spiral of a product has been the deaths knell for many a business. Learn what you can do to evaluate product lines, save declining ones, and create new ones.

Innovative new products are the fuel for the most powerful growth engine you can connect to. You can grow without new products--AT&T sold essentially the same telephones for decades while becoming the world's largest telecommunications concern--but most small companies will find it difficult to grow at all, much less rapidly, without a constant stream of new products that meet customer needs.

8 Symptoms of a Declining Product Line

How do you know when you need new products? Early detection of a problem with existing products is critical. The following eight symptoms of a declining product line will provide clues far enough in advance to help you do something about the problem before it's too late. Not all the symptoms will be evident in every situation, but you can start suspecting your product line when more than just one or two crop up.

1.You are experiencing slow growth or no growth. A short-term glitch in product sales can happen any time. If, however, company revenue either flattens or declines over an extended period, you have to look for explanations and solutions. If it isn't the economy or some outside force beyond your control, if your competitors didn't suddenly become more brilliant, if you still have confidence in your sales force, and if there are no major problems with suppliers, examine your product line.

2.Your top customers give you less and less business. It may not be worth your trouble to determine your exact market share when a rough idea of where you stand will suffice. But knowing how much business you get compared to your competitors is critical. Every piece of business your competitors are getting is business you aren't getting--and may never get. If your customers' businesses are growing and the business you get from them isn't, your product may be the culprit. Chances are, someone else is meeting your customers' needs.

3.You find yourself competing with companies you've never heard of. If you've never heard of a new competitor or don't know much about them, watch out! They have found a way to jump into a market with new products and technology that could leave you wondering what hit you. It might not be that your product has a fundamental flaw. It's more often the case that someone has brought innovation to the industry. You earn no points for status quo thinking.

4.You are under increasing pressure to lower your prices. No one likes to compete strictly on price. When your product is clearly superior and offers more value than lower-priced competitors, you don't have to. Everyone understands that great new products eventually run their course and turn into commodities. One day, a customer tells you she can't distinguish the benefits of your widget from those of one or more of your competitors, and now you are in a price squeeze. If you want the business, you have to lower your prices to stay competitive. If that was where it ended, things might stabilize, although at a lower price level. But lower prices usually mean lower profit margins, which usually mean less investment in keeping the product current, which means more price pressure, lower margins.and so it goes.

5.You experience higher-than-normal turnover in your sales force. Good salespeople want to win customers so they can make more money. When they have trouble competing, they can't win customers or make money. So they look for new opportunities and challenges that will bring them what they want. You'll always have turnover, but heavy turnover is a symptom of something very wrong. It could be an ill-advised change in the compensation scheme or a new sales manager coming in with a negative attitude. But it could also be that members of your sales team are frustrated because they're having trouble selling your products. When business owners start to pressure their sales forces to get order levels up, morale drops because the salespeople know there isn't much they can do.

6.You see fewer and fewer inquiries from prospective customers. We all dread the time when the phone stops ringing and prospects stop coming in. When advertising or other forms of promotion aren't creating the results you want, and you see fewer positive results from the money spent, something could be wrong with the way customers see your company. An obsolete product line positions you as an obsolete company.

7.Customers ask for product changes you can not or do not want to make. Here is a not-too-subtle sign that your product may no longer meet market needs. There will be times when you have to decide whether filling a customer's request is in your company's best interests. When customers say "I want it this way," you may want to say no because you doubt you could ever recover the costs of the change, even by raising the selling price. But when the customer says "I want it this way, and it's standard at ABC Widgets," you should suspect you aren't keeping up with changing customer needs. When your competitors have leapt ahead of you in features and benefits, you must either catch up or leap ahead of them with innovations of your own, or you'll fall so far behind you become a marketplace postscript.

8.Some of your competitors are leaving the market. In the short term, this sounds great. Your competitors drop out, and you pick up the business they leave behind. The pie is shrinking, and as it does, business gets better than ever. But beware: This is a classic signal of a declining market. Nobody walks away from a growth business. Vibrant growth markets attract new competitors; they don't discourage them.

Implementing Your Idea

If you decide to develop new products as part of your growth plan, you're in good company. Small companies like yours contribute at least half of the major industrial innovations occurring in the United States, according to the SBA. At the same time, approximately one-third of all new products are unsuccessful, and in some industries the percentage of failures is much higher. The way to increase your chances of coming up with good ideas is to follow the tested track to new product development success.

New product development can be described as a five-stage process, beginning with generating ideas and progressing to marketing completed products. In between are processes where you evaluate and screen product ideas, take steps to protect your ideas, and finalize design in an R&D stage. Following are details on each stage:

• Generating ideas. Generating ideas consists of two parts: creating an idea and developing it for commercial sale. There are many good techniques for idea creation, including brainstorming, random association and even daydreaming. You may want to generate a long list of ideas and then whittle them down to a very few that appear to have commercial appeal.

• Evaluating and screening product ideas. Everybody likes their own ideas, but that doesn't mean others will. When you are evaluating ideas for their potential, it's important to get objective opinions. For help with technical issues, many companies take their ideas to testing laboratories, engineering consultants, product development firms, and university and college technical testing services. When it comes to evaluating an idea's commercial potential, many entrepreneurs use the Preliminary Innovation Evaluation System (PIES) technique. This is a formal methodology for assessing the commercial potential of inventions and innovations.

• Protecting your ideas. If you think you've come up with a valuable idea for a new product, you should take steps to protect it. Most people who want to protect ideas think first of patents. There are good reasons for this. For one thing, you will find it difficult to license your idea to other companies, should you wish to do so, without patent protection. However, getting a patent is a lengthy, complicated process, and one you shouldn't embark on without professional help; this makes the process expensive. If you wish to pursue a patent for your ideas, contact a registered patent attorney or patent agent.

Many firms choose to protect ideas using trade secrecy. This is simply a matter of keeping knowledge of your ideas, designs, processes, techniques or any other unique component of your creation limited to yourself or a small group of people. Most trade secrets are in the areas of chemical formulas, factory equipment, and machines and manufacturing processes. The formula for Coca-Cola is one of the best-recognized and most successful trade secrets.

• Finalizing design research and development. Research and development is necessary for refining most designs for new products and services. As the owner of a growing company, you are in a good position when it comes to this stage. Most independent inventors don't have the resources to pay for this costly and often protracted stage of product introduction. Most lenders and investors are trapped by a Catch-22 mentality that makes them reluctant to invest in ideas until after they're proven viable in the marketplace. If you believe in your idea, you can be the first to market.

R&D consists of producing prototypes, testing them for usability and other features, and refining the design until you wind up with something you think you can make and sell for a profit. This may involve test-marketing, beta testing, analysis of marketing plans and sales projections, cost studies, and more. As the last step before you commit to rolling your product out, R&D is perhaps the most important step of all.

• Promoting and marketing your product. Now that you have a ready-for-sale product, it's time to promote, market and distribute it. Many of the rules that apply to existing products also apply to promoting, marketing and distributing new products. However, new products have some additional wrinkles. For instance, your promotion will probably consist of a larger amount of customer education, since you will be offering them something they have never seen before. Your marketing may have to be broader than the niche efforts you've used in the past because, odds are, you'll be a little unsure about the actual market out there. Finally, you may need to test some completely new distribution channels until you find the right place to sell your product.

Saving Your Current Product Line

If you find yourself faced with a declining product line, the correct action may not be to rush to develop new products. Here are a few other options:

• Do nothing. This attitude says "The business has run its course, and it may be time to move on." One of the beauties of continuing to sell in a business you think has little future is that you can stop investing in it. Instead, you can simply squeeze it for all the profit you can get. The resulting boost to your bottom line can provide funds to start a new, more promising business or, eventually, develop new products in a different field.
• Look for niche markets. There are still companies out there that make vacuum tubes, typewriter ribbons, dot matrix printers, vinyl records and perhaps even buggy whips. Demand for a product rarely falls to zero. There are always customers who will continue to buy obsolete products to keep from making major changes in the way they've always done things. The beauty of serving a niche market well is you could end up having it all to yourself. If this happens, you'll be able to maximize profits--perhaps far more than you would be able to do with a different product entry that commands only a modest share of a fast-growing market.

As a rule, new product development drives growth. But rules are made to be broken. Don't rush to abandon the tried-and-true products that have helped you grow your company so far unless you've carefully evaluated all the options. In business, as in ballrooms, sometimes it's best to dance with the one you came with.

Keeping Products Fresh

Whether you're saving an old product line or starting a new one, you want to make sure you keep on top of the market. Here are practical things you can do to make sure your products stay fresh and viable:

• Keep current with technology changes. The word processor ensured the demise of the typewriter, and voice messaging has changed the way people use the telephone. While your product line may not have the global impact these developments have, changes in technology will always affect your business. Isn't it better to lead the way than to react to events?

• Anticipate changing customer needs. If you want your customers to keep buying from you, you have to let them know you'll be there to fulfill their changing requirements. Customers have a way of not knowing exactly what they want. When they finally make their choice, they will go with the supplier who is there with the right product at the right time.

• Track your competitors' actions. Keeping on top of what your competitors are doing means you'll find out when they make effective product developments. If they get to the market before you do, there's a good chance you'll end up the loser. Organize some sort of competitive-intelligence-gathering system that will help you keep track of what they're doing.

• Keep up to date with changing trends in the marketplace. How many clothing manufacturers saw the "casual Fridays" trend coming? If you were a maker of men's suits, wouldn't it have been nice to see into the future before you experienced a 20-percent decline in sales? There's no substitute for keeping your eyes and ears open. Improve your awareness of the market around you. Participate in trade associations and business roundtables. Know all you can know about your customers and your customers' customers.

Mark Henricks writes on business and technology for leading publications and is author ofNot Just a Living.