When it’s unclear what it will take to succeed in a new market, approach your product strategy as an invitation to experiment and discover the unwritten rules.

Originally Published in Product Development Best Practices Report, Fall 2001

In the late eighties, Sony Corporation had a big insight. They looked at the massive growth of personal computers in the previous decade and wondered how that might affect their business. What they saw was an eventual convergence between computers and consumer electronics. And while Sony knew a thing or two about consumer electronics, they knew relatively little about PCs. So they decided to learn. Over the next decade, Sony committed significant resources to creating a PC business. At first, the results were less than stellar. The first Sony computers were fairly generic, and their premium price was widely criticized. Retailers complained that Sony didn’t understand the market. Major component vendors found Sony frustrating, as the company continued to operate in ways that were better suited for consumer electronics than they were for a PC business. The computer division was a perennial money loser. The trade press wondered aloud why Sony didn’t throw in the towel.

But Sony stuck in there. And things changed. With each successive wave of models, Sony got better (less bad?) They learned how to deal with vendors like Solectron and Intel. They developed better relations with the PC departments at Circuit City and Best Buy. Sony even figured out how to make the convergence issues work, experimenting early with advanced video and sound features. Today, Sony’s computers are among the best. For those of us unwilling to move to a Mac, they provide the only really decent machines for editing amateur digital video. Their laptops have all of the joy of a good Walkman. Ironically, in a time when the margins in consumer electronics are collapsing, the computer division accounts for the lion’s share of company profits.

Sony created a strategy to develop competencies over time, using each successive wave of product development as a means for experimentation and improvement. They decided to Build to Learn. By starting small and persevering, the company developed capabilities that they have since successfully applied to everything from Playstations to PDAs. Sony’s achievements in PCs are particularly impressive when compared against otherwise formidable adversaries. Numerous consumer electronics giants have had flirtations with PCs, but they always backed out when things got tough. And while Sony has learned a lot about IBM’s PC business, IBM has yet to understand consumer electronics.

Several factors need to be in place for a company to create a Build to Learn strategy. First, it requires the ability to identify long-term opportunities that may reap rewards far beyond the immediate horizon. Second, it requires a reasonable amount of corporate patience, usually in the form of a champion who’s willing to defend the project. And, finally, it takes a plan. That plan needs to lay out some specific goals for what the company expects to learn from the project at every stage along the way, independent of whether the stage is a commercial success or a failure. It’s hard enough to find a team able to meet the first two requirements. Rising to the third challenge is even more rare.

A Build to Learn strategy can have a massive effect on product planning. Companies seeking to develop new abilities are well advised to do so gradually and deliberately. Often, the best way to start is by having one’s product created by an OEM with significant experience in the field. Over time, that product can be indigenized, with design and manufacturing of subcomponents moved in-house slowly. Only then can a firm be reasonably expected to develop meaningful points of differentiation.

If you know that you’re Building to Learn, you can plan for successive modifications and improvements. The most obvious way is with soft tooling. I once worked with a development team on a handheld gas analyzer. The instrumentation manufacturer that we were developing it for realized that this was a new area for them. They sought to limit investment until they had learned more. As a result, most of the product consisted of off-the-shelf components. To help reduce costs and increase flexibility, we got rid of the internal chassis and replaced it with – of all things – a styrofoam box. Rather than being fixed to a metal bracket, the pump and tubing were “housed” in foam like the lenses in the box of a new camera. Three years later, the company had developed a better understanding of the market and was ready to commit to a more robust design.

Too many companies have become habituated with throwing out a bunch of stuff and seeing what sticks. Successful offerings are repeated with more of the same. Failures are too often ignored. The problem with this is that you never learn from what you did. It’s a little like playing twenty questions. If I ask questions like “is what you’re thinking of an inanimate object?” I’m guaranteed to learn more no matter what the answer is. Alternatively, if I start off by asking, “is it a camel?” I’ll either win right away or more likely have used up one question and still have all of God’s creation (sans camels) to choose from.

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