Current partner @ Andreessen Horowitz (VC firm). Ex-Mckinsey, ex- strategy guy at Google.
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New Technology - to develop or not?

Anonymous A

Hi everyone, just came out of an interview where the case was new product development within the technology sector - case went along the lines of: "The year is 1970 and your client just invented the fax machine. Should they manufacturer and sell it?"

While I applied the business situation framework here and estimated a payback period, I still didn't think I addressed questions around how to project the market for this new technology well enough. Does anyone have any insights into how you would project market demand for a case like this?

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replied on 03/26/2018
Current partner @ Andreessen Horowitz (VC firm). Ex-Mckinsey, ex- strategy guy at Google.

I used to do a bunch of these for Google. The high-level framework used to be:

1. Is this a market-making product (e.g. self-driving car) or an alternative in an existing market (e.g. fax is better than couriering a page).

2. If market-making, then focus a lot on adoption curve, regulation if any including safety studies etc, educating the market / publicity / PR, and finally pricing etc (you can practically set the price if you are a market-maker).

2A: The most difficult part here is predicting the adoption curve and for that you need to use "comparables". What was the adoption rate for the flying airborne zeppelin? It was the very first time any commercial "airline" was operating. The adoption was hard to gauge because people have to give up control of their lives. Turns out the adoption for this was similar to adoption for vaccines!

3. If a Market-Alternative, then things get easier. You need to focus on a couple of things to beat the alternatives: (1) price (if a commodity / service) and (2) product differentiation (e.g. fax is faster than courier but downside is there is was no guarantee it was received / read etc.).

3A. Once you've figured out that you have to either pick your battle on price or product differentiation, then you start focusing on the adoption curve (similar to an alternative usually but use your judgment -- radio vs tv, usually latter tech gets adopted much faster.. also landline vs cellphone).

3B. Having picked a reasonable adoption curve, you have a "payback period" which will help you figure out the right pricing based on initial R&D, mfg costs, and other expenses. If tech adoption will take 20yrs for example, you need to decide if you can price this high at the beginning (remember computers were WAY more expensive 20yrs ago). If you can NOT, then you will lose the market and should not manufacture.

Hope that gives you a good high-level framework.


Vlad replied on 03/25/2018
McKinsey / Accenture / Got all BIG3 offers / More than 300 real MBB cases / Harvard Business School


First of all start with clarifying the objective: "What are the criteria for success? Is it ROI, Exit opportunities or something else?"

In my structure I would look at several things:

1) Product

  • The value proposition of a product (Core / non-core features)
  • Different use cases for the product (Business / private / government, etc)
  • Patent availability and terms
  • Competitors / substitutes for each of the use cases

2) Pricing

  • Unit economics (Current unit costs and costs in relation to scale, Investments, ROI targets)
  • Competitor / substitutes pricing
  • The measurable value created in each of the use cases (Value capturing, value creation, erosion of competitors / substitutes value)

3) Potential demand

  • Potential demand in each of the use cases with the certain price point
  • Potential price drop and the demand after the patent expires
  • Deduce patent to drive the market adoption? (e.g. Tesla batteries)

4) Go-to-market strategy

  • Channels
  • Time to market
  • Costs, benefits, and investments