Time to market is a critical consideration

2/27/2010 8:42 PM EST

Getting your OEM product to market in the right time frame is one of two critical factors in the success of your product after development kickoff. The second critical factor is product quality. If your organization is obsessed with meeting these self-imposed deadlines for product launch and maintaining quality, it's likely because you work in a great products company.

The reason that time to market is so important is because being late erodes the addressable market that you have to sell your product into. If you initially target a market segment of ten million units, with a market lifetime of 18 months, and you are six months late, the addressable market will likely be in the range of three million units. Not only will the market be smaller, the competition will be much more intense because others have an established base to sell from and the early growth is starting to flatten.

What happens when the addressable market shrinks? Your smaller market means that your volume of sales goes down in direct proportion to the loss of market size. The decrease in volume of sales is critical to your company's business model. Now you have lost economies of scale in manufacturing and purchasing, and will suffer loss of experience effect relative to your competitors. This will directly affect the company's profitability and if you do this too often, being late will directly affect your job and those of your colleagues.

Two of the four models with which we view time to market costs are based on product lifecycle adoption. In the chart, you see a product adoption curve over time. The area under the curve represents the total number of units which can be sold. Being late erodes the market in two ways. First, you don't get to sell product for as long. Second, you lose market share early and can't regain it later, so the number of available prospects is smaller.

A second model was popularized a few years ago in books like Crossing the Chasm and Inside the Tornado, which talk about a product adoption curve. You can also view this as moving the product adoption curve that your company and product must go through later in time. The delay now limits your market penetration and the size of the market and, as you would expect, produces the same curve as in the chart.