Creating new revenue streams out of thin air can often be perceived as mysterious - as some sort of Jedi magic, that few can master.
And let's admit it - seeing new prototypes is sexy. There’s excitement and buzz around new ideas. But let’s face it, excitement and hype doesn’t translate to real, new revenue generation. There’s a big gap between idea and real success stories.
So how do you really generate new revenue?
While it would be cool to claim we are new product magicians, we're here to tell you that’s a myth.
Creating new revenue streams isn’t Jedi magic.
Any company can create new product innovations that drive new revenue.
You just need the right innovation structure to do it.
The better way to build products
We want to help you get to the excitement and buzz stage - but we feel there is a right and wrong way to do it.
The wrong way
Design stuff, build stuff, and hope it sticks. Trust us, this does not end well.
Without a solid innovation structure & process, you’ll likely end up funding the wrong ideas, for way too long, and without the evidence you need to make clear decisions. Most companies just start building products through wishful thinking, and fail because they don’t have a solid innovation framework in place to guide the decisions.
The right way
Stepping back, you’ll want to apply a process that gets you to the right customer segments, the right solutions, and brings you revenue that grows your business in the direction you want to go.
It’s worth repeating here before we dive in -
There is a repeatable process you can use to find new revenue streams and drive significant growth for your company.
Maybe you’re an existing business that wants to innovate but isn’t sure how.
Maybe you’re a part of a corporate innovation team.
Wherever you’re at in your journey, keep reading to learn a repeatable process to create new revenue streams.
1. Clearly define the Why
It’s easy to embark on innovation without first clearly stating your intended destination. You get swept up in excitement about ideas and solutions. But you need to pause and self-reflect on the “Why” - why you're looking for new revenue streams. This is truly an essential thing for innovation success.
Did you know - Innovation is actually a solution.
But a solution to what? Answer these key questions:
- What problem do you want innovation to solve for your company?
- Where do you want innovation to take you?
Perception vs. Growth
Are you seeking real growth or simply trying to be perceived as innovative? Those are two very different things.
Doing innovation to enhance your perception is a fast way to kill innovation at your company.
Indicators that you may be solving for mere perception rather than for actual growth:
- Increasing investor perception, maybe to raise funding or sell the business
- Increasing customer/industry perception
- Increasing community/employee perception (through events, sponsorships, meetups, etc.)
Most companies want to be perceived as innovative. To be cool.
But brand perception alone won't get you growth. We call this "Innovation Theatre." Waving jazz hands won't get you very far. It’s a culture that rewards stage performance rather than business performance.
Perception-based innovation efforts are often short-lived and won't produce growth. Perception is showmanship - there’s a lot of hype, but no real results. Instead, you have to be serious about growth and do the hard work.
Do you want to merely be perceived as innovative?
Or do you want to really grow?
Clearly define success
Ask yourself:
How will I know when my innovation efforts are successful?
Stop here and think for a moment. It is critical to have a clear answer to this question, as it will serve as the foundational north star when you come to future decisions.
Your answer to this question creates the criteria by which opportunities will be chased or ignored. This also empowers your team to check if the decisions they are making align with and help you achieve the success you’ve defined out.
Success will look different for everyone:
- Do you want to gain market leadership & stay ahead of your competition? In what way(s)?
- Do you want to reinvent yourself so you don't fall behind?
- What margins do you want to achieve? By when?
Another critical step is to determine your expectations on the timeframe, also called a horizon. Opportunities will need to be filtered out by your timing and return expectations. Decision making and investment strategy will be very different depending on how you define success for your innovation efforts.
Check for alignment internally
If you have a team around you, are they aligned around the why? Are they all bought-in?
Also, ask yourself if your why aligns with your investment objectives. It’s crucial from the start to be clear with what will and won't get funded.
Defining the why, understanding success, and checking for alignment will set up the foundational momentum you need towards creating new revenue streams.
2. Identify opportunities in the market
Next, to create new revenue streams, you need a profound understanding of your customers. Most companies think they know their customers, but they're just seeing a small slice of what's going on in the customer's lives. Don't assume. Research and do your homework. This cannot be overstated. At Headway, we work with clients to identify new opportunities in the market & much more through deep customer discovery.
Create your portfolio
As you identify opportunities, you’ll want to create a portfolio which allows you to zoom-out and see the big picture. From here you’ll be able to see all the opportunities available to you, and how they compare to one another. This portfolio will be used to help you visualize & select which opportunities to focus your efforts. You want a deep understanding of the market to help you identify which opportunities exist and also which opportunities may be best to pursue.
Characteristics of a successful portfolio:
- A deep understanding of customers (i.e., What motivates them? Where are the triggers for change? What is their workflow, where is the pain?)
- Trends and external macro forces
- Market maps of players, money, and data flows, etc.
- Relative market uncertainty, technical risk, etc.
- Business assets you can leverage (i.e., your customer base, distribution channels, intellectual property, brand, etc.)
We can’t emphasize enough the importance of a portfolio and doing solid customer research. Gather all the market insights necessary to build a portfolio of potential opportunities.
A very important question here is: Which market segments do you want to go after? Where do you want to play?
3. Decide where to play
Now if you’ve done solid customer research, you’ve probably got a mile-long list of opportunities. This is where hard decisions start to arise, and you have to focus your efforts. And yes, this means not just evaluating good vs bad ideas, but evaluating good options against each other.
You need to decide where to start and which opportunity comes first. You can't boil the ocean, so you’ll need to choose.
If you try to chase too many opportunities, you likely won’t do any of them well.
Focus wins.
Ask yourself:
- Which opportunities do we say no to? (Hint: This may be the easiest way to start)
- How do we prioritize?
- Which opportunities might we say yes to?
- Most importantly: What first opportunity do we select?
Make a decision
This leads you to an opportunity decision matrix. Simply put, it’s a decision-making tool that helps you evaluate and prioritize a list of opportunities. You establish a list of weighted criteria and then consider each option against those criteria.
We suggest evaluating things like:
- Speed to market
- Market size
- Feasibility risks
- Margin potential
- Ability to differentiate (read: are you unique?)
- Sales/acquisition cost (I.E., sales cycle time, close rates, channel costs)
- Lifetime value / average contract value (I.E., how much is each customer worth?)
- Strategic value and position
It bears repeating:
Lack of focus is a big challenge for most innovation efforts.
Only when your focus is narrow can you dig in and start to create new revenue that's tangible.
4. Prototype and experiment
Now finally, you begin the fun part - but only after you’ve zoomed in to the right market segments and identified the highest value opportunities to reach your investment goals.
The key thing to realize here is…
You are prototyping & experimenting on a new business model, a new revenue stream, a new venture - not merely a new product.
What might the business look like?
There are many ways to orient a new offering in a market. How you approach the business model will greatly influence where we suggest starting on your experimentation journey.
Considerations in this part of the process:
- Customer Segments
- Value Proposition
- Distribution Channels
- Pricing
- Financial Modeling
- Key Resources & Data required
- Potential Partnerships
- One or Two Sided market
- Compliance or Regulatory Landscape
What might the solution look like?
Solutioning is a very important and fun part of the process, when positioned correctly in the context of the larger investment & business model goals, the target customer, etc.
Solution ideation
Solution ideation is all about generating potential ways to solve for specific customer outcomes and business goals.Think brainstorming sessions, but with a more structured, narrowed focus. Interaction Design Foundation has a great resource that defines what ideation is and how to prepare for sessions to be productive.
Wireframing and prototyping
Wireframing and prototyping brings a concept to life. A picture is worth a thousand words. And a clickable or functional prototype is, perhaps, worth a thousand pictures.
Prototypes are excellent for communicating ideas - both within your team & with your potential customers. A fundamental tenet of prototyping is to keep the concept user-focused. This hearkens back to identifying opportunities in the market by having a deep understanding of your customers.
Conducting different tests and experiments during this stage allows for testing assumptions and captures honest feedback that will be critical to creating a product that your customers will love.
There are many different types of prototyping. If you want to dive into more detail on creating your first wireframes, check out our tutorial on creating app wireframes in Whimsical from Startup Week 2020.
You can also view check out our free tutorial for a deep dive on creating Figma prototypes to validate your app idea.
Prototypes answer specific questions
Teresa Torres, who runs ProductTalk.org, summarizes prototypes as:
A prototype simulates an experience,
with the intent to answer a specific question,
so that the creator can iterate and improve the experience.
(from 4 Powerful Ways to Use Rapid Prototyping)
A key takeaway from this definition is that you build prototypes to answer specific questions. You're after learning and insights from customers. These learnings should help answer some of the critical questions behind your business & financial model, along with improvements to product’s overall experience.
Can you prove there is customer demand?
One of the most important questions you’ll need to answer is - Is there enough customer demand for our new offering? This is what drives the entire business.
Does your value proposition & product offering resonate with the market enough that they are willing to pay you? You might think so. But you have to go and prove it, in order to warrant further investment.
To test for market demand, activities may include:
- Sales materials
- Ad testing
- Landing pages
- Marketing Messaging
- Price Testing
- Positioning & Differentiation against Competitive Set
- Experiment Design
- Usability Testing
- A/B Testing
- Solution interviews
- Pitching and Selling proposed solutions to potential customers
- Letters of Intent
- etc.
Unfortunately, most companies place very large bets and investments on ideas - without following a process to test for demand. It is hard to do well. That’s why at Headway, we work with clients all the time to prove out these types of questions.
It takes an incredible team to be able to pull all of this off. And no one promised it would be easy.
We hope you agree that these steps are the beginnings of a solid innovation process, and not Jedi magic.
We see innovation as:
A repeatable process that can help you find new revenue streams, and drive significant growth for your company.
Get guidance on this process
We can guide you through this entire process mentioned in this article and more. Contact us to learn how we've helped other companies like yours and how we can help you reach your goals.
More resources
5 Strategies to Find New Revenue Streams for Your Business
Customer Research and Product Strategy Presentations
Free Open Office Hour Live Streams
