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How Product Development Differs for Small Businesses

Lesson Transcript
Instructor: Scott Tuning

Scott has been a faculty member in higher education for over 10 years. He holds an MBA in Management, an MA in counseling, and an M.Div. in Academic Biblical Studies.

Product development is the process of transforming an idea into a marketable good or service. Learn how product development differs for small businesses. Discover key factors that may affect bringing products to the market. Updated: 01/22/2022

A Good Idea Isn't Good Enough

One of the principles at the core of America's uniqueness is the idea that a person can be or do anything they want provided that they work hard and make smart decisions. This concept, however, must be tempered with the realization that the economic playing field isn't always equal.

Let's say you wanted to start a new football league spanning the nation. Although there's no law barring an entrepreneur from creating a nationwide football league that will overtake the NFL, creating such an organization would be next to impossible. This isn't because someone may not have a better idea or product; it's influenced far more by the fact that a larger organization can leverage financial and human resources in ways that a smaller organization can't.

Product development, or the production and introduction of fresh products to the market, is a process that's significantly more challenging for small businesses when compared to larger companies. If you're an entrepreneur who wants to develop the next best smartphone, you'll have to overcome some hefty disadvantages in order to compete with the likes of Samsung or Apple. No problem is insurmountable, but small organizations should always keep some of these contrasts in mind so that their business decisions will allocate resources to the right categories.

Small organizations can develop successful products just like large companies, but the process requires more thought, planning, and excellent execution.
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In this lesson we are going to take a look at some concerns that small organizations will need to take into consideration as they attempt to compete with large companies in developing successful products.

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  • 0:03 A Good Idea Isn't Good Enough
  • 1:21 It Takes Money to Make Money
  • 2:17 Capturing and Keeping Talent
  • 3:05 What You Don't Know…
  • 3:36 Losing the Brain Trust
  • 4:11 Lesson Summary
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It Takes Money to Make Money

Before even setting out on the journey to introducing a new product, a small business has some concerns that a large organization doesn't. Venture capital, or the money used to begin developing a product or service, is harder to raise when you're a small business because the investors are betting on your idea, not a product with established sales. In contrast, an organization like Apple or Samsung can absorb or offset significant losses associated with developing something new. If you're a small business, securing this initial investment (and enough of it) isn't a challenge faced by larger organizations. To succeed, product development should begin only when the start-up capital is sufficient to see the project through to profitability.

When it comes to funding, it's not all bad news for small companies who are ready to innovate. Although large organizations have a large development budget in a gross sense, as a percentage of revenue, it's usually far less than a smaller organization. Small organizations are therefore able to pivot faster.

Capturing and Keeping Talent

If your smaller organization is preparing to embark on the development of a new product, you should already know where the talent is currently distributed and how. For example, let's say you want to release a new, high-tech smartphone. Bringing a new smartphone to the market would require a lot of expertise, and this expertise is almost certainly concentrated in the larger organizations that already exist. The limited start-up capital available and the inability to offer long-term job stability may become barriers in attracting the highest level of talent. When the best talent is already employed with competitors, joining the development team of a start-up might be complicated even further by the fact that many engineering and technical professionals working for large competitors may be subject to a non-compete clause - a restriction from seeking employment with competitors for a specified period - in their current employment contract.

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