The 3 Types of Product Innovation: Pioneer, Iterate, and Transform

When we think about Product Innovation, we often think about the big ideas that disrupt industries. Netflix and Spotify immediately come to mind. While these are great examples of groundbreaking innovation, this isn’t the only way to innovate. In fact, it is probably the least common form of innovation. 

Before I dig into this further, it will be helpful to first discuss the lifecycle of a product. A successful product typically goes through four stages in its lifetime, from conceiving the idea, all the way through to retirement. Those stages are Discovery, Scale, Plateau and Decline.

It is at the Discovery stage when the early Product Innovation takes place. The aim of Discovery is to prove that you have a product that satisfies the need of your target market, you have built it, and you can sell it. 

The next stage is Scale. At this point, you can start to reap the rewards of your hard work in the Discovery stage. The focus here is on increasing your profitability. This can be done in several ways, including product enhancements and expanding into new markets. 

The next stage is Plateau. This can be the most profitable stage because you spend less money expanding into new markets or making iterative product improvements. It is, however, the point at which your product ceases to grow, no matter how much you may want to invest in it. 

Following Plateau is Decline. At this stage, revenues decrease because your product starts to lose market share. This is likely due to customers moving to competitive alternatives. This phase reminds us why continuous Product Innovation is so important. You will need to find new products to replace those that will eventually hit decline.

I have outlined the four phases of a product’s lifecycle above to provide context for the different forms of Product Innovation. The Discovery stage is where we often see the most pioneering forms of Product Innovation. During Scale, innovation will take on a different form with smaller iterative improvements. The third type of Product Innovation is designed to build new products that will outperform your existing ones, to ensure you stay ahead of your competitive alternatives during the Plateau and Decline phases. 

I will go through each of these in a little more detail below. 

Product Innovation and the Four Phases of Discovery

It is during the product Discovery stage that the most groundbreaking Product Innovation will take place. However, this type of Product Innovation is risky, simply because no one has ever done it before and hence there is no proven plan to follow. Initially, you will have to rely on assumptions. You will make assumptions about your target market, your competition, your pricing model, what it will cost to build, how you will market your product, etc.

Assumptions are risky, and I believe that treating assumptions as facts is one of the main reasons innovative products fail. For example, there are countless products that offer a solution for a problem that doesn’t exist (known as innovators bias). Other ideas are too expensive or difficult to build, the interface is too challenging for users, the pricing is wrong, or the marketing strategy is incorrect. The list goes on. 

It is with this in mind that I separate the Discovery stage into four phases. They are Problem, Solution, Build and Go To Market.

These four phases will help you answer the most critical questions to make your product a success:

Problem 

Who is your target market, and do they have the problem you think they have? Where do they currently go to find a solution for that problem, and what are the competitive alternatives?

Solution

Is your solution a good fit for the problem, your target market, and your business? What can you charge for it? Is there anything stopping you from building your solution, and what makes your solution significantly better than the competitive alternatives?

Build

What resources are required to build the solution, and what will it cost?

Go To Market (GTM)

How will you generate awareness of your idea, and what will this cost? What do you need to achieve to show you can scale the product (revenue, profitability, etc)? You can strategize this with a Go To Market (GTM) strategy.

It is crucial that you are aware that everything you write at this stage is an assumption - and not a fact. The next step is to go through each phase to prove those assumptions, starting with Problem, and then moving on to Solution.

You must ensure you prove all the assumptions in the current phase before you move on to the next. You need to prove that the problem you are trying to solve for your target market exists before you design your solution. You need to test your solution with your target market before you build it (for example, using high-fidelity prototypes). You need to build your solution before you attract mass adoption through your marketing channels. If any of your tests fail, you must change your assumptions or possibly even stop the project completely.

This step-by-step approach of defining assumptions and then systematically testing them will ensure you cost-effectively build a product that solves a genuine need for your target market. I have called this approach the Product Phase Map.

Growth at Scale With Iterative Product Innovation

Now that you have launched your product, proven your GTM strategy, and you are hopefully running at a profit, you should be moving into Scale. Your ability to grow in Scale will depend in part on your ability to make continuous improvements to your product. These improvements, often called Product Enhancements (PEs), will require a different form of Product Innovation that is more iterative in nature. 

Instagram is a great example of this. If we look at 2022 alone, we can list out some of the innovative features they launched to help their continued growth:

• 3D Avatars

• Enhanced tags

• NFTs

• Auto-generated captions for reels

• Dual features and a new Instagram reels template

• Instagram subscriptions

None of these features are particularly groundbreaking on their own. However, these new enhancements are designed to ensure the continued growth of the product at Scale.

Innovating with these Product Enhancements is almost identical to what we have already covered for new products. The first step is to realize that there is an opportunity to enhance your product, and for which target market. It comes back to understanding what problem or problems your customers have.

This is easier than when you first launched your product, as you can now rely on your existing quantitative and qualitative analysis. Your users will usually come to you with their problems or limitations, either directly or indirectly (via social channels). You may also discover an opportunity when reviewing your analytics, and you will continue to rely on your user groups or Customer Advisory Board for product feedback. 

Defend Yourself With Continuous Product Innovation

If we think back to the five phases of a product’s lifecycle, the last two phases include Plateau and Decline. When you get to these stages, further iterative enhancements to the product no longer lead to growth, and no matter what you do, growth first stagnates and then declines. It is at this point that the threat from younger challenger companies is at its greatest. A product will reach decline over time, at which point it is likely to be replaced by a more innovative competitor.

What is interesting is that these challenger companies don’t just come out of anywhere, as is often believed. They have been working away for years and have often already reached scale. If we think of the classic example of Netflix vs Blockbuster. Netflix had been going for several years before it disrupted the DVD rental service. In my experience, it generally takes at least 3-5 years to reach this point. This is the reason why it is so hard for the incumbent to recover because they need more time than one would think. 

The solution is to initiate your own innovation before your product reaches Plateau. This could mean cannibalizing your own products before someone else does it for you. You can achieve this by building your Product Innovation portfolio. A good model for this is the Innovation Ambition Matrix by Bansi Nagji and Geoff Tuff.

The Innovation Ambition Matrix maps current and future products and ideas. The Core innovation initiatives are the current projects you are working on. With these projects, you make incremental changes to existing products to ensure growth during Scale. As mentioned above, Instagram is a great example of this. 

Next are the Adjacent innovation initiatives. These are existing products that you expand into new markets. Alternatively, it could be new products for existing markets, to help you diversify your product innovation portfolio. The aim is to help you scale beyond your current offering.

A good example of a new product for an existing market is Airbnb’s Experiences. The target market is vacationers, and the new product provides activities with the hosts in the local area you are visiting. Then there’s Atlassian’s Jira Next Gen, an existing product aimed at a new market. Jira is traditionally for project teams within technology. However, the Next Gen version of Jira is for all project teams.

Transformational Product Innovation initiatives are products that don’t currently exist in the portfolio, that target new markets. These are innovative ideas and the timescale to launch is usually 3-5 years. Amazon’s Prime Video is an example of a transformational product. When it launched, it offered streaming video to a much broader market than online shoppers. Another example is Uber Eats, food delivery for the takeaway market.

By investing in products within all three spaces, you work towards continual growth. When you're at scale, you're growing rapidly. At some point, this will begin to taper off and the line will begin to flatten, and eventually decline. These are your Core products.

The second line represents your Adjacent products. If they have just started, they will be in the Product Discovery phase, with little growth. However, over time they too will begin to scale. The idea is that this growth phase will overlap the plateau of the Core products. These will then be replaced by the Transformational products, and this continuous pattern will ensure continued growth within the organization.

Amazon is the master of this. It was once a website that sold books and DVDs, it now includes products like the Kindle, Amazon Prime Video and Amazon Web Services. As Jeff Bezos famously said, “At Amazon, we like things to work in five to seven years. We’re willing to plant seeds, let them grow and we’re very stubborn. We say we’re stubborn on vision and flexible on details.”

So, no matter where you are in your Product Management journey, whether you are just starting out, or you are already at scale, Product Innovation in its different forms remains a key requirement in your role.