Timing and quality decisions for entrepreneurial product development

An entrepreneur is developing a new product, and each period must decide whether to enter the market or to continue development. We formulate a model of this decision for ventures facing diminishing returns to product quality, and for which funding availability, product development success, and market competition growth are uncertain. We characterize the profit-maximizing time to stop product development and enter the market, and then show how this stopping time is affected by changes in the business environment. By further focusing our modeling assumptions, we are able to translate our time-based criteria into product quality terms; we propose that management set a target quality level that the product must meet in order for the venture to maximize profit. We also demonstrate that management should decrease this target (and hence the quality of the final product) over time, and adjust it to respond to changes in the business context.