One of the biggest myths about innovation is that it is easy, or that successful innovation comes without pain, failure or multiple iterations.
As simple as it seems, one of the best pieces of advice in this area comes from US serial entrepreneur and business model innovator Steve Blank, who exhorts people to 'get out of the building'.
The mistake people make is assuming they have a great product or solution. In reality, all you have is a hypothesis that needs to be tested
According to Blank, it is only by getting to meet customers that you will find out whether you have a product or service people want to buy. The customer discovery process involves a lot more listening than talking. The mistake people make is assuming they have a great product or solution. In reality, all you have is a hypothesis that needs to be tested.
In our hyper-connected world, it is relatively easy to find people willing to give feedback, he says. The sum of the data points you collect during these interviews will indicate whether your proposition is in the right ballpark. If it is, you will have gained valuable information on how to tweak it to maximise its chances of success. If it isn’t, you will have saved yourself a lot of heartache, time and cash.
Blank offers two other practical tips on how to end these interviews. Ask the subject who else you should be talking to and finally have the humility to say, “What should I really have asked you?”
While iterating to maximise the chances of success is prudent, picking only winners in early-stage entrepreneurship simply isn't possible, a point emphasised by Alex Osterwalder, leading innovation thinker and inventor of the business model canvas.
Put another way, if you invest seed capital into 250 projects, on average 162 will fail, 87 will find some success but only one will become a true growth engine
He cites a major study of the return distribution of US venture capital investment over a decade that illustrates that the majority of early-stage investments either did not return any capital at all or provided only small returns. Some 65 per cent of investments lost money, 34 per cent made some money, leaving only around 1 per cent showing exceptional return.
Put another way, if you invest seed capital into 250 projects, on average 162 will fail, 87 will find some success but only one will become a true growth engine. The larger the return you expect to make, the more projects you need to invest small sums in. It is a rare innovator that will achieve outlier status, of course, but according to Osterwalder, you need to think in terms of investing in at least four projects if you want to see any return at all.
Risky bets
The traditional investment process of established corporations equips teams with a large budget upfront to implement a full project. As the process of innovation inevitably means that you don’t know what will work, this leads to risky bets on unproven ideas.
By contrast, the level of risk involved in new projects is acknowledged in the start-up world, where small bets and a metered funding approach weed out projects that fail to gain traction, while simultaneously doubling down on those that do.
Innovation does not always require huge amounts of funding. The maxim of necessity being the mother of invention often applies. A stripped-back approach to hierarchy, lead times to market and product features can unleash powerful dynamics that can create new markets, according to Navi Radjou and Jaideep Prabhu, authors of Frugal Innovation – How to do More with Less, a book that underlines that constraints sometimes work to your advantage.
Doing more with less addresses global environmental concerns, radical market disruption and increasingly empowered and value-conscious consumers, they note. Businesses that don’t adapt to the new realities face multiple threats from both traditional and emerging players in their markets.
According to the authors, traditional large industrial models, with expensive overheads, complex hierarchies and long lead times to market, are no longer appropriate. A combination of closeness to the consumer, nimbleness and strong operating efficiencies are what is required to succeed.
The book details, for example, how Renault engineers were set the seemingly impossible challenge of creating a €5,000 car in the early Noughties, targeting poorer eastern and central European motorists. Throwing out their usual playbook, they created a car that used 50 per cent fewer parts than a typical Renault model with fewer expensive electronic components, making the car cheaper and easier to repair. Another innovative decision was to manufacture it in low-cost Romania, where Renault had acquired local firm Dacia.
Produced by a cross-cultural team or French designers and Romanian engineers, the resulting car, the Logan, exceeded all expectations. It proved popular not alone in eastern Europe but also in the West, expanding the market of people who could afford to buy a new car.
Innovating is not a precise art, but consultant and best-selling innovation author Stephen Wunker believes that one of the keys to its successful execution lies in looking at the jobs customers need doing, as he explains in his book, Jobs To Be Done.
Framing the problem
Among his key ideas are that research is too superficial and self-serving and that innovators typically look only at function, rather than the wider reasons why people adopt solutions. He advocates taking as much time as possible to analyse problems before jumping to solutions. It is the framing of the problem that often leads to breakthrough ideas, he believes.
Decision-making, he notes, gravitates to where there is data, but that is problematic in markets that you don’t understand well, such as emerging markets or emotional markets. It’s also easy to analyse functional buying criteria but that’s not how people operate.
Take the purchase of a car, he says. A car buyer’s motivations can range anywhere from safety and power to capacity to transport heavy sports equipment to validating the success of the owner among his or her peer group.
One of the most innovative management structures in the world exists at the Chinese company <a class="search" href='javascript:window.parent.actionEventData({$contentId:"7.1213540", $action:"view", $target:"work"})' polopoly:contentid="7.1213540" polopoly:searchtag="tag_company">Haier</a>, which has become the largest white-goods company in the world
Innovative thinking is not merely the preserve of start-ups, as behemoths such as Amazon and Google have consistently shown. Nor is it found only in the West. One of the most innovative management structures in the world exists at the Chinese company Haier, which has become the largest white-goods company in the world, with annual profits of over €4 billion.
Its visionary leader, Zhang Ruimin, has pioneered a system of management called Rendanheyi, which draws inspiration from both Chinese and western thinking. Put simply, this aligns employees with the creation of customer value. Middle management layers in its 70,000-strong workforce have virtually disappeared, and compensation is directly aligned with satisfying customer needs, rather than being based on organisational hierarchy.
There is a growing awareness that having the best business model is more important than having the best products. Take the case of the Nintendo Wii. By the early 2000s Nintendo was struggling to compete in the high-tech gaming consoles market. Innovative thinking told it that it didn't have to.
In 2006, it introduced the Wii, a console featuring inferior technology compared to that used by its rivals Sony and Microsoft. The simplified Wii, however, was cleverly targeted at the then untapped mass market of casual gamers. Not alone did the product prove hugely popular but manufacturing costs were a fraction of its rivals as it was simpler and cheaper to produce, helped by the fact that it used off-the-shelf components.
The Nintendo and Renault Logan cases serve as examples of so-called 'Blue Ocean' strategy. The book of the same name by W Chan Kim and Renee Mauborgne suggests that the best way to gain competitive advantage is not by going head-to-head against incumbents in established markets but rather by finding opportunities in uncharted territory. The blue in the title is contrasted with the red of oceans stained with the blood of incumbents.
Value innovation
A key idea of the best-selling book is value innovation, a process that reduces costs while at the same time creating value, the benefits of which are shared by the customer, the company and its employees.
Differentiating your offer matters. As Harvard Business School professor Felix Oberholzer Gee has also observed, copying reduces the ability to capture value because greater similarity across firms leads to downward pressure on prices and squeezed margins. Good for the consumer in the short-term, perhaps, but not a recipe for business success.
Focus instead, he says, on customer delight, employee satisfaction and reducing the costs of your suppliers – not by squeezing them but by working with them to create extra value in the chain that you can then share with them.
He adds that a profound question you need to ask is: if your company disappeared tomorrow, who would miss it and why?
That’s as good a question as any to ask at the start of your innovation journey.
