This article is part 4 of a 5 part series where we take a deep dive into the 5 common challenge to innovation that an organization faces. This article focuses on an organizations reluctance to invest in new ideas for fear that they won’t work, and what techniques they can employ to limit their exposure to that risk.
The Coyote Trying to Catch the Roadrunner
I do believe that the Acme corporation from those old school Looney Tunes cartoons has got to be the most profitable corporation in the history of the world. The amount of money that the Wile E Coyote alone would spend there on a weekly basis has to be enough to propel them into the Fortune 15 category.
Do you remember those cartoons? Mr. Coyote would see his nemesis, the dastardly Road Runner. Hatch a plan to destroy him. That plan would include some advanced weaponry that maybe three or four nations in the world would have the budget to acquire. Amazon (presumably) would delivery it to him. He would setup his Roadrunner extermination device. Smile. Push a button…
BANG!
…it would blow up in his face. Roadrunner would then smile. Meep meep. And sprint away. And the following week, a similar sequence of events would unfold again. Same result. Crushing Mr. Coyote’s dreams while entertaining me, children and fictitious Acme shareholders everywhere.
The absence of viable substitutes increases your company’s bargaining power, making your offers easier to sell, thereby improving your revenues and profits. – Geoffrey Moore, Escape Velocity
Luckily, Acme operated in a world before the internet allowed anyone and everyone with a cell phone to review their product. Because if they didn’t, I’m sure a lot of their product would be getting some seriously poor Amazon reviews.
Avoiding the Poor Investment at all Costs
And that, in essence, is what scares many companies away from investing in new ideas. They worry that their investment will blow up in either their face…or the face of their Wile E customer. And that will directly, or indirectly, cost the company time and money that it cannot afford to lose.
While I’ve argued before that that is faulty logic, because the benefits of one successful project have the ability to erase the losses on multiple others. The fact remains, losing more money than is necessary on any effort is just dumb. So, the question is, how do you keep exploring new ideas and new ways of doing business – without overly exposing your organization to unnecessary risks and wasted money?
Leverage Your Strengths
First of all, you should never be starting from an even playing field. There is a famous quote within the United States’ Armed Forces community that is most commonly contributed to John Steinbeck, that says “if you find yourself in a fair fight, your tactics suck.” Author Geoffrey Moore uses that sentiment a little more tactfully by talking about leveraging a company’s Crown Jewels. Mr. Moore argues in Escape Velocity that companies should leverage what makes their services exceptional and unique in new product or service launches to give those launches a better chance of survival.
And this should not be a revolutionary idea for anyone that us an Apple fan as they used the iPod to launch the iPhone, the iPhone to launch the iPad, and then they use iTunes to solve World Hunger (I’m kidding, but that product is getting a bit bloated these days…).
Pick Your Innovation Investments Based on Likelihood of Success
Amazon spent almost $23 billion on Research and Development spending in 2017. I’m sorry, that’s – $23 BILLION – it requires a little more emphasis.
Now, most people look at that and think that’s a lot. And they would be right. However, even Amazon could not fund 100% of their innovation ideas.
That’s just how it is. Each organization has a finite amount of resources that they can dedicate on developing new ideas. That’s why it is so important to rank your ideas and focus all your time and resources on ideas that not only align with your organization’s strategic direction but also have a high likelihood of being successful.
In Escape Velocity, Mr. Moore talks about 5 indications whether the idea is likely to succeed (which we’ve built into our InnoSpecting Management Framework Tool). Those include:
How much Category power does the product have?
Another words, is the product category something that is currently trending up (cell phones, “green” products, pet products) or one that has already peaked (desktop computers)
How much Category power does your organization have?
I am a software engineer by trade. I should not be looking into curing cancer. I have zero Category power there. If you are an insurance company, you should not jump straight into launching passengers into space.
Company market power
Is your company in the upper echelon of the market? Verizon has tremendous market power in the cell service industry. T-Mobile and Sprint are still trying to catch up. Launching a product with Verizon will give it a better chance of success.
Innovation offer power
Does your offer provide capabilities that other competitors in the space do not or cannot? BlackBerry did this when they were the first to offer email on a handheld.
Company execution power
Can your company execute on their claim? If you are building a gizmo, and you’re projecting that you’ll have to sell 500 of them to break even. Does your company have the capability and the partnerships to produce, market and distribute 500 (or more) gizmos?
Dip your Toe Before Diving In
After ranking your firms ideas, the next step is to prove or disprove them by building a Minimal Viable Product. The goal of the MVP is to produce the product on a small scale, but to perform enough work to provide insights into whether the concept is valid, customers would buy it, your product supply chain is sufficient, and your distribution plan can support moving your product to your customers.
Companies must lower hurdle rates and relax the other constraints that reflect a bygone era of scarce capital. They should move away from making a few big bets over the course of many years and start making numerous small and varied investments, knowing that not all will pan out. They must learn to quickly spot – and get out of – losing ventures, while aggressively supporting the winners, nurturing them into successful new businesses. – Michael Mankins, Karen Harris, and David Harding, Strategy in the Age of Superabundant Capital
During this phase, you should be doing a few things. You should be engaging potential early adopters to get their feedback. You should be checking your product requirements against that feedback and adjusting where appropriate. You should be building your sales plan. You should be finalizing the price tag (both what it’ll cost to make as what you can sell it for) and building common metrics (such as using both of those to finalize the Break Even Point) which will be used by management to determine if this product will go to market or not. You should have your engineers work through or mitigate any potential stumbling blocks. You should develop a project plan with a list of projected milestones. The milestones can be a bit of a SWAG (Scientific Wild A$$ Guess) at this point, but still, management needs something that it can use to track progress.
You should also NOT be doing some things. You should NOT be building the final product. If there are some rough edges right now, that’s OK. Those will get smoothed out when you go to production. You should NOT be building a product for EVERYONE. You should focus initially on a small niche of customers who will benefit the most from this product. Your sales and marketing teams will work on expanding your market reach later. You should NOT be spending a lot of money on marketing the product. The early adopters and early customers should be coming from first and second tier connections. Those who have previously done business with your organization. Marketing comes later when you look to expand your footprint.
Conclusion
When we work with organizations, and we talk to them about getting more out of their Innovation Portfolio, we are talking to them about performing targeted R&D. We are talking to them about making calculated bets on ideas that expand their core competencies into tangential arenas. We are not asking them to go and spend money on aimless R&D.
General R&D, or what Greg Satell termed Basic Research in his article The 4 Types of Innovations and the Problems They Solve for the Harvard Business Review is wasteful outside of Government agencies, academia, drug manufacturers, and the largest organizations. That’s the type of research that discovers new industries. That’s the type of research that discovered the Advanced Research Projects Agency Network (APRANET), the precursor to the modern internet that was developed by the United States Defense Advanced Research Projects Agency (DARPA), or the V-2 rocket which launched the modern space-race that was developed by the Germans in the 1930’s and 1940’s. Vaccines were a result of government research. And there are tons more. To make your search easier, take a look at the Fiscal Times article on 10 World-Changing Inventions from Government Funding.
This is the type of research that can ONLY be done by large organizations or with government grants because so often they fail. Which makes sense, the more theoretical your effort, the more that is unknown, the higher the likelihood of failure.
So, if research is risky, why do it at all? Because here’s the kicker, the more unique your products and services are, the more defensible your business position is from copycats. And the more defensible your market position, the higher premiums you can demand.
“In the real world outside of economic theory, every business is successful exactly to the extent it can do something others cannot.” – Peter Thiel, Zero to One
Which is why you must dedicate resources to innovation. Which is why you must constantly look to expand your company’s products and services reach. But, unless you have billions to throw away, you must do it strategically. You must use your crown jewels as a baseline and leverage your category power and your company market power to make sure that those experiments have a fighting chance to turn into long-term profit drivers.