Chapter 18
Starting the Innovation Process
In This Chapter
Knowing what type of innovation you need
Benefitting from both marginal and quantum innovation
Learning to love crazy ideas
Keeping your innovation process on track
Many businesspeople don’t know where to begin the innovation process. Innovation doesn’t really have a standard formal process, so some people feel like innovation is nothing more than whipping up some ideas.
Without innovation, your business model will stagnate and become less and less effective. Like it or not, at some point you need to give serious thought to the innovation of your business model. When that time comes, the better your innovation process, the better the outcome will be.
In this chapter, I discuss the process of innovation and the differences between marginal innovation and quantum innovation. I show you the benefits of bringing in outside talent and some of the tools you can use in your innovation process.
Comparing Marginal Innovation and Quantum Innovation
This statement may be an oversimplification, but innovation can be put into two categories: marginal innovation (also known as incremental innovation) and quantum innovation. Both forms are important to your business model but serve very different functions.
Quantum innovation involves radical departures from the existing norm and tends to be far riskier. As I discuss in Chapter 17, quantum innovations are the dot.0 releases of your business model. Marginal innovation improves existing aspects of your business model or makes minor additions/subtractions. Marginal innovations are the point releases of your business model.
When you need each
So how do you know when you should be focusing on a quantum innovation or a marginal innovation? The need for innovation can be compared to a drive for a touchdown in football. On third down and two yards, you need just a short run to keep moving. When you have a free play, because the other team jumps offsides, you try a deep pass.
Figure 18-1 shows the best timing and type of innovation. During the growth phase of your business model, consistent point release innovations always make sense. These innovations are similar to short runs that keep a drive going for the offense.
When your business model is proven and going strong, you have the equivalent of a football free play. You can take some big chances — quantum innovations — with minimal risk. Go big now, before it’s too late. When you realize your business model is rapidly declining, innovation may take too long to work to fix the issue. You always want to be innovating before you need to.
Figure 18-1: Timing your innovations.
Benefits of marginal innovation
The primary benefit of marginal innovation (point releases) is less risk. I hope I have convinced you of the danger and extreme risk of no innovation. Marginal or incremental innovation offers you the ability to stay ahead of the competition without great risk. Many marginal innovations lead you to quantum innovations later.
The Apple Lisa Computer was a quantum innovation that failed in the marketplace. The hugely successful Macintosh computer wasn’t a quantum innovation. Apple simply took the quantum innovations from the Lisa and repackaged them in the Macintosh. The real innovation of the Macintosh was dramatically lowering the price from the Lisa and streamlining the feature set.
It can be argued that all of Apple’s super-successful products are marginal innovations of the iPod. The quantum innovation was either the original iPod or the iPod touch — depending on your point of view. The iPhone is an iPod touch with a phone; not a huge stretch. The iPad is a giant iPod; even less of a stretch. Yet both of these products have made tens of billions of dollars for Apple.
Apple provides several lessons to businesspeople:
It’s amazing how far you can ride one winning innovation (like the iPod).
Innovative marketing can be as important as innovative products or offerings.
Stick with your winners. Just when you thought the iPod was dead, Apple offered new colors, sizes, and features.
Keep innovating. Every year, Apple makes changes to all its winning offerings. Rather than rest on its laurels, Apple keeps innovating.
Benefits of quantum innovation
Quantum innovations are empire makers. It’s rare to find a stellar business that didn’t have a quantum innovation at some point. Apple has built an empire based upon one quantum innovation — the iPod.
If you want to build a business model that will make you truly wealthy, you need quantum innovation. People throw around terms like “thinking outside the box” when referring to quantum innovation. Sometimes it’s hard to know what qualifies as quantum innovation. Ultimately, it’s subjective, but most quantum innovations create a great deal of discomfort. If you’re not uneasy or uncomfortable, the change is probably not risky enough and not quantum innovation.
These well-known companies were all jumpstarted by a quantum innovation:
Sony brought the first transistor radio to market. Leveraging the disruptive power of the transistor versus the vacuum tube, Sony gained a significant foothold in both radios and televisions.
Budweiser beers have been the top seller for decades. Anheuser-Busch was the first U.S. brewer to use pasteurization to keep beer fresh, the first to use mechanical refrigeration and refrigerated railroad cars, and the first to extensively use bottles.
Google was the 18th major search engine for the Internet but defeated all competition because of one idea — PageRank. Every other search engine used the data on the target website to yield search results. Google added the dimension of interplay and linkage between websites to create the PageRank criteria, vastly improving the quality of search results.
CMG Worldwide created a multimillion dollar intellectual property rights management firm representing the estates of famous deceased people, including Mark Twain, James Dean, and Lou Gehrig. The company pioneered the representation of deceased celebrities.
Kellogg’s built the world’s largest cereal company as the direct result of Kellogg’s Corn Flakes.
Procter & Gamble has consistently used innovation to outmaneuver its archrival Colgate-Palmolive. Crest overtook Colgate toothpaste with the addition of fluoride to toothpaste. In the 1920s, Americans used soap flakes to clean their laundry. The flakes performed poorly in hard water, leaving a ring in the washing machine, dulling colors, and turning whites gray. Procter & Gamble created a powdered formula, Dreft, that that pulled the dirt away from clothes, and suspended it until it could be rinsed away. This formula plus the introduction of Tide ten years later put P&G ahead of Colgate-Palmolive for good.
You may think innovation can’t apply to a boring business like steel, but you’d be wrong. Bethlehem Steel was the first to produce wide-flange structural shapes in the U.S. (H-beams). The H-beam is credited with starting the skyscraper era and made Bethlehem Steel the leading supplier to the construction industry. Bethlehem steel was used in the Empire State Building, the Chrysler Building, the Golden Gate Bridge, Madison Square Garden, the Merchandise Mart, Rockefeller Center, Alcatraz, and the Hoover Dam.
Campbell’s Soup was a very ordinary canning company until 1897 when an employee developed a commercially viable method for condensing soup.
Johnson Controls, Inc. ranks #67 in the Fortune 500, and is a global leader in energy management, batteries, and automotive interior systems. The genesis for this global giant was the 1883 invention of the first electric room thermostat by the company’s founder Warren S. Johnson.
Nike built a $24 billion a year business starting with a pair of running shoes made with a waffle iron.
The danger of marginal innovation is you always start with the status quo. Quantum innovation ignores the status quo. Starting with a clean slate leads to radical and disruptive change.
Perhaps the best way to demonstrate the power of quantum innovation is through the example of Google and the Encyclopedia Britannica. When I was 12 years old I needed to write a report on Thomas Jefferson. Most of the knowledge I needed was garnered from the Encyclopedia Britannica. Thirty years later, my daughter needed to write a report on Thomas Jefferson. She gathered the information she needed from the Internet, in particular from Google.
When I was 12 years old, the leading company in the Thomas Jefferson information providing business was the Encyclopedia Britannica. Thirty years later, Google was the leading company in providing information on Thomas Jefferson. This leads to the question, who should have been Google? The answer is the Encyclopedia Britannica.
It’s probably safe to say the folks at the Encyclopedia Britannica were incremental innovators, not quantum innovators. They probably viewed themselves as book publishers, not information providers. When the new technology of the Internet came out, they saw through the lens of their existing book publishing business rather than the blank canvas of the Internet.
Discovering the Correlation between Craziness and Innovative Genius
All innovation is theoretical and untested. The more radical the innovation, the crazier it seems. Human beings are wired to dismiss crazy ideas as bad ideas. In order to be a successful innovator, you need to temper this behavior.
Most highly successful innovations are dismissed as crazy initially. In general, the more people like your idea, the less likely it is to be a powerful innovation. A few freakishly loyal advocates are all that’s needed for a powerful innovation to take hold. Figure 18-2 shows the relationship between popular acceptance of your idea and the likelihood that your idea will be a powerful innovation.
Figure 18-2: Great innovations aren’t always initially liked.
Differentiating crazy ideas from genius
How do you know whether your crazy idea is genius or just plain crazy? You don’t. During the innovation process all you’re doing is taking your best guess. The market will tell you whether your crazy idea is genius.
Part of the innovation process is testing your idea in the marketplace. True quantum ideas rarely have fast, massive acceptance. More likely, radical quantum innovations create a handful of loyal, evangelistic fans. These evangelicals create the foundation for the product’s growing acceptance. When attempting a quantum innovation, always aim for rabid fans rather than mass acceptance. If your offer can’t create rabid fans, your idea is probably crazy. If you can create rabid evangelicals, you have a chance to be a genius.
Knowing that patience is a virtue with innovation
Innovative offerings rarely hit the market and explode in popularity. More often, an innovative offering creates evangelical fans and grows slowly over time. If the entrepreneur remains patient through this phase, the innovation can explode in popularity at a later time. From the outside, these offerings look like overnight successes. In reality, the entrepreneur has patiently toiled for years to gain this “overnight” success.
If you want to garner the most from your innovations, be patient. Overnight success is so rare, you should probably pretend it doesn’t exist. A far more successful option is to patiently wait for your innovations to take hold. Again, pay attention to whether you have evangelical fans. If you do, be patient as long as they stay evangelical. If you don’t have evangelical fans, adjust your offering until you do. Without these evangelical fans, patience may not be a virtue.
Travelocity was the first travel site to offer a calendar feature showing airfares by date. Low price matters in the world of online travel, so this powerful innovation was a game changer. No one used the calendar feature. Online travel booking was just catching on, and customers weren’t ready for an advanced feature such as visual calendar booking. A few years later, this feature was added with great success. The lesson: Just because your innovation isn’t catching on today doesn’t mean it won’t later.
Keeping the Creative Process on Track
Creative innovation is difficult for most business owners, so don’t be discouraged if the process is challenging. Business ownership can be lonely. Many times business owners have no high-quality sounding board for their ideas. If you’re fortunate enough to have the availability of a team to help you brainstorm innovative ideas, consider yourself lucky. Many mid-sized and small businesses don’t have the executive talent to create a brainstorming team.
Bringing in outsiders
It’s difficult to have a highly creative idea in a vacuum. The best creative process is a group process, not an individual process. This fact presents a challenge for mid-sized and small businesses where the owner may be the only executive. If you lack the staff to create an innovation team, consider bringing in outsiders. Outsiders can not only fill empty seats on your team, but also bring a fresh perspective that insiders lack.
The value of fresh eyes
The process of innovation requires different thinking and unique perspective. It’s very difficult to get a unique perspective from someone inside your organization. It’s like the perception of a child’s growth from the eyes of the grandparents versus the parents. The parents see the child every day and subtle changes blend together and become the norm. A grandparent who sees the child a couple of times a year sees dramatic changes in the child. The grandchild has grown several inches, has a more extensive vocabulary, and seems more mature each time the grandparent sees the child. The growth and development of the child is the same; however, the perception of this growth is far different for the parent and grandparent.
Because of their different perspectives, sometimes the grandparents’ opinions on child rearing are more valuable than the parents’. In business, you want to harness this same effect. An outsider brings a grandparents’ set of eyes to your business. Plain and simple, the outsider sees things that an insider simply can’t see.
Best options for help
When innovation becomes a priority, you want to create a high-quality innovation team. Most likely the best team will be augmented by outsiders. You can find quality outside team members in a variety of places. Good candidates for your innovation team include:
Business model or innovation consultants
Business coaches or consultants
Marketing consultants or agencies
Branding consultants or agencies
MBA students or interns
Friends or colleagues who own a business
Board members
Points of resistance
I could go on and on about the benefits of bringing in outsiders. The upside is tremendous, yet most mid-sized and small businesses don’t do it. The list of reasons is long, but here are the usual suspects:
Cost: Outside expertise has a cost. The benefits typically outweigh the costs multiplied several times over, but the benefits always seem unpredictable or tenuous. Known cost plus unknown benefits stops some entrepreneurs from investing in outside help.
Confidentiality: Businesspeople don’t want to share sensitive information with strangers. Somehow, it feels safer not sharing the inside scoop. Any outsider will be willing to sign a standard non-disclosure.
Theft: What if the outsider steals my ideas, people, customers, or other valuable property? Okay, but what are the odds? Most people are ethical and honest. Plus, you can get a non-disclosure and/or non-competition agreement just in case.
It’s just one more thing to do: In the already-too-busy world of entrepreneurs, getting input (whether good or not) from outsiders seems like too much work. Of course, this attitude violates the “stop trying harder rule” I discuss in Chapter 15.
Of course the biggest culprit is accountability. Outsiders force you to refine your ideas and select the best ones for action. After some time has passed, the outsiders may even ask, “How is that important initiative going?” Face it, one of the best parts about being an entrepreneur is having no one to answer to. Having outsiders feels too much like having a boss to some. What these entrepreneurs are losing is immeasurable. Like it or not, there is a straight-line relationship between accountability and performance. The higher the accountability, the higher the performance.
Using tools during the process
The most important tool you use during the innovation process is the brainpower of your team. You also want to employ some tools and techniques during the innovation process. Consider the following:
Use templates. www.innovationinpractice.com suggests using four templates to spur innovation: Subtraction, multiplication, division, and task unification.
• Subtraction: Removing an essential component and keeping only what’s left. The Jitterbug cellphone for seniors removed many features not used by folks over 50.
• Multiplication: Making a copy of a component but changing it in some way. The current razor blade wars are an example of this template. Gillette creates a three-bladed razor, so Shick innovates with a four-bladed razor.
• Division: Dividing a component out of the product and putting it back somewhere else, or taking the component and physically dividing it. MP3 players replaced all-in-one boom boxes but sold the headphones/speakers separately.
• Task unification: Assigning an additional task to an existing component by giving it a new job in addition to its existing job, such as using cellphone cameras for virtual real estate tours.
Innovation is a multistep process. Start at the highest and broadest level at the first meeting and gradually filter ideas in subsequent meetings.
Follow brainstorming rules during the initial meetings. It’s difficult not to critique ideas. However, if you allow discussion on the merits of an idea, you’ll stifle additional ideas. Don’t do it.
Buy a brainstorming toolkit. You can find a variety of flash card kits, board games, and other gadgets to assist in the brainstorming process.
Use a good business model framework. Dr. Alexander Osterwalder’s Business Model Canvas can serve as a good business model framework at the beginning of the innovation process.
Leverage your local business schools. Most MBA or undergraduate business programs are looking for interesting real-world projects. Have a student sit in on your innovation team meetings or have students research or vet your ideas.
Use the cheap fast failure with upside approach. The Pet Rock taught businesspeople that there’s no such thing as a stupid idea. The market will tell you whether your idea is genius or stupid. When innovating, keep in mind the cost of market trial. An innovative idea that requires a significant investment for trial may be the wrong idea.