Staying Innovative
You’ve been innovative enough to grow from nothing. But how do you keep or rediscover that Innovative Startup Spirit?
One of the problems with being successful is that it can be a trap... Your success attracts competitors, who know exactly what they need to improve from your offering, whilst at the same time your mainstream customers (early and late majority) don’t want you to change, and so development slows, stops or shifts to behind the scenes things that make your offering more efficient or profitable.
Your customers are happy, few people are crying out for change, and since there’s very little credible competition why waste money developing this further when no one wants you too and instead you can milk this cash cow and restock the war chest for a future project?
“Success is dangerous. One begins to copy oneself and to copy oneself is more dangerous than to copy others.”
- Pablo Picasso
The complete innovation journey from early development to mass market success and indecision paralysis this success can cause.
The Development S Curve & Customer Adoption Cycles
Development is initially slow, what you’re trying to do is difficult, but you’re lucky and find some early customers and start to gain a little traction. As these new customers join they give you feedback and you go through a rapid spurt of development in new ideas and features until you have a product people love. Your developers are proud of what they’ve created.
Customers start rushing to your product and you have a great success.
But the success attracts attention. It also changes the customer’s understanding of what’s possible and what’s expected. They’re now hungry for more.
But you took a big risk getting this far and deserve the reward. Plus there’s no serious competition yet, surely you can just implement new features and stay ahead of any rival that might appear? Also you need to stop making new things and make sure what you have will work at scale. It needs to be robust and efficient. Your more creative developers might start getting bored with this new direction especially when new ideas are resisted by your customers rather than embraced by them.
Your customers are no longer the excited and forgiving early adopters, they are now the slow to move majority, and the majority like things to be reliable, the way they’ve always been.
So you’re trapped, holding something that will inevitably become dated, old fashioned, out of touch and less popular… The opportunity to recover has past.
An example we see today: WhatsApp vs Signal
I believe we’re seeing this materialise now with WhatsApp. Since Facebook purchased WhatsApp in 2014 (for $19bn) and took it mainstream (from 500million monthly users to over 2billion in 2020), no obvious changes have been made to the way it works or the customer interaction. All the changes have been behind the scenes, trying to reduce costs, improve efficiency and develop a profitable income stream. The cow is now being thoroughly milked and with the recent shift in policies to integrate it even more closely with Facebook’s advertising engine, users are starting to jump ship to a rival. A rival that was created by the long disgruntled former creator of WhatsApp.
By comparison this new alternative to WhatsApp, Signal, looks and feels fresh, does lots of things well that WhatsApp does badly and makes them look old, tired and in need of a relaunch. Something that will put off the majority even more! Catch-22.
Interestingly though, from a Facebook perspective we don’t seem to be seeing this with Instagram. Although every new idea is fiercely criticised and objected to, they have managed to keep going. For now.
An example from a few years ago: Netflix vs Blockbuster
The trap of success can work from both sides, externally with customers not wanting to change and internally with leadership not wanting to change. When Blockbuster was the only serious video rental service in the US they saw a new company trying something different; video rental subscriptions, receive DVDs in the post, keep them as long as you want, return them when you want new ones, all for a single monthly fee.
This was not a big obvious threat or even particularly popular, but the trend was growing and the CEO of Blockbuster could see the potential. So he went to his Board of Directors to propose that they should try a subscription service too.
The Board said no.
Why? Because they made 12% of their revenue from late return fees! They were so worried about giving up 12% that they rejected any new way of thinking or product development. That new company trying something different was Netflix and once the internet became more suitable for streaming they switched to it as a natural evolution of their offering. Killing off Blockbuster for good.
“If we don’t eat ourselves, someone else will”
Steve Jobs
Rise(?) of the Intrapreneur
/ˌɪntrəprəˈnəː/
noun
a manager within a company who promotes innovative product development and marketing
“Since the term was coined in the 1980s, intrapreneurship has been promoted to workers as a way to capture the creativity and excitement of entrepreneurship, but with more resources and less risk.
Intrapreneurs are supposed to be rebels, breaking the rules and swimming against the corporate tide… [However] the experience of the typical intrapreneur looks less like Spencer Silver, who developed the Post-It note while at 3M, and more like Steven Sasson, the engineer at Kodak who invented the portable digital camera. As is now well-known, instead of propelling Kodak into the future, the digital camera became a massive missed opportunity.
Hiring a few talented individuals and hoping for the best, without changing anything about your organisation, won’t cut it. Companies need a strategic plan for professionalising and institutionalising innovation across their organisations. This is the only way to nurture the breakthrough innovations needed for the future health of the business.”
- Andrew Corbett, The Myth of the Intrapreneur, Harvard Business Review
The story of Kodak is a classic business legend, meant as a warning to all. Here was an innovative dynamic organisation who invented the digital camera way ahead of anyone else and even patented the technology. But then chose not to risk developing it as a product, largely because, no-one knew if anyone wanted such a thing, it would divert resources away from other more proven ideas and if it was a success, it would cannibalise and hurt their highly profitable sales of camera film (if anyone can remember what that was?). As it turns out, not a great long term decision, everyone else developed digital cameras of their own and Kodak is now no more.
The Difficulty with Architectural Innovation
The reality is always more complex than the legend, Kodak made a fortune off sales and royalties of their patents, and it is this that enabled everyone else to develop digital cameras. But as the product market fit appeared, they moved far too late to regain a place in the eyes of the consumer and when their original patents expired Kodak was left with nothing.
Kodak Misses the Future - 30 min podcast episode explaining what happened if you want to know more.
This phenomenon has come to be known as the challenge of Architectural Innovation: a new invention that changes the way your organisation must function is likely to be rejected by that organisation… If your whole organisation is designed and built up around the shape of a certain thing that has made you very successful in the past. Any new creation that means you have to change this organisational structure will be resisted covertly and overtly by members of that organisation. It just doesn’t fit with how we’ve always done things… Kodak with the digital camera, Sony with the MP3 player, Xerox with the personal computer, the British army with the introduction of the Tank.
Whilst all these creations we’re invented by the current business champion of that space, they didn’t fit within the organisational structure of the creators and would have caused too much painful change so were deliberately ignored, sold or licensed to competitors. Until it was too late.
An even more fascinating twist to the story of Kodak and the digital camera is the almost forgotten story of how Polaroid (at the same time as Kodak) also thought digital photography would never work for consumers. Polaroid CEO Edwin Land (the Steve Jobs of his day) was another early pioneer of digital and even recommended it to the US government for their spy satellites but rejected it as a consumer product. Again they made all their money from film and print.
A totally bonkers side note, but early US spy satellites used modified conventional film cameras and would fire the films back to earth hoping the US airforce would be able to recover them and develop the films. Oh how we take modern technology for granted. A later version would develop the films in space, scan them on board and then “fax” them down to listening stations… Edwin Land despite his brilliance in other areas completely missed the significance of digital photography for his own business, just like Kodak.
“No person could possibly be original in one area unless he were possessed of the emotional and social stability that comes from fixed attitudes in all areas other than the one in which he is being original”
- Edwin Land
“I think it’s very, very hard for a company to grow big and still remain innovative. There are very few leaders who can balance the short term and the long term together, and also know how important that growth is, and have a sufficiently long-term horizon that they’re willing to sacrifice things.
Steve Jobs was one of those amazing people who could do that. He was willing to cannibalise his iPod revenues, which were $5 billion a year, by putting the whole mp3 player right in every phone. And there were some people in the company who begged him not to do that. But he said he didn’t care.”
- Bill Gross (Idealab)
Big companies are not startups.
“Through the right kind of strategy and the right innovation processes and the right culture, a large company can make a transition and be a dominant player.
But culture is an area where companies struggle because, first of all, changing culture in general is hard. [The bigger the company the more entrenched the culture].
What does it take to be an innovative company? Well, you have to have a tolerance for failure. Let’s celebrate failure. Let’s have a big willingness to experiment, great. Let’s have a lot of psychological safety so people can speak up and challenge, terrific. Let’s be collaborative, fantastic… You need a tolerance for failure, absolutely. But innovative companies set incredibly high standards. They have intolerance for incompetence.
We tolerate failure; we don’t tolerate incompetence.
A willingness to experiment? Absolutely, but they’re super disciplined, so when they do an experiment, the data speaks for itself, and that’s it. The data is sacred.”
- Gary Pisano (Professor of Business Administration at Harvard)
If you’re constantly looking for new innovative opportunities (or simply trying to maintain your mission whilst the world changes around you), then by definition you are also looking for new business models, new ways of doing things. Sadly it may just be that the best opportunity requires you to destroy and rebuild your organisation. Something Kodak was unwilling to do but Apple was not.
Seven Paradoxes of Innovation
Advice on how to be innovative in a big company, be aware of and manage the seven paradoxes… Taken and abridged from Tendayi Viki’s great book on this subject of how to be an Intrapreneur inside an established organisation.
1
Searching while executing
Startups are a temporary organisation, their goal is to find a profitable, sustainable business model. Established companies must execute an already working business model. So for established companies to be innovative they must do both execute on their existing model whilst at the same time discovering a new one. This core dilemma is at the heart of many of the paradoxes listed below.
2
Create new, manage the old
There are lots of suitable methods and metrics for managing established products, Return on Investment (ROI), Net Present Value (NPV) and Accounting Rates of Return (ARR) for example. New offerings however can not be managed with these traditional methods, instead they must focus on experimentation, iteration and managing uncertainty and risk. Leaders in established companies have to be good at both and there is often a conflict or misunderstandings along the way.
3
Deliberate strategy, emergent strategy
Strategy is usually a top down and deliberate process. A good strategy contains three elements, an understanding of the problem, a policy for responding to it and some deliberate actions to follow. More on that can be found in our Strategy discussion, but for innovation within a company, the challenge is that the top down strategy of management must welcome changes to it from the market place. You must be adaptive to the changing nature of information as it appears.
This is the idea behind a common (and commonly hated) startup expression: “Strong opinions loosely held”.
However to most not in the circle of people who are confident and exaggerating in their expression of opinions yet also having a willingness to concede, it just comes across as obnoxious and arrogant, shutting down conversation rather than stimulating discussion.
4
Decentralised decisions, increased transparency
Command and control often stifles innovation. Exploration can not be micromanaged from afar, without seeing the terrain in front of them. So decision making has to be decentralised to those deep in the innovative jungle. But at the same time, this new decision making process must be visible to those at the top… Exchanging control for transparency.
5
A single company, not a single business model
In order to innovate, an established company has to stop thinking like a single entity. But instead view themselves as an ecosystem of different offerings with different business models. This hugely complex task of not only managing different, perhaps conflicting, business models but also managing them at different stages of their lives is a key challenge of any established business wanting to find new innovations.
6
Fail fast, make money
The role of the leader in any established organisation is to ensure they can keep doing what they have been doing as the world changes around them. Cynically for a business that often boils down to making money and showing to investors that you’re a reliable winner. Yet successful innovation is based on repeated failures. These failures come with a cost, and if that cost outweighs the benefit obtained from the new learning about what should be done next time then there is a problem.
Understanding and communicating this conflict to outside stakeholders and investors is a common challenge for innovative companies.
7
Impatient for profits, patient for growth
Established companies are often already operating at a large scale and there can be an impatience to take new ideas and launch them at a huge scale. Premature scaling of an as yet unproven idea is a common cause of failure. Instead make sure the new idea can be implemented profitably and sustainably before it’s taken further and you’re stretched too thin or forced to make promises you can’t keep.
The Ambidextrous Organisation
A Harvard Business Review view on this.
Tackling these paradoxes is discussed at length in a great article by the Harvard Business Review called the Ambidextrous Organisation:
“To flourish over the long run, most companies need to maintain a variety of innovation efforts. They must constantly pursue incremental innovations, small improvements in their existing products and operations that let them operate more efficiently and deliver ever greater value to customers… Companies also have to make architectural innovations, applying technological or process advances to fundamentally change some component or element of their business.”
A similar approach and mentality to thriving in these paradoxes is discussed on the following page with the concept of soldiers and artists.