Innovative companies like Tesla, Apple and Amazon are everywhere in the United States media. Their founders are celebrated as modern-day heroes whose visionary ideation changed the world for the better. The ability to think outside the box doesn't always lead to positive outcomes, though. Sometimes, thinking inside the box can open up new ways of doing business and spark creativity.
TL;DR (Too Long; Didn't Read)
In the rush to innovate, many entrepreneurs lose focus on the customers and behave in risky ways. But new products aren't always the key to success — especially if this is your first time in an entrepreneurial role.
The Truth About Innovation
Some of the world's most successful brands have one thing in common: their mission statement revolves around innovation. However, common goods like the paper clip, bubble wrap, teapots, eyeglasses and most automotive parts haven't changed too much over the past decades. Scissors, for example, look pretty much the same as they did 4,000 years ago. Have you ever returned a book to the library for not being innovative enough?
Innovation is the lifeblood of industrial development. Without it, there would be no smartphones, computers, social media, podcasts, credit cards, electric bikes and other popular products that make life easier and more enjoyable. However, innovation as a concept is vague and subjective. For many companies, the urge to innovate can be an expensive distraction.
A staggering 85% of new consumer packaged goods fail within two years. The truth is that innovation isn't always necessary. Many times, it fails to account for resources and technologies in widespread use. Additionally, companies often focus too much on creating the next big thing and lose focus on what their customers really want.
Startups in particular believe that they have to invent something new to achieve success and gain a competitive edge. Sometimes, they end up chasing complexities at the expense of simplicities. In reality, many successful businesses are not born of something new. They focus on the problem, not the technology.
Risks Involved in Innovation
Innovation isn't a bad thing; on the contrary, it drives business growth and revenue. The road to innovation, though, is rarely one straight path. Sometimes, it may be a safer bet to stick to what's tried and true. Otherwise, you may end up losing money and putting your business at risk.
Global spending on research and development among the largest corporate spenders reached $782 billion in 2018, yet only two companies — Apple and Stanley Black & Decker — qualified as high-leverage innovators between 2012 and 2018, according to a PwC report. These findings indicate that R&D spending isn't necessarily a measure of innovation. Just because you spend millions on patentable technologies doesn't guarantee their success in the market.
Developing new, innovative products is expensive and time consuming, involving operational, financial and commercial risks. You may end up investing in unsuccessful projects, fail to attract customers or fail to meet your quality requirements. Furthermore, innovative companies may fail to understand and address customers' needs.
True innovation requires a deep understanding of your target market. In addition to creating products that meet a market need, it's crucial to develop a sustainable business model. Innovation alone holds little value if there's no system in place to support those products. As a small-business owner, you don't need to reinvent the wheel to achieve success — instead, you can focus on identifying a gap in the market and improving existing products to fill that gap.
Examples of Truly Innovative Companies
Many successful companies achieved success by making improvements to existing products and technologies. Apple, for example, has emerged as a tech innovator by seeking solutions to user problems. The company drew on the best existing technology to develop new, creative products, such as the iPod, iPad and Apple Watch. The iPhone wasn't the world's first smartphone but rather an improved modern version of what was already existing on the market.
Another example is Amazon. Although it wasn't the first company to sell books online, it has changed the way people live and shop by revolutionizing customer service. Netflix, on the other hand, started as a pay-per-rental business. Later, it transitioned to a subscription business model, becoming the largest online streaming platform through continuous innovation.
Square, CVS Health, Marvel Studios and Slack are all examples of innovative companies. You don't need to reinvent the next iPhone to turn your small business into a success. Opening a franchise, for example, leaves little room for innovation, and yet, it's one of the most successful business models. What matters is to find simple solutions that meet customers' needs rather than waiting to come up with the next big thing.
Why Do Innovations Fail?
As an entrepreneur, you could end up spending years attempting to create something unheard of just to realize that no one wants your product. About 42% of startups fail because there is no market need for their products or services. Many times, entrepreneurs focus on tackling problems that are interesting to solve rather than filling a gap in the market. Product innovation failures are common among big brands too.
Google Glass, for example, received a great deal of criticism and went out of production within one year. Nike's Fuel Band failed to attract buyers despite being well-received by reviewers. Google's Nexus Q was outcompeted by other streaming devices offering more features. Juicero, a juicing device backed up by a $120 million investment, failed shortly after its launch because it was no more effective than squeezing fruit by hand.
Many companies fail due to a lack of innovation, while others behave in risky ways in the rush to innovate. The latter often forget about their customers or fail to see the untapped potential in existing products. While most entrepreneurs do validate their ideas before taking the plunge, they ignore other key aspects, such as their business processes, marketing, customer service and innovation strategies.
Some concepts look good on paper but are not realistic in practice. Some are too technologically advanced for most consumers. Others have an innovative design but lack functionality. Even if you develop a product that people want, you may end up selling it at a loss.
How to Manage Innovation Risk
An innovative product may or may not meet customers’ needs and wants. That's where many entrepreneurs go wrong: They invest so much time and energy in creating the next big thing that they lose focus on the customer. The rush for innovation often results in pointless novelty. Think about Google Glass, for instance.
Sometimes, it pays off to think inside the box and put a spin on existing ideas. Define your target market, identify a need, see what's already there and then try to come up with something better. While innovation can be a great way to join the scene, it may be a safer bet — and more profitable — to stick with what's tried and true. Surround yourself with creative people, brainstorm ideas and do some sort of customer testing.
A good strategy is to start with something small. The more dramatic the product innovation, the higher the risk. If, say, you're a software developer, seek ways to improve your products or develop a better version.
Ask your customers what they expect from accounting software, for example. Look at existing programs and try to figure out how you could improve them. Depending on the nature of your business, you may also create small sample sizes and sell them online to determine if there's a market need for your products.
"Reinvent" Existing Products
Many successful brands reinvented and outperformed existing products. The iPhone wasn't the first smartphone, but it had a unique design and software interface that were appealing to most users. At the same time, it had most of the features that Android was missing, including multitouch technology.
Simple product ideas are the easiest to bring to the market. It's enough to look around you. Is there anything you would change about your keyboard, for example? Check out what's already available and improve an existing product.
This approach ensures that there is a market for what you have to offer. All you have left to do is to come up with new and profitable ideas. Surround yourself with creative people and conduct market research to identify the right opportunities. By doing so, you will be able to fill a market need and deliver value to the end customer.
Digital technology will breathe new life into existing products and technologies over the coming years. Car manufacturers, for example, can leverage artificial intelligence to deliver highly personalized in-vehicle experiences. Furthermore, physical products will be turned into platforms for digital services. Travel agencies, for instance, are gradually being replaced by online booking and scheduling systems like Expedia, Viator and GetYourGuide.
Think Inside the Box
Outside-the-box thinking isn't always the best approach to innovation. In fact, working within the constraints of what you already know spurs creativity and brings new insights. Thinking inside the box makes it easier to break complex concepts into bite-sized chunks and to mitigate risks. Too much freedom can actually increase uncertainty and fuel procrastination.
Ben & Jerry’s, for example, is famous for its innovative ice cream flavors. The company's "flavor gurus" research thousands of flavors, choose 200 and then narrow down their options to 15 or so. Next, they choose those that meet specific criteria, such as no more than 25 grams of sugar and 250 calories per serving. Basically, they put constraints into the innovation process to create amazing new flavors that appeal to their target market.
Thinking inside the box is all about constraining the problem but not the potential solutions. It also involves constraining the resources you're planning to use but not the ways to utilize them. These limitations allow you to make the most of what you already have rather than putting too much time and energy into something that may not work.
What's in the Box?
The first step to innovation is to define what's in your "box". Focus on your company's mission and values, its brand identity, competitive advantage, consumer insights and other key aspects. Make sure your team knows what's inside the box and why it matters. This will help you build a strong foundation for your next product.
Any system or process that drives innovation should fit into your company's "box". Simply put, your next big idea and the processes needed to implement it must align with your strategy, values, team capabilities and the external forces that could influence your business.
Contrary to popular belief, you don't need to expose yourself to new external environments to innovate. Most times, the best ideas are right in front of you. Putting constraints on your processes, resources, spending and other key elements can make it easier to come up with new solutions. At the same time, it gives you more control over the outcome and improves decision making.
- Food Navigator USA: Why Do 85% of New CPG Products Fail Within Two Years?
- PwC Network: The Global Innovation 1000 Study
- Fast Company: Why Apple Is the World’s Most Innovative Company
- Fast Company: Why Amazon Is the World’s Most Innovative Company of 2017
- CBInsights: The Top 20 Reasons Startups Fail
- CBInsights: When Corporate Innovation Goes Bad — The 155 Biggest Product Failures of All Time
- Accenture: Trying to Reinvent Your Business? Start With Reinventing Your Products
- Medium: Actually, Think Inside the Box