wallace immen
From Friday's Globe and Mail
Published Thursday, Nov. 24, 2011 7:09PM EST
The stereotype of breakthrough innovation is a lone genius having a sudden flash of inspiration in a “eureka!” moment.
But it almost never works that way, says leadership consultant Steven Berlin Johnson. In researching his new book, Where Good Ideas Come From, the California-based consultant found that throughout history breakthroughs have invariably been the result of hunches that sit dormant for years and finally blossom with the help of insights of collaborators and advances in technology.
“A common theme I have in discussions with corporate leaders is that they want to hire people who are more innovative,” Mr. Johnson said in an interview. “But that suggests they aren’t looking at the potential sources of increased innovation that they already have”– the people already on staff.
He suggests simple steps that managers can take to encourage breakthroughs:
Encourage idea logs
“The eureka moment is a myth. It’s always preceded by a hunch that there’s something tantalizing that you want to explore. Ideas often stay in this hunch stage for days or years before the connections come together,” so it’s important to keep those inklings alive, Mr. Johnson says. Managers should encourage employees to keep idea files, jotting down their musings about new approaches to work and potential new products. “The idea you thought didn’t make sense yesterday can make a lot of sense a month from now when you discover something else that makes it feasible.”
Promote pollination
Like a bee who brings the pollen around, a key role of a leader today is to be a pollinator, a person who talks to the engineering people and then talks with the marketing people and then the finance group. It’s important to not only know what everyone is doing but also to encourage people to link up. “The leader can say: Bob, it might be a good idea to talk to Bill because the two of you are facing similar challenges and what he’s finding might be relevant to what you’re doing.”
And this shouldn’t be just the manager’s role, he said. “I’d suggest that people take the initiative because someone who creates those pollinating connections will be appreciated by management.”
Don’t keep secrets
“We spend too much time as a culture dreaming up ways to keep ideas locked up in patents and keeping proprietary ideas secret,” Mr. Johnson said. “We have to remember that in the process we pay an implicit ‘idea tax’ that limits these possibilities. The Internet would not have developed as quickly and as remarkably if it was made a pay-per-search service.”
At the very least, leaders within organizations should share everything they can and people should be encouraged to discuss ideas in progress and share hunches.
Become an omnivore
A key thing to avoid is to be so narrowly focused that you don’t see trends and ideas that are developing elsewhere. “Don’t just read your industry journals, but journals of other industries and businesses that are on the forefront,” he said. “Apple ... has been consistently innovative because Steve Jobs hired people not only trained in technology but in humanities and graphic design. And he let the folks who came in with other perspectives have as much say in product development meetings as the programmers and engineers. If there was poetry in things Apple produced, it was because they have actual poets in the company.”
Don’t be a know-it-all
A seldom-noted trait about truly innovative people is that they’re good at recognizing their strengths, and equally good at knowing their weaknesses. They are willing to supplement their talents with those of the team around them to compete their skill set, Mr. Johnson said. People who think they can do everything are fooling themselves: You always need to a network around you to help you do things.
Leave some think time
If you believe in innovation, you have to give people enough flexibility to be able to think on their own.
For example, Google gives its engineers 20 per cent of their time to pursue their personal ideas. The employer is giving staff a clear directive: Take time in your week to have lateral ideas that aren’t going to be immediately relevant to the daily goals of the company; next quarter or next year, what comes out of these explorations might be the next big thing. G-mail and Google News both grew from ideas that came out of the 20-per-cent time, Mr. Johnson said.
Accept the failures
The hardest thing for managers to accept is that innovative people fail a lot, Mr. Johnson said. “A number of studies of great scientists who were game changers [found that they] often had a string of research papers that zero people cited. Then they had one or two papers that thousands cited,” he said. It’s important for leaders to say, “Go ahead and swing for the fences because even if you strike out this time, we’re confident you’re going to eventually hit the home run.”
SHOW AND TELL
Brainstorming shouldn’t be limited to issues within a company’s business, nor should it happen at scheduled times, says leadership consultant Steven Berlin Johnson. Idea sharing should be going on all the time, he said, but noted that he has encountered only a handful of companies that encourage this kind of discussion.
“Too many companies that want to innovate leave it to a once-a-year ‘creativity retreat.’ They brainstorm in the woods for a day and then it’s, ‘All right everyone back to work, we had our freedom day.’ Or they buy a Foosball table for the staff lounge.”
He’s a proponent of a concept used by design company Ideo Labs, in Palo Alto, Calif., which has developed a number of cutting-edge products, including the first mouse for Apple computers. Owners Tom and David Kelly bring their managers together for 20 minutes every Monday for what they call “show and tell.” The managers talk about things that grabbed their attention: “My seven-year-old just loves this crazy new toy” or “I saw an art installation that was amazing.”
The free-wheeling session clues in people to new ideas “and it’s been a great generator of innovation for the company,” Mr. Johnson said.
Monday, November 28, 2011
Innovation – Looking Beyond What Is to What Could Be
Innovation – Looking Beyond What Is to What Could Be
Posted on November 25, 2011 by Jim Clemmer
Customer and market research, competitive benchmarking, and focusing on market share could be detrimental to your organization’s future performance. These approaches are critical improvement tools. Top performing organizations have turned them into a disciplined and useful science. But they can also lead to “me-too” followership or — even worse — commodity products and services that compete only on price.Market share, for example, is only meaningful if you’re in a stable, contained, and well defined market. Fat chance of that today as markets merge, converge, and diverge. In our turbulent markets with such high levels of flux, market share measurements can easily distract you from creating whole new product or service categories, markets, or even industries. How good an indicator of future success was market share, customer satisfaction, and quality levels if you were a horse-pulled carriage maker in 1912?
Many innovations come from a deeper level of customer and market understanding. They go beyond what current customers say they need. They solve problems that customers either don’t realize they have or didn’t know could be solved. These innovations create needs and performance gaps only once customers start using them and get turned on to the possibilities. For example, in the early eighties, no focus group, survey, or customer satisfaction measure could have shown a big demand for fax machines, lap top computers, or cellular phones.
Every product and service we now take for granted was once silly, interesting, or just an odd curiosity. What would you have said to a market researcher asking about a video machine for your TV when there were few movies to rent? How about CD players when there were no CDs to buy? What about a bank card to withdraw cash from an ATM? How about a personal computer?
Walk in Your Customer’s Shoes
Innovation is a hands-on issue. It calls for an intimate understanding of current customers and markets, potential new customers or markets, team and organization competencies and improvement opportunities, vision, values, and mission. You can’t develop that intimacy from a distance. Studies, reports, surveys, graphs, and measurements wouldn’t give it to you. Effective innovation depends on disciplined management systems and processes. But it starts with people. People searching for creative ways to do things better, different, or more effectively. People trying to understand how other people use, or could use, the products or services their organization could produce. That makes innovation a critical leadership issue.
Beyond the management tools of surveys, focus groups, and the like, innovation leaders find a multitude of ways to live in their customers’ world. They’re learning how to learn from the market, not just market research. Innovation leaders look for ways to align the organization’s product and service development competencies with latent or unexpressed market and customer needs. Since customers don’t know what’s possible, they often can’t identify innovations that break with familiar patterns. At the other extreme, leaders recognize that their organizations are constantly in danger of developing products and services with little or no market appeal. So many new (or extended) products and services come from empathic innovation. These are innovations that flow from a deep empathy and understanding of the intended customers’ problems and aspirations.
Innovation Pathways
There are as many ways to innovate as there are potentially new products and services. Here are a few insights and ideas:
•Make sure the “voice of the market” pervades every part of your organization. Bring customers into your company offices and plants for visits, joint problem solving and planning sessions, celebrations, focus groups, conferences, barbecues, presentations, and the like. Get everyone in your organization out to see customers or into the real world on a regular basis.
•Don’t allow any manager, technical specialist, or support professional (such as accountants, marketers, or human resource staff) to participate in product, service, or market development decisions unless they’re spending a minimum of 25% of their time with current or prospective customers and partners in the market.
•Make your senior managers responsible for at least some business development and ongoing customer service. They should be spending 25 – 35 percent or more of their time with customers (the same amount of time should also be spent with external and internal partners). Don’t allow senior managers to only cost cut and quality control their way to profitability and performance bonuses. Make sure it’s balanced with innovation and growth.
•The people selling in your target markets and serving your customers are innovating every day to meet unexpected needs, beat out a competitor, or capitalize on a new opportunity. Unless you have a user friendly, easy process (not an administrative bureaucracy) for gathering all that experience and market intelligence, you’re squandering one of your organization’s richest sources of innovation.
•Identify your leading-edge external customers and partners and bring them into your product and service development processes. Ideally, these are customers and partners who extensively use your products and services. But they keep pushing everything and everybody to the limit. They are always looking for new and better ways to use your products and services. Find out what problems they’re trying to solve that no one else in your market provides solutions for.
•Establish active user and support networks. Provide regular face-to-face, electronic, print, or audio-video forums to help customers, external partners (like distributors and suppliers), and internal partners exchange experiences, ideas, and problems solve. Capture and disseminate all this learning throughout your organization.
Keep asking your customers and partners (internal and external) lots of “what if…” questions. Ensure the answers are circulated throughout your organization. Don’t allow anybody to write all this off as just wishful thinking. Remind them that somebody’s wishful thinking brought us every service and product we use today, developed our modern economy, and gave us one of the richest lifestyles in history. Innovation leaders find ways to translate wishful thinking into the “logical and obvious” products and services we eventually take for granted.
Posted on November 25, 2011 by Jim Clemmer
Customer and market research, competitive benchmarking, and focusing on market share could be detrimental to your organization’s future performance. These approaches are critical improvement tools. Top performing organizations have turned them into a disciplined and useful science. But they can also lead to “me-too” followership or — even worse — commodity products and services that compete only on price.Market share, for example, is only meaningful if you’re in a stable, contained, and well defined market. Fat chance of that today as markets merge, converge, and diverge. In our turbulent markets with such high levels of flux, market share measurements can easily distract you from creating whole new product or service categories, markets, or even industries. How good an indicator of future success was market share, customer satisfaction, and quality levels if you were a horse-pulled carriage maker in 1912?
Many innovations come from a deeper level of customer and market understanding. They go beyond what current customers say they need. They solve problems that customers either don’t realize they have or didn’t know could be solved. These innovations create needs and performance gaps only once customers start using them and get turned on to the possibilities. For example, in the early eighties, no focus group, survey, or customer satisfaction measure could have shown a big demand for fax machines, lap top computers, or cellular phones.
Every product and service we now take for granted was once silly, interesting, or just an odd curiosity. What would you have said to a market researcher asking about a video machine for your TV when there were few movies to rent? How about CD players when there were no CDs to buy? What about a bank card to withdraw cash from an ATM? How about a personal computer?
Walk in Your Customer’s Shoes
Innovation is a hands-on issue. It calls for an intimate understanding of current customers and markets, potential new customers or markets, team and organization competencies and improvement opportunities, vision, values, and mission. You can’t develop that intimacy from a distance. Studies, reports, surveys, graphs, and measurements wouldn’t give it to you. Effective innovation depends on disciplined management systems and processes. But it starts with people. People searching for creative ways to do things better, different, or more effectively. People trying to understand how other people use, or could use, the products or services their organization could produce. That makes innovation a critical leadership issue.
Beyond the management tools of surveys, focus groups, and the like, innovation leaders find a multitude of ways to live in their customers’ world. They’re learning how to learn from the market, not just market research. Innovation leaders look for ways to align the organization’s product and service development competencies with latent or unexpressed market and customer needs. Since customers don’t know what’s possible, they often can’t identify innovations that break with familiar patterns. At the other extreme, leaders recognize that their organizations are constantly in danger of developing products and services with little or no market appeal. So many new (or extended) products and services come from empathic innovation. These are innovations that flow from a deep empathy and understanding of the intended customers’ problems and aspirations.
Innovation Pathways
There are as many ways to innovate as there are potentially new products and services. Here are a few insights and ideas:
•Make sure the “voice of the market” pervades every part of your organization. Bring customers into your company offices and plants for visits, joint problem solving and planning sessions, celebrations, focus groups, conferences, barbecues, presentations, and the like. Get everyone in your organization out to see customers or into the real world on a regular basis.
•Don’t allow any manager, technical specialist, or support professional (such as accountants, marketers, or human resource staff) to participate in product, service, or market development decisions unless they’re spending a minimum of 25% of their time with current or prospective customers and partners in the market.
•Make your senior managers responsible for at least some business development and ongoing customer service. They should be spending 25 – 35 percent or more of their time with customers (the same amount of time should also be spent with external and internal partners). Don’t allow senior managers to only cost cut and quality control their way to profitability and performance bonuses. Make sure it’s balanced with innovation and growth.
•The people selling in your target markets and serving your customers are innovating every day to meet unexpected needs, beat out a competitor, or capitalize on a new opportunity. Unless you have a user friendly, easy process (not an administrative bureaucracy) for gathering all that experience and market intelligence, you’re squandering one of your organization’s richest sources of innovation.
•Identify your leading-edge external customers and partners and bring them into your product and service development processes. Ideally, these are customers and partners who extensively use your products and services. But they keep pushing everything and everybody to the limit. They are always looking for new and better ways to use your products and services. Find out what problems they’re trying to solve that no one else in your market provides solutions for.
•Establish active user and support networks. Provide regular face-to-face, electronic, print, or audio-video forums to help customers, external partners (like distributors and suppliers), and internal partners exchange experiences, ideas, and problems solve. Capture and disseminate all this learning throughout your organization.
Keep asking your customers and partners (internal and external) lots of “what if…” questions. Ensure the answers are circulated throughout your organization. Don’t allow anybody to write all this off as just wishful thinking. Remind them that somebody’s wishful thinking brought us every service and product we use today, developed our modern economy, and gave us one of the richest lifestyles in history. Innovation leaders find ways to translate wishful thinking into the “logical and obvious” products and services we eventually take for granted.
The Innovating Power of Eight Words
Posted on November 24, 2011 by paul4innovating
Lately eight words have come up more often than not as the new imperative for business, not just for the start up but the more established business to measure themselves against. We live in ‘volatile’ times and they reflect what we have to constantly remind ourselves to do and they just are keeping me buzzing at present.
These are: Adapt, Investigate, Agility, Speed, Scale, Impact, Experiment, and Execute.
Here is my take on the power of these eight words that need to be in our innovating lexicon
They don’t need to come all together but I think they need to be applied as a ‘litmus’ test constantly in much of our ‘daily’ thinking to keep aware.
1. Adapt- New conditions are forcing us to change, to alter our ways to simply adjust or we fast become history. We have to often find ways to fit, modify, adjust. Adaptation is leading us more and more to Darwin and natural selection. We adapt to become fitter, to evolve and I think many are struggling on this in these challenging times.
2. Investigate- If we don’t have inquiring minds we are in trouble. We hatch ideas in the office, we ‘dispatch’ them outside talking to our customers and getting the real pulse of the market place. We need to scrutinize, search, shift and study far more than ever. Investigation leads to insights.
3. Agility – Today’s landscape is shifting constantly. Agility comes in different forms, but it’s the ability to quickly adapt too or even anticipate and lead change. I can’t think of anything more important than building an agile company, because the world changes so quickly and unpredictably. Besides it needs to be on my list as I chose this name for my advisory business and innovation work.
4. Speed- Simply everything is speeding up. The rate of what is coming towards us just seems to demand we react quicker, have a rapid and prompt reaction to all that is bombarding us daily but for organizations, it really is the speed of change happening around us to give us all such difficulty to read and react to this. Thankfully we just have to ‘escape’ to that tropical paradise to put a brake on all this, once in a while.
5. Scale- the degree we ‘scale’ our business from its small beginnings to becoming a national then global business is shortening dramatically. We have more tools, more technology, more ability to achieve this but often we lack the two essential ‘fuels’ to power this- the right people and the cash to keep the pace alive.
6. Impact - The ability to be seen, to achieve a more dramatic effect than others around you to get not only noticed, but to fuel the momentum. Often we lack the necessary impact within our presentations and don’t get the required attention. Our products are required to offer impact, our advertising, our design, our sales pitch so we can stand out in a very crowd space of competing voices.
7. Experiment – We are being always asked to ‘prove it’ and encouraged to prototype, to run tests, to hold trials, to provide evidence, to prove or disprove something. This can be a theory, a product, a piece of research, a new innovation tool that might be speculative. Experiments contain and provide the value and proof it can be taken forward.
8. Execute- the ability to deliver. As Chris Trimble & Vijay Govindarajan suggest in their book “the other side of Innovation” that solving the execution challenge is critical. I’ve written numerous blogs about execution as it is where the ‘last five yards’ separate the winners from the losers that others judge the result. When you execute you need to deploy a significant skill set and dedicated resource to bring home the results.
So these are my eight, most powerful innovation words that keep me awake and alert. What are yours?
Lately eight words have come up more often than not as the new imperative for business, not just for the start up but the more established business to measure themselves against. We live in ‘volatile’ times and they reflect what we have to constantly remind ourselves to do and they just are keeping me buzzing at present.
These are: Adapt, Investigate, Agility, Speed, Scale, Impact, Experiment, and Execute.
Here is my take on the power of these eight words that need to be in our innovating lexicon
They don’t need to come all together but I think they need to be applied as a ‘litmus’ test constantly in much of our ‘daily’ thinking to keep aware.
1. Adapt- New conditions are forcing us to change, to alter our ways to simply adjust or we fast become history. We have to often find ways to fit, modify, adjust. Adaptation is leading us more and more to Darwin and natural selection. We adapt to become fitter, to evolve and I think many are struggling on this in these challenging times.
2. Investigate- If we don’t have inquiring minds we are in trouble. We hatch ideas in the office, we ‘dispatch’ them outside talking to our customers and getting the real pulse of the market place. We need to scrutinize, search, shift and study far more than ever. Investigation leads to insights.
3. Agility – Today’s landscape is shifting constantly. Agility comes in different forms, but it’s the ability to quickly adapt too or even anticipate and lead change. I can’t think of anything more important than building an agile company, because the world changes so quickly and unpredictably. Besides it needs to be on my list as I chose this name for my advisory business and innovation work.
4. Speed- Simply everything is speeding up. The rate of what is coming towards us just seems to demand we react quicker, have a rapid and prompt reaction to all that is bombarding us daily but for organizations, it really is the speed of change happening around us to give us all such difficulty to read and react to this. Thankfully we just have to ‘escape’ to that tropical paradise to put a brake on all this, once in a while.
5. Scale- the degree we ‘scale’ our business from its small beginnings to becoming a national then global business is shortening dramatically. We have more tools, more technology, more ability to achieve this but often we lack the two essential ‘fuels’ to power this- the right people and the cash to keep the pace alive.
6. Impact - The ability to be seen, to achieve a more dramatic effect than others around you to get not only noticed, but to fuel the momentum. Often we lack the necessary impact within our presentations and don’t get the required attention. Our products are required to offer impact, our advertising, our design, our sales pitch so we can stand out in a very crowd space of competing voices.
7. Experiment – We are being always asked to ‘prove it’ and encouraged to prototype, to run tests, to hold trials, to provide evidence, to prove or disprove something. This can be a theory, a product, a piece of research, a new innovation tool that might be speculative. Experiments contain and provide the value and proof it can be taken forward.
8. Execute- the ability to deliver. As Chris Trimble & Vijay Govindarajan suggest in their book “the other side of Innovation” that solving the execution challenge is critical. I’ve written numerous blogs about execution as it is where the ‘last five yards’ separate the winners from the losers that others judge the result. When you execute you need to deploy a significant skill set and dedicated resource to bring home the results.
So these are my eight, most powerful innovation words that keep me awake and alert. What are yours?
Sunday, November 27, 2011
Renaissance Innovation and startups
Renaissance Innovation and startups
In More Posts, Process, Theory on November 20, 2011 at 6:57 pm
In this blog we discussed Renaissance Innovations of many companies, small and big, old and new. Some of the startups we have already covered are Diapers.com, Objective Logistics, Amazon.com and many others. I hope that our blog makes it quite clear that the ideas of Renaissance Innovation method apply equally to startups and established companies. However, in this post I wanted to focus just on startups. The approach that is gaining a lot of momentum and good publicity is called “The Lean Startup“, most recently the new book debuted as #2 on the New York Times bestseller list. On the surface, this sounds like doing something on the cheap. These who know something about operations management will also recognize that “lean” is synonymous with Toyota Production System which has little, if anything, to do with startups. However, after reading the book I was struck by how much The Lean Startup approach is consistent with the Renaissance Innovation ideology.
So what is the Lean Startup about? The book argues that any startup company cannot possibly know in advance who its customers are, what are the key features of the product and how much it can possibly cost: there is too much uncertainty in all of these aspects. So instead of trying to raise a ton of money for an unproven business model, the author argues, entrepreneurs should try, step by step, understand both the customers and the capabilities of the firm through controlled experimentation and validation. This is very consistent with the ideology we explained in our Harvard Business Review article. As we argued there, both existing companies and in particular startups, face numerous uncertainties about their Business Models and so some of the best innovations can be done by managing these uncertainties. For a startup, for instance, nobody can predict with any precision what the revenue model and the cost model is going to be, and numerous spreadsheets won’t help resolve these uncertainties, but experimentation will. These ideas are very bold and novel for entrepreneurial community: most MBA students I taught at Wharton and INSEAD believe that startup founders have a great idea that they push throughout, no matter what, by convincing venture capitalists to invest millions. Eric Ries, the author of the book, provides convincing examples and arguments that this is exactly the wrong approach: even some of the most famous startups of our days completely altered the original ideas of their founders after finding that customers do not value what they had in mind, or that the original idea was not economically sound. Eric coins the term “Minimum Viable Product” (MVP) – a stripped-down version of whatever the startup wants to create, which is used to test assumptions and hypotheses without excessive waste. After building the MVP, the company needs to experiment, measure outcomes, and learn from them. This may not sound counter-intuitive, but companies, in my experience, very rarely experiment. Most of the time management picks one idea out of 10 and supports it fully even if it is clearly failing. The Lean Startup approach would say: test all 10, learn and move on.
Experimentation is, indeed, at the heart of the Toyota Production System, even though few people are familiar with this aspect of it. Careful design of experiment by itself is a big and complex topic which we will cover separately at some point. But the key message I want to make here is that, like Renaissance Innovation method, The Lean Startup approach is all about managing and reducing uncertainty. Perhaps in the case of startups these two approaches are even more pertinent than in case of Business Model Innovations for an existing company because startups often have much more uncertainty. Bottom line is: this is a great book and a must-read for anyone interested in innovation. Kudos!
Wednesday, November 23, 2011
Profits First, Growth Second, Always
Why the logic of focusing on growth first and worrying about profitability later is often a bad idea.
By Karl Stark and Bill Stewart | @karlstark | Nov 22, 2011 http://www.inc.com/karl-and-bill/profits-first-growth-second.html
Profits are fuel for a growing company. Without profits, it’s hard to invest in the growth you aim to achieve.
Every management team that wants to build a much bigger business eventually asks itself this question: "Why don’t we focus on growth first and worry about profitability later?"
Bad idea. The logic may be valid, but the strategy is often flawed.
Here’s why: Profits are fuel for a growing company. Without profits, it’s hard to invest in the growth you aim to achieve. A growing company reinvests its profits back into the business in the form of marketing investment, new employees, new equipment, and the like. If you are consistently selling at a loss, you’ll quickly run out of capital to fuel your growth.
There are strategic reasons to focus on profitability as well. If you are continually selling at a loss, you may not be "proving" the sustainability of your business model. If you are selling something that your customers perceive as valuable–but only at a low price–you may find yourself in a bind later because you haven’t created a customer value proposition at a higher price point. In fact, you may be forced to continue to sell at break-even or below to cover the overhead you’ve built up.
Sacrificing some short-term profitability for growth can work–if you are able to quantify your expected losses, if you have a source of capital to fund those losses for a period of time and if your equity providers agree with the strategy.
Profits are essential for growing your business at any stage. Most companies will find that focusing on profitable growth leads them to better strategic decisions and provides a much stronger foundation for a healthy, sustainable business model in the long term.
By Karl Stark and Bill Stewart | @karlstark | Nov 22, 2011 http://www.inc.com/karl-and-bill/profits-first-growth-second.html
Profits are fuel for a growing company. Without profits, it’s hard to invest in the growth you aim to achieve.
Every management team that wants to build a much bigger business eventually asks itself this question: "Why don’t we focus on growth first and worry about profitability later?"
Bad idea. The logic may be valid, but the strategy is often flawed.
Here’s why: Profits are fuel for a growing company. Without profits, it’s hard to invest in the growth you aim to achieve. A growing company reinvests its profits back into the business in the form of marketing investment, new employees, new equipment, and the like. If you are consistently selling at a loss, you’ll quickly run out of capital to fuel your growth.
There are strategic reasons to focus on profitability as well. If you are continually selling at a loss, you may not be "proving" the sustainability of your business model. If you are selling something that your customers perceive as valuable–but only at a low price–you may find yourself in a bind later because you haven’t created a customer value proposition at a higher price point. In fact, you may be forced to continue to sell at break-even or below to cover the overhead you’ve built up.
Sacrificing some short-term profitability for growth can work–if you are able to quantify your expected losses, if you have a source of capital to fund those losses for a period of time and if your equity providers agree with the strategy.
Profits are essential for growing your business at any stage. Most companies will find that focusing on profitable growth leads them to better strategic decisions and provides a much stronger foundation for a healthy, sustainable business model in the long term.
Article on Lean Start-ups
Eric Ries on 'The Lean Startup'
Published: November 22, 2011 in Knowledge@Wharton
It's a reality that haunts every entrepreneur and would-be entrepreneur: Most startups fail. Eric Ries knows firsthand. He has been there. When he cofounded software company IMVU, he and his team tried a different approach by rapidly creating and releasing their product before it was perfected, only to continuously update, revise and re-release it, based in part on customer feedback. It worked. He described this process -- taking less money and time to develop ideas and customers -- as a "lean startup." The concept applies lean manufacturing practices to startups. In his new book, The Lean Startup: How Today's Entrepreneurs Use Continuous Innovation to Create Radically Successful Businesses, Ries advises entrepreneurs to pursue incremental innovation -- "inch by inch, minute by minute" -- rather than a static business plan.
Below is an excerpt from the introduction to the book.
Stop me if you've heard this one before. Brilliant college kids sitting in a dorm are inventing the future. Heedless of boundaries, possessed of new technology and youthful enthusiasm, they build a new company from scratch. Their early success allows them to raise money and bring an amazing new product to market. They hire their friends, assemble a superstar team, and dare the world to stop them.
Ten years and several startups ago, that was me, building my first company. I particularly remember a moment from back then: the moment I realized my company was going to fail. My cofounder and I were at our wits' end. The dot-com bubble had burst, and we had spent all our money. We tried desperately to raise more capital, and we could not. It was like a breakup scene from a Hollywood movie: it was raining, and we were arguing in the street. We couldn't even agree on where to walk next, and so we parted in anger, heading in opposite directions. As a metaphor for our company's failure, this image of the two of us, lost in the rain and drifting apart, is perfect.
It remains a painful memory. The company limped along for months afterward, but our situation was hopeless. At the time, it had seemed we were doing everything right: we had a great product, a brilliant team, amazing technology, and the right idea at the right time. And we really were on to something. We were building a way for college kids to create online profiles for the purpose of sharing ... with employers. Oops. But despite a promising idea, we were nonetheless doomed from day one, because we did not know the process we would need to use to turn our product insights into a great company.
If you've never experienced a failure like this, it is hard to describe the feeling. It's as if the world were falling out from under you. You realize you've been duped. The stories in the magazines are lies: hard work and perseverance don't lead to success. Even worse, the many, many, many promises you've made to employees, friends, and family are not going to come true. Everyone who thought you were foolish for stepping out on your own will be proven right.
It wasn't supposed to turn out that way. In magazines and newspapers, in blockbuster movies, and on countless blogs, we hear the mantra of the successful entrepreneurs: through determination, brilliance, great timing, and -- above all -- a great product, you too can achieve fame and fortune.
There is a mythmaking industry hard at work to sell us that story, but I have come to believe that the story is false, the product of selection bias and after-the-fact rationalization. In fact, having worked with hundreds of entrepreneurs, I have seen firsthand how often a promising start leads to failure. The grim reality is that most startups fail. Most new products are not successful. Most new ventures do not live up to their potential.
Yet the story of perseverance, creative genius, and hard work persists. Why is it so popular? I think there is something deeply appealing about this modern-day rags-to-riches story. It makes success seem inevitable if you just have the right stuff. It means that the mundane details, the boring stuff, the small individual choices don't matter. If we build it, they will come. When we fail, as so many of us do, we have a ready-made excuse: we didn't have the right stuff. We weren't visionary enough or weren't in the right place at the right time.
After more than ten years as an entrepreneur, I came to reject that line of thinking. I have learned from both my own successes and failures and those of many others that it's the boring stuff that matters the most. Startup success is not a consequence of good genes or being in the right place at the right time. Startup success can be engineered by following the right process, which means it can be learned, which means it can be taught.
Entrepreneurship is a kind of management. No, you didn't read that wrong. We have wildly divergent associations with these two words, entrepreneurship and management. Lately, it seems that one is cool, innovative, and exciting and the other is dull, serious, and bland. It is time to look past these preconceptions.
Let me tell you a second startup story. It's 2004, and a group of founders have just started a new company. Their previous company had failed very publicly. Their credibility is at an all-time low. They have a huge vision: to change the way people communicate by using a new technology called avatars (remember, this was before James Cameron's blockbuster movie). They are following a visionary named Will Harvey, who paints a compelling picture: people connecting with their friends, hanging out online, using avatars to give them a combination of intimate connection and safe anonymity. Even better, instead of having to build all the clothing, furniture, and accessories these avatars would need to accessorize their digital lives, the customers would be enlisted to build those things and sell them to one another.
The engineering challenge before them is immense: creating virtual worlds, user-generated content, an online commerce engine, micropayments, and -- last but not least -- the three-dimensional avatar technology that can run on anyone's PC.
I'm in this second story, too. I'm a cofounder and chief technology officer of this company, which is called IMVU. At this point in our careers, my cofounders and I are determined to make new mistakes. We do everything wrong: instead of spending years perfecting our technology, we build a minimum viable product, an early product that is terrible, full of bugs and crash-your-computer-yes-really stability problems. Then we ship it to customers way before it's ready. And we charge money for it. After securing initial customers, we change the product constantly -- much too fast by traditional standards -- shipping new versions of our product dozens of times every single day.
We really did have customers in those early days -- true visionary early adopters -- and we often talked to them and asked for their feedback. But we emphatically did not do what they said. We viewed their input as only one source of information about our product and overall vision. In fact, we were much more likely to run experiments on our customers than we were to cater to their whims.
Traditional business thinking says that this approach shouldn't work, but it does....The approach we pioneered at IMVU has become the basis for a new movement of entrepreneurs around the world. It builds on many previous management and product development ideas, including lean manufacturing, design thinking, customer development, and agile development. It represents a new approach to creating continuous innovation. It's called the Lean Startup.
Despite the volumes written on business strategy, the key attributes of business leaders, and ways to identify the next big thing, innovators still struggle to bring their ideas to life. This was the frustration that led us to try a radical new approach at IMVU, one characterized by an extremely fast cycle time, a focus on what customers want (without asking them), and a scientific approach to making decisions.
Origins of the Lean Startup
I am one of those people who grew up programming computers, and so my journey to thinking about entrepreneurship and management has taken a circuitous path. I have always worked on the product development side of my industry; my partners and bosses were managers or marketers, and my peers worked in engineering and operations. Throughout my career, I kept having the experience of working incredibly hard on products that ultimately failed in the marketplace.
At first, largely because of my background, I viewed these as technical problems that required technical solutions: better architecture, a better engineering process, better discipline, focus, or product vision. These supposed fixes led to still more failure. So I read everything I could get my hands on and was blessed to have had some of the top minds in Silicon Valley as my mentors. By the time I became a cofounder of IMVU, I was hungry for new ideas about how to build a company.
I was fortunate to have cofounders who were willing to experiment with new approaches. They were fed up -- as I was -- by the failure of traditional thinking. Also, we were lucky to have Steve Blank as an investor and adviser. Back in 2004, Steve had just begun preaching a new idea: the business and marketing functions of a startup should be considered as important as engineering and product development and therefore deserve an equally rigorous methodology to guide them. He called that methodology Customer Development, and it offered insight and guidance to my daily work as an entrepreneur.
Meanwhile, I was building IMVU's product development team, using some of the unorthodox methods I mentioned earlier. Measured against the traditional theories of product development I had been trained on in my career, these methods did not make sense, yet I could see firsthand that they were working. I struggled to explain the practices to new employees, investors, and the founders of other companies. We lacked a common language for describing them and concrete principles for understanding them.
I began to search outside entrepreneurship for ideas that could help me make sense of my experience. I began to study other industries, especially manufacturing, from which most modern theories of management derive. I studied lean manufacturing, a process that originated in Japan with the Toyota Production System, a completely new way of thinking about the manufacturing of physical goods. I found that by applying ideas from lean manufacturing to my own entrepreneurial challenges -- with a few tweaks and changes -- I had the beginnings of a framework for making sense of them.
This line of thought evolved into the Lean Startup: the application of lean thinking to the process of innovation.
IMVU became a tremendous success. IMVU customers have created more than 60 million avatars. It is a profitable company with annual revenues of more than $50 million in 2011, employing more than a hundred people in our current offices in Mountain View, California. IMVU's virtual goods catalog -- which seemed so risky years ago -- now has more than 6 million items in it; more than 7,000 are added every day, almost all created by customers.
As a result of IMVU's success, I began to be asked for advice by other startups and venture capitalists. When I would describe my experiences at IMVU, I was often met with blank stares or extreme skepticism. The most common reply was "That could never work!" My experience so flew in the face of conventional thinking that most people, even in the innovation hub of Silicon Valley, could not wrap their minds around it.
Then I started to write, first on a blog called Startup Lessons Learned, and speak -- at conferences and to companies, startups, and venture capitalists -- to anyone who would listen. In the process of being called on to defend and explain my insights and with the collaboration of other writers, thinkers, and entrepreneurs, I had a chance to refine and develop the theory of the Lean Startup beyond its rudimentary beginnings. My hope all along was to find ways to eliminate the tremendous waste I saw all around me: startups that built products nobody wanted, new products pulled from the shelves, countless dreams unrealized.
Eventually, the Lean Startup idea blossomed into a global movement. Entrepreneurs began forming local in-person groups to discuss and apply Lean Startup ideas. There are now organized communities of practice in more than a hundred cities around the world. My travels have taken me across countries and continents. Everywhere I have seen the signs of a new entrepreneurial renaissance. The Lean Startup movement is making entrepreneurship accessible to a whole new generation of founders who are hungry for new ideas about how to build successful companies.
Although my background is in high-tech software entrepreneurship, the movement has grown way beyond those roots. Thousands of entrepreneurs are putting Lean Startup principles to work in every conceivable industry. I've had the chance to work with entrepreneurs in companies of all sizes, in different industries, and even in government. This journey has taken me to places I never imagined I'd see, from the world's most elite venture capitalists, to Fortune 500 boardrooms, to the Pentagon. The most nervous I have ever been in a meeting was when I was attempting to explain Lean Startup principles to the chief information officer of the U.S. Army, who is a three-star general (for the record, he was extremely open to new ideas, even from a civilian like me).
Pretty soon I realized that it was time to focus on the Lean Startup movement full time. My mission: to improve the success rate of new innovative products worldwide.
The Lean Startup Method
The five principles of the Lean Startup are as follows:
1. Entrepreneurs are everywhere. You don't have to work in a garage to be in a startup. The concept of entrepreneurship includes anyone who works within my definition of a startup: a human institution designed to create new products and services under conditions of extreme uncertainty. That means entrepreneurs are everywhere and the Lean Startup approach can work in any size company, even a very large enterprise, in any sector or industry.
2. Entrepreneurship is management. A startup is an institution, not just a product, and so it requires a new kind of management specifically geared to its context of extreme uncertainty. In fact, I believe "entrepreneur" should be considered a job title in all modern companies that depend on innovation for their future growth.
3. Validated learning. Startups exist not just to make stuff, make money, or even serve customers. They exist to learn how to build a sustainable business. This learning can be validated scientifically by running frequent experiments that allow entrepreneurs to test each element of their vision.
4. Build-Measure-Learn. The fundamental activity of a startup is to turn ideas into products, measure how customers respond, and then learn whether to pivot or persevere. All successful startup processes should be geared to accelerate that feedback loop.
5. Innovation accounting. To improve entrepreneurial outcomes and hold innovators accountable, we need to focus on the boring stuff: how to measure progress, how to set up milestones, and how to prioritize work. This requires a new kind of accounting designed for startup -- and the people who hold them accountable.
Why Startups Fail
Why are startups failing so badly everywhere we look?
The first problem is the allure of a good plan, a solid strategy, and thorough market research. In earlier eras, these things were indicators of likely success. The overwhelming temptation is to apply them to startups too, but this doesn't work, because startups operate with too much uncertainty. Startups do not yet know who their customer is or what their product should be. As the world becomes more uncertain, it gets harder and harder to predict the future. The old management methods are not up to the task. Planning and forecasting are only accurate when based on a long, stable operating history and a relatively static environment. Startups have neither.
The second problem is that after seeing traditional management fail to solve this problem, some entrepreneurs and investors have thrown up their hands and adopted the "Just Do It" school of startups. This school believes that if management is the problem, chaos is the answer. Unfortunately, as I can attest firsthand, this doesn't work either.
It may seem counterintuitive to think that something as disruptive, innovative, and chaotic as a startup can be managed or, to be accurate, must be managed. Most people think of process and management as boring and dull, whereas startups are dynamic and exciting. But what is actually exciting is to see startups succeed and change the world. The passion, energy, and vision that people bring to these new ventures are resources too precious to waste. We can -- and must -- do better.
Excerpted from The Lean Startup: How Today's Entrepreneurs Use Continuous Innovation to Create Radically Successful Businesses. Copyright © 2011 by Eric Ries. Reprinted by Permission of Crown Business, an imprint of the Crown Publishing Group, a division of Random House, Inc., New York.
Published: November 22, 2011 in Knowledge@Wharton
It's a reality that haunts every entrepreneur and would-be entrepreneur: Most startups fail. Eric Ries knows firsthand. He has been there. When he cofounded software company IMVU, he and his team tried a different approach by rapidly creating and releasing their product before it was perfected, only to continuously update, revise and re-release it, based in part on customer feedback. It worked. He described this process -- taking less money and time to develop ideas and customers -- as a "lean startup." The concept applies lean manufacturing practices to startups. In his new book, The Lean Startup: How Today's Entrepreneurs Use Continuous Innovation to Create Radically Successful Businesses, Ries advises entrepreneurs to pursue incremental innovation -- "inch by inch, minute by minute" -- rather than a static business plan.
Below is an excerpt from the introduction to the book.
Stop me if you've heard this one before. Brilliant college kids sitting in a dorm are inventing the future. Heedless of boundaries, possessed of new technology and youthful enthusiasm, they build a new company from scratch. Their early success allows them to raise money and bring an amazing new product to market. They hire their friends, assemble a superstar team, and dare the world to stop them.
Ten years and several startups ago, that was me, building my first company. I particularly remember a moment from back then: the moment I realized my company was going to fail. My cofounder and I were at our wits' end. The dot-com bubble had burst, and we had spent all our money. We tried desperately to raise more capital, and we could not. It was like a breakup scene from a Hollywood movie: it was raining, and we were arguing in the street. We couldn't even agree on where to walk next, and so we parted in anger, heading in opposite directions. As a metaphor for our company's failure, this image of the two of us, lost in the rain and drifting apart, is perfect.
It remains a painful memory. The company limped along for months afterward, but our situation was hopeless. At the time, it had seemed we were doing everything right: we had a great product, a brilliant team, amazing technology, and the right idea at the right time. And we really were on to something. We were building a way for college kids to create online profiles for the purpose of sharing ... with employers. Oops. But despite a promising idea, we were nonetheless doomed from day one, because we did not know the process we would need to use to turn our product insights into a great company.
If you've never experienced a failure like this, it is hard to describe the feeling. It's as if the world were falling out from under you. You realize you've been duped. The stories in the magazines are lies: hard work and perseverance don't lead to success. Even worse, the many, many, many promises you've made to employees, friends, and family are not going to come true. Everyone who thought you were foolish for stepping out on your own will be proven right.
It wasn't supposed to turn out that way. In magazines and newspapers, in blockbuster movies, and on countless blogs, we hear the mantra of the successful entrepreneurs: through determination, brilliance, great timing, and -- above all -- a great product, you too can achieve fame and fortune.
There is a mythmaking industry hard at work to sell us that story, but I have come to believe that the story is false, the product of selection bias and after-the-fact rationalization. In fact, having worked with hundreds of entrepreneurs, I have seen firsthand how often a promising start leads to failure. The grim reality is that most startups fail. Most new products are not successful. Most new ventures do not live up to their potential.
Yet the story of perseverance, creative genius, and hard work persists. Why is it so popular? I think there is something deeply appealing about this modern-day rags-to-riches story. It makes success seem inevitable if you just have the right stuff. It means that the mundane details, the boring stuff, the small individual choices don't matter. If we build it, they will come. When we fail, as so many of us do, we have a ready-made excuse: we didn't have the right stuff. We weren't visionary enough or weren't in the right place at the right time.
After more than ten years as an entrepreneur, I came to reject that line of thinking. I have learned from both my own successes and failures and those of many others that it's the boring stuff that matters the most. Startup success is not a consequence of good genes or being in the right place at the right time. Startup success can be engineered by following the right process, which means it can be learned, which means it can be taught.
Entrepreneurship is a kind of management. No, you didn't read that wrong. We have wildly divergent associations with these two words, entrepreneurship and management. Lately, it seems that one is cool, innovative, and exciting and the other is dull, serious, and bland. It is time to look past these preconceptions.
Let me tell you a second startup story. It's 2004, and a group of founders have just started a new company. Their previous company had failed very publicly. Their credibility is at an all-time low. They have a huge vision: to change the way people communicate by using a new technology called avatars (remember, this was before James Cameron's blockbuster movie). They are following a visionary named Will Harvey, who paints a compelling picture: people connecting with their friends, hanging out online, using avatars to give them a combination of intimate connection and safe anonymity. Even better, instead of having to build all the clothing, furniture, and accessories these avatars would need to accessorize their digital lives, the customers would be enlisted to build those things and sell them to one another.
The engineering challenge before them is immense: creating virtual worlds, user-generated content, an online commerce engine, micropayments, and -- last but not least -- the three-dimensional avatar technology that can run on anyone's PC.
I'm in this second story, too. I'm a cofounder and chief technology officer of this company, which is called IMVU. At this point in our careers, my cofounders and I are determined to make new mistakes. We do everything wrong: instead of spending years perfecting our technology, we build a minimum viable product, an early product that is terrible, full of bugs and crash-your-computer-yes-really stability problems. Then we ship it to customers way before it's ready. And we charge money for it. After securing initial customers, we change the product constantly -- much too fast by traditional standards -- shipping new versions of our product dozens of times every single day.
We really did have customers in those early days -- true visionary early adopters -- and we often talked to them and asked for their feedback. But we emphatically did not do what they said. We viewed their input as only one source of information about our product and overall vision. In fact, we were much more likely to run experiments on our customers than we were to cater to their whims.
Traditional business thinking says that this approach shouldn't work, but it does....The approach we pioneered at IMVU has become the basis for a new movement of entrepreneurs around the world. It builds on many previous management and product development ideas, including lean manufacturing, design thinking, customer development, and agile development. It represents a new approach to creating continuous innovation. It's called the Lean Startup.
Despite the volumes written on business strategy, the key attributes of business leaders, and ways to identify the next big thing, innovators still struggle to bring their ideas to life. This was the frustration that led us to try a radical new approach at IMVU, one characterized by an extremely fast cycle time, a focus on what customers want (without asking them), and a scientific approach to making decisions.
Origins of the Lean Startup
I am one of those people who grew up programming computers, and so my journey to thinking about entrepreneurship and management has taken a circuitous path. I have always worked on the product development side of my industry; my partners and bosses were managers or marketers, and my peers worked in engineering and operations. Throughout my career, I kept having the experience of working incredibly hard on products that ultimately failed in the marketplace.
At first, largely because of my background, I viewed these as technical problems that required technical solutions: better architecture, a better engineering process, better discipline, focus, or product vision. These supposed fixes led to still more failure. So I read everything I could get my hands on and was blessed to have had some of the top minds in Silicon Valley as my mentors. By the time I became a cofounder of IMVU, I was hungry for new ideas about how to build a company.
I was fortunate to have cofounders who were willing to experiment with new approaches. They were fed up -- as I was -- by the failure of traditional thinking. Also, we were lucky to have Steve Blank as an investor and adviser. Back in 2004, Steve had just begun preaching a new idea: the business and marketing functions of a startup should be considered as important as engineering and product development and therefore deserve an equally rigorous methodology to guide them. He called that methodology Customer Development, and it offered insight and guidance to my daily work as an entrepreneur.
Meanwhile, I was building IMVU's product development team, using some of the unorthodox methods I mentioned earlier. Measured against the traditional theories of product development I had been trained on in my career, these methods did not make sense, yet I could see firsthand that they were working. I struggled to explain the practices to new employees, investors, and the founders of other companies. We lacked a common language for describing them and concrete principles for understanding them.
I began to search outside entrepreneurship for ideas that could help me make sense of my experience. I began to study other industries, especially manufacturing, from which most modern theories of management derive. I studied lean manufacturing, a process that originated in Japan with the Toyota Production System, a completely new way of thinking about the manufacturing of physical goods. I found that by applying ideas from lean manufacturing to my own entrepreneurial challenges -- with a few tweaks and changes -- I had the beginnings of a framework for making sense of them.
This line of thought evolved into the Lean Startup: the application of lean thinking to the process of innovation.
IMVU became a tremendous success. IMVU customers have created more than 60 million avatars. It is a profitable company with annual revenues of more than $50 million in 2011, employing more than a hundred people in our current offices in Mountain View, California. IMVU's virtual goods catalog -- which seemed so risky years ago -- now has more than 6 million items in it; more than 7,000 are added every day, almost all created by customers.
As a result of IMVU's success, I began to be asked for advice by other startups and venture capitalists. When I would describe my experiences at IMVU, I was often met with blank stares or extreme skepticism. The most common reply was "That could never work!" My experience so flew in the face of conventional thinking that most people, even in the innovation hub of Silicon Valley, could not wrap their minds around it.
Then I started to write, first on a blog called Startup Lessons Learned, and speak -- at conferences and to companies, startups, and venture capitalists -- to anyone who would listen. In the process of being called on to defend and explain my insights and with the collaboration of other writers, thinkers, and entrepreneurs, I had a chance to refine and develop the theory of the Lean Startup beyond its rudimentary beginnings. My hope all along was to find ways to eliminate the tremendous waste I saw all around me: startups that built products nobody wanted, new products pulled from the shelves, countless dreams unrealized.
Eventually, the Lean Startup idea blossomed into a global movement. Entrepreneurs began forming local in-person groups to discuss and apply Lean Startup ideas. There are now organized communities of practice in more than a hundred cities around the world. My travels have taken me across countries and continents. Everywhere I have seen the signs of a new entrepreneurial renaissance. The Lean Startup movement is making entrepreneurship accessible to a whole new generation of founders who are hungry for new ideas about how to build successful companies.
Although my background is in high-tech software entrepreneurship, the movement has grown way beyond those roots. Thousands of entrepreneurs are putting Lean Startup principles to work in every conceivable industry. I've had the chance to work with entrepreneurs in companies of all sizes, in different industries, and even in government. This journey has taken me to places I never imagined I'd see, from the world's most elite venture capitalists, to Fortune 500 boardrooms, to the Pentagon. The most nervous I have ever been in a meeting was when I was attempting to explain Lean Startup principles to the chief information officer of the U.S. Army, who is a three-star general (for the record, he was extremely open to new ideas, even from a civilian like me).
Pretty soon I realized that it was time to focus on the Lean Startup movement full time. My mission: to improve the success rate of new innovative products worldwide.
The Lean Startup Method
The five principles of the Lean Startup are as follows:
1. Entrepreneurs are everywhere. You don't have to work in a garage to be in a startup. The concept of entrepreneurship includes anyone who works within my definition of a startup: a human institution designed to create new products and services under conditions of extreme uncertainty. That means entrepreneurs are everywhere and the Lean Startup approach can work in any size company, even a very large enterprise, in any sector or industry.
2. Entrepreneurship is management. A startup is an institution, not just a product, and so it requires a new kind of management specifically geared to its context of extreme uncertainty. In fact, I believe "entrepreneur" should be considered a job title in all modern companies that depend on innovation for their future growth.
3. Validated learning. Startups exist not just to make stuff, make money, or even serve customers. They exist to learn how to build a sustainable business. This learning can be validated scientifically by running frequent experiments that allow entrepreneurs to test each element of their vision.
4. Build-Measure-Learn. The fundamental activity of a startup is to turn ideas into products, measure how customers respond, and then learn whether to pivot or persevere. All successful startup processes should be geared to accelerate that feedback loop.
5. Innovation accounting. To improve entrepreneurial outcomes and hold innovators accountable, we need to focus on the boring stuff: how to measure progress, how to set up milestones, and how to prioritize work. This requires a new kind of accounting designed for startup -- and the people who hold them accountable.
Why Startups Fail
Why are startups failing so badly everywhere we look?
The first problem is the allure of a good plan, a solid strategy, and thorough market research. In earlier eras, these things were indicators of likely success. The overwhelming temptation is to apply them to startups too, but this doesn't work, because startups operate with too much uncertainty. Startups do not yet know who their customer is or what their product should be. As the world becomes more uncertain, it gets harder and harder to predict the future. The old management methods are not up to the task. Planning and forecasting are only accurate when based on a long, stable operating history and a relatively static environment. Startups have neither.
The second problem is that after seeing traditional management fail to solve this problem, some entrepreneurs and investors have thrown up their hands and adopted the "Just Do It" school of startups. This school believes that if management is the problem, chaos is the answer. Unfortunately, as I can attest firsthand, this doesn't work either.
It may seem counterintuitive to think that something as disruptive, innovative, and chaotic as a startup can be managed or, to be accurate, must be managed. Most people think of process and management as boring and dull, whereas startups are dynamic and exciting. But what is actually exciting is to see startups succeed and change the world. The passion, energy, and vision that people bring to these new ventures are resources too precious to waste. We can -- and must -- do better.
Excerpted from The Lean Startup: How Today's Entrepreneurs Use Continuous Innovation to Create Radically Successful Businesses. Copyright © 2011 by Eric Ries. Reprinted by Permission of Crown Business, an imprint of the Crown Publishing Group, a division of Random House, Inc., New York.
Monday, November 21, 2011
Six Keys to Building New Markets by Unleashing Disruptive Innovation
Six Keys to Building New Markets by Unleashing Disruptive Innovation
Published: March 10, 2003
Authors: Clayton M. Christensen, Michael E. Raynor, and Scott D. Anthony
Managers today have a problem. They know their companies must grow. But growth is hard, especially given today's economic environment where investment capital is difficult to come by and firms are reluctant to take risks. Managers know innovation is the ticket to successful growth. But they just can't seem to get innovation right.
When companies keep improving their existing products and services to meet their best customers' needs, they eventually run into the "innovator's dilemma." By doing everything right, they create opportunities for new companies to take their markets away. Established companies historically have struggled when trying to create new markets. Success seems fleeting and unpredictable.
Recent research indicates these problems are systemic. Most companies that are started fail. Of those that succeed, most cannot sustain robust growth for more than a few years. Companies need a way to unlock the process of innovation and create innovation-driven growth businesses again and again. How can managers increase the probability that their decisions will lead to success? Now more than ever, managers need robust theories—statements of what causes what, why, and in what situation—to guide their decision making around innovation.
Managers typically grow impatient when we tell them this. "Theory?" they say. "That sounds like theoretical. That sounds like impractical." But theory is eminently practical. Managers are the world's most voracious consumers of theory. Every plan a manager makes, every action a manager takes, is based on some implicit understanding of what causes what and why.
The problem is, managers all too frequently use a one-size-fits-all theory. But the ground beneath them inevitably shifts. Strategies that worked so wonderfully in the past no longer suffice.
Drawing on the work of a number of thoughtful researchers as well as our own work, we are exploring a set of theories that can help managers respond to the ever-changing circumstances in which they find themselves. Specifically, these six lessons will help managers make the right decisions to successfully build new-growth businesses.
1. Disruptive innovations spur growth.
Companies have two basic options when they seek to build new-growth businesses. They can try to take an existing market from an entrenched competitor with sustaining innovations. Or they can try to take on a competitor with disruptive innovations that either create new markets or take root among an incumbent's worst customers. Our research overwhelmingly suggests that companies should seek out growth based on disruption.
Sustaining innovations, whether they involve incremental refinements or radical breakthroughs, improve the performance of established products and services along the dimensions that mainstream customers in major markets historically have valued. Examples: a microprocessor that enables personal computers to operate faster and a battery that lets laptop computers operate longer.
Companies march along a performance trajectory by introducing successive sustaining innovations—first to remain competitive in the short term. But, as noted in The Innovator's Dilemma: When New Technologies Cause Great Firms to Fail (Harvard Business School Press, 1997), firms innovate faster than our lives change to adopt those innovations, creating opportunities for disruptive innovations. Although sustaining innovations move firms along the traditional performance trajectory, disruptive ones establish an entirely new performance trajectory.
Disruptive innovations often initially result in worse performance compared with established products and services in mainstream markets. But disruptive innovations have other benefits. They are often cheaper, simpler, smaller, and more convenient to use.
Consider the small off-road motorcycles introduced by Honda in the 1960s, Apple's first personal computer, and Intuit's QuickBooks accounting software. These innovations all initially underperformed the mainstream offerings. But they brought a different value proposition to a new market context that did not need all of the raw performance offered by the incumbent. They all created massive growth; to flip Joseph Schumpeter's famous phrase, creative destruction, on its head, this is creative creation. After taking root in a simple, undemanding application, disruptive innovations inexorably get better until they change the game, relegating previously dominant firms to the sidelines in often stunning fashion.
Incumbents almost always win battles of sustaining innovations. Their superior resources and well-honed processes are almost insurmountable strengths. Incumbents, however, almost always lose battles where the attacker has a legitimate disruptive innovation. To create a new-growth business, companies—established incumbents and start-ups alike—must be on the right side of the disruptive process by launching their own disruptive attacks.
2. Disruptive businesses either create new markets or take the low end of an established market.
There are two distinct types of disruptive innovations. The first type creates a new market by targeting nonconsumers, the second competes in the low end of an established market.
In a new-market disruption, attackers take root in a new "plane" of competition or a new context of use outside of an existing market. Consumers historically locked out of a market because they lacked the skills or wealth welcome a relatively simple product that allows them to get done what they had always wanted to get done. These markets typically start out small and ill defined. They don't meet the growth needs of large companies. And the incumbent feels no pain at first. Because it creates new consumption, the disruptor's growth doesn't affect the incumbent's core business. But as the innovation improves, it begins to pull customers away from the incumbent. And the incumbent doesn't have the ability to play in this new game.
Transistors were a disruptive innovation. Mainstream suppliers of tabletop radios, which were made with vacuum tubes, couldn't figure out how to use transistors because they couldn't initially handle the power requirements of these components. Then in 1955, Sony introduced the pocket radio. It was a static-laced product with horrible fidelity. But it enabled teenagers to do something that they couldn't before—listen to rock'n'roll out of their parents' earshot. Had Sony targeted consumers in established markets, the pocket radio would have bombed. But for teenagers, the alternative to a Sony pocket radio was no radio at all. By competing against nonconsumption, Sony set a very low technical hurdle for itself: The product just had to be better than nothing in order to find delighted consumers.
The second type of disruptive innovation takes root among an incumbent's worst customers. These low-end disruptions do not create new markets, but they can create new growth. The disruption of integrated steel mills by steel minimills demonstrates how low-end disruptors harness what we call asymmetries of motivation.
Minimills first took hold in the steel industry in the mid-1960s. They were very efficient. They had a 20 percent cost advantage over integrated mills. But the quality of the steel they produced was inferior. The rebar market at the bottom rung of the industry (rebar is small steel bars made from scrap and used to create reinforced concrete) was the only market that would accept the minimills' steel.
As the minimills entered the rebar market, the integrated mills were happy to exit it. Their gross margins in the rebar business were a mere 7 percent, and rebar accounted for only 4 percent of the industry's tonnage. So the integrated mills decided to focus on higher-profit steel products. The minimills made boatloads of money until they finally drove the last of the integrated mills out of the market—and then the price of rebar dropped 20 percent, because rebar had essentially become a commodity market. The minimills' reward for victory was that none of them could make money.
To make attractive money again, the minimills had to figure out how to make better-quality steel in larger shapes—not only angle iron but also thicker bars and rods. Profit margins in this market tier were 12 percent, almost double those of the rebar market; the overall market was also twice as large. So the minimills invested in equipment to make the larger pieces and worked to improve the quality and consistency of their steel. As the minimills began making inroads with better and bigger steel, the integrated mills were happy to exit this market tier to concentrate on more profitable products. When the last integrated mill left the market, the price of angle iron collapsed. Once again, the minimills had to move up to the next tier of the industry in order to survive. And so on.
At each stage of the minimills' climb up-market, an asymmetry of motivation was at work. For the minimills, the need to enter a more profitable market provided the motivation to solve the technological hurdles preventing them from producing higher-quality steel. The integrated mills were happy to leave these markets because the lower tiers in their product mix were always less profitable than products targeting higher-end customers. Eventually, of course, the integrated mills ran out of markets to flee to.
3. Disruptive opportunities require a separate business-planning process.
All innovative ideas start out as half-baked propositions. They then go through a shaping process as they wind their way through the organization to reach senior management. When firms have a single process for all the various forms of innovation, what comes out the other end of the process looks like what has been approved in the past, and it all looks like sustaining innovations.
Consider IBM's efforts to introduce voice-recognition software. Early iterations of IBM's ViaVoice software package featured IBM's "ideal" customer on the front: an administrative assistant sitting in front of her computer, speaking into a headset. It is easy to see why IBM targeted such customers. They constituted a large, obvious market, well aligned with IBM's needs and capabilities. But think about IBM's value proposition to this woman. She types 80 words a minute and almost never makes a mistake. IBM was telling her, "Why don't you change your behavior and use a system that gives you lower accuracy and slower speeds. We promise future releases will get better." The only way to attract great typists would be for voice recognition to be faster and more accurate than typing. This is a very high technical hurdle.
Where has voice-recognition technology begun to take off? Kids love the ability to tell their animated toys to "stop" or "go." "Press or say one" menu commands are another obvious application. In these contexts, people are delighted with a crummy voice-recognition product. Another good market for the technology may be all those executives you see standing in airport lines, trying to punch messages into their BlackBerries. Their fingers are too big to enable accurate typing—they'd be more than happy with a voice-recognition algorithm that's only 80% accurate.
Not surprisingly, disruptive ideas stand a small chance of ever seeing the light of day when they are evaluated with the screens and lenses a company uses to identify and shape sustaining innovations. Companies frustrated by an inability to create new growth shouldn't conclude that they aren't generating enough good ideas. The problem doesn't lie in their creativity; it lies in their processes.
Only by creating a parallel process for developing and shaping disruptive ideas—one that acknowledges their distinctive features—can companies successfully launch disruption after disruption. Such a process relies more on pattern recognition than on data-driven market analysis. After all, markets that do not exist cannot be analyzed. Even when numbers are available, they are never clear.
An intuitive process can still be rigorous if managers use the right tools. For example, discovery-driven planning lets you create a plan to test assumptions; aggregate project planning helps you allocate resources between sustaining and disruptive opportunities; the "schools of experience" theory informs hiring decisions.
4. Don't try to change your customers—help them.
Faulty market segmentation schemes help to explain the stunningly high rate of failure of new-product development. Most companies define markets in terms of product categories and demographics. We just don't live our lives in product categories or in demographics. When companies segment markets this way they often fail to connect with their customers.
How do we live our lives? During the course of the day, problems arise, jobs we need to get done. We look around to hire products to get those jobs done. Products that successfully match the circumstances we find ourselves in end up being the real "killer applications." They make it easier for consumers to do something they were already trying to accomplish.
Some manufacturers pushed digital cameras based on the value proposition that they made it easy to edit out the red eyes from all your images and create an online album of your best photos. Research shows, however, that 98 percent of all photos get looked at only once. Only the most conscientious of us prioritized editing images or creating albums. Where digital camera makers found success was in marketing their products to consumers who used to order double prints of their photos and mail them to relatives. The digital technology enables consumers to use the Internet to do more easily what they already wanted to do.
A business plan predicated upon asking customers to adopt new priorities and behave differently from how they have in the past is an uphill death march through knee-deep mud. Instead of designing products and services that dictate consumers' behavior, let the tasks people are trying to get done inform your design.
5. Integrate across whatever is not good enough.
One critical decision firms face when creating an innovation-driven growth business is determining its optimal scope. Specifically, which activities need to be managed internally and which can be safely outsourced?
The answer often is driven by the fad of the day. During the 1960s, everyone thought IBM's integration was an unassailable point of competitive advantage. Because IBM controlled such a wide swath of the industry's value chain, it could make better products than anybody else. So companies copied IBM and tried to integrate. In the 1990s, everyone thought that Cisco's disintegrated business model that made extensive use of outsourcing was an unassailable point of competitive advantage. So companies jumped on this new bandwagon and sought to disintegrate.
The critical question is: What are the circumstances in which my firm should be integrated and what are the circumstances in which my firm can be a specialist? Integration provides advantages whenever a product is not good enough to meet customer needs. Proprietary, interdependent architectures allow companies to run multiple experiments, pushing the frontier of what is possible. Engineers can reconfigure their systems to wring the best performance possible out of the available technology.
Think about the computer industry. In its early days, you simply couldn't exist as a specialist provider. There were too many unpredictable interdependencies across every interface in the first mainframes. The manufacturing process depended on the design of the computer and vice versa. The design of the operating system affected the design of the logic circuitry. IBM had to be integrated across the entire value chain to produce a mainframe that came close to meeting its customers' needs.
By contrast, the modular architectures that characterize disintegration always sacrifice raw performance. Stitching together a system with partner companies reduces the degrees of design freedom engineers have to optimize the entire system. But modular architectures have other benefits. Companies can customize their products by upgrading individual subsystems without having to redesign an entire product. They can mix and match components from best-of-breed suppliers to respond conveniently to individual customers' needs.
But even in a modular architecture, successful companies still are integrated—just in a different place. Consider the computer industry in the 1990s. The computer's basic performance was more than good enough. What did customers want instead? They wanted lower prices and a computer customized for their needs. Because the product's functionality was more than good enough, companies like Dell could outsource the subsystems from which its machines were assembled. What was not good enough? The interface with the customer. By directly interacting with customers, Dell could ensure it delivered what customers wanted—convenience and customization. Value flowed to Dell and to the manufacturers of important subsystems that themselves were not good enough, like Microsoft and Intel.
In short, companies must be integrated across whatever interface drives performance along the dimension that customers value. In an industry's early days, integration typically needs to occur across interfaces that drive raw performance—for example, design and assembly. Once a product's basic performance is more than good enough, competition forces firms to compete on convenience or customization. In these situations, specialist firms emerge and the necessary locus of integration typically shifts to the interface with the customer.
6. Be patient for growth but impatient for profitability.
Managers inside new-growth businesses often feel tremendous pressure to quickly ramp up sales volume. But disruptive businesses can't get big very fast. The only way to make them grow quickly is to cram them into large, obvious markets. In established markets, customers don't care about the disruptive innovation's strengths. They only care about its weaknesses. This is a recipe for disaster, and one reason why company-backed disruptive ventures can have a leg up. Venture capitalists have become increasingly impatient for businesses to get huge. As long as their core businesses are growing healthily, companies will find it easier to wait for the disruptive businesses to find a foothold market and slowly build commercial mass.
Managers must be patient for growth but impatient for profitability. When you are willing to put up with a lot of losses before a disruptive business turns profitable, that means you are trying to lay the foundation for a huge new business. Insisting on early profitability pushes the new disruptive business to find the markets where its unique capabilities will be uniquely valued. Forced to keep its fixed costs low, the new business can serve small customers who would not meet the needs of a high fixed cost structure.
Managers in large companies who read The Innovator's Dilemma may have finished the book thinking they're destined to fail, no matter what they do. We hope to shift their sentiment from despair to hope. If managers understand the theories of innovation, they have the ability to create new-growth businesses again and again
Published: March 10, 2003
Authors: Clayton M. Christensen, Michael E. Raynor, and Scott D. Anthony
Managers today have a problem. They know their companies must grow. But growth is hard, especially given today's economic environment where investment capital is difficult to come by and firms are reluctant to take risks. Managers know innovation is the ticket to successful growth. But they just can't seem to get innovation right.
When companies keep improving their existing products and services to meet their best customers' needs, they eventually run into the "innovator's dilemma." By doing everything right, they create opportunities for new companies to take their markets away. Established companies historically have struggled when trying to create new markets. Success seems fleeting and unpredictable.
Recent research indicates these problems are systemic. Most companies that are started fail. Of those that succeed, most cannot sustain robust growth for more than a few years. Companies need a way to unlock the process of innovation and create innovation-driven growth businesses again and again. How can managers increase the probability that their decisions will lead to success? Now more than ever, managers need robust theories—statements of what causes what, why, and in what situation—to guide their decision making around innovation.
Managers typically grow impatient when we tell them this. "Theory?" they say. "That sounds like theoretical. That sounds like impractical." But theory is eminently practical. Managers are the world's most voracious consumers of theory. Every plan a manager makes, every action a manager takes, is based on some implicit understanding of what causes what and why.
The problem is, managers all too frequently use a one-size-fits-all theory. But the ground beneath them inevitably shifts. Strategies that worked so wonderfully in the past no longer suffice.
Drawing on the work of a number of thoughtful researchers as well as our own work, we are exploring a set of theories that can help managers respond to the ever-changing circumstances in which they find themselves. Specifically, these six lessons will help managers make the right decisions to successfully build new-growth businesses.
1. Disruptive innovations spur growth.
Companies have two basic options when they seek to build new-growth businesses. They can try to take an existing market from an entrenched competitor with sustaining innovations. Or they can try to take on a competitor with disruptive innovations that either create new markets or take root among an incumbent's worst customers. Our research overwhelmingly suggests that companies should seek out growth based on disruption.
Sustaining innovations, whether they involve incremental refinements or radical breakthroughs, improve the performance of established products and services along the dimensions that mainstream customers in major markets historically have valued. Examples: a microprocessor that enables personal computers to operate faster and a battery that lets laptop computers operate longer.
Companies march along a performance trajectory by introducing successive sustaining innovations—first to remain competitive in the short term. But, as noted in The Innovator's Dilemma: When New Technologies Cause Great Firms to Fail (Harvard Business School Press, 1997), firms innovate faster than our lives change to adopt those innovations, creating opportunities for disruptive innovations. Although sustaining innovations move firms along the traditional performance trajectory, disruptive ones establish an entirely new performance trajectory.
Disruptive innovations often initially result in worse performance compared with established products and services in mainstream markets. But disruptive innovations have other benefits. They are often cheaper, simpler, smaller, and more convenient to use.
Consider the small off-road motorcycles introduced by Honda in the 1960s, Apple's first personal computer, and Intuit's QuickBooks accounting software. These innovations all initially underperformed the mainstream offerings. But they brought a different value proposition to a new market context that did not need all of the raw performance offered by the incumbent. They all created massive growth; to flip Joseph Schumpeter's famous phrase, creative destruction, on its head, this is creative creation. After taking root in a simple, undemanding application, disruptive innovations inexorably get better until they change the game, relegating previously dominant firms to the sidelines in often stunning fashion.
Incumbents almost always win battles of sustaining innovations. Their superior resources and well-honed processes are almost insurmountable strengths. Incumbents, however, almost always lose battles where the attacker has a legitimate disruptive innovation. To create a new-growth business, companies—established incumbents and start-ups alike—must be on the right side of the disruptive process by launching their own disruptive attacks.
2. Disruptive businesses either create new markets or take the low end of an established market.
There are two distinct types of disruptive innovations. The first type creates a new market by targeting nonconsumers, the second competes in the low end of an established market.
In a new-market disruption, attackers take root in a new "plane" of competition or a new context of use outside of an existing market. Consumers historically locked out of a market because they lacked the skills or wealth welcome a relatively simple product that allows them to get done what they had always wanted to get done. These markets typically start out small and ill defined. They don't meet the growth needs of large companies. And the incumbent feels no pain at first. Because it creates new consumption, the disruptor's growth doesn't affect the incumbent's core business. But as the innovation improves, it begins to pull customers away from the incumbent. And the incumbent doesn't have the ability to play in this new game.
Transistors were a disruptive innovation. Mainstream suppliers of tabletop radios, which were made with vacuum tubes, couldn't figure out how to use transistors because they couldn't initially handle the power requirements of these components. Then in 1955, Sony introduced the pocket radio. It was a static-laced product with horrible fidelity. But it enabled teenagers to do something that they couldn't before—listen to rock'n'roll out of their parents' earshot. Had Sony targeted consumers in established markets, the pocket radio would have bombed. But for teenagers, the alternative to a Sony pocket radio was no radio at all. By competing against nonconsumption, Sony set a very low technical hurdle for itself: The product just had to be better than nothing in order to find delighted consumers.
The second type of disruptive innovation takes root among an incumbent's worst customers. These low-end disruptions do not create new markets, but they can create new growth. The disruption of integrated steel mills by steel minimills demonstrates how low-end disruptors harness what we call asymmetries of motivation.
Minimills first took hold in the steel industry in the mid-1960s. They were very efficient. They had a 20 percent cost advantage over integrated mills. But the quality of the steel they produced was inferior. The rebar market at the bottom rung of the industry (rebar is small steel bars made from scrap and used to create reinforced concrete) was the only market that would accept the minimills' steel.
As the minimills entered the rebar market, the integrated mills were happy to exit it. Their gross margins in the rebar business were a mere 7 percent, and rebar accounted for only 4 percent of the industry's tonnage. So the integrated mills decided to focus on higher-profit steel products. The minimills made boatloads of money until they finally drove the last of the integrated mills out of the market—and then the price of rebar dropped 20 percent, because rebar had essentially become a commodity market. The minimills' reward for victory was that none of them could make money.
To make attractive money again, the minimills had to figure out how to make better-quality steel in larger shapes—not only angle iron but also thicker bars and rods. Profit margins in this market tier were 12 percent, almost double those of the rebar market; the overall market was also twice as large. So the minimills invested in equipment to make the larger pieces and worked to improve the quality and consistency of their steel. As the minimills began making inroads with better and bigger steel, the integrated mills were happy to exit this market tier to concentrate on more profitable products. When the last integrated mill left the market, the price of angle iron collapsed. Once again, the minimills had to move up to the next tier of the industry in order to survive. And so on.
At each stage of the minimills' climb up-market, an asymmetry of motivation was at work. For the minimills, the need to enter a more profitable market provided the motivation to solve the technological hurdles preventing them from producing higher-quality steel. The integrated mills were happy to leave these markets because the lower tiers in their product mix were always less profitable than products targeting higher-end customers. Eventually, of course, the integrated mills ran out of markets to flee to.
3. Disruptive opportunities require a separate business-planning process.
All innovative ideas start out as half-baked propositions. They then go through a shaping process as they wind their way through the organization to reach senior management. When firms have a single process for all the various forms of innovation, what comes out the other end of the process looks like what has been approved in the past, and it all looks like sustaining innovations.
Consider IBM's efforts to introduce voice-recognition software. Early iterations of IBM's ViaVoice software package featured IBM's "ideal" customer on the front: an administrative assistant sitting in front of her computer, speaking into a headset. It is easy to see why IBM targeted such customers. They constituted a large, obvious market, well aligned with IBM's needs and capabilities. But think about IBM's value proposition to this woman. She types 80 words a minute and almost never makes a mistake. IBM was telling her, "Why don't you change your behavior and use a system that gives you lower accuracy and slower speeds. We promise future releases will get better." The only way to attract great typists would be for voice recognition to be faster and more accurate than typing. This is a very high technical hurdle.
Where has voice-recognition technology begun to take off? Kids love the ability to tell their animated toys to "stop" or "go." "Press or say one" menu commands are another obvious application. In these contexts, people are delighted with a crummy voice-recognition product. Another good market for the technology may be all those executives you see standing in airport lines, trying to punch messages into their BlackBerries. Their fingers are too big to enable accurate typing—they'd be more than happy with a voice-recognition algorithm that's only 80% accurate.
Not surprisingly, disruptive ideas stand a small chance of ever seeing the light of day when they are evaluated with the screens and lenses a company uses to identify and shape sustaining innovations. Companies frustrated by an inability to create new growth shouldn't conclude that they aren't generating enough good ideas. The problem doesn't lie in their creativity; it lies in their processes.
Only by creating a parallel process for developing and shaping disruptive ideas—one that acknowledges their distinctive features—can companies successfully launch disruption after disruption. Such a process relies more on pattern recognition than on data-driven market analysis. After all, markets that do not exist cannot be analyzed. Even when numbers are available, they are never clear.
An intuitive process can still be rigorous if managers use the right tools. For example, discovery-driven planning lets you create a plan to test assumptions; aggregate project planning helps you allocate resources between sustaining and disruptive opportunities; the "schools of experience" theory informs hiring decisions.
4. Don't try to change your customers—help them.
Faulty market segmentation schemes help to explain the stunningly high rate of failure of new-product development. Most companies define markets in terms of product categories and demographics. We just don't live our lives in product categories or in demographics. When companies segment markets this way they often fail to connect with their customers.
How do we live our lives? During the course of the day, problems arise, jobs we need to get done. We look around to hire products to get those jobs done. Products that successfully match the circumstances we find ourselves in end up being the real "killer applications." They make it easier for consumers to do something they were already trying to accomplish.
Some manufacturers pushed digital cameras based on the value proposition that they made it easy to edit out the red eyes from all your images and create an online album of your best photos. Research shows, however, that 98 percent of all photos get looked at only once. Only the most conscientious of us prioritized editing images or creating albums. Where digital camera makers found success was in marketing their products to consumers who used to order double prints of their photos and mail them to relatives. The digital technology enables consumers to use the Internet to do more easily what they already wanted to do.
A business plan predicated upon asking customers to adopt new priorities and behave differently from how they have in the past is an uphill death march through knee-deep mud. Instead of designing products and services that dictate consumers' behavior, let the tasks people are trying to get done inform your design.
5. Integrate across whatever is not good enough.
One critical decision firms face when creating an innovation-driven growth business is determining its optimal scope. Specifically, which activities need to be managed internally and which can be safely outsourced?
The answer often is driven by the fad of the day. During the 1960s, everyone thought IBM's integration was an unassailable point of competitive advantage. Because IBM controlled such a wide swath of the industry's value chain, it could make better products than anybody else. So companies copied IBM and tried to integrate. In the 1990s, everyone thought that Cisco's disintegrated business model that made extensive use of outsourcing was an unassailable point of competitive advantage. So companies jumped on this new bandwagon and sought to disintegrate.
The critical question is: What are the circumstances in which my firm should be integrated and what are the circumstances in which my firm can be a specialist? Integration provides advantages whenever a product is not good enough to meet customer needs. Proprietary, interdependent architectures allow companies to run multiple experiments, pushing the frontier of what is possible. Engineers can reconfigure their systems to wring the best performance possible out of the available technology.
Think about the computer industry. In its early days, you simply couldn't exist as a specialist provider. There were too many unpredictable interdependencies across every interface in the first mainframes. The manufacturing process depended on the design of the computer and vice versa. The design of the operating system affected the design of the logic circuitry. IBM had to be integrated across the entire value chain to produce a mainframe that came close to meeting its customers' needs.
By contrast, the modular architectures that characterize disintegration always sacrifice raw performance. Stitching together a system with partner companies reduces the degrees of design freedom engineers have to optimize the entire system. But modular architectures have other benefits. Companies can customize their products by upgrading individual subsystems without having to redesign an entire product. They can mix and match components from best-of-breed suppliers to respond conveniently to individual customers' needs.
But even in a modular architecture, successful companies still are integrated—just in a different place. Consider the computer industry in the 1990s. The computer's basic performance was more than good enough. What did customers want instead? They wanted lower prices and a computer customized for their needs. Because the product's functionality was more than good enough, companies like Dell could outsource the subsystems from which its machines were assembled. What was not good enough? The interface with the customer. By directly interacting with customers, Dell could ensure it delivered what customers wanted—convenience and customization. Value flowed to Dell and to the manufacturers of important subsystems that themselves were not good enough, like Microsoft and Intel.
In short, companies must be integrated across whatever interface drives performance along the dimension that customers value. In an industry's early days, integration typically needs to occur across interfaces that drive raw performance—for example, design and assembly. Once a product's basic performance is more than good enough, competition forces firms to compete on convenience or customization. In these situations, specialist firms emerge and the necessary locus of integration typically shifts to the interface with the customer.
6. Be patient for growth but impatient for profitability.
Managers inside new-growth businesses often feel tremendous pressure to quickly ramp up sales volume. But disruptive businesses can't get big very fast. The only way to make them grow quickly is to cram them into large, obvious markets. In established markets, customers don't care about the disruptive innovation's strengths. They only care about its weaknesses. This is a recipe for disaster, and one reason why company-backed disruptive ventures can have a leg up. Venture capitalists have become increasingly impatient for businesses to get huge. As long as their core businesses are growing healthily, companies will find it easier to wait for the disruptive businesses to find a foothold market and slowly build commercial mass.
Managers must be patient for growth but impatient for profitability. When you are willing to put up with a lot of losses before a disruptive business turns profitable, that means you are trying to lay the foundation for a huge new business. Insisting on early profitability pushes the new disruptive business to find the markets where its unique capabilities will be uniquely valued. Forced to keep its fixed costs low, the new business can serve small customers who would not meet the needs of a high fixed cost structure.
Managers in large companies who read The Innovator's Dilemma may have finished the book thinking they're destined to fail, no matter what they do. We hope to shift their sentiment from despair to hope. If managers understand the theories of innovation, they have the ability to create new-growth businesses again and again
Innovation Starts With Disruptive Hypotheses. Here's How To Create One
Innovation Starts With Disruptive Hypotheses. Here's How To Create One
Luke Williams
The process hinges on three steps: Defining the situation, searching for cliches, and twisting those cliches around, according to Luke Williams. A disruptive hypothesis is an intentionally unreasonable statement that gets your thinking flowing in a different direction. It’s kind of like the evolutionary biology theory of “punctuated equilibrium,” which states that evolution proceeds slowly and every once in a while is interrupted by sudden change. Disruptive hypotheses are designed to upset your comfortable business equilibrium and bring about an accelerated change in your own thinking.
The ability to ask, “What if?” is an essential part of every executive’s skill set.
Contrast this with the more traditional definition of “hypothesis,” which is a best-guess explanation that’s based on a set of facts and can be tested by further investigation. With a disruptive hypothesis, however, you don’t make a reasonable prediction (if I charge the battery, the phone will work). Instead, you make an unreasonable provocation (what if a cell phone didn’t need a battery at all?). The difference between prediction and provocation, to paraphrase George Bernard Shaw’s famous line, is the difference between “seeing things as they are and asking, ‘Why?,’ or dreaming things as they never were and asking, ‘What if?’” In our fast-changing world, when business certainties are no longer certain, the ability to imagine things as they never were and ask, “What if?,” is an essential part of every executive’s skill set.
What Do You Want to Disrupt?
To meaningfully differentiate yourself from everyone else in the same space, you have to define the situation in the industry, segment, or category that you want to challenge. Here’s what a list of what you want to challenge might look like:
This is an area in which everyone seems to be stuck in the same predicament and nothing has changed in a very long time.
This is an area where profit performance is average—it really should be more successful than it is.
This is a category where growth is slow and everything seems the same.
Once you have a situation to focus on, describe it in one sentence: “How can we disrupt the competitive landscape in [insert your situation] by delivering an unexpected solution?”
Whether you choose to think about an industry, segment, or category is up to you and your business needs. For example, if you owned a boutique hotel in San Francisco, you might describe your situation in one or more of the following ways:
How can we disrupt the competitive landscape of the Travel & Leisure industry by delivering an unexpected solution?
How can we disrupt the competitive landscape of the Hotel segment by delivering an unexpected solution?
How can we disrupt the competitive landscape of the Luxury Hotel category by delivering an unexpected solution?
That’s it. The important thing is that the high-level situation you choose is just that—high-level. It’s essential that you resist the natural urge to start thinking in terms of specific “problems.”
What Are the Clichés?
Now that you’ve defined your situation, what are the clichés—the widespread, hackneyed beliefs that govern the way people think about and do business in a particular space? If you pay attention, you’ll notice that clichés are everywhere.
Consider the multi-billion dollar video gaming industry. Video consoles were driven by several clichés. First, that the world is split into “gamers” and “nongamers.” Second, that gamers mostly care about faster chips and more realistic graphics. Third, game consoles are expensive. And fourth, that people play video games sitting down, barely moving anything but their fingers. With the Wii, Nintendo turned the gaming industry’s clichés on their head.
Searching for Clichés
Just being told, “Okay, get out there and find those clichés,” can be extremely daunting. So, here are a few tips that will help you jump-start the process. Start by getting online and identifying a handful of direct competitors in the industry, segment, or category you’re focused on. Group together those with similar characteristics (such as size and resources), strengths (such as brand name, distribution), and strategies (such as high quality). Select one or two competitors in each group that are pretty representative of the group as a whole. A total of three to six competitors are the ideal number to work with.
With the Wii, Nintendo turned the gaming industry’s clichés on their head.
Now, do a little research on each competitor and make a list of the clichés that keep everyone doing the same thing, competing the same way, or operating with the same set of assumptions. Keep your research activities quick and informal, intuitive and qualitative. To keep you from drowning in a sea of information, consider using the following three filters:
Product clichés: What are the cliché features and benefits? What are the cliché product attributes that are advertised (convenience and reliability, for example)? Where are the cliché areas where the product competes (typical customers, typical geographies, and typical market size?).
Interaction clichés: What are the cliché steps a customer experiences when buying and consuming their products and services? Is the interaction face-to-face? How frequently do customers purchase or use? In the rental car business, for instance, the prevailing interaction clichés include the following: face-to-face interaction with a service agent, completing a lot of paperwork, and renting vehicles by the day.
Pricing clichés: What are the typical ways companies price their products and services and charge customers? Are they packaging products and services together or pricing them individually? Are they charging the customer directly or through a retail partner? Are they offering discounts or other incentives?
What Are Your Disruptive Hypotheses?
Now that you have a list of the clichés that are influencing the business situation you’re focused on, your next goal is to start provoking the status quo. To do that, you’ll take those clichés and twist them like a Rubik’s cube. You’re trying to find a way to rearrange the pieces, which in turn will provoke a different way of looking at the situation.
What Can You Invert?
If there’s an action, look at the opposite action. If something is happening over time, run the time scale backward. Whenever there’s a one-way relationship between two parties, try changing the direction 180 degrees.
What Can You Deny?
The denial method works by completely dumping key aspects of a cliché. Back to our rental car example for a minute, where the prevailing industry clichés include: See the customer. Complete a lot of paperwork. Rent by the day.
What would happen if you no longer needed to see the customer, you got rid of the paperwork, and you started renting by the hour? Well, you’d end up with something very much like Zipcar. The disruption? Don’t see the customer. No paperwork. Rent by the hour.
What Can You Scale?
What is scarce that could be made abundant? What is abundant that could be made scarce? What is expensive that could be free?
After going through these steps, you should be able to generate several hypotheses that will challenge your established way of looking at an industry and help you imagine radically new scenarios, ask unconventional questions, and discover unexpected advantages. The general rule is that the bolder your “What Ifs,” the fresher the perspective they offer.
Now, while that’s a huge accomplishment, hypotheses aren’t really worth much all by themselves. In the next post, we look at the process process of taking hypotheses and gaining the customer insight necessary to turn them into business opportunities.
Luke Williams
The process hinges on three steps: Defining the situation, searching for cliches, and twisting those cliches around, according to Luke Williams. A disruptive hypothesis is an intentionally unreasonable statement that gets your thinking flowing in a different direction. It’s kind of like the evolutionary biology theory of “punctuated equilibrium,” which states that evolution proceeds slowly and every once in a while is interrupted by sudden change. Disruptive hypotheses are designed to upset your comfortable business equilibrium and bring about an accelerated change in your own thinking.
The ability to ask, “What if?” is an essential part of every executive’s skill set.
Contrast this with the more traditional definition of “hypothesis,” which is a best-guess explanation that’s based on a set of facts and can be tested by further investigation. With a disruptive hypothesis, however, you don’t make a reasonable prediction (if I charge the battery, the phone will work). Instead, you make an unreasonable provocation (what if a cell phone didn’t need a battery at all?). The difference between prediction and provocation, to paraphrase George Bernard Shaw’s famous line, is the difference between “seeing things as they are and asking, ‘Why?,’ or dreaming things as they never were and asking, ‘What if?’” In our fast-changing world, when business certainties are no longer certain, the ability to imagine things as they never were and ask, “What if?,” is an essential part of every executive’s skill set.
What Do You Want to Disrupt?
To meaningfully differentiate yourself from everyone else in the same space, you have to define the situation in the industry, segment, or category that you want to challenge. Here’s what a list of what you want to challenge might look like:
This is an area in which everyone seems to be stuck in the same predicament and nothing has changed in a very long time.
This is an area where profit performance is average—it really should be more successful than it is.
This is a category where growth is slow and everything seems the same.
Once you have a situation to focus on, describe it in one sentence: “How can we disrupt the competitive landscape in [insert your situation] by delivering an unexpected solution?”
Whether you choose to think about an industry, segment, or category is up to you and your business needs. For example, if you owned a boutique hotel in San Francisco, you might describe your situation in one or more of the following ways:
How can we disrupt the competitive landscape of the Travel & Leisure industry by delivering an unexpected solution?
How can we disrupt the competitive landscape of the Hotel segment by delivering an unexpected solution?
How can we disrupt the competitive landscape of the Luxury Hotel category by delivering an unexpected solution?
That’s it. The important thing is that the high-level situation you choose is just that—high-level. It’s essential that you resist the natural urge to start thinking in terms of specific “problems.”
What Are the Clichés?
Now that you’ve defined your situation, what are the clichés—the widespread, hackneyed beliefs that govern the way people think about and do business in a particular space? If you pay attention, you’ll notice that clichés are everywhere.
Consider the multi-billion dollar video gaming industry. Video consoles were driven by several clichés. First, that the world is split into “gamers” and “nongamers.” Second, that gamers mostly care about faster chips and more realistic graphics. Third, game consoles are expensive. And fourth, that people play video games sitting down, barely moving anything but their fingers. With the Wii, Nintendo turned the gaming industry’s clichés on their head.
Searching for Clichés
Just being told, “Okay, get out there and find those clichés,” can be extremely daunting. So, here are a few tips that will help you jump-start the process. Start by getting online and identifying a handful of direct competitors in the industry, segment, or category you’re focused on. Group together those with similar characteristics (such as size and resources), strengths (such as brand name, distribution), and strategies (such as high quality). Select one or two competitors in each group that are pretty representative of the group as a whole. A total of three to six competitors are the ideal number to work with.
With the Wii, Nintendo turned the gaming industry’s clichés on their head.
Now, do a little research on each competitor and make a list of the clichés that keep everyone doing the same thing, competing the same way, or operating with the same set of assumptions. Keep your research activities quick and informal, intuitive and qualitative. To keep you from drowning in a sea of information, consider using the following three filters:
Product clichés: What are the cliché features and benefits? What are the cliché product attributes that are advertised (convenience and reliability, for example)? Where are the cliché areas where the product competes (typical customers, typical geographies, and typical market size?).
Interaction clichés: What are the cliché steps a customer experiences when buying and consuming their products and services? Is the interaction face-to-face? How frequently do customers purchase or use? In the rental car business, for instance, the prevailing interaction clichés include the following: face-to-face interaction with a service agent, completing a lot of paperwork, and renting vehicles by the day.
Pricing clichés: What are the typical ways companies price their products and services and charge customers? Are they packaging products and services together or pricing them individually? Are they charging the customer directly or through a retail partner? Are they offering discounts or other incentives?
What Are Your Disruptive Hypotheses?
Now that you have a list of the clichés that are influencing the business situation you’re focused on, your next goal is to start provoking the status quo. To do that, you’ll take those clichés and twist them like a Rubik’s cube. You’re trying to find a way to rearrange the pieces, which in turn will provoke a different way of looking at the situation.
What Can You Invert?
If there’s an action, look at the opposite action. If something is happening over time, run the time scale backward. Whenever there’s a one-way relationship between two parties, try changing the direction 180 degrees.
What Can You Deny?
The denial method works by completely dumping key aspects of a cliché. Back to our rental car example for a minute, where the prevailing industry clichés include: See the customer. Complete a lot of paperwork. Rent by the day.
What would happen if you no longer needed to see the customer, you got rid of the paperwork, and you started renting by the hour? Well, you’d end up with something very much like Zipcar. The disruption? Don’t see the customer. No paperwork. Rent by the hour.
What Can You Scale?
What is scarce that could be made abundant? What is abundant that could be made scarce? What is expensive that could be free?
After going through these steps, you should be able to generate several hypotheses that will challenge your established way of looking at an industry and help you imagine radically new scenarios, ask unconventional questions, and discover unexpected advantages. The general rule is that the bolder your “What Ifs,” the fresher the perspective they offer.
Now, while that’s a huge accomplishment, hypotheses aren’t really worth much all by themselves. In the next post, we look at the process process of taking hypotheses and gaining the customer insight necessary to turn them into business opportunities.
A 5-Step Process for Seeding an Innovation Culture
Innovation Jump Start! A 5-Step Process for Seeding an Innovation Culture
Published on 18 November 2011 by Mike Brown in Brainzooming - All Posts, Innovation, Market Research
3 Too often organizations think innovation is simply about generating a lot of creative or “out-of-the-box” ideas. But in organizations where innovation has truly become central to their culture, ideation is simply one step – and not necessarily the first – in an innovation process. Don’t confuse innovation with ideation. Ideation is a tool, but innovation is a process. Don’t let the word “process” intimidate you. Instead, focus on these five guidelines to jump start your innovation process.
1. Inclusion
Innovation isn’t an independent exercise. It takes the collective knowledge and, just as importantly buy-in, of the organization to be successful. Create an innovation team and get key stakeholders involved early and often. First, inform them of the process you want to use to jump start innovation, and then consistently include them in the steps and key outputs of that process. In other words, keep key stakeholders informed and involved. If you’re thinking that there are a million stakeholders in the organization, focus initially on those that have the power to impact whether the concepts defined as a result of the process will live or die on the vine. You can and should expand/modify the team as appropriate for different phases of the process.
2. Insights
Mine the knowledge that already exists within the organization and the market to inform the innovation process. Don’t let yourself get hung up on having every possible question answered before moving into Ideation. While you may find a need to fill some knowledge gaps to successfully implement the products, services or processes you are innovating, more than likely you already have access to what you need to create a solid frame of reference for the Ideation step.
3. Ideation
Consider bringing in a bipartisan facilitator experienced in navigating the nuances of building innovation teams and outcomes. Not only will they neutralize the emotions or power plays that can sometimes derail the process when led internally, but good facilitators go beyond the tools they use to help generate lots and lots of ideas to the synthesis and prioritization of those ideas with an objective eye on the outcome needed to succeed.
Photo by: Saimen. | Source: photocase.com
4. Initiation
Don’t stop at ideation. It’s at this point when your core innovation team is likely to require some additive players. Initiation is about creating an action plan that will ultimately allow you to test or roll out the new concept – whether it’s a product, service, channel, brand, or customer experience. The action plan should clearly define goals, strategies, tactics, roles, resources and responsibilities to ensure that innovation moves beyond an idea into measurable benefits for the organization.
5. Integration
An innovative culture isn’t built by witnessing a lot of new ideas come to life. In fact, a constant state of change without context can easily turn into frustration. Instead, when impactful innovation occurs, tell your organization the story – don’t just show them the result. Answer the questions on their minds. Why do we need this? How will it impact the company? How will it impact me and my day-to-day world? How can I make it more successful? Integration is about engaging the organization and turning each employee into a stakeholder.
Let’s face it, “innovation” can be a daunting word, but building your own custom approach around these five steps will make it much less intimidating for you and your organization. – Barb Murphy
Published on 18 November 2011 by Mike Brown in Brainzooming - All Posts, Innovation, Market Research
3 Too often organizations think innovation is simply about generating a lot of creative or “out-of-the-box” ideas. But in organizations where innovation has truly become central to their culture, ideation is simply one step – and not necessarily the first – in an innovation process. Don’t confuse innovation with ideation. Ideation is a tool, but innovation is a process. Don’t let the word “process” intimidate you. Instead, focus on these five guidelines to jump start your innovation process.
1. Inclusion
Innovation isn’t an independent exercise. It takes the collective knowledge and, just as importantly buy-in, of the organization to be successful. Create an innovation team and get key stakeholders involved early and often. First, inform them of the process you want to use to jump start innovation, and then consistently include them in the steps and key outputs of that process. In other words, keep key stakeholders informed and involved. If you’re thinking that there are a million stakeholders in the organization, focus initially on those that have the power to impact whether the concepts defined as a result of the process will live or die on the vine. You can and should expand/modify the team as appropriate for different phases of the process.
2. Insights
Mine the knowledge that already exists within the organization and the market to inform the innovation process. Don’t let yourself get hung up on having every possible question answered before moving into Ideation. While you may find a need to fill some knowledge gaps to successfully implement the products, services or processes you are innovating, more than likely you already have access to what you need to create a solid frame of reference for the Ideation step.
3. Ideation
Consider bringing in a bipartisan facilitator experienced in navigating the nuances of building innovation teams and outcomes. Not only will they neutralize the emotions or power plays that can sometimes derail the process when led internally, but good facilitators go beyond the tools they use to help generate lots and lots of ideas to the synthesis and prioritization of those ideas with an objective eye on the outcome needed to succeed.
Photo by: Saimen. | Source: photocase.com
4. Initiation
Don’t stop at ideation. It’s at this point when your core innovation team is likely to require some additive players. Initiation is about creating an action plan that will ultimately allow you to test or roll out the new concept – whether it’s a product, service, channel, brand, or customer experience. The action plan should clearly define goals, strategies, tactics, roles, resources and responsibilities to ensure that innovation moves beyond an idea into measurable benefits for the organization.
5. Integration
An innovative culture isn’t built by witnessing a lot of new ideas come to life. In fact, a constant state of change without context can easily turn into frustration. Instead, when impactful innovation occurs, tell your organization the story – don’t just show them the result. Answer the questions on their minds. Why do we need this? How will it impact the company? How will it impact me and my day-to-day world? How can I make it more successful? Integration is about engaging the organization and turning each employee into a stakeholder.
Let’s face it, “innovation” can be a daunting word, but building your own custom approach around these five steps will make it much less intimidating for you and your organization. – Barb Murphy
Innovation’s Limiting Factor
Posted on November 17, 2011 by Jeffrey Phillips
Ask anyone what limits innovation and they’ll have a hundred different answers – unsupportive management, uncertain goals, unrealistic resource allocation, and many, many more. What’s more, each of these, in their own way, are obstacles to innovation. But what ultimately sets the speed and capability of your organization when it comes to innovation is your ability to experiment, prototype and introduce the learning from experimenting and prototyping back into idea development quickly.
Even if you have all the resources you need, all the support you need and all the management support you can stand, your innovation pace will still be dictated by how rapidly you can experiment and prototype new ideas, and how quickly you can react to what you’ve learned. Plenty of firms have plenty of support for innovation, but are unable or simply don’t have the experience to conduct short, rapid experiments with less than perfect prototypes.
Why is experimenting and prototyping so important? No idea is perfect from its first documentation and capture. Ideas must develop and must be exposed to real world situations in order to hone the value proposition and correct unseen flaws that often aren’t exposed until the idea is presented to potential customers. Most organizations skip this step, or conversely, take far too long to conduct the experimentation, substituting more market research for simply placing a prototype in front of the customer.
Rapid experimentation leads to a lot of learning and new insights, but it also means that some experiments and prototypes will be crash-test dummies – that is, they were developed for learning and proved a point. Their success is based on the fact we validated a problem or discovered, like Edison, how not to do something. This isn’t failure, it’s learning and validation. Perhaps if we framed it that way, more organizations would spend more time experimenting and prototyping. because these two functions dictate a significant amount of the speed with which your firm can innovate.
Most firms need to learn that rapid, messy, inexact experimenting, iterating to get it just right, is far more valuable than slow, careful, perfect experiments that only validate what we expected. Innovation should solve unmet or unexpected needs and opportunities, therefore the results of the experiment should also be uncertain and unexpected. And as fast as is possible, because ultimately this sets the drumbeat for innovation in your business.
Ask anyone what limits innovation and they’ll have a hundred different answers – unsupportive management, uncertain goals, unrealistic resource allocation, and many, many more. What’s more, each of these, in their own way, are obstacles to innovation. But what ultimately sets the speed and capability of your organization when it comes to innovation is your ability to experiment, prototype and introduce the learning from experimenting and prototyping back into idea development quickly.
Even if you have all the resources you need, all the support you need and all the management support you can stand, your innovation pace will still be dictated by how rapidly you can experiment and prototype new ideas, and how quickly you can react to what you’ve learned. Plenty of firms have plenty of support for innovation, but are unable or simply don’t have the experience to conduct short, rapid experiments with less than perfect prototypes.
Why is experimenting and prototyping so important? No idea is perfect from its first documentation and capture. Ideas must develop and must be exposed to real world situations in order to hone the value proposition and correct unseen flaws that often aren’t exposed until the idea is presented to potential customers. Most organizations skip this step, or conversely, take far too long to conduct the experimentation, substituting more market research for simply placing a prototype in front of the customer.
Rapid experimentation leads to a lot of learning and new insights, but it also means that some experiments and prototypes will be crash-test dummies – that is, they were developed for learning and proved a point. Their success is based on the fact we validated a problem or discovered, like Edison, how not to do something. This isn’t failure, it’s learning and validation. Perhaps if we framed it that way, more organizations would spend more time experimenting and prototyping. because these two functions dictate a significant amount of the speed with which your firm can innovate.
Most firms need to learn that rapid, messy, inexact experimenting, iterating to get it just right, is far more valuable than slow, careful, perfect experiments that only validate what we expected. Innovation should solve unmet or unexpected needs and opportunities, therefore the results of the experiment should also be uncertain and unexpected. And as fast as is possible, because ultimately this sets the drumbeat for innovation in your business.
The 3 Biggest Barriers To Innovation, And How To Smash Them
Luke Williams, a fellow at Frog, argues that coming up with breakthrough innovation isn't just a matter of being brilliant. Rather, he lays out a systematic method for overcoming the usual barriers that hem in great ideas.[This is the third post in a series of excerpts adapted from Luke Williams's Disrupt: Think The Unthinkable To Spark Transformation In Your Business. The first excerpt is here and the second is here.]
How do you transform an opportunity into an idea? Well, the first thing is to get comfortable with the belief that any old ideas won’t do. What we’re interested in are disruptive ideas; that is, ideas with the power for great impact and influence. Ideas that challenge assumed boundaries and inspire a sense of what’s possible. In my experience, however, most ideas never get anywhere near this level. There are three major stumbling blocks:
1: Feeling overwhelmed, directionless, and without focus
In my experience, this is the direct result of relying on traditional brainstorming approaches, which, by the way, have been around since the 1930s, when ad-man Alex Faickney Osborn first popularized them in his book, Applied Imagination. But the problem is that traditional brainstorming has ignored the huge difference between generating lots of ideas and capturing quality ideas. As a result, brainstorming sessions often leave organizations and teams feeling overwhelmed and directionless—a state Beth Comstock at GE insightfully calls, “paralyzed by possibility.” Simply put, if your ideas are going to have any disruptive impact, you need to move beyond a shotgun approach to brainstorming and start pursuing creative effort with a laser-sharp focus.
[How are you gonna find the needle in there?! Better to break up the hay stack before you start searching...]
The chaos of a creative process is overwhelming. Better to break it up and blend later.2: Thinking in terms of isolated products, services, and information
It’s getting harder and harder to compete if you don’t view the world in terms of holistic product-service-information hybrids. The real advantage comes when your disruptive idea is blended in such a way that the product, service, and information components can’t be broken apart. To get a better sense of what I’m talking about, consider this quote from Bruce Sterling’s Shaping Things: “...this Sangiovese may be a ‘classic’ wine from the Mediterranean basin, but this bottle is no longer a classic artifact. It has been gizmo-ized.”
Gizmo-ized is another way of saying that even a product as ancient as a bottle of wine no longer stands alone as a static object; it’s dynamic. “It is offering me more functionality than I will ever be able to explore,” Sterling writes, “This wine bottle aims to educate me—it is luring me to become more knowledgeable about the people and processes that made the bottle and its contents. It wants to recruit me to become an unpaid promotional agent, a wine critic, an opinion maker—it wants me to throw wine-tasting parties and tell all my friends about my purchase.”
In Sterling’s view, there is nothing frivolous or extraneous about this sudden explosion of informational intimacy between himself (with his laptop), and a bottle of wine (with its website). Clearly, we need a new mindset when it comes to generating ideas: The relationship between a product, a service, and the information they provide is more important than the details of any one particular feature alone.
3: Getting stuck at the water-cooler
As a result, they rarely escape people’s heads and instead remain there, unformed. The view from inside the company, however, is different. One of the most common phrases I hear from clients is, “We don’t need any more ideas; we have too many.” But, when I ask to see the documented ideas they have, they start back- pedaling: “Well, we don’t have them written down or anything. But, we discuss them a lot.”
That’s the problem in a nutshell. You can talk about ideas in general terms, at least for a while. But, abstraction makes it harder to understand an idea and remember it. So, to increase the potential, you have to stop talking about it and explain it in sensory terms. “Sketch it out!,” as Hartmut Esslinger, founder of frog design, used to say. (He wouldn’t listen to an idea if you hadn’t done so.) Ambiguity disappears when you describe your ideas in visual or written form.
[Nothing buries a good idea faster than idle talk.]
Getting past these three stumbling blocks is a challenge. The chaos of a creative process is overwhelming. It’s easier to think in terms of isolated products, services, and information, rather than blended hybrids.
Breaking Stumbling Block 1: Focusing Your Efforts
So you've identified and described an opportunity. Now, it’s time to develop the ideas to support it. You’ll start by breaking down your opportunity into a number of parts and examining each one in a new way. It doesn’t matter if you don’t get to all of them. The main point is to focus your creativity.
An opportunity has three distinct parts: There’s an opportunity to provide [who?] with [what advantage?] that [fills what gap?]. In a project for one of the big three automakers, we learned that, in the words of project lead, Mike LaVigne, “There’s much more happening than just going for a drive.” Mike and his team discovered that a lot of people check email, make phone calls, and use their laptop while they’re in their cars, even though the in-car experience wasn’t designed to support those activities. So in our car example, it might look like this:
“There’s an opportunity to provide drivers [who] with ways of being more productive [advantage] that are safe and optimized for driving [gap].”
Start by focusing on one area of an opportunity statement: the advantage. The advantage, in this case, is “productivity.” Then, ask yourself when drivers could make use of their vehicles for productivity. You might come up with something like this:
When running errands
When making phone calls
When dealing with inspiration (taking notes, for example)
After you have the advantage part of the opportunity broken down, you can start asking yourself all sorts of questions about how to deliver on the gap part of the opportunity. So, some of the questions might be:
How can we safely optimize the way people make phone calls in their car?
Idea: Integrated hands-free phone calls.
How can we safely optimize the way people take notes in their car?
Idea: Hazard avoidance systems.
How can we safely optimize the way people entertain their kids in their car?
Idea: Integrated DVD players.
After you have the opportunity broken down into questions like these, try to answer them with as many new ideas as you can think of—from the obvious to the ridiculous. And be sure not to reject any ideas too quickly. You’ll have plenty of time to evaluate your ideas later.
Forcing Connections
Inspiration for break-through ideas often happens in the periphery, in analogous but not necessarily traditionally competitive categories. As New York Times columnist and author Thomas Friedman puts it, “The further we push out the boundaries of knowledge and innovation, the more the next great value breakthroughs—that is, the next new hot-selling products and services—will come from putting together disparate things that you would never think of as going together.”
Think back to the Nintendo Wii. The inspiration for the motion controller idea didn’t come from looking at what other video consoles were doing; it came from a completely unrelated source: the accelerometer chip that regulates the airbag in your car.
Here’s another example of how bringing two seemingly unrelated thoughts together. One morning, a designer sprang into the frog studio. “I know why everyone says the iPod looks clean!” he exclaimed. Ask anyone what’s so appealing about the design of the iPod, and, almost without exception, they answer, “I like it because it looks clean.”
Of course, there are obvious clues, such as the minimalist design, the simple, intuitive interface, and the neutral colors. But, these attributes alone don’t fully explain this seemingly universal perception of graceful hygiene. There had to be something deeper. We were all ears.
[An ancient example of a forced connection: The head of an eagle, the wings of a bird, the body of a lion, and the tail of a scorpion. And yet it just works!]
“So,” the visiting designer said, “as I was sitting on the toilet this morning, I noticed the shiny white porcelain of the bathtub and the reflective chrome of the faucet on the wash basin, and then it hit me! The iPod is ‘clean’ because it references bathroom materials.”
There were a few seconds of silence, followed quickly by laughter. We were laughing because we knew that Jonathan Ive, who designed the iPod, came to Apple from a London- based design consultancy where he worked on a lot of lavatory basins.
Coincidence? Perhaps. But, at the very least, it’s an example of how anything, no matter how unconnected, can spark new perceptions. Often, the more incompatible the connection, the more useful it may be.
Breaking Stumbling Block 2: What Can You Blend Together?
Not all the ideas you’ve generated will be worth pursuing, so pick the three that you think are the most promising. In other words, the three offering the greatest differentiation and the largest number of benefits to either your customers or your company. Why three? Because three gives you a good range to experiment, challenge assumptions, and gather feedback in the next stage. A word of caution: Don’t worry about trying to select the most practical ideas; focus on the most disruptive ones.
Your offering has to benefit three key customers: partners, buyers, and users.Refine Three Ideas
After you select your three ideas, start the process of refining them into a more holistic and powerful form.
The stumbling block here is that many organizations still think of their offerings to customers as isolated products, services, and information. But real value comes when an offering is blended in such a way that the product, service, and information components can’t succeed independently. For example, the iPhone blends product (e.g., iPhone with iPhone OS), service (iTunes+App Store), and information from the network (which includes wireless providers, Google, Yahoo!, iPhone developers, related iPhone social networks and communities, and the manufacturers). Two blending techniques are especially helpful (they’re the two I use when working with clients):
Blend the Bits: Start thinking about the product, service, and information bits simultaneously. So, if one of your ideas is for a new product, what are the services and networked information that would be essential in supporting that product?
Blend the benefits: Always remember that, with few exceptions, whatever you’re offering has to benefit three key customers: partners, buyers, and users. If only one or two of those customer groups actually reaps the benefits, try to even things out. Otherwise, your offer may end up too lopsided to be successful.
Write down every possible benefit you can come up with—not just the obvious ones. And be prepared to make some changes to make those benefits more obvious.
Breaking Stumbling Block 3: What Are Your Disruptive Ideas?
Talking about ideas—as opposed to documenting them—keeps them general and abstract. Showing ideas, on the other hand, makes them specific and concrete, which in turn, makes them easy to share, understand, and remember. So, after you refine your three ideas by blending the bits and the benefits, you need to create a one-page or slide overview of each idea, accurately describing it in words and pictures––with a name, description of who it's for and why they’ll care, key points of difference, and a visual (no matter how crude). If you decide you want to further develop an idea into a solution for the market, having documented your ideas in this way will make it easier to get critical feedback from consumers. [For more detail about this process, buy the book!--Ed.]
One final word of advice: Don’t worry about getting your visualization perfect or let yourself get locked-in to whatever details you’ve included. The details you give when you visualize your ideas aren’t necessarily in their final form. In the next stage of the process, you’ll run your idea through all sorts of refinements and changes. But at this stage, any visualization—no matter how rough or approximate—is better than none.
http://www.fastcodesign.com/1665442/the-3-biggest-barriers-to-innovation-and-how-to-smash-them
How do you transform an opportunity into an idea? Well, the first thing is to get comfortable with the belief that any old ideas won’t do. What we’re interested in are disruptive ideas; that is, ideas with the power for great impact and influence. Ideas that challenge assumed boundaries and inspire a sense of what’s possible. In my experience, however, most ideas never get anywhere near this level. There are three major stumbling blocks:
1: Feeling overwhelmed, directionless, and without focus
In my experience, this is the direct result of relying on traditional brainstorming approaches, which, by the way, have been around since the 1930s, when ad-man Alex Faickney Osborn first popularized them in his book, Applied Imagination. But the problem is that traditional brainstorming has ignored the huge difference between generating lots of ideas and capturing quality ideas. As a result, brainstorming sessions often leave organizations and teams feeling overwhelmed and directionless—a state Beth Comstock at GE insightfully calls, “paralyzed by possibility.” Simply put, if your ideas are going to have any disruptive impact, you need to move beyond a shotgun approach to brainstorming and start pursuing creative effort with a laser-sharp focus.
[How are you gonna find the needle in there?! Better to break up the hay stack before you start searching...]
The chaos of a creative process is overwhelming. Better to break it up and blend later.2: Thinking in terms of isolated products, services, and information
It’s getting harder and harder to compete if you don’t view the world in terms of holistic product-service-information hybrids. The real advantage comes when your disruptive idea is blended in such a way that the product, service, and information components can’t be broken apart. To get a better sense of what I’m talking about, consider this quote from Bruce Sterling’s Shaping Things: “...this Sangiovese may be a ‘classic’ wine from the Mediterranean basin, but this bottle is no longer a classic artifact. It has been gizmo-ized.”
Gizmo-ized is another way of saying that even a product as ancient as a bottle of wine no longer stands alone as a static object; it’s dynamic. “It is offering me more functionality than I will ever be able to explore,” Sterling writes, “This wine bottle aims to educate me—it is luring me to become more knowledgeable about the people and processes that made the bottle and its contents. It wants to recruit me to become an unpaid promotional agent, a wine critic, an opinion maker—it wants me to throw wine-tasting parties and tell all my friends about my purchase.”
In Sterling’s view, there is nothing frivolous or extraneous about this sudden explosion of informational intimacy between himself (with his laptop), and a bottle of wine (with its website). Clearly, we need a new mindset when it comes to generating ideas: The relationship between a product, a service, and the information they provide is more important than the details of any one particular feature alone.
3: Getting stuck at the water-cooler
As a result, they rarely escape people’s heads and instead remain there, unformed. The view from inside the company, however, is different. One of the most common phrases I hear from clients is, “We don’t need any more ideas; we have too many.” But, when I ask to see the documented ideas they have, they start back- pedaling: “Well, we don’t have them written down or anything. But, we discuss them a lot.”
That’s the problem in a nutshell. You can talk about ideas in general terms, at least for a while. But, abstraction makes it harder to understand an idea and remember it. So, to increase the potential, you have to stop talking about it and explain it in sensory terms. “Sketch it out!,” as Hartmut Esslinger, founder of frog design, used to say. (He wouldn’t listen to an idea if you hadn’t done so.) Ambiguity disappears when you describe your ideas in visual or written form.
[Nothing buries a good idea faster than idle talk.]
Getting past these three stumbling blocks is a challenge. The chaos of a creative process is overwhelming. It’s easier to think in terms of isolated products, services, and information, rather than blended hybrids.
Breaking Stumbling Block 1: Focusing Your Efforts
So you've identified and described an opportunity. Now, it’s time to develop the ideas to support it. You’ll start by breaking down your opportunity into a number of parts and examining each one in a new way. It doesn’t matter if you don’t get to all of them. The main point is to focus your creativity.
An opportunity has three distinct parts: There’s an opportunity to provide [who?] with [what advantage?] that [fills what gap?]. In a project for one of the big three automakers, we learned that, in the words of project lead, Mike LaVigne, “There’s much more happening than just going for a drive.” Mike and his team discovered that a lot of people check email, make phone calls, and use their laptop while they’re in their cars, even though the in-car experience wasn’t designed to support those activities. So in our car example, it might look like this:
“There’s an opportunity to provide drivers [who] with ways of being more productive [advantage] that are safe and optimized for driving [gap].”
Start by focusing on one area of an opportunity statement: the advantage. The advantage, in this case, is “productivity.” Then, ask yourself when drivers could make use of their vehicles for productivity. You might come up with something like this:
When running errands
When making phone calls
When dealing with inspiration (taking notes, for example)
After you have the advantage part of the opportunity broken down, you can start asking yourself all sorts of questions about how to deliver on the gap part of the opportunity. So, some of the questions might be:
How can we safely optimize the way people make phone calls in their car?
Idea: Integrated hands-free phone calls.
How can we safely optimize the way people take notes in their car?
Idea: Hazard avoidance systems.
How can we safely optimize the way people entertain their kids in their car?
Idea: Integrated DVD players.
After you have the opportunity broken down into questions like these, try to answer them with as many new ideas as you can think of—from the obvious to the ridiculous. And be sure not to reject any ideas too quickly. You’ll have plenty of time to evaluate your ideas later.
Forcing Connections
Inspiration for break-through ideas often happens in the periphery, in analogous but not necessarily traditionally competitive categories. As New York Times columnist and author Thomas Friedman puts it, “The further we push out the boundaries of knowledge and innovation, the more the next great value breakthroughs—that is, the next new hot-selling products and services—will come from putting together disparate things that you would never think of as going together.”
Think back to the Nintendo Wii. The inspiration for the motion controller idea didn’t come from looking at what other video consoles were doing; it came from a completely unrelated source: the accelerometer chip that regulates the airbag in your car.
Here’s another example of how bringing two seemingly unrelated thoughts together. One morning, a designer sprang into the frog studio. “I know why everyone says the iPod looks clean!” he exclaimed. Ask anyone what’s so appealing about the design of the iPod, and, almost without exception, they answer, “I like it because it looks clean.”
Of course, there are obvious clues, such as the minimalist design, the simple, intuitive interface, and the neutral colors. But, these attributes alone don’t fully explain this seemingly universal perception of graceful hygiene. There had to be something deeper. We were all ears.
[An ancient example of a forced connection: The head of an eagle, the wings of a bird, the body of a lion, and the tail of a scorpion. And yet it just works!]
“So,” the visiting designer said, “as I was sitting on the toilet this morning, I noticed the shiny white porcelain of the bathtub and the reflective chrome of the faucet on the wash basin, and then it hit me! The iPod is ‘clean’ because it references bathroom materials.”
There were a few seconds of silence, followed quickly by laughter. We were laughing because we knew that Jonathan Ive, who designed the iPod, came to Apple from a London- based design consultancy where he worked on a lot of lavatory basins.
Coincidence? Perhaps. But, at the very least, it’s an example of how anything, no matter how unconnected, can spark new perceptions. Often, the more incompatible the connection, the more useful it may be.
Breaking Stumbling Block 2: What Can You Blend Together?
Not all the ideas you’ve generated will be worth pursuing, so pick the three that you think are the most promising. In other words, the three offering the greatest differentiation and the largest number of benefits to either your customers or your company. Why three? Because three gives you a good range to experiment, challenge assumptions, and gather feedback in the next stage. A word of caution: Don’t worry about trying to select the most practical ideas; focus on the most disruptive ones.
Your offering has to benefit three key customers: partners, buyers, and users.Refine Three Ideas
After you select your three ideas, start the process of refining them into a more holistic and powerful form.
The stumbling block here is that many organizations still think of their offerings to customers as isolated products, services, and information. But real value comes when an offering is blended in such a way that the product, service, and information components can’t succeed independently. For example, the iPhone blends product (e.g., iPhone with iPhone OS), service (iTunes+App Store), and information from the network (which includes wireless providers, Google, Yahoo!, iPhone developers, related iPhone social networks and communities, and the manufacturers). Two blending techniques are especially helpful (they’re the two I use when working with clients):
Blend the Bits: Start thinking about the product, service, and information bits simultaneously. So, if one of your ideas is for a new product, what are the services and networked information that would be essential in supporting that product?
Blend the benefits: Always remember that, with few exceptions, whatever you’re offering has to benefit three key customers: partners, buyers, and users. If only one or two of those customer groups actually reaps the benefits, try to even things out. Otherwise, your offer may end up too lopsided to be successful.
Write down every possible benefit you can come up with—not just the obvious ones. And be prepared to make some changes to make those benefits more obvious.
Breaking Stumbling Block 3: What Are Your Disruptive Ideas?
Talking about ideas—as opposed to documenting them—keeps them general and abstract. Showing ideas, on the other hand, makes them specific and concrete, which in turn, makes them easy to share, understand, and remember. So, after you refine your three ideas by blending the bits and the benefits, you need to create a one-page or slide overview of each idea, accurately describing it in words and pictures––with a name, description of who it's for and why they’ll care, key points of difference, and a visual (no matter how crude). If you decide you want to further develop an idea into a solution for the market, having documented your ideas in this way will make it easier to get critical feedback from consumers. [For more detail about this process, buy the book!--Ed.]
One final word of advice: Don’t worry about getting your visualization perfect or let yourself get locked-in to whatever details you’ve included. The details you give when you visualize your ideas aren’t necessarily in their final form. In the next stage of the process, you’ll run your idea through all sorts of refinements and changes. But at this stage, any visualization—no matter how rough or approximate—is better than none.
http://www.fastcodesign.com/1665442/the-3-biggest-barriers-to-innovation-and-how-to-smash-them
Thursday, November 17, 2011
Inside Walmart Labs - How the World's Largest Retailer Hopes to Sell More By Getting Social
Interesting story about Wal-Mart Labs. This is the division that purchased Grabble. Also interesting in that they are thinking of looking at social media tweets and facebook posts to determine users interests both individually to do targeted marketing and collectively in a geography to do merchandise planning for a store.
Inside Walmart Labs - How the World's Largest Retailer Hopes to Sell More By Getting Social
A Q&A with founder of Kosmix - Walmart reportedly acquired it for $300 Million
By WADE ROUSH, XCONOMY on August 1, 2011 - 10:02 a.m. PDT
http://www.baycitizen.org/technology/story/inside-walmart-labs/\
One of the most head-scratching tech headlines of April 2011 was the news that Kosmix, a Mountain View, CA-based startup best known for building a Twitter filtering tool called TweetBeat, had been acquired by Walmart. Yes, that Walmart—the one with 9,000 big-box stores spread across the American heartland.
For one thing, Walmart already has a large technology presence right here in the Bay Area: you can see the big “Walmart.com” sign on the e-commerce division’s building from Highway 101 in Brisbane. So it wasn’t clear why the company needed a second Silicon Valley redoubt. Even more puzzling, Kosmix’s so-called “social genome” platform, which the company had been applying in areas like news aggregation and categorization, didn’t seem to have much to do with Walmart’s business problems—such as narrowing the gap with e-commerce market leader Amazon, for example.
There was speculation that Walmart’s real interest was in Kosmix’s founders, Venky Harinarayan and Anand Rajaraman, who have unbeatable pedigrees in the world of e-commerce technology. The pioneering comparison shopping site they co-founded in 1996, Junglee, was acquired by Amazon in 1998 for $250 million; inside Amazon, the pair helped to create the e-retailer’s huge marketplace of third-party retailers and came up with the technology behind Amazon Mechanical Turk. Perhaps Walmart—which paid $300 million for Kosmix, according to AllThingsD’s Kara Swisher—wanted Harinarayan and Rajaraman to work similar miracles for Walmart.com?
Those were the questions on my mind when I drove down to the former Kosmix headquarters, now WalmartLabs, in Mountain View a couple of weeks ago. I talked for about hour with Rajaraman, who now shares the title of senior vice president of Walmart Global eCommerce with Harinarayan; he’s also an active Silicon Valley investor and writes about his big technology passion, data mining, at a blog called Datawocky. It turned out to be the most extensive interview that either Kosmix founder has given since the acquisition, and I learned a lot about why Walmart thought Kosmix was interesting, and what kinds of capabilities Rajaraman thinks his 70-person team can bring to their new employer.
A lot of it has to do with unsurprising things like improving the product recommendations that Internet users get when they go to Walmart.com, and tapping shoppers’ smartphones as a marketing channel. But Rajaraman also pointed to some more interesting applications for Kosmix’s social genome technology—like monitoring social media conversations in the vicinity of a physical Walmart store for signals about what goods that store should stock.
But we’ll have to wait a bit longer to see what concrete products, features, or campaigns emerge from the Kosmix acquisition. Rajaraman said his team is hard at work on some features that will likely make their debut before the 2011 holidays. He dropped heavy hints that smartphone apps and an enhanced presence for Walmart on Facebook will figure in the changes somehow, but stayed largely mum about the specifics. “In six to eight months the impact is going to be visible, for sure,” he said.
Here’s the interview transcript, edited for length.
Xconomy: What’s the big picture behind Walmart Labs—why would Walmart want a bigger presence in Silicon Valley?
Anand Rajaraman: Walmart is the biggest retailer in the world, but they are not the number-one player in e-commerce—Amazon is. About a year ago, Walmart decided that e-commerce is a strategic priority. It’s not like they had not been investing in e-commerce, but they said, ‘It’s time to go to the next level.’
When you do that, what’s important is to look at how the world has changed. Are there some assumptions that can be challenged, or some trends that can be used, to leapfrog the 800-pound gorilla in e-commerce?
If you think about the way the world has changed in the last two years, there are two big, disruptive changes that have happened, and one of them is social networking. People are spending more time on Twitter and Facebook and the like. And the other is smartphones. For the first time this year, more smartphones were sold in the US than feature phones.
If you put these two things together, they will be as disruptive to retailing as the advent of e-commerce was 15 years ago. The biggest disruptive change in the last century was the development of the highway system, which led to big-box retailing. Then came the invention of the Web. And the third disruption is social and mobile. In each case, the way people shop was changed. The goal of Walmart Labs is to make sure that Walmart is at the forefront of “e-commerce 2.0,” so that we help define it rather than playing catch-up.
X: Why do you think Walmart was attracted to acquiring Kosmix, specifically, as the nucleus for WalmartLabs?
AR: It’s a combination of things. The first is the platform we are building. The fundamental technology we were building at Kosmix is called semantic analysis. We understand the meaning of things. If somebody tweeted “I enjoyed Salt,” we would know that it was a movie with Angelina Jolie and not a food. We are applying semantic analysis to social media and trying to understand the connections between people, topics, places, and products.
We map that space, and we call it the “social genome.” We were using it to operate the Tweetbeat site, where you could find out the pulse of what was going on in social media. But if you look at the founders and management team of Kosmix, we have significant e-commerce experience, and it was pretty obvious to us that the social genome we were building had serious applications to e-commerce.
If you think about the evolution of e-commerce, Amazon did a lot of things right, but the key was using the data they gathered about customers to improve the customer experience. Telling you “People who bought this product also bought these other products”—things like that. Still, there are two significant limitations. One is that Amazon learns about users only by what they do on-site. The products I purchase are a very small window into me, and sometimes a misleading window. Whereas social media gives a much broader window. If you can, with the user’s permission, understand more about what people are passionate about, you can market to them much more accurately.
The second insight is that we can do this anytime if we put an app on their smartphone. When they walk into a Walmart store, we could tell them, ‘Hey, here is a product that we think you will be interested in.” It’s the combination of social and mobile with the Kosmix semantic analysis technology that was the attractive thing for Walmart.
X: Okay, now let me turn the question around. Why would Kosmix want to be part of Walmart? Why would a relatively small, nimble team of Silicon Valley innovators want to work for one of the largest companies in the world?
AR: What really motivates any technologist is the opportunity to build products that are used by hundreds of millions of people and make a big impact. The thing about Walmart is that we get that opportunity. We have this really big canvas to paint on. Any product we build will instantaneously be used by tens of millions of people.
X: But in a way, it still surprises me that a bunch of startup guys like yourselves would want to be part of Walmart, which, just by virtue of its size, has got to be a pretty bureaucratic place.
AR: You’d be surprised. Walmart has been one of the most innovative companies—they practically invented big box retailing, after all. They’ve made huge innovations around the supply chain and merchandising. I teach a class on data mining at Stanford, and interestingly, one of the examples we talk about is from Walmart, which was a pioneer in that space. Perhaps the one place where they didn’t innovate as fast as other companies was e-commerce where they clearly were not the leaders. But it would be wrong to say they do not innovate.
X: What was your company culture like at Kosmix, and how do you think you will fit within Walmart? What place will you have?
AR: My belief is that one of the best environments for innovation is graduate school. So that is the culture we have at Walmart Labs—it’s freewheeling and somewhat informal, with people yelling at each other, coming up with ideas all the time, having hallway discussions.
Within Walmart, it’s not like we will be the only people coming up with ideas. Walmart has 2.2 million associates, and there are many bright, talented, and committed people that I have had the pleasure of meeting, and they all have many ideas. But we can at least be a way to channel those ideas and bring some of them to reality. We are a place where if somebody has a great idea, they can come tell us.
X: Are there things you feel you can do to improve the way Walmart functions as a business?
AR: We talked about [using the social genome and semantic analysis for] building traffic at Walmart.com. Another kind of project we are doing will explain to you some of the scope of WalmartLabs. If you take any specific Walmart store, it lives in a community, and each one is different, and therefore the assortment of products at that store should reflect the needs of that community. So far, it has been a lot of guesswork to make the assortment reflect the community. But one of the things we can do is use semantic analysis to analyze the area around the store and find out what people’s interests are, and use that to influence the store. Image the impact of that across 9,000 stories with a billion visitors every month.
One of the [other] possibilities is to figure out if there is a new venue for e-commerce outside of Walmart.com. At the end of the day, retail is all about location. People put stores in downtown areas for a good reason. Where are people online these days? They are on Facebook So stay tuned.
X: I wrote about Shopkick recently—they have a technology for detecting whether customers are inside a bricks-and-mortar store and delivering digital reward points to their smartphones. Can you imagine bringing that kind of mobile interactivity into Walmart?
AR: Absolutely. When somebody walks into a store with their mobile, how can we inform them about things that are relevant to them? We have a Walmart mobile app already, and you could imagine simply connecting that with their Facebook account or their Twitter handle and effectively checking them into the store. It could be anything.
At a high level, we are asking what are the best and most innovative ways of connecting customers with products. Can we improve product search using social signals? Can we improve product recommendations? It’s been just two months [since the acquisition] and it takes longer than two months to launch something new. But we are making rapid progress, and I’m sure we’ll be talking very soon about some of the new things that we are working on. We’ll have something interesting for the holidays.
X: This may be my own chauvinism, but I don’t think of people who shop at Walmart as the most technology-savvy consumers. Are they really an interesting test audience for the social and mobile technologies you’re talking about?
AR: I had the same thought at first. But if you look at smartphone ownership, Walmart trends roughly with the U.S. population. The same fraction of Walmart shoppers have smartphones as the U.S. population in general. Also, roughly the same number of Walmart shoppers have Facebook accounts as in the U.S. population. So in some sense, it’s the ideal test audience. If owning a smartphone or having a Facebook account were limited to early adopters in Silicon Valley, then Walmart shoppers would not be the right demographic—but these things are mainstream now.
Inside Walmart Labs - How the World's Largest Retailer Hopes to Sell More By Getting Social
A Q&A with founder of Kosmix - Walmart reportedly acquired it for $300 Million
By WADE ROUSH, XCONOMY on August 1, 2011 - 10:02 a.m. PDT
http://www.baycitizen.org/technology/story/inside-walmart-labs/\
One of the most head-scratching tech headlines of April 2011 was the news that Kosmix, a Mountain View, CA-based startup best known for building a Twitter filtering tool called TweetBeat, had been acquired by Walmart. Yes, that Walmart—the one with 9,000 big-box stores spread across the American heartland.
For one thing, Walmart already has a large technology presence right here in the Bay Area: you can see the big “Walmart.com” sign on the e-commerce division’s building from Highway 101 in Brisbane. So it wasn’t clear why the company needed a second Silicon Valley redoubt. Even more puzzling, Kosmix’s so-called “social genome” platform, which the company had been applying in areas like news aggregation and categorization, didn’t seem to have much to do with Walmart’s business problems—such as narrowing the gap with e-commerce market leader Amazon, for example.
There was speculation that Walmart’s real interest was in Kosmix’s founders, Venky Harinarayan and Anand Rajaraman, who have unbeatable pedigrees in the world of e-commerce technology. The pioneering comparison shopping site they co-founded in 1996, Junglee, was acquired by Amazon in 1998 for $250 million; inside Amazon, the pair helped to create the e-retailer’s huge marketplace of third-party retailers and came up with the technology behind Amazon Mechanical Turk. Perhaps Walmart—which paid $300 million for Kosmix, according to AllThingsD’s Kara Swisher—wanted Harinarayan and Rajaraman to work similar miracles for Walmart.com?
Those were the questions on my mind when I drove down to the former Kosmix headquarters, now WalmartLabs, in Mountain View a couple of weeks ago. I talked for about hour with Rajaraman, who now shares the title of senior vice president of Walmart Global eCommerce with Harinarayan; he’s also an active Silicon Valley investor and writes about his big technology passion, data mining, at a blog called Datawocky. It turned out to be the most extensive interview that either Kosmix founder has given since the acquisition, and I learned a lot about why Walmart thought Kosmix was interesting, and what kinds of capabilities Rajaraman thinks his 70-person team can bring to their new employer.
A lot of it has to do with unsurprising things like improving the product recommendations that Internet users get when they go to Walmart.com, and tapping shoppers’ smartphones as a marketing channel. But Rajaraman also pointed to some more interesting applications for Kosmix’s social genome technology—like monitoring social media conversations in the vicinity of a physical Walmart store for signals about what goods that store should stock.
But we’ll have to wait a bit longer to see what concrete products, features, or campaigns emerge from the Kosmix acquisition. Rajaraman said his team is hard at work on some features that will likely make their debut before the 2011 holidays. He dropped heavy hints that smartphone apps and an enhanced presence for Walmart on Facebook will figure in the changes somehow, but stayed largely mum about the specifics. “In six to eight months the impact is going to be visible, for sure,” he said.
Here’s the interview transcript, edited for length.
Xconomy: What’s the big picture behind Walmart Labs—why would Walmart want a bigger presence in Silicon Valley?
Anand Rajaraman: Walmart is the biggest retailer in the world, but they are not the number-one player in e-commerce—Amazon is. About a year ago, Walmart decided that e-commerce is a strategic priority. It’s not like they had not been investing in e-commerce, but they said, ‘It’s time to go to the next level.’
When you do that, what’s important is to look at how the world has changed. Are there some assumptions that can be challenged, or some trends that can be used, to leapfrog the 800-pound gorilla in e-commerce?
If you think about the way the world has changed in the last two years, there are two big, disruptive changes that have happened, and one of them is social networking. People are spending more time on Twitter and Facebook and the like. And the other is smartphones. For the first time this year, more smartphones were sold in the US than feature phones.
If you put these two things together, they will be as disruptive to retailing as the advent of e-commerce was 15 years ago. The biggest disruptive change in the last century was the development of the highway system, which led to big-box retailing. Then came the invention of the Web. And the third disruption is social and mobile. In each case, the way people shop was changed. The goal of Walmart Labs is to make sure that Walmart is at the forefront of “e-commerce 2.0,” so that we help define it rather than playing catch-up.
X: Why do you think Walmart was attracted to acquiring Kosmix, specifically, as the nucleus for WalmartLabs?
AR: It’s a combination of things. The first is the platform we are building. The fundamental technology we were building at Kosmix is called semantic analysis. We understand the meaning of things. If somebody tweeted “I enjoyed Salt,” we would know that it was a movie with Angelina Jolie and not a food. We are applying semantic analysis to social media and trying to understand the connections between people, topics, places, and products.
We map that space, and we call it the “social genome.” We were using it to operate the Tweetbeat site, where you could find out the pulse of what was going on in social media. But if you look at the founders and management team of Kosmix, we have significant e-commerce experience, and it was pretty obvious to us that the social genome we were building had serious applications to e-commerce.
If you think about the evolution of e-commerce, Amazon did a lot of things right, but the key was using the data they gathered about customers to improve the customer experience. Telling you “People who bought this product also bought these other products”—things like that. Still, there are two significant limitations. One is that Amazon learns about users only by what they do on-site. The products I purchase are a very small window into me, and sometimes a misleading window. Whereas social media gives a much broader window. If you can, with the user’s permission, understand more about what people are passionate about, you can market to them much more accurately.
The second insight is that we can do this anytime if we put an app on their smartphone. When they walk into a Walmart store, we could tell them, ‘Hey, here is a product that we think you will be interested in.” It’s the combination of social and mobile with the Kosmix semantic analysis technology that was the attractive thing for Walmart.
X: Okay, now let me turn the question around. Why would Kosmix want to be part of Walmart? Why would a relatively small, nimble team of Silicon Valley innovators want to work for one of the largest companies in the world?
AR: What really motivates any technologist is the opportunity to build products that are used by hundreds of millions of people and make a big impact. The thing about Walmart is that we get that opportunity. We have this really big canvas to paint on. Any product we build will instantaneously be used by tens of millions of people.
X: But in a way, it still surprises me that a bunch of startup guys like yourselves would want to be part of Walmart, which, just by virtue of its size, has got to be a pretty bureaucratic place.
AR: You’d be surprised. Walmart has been one of the most innovative companies—they practically invented big box retailing, after all. They’ve made huge innovations around the supply chain and merchandising. I teach a class on data mining at Stanford, and interestingly, one of the examples we talk about is from Walmart, which was a pioneer in that space. Perhaps the one place where they didn’t innovate as fast as other companies was e-commerce where they clearly were not the leaders. But it would be wrong to say they do not innovate.
X: What was your company culture like at Kosmix, and how do you think you will fit within Walmart? What place will you have?
AR: My belief is that one of the best environments for innovation is graduate school. So that is the culture we have at Walmart Labs—it’s freewheeling and somewhat informal, with people yelling at each other, coming up with ideas all the time, having hallway discussions.
Within Walmart, it’s not like we will be the only people coming up with ideas. Walmart has 2.2 million associates, and there are many bright, talented, and committed people that I have had the pleasure of meeting, and they all have many ideas. But we can at least be a way to channel those ideas and bring some of them to reality. We are a place where if somebody has a great idea, they can come tell us.
X: Are there things you feel you can do to improve the way Walmart functions as a business?
AR: We talked about [using the social genome and semantic analysis for] building traffic at Walmart.com. Another kind of project we are doing will explain to you some of the scope of WalmartLabs. If you take any specific Walmart store, it lives in a community, and each one is different, and therefore the assortment of products at that store should reflect the needs of that community. So far, it has been a lot of guesswork to make the assortment reflect the community. But one of the things we can do is use semantic analysis to analyze the area around the store and find out what people’s interests are, and use that to influence the store. Image the impact of that across 9,000 stories with a billion visitors every month.
One of the [other] possibilities is to figure out if there is a new venue for e-commerce outside of Walmart.com. At the end of the day, retail is all about location. People put stores in downtown areas for a good reason. Where are people online these days? They are on Facebook So stay tuned.
X: I wrote about Shopkick recently—they have a technology for detecting whether customers are inside a bricks-and-mortar store and delivering digital reward points to their smartphones. Can you imagine bringing that kind of mobile interactivity into Walmart?
AR: Absolutely. When somebody walks into a store with their mobile, how can we inform them about things that are relevant to them? We have a Walmart mobile app already, and you could imagine simply connecting that with their Facebook account or their Twitter handle and effectively checking them into the store. It could be anything.
At a high level, we are asking what are the best and most innovative ways of connecting customers with products. Can we improve product search using social signals? Can we improve product recommendations? It’s been just two months [since the acquisition] and it takes longer than two months to launch something new. But we are making rapid progress, and I’m sure we’ll be talking very soon about some of the new things that we are working on. We’ll have something interesting for the holidays.
X: This may be my own chauvinism, but I don’t think of people who shop at Walmart as the most technology-savvy consumers. Are they really an interesting test audience for the social and mobile technologies you’re talking about?
AR: I had the same thought at first. But if you look at smartphone ownership, Walmart trends roughly with the U.S. population. The same fraction of Walmart shoppers have smartphones as the U.S. population in general. Also, roughly the same number of Walmart shoppers have Facebook accounts as in the U.S. population. So in some sense, it’s the ideal test audience. If owning a smartphone or having a Facebook account were limited to early adopters in Silicon Valley, then Walmart shoppers would not be the right demographic—but these things are mainstream now.
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