One of the things that startup guru Steve Blank likes to say is that no business plan survives first contact with a customer. What he means that every idea is wrong. Sometimes it’s off by a little and sometimes it’s off by a lot, but it’s always wrong and the sooner we find its flaws the sooner we can start making it work.
This holds true even when an idea is revolutionary, like electricity or the personal computer. There is always a gap between an idea and it’s impact. In fact, on average takes about 30 years to go from an initial discovery to a significant effect on our lives. That means that the “next big thing” is usually about 29 years old!
So there is no lack of fertile ideas, but still most organizations fail to innovate. The problem is not a lack of intelligence or ambition — any enterprise that is able to stay in business for any length of time obviously has both — but that innovating successfully is profoundly different than running operations, which leads managers to make four fatal innovation mistakes.
1. Seeking Only Large Addressable Markets
Every business plan starts with assumptions. You need to estimate costs, sales and growth for years in advance. Obviously, the more favorable your assumptions are, the better your business plan looks and the more likely it is to attract investment, so you want to build a case for high sales, rapid growth and low costs.
Of course, to be successful, a business plan also needs to look realistic. Costs need to reflect market rates. Revenues need to be based on actual spending trends. There needs to be an analysis rooted in tangible benchmarks, you can’t just pull stuff out of thin air and expect to convince anybody that your plan is viable.
One solution to the problem is to target the largest addressable market you can find. In a multi-billion dollar market, capturing just a few points of market share can seem like a very reasonable assumption and, all of a sudden, your numbers start to work. From a small foothold, you can show years of steady growth.
Unfortunately, the world is not an Excel spreadsheet. No matter how big the market, somebody has to want to buy what you’re selling. So if your product is truly new and different, you need to build for the few, not the many and that means identifying a “hair on fire” use case — a customer who needs your product so badly that they will overlook early glitches.
2. Getting Trapped In Your P&L
The reason that executives feel pressure to identify large addressable markets is that it’s good operational practice. When you want to grow your business, it makes sense to look for more customers. However, there is a fundamental difference between innovation and optimization that leaders too often ignore.
When you are working to improve an existing business, you have a lot of information to work with. You already have customers and should have a good understanding of how they use your product or service. So identifying a large swath of new customers that have similar needs is an entirely sensible way to grow.
However, when you seek to create something that’s truly new and different, you have no way of knowing what the demand will be. The truth is that the next big thing always starts looking like nothing at all. So if you limit yourself to only the opportunities that you can quantify, you’re never going to achieve anything more than an incremental improvement.
One thing that I noticed in researching my book Mapping Innovation is that the best innovators always invest in uncertainty. Although they remain disciplined about resources and manage risk effectively, they make sure they are devoting resources to explore new areas with no idea about what the return will be. Ironically, this was the closest thing I found to a sure bet.
3. Failing To Look Beyond Internal Capabilities
A basic tenet of good management is that you want to leverage your capabilities over as large a footprint as possible. For example, once Amazon learned how to sell books online better than anyone else, it leveraged those same capabilities into other product categories and achieved similar success in the expanded markets.
So, not surprisingly, the first thing most companies look for is a proprietary asset or capability they can apply to a new market. That’s generally very sensible, but it’s also very limiting, because it ignores an enormous range of capabilities and assets among customers, partners, vendors and open platforms.
Sun Microsystems Cofounder Bill Joy once famously said, “no matter who you are, most of the smartest people work for someone else.” That’s very true, but it doesn’t go nearly far enough. The best of almost everything resides somewhere else, so by limiting yourself to what you have internally, you’re putting yourself at a real disadvantage.
Competitive advantage is not something you start with, but something you build over time. So focus less on the assets and capabilities you control and more on those you can access. By using the whole innovation ecosystem, you can greatly extend your ability to innovate.
4. Looking For A Great Idea Instead Of A Good Problem
At any given time, there are far more ideas buzzing around an organization than it can pursue. Rapid changes in technology, market trends and consumer behavior only fuel the fire. With everything that’s going it seems that the potential for innovation is endless and, in a sense, it is. Every year countless new startups are funded and new products are launched.
Most fail. Just because you have an idea doesn’t mean it’s generally viable or that you can make it work. The truth is that innovation isn’t about ideas, it’s about solving problems. The truth is that nobody cares about your ideas, they care about meaningful problems you can solve for them and that’s where you need to focus you energy.
While writing Mapping Innovation, I came across dozens of stories from every conceivable industry and field and it always started with someone who came across a problem they wanted to solve. Sometimes, it happened by chance, but in most cases I found that great innovators were actively looking for problems that interested them.
That’s why the firms that are able to innovate consistently — not one-hit wonders but those who make it happen year after year and decade after decade — have a systematic and disciplined process for identifying new problems. How they do that varies widely, but the core concept remains the same.
So forget about the hype and the myths. It’s the ability to identify and solve important problems that transforms disruption into opportunity.