As we all know, pursuing innovation is an incredibly fraught and risky process that frequently lays waste to vast amounts of time, effort, money and talent and only rewards the lucky few who seem to have ‘the right stuff,’ what ever this may be. They also tend to be in the right place at the right time to profit from their shiny new products and services so lovingly and painstakingly developed.
Something referred to in early research on innovation and entrepreneurship by Joseph Schumpeter back in the 1940’s as special ‘lone individuals who carry novelty’ for wider market exploitation and benefit to society(1). Since then we’ve seen the source of innovation pendulum swing to organisations and more recently back to lone entrepreneurs riding the wave of new digital technologies democratising and disrupting nearly every industry.
This shift in the source of innovation and rapid business model exploration is reflected in the startup failure rates figures endlessly reported by the popular media (from all manner of datasets) whilst listing the plethora of possible reasons for such frequent failures between 80-96% from 18 months all the way up to 10 years depending on where you choose to read.
In 2014, CB Insights gathered data from 101 startups to analyse qualitative reasons why they ultimately failed (2). According to the research, reasons stem from a range of internal and external causes such as capabilities, resources as well as organisational and business model configurations.
- No market need (42%)
- Ran out of cash (29%)
- Not the right team (23%)
- Get out competed (19%)
- Pricing / cost issues (18%)
But the number one reason, by quite some margin at 42%, is an entirely customer-centric problem located within the ‘problem/solution fit’ phase of the innovation development pipeline. This begs the question, why does this cause in particular occur so frequently to claim the hopes and dreams (and scalp) of yet another startup venture?
Vision versus solution
The problems start by firstly not clearly understanding what is actually involved in a complete innovation cycle or project and secondly jumping from your ‘vision of value’ straight to your perceived ‘ideal solution’ because you believe it will solve the great problem(s) that you think your customers have. This is further compounded by your personal biases (more on these in a future post), mental energy, physical money, time, passion for the topic and every other reason that motivates you to pursue value creation in the first place. Ironically the more time, money, blood, sweat and tears you put into it, the further from commercial reality you go and the harder it is for you to remain objective and make rational decisions, despite all your instincts and personal ego telling you the complete opposite.
Don’t skip straight to your solution. And why not? I hear you ask. After all, following your instincts is what got you through life this far, so you naturally continue to follow them and jump straight to creating a solution for your master vision. It logically makes sense to you, but it is an enormous long-term risk building tactic. You envisage something full of all the features you can think of and you just know others will want them because you’re a consumer too and you therefore know just as well as them. It’s simply a case of pulling your resources together to make it happen and then you’ll start making money from it, right?
Your field of dreams
At this point I’m going to go off on a tangent and refer you to a 7.5 IMDb rated, 1989 film featuring Kevin Costner called ‘field of dreams’ to demonstrate how lots of startups both private and corporate are prone to running their innovation strategies or lack thereof. If you are in the innovation business, I would highly recommend you watch it.
Aptly named, the story goes something like this. Costner, a corn farmer from Iowa, rather confusingly hears repeated voices telling him that “if you build it, they will come”. After several weeks pondering, he reaches the conclusion that all he needs to do flatten his crops (and livelihood) in order to build a baseball field. Despite reservations by nearly everyone he knows about the sanity of his plan, he destroys his crops to make room for a baseball pitch. Several months later, ghosts of baseball players from the 1920’s and 30’s start appearing in the evenings to play baseball on his newly created pitch and Costner subsequently enjoys the deep satisfaction and sense of overwhelming achievement that his instincts that were in fact, correct all along. In spite of all his critics (and deeply felt relief by his wife that he doesn’t need committing to the asylum), Costner’s character enjoys the heartwarming feeling of achieving the impossible. He built it and they did indeed come. Job done sir.
As the trailer goes, “he believed in the magic and it happened, isn’t that enough?”. For innovation, the answer sadly is a resounding no. Innovation does not work like this, unless you are just born incredibly lucky. But somehow a lot of talented people from startups, SME’s and corporates tend to believe it does and behave in the same way as Costners’ character. It is hard to reason the chances of success following this path, based on gut instincts or management endorsement or future visions of value peaks or even from voices in their heads. In reality, it happens all the time combined with startup failure rate statistics worryingly reflecting this.
Some leaders possess intuitive skills and foresight to achieve success time and time again, but it is based upon high levels of risk and uncertainty. These mythic approaches to value creation are further enhanced by media coverage of industry visionaries who seem naturally gifted at predicting future consumer trends and demands driven by the development of new enabling technologies, reinterpretations of cultural meaning and plenty of creativity to drive radical innovations to market. But in spite of the coverage, these represent rare cases. Most of the time organisations aim to pursue more incremental product or process innovation which also requires reducing risk and uncertainty in the process as an essential minimum requirement. How you do this in an organised, manageable and methodical way is another challenge altogether, especially given the vast complexity of approaches available to managers.
The vastly different approaches to innovation currently available. (3)
It is hard to draw definitive causality conclusions across every situation, but it is fair to say that many startups choose to forge ahead without understanding core consumer needs and establishing a roadmap for early and fast market validations. They end up realising the hard way; too little, too late once released to market. In effect, nobody shows up to play baseball in spite of your best instinctive intensions.
Value creation versus value capture
The inherent risky strategy in Field of Dreams is acknowledged and almost celebrated at the very beginning of the trailer by Costner uttering the words, “I have just created something totally illogical”. Even after you’ve created something illogical based upon your instincts with all the right features that you just know people will want to buy, you have to have a solid business model behind it that ensures you can effectively capture your value back. This requires another mind and skill set altogether. A point so eloquently made in this South Park clip:
The innovation process is messy, complicated, multi-faceted and unpredictable. There is a reason it is referred to as ‘fuzzy’. But put simply you need to deeply understand the world of your user and go from there. At the same time, you need to objectively understand the type of value you are creating and exactly how you will capture value back before you get your validated products or services to market. Without wishing to sound too glum, if you just build it, they won’t come.
If you’re involved in pursuing innovation, I urge you to watch the film and ask yourself at the end, “are we trying to build a field of dreams?” If the answer is yes, it might be worth getting in touch to see how we can help.
(1) Schumpeter, J. A. (1942). Capitalism, Socialism and Democracy. London, Unwin
(2) CB Insights, (2014). The Top 20 Reasons Startups Fail. Retrieved Jan 28, 2017.
(3) Webb, C. (2014). Navigating the Agile Landscape – Agile at Deloitte. Retrieved Jan 25, 2017.