Some small companies are great at executing innovation. They are speed boats who can develop and execute innovation and therefore change direction quickly. Some though have developed bad habits that can easily kill new growth initiatives inside your company.
- Bad Habit: The current business model dominates the agenda In most companies the future suffers at the expense of the present. The phrase “we have always done it that way” dominates. Companies are great at improving their existing business model and value propositions, but fall short when it comes to inventing entirely new business models, value propositions, and growth engines. In fact, by the time a company realizes it needs to reinvent itself for future success, it’s often too late.
Remedy: Create a protected space in your organisation where you invent and test new business models and value propositions. Equip this “space” with power and prestige. Become an ambidextrous organization — one that is excellent at managing and improving your existing business, alongside inventing new ones.
- Bad Habit: One-size-fits-all decision-making hurts speed & inventiveness Companies that grow and scale proven products and services can quickly fall into a trap of slowness, unthoughtful risk aversion, complacency and failure to experiment. As Jeff Bezos puts it, one-size-fits-all decision making “hurts speed and inventiveness” inside organizations.
Remedy: Amazon distinguishes between non-reversible decisions with substantial sunk costs (like e.g. investing in a new warehouse in Amazon’s case), and reversible decisions like experimenting with a new offer. The former requires slow and careful decision making. The latter requires speed and agility.
- Bad Habit: Insisting on untested and detailed business plans Most established companies require detailed business plans for new ideas. This results in carefully crafted and thought-through documents with detailed spreadsheets and a great focus on how an idea will be implemented. Personally, I am not a fan of the formal business plan. Business plans actually maximize the risk of failure because of the focus on executing an unproven idea rather than testing it. First and foremost, an innovator’s job should be to rapidly, cheaply, and continuously test and adapt ideas until there’s enough evidence from the field to prove they will work. Only the latter helps avoiding big flops because it systematically reduces the risk and uncertainty of new ideas.
Remedy: Use business plans only for execution of existing businesses. Don’t ask innovators for business plans. Instead, implement processes that force innovators to systematically prototype and test ideas, reduce risk and uncertainty, and ultimately provide the evidence that an idea will work and is worth doing.
- Bad Habit: Opinions matter more than evidence Senior leaders acquire a lot of knowledge and experience about their business over the course of their career. Unfortunately, this knowledge may be irrelevant when it comes to new value propositions and new business models. For example, the knowledge that Kodak’s leaders acquired during their successful decades in analog film didn’t equip them for digital photography. Quite the contrary. The rules to compete in the digital age are completely different. That’s why it’s so important for companies to “get out of the building” and interact with customers.
Remedy: Educate business owners that judging ideas for new value propositions, business models, and growth engines requires evidence from the field rather than just “expert opinion” from leadership. Implement processes that judge ideas based not on how they look, but based on the evidence from the field that support them.
- Bad Habit: Outsourcing customer discovery and testing Small companies because of a lack of available resource often hire outside agencies to do market research and customer discovery. That’s dangerous when it comes to developing new value propositions, business models, and growth engines. You can’t hire outside professionals to test and learn from customer interactions and make decisions for you. New ideas require many rapid iterations between prototyping, immediately testing with customers, and then deciding how to adapt your idea based on the acquired insights.
Remedy: For radically new ideas you should defer hiring outside agencies until you’ve found product/market fit. Instead, roll up your sleeves and internalize the hard work of rapid prototyping, testing, learning, and deciding. Third parties can help you with the process, but they can’t do the work for you.
- Bad Habit: Business owners too busy for hands-on innovation Business owners are very busy and time pressed people. Typically, they see the “getting out of the building” to test ideas with customers as a task to be performed by subordinates. But owners must be more than just sponsors of new business ideas. Decision makers are the ones who can make things happen. They are the ones who need to feel the market and talk to (potential) customers to learn that some of their initial assumptions or strong opinions might be completely wrong. Equipped with these market insights they can help move things faster.
Remedy: Distinguish between owners who manage the present like running factories, and owners who are involved in creating the future and need to “get out of the building”.
- Bad Habit: Obsessing about competitors rather than customers Unfortunately, many companies are more obsessed by their competition than their customers. Your customers are far more important than your competitors. Your (potential new) customers can tell you how to beat your competitors. Customer have the evidence your organization needs to validate or invalidate new business ideas and potential growth engines. That doesn’t mean you should completely ignore the competition. After all, business models and value propositions aren’t designed in a vacuum. However, competitors should not be your primary focus.
Remedy: Obsess over your customers first when developing and testing new value propositions, business models, and growth engines. Then, evaluate how these new ideas perform in the competitive landscape.
- Bad Habit: Innovation is siloed from Execution Companies struggle to get the “execution engine” and “innovation engine” to collaborate, rather than to compete. Rather than realizing that managing the present and inventing the future are equally important and should be equally resourced, they often fight for the same resources. Often the execution engine deprives the innovators from access to valuable resources like customers, brand, or skills. That means the innovators end up competing without any competitive advantage against the more nimble and agile startups.
Remedy: Create a culture where executors and innovators collaborate because they understand each other’s value to the organization. Create processes and incentives that grant innovators access to customers, brands, and skills so they can outcompete the more nimble and agile startup ventures.
- Bad Habit: Integrating new ideas into the execution engine too quickly New ideas are fragile and they need to be carefully nurtured and scaled before they are integrated into the execution engine with its rigid processes, key performance indicators rules, and procedures. If you integrate new ideas before they fully mature you might kill them. For example, Nespresso, the successful daughter company of Nestlé, only survived and thrived because they were physically distant from Nestlé’s headquarters.
Remedy: Protect new ideas until they fully mature; for example, like in Nestlé’s case, by locating the project outside of the company’s headquarters.