People in companies change and grow; companies themselves tend to be inert

Viewing a LinkedIn video class on innovation, these two words kept popping into my mind: growth and change. In the past, I have amongst others been commissioned to develop new growth points for companies. Generally, these assignments are something like “Help us identify new markets with a €500M to €1B opportunity, something close to where we are now and some ideas more further out.” Generally, this consists of identifying new markets the company is not active in but for which they have 75% of assets and competences in place, and some markets for which they could scrape some relevant core competences but need to learn and grow in a completely new space. Typically, the short-term growth opportunity is taken and the others – read: long term and disruptive – put aside; the short terms prevails with the lowest risk and lowest internal impact above the long term with a higher risk profile, bigger internal impact but potentially a bigger result.

Running a company isn’t only about growing the company – although that is what most company leaders are looking for: organic growth. Running a company is also about continuous development, i.e. consciously taking and seeking a new position, sometimes leading, sometimes following, but definitely not lagging. And above all, making conscious choices about the future and taking risks.

All too often, innovation, growth and development are discussed in the context of evolution and Darwinistic thinking. Evolution in biology is on the one hand a process of millions of years, i.e. very long term, and on the other hand an ongoing process, every single second through copy mistakes each time a cell divides. The continuous change in the outside world defines which of these serendipitous copy mistakes will be advantageous and will survive – the fittest set of characteristics given the environmental pressures. And in all circumstances, change will happen.

In business, these environmental pressures are also present: new technologies on the horizon, competitive pressures, regulatory pressures, etc. The potential impact of these pressures, these changes in the external environment, is increasing with an increasing speed of change – not just as a result of change itself. The key observation is that we as a world, as interconnected societies, are now in an age of continuous change – technology has enabled this. Many traditional (read: corporate or incumbent) companies are still showing coping behavior regarding change (as given the example above) choosing minimal internal impact vs. maximum external impact. These companies stay in coping behavior instead of getting in the habit of learning to adapt quicker and better to changes – to change oneself, continuously.

To give another example is a well-known HealthTech company which has recently voiced the need to become customer obsessed, i.e. not just customer centric. They have approached, quite traditionally, one of the four global business consultancies to help them. Experience shows that you don’t become more consumer centric, let alone obsessed, by following an internal training (which is nearly always how these programmes are executed). If customer centricity is a problem, it nearly is always a result of the company being driven by the wrong key metrics.
If you drive your business by short term shareholder value, you will never become truly customer centric; you are de facto money and not value centric.
If you’re new opportunity requires a different IT system but leadership pushes you to work within existing systems, you not customer centric, you are process centric. Becoming truly customer centric or even, if you so wish, customer obsessed, you need to change the mind-set, the behaviour, dare to do things differently. This is true at least in traditional, incumbent environments. Because, as we all can witness on a day-to-day practice, start-ups are from birth connected to the momentum in the market and the needs, wishes or even whims of their customer; they are not bogged down by shareholders, they are not bogged down by processes – they are free to move and to move quickly.

Changes can absolutely feed growth and development; growth in the context of learning, stretching one’s imagination, experimentation and failure. The challenge in business is not just to accept change but to adopt change and to steer this change towards growth. This is the challenge for leadership: creating the right conditions to enable change. Whereas in nature change is serendipitous, change in business is essentially a conscious and pro-active decision, i.e. a conscious decision to do things differently, to move in a direction, to e.g. grow in a space that is still available for growth but also with some (mid – long term) risk involved, where you can be the first with the characteristics to not only survive but also thrive.

People change and learn first, and as a consequence, companies change and grow.
To change is to grow. It’s a force of nature.

 

The past months I have been approached by companies to help them define their innovation strategy. This sounds great, doesn’t it? Companies consciously making the effort to start exercising their innovation muscle. But what really gets me is the admission that these clients have no clear business strategy to start with and then the realisation that they have no idea about an innovation strategy. I preferably like to define an innovation strategy together with the business strategy, but in traditional, what I would call ‘low innovation power’ companies, having a business strategy, a sense of direction would be a preferable start.

With the speed of technology innovation stretching companies to look at ways to keep the business running and maintaining their position in the market, leadership frequently has problems addressing the next the steps for the company and defining their direction, their ‘true north’.

Confronted with a deluge of startups, introduction of new business models, strong players such as Google, Apple and Amazon continuously building new capabilities and moving into new markets (autonomous driving, health & fitness, space), and with Marc Andreessen’s quote – software is eating  the world – proving to be a huge truth, more mature companies and their leaders endeavour into projects such as digital transformation and ask their people to be more innovative and to come with new ideas for growth.

Innovation is, alas, not just a lever you can switch on. Innovation (technology, process and business model innovation) needs to fed; it needs a fertile environment, the right enabling conditions and a specific mind-set of leadership. You need to understand the nature of innovation to adopt it successfully. Younger companies, have built their innovation model into their DNA; it’s in their blood, their veins, their mind-set –  they don’t even talk about innovation: everything they do is intended to meet the customer’s needs better, quicker and more efficiently, redefining themselves constantly. And, alas, this mind-set is often found lacking by exactly the people asking for more innovation in traditional companies. Some things need to change in a company to enable a sustainable innovation practice: your view of the future, your long vs. short term perspective, your risk adoption profile, your communication about why things work or don’t work, etc., etc. In short, you as a leader need to change.

This post is about the front end of all of this: the role strategy currently plays and should play in defining the future of a company, i.e. how leadership should grasp change.

So what is the current practice in strategy?

Strategy in many companies has been reduced to examining what’s happening in the market now, which companies might be potential M&A targets (whilst most M&A initiatives fail to deliver on key objectives), bench-marking results against current competition set. This is the current comfort zone for strategy departments. In addition, as most current business practices focus on operational excellence, there is no real push from leadership to change the way strategy is functioning. Obviously, this is a generalization of the situation as there are strategy departments that do step outside their comfort zones.

Nevertheless, strategy is no longer about the long term play, what kind of company it should be and in which markets it should be playing. There are several examples such as Nokia, which had to adapt quickly to declining market conditions to re-invent themselves – now three times in a row, that indicate that avoiding a hard turn isn’t that easy. Nokia had no other option than make a harsh re-direction of what the company is about (no longer “Connecting People”). Companies like Fujifilm and Philips take smoother turns, but based on timely detection that the direction they’re currently taking will lead to decline and potentially worse. New entities, and by now the usual suspects, such as Amazon, Netflix and Google, don’t let the market surprise them but create markets over and over again, i.e. seeking and finding Blue Oceans. You might conclude that these companies are specialists in continuously seeking out Blue Oceans and never let themselves get into Red Oceans.

The role of strategy, therefore, should be to continuously seek out what a future business could look like, instead of current practice which is too much focused on the now, on maintaining a position in a current market and not seeking out new value spaces. Strategy should play a much more important role in defining innovation. But it should do so in a strong collaboration with marketing, and especially with insight and intelligence disciplines. Peter Drucker expressed what building business is about: “The purpose of business is to create and keep a customer.” And in this context, strategy and marketing should be left and right ventricular of the innovation muscle aimed at creating and keeping customers.

Strategy should be playing a stronger role of creating customers. Strategy should continuously be working on understanding change(s) in the market. Strategy should collaborate with marketing as that should be the department that understand customer / consumer psychology that drives purchasing behaviour. In addition, and perhaps making this even a bigger challenge, strategy needs to bring the future into the company as quickly as possible, and as the future changes at ever increasing speeds, strategy cannot afford setting out a direction that will last for years.

Each direction might only be valid for 2 to 3 years max. This implies that strategy needs to be defined and adopted as the company develops. Strategy needs to, therefore, also keep an eye on how the company develops; it needs to move back and forth between the now and the future…..continuously…..annually, perhaps even quarterly. Answering the question “What business do you want to be in?” is never as easy as it seems, and the answer never lasts as long as you think or hope. It is most likely to be a continuous evolution rather than a complete revolution.

I remain with the main conclusion that strategy needs to step out of its current comfort zone and, in some instances its isolated tower, to change and adopt a more pro-active role of defining the future of companies. It needs to get closer to the business and closer to the actual changes in society – it needs to actively bring the future into the company and at the heart of your future .

 

The misconception that you can pivot yourself out of all problems, including not understanding your market.

The sad reality of startup and new product innovation is that the odds are against you. Many studies show that the success rates for startups are challenging: 9 out of 10 start-ups fail.

In product innovation, the success rate might be a bit higher, somewhere between 8% and 25%, but nevertheless equally challenging.

So why is it that these odds are so dismal and if we know about these numbers, why haven’t they we learned how to improve?

The Wrong Product
The main reason given for the misadventure of these startups and new products that have failed is that they were the wrong product, i.e. the companies involved put a lot of time, energy and resources to build something nobody really wanted. You might be inclined to conclude that they failed to find a market for their product, but the key aspect here is that these companies, startups and large enterprises alike, failed to understand and define a true need in the market. Without a clear problem definition, you will not be able to address the need in the market in the right way, successfully and sustainably. Steve Jobs is known to have said, “It’s not the customer’s job to know what they want.” Indeed, it is the job of the entrepreneur and marketing strategist to fully understand what drives human purchasing behaviour. Here lays the kernel of many a failure: insufficient understanding on why people behave the way they do and the problems they are dealing with. What many startups and large enterprises do is pay lip service to this process. Needs are taken at face value.
Another frequently used quote comes to mind, that of Henry Ford: “If I had asked people what they wanted, they would have said faster horses.” The beauty of this quote is that we know immediately want people want: faster transportation. But what Henry Ford brought to market was way beyond transport. As no other, Henry Ford understood the predicament of farmers and ranchers, often living in isolation under very difficult conditions. Henry Ford understood that these people needed affordable mechanical solutions addressing the grinding drudgery of farm chores and fieldwork and in addition and on a higher level, transportation and freedom of movement.

Consumer Insight
Front loading your understanding of the need in the market, identifying and defining the problem in the market is the way to avoid building the wrong stuff. Only when you have built a deep understanding of the need in the market (the customer or consumer insight), only then start thinking about how to address the need in the market (the solution). Henry Ford has been front-loading this understanding all his life, having grown up on his father’s farm; that’s how long he has been working at it.

Identifying the need in the market is no mean feat. It’s difficult. It requires a combination of consumer psychology, empathy, structured analysis, interpretation and creative thinking. Most of these skill sets are soft and the combination is difficult to find. In addition, these skill sets collide with the typical technology push attitude of most startups. On top of this, even if you have these skills, you can still get it wrong. Under today’s pressure of an ever-increasing speed of technological innovation, these skills need to be addressed more frequently under duress. This is why identifying and correctly defining consumer or customer needs are given less attention than is warranted.

Nail a relevant problem
In the startup environment the Lean Startup principles are
very much en vogue. Iterative processes with build /measure/learn-cycles ensure that startups build something that is relevant and worthwhile for the market. It speeds up the whole process of innovating. However, even with this pivoting, if you are addressing the wrong need in the market or, even worse, no need in the market, you can come up with solutions that will miss the target. It’s not about finding a market for your solution but finding the market and then start thinking about the solution – you can’t pivot your way out of this. Nail a relevant problem then move forward. Invest more time, resources and energy in finding and defining the problem, front load customer and consumer insight and then, and only then,
build your way to success.

 

I recently re-read one the most inspiring books on entrepreneurism: Start-up nation,  by Dan Senor and Saul Singer . I quote from pages 120-121.

“Large organization, whether military or corporate, must be constantly wary of kowtowing and groupthink, or the entire apparatus can rush headlong into terrible mistakes. Yet most militaries, and many corporations, seem willing to sacrifice flexibility for discipline, initiative for organization and innovation for predictability.”

In one of my roles in the past in a senior position with a corporate, I was responsible for consumer insight and strategy and, thus, for building an outside-in culture, brand driven and consumer & customer centric.

Bringing in the outside world into this environment was centered on two objectives: getting leadership in front on their customer and consumer base, i.e. having them literally listen personally to what people thought of their products (customer safari’s is one of many labels for this exposure), and collecting more market facts, i.e. market data. In this role I held one mantra: the principle of intellectual honesty, brutal honesty or, phrased differently, professional truth. Bringing in the outside world with not only data but also behavioural observation combined with interpretation –what I believe to be true market intel – meant that my team had the obligation to challenge existing assumptions and preconceived ideas.

At a point in time i was asked to leave the company. The reason they ultimately gave me for resignation was that “although I was valuable for the company, they expected I would be too critical towards management.” On face value, the reasoning for my resignation might be confusing: why let someone go if they are of value?  And being critical was part of the assignment, wasn’t it? Personally, I felt it to be a great compliment. As for the company, their line of thought was a direct reflection of the quote from the book Start-up Nation given above. And, also predictably, the company fell back into the old routine of M&A to grow the company instead of generating organic growth through innovation and better and deeper market understanding.

Building business, whether in a start-up or in a corporate, is about beating the competition, or in military terms, beating the enemy. Creating and maintaining an open, intellectual honest culture in which people can challenge reality or perceived reality, innovation and entrepreneurship will be continuously be fed by individual creativity. Having worked both in a start-up environment as well as a corporate environment, I feel this to be true for any area of value creation: from a start-up perspective this is invaluable, but also from an existing or growing business perspective, this is invaluable.  Change comes about when you view the world with open eyes.

Disruptive start-ups operate at the front-end of the market, i.e. where the business opportunity is still so fuzzy, you’re not even sure it really exists. Many discussions have been around defining the real need in the market, the definition of the first customer and how to segment your market when the definition of the market is not clear yet. Recently, as an advisor to Shapeways and Ultimaker, I was involved in the issue of who our customers really are, what our core target is and in which segments can we possibly tap into for growth.

Having been part of the Lifestyle Incubator at Philips – a corporate venturing programme that alas no longer exists – and after setting up my own independent consultancy, I have been at the very front-end of start-ups. And one of the most used models re. innovation is that of the Innovation Adoption Curve of Rogers. Most, if not all marketers, are fully aware of the Rogers Adoption / Innovation Curve.

The innovation adoption curve of Rogers is a model that classifies adopters of innovations into various categories, based on the idea that certain individuals are inevitably more open to adaptation than others. It is also referred to as Multi-Step Flow Theory or Diffusion of Innovations Theory.

Just a brief recap on the model:

InnovatorsBrave people, pulling the change. Innovators are very important  communication.

Early Adopters Respectable people, opinion leaders, try out new ideas, but in a careful way.

Early Majority Thoughtful people, careful but accepting change more quickly than the average.

Late Majority Sceptic people will use new ideas or products only when the majority is using it.

LaggardsTraditional people, caring for the “old ways,” critical towards new ideas and will only accept once mainstream or even tradition.

 

Geoffrey Moore proposes in Crossing the Chasm, a variation of the original curve:
This adaption was created from the perspective of disruptive innovation. According to Moore, the most difficult step is making the transition between early adopters (visionaries) and early majority (pragmatists). This is the chasm that he refers to.

Underlying the adoption of innovation, people go through several steps before actually adopting a new technology. These steps are described in the pioneering work of Beal and Bohen.

Beal and Bohen identified a five-step process that individuals progress through as they make a decision to adopt an innovation. Each of these steps requires a conversion of tacit or explicit information. This information either comes through influences from outside the community or through influential members of the community. Individuals progress through these steps at different rates. The five steps are:

• Awareness. The individual is simply aware the innovation exists. Details are lacking and it is a very passive stage. This awareness is usually driven by sources outside the community and tacit sources of information.
• Interest. The individual wants more information. They begin to wonder if the innovation can help them and are actively seek out new information, both explicit and tacit. Their quest is informed by sources both outside and inside the community.
• Evaluation. The individual mentally examines the innovation using the information gathered, trying to determine whether it will really impact their work and how it will make their effort easier or better. This is a critical stage and the first one where the voices of the community, i.e. key opinion leaders, colleagues, friends, family or neighbours, are often the largest influence on an individual.
• Trial. The individual actually tests the innovation to see if reality matches expectations, usually with small-scale, experimental efforts. Often at this stage, any source of information that is determined to be helpful will be used, although close community ties are still the most important. Individuals are looking for specific help for their specific need.
• Adoption. The individual likes the innovation and adopts it wholeheartedly. It is applied to all areas of relevant use and the individual often becomes a strong advocate for the innovation in the community. Community voices are very important at this stage. The essence here is that your true adopter starts recommending your product / service.

The speed with which each individual passes through these 5 stages will vary depending on the particular innovation, its overall complexity, its costs, and just how disruptive it is to current workflows.

What one has to realize is that each segment in the innovation adoption curve goes through these same stages. The variance in speed and uptake defines in which group people fall into. And even in one segment there are variances to be found.

In the first segment of innovators, all the above may move at an exceptional speed. Awareness and interest might run ahead of the actual prototyping of a new disruptive technology. The mere idea that something is theoretically possible will drive the innovator to seek out where she can obtain a prototype or a product in beta. So basically innovators (and to an extent early adopters) might be running ahead of the game. They seek to trial as quickly as possible. This is one of the fundamental pillars for growing the company: finding a beachhead of innovators willing to try out your new product.  And here lies a caveat.

For a start-up this beachhead can be a double-edged sword. What do you actually know of this innovator group? What drives these people to adopt a new technology or solution so early? And now with the omnipresence of social media and, thus, of a multitude of people influencing other people’s perceptions, who will succumb to the traction of being one of the first adopting a new technology (that will be successful)?

With my work as coach of several start-ups, I have found that the group of innovators can consist of two groups: true innovators and innophiles. Let me expand on this.

Innovators adopt the functionalities and seek the benefits. They seek to solve their specific problem whereas Innophiles are hooked on getting their hands on everything new and different. Both adopt new technology very early on. However, from a growth and continuity perspective, a start-up wants to understand it’s first true customer and not in the ‘cuckoo’ in the nest. This is the difficult task for start-up marketers. Start-up marketers need to get up close with this initial group and identify the true innovator, the ambassador, and the loyalist. The only way identifying these people is by pro-actively reaching out frequently and to listen to the personal experiences with your product or service. Listening and probing are the two main skills here and not pushing your solution. Improving your product might be a better bet than just securing sales. And the community of true innovators will be your source of information to improve the experience with your disruptive technology.

Do Innophiles have value for a start-up? Absolutely! The key value they provide is cash. Innophiles will pay substantial prices to belong to the group that adopted a new technology first. Just as an example, look at the Internet retailer Dynamism.  As one of the lines on their website states, “Since 1997, Dynamism has provided next-generation technology and luxury service to customers worldwide”. This and many other sites offer the latest in technology to people who can afford the premium prices. And the mere fact of their presence indicates that this is a profitable niche market.

As a start-up, cash flow is of course important. The valley of death is well known to all in start-up or venturing ecosystem. So the risk of following the money in this context is perhaps understandable, but also a risk for the continuity and sustainability of the business.