I was co-organising an innovation senior management offsite of a major logistics company. Hundreds of thousands of employees. Yes, even C-level management needed a few floors in a hotel to get together, the company was that big.
It was remote, sunny, and balmy. Weaving in and out of the main collection area on one of the floors, I discovered stylized pictures of drones, funky vehicles with happy people, and other things in the same note hanging on hotel hallway columns.
“What’s this?” I asked a colleague.
“They’re inventions that have come out of their R&D department.” with a wry smile.
“So they have come up with some cool gadgets, clearly.” I commented.
We both knew what was missing, just looking at this funky little shrine to this company’s innovations. Just because they funded amazing technical breakthroughs, there wasn’t enough to really move ahead with a fully commercialized innovation. That said, we were clearly happy for them. It’s to their credit that they had the self-awareness to explore how to commercialize what they’d created. And to explore what that meant in an offsite.
For true innovation to happen, 3 factors need to be in place and internally consistent:
- The technology
- The market
- The delivery process
And in all three cases, there are usually risks which will could block or derail the innovation, either before or after it’s launched.
The approach for dealing with this is fundamentally similar, regardless of risk type: validation.
Technology Risk: can it be built?
This is the domain of the engineers. Actually, it’s usually where they feel the most comfortable. First they come up with a theory of how something complicated could work. Then, bit by bit, they build out a system or a prototype. They focus on the biggest unknowns first–to “front load” the learning.
As they do this, there are usually a bunch of surprises (if it’s a big enough technical breakthrough & departure from the current state of their awareness). But surprises are an expected part of the process.
Finally, once the approach is fully validated, they can quick fill in any remaining gaps–now that they are clear exactly how their product needs to be built.
I’ve experienced this many times on software engineering teams.
If my team and I would have known exactly how to build something, the amount of time it would take to “fill in the gaps” would be relatively minuscule and easy to estimate. On a small scale, I experienced this a few times when I spent a few days figuring out how to approach a specific technical problem, found one I liked, and then lost the code due to a merge conflict where the saving of my work messed it all up. As I’d already done the hard work of figuring out how to do it, retyping the same code took an hour. Not a few days again.
The biggest bottleneck in early stages of a technical project is learning. And the ability to figure out exactly how to build the product, so that it works well and solves the customer’s problem. That’s pretty much the essence of technology risk. This applies to both prototyping, as well as figuring out how manufacture the product cost effectively if it’s hardware.
Market Risk: is it worth building?
The next big innovation area which requires deliberate focus is the market. Without a market, an innovation can’t happen. It’s just a clever invention.
Here’s what I mean:
Last night I went to a blockchain meetup where two startups presented what they were up to. The standard type of networking gig in a startup environment.
- One of the startups, Arteia, was a blockchain for art collectors startup. The idea was that blockchain could be used by 600000 wealth art collectors to sell, value, or liquidate tokens on the specific works they hold. The CTO presenting it clearly had done his homework with respect to the market. He knew the market structure, the main players, he’d established contacts there and even self-funded by selling directly to these wealthy connoisseurs. In other words, he had clear market segments and knew exactly what value propositions would excite each of them. Even though the entire technical vision was still far from implemented, market risk had been taken seriously in addition to technical risk.
- The other startup (which I won’t name) was a tool for remote video streaming in the travel industry. The idea is that you can connect with locals in a country where you are about to travel for specific advice. The expected revenue in the first year was $12mln, selling information about both sides to the travel industry players. Here, the startup CEO was gushing about technical possibilities of the technology in this space. Yet he seemed as though he had little contact with the actual surfer dudes in Thailand he wanted to target. He claimed he’d done interviews to determine that people were willing to spend up to $15 on a service like this. But most of his presentation was about a wooly business model and very little evidence about market interest or alternatives…are they using skype? What exactly does video chat give them in this case? Who is the actual target early adopter who has a really serious need? It doesn’t make a difference how good his technology is if this market risk isn’t addressed head on.
In a corporate environment, the innovation equivalent takes a slightly different form.
There are strong incentives to show J-curves in revenue, ideally topping out in the billions for a new product idea…even before anything is really known. Eric Reis writes about an example of this at GE in his book The Startup Way. These curves look great, but are actually highly uncertain one way or another. They’re based on assumptions that are typically completely unproven. If data is explicitly gathered to prove the key assumptions behind such a graph, then at least you can increase the probability of the billion dollar cash flows a few years out. But frequently this is the domain of a few highly-placed people making a big bet on a hunch behind closed doors.