On Innovation

Over the years, I have worked with a number of large and medium-sized companies on innovation related efforts. All have expressed the desire to innovate, but most have fundamental issues that prevent internal innovation from succeeding. At Don’t Panic Labs, we work with companies to help overcome technical limitations, but many of the fundamental challenges are actually cultural. Two that we see most often are Trust and Patience.

Trust

Trust is a two way street. This is particularly true regarding innovation driven by internal forces. The first trust problem is usually seen in companies that have deep knowledge regarding the fundamental business challenges that threaten to derail the entire business or large business units. This knowledge often resides at the upper echelons of management where it needs to be pushed down to the individuals responsible for solving the challenges presented by an evolving business environment. In this case, as I have talked to leaders, they express two primary trust concerns:

• Can my people actually solve this problem?
• Will my people steal the knowledge to set up a competing business?

The other trust problem exists within the pool of corporate innovators that are not in the upper echelons of management. Many great ideas come off the line in manufacturing organizations or are evolutionary ideas out of research and development practices¹. In reference to the first idea of line based innovation, when I talk to leaders in certain organizations I repeatedly hear that “our innovation” comes from everyone in the organization. This is not an industry-specific idea. I have heard this in healthcare, construction, government, software, etc. It persists through the belief that anyone can innovate here². However, when I talk to those same line workers, they suggest that they do not receive the support or encouragement necessary for them to innovate. Specifically, they are viewed through performance metrics that do not value evolutionary change but only incremental improvement on existing metrics.

In these organizations, the trust problem is three-fold. Line workers ask, “Can I trust that I won’t be fired if I try to do something different and it does not work?”, “Can I trust that my organization will adequately reward me if I try something and it does work?”, and “Can I spend time doing things that are in the best interest of my organization – but not necessarily in the short-term best interest of my team, manager, etc.?”

In all of these trust situations, the best practices that I have seen suggest that open communication regarding goals, expectations, and ultimate corporate strategy are critical. Organizations should ask themselves if management and employees understand each other’s desires and are they willing to openly communicate the vulnerability that innovation requires. In most cases, management cannot be vulnerable about exposed challenges in their business. Likewise, employees cannot accurately forecast the resource challenge associated with a leap from a hair-brained idea to a business effort. Thus, both groups end up frustrated and stuck. They want innovation, they talk about innovation; but without being vulnerable and trusting the people and the organization to work together, they cannot leap.

Here are three practical pieces of advice I would recommend on how to open or continue this dialogue:

• Create a regular, dependable forum for conversation between high level leaders and line workers.
• Find real problems with which all levels of the organization recognize the problem, believe it to be important, and can act to create meaningful change.
• Act on some of the ideas that are suggested by giving time, talent and resources (new and valuable resources provided to line workers creates trust on its face), and financial support.

They may seem easy, but being vulnerable is never easy.

Patience

Recently, I was talking to a large organization’s innovation leader and he described his metrics of success. These metrics were business unit metrics akin to existing, long-standing businesses that had limited growth and were managing against an expense load. Innovation does not work like that in very many cases. One fundamental challenge to organizations is that innovation requires investment – not just of dollars but also of time. Innovation takes time and energy and courage. This is why “CYA” managers (who are not renowned for their courage) rarely grant time and spend energy towards innovation.

When we build a startup from scratch, our process is intended to create a business that is profitable and creates real wealth for us, the managers/owners, and other investors. This process is not wholly different than the internal business idea. While we have short-term milestones, technical roadmaps, and other process milestones, we do not have financial expectations that are based on outside-the-company metrics. In other words, for a business that has a long, enterprise heavy sales cycle we do not expect them to have consumer adoption rates at the same level as a game application. That’s just silly. Yet, many large organizations can think of their business units only in certain ways and those ways cloud the view of how a new business unit should produce and act.

The reality is new business units need to grow organically through sales and customer-driven feedback – and that means that they will probably grow differently than existing businesses that are already well-positioned in a substantial market. Getting to this position, business model, etc. can take time. Having patience for pivots and changes in strategy is necessary because these are often hard to predict before the idea is let loose.

But let me be clear. This does not mean that businesses should be able to run forever at a loss. They should not simply be cost centers that suck energy and resources. However, when the organization targets a critical market for long-term growth where it can be successful, the actual positioning and growth may take longer than expected.

Some critical ways to know if your innovation group is trending in the right direction:

1. Do you have clear milestones that are not dictated but are collaboratively generated and reviewed? There should be tension during this collaboration regarding speed and energy needed – but that tension should be based on all parties understanding the building blocks of the milestones. For example, do we know accurate Cost of Acquisition numbers? If not (and for example), let’s assume that we believe that it takes $1000 to acquire a new customer but in reality it takes $1500. Now, we have information by which to make more strategically aware decisions. The company may have to shut down – but it may be less profitable or a sign that customers are more difficult to generate. It might also be a sign that the product should be sold for more or that a different channel for sales is required. However, this is an ongoing information-based discussion – not a quarterly P&L review.
2. Is your innovation team flitting from one idea to another without ever investing time and energy on the hard process of building?
3. Is your innovation team spending inordinate amounts of time on a very small number of non-game changing ideas, products, and services?

Both #2 and #3 are potential indicators of a couple of things. First, you might have the wrong leadership on your team. They might have the wrong risk tolerance or skillset. Doing market research, selling a first product, building a new product, and ultimately building businesses are hard. Not everyone can do it – even really talented people and managers may not be perfectly built to be good intrapreneurial leaders. Finding good leadership is critical. They must be high enough in the organization and long enough tenured that they have an existing network of resources (people, past successes, etc.). However, they also should probably have deep understanding of the problems facing the organization and a willingness to try different things. Thus, hiring somebody from the outside is rarely effective – but you need to find a business leader in your organization that has the vulnerability and openness to try new things. That’s not usually a person selected at random or because they “need a change.” And yet that’s exactly who leads many organizations’ innovation efforts.

Second, this may actually be a sign that your company’s expectations are so high that every swing MUST be a big swing. In other words, as soon as any information is uncovered that suggests that success will take more time or energy than allocated or that the result, even if the idea manifests itself into a palatable business unit, will be too small the leadership shifts to the next idea. I worked with a company’s innovation team that was working on four or five ideas at any given time. But whenever I checked in, they were working on different ones as their primary ideas – not diving deeper into already researched and laid out ideas. This was a significant indicator that their expectations were too high. The company wanted to randomly hit on a couple billion dollar unicorns without ever doing the heavy lifting. That does not happen. That is why billion dollar businesses are rare – and even if your company already has a head start because of distribution advantages, existing manufacturing processes, or great customer relationships, building a business from scratch requires patient understanding of the unique virtues of individual businesses. This takes expertise and time – only generated by large companies by letting the company evolve and grow independently.

Or the expectations are so low that leadership is taking on low-risk opportunities to illustrate innovation without really needing to prove its high efficacy in transforming your underlying business. To illustrate, I consistently hear about organizations that are innovative because they brought a service to the web. Despite the fact that in most cases this service is available by competitors or independent entities, and in some cases for a decade or more. The internet is rarely an innovation driver today – and suggesting that it is may mean your organization does not have high enough expectations. Having an innovation group that has little power and no real mission is not really having an innovation group. Your company may get credit in a trade journal or a random publication but it won’t transform your business. If your goal is transformation and growth, low expectations can be just as damaging as expectations that are too high.

Our Efforts

Don’t Panic Labs works with large and medium sized companies to build innovative, revenue accretive solutions. What???

From a practical perspective, we work on things that make companies money. We try to avoid projects that are simply integration or back end re-architecting. We certainly have done these things because they can be really useful for companies. But our pedigree is in building companies. This means that we spend a lot of our time thinking about how to open markets, build large and scalable systems that are architecturally complex, all while being as efficient as possible to be good stewards of capital. This is exactly the type of technical background that our large company partners have sought. As such, we often act as the powerful technical engine that allows these innovative ideas to take flight.

But in order for our technical prowess to be truly helpful, organizations have to believe in their souls that they are working on problems that can be transformative to their businesses. When we have worked with organizations of this type, we have built great businesses together. But, we have also worked with projects that are being built as nice-to-haves or side projects. These are often side tracked within organizations due to a lack of focus or energy. Thus, it is critical that we work with organizations that are fully-vested in success as a major part of their on-going or future business plans.

So, here’s what we do (at a minimum)³ to help ensure that this is the case:

We spend a lot of pre-contract work going through the project specifics. Ultimately, this leads to a very clear scope of work document. This scope-of-work document provides us a roadmap and is a component of any good technical project. But, it also forces our client to work through the road mapping process with us. This fleshes out strategic challenges. This fleshes out potential time and resource commitments on both teams. This often forces companies to honestly assess the company’s willingness to commit resources to the project.

After building a roadmap and scope-of-work, we will often work through a wire framing process that ensures that the project has the look, feel, and usability that is desired. Again, this process usually creates an opportunity for the two teams to continue to mesh their ideas and ensure that the functionality aligns with the strategy.

We have regular (at least weekly) calls with our client teams. This constant communication means that we are sharing information consistently (if not constantly). During these calls, we certainly spend time on the actual engineering and roadmap progress. But more than simply mapping the project, we are consistently attempting to stay abreast of how the business components of the project are evolving. This might mean re-prioritization due to customer feedback or a scaling up or back of features based on current financial resources. In this way, we dynamically adjust our schedule and timing to ensure that our most important systems are coming online at the right time and in an expedient fashion.

In short, while we cannot solve internal cultural issues of most large organizations. We certainly see them, study them, and work with (and around) them regularly. And we believe that through our efforts we can dramatically work to minimize some of the most prevalent cultural roadblocks to innovation – particularly innovation with an outside consultant. At Don’t Panic Labs, we have worked with many customers from literal start-ups to multi-billion dollar enterprises, and we believe that this makes us both knowledgeable about corporate innovation, but also successful consultants that can boost revenue growth for our clients. We build revenue and businesses – not just nicely engineered systems.

¹ Malcolm Gladwell’s “The Creation Myth” is a terrific article about this second type of innovation (http://www.newyorker.com/magazine/2011/05/16/creation-myth).

² As an aside, I believe that you should have a specific owner of innovation within organizations – not as a gatekeeper but as a communicator, facilitator, champion, and ultimately resource finder.

³ In special circumstances, we actually embed teams from other organizations at our office so that they can operate a de facto skunk works and learn our development methodology first-hand. This forces us to work as an integrated team and usually leads to even more alignment. And in very special circumstances, we actually form joint ventures where we invest time, money, and resources alongside companies. This means that we actively participate with management and with financial outcomes directly tied to the success of the new product/company.