Creativity in business. How to generate innovation? | Business strategies #11

Lack of innovation is dangerous

Why are startups failing? This question was asked by representatives of the analytical firm CB Insights in 2021. Searching for an answer, they studied the reasons for the collapses of 111 startups and concluded that there is usually no single cause. Startups fail for a variety of reasons. According to the findings, we can name twelve.

Among the major causes of failure were such obvious ones as the lack of capital for the development or marketing of products and services that no one needs. These two items topped the list. But there were also less obvious reasons, such as a flawed business model, pricing policies problems with pivoting, or to put it in more Polish than startup terms, problems with changing direction. These are all areas where there is plenty of room for innovation.

Without an innovative approach, you may eventually disappear from the market, whether it’s local or global. Thousands of companies in every corner of the globe have found this out. Even those who in their glory years led the market. Let’s look at what happened to Kodak company, or Blackberry.

The former controlled three-quarters of the photographic market in 1996, generating revenues of $16 million. But Kodak slept through the digital revolution and fell far behind its competitors. Blackberry, for its part, was at one time a more popular phone than the iPhone. But it underestimated the touchscreen era. The rest is history.

Why to bring this up?

• First of all – stay put. Observe the market. Innovation starts with observation.
• Second – innovation has more than one name or dimension. And about that below.

Innovation – what it is and in what dimensions it occurs

For every organization, innovation will mean something different. And their level of sophistication varies depending on the maturity level of the organization in question. At Huge Thing, we often use the “3 Horizons of Innovation” model to explain this. – says Monika Synoradzka, CEO of Huge Thing and partner at SpeedUp Group.

What’s the point? My caller explains:

• The First Horizon of Innovation is the one that addresses the needs of the here and now, priming the company in its current position (maintaining the status quo).
• The Second Horizon of Innovation responds to challenges that the organization is aware of, but which the organization still needs to experience. This type of innovation helps chase the competition, but it does not build an advantage in the long term.
• The Third Horizon of Innovation concerns the most groundbreaking one, reaching far beyond the organization’s status quo today. They are the ones that build competitive advantage, but reach for them and allow for numerous experiments (and inherent failures), companies need to build awareness within the organization of the value that innovation brings, i.e., create a culture of innovation within themselves.

Innovation vs. types of startups

Taking into account the aforementioned “3 Horizons of Innovation” model and how innovations affect the market, we can roughly divide startups into three categories:

• Disruptive – these are startups that are innovative enough to revolutionize the way their market operates completely. A good example is the Airbnb platform, for example, which has changed the way we look for short-term, vacation accommodation today.
• Incremental – these types of startups make small innovations to existing products and services. For example, Uber Eats has made it more convenient to order food from your phone and mobile app.
• Me too – the last category of startups does not create innovations, but transfers them from one market to another. Their founders notice something interesting in the United States, for example, and then implement the solution in their market.

Multidimensional innovation

Importantly, innovation in companies is often looked at solely through the lens of product. However, this is too narrow a view, as innovation can encompass the product as well as the processes, pricing strategies, distribution channels and much more.

By the way, let’s look at examples. Let’s take Netflix first.

Netflix

When Netflix entered the market in 1997, at the time it was a movie DVD rental service. But by then it had already innovated its business model, or more specifically, the way it delivered discs to customers. Instead of traditional, stationary outlets, the Netflix team relied on a remote distribution network based on the mail. As a result, customers didn’t have to go anywhere to rent movies – they were delivered to their addresses, straight to their mailboxes.

Over time, Netflix also innovated in pricing, the way it charges for access to its offerings. That’s when the company first entered the subscription model. It’s still using it, but nowadays on a massive scale. And it achieves scale thanks to another innovation – namely, it owes it to its decision to go online.

Uber

Before Uber came on the market, to order a cab, you either had to call the number of the ride-hailing operator or go to a cab stand. Uber has changed that. Today, all you have to do is install the app, indicate the address you want to go to and order a driver. From this point of view, Uber has changed the entire industry – today many other companies offer rides from within the app.

What about Uber itself? What innovations shaped this company? The key innovation was the choice of a business model based on marketplace and ride-sharing. This allowed Uber to hire not only licensed cab drivers but also “civilians.” Another innovation was the expansion of Uber’s services to include a variety of transportation options, such as electric bikes and scooters.

SunRoof

Photovoltaic panels on roofs don’t look particularly aesthetically pleasing. Lech Kaniuk, the co-founder of the Polish-Swedish technology startup SunRoof, which installs entire solar roofs instead of panels, has realized this. So in his case, the innovation is purely product-based. But that’s not all.

When I asked Lech about the most creative, innovative business decisions that strongly influenced or even changed his company, he listed three such events:

1. The decision not to limit SunRoof’s role to “just” a company, providing an innovative solar roof, but to follow the vision of creating a virtual power plant that manages the energy of our customers.
2. The decision to digitize the entire process – from design to customer service. We are getting closer to making it with SunRoof. This new tool integrates all documents and systems implemented in the company in one place, supporting the management of the construction process and improving investor service.
3. Creating a dedicated financial product to expand our offerings. We want to be able to offer our roof for £1 as early as next year. What’s more, thanks to the energy generated, this roof will pay for itself.

The Village

In the case of this Polish startup, the most interesting innovation has a social dimension – we’ll get to that in a moment. The Village is a marketplace that connects parents looking for professional care for their children and people who can provide it.

And here comes an innovation in the social dimension that is particularly intriguing. The startup is changing the way women are professionally activated after maternity leave. It simply gives them a job. The second interesting thing about The Village. Working on innovation in a company is only possible if the founder works on himself. This is what Aleksandra Kozera, the project’s originator, pointed out:

“Parting ways with my partner, staying true to my values, and prioritizing my product and customer experience have been crucial to the success of my business. Therapy helped me discover my motivations and set me on the right path. It’s not only about the digital aspect but also about providing quality education that attracts customers and encourages them to return.”

How do you generate innovation? How to begin?

If we were to chart innovation into a process, specific steps that almost any startup can go through, what stages would that process consist of?

“It seems that here it’s best to apply the approach of the classical model of product and service design. We distinguish the following stages,” says Monika Synoradzka.

• Defining the challenge – involves identifying the challenge or problem we want to address;
• Data collection – we complete information on the challenge. Importantly, the completion of information and its selection accompanies us throughout the process;
• Generating ideas and selecting them – that is, working on a product, solution or service;
• Work on the so-called MVP – that is, the simplest form of a solution, service, product that we can test with users;
• Testing with users – and then modifying the MVP, re-testing and deploying.

In the process, beware of mistakes. Which ones? – The first is to wait as long as possible to confront the idea and concept with users and customers. Counterintuitively, despite the popularity of the Lean Canvas method, which focuses strongly on defining the problem, there are teams all the time that don’t listen to customers’ needs, according to the CEO of Huge Thing and a partner at SpeedUp Group.

At the same time, he adds, another replicated mistake is not properly defining the customer’s needs, not understanding the customer’s environment and on what basis decisions are made. This is very evident among startups that target their solutions to the B2B sector, especially large organizations.

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