In my previous post, I wrote about the false choices that innovators face. These choices seem to present teams with the option of using business plans to manage innovation or just doing it without a plan, and basing decisions on vision. Often customers are excluded from the process in both cases. And this ultimately leads to innovators failing to make stuff people want.
At the end of the post, I also wrote about a third way which is based on the toolbox that lean startup methods bring to the table. But to fully understand how the lean startup toolbox can help, we need a clear definition of what innovation really is. Without a shared view of what constitutes successful innovation, management and their teams will often speak at cross-purposes and conduct their work with different expectations. The goal of this post is to help provide some of this alignment.
Innovation Is Not Creativity
Creativity is an important part of innovation. I would even go as far as saying that you can’t have innovation without some elements of creativity. However, novelty or newness by itself does not an innovation make. My gripe with the “just do it” camp of innovation is that they place too much emphasis on the value of ideas. Yes, cool new ideas are important. But even with the coolest idea ever, this coolness factor will not make it an innovation. Sorry!
There a load of patents at the US patent office right now that have never been commercial successes. The inventors and scientist made some cool discovery and came up with some interesting stuff, but this is not innovation. These are starving artists. The ones who makes critically acclaimed art but never reach the levels of commercial success necessary to stop working at McDonalds.
To be certain, there is the place for that sort of creativity in the world. My favorite hip-hop artists, the ones I considered to be the best lyricists ever, have never had a number one record on billboard. Some of my favorite gadgets were ultimately flops in the market. They were great to see and we were all wowed by them, but their market failure means that they cannot be considered successful innovations.
And so it is for large companies. Innovation is not setting up a labs, painting white walls, putting in bean bags, postit notes, sharpies and business model canvases; and then telling your people to come up with some cool new products. Innovation is a process that needs management. Giving people a creative space is not enough. To be successful, we have to understand that: Innovation is the combination of creative ideas and sustainably profitable business models.
What Is Sustainable Profitability?
I will reiterate that creativity is an important ingredient for innovation. Creativity has been an important part of our progress as humanity. But the products, ideas and discoveries that have made the most impact on human progress are those that have gained some sort of traction. This usually involves some exchange of value between the innovators and the users of the innovation. And so to do innovation well, we have to accept that customers are the ultimate arbiters of value.
But what do we mean when we say sustainably profitable business models. To my mind, a sustainable business model is one in which we make stuff people want, and we also figure out a way to create and deliver that value to customers in a manner that is sustainably profitable. Without these elements you do not have successful innovation.
It is possible to make money while delivering rubbish products. This might be for various reasons. Your company may have a lock on the market with high switching costs. Customers may have no other alternatives for meeting their needs. If this is your business model, good luck to you. But you are a charlatan! You might be making money now, but your are a snake oil salesman. You will be found out soon enough!
The Sweet Spot of Innovation
Steve Blank defines startups as temporary organization setup to search for a sustainable business models. The sweet spot of innovation is when your teams have developed a really cool new products, that meet customer needs and make sustainable profits. So in our new book The Corporate Startup, we provide the following lean startup based definition:
Innovation is the creation of new products and services, that deliver value to customers, in a manner that is supported by a sustainable and profitable business model.
When I present the above graphic, I often get push-back from two groups of people; those working in non-profits and those that work on improving internal processes for companies that are not directly customer facing. My answer to them, is that regardless of what you are working on, it cannot be considered innovative unless it has a lasting impact. To classify something as an innovation I look for more than just a great new management process, a great new discovery in medicine or a new method for helping the vulnerable in our society.
I also look for whether the new thing that has been developed meets people’s needs well, and whether we have discovered a sustainable method for making sure we continue to meet people’s needs. Even internal management processes have customers (i.e. the employees who use them). In a recent water resources hackathon I co-hosted for The World Bank in Harare, we placed a strict requirement on the teams that they had to hack around the needs of citizens, rather than try to come up with anything that is cool and interesting. They also had to think about how their solutions could be sustainably taken to scale.
The Job Of Innovators
Management in established companies often struggles to figure how to manage the intrapreneurs in their businesses. What are we to expect from them? But with the definition above, we can start to build management frameworks for innovation. We now know that the job of innovators is not to simply come up with cool new stuff. They have to do that; and also discover sustainable business models. This expectation provides us with clues of how we can manage innovation without the need for business plans.