Companies today need to have a clear vision about how they are going to be conspicuously different from their competitors. In an extremely competitive environment, ‘me too’ strategies are unlikely to be forgiven. Unless businesses offer something different to different groups of customers, they are likely to be swallowed up by the competition.
In his new hard-hitting book, The Innovator’s Manifesto, Michael Raynor, co-author with Clayton Christensen of the bestseller, The Innovator’s Solution, argues that disruption theory, which explains how fringe ideas come to redefine entire markets, is not only a useful idea — it stands alone in actually predicting future success.
How disruptive thinking started
In Christensen’s two books, The Innovator’s Dilemma and The Innovator’s Solution, he posited two different kinds of business innovations:
- Sustaining innovations are those that bring better products to an existing market. Most sustaining innovations are simple, incremental, year-to-year improvements. A useful analogy for a sustaining innovation is the quarter-turn-of-the-screw. With sustaining innovations, the odds overwhelmingly favour the incumbents.
- A disruptive innovation “brings to market a product not as good as the products in the current market, and so it cannot be sold to the mainstream customers. But it is simple and it is more affordable.” Disruptive innovations take root in a small niche of the market but eventually reach the mainstream. “I call that a disruptive innovation,” Christensen said, “not because it’s a breakthrough from a technological sense, but instead of sustaining the trajectory of improvement that has been established in a market, it disrupts it and redefines it by bringing to the market something that is simpler.”
A manifesto for growth
Whether you’re an investor, an entrepreneur, or a manager, you live with the unavoidable paradox that although you believe passionately in whatever specific undertaking you are committed to today, you understand that of the many initiatives you may undertake or be involved in, most will fail to be breakthrough winners.
Raynor’s The Innovator’s Manifesto contains new research showing how disruption theory is unique in its ability to help managers predict the success or failure of a company or product. He explains why disruption theory is so powerful — and provides the roadmap managers need — to use disruption theory to shape new products and ventures in their own industries in ways that make ultimate success possible.
So what do you do if you are not able to reliably pick or create successful innovations? Raynor suggests the following three-stage approach as state of the art in innovation management:
Start with lots of ideas
Ideas are brought to life by activities such as innovation competitions and teams that focus on developing great new ideas. It’s an approach taken by companies like Google which gives people some unstructured time to pursue projects that they are passionate about. Google believes that when you give smart people space to innovate, you unleash the power of imagination, ideas and connectivity to change the world. Despite its size, Google still maintains a start-up culture. Its work is project-based and its commitment to innovation depends on everyone being comfortable sharing ideas and opinions. Googlers have the opportunity to develop 20% Projects, where they take 20% of their work time to work on projects that they’re personally passionate about. One such project led to the development of Gmail.
The implicit belief is that since we cannot know in advance what the characteristics of a successful idea are, we have to get as many ideas as we can from as many diverse sources as we can.
Try out as many of your ideas as you can in the marketplace to see what works
We need some way of sorting the wheat from the chaff, and since we can’t rely on our judgement we try out as many concepts as possible in the market. We create ‘lean start-ups’ in the hope of ‘failing fast’ so we can ‘iterate’ toward a winning formula. Those concepts that meet with early approval from the market are the ones we deem likeliest to succeed.
Innovation usually results from trial-and-error experimentation and sometimes occurs incidentally where researchers produce something other than what they intended.
Stick with the successes and abandon the failures
In the hope that those products early adopters embrace have long-run potential, we commit to those and abandon the rest. As we scale up, we must live with the uncertainty that as we cope with the demands of growth, we can adapt effectively.
What this proves
According to Raynor, the apparent waste of this extravagant approach to innovation need no longer be meekly accepted. New evidence shows that disruption theory can materially and significantly improve predictive accuracy when creating or picking successful new businesses. The core of Raynor’s case for the predictive power of disruption theory is a study of Intel’s New Business Initiatives (NBI) group, whose job it is to investigate opportunities far afield from the company’s current operations. In this study, disruption theory proves to be a better predictor of new venture success and failure than other theories.
This conclusion was confirmed in a follow-up study in which MBA students were given business plans drawn from venture capitalist pitch decks and asked to use different theories to predict what happened to the companies. Over 500 MBA students from Harvard, MIT, and Ivey Business School in London and Toronto analysed a portfolio of 48 business proposals funded by Intel Corporation. After just one hour of instruction in disruption theory, 50% were more likely to pick businesses that survived in a business plan competition. Once again, disruption theory proved to be the best predictor of future success.
These results imply that it is possible to identify successful new businesses at the earliest stages of development. And the consequences for how we manage effective innovation programmes can be profound, says Raynor. Instead of ‘variation-selection-retention’ – a framework designed to compensate for our ignorance – we can now build upon our improved understanding with an entirely new paradigm.
If we can identify the predictors of disruption, he maintains, we can find and create those circumstances,
and therefore increase our likeliness of success.
The framework he suggests is three-pronged: Focus, Shape, and Persist. Focus on the disruptive ideas, shape them, and then stick with them. That’s how to ensure a greater likelihood of success:
Go where the money isn’t
Innovations consistent with the prescriptions of disruption theory are systematically more successful than those that aren’t. Consequently, we can focus our efforts on those markets and technologies that target un-served or over-served segments with greater confidence than ever before.
Seek ‘creative creation’
Rather than trying to find out what works by seeking to minimise the cost of failure, we can now build business models that conform to meaningful patterns of success. Specifically, by serving profitable segments that incumbents deem inconsequential, new businesses can create a valuable foothold. Then, by building their businesses around ‘enabling technologies’ – elements of their business model that allow performance to improve over time – entrants can move from that foothold to positions of mainstream dominance.
Don’t fail fast, learn fast
Disruption improves predictive accuracy, but we’re still a long way from 100%. What this means is that although we can more confidently commit to specific markets, technologies, and strategies, there is still a lot to learn. Learning, however, demands persistence: the willingness to stick with something despite early setbacks. And that persistence need no longer be the product of blind faith, but can instead be based on solid empirical evidence.
Most theories of innovation base their prescriptions for action on explanations of the past. Disruption is perhaps the only theory of innovation to have been tested for predictive power using a portfolio of actual businesses. And the results suggest that a revolution in how innovation is managed is upon us.
Raynor offers many examples of disruptive innovation – innovations that took root in a small niche of the market but eventually reached the mainstream and dominated them:
- The Internet was a disruptive innovation to newspapers.
- Toyota was a disruptive innovator with its Toyota Production System of lean manufacturing and process improvement.
- Southwest Airlines was a disruptor with its low cost carrier strategy.
Innovate For Change – Think Like A Social Entrepreneur
Why consider the social entrepreneurship model?
Social entrepreneurship is an exciting business arena that finds new, sustainable business solutions to long-standing problems. Social entrepreneurs see social challenges (such as poverty, homelessness, poor infrastructure or lack of quality education) as an opportunity for change.
This approach brings together the best that business practices offer and blends it with the best that civil society offers (a social mission, broader stakeholders involvement and the engagement of the community). By generating income from business activities and reinvesting its profits back into driving its mission, this approach generates both social value and economic value simultaneously.
Why consider the social entrepreneurship model?
1. Seeing social challenges as opportunities
South Africa’s social and structural challenges, from our poor ranking in health and education to the high level of unemployment, provide a myriad of opportunities for entrepreneurs that are willing to roll up their sleeves and work to build a better future.
The recent winner of the recent Nation Builder Social Innovation Challenge, Lungi Tyali, is a great example of this mindset.
Across Africa, there is a dire lack of provision for the electrification needs of the majority of the population, especially in rural communities. In South Africa, at present, there are 3.4-million households without a formal, metered electricity supply; 2.2-million in formal and 1.2-million in informal households. Lungi Tyali is the CEO of Solar Turtle who, with her business partner, James van der Walt, created a solar energy solution for rural and off-grid areas. Solar Turtle provides a solar-powered kiosk in a container that serves as a hub for renewable electricity. During the day, the solar panels are open to collect sunlight and at night they are enclosed and locked securely into the container.
Related: How To Be A Social Entrepreneur
2. Social entrepreneurship has low barriers to entry
Many of the most successful social enterprises start off small with an enterprising individual seeing an opportunity in their local community and building from this small beginning. There is no prerequisite for a university degree of formal training. Growing social enterprises can thus also offer employment opportunities to unskilled workers and youth without experience, addressing South Africa’s high level of unemployment.
One such story is that of Nonhlanhla Joye, the founder and facilitator of Umgibe Farming, Organics and Training Institute. Ma’ Joye, was diagnosed with cancer in 2014 and as a result, could not work to provide food for her family. She decided to grow organic vegetables in her backyard to feed her family. Unfortunately, the chickens ate all her vegetables and she had to come up with a solution.
She innovated a growing system using plastic bags. Before long Ma Joye was teaching other community members to use her growing system. A platform was born where poor communities started growing vegetables to feed themselves and collectively sell their surplus produce.
3. Corporate Social Investment, with purpose
Social enterprises also offer individuals and companies the opportunity to invest in lasting social change. Unlike traditional philanthropy, the impact of social enterprises has the potential to be much more lasting by directly providing affordable social goods and services, as well as employment opportunities.
Nation Builder, for example, is a platform* that brings like-minded businesses and civil society together in order to learn from each other and partner together for the greatest possible impact through wise and responsible social investing.
4. Personal actualisation
Perhaps the most rewarding advantage of being a social entrepreneur is the impact you can have on society, but this model also offers several personal benefits:
- working to solve issues you care about
- freedom to explore and create innovative solutions that can inspire change
- the opportunity to turn passion into profit
- working as your own boss.
Having The Perfect Product Isn’t Enough To Keep You In Business
The odds of the small business surviving aren’t stacked in its favour. It’s more likely to fail than succeed. That’s the bitter truth. However, once it’s able to shake off the niggling teething problems, watch it as it unfolds from a pupa to a beautiful butterfly.
There is a small bakery operates in my neighbourhood. It bakes bread; no cakes or other confectionaries. The best home-made bread that has your palates yearning for more. This is in sharp contrast with the bread produced by bigger bakeries. They also supply bread to the neighbourhood.
The bigger bakeries operate a model that is largely automated to the point that they lose a very important ingredient beyond flour, yeast and whatever goes into making bread. They lack the personal touch that gives it the home-made feel. This is why the neighbourhood bakery is preferred despite being pricier.
The small bakery isn’t without its flaws; avoidable flaws that may, sadly, sink the business. My view is more on the certainty of the demise of the business as observers would’ve noticed a slow yet steady decline in the output of the business. These flaws aren’t unique to the bakery, several other small businesses have share the same flaws.
Why would a customer who is willing to pay more for a product suddenly cease patronising the business. What other factor apart from higher price, in the absence of a drop in purchasing power, would make a customer buy bread of supposed inferior quality from the competition.
A couple of years ago when I moved to the neighbourhood the business was doing great. Even during a biting recession the shelves were always stacked with freshly baked bread of different varieties. Despite the excellent product on display, there was an unsatisfactory trend in the operation of the business.
For one, the sales personnel are rude. Having the right staff is necessary to grow any business, but when this very fundamental issue isn’t gotten right it will be fatal to the business. After all for how long would customers put up with poor service delivery in the face of stiff competition from bigger rivals.
Small business owners must realise that proper training of staff is as important as sourcing for capital and shouldn’t be overlooked as the survival of the business also rests on it. Bigger businesses in this regard always come out tops in comparison with their smaller counterparts.
Annually, big businesses spend billions of dollars on staff training for the simple recognition of the fact that having disgruntled customers, on account of poor service by personnel, is dangerous for business. Despite their size, big businesses tend to understand better the importance of the single customer. Also, how the discontent of a few customers can translate into poor sales which is detrimental to the business.
The mindset of a small business shouldn’t be different. Investing in staff shouldn’t be treated with levity to ensure the business not only stays afloat, but also grow it. Growing a business is in itself tough work, small business owners shouldn’t make it tougher by providing terrible service.
The neighbourhood bakery lacks this important feature and it’s been responsible for the steady decline in sales. I didn’t know the poor service rendered by the attendants had attained much notoriety until I was having a conversation with a group of individuals at a religious gathering and the issue came up. It’s a sad realisation.
For financial reasons small businesses aren’t known for recruiting the best personnel. Most employ the services of family members. While there is nothing wrong with this, it’s important to ensure such person is the best fit for the business. Employing family members may lead to a myriad of problems for the business. Therefore it will be in the best interest of the business not to employ an incompetent family member than have him ruin the business. This is a risky way of running the business.
The feeling of the customer towards the goods or services businesses provide is key to its success or failure. This is because customers can have the most unbiased assessment of the business rather than management and staff. Despite the poor service the bakery openly had on display, no one seemed to have bothered complaining to the owner of the business. So it may seem.
It will be in the best interest of a small business owner to leave an open channel for feedbacks from customers. This isn’t the case with the bakery and some other businesses face this challenge too which may lead to further problems.
The inability to provide an avenue for customers to channel their complaint to the proper individual creates a problem of inaccessibility. Accessibility happens to be an area of strength for small businesses because of their size. In larger businesses, despite creating channels for complaints there is usually no personal relationship between the owners and their customers. This is an area a small business shouldn’t be found wanting.
One would imagine that as a small business, the owner of the bakery should be easily accessible to interact with customers to in order to obtain feedbacks pertaining service and staff performance. This isn’t the case as the business clearly takes this important factor for granted. A lot of customers don’t know the owner of the bakery despite patronising it for years.
On paper the size of small businesses translates to easy accessibility. A closer look will reveal that the owners of small businesses tend to take a lot of things for granted. They fail to realise that they have to be consciously open to the idea and cultivate the habit of seeking feedbacks from customers. A small scale business has to maximise its potential for dynamism and flexibility. If it can’t take advantage of its unique qualities then it’s doomed.
There has been a reduction in the variety of bread baked and in addition to this is the equal reduction in the amount of bread on display generally. From observation it’s clear that patronage has taking a massive hit.
It’s painful witnessing the slow demise of a business with a good product due to its own failures. Having the perfect product won’t on its own keep the small business in business. The odds of the small business surviving aren’t stacked in its favour. It’s more likely to fail than succeed. That’s the bitter truth. However, once it’s able to shake off the niggling teething problems, watch it as it unfolds from a pupa to a beautiful butterfly.
Customers Are The Heart Of Innovative Businesses
Keep your customer at the heart of your business.
One of the main reasons start-ups fail is because they don’t create solutions that meet their customers’ needs. Failure is avoidable. Businesses that understand their customers feelings, challenges, expectations and motivations make themselves indispensable in highly competitive markets because they recognise that true innovation is led by customer insight.
An incredible example of a business that believes in innovation driven by insight is Netflix. They revolutionised the way people watch video content by listening to their customer’s needs. You’ve probably heard the story before: after paying a $40 overdue DVD fee, Reed Hastings co-founded Netflix. He was simply too busy to return his DVD. He recognised that this experience wasn’t exclusive to him, but that it was a problem that many people faced. He saw a gap in the market for receiving and returning videos more effectively, and that is how the $150 billion business was born.
If your start-up doesn’t fulfil a human need, then you’re setting yourself up for failure. It’s not enough to have a cool idea. Ask yourself, “What is the market need behind the offering?” and then test ways of delivering your offering in the most user-friendly manner. Talk to your consumers, understand their likes and dislikes and establish your business purpose before haphazardly allocating funds to R&D.
You can’t go from being a California based DVD-by-mail provider, to becoming the world’s largest online video streaming service without a business plan. It’s important to recognise the step-by-step process of success. Netflix didn’t go from delivering DVD’s to pouring capital into the production of video content within six months. That sort of development would have bankrupt the company almost immediately. It took 21 years for the business to become content creators.
- In 1999, the company became a subscription service because they found that customers preferred paying a monthly fee rather than making a once off purchase.
- Then, in 2009, the company used investor capital to expand their DVD collection because their clients wanted a larger selection of movies.
- In 2010, the business expanded internationally because they saw a gap in the market across various countries.
- Finally, in 2013, Netflix created its first original content series because customers craved fascinating content beyond the overused Hollywood archetype.
The point is: Progress didn’t happen overnight. The business had to set goals and objectives. They then had to fund their growth by presenting market opportunities, backed by customer insights, to their investors. Establish your start-up one step at a time and make sure every progression isn’t innovation for innovations sake – it must be inspired by a human need.
Netflix was founded by a computer scientist and a marketing director. While one partner focused on Netflix’ service development, the other focused on sales. Since the company’s origin, collaboration and balance have been the cornerstones of the business’ success.
Netflix is currently composed of a diverse team of tech-professionals and designers. They understand the importance of combining technology and design to offer customer-inspired user-experiences.
After conducting consumer research, Netflix discovered that series and movie artwork influences viewing decisions by 82%. This has resulted in the creation of more descriptive and provocative designs. Netflix is known for leveraging human-behaviour to revolutionise their service offering.
As an entrepreneur, you can increase your ROI by partnering with the experts that understand human-based innovation.
Keep your customer at the heart of your business.
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