All over the world, national leaders are looking to innovation and entrepreneurship to revive flagging economies, introduce new and exciting opportunities and bring prosperity. Innovation refers to a process that begins with a novel idea and concludes with a practical application or market introduction. It is often referred to as the disruptive commercialisation of a great idea. Innovation is a major tool for generating and capturing value for a business and its customers. This often translates into increased productivity and profitability causing major shifts in the paradigms of daily life. Innovation creates value by either increasing value or decreasing costs – either outcome requires change and this is most often disruptive. Great examples of disruptive innovation are Airbnb replacing traditional hotels and Uber replacing traditional taxi services.
The Australian Innovation System Report of 2014 notes Australia’s innovation system is only a mid-range performer among Organisation for Economic Co-operation and Development (OECD) countries. The question we need to be asking in Australia is why are we not a major player in the global innovation stakes? And how can we introduce innovation more successfully into our established organisations and businesses? Through my own experience working with non-profit boards I can attest that a significant proportion of boards, have identified innovation as a key pillar of their strategic plan or values for ensuring their future success. Yet just having it as a pillar for strategic direction and a KPI for our CEOs and staff – doesn’t mean it will magically happen.
Entrepreneurs and the lean start-up methodology
Traditionally innovation has been driven by entrepreneurs. They work outside of traditional business models preferring to use the lean start-up approach, described by Eric Ries 2008-2011. This involves the entrepreneur (individual, team or company) seeing their invention or idea as a hypothesis, rather than the solution. This invention is then continually tested in the most cost-effective way and requires the ability to quickly pivot and change based on early consumer feedback. Reis, states that by adopting a combination of business-hypothesis-driven experimentation, iterative product releases, and what he calls “validated learning” entrepreneurs can reduce the market risks and sidestep the need for large amounts of initial project funding and the expensive product launches and failures often undertaken within traditional businesses.
Clusters of innovation, such as Silicon Valley in California, provide an incubator for innovation by offering access to a combination of factors including: strategic investors, research and development centres, potential acquirers, major corporations, universities, accelerator groups/hubs and a ‘can do attitude’.
Most organisations, big or small, have inherent difficulty being innovative. Even though non-profit organisations are often heralded as leaders for innovation through necessity, they too often suffer from the following traditional challenges:
A ‘don’t think outside the square and don’t make mistakes’ culture
Boards, CEOs, executives and staff, have set traditional business KPIs for present strategy and budget with no extra time, resources or relevant mentoring for innovation which leads to:
- Being risk averse for innovation slowing down outcomes. Boards, executives and staff often describe being ‘paralysed’ by fear of not meeting their traditional KPIs in a resource strapped environment. They then go on to describe how they ‘spin their wheels trying to be perfect rather than productive’.
- Misdirection of funds into prestigious traditional (and often expensive) solutions rather than to nimble, effective solutions.
- Innovators in structured organisations may be regarded as unprofessional, wasting time and annoyingly wedded to their idea. Innovators often describe feeling like they are swimming against the tide, becoming disenchanted and disengaged.
Often the creators or drivers of innovation receive no incentives or financial or personal recognition, for their efforts. This can be as a result of:
- No reward systems in place.
- Executive management assume responsibility and recognition for the project once it is successful, or avoid championing projects at all for fear of not meeting their other KPIs.
The start-up model is also not infallible and many entrepreneurs have inherent issues with their start-ups such as: lack of scalability, limited or poor cash flow, the challenge of developing a structure, lack of business models, restricted access to appropriately skilled personnel and no market reputation or access.
Introducing lean start-up methodology within a traditional framework
No organisation wants to face the next ‘Kodak moment’ and become left behind in business due to a lack of innovation. They are looking for different approaches for achieving innovation, both for internal efficiencies and services and products provided. Some successful solutions are being achieved in the corporate and entrepreneurial world through the following avenues:
- Some large corporates have set up their own venture capital arm that actively seeks small entrepreneurial companies to invest in and work with.
- Others actively seek an innovative start-up to work with in a shared business development model and quite often acquire them.
- Others create a separate arm of their business which is funded and free to develop disruptive innovation using a lean start-up methodology that doesn’t detract or clash with the traditional business structures of the rest of the organisation.
Any of these approaches are a win-win for all concerned. Entrepreneurs receive supports such as assistance in developing business models and structure, technological support and expert advice along with a credible access to market. The corporate gains energy for the innovation, flexibility to ‘pivot’ quickly, nimble solutions and different industry connections. The key is to develop a plan that allows them both to have aligned incentives, clear governance structures and a well-defined exit strategy.
Some or all of these win-win solutions could be applied to non-profit organisations as they already share so many attributes of entrepreneurs and start-ups. Non-profit organisations generally have smaller structures, fewer resources and struggle with cash flow, particularly as government funding moves to become more directed to clients for purchasing products and services. They also have a strong passion for their vision and a broader spectrum of people from outside their industry on their boards.
Lessons learnt and game changers
I have learnt several key lessons in innovation as an entrepreneur in my start-up business, which provides an online platform meeting the needs of boards of governance for annual evaluation and capability building. In theory a disruptive innovation.
I didn’t even know I was an entrepreneur to start with and even though I never lost an extreme passion for my cause I was continually frustrated and exhausted by focusing my energy and valuable resources on the wrong things. I created traditional business plans, with KPIs that assumed my product and service was already built rather than building it from scratch. This set the wrong expectations for me. For example instead of my long awaited grand launch to market being the successful ‘end’ of the journey it was the beginning of an iterative journey of discovery. I felt paralysed by my ‘perceived’ mistakes and seeking advice and support from my traditional business resources and networks only added to the sense of failure and isolation. By my own KPIs I had failed and most agreed and suggested I write a better plan, clearer KPIs and work harder to achieve them. The definition of insanity is to repeat the same thing, yet expect a different outcome!
In addition to this, I discovered that I was a teller not a seller. I was so sure that I had the innovative solution to all boards’ problems and instead of asking customers about their issues I would tell them about my solution. I clearly had a ‘messiah complex’.
When I was finally coerced into entering a pitching competition in 2013 and won my section, I became exposed to my very own small Silicon Valley – Australian Sports Technology Network, Headstart and ICT Geelong – right here in Geelong. I have worked for years here and never knew these amazing people and supports existed.
I have benefitted from a dynamic coach and mentor who is a highly successful and experienced entrepreneur. He has supported me in building a lean start-up framework with a clear resolve to invest nimbly in and be accountable for the iterative journey of discovery rather than making the assumption that my product and services were the final solution to the problem from the outset.
Participation in an accelerator group with highly skilled, networked, experienced coaches, mentors and other entrepreneurs has also been invaluable. They shared the journey and supported all my learnings, along with some tears and laughs. This has taught me to never stop asking ‘what is the problem?’ and pointed out I was far from being the messiah! Finally, winning a trip to Haas School of Business Berkley California exposed me to the real Silicon Valley. This gave me the courage to truly embrace innovation and all the breathtaking ups and downs it brings.
As soon as I realised that what I was building was really a lean start-up and that I had developed appropriate planning tools and relevant support I felt elated, light and even more motivated. I changed my business culture to continually asking questions and pivoting unapologetically to address our customers’ needs whilst on a shoestring budget. I have learnt how to be right about being wrong. I also now scale through like-minded partnerships. It became very clear to me that the two types of business planning (traditional business and lean start-up) were diametrically opposed. And although they are opposed, it is crucial to know how to use them together, particularly within an established business.
From these experiences I have developed a belief in the value of using the best parts of the start-up methodology and its effectiveness in bringing about innovation in order to make established businesses and organisations more innovative. As a director of two non-profit organisations I hold innovation as a key value and strategy that I strongly expect us to deliver. I believe that non-profit organisations in particular are often in an ideal position to drive innovation. Entrepreneurs within existing organisations can seek mentors and support structures outside of their organisations. Finding the space to ask questions, pivoting quickly and working with clients to address their needs in the development of a project within the constraints of a more traditional business model – as you might do in a lean start-up – is an invaluable skill.
Tips for supporting innovation to be ‘a good idea’
As a result of these experiences and studies I believe 8 practical tips to consider when undertaking innovation are:
- Understand the difference between traditional business models and lean start-up methodology.
Learn to understand when and how each is required within an organisation driving innovation.
- Consider creating a separate arm for incubation of innovation.
Once a project is successfully developed this could then be incorporated into core business. If this is not possible consider responsibility for innovation projects under a specific board committee with terms of reference and skills that reflect the lean start-up approach until it is ready to become mainstream.
- Develop separate strategies and KPIs for innovation.
Set strategy for innovation projects with KPIs that are separate from core strategy, with strong accountability and support structures for iteratively testing a hypothesis rather than the solution. For example, a new pivoting KPI could be: How little was spent on the initial iteration? What was learnt from feedback? How quickly was that implemented into next iteration and was the feedback then better?
- Become a small part of something bigger.
Seek partnerships for shared business development, with a new innovative start-up for a cost- effective way to solve a problem or with a corporate to be the innovative start-up which provides the solution for their problem.
- Build leadership skills and outsource relevant supports for innovation.
Engage in or create a local innovation cluster. Recruit directors for board and board committees and key staff with strong entrepreneurial and lean start-up skills and experience.
- Develop a culture for being ‘nimble’ with spending on the discovery part of innovation (testing the hypothesis) but generous for supports and rewards.
For example, outsource latest ‘software as a service’ programs that require minimal monthly registration fees but have significant impact on internal efficiencies. At the same time, allow appropriate resources to be spent on staff hours and supports for flexing to respond, iteratively, to feedback from early users of new products and services.
- Invest in supports and reward systems for innovation.
Develop a rewards program for those who commercialise or implement an innovation – don’t just reward the good idea. Engage experienced entrepreneurial mentors and coaches, for individuals and teams, provided by skilled management or outsourced.
- Ditch the ‘messiah complex’.
Think of ideas as hypotheses to be tested and not necessarily the complete solution to the problem. Think of consumers as key to your success, because without their feedback we cannot have ‘validated learning’. Without this learning we cannot achieve successful launches or successful failures