“Build it and they will come.” We hear that mantra a lot. But with innovation, it is often more like, “Solve a pain and they will come.” The ultimate success of the automated teller machine (ATM) is a great example of this.
The other night I was having dinner with someone who in the mid-1970’s worked with Citibank, the second largest bank at the time. He shared with me the story of the birth of the ATM, at least from his perspective.
In 1977, after investing hundreds of millions of dollars in ATM technology research and development, Citibank decided to install machines across all of New York City. But at first, they were not very popular. The technology was confusing to first-time users, the machines were not always accurate (they sometimes dispensed the wrong amount of money), and they were impersonal. I was told that customers who used ATM machines were so frustrated that many closed their accounts.
The ATM may never have been an instant hit if it weren’t for a natural disaster.
January 1978 will always be remembered for a blizzard that dumped as much as 4 feet of snow in the Northeast. In New York City, nearly 2 feet of snow brought the city to a halt. Banks didn’t open. Instead, people got their money from supermarkets. But most of those quickly ran out of money.
This created a massive “pain.”
Where did people turn? The ATMs. It is estimated that during the storms, use of the machines increased by over 20%. Soon after, Citibank started running TV ads showing people trudging through the snow drifts in New York City. That’s when the company introduced their wildly popular slogan, “The Citi Never Sleeps.” This was the real birth of the automated teller machine.
I found an interesting Fortune article that corroborates his story. The article claims that by 1981, Citibank’s market share of New York deposits had doubled. A lot of this growth could be attributed to the ATM.
This story illustrates an innovators dilemma. Brilliant innovations are not necessarily taken up by the masses. Some ideas just need time to incubate and gain acceptance. But can your business survive long enough to see the success? Too many ideas, like Webvan, could not endure the incubation period. Sometimes your innovations need a little boost.
As I have pointed out in previous blog entries, people take massive risks to eliminate their pains, but play is safe when it comes to adding convenience. ATMs were primarily about convenience. What did it take for them to become a success? A pain caused by a natural disaster.
Are your new ideas solving a pain? Or are they just a nice to have? If they are just a convenience, what can you do to create a pain – without having to rely on a natural disaster?
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“21: The Movie” is in theaters today in the United States. Last week I wrote a blog entry on what innovators could learn from blackjack card counters.
Today, to celebrate the formal release of the movie, I am including a downloadable pdf with a full article on the topic of statistics, probability, card counting and innovation. This is an expanded version of the blog entry.
Download the article (pdf) – to save the file, right click and “save target as”
Feel free to email the article to all of your friends, colleagues, and anyone else who is interested in innovation.
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What if you could train a fish like you train a dog? What if you could create a Pavlov’s fish? And why would you want to?
According to an Associated Press article, “The idea is to train fish to return to a feeding source when they hear a particular sound. Scientists are testing a plan to train fish to catch themselves by swimming into a net when they hear a tone that signals feeding time. If it works, the system could eventually allow black sea bass to be released into the open ocean, where they would grow to market size, then swim into an underwater cage to be harvested when they hear the signal.”
This is an interesting example of analogy-driven innovation; taking a concept from one area and applying it to another. This idea must be gaining popularity. Just last week I was interviewed by a major national newspaper on the topic of analogy-driven innovation. This can be an incredible source of new ideas – without needing to reinvent the wheel.
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Which will help your business be more successful: statistics or probability?
Underwriters at insurance companies use statistics to assess future risks. This is based on years of collected data.
Probability is what card counters in Vegas use to increase their odds of success. This is based on real-time, real-life experience.
If you want to play it safe, use statistics. If you want to win big, use probability.
There Are Lies, Damned Lies, and Statistics – Mark Twain
Businesses are increasingly using statistics to manage decision making, as evidenced by popular books like Tom Davenport’s Competing on Analytics and the boom in CRM system usage.
The belief is that if we gather more data we can make better decisions. But this may not be true when it comes to innovation.
If you are crunching numbers, you are probably gathering information from existing customers. This will give you insight into their buying habits, usability behaviors, and other patterns. But most likely you are only gathering data on YOUR customers. This represents the middle of the bell curve or the norm. This information may be useful in “incremental” improvement, but it will rarely lead to significant innovations.
When you move beyond the norm to the far ends of the bell curve, you will find the real interesting ideas.
Being normal is not a virtue; it denotes a lack of courage
On the far right-hand side of the curve are the market leaders; the advanced users. They may not be your customers because you can’t meet their high-end needs. Or maybe they were once your customers and they left. When someone is not a customer it is difficult to gain insights into their wants and needs. If you could somehow understand their perspectives, you may find opportunities for “advanced” innovation and insights on where the industry may be going in the near future. These innovations would be more radical, yet continuous in nature. Think of this as the Blu-ray improvement on the standard DVD (we’ll save a discussion on the demise of HD DVD for another time).
On the far left-hand side of the curve are the laggards; the less sophisticated users. Your products/services may be too advanced, too complicated, or too expensive for their needs. Again, you are probably not gathering statistics on these individuals or organizations. But here lies the greatest opportunity for discontinuous innovation. Or as Clayton Christensen would call it, disruptive innovation. If you can find a way of “dumbing down” your offering, you might find new and untapped sources of revenue. Quite often these products become the de facto standard, much like when PCs replaced the more sophisticated mainframes and mini-computers.
The problem is, it is very difficult to get data about the ends of the bell curve. Focus groups, surveys, and other traditional data gathering techniques are useless. I love this quote from Scott Cook at Intuit: “For every one of our failures, we had spreadsheets that looked awesome.” We can use numbers to justify anything we want. But quite often they justify the wrong actions.
The Probable is What Usually Happens – Aristotle
If a statistics-driven innovation model does not work, what would a probability-based model look? Probability tells me that if everything is equal, the more bets I have, the more likely one will be successful. The odds of 1 success out of 200 are greater than 1 success out of 20.
But how can you have more bets without diluting your effort and potential returns? The key is to learn as you go. This is exactly what card counters to.
Let’s contrast a more statistics-driven model with a probability-based model. To do so, we will use two exceedingly simplistic examples. With innovation model #1, you make a few “big bets” based on analytics you gathered from your customers (a statistics-driven model). Innovation model #2 is a more experiential “learn as you go” model (a probability-based model).
In both examples, let’s assume you have $100 million to bet, woops, I mean invest in innovation.
Antoine de Saint-Exupery, author of The Little Prince, once said, “Perfection is finally attained not when there is no longer anything to add but when there is no longer anything to take away.”
This is a brilliant quote because it describes the challenge many innovators face. Too often, new products are overly complex and end up “over-serving” their customers.
My new computer with Vista and Office 2007 is a perfect example of that. 99% of the software’s functionality goes unused, yet these complexities slow down my computer and reduce ease of use. Being able to do everything for everyone is not perfection.
Next time you are designing a process, a product, or a service, ask yourself, “What can I remove?” For most consumers, simplicity is more important than comprehensiveness (and complexity).
The concept of “taking away” is also a great time management technique. In addition to your “to do” list, be sure to create a “don’t do” list. Become masterful at killing products, eliminating non-value adding tasks, and removing old/pointless habits.
Or, as Michelangelo once said, “In every block of marble I see a statue as plain as though it stood before me, shaped and perfect in attitude and action. I have only to hew away the rough walls that imprison the lovely apparition to reveal it to the other eyes as mine see it.”
What are you doing that is imprisoning your perfection?
Want your organization to be more creative? Maybe you should ”hire” college students. Or at least that is what some companies are doing.
Yesterday’s Journal Gazette (Fort Wayne, Indiana) described a cabinet maker who is partnering with a local university to bring on students with 3-D design expertise. The students work for the company in exchange for real-life experience and school credits. The company gets access to skills they do not have in house.
From my perspective, not only do you get needed skills, but you also get a fresh perspective. This can increase the organization’s level of innovation.
If you read the article, you will see what I mean (hint: I am quoted).
HP recently announced that they are consolidating their innovation efforts and will focus on fewer projects.
According to an Associate Press article, HP is ”reassigning its worldwide research team of about 600 employees to focus on a total of 20 to 30 major projects, down from roughly 150 different ventures the labs typically have in the works.”
The idea is to place fewer and bigger bets. HP’s chief strategy and technology officer, Shane Robison said, “We are not interested in killing our research, we are interested in killing projects that won’t succeed.”
I assume their argument for doing this is that fewer projects will reduce the dilution of their innovation effort. This may be true. However, the premise is that HP can “predict” which bets have a higher probability of succeeding. Unless they have a special crystal ball, this typically is not the case.
It is nearly impossible to determine which concepts will ultimately be successful. Most companies have discovered that you can only learn this by doing a series of small experiments that scale over time. I call this the “Built It, Try It, Fix It” model. Instead of placing fewer big bets, you try a large number of small experiments that adapt and evolve as you gain more information. Most of the experiments fail and are killed. But the remaining ideas are usually real winners – and they often look quite different than the original concept. This allows your organization to be more agile and adaptive.
I find HP’s recent announcement somewhat ironic. A few years ago, they heavily promoted their “adaptive enterprise/agile” services. From my perspective, this R&D consolidation is the antithesis of agile. It seems more about control and maybe cost containment. The article noted that HP spent $3.6 billion on research and development in each of the last two years. This represented 3.5% of the company’s revenue, down from 6% in 2002.
Time will tell if HP’s strategy will pay off. I can’t predict the future. And I suspect that HP can’t either.
Yesterday I had lunch with Scott Westover, a pilot, a business executive and an aspiring speaker. He shared with me some thoughts on how what he learned from aerobatic flying could be applied to business success. I asked him to write a blog entry on this topic. His philosophy is called “Energy Management.” I love it because it appears to be an irrefutable law, much like the Third Law of Motion which states that for every force there is an equal and opposite force. More importantly, it explains why many innovations fail. Here is Scott’s story.
About four years ago I started flying aerobatics. During one of my early flights confidence exceeded skill as I attempted an advanced maneuver. It was one thing to practice emergency recoveries with a well-qualified instructor in the back seat and a different thing entirely to problem solve on my own while the trees were getting bigger in a hurry. I got lucky, and after a series of control inputs I rolled back upright and pulled out of the dive. After landing, I found my instructor and confessed what had happened. He offered a simple explanation: I had been reacting to the forces of energy acting on the airplane rather than managing them to maintain control. It had only taken a moment, and once control was lost things escalated quickly.
The energy he referred to that day includes the forces of gravity, lift, drag, and thrust. As a pilot I learned to manage the relationships between these forces to control the airplane. After spending a few more hours in the cockpit, I realized that managing energy in an airplane is related to managing energy in business.
As a healthcare administrator I have an appreciation for the impact change has on business. I have found that thinking about my business in terms of gravity, lift, drag, and thrust allows me to implement decisions faster and to navigate the grey area between “strategic planning” and “business objectives.” Priorities become clear and there are fewer surprises and distractions. Consider the following energy definitions and think about the changes facing your business. I guarantee you will recall things that fit these descriptions:
Gravity pulls you down. Think about gravity in terms of things that pull you down and may be beyond your control. Changing market conditions and new competitors represent gravity. In healthcare there is an expectation that a hospital will have the best technology with which to diagnose patients. A hospital that ignores advances in technology will eventually lose a service line or go out of business. It will crash.
Lift fights gravity. When the market changes, what are you going to do about it? Using the healthcare example, new technology represents lift. The obvious answer is to make regular capital investments in Information Technology, yet every business knows there will always be more available technology than money can buy. Since it is impossible to increase lift without increasing drag it becomes important to anticipate the drag each opportunity represents.
As the economy continues to tumble, it is tempting to cut back on your investments in innovation. But now is the perfect time to increase your innovation efforts. Here are seven creative ways that innovation can help you recession-proof your business.
1. Make Your Products/Services More Accessible
Successful companies are now shifting their emphasis away from increased performance and sophistication to increased accessibility and affordability. This helps you tap into an under-served market. Low cost and ultra-portable netbook computers are outselling more expensive models. The Nintendo Wii has sold more boxes than PlayStation and Xbox combined. To learn more about specific innovation strategies, read our articles on The Innovation Bell Curve.
2. Use Open Innovation to Reduce R&D Costs
Sometimes it can be less expensive to have others do your innovating for you. Organizations like InnoCentive enable you to define the “value” of a new idea and then post your request to a large community of expert solvers. This moves innovation from an unpredictable cost (infrastructure, the cost of researchers, and other hidden costs) to a predictable cost (the posting fee and reward). Other Open Innovation option include asking your customers what they want. Check out MyStarbucksIdea.com. Open Innovation is a perfect way to reduce costs while growing the business. Learn about my own Open Innovation experiences…and dilemmas.
3. Use Process Innovation to Reduce Operating Costs
Innovation is not just about new products or new business models. It can also be focused on ways of reducing operating costs. Use my 7Rs of process innovation to help make your processes more efficient and more effective. I have seen companies reduce costs by 60% while improving responsiveness to customers by as much as 90%. If you can increase service while increasing margins, you are sure to recession-proof your business. Download my 7Rs worksheet and improve your processes
4. Use Innovation to Match Supply and Demand
Sometimes you only want temporary measures to help you ride out tough times. I worked at Accenture, the large international management consulting firm, for 15 years. During my time there we went through three recessions. Each time the pattern was the same: the economy tanks, customers reduce spending on consulting, Accenture lays off employees, the economy picks up, Accenture scrambles to hire talent. During the 2001 dot-com bubble burst, they used a different approach. Instead of handing out pink slips, they offered a leave of absence for a period of time. The employee on sabbatical would get 20% of their salary (plus benefits) and would be assured a job upon their return. This helped match supply with demand, while keeping morale relatively high. Sometimes a creative solution can help you smooth the ups and downs of the economy.
5. Solve Your Customers’ Pain
Although customers have reduced spending on discretionary items, they may be willing to invest in products or services that eliminate their pains. Problem solvers are always in big demand. If their pain is the need for cost containment, how can you do it for them – and take a slice of the action? In my business, I get more requests for speeches on ”recession proofing” than I do for those on general innovation. What pain do you solve? Or how can you make your customer aware of a pain that they may not have noticed? Learn more about why solving a pain is more powerful…during any economic condition. You may also be interested to learn why the ATM machine was headed for failure…until it was seen as solving a specific pain.
6. Fail Cheaply
If you are truly innovative, you will fail. If you don’t fail, you are playing it safe. Therefore, if you are going to fail, FAIL CHEAPLY. And no, this is not the same as failing fast. I am not talking about speed, I am addressing the cost to implement. To fail cheaply, you must embrace the “build it, try it, fix it” mentality. Build out your idea as a small experiment. Implement it. Learn from the experience. My Innovation Personality Poker was developed using this approach. I first created a simple spreadsheet to test for personalities. Next I wrote the words across the face of an ordinary deck of cards. Then I created home-made cards printed at FedEx Kinkos on card stock. Finally, when we knew it was perfect, we invested in designers and 500 decks of casino-quality poker cards. Eventually we “perfected” the words and process and printed 40,000 decks…and the commercially published book. Learn more about the “build it, try it, fix it” approach.
7. Before You Can Multiply, You Must First Learn to Divide
While in Asia, I heard a great expression, “Before You Can Multiply, You Must First Learn to Divide.” I now find myself using this saying nearly every day. The idea is that if you want to grow your business, you must learn to partner with others – and give them a slice (and a vested interest in YOUR success). This means you take a smaller slice of a bigger pie. With the economic downturn, this philosophy is even more appropriate. People are now hungry for new money making opportunities. When you help others make money, you make money. Read more about this powerful, yet simple concept.
BONUS: Use Innovation to Improve Your Suppliers’ Business
We often underestimate the value of our various business partners, and in particular the value of our suppliers. I once worked with a potato chip manufacturer. They were dependent on the quality of the potatoes grown by small, financial unstable growers. Instead of squeezing their suppliers, they helped the suppliers grow their business. They helped the growers buy equipment and fertilizer at reduced costs by leveraging the buying power of the large chip manufacturer. They gave them business loans at reduced rates. When the market gets tight, your suppliers may struggle more than you. But if you help them be successful, you might find you are more successful.
The Bottom Line: Use Innovation to Leapfrog the Competition
While others are tightening their belts, truly successful companies use the recession as a chance to leapfrog their competition. My favorite company, Koch Industries, increases their investments during difficult times. They know that if they focus on innovation while others are cutting costs, they will quickly catapult past everyone else. They must be doing something right. They have grown seven times faster than the S&P 500 for the past 40 years. This is a company that has proven it is recession proof. Innovation is a powerful tool that can help you ride out the tough times and position you for future growth. With the recession here, you need innovation now more than ever.
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There is one thing I realized early in my speaking career: being a great speaker does not mean you will necessarily have a great speaking business.
This past weekend I gave a presentation on how to have a great speaking business. Although my tips were targeted at speaking professionals, they are relevant to anyone in any business.
Over the next week, I will share several tips from that speech. Today’s concept is on how to identify your target audience.
From my experience, there are two questions you need to ask in order to determine your target market/audience:
- What pain do you relieve?
- Who has this pain AND who has the money to eliminate it?
What’s the pain you relieve?
I speak on innovation and creativity. Although these are buzzwords in the industry, they are not necessarily an easy sell. However, if you focus on the problem it solves, it feels more relevant. For example…
- Competing in a commodity market (de-commoditizing commodities)
- Eliminating internal blocks to business growth
- Recession proofing your business
Organizations are more apt to want innovation when it is the antidote to a pain rather than a grand aspiration. People are more likely to buy your product or service if it addresses a specific need.
The next challenge is to find out who has the money to eliminate this pain.
Find the money
My innovation services have a clear buyer: large corporations. These organizations typically have some money to solve their pain – if it is important.
But what if you are a speaker on financial planner or nutrition? Although these may be of value to individuals, they are probably not of direct value to corporations. You could try to get corporations to hire you (or use your product) as an employee benefit. But since you won’t be contributing to the bottom line of the organization, the sale will be more difficult.
What are your other options?
As a speaker on these topics, you can either hold public seminars, but that is a lot of work.
Maybe a better solution is to find associations where individuals with this need/pain gather. These can be trade associations, non-profits, or event multi-level marketing organizations.
One PR firm I know has a somewhat unique model. They connect “for profit” enterprises with non-profits who use (and can potentially) recommend their products. For example, a medical device manufacturer might connect with nursing trade association. Or a technology manufacturer could connect with an association of freelance “geeks.” There are associations of all kinds out there.
These symbiotic relationships can help both parties achieve their goals. They can make it easier for you to access your target audience. It might give you greater credibility. And you can help the associations add value to their members.
If you can articulate the pain you solve and then find where these people gather, you may find greater leverage in your marketing initiatives.
I will continue these tips in future blog entries.