The key to success for most small businesses is innovation. That’s hardly big news. But what may be surprising to some is that innovation has itself, well, innovated and it isn’t what it used to be.
Serial entrepreneur Steve Blank writes in his blog, “In the 20th century companies could be market leaders for decades by just focusing on their core product(s).” Most product improvement, he continues, was incremental and achieved through process innovation (better materials, cheaper, product line extensions) and/or through acquisitions. “Building disruptive products were thought of as ‘risky’ and a distraction since it was not ‘core’ to the company,” adds Blank, who is also a teacher of entrepreneurship, creator of the “Lean Startup” concept and 2014 winner of the Outstanding Leadership Award from the National Science Foundation and NCIIA for his work on developing the Innovation Corps curriculum.
Of course there were innovative companies and many of the bigger ones used a process called Skunk Works®, which was developed by Lockheed and refers to a separate group of “advanced R&D” developers within a larger company. While that sounds innocuous, Blank writes Skunk Works groups deliberately kept others in the business out of the loop. “They didn’t want them to screw it up,” Blank tells OPEN Forum. However they did develop direct relationships with customers, which, according to Blank, is why they were so successful.
Modern Day Innovation Tactics
Fast forward to this century. As innovative and useful as the concept of Skunk Works was, Blank says it won’t work in the 21st century where businesses that succeed will be the ones that “master continuous innovation.”
For some businesses, transforming into a company that can do this is a multistep process. First you have to “recognize there is a problem and that the rules have changed,” Blank says. What took you to the top is likely not enough to sustain your momentum. As Blank puts it, “Jack Welch rules don’t work in the 21st century.” Businesses can be disrupted by startups with “zero cost of entry” to a market or by any number of companies from places like China.
Deciding what you want to do is key. “For the first time,” Blank says, “larger companies are looking to startups for innovative tools and techniques.” So if you start an innovative company you could be a tempting target for a buyout. Of course that comes at a price. When big companies buy smaller ones, Blank says they often “destroy the culture they came with.” The assimilation process can “beat the innovation out of [an acquired] business.”
Why Innovation Stops in Startups
You would think entrepreneurial companies are better at mastering continuous innovation, but that’s not necessarily the case. While you may start out that way, creating new concepts at a quick clip can all come to a screeching halt when you hit on an idea that works. That’s when, all too often, the continuous innovation stops as you focus all your efforts on the winning concept and ignore everything else. Part of the fallout from this scenario is you lose your startup culture and stop thinking about feeding the pipeline.
The key to success for any size company is to develop “repeatable processes.” That means, says Blank, you have to constantly “run a series of small experiments, continuously innovate products—knowing most will fail.” Yes, it’s hard for most entrepreneurs to invest time and money in projects that might be doomed for failure, but Blank says keep the experiments cheap and do them quickly.
Blank likens this process to the way Hollywood makes movies. “They make hundreds of movies a year,” he explains, “and maybe 10 make real money.”
A Return to the Old
Innovation, says Blank, is a search, learn and discovery process. That comes naturally to startups, but then, there’s the inevitable “clash of cultures. If a startup fails, it will end up out of business," he explains. But a small, growing company should adapt the Skunk Works philosophy. He advises letting the rest of the company execute the ideas that are working. Then have a separate group that is encouraged to experiment, with no consequences for failure.
The difference between this concept and the original Skunk Works one is that today both groups need to “use each other and share resources,” Blank says.
So how do you keep the innovation and execution groups happy? Blank says you should develop key performance indicators for both groups and codify the incentives for innovators in your employee handbook. But the key is getting both groups to trust you—and one another.
Addicted to Innovation
Entrepreneurs do have an advantage when it comes to innovation—and many are addicted to the innovation process. That’s why, explains Blank, “Silicon Valley doesn’t look like Beverly Hills. Serial entrepreneurs are ready to double down and do it all again. They’re constantly investing in the next generation of ideas."
“Entrepreneurship is not a job, it’s a calling," he emphasizes. "Entrepreneurs are like artists, after they sell a painting, they don’t retire, they paint again.”
“The world has changed,” Blank says. “We’re breeding better entrepreneurs. The dumbest entrepreneurs today have more access to information than the smartest entrepreneurs in the 1980s.”
Even as entrepreneurship has gone global, there’s one aspect of it that Blank says is unique to America: “We have the ability to do anything. We’re not bound by government. Try failing somewhere else.”
Success is not all that complicated. Blank’s advice: “Plan for success, assume failure.” And keep innovating.
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