Steve Jobs was the ultimate entrepreneur. As Walter Isaacson pointed out in his acclaimed biography, Jobs revolutionized seven industries and created the most valuable company in the world. We revere people like him, because they help create the future.
Yet, they do not do it alone. One fact that often gets lost is that the basic technologies that Apple productsare built on (and those of all tech firms), from the chips, to the Internet, to GPS to the software protocols, were all supported or wholly developed by government programs.
As Bruce Upbin noted in a recent article in Forbes, while we like to think of daring venture capitalists and entrepreneurs taking all the risk, they are more akin to the “last mile,” building on top of technological infrastructure built by the government. In truth, public sector programs are often crucial to innovation in the private economy. Here are four:
In 1939, Leó Szilárd sent a letter to his friend Albert Einstein about the possibility of a mysterious device that could level entire cities. Einstein, in turn, passed it on to Franklin Roosevelt who, acutely aware that this otherwise unlikely idea had the sanction of the world’s most famous scientist, put the wheels of government in motion.
We often fall into the trap of thinking about technology as mainly gadgets and gizmos. However, some of the most important innovations happen in the life sciences, much of it funded by the NIH (National Institutes of Health), a vast effort whose 2014 budget exceeds $31 billion.
The impact of the NIH cannot be overstated. Researchers there discover vaccines for infectious diseases and innovative new treatments. A Congressional study found that as many as 60% of important drugs would not have been discovered without NIH support and that economic returns range from 25% to 40%.
Government procurement is notoriously inefficient, especially with regard to military contracts, because there are multiple points of failure. First, specifications need to go through a cumbersome bureaucratic process, then bids are solicited and assessed not only on their merits, but amidst a political and greed ridden morass.
In the case of technology, the problem is especially acute. Much like large corporations, government bureaucrats are ill equipped to judge the value of nascent technologies and, by the time they are finished wrangling through the procurement process, the technology is often already out of date.
The In-Q-Tel program has become so successful that it is often seen as a stamp of approval for start-ups, so it is able to invest at attractive valuations even when a company is fully funded.
Entrepreneurs are often seen as heroic, while many observers complain that government should just get out of the way. However, while nobody likes the regulation and red tape, the Small Business Innovation Research (SBIR) program shows that government can play an important role in helping young, innovative businesses get started.
The program has three phases. The first is a “proof of concept” phase in which funding is generally capped at $150,000. The second is a research phase in which grants can go up to $1 million. In the third phase, the company is expected to either get private funding or, in some cases, can receive funding from another government program.
Qualcomm, iRobot and Symantec are just a few of the SBIR success stories. The combination of low grants (lower in fact, than most venture capitalists are willing to get involved with) and limited duration encourages entrepreneurs to embark on projects that aren’t yet developed enough to secure financing in the private sector.
The New Hoover Dams
The quintessential government project of the 20th century was the Hoover Dam, large, impressive projects that helped build the nation’s infrastructure. These were always popular because they showed a clear, tangible result even for those that weren’t directly affected by the investment.
However, building large physical structures will do little for US competitiveness in the 21st century (although much investment is needed for renovation and repair). Ours is a technological age and the most important investments are the ones we won’t see, in smart grids and connectivity, new molecules and algorithms.
In an important TED talk (see below), economist Mariana Mazzucato suggests that the public sector has a crucial role to play in funding innovations deemed too risky for profit seeking companies, who are under intense pressure to show a return on investment before a project is undertaken.
She also suggests that austerity is counterproductive, lowering deficits in the short term, but sacrificing the future through a lack of investment. She proposes that government programs should be transformed into innovation banks and that a equity stakes in funded companies should be plowed back into investments (Finland already does this).
Whether or not her proposals are workable, one thing is for sure: The tired old caricatures of lazy, feckless government bureaucrats and heroic entrepreneurs is more of an excuse for rent seeking (by lazy, feckless corporate bureaucrats) than it is a serious basis for policy.
How was Starbucks able to build an empire in just 35 years, by charging premium prices for what is essentially a commodity? The coffee purveyor's legions of loyal patrons seem to find significant value in what it offers, to the point that it has become one of America’s most beloved brands. Others, meanwhile, are perplexed by the fact that someone would pay $4 for a cup of coffee, standing in a long line for the opportunity to buy something that could be created at home for much less. Starbucks founder Howard Schultz has said, “If I went to a group of consumers and asked them if I should sell a $4 cup of coffee, what would they have told me?“
So how does Starbucks pull it off? Because it offers more than just coffee. It prepares premium custom beverages made to your precise order, excellent customer service, and beautiful stores with comfortable chairs and free WiFi. For many, a trip to Starbucks is as much about the experience as it is about the caffeine. For others, it is a matter of convenience-they can always find one nearby when they need to connect to the Internet. All of these things add value beyond the coffee itself, which enables Starbucks to sell one of the World’s most commoditized products, at a significant premium. For those who value these benefits, Starbucks is contributing significant value, well worth the $4 per visit.
Amazon.com is a subtler example of what’s possible when we look beyond the commodity. It is not selling a premium version of a product like Starbucks, nor does it have a physical presence on every street corner. It does, however, contribute significant incremental value beyond that of its competitors. Most of us shop at Amazon.com because we know it has the world’s largest inventory, the fastest shipping, and one of the best return policies. And, because it is now the largest retailer in the world, it also has significant pricing power and is thus able to offer some of the best pricing.
If all of these benefits seem trivial, ask yourself if you would buy from a smaller online store you don't know much about, even if the product is the same price. Perhaps you have a bias toward supporting the small businesses or the underdog, but that aside, would you pay the same price for a product from a store that has slower shipping and an unknown return policy?
In 1979, Harvard Professor Michael Porter introduced the concept of the value chain, suggesting there are multiple layers to your business, each of which contributes to the total value to your customer. Direct activities, including sales, clearly contribute to revenue, and activities such as IT and customer service provide indirect, long-term value. The presence of all of these services form an integrated value chain that makes some brands more professional and valuable than others. The investments these companies make in their infrastructure cannot only make them more efficient and bring down cost, they have the potential to add value for their customers by improving the purchase experience, reducing risk, and addressing other needs that the customer may have but are being ignored by the market.
Starbucks and Amazon.com have both built an empire around selling commodities, but they invested heavily in the indirect benefits surrounding their offerings, thus providing more value than their rivals. Put another way, their innovation is the value chain they wrapped around the commodity products they sell, not the products themselves. After all, innovation does not always mean technical wizardry or superior craftsmanship--creating a more valuable delivery or purchase experience can be fertile ground for innovation too.
How can you take a page from Starbucks or Amazon? First, you have to appreciate the irony of selling a commodity and yet become so differentiated in the process, that you rise above the commodity trap that plagues so many businesses. Therein lies a subtle, yet crucial, distinction. Everyone in Silicon Valley seems to be “innovating” a technology product, but not many are creating meaningful differentiated value that gives them a leg up on competitors. That is unfortunate when you consider that many technology products become commodities eventually.
The bottom line? If you spend all of your resources innovating a product that is bound to become a commodity, you won't have a defensible market position down the road. In fact, all of your resources will have been spent fighting a battle you are unlikely to win in the long term, unless your successful at being acquired during market consolidation, which is unlikely. That's why innovating the value chain around an existing commoditized product, rather than innovating the product itself, is sometimes a better strategy. That's especially true if you're entering a crowded space and lack the timing or resources to become a leader when the market matures.
Neal Cabage: is a product strategist and technologist. He has worked with top online brands, spoken at leading industry conferences, and founded and sold two online start-ups along the way. He co-authored the 2013 book The Smarter Startup and continues to research why some online products succeed when many do not. You can find him on Twitter @NealCabage.
In 2006 I found myself at a Cursos De Verano (summer school) near Madrid. Just down the corridor, a bunch of senior generals were discussing the “army of the 21st century”. Next to them, a some egg-head priests were discussing “the church of the 21st century”. My group was discussing “innovation of the 21st century “. I posted the following Power Laws on a notice board hoping the Church and State guys would take note.
Power Law 1: Don’t think ‘new product’ – think social and ecological value.
Power Law 2: Think social and ecological value before ‘tech’
Power Law 3: Enable human agency: Design people into situations, not out of them.
Power Law 4: Use, not own. Possession is old paradigm.
Power Law 5: Think P2P, not point-to-mass.
Power Law 6: Don’t think faster – think closer.
Power Law 7: Don’t start from zero. Re-mix what’s already out there.
Power Law 8: Connect the big and the small.
Power Law 9: Think whole systems (and new business models, too).
Power Law 10: Think open systems, not closed ones.
To borrow from Marx: If you don’t like these laws, I will make up some others.
"Any organization that wants to innovate, wants to be prepared to innovate, I think, has to have a few things in place," IDEO CEO Tim Brown tells the Yale School of Management. "Perhaps the most important thing is methods for having an open mind."
IDEO, as you may know, is one of the world's leading creative consultancies: our profile of their founder David Kelley show how they build their design thinking methodological: the careful defining of problems and sussing out their solutions in a way that would make Einstein proud. And fittingly enough, Brown says innovation requires a certain passionate curiosity.
You need inquiry to innovate--so companies can navel-gaze themselves astray, Brown says:
"the quickest way for removing curiosity in my opinion is to have organizations that are too inward-facing, that don't spend enough time out in the world"
Why is this case? Because, as Tina Seelig has noted, the basis of creativity is keenly observing the world: you need to understand, the way Twitter does, how users and other shareholders get value from what you do. If you're always facing inward, you'll miss out.
"A sense of empathy for the world, for people whose problems they might be trying to solve--that's essential," Brown says, echoing Ginny Whitelaw's advice that empathy is the most powerful leadership tool.
"We come with what we might call a beginner's mind,"
Brown says he has a lot of empathy for their clients, since IDEO needs to keep innovating for itself. His job--and we can assume that of other executives--is to "do some pattern recognition" across all the people storming their brains and ideating on their iterations. They key, then, is to find the places to focus more of their resources.
While Brown notes that over the years IDEO has built knowledge in fields like healthcare and financial services, they still mostly approach problems unencumbered by expertise. They're wizened in their methodology, by fresh-faced with each new circumstance.
"We do rely somewhat on the value of having an open mind when we approach a new question," he says. "I think that's perhaps the reason that we succeed in working across a lot of different industries."
Innovation vs. Budgets: When Will We Ring the Bell?
Ah, budgets. Are there any other elements of business that wield the same power as the freedoms or restrictions of the almighty budget? In today’s wounded economy, financial constraints dictate much more than just expenditures — they determine when people can create, how big they can brainstorm, and unfortunately, the potential for supporting valuable innovation. It often doesn’t matter how brilliant or dynamic a solution is, if a company’s resources can’t back it up — and that’s a problem. How are industries supposed to evolve when dollar signs are holding great ideas hostage?
Customers Have Needs, Too (So Why Aren’t We Taking them Seriously?)
Budgeting constraints aren’t really a new problem, and there are certainly plenty of examples of companies overcoming them (just ask monoliths like Apple and Whole Foods, both of which sit at the top of this list of Fortune 500 companies that started with next to nothing). But it’s not necessarily fiery entrepreneurship that’s suffering, since trying to make something out of nothing comes with the territory. More so, it’s organizations that have some roots and systems in place failing to fund innovation as a result of misplaced capital.
All business undertakings involve a certain level of risk, and despite a shift towards the agile approach of embracing and learning from failure, gambling in the name of innovation sometimes scares investors and stakeholders into hoarding assets. The thing is, customers have problems and needs that, because they’reultimately more impactful to future growth, trump those qualms — at least, they should. In a nutshell:
Customers are suffocated by the sheer amount of options they face, and although brand loyalty is a factor, things get dropped if a different offering clearly does a better job.
They want companies to follow the same financial platitudes that they do — you get what you pay for, quality over quantity, etc.
That said, they don’t expect to shoulder the cost of your talent when there’s evidence that jacked up prices are being used to generate quick profits rather than develop better products.
They have zero tolerance for poor performance and slow support.
They know that alternatives exist, and they’re not afraid to use them as leverage.
Again, not new challenges, but they’re placing a decent amount of pressure on today’s companies to explore new markets, develop more robust product offerings, and make use of commercial technologies. Working within limited financial frames is forcing businesses to get creative and collaborative. The problem is, not everyone is very good at it.
The C-Word (Collaboration. Sheesh.)
It’s true that we already celebrated collaboration month here at Mindjet, but it’s no secret that innovation is really just collaboration’s louder, more animated sister. There’s an undeniable kinship between working together and turning ideas into action, and I’ve said before that innovation doesn’t keep good company with redundancy. In this case, that could equate to how dangerous it is to distribute funds in the same way each quarter (which most companies do), a practice that makes department heads scramble to spend if it turns out they don’t need their entire allowance. It’s an understandable tactic (we’d all rather be left with a surplus, right?), but it paints an inaccurate picture of company needs, causes us to spend money without any viable strategic foundations, and lessens the chance that the more ambiguous initiatives — like fostering innovation — will actually receive the financial backing they need.
If there’s a call to action to be found here, it’s this: if you want your organization to grow, be profitable, thrive, and all that other good stuff, pay attention. Stop being afraid to use resources differently. Reanalyze potential, and make sure that funds are lining the paths that are actually driving your company forward, not those that simply used to.
Bottom line? Companies that invest in innovation, even at the risk of losing traction and depleting the corporate nest egg, set themselves apart as savvy, consumer-driven, and willing to advance at a faster pace than their markets. That means competitive advantage — and you can’t put a price on that.
The fantastic Amplify festival in Sydney has just come to an end. What a week! The curation for this event by Annalie Killian (@maverickwoman) from AMP was just outstanding. It is very rare to such a rich set of speakers coming together for one week.
This is even more exceptional if you’d know that this is a bi-annual fest exclusively targeted at employees from AMP. What a great innovation effort to bring the outside in, to expose corporate staff to the vibrant world of innovation at the edges of their own ecosystem!
Every company should copy-cat this approach.
As I listened to the different speakers talking about technology breakthroughs, innovation efforts, transformation efforts, and behaviour change programs, i felt a growing discomfort inside myself with the seemingly over-glorification of technology as a cure to solve all world problems, and the un-balance with business humanising insights.
At the same time, I started wondering how much of all this really lead to substantial changes and actual products and services shipped, with real value add reaching the customers on a sustainable basis.
Every time I meet innovators in a corporate environment, I ask the question: “what is your biggest innovation challenge?” Most of the time the initial answer is an embarrassing silence, and at best the answer is foggy and lacking clarity of vision and intention.
It made me think: what is it that makes companies’ innovation real? What is it that lets people with the holy fire flourish or die in our organisations? What is the authenticity of all this innovation work?
Illustration by @gapingvoid
With some very rare exceptions, all companies have innovation in their annual reports, part of their corporate branding exercise, even part of their mission. And many companies have actually dedicated central or distributed innovation resources and budgets in place. The happy few have even started or are starting with Corporate Garages (see “The New Corporate Garage” by @scottdanthony).
Image courtesy Apple Computer
However, in many cases this is window dressing and innovation seems to be mere “lipstick on a pig”. This creates disappointment, frustration, and a sense of illusion, and leads to disengagement of the staff at large.
In order to help organisations self-assess how real their innovation is, I started pulling together 10 questions. Depending on the number of 1) and 2) answers to the questions below, you will be able to find out for yourself where you stand, and hopefully will allow you to start a “straight talk” conversation within your organisations on the best way forward. The more I think about this, the more i am getting convinced that the key to succes is based on high quality alignement of vision and intention at all levels, and the irradiation of “stories” that seem to perpetuate in corporate environments.
The questions are organised per influence group of your organisation or give some insights in your real appetite for change and experimentation. Just tick 1) or 2) for your answer and add up the numbers at the end of the exercise.
80%+ of your Board is really – in a pro-active, visible and public way – supporting innovation, or
50% of your Board are in essence against innovation and want you to focus on the core and the other 50% just “tolerate it”, close their eyes and trust their CEO not to do too disturbing things that can harm the company’s reputation.
Is innovation a dedicated chapter at the beginning of your strategy documents, or
Is innovation merely a paragraph at the end?
Does your CEO deeply embody the desire to change and disrupt in an integer, consistent and authentic way, or
Do you notice in the tone during the all-hands sessions almost an embarrassment when she takes the word innovation in her mouth?
Executive Committee level: Are your executives aligned on innovation or not? Just do this mind-experiment: What do you really think would happen if you pop-in by surprise at the next Exec Meeting and ask each Exec to list the top-3 alignments on innovation:
Would you hear one strong consistent message of alignment and genuine enthusiasm, or
Many voices of disagreement and vagueness, and an urge to move on to the business of the day?
Level-1 / Level-2 (Senior and Middle Management)
Do they see innovation as the instrument by excellence to make bridges between the edge and the core, to transform your industry, brand, and network with the deep desire to challenge the status quo, or
Do they look at innovation as the people who burn money, travel a lot, do not innovate in the core, a special bunch that never blends in, and is always “out there”?
Your colleagues in general:
Are they looking at the innovation team as a group of people that brings value, creates excitement, infuses new energy, creativity and enthusiasm, or
Are they complaining about having to stay in their cubicles while the innovators have fun?
Do you have a process in place to force forward consciously at least 1-2 “big bad ideas” per year into the mainstream business, in other words do you have an innovation portfolio approach, or
Are more than 99% of sandbox projects killed before ever getting a chance to get materialised in real products and services, because not fitting the strategy or no immediate revenue potential?
Sandbox or playground
Is your sandbox considered as a real space for experimentation and organizational learning, or
Is your sandbox just tolerated as a children’s playground as long as it does not disturb the core and does not challenge existing power balances?
When the going gets tough – in time of cost cutting:
Do you observe a conscious choice to remain flat or even further invest in innovation for the long term, or
Do you observe random flat cost cutting across all departments or – even worse – bigger cuts in innovation?
Daring to be great
Is their a process to identify your Corporate Catalysts and to plant them into the fabric of the organization to create viral change from within, or
Have most of those that dared to be great, and had the courage to stick out their necks during the last 2 years been made silent or laid-off as part of cost-cutting, efficiency or other re-organization initiatives?
Let’s be conservative or even kind in your self-assessment:
If you have answered more than half of the questions with 1) there is a chance that your innovation is real. Focus on the execution of your innovations, and the shipping of value adding products and services into the marketplace;
If you have more 2) answers, you probably live in an innovation illusion and it means you have more work to do in laying a solid foundation of belief across the organisation Avoid throwing the baby out with the bath water. Push for clarity in the vision and intention of your innovation efforts, and focus first on deep bottom-up viral behaviour change activities, as behaviour drives culture and not the other way around. And remember; you will need passion, perseverance, and patience to succeed.
In other words, turn on the B.S. detector and ask yourself the question: is your innovation a real strategic choice or just a tick-box to satisfy your feel-good-moments. And plan your actions accordingly.