It’s annual planning time for big corporations and many of us are working feverishly on revenue and expense forecasts for existing products, planning our three year product roadmaps, capital budgets, new initiatives and the like. It’s all very important, especially if we are to properly allocate capital on the right investments for the future.
Except it doesn’t work in areas that require creativity and innovation.
Sure, you can run out to the production line and add a feature or two and launch the “all new” product at retail, with 5% higher margin. It’s pretty easy to predict and your sales guys will get a trip to the President’s Summit Executive Club boondoggle next year and they’ll be happy.
But how to predict things that will change the world? How do you budget for those? Hard, but doable, right? How about looking at just one innovation. The smartphone. An obvious product and easy to predict that it’ll take off, right? Let’s see:
- IBM Simon (1992) Nope.
- Nokia 9000 (1996) Nope.
- Ericsson GS88 (1997) Nope.
- Nokia 9210 Communicator (2002) Nope.
- Kyocera 6035 (2001) Nope.
I wonder how many carefully thought out five year product roadmaps were torched by the inability to predict exactly when the smartphone (ultimately taking the form of the BlackBerry/iPhone/Android) would finally take off?
It’s hard to tell when something new and innovative is going to “tip” and get hold in the consumer marketplace, even when corporations or VCs invest millions of dollars in trying to find that tipping point.
What does happen, though, is that planning kills creativity. What do you do when you’ve got an incremental $5 million in your revenue plan for next year that you have to fill? Or if you’ve got to achieve a certain margin by a certain quarter to meet Wall Street projections? You fall back on the 5% grower. The incremental feature. The white bread. The predictable.
And then watch as Steve Jobs or Mark Zuckerberg or Sergey Brin or any other faceless and previously unknown entrepreneur turns your beautiful industrial business model into a pre-industrial wasteland. See RIM for a perfect example of a business going, ultimately to the scrap heap (my prediction, and not going out on a limb here.)
So what do you do about it? How do you encourage entrepreneurialism in your business and still make sure your financial obligations to your owners and stakeholders are met?
I’ll be thinking about it while on vacation this summer.
This is really hard in a mature business where ROI rules. Even when you carve out an innovation budget, how do you defend it? A VC-ish portfolio approach can work, but even then the ‘mature’ point of view says “Pfft, look at the 80% that don’t work.”
Maybe the counter-value of innovation & entrepreneurialism is the stronger defense: not ROI of the innovations themselves but the business value of keeping an irritant in the mix.
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Innovation as an irritant. Like that! Thinking more about your response, I think the key is to actually GET to the 80% that don’t work. In a lot of large companies, the product process gets you dozens of proposals that can yield 3 or 5 or 10 ideas that get funded to the tune of $500K or $1MM each. 2 or 4 or 7 BETTER work, or it’s a huge flush of cash down the drain.
However outside big companies you get hundreds of new ideas funded to minimally viable stage for $10K or $50K a pop. If 80% fail, who cares, because those that show some spark can be fed another $50K or $100K, which might lead to further success.
If you can build a process within a corporation that lets you spend just $10 or $50K on a new product AND get it done at that price (harder to do with corporate overhead being what it is) and allow a 80%+ “failure” rate without politics killing careers, you’ll be successful. Now who’s been able to do that? I know solid examples are out there.