Know where you’re going before you get going. Begin at the end.

&4D DEFINE detail

Whenever you play an unfamiliar game you need two things: a clear definition of winning, and the rules of the game.

Start every innovation challenge by getting clear answers to these questions with ALL the decision-makers.

Sit your project sponsor down. This should be the senior executive who owns responsibility for growth. Everyone below that level can be excused for thinking the unknown is too risky. When your job is to grow the bottom line, “no” is not a good response.

If you find yourself in the hot seat, remember this owner of the P&L statement needs more P, not just less L. Too many chainsaw CEOs discover that cutting through the costs eventually just leaves a stump.

Ease in by qualifying success.

Question: “What should be different as a result of this successful innovation project?” 

Answer: “Customers will recognize our commitment to innovation to improve their lives. Markets will respect our dedication to building better futures. Competitors will envy our ability to anticipate new needs.”

Now quantify that value.

Question: “What is the financial goal for this project (revenue or market share increase by when)?”

Answer: “We should see a net revenue increase of XX% with accretive margins by year 3.” Or “We expect a 12% increase in market penetration, measured in net new number of accounts, by year 3.”

Now you know your targets. Push back if you believe that the targets are too constraining. Innovation uses the logic and investment model of venture capital, not private equity. Your sponsors need to invest like smart money invests behind innovation:

  • Investors know that risk and reward go hand in hand, and bet on a portfolio of investments to spread that risk and optimize their return, according to their own timeframes and tolerances.
  • Executives should take the same balanced approach, but too often disproportionately invest in low-risk short-term bets, favoring current period profits over long term asset growth. Here today. Gone tomorrow.
  • Safe bets have their place, in fact they fuel the cash-flow to fund longer term investments. So companies are right to invest in new products in established technologies for known markets. They should demand a high hit rate, and expect only an incremental return. That’s the investment model of private equity – safe bets on the familiar.
  • VCs invest on a future frontier. They know that new and untested businesses are high risky. So they place multiple small bets, and double down when results start to prove their prescience, and they absorb their losses when the inevitable majority of investments tank. VCs place ten small bets, knowing it only takes one to hit to pay for all the others. Over time, a disciplined investment cycle increases those hit rates a bit, but if your business is going to place bets on the future, expect most to fail, and winners to win big.

To make sure this works for new innovation investors, establish an “investment board” chaired by your project sponsor — or her boss. The review points in our 4D method are review points for your board to double down or withdraw their investments according to their appetite for growth and tolerance for risk. You should establish an effective governance model for innovation – instituting the best practices and decision methods of Venture Capital.

Next, download all the legacy knowledge.

Start by drawing a market model. Who are the players on a macro scale? What are the market boundaries today? Where might they be tomorrow? Translate this into a list of questions from the outside in. Share the questions with the folks best positioned to answer them, internal or external, depending on your project parameters.

This often involve the marketing and strategy folks – whoever is charged with trying to find new sources of growth and trends that inform your target markets.

Wallpaper a conference room and fill the team’s brainpans with all that is known, unknown, and currently unknowable about the challenge at hand. Once you’ve digested this, and it often takes a night to sleep on it, compare what you’ve learned against the market model and questions you’ve listed. Find the open holes. Call assumptions into question.

And begin to chart out your research plan for the DISCOVERY phase.

Prior  SERVICES  Next