This innovation program article is written by guest author Eric Potter.
“The key is to embrace disruption and change early. Don’t react to it decades later. You can’t fight innovation.” – Ryan Kavanaugh
Taking the plunge into setting up an innovation lab seems like a no brainer for our brethren in the technology space and consumer packaged goods business, but people will always rent apartments and hotels the same way they always have, right? According to AirBnB and other similar services, the answer is “No.” The point is that no one is safe from the disruptors no matter how protected you believe your industry and business model are.
Almost 2 years ago, my company, Waterton – a private equity backed investment manager and property management firm — started a focused corporate innovation initiative and put their trust in me to build and grow it. Since then I’ve received more questions and press inquiries about the initiative than anything else I’ve done in my career. Part of the curiosity comes from skepticism about a brick-and-mortar trying to keep up with the times and part of it comes from curious onlookers wondering if they should be doing the same.
We’ve certainly taken our fair share of hits along the way and in the spirit of open innovation I want to share my mistakes in the hopes that the other intrepid intrapreneurs out there can do it better than me with fewer bruises.
Here are 11 things I’ve learned along the way.
- Scope and executive buy in – Avoiding “Innovation theatre”
This one seems obvious, but the seductive siren song of funding can be confused as a synonym for buy in and scope. First and foremost if you don’t have rock solid agreement on the answers to the following questions you may want to reconsider the wisdom of starting a lab in your current environment.
- What kind of innovations is management looking for – exploiting opportunities in existing areas or exploring entirely new and disruptive ideas?
- How should ideas that are currently floating around in the shadows as pet projects be handled – do they stay with their current owners or get pulled in to the innovation lab?
- What is the level of autonomy for freeform exploration?
- How much of the budget is allocated to the lab itself and how much is meant for product/adea development?
- Should the focus of the lab be on actual product development or fast paced learning?
- What does senior management consider a win for the lab?
- Misinterpreting what innovation is
Innovation is hard and the vast majority of it comes incrementally from small ideas that eventually lead to big changes. Huge ideas are great, but there is a good chance your innovation lab will fail if you sit around waiting on “the big one” while ignoring the small ideas that will make a difference today. If you think big and start small you will avoid the trap of over-complicating good ideas and making no progress at all.
- Manage expectations
Getting participation is a fantastic problem to have, but not every idea scribbled down on the back of a napkin is worth experimenting on in the lab. Often times there is need for a more detailed problem definition (I like using the JTBD framework), but however you get to the detail you must ensure the hard work is done before you go off creating something. Set clear expectations with the idea generators so they know what kind of information they need to bring to the lab and ensure they are prepared to take ownership of their idea or else the lab will quickly become a proving ground for half-baked ideas. Ultimately an innovation lab is a waste of time if it doesn’t produce products or services that solve problems.
There are numerous innovation management tools designed for organizations of all sizes. While these tools aren’t what I would call a necessity, managing an innovation program from your Outlook Inbox and an Excel spread sheet can become overwhelming as the program grows. We use e-Zassi for our front end innovation portal, but there are several other useful tools like Tribe, Digital Ocean, Google Apps etc. A quick search will yield many others, but the point is use something that is purpose built for your needs. Don’t worry about the infrastructure of the parent organization because it was built for a different purpose, namely to enhance and protect big business processes. Once an idea becomes viable, then start investigating how to incorporate it into “normal” business processes.
An innovation lab is still a relatively obscure concept in a lot of organizations outside of tech and the Fortune 500. It will inevitably be met with skepticism and intrigue. It’s important to be vigilant about communicating what is happening inside the program and about the wins the team achieves. Have a monthly internal communications plan; it will help generate inbound ideas and increase desire to participate amongst your employee base. If you have a corporate communications team engage them early about an external communications plan and get your wins out to the press as soon as you can. When other leaders in the industry pick up the phone to call your CEO about what the lab is doing it goes a long way towards ensuring continued funding and real executive support.
- Perfection is your enemy
Waterton primarily invests in apartments and hotels. In our industry (and many others), the concept of “good enough” doesn’t culturally apply. A half-built hotel without occupancy permits is more likely to be met with a lawsuit than a round of applause. Getting your management team, or more importantly your end users, comfortable with a minimum viable product is an uphill battle. However, if you wait to plan out every detail of a project and hold off on debuting it until it’s perfect you are not only moving too slow, you are missing the point of innovation entirely. Act on what you do know, learn from the small steps you took, build on what you learned, and then repeat. Start with a problem statement, not a product or service. You will need the flexibility to allow the idea to steer you to the right solution. To paraphrase a quote attributed to Henry Ford, “If I asked my customers what they wanted, they would have said a faster horse.”
- Look for ideas from outside your industry
Innovation is rarely about following the path of a lone creative genius. It is usually from incremental changes in business plans, products or services that slowly add up to something completely new. A great way to facilitate these changes is to build an innovation team with diverse professional backgrounds. Often times industries other than your own have already solved a problem similar to yours, but with today’s laser-like focus on our own industries we have a tendency to only look internally for solutions. Consider attending conferences like the Consumer Electronic Show or asking your team for suggestions exclusively from their past positions in order to brainstorm ideas to your current business problems.
- Take as much risk out of your program as possible
De-risk your program through start up driven innovation. At Waterton, we think of our innovation initiative programmatically. One way for a company that doesn’t intend to market and sell their innovations to de-risk their program is through start up driven innovation via the creation of a venture accelerator. Money we invest on internal initiatives needs to be offset by revenue increases, or expense savings to make the project net neutral/positive to the net income. However, that doesn’t always happen and that’s where our accelerator, elmspring (http://elmspringaccelerator.com), plays an important role. By investing time, treasure, and talent into startups that service our industry we effectively create a hedged position on our internal development costs. When one of our internal projects goes poorly we have an offsetting position in a startup that will financially cover our losses and bring the innovation program back to being cash neutral. On top of that we get the benefit of great exposure to new technology that we can integrate into our operations rather than be blindsided and disrupted by. The merits of the creation of a partnership with an accelerator are well documented and too numerous for this article, but I would be happy to discuss it with anyone looking to learn more.
- Challenge everything you currently do
The other less talked about part of an innovation program isn’t asking the question “What should we be doing better?” it’s “What shouldn’t we be doing?” Challenging everything you do and asking the really dumb questions should be part of the job description of every innovator out there. Having a professionally diverse set of thinkers on your team can lead to interesting discoveries. When you have maintenance professionals asking accountants why they do something in a particular way, sometimes you find out there is a valid reason, other times you find out that it’s “just the way it’s always been done.”
- Don’t let projects linger
Sunk Cost bias is real and it hurts when you have to pull the plug on a project. But pulling the plug on a project that was never destined for success is essential in managing both financial and time commitments. When starting an innovation lab, odds are you have limited resources and you need to be vigilant in how you manage them. One of my boss’s aphorisms is that he “hasn’t met a project that he didn’t love.” The project manager in me couldn’t agree more wholeheartedly, but running an innovation lab on lean principles is an entirely different game.
The two fastest ways to kill an innovation program is lack of direct buy in from your CEO and in-depth pre-project financial analysis. The former is hopefully apparent, the latter may not be. Part of the promise of an innovation lab is speed and innovation. In order to achieve those targets you need the flexibility and trust to pursue ideas as they present themselves. Trying to model P/L on a truly innovative idea is largely a time consuming fool’s errand that is meant to satisfy the needs of the traditionally run parent organization. However, the time spent trying to model the cash flows of an innovation project is time consuming and detracts from speed of approval and execution. To be clear I am not advocating cavalier spending on projects, but I am advocating a negotiation with your CFO. Look to create a slimmed down reporting format that meets the minimum needs of the parent organization and then be clear in positioning that budget as the risk the company is willing to take in order to find out what it doesn’t know. If you mentally frame the budget as the risk (loss) the organization has agreed to take you will build the leeway you need to move quickly and try out new things without killing ideas in committees.
Ultimately an innovation lab is a waste of time if it doesn’t produce products or services that solve problems. But getting it off the ground right requires hard work and a lot of grit. The program isn’t likely to ever turn into the main source of revenue for the company, but it is an essential part of keeping a modern business competitive. If you’ve got the entrepreneurial grit to get involved I guarantee it will be one of the most enjoyable experiences of your professional life.
About the author
Eric Potter is an avid skier, poor golfer, and determined innovator. He has been with Waterton for 5 years and was formerly the Director of Project Management before being tapped to start and run Waterton’s Innovation initiatives including their lab and accelerator. He is a former Army officer with a background in technology and finance. Meeting new innovators and intrapreneurs is endlessly rewarding so feel free to drop Eric an e-mail at [email protected] if you want to share some war stories about innovation labs and venture investing.