The excruciating paradox for the innovator.

The excruciating paradox for the innovator.

Successful innovation generally comes from being small, with little baggage, no institutional ‘downside’ and few inhibitors to the ability to be truly agile in response to weak feedback signals from customers. Innovation is also a consumer of cash, rather than a generator, although that fact of history is being rewritten by the plummeting cost of tech. Usually the innovators have the will, but do not have the cash, the big companies have that.

So, to be successful, as a rule, you at least have to be able to think and act like a small enterprise, but have the resources of a big one.

Back in my early corporate days I worked for Cerebos Australia, then a modest sized, but hugely profitable offshoot of a British multinational . When I joined, Cerebos marketed Cerola Muesli , with considerable success, but margin was hard to get. In the process of creating new products, we created a muesli bar, a mobile, healthy snack that could go into  a lunchbox, and being made of muesli ingredients, was guilt free, or at least, less guilty than a candy bar.

We cobbled together a  bit of gear to add to the production muesli line, and successfully trialled the products to modest outcomes in market research. With the great benefit of hindsight, the encouraging but modest research outcomes were the result of asking people about something they had not seen, so had no context or frame of reference. Nobody to that time had seen a muesli bar, and did not really understand what it was, or more importantly, the value it could deliver.

I did the work, produced a business plan, and was committed to the launch, but the top end of the volume projections I was comfortable to put my name against were below those required to generate the rate of return demanded by Cerebos, and given the perceived risk,  setting out to create a totally new category, was too large, the project was binned before birth.

Then, several years later, when Uncle Toby’s launched their version, which was a close match to the products we had developed, the volumes they achieved in the first 6 months bettered my most optimistic 3 year projections  by a considerable margin.

Creating a sales forecast for an entirely new product, is a function of research, insight, optimism, wishful thinking, and plain lies, all mixed up into a set of projections. Often the most important ingredient is the insight and domain knowledge , but the only thing you know for sure is that the forecasts will be wildly inaccurate. Mostly those inaccuracies reflect the optimism which fails to materialise, but from time to time, great projects are left in the dust, and it is only with hindsight that we wonder why they could not see what now seems obvious.

Innovation inside a large company is challenging. They became big and successful by doing a few things well,  time after time. By improving operational efficiency, they leverage the mathematics of scale and scope. By contrast, anything innovative is messy, risky, and not subject  to rigorous quantitative analysis: there are no hard numbers, just instinct, dodgy projections, and belief.

Perhaps that is why the successful VC’s around do not, as is commonly believed, fund the true start-ups at start-up. Those are funded by the ‘Trinity of F’,: Family and Fools. The VC comes in when the proof of concept is at least partly there, and they do not invest in the business plan, weighed down by mindless excel projections, wishful thinking, and desperation to snag some money to keep up the car payments, they invest in the people.

 

Is it schizophrenia or just something in the cactus?

Is it schizophrenia or just something in the cactus?

For years consumer markets have been relentlessly commoditised by retailers who hold the power over the distribution, and who not unreasonably, have sought ways to divert the proprietary margins available from manufacturers pockets into their own. Short term thinking, but that seems to be the world we live in.

Largely retailers have won the game, and branded FMCG products are now becoming an increasing rarity, and mostly where they survive, it is on the back of trade deals and residual strength of brands built by smart and visionary marketing in yesteryear. In liquor there are still many brands, but unbeknownst to most consumers, many of them are just housebrands infused with the wine industry hyperbole that seems to be expected.

The impact on category innovation is yet to be really seen, but I suspect it will stumble further, as by my observation of the shelves, it has done over the past few years.

There however, is the schizophrenia.

Every now and again, a product emerges that runs against the trend.

Consumers are increasingly concerned with the integrity of the supply chains that deliver products to their mouths, so on the fringes there are some very expensive products, usually in alternative distribution that use long lists of adjectives to describe their products: organic, hand- made, all natural, crafted, you have seen them all. Occasionally they are genuinely ‘new’ products, but mostly they are better quality, low volume versions of the commodities available on supermarket shelves.Sometimes they work, and consumers pay a significant premium for  the story that supports the claims, but generally the promise given by the adjectives is taken on trust by consumers.

Technology will increasingly have a role in this as magic like Blockchain emerges that can both guarantee the integrity of products supply chain, and make it absolutely transparent. Suddenly the hyperbole can be subjected to rational scrutiny.

In 2013 George Clooney and a few of his mates wanted their own brand of tequila. Why not, they can afford whatever they want, (but why Tequila??) anyway, the brand they chose and subsequently built,  ‘Casamigos’ has just been bought by Diageo for $US1 billion, around 1.3 Billion Aussie. Not bad in four years!

I do not drink tequila, and the term ‘Super Premium Tequila’  seems to me to be an absolute oxymoron, although perhaps I am unduly influenced by one very bad night involving a bottle of the stuff and a lemon tree while at University.

For $1.3 billion I could be persuaded to give tequila a second chance. Is this growth and purchase of such a highly personalised brand another signpost that consumers are demanding a whole set of new experiences from the items they buy, or is it just something in the cactus?

 

 

 

 

 

9 places to dig for great ideas

9 places to dig for great ideas

Ideas are the fodder of our lives these days. Gone are the days of physical labour, even in the professions where labour is necessary, construction, agriculture, and others, the application of technology, the result of ideas is everywhere.

So how do you come up with the ideas that make your life more productive and  comfortable .

Look at it the other way, rather than just hoping that a great idea comes in a flash in the shower, think about the habits and practises that you need to undertake in order to improve the probability that  the ideas will emerge.

Feed your subconscious with the fodder it needs to consume in order that it is able to grow  the ideas.

Curiosity.

Questions are the source of most ideas, and we do  not ask enough of them, I suspect because we have been trained from an early age to think that asking questions is a signpost to  ignorance. Think about how your kids learnt, they asked endless questions, just because they were curious.

What if? why? How does that work? When?

Be a kid again, and ask questions, and from the answers, you will  not only learn, you will have the opportunity to have ideas presented to you on a plate.

Brain-dumping and re-ordering.

Consumption of the idea fodder is half the battle, the other half is to find ways to fit it all together in different ways, apply it to a variety of contexts, and problems. In other words, forcing yourself to regurgitate what we see in other forms really works. The story of the development of the post it note is a classic in re-ordering.

Have an idea corral.

Ideas come when they come, and not necessarily when you want them to come. In fact, I have often found that they come at the most awkward times, stimulated by something I see, hear or read, not when I am sitting down trying to bring it on. As a result you need some sort of corral in which to capture these fragments, and ideas before they disappear. There are now many digital tools, but you can still use the old fashioned notebook. I use both, a notebook, and OneNote on my computer to capture the stuff that pops into my head, almost never when I expect and want it to.

Conspicuous consumption.

Ideas are the result of what you consume, the more volume and variety of consumption, the more likely that something useful will emerge. This is not to encourage you to watch more cooking or renovation shows on TV, although they do count, it is to encourage you to widen the reach and increase the quality of that consumption. With the wealth of information at your fingertips, there is no longer any excuse not to scratch the curiosity itch.

Articulate your ideas.

Listening to an idea in your head, is different somehow to speaking it out loud. Saying them out loud, particularly to an audience, even if it is your dog, but even better a few friends, a small network group,  those at the pub, whatever it is, speaking out loud helps order the ideas, and subjects them to the discipline of the crowd. As a kid I was a reasonable tennis player, a modicum of talent that was well coached, and combined with a competitive attitude, I was OK. However, when I started coaching, it made me a better player, as I had to articulate all that I had learnt from my coach, and from competition to those I was coaching. In the process, my own game improved considerably, as I applied the lessons articulated.

Devils advocate.

The most productive commercial relationship I ever had was with a bloke to whom I reported for quite a long time, in two different companies. The course of our debates was always coloured by the presence of the devil. Even if we agreed, one of us would take the contrary point and argue it, and the inevitability was that the outcome  was better than the starting point.  The point is not to win the argument, but to use the different points of view and perspectives productively to arrive at better outcomes.

Think backwards.

Ideas are only any good when they do something useful. Normally that is to solve a problem for someone, so rather than beating your head against a wall trying to come up with ideas, try and identify problems, then think backwards to  the solution. I suspect Uber did not emerge as an idea, it evolved as a solution to the problems associated with the taxi industry as it was in most of the  developed  world. Thinking about the solutions to a problem will always generate ideas. When running a workshop, I would never go in and ask for ideas, you go in and spend some time defining the nature of a problem, and only then go looking for solutions.

Randomise.

Routine is the enemy of ideas, routine allows you to go through the motions without thought, by rote, and it is in the disruption of routine that ideas may emerge. Go to lunch in different places, exercise at different times and in different manners, seek a variety of physical and emotional environments to spark a variety of different thoughts.

Be a changeling

Never believe that the best idea is the first one you have , be prepared to be wrong, to include new information or elements that adjust the original. Do not however, mistake the agility of accepting new information with being unable to make up your mind. Those who get great ideas are in my experience the most disciplined of people despite the sometimes chaotic appearance.

Never forget that ideas come from our ability as human beings to make connections all sorts, in all sorts of ways. Imagination, the creation of ideas, then being able to do something with them, is what makes us human.

 

Can the government’s innovation initiative innovate us out of the funk?

Can the government’s innovation initiative innovate us out of the funk?

Peter Drucker said something like “innovation is the only truly sustainable competitive advantage”.

Having just re-read his 1985 musings on Innovation and Entrepreneurship, after 20 or so years, the degree of his foresight is truly astonishing. It is great to have a Prime Minister who supposedly understands how to make a buck, and the strategic, commercial and competitive challenges of bringing new products to market. He may be one of the few in Canberra who do, but at least it is a fair start.

With much fanfare the Government on December 3 last year tabled in Parliament a Senate  report on ‘Australia’s innovation System.’  However, with the exception of Professor  Roy Greens valuable contribution as an appendix, I see little of real  value in the report beyond a few worthwhile observations and some useful changes to the tax treatment of entrepreneurial endeavours.

Our venerable Senators have had summarised for them documents (I wonder how much consideration these busy important people actually gave to the detail of the submissions) that may have started with some valuable ideas but which have been sanitised into a document long on rhetoric and disturbingly short on anything of value, which can only be delivered when someone asks the question “What now”?

As someone who has run an agency outsourced from the Federal bureaucracy charged with identifying and delivering innovation to a specific sector, I can attest from first hand just how powerful the cultural forces are against anything with even a hint of risk, change, or long term thinking in the public sector.

Successful innovation takes all three, plus a clear definition of the problems to be addressed.

There is little evidence of anything in the report that encourages me to think that the status quo will be truly challenged.

It is useful to look to successful models, and there are none more successful than the US since the second war. Most will now assume I am jumping to Google, Apple et al, but no. If you look deep enough you will see the hand of government at a deep level making very long term investments in basic science, building knowledge that the private sector then leverages with innovation.

A scientist named Vannevar Bush (no relation to the Bush pollies) was commissioned by President Roosevelt just before he died to report on what needed to be done to promote research and development and the commercial innovation it drives, just as this senate inquiry has done. Bush reported to president Truman in 1945, delivering his report, “Science, the Endless Frontier” which laid out the proposition:

“Basic research leads to new technology. It provides scientific capital. It creates a fund from which the practical application of knowledge must be drawn”.

Directly resulting from this report was the National Science Foundation. Defence Advanced Research Projects Agency DARPA  and several other institutes charged with the charter to do basic science, of discovering new knowledge.

When you look at all the products disrupting industries up to today, and changing our lives, many if not most of them have their roots in the various agencies spawned by Bush’s farsighted ideas, and the ability of the scientific agencies concerned to outlive the political cycle. (that longevity may be tested now with the new President Trump apparently running amok)

Now compare that to Australia’s situation.

CSIRO used to be a great agency, capable of developing technology like the wireless technology in the 70’s now in every mobile phone after 30 years on the shelf until a commercial use was found. Scientific Capital at work.

Now CSIRO is a politicised dysfunctional rump of its former self, with a little of the funding ripped out over each of the last 15 years of hubris, restored via this latest in a long line of Innovation “initiatives” to the sounds of grateful clapping. I see few practical remedies for the past 30 years of innovation vandalism being actually addressed, although at least a real start may have been made.

As I always say in workshops, “the best time to start an innovation initiative was 10 years ago, the second best time is now”.

Let’s hope it is not too late for Australian manufacturing, and being an optimist, I do believe that we will overcome the barriers built by inertia, lack of a clearly articulated Australian view of our place in the world, self interest, and short term political opportunism.

 

7 sources of great ideas

7 sources of great ideas

Where do these great ideas come from, why are some organisations just more innovative than others?.

I have pondered those questions for years as a corporate executive and as a consultant, and it seems to me that there are several points that are common in the situations I have seen that are really innovative, and contrasted in the rest because they simply lack some of these characteristics.

It is also the fact that each of the following ‘conditions’ is a result of that most elusive of management skills: leadership.

Genetics. Some people are just smarter than others, and smart people tend to have more and better ideas. They are also better at driving their ideas through an organisation. If you want an innovative organisation, it seems  that hiring smart people and giving them some freedom is a pretty good place to start.

Outliers. Malcom Gladwell coined this term, meaning those who do not conform, seek to be on the outside, be different, experience things out of the ordinary. Those people are more likely to see and be interested on something different than someone who is comfortable with the status quo.

Intersections. Ideas come from all sorts of places, most often from the intersection of several factors that create some sort of smash, an accident if you like. Rarely are great ideas just accidental. They come out of consideration, often subconscious, of the factors creating friction in a system, and by removing the friction, a new freedom is exposed. You are more likely to see an accident at the corner of Parramatta road and Frederick Street in Ashfield than you are in a country road outside Dubbo. In Ashfield there are a multiple sets of options open to the traffic, some of it entirely unpredictable. If you want to see an accident, that is clearly the better place to be.

Culture. I am a great fan of the scientific method being applied to management and particularly marketing thinking. Create a hypothesis, and test it  see what worked, and what did not, improve the hypothesis and retest. Rinse and repeat. It really works, and when you empower people to have a go, and give them the resources to do so, wonderful things can happen. I have previously described it as a loose/tight management culture. Be very tight about the objectives and behaviour parameters, but loose with the detail of how it is achieved. A note of caution however. The recent recognition that it is all right, indeed good, to fail, seems to be leading us to a point where failure is regarded as a badge of honour for its own sake, and due diligence is becoming less important. Very dangerous this, the right to fail, must be accompanied by the determination to learn from the failure, and great diligence in the construction of the hypotheses and the manner of their testing.

Collaboration. The cliché ‘two brains are better than one’ is a cliché for a reason, it is true. Collaboration will become one of the defining characteristics of success in the 21st century.

Great questions. What if, what now, how about, so what, have you tried… The ability for those in a business to ask questions and not be seen as an inquisitor, and those being questioned seeing the questions as opportunities to learn is a huge factor in the successfully innovating enterprises I have seen. Facilitating a clients innovation  workshop some time ago, the MD started by stating his view, then asking what everyone else thought. Needless to say all participants agreed with him, except for me, and they are no longer a client.

Customers. Current, past, potential, all are sources of ideas, as they are the ones who have the problems you are seeking to add value by solving. Makes sense to ask them.

As a final note, having a great idea is only the first step. The really hard bit is creating the pathways to do something of lasting value with it that adds to the longevity and prosperity of the enterprise.

My thanks once again too Hugh McLeod for the illustration.

When template business plans are useless

When template business plans are useless

In Australia, only around 5% of new businesses survive past the 5 year mark, and make money in excess of the cost of capital.

Scary, because most of them had a business plan, certainly if they ever borrowed any money from a bank, they had one that probably doubled as a door stopper.

50 pages of assumptions, rosy projections and financial outcomes delivered via by a suite of complex excel files to the wazoo. It is essential to recognise that the purpose of a business plan of the lender is to ensure that they get their money back with interest commensurate with the risk, and to weed out the dreamers. That is why banks insist on Directors personal guarantees, mortgages over personal assets, simply to ensure that you do not risk their money.

So much for business plans.

Seriously, why would you waste the time and energy?

Most start with what they think is a great product, without realising that a product is just the starting point.

You also need at least a hypothesis about who the customers are, how you will find them, what sort of prices they may pay, how do you deliver the product, what the competitive reaction might be, and on, and on, and on.

Finding a way to turn all this stuff into a business model that makes sense is challenging, but it is what turns a product idea into a business.

A traditional, templated business plan makes sense when there are a lot of knowns, there is an existing market, ruling prices, you know who and where the customers are, and how they might be reached, and there is not much going on. Then plan to deploy resources for productivity and efficiency, but this is rarely the situation with start-ups with an innovation to bring to the market.

Being an entrepreneur setting about marketing a product with few direct competitors is experimental, requiring iteration, practice, persistence, and preferably mentoring from someone who has been there, seen the traps and is able to navigate around at least some of them.

Planning for the unknown is a touch different from planning for the known.