Marketing Innovation

Wisdom from the Ages Predicted Apple's Success

"No organization can achieve greatness without a vigorous leader who is driven onward by his own pulsating will to succeed. He has to have a vision of grandeur, a vision that can produce eager followers in vast numbers. In business, the followers are the customers. To produce these customers, the entire corporation must be viewed as a customer-creating and customer-satisfying organism.

"Management must think of itself not as producing products but as providing customer-creating value satisfactions. It must push this idea (and everything it means and requires) into every nook and cranny of the organization. It has to do this continuously and with the kind of flair that excites and stimulates the people in it. Otherwise, the company will be merely a series of pigeonholed parts, with no consolidating sense of purpose or direction."

Source:  "Marketing Myopia", by Theodore Levitt, Harvard Business Review, July-August 1960

And to think that Steve Jobs was only five years old when this was published! He obviously learned this lesson brilliantly.

 

What the Market REALLY Wants

The market doesn't want innovation, it wants results.

Dan and Chip Heath in the November, 2010 issue of "Fast Company" magazine (page 84) put it very succinctly:  

You've heard the old saying "If you invent a better mousetrap, the world will beat a path to your door."  Don't bet on it.  The world's felt need isn't for a better mousetrap.  It's for a dead mouse.

Excellent advice for innovators -- focus on the result, not the process.

The Vanilla Paradox: Crossing the Blue Ocean to Mass Market Success

Do you have an innovative product in a mature market?  That isn’t an oxymoron -- most innovations are improvements on existing products or services, and need to be differentiated from what is currently available.  Otherwise, they risk becoming, as a former IBM colleague put it, “just another flavor of vanilla”.

So, how do you go about avoiding the Vanilla Paradox^TM?  I believe that the answer lies in combining the lessons in Geoffrey Moore’s “Crossing the Chasm”/“Inside the Tornado” books with the ideas in W. Chan Kim and Renée Mauborgne’s “Blue Ocean Strategy”.

The main lesson from Moore is that to penetrate the mass market (aka “cross the chasm”), you should identify a niche, or market segment, and provide a “whole product” to it.  A “whole product” is defined as “the minimum set of product and services necessary to ensure that the target customer will achieve his or her compelling reason to buy”.  (Click on the image to see a larger version.)

In other words, a complete solution to a real problem.

That may appear to be obvious, but the key words are “complete” and “real”.  In many innovations, the entrepreneur will offer a new capability, but not a solution.  The customer must still perform some integration-type work to make the innovation into a success.  (These customers are the “early adopters” on the other side of the chasm.)  The “whole product” concept is key.

The other challenge is the “real” problem.  If you have improved an existing product or service, whether it is a light bulb, trailer hitch, asthma inhaler, or invoicing service (etc.), there are a great number of existing customers who are perfectly content to stick with the status quo.

What you want to do is make these customers think differently about the product or service in a way that makes them predisposed to consider buying your innovation.  The message from “Blue Ocean Strategy” is that you need to reinvent the “value curve”.  The objective is to create a “blue ocean” (i.e. uncontested market space) vs. a “red ocean” (a hyper-competitive market space).

The value curve is the relative weight that customers assign to various factors in the purchase decision. Very often price is the most important factor in the value curve, but there are usually others.  

Let’s take ice cream.  Store brands will win on price, but Häagen-Dazs, Edy’s and other premium brands have differentiated based on purity of flavor, fat content, texture, and so on.  And that’s just for vanilla! Ben & Jerry’s has all sorts of funky names for their flavors and a mystique that customers buy into as part of the brand.

Chan and Mauborgne show that the innovator has four strategy options in reshaping the value curve (click on the image to see a larger version of the chart):

• REDUCE certain factors below the industry standard
• CREATE new factors that the industry does not offer
• RAISE certain factors above the industry standard, and
• ELIMINATE certain factors altogether.

Sometimes, the best way to do this is “create” a new way of looking at the product or service -- ask customers to think about their product usage in a new way.  Are they wasting time using existing products?  Is there a safety problem with the current way of doing things?  Is there a new capability that your innovation would enable?  If so, bring that to your customers attention, and you know have a “complete solution” to a “real problem”.  

And you’ve crossed the blue ocean! 

Entrepreneurs vs. Employees: What do we want?

In the current issue(April 13, 2009) of BusinessWeek, the following letter appears, responding to an article by Vivek Wadhwa:

PUT AMERICAN ENGINEERS TO WORK FIRST
As an engineer with a graduate degree, I take exception to "America's Immigrant Brain Drain" (Outside Shot, Mar. 16).

The spirit of entrepreneurship existed in Silicon Valley well before the influx of H-1B immigrants. It's insulting to hear the author repeat the claim that there aren't enough qualified engineering and science grads in the U.S., while many of my colleagues find themselves out of work.

If companies truly believe this, they should lobby Congress to use some of the stimulus money to help graduates of American universities pursue advanced science degrees.

The author is confusing entrepreneurs and employees.  He says that his colleagues find themselves out of work and says that the solution is more spending on advanced science degrees.  I disagree.

Mr. Wadwha wrote that "[a]lthough [immigrants] represent just 12% of the US population, they have started 52% of Silicon Valley's tech companies".  That is fascinating -- and a vital part of US competitiveness.   (The point of his essay is that closing our visa process turns away people who are critical to our economy.)

That statistic can be rephrased -- the market for new capital has decided to invest 52% of its assets in companies led by people born and raised overseas and coming to the US to realize economic opportunity through business creation.  (Mr. Wadwha's research also shows that immigrants contributed to more than 25% of US global patents, make up 24% of science and engineering workers with bachelors degrees and 47% of PhDs.  This would indicate that they are making substantial contributions to new business creation in existing firms as well as startups.)

This raises an interesting question in my mind -- does the US education process churn people through a system where they graduate from college optimized to be traditional employees?  

For most of the last century, the US economy was dominated by corporations, large and small. That worked -- up through the 90's.  The pace of technological change accelerated at that point, and (to dramatically oversimplify things) the existing corporations couldn't keep up.  New business creation exploded, and Mr. Wadwha's research shows who led the charge.  

Further, if you were to read Mr. Wadwha's original piece, nowhere does he say that there is a lack of "qualified engineering and science grads in the US".   There are many (of all nationalities) and they are highly skilled.  However, it appears that there is a greater opportunity for those who create new businesses rather than are hired by them.  (Note that I don't say "start a company".)

The old phrase "Get a Job" (with a song by the same name made popular by the Silhouettes in 1957) might be better transformed in today's economy into "Create a Business".  As a student, consultant, and practitioner of entrepreneurial activity, my working definition of entrepreneurship -- applied at every level of business activity from start-up to intrapreneurial behavior inside a large corporation -- is the transformation of a concept into cash flow.

In 1999, Proctor and Gamble fundamentally changed their approach to product development, embracing a concept known as “Open Innovation” where new ideas are found both inside and outside the company.  (Please read Henry Chesbrough’s excellent book of the same name for more information.)  The $50 billion company realized that in order to grow by 10% per year, it needed to create a new, $5 billion company out of thin air every single year.  That is a daunting task, and it requires not only open innovation, but people who can create new businesses.

That requires key business skills and knowledge, calculation of risk and return, identification of opportunity -- and the ability to craft a business strategy to capture that opportunity.  This is not what our educational system teaches - we teach the skills geared toward creating employees.  That may have been appropriate in the last century, but it doesn't fit the demands of this century.  

Fact:  People who create businesses, create jobs.   They do so regardless of nation of origin.  If more people from overseas are willing to create business in the US -- start-up or inside the Fortune 500 -- more power to them.  Let's welcome them with open arms and help them succeed!

In addition to being a question of immigration policy, I think this is something that needs to enter the ongoing conversation on educational strategy, starting at the high school and community college levels and continuing on through graduate school and internal corporate education programs.  

Do we want to produce employees, or Creators of Business?

Think Differently about Your Business and Innovation Can Happen

I've just finished reading a great book called "Small Giants:  Companies That Choose to Be Great Instead of Big" by Bo Burlingame.  In it, he profiles 14 companies, from a single person firm to a $200 million-a-year company (which may not be all that small to some people!)  Each of the companies, or, more accurately, their leaders, made a decision to stop growing at some point and focus on the unique culture and offerings that made their company great.

One company stood out to me from an innovation standpoint, and that is CitiStorage in New York City.  They are in the records storage business, which is a fancy way of saying that they store boxes of files for a fee.  This is a commodity type of enterprise.  Differentiation is difficult, if not impossible.  It is hard to imagine how one can store boxes better than the next guy.  It's easy to do a bad job, but doing a great job of storing boxes?

The owner, Norm Brodsky, had an opportunity to get into the business, and very quickly learned that the barriers to entry were pretty strong.  Customers typically entered into long term contracts; there was a per-box removal fee to move to another supplier; and price competition was fierce.  Not exactly a level playing field.

Mr. Brodsky needed a new way of thinking about his business.  One day, it came to him -- he wasn't in the records storage business, he was in the real estate business, renting space to boxes!  Once he had that in mind, he asked himself how to make more money from a rental property.  Simple -- have more rental units.  Looking at how the business of renting space to boxes worked, it was by the square foot.  So, logically, if he could store more boxes per square foot than his competitors, he could lower prices AND pay the removal fee to get business in.  So he looked for a warehouse with "very high ceilings and racks that go right up to the roof".  Bingo.  He found one, opened it up, and then went and built a few more like it.  A major breakthrough. 

To me, that is what innovation and entrepreneurship are about -- having a breakthrough idea (in any industry) and making it real.  That breakthrough comes from thinking differently about your business.

I should mention that innovation is just part of the CitiStorage story.  Mr. Brodsky has put together a great culture.  Here is his company's vision, from their website: 

We are more than Archival Storage and Records Management.

CitiStorage strives to better the lives of our employees, customers and community. Our entrepreneurial leadership sets a high standard of honesty and integrity, which is the foundation of our reputation. We believe in the inherent dignity of the individual and recognize that our strength is in our diversity. Committed to personal growth and advancement, we offer ongoing training and staff education. Our ability to change and create new ways of meeting our customers' needs and surpassing their expectations will ensure our company's long term success.

NOTE:  Here's a link to the full story.

Teaching the Entrepreneurship Merit Badge: Week One

The Boy Scouts of America have many merit badges that a scout can earn.  One that fascinates me is "Entrepreneurship".  (I actually think that it ought to be one of the 12 that is required to earn the rank of Eagle.)

I volunteered to lead a group of scouts through an introduction to entrepreneurship, with a twenty minute session on each of two consecutive weeks. It's pretty challenging to distill stuff down into that period of time:  It is, however, a valuable business skill to be able to boil stuff down to its essence.

The first meeting was the kickoff, and I had nine scouts that turned out to be pretty interested and involved.  I used a couple of hand-lettered charts on big flip chart paper to prompt discussion.  One other scout leader (a financial services guy) jumped in to help lead the discussion, ask the boys some questions, and make some observations that only 25+ years of experience can bring!  A very welcome surprise!

I started off with the very basics and used the conversation and discussion to make more advanced points.  Here's the content of the charts with commentary in italics:

1:  What is an entrepreneur?

They all got this much -- an entrepreneur is someone who starts a business.  We talked about a growth business versus a small, static business, among other things.

2:   What is a business?

We talked about how it is partly a thing that can be owned, and partly like a person, that can buy and sell, and enter contracts.  That was pretty cool to them.  We also talked about protecting the entrepreneur from personal liability.  There was a lot of focus on making a profit; that's one of the main points of being in business, after all! 

In discussing profit, we talked about how there are two very basic ways to increase profit.  Interestingly, they all got "cut expenses" -- that pretty much shot out of their mouths!  They didn't get "increase income", though.  We talked through raising prices or increasing sales (and we touched on variable vs. fixed costs, but not very much.)

We also talked about competition, and pricing, and the role that large players, like Home Depot, can have on a small enterprise. They inherently understood that pricing can have a huge effect on your customers.

3:  What 3 things do you need to RUN a business?

I was looking for these answers:
i.  Something to sell (offerings)
ii.  Someone to sell it to (customers), and
iii.  A way to deliver it (operations)

This was a very good conversation.  We talked about things as basic as a lawnmowing business, which pointed out that not everything available for sale is a product.  Breaking a business into these three components made it very easy for them to understand.  A few of the scouts answered "people" or "money", and I said that all those went into the third category.  Sometimes you need money to buy stuff to have it to sell, or you need to buy several lawnmowers to have your friends use to cut all the lawns you sign up for!

We talked about successful businesses and failed businesses here.

4:  What 3 thing do you need to START a business?

Here, I was looking for something different.  I wanted:

i.  An idea
ii.  Something to sell
iii.  Money  (Technically, I wanted "resources to get started", but money worked well)

This was a good discussion because we got into the concept that not every idea will translate into something to sell, and not every idea is going to make a good business.

Their homework assignment for the next week is to bring 3 ideas for businesses that they can start.  They are to be prepared to describe all 3 ideas, and then pick the one that they think they'll start up.

Any ideas on how to teach entrepreneurship in this sort of setting would be welcome.