Want the correct answer (and perhaps to be a millionaire too)?

Posted on November 9, 2015 by Eugene Ivanov

IMG_4624-Medium

Over the past few months, I’ve been preaching the virtues of crowdsourcing to young entrepreneurs and startup (co)-founders. Perhaps, I’m not a good preacher, but very often, my message is being met with a visible skepticism. Why would I approach a “crowd” of people if I have a problem, my interlocutors inquired? All I need to do is to ask my mentor (advisor, friends, schoolmates, former colleagues, etc.).

I’ve got a huge respect for startup mentors, these very busy people who manage to find time to share their experience with younger peers. And speaking of friends, for many years, I’ve been married to a woman who is my best friend and whose advice I value more than anyone else’s. And yet, I’ll keep insisting that the collective wisdom of crowds is (almost) always better than a point of view of any single individual, however accomplished.

Recently, while reading a book on prediction markets, Oracles by Donald N. Thompson, I came across an example that makes my case in a persuasive and fun way. Thompson writes about the popular TV show Who Wants to Be a Millionaire originated in the UK in 1998 and then replicated in 81 countries. In this show, contestants have to answer a series of increasingly difficult multiple-choice questions for instant cash awards; the correct answer to the last question would earn the contestant one million in the local currency.

While relying mostly on their own smarts, the contestants have so-called lifelines. One of them is “Phone-a-Friend,” allowing the contestant to instantly phone any person she considers best fit for answering the question. Another is “Ask-the-Audience,” whereby the contestant asks the studio audience (of about 150 people) to vote for the correct answer; the contestant will then choose one of the proposed four options.

Characteristically, and conforming to what I preach, in 80 (out of 82) national versions of the show, the ask-the-audience option produced more correct answers than ask-the-expert. For example, in the UK, the audience was correct 87% of the time, while experts only 55%; in the US, the numbers were 92% and 65%, respectively. And what is important to note here is that there was absolutely nothing special about selecting the audiences for the show: these were people who simply appeared at the front of the line on the day of taping.

(The two countries where the audience didn’t produce more accurate answers were France and Russia. Thompson believes that in these two particular cases, the audiences were deliberately misleading the contestants.)

Sure, I perfectly understand the difference between winning the Who Wants to Be a Millionaire show and creating a successful startup company. But correctly answering a series of increasingly difficult questions is part of both processes. There is a proof that these questions will be more precisely answered by groups of randomly selected, diverse and independent individuals. This is exactly what crowdsourcing does.

Image credit: ferociafatale.com

Posted in Crowdsourcing, Startups | Tagged , , , , , , , , , | Leave a comment

Are We Faking Innovation?

Posted on October 30, 2015 by Eugene Ivanov

tumblr_nqx977yGTE1tubinno1_1280Let me begin with a couple of quotes.

“Innovation is like teenage sex; everyone talks about it, nobody really knows how to do it, everyone thinks everyone else is doing it, so everyone claims they are doing it!”

(Cris Beswick, Founder of the Future Shapers)

“Innovation is not delivering, our innovation systems are breaking down.”

 (Paul Hobcraft, innovation consultant)

Pretty strong words, eh? Cris Beswick’s quote comes from a recent survey on innovation sponsored by Wazoku, a UK collaborative idea management software company. 85% of respondents to this survey considered innovation important to their companies; yet 72% had no understanding of what innovation meant to them. 53% of surveyed managers were unaware of their organizations’ definition of innovation and how it fit with the overall corporate strategy; 38% of the managers said innovation wasn’t their job.

What’s going on? We all agree that innovation is a key to success in today’s business environment; our corporate leaders swear by it; we collects, build upon and vote for thousands of ideas (and even implement a few of them); we hold innovation hackathons and appoint Innovation Champions–and yet, our managers and rank-and-file employees, supposedly the driving force behind any innovation program, don’t even know what innovation means for them and their organizations.

Are we faking innovation? I think we’re. We fake innovation when we fail to discuss innovation strategy in the context of corporate strategy. We fake innovation when we launch an innovation program just because our competitor launched similar program a month ago. We fake innovation when we buy idea management software and start collecting “thousands of ideas” without prior thinking what we’re going to do with all these ideas. We fake innovation when we appoint a Chief Innovation Officer and give her neither line authority nor fixed budget (or a budget that can be promptly taken away in case of “emergency”). We fake innovation when we provide our employees with no rewards for participation in innovation activities (“because in our company, innovation is everyone’s job”).

In order to clean the accumulated rust off the innovation process, we must come back to the original meaning of innovation (no matter which precise words you use to define it): innovation is about creating value. No value, no innovation–it’s this simple. For as long as buying software or running innovation jams haven’t resulted in measurable improvements in corporate performance, this is not innovation (at least, not yet). Sure, value doesn’t always have to be defined in dollar terms; in the innovation equation, the dollar sign can be replaced with something else. But value can’t.

In more practical terms, companies must always begin with defining the place innovation occupies in their overall corporate strategy. Some strategic goals can be achieved by aggressive marketing, obsessive quality control or by optimizing internal processes. Innovation can be restricted to new product development only–and that’s fine.  But there is no reason to call innovation every business initiative aimed at hitting company’s revenue targets.

Equally important, innovation leaders must learn how to create a balanced innovation portfolio. There are various innovation “horizons,” each with different investment risks and terms of return. Optimal innovation portfolio must reflect real corporate needs, not a rush to join a popular–and often ill-understood–quest to “disruptive” innovation.

And we also ought to tone down our endless talks about culture of innovation. Yes, I know, sustainable innovation can’t be established without a profound cultural change. But I also know that you have to start running real, not faked, innovation programs to change people’s attitude toward innovation. As I argued before, you begin the innovation process with structure and process. And if you keep perfecting them, while communicating the results to the rest of your organization, sooner or later, structure and process will become culture.

Image credit: http://startupstockphotos.com/

Posted in Innovation | Tagged , , , , , , , , , , , | 11 Comments

Can we make crowdsourcing available to small companies?

Posted on October 23, 2015 by Eugene Ivanov

AAEAAQAAAAAAAASKAAAAJDE2OTRkNTI0LWM5ODktNDNmNi1iZTYyLTcwYmJhNmVlYmE5NgCrowdsourcing is a powerful open innovation tool allowing organizations to tap on the collective wisdom of their own employees (internal crowdsourcing) or pools of external talent around the world (external crowdsourcing).

Internal crowdsourcing (usually managed through Internal Innovation Networks) can be particularly useful for large multinationals having numerous, geographically remote locations, with the majority of employees barely seeing each other face-to-face and rarely communicating on strategic issues.

For external crowdsourcing, large companies can use two major venues. First, they can build their own crowds through creating external innovation portals that would solicit innovative ideas from the outside inventors. Although the effectiveness of external innovation portals can be questioned, companies use them also as a marketing/PR tool.

Then, companies can rent a crowd by hiring the so-called open innovation intermediaries, such as InnoCentive, Nine Sigma, IdeaConnection or HeroX. These service providers help their clients solve complex problems by outsourcing them to hundreds of thousands of on-line “solvers.” As I wrote before, using open innovation intermediaries can be remarkably successful way to crowdsource.

Unfortunately, while crowdsourcing is becoming an increasingly popular innovation tool for corporations, it’s practically unavailable to small companies. Why?

To begin with, small companies can’t use internal crowdsourcing because, due to their size, they lack the critical mass of diversity required for a meaningful crowdsourcing campaign. Nor do they have sufficient resources to run external innovation portals or pay fees for the services of open innovation intermediaries. Of course, small companies can take advantage of smaller networks of mentors and advisors–often acquired through business incubators and accelerators–but the utility of small networks can’t be but inferior to the intellectual power of large crowds.

What can be done to make crowdsourcing available to small companies?

  1. External funding could be provided to help small companies engage in open innovation activities. A precedent already exists. In 2013, the State of Ohio awarded NineSigma a grant of over $2M to provide services to the state’s mid-size companies (between $10M and $1B in revenues). The success of this initiative is manifested by the fact that 350 jobs will be created in Ohio over 3-5 years as a result of the program. Similar approach could be adopted nationwide by the U.S. Small Business Administration by providing financial resources to small businesses to pay for their open innovation activities. The SBA’s flagship 7(a) Loan program can be used as a “blueprint.”
  2. Small companies can crowdfund their crowdsourcing activities first. This approach was pioneered by HeroX that allows its clients to crowdfund their projects in case they lack resources to sponsor them outright. Other open innovation intermediaries can follow the HeroX’ suit.
  3. A more sustainable long-term approach would be to organize small companies into private innovation networks in which each member of the network can enjoy the collective wisdom of its own “crowd” by sharing intellectual resources with other members. Such networks could be originally built using the structure and resources of existing business accelerators/incubators and, perhaps, local Chambers of Commerce. Obviously, a viable business model will need to be established to make such networks operational.

Image credit: scottrileyirvine.tumblr.com

Posted in Crowdsourcing, Innovation, Internal Innovation Networks, Startups | Tagged , , , , , , , , , , , , , , | 1 Comment

Can the Wisdom of Crowds Help Solve the Refugee Crisis in Europe?

Posted on October 10, 2015 by Eugene Ivanov

(A longer version of this piece originally appeared on the Qmarkets blog)

The refugee crisis that keeps timagesormenting Europe, as serious as it is, has two additional troubling features. First, despite the fact that the humanitarian situation in the Middle East has been worsening for quite some time, the current crisis came seemingly out of the blue. Second, there is no doubt that it won’t be miraculously resolved anytime soon.

Now, governments across Europe have to deal with the cost and logistical nightmare of settling hundreds of thousands of migrants. All that amidst difficult economic situation in many European countries; all that while facing a sizeable opposition at home from citizens concerned about financial and demographic consequences of accepting so many people of different religious and cultural backgrounds.

And as if this wasn’t enough, European leaders must also begin a search for a long-term solution to the crisis. An intrinsic part of this solution should be creating a system capable of reliably predicting when and where the next humanitarian disaster will take place.

Can politicians and experts alone make this happen? Not likely, given the scope of the problem and the urgency of the required response. It’s therefore time for European governments to turn to another source of wisdom: the wisdom of crowds. A framework must be created to systematically use crowdsourcing to look for solutions to the refugee crises, the current and the future.

Two forms of crowdsourcing approaches seem particularly relevant in this context. The first is the so-called prediction markets, the stock-exchange-like platforms aimed at predicting the probability of events by assigning a market value to each prediction. Corporations are using such platforms to forecast success rates of future products and estimate sales volumes. Similar prediction market can be created to monitor the humanitarian situation around the globe (including the Middle East) assessing the probability of a refugee crisis in any country of concern at any given point of time. Software for running and managing prediction markets is already commercially available.

Another approach would be using the wisdom of crowds to come up with long-term solutions to the refugee crisis. European citizens should be invited to contribute their ideas on every aspect of dealing with the massive inflow migrants from non-European countries, including country quotas for refugee redistribution, final destinations for arriving migrants and on-the-ground logistics of settling and assimilating the newcomers. Again, idea management software exists to allow collecting useful ideas, building upon them and then presenting them for a vote to identify the ones with the highest public support.

Admittedly, using crowdsourcing to solve complex socioeconomic problems, in a rapid and effective way, is not easy: one has only to remember the largely unsuccessful BP’s oil spill crowdsourcing campaign to deal with the consequences of the 2010 Gulf of Mexico disaster. Yet, examples of skillful application of crowdsourcing to solving the world’s most pressing problems, such as the Ebola outbreak, also exist. There is therefore every reason to believe that if applied properly, crowdsourcing will help solve the refugee crisis in Europe too.

Image credit: independent.co.uk

Posted in Crowdsourcing | Tagged , , , , , , , , , | Leave a comment

Do Corporate Accelerators Create Real Value?

Posted on October 7, 2015 by Eugene Ivanov

(imagesThis post first appeared on the Front End of Innovation Blog)

Corporate intrapreneurship is relatively new business concept aimed at helping large companies advance their disruptive innovation initiatives. Due to its novelty and immaturity, this model of corporate innovation obviously needs a lot of refinements. The upcoming Corporate Intrapreneur Summit (organized by the Institute for International Research and Culturevate), taking place on October 8 in NYC, will provide a much-needed platform to discuss gains and pains corporations can expect when launching intrapreneurship programs.

In the core of the corporate intrapreneurship concept is a belief that only by institutionalizing the culture of entrepreneurship–usually associated with startup companies–can corporations succeed in creating new businesses and new markets. Being a corporate intrapreneur means working for a large company, yet behaving as a small company’s entrepreneur who cherishes risk-taking and experimentation.

The key question here is how precisely the habit of taking risky bets and embracing frequent failures can be established in a large corporation with its dominating culture of certainty, predictability and precision. Some academics suggested that this can be achieved through an “ambidextrous organization,” a corporate arrangement allowing companies support the existing (core) businesses and entrepreneurial initiatives simultaneously.

Critics of the concept argue that in real life, ambidextrous organizations are rare exceptions; the concept simply doesn’t work for the majority of large mature corporations.  Instead of trying to square peg in a round hole, corporations should tap on the real source of entrepreneurship: startup companies. This particular point of view took shape in the idea of “innovation ecosystems,” mutually beneficial relationships in which startups would serve as originators and early testers of disruptive ideas, whereas large organizations would provide resources to advance the most promising projects.

In practical terms, corporations realize the concept of innovation ecosystems through creating corporate incubators and accelerators. According to published data, only in the last three years more than 50 accelerators were launched by industrial giants such as Cisco, Coca-Cola, General Electric, IBM and Intel.

Corporate accelerators come in many shapes and shades, depending on the degree of connection between a corporation and startups; however, they all share the same important feature: the accelerator model dramatically improves the efficiency of the corporate tech-scouting process. In the past, corporate tech scouts had to approach promising startups one by one; now, corporations launch an accelerator and get exposed to dozens, if not hundreds, of small companies willing to join the program. An additional benefit for corporations working with early-stage entrepreneurial companies is the ability to influence their development to better align them with the corporate strategic goals (the ability to “reverse-engineer” a startup, as Mike Docherty calls it).

But how effective corporate accelerators really are? A few days ago, Anand Sanwal, CEO of the startup tracking company CB Insights, unleashed a surprisingly harsh diatribe against corporate accelerators, which he called “innovation theater” and even “a farce.” Mr. Anand asserted that the accelerators represent no more than a publicity stunt designed by corporations to “look innovative” in the eyes of their peers, competitors and investors.

Mr. Anand’s penchant for “take-no-prisoners” language is well known. However, his knowledge of the startup world can’t be questioned, either. And, by the way, his bold assertion that only 2nd-or 3rd-tier startups would take part in the corporate accelerator programs is quite testable: one has only to compare performance of startups in corporate accelerators with that for “stand-alone” startups or those belonging to non-corporate accelerators.

Mr. Anand’s escapade presents a good reason to ask a broader question: have corporate accelerators already shown their ability to create real value? As of today, the jury is still out, and in all likelihood the deliberations will be lengthy and contentious.

Image credit: http://www.venture-spring.com

Posted in Startups | Tagged , , , , , , , , , , , , , , , , , , , , | 5 Comments

The Art of Killing (a Project)

Posted on October 1, 2015 by Eugene Ivanov

(This post first appeared on the Front End of Innovation Blog)

As inimagesnovation becomes an increasingly popular topic in business literature, social media and public discussions, it also turns into a powerful magnet for clichés. One of the most used, if not abused, is “celebrating failure.” Of course, innovation is all about experimentation, and experimentation results in failure more often than in success. We must absolutely accept innovation failures, learn from them and recognize people taking risks. An example here could be set by the Tata Group that rewards exceptional ideas even if they weren’t operationally successful (through a special category of awards, appropriately called “Dare to Try”).

But do we really need celebrate failure? In every language, in every culture, the word “failure” carries a distinct negative connotation; placing it in the same sentence with “innovation” doesn’t change anything. By calling to celebrate innovation failures we do nothing to advance innovation in places, still very numerous, where the fear of failing continues nipping innovation in the bud.

Instead of celebrating failures of innovation projects we’d better learn how to minimize the cost of failure through proper portfolio management. In practical corporate terms, that means that we have to master the art of killing projects.

Everyone would agree that killing projects is a key to maintaining healthy product development pipelines. By terminating projects that are going nowhere, companies free up resources to introduce new, potentially more successful initiatives. But in real life, killing projects turns out to be tough. Despite our proclaimed willingness to celebrate failures, we’re actually quite bad even at admitting them, for failed projects negatively affect the company’s bottom line and definitely don’t make our career prospects any better (to say the very least).

So, how do companies approach the ever important kill/continue decisions? This largely depends on which of the two schools of thought they belong to: “pick the winners” or “kill the losers.” The “pick the winners” approach relies on selecting relatively few projects that are expected to have the greatest chance to succeed–and then investing heavily in these projects. As often happens, once a “winning” project has been selected and advanced into the project pipeline, killing it becomes extremely difficult. In contrast, the “kill the losers” strategy is based on launching a large number of projects, followed by carefully monitoring them, identifying those that perform badly and then killing them as rapidly as possible.

A recent study on drug development–an area where “celebrating failures” sounds almost atrocious due to their astronomic price tag–shows that it’s the “kill the losers” strategy that turns out to be a true winner. In particular, the study showed that the number of approved drugs for any company strongly correlated with a high termination rate for drug candidates in preclinical/Phase I stages. In other words, companies making hard decisions about which project to terminate earlier in the project lifecycle did much better than those postponing these decisions for later.

Big corporations should take a careful look at how early-stage companies operate. Of course, startup entrepreneurs don’t run a large number of projects; they simply can’t afford it. However, they never waste time and resources on any single idea that proved to be a loser. They learn from the failure and they pivot, a startup’s equivalent to killing a project. As large companies warm up to the concept of intrapreneurship–instilling the spirit of entrepreneurship in the corporate culture–they must perfect the way they identify and terminate failed projects.

Hopefully, The Corporate Intrapreneur Summit (organized by the Institute for International Research and Culturevate) taking place on October 8 in New York City will address the topic of portfolio management as part of the corporate intrapreneurship process.

We live in a success-driven society. We should strive for success and success only. And let’s reserve celebration for those occasions, however rare, when we succeed.

Image credit: www.123rf.com   

Posted in Portfolio Management | Tagged , , , , , , , , , , , , | 5 Comments

Internal Innovation Networks as a Basis for Corporate Intrapreneurship

Posted on September 29, 2015 by Eugene Ivanov

29499147a

(This post first appeared on the Front End of Innovation Blog)

Intrapreneurship is a relatively new concept developed to help large companies create new businesses, a process often called transformational (or disruptive) innovation. Intrapreneurship aims at instilling the spirit of entrepreneurship–usually associated almost exclusively with startups–in the corporate culture. Being intrapreneur means working for a large company, yet constantly taking risks and experimenting, as small company’s entrepreneurs do.

Intrapreneurship may take multiple form and follow different models; the upcoming Corporate Intrapreneur Summit (organized by the Institute for International Research and Culturevate), taking place in October 8 in New York City, will showcase practical examples of corporate intrapreneurship from  more than a dozen of leading corporations.

Yet no matter which specific shape corporate intrapreneurship might assume, there is one vitally important question that must be addressed: the relationship of the corporate intrapreneurship unit with the rest of the organization. If the newly-formed intrapreneurship structure is located within an existing business unit, there is a danger that it’ll lose its entrepreneurial edge by falling back to solving short-term problems relevant to the “host” business unit. On the other hand, if this structure is too isolated, both geographically and administratively (“an island and the mainland” model), it runs the risk of becoming irrelevant to the rest of the company.

Many perils of creating a corporate intrapreneurship unit will be significantly alleviated if the maternal company already has a functional Internal Innovation Network (IIN). I already wrote about the crucial role played by IINs in the overall corporate innovation strategy. Here, I’d like to highlight four major reasons why a viable IIN would help support corporate intrapreneurship:

  1. IINs help foster the very culture of collaboration the lack of which makes disruptive innovation in large companies difficult in the first place. Much has been spoken about the “NIH (Not Invented Here) Syndrome”; however, it’s important to realize that the NIH Syndrome applies to intra-company collaboration too as individual units are often reluctant to share with others their findings. By breaking internal silos and promoting intra-company collaboration, IINs prepare the whole organization to accept new ideas regardless of their origin.
  2. Corporate intrapreneurship requires close coordination of multiple functions within an organization, both that are (R&D, Business Development, Marketing) and are not (Finances, Legal, HR) directly involved in the corporate innovation process. However, in the majority of organizations, there is no institutional platform for all these units to collaborate on strategic issues. IINs provide such a platform, increasing the efficiency of decision-making and reducing the need for endless face-to-face meetings.
  3. IINs provide intellectual and operational support for the company’s external innovation programs. First, they help identify problems whose solution would require external sources of knowledge and expertise. Second, they facilitate testing and implementing of incoming external ideas and solutions. In other words, they provide a much needed “bridge” between the corporate intrapreneurship unit (“island”) and the rest of the company (“mainland”).
  4. IINs help identify emerging corporate intrapreneurs who–especially in junior positions and in geographically remote units–often remain unnoticed to the corporate innovation leaders. Because IIN platforms are intrinsically democratic, they provide voice to every employee regardless of their rank and location in the company.

Of course, it’d be an exaggeration to say that by themselves IIN can guarantee the success of a corporate intrapreneurship initiative. Yet it will definitely make chances for such an initiative to succeed much higher.

Image credit: http://www.wired.com

Posted in Internal Innovation Networks, Portfolio Management | Tagged , , , , , , , , , , , , , | 1 Comment

Ambidexterity vs. Ecosystems: In Search for Sustainable Model of Intrapreneurship

Posted on September 21, 2015 by Eugene Ivanov

(This post first appeared on the Front End of Innovation Blog)

Innovation has climbed to the top of the corporate agenda in many large organizations, but its practical impact on the corporate performance has often been disappointing. Some would go as far as to say that the corporate innovation is “broken.”

This is perhaps an exaggeration. Large companies are actually quite good in what is commonly known as incremental innovation, which is a systematic improvement of already existing products or services; they’re also doing a decent job in streamlining operations and cutting costs. However, it’s definitely true that many corporations are much less successful in creating new businesses–no matter how you’d call this type of innovation: breakthrough, radical, transformational or disruptive.

The reason is simple: a hallmark of any successful modern corporation is a flawless, impeccable execution. However, while perfecting execution and establishing the culture of predictability and control, corporation lose the culture of entrepreneurship, the habit of experimenting and taking risky bets. That’s why transformational innovation, with its high rates of uncertainty and failure, struggles to take root in the corporate soil.

Many experts and innovation practitioners see a solution to this problem in bringing the spirit of entrepreneurship back in the corporate fold; a special term, “intrapreneurship,” coined more than 30 years ago, is now actively used to describe this process. Being intrapreneur means working for a large company, yet behaving as a small company’s entrepreneur, that is, cherishing risk-taking and experimentation.

On October 8, in New York City, The Corporate Intrapreneur Summit will take place, organized by the Institute for International Research and Culturevate. The Summit will bring together thought leaders in the field and practicing intrapreneurs from more than a dozen of leading corporations. One topic that is likely to come up in the discussions will be what models of intrapreneurship can be used to get real results.

18713551Back in 2004, Charles O’Reilly and Michael Tushman wrote an influential paper for the Harvard Business Review titled “The Ambidextrous Organization.” O’Reilly and Tushman argued that corporations actually don’t have to choose between investing in existing (core) and new businesses; they can do both (be “ambidextrous”) by creating corporate structures supporting both incremental and transformational innovation.

Critics of the ambidextrous organization concept pointed out that the requirements for both types of innovation are so different, even contradictory, that what makes companies great at optimizing the current business makes them terrible at creating new business opportunities. For this reason, ambidextrous organizations can’t be but a rare exception (3M and Google are traditionally mentioned as these rare exceptions).

41js0B+VpHL._SX312_BO1,204,203,200_An alternative to the ambidextrous organization approach has also emerged. In his recent book “Collective Disruption,” Michael Docherty, the CEO of a consulting company Venture2 (and a past successful intrapreneur himself), suggests that corporations should support transformational innovation by creating innovation ecosystems including startups. In this innovation symbiosis of sorts, startups will provide large companies with disruptive ideas along with a playground for testing and early prototyping, whereas large organizations will use their resources to scale up the most viable ideas.

Many would argue that differences between the two models of intrapreneurship are more semantic than real. Both require more openness to the external sources of innovation; both require more flexibility in relationships with outside partners; yet both require the creation of some corporate structures to facilitate the process. It’s therefore very likely that a new, “hybrid,” model may emerge combining the best features of the two original concepts.

Hopefully, the upcoming Summit in NYC will make a significant contribution to creating of such a viable model of corporate intrapreneurship.

Posted in Portfolio Management | Tagged , , , , , , , , , , , , , , , , , , | 2 Comments

Why Do Startups Fail?

Posted on August 25, 2015 by Eugene Ivanov

why-100-employees-might-be-the-magic-staff-number-for-startups

I came across a March 2015 TED talk by Bill Gross, founder of the business incubator Idealab. He set out to identify the “single biggest reason why startups succeed” (or fail). To do so, he considered the five major factors: Idea, Team, Business Model, Funding and Timing. After having analyzed the fate of 100+ companies that went through the Idealab incubator and another 100 of “non-Idealab” companies, Gross came to an unexpected discovery: in 42% of the cases, the difference between success and failure was in the timing of market entry. The maturity of the team accounted for 32% of the difference, whereas the quality of underlying idea came only third with 28%.

Gross’ assertion that startups fail mostly because of the wrong timing of market entry may seem to contradict some other data. For example, in a recent report “The Top 20 Reasons Startups Fail” published by CB Insights, the number one reason for startup failure was “No Market Need,” something that sounds more conventional. At the same time, product mistiming occupies only the 10th position on the list.

There is obviously no reason to mistrust either of the sources. Why then the difference? The discrepancy may come from the startups analyzed in both samples. In Gross’ case, half of the companies he reviewed went through his famed incubator–and I assume that at this point, they were already “filtered” for having a decent product/business idea. Even among the companies in the “non-Idealab” half of Gross’ sample which he considers failures, we see such notable examples as Pets.com and Kozmo.com, whose product/business ideas were at certain point good enough to attract significant VC funding.

I therefore feel that in Gross’ case, the “losers” were already pre-selected for having decent Ideas, so that the reason for their failure must have been something else. On the other hand, no such pre-selection seems to exist in the case of CB Insight’s report that samples what appeared to be “random” startups.

Besides, Gross himself defined good timing as understanding of “whether consumers are really ready for what you have to offer them.” To me, this sounds simply as a more sophisticated version of the same conventional market need. In some cases, consumers aren’t ready for your product at this particular time; in others, they aren’t ready at all.

From all of the above, I make two conclusions. First, figuring out what consumers want and need still remains the first thing to do for any startup to succeed. Second, accelerators/incubators (such as Idealab) can help startups hone their business proposition; yet they can’t prevent them from failing for other– often unexpected–reasons. That’s why startups continue being a risky business.

Image credit: http://www.businessinsider.com/

Posted in Startups | Tagged , , , , , , , , , , , | 4 Comments

3 Ways to Improve the Efficiency of the “Idea Generation” Process

Posted on August 20, 2015 by Eugene Ivanov

downloadIn my previous post, I compared the efficiency of two approaches to corporate innovation: “bottom-up” and “top-down.” The former approach relies on ideas that are first generated by a company’s employees and then channeled up to the company’s senior management. The latter focuses on problems formulated by the company’s leadership which then moved downward for employees to find solutions to these problems. Available data suggest that the top-down approach (exemplified by an open innovation service provider InnoCentive) is significantly more efficient than the bottom-up (exemplified by an external innovation portal Idea Storm operated by Dell).

And yet, despite what numbers say, the bottom-up model of innovation remains very popular. Why? First, its popularity is fueled by a widespread belief that innovation must harness a collective wisdom of the whole organization. Second, sticking to this model allows the company’s leadership adopt a hands-off approach to innovation process. It’s so easy to announce an open season for ideas and then claim that the culture of innovation is taking root on the ground. Compare that to the time and effort needed to formulate the company’s innovation strategy, align it with the corporate strategic goals, identify key problems to be solved and articulate criteria for successful solutions–all what is required by the top-down approach.

I want to be very clear: I’m not against the bottom-up model of innovation as such. In innovation-mature organizations it can be remarkably successful. My point is that this approach doesn’t work well for organizations that are at the very beginning of the innovation journey. That said, I see at least three (reasonably simple) ways to improve the efficiency of the corporate “idea generation” process.

1. Define what innovation means for your company

The lack of ideas isn’t a problem for the majority of organizations; quite to the contrary, they’re usually awash with suggestions from their employees. The problem is that these employees, especially at the lower steps of the organizational ladder, often have only a vague understanding of the strategic goals of the organization; consequently, their ideas are likely to be misaligned with the organization’s real needs.

To overcome this problem, each company must clearly define what innovation means specifically for it; accomplishing this in the format of an Innovation Charter is usually a good idea. This definition should include the areas of desired innovations (product development, business model innovation or operational improvements), time horizons, target customers, the expected size of the market and so on. These parameters will serve as a “mold” that would shape the creative energy of the company’s employees into ideas that really matter to the organization. Yes, the number of suggested ideas is likely to drop, yet those that make the cut will have higher value.

2. Create a pool of ad hoc innovation experts

 For practical purposes, just defining what innovation means for your company isn’t enough. People in the R&D may have a great technical insight, but they’re likely to struggle with creating a solid business case. At the same time, marketing people may come up with a great idea for a new product, but will have problems with articulating precise technical specs.

To overcome this problem, a pool of ad hoc experts can be created bringing together people from all departments involved in innovation activities: R&D, manufacturing, marketing, legal, finance, etc. The name of the experts (with the area of their expertise) could be placed on the company’s intranet, and every employee will be able to contact them should the need for a particular expertise arise. Again, this will result in improved quality of ideas going upward for review.

3. Create a separate Innovation Fund

The reality of large organizations is that their R&D budgets for the next year are usually drafted no later than the Q3 of the prior year. That means that new projects will lack immediate funding and have to wait for at least a few months to get paid for, at which point their utility may already be questionable (not to mention the detrimental effect of this delay on employee morale). Of course, funding may come from interested business units, but they already have a full load of their own stuff. To make room for “newcomers,” business units will have to kill their existing projects, something that I personally never witnessed in real life.

To solve this problem, a separate Innovation Fund can be created to pay for projects that fall outside the regular budgeting process. The amount of money in this Fund could be annually adjusted to reflect the company’s appetite for additional projects, but it must be fixed for the current fiscal year, meaning that the Fund will not become a “rainy day fund” to cover the company’s short-term financial emergencies (as sometimes happens to “innovation money”).

I doubt that the proposed three steps will ever make the bottom-up model of innovation superior to the top-down approach, but I do believe that they will increase the efficiency of the corporate “idea generation” process.

Image credit: www.papermasters.com

Posted in Innovation | Tagged , , , , , , , , , , , , | Leave a comment