This article speaks on the significance of innovation within organizations as well as the blue ocean strategy. We look at companies who have failed and companies who have prospered predominantly thanks to their ability/inability to innovate and adapt.
First off I would like to apologize for the choice of title, it is misleading. Obviously, if you are not able to generate enough revenue within the first few years of business, it simply cannot survive. Whether or not you are able to generate revenue isn’t so binary. How you start your business, who you choose to partner with, the amount of seed capital you’re able to generate, how effective you were able to do market research & any due diligence prior to starting. These are all important early steps that can make-or-break your business.
On the contrary, there is much truth to the title of this article and can be proven by looking at today’s successful companies. The intention of this article is to attest to the importance of just starting your venture and adjusting as time goes on, instead of spending too much time worrying about things pre-launch.
Unfortunately, most people think they have to start their company at the perfect time, with the perfect logo and have the perfect product at launch. This leads to procrastination and many founders end up contracting a common case of market research paralysis. This is when someone conducts too much market research and fears their competition so much to the point of backing out of the venture before even starting.
After you have started your business and are generating consistent revenue, the most common cause for a stable business to flop is contentment. Complacency is the root cause of failure in successful businesses.
Blockbuster failed to adapt their business model when the internet and streaming took over. Blackberry failed to innovate their product and eventually, touchscreen and voice command were essential to a quality smartphone. Kodak was too comfortable to feel the need to innovate with digital technology, and they went from controlling over 80% film market share to under 7% in 2010.
These are no outliers in the business world. according to The American Bankruptcy Institute, between 2013-2017, an average of about 26,000 businesses went bankrupt each year (this does not even include the small businesses that just close their doors and walk away from their failing businesses).
Complacency is the root cause of failure in successful businesses
While you might think it is a no-brainer to innovate, there are a few reasons companies prefer to stay within the boundaries of what they know and what is currently working for them. Let’s address these:
- Being too short-term results-driven which forces companies to put off the future good ideas. This is an issue that is becoming more problematic. With industry convergence and lower barriers to entry, accelerating innovation cycles, S-curves are shortening, and, as a result, the future is advancing faster.
- No sense of urgency (complacency). If you’re making money hand over fist, it is easy to think that everything is perfect and that you shouldn’t change a single thing. “If it ain’t broke, don’t fix it.” But in business, complacency kills. BCG’s article on organizational vitality emphasizes that the vital company builds its future through developing innovations, which are produced by top management who think differently, and the firm supporting this outside the box thinking by investing in the right capabilities. Companies without a sense of urgency don’t do such things. As a result, they have few, if any, real growth options.
- Being overconfident in a company’s understanding of its target audience. Too many people think they know what their customers want, and when they want it. The reality is that the vast minority of B2B and B2C companies truly understand their customers’ needs. Lack of first-hand familiarity and not understanding your customers at a personal level will cost you.
- Thinking innovation is not in their business model. Too many organizations are so tied up in their organizational processes, structures, and ownerships that they are unable to recognize the innate creativity that lies within their workforce. In fact, the least innovative companies are often the ones most procedural and insular in terms of hiring.
- Believing that margins are too thin to innovate. Probably the most common excuse made by executives, when it is the lack of innovation which is actually the cause of low margins.
Here are four perfect examples of companies whose success is attributed to their ability to adapt:
YouTube was meant to be a video-dating website, but didn’t get enough uploads from users. So the founders listened to the market, and pivoted their company into a new direction. Some might call this a failure, others will call this a process. While most people would abandon their business and say it didn’t work out, YouTube shifted their attention to music videos, makeup tutorials and men screaming at games. By adapting and innovating its business model through multiple different iterations, YouTube today is worth over $150 billion and is the largest, most popular video hosting platform and the 2nd largest search engine in the world.
Apple, now the largest company in the world, started by selling home computers. It has since shifted its focus to other products. Their top 3 revenue streams are now the iPhone, services, and wearables, with their computers now being the 5th largest revenue stream. Without their innovation of the iPhone and their savviness to adapt, Apple would not nearly be as successful as it is today.
IBM is a great example of innovating to stay in business. They remained true to their business model but adapted to the change in times. IBM was the largest American manufacturer of punch-card tabulating systems used by governments and private businesses in the 1930s, then became the industry leader in electric typewriters in the 1930s. Then computers came along and IBM was producing 70 percent of the world’s computers by the 1960s.
Eventually, IBM’s enormous size hindered it from responding rapidly to the accelerating rates of technological change, and by the 1990s the company had downsized considerably, including selling its computer division to Lenovo. Since, IBM withdrew from manufacturing and has established its role in computer services, software, supercomputer, and scientific research divisions and they are still thriving thanks to their continuous innovation.
Mailchimp is an email marketing service that recently sold for $12 billion—the largest-ever deal for a homegrown tech company. Surprisingly, Mailchimp started as a web design business and they were offering their clients email services on the side. For years, this was nothing but a side-project to their web-design business which was bringing in $20,000-$35,000 per project while the email marketing services were earning $25-$50 per client—money which they used to pay for their lunches.
What made them decide to pivot their business model was inspiration from the popular book: Rich Dad Poor Dad which talks about passive income. It helped the founders realize that they were chasing clients for their main web design business and had very inconsistent revenue, while their small side gig, despite earning very little, was earning consistent, reoccurring income. So, they put their finances into a spreadsheet realized that their email marketing services had more potential than they ever even thought to imagine.
After they decided to take a leap of faith to focus on email marketing services full time, their revenue almost tripled overnight as they finally had the time to improve the product and fixed the bugs and complaints their clients had for it. This side project called Mailchimp, which existed solely to pay for employee lunches, turned out to be worth $12 billion and only came to fruition after the founders pivoted their initial business plan.
In the car & computer industries especially, innovations were not unleashed by technological innovations per say, but by linking technology to elements valued by buyers. The value of innovation often rested on simplifying the technology for the customers.
There is always a better way to do something. Find it, or someone else will.
If you would like to learn more about “blue ocean strategy” innovation, how/when to innovate, etc. click here to check out the book.