A brief Q & A:
Q. If the answer is Value Creation, what is the question?
A. What is innovation?
Q. Wrong, try again
A. What is successful innovation?
Right! So, what’s the difference between innovation and successful innovation? 80%. That’s right, 80%. That’s the approximate percentage of new ventures that fail. And the primary reason for failure is simply that they do not create enough additional value for potential customers. In this case, additional value means benefits above and beyond what is already available in the marketplace. Think differentiation!
In his book “Innovation Engine”, author Jatin Desai says:
“…highly differentiated products and services have an 82% success rate compared with 18% for me-too offerings. Since most companies are incrementally competing against rivals, this may explain why so few are able to product above-average shareholder returns.”
If customer value creation is so important, how do you begin to learn about the opportunities to create new value for potential customers? As I have said many times, if you have questions, you should be asking your target market. The questions should not be like “what do you need,” but should be questions like these:
- What are you trying to do?
- Where are your pinch points?
- What makes you frustrated or angry?
- What makes your employees frustrated or angry?
- What do your customer’s customers do?
In addition to asking questions, you also must try and blend into the background and observe customers at work. Your objective is to see if you can identify areas where your skills and talents can be used to make customer’s jobs easier. For example, faster, cheaper, better quality, more environmentally sustainable, better for the people actually doing the job.
If you go through this process diligently, with enough customers, you will eventually find a number of areas where you think you (and your team) can innovate a solution that will be in the 20% of ideas that survive.
As shown below, these areas will fall within three levels of difficulty.
Simple opportunities are routine and easy to solve. It doesn’t mean that they have all been solved; just that people will quickly jump to the conclusion that the solution you offer should be free (or nearly free) because it looks cheap and obvious. The world does not need another pencil or sponge, although the person who came up with the Scrub Daddy (Aaron Krause) certainly is raking in lots of money.
Complicated opportunities are a “giant step” up the ladder from the simple opportunity. They require multiple people, with different skills and experiences, to make progress. And time and unexpected challenges are always a battle. But when you have the solution, it can be duplicated. However, there is significant opportunity to create a successful business, but it is critical to protect your IP (intellectual property) and get your brand message out quickly to a large group of people.
Complex problems are like complicated problems on steroids. Each customer may have a unique set of challenges. Some customers will be very satisfied by what you offer and for others it will fall flat on its face. Also, when you start out, there is no assurance that you can succeed.
Success requires deep pockets and focused vision. Both SpaceX and Tesla are complex opportunities. As I write this, it appears that both businesses will succeed, but the outcome is still not guaranteed.
If you are going to continue on this journey, you have to pick one level of difficulty and move ahead briskly. This is like the Goldilocks story:
The complex is too hard, the simple is too easy, but the complicated is just right! Hard enough to differentiate your solution from others that are available and maybe even discourage others from modifying your solution. And providing enough value that the available market will be significant. Also, the risk of failure is significantly below the risk level for complicated solutions.
The moral of the story
To grow, you have to talk to the market, take risks, and make sure you have the talent and competence to succeed while discouraging competitors.