the Industry Drift

Birth, Life, and Death of an Innovation

“Everything dies. That is the law of life; the bitter unchangeable law.”

-       David Clement-Davies, Author

            Entrepreneuring is not for the faint of heart, and this article will help to explain how even the greatest of entrepreneurs have much to endure before reaping the successes of an innovation. I feel the only way to properly outline the entrepreneuring process and, in turn, the diffusion of an innovation, are through detailed examples or a story. In this example I will take a product recently derived from a project in an undergraduate class of mine, an alarm clock that promotes exercise to its users. For the purpose of this article I will place a heavy emphasis on the funding types and sources of new product development, and provide a deeper look into the world of intellectual property (and how it can be used to your advantage).

            A common theme you will find in learning about innovations and their beginnings is the Embryonic, Growth, Maturity, and Decline phases (with the idea being born and commercialized in the embryonic stage, and its growth and decline in market share presence thereafter; See Article by Frank Demmler). I like to refer to it in a bit simpler terms: Birth, Life, and Death of an Innovation (I always felt that you cannot refer to the growth of an innovation that you are uncertain will grow in the first place). The birth of the innovation begins with the idea (well really the preliminary research, but let’s start with the idea). When an idea is born, there are not many investors itching to get a piece of it because far before that you need to produce something that is both feasible and desirable. During your research and brainstorming prior to initial development, expect most of the money going into this to be your own, or if it is your time you are spending, consider it sweat equity (more on sweat equity here). Think to the product I mentioned before; in the idea phase the product is conceptualized, but not yet made. The initial technological design of both the alarm clock and external exercise technology will be derived in this section as well, and from there the idea will be put into a limited testing scale to find out if this thing works. Also remember that before I said intellectual property protection, although somewhat costly for start-ups, could be exponentially beneficial for new products. While this is still in the early stages of development, if the founders think the research and technology development to date is worth protecting a trade secret may be worth obtaining to provide unauthorized use of theft of the know-how, information and ideas of the new technology. The trade secrets are rather inexpensive in comparison to a counterpart, the utility patent, which provides stronger, long-term protection of the ideas created but demands public disclosure and a premium price. In general, utility patents are not used until much later in the process when the idea is solidified and ready for commercialization.

            So where does it go from here? How do we gather some funds to propel this from a simple invention to a radical innovation? Once the new invention has been properly designed, final prototypes will be produced in order to verify the marketplace desirability of the product. By quietly testing the product on the market, the creators of the new alarm clock/exercise combo will gain realistic user feedback on the product that can later be applied to finalize the design and move to demonstration and commercialization of the product. Along this miniature lifecycle from design to demonstration, the product could potentially earn angel investment from individuals, however do not expect heavy venture capital until this product is ready for demonstration of both the product and the production capacities, which if successful will position the firm for commercialization (at which point heavy venture capital may flow in). Don’t think that both sweat equity and personal debt are not still factors in this development because, if you do, you will be far from the reality of most innovative debuts. While venture capital money may be attractive, rather unattractive valuations of your companies from these folks may propel you in the direction of more sweat equity and debt, and more control of your company and its design. This will vary from case-to-case, but is certainly important to consider before going forward to commercialization.

            Now we are here, with a revolutionary alarm clock that will promote exercise via external technologies that are sold with the device, and we are ready for commercialization; the product has been born and is ready to live. Once commercialized and put on the open market, the invention becomes an innovation, and will then begin its next lifecycle (again, more commonly referred to as the growth and maturity stage). In this stage the product will take shape, and the entrepreneurs will quickly find out whether or not they are holding a radical innovation. Some iteration in the beginning to both the technology and logistics will most likely take place, and will of course cost more money. If the products market share capture begins to grow, however, additional funding may be both available and necessary. This further funding can come in the form of second and third venture capital investing rounds, or even an initial public offering. And now for the harsh part: an innovation’s market share capture cannot continue to grow forever (assuming it is growing at all), and will ultimately mature, and then decline. In the case of the revolutionary alarm clock it will be of utter importance to continuously innovate along the growth and maturity stages to create new stages of growth for the innovation. At this point it will also be critical to obtain utility patents, design patents, copyrights, and trademarks. Like stated about however, ““Everything dies. That is the law of life; the bitter unchangeable law.” With that being said, iteration and constant innovation around the idea can help to hedge against that uncertain death of an innovation.

            If I could place myself in a major corporation today that is taking part in the lifecycle concepts for innovation strategy, it would of course be a wild ride. I have had my exposure to the corporate lifestyle, and the idea of innovation is not usually a top priority. In today’s ever-changing market, however, it is extremely important for large companies to continuously innovate, and I feel that being a part of this change would be a great experience. Working with an already established system to further improve it would be a challenge, and would require a lot of support from the parent company in terms of resources made available. With the right company this is absolutely possible, and it is great to watch how major companies like Wal-Mart and GE begin to foster innovation more and more. 

Design-Driven Innovation - Above All Else

“The well being of a civilization depends on its ability to respond creatively to challenges, human and environmental’

 (Arnold Toynbee, 19^th century English historian)

                  Innovation comes in many forms, but is most simply described as taking a new product, invention or service to market, or reapplying an existing one to a market in a new fashion. But where does innovation stem from? Research shows that there are three distinct pathways to innovation and application to the marketplace: technology-push, demand-pull, and design-driven. So, with that being said, which of the three should I focus on when attempting to create the next breakthrough innovation? In order to determine that, we must start from the beginning…

                  One thing that you will find common between all three principles is the earliest stage: the identification of an opportunity space or problem area. Identifying an opportunity space can be difficult, but provides a chance for participants to conduct a formal brainstorming session (or alternate methods like the 6-3-5 method shown here). Once an opportunity space has been defined, the road begins to split between the different approaches toward innovation. Technology-push innovation places a heavy focus on technological research and development early in the innovation process, and assesses a markets need for a product after it has been developed. The thought process here is that if a company can create a dominant technology, there will be little chance that the market will not adopt it. Demand-pull innovation flips that process and works to find an expressed consumer need, and then begins the design and development process around that need. The key word here is expressed, as it shows that the company focuses on the needs a consumer knows they have, rather than on things they do not yet know. Many demand-pull innovations end up producing incremental changes to products to solve these expressed needs, but do not result in radical innovation that create new markets and new meanings for consumers. So where does design-driven innovation fall? In my personal opinion, design-driven innovation is the most effective way to understand consumer’s needs by identifying things they may not have realized, and developing a radical solution with new meaning.

                  Design-driven innovation starts and ends with the consumer, beginning with hearing what a customer is saying, and understanding things that they cannot articulate. A researcher will often find that when clearly identifying a problem to a consumer, the consumer will respond with what the researcher wants to hear. So how do you avoid this?  Design-driven preliminary research can be broken down into two parts: working within an opportunity space to identify potential problems that the consumer has, and identifying ways the consumer works around these issues (showing possible areas for product solutions). I have found in my own work that this is the step that differentiates design-driven innovation from both technology-push and demand-pull innovation (and ultimately makes it the best option). Both demand-pull and technology-push innovation seem to neglect the idea of truly understanding what it is a customer cannot express. Take the example of the Apple iPod, a device that has radically changed our way of life and redefined the market as a whole. Did consumers know that the next solution to their music needs was to rule out CD’s all together? No. But think back before that to the minidisc player, a new alternative to CD’s that made them much smaller and compact, but did not rule them out. Did consumers know that they wanted CD’s to be less bulky, and maybe even to consolidate some of their CD’s? Most likely, yes. Was the minidisc player as successful as the Apple iPod? No. Apple pioneered the idea of design-driven innovation with the iPod, successfully connecting with their consumers to deliver them a radical innovation with new meaning, something they could have never imagined (or expressed) until presented with the alternative. Apple knew that there was a solution to CD’s, but furthered their research to include the consumer at all levels, ensuring that their product would create a new market all together. 

                  In my most recent work on a product innovation project, I was focused on delivering a product solution to the opportunity space of power cords. In a group of college students, it was easy to quickly develop biases toward what we thought people would have problems with, and had we presented those problems to consumers they most likely would have quickly agreed. But through a more integrative research process we were able to disprove many early biases that we had, and truly understand what it was that the consumer was lacking. A product solution was quickly developed: a portable charger that could connect to all of your devices regardless of third-party company, and would fit easily on a key-chain. Now that I have taken a step back from the project I have realized more than I ever thought I would have about the power cord space.  An epiphany moment hit me shortly after the product ended that did not cross my mind when working to understand the consumers’ needs. It is clear that in the power cords space a main problem is the amount of cords you have to carry around with you to power your devices. What was our product solution? Another additional device. A bit counterintuitive if you ask me, but not something I realized when engulfed in the project. Our main goal was to quickly deliver a product solution, but we missed a key aspect in that maybe it was something that could always be connected to your device, as to not add on an additional item to carry. Although I do not have a particular idea in mind, it is very interesting that it took this long for me to understand that consumers always sought ways to work around having to carry extra devices. Maybe it falls under the assumption that you must release your brain from a problem, expose yourself to novelty, and allow your imagination to arrive at a point of epiphany…or maybe it is just because design-driven innovation is a bit more difficult than I originally expected.

First Create…Then Innovate.

“Creativity, as has been said, consists largely of rearranging what we know in order to find out what we do not know. Hence, to think creatively, we must be able to look afresh at what we normally take for granted” – George Kneller (Ph.D., Philosophy, Columbia University)

            I am not creative, I am not innovative; I am efficient and focused on singular neural pathways (or so says my brain). If we are not naturally creative, what drives creativity? From what I have learned, you drive creativity, but in order to attain it you must alter your normal thinking and interaction patterns. Fundamentally, your brain serves as your access to creativity (and in turn, innovation), but is limited by the things you already know. Everyday our brain and its sensory receptors are receiving mass amounts of physical and chemical information, which is then matched against previously stored patterns of information or “templates”. Because human instinct is always survival first, our brain promptly categorizes the information as either harmful or not. Let’s take a moment to apply this to our own lives: Say you are on a camping trip and are constantly fending off bugs from your body. Every few minutes you are bothered by a slight tickle that you know can turn into your next mosquito bite. But then a friend jokingly rubs a piece of grass on your ear, which you immediately discern is a bug and try to slap it away. It is examples like these that show how quickly the brain can categorize information, both physical and chemical. If you were to then apply this to the topic of creativity, it is clear that the brain is not naturally creative, but rather quite efficient and focused on singular neural pathways that you are already accustomed to. In order to think creatively, one must step outside the bounds of these “templates”. I like to think of creativity as a flame that can only be lit with spark. That spark can be a thing like travel, a broad range of educational interests, or even interpersonal communication. So if we have learned the process of creativity as it applies to the brain, what in the world is innovation and how is it any different?

“Innovation is the process of turning ideas into manufacturable and marketable form.” – Watts Humphrey (ex-IBM Vice President, ‘Father of Software quality’)

            While creativity is a skill, innovation is an application. A common misconception about innovation is that it is simply a new or improved technological invention. An invention, however, is a new pattern, composition of material, device, or processes that can then be brought to a new market, or improved upon and reapplied/redistributed to the market in a new way (making innovation an application of an invention). With that being said, there are many different ways to bring ideas to the market. At the most basic level, innovation can either be incremental (improving upon existing knowledge and resources, making modest technological changes, leaving existing products on the market competitive) or radical (requires completely new knowledge and large technological advancements, rendering existing products on the market obsolete). Once in the market, innovations begin to take shape. Whether it is in the form of a new profit model that attracts customers to use a free service in hopes they will eventually buy the premium model, or something as prolific as the iPad development, innovations change the perception of a target market and introduce them to new ways of thinking and interacting with products and services. Refer to the 10 types of innovation listed by Doblin here: http://www.doblin.com/thinking/

The last concept I would like to touch on is open innovation. Open innovation is essentially the ability of a company to utilize the widely distributed knowledge that we have available to us in today’s marketplace. It is not beneficial for companies to rely solely on proprietary research, and it is important for them to buy or license successful processes to further enhance their own innovations. Without utilizing things that have already worked you can look at innovation as “taking a stab in the dark”. But with proven models and processes, there is far less room for error when taking an invention, idea, or concept to market. 

Some insight from master of compounding - Warren Buffett

“No matter how great the talent or efforts, some things just take time. You can’t produce a baby in one month by getting nine women pregnant.”

- Warren Buffett

Translation: Buffett is the master of compounding. It’s probably hardwired into his brain. In this quote he is talking about compounding, and the time it takes for compounding to KICK IN. This is a vital point that most investors never pick up on. Investors are always looking for stocks that are going to double in a year or two years – that’s why they want tips. Instead, they should be looking for stocks that are going to go up a more reasonable amount, such as 20% or 25% a year for the next 20 years. That’s where the fortunes are made. 

Decades ago, Warren Buffett invested only a couple million dollars in the Washington Post newspaper. That couple of million dollars became worth a billion dollars over a period of several years. Buffett always believed that you can’t produce big results in months, or even a couple of years. If however, you buy at the right price, and the right stock, you will make a fortune in time. You need COMPOUNDING to do achieve these kinds of returns.

Submitted by: D. Doppstadt

The Journal of International Marketing: Who is JIM?

I recently completed an in-depth research analysis on the Journal of International Marketing produced by the American Marketing Association. The importance of this particular scholarly journal is it’s contribution to the marketing community as a whole, often offering insight into research topics rarely (if at all) discussed prior to being presented in the journal. But really, who is JIM? There are numerous ways to analyze a scholarly journal, but for this I have chosen to give a broad description of the journal and its’ ideas, and then connect some specific ideas from some of the publications to our own professional experiences. JIM, available both online and via mail subscription services, is focused toward educators and students of international marketing, thoughtful practitioners of business enterprises engaged in international business activities, and those involved in formulating public policy for international marketing activity. The journals prime objective is to bridge the gap between theory and practice in international marketing. In any discipline, theories are what build innovation. Scholarly journals and higher education research work to “bridge the gap”, essentially turning theories into supported arguments.

View the full publication here: http://db.tt/CXgstUtu

Submitted by: J. Humphrey