Sooner or later every company runs into the proverbial quandary of what to do with the big idea when there is very little hard data to support the concept. But the idea is great! The opportunity is now! What do you do with this new idea? How do you seize the day in the marketplace and capitalize on the idea? What does it take to get an idea to market? What plans are needed? How much cash is needed? What is the impact on current business? Where do you turn to get funding? These are just a few of the questions that must be asked to manage technology innovation.
Let's start first with some basic definitions. Innovation is the process of taking an idea to market. It doesn't have to be hi-tech. The purpose is usually to make money - although there are times when innovation is leveraged for purely strategic reasons. The idea may be founded in a new process, a new product, and an improvement in either or some combination thereof. The technology side of the equation is the same. It can be a breakthrough in materials or process or it can even be an existing technical component that is applied in a slightly different manner in a process, product or a new service offering. Ideas can be a technology in their own right. Let's correlate technology to mean newness. Now it makes sense for even the smallest of shops. Using these definitions, innovation and technology can apply to large companies, small shops, and to those entrepreneurs who have an idea and wish to establish a company.
Where do the ideas originate? In most companies, it is the employees who have the knowledge and the customers who have the need. Bring the two together, and you get even more definitive and creative ideas - ideas that equate to more revenue and profit. For entrepreneurs, the task is a little more formidable - as they may not have their own customer base to draw upon.
Unfortunately, less than one-half of one percent of the ideas generated every day ever makes it through the first gate on the way to market. I've seen many companies and entrepreneurs try to scrape through and partially fund an idea. Essentially they slow-rollthe action. Just as many will put the idea on the back burner and hope that someone takes notice and gives them a million dollars to tinker with.
Others may wait until their financial situation is better suited to the task at some distant time in the future. Some may test out the concept. Others might say that, since it is unproven, it therefore must be a big risk.
Sometimes the biggest risk is tunnel vision characterized by the failure to recognize the benefit of pursuing an idea as a source of growth in revenue and profit or, in the case of some companies, market differentiation. When companies apply this attitude, the leaders tend to live in the box as opposed to thinking outside of the box, are working in their business instead of working on their business, and are trying to manage the present with the principles of the past as opposed to leading the team into the future.
Okay, you have the big idea - the one that will elevate your sales to unparalleled prosperity where profits will soar beyond the imagination. Now what? How do you know that the idea has merit without spending a trillion dollars? The easiest answer is to ask your customers. Have your employees, who work directly with these customers, do a few beta tests and then refine the concepts. Some might say poppycock! "Our employees are so busy just trying to get the work out that they don't have time to be experimenting! Besides, they may say something stupid to the customer or something that we don't want our customers to know or just plain embarrass the whole company." Maybe so - likely not! If your employees are too busy, then do it yourself! The key is to get the feedback!
One of my clients had an idea of how they might provide better service to their customers. It was simple and yet had the potential to improve the relationships and build long-term loyalty. The company was literally in the dark regarding its own internal bid capture rate on quotes and status of contracts.
Originally, it believed that its customers knew the answers, but were holding back information for whatever reason. One employee suggested that the company track quotes by customer and together with the order database and delivery data, send a weekly status report to the customers that showed what was pending, what was open and what was considered closed. The report also would have a column that defined current issues and/or comments. This report was to be faxed every Monday to each customer. It would then form the basis for dialogue and discussion on a regularly scheduled basis.
The originator of the idea also postulated that this type of report might play another important role - image management. If the company's concise summary report added value for the customer, it was conceivable that the report also would be kept on the customer's desk for accessibility. If the report were appropriately and conspicuously labeled with the company's logo and value message, the customer would see this sales message every day. It would be the repetitive reminder that the company is providing value-added services.
What did the company do? The company's salesperson and the employee who developed the idea visited five of their customers and asked them to comment on this concept and participate in the layout and content of the report. Two things happened: (1) They found that their customer point of contact also was in the dark about the status; and, (2) The report idea was welcomed with open arms because the customer saw this as a way to put some order in his/her own life. The bottom line is better communication, less stress on both sides and an enhanced bond in the relationship. In the end, quote capture rate improved, loyalty was enhanced and additional revenue followed as the company became known as a preferred supplier. The reports did in fact occupy a special place on the customers' desks.
Where's the technology? The use of existing systems allowed the company to access information that was previously sitting idle and turn the raw data into a new way of working a business process. In this case, the computer system technology combined with the insight of the employee to create the new idea. Innovation occurred as soon as the service idea was implemented with customers. Innovation in the realm of products is similar in terms of implementation. The major difference is that many new product ideas require a substantial amount of capital to implement. Finding a source for this extra capital can often be the roadblock.
There are many ways to fund a new product or even a new service concept. One can borrow the money from their bank (i.e., separate loan or increased line of credit), seek private investment capital, find ways to lower current costs and apply the savings to innovation, sell bonds (not all companies can do this) or some combination of these options. The sense of urgency in the marketplace is often a key driver in determining which options might be available. Likewise, the financial investment mix of new equipment versus labor content versus materials versus facilities are key considerations when determining sources. Regardless of the method, a solid product business plan is absolutely mandatory.
If one chooses investors as the source, the ability to pay out or pay back is crucial. An investor wants to know how he will get a return on his investment and what the risks are. If shares of stock are involved, there will likely be issues related to legal reporting and filing with the Security and Exchange Commission (SEC). Tax implications for owners and shareholders alike must be considered. An experienced attorney should be consulted in this scenario. Banks have similar concerns like any other investor. They, too, want to know the risk of the investment.
Most investors will pose a number of questions - formally or informally - that include:
- Will the company be able to pay back the principal and the promised return?
- How will the company market the product?
- Is the experience level of the management team and the core competencies of the workforce compatible with the challenges ahead?
- What happens if you don't meet the sales and profit projections?
- What evidence is there that this idea will be accepted in the market (by customers/consumers)?
- What are the monthly cash requirements during the next three to five years, what will the cash be used for and what results are expected?
- Is the product patented? Copyrighted?
- What will you do if someone else introduces a similar product?
- What steps will be taken to ensure that the product life cycle will stay viable for the period estimated?
- What are the short- and long-term impacts in the market when the product is introduced?
- How will the company introduce the product to the marketplace and receive recognition?
- What are the market timing requirements for the product?
- Are there seasonal variations that must be considered?
- If the product does not produce the projected business results in the time frame identified, will the company remain financially viable?
- What are the value equations for the product as seen by the customer community?
When you review the above list, it comes back to the three basic questions that we discussed in a previous article: Is it real? Can we win? Is it worth it? These questions are the basics. When these are addressed in the plan, they need to be supported with some tangible concrete evidence that the assumptions and projections are valid and viable. Otherwise, the idea is merely a dream - regardless of how cool or technically sophisticated the concept appears.
There are other ways to generate capital. We've discussed applied strategic cycle time management as one way of recapturing lost time and profit that is idle on the factory floor. There are probably others as well.
My preference for innovation funding is to use a mix of the sources. Managing time always pays back handsome dividends and it helps reduce risk during new ventures. Investment capital makes sense if there are large demands for new equipment, additional space or materials. The downside is loss of equity or increased debt load.
In some cases, it may be appropriate to build a joint venture relationship with existing customers and thereby share both the risk and the rewards. This can create an immediate market, establish credibility for other investors and reduce the impact on current operations as well. One might lose some control, but the benefits usually offset the drawbacks. Note: This approach requires careful crafting of the written agreement between all of the parties.
Innovation occurs when an idea is taken to market. My experience tells me that the key ingredients to successful innovation are the five Cs: Commitment, Courage, Communications, Capital and Cashflow. Each is a leadership issue that must be addressed meticulously in the planning and each must have a tangible element that supports the assertions that one makes.
For those who question whether they can afford to be innovative, I suggest you look at it a little differently: Can you afford not to be innovative?