On innovation
What is innovation and how to look for it.
What is innovation ?
Everyone talks about it, books have been written about it, and many dream of being called innovators. It’s a big word that quickly crawled in resumes, job adverts, tech news, startup’s mission and new product announcements. An increasing number of companies open an “Innovation department”. What do you think innovation means to them? What does it mean to you?
To me, innovation is how you bring in your next customer. That’s it.
Who is your customer?
Your customer’s profile depends on your industry and profession. Every company aspiring to be profitable and expand has to have a good understanding and definition of who is their customer. It’s right there in sales and marketing 101: define your customer profile, explore its personas and only then you understand your audience. Do that well and you’ll be great.
Your next customer
Now all you have to do it is close new customers for your business one by one. More customers a business has the bigger the profits. Whatever methodology gets your first customer it doesn’t work for the 100th and it is significantly different from your number 1 million. The approach to closing customers changes all the time. It’s so fluid it requires constant tinkering and adjustment of the initially devised methodology. Sometimes a company has to pull all its weight in bringing in another client. That’s true especially in its infancy. Mature companies might have clients lined up at the door and they may lack the capacity to fulfil and manage the demand.
The amazing restaurant in Soho with a long queue at the door could be a good example. For them to bring one more client in may require a bigger kitchen or a larger seating area. Perhaps they lack the raw materials so they need to improve their supply chain. That’s innovation right there. The small, marginal incremental changes you bring to your business to accommodate one more customer.
Most problems get solved over and over again, especially in the substitutable services and products. Most restaurants, for example, face similar problems on their path to profitability and their owners have to solve individually, identical problems. Newcomers to an industry learn it the hard way. It doesn’t mean their solutions are less innovative despite being rediscovered over again. If that is what it takes to bring in your next customer, it’s fine. A seasoned restaurant owner that understands well how to bring the first 10,000 customers in, may end up owning a chain of a handful branches. In this position they face different challenges which put a break on their expansion. Perhaps they struggle with staff acquisition, training and management. Now to bring in the next customer the owner must find a new approach to hiring good people and keeping the quality up in all branches. To grow a family cafe or a small chain coffee shop into a Starbucks or McDonalds size business, it requires bringing in a lot more millions of new customers. That’s waves of innovation layered one upon another.
Innovation is one
Sometimes you need a bigger server but you are already using the largest existing server AWS has. Overcoming this challenge lets your next customer in. Your developers have to innovate to keep you in business.
You might have completely addressed your initial market and the next customer lives across the border or in a different segment. You can only bring her in if you create a new product adjusted for who she is. That’s innovation through new products !
There may be people dying of an incurable disease. They are willing to spend money to extend their lifespan or cure them for good. Create that new treatment and you have your next customer. Innovation is in the medical R&D. Approve it in a new jurisdiction and you’ve got even more customers. That’s business and regulatory innovation. Make it globally available and you’ve captured the entire planet. That requires changes in how your treatment gets successfully approved and passes scrutiny through diverse, independent methodologies, followed by branding, marketing and operations innovations. That’s innovation step by step in more than one field.
The banking services in your country are expensive, slow and convoluted. Come up with a better way of doing banking and you get your first client. Scale it out cheaply and you’ve got more clients that couldn’t afford to use the traditional services. That’s business, tech and banking innovation.
Your local ISP hires 10 security network admins to monitor the traffic. Develop and deploy an AI monitoring tool, raise your sensitivity level higher and make sure don’t miss anything. That’s innovation indeed through AI, technology and business as few companies could always actively monitor the entire traffic 24/7.
Regardless of the nature of the breakthrough, as long it allows your next customer to join your business it is innovation. As your business grows you need to bring in solutions to problems few or none had. Scientific research, the development of new methodologies, new tactics, architecture, design, new business models and challenging existing solutions from first principles are all means to achieve the only and one objective: your next customer. That’s innovation. That is also what got Amazon, Google, Apple, Microsoft, Tesla and SpaceX where they are now.
Monopolies
Monopolies, duopolies and cartels dominate an entire market segment. There are no more new customers to win. They are all captive. “Job done!” so companies can chill and relax. Stagnation kicks in for as long the status quo is maintained. If the government shoulders the companies on the back of lobby, corruption or other hidden agendas then it’s nothing to be done regardless of the new, unexplored approaches available. If the government attempts to break the status quo and move the market players outside the Nash equilibrium then pricing and the market moves again through innovation to a better product.
Monopolies don’t innovate because there are no more new customers to get. They change only when their arms are twisted. Over time the changes to the business model they propose out of their own initiative are only to enhance their profits within the same market. That’s why monopolies are great businesses which don’t need to innovate.
Innovation is all about your next customer. So now tell me what brings your next customer?
Assumptions
The above points are built on the gross assumption of a capitalistic market model where every company focuses on the same objective function: maximising their profits given the laws of their jurisdiction. There are indeed some hybrid market players that are partially partaking in this dynamic: charities, the government and the international financing institutions.
Yes, it’s true that alternative models to the profitability objective under a capitalistic market model have been proposed, discussed or conceived in various parts of the world but is not what the world we are currently living in experiencing.