Ideas around innovation

Notes from Babbage on the Economist Radio

Today I listened to “Babbage: Innovation around innovation” on the Economist Radio (also on Spotify). And as I was half-listening (🤭), the last interviewee completely caught my attention :

«What do you need to do to build a company that’s really about innovation?»

He lists three essential adaptations for traditional businesses to grow their inventivity and creativity:

• Adapt the process of innovation: build a structure that is organized for innovation.

“You have to be able to take some risks to innovate”, so allow for it. The problem is that on the one hand, large capital structures like international firms are less likely to invest in projects that have a 20% chance of success versus their traditional activity that has an 80% chance of success. And on the other hand, startups that are able to go for those projects, often aren’t capitalized enough.

One idea is to make a habit of benchmarking projects that have required the analysis of hundreds of solutions, and then narrowed down to 3 or 4, in order to train decision-makers and teams to kill the 150 other solutions (those that were deemed unfit)

• Change the reward structure in terms of capital payout.

And build a very dynamic organizational structure that is able to have people enter in and exit for risk capital or risk-sharing. There is no doubt it encourages innovation better than an LLC or a typical fund structure.

• And finally, change the incentive structure for the people who participate in the project.

That last part really resonated: how to better engage your team in the development of innovative ideas?

The magic bullet might lie in the implementation of a very agile incentive mechanism. One that allows everyone around the project to fully engage and trust that there will be a payout somewhere down the line. In practical terms, it means giving equity to your team at the project launch and plan for that equity to transform into actual equity, royalties or some other form of reward, based on the role and success of the person.

This trick not only allows you :

(a) to diversity and fluidify your capital —it’s a way for your company to avoid getting “trapped in an investment firm that has to feed itself”—, and therefore meet your previous two objectives ;

(b) but it also attracts valuable talents. According to our expert here,“there will be no careers in the future; the smartest people are much better off being agile to the projects they are working on than to bet on a single one company to develop their ideas”…

… Food for thoughts!