Startups and Innovative Digital Products
Part 1: On Innovation
Everybody talks about innovation these days. Every single bland corporation slaps the “innovative” label on their brand and call it a day. So what is innovation anyway? If you want to read more about how biased we all are in defining innovation, read this by Jeff DeGraff.
My definition of innovation, I hope many of you will agree upon, is:
Innovation is the process of doing something new that creates value.
Conversely, innovation is making mistakes in the right direction. I really resonate with this one because it recognises 3 key elements of innovation:
> it’s an outcome that…
> requires an iterative process that…
> has an objective, a direction to achieve its purpose.
What is the best way to make mistakes while innovating? Do product innovation!
Products rarely add value — most of them will fail, and those that won’t, will be copied really fast. That’s why when you want to innovate you need to move beyond product innovation.
Imitation has always been a problem, but technology has given imitators the upper hand; they can now deliver quality clones, way faster, easier and more inexpensively than ever. We also can’t ignore that “good artists copy; great artists steal”, with its caveats. The result is that product innovation is ‘nearly useless’ as a strategy for creating and capturing value.
Let´s have a look at what other types of innovation are there:
Doblin’s 10 Types of Innovation outlines 9 more valuable innovation alternatives to product innovation. Here are a 3 innovators that moved away from product innovation:
> Profit Model Innovation: Gillette sells premium razors at a loss, but makes money on repeat sales of blades.
> Process Innovation: Zara famously used process innovation to deliver a “from sketchpad to shop floor in three weeks”.
> Channel Innovation: Nespresso is the poster child for channel innovation, creating a vertically integrated solution for coffee lovers that bypasses third-party retailer.
Regarding the return-on-investment for different types of innovation, we have:
While most of the investment goes into Product Performance and Product System, these types of innovation perform the worst. The best performers are — by far — Network, Business Model, Process and Customer Experience, by far. See a detailed analysis here.
The best examples for the 4 latter innovation types are Uber, Airbnb and Coursera. They took on the less-than-sexy, hard, and well-established industries. And while they did not touch the core product and its value proposition, they took on improving everything else surrounding it. This gave way to a disruptive effect: what the incumbents thought for decades it was their most valuable asset (medallions, real estate, brand) right now has been nullified by the new players. Just take a look at how Airbnb, a company owning no rooms, measures to the rest of the hospitality industry. Another side-effect is that innovation cascades — when one market opens up because demand and offer are given a new orientation, side products or services, complementary to the innovative one, are born.
This is good news, because it means there is plenty of opportunities for smaller players if they focus on the right things.
Glu Labs is a Product Lab run by Life is Hard and powered by This is NOT a Storm.
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