How to Significantly Reduce the Risk and Expense of Innovation

Corporate innovation is all the rage these days. With plenty of money and time at their disposal, employees have ample resources to create the next big thing. But before they commit too many resources to an idea, these intrapreneurs can learn a lot from successful entrepreneurs who operate with fewer resources.

Innovation within a corporation comes down to two factors:

1. How employees generate ideas
2. How employees determine which ideas to pursue

1. How employees generate ideas (problem-oriented vs. solution-oriented ideas)

Do you remember the Segway? The Segway is a two-wheeled, battery-powered machine that makes even the most popular kid in school look like he sits alone at lunch. What I’m saying is you look dorky riding the thing. There’s something about you not putting in much effort while standing and gliding down the street that just makes people uncomfortable.

When the Segway first came out, it garnered lots of attention. Steve Jobs predicted the Segway would be bigger than the PC. John Doerr, a prominent venture capitalist who backed Netscape and Amazon, said it would be bigger than the Internet. With this level of hype, the company raised more than $90 million. But its grand unveiling was a huge disappointment. It took the company its entire first year in business to sell the number of Segways it predicted it would sell every two weeks.

The company had generated a solution-based idea. The Segway was a shiny, new technological advancement…that nobody wanted. The product didn’t solve a problem for the customer. Most companies that are unhappy with the results of their innovation programs are generating these same kinds of solution-based ideas. They start with a technological advancement or a brain storming session that produce a product, and then they try to figure out who might want it.

They’re so excited to have created something new that they forget that no one necessarily asked them to create it in the first place. They just assume that if they build it, the customers will come. Unfortunately, that seldom happens. What innovative employees – or intrapreneurs – do differently is come up with solutions inspired by their customers’ problems.

Instead of taking stabs in the dark and guessing what people might like, why not go directly to your customer and figure out for sure? When Paul Buchheit at Google created Gmail, he did just that. 

He came up with a problem-based idea. Instead of modeling his email platform after others on the market (looking at competitors to see what features and benefits to include), Paul listed out all the problems he thought the existing solutions created for users. The existing email platforms had limited storage space, were hard to search through and were slow to load data. By designing Gmail around these problems, Paul created something that generated a lot of value to email users. He initially designed the Gmail platform for his own use, but when others in the company saw it, they begged him to let them have access to the functionality he created. And when Gmail became public, users flocked to the service because word of mouth marketing was so powerful at explaining its value.

Word of mouth marketing only works when people feel compelled to spread the word – and that compulsion is borne out of feeling that a product has solved a tangible problem. Gmail wasn’t just different to be different. It was different in a way that generated a lot of value for its customers. So much value that they wanted to tell people about it at school or work.

Like Gmail, most successful products are built to solve problems. These problem-based ideas can only be found through customer interaction. You know you have a potentially great idea when you identify a group of customers who are ready, willing and accessible. 

Ready customers have identified a problem and are interested in fixing it, willing customers have taken steps to fix the problem in the past and have a budget to address the problem, and accessible customers are people you can easily reach. When you seek out this trifecta of customer interest for a problem-based idea, your product will practically sell itself.

2. How employees determine which ideas to pursue

Webvan is one of the most famous examples of a seemingly good idea that flopped. In 1996, Webvan launched an online grocery delivery business on the theory that people would pay money to avoid the hassle of grocery stores. Webvan spent hundreds of millions of dollars building an infrastructure (warehouses, technology, sales/marketing) based on a business plan that should have worked. But it never took off, and eventually the company went bankrupt in 2001. The online news site CNET went on to name Webvan the worst dot-com failure in history.

The Webvan story follows a plan-based approach to business that is commonly taught in business school. You write a business plan, see whether the numbers add up, and predict the success of a business based on this creative writing exercise. The plan-based approach seldom works because innovation is iterative. Your first business plan won’t be perfect, but most people don’t give themselves enough resources to make necessary pivots. Instead, many companies spend all their money to build a perfect product that is often a failure.

Entrepreneurs with the most positive results, however, know their company will be a success before their product ever hits the shelves. Instead of trying to predict the future, these entrepreneurs try to play detective by using an evidence-based approach to innovation. The evidence-based approach determines customer demand and value of a product through experiments with actual customers. Simply by using this approach, the creators of Webvan could have launched a successful company or, at worst, abandoned the idea and saved hundreds of millions of dollars.

Zappos, an online shoe retailer founded in 1999, is the opposite of Webvan. Before the company spent a dime on building its infrastructure, it made sure it had customers by verifying a willingness among customers to buy shoes online. In the beginning, founder Nick Swinmurn would take pictures of the shoes available at local stores and post them on Zappos’s website. After a customer made a purchase online, Nick would return to the local store, buy the pair of shoes at full price and ship the shoes out manually. Before Zappos had built a single shipping warehouse, it was able to prove that its business model would work. This evidence-based approach is what prevented Zappos from becoming Webvan.

A few years after Webvan closed its doors, Zappos was acquired by Amazon for $1.2Billion. Swinmurn’s early experiments, while time consuming, obviously paid off. It’s important to verify that customers will actually pay for your product. A customer can easily give you an email address or a verbal agreement to buy your product, but real “currency” is different. When a customer gives you something that pains them, like money, time or an endorsement, you have strong evidence that your product is highly valued.

With everything on the line, entrepreneurs with access to little capital are under heightened pressure to build a moneymaking product on the first try. The best entrepreneurs reduce risk and expense by generating ideas that solve a problem and verifying those ideas with customer-backed evidence. This approach is often used out of necessity by entrepreneurs, but successful employee-driven innovations result from mimicking this method within the corporate environment. A problem-based idea and evidence-based approach is essential for innovation anywhere. Whether you have one employee or 5,000, the pain of innovation can be both eased and energized by following the example of successful entrepreneurs.