A McKinsey multi-year study involving in-depth interviews, workshops, and surveys of more than 2,500 executives in over 300 companies found that innovation involves a set of “crosscutting” practices and processes to structure, organise and encourage innovation.
Basically, this study came up with eight essentials of innovation, which is worth a read even if you are planning a small business or some individual enterprise. It’s great to have a clear vision of what you want to do, the researchers say, but inspiration is not enough. Instead of coming up with wild or brilliant ideas the researchers say it’s important to methodically and systematically scrutinise three areas: a valuable problem to solve, a technology that enables a solution and a business model that generates money from it. Of course, it could be a combination of all three.
It seems that where the large companies fail with innovation is not committing fully to it. If there is no hundred percent commitment, then the people and other resources are not put in place. A half-hearted attempt is going to probably fail. This applies not only to large businesses but also to small business owners and individuals. Look at it this way, if you not going to go into something with your total commitment then what chance does this band of succeeding?
Let’s face it, new business ideas are risky. Just consider the high failure rate among small businesses in the first year. Some business experts put it at about a failure rate of about 80%. I’ve seen that even product development in large companies has a failure rate of up to 90%. It’s a surprising percentage isn’t? But I’m telling you these percentages upfront so that you know that turning a new business idea into a product or service or small enterprise involves risk.
How do you reduce this risk? Think about it. How would you reduce risk? What would you do?
That’s why it’s important to test your product or service beforehand. It’s also important to carefully evaluate your new business idea. You need to have a list of criteria that you can evaluate your business idea against. If you’re interested I shared a special evaluation checklist that I have developed but at this point let’s just say that market demand, potential profitability and distribution are essential. If your idea passes the evaluation test, the next hurdle it has to overcome is a real, live test in the marketplace. When you turn an idea into a product or service it has to create value for customers. This is probably about the most important test there is.
The next phase is commercialisation. This involves detailed business planning, understanding distribution, possibly manufacturing even in its most basic form, and marketing and selling. You may have spent money from your cash kitty on developing your prototype but in the commercialisation phase you have to put your money where your mouth is. This is where you are going to require resources whether expertise from people or seed capital reinvestment for manufacturing, distribution and marketing. Here is where the true test of entrepreneurship lies. You’ve got to use minimum resources to get maximum results.
It’s funny isn’t it that so many would-be entrepreneurs go it alone only to find out that at the end of year one it’s game over yet they never sought out professional advice on any of these essential areas.