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Managing Service & Product Innovation: 10 reasons why companies fail when innovating with new ideas

September 11, 2008

REASON #1 IDEAS FAIL: TRYING TO SELL THINGS PEOPLE DON’T WANT TO BUY

America’s product pipeline is full of stuff people wouldn’t buy:

  • Transparent jeans

  • “New” Coke

  • Dot-com anything and everything

  • The Weather Radio

This list is long enough for a magazine series dedicated to product failure. It is the list of things companies have tried to sell people that the people do not want to buy. In many, if not most, of these cases the failures were simply bad ideas.

To be successful with new products it is helpful to understand what failure looks like, and what causes it, in as much detail as possible. Think of this as an autopsy, where you are unraveling exactly what went wrong with an idea that resulted in its failure. It is clear to me, based on idea autopsies on thousands of ideas, that in many cases the end was certain before the game really started. Lack of interest—trying to sell things people don’t want to buy—is at the heart of an incredible number of ideas that fail in the marketplace. There is no faster way to tank than trying to sell something they do not want to buy.

Why would any company knowingly spend time and money on ideas with no demand? The answer is simple. To determine if an idea is good or bad, you must predict demand. This is a difficult task, especially for new products.

Better upfront measurement of demand is both possible and critically important. It is possible to predict demand, even at a very early stage of new product development.

More precision in predicting demand is probably the single most important step you can take to improving your “idea odds.”

REASON #2 IDEAS FAIL: THE IDEAS DON’T MAKE FINANCIAL SENSE

Over and over again, idea autopsies show the cause of death to be that “the numbers didn’t work.”

How is it that companies large and small invest incredible amounts of time, money, and talent into ideas, only to find that, in the end, the numbers don’t work? What are people really saying?

Seasoned executives reading this post know the answer. Most often, the mistake can be attributed to an overstatement of gross, top-line revenue.

Top-line revenue mistakes are unforgivable; they are deadly because top-line revenue drives all the other numbers in financial models.

Whether it is old-fashioned optimism or bad judgment, top-line revenue predictions almost always err on the high side. Most often, the numbers don’t work because the idea didn’t deliver the expected sales figures.

REASON #3 IDEAS FAIL: GIVING UP TOO SOON ON GOOD IDEAS

There is a finite amount of time large companies will allow for developing and testing new products. The time allowed is often shorter than you would imagine—less than a year in many cases. Then boredom sets in: “It’s taking too long so it must be a failure.”

You see it over and over again. In large, publicly traded companies, financial pressure drives the following cycle:

  1. PHASE ONE: Announce plans to develop a new product
  2. PHASE TWO: Work like the “Hell” on it
  3. PHASE THREE: Report progress each quarter to Wall Street
  4. PHASE FOUR: Impatience strikes—what the devil is taking so long?
  5. PHASE FIVE: Kill it!
  6. PHASE SIX: Go back to step one and start over again

Wall Street demands growth and performance. Such growth often comes from the launch of new products and services. The Street hates downside surprises. Furthermore, Wall Street rewards current quarter performance. The Street is far less interested in filling the pipeline with good ideas for next year or beyond. Especially as we leave the excesses of the nineties behind, Wall Street is much more about “What have you done for me lately—like in the last fifteen minutes or so?” The only time the Street really cares about new products is when you get to a quarter, don’t have the new product that you planned on, and miss your numbers. Then, all concerned get a spanking.

Within companies, it is common to see six to nine months allowed for a “new product” to show serious signs of life. Here, there are also predictable milestones:

  1. Stage 1: Everyone is excited, kick-off meetings are held, teams formed, budgets established (month one)
  2. Stage 2: Work and meetings (months two through six)
  3. Stage 3: We’re not getting a heartbeat—dump it (months seven to nine)

When it comes to ideas, the passage of time is your enemy.

The practical effect is that, for whatever reason, if an idea does not show promise quickly it is often assumed to be a loser. In this Las Vegas-style game of chance where ten or twenty hands are played in the hope of one winner, you must cut your losses quickly. There is not enough time or money to fund all development efforts.

Here’s a tragedy: under the time pressure, it is often the very best ideas that are thrown out. Why? The most powerful ideas, in terms of driving huge revenue gains, are usually the hardest to figure out and execute.

Big ideas are hard work—small ideas are easy.

Companies often think it is better to cut losses and focus on those things that are showing promise—usually the ideas that are easy and quick to execute and almost always low level and of less value. The problem: if it’s easy for you, it’ll be easy for your competitor to copy.

REASON #4 IDEAS FAIL: PUSHING BAD IDEAS TOO LONG

This is a close cousin to giving up on good ideas too soon. Interestingly, both of these mistakes are often made for the same reason, which is:

Companies pursue bad ideas too long because they are, almost always, the easiest, lowest risk, and most conservative.

Companies pursue bad ideas too long because they can actually see progress, and reach a conclusion. Finishing something makes everyone feel good. Never mind that when you are done you have not put much money in the cash register.

Big ideas that can drive breakthrough gains in profitable revenue are almost always very different. Consider companies formed around simple yet very different ideas, like:

  • eBay—turning the obscure, small-time auction business into a world marketplace

  • Federal Express—overnight package delivery

  • Wal-Mart—built from the ground up to support low prices

  • Southwest Airlines—skip the frills, but get people to their destination on time for a value, and lighten their day with a touch of fun

None of the companies here, with their breakthrough business models, were overnight successes. Consider how long personal computers and the Internet was around before eBay showed up. Or consider that Wal-Mart opened its first unit in Rogers, Arkansas, in 1962. It took Wal-Mart seventeen years to reach a billion dollars in sales annually, which is not a particularly big number for a retailer. Or how long it took to perfect the ultimate simplicity of Southwest Airlines’ no frills, fast-gate-turnaround model that represents a new breed of airline service. Federal Express delivered their first 186 packages, using fourteen small planes, in 1973. What is the prize for being patient? Wal-Mart sees one hundred million shoppers every week. Southwest Airlines was the only airline that remained profitable after 9/11. In the online auction world, eBay leads and has a market capitalization of $50 billion as of this writing. Federal Express stands for overnight package delivery.

There is another reason that breakthrough ideas are hard to foster, while the easy (but low-value) ideas move ahead. Large organizations appeal to employees who are risk-averse, as large firms offer more stability. The rank-and-file in Fortune companies are there because they have chosen not to be entrepreneurs, or take undue risks with their careers. That’s fine, because most of the work in large organizations requires exactly that kind of mindset. In big, successful companies, the first priority is to protect and maintain the core business.

But when it comes to ideas, there is a different need. We need to find a better process for developing big ideas that people can understand and use. We need a process that enables people who are doing a stellar job in every other part of modern corporations to do a stellar job in developing new ideas.

In today’s corporate environment, small ideas are encouraged and big ideas are discouraged. The result is that we give up on good ideas too soon, and push bad ideas too long.

REASON #5 IDEAS FAIL: NO SEPARATION OF GOOD IDEAS FROM BAD

One of the toughest business problems is deciding which new product or service initiatives should get money and manpower. It’s a brutal problem where incorrect decisions cost careers or make heroes.

There is never a shortage of possibilities, as ideas percolate up from every nook and cranny. The killer is figuring out which ideas have the most potential. Today, finance and marketing folks are usually charged with estimating the revenue and costs of developing discrete ideas. They do their best, but the reality is that most of what gets approved ends up tanking in the marketplace (one out of ten ideas succeed).

Is it just bad ideas? No. As our old friend and marketing whiz Jim Hilmer says, there are two requirements for business success—Great Ideas and Great Execution. A good idea poorly executed is still a failure. But bad ideas account for at least half and probably far more of all idea failures in America. Fix the quality of ideas, and immediately see a doubling in your successful idea percentages.

The only rational measure of new ideas is cash.

SHOW ME THE MONEY!

Everything else is idle conversation.

In order to separate the good ideas from the bad, you must develop sound, realistic measures of what ideas are worth to consumers. How many of what you want to sell will they buy? How much will they spend if your new product is available? This is not a guess on revenue from marketing folks, or finance, or operations. You need to measure the value of ideas while they are in the concept stage (i.e., before a lot of money has been spent). Monetize your ideas.

REASON #6 IDEAS FAIL: THINKING SMALL

It seems like the larger and more mature the company, the more likely they are to fall into the Segmentation Trap.

  • You start with a large, successful business, selling things to a large, mass market.

  • New ideas are developed to appeal to the same audience, following the Las Vegas odds for new product ideas that only one in ten succeed.

  • Somebody—usually the advertising agency or marketing folks, suggests a new approach—segmentation.

A segmentation strategy usually makes sense on the surface—take small slices of your customer base and make products that appeal to each of them. And, no question, market segmentation has produced notable successes. Entire industries, like radio and automobiles, are based on market segmentation.

But, in many cases, segmentation is not the road you want to take, if you want to produce large revenue gains.

Here’s why. In any situation, it’s hard to do ten things at once, and do them well. But in a large company, it is hard to do one big thing well! While there are exceptions, like Procter & Gamble, which can pull off multiple successes, most large companies can grow by doing one or two big things extremely well (e.g., Dell expanding beyond computers to home electronics).

By thinking small and segmenting markets, you end up with a large number of ideas. A lot of things may get done, but none of them get done especially well, and few (one in ten) amount to much in the way of profitable revenue. The inevitable result is pure mediocrity.

Our experience is that it is better to have one big idea that appeals to your mass market—the customers who know and love you—than ten small ideas that each appeal to a small sliver of customers

REASON #7 IDEAS FAIL: DELEGATING IDEA DEVELOPMENT TO JUNIOR PEOPLE

Who is in charge of developing ideas at your company? If your company is like many others, the job falls to junior people. Do you have a senior person whose job depends on seeking big, new ideas, and readying them for the market? Most companies do not.

Who is in charge of developing ideas at your company—who gets fired if they fail?

The responsibility for idea development often falls into marketing—specifically, market research. Research is a vital and valuable function and can be a huge help in developing new ideas, but it is not the right place to create and develop new ideas. Consumer and market research talent is not the same as talent for developing ideas.

Traditional market research is often a poor location to place your bets for big ideas.

Profitable growth comes from big ideas. Finding and advocating big ideas is hard, dangerous work. Ideas that are going to drive the needle big-time are going to require significant change.

Idea development requires senior level involvement—period.

REASON #8 IDEAS FAIL: NO SPECIALIZED TALENT FOR DEVELOPING IDEAS

Why is it that the single most important growth driver—new ideas—has so little specialized talent devoted to it? Why aren’t there dozens of “idea factories” with “idea experts,” all attacking what is such an obvious opportunity of turning one in ten odds into one in five odds, or one in three?

The typical cost to develop an idea is $1 to 3 million dollars. (Note: For a large company, $3 mil is the typical cost to get to a prototype situation, but the costs can run ten or twenty times higher than that.) That means there is an awful lot of money going down the bad-idea rat hole. Why is there so little specialized talent for developing ideas?

It is a true mystery. The lack of expertise and sound processes for developing successful new products is baffling,

REASON #9 IDEAS FAIL: NO PROCESS, OR A POOR PROCESS, FOR DEVELOPING IDEAS

This is blasphemy, you say! Of course there is a process for developing great ideas at my company! Here’s a surprise—senior management’s fervor for developing successful new products wanes quickly as you move down the ranks. There are a number of very valid reasons why.

“Been there, done that.” The rank and file understands the one in ten odds. They have been down enough idea rat holes not to get too excited by the next one that gets passed along. There isn’t a good process that assures good ideas at the back end, and the rank and file knows it.

In terms of effort, working on new ideas is, in general, a bad job—you are working at 10 percent efficiency. It’s exhausting. Most everything you do is, literally, a waste of time. To the troops, your hot new widget is just another item on a to-do list that is plenty full already, thank you.

The trick is to institutionalize the commitment to develop great ideas. Stop accepting one in ten idea odds.

Adopt a process that delivers FAR HIGHER ODDS of idea success. People love to work on things that “work” and things that are a success.

Give folks that opportunity by clearing out the loser ideas early on, and focusing on a small number of big winners!

It is pretty simple—whoever is responsible for company growth must be the idea championmust adopt a process to improve idea oddsmust use that process to institutionalize a commitment to develop great ideas.

REASON #10 IDEAS FAIL: NO REAL, IMPORTANT DIFFERENCE VERSUS COMPETITION

It is not easy to find something important and different to consumers in this day and age; truly, we have access to an awful lot of products.

Motorola is a fine company that brought U.S. business incredible advances in manufacturing quality, along with a ton of other technological advancements. In the early eighties, it was really an engineer’s paradise.

To engineering folks, the patent is the Holy Grail. And Motorola earned plenty of them, and made boatloads of money from everything from walkie-talkies to remote telemetry for ambulances to the first cellular telephones. But there were also some big mistakes.

Motorola’s new product planners, the (lowly) marketers covertly referred to the problem as the Gee Whiz! factor, or “falling in love with your own idea.” The problem was confusing something new and different with something that consumers would want to purchase.

After literally inventing cellular telephones and owning the cell phone market in the early years, Motorola later stumbled. The company was slow to see the switch from the older analog systems to newer digital phones that offered more features that consumers wanted. Analog cell phone technology was what brought Motorola to the party—and the company was slow on the trigger to embrace the new, better digital systems. The company had fallen in love with their original way of doing things, and it hurt them for some time, as competitors beat them to the market with rich-featured digital cell phones.

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