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Lean Innovation, the Market is Your Petri Dish

We live in the fastest-evolving marketplace in history, so why is it that so many companies still move so slowly bringing new products to market?

We believe it is because they are holding fast to an industrial revolution mindset where innovations are carefully devised, honed and perfected. The heft of extensive machines and expensive infrastructure mire down the collective mindset, locking in a collective fear of imperfection. There is much to learn from the nimble tech industry that focuses on speed to market over perfection.

Eric Ries’ book “The Lean Startup: How Today’s Entrepreneurs Use Continuous Innovation to Create Radically Successful Businesses” contemplates how the lessons of Lean Manufacturing and the entrepreneurial spirit of Silicon Valley form an entrepreneurial framework relevant to companies in all stages of the corporate lifecycle. The focus is on efficiency and speed, shortening the product development cycle and reducing the amount of investment capital needed to develop a product that meets market demand.

Lean Start-Up differs from Design Thinking in its emphasis on hypothesis generation over idea generation. Like scientific methods, Lean Start-Up begins with a defined hypothesis and starting “leap-of-faith assumptions” to be proved or disproved in the petri dish of the market. A minimum viable product (MVP) that is not yet finalized is then launched in the market complete with methods to evaluate the hypothesis and experiments to test and measure its veracity, referred to as “validated learning.”

Like Design Thinking, Lean Start-Up stresses the importance of iteration through end-user feedback. However, the type of feedback is where the two methodologies differ. While Lean Start-Up does use customer feedback during product development to avoid time invested designing undesirable features or services, the methodology’s business-hypothesis-driven experimentation is tested in a live environment and rapid iterations are made according to quantitative metrics. Structured pilots with split testing, known as A/B testing in the tech world, test two versions simultaneously.

The goal of this learn-build-measure loop is to prove out market demand and meet it with a minimally viable product for early adopters. If the hypothesis doesn’t play out, the team quickly pivots by formulating new a hypothesis for real-time testing. Products that show some traction in their metrics are refined according to user feedback, gradually becoming a more perfected solution to satisfy the larger market opportunity.

Want to be a lean innovator? Work backwards from the business results you are trying to achieve instead of forward from a technology already built. Here is some advice we like from entrepreneur Ash Maury: 1. Go only as fast as you can learn 2. Validate qualitatively, verify quantitatively 3. Systematically test your model.

Crowdsourcing & Collaboration

Despite tremendous advances in technology that yield nearly infinite access to information and the Internet’s connectivity of the world’s greatest experts, many companies continue to look inward for new product development and innovation.

This navel gazing and resistance to collaborate with the technology-enabled global network limits these companies’ capacity to innovate. What is needed is a culture of collaboration and eradication of the “not invented here” mentality.

Throughout history, many of humanity’s greatest achievements stem from collaboration. For example, the Oxford English Dictionary came into being in the mid-19th century as a result of an open call for volunteers. Over 70 years, 6 million submissions were collected, identifying all words in the English language and example quotations exemplifying their usages. Imagine how much easier and faster this task would be today harnessing the power of the Internet.

Global collaboration is a trend that has been picking up steam, creating a virtual community with a sense of unity and interest in sharing information for the common good. Perhaps the development community was the pioneer of this movement with their open-source software model, where source code was made universally available to make collective advances in technology. In 2005, the editors at Wired Magazine coined the term “crowdsourcing” to describe how some businesses were using the Internet to collect information and outsource work to individuals. Since then, smart companies have been utilizing human capital outside their walls and actively practicing Open Innovation to source and fuel significant growth opportunities.

In his 2013 book “Crowdsourcing,” Daren C. Brabham describes how crowdsourcing is being used today:

Knowledge Discovery & Management: For information-management problems where an organization mobilizes a crowd to find and assemble information. Ideal for creating collective resources.

Distributed Human Intelligence Tasking: For information-management problems where an organization has a set of information in hand and mobilizes a crowd to process or analyze the information. Ideal for processing large data sets that computers cannot easily do.

Broadcast Search: For ideation problems where an organization mobilizes a crowd to come up with a solution to a problem that has an objective, provable right answer. Ideal for scientific problem-solving.

Peer-Vetted Creative Production: For ideation problems where an organization mobilizes a crowd to come up with a solution to a problem that has an answer that is subjective or dependent on public support. Ideal for design, aesthetic or policy problems.

The collective minds are more generative than one mind working alone. Be vigilant about employees becoming insular; cognitive bias limits group thinking. Look outside your walls for answers to problems. Tap the crowd.

Enroll the Skeptics Early.

After working on hundreds of innovation projects, one fact remains. If you cannot get executive sponsorship of the final concepts, they will never launch. We recommend a few steps to get leadership engaged in solving the problem with you as part of the process; therefore, they will feel invested in the outcome of the innovations in the marketplace.

Set up a meeting to unpack the starting assumptions of the Innovation Project. Make sure you include time to think about unthinkable things. For example, if the company needs a new product, make sure you include time to ideate on different business models. Also, provide the context to free everyone of their current paradigm and boundaries. We like to use a simple exercise called What Will Get Us Fired, and we encourage wild thinking.

After relishing thinking about all types of illicit, weird and shadowy things they are not allowed to voice normally, then make their minds stretch into solutions thinking. Have them pair up, pick the wildest ones and then flip the concepts on their head – and transform them into a concept the market would accept. Once they witness the process, they will understand the adage the awesome breakthroughs often sit right next to ridiculous.

Then, re-write their role. Instead of setting them up to analyze the results at the end of the process in a PASS/FAIL or YES/NO dynamic, have them check in as part of a team invested in something that will enhance the company’s top line and make its brand a leader. Call them an Action Team or a Realization Team, something inherently collaborative and additive.

Check in at key points. After all of the empathy and fieldwork is complete, give them a window into the insights. Likewise, after the define phase is complete, connect the dots for them, let them help wordsmith the reframing of the findings so they have genuine ownership in solving the right problem.

Use their expertise. Let’s say one member is in the legal department, one is in R&D, one is in business development and another works in regulatory affairs. After the ideation phase is complete and consumer desirability has been validated for concepts in a series of prototype co-creations, then enroll them at their level of expertise by asking them to help figure out how to make these possible solutions technically feasible and market viable. We have witnessed naysayers transformed into complex problem solvers on the widest array of issues: chemistry, technology, claims work, etc.

Many members of this group are pre-amped to say “no, here is why it won’t work,” and this habitual knee-jerk response has caused billions of dollars to be left on innovation’s cutting room floor. By getting their enrollment early, and by making them part of the process and solution, they work toward, rather than against, new products and solutions.

Hope these lessons from the field help you to have a great success with launching meaningful innovations in your organizations.

Have Courage to Leap.

As Innovation and Growth Strategy consultants, we have methods, processes and exercises that we apply to client problems.

While tools from this vast toolbox work for any type of organization seeking to provide a better service or product (health care, nonprofit, hospitality, consumer goods, financial services, wholesalers and B2B) to generate insights and custom solutions that set them up as a category leader, what we sell is something else ultimately. This is perhaps the rarest asset in corporate America for an unknown reason, called courage.

According to Wikipedia, courage is the ability and willingness to confront fear, pain, danger, uncertainty or intimidation. Most corporate cultures move in fear, make decisions for the worst case, then present power points for their leadership teams like a pep rally squad playing the roles of analyst and accountant.

What happened to the ability to dream, to share a vision, to outline something bold? In the land of how-we-do-things-here, no new thinking is allowed and courage is stamped out the moment it shows the glint in its dreamy eye.

It’s little wonder that all of the big telecommunications companies can only grow by major acquisition rather than human invention. Given that they are fixed and rigid in their business model, infrastructure costs and roles, they cannot afford to rethink the industry. So, in moves a concept that defies their paradigmatic models, Skype, and without the capital-intensive notion of a network, they become the market leader in international calls, with more than 12 percent of the market. The bigger companies lacked the courage to drop their world-view and see the market needs and new technological possibilities with the objectivity of a startup.

Yet, many corporate citizens lust after such a wild leap. On every corporate desk, we see copies of the Business Model Canvas or Lean Start-up.

Skunkworks teams meet with the fervor and passion of illicit love. Like stolen love, these relationships really make it in the light of day. The concepts are cleaned up and presented to the larger enterprise. Then, behold the attack. Behold the boundaries. Behold the reasons why we cannot move ahead with something radical. Faint praise for fresh thinking peppers the conversation, then it’s back to business as usual.

This cynical, but too-true, scene is enacted again and again every day in America. Cultural antibodies eat at any expression of courage like rapacious piranha in company after company. The only antidote is courage, the courage to confront fears, dangers and uncertainties. To be able to enact this courage, it takes a focus on an innovation culture where even the business model that brings us together is an ongoing experiment and prototype open to improvement.

Courage: It changes things, for the better.

How to get unstuck from a rut.

Perspective is everything. In life and work life this adage proves true time and time again.

If you can see opportunity without preset lenses, you are more prone to make advantageous use of this gift. If you harness the skill to zoom out and zoom in, you see your business in many different settings, in different categories and segments, and serving different customers. We, at the Studio, cannot empathize the power of fresh thinking and a cached perspective.

Let’s look at the opposite skill. Your organization has attained the glory of management, operational excellence. You have orchestrated the entire flow of work down to a predictable algorithm.

While you may realize a short-term bump in cost savings because you have optimized efficiencies, something is not right. No matter how tightly you put the screws to your sales team, sales are down, heading toward flat.

What you manufacture is no longer desired at a premium price. Imports are killing your once-sacred margin. The market has changed. Distributors turn your loyal relationship into a parts-dealer relationship. Low cost is king. And, they will not take your higher-margin products to their clients. The market has changed. Your business model, although optimized, is no longer viable. You have gotten so rigid in your perspective that you cannot adapt and transform the business to meet today’s demands. You have essentially created a trap, built upon the faulty assumption that your snapshot of reality from which you derived the operational algorithm was an eternal truth.

Now, you must change or face extinction. If you kept a fresh perspective – and the ability to zoom in and zoom out – you would have never found yourself in such a costly bind.

Leaders today realize they need to disorient their perspectives and reorient themselves to the market with fresh eyes on a daily or weekly basis to avoid getting stuck in such a deep rut. The market is never linear, nor should businesses be.

There are exercises leadership teams can do to disorient their perspectives, think creatively about their businesses and awaken to a broader sense of opportunities for their firms.

If you are stuck and what once worked well is working against you, try some creative disorientation and role-playing to way find and lead a way out.

Shouldn’t We All Be Social Entrepreneurs?

There is a lot of talk these days about social entrepreneurs and social ventures but not a lot of clarity around what this really means. It seems in many cases the term is just a new spin on not-for-profits, a new label for start-up organizations that focus on social issues. However, there is a big difference- social ventures can be for-profit or nonprofit in their structure.

There are three models for social ventures: leveraged nonprofit, hybrid nonprofit and social business, all out to solve social problems and provide social benefits. In all cases, profitability is considered a path to making these social benefits sustainable, rather than singular focus on building shareholder value.  The social business venture generates profits, but rather than return those profits to shareholders, like commercial ventures, it reinvests profits to further the organization and the resulting social benefits. Their success metrics measure the return to society and the wider environment as well the organization’s financial health.

There is great momentum underway for this business model with countless conferences and venture capital groups committed to just social ventures. The driving force behind this movement is the Millennials, also called Gen Y, a generation born in the 80’s to early 2000’s with ambitions to change the world. They are not looking for a career but rather a purposeful path in life. Among GenYers’ most important personal values are authenticity, altruism and community. These attributes coupled with their entrepreneurial bent, explains the rise of social venturing. According to the Wall Street Journal, half of all new college graduates now believe that self-employment is more secure than a full-time job.

The social venturing movement is important in two ways. First, it may bring about long overdue reform to inefficient not-for-profit organizations that should adopt a more capitalistic business model to wean of grants and become self-sustaining.  The mere existence of these more nimble organizations playing the fringe and using innovation to solve problems will either drive out the old line inefficient non-profits or force them to change for the better. Second, as these organizations continue to succeed their influence will pervade big business and corporate America. In order to succeed in the future, the big companies will need to rediscover or reinvent what it was that they actually stood for in the beginning.

As founder and CEO of Whole Foods, John Mackey says “great companies have great purpose.” It will be interesting to see if Mackey’s vision for “conscious capitalism” comes to pass. In our view, this sea change will encourage innovation in both the commercial and non-profit sectors.  Non-profits will take a more capitalistic approach and get off the dole, while corporations will exist for something greater than profit. When this happens, many of the world’s problems will be solved.  John Mackey said “Just as people cannot live without eating, so a business cannot live without profits. But most people don’t live to eat, and neither must businesses live just to make profits.” We think this rings true on so many levels.

Innovation Risk Brings Rewards

Suppose I told you that you could spend $185,000 and turn it into $25 million or more in a few years. You would accuse me of phishing, an investment scam, or dismiss the proposition as foolhardy. Yet, these are the types of returns we see from clients and those in the world who invest in breakthrough innovation at their companies.

Whether it is a product firm, a service organization, or a business-to-business company, these types of return on investment take on nominal risk and garner a large reward. This risk: an unblinking willingness to do something outside of your current operating and business models and a small amount of capital and talent.

To explore, take one half of an internal resource and tell them to choose an innovation firm for a vexing challenge the organization has not been able to solve to date. The innovation firm will cost between an estimated $75,000 and $125,000 for the entire challenge. Then, recruit a variety of internal people to serve on the project team, giving them about 20 to 25 percent of their time and a small travel budget, if needed.

Design an eight- to 12-week innovation sprint. During the first week, the devoted internal resource and the innovation firm will create a project plan, kick off the project team, and immerse themselves in the value-creating journey.

The first step is to design the challenge carefully – the devoted half resource and Innovation Firm can handle this task. Then, take the project team into the field to actually talk with those for whom they will design a solution. Call this the Empathy phase. This deep qualitative work, done by a mix of roles (managers, sales, RnD, IT, etc.) helps in several, key ways: breaking the deadlock of rushing to product development with someone’s pet idea and also understanding how what the organization creates impacts the real lives of people. This is human-to-human business. After many interviews are collected, the team debriefs the interviews and develops themes.

Next, the problem is defined.

A portfolio of ideas will be generated, vetted, refined and tested again. In this process, the testing cycles cost less than large batches of quantitative modeling, and are typically more on target. After a portfolio of concepts have been through this cycle three or four times, you can spend the remaining time writing a business case.

From Swiffer to the Spin toothbrush to the Dirt Devil to children’s CT scanning devices to better treatment at the Cleveland Clinic, this radical investment story is similar. But it comes with a warning.

If you are not allocating a tiny portion of your overall spend on innovation, your competition probably is. With their additional $25 million, they will be able to buy you at the fire sale.

Go Deep, or Go Home.

We meet companies and nonprofits who have been marketing to the same lists for years. Often, these lists and the assumptions about the people on their lists are more than a decade old. These aged lists may have been scrubbed, but that is simply for those who have fallen off the grid, one way or another. This point should be obvious to any reader of this column: there are major problems with this scenario.

First off, organizations marketing to the same list for years lose the feel of how their buyers make decisions. Their selling instincts dull, and then they tend to think of names on the list as objects rather than subjects with rich, full lives, motivations and choices. In essence, they lose their hunting impulse, their sense of courtship, and reduce a possible valuable customer relationship into a vague, impersonal slot machine, settling for a single transaction with low odds.

Second, people are dynamic, not static. If these organizations put their prospects into a rigid category instead of knowing them on a deeper level, they will be marketing to a snapshot that is no longer valid. Think of yourself or your children 10 years ago to demonstrate this point. People are one of the most progressive species on the planet. Fortunes can be made, lost and regained in a decade – and if your customer information keeps the same basic inputs, you are out of touch with reality.

Third, your weakest competitors are marketing to the same list. Incredibly, they are marketing to them with a similar value proposition, brand promise, feature and benefit set, and price range. They, too, are eking out a living on the after fumes of cobwebbed insights from a decade ago, and cannot think outside of the confines of a strategy set when the world was a different place.

Fourth, the most egregious sin: They don’t have any actionable insights about the market, the people in the market, the trends and forces that shape the market, and they do not renew and transform their innovation and marketing efforts to position as a leader in their category. This is the classic deadly sin of sloth. If it exists in your organization, eradicate it or risk extinction.

Face it: this is the post-industrial world, the economic era of innovation. These innovations are steeped in human-to-human valves. You have to know a person to go this deep.

Call it a deep dive, a voice of the customer; just get out of your own head and your rut-like routines and get inside the homes, routines, rituals and hearts of your people. Honor those that buy from you or give to you, as subjects with dynamic lives.

By investing in them, you create a win-win relationship. This quid pro quo, these repeat sales, will not happen if you keep playing the old lists game and never spend time with your prospect base. Go deep.

Idea Gridlock. Make way for the Backend of Innovation.

Many of the CEOs we talk to tell us that they have more growth ideas than they know what to do with. It seems like there is a universal love affair with generating ideas but less enthusiasm when it comes to figuring out which ideas are the most commercially viable and how to actually implement.  This imbalance causes a backlog of ideas, begging the question: do too many ideas stall out innovation?

This quandary is rooted in what is known as the “Frontend of Innovation” which is the idea generation part of the process and the “Backend of Innovation” which is the strategy and implementation of these ideas. Companies with an established innovation program have these two elements in balance as a result of a clear process and people with the right skillsets for both activities. Innovation stalls out when there is a bandwidth issue- either there are no analysts on staff to evaluate each opportunity or there are too few of them and like the patent officers at the USPTO they never see the light of day.

As much as we love the creative idea generation process here at the Studio, we are also keenly aware that ideas are a dime a dozen. Extensive market validation is needed to prioritize, incubate and develop the concepts with the most legs. Just like with a start-up, market validation means proving (or disproving) feasibility, demand and profitability. Singular devotees of the Frontend of Innovation hate talking about this reality, it makes their skin crawl. This is because putting these limitations in people’s minds during ideation limits the creative output and perhaps blocks a breakthrough.  We agree, but with generative ideation and limited validation it is easy to see how the backlog ensues.  Without a quantitative way to gauge ideas, they can all appear equally appealing. Paralysis sets in when executives cannot confidently select growth opportunities for investment.

So now, we will give the Backend of Innovation a rare moment in the spotlight. It doesn’t get a lot of airtime because it is the less glamorous workhorse of the innovation process but without it, innovation suffocates from idea overcrowding.  Much like the tired funnel diagram, the Backend sets up a process and framework to assess ideas and eliminate the weakest from the development pipeline.

Market size, consumer insights, competitive pressure, business model and return on investment are just the beginning of the factors that should be assessed before moving the concept forward to pilot.  If the concept doesn’t meet internal opportunity size hurdles there is no sense in moving it forward for further feasibility assessment and iteration. Figure out what other factors are critical go/no-go stage gates for your organization to narrow the funnel. The basic questions are: How big is the market? What is the competitive pressure and does this represent a better alternative? Does the end user want and accept this solution? What is the business model and operational factors involved?

After the concept clears the stage gate consider running a pilot, not so much to test market adoption but rather to gather market feedback for refinement and iteration. Pilots can be expensive and time consuming- another argument for why it is better to have a few validated ideas over a treasure chest of lottery tickets.

Trendcasting and Innovation

Did you wake up this morning to realize that the world has changed and your business has not changed with it? If you are a regular reader of this column you know we discuss growth strategy and innovation and all of the challenges that accompany those pursuits. We see many companies of all sizes that are dying a slow death in a saturated market with outdated business models. They fail to get out ahead of what’s next.

Business leaders commonly attribute growth issues to a stagnant market or corporate dependency on an inferior product. These are excuses – the heart of the issue is a short-term and reactive corporate mindset. The antidote is to install a culture of proactive forethought to replace the more typical reactive market strategies.

We encourage our clients to take up trendcasting – the practice of tracking and forecasting global trends that will affect your business. This relatively new term has been used mostly for tracking and predicting consumer behavior, but we believe that it is also useful for studying industries and a productive innovation tool for those seeking growth and transformation.

To do this, you should task a group of employees with professionally diverse backgrounds to become a band of trend-spotters and form a think tank of sorts within the company. The team’s objective is to uncover emerging trends that are three to five years out. To start, they have to take a snapshot of where things are today so that they have defined a baseline for future trends. Done right, this is not just a research effort to read analyst reports and round up their assessment of existing trends. The idea is to see what others do not and to predict the next wave of trends. Have the team investigate the macroeconomic factors at work in both the global economy and the industry. They should also study the regulations underway and those that might come down the pike. Once they have a handle on current established trends, they can begin to evaluate all of the possible impacts that might set off new trends.

At this point, it may be helpful to bring in a third party to facilitate the discussion and prompt the team to stretch their thinking. Industry experience and basic human cognitive bias will cloud their ability to see beyond what happened in the past and project into a new and unexpected future.

Be on the lookout for fads, a pet rock-like flash in the pan. It is important to define a set of indicators and parameters to evaluate the size, impact and likelihood of the trend materializing. This will give the team a framework to assess risk and determine if the prospective trend is just an element to be factored in to the strategy or whether it is significant enough to warrant an innovation effort.

Unfortunately, there is no magic formula that validates trends with 100 percent certainty. However, quantitative models that assess probability and risk are useful tools when considering investment. Pinpointing emerging trends is critical to defining the boundaries for a successful innovation effort. If you want to grow through innovation, you must first understand existing trends and then trendcast to discover what might be next.