Face It! It’s not possible to eliminate the risk of innovation.
One of the most often cited reasons for not embracing innovation is that it is too risky. Unfortunately, it is not possible to eliminate the risk of innovation because prototyping or testing often comes with a high cost. Combined with the time spent, the cost can be rather high for an unknown outcome. Yet, by failing to embrace innovation, you are putting your business at a high risk of being left behind and becoming obsolete. There is no way to eliminate the risk of innovation, but there are ways to reduce it.
It’s easy to understand the dilemma. Business owners don’t want to put themselves in a position where they are wasting time or money, especially as the economy continues to climb out of the sinkhole that has existed for the last few years. Yet businesses that don’t innovate will suffer serious consequences which could cause irreparable damage. So what can be done if the risk of innovation cannot be eliminated?
Here are four tips that may save you time and money:
1. Clear up the fuzzy front end
Often, much of the time spent on innovation is in the stages that companies are more comfortable with – developing prototypes, doing some research and development plus testing – definitely the more fun stages! But when companies have a new idea, and this is the starting point, there are tremendous risks already because the most important part of the process – clearing up the fuzzy front end – has been left out.
Think of the fuzzy front end of innovation as how your eyes feel after visiting the eye doctor – everything is blurry and it’s impossible to make sense of anything because there is no way to bring clarity or focus on anything you look at.
Ideas start in your brain. This is a fact that cannot be denied, but it’s what you do with your ideas that is important. When you come up with a good business related idea, write it on a sticky note, napkin, back of an envelope or store it in your phone. To really be effective, use a little notebook that can be carried around with you.
Now, what normally happens next is that you begin figuring out how to implement your new idea. Say it’s a solution to a processing problem and you’ve reached the “how will it work” stage – it’s important to consider the next three key points first.
2. Which problem is being solved and for whom?
There are two basic types of problems – big problems that don’t happen very often and small problems that happen all the time. Which type are you solving and for whom? It is important to write down which problem your new innovation will solve and who is most interested in the solution.
If the problem cannot be identified, then your idea probably needs to be set aside for a later time. What did you lose? Maybe thirty or so minutes thinking about it, no expenses were incurred and there was no loss in production.
3. What are the financial benefits/drawbacks of this new idea?
Recently, a group of top notch innovators spent a day brainstorming and came up with some great new ideas. At the end of the day, they chose two that they wanted to work on for a couple of weeks.
However, when they did “the math” on one of the ideas, they quickly realized that changes needed to be made. Their idea was going to net them a relatively small return of just over $500K and they knew they could do better. When they reworked the idea, the potential return on investment increased by a factor of 10!
Doing “the math” involves:
- Examining how many potential customers there may be as a whole.
- Considering how many of them can realistically be reached (through advertising, direct contact, etc).
- Considering how many of those who can be reached will purchase.
- Considering repurchase situations (think vacuum cleaners – customers will repurchase bags, filters and belts). If applicable, how many times in a year will customers repurchase and how much will each transaction cost?
Take all of these factors into consideration when working on an idea, as “the math” could kill or advance it, depending on your expectations and the results.
4. Identify the potential roadblocks
Another key step you should take to reduce risk is to identify potential roadblocks for a new innovation. Say it relates to a new product – one important step is to find out whether or not your customers are interested. Don’t make the mistake of becoming so fixated on the new product that you ignore those around you who are warning that it won’t fly. Ultimately, a lot of time and money will be wasted until you discover, one way or another, that your customers don’t want the product.
Another roadblock might be whether or not the required materials can be obtained if the new product needs to be manufactured. Technology could be a roadblock. Skilled employees could be a roadblock. There are other examples – too many to mention here – but the important thing is to identify them now.
Brainstorm with your team to determine whether or not there is a way around each roadblock. If there is, work through it. If not, the idea may have to be shelved for a while.
There are other steps that can be taken to reduce the risk of innovation, but if you follow those listed above you’ll clear up that fuzzy front end. You may spend a bit of time and money to clear away a roadblock, but the cost won’t be huge.
Before you invest your time and hard earned money in developing new ideas why not talk them through with us? We are business advisors and tax accountants who can help simplify your processes, work through the numbers, save you time and money and help reduce the risk of innovation. Fill in the form below for an obligation free meeting.