Day 8
Go to the Intersections

Many people perceive that the hardest part of innovation is coming up with a new idea. After all, ideas are often represented by glowing light bulbs, representing a blinding, powerful, unforeseen insight.

But coming up with ideas is actually quite easy, if you remember Pablo Picasso’s words of advice.

“Good artists copy,” the Spanish painter noted. “Great artists steal.”

In keeping with this theme, I liberally borrowed from David Kord Murray’s helpful book Borrowing Brilliance. The book’s basic theme is that the most reliable way to innovate is to borrow an idea from another field.

Murray suggests a simple, but useful process. You start by deeply understanding the problem you are trying to solve. Hopefully, you did this in week 1 of training! Then, determine who else has solved a similar problem—regardless of the field. Find ways to adapt the solution to the particulars of your problem. This technique dramatically simplifies one of the most daunting parts of the innovation process.

As an example, consider Rick Krieger. In the late 1990s, the Minneapolis-based entrepreneur and his partners saw an opportunity in the health-care industry. A bad emergency room visit led Krieger to observe that the health-care industry failed to deliver simple services in convenient, affordable ways. He thought about why that was the case. The problem was that the industry was designed to solve any problem. Skilled physicians were required to handle the complicated cases that might walk in the door.

Krieger asked himself which company had found ways to simplify a historically complicated delivery mechanism: bringing consistent quality, even with lesser-trained employees, lowering prices, improving convenience, and serving billions and billions of customers around the globe … Some of you probably have a crystal-clear image forming in your head: the international sign for fast food, McDonald’s golden arches.

The next logical question, then, is, “What would a McDonald’s of health care look like?”

McDonald’s has simple, standardized menus; Krieger’s solution would have to only offer a limited set of services. McDonald’s has step-by-step instructions so that untrained teenagers can prepare food; Krieger would have to find a way to use lesser-skilled professionals.

A MinuteClinic inside a CVS store in Massachusetts

Photo by Steven Cashmore

In 2000, he and his partners introduced his business under the name QuickMedx. It was a seventy-five-square foot kiosk staffed by a nurse practitioner. The practitioner could provide a range of straightforward services—think diagnosing strep throat or a flu shot—using simple, rules-based tests. QuickMedx promised that people would get in and out in fifteen minutes. The tagline? “You’re sick. We’re quick.” In 2006, CVS Caremark bought the business—now branded MinuteClinic—for close to $200 million.

Here’s a simple thought exercise to put this concept into action. Imagine you have identified a clear market need and have lined up a big meeting with an investor in a month. You have no money, but a shockingly high number of frequent flier miles. Assume black-out dates don’t exist. Which company would you want to visit to get inspiration to build out your idea? Start researching that company immediately.

More generally, innovation scholars typically find that breakthrough innovation occurs at intersections when different fields, perspectives, or mind-sets collide. Jeffrey Dyer, Hal Gregersen, and innovation master Clayton Christensen note in their 2011 book The Innovator’s DNA how good innovators make these intersections happen by intentionally seeking out as many external stimuli as possible.

It sounds daunting, but it doesn’t have to be. Four simple techniques can help you to find new perspectives:

1. Try to experience the new places you visit. If you happen to travel frequently for work, avoid the business traveler’s rut of spending these trips in hotels and conference rooms. Seek out local dining establishments, or go eat in the company cafeteria. Local grocery stores can be a great window into how people really live their lives.
2. Learn about interesting individuals online. Maybe you’ve never been lucky enough to attend one of the famous gatherings sponsored by TED Conferences, so named for the nonprofit’s focus on technology, entertainment, and design. (I’ve never been.) But you can “meet” a number of the TED attendees by watching the wide range of available videos. When you find someone who has an interesting perspective, try to learn as much as you can about the person. There is just an amazing amount of resources out on the Web.
3. Seek diversity in your reading. I rotate from business books to biographies to fiction to baseball books, sample from a pretty wide range of online and traditional publications, and even occasionally pick up something in a completely unrelated field. If your mind is programmed to think about innovation, you’ll pick up surprising insights from material that seems to have nothing to do with your day job.
4. Always accept meetings with interesting people. Even if the meeting might seem like a distraction, take it. You are likely to get some nugget that pays dividends at some point.

These activities can seem disconnected from daily tasks, but they pay long-term dividends by programming the mind to make connections that it otherwise wouldn’t make.

Innovation is a human-driven, social activity. Good innovators realize this and seek to make as many connections as they possibly can. If you are trying to think of your next great idea, remember Picasso and get yourself to the intersections.

HOW-TO TIPS

1. Map out a three-day itinerary for places you could go to get nonobvious sources of inspiration.
2. Watch an online video of one of the innovation masters in chapter 2. Write down one idea you take from the video.
3. Send an e-mail to the most iconoclastic person you know, asking this person to introduce you to the most iconoclastic person he or she knows (unless that’s you!).

Day 9
Seek Ideas from Everywhere

Despite time on my college newspaper and quite a few interviews with journalists, I don’t consider myself particularly adept at the pithy sound bite. Every once in a while, however …

A couple of years ago, I was talking to a journalist about a contest Netflix was running. The company offered $1 million to any team that could help it offer significantly better DVD recommendations to its customers.¹

The journalist asked me a question along the lines of “Do you think that it is better for companies to run these kinds of contests, or try to find ideas internally?”

My response? “I believe in monogamy in marriage and promiscuity in the search for new ideas.”²

I went on to explain my belief that there is no one best source for new ideas. Instead, when you are trying to solve a tough problem, you should try to tackle the problem from as many perspectives as possible. Beyond the contest, I could see at least nine paths that Netflix could follow to come up with ideas to tackle the challenge of increasing the predictive nature of its algorithms by a certain percentage:

1. Form a small team (or several competing teams) of internal experts, and give them a defined period to come up with an idea.
2. Hire a specialist service provider, such as a company like ?Whatif! or Sagentia, to generate out-of-the-box ideas, or trawl through patent filings to get early reads on new technologies.
3. Challenge an intermediary like Innocentive, which attempts to match companies and individual problem solvers around the world.
4. Hold a half-day brainstorming session with a handpicked group of outside experts.
5. Talk to a collection of venture capitalists who are investing in related start-ups.
6. Consider a strategic partnership with an early-stage company in the space.
7. Have a team do day 8’s training, and look for relevant analogies from different industries.
8. Solicit suggestions from loyal Netflix customers (preferably using the excellent research and writing from members of the open-innovation community).
9. Conduct an ethnographic study to identify nonobvious ways that customers today solve the content-discovery process.

Some of these clearly would be harder to pull off. For example, loyal customers (number eight on the list above) probably lack the technological sophistication to offer particularly useful solutions. But you never know unless you try. And there are a raft of excellent resources for people who want to explore these different approaches (e.g., check out Stefan Lindegaard’s excellent 15inno network, at www.15inno.com).

At first glance, the list above might seem a bit overwhelming, but the search for inspiration doesn’t have to be overly complicated. Start by researching how other people have solved similar problems. Thankfully, Google has made this process blissfully easy! Find ways to talk to people who might offer inspiration. Friends, family, and colleagues always serve as good starting points. Don’t be afraid to contact people whom you don’t know but whom you come across while doing research. People generally love to talk about the things they have accomplished.

If you find yourself stuck staring at a blank piece of paper, ask simple what-if questions, such as these:

• What if I did the same thing this other smart person did? Remember yesterday’s lesson: there is no shame in borrowing someone else’s brilliant idea.
• What if I were the CEO of a company I admire? How would he or she solve this problem?
• What if I combined two seemingly unconnected ideas?

The goal is to develop a list of the different ideas that begin to pop into your mind. Initial ideas don’t have to be overly polished; a single sentence description or a rough sketch can be sufficient. Ideally, each idea represents what strategists call pure tones. That is, the ideas have a meaningful and noticeable difference from other ideas on your list.

One other tip: carry around something that allows you to capture inspiration when it strikes. This used to require something burdensome like a small notebook, but of course, today you can use your smartphone to jot short notes to yourself, take snapshots, or record movies.

It is important to remember that in this part of the process the goal isn’t to come up with a single idea; it is to come up with lots of ideas. Why is that? Look up to Mike Tyson on the Mount Rushmore of Innovation, and remember that your first idea is going to be wrong in some meaningful way. If you generate a lot of ideas, you might find ways to combine ideas to come up with something you hadn’t thought of before.

Many view innovation as a solitary pursuit, but it shouldn’t be. Cast as wide a net as possible to get inspiration that translates into tangible innovation ideas. As my wife says, “This is one time when I approve of promiscuity!”

HOW-TO TIPS

1. Create a list of ways you could approach a problem that has been nagging you for weeks; make the list as long as possible.
2. Call up an entrepreneur or an artist and ask how he or she comes up with ideas. Try this person’s techniques.

Day 10
Remember: Quality Is Relative

The previous two days of training suggested sources of inspiration for innovative ideas. Hopefully, the techniques allowed you to develop the beginning of an idea to do something different that will have impact. The next few days will help you transform an emerging idea into a more detailed blueprint. Today’s training helps you think about what makes your idea special.

Would-be innovators often trip over the word quality. The basic problem? People often think their definition of quality is the same as their customer’s definition of quality. That is rarely the case. If you want to develop a compelling idea, look again at A. G. Lafley’s face on our Mount Rushmore of innovation, and remember to look at the world through your customer’s eyes.

This notion hit home to me right after my family and I moved to Singapore. For those of you who haven’t spent time in Singapore, the country is just food mad. You can find every kind of food imaginable. Locals will tell you that the best food comes from stalls at so-called hawker centers. The stalls are basically small kiosks manned by one or two people who churn out fresh, affordable food.

These aren’t the “roach coaches” that populate the streets of New York City. In true Singaporean fashion, the food stalls are regulated. Each stall has a highly visible laminated card showing how well it adheres to published cleanliness standards.

I had visited tons of stalls on my trips to Singapore and was a big fan of the food. So, after we touched down, I was excited to bring this innovative offering to my wife.³ Great, affordable food from a stall! What’s not to love?

Now, my wife loves good food as much as the next person. One of our favorite things to do is to explore new restaurants. She’s willing to try just about anything.

But I knew something wasn’t right when we went to a well-known outdoor hawker center. Joanne picked at her food and made obligatory comments about how it was great; she just wasn’t hungry because of the jet lag.

Later, it hit me. While I would very happily trade off a bit of ambience for freshness and food quality, my wife’s preferences were completely reversed. A restaurant needed to cross a certain ambiance threshold to be of interest to her. If it fell below that threshold, three Michelin stars wouldn’t tempt her palate.

When I asked her about it afterward, she said, “You know, I was worried I wasn’t going to eat for the next few years. The food was good, but I just couldn’t get over seeing all the cooked chickens and ducks that are on display.”

The problem again was I had assumed she would rate quality the same way I would. But she didn’t.

Here’s another example from Singapore. Look at my picture on the jacket flap. Check out my hairstyle. Ask yourself, “What does Scott look for in a haircut?”

The only haircut that would be simpler than mine would be a military-grade buzz cut. Typically, I tell the barber, “Two, three, four,” describing the length of blade I use in the back, middle, and top of my head.

Yet, somehow in America, I couldn’t find a good, reliable place to get my hair cut. The local Supercuts had shockingly variable quality. The nearest salon would be more reliable, but really, paying $50 for this haircut just seemed … wrong. In the end, we worked out a system where I would go to Supercuts and get a fairly mediocre haircut, and then Joanne would do a bit of a touch-up at home. Seems a bit much for this.

Then, when we arrived in Singapore, my colleague told me about QB House. The company’s slogan is “10 Minutes, Just Cut.” Each location has about four barber chairs. A light outside the location and connected to sensors to chairs for waiting customers tells you the length of the queue. You put a $10 note into a vending machine and get a card. You hand that card to a barber, and he or she gets to work. The place only does haircuts—no shampoos, no eyebrow shaping, and no coloring. Just cuts. Each chair has in front of it a television monitor that plays television commercials so you don’t have to pretend to make small talk with the barber. Hygiene is clearly important, as you can visibly see the alcohol in which the scissors are sanitized. After you are done, an integrated vacuum machine sucks up the clippings.

Now, if my hair looked like the mane on Russell Brand, I would view QB House as a not very good solution. But for me, QB House is pretty close to heaven. It is predictable, it is clean, it is affordable, and it is simple.

Both of these examples highlight how quality is a relative term. You have to understand individuals and what matters to them before you determine whether something is a high-or low-quality idea. Of course, you have to be better than what the customer could historically access or afford along some dimensions. But being good enough on other dimensions often opens up new innovation opportunities.

Charlie Anthony, enjoying a QB House haircut.

There are a number of useful tools to help visualize the performance customers are seeking on a range of dimensions. One of the most helpful ones I’ve found is the strategy canvas from W. Chan Kim and Renée Mauborgne’s Blue Ocean Strategy. In essence the canvas lists the performance dimensions on one axis and shows how different solutions measure up against each dimension.

We use a variant of this canvas in our consulting work quite frequently, because it addresses two key innovation issues. First, it can help you understand where there is opportunity to do something different when the existing solutions aren’t providing something that a population is looking for. Second, a strategy canvas can help you understand whether your idea will have an impact on the target audience. If you are providing bells and whistles that don’t matter and that are falling short of key thresholds, you are likely to disappoint.

Joanne is getting more used to the food stalls, by the way.

HOW-TO TIPS

1. Ask failed sales prospects or lapsed customers to detail criteria they used to make a decision.
2. Ask a dining companion how food quality, ambience, and service affect his or her view of a restaurant.
3. Google “strategy canvas”—create one for an innovative idea on which you are working.

Day 11
Avoid Overshooting

There are a few popular catchphrases within the Anthony family. My grandfather used to say, “You make a better door than a window” to a person standing between him and the television. When asked whether he liked a meal, my dad has been known to declare, “It sung with the goodness of the sun-drenched earth.”⁴ When asked about how an event went, the expected answer is, “A good time was had by all!” My mother’s contribution? “You can never be too rich or too thin.”

That last one may be true, but when it comes to innovation, you can in fact be too good.

The innovation literature suggests that surprisingly, at some time in the life cycle of any product or service, customers no longer value incremental improvements. Existing customers will almost always take something better (unless it gets too complex), but at some point, they become disinterested in paying for it. Innovation master Christensen termed this overshooting.

When I am working with a group, I will introduce the concept of overshooting by going through something like the following: “The telephone service in your house is a technological marvel. The quality is so clear, that companies tell you that you can hear a pin drop. You have ‘five nines’ reliability, meaning your phone works 99.999 percent of the time, or all but five minutes a year. There’s even an electrical current running over your wire, which means even if the power is out in your neighborhood, your phone still works.”

I then go on to pitch a new service offering from the local phone company to the group: “Have we got a deal for you! Our engineers have introduced next-generation sound quality. It’s so clear that you can hear a pin whooshing through the air. We will give you that elusive sixth nine. That’s right, that’s a downtime of only thirty-one seconds a year. Electrical currents are passé. We’ll throw in a personal generator to make sure your phone is always powered.”

If I’m on my game, I’ve got the audience at this point. Then, it’s time for the kicker: “So my question for you is this: How many of you would pay a price premium for this service?”

I’ve never had someone seriously say yes to this question. You would take that new-and-improved service, of course. But you wouldn’t pay price premiums for it—certainly not with affordable, convenient options like mobile phones, Skype, and so on.

Now this is obviously an edge condition. But the general phenomenon is real. There is such a thing as too good. At some point, the cost required to deliver incremental improvements doesn’t match the benefit that customers would derive from the improvement.

The discussion of the innovation sin of pride in chapter 4 noted how razor leader Gillette seemed to be on the brink of overshooting. A 2008 Wall Street Journal article, “Gillette Sharpens Its Pitch for Expensive Razor,” by Ellen Byron in fact showed early warning signs of this occurring, despite the successful launch of Gillette’s five-blade Fusion razor.

Most notably, people were hesitating to upgrade to new products. One analyst told the Journal, “When you went from [Gillette’s] Atra to Sensor, or Sensor to Mach3, practically everyone changed their razor. But with Fusion, you’re getting to such high price points that it actually makes a difference in their shopping basket—how much closer can your shave really get and how much closer does it need to be?”

Further, unit sales of low-cost, no-brand products were taking off. The Journal article described how Information Resources, Inc. (IRI), data (which does not include Walmart) showed that Gillette’s unit sales had sagged between 2007 and 2008, whereas private label units had increased 11 percent.

Those are the kinds of developments that signal overshooting. The historical pattern would lead to Gillette’s suffering from declining growth and the emergence of game-changing solutions that play the shaving game differently.

The folks at Gillette (and its corporate parent, Procter & Gamble) are pretty bright. In 2010, Gillette introduced the Fusion ProGlide system, which it augmented in 2014 with its FlexBall line. Instead of simply adding blades, the company sought to improve usability. It was a smart move, given industry trends. Also in 2010, Gillette went in the complete opposite direction by introducing the Gillette Guard—a 15-rupee razor—in India (that’s about 33 cents). The company also sought to bring its brand to personal care products like shampoos and body washes.

Yet, Gillette still missed the emergence of a new business model: Dollar Shave Club. The start-up directly mailed affordable blades and other grooming products to consumers monthly or bimonthly. P&G’s archrival Unilever acquired Dollar Shave Club for a cool $1 billion in 2016.

These examples show that, as is the case for many innovation concepts, overshooting is both a threat and an opportunity. A company that overshoots a market can see its core business crumble pretty quickly. For example, in 1996, Kodak rolled out its Advanced Picture System (APS) film, which promised the ability to take pictures of various sizes and to produce even higher-quality prints. However, it turned out that people were perfectly satisfied with lower-quality but easier-to-share digital images. Kodak shut down APS in 2004.

Overshooting is an opportunity because it creates conditions favoring innovative approaches to compete in a marketplace. Instead of seeking to leapfrog existing solutions, innovators can be on the lookout for ways to make things simpler or easier to use. They should ask provocative questions such as “What would happen if we removed 90 percent of the features and functions in our existing offerings? Would it allow price points to get to the level where an unserved market would be reachable? Could the offering be simplified to the point where nonexperts could do it themselves?”

For the curious, I actually have no idea whether any phone company is working on that sixth nine. My market research suggests that the number of people who will pay for that feature is precisely zero.

HOW-TO TIPS

1. Run a thought experiment to see what would happen if you or the market leader cut features by 20 percent and prices by 80 percent.
2. Pick a product from your kitchen cabinet. Identify three improvements that would be exciting to designers or engineers, but useless to you.

Day 12
Do It Differently

Almost every organization that has changed in a meaningful way has a Dave Goulait. I first met Goulait in 2004, when he was the point person for our work with Procter & Gamble. His job was to help P&G improve its innovation productivity. Over the next few years, we worked closely with Goulait to help P&G build a corporate capability to create new-growth businesses. Goulait retired in 2007, seamlessly passing the baton to a hand-chosen successor. Goulait is self-admittedly not very good at retirement, so after formally retiring, he did part-time contracting work for P&G and Innosight.

Why was Goulait such a powerful corporate change agent? He focused 100 percent of his energy on getting P&G to change and zero percent of his energy on building the “Goulait brand.” So, it seems appropriate to recognize Goulait in today’s training, as one of his favorite principles provides a good way to make several key points about disruptive innovation, a powerful weapon that would-be innovators can use to develop high-potential opportunities.

Goulait’s principle? “To do something different, you have to do something different.”

It’s almost Einsteinian in its simplicity (and, perhaps unintentionally, it channeled Einstein’s definition of insanity—following the same behavior and expecting different results).

The Dave Goulait innovation principle points inexorably to disruptive innovation. If your mission is to shake up the establishment or to create what doesn’t exist, then you simply can’t do the same thing that everyone else is doing. You have to find a way to do what people aren’t doing, or to take a radically different approach to the status quo.

Christensen popularized the term disruptive innovation in his 1997 bestseller The Innovator’s Dilemma.⁵ At its core, a disruptive innovation is something that creates a new market or transforms an existing one through simplicity, convenience, accessibility, or affordability.

Two classic examples of disruptive innovation are the personal computer and discount retailers. Personal computers democratized their market. Back in the 1970s, only trained experts could use computers. Existing technology (minicomputers and mainframes) were only affordable to large corporations. The net result was that most people didn’t consume much computing technology. As Apple and other innovators made things simpler and more affordable, they created an entirely new industry. Ultimately, that industry grew big enough to marginalize many of the computing titans of the 1970s and 1980s.

Discount retailers emerged in the United States after World War II. Historically, leading department store retailers featured a range of high-quality goods and well-trained salespeople who guided purchase decisions. Discount retailers offered simpler products that sold themselves. By reducing overhead, Walmart and other discounters could offer much lower price points.

Disruption has affected dozens of industries—high tech, low tech, business to business, business to consumer, service based, and product based.⁶ There are always nuances, but the basic story is eerily similar.

It starts with an innovator developing something with good-enough raw performance and improved simplicity or accessibility or lower prices. The innovator introduces the product or service outside the mainstream market. Perhaps it is to an undemanding customer who is happy to trade performance for price. Perhaps it is to a customer who historically lacked the skills or wealth to use existing solutions. The innovator uses this foothold to improve the product and service so that it meets the needs of broader customer groups. An innovation that was once dismissed as inferior becomes perfectly adequate for wider use.

Historically, the innovators who mastered disruptive innovation would come from outside an industry’s mainstream. That’s why Christensen called his first book The Innovator’s Dilemma. He observed how many historically great companies—such as Kodak, Digital Equipment Corporation, Sears, and General Motors—stumbled by doing precisely what they were supposed to do. That is, they listened to their most important customers, innovated to meet those customers’ needs, pushed prices and margins up—and suffered a stunning defeat at the hand of a seemingly innocent attacker armed with a disruptive innovation. As Christensen and colleagues have further decoded disruption, an increasing number of market leaders, like Cisco Systems, Procter & Gamble, and the Tata Group, are using disruptive innovation to their advantage.

You can use disruptive innovation to further develop your idea. What would it look like if you dramatically lowered performance on what people considered to be the most important dimension of performance? Don’t think this means introducing something crummy. Rather, think about how this approach could allow you to make something simpler or more affordable.

Remember, disruptive innovation is a tool. I have seen some people get so obsessed with fitting Christensen’s definition of disruption that they forget to ask basic questions, like “Does anyone want this?” or “Will we be able to charge high enough prices to cover our costs?” Always remember that the business of business is business. Thinking disruptively can point you in new directions, but never forget that the ultimate destination is impact.

Nonetheless, when developing an innovative idea remember the Dave Goulait innovation principle—to do something different, you have to do something different.

HOW-TO TIPS

1. Identify an item that you use every day and that followed the pattern of disruptive innovation.
2. If you are working on an innovative idea, write down three changes you could make to it to make it more closely fit the disruptive pattern.
3. Identify three startups that could have disruptive impact on your industry.

Day 13
Embrace Business Model Innovation

Quick—name the most successful technology companies from the first decade of the twenty-first century. If you are like a lot of people, the names that typically come to mind are Google, Amazon, Netflix, and Apple.⁷ It’s a pretty good collection. If you had invested $10,000 in Apple and Amazon on December 31, 1999, and $10,000 more in Netflix and Google when they went public in 2002 and 2004, respectively, by the end of 2009, you would have had a tidy $230,000, compared with $37,500 if you had invested the same amount in the NASDAQ index on the same dates.

What do these companies have in common? You might at first think, “They invest a lot of money in technology,” but one nonobvious connection is that the key to each of their successes is their business model.

Look at Apple and Amazon in particular. Apple introduced a series of legitimately game-changing technologies during the 2000s, most notably its portable music player and its smartphone. Clever, powerful operating systems powered both of those platforms. However, in both cases, the true driver of success was unique business models. Think of what would have happened if Apple had not coupled the iPod with easy-to-use software and a music store that offered songs at the unheard-of price of $0.99. Or if Apple had never created the App Store, which as of this book’s writing had more than 300,000 applications people could run on their iPhone.⁸ Or if Apple hadn’t created its own retail stores, which by 2011 sold more than $1 billion worth of products … a month.

Amazon is a serial business model innovator. Its core model is very innovative. If you tear apart its financial statements, the company doesn’t look like a retailer. Instead, it looks like a company that sells magazine subscriptions. How is that? Amazon has organized its business so that it initiates a purchase order with its supplier after you place your order. It pays the supplier fifteen to thirty days in the future. So it gets your money before it pays the supplier. It’s like you purchased a subscription that Amazon fulfills over time. This allows Amazon to have negative days working capital, which is quite rare for a retailer! When Amazon expanded from its original core of book retailing into other product categories, it became a general-purpose retailer. It then went into subscription services with its Amazon Prime offering, where the company offers customers the ability to avoid shipping charges by paying an annual fee. It rightly bet that the increase in purchase volume would offset any loss resulting from free shipping. Amazon is also a leading provider of cloud computing services, whereby small businesses essentially rent capabilities from Amazon instead of buying proprietary hardware. In 2008, it introduced the first version of its Kindle e-reader. As other companies—most notably Apple—introduced competing devices, Amazon created software offerings that allowed consumers to continue to get Kindle-based books on any platform. Not everything has succeeded (auctions, for example, were a bit of a dud), but it’s an impressive ten-year oeuvre.

Of course, without whiz-bang technologies, any of these companies would fizzle. But the best innovators go well beyond thinking about the features or functions of their product or service. They think about innovative ways to develop an end-to-end business model.

Now, a business model is a term that gets thrown around a lot without a clear definition. Innosight’s definition of a business model—spelled out in Mark Johnson’s Seizing the White Space—is “the blueprint that defines the way a company delivers value to a set of customers at a profit.” Johnson’s framework suggests looking at three things:

1. How you create value. Think beyond the solution itself to where the customers find the solution, how they obtain it, and so on.
2. How you capture value. Are there different ways to make money?
3. How you deliver value. What are you doing yourself, and what are partners doing? How are you doing the work? What could you do differently?

A good idea blueprint results from thinking carefully through each of these areas. I’ll use a family story to illustrate the array of choices innovators should consider.

In 2000, my sister Michelle was pursuing a PhD in developmental psychology from the University of California–Berkeley. Her particular focus was the role of American Sign Language in language acquisition, cognition, and literacy. One interesting thing she had discovered was that the desire to communicate occurred before throat muscles matured enough to support speech. When she had her first daughter that year, she wondered about teaching her to communicate using American Sign Language.

As my sister delved deeper into the subject, she learned that research suggested that children who learned to sign enjoyed a statistically significant and lasting IQ boost. The theory held that once kids learned that communication led to desirable results, they were hungry for more. Of course, once the throat muscles developed, hearing children learned that speech is more efficient than sign to communicate with hearing parents and siblings, so the use of sign language gradually decreases.

My sister also learned that the books on the subject were either academic but inaccessible, or were accessible but lacked rigor. She saw an opportunity for a structured approach that also was parent friendly. So she worked with a friend to create a business capitalizing on her insight.

Think about the choices facing my sister.

How could she create value? At the core of her idea was a simple methodology. She could spread that methodology through tools like flashcards, videos, in-person courses, or online videos. She could distribute products herself, through third-party retailers like Amazon, or through partners like Gymboree or Kindermusik.

How could she capture value? She could obviously capitalize on direct sales to consumers. She could also license her products and services to other resellers or charge franchise fees to local entrepreneurs who wanted to run their own play classes.

How could she deliver value? She could build up a team of salespeople and product designers or look for partners to help scale the business. She could try to build her own brand or try to partner with other popular brands. She could market by building a Web site, use more grassroots outreach on blogs and other forms of social media, or advertise in traditional media channels.

Whew!

My sister chose to brand the offering Signing Smart. She focused on selling videos and training tools through Web-based and direct channels and offered training courses through a partnership with Kindermusik, which has a network of more than five thousand educators providing early learning through music and movement (her program—Sign and Sing, developed by Signing Smart—is still offered by Kindermusik). While commercial results to date have been relatively modest, her thoughtful approach gave her a platform, learning, and a following. In 2010, she leveraged this when she wrote Little Girls Can Be Mean, the first book to provide practical guidance about how to bully-proof elementary-aged girls.⁹ As I’ll explain in week 3, every innovation success story has some twists and turns along the way!

My sister may never reach the levels of Apple, Amazon, or Google. But thinking comprehensively through her business model choices increased the chance that she’ll end up successfully creating, capturing, and delivering value.

HOW-TO TIPS

1. Document the business model of your company or idea (there are useful tools available at www.seizingthewhitespace.com or at Alexander Osterwalder’s businessmodelgeneration.com).
2. Map out your personal business model—how do you create, capture, and deliver value in your life?
3. Identify a business model you admire. What would it look like if you merged that business model with the idea you have been working on?

Day 14
Bring It Together

In 2009, we had a small gathering in which we brought together senior leaders from a range of companies to talk privately about their issues with growth and innovation. During that meeting, innovation master Richard Foster presented his latest thinking on the topic. It was a tour de force—one hundred PowerPoint slides in an hour, with rich historical examples, funny stories, and quirky case studies. The part I remember most clearly—and the final component of week 2’s training—was Foster’s guidance about how to be a better innovative thinker: “Don’t just do something. Stand there.”

Read that again. Foster explained that it was important to not just get caught up in the daily grind of activities. Rather, innovators need to be able to piece together their work into a comprehensive plan. Generally, there are four levels at which you can synthesize the work that has preceded this activity:

1. The elevator pitch: How would you describe your idea in sixty seconds or less?
2. The idea résumé: How can you describe your idea on a single piece of paper?¹⁰
3. The executive summary: What are five to ten PowerPoint slides (or equivalent) that describe the essence of your idea?
4. The detailed blueprint: What precisely do you plan to do, why will it work, and why does it matter?

While the pithier summaries contained in levels 1 through 3 are important tools to help summarize and sell ideas (more on the importance of that sales process next week), this day’s training will focus on the more comprehensive level 4 blueprint.

There is no one-size-fits-all approach to this blueprint. A new-growth business blueprint, for example, will look very different from a process improvement blueprint. I usually advise corporate clients and entrepreneurs to cover at least the following elements of the blueprint:¹¹

• The target customer: What job is the customer struggling to get done? What suggests that the job is important and unsatisfied?
• Key stakeholders: Who else is involved in the decision to purchase and use an offering? What are their jobs to be done? Why will they support the idea?
• The idea: How will the idea ease the customer’s pain? How does it compare to other ways the customer could get the job done? What makes it different and better? What will it look and feel like?
• The economics: What revenues will be earned? What is the cost of earning those revenues? What infrastructure will be required? What capital expenditures are required?
• The commercialization path: What is the foothold market where you will start? What is the plan to expand from the foothold?
• Operations: What are the key activities involved in the opportunity? Who is doing what? What will you do? What partnerships will you need to form? What will you need to acquire?
• The team: Who is on the team? Why do you believe that this team has any chance of succeeding?
• The financing: How much money is required to execute the plan? How long will it take to earn a return on that money? Who has funded the business to date? What have they provided?
• The action plan: What are the most critical assumptions? What are the near-term activities to learn more about those assumptions?

In week 3, you will get further detail on how to think about some of the elements above, notably the economics and the action plan. But for now, this list helps you to consider your idea from multiple perspectives. Run through what-if questions, like “What if we targeted this customer?” or “What if we doubled our price?” or “What if our rival bought this hot start-up that we are eyeing?” Look at your idea through the eyes of partners, suppliers, distribution channels, and so on. One good way to fail is to violate a simple but important rule: people don’t do what doesn’t make sense to them. A surprising number of companies rest success on asking a sales channel to change its model, or a supplier to lose money, or a partner to sign an obviously one-sided deal. These thought exercises should help you develop a more robust idea and flag key assumptions that you need to address in next week’s exercises.

Innovation is an iterative process. An innovator should always be researching and developing an idea and testing. Good innovators have to step back and integrate what they are learning from their research, experiments, and connections. They should be able to understand what that learning means and incorporate it into their idea. So this day’s lesson—bring it all together—is one that could have appeared in any of the first three weeks and is one that you can and should return to frequently.

HOW-TO TIPS

1. Develop a sixty-second elevator pitch for an idea that you’ve been working on. Present that pitch to a friend.
2. Ask an entrepreneur or a small-business owner you know for a copy of their business plan.
3. Visit slideshare.com and look for good examples of business plans.

Week 2 Wrap-Up

The focus of week 2 was blueprinting an innovative idea. You hopefully answered three critical questions:

1. What is the essence of my innovative idea? What is different? Why will it have impact?
2. Where will it be better than what the customer can access or afford today? Where will it be good enough?
3. What is my comprehensive plan?

More broadly, remember four critical phrases:

1. Brilliant borrowing: identifying which people or other groups have already solved your problem, wherever in the world they might be
2. Disruptive innovation: something that creates a new market or transforms an existing one through simplicity, convenience, accessibility, or affordability
3. Good enough: a simple way to capture the notion that sacrificing raw performance can open up new innovation options
4. Business model: how you create, capture, and deliver value