Insights from CompanyCrafters #6

Why Do So Few Innovations Ever See the Light of Day?

This article is part of a series that explores how established organizations – corporations, research institutions, even nonprofits – can apply entrepreneurial thinking to become more innovative and successful.

Less than one percent of all viable inventions or new-business concepts are ever successfully brought to market.  (We have no way of proving this bold hypothesis, but judging from extensive anecdotal evidence, it strikes us intuitively as being true.)

Why do so few innovations ever see the light of day?

First of all, most organizations or individuals who come up with inventions or business innovations have a perfectly legitimate excuse for never bringing them to market: researchers, engineers, physicians and dreamers are rarely equipped with the background or experience relevant to crafting a new business from scratch.  

Then there are those sufferers of dreaded "MBA disease": I've got the breakthrough idea; I just need somebody to invent it and somebody else to execute… and I'll be the CEO.

But a huge proportion of innovative new-business concepts come from a source that really doesn't have an excuse: the corporate world.  What are the reasons given by the corporations for not commercializing their innovations?  Let us count the ways.

1. It gives us a proprietary advantage.  Many a corporate innovation never realizes its full potential because the parent company convinces itself that the invention or technology-based solution provides them with a competitive advantage.  What's often lost in this reasoning is that many innovations have applicability well beyond the parent company's direct competitors. 

OK, but why not market the solution to potential customers outside your competitive space?  There's no reason you can't market the innovation to everyone but your competitors. 

2. It doesn't fit our risk profile.  This is code for, "Startups are too risky.  In fact, anything outside our existing way of doing business is too risky."

So why not spin it out, thereby shielding the parent company from risk?

3. It's inconsistent with our mission and strategic focus.  Fair enough – many a corporate innovation does not nest comfortably within one of the parent company's existing lines of business.  It may address different customers, call for an entirely new business model, or require different marketing and sales channels.

Once again, an independent new business is often a great to way to avoid distracting the parent company's management or diluting their strategic focus.

4. It's a poor management fit.  This is often true as well, since the men and women who've risen through the ranks in large, established enterprises are usually selected out for promotion based on demonstrated success operating and an existing, already-defined business model.

This doesn't have to be a show-stopper.  New internal business units ("spin-ups" if you will) or corporate spinouts can attract entrepreneurial managers and advisors with direct domain experience.  And, many entrepreneurial management skills can be learned; it's not as if people are born with them.

5. We don't know the market space.  We see this all the time: a hospital chain with clever search technology, a process manufacturing company with a medical diagnostics innovation, a professional services concern with break-through application software, and so on.

Why not talk to industry consultants and venture capitalists who do know the space, and partner with them to create a stand-alone spinout?

6. We're under financial pressure and need to focus exclusively on our core businesses.  In today's quarterly-results-driven world, we've all heard this or experienced it. 

Even if you can't afford to distract your managers or continue to invest in your innovation right now, someone else might be interested – and you could benefit as an equity participant if they succeed.

7. We only consider potentially huge markets.  We've heard this argument against launching new spin-ups or spinouts voiced by senior managers at any number of Global 2000 companies.

If you focus on creating new shareholder value – rather than on growing top-line revenue – commercializing new innovations makes a lot more sense, since high-growth, tech-driven businesses tend to command higher valuation multiples than those of many mature industries.. 

So whether the percentage is 99 percent or not, the sad fact is that it's the exception rather than the rule for an innovation developed in a corporation to ever come close to reaching its market potential.  As a result, the market and society lose the potential benefits of these developments.  In addition, the innovating organizations fail to reap significant rewards – ones that can be garnered with very little downside, if they would only consider the possibilities.

In our next Insights from CompanyCrafters, we'll discuss building shareholder value with internal start-ups.