Successful business owners wisely lean into incremental innovations — perhaps improving customer relations, streamlining logistics or shaving a few pennies off prices. But to make a business last through good times and bad, companies need to focus on breakthrough innovations that create entirely new revenue streams, too.
To make that possible, persistent innovation must be part of company culture, a baked-in function that allows good ideas to bubble up, regardless of business size, said Gina O’Connor, PhD, a professor of innovation management at Babson College and co-author of the book “Beyond the Champion: Institutionalizing Innovation Through People.”
“Somebody's always got to be thinking about what could put us out of business in three years, and how do we get in front of that and how do we become the next big thing in this industry?” O’Connor told CO—.
Don’t get comfortable
Small business owners may fear there’s too little bandwidth to run the core, mainstream business, generate incremental innovations, then also develop entirely new revenue streams. But while incremental innovations might keep you at the forefront of your existing industry, they don’t prepare you for industry disruptors or major societal shifts like a pandemic.
“Companies that have been in business for a while — and they can be large and public or small and family-run — they get very comfortable in a particular marketspace,” O’Connor said. “This is where you can get completely disrupted by a completely new technology. When that occurs, you haven't got a chance of surviving.”
A report from the consulting firm McKinsey finds that disruptive innovation — big, new ideas that can drive your business in entirely new ways — is more important than ever. “More than 90 percent of executives said they expect the fallout from COVID-19 to fundamentally change the way they do business over the next five years, with almost as many asserting that the crisis will have a lasting impact on their customers’ needs,” the report states.
Innovating for strategic breakthroughs and future business models involves imagining markets that don’t even exist today, and thinking creatively amid uncertainty. As O’Connor puts it, “You're actually creating a future for yourself.”
[Read more: 4 Ways to Make Your Small Business More Innovative]
If you don’t encourage innovators to innovate, expect to lose them to your competitors.
Build a diverse team
In smaller companies, innovation is often led by the founder or owner, perhaps a visionary who may have started the company with a great idea — and may or may not have more of them. There’s a big difference between an inventor, who comes up with a product or idea; an innovator, who can bring multiple ideas to fruition; and an entrepreneur, who runs a successful business with innovation as just one of several vital functions.
“There's a lot of different skill sets in there,” O’Connor said. The bottom line is that “every invention or every new idea does not have to come from you.”
People who like order and systems and doing the same thing every day will have anxiety if expected to innovate, she explained. People who excel at innovation, on the other hand, love what some call “charting a course in the fog.” Forcing them into a purely operational role will depress them, O’Connor said. “They'll become cynical, and a real pain in the neck.”
Fostering innovation is also vital to employee retention. If you don’t encourage innovators to innovate, expect to lose them to your competitors.
“There are certain people who love being part of an organization,” O’Connor explained. “In particular, in family-run businesses, because there's a very patriarchal or matriarchal culture, they're so loyal. But they want to have influence; they want to have impact. You’ve got to learn how to effectively leverage these people, or lose them.”
Make innovation a routine function
“Established businesses have trouble innovating for many reasons, including siloed structures, fuzzy strategies, inadequate talent and not enough funding,” writes Sydney Finkelstein, a professor of management at Dartmouth College and author of “The Superbosses Playbook.” “‘Softer’ factors also come into play, for example, a team or corporate culture that fails to give employees the time and space they need to think creatively.”
To overcome all these obstacles, the best bosses don’t react to change, Finkelstein writes. Rather, they are aggressively proactive, and they create work environments in which everyone innovates.
Wild ideas as well as failure need to be encouraged, experts say. Google’s innovation lab actually rewards teams that shut an idea down once evidence indicates it should be nixed, but the lab meanwhile generates a steady stream of new products and services. Small businesses, admittedly without the luxury of Google-level resources, are prone to taking far fewer chances and then shutting innovation efforts down completely with any failure.
“It's kind of stop-and-start all the time,” O’Connor said.
Whether you run a retail store, a service business or a high-tech start up, always devote a portion of your resources to an innovation process, a function of the company just like accounting, advertising or production, O’Connor advises. “It does not have to be a big amount of money or a huge number of people,” she said. But it should focus persistently on creating game-changing, new business opportunities, not just incremental change.
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