If you’re leading a mature, multi-generational company, you might be wondering how to innovate. Take notes from a startup expert.
When you think of innovative companies, you might think of an industry leader like Apple or a fast-growing rocketship like Airbnb or Peloton.
But that doesn’t always have to be the case because I believe you can teach a mature company new tricks. Well-established companies and multi-generational family businesses can be innovative — yes, even in the midst of a recession and a pandemic.
“It’s really about a process of rediscovery,” says Sean Ammirati, co-founder and director of the Carnegie Mellon Corporate Startup Lab (CSL) and a partner at Birchmere Ventures, an early-stage venture capital fund. He’s also the author of “The Science of Growth.”
“Every big company that’s established at one point was a small company that was just starting up by definition,” Sean explains on an episode of Succession Stories.
I have the pleasure of working with Sean as an Adjunct Professor with the CSL. For the last four years, Sean has worked with well-established companies rediscovering their entrepreneurial roots. Here we uncover how even the most established companies can innovate.
The Importance of Innovation, Especially During a Recession
Historically, it’s difficult to really know how businesses have weathered a recession and a pandemic. You’d have to go back quite some time to identify this overlap. However, there’s a lot you can learn just by looking at data from the past four or five recessions.
Some companies shuttered, some bumped along at the bottom, and, perhaps surprisingly, some companies came out of recessions better than ever, according to the Harvard Business Review’s “Roaring Out of Recession” case study.
“I think what you’re going to see in this recession is the same thing,” Sean says. “A segment of the companies are actually not going to just do OK coming out of the recession, but they’re going to ultimately come out of the recession in a better position than they went into it.”
How? Innovation is a significant part of it.
Now, it’s worth noting I see too many companies considering innovation as the next big invention — the next iPhone, the next Tesla, the next Snapchat. But innovation doesn’t have to be that sweeping. It could be something as simple as making a new version of your product that’s 5% better.
The HBR case study reveals the companies that choose to invest in new products and services dramatically increase their chances of “roaring out of the recession.”
Sure, none of the companies in the case study experienced a recession and a pandemic, but Sean argues the pandemic is simply an accelerator, amplifying any trends you’d see in a recession.
How Established, Multi-Generational Companies Can Innovate
From studying past data, innovation is arguably more important now than ever.
But the unfortunate fact is, many companies are ditching their innovative efforts to focus on keeping their core products and services afloat during these difficult times.
I recently read a McKinsey study that revealed companies’ commitment to innovation has decreased since the onset of the COVID-19 crisis. These companies say they’ll pick back up once the world has stabilized.
But the truth is, that’s not the right approach.
Instead, insightful executives shift their focus from the minutiae of reopening the business as it was to reimagining what the business could become.
Ultimately, innovation creates value. But how do you even start innovating?
Sean and I break it down step by step.
1. Start With the Facts
Sure, you learned about the Strengths, Weaknesses, Opportunities, and Threats (SWOT) analysis back in your college business classes, but when’s the last time you really utilized this powerful strategy?
I’m personally a huge fan of starting the innovation process with a fact-gathering phase. Look at your numbers and assess your market. This is both an art and a science, and the SWOT analysis is just one framework you can use to gain powerful insights.
With the SWOT analysis, you’ll analyze your company’s internal strengths and weaknesses as well as external opportunities and threats.
Fairly quickly, you should start spotting core themes that emerge. Use these themes to help inform your company goals.
“I think this should be the beginning point of it so you really understand where the world is heading and the new problems, new opportunities, new pains, new jobs to be done by your customers or for your customers,” Sean says.
2. Talk to Your Customers
Something Sean and I preach to our students at CSL is the importance of getting out there and talking to your customers.
This is called the customer discovery phase.
Work to better understand their problems, their challenges, and the overall market.
I think this is essential, as long as your leadership has nailed down its top-down approach and has properly allocated resources.
Now, with COVID-19, getting out and interacting with your customers face-to-face may be a bit difficult, but you can always hop on Zoom call or host a web conference.
“Great innovation almost always starts with understanding the real problems and pain your customers have,” Sean says.
The magic really happens when you combine your deep understanding of customer pain points with your entrepreneurial vision.
“What customers are experts at is telling you their problems, their needs, things like that,” he says. “What entrepreneurs are experts at is internalizing that and then applying their vision on top of it.”
3. Choose Your Ideas and Run
We see some executives say, “OK, let’s be more innovative! Here’s this one big idea, and we’re going all in!”
Chances are, they’re going to regret this approach because mathematically, that one idea isn’t going to work out.
I’ve also seen some executives trying to create separate organizations to help implement these new ideas. I really don’t recommend this approach to start — that can come later.
First, it’s important to weigh your odds and test your ideas. Instead of going all-in on one idea with, say, a 10% chance of succeeding, what if you tested 10 ideas? You’re improving your probability of succeeding.
We also encourage entrepreneurs and business owners to think about these projects and processes in phases. Here’s what they could mean for you:
- Allocate 10% of your total budget across all 10 ideas.
- Once you’ve done a little test to see if your idea has legs, eliminate half the ideas.
- Spend 20% of your budget on those five solid ideas.
- Now, narrow your ideas down to two or three really strong contenders, and put the bulk of your money into those initiatives.
“Just from an asset allocation perspective, you’re going to end up with a much higher return on investment modeling out your projects like that,” Sean says.
Ultimately, any company can be innovative during these trying times — no matter how established it is.
Hey, I even talked to a sixth-generation funeral home that managed to innovate. It’s just all about how to approach your ideas and allocate your resources.