Innovation Lessons For Small Business

Many people have come to think wrongly of innovation as a separate activity, not connected with their regular course of business, something they have to pursue intentionally. We saw this recently while participating in a workshop on small business innovation. One small business owner refused to accept the notion that anything his business did could be classified as innovative, saying, "We're not creating the iPod.”

Our recent experience showed that many small-business owners are highly innovative but not aware of it. The notion that you have to be creating an iPod to be innovative reveals that people are very confused about what innovation is.

In fact, iPod wasn't Apple's the only reason for success in the digital music space. This innovation went well beyond the technology. Apple understood that some customers wanted to buy MP3s, not tosteal them. Thus the combination of iTunes with the iPod device proved a winning business model that amazed the world of digital music.

Understanding your customers is required for successful innovation. Small business owners, with their intimate knowledge of their customers, actually are incredibly well-positioned to innovate. One example is a story told at the workshop by a man we'll call "John" who owns a pool-service business.

John started out in the traditional way, servicing equipment and maintaining pools for residential, commercial and government customers. The pools which were controlled by the municipalities and some of the very large commercial installations were required to maintain strict water quality standards. These customers invested heavily in monitoring technology that ensured the water quality was up to local standards. The rest of John's pool customers were certainly interested in maintaining pool quality but viewed monitoring technology as far too expensive for them to reasonably use.

At a local trade show some time later, John was taken by thenew technology that would provide distant monitoring services at a much lower cost than the systems used in the large pool installations. Recognizing this enabling technology, John developed an entirely new business model for his customers. He purchased a limited number of the devices and then offered monitoring to a group of small and mid-sized pool owners as a service. Overnight, this entrepreneur evolved his business model from a fee-for-service model to a leasing business.

However, John did not consider this change to his business model to be highly innovative for his field. When asked about the innovation, John explained he felt the decision to expand into leasing equipment was an easy one. He didn't need a business plan to evaluate this innovation. He pointed out that, in fact, he hasn't had a plan for a number of years. He started out with a business plan but stopped updating it years ago. He said, "I know in my mind by how much I want to grow and what I need to accomplish each month to achieve my target."

What John didn't realize is that he does in fact have all the elements of a business plan. Instead of the annual, stagnant planning process that characterizes many large businesses, John and other small business owners have clear metrics, a clear direction and the ability to change course immediately if they need to.

There are lessons here for small business owners. Small companies should realize that their close customer connection provides great opportunities for theinnovation. The small businesses we talked to were incredibly market-connected. For them, a customer problem is an opportunity to sell that customer another solution. They are responsive and flexible.

Further, small business owners might think they don't have the resources to innovate. In fact, constraints are a friend to innovation, not a foe. More promising innovations have been killed by too much time and money, and too many people, which have been killed by lack of any of these.

Big companies can also learn from the way small companies approach innovation:1)connect with your customers in order to truly understand them; pay particular attention to framing the conversation around the problems the customer has rather than the problems you think your current product or services could solve for that customer; 2)be iterative in regards to strategy and planning, in order to maintain flexibility and be most responsive to outside change; 3)be open to experimentation with new business models;4)be wary of the curse of too much capital and resist the temptation to throw resources at innovation efforts.

Above all, businesses of all sizes need to remember that innovation is not limited to products, services, technology or creative thinking. Creating a new iPod isn't always the goal - rather, focus on understanding why the customer can't adequately solve important problems and develop an innovative business model that does the job in a new, novel fashion.

http://www.forbes.com/2009/02/03/apple-innovation-customers-leadership-clayton-christensen_0203_small_business.html

 

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