Innovation is a key step toward to a successful startup. A startup is always faced with a lot of challenges that hinder progress and in most cases halt success. The greatest startups began with an innovative ideas and continued innovation processes during early stage all the way to scalability. Innovation is becoming not anymore a fancy approach to apply but rather it is a must to attain a successful business. Startups will need to think and apply different types of innovation such as, design thinking, business model, product services and customer engagement, in order to win the market competition. In this article, I will explain different types of innovation applicable to startups and how a startup chooses the right innovation path.
What is Innovation?
Innovation is defined as the creation of a viable new offering. Innovating requires identifying problems that matter and moving through them systematically to deliver elegant solutions (Keeley, L.). Innovation is a practical creativity and how to make new ideas useful. It is the process of seeing what others do not see and what does not yet exist. (Max Mckeown)
What are the Stages for Startup Development?
We all understand that a startup will go through a research stages, such as per-venture and startup, before it is built as a company. Innovation is supposed to play a key role in successfully completing each stage and supporting the business to grow and win the acceptance of the market and customers. Without applying the right innovation system, a startup will have little chance to succeed and grow. It is better to first understand each stage of a startup development before we think about the right innovation solutions.
- The Pre-Venture Stage (Early Stage): The business is an early stage and before it gets financed and implemented. At this stage where idea concept (problem/solution) is being developed & tested but before the product/market is fully tested. Actually at this stage, the business is eventually in a research stage trying to choose and test the compelling idea concept.
- The Startup Stage: A startup is usually working to create the business and make it viable. At this stage, a business has tested the business idea concept, received seeds fund and has been working to develop the product/service and complete the product/market test. This stage is also considered as a research stage, where a startup is trying to develop and test the commercial offering.
- The Growing Stage: A startup is working hard to grow and it will usually set a strategy (i.e. the business model) that describes ways to enabling a growth. At this stage, a business has successfully tested the business concept (problem-solution fit- discovering customers) and tested the market (product-market fit- validating customers) and has been working hard to generate a growing revenue. Also, at this stage the business is being created & gather some details on the business, market and in the run to grow and sustain. This stage is considered as a building company stage, where various resources are acquired and business is commercially run.
Innovation is immensely required for the startup during its different startup stages. The key needs of innovation for the pre-venture stage will be innovative design thinking, ideation and problem-solution fit. For the startup stage, there will be the needs of innovation for the innovative product service and commercial offering. At the growing stage, there will be a focusing effort in innovative business model, customer development and engagement. The system, processes and resources for managing the innovative changes must be will defined and performed to win the market.
What are the Main Sets (Shifts) of Innovation?
Set One- Pre-startup stage (Ambition: Business discovery):
- Conduct a customer mapping: Select the customer segment and analyze their job aims (professional, social and emotional), pains (undesired outcomes, obstacles and risk of failure) and gains (required, expected, desired and unexpected).
- List job aims, pains and gains: prioritize the pains & gains as based on to-do business opportunity, importance and urgency basis.
- Select a challenging pain and test it with potential customers: To accept the picked-up pain and move to another stage, you should collect strong evidences that potential customers accept the problem and perceive it as important and urgent (highly wanted).
- Value mapping: For tested pain, value mapping will be carried out to define the right solution for the pain as Value Proposition ( gain creator, pain reliever and the product).
- Prototype the solution or the idea concept: Try to make your idea concept as visible and visual.
- Problem/solution test: Get your developed solution and test it with potential customers as based on certain criteria for acceptance or rejection and collect evidences from the potential customers that they are willing to buy your product.
Set Two- The startup stage (Ambition: Business validation):
- Product development: Begin with a prototype or sketch or a brochure (listing features, functions & benefits) for the product concept and get it validated with the potential customers and reiterate this process till your reach into a Minimum Viable product MVP.
- Product/market fit: Arrange your product with commercial offering and test it with potential customers and get evidence that they will buy it.
Set Three: The company-building stage (Ambition: Business scalability)
- Configuring the business model: Profit model, network, structure and process.
- The product offering: Product performance and product system.
- The customer experience: service, channel, branding and customer engagement.
What is the Configuration of the Business-Model Innovation?
It encompasses profit model, network, structure and processes.
- It is the way to convert a firm’s offering into cash.
- It is how to controll expenses and increase organic revenues through innovation.
- Revenue types: transactional (a stand-alone order) and recurring (repeated orders).
- Revenue models: selling, renting, subscribing, leasing, membership, ..etc
- Pricing considerations: cost, profitability, strategic & business planning, vision, competition, …etc.
- Costing structures: estimation of costing, estimation of variable and fixed costs, estimation of contribution margin, calculation of a breakeven and sensitivity analysis,…etc.
- A firm can capitalize on its own strengths while harnessing the capabilities and assets of others.
- It will help to share risk in developing new offers and ventures.
- The spot network innovations can be judged on developing a new offering, forming unusual partnership, test & market a new products.
- It focuses on organizing the company’s assets (physical, human, capital and intangible) in unique ways that create value. It is how to organize and align talent and assets of a firm.
- It will help attracting talent to the organization by creating a supreme productive working environment.
- Examples of structure innovation includes, building incentive system for employees, training, remuneration schemes, assets, operating system, ..etc.
- The spot structure innovations can be judged on whether having a unique organizational structure, level of traction for talented employees, level of uniqueness and advancement for assets used for production,..etc.
- It involves on the activities and operations that produce an enterprise’s offerings.
- It will enable the organization to use unique capabilities, function efficiently, adapt quickly and build market-leading margin.
- It forms the core competency of the organization and may include lean production, process standardization or procedures, patent or proprietary that yield advantages for years to come.
- The spot process innovations can be judged on unique skills, capabilities, lower cost than competitors, owning patents and technology knowhow.
What is the Product-Offering Innovation?
It encompasses the product performance and product system.
Product performance (value propositions):
- It addresses the value, features, benefits and the quality of the company’s offering.
- It includes new, updated or extended product or line of production that add value to the company’s offering.
- This type of innovation is the easiest part of innovation and it is easy to be copied by competitors.
- It includes simplification (easy to use), sustainability ( environmental friendly), customization to suit individual customers, low price and disruptive ( new and enable new customers or new uses).
- The spot product performance innovations can be judged on superior offering that dominates the market or earns substantial premium, unique value propositions, simple and easy to use compared with competitors’ offering and focussed on market niche.
- It is rooted in how individual products and services connect or bundle together to create robust and scalable system.
- The spot product system can be judged on how multiple products are distinctive and well connected.
What is the Customer-Experience Innovation?
It encompasses the service, distribution channel, brand and customer engagement.
- It ensures and enhances the utility, performance and apparent value of an offering.
- Service innovations include maintenance plans, customer support, information and education, warranties, guarantees, ..etc.
- The spot service innovations can be judged on solving customers’ problem and complaint, providing warranties and guarantees and other forms of assurance, providing digital platforms for marketing other than direct and physical sale channels and customer relationship including customer communication.
- It focuses on the ways that you connect your company’s offerings with your customers and users.
- The goal is to ensure that users can buy what they want, when and how they want it with minimal friction and cost.
- Channels are physical and digital outlets and also direct (channels owned by the company itself or indirect owned by intermediaries and distributors)
- Channel innovations are connected with branding, offering, cost of distribution, pricing and customer needs and expectations.
- The spot channel innovations can be judged on easy to access and suitable to target customers, using mixed channels and channel partnerships.
- It is focusing on how you represent your offering and business.
- Brand innovation will help to ensure that customers and users recognize, remember and prefer your offering to those of competitors or substitutes.
- It is a promise that attracts buyers and conveys a distinct identity.
- It is developed as a strategy and communicate it to target customers and the public.
- It confers meaning, intent and value to your offerings and your enterprise.
- The spot branding innovations can be judged on level of distinct identity, whether it is used by partners, competitors and customers, customer perception connection with the brand (i.e. loyalty, image, …).
- It is about understanding the deep-seated aspirations of customers and users and using those insights to develop meaningful connections between them and your company.
- Great customer engagements will lead into more memorable, fulfilling, delight and even magical satisfaction for the customers and users.
- The spot customer engagement can be judged on what extend that customers are satisfied, repeated or growing customers, and how customers are engaged with your offering and the company.
How Do You Choose the Right Innovation?
- Pre-startup innovation: will be the right choice if the business is eventually in the research stage trying to choose and test the compelling idea concept. Different innovation tactics can be applied such as customer mapping, problem choosing and testing, value mapping, prototype for the solution and problem-solution test.
- The startup innovation: will be the right choice if the business is at the research stage trying to develop product and test the commercial offering. The innovation tactics to be used are such as, the product development and product-market test tactics.
- Business-model innovation (business-scalability stage): will be the right choice when there are fewer opportunities to win by creating better offerings and more opportunities by changing how you create and deliver them. Indications for such shift can be higher or lower prices, customers want to use the primary offering but with reasonable prices, change profit model that can better suit the customers’ needs, reorganize or use asset-based approach for production and operation.
- Product innovation (business-scalability stage) (Product & system offering): will be the right choice when customers are challenged with doing challenging jobs and thus product innovation will focus mainly on offering to solve pains of customers. indications for such shift can be pains perceived by customers when performing certain jobs, current product offering still involved with many pains and challenges, lack of skills to use current offering, technology is developed and can be used to come out with better offering and low-end market.
- Customer-experience innovation (business-scalability stage): will be the right choice when you can build enduring relationships with customers and when customers are hungry for better interactions. Indications for such shift can be when customers complain about their experiences, offering lack of customization, tendency toward customer relationship activities.
What is the Outlined Criteria to Measure Innovations?
- 1st criteria is to make the scale focus and narrow and not a wide one that will hinder measuring and evaluation of achieved innovations.
- 2nd criteria is to set KPIs high to recognize innovations out of operating activities.
- 3rd criteria is to evaluate the impact on customers and business rather than the results.
- 4th criteria is to look for unique innovation that are difficult for copying by competitors.
- 5th criteria is to look for a collective innovation types rather than looking only to the product services.
How Do You Spot Innovations?
- Mind the gap:
- Not everything is innovation: it may be an incremental improvement or daily operations. Look for the differentiation opportunities.
- Analyse the specific part of innovation project rather than the holistic approach.
- Think in terms of your industry: analyse entire industry and evaluate innovation results based on overall industry performance. Think of creating genuine and new value.
- Try not to use different time frames in your analysis.
- Learn from the past:
- Setting criteria for a successful or failing innovation projects, this should be related to a mixed criteria between the industry benchmarks as well your business successful records.
- Challenge convention:
- Analyze what your competitors are focusing and try to make different choices.
- A fresh eye and a clear head can certainly help when it comes to identifying an opportunity that has been repeatedly looked at by others.
- The importance of industry innovation analysis:
- Using the SWOT and the five forces techniques are a good start to get a broad opportunities. However, few people know you can analyze innovation patterns with equal rigors. You need to understand what is important to customers, get a sense of what is possible today and in the near future and assess the economies for both the mainstreams and fringe players. Then work to understand how these dimensions are changing over time, at what pace and how other players respond to it. This level of analysis will lead you into a deep innovation patterns for the an industry and to get some good insight opportunities.
What Are the levels of Innovation Ambition?
- Core innovation– change the known (focuses on improving internal structure & process ): inside any known business there are always ways to deliver new product, quality, utility or delight to customers. Companies always do some improvements on their offering to remain competitive. The risk of failure for such type of innovation is the risk of copying by other competitors making this innovation advantages worthless. Innovation will tackle one to two types of innovation. Make changes to customers’ requirements and expectations. Example is improving the capacity of storage or speed power for mobiles or computers.
- Adjacent innovation– change the boundaries (focuses on improving or inventing new offering): this innovation takes place if innovator intends to tackle bigger challenge and deliver more comprehensive solutions for customers and even offering unexpected offering. Innovation will tackle three to four types of innovation. Make changes to customers’ unexpected requirements. Example is changing telephone sets from dialing into touching devices.
- Transformational innovation– change the game (focuses on making transformational change on offering based on customer experience (disruptive innovation): innovators will intend to make major changes to their offerings and to bring new offering. . Example is introducing mobiles working in android system or products derived from dot.com revolutions or introducing iPad during PC age.
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Written by: Munther Al Dawood
Enterprise Development Services
Source: Keeley, L. 2013. Ten types of innovation, Willey, USA.