I recently joined Mike Smart Founder and Principal Consultant at Egress Solutions on a webinar to discuss the need and challenges middle market companies face in launching innovative and breakthrough new products.
Middle market companies, which I define as $10 million to $100 million in sales, face the same competitive forces as their larger brethren. An environment characterized by complexity, volatility, and blinding speed, where the introduction of new technologies have made new business models possible while dramatically lowering costs.
Simply put: the rules of the game in almost every industry has changed dramatically and will keep changing. What’s working today may very well not work tomorrow. Competitors, both existing and new, will continue to evolve and adapt to meet the new realities.
The Changing Realities of the Competitive Landscape
Middle market CEO’s are well aware of the competitive forces and new dynamics.. They know they have to innovate to stay in the game.
But the harsh reality is that innovation is hard. It’s expensive, involves a high degree of uncertainty and risk. The success rate of new innovation is dismally low. Numerous studies have shown that failure rates for new innovations range from 60% to upwards of 80%.
Risk aversion is one of the many reasons companies choose not to innovate. Time and resources, lack of processes and methodologies, and lack of talent and skills top the list of why companies fail to innovate.
And middle market companies, unlike larger companies and well-funded startups, face additional challenges. Larger companies have the staying power to invest in innovation experiments, and VC funded startups have resources to carry them until their strategic investments payoff.
But middle market companies have a lot more skin in the game. Betting the farm and losing is not an option.
So what’s a mid-market CEO to do?
To begin with, we need to think about innovation differently. First we need to recognize that innovation (or innovating as a verb) is a strategy to achieve the goal of creating DEFINITE COMPETITIVE ADVANTAGE by delivering a steady stream of new customer value.
Strategy and innovation are different sides of the same coin. One side of the coin, strategy, defines where we will compete: who the customers are and what important jobs they need and want to get done better.
The flipside of the coin, innovation, defines how we will win customers and beat the competition. The solutions and underling technical and organizational capabilities that will allow us to be competitive in a fast changing market landscape.
Losing sight of the duality between innovation and strategy leads to wasted energy. Middle market companies do not have the luxury of innovating for the sake of innovating. They have limited resources to pursue activities that don’t directly create customer value and definite competitive advantage. Innovating with a strategic purpose is essential.
Secondly, we tend to think of innovation as launching disruptive, game changing new products into the market. This is “a” strategy,” one that can create huge dividends, but also extremely difficult and risky. Like an investment portfolio, risky bets have their place. But if the portfolio is too weighted in risk, losing a bet can be devastating.
The good news is that there are other innovation options for mid-market companies to choose from that are far less riskier than disruptive innovation. As outlined in Geoff Moore’s book “Dealing With Darwin – How Great Companies Innovate at Every Phase of Their Evolution,” opportunities to innovate happen across all phases of the technology and category (the extended period of a technology adoption) life cycle.
Innovation Happens Through the Category Life Cycle
In our webinar we go deeper into the innovation options and their relative risk/reward profiles, and how to create an innovation development portfolio to balance risk with “sure-bets.”
Becoming Customer and Market Focused
We also discuss the best lever a mid-market company can pursue is to change its business orientation from being product, technology and sales oriented, to a customer and market orientation.
As I have discussed in many of my past blogs, focusing on important jobs people want to get done better, will provide a strategic direction over the long haul. The jobs-to-be-done innovation framework provides a methodology and common language to define a company’s winning aspiration (what victory looks like) and a robust and flexible strategy that provides adaptability and resiliency to the ever changing market landscape.
But innovation processes and methods like jobs-to-be-done, won’t be successful without creating a culture of innovation. Where the culture shifts its orientation from product centric to market and customer centric. And willingness to experiment and learn to be better prepared to both anticipate and react to opportunities as they unfold.
Finally, leadership is ultimately responsible for making strategy and innovation happen. Without the full support and commitment from leadership, innovation becomes just hollow words. This will lead to cynicism and destructive behaviors from the team.
Make no mistake about it, transforming a culture into a culture of innovation is hard. It’s easy to stick to your knitting and try to do it better. But that simply isn’t a viable play in the new area of “digital everything.” Leadership and its commitment to creating value for customers through innovation is paramount.
Check out our webinar “Creating the Next Big Thing” to learn more about how mid-market companies can play the game of innovation to win. And stay tuned for future articles that will dive deeper into “innovation for mid-market companies.”
Play the game of innovation to win!