This is the first in a series of articles that will be published over the coming weeks discussing the Innoleaps six pillar strategic methodology. In this first article we focus on innovation strategy. For an overview of all six pillars, click here.
All companies need to grow, even large companies. But these large corporates have to identify substantial opportunities to achieve this growth. Profound developments like entering a new market may be needed to achieve the same level of growth that a smaller scale-up could realize just through a new product launch. For example, the average market value of a Fortune 500 company is $45.2 billion. Growth of just one percent for such a company means increasing its valuation by $452 million. By contrast, an early-stage scale-up might have a valuation of just a few thousand dollars.
But while the corporate scale is usually seen as a strength, it can also act as a weakness. Due to the huge numbers that they are used to working with, corporates can struggle to identify the smaller opportunities that may have the potential to deliver huge growth one day. It’s easy to forget that every big company has a small beginning.
Mind the gap
In order to grow at a constant rate that keeps shareholders happy, there is a growth gap between what a corporate’s current business-as-usual approach brings in and what innovation can deliver. This gap should inform your innovation strategy and portfolio of ventures. Once you understand the growth gap, you gain a better understanding of the relevant opportunities for your business to pursue.
It’s understandable if corporates initially disregard the growth gap - after all, they are generally large, monolithic organizations with regular, dependable profits. They may wonder what role their brand can play in the gap if the space is big enough and what they can do to win there. There’s also a time horizon that must be evaluated. When is the right time to invest, and when can they reasonably expect a return?
When identifying the market growth gap, start by nailing down the parameters of the “Opportunity Space.” This revolves around three essential questions: What, Who, and How. What important customer demands need to be met; who is your target market; and how can potential technologies and solutions be deployed that leverage your existing company capabilities? Once you start to examine the growth gap in more detail, the opportunities suddenly start to appear for bigger corporate players.
The virtue of starting small
The advantages of incorporating the growth gap within your innovation strategy have certainly been talked about previously. Rita McGrath, a US scholar of strategic management, has spoken frequently about the importance of “inflection points”. These are the moments when the pre-existing assumptions you have about your business shift or suddenly become irrelevant. However, these moments are not necessarily easy to spot. They can lead to enormous change but, perhaps, not straight away.
In the FMCG sector, for example, many brands have been dabbling in plant-based meat products for decades. However, it is only recently that the market has really taken off. Beyond Meat only launched its “chicken” strips in 2012, followed by its Impossible Burger in 2016. But now, the plant-based meat sector is predicted to be worth an estimated $8.3 billion by 2025. Plant-based foods, more generally, have also taken off. For FMCG brands that were able to identify these inflection points, huge growth was suddenly on offer after years of negligible sales. It’s important not to move too late, nor too soon. It is possible for innovative ideas to “overshoot” if they emerge before the market is ready for them.
These inflection points can be found before they occur if corporates start looking for leading indicators like qualitative and emergent data. Seek out customer feedback and focus on creating an adaptive organization that can react quickly when an inflection point appears. Once you’re pretty sure a new inflection point has emerged in the market, it’s time to convince a critical mass of personnel within your organization. If you can do so, an inflection point can transform a small idea into a big one in no time at all.
Unintuitive thinking
Another problem that corporates have is that they simply don’t have the mindset to see how their existing growth gaps could widen over time. Adopt scenario thinking to identify different types of future possibilities. Choose two inflection points that are critical to how the future may turn out and formulate an innovation strategy that is resilient enough to survive in each of these different scenarios.
Don’t start your innovation strategy by looking for mass-market appeal straight away. It may seem counterintuitive, but non-consumption can actually serve as a fruitful topic for innovation. Rather than deciding to enter a new market at the very top, starting at the bottom of the pyramid with non-consumption or low-end disruption can allow your brand to gain a foothold with its new product or service. In the FMCG space, instead of Coca-Cola, say, wondering how it can compete better against Pepsi, why not look at the non-consumption market instead? The individuals that don’t drink fizzy drinks at all could hold larger growth potential.
In the words of the late academic Clayton Christensen, corporates should prioritize “disruptive innovation” - and there are different routes to get there. Essentially, this means getting a product or service to initially take root at the bottom of the market before working its way up. There is no shame in recognizing the smaller growth gaps when formulating your innovation strategy. Not too long ago, the likes of Airbnb and Netflix started off with tiny valuations. But look at them now.
The 10X Growth Machine Canvas + trigger questions
Like the Business Model Canvas, the 10X Growth Machine Canvas is a visual tool that executives can use to develop a roadmap for their own innovation engine that competes on both speed and scale. This canvas should be used to determine which building blocks need attention within your company. Use the trigger questions to help you get started and fill out the canvas, step by step.
Use the button below to get your free download of the 10X growth machine canvas + trigger questions.
