Inflection Point 1: Deciding to Innovate
“About 95 percent of new products fail.“ — Clayton Christensen, Author and Harvard Professor
“Innovation comes from saying NO to 1000 things.“ — Steve Jobs, Co-founder of Apple
It probably doesn’t seem like it, but the most important innovation-related decision any executive must make is deciding if they should innovate at all. A critical look at the data shows that innovation investments fail more often than not, and is rarely necessary. Instead, executives should challenge innovators to prove the following two option are untenable before investing in innovation-based growth.
Option 1: Don’t Do It
No company has ever successfully disrupted itself. Even companies totally committed to disrupting themselves have failed, and in doing so taken down those who led the charge, the CEO. A good example is Serta Simmons’ foray into the online mattress market. In 2015 the company’s new CEO, Michael Traub, an outsider committed to a direct-to-consumer incubator called Tomorrow Sleep. Despite adequate funding, an experienced outside leader, a good product and patience, by 2019 the venture was folded and the CEO was out.[i]
There are far more successful strategies than disrupting your own company. But they’re established, repeatable, low risk and just don’t get as much written about them. I believe Anheuser-Bush (AB) developed a textbook approach to disruptive innovation caused by the growth of the craft category. Since the early 2000’s the craft category has grown from nearly zero to over 13% of the market, and there is a direct correlation to AB’s loss of share[ii]. To address the disruptive changes to consumer consumption AB tried several approaches including attacking the category, creating competing products, incubators and spin-outs. They were finally successful in building a growing and profitable presence in craft beer by buying a portfolio of regional craft breweries. In this case the most effective approach to disruption was M&A.
Option 2: If You Must Innovate, Wait
It’s becoming more apparent that the ‘first mover advantage’ is a fallacy[iii]. Across most every product category the leader isn’t the company that created the breakthrough innovation, but one that followed in the trailblazer’s footsteps. In practice, the time and cost of creating a category almost always leaves the first mover at a disadvantage. As soon as the trailblazer has finally defined and brought awareness to their category, they’ve also taught competitors how their product is deficient and what offerings consumer would prefer. Apple, despite their reputation as an innovation trailblazer, is often the second mover; the iPod was a second mover to the Rio, the iPhone was a second mover to the Palm Treo. When Apple has moved first, they’ve consistently lost their category to a competitor. Conversely, moving second is something Amazon has perfected; Alexa was the second mover to Siri, the Firestick was the second mover to AppleTV, Ring Security was second mover to Simplisafe.[iv]
[i] Billion Dollar Brand Club — The Mattress Wars Chapter