One of the most often cited reasons for not embracing innovation is that it is too risky. Prototyping or testing often comes with a high cost. Combined with the cost of the time spent, this can all be rather high for an unknown outcome. There is no way to eliminate the risk in innovation, but there are ways to reduce it.
It’s easy to understand the dilemma. A business owner doesn’t want to put himself in a position to waste time or money, especially as the economy continues to climb out of the sinkhole that has existed for the last few years, and yet, businesses that don’t innovate will suffer serious consequences, maybe damaging the company beyond repair. So what can be done if the risk of innovation cannot be eliminated?
Here are a few tips that may be helpful.
Clear up the Fuzzy Front End
Often, much of the time spent with innovation is in the stages that companies are more comfortable with, and definitely the more fun stages – developing prototypes, doing some R&D and testing. But, when companies have a new idea, and this is the starting point, there are tremendous risks already because the most important part of the process – clearing up the fuzzy front end has been left out.
Think of the fuzzy front end of innovation as eyes after a trip to the eye doctor – everything is blurry and it’s impossible to make sense of anything because there is no way to bring clarity or focus.
Ideas start in the brain. This is a fact that cannot be denied, but it’s what happens with the idea from the moment it is dreamed up that is important. At the very least, someone should write it on a sticky note, napkin, back of an envelope, or store it in a phone. To really be effective, get a little notebook that can be carried around in a pocket or purse.
Now, what would normally be next is to jump in and begin figuring out how to make this thing or implement this new process – whatever it is, companies are probably already in the “how does it work” stage. It’s important to back up and ask a few key questions.
What Problem is Being Solved and for Whom?
There are two basic types of problems – big problems that don’t happen very often, and small problems that happen all of the time. Which type are you solving, and for whom? It is important to write down what problem(s) this innovation solves and who is most interested in the solution.
If the problem cannot be identified, then this idea probably needs to be set aside for a later time. What was lost? Maybe thirty or so minutes of thinking about this – no cash changed hands, and hours upon hours were not wasted.
What Are the Financial Benefits/Drawbacks of this Idea?
Recently, a group of top-notch innovators spent a day brainstorming and came up with some great ideas. At the end of the day, they voted on two that they were going to work on for a couple of weeks.
When they did “the math” on one of the ideas, the group quickly realized that changes needed to be made. The idea was going to net them a relatively small return – just over $500K and they knew they could do better. When they reworked the idea, the potential ROI increased by a factor of 10!Doing “the math” involves:
- Examining how many potential customers there may be, as a whole
- How many of them can realistically be reached (through advertising, direct contact, etc.)?
- How many of those who can be reached will purchase?
- Is there a repurchase? (think vacuum cleaners – customers will repurchase in the form of bags, filters and belts) If there isa repurchase, how much will each repurchase cost and how many times in a year will customers need to buy?
Take all of these factors into consideration when considering an idea. This could kill or advance an idea, depending on expectations and results.
Identify the Potential Roadblocks
Another key step to take to mitigate risk is to identify the potential roadblocks for the innovation. One step should almost always be finding out whether or not the customer is interested. There are dozens, if not more, examples of business leaders who were so committed to an idea, in spite of those around them saying it wouldn’t fly. Ultimately, a lot of money is wasted until the leader discovers, in one way or another, that the market doesn’t want the product.
Other roadblocks might be whether or not the materials needed can be obtained, if something is being manufactured. Technology could be a roadblock. Skilled employees could be a roadblock. There are thousands of possibilities – too many to mention here. The important thing is to identify them now.
Brainstorm with the innovation team to determine whether or not there is a workaround for each roadblock. If so, work through it, if not, the idea may have to be shelved for a while.
There are other steps that can be taken to mitigate risk, but if these three steps are taken, it would go a long way to clearing up that fuzzy front end, and, so far, there has been some brain work, but there has been very little spent, if any on prototypes, R&D or testing. It is possible that there may have to be a small expenditure if it helps to clear away a roadblock, but it will not be huge amounts of money in this phase.
This blog post originally appeared on our old website.