Enhancing Business Success through Innovation and Entrepreneurship
Innovation is often touted as the key to business success, but what does it entail beyond creating uniquely valuable products? The concept of innovation is frequently used broadly, and its precise definition is rarely explored in depth. Innovation alone does not guarantee success, nor does a lack of it ensure failure. However, increasing innovation within organizations can significantly enhance their products and overall success.
Innovation and Entrepreneurship
Peter Drucker, in his seminal 1985 work Innovation and Entrepreneurship, outlined several points that remain relevant today:
● Employment: Small businesses are major contributors to employment in the U.S.
● Innovation as a Primary Driver: Innovation is a key driver of economic growth.
● Source of Innovation: Small businesses and firms are the primary sources of innovation.
Drucker emphasized that for large companies to foster innovation successfully, they must segregate new endeavors from their established operations. He noted that the organizational design of small, innovative companies often contributes to their success, whereas large companies frequently grapple with bureaucracy and outdated practices that stifle innovation.
Similarly, Mel Conway's 1968 paper "How Do Committees Invent?" observed:
“Probably the greatest single common factor behind many poorly designed systems now in existence has been the availability of a design organization in need of work.”
Conway argued that poor system design often arises from poor organizational design, suggesting that architecture and organization must be designed together to be effective.
Significant Changes Since Conway’s Time
Several significant shifts have occurred since Conway’s observations:
● Barrier to Entry: Software development has become easier due to simpler programming languages and AI tools. In 1968, software professionals often had advanced degrees; today, one can enter the field with a brief coding boot camp.
● Software Consumption: The trend has moved from purchasing on-premise software to subscribing to cloud-based Software as a Service (SaaS), where customers rent outcomes rather than buy products.
● Complexity: Systems have grown vastly more complex. While Unix V1.0 had fewer than a million lines of code in 1971, Windows 11 now exceeds 50 million lines.
● Customer Expectations: Expectations have evolved from tolerating errors to demanding flawless performance.
Despite these changes, Conway's insights and those of other thought leaders remain pertinent. Many companies have yet to embrace these principles fully.
Amazon’s Innovation Journey
Amazon is a prime example of a company that has leveraged "Big I" and "Little I" innovations to achieve unprecedented success. Amazon reached $100 billion in revenue faster than any other company, accomplishing this milestone in about 20 years—eight years ahead of Walmart. Unlike Walmart, which focuses on low prices, Amazon's success has been driven by continuous innovation. Amazon has pioneered e-commerce, disrupted publishing with e-readers, revolutionized digital media distribution, and created the infrastructure-as-service industry.
● Big “I” Innovation: Involves creating new industries or significantly disrupting existing ones. Many large companies experience such innovation at least once, often relying on acquisitions for ongoing innovation.
● Little “I” Innovation: Involves applying technology in new ways or making incremental improvements to existing products based on data insights. It includes minor optimizations and significant updates but does not disrupt existing industries.
Contrary to Drucker’s Law, which suggests large companies often rely on acquiring smaller firms for innovation, some companies achieve significant innovation internally:
● Netflix: Transitioned from a DVD rental service to a leading streaming platform, adapting to changes in the media landscape.
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● Facebook: Evolved to maintain ad revenue growth as user engagement shifted from desktops to mobile devices.
● Apple: Revolutionized the music industry with iTunes after initially losing the personal computer market.
Why Do These Companies Succeed?
While many of these teams may include highly skilled individuals, such expertise is optional for achieving superior performance. Is it desirable? Certainly. But necessary? Not at all. These companies share several key traits. These factors are more critical to success than having individuals with exceptional skills:
● Team Size: Smaller teams tend to be more agile and effective in decision-making, similar to special operations units. They can quickly respond to changes and are less burdened by bureaucracy.
● Team Construction: The composition of the team matters more than individual talent. The right mix of skills, diversity in thought, and complementary roles allows teams to perform better, akin to how elite military units or sports teams are structured.
● Team Duration: How long a team stays together can impact its success. Teams that work together over time develop trust, shared language, and a deeper understanding of the mission, enabling them to work efficiently.
● Team Alignment: Alignment around clear goals and purposes ensures everyone works toward the same objective. This is critical for guaranteeing focus and cohesion.
● Empowerment: Empowering teams to make decisions independently fosters innovation. Just as special operations units operate autonomously, innovative companies allow teams to act decisively without waiting for top-down direction.
● Unifying and Compelling Vision: A shared, compelling vision is necessary to inspire and motivate teams to strive for excellence, even in challenging circumstances. This is crucial to driving military units and companies to achieve extraordinary outcomes.
● Culture of Success: Successful organizations cultivate a mindset that embraces challenges, learns from failure, and celebrates achievement, all of which contribute to continuous improvement and innovation.
Recognizing that many successful companies don’t exhibit all the attributes mentioned earlier is essential. Some product teams may embody these traits, while others within the company may not. Apple, for example, is known for its functionally oriented teams across various product lines. While Apple has seen tremendous success, particularly with its early products like the Apple II and iTunes, much of its later success, including the iPhone, came from being a “fast follower”—taking market share from existing players like Blackberry and expanding the phone’s functionality into a computing device.
Innovation is not always the key to success, just as lacking it doesn’t necessarily spell failure. Many companies succeed by acquiring existing solutions or refining them—building a better mousetrap. However, consider how successful these companies could be if they increased their focus on fostering innovation internally.
In the next article, we’ll explore each of the traits mentioned and examine how they can be applied to product teams, helping to define a more practical approach to developing innovative products.
By Chip Correra, Partner
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Marlborough Street Partners is not a consulting firm. We are team of senior operating executives that works with venture and PE firms on behalf of portfolio companies and directly with senior management teams to address the Inflection Points they face- from strategic challenges to operational dysfunction to capitalization issues. Our blend of fresh perspective and long experience Turns Inflection Points into Breakthroughs. www.MarlboroughST.com
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