Why should you innovate?

In part 1 we introduced the concept of innovation. Now, in part 2, I’ll provide an expanded introduction to why businesses should innovate and the results this brings.

It might seem too simplistic to say that businesses innovate to grow, even if that growth is exponential. The stats speak for themselves, and there are many. For example, a study by McKinsey shows companies in the top quartile of innovation performance are 50% more likely to achieve higher revenue growth than their peers.

But what’s less obvious is why specifically “innovate” rather than simply try to grow market share for example, or squeeze a better margin from existing products?

There are sectors where innovation is a no-brainer to survival; a tech startup where the investments you make in building software are life or death to the business. Or fast-moving consumer goods where customer behaviours are constantly changing, but in recent years businesses as diverse as crop farms to small restaurants are taking on the kind of pressures where thinking differently really matters.

A crop farm might need to think more carefully about planting with climate change in mind, whilst at the same time have access to predictive software and GPS-enabled equipment to make better decisions. All valuable purchases, but they come at significant cost.

Or think of a small restaurant. The covid pandemic has changed the frequency and duration of visits; tastes can change fast and cash is becoming obsolete. Again, like agriculture, all sorts of tools exist to help the business; contactless terminals, loyalty programmes, booking systems. All great tools, and again, all come at a cost.

The need to do something new or differently has never been greater. In fact, all these pressures have had a profound impact on the overall longevity of businesses: research by Innosight indicates that the average lifespan of companies on the S&P500 (an index of the biggest companies in the US) has decreased from 61 years in 1958 to just 18 years in 2016.

But we’re talking huge multi-nationals here: for example, Ralph Lauren is considered one of the smaller companies on the S&P500! For these larger companies we can at least understand how innovation might shift the dial, if not at least see how those companies can set aside resources and cash to pay for it. But what about smaller businesses? We have to recognize that in a business of say, 10 people, it’ll be a rare chance that you can dedicate a specific individual or any substantial assets to exploring entirely new ideas.

So how would that small restaurant or farm approach innovation?

For SMBs the most important thing to remember is that innovation is a culture and a mindset, not a specific ring-fenced budget or business case.

Even without taking a risk to invest in something “net new”, all businesses and solo entrepreneurs have entrenched behaviours which limit their ability to mitigate risk or capitalize on an opportunity to change. We all work within established working patterns or views which give us comfort but may make us blind to things happening directly out of our sight. Taking a step back from our own business, we can see examples of these behaviours everywhere.

Imagine that restaurant, family-owned for generations operating the same menu and dining experience. Traditions of the past may prevent the owners from modernizing the decor or maybe accepting card payments. A study by Deloitte shows that small businesses who embrace digital can experience 4x higher revenue growth compared to businesses with low levels of digital engagement.

Or think about companies you know who might require full-time attendance at a restaurant or an office. We now know that in-person work still has a critical role to play in productivity. But some flexibility is needed. A survey by Buffer found that 99% of remote workers would like to work remotely at least some of the time for the rest of their careers, indicating a strong preference for flexible work arrangements.

These behaviours can form “innovation blind spots”, where habits prevent us from seeing an upcoming market disruption, a change in customer preferences or gaps in the skills we need for the future.

Even if we can’t directly innovate during the day-to-day running of our business, adopting an innovation mindset will help us to reveal these blind spots and take action to fill them. In part 3 of this masterclass, we will establish the most relevant principles of innovation and get you thinking about how you might enable that. Before we get there, I’d like you to take a step back and reflect on the blind spots which might exist within your business.