Small businesses and innovation

Here's an interesting little piece of information

Small businesses produce 14 times as many patents per employee as large companies do, and they are twice as likely to turn those inventions into successes, according to a Congressional report.

This confirms the folk wisdom that large companies are good at marketing and small companies are good at innovation. Why is this? Because the large companies have too rigid a structure and bureaucracy to allow for all of the uncertainties that innovating requires companies to bear with. They are too rigid and less forgiving than smaller companies are and they often have gatekeepers in place who have no clue about what is a good idea and what is not. So innovation is retarded or scotched altogether. It usually ends up that large companies buy innovation rather than developing it in-house.

The myth is that companies are these rational little entities made up of rational people who have their own rational way of communicating, creating rational policies and rational results. The reality is that companies are made up of people and often rage with the problems created by people. Smaller companies have less of this and that can make them more flexible.

Of course there are exceptions and it doesn't really have to be that way at all. One of the promises of the team idea was that is would allow for good ideas to percolate around a company. Hasn't happened much at all, I'm afraid. But at least it got the problem more right--the flow of information is the problem in any company. If we really had thinking companies which is possible to do, that information would flow the way it should and innovation would be possible in any company.

Advertising equals entertainment?

This article makes the claim that consumers don't want to be bored when they see advertisements. His argument is that there is a kind of social contract out there where the consumer says

"Entertain me, and I will give you my attention. Respect my intelligence, and I'll give you my interest. Do neither, and I'll give you neither."

I'm sure that entertainment is what they are looking for but I'm not so sure that that is what the advertiser should pay for. How about this: Keep their interest by educating them about what the product will do for them. I mean "educate," not cram it down their throats, force feed it to them, preach to them or give them a laundry list. I am saying put that product into the context of their lives.

I wonder how many people actually remember who the ads were about that they were entertained by. The ad people probably do. And if it plays enough times, maybe they will to. But I remember funny and/or entertaining ads and don't remember who it was the ad was advertising. Since these are expensive ads, if people have trouble remembering just who it was about, that means a lot of expense getting your message out.

Get geeky--at least a little bit more

Some quotes from a very good article:

I have sat in countless business meetings that were all talk. Rather than trying things to see what worked, we talked in circles for weeks only to end up doing nothing. It is quite different from my days as a digital circuit designer.

When I wrote VHDL for FPGAs, you could experiment. If we didn't know the best way to do something, we could try two different implementations. There was no shame in failure or missing the mark because we were always learning and iterating. No one ever nailed a design in one try.

In business though, there are too many people afraid to move forward. Failure can be a career killer, and the inertia factor makes it easier just to keep moving along the way you already are. An entrepreneur friend of mine doesn't consider it a failure when he gets out of a business, because as he says "I try businesses on like most people date. I'm trying to figure out what I like and what I'm best at." If business had more geeks, there would be a more experimental culture in business that would help make everything better by focusing on what works and encouraging small scale tests....

Too true, too true. And if something is decied on and implemented, when it doesn't work, it's not because the idea is bad, no, that could never be, but it's because someone isn't carrying his weight or we didn't get buy in--sign a pledge?-- or we suspect the loyalty of a gatekeeper somewhere. How about this: The idea was bad.

You can find countless articles on the web and in computing magazines about why Perl or Ruby or Java or Lisp is better than C or Haskell or VB or PHP for certain kinds of projects. Geeks like to talk about best practices and debate the merits of various approaches to programming or web design or hardware development or system configuration. Business people like to talk about who moved their cheese.

Ouch. That one's gonna leave a mark.

All I can say is "amen to that." I wouldn't take the geek part too seriously but his points are all spot on. More of this, please.

More innovation

This is a case where innovation overcame a larger rival with a bigger advertising budget. Works for me.

I've been reading BusinessWeek. Can you tell?

Structured innovation--the only way

Here's an interesting story from Whirlpool about their efforts to innovate:

Believing that brilliant ideas were buried in the corporate hierarchy, he invited each of the company's 61,000 employees to unleash their creativity: Everybody everywhere, he exhorted, Go out and innovate!Off in the Italian Alps, a crew of workers got right at it. Handpicked by managers from across the company's European staff, the 25 employees were freed from their regular jobs and packed off to Whirlpool's office in Comerio, Italy, with a single purpose: to dream up products or services that would truly differentiate Whirlpool from rivals. A year later, they came back with their big brainstorm: an Internet business that would enable people to race one another over the Web on stationary bikes. So much for that experiment. It was obvious that Net bike racing, which didn't draw on any of Whirlpool's strengths, was a nonstarter.

The point is that innovation must be structured for it to get anywhere and to not end up wasting a whole lot of time. That means brainstorming too. Any idea in the abstract is as good as any other idea in the abstract, but you may end up with something that is highly unworkable on the ground--Whirlpool's experience. To get a good result requires structure and, I might add, a leader to hold people's feet to the fire-- figuratively speaking, of course.

This all goes against what people believe. They think that creativity is structureless, that it requires no judgments to be made on ideas until they are all in. A complete waste of time. (And, by the way, not borne out by any study on the subject--not a one of them.)

Whirlpool learned the hard way that real innovation requires a lot more than simply urging thousands of employees around the world to tap into their inner designer and then waiting for the great ideas to roll in. It requires hard work, structure, and unwavering discipline. After its inauspicious start, the company retreated from the all-out effort to democratize innovation and moved to a more traditional centralized model of product development. That did the trick. Since 2001, revenues from products that fit the company's definition of innovative have zoomed up from $10 million to $760 million in 2005, or 5% of the Benton Harbor (Mich.) company's record $14.3 billion in total revenue. Whirlpool's shares, at $92.64 on Apr. 25, have almost doubled in price over the past five years.

That's about right.

By the way, what Whirlpool ended up doing is thinking contextually. More companies need to do that.

There's a lot more in the article.

In the face of uncertainty Part II

Part I

So when the Germans invaded where did they come? They moved north through the Ardennes forest completely bypassing the Maginot Line. Some people had pointed out this problem earlier, Winston Churchill, for one, but it was dismissed as a non-issue because the French had an army at the northern point that they said could move to intercept any thrust coming from the Ardennes. "But we don't think it will be necessary. The Ardennes are impassable. No army can come through it."

But the Germans went right through it and it took them only a few days to do. And they did it with 3 armies, the northern and southern of which moved to engage the armies of Belgium on the north and the French army stationed north of the Maginot Line, to their south. The center army struck through to France and would have wrapped up the British Expeditionary Force if Hitler hadn't lost his nerve and slowed the offensive down. That probably saved Europe in the end. That was the only thing that day that slowed the Germans down.

The Maginot Line was an impressive thing and would have prevented a war like WWI. The problem was that WWII was a completely different war fought using different tactics. It was a mobile war where armies maneuvered around fixed positions and focused power on points along static fronts. That made the Maginot Line irrelevant. What France was to prepare to fight the last war.

This is often true of business, they fight the last war. Put another way, we engage based on what we know. That is human and understandable and we can be charitable about it. But we must realize things are not so static as this, even if the original "war" has been understood and prepared for adequately. (The issue in Europe moved from impregnability to mobility.) Markets change, attitudes change and technologies change to make the future uncertain to a great extent. Companies who cannot or, worse, will not, continually reevaluate what they are doing might make money and be successful but that is so long as the original rules apply that were set down before or the troops on the front line are flexible enough to make things work. But when those rules change, and they will, the company could be left with the equivalent of the Maginot Line, something we look at now and wonder how anyone could ever have been so stupid.

In the face of uncertainty Part I

One of the points I try to make with clients and with students, with varying degrees of success, I might add, is that everything should be constantly evaluated and reevaluated as you go along. A certain dose of uncertainty is a healthy thing for business. What was once the case may no longer be even if we have accurately figured out what the original case was at first. And that may not be so certain either.

I find it amusing some of the conclusions people draw about successful people and companies. One late night, I saw this guy and his wife making a pitch for a course on how to be successful in business. "We have taken the most successful businessmen and figured out the characteristics that made them successful." All of that was available to the viewer for a fee as a seminar. The problem is, and it is the same problem with books like "The Seven Habits of Highly Successful People" is that it is not necessarily the case that the success came about because of those habits or characteristics. It might have come about notwithstanding those characteristics. To be a better study would require figuring out the habits of other people who might not be successful and seeing if there is a difference. And if you did that, I think you will find that those habits are not in short supply.

The same thing is true for business. It is the case that companies and managers, especially those who have pushed the thing that is getting the praise, say that it is because of the system that the company has been having the success it has. But it might be that the company is having the success in spite of the system. Employees are clever and they can often make it look like the system is being followed while doing something that is different, something that is more effective in making the company work. But the system gets the credit.

The point is that whatever it is you are implementing must be evaluated all the time to make sure that it is doing what it is supposed to do and that the results are actually what they are purported to be.

The Maginot Line was the great fortress the French set up to prevent the immense tragedy of another world war on the level of WWI. Millions of people died in that war and it was said that one in four of every French male between the ages of 18 and 40 something was killed in that war. (But that pales in comparison with what was to come.) It was based on fixed fortifications pointed toward the Germans and it was a military and technological marvel based on the best military and technological thinking of the day. All the weapons were trained on specific areas and they overlapped to blanket an area with firepower. And men could be moved from one spot to another to fortify a given position that had the potential to be overrun, by using an underground rail system. The whole French defense was based on the Maginot Line. It was impregnable. And all who looked at it agreed that it was impregnable. We would call it a benchmarked system.

Part II

Duct Tape Tips on Marketing Your Business

Here's some good information on small business marketing. What's the bottom line? Give the consumer useful information instead of bombarding them with "buy me" messages.

One result of that: It is one way to distinguish your business from the rest of the pack.

Good advice.