The innovators edge

Being us. It’s not always pretty.

Building a competitive advantage ain’t that hard to do. Maintaining it is what defines truly innovative companies.

History is littered with one-hit wonders, often they are ground-breaking at the time but for most companies the challenge lies in leveraging that success and repeating it time after time.

Ignoring the Derivative vs Innovative argument for the moment, the single biggest challenge facing companies is how to stay innovative. It might sound odd, but when an organisation creates something innovative it can become rich and lazy rather quickly.

What happens next often defines whether the organisation survives. Many take the path of least resistance and become operational in nature, leveraging the innovation in return for growth, cash and marketshare. Whilst you must monetise invention to survive, turning all your attention to the operational model can greatly dilute the longer-term value. And your innovator status.

To get to the innovator status requires luck, hard work and a drive to break the mould. Monetising this advantage is a completely different skill-set based around operational efficiency, marketing and finance – these can become the enemies of future innovation.

And here is the rub.

Innovators can typically make a premium for their offering. They might be first to market, or approach the market in a disruptive manner but in either case the return is usually a higher profit than conventional derivative organisations.

But as the innovators edge is lost, so goes the additional margin and an inflow of competitors reduce the value of this edge. Apple look like they are in this position now, and certainly Microsoft went through this 15 years ago.

Reducing margins drives organisations to focus on the efficiency of their operational model, further eroding the innovators advantage. It’s a nasty circle of ever-decreasing returns and quite hard to break out of.

What should innovative companies do?

It’s obvious really, they should continue to innovate – in fact, since it’s harder the second (or third) time around they need to double-down on innovation and push the boat out even further. That means more time spent doing non-operational stuff, more investment in new ideas and a greater focus in what comes next.

The higher margin achieved by having an innovators edge can and should be enjoyed but a large percentage of it should be re-invested in “the next big thing”.

In our own way, we’ve been through this cycle a number of times over the last 3 decades and have learned the hard way what it’s like to lose this edge and fight an operational battle. The very nature of the digital space has shown us that nothing stays the same for very long and you can become irrelevant in the blink of an eye.

And the worst thing to do?

Reinvention. Just because your killer idea worked 5 years ago, what makes you think an updated, rewritten, rehashed version will be a killer today. It wont. I promise you.

Back in 2002 we created a ground-breaking web platform that transformed many of our clients online models. It generated 10’s of millions of profit for those early adopters who “came on board” and spawned the formation of new companies, competitors and a whole eco-system.

By 2007 it was looking tired and, more importantly, its uniqueness was being eroded by competitors and a changing market space. We realised this was happening (often companies don’t) and the solution was … a massive application rethink/rewrite that cost £250k and took a year to deliver. Except that wasn’t the solution, we should have taken the money and spent it on the next generation of platforms (WordPress in our case) … or coke and hookers for all the value we got for the investment!

Fortunately, we had invested some of our innovators edge cash into developing a backup stream that involved WordPress. After launching our new shiny platform we got precisely no orders for it. Yet it took until 2012 for us to throw it away, 4 years after we’d forked off and were successfully innovating in the WordPress space – we simply couldn’t give up on the huge investment. We were idiots.

Regaining the innovators edge

The pace of idea development and lead-time to market for new ideas and now very short indeed. A decade ago you probably had 5-8 years to turn a business around from a tired operational model into new innovation – today that time has been more than cut in half.

If your lucky enough to work in an organisation driven by an innovator it’s pretty easy to recover that lost edge. Often you’ll need to unpick the operational side of the business and you really need to fire old clients and staffers that appeared during that late, ugly, operational phase. Painful, maybe – essential, yes.

Oh, and learn from the mistakes, so you don’t roll back into that lazy, operational, model that involves poring over spreadsheets, HR policies and supplier management. It’s likely to become a nicer place to work and a good deal more interesting and varied.

Happy innovating.