Culture plays a big role in how companies innovate
After working with and mentoring hundreds (maybe thousands) of new and established companies, I’ve noticed that they typically fall into predictable groups. I decided to share these groups with you to see how well they stack up against your perspective.
These fanciful labels are based solely on my observations, and I’ve added a few comments about each. No surprise, my most frequent advice to all of these groups is that they need to gather more information before proceeding.
The cowboy (or cowgirl)
These innovative companies love the idea of inventing a disruptive technology. Their excitement for coming up with a new idea — never conceived of by anyone before — is palpable. How exhilarating for everyone who knows them! Unfortunately, the companies in this group often don’t consider or care about whether there are already competitors operating in their space or whether their entrenched competition could make a course correction.
Observation: I believe that there is always competition for any new idea. When those imagined future customers choose not to buy the product or idea, the lack of action is serious competition.
Companies in this group often comprise people with technical backgrounds, and I’ll wager most engineers fall into this segment. Common characteristics include conducting a lot of technical research and product development, often including building multiple prototypes and/or spending over $100,000. Software firms often fall into this segment by investing early in coders to build out their ideas. Near the end of their R&D cycle, they will start to consider their intellectual property options and the hiring of salespeople. These two actions often occur late enough that money is tight and the opportunity to make course corrections is not feasible.
Observation: Waiting too long to explore steps on how to monetize an idea and learn about the market that will buy your product can result in missed opportunities and wasted cash.
Despite well-known and entrenched competition, these entrepreneurs think they can redefine an existing marketplace. Many will not consider that the entrenched competition could pivot should the inventor’s idea become a threat. The competition often has deeper pockets, well-developed manufacturing, distribution, branding, and customers that afford them a significant advantage. Of course, these companies also offer an opportunity since any one of them might want to buy out or license that idea.
Observation: Instead of planning to disrupt established competition, consider the various methods for protecting your idea and whether licensing will make sense.
These folks have so many ideas that they can’t focus on anyone. Perhaps they need to go through a prioritization exercise first. Perhaps this group’s preferred zone could be as the source of ideas to others rather than being an implementer of any single idea.
Observation: I often suggest that inventors in this category consider whether they can fund their ideas by picking the most likely profitable and monetizing it first. I find myself in this category as I keep a spreadsheet of inventions, but I’ve paused on implementing them while I monetize my first idea. If I can’t monetize my “best” idea, my odds of monetizing the others must be lower, right?
These companies have people that love to tell anyone and every one the details behind their idea. Maybe spilling some high-level thoughts on willing ears could be a form of primary market research to determine whether to proceed with the idea, but this is often merely bragging. I cringe upon hearing extreme details of how a potentially novel idea will work without the minimal protection of an executed NDA (Non-Disclosure Agreement). [“Yes”, I realize NDAs are not appropriate for every discussion, but that’s a post for another day.]
Observation: Being a non-blabber is generally safer. While they may not understand all the variations of protecting an idea, non-blabbers generally are very conservative about spreading information. Good! Even better, know how to communicate just enough information to build a group of interested buyers or funders that can be leveraged later.
We’ll patent everything
This group realizes that patents can be a powerful form of intellectual property protection but to a fault. Because patenting is the only method they understand, they don’t consider that there may be better options. Plus, they generally believe that one or more patents will bring them lots of money from the day they first receive their grant.
Observation: Patents are not cash machines and cost a lot, especially when money is tight (ballpark $10,000 for the smallest companies; larger companies will need to set more aside). In fact, in some cases, the patent process may cost more and provide less protection than options such as trademark, copyright, or other forms of IP protection. Bonus observation: Establish an early rapport with an IP Attorney who may help advise which methods should be used and when to pursue them for maximum advantage.
Bootstrappers have incredible pride in developing their new company’s fresh ideas. They will reject any outside influence, including money, that would/could take even a small amount of ownership away from them.
Observation: I fully appreciate the mentality here, as I’m guilty of bootstrapping both companies. However, bootstrapping restricts the available cash and pushes the point of profitability so far out that the company wastes precious time and money resulting in failure. Know your options early to leverage one of them if you change your mind. My good friend and mentor, Jan Triplett, has documented hundreds of options for financing companies. Wow!
My idea is worth billions
This group often overestimates future market opportunities, even if they can execute perfectly. These excessive valuations are often justified because the idea seems new and “everyone will want/need my idea.”
Cold, hard facts: New ideas are rare. My research commonly finds that ~95 percent of ideas already have prior art that is dead-on or extremely similar. Worse, those ideas that are novel enough to have patent protection have steep odds of ever being monetized: A mere ~6 percent pass muster here. Ultimately, 65 percent of new products fail for established companies, and 90 percent of new products fail at startups.  Bonus thought: your legal risks increase significantly when many patents precede your own.
Recognize your company on my list? Please share in the comments below.
 “If You Build It Will They Come: Three Steps to Test and Validate Any Market Opportunity” Rob Adams (2010)
Graphics Credits (Wikimedia):
Spencerville Stampede, July 2014 (cjuneau)
Construction of Azersu tower (Emsybax sabir)
Defense.gov News Photo 010322-N-0271M-005 (Airman Apprentice Lee McCaskill, U.S. Navy)
Magnetic letters scattered on a refrigerator door (lylamerle)
Getting em up (U.S. National Archives and Records Administration)
US Patent Certificate (Unbiassed)
Boot Strap (Eitan f)
Dollar Symbol (Rugby471)