Why In-Company Incubators Aren't Working… Yet (Part 2)
(Part 2 of 3)
In my last blog post, I discussed Ideation, the first of three phases that make up the innovation process. In many organizations, innovation efforts are most intensely focused on coming up with great ideas, and I can't blame them. Pie-in-the-sky thinking is great fun and, let's face it, there are a lot of ideas out there that seem feasible. And it is a great way to drive employee engagement and get them thinking about innovation on a regular basis.
Ideation, however, is only step one in a three phase process, and the phases matter when you're trying to decide who to involve, when, in bringing innovation to life. This second phase is crucial, and many organizations skip this part of the process. It is incredibly important that these ideas go through Validation.
Ah yes. Validation. "Of course we validated our ideas! We built a whole business plan! A customer asked for it! I mean, there's lots of opportunity in the market - let's invest big!"
Well, that's one way to do it.
The important thing to remember is that business plans are built on a foundation of hypotheses -- and those hypotheses need to be tested and validated before any significant investment can be made. Many experienced entrepreneurs know that no business plan survives intact all the way through its journey to the first customer delivery, even ones written by smart folks with tons of research behind them. Heck, if it were that easy to just jump on great ideas, investors would have a better track record in picking which startups to fund.
Here is where big companies can learn from what's going on in the startup world. Everyone is talking about Lean Startup - heck, even the Harvard Business Review published an article from Steve Blank, who you could say is the godfather of the movement along with Eric Ries. The beauty is, what this movement advocates is not new at all. Lean Startup says you should talk to your customers. Get out of the building. Put your hypotheses to the test. Do it quickly, learn, and repeat.
What is new is the easy availability of your potential customers, and the speed with which you can test your hypotheses with them and learn from them. The Internet has democratized access to your potential market, whether it's consumer or B2B. The old way was doing phone surveys and focus groups, which is tedious and often times difficult to get a good sample size. With a lot of web-based tools out there, you can test your ideas and put surveys up to quickly validate your concepts. (One of our team at Differentiation@Work would gladly talk with you about the tools we recommend most.)
It is in this validation phase that organizations should start sheltering the innovation process from the rest of the organization. The sole purpose of a small, focused validation team at this point should be to validate each idea's underlying hypotheses. In other words, test the idea to see if it fits the market. The mandate for the validation team should not be to timebox the build process of an idea and model the revenue it will contribute, business impact it will have, revenue it will yield in year 2, etc. How could even the best innovation team nail those things if you aren't first certain the idea passes the test of validating its underlying assumptions? Indeed, many of an organization's best initial ideas may not pass this phase, and therefore must either pivot or shutdown. And that's ok, because the goal here is to learn before you invest expensive resources.
When we at SeriesC coach clients on the innovation process, we often get the question, "how will we know when an idea is validated?" It often depends on the market, product and time between iterations. We've seen it be as short as a few months and sometimes up to 18 months. Here are three tips to keep your process moving:
1. Be precise. Make sure you're identifying the right hypotheses -- in other words, asking the right questions -- and measuring the right things.
2. Design your tests well. Design them purposefully to measure those right things, and to learn as much as you can in as little time as possible.
3. Iterate. This idea is sometimes called "fail fast," but I don't like that phrase because it misses the learning aspect of it. Failure connotes lack of progress, which you should be hoping to make with each iteration.
I know that taking time for the validation step is uncomfortable for large organizations that are relentlessly driven by Wall Street to grow revenue and be predictable about it. That's why it is even more important to have this testing and validation outside of the mainstream processes. And you know what? Your startup competitors are doing just that.