Entrepreneurs need to focus on innovation or the first reduction to practice of an idea in a culture because this is the critical precursor to customer value.
Innovation is the first reduction to practice of an idea in a culture
“Although often seen as a high-technology event involving inventor-entrepreneurs, innovation may, of course, occur in high or low technology, product or service, large or small organizational situations. Innovation may be thought of as the first reduction to practice of an idea in a culture. The more radical the idea, the more traumatic and profound its impact will tend to be.”
Henry Mintzberg and James Brian Quin “The Strategy Process” (1991)
I worked with an entrepreneur who was very frustrated by how much value was lost between his vision of a solution and what a customer was actually willing to pay. He sketched a sequence of steps where value was lost at each step:
- Mental image of the final product: it worked flawlessly and if only he could communicate the value customers would pay quite a bit for it.
- Preliminary datasheet, illustration, or demo: tools the entrepreneur could use to get his product idea out of his head and so that co-founders and prospects could better understand. Not as fully functional as what he could imagine.
- Working prototype: not everything could be made to work that was in the idealized version. But early adopters could evaluate it and decide to try it.
- Early product in evaluation by customers: while the entrepreneur could still see the potential that the prototype promised his customers found it much harder to visualize and were guided by what they could actually see working.
- First version in production use: not everything that was evaluated actually worked, and some of the features that actually “worked” were not actually a fit with a particular customer’s needs.
- What the customer could justify paying: only for the functionality that worked that added value to his business compared to other available solutions.
At first, I thought that this was more of “an artist’s conception of idealized value” instead of “business value” or the benefit that a customer saw after getting the software running smoothly in their business compared to how things worked before. Pricing is how the entrepreneur captures a fraction of that value: the customer has to make a profit on their investment, or it’s not a sustainable business relationship. But then I realized that when you are designing something you always start with a mental model. It can be informed by observation and you may sometimes tinker with a prototype and see a significant increase in performance or reduction in cycle time or error rate. But it only becomes a feasible design when you understand why it works, when you have a model for it.
The challenge then is that development requires an “inside out approach” informed by careful observation and reflection, where getting customers to adopt and pay for a product requires and “outside in approach.” You have to understand the customers needs and perspective, and incorporate them into your design process, features delivered, and how you price.
Limits on the rate of adoption
I think there is a change constant that limits the amount of change an organization can absorb before it ceases to function. There are several challenges that need to be managed, and these are faced both by internal change agents and startups attempting to effect the changes needed for a product to make a positive impact:
- Agreement there is a problem worth solving or a business opportunity worth pursuing.
- Proof of value: initially from an external source but ultimately from an internal success.
- Alignment of incentives to the extent that the next step in the adoption process yields a net positive.
Value occurs when inventions are adopted as useful innovations
Innovation consists of the technological, managerial, and social processes through which a new idea or concept is first reduced to practice in a culture.
- Discovery is the initial observation of a new phenomenon.
- Invention provides the first verification that a real problem can be solved in a particular way.
- Diffusion spreads proved innovations broadly within an enterprise or society.
All are necessary to create new value. Software dominates all aspects of the cycle from discovery to diffusion.
James Brian Quinn in “Software Based Innovation” [MIT / Sloan Review Summer 1996]
A startup’s creative invention becomes a useful innovation when customers adopt it. The lead generation and sales processes for finding early adopters look very different from how established products are sold in established markets. One key difference is that the business relationship often involves both parties learning from each other and collaborating on a joint project to create value in the customer’s business. The startup can use this value as proof of the need for their offering and take away lessons learned from the collaboration for the next project they start with a new customer.
We take this same co-creation of value approach with our clients. We join their team on a part-time basis (sometimes very part-time, in the same way that a small amount of Tabasco is enough to flavor your clam chowder) to collaborate on projects that help them generate leads and close deals. We also stress the need to do discovery so that the critical features are emphasized in a demo, evaluated by the customer, and ultimately deployed into production use. Working backward from what is actually going to move the needle on creating value is the key to fostering adoption and building a sustainable business relationship.
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