To Get Financed and Stay Financed, Innovate
At any moment in time, countless entrepreneurs worldwide are hovering over hot computers trying to think up the next big thing. We want to start companies, create new products or services, extend product lines, but sometimes we search and search for the breakthrough idea and nothing comes. Is the well dry? Temporarily. You simply need to prime the pump.
We can start with disabusing ourselves of the notion that we must create an Earth-shattering, change-the-world, amazing invention. That's not the case at all. All we need is something better, or something pined for, or something fun, or something that removes pain (this one's my favorite). Let's talk about different types of innovation, and in the process, I think you'll see that ideas are not really that hard to come by.
In 1957, Igor Ansoff published the Ansoff Matrix in the Harvard Business Review. It was such an excellent illustration of innovation that many entrepreneurs still use it today.
The Ansoff Matrix shows four different growth strategies that result by combining existing or new products with existing or new markets: market penetration, market development, product development, and diversification. For existing markets and existing products, you'll want to work on market penetration. How can you do incremental innovation? How about product-line extension? That would work. Examples of this are Coca-Cola (KO) with Diet Coke, Cherry Coke, Vanilla Coke, Caffeine-free Coke.
Customers are the Innovators
Starbucks (SBUX), however, is my favorite. Before they got into sandwiches, salads, and other food items, they had already extended the heck out of a cup of coffee (BusinessWeek.com, 9/4/07). How many drinks does Starbucks offer? Guess. You won't believe it. 19,000. Yep, 19,000 variations of coffee are available at Starbucks. And who does most of the innovation? Their customers! It's even free.
For existing markets and new products, you'll be doing product development. What else can you sell in your current market? Who else would benefit from your products and services? Think about ways to extend your product into other markets. Look at cell phones. The cell-phone companies have done a terrific job of infiltrating socio-economic levels by offering prepaid phone service. They've reached across age groups with the family plans being offered. And how about PDAs? They used to function as simply a calendar datebook and address book for your contacts, but now they are also used as phones and even mini PCs! Those companies extended their products into many other markets they probably didn't even think about when they released their first versions.
For new markets and existing products, you'll be focused on market development. This area is for classic up-selling. Up-selling means selling new or upgraded versions of your products to your existing customers. Consider Google (GOOG): The company has not been a "search engine" for ages. Google today is more than an advertising business, it's a software vendor with extended products and services such as Google desktop and Gmail, a shopping site with Froogle, and it just keeps growing. How about hybrid cars? You probably already have a car, but now you want to be more environmentally conscious. So you need a hybrid, but would you purchase one from the same manufacturer that sold you your previous car? Probably.
Paying Premium for Getting It Our Way
For new markets and new products, you'll be consumed with diversification. Where's the pain? Who wants or needs our product? Why use FedEx (FDX) when you have the U.S. Postal Service? Why use Dryel (PG) when you have a dry cleaner? Why use VolunteerMatch when you can find a local place to volunteer? Why pay for a personal MRI when your doctor could possibly get you one for free? Because we want to do things our way, on our terms, by methods we perceive to be better, more effective, more efficient—and we're willing to pay a premium as a result.
Spend some time considering how the Ansoff Matrix fits into your business's growth strategies. Keep in mind, incremental innovation, new innovation—neither one is better. Entrepreneurs capitalize on both. And any kind of innovation will help you get and stay funded.
Have an innovation dilemma? Drop me a line.