Investing in innovation is not the same as making traditional investments in your business. So when you apply the same thinking, it simply doesn’t work. Three of the biggest mistakes we see CEOs and CFOs make when investing in innovation are asking innovation teams to write business plans, thinking they can pick the winning innovation projects, and refusing to retire projects that aren’t working.
Below, we unpack each of these mistakes and offer suggestions for what senior leaders can do instead. The tips are based on an interview that Alex Osterwalder (CEO, Strategyzer) recently gave to Alex Haneng (SVP Digital Innovation at Posten and host of Ledertips). You can watch the video here.
1. They ask teams to write business plans
We still see companies asking early-stage america phone number list teams to provide business plans, but this is bad advice.
“When you ask a team for a business plan, you are asking them to make you believe that they know the idea will work and that you just need to execute it.” – Alex Osterwalder
That’s because, in the beginning, good ideas and bad ideas look the same. You don’t know which projects will be successful. Ideas that look promising on a spreadsheet or in a PowerPoint or even on paper may be wrong. That’s why you should never invest in a project based on a business plan.
“Companies that still use [early-stage innovation] business plans maximize their risk of failure.” – Alex Osterwalder
Furthermore, the investment mechanism and metrics used to measure innovation success are fundamentally different from those used to grow an established business. This is why business plans don’t work for innovation projects. Business plans make sense for more traditional investments, such as building a new factory or expanding an existing supply chain.
2. They believe they can pick the winners
When you make an investment decision the second security tool we recommend solely on a business plan, you are effectively saying that you know how to pick the winner, that is, you know which innovation projects will succeed and which will fail. The reality is that no one knows how to pick the winners when it comes to innovation.
Consider how VCs work: They invest in a portfolio of startups, fully aware that they can’t pick winners, and create a portfolio of small bets, betting that 1 in 10 will succeed.
If even VCs can’t figure out how to select the best investments without investing in the failures, it shows how difficult this task really is.
So what your CEO and CFO need to understand is that investing in a portfolio of innovation projects gives you the best chance of success. Small initial bets are made to find out what works versus what doesn’t. You then make follow-up bets, increasing the size of the investment as you go.
3. They refuse to retire projects that aren’t working
A natural consequence of investing in a large portfolio of innovation projects is that many of those projects will not succeed. In fact, the vast cnb directory will fail. So you have to get good at killing those projects as quickly as possible.
The problem is that it’s not that easy to do. We worked with one of the top 10 pharmaceutical companies in the world. They couldn’t kill projects. So we helped them introduce a kill rate to ensure they retired projects that weren’t gaining traction. Doing this usually requires changing the culture of your organization. You need to create an environment where it’s safe to fail. Companies like Amazon, Netflix, and Ping An are fantastic examples of companies that have done this. They’ve figured out how to distinguish between invalid operational failure (which you don’t want) and experimental failure (which you very much want).