Enterprise Innovation

Well, my Enterprise Seasons model was too simple. Actually, after creating their first successful “flywheel” product, some corporations proceed with creating second, third and further successful products, always remaining an innovative enterprise, at least at some of its parts. There are a lot of advantages in this:

- Risk diversification. If one product fails for whatever reason, another products will keep the company afloat.

- The law of diminished returns can be worked around. Instead of investing more and more creative power into smaller and smaller uplifts, one can enjoy a much higher ROI with a new fresh product.

- Linear scalability. Growing the company by growing production and sales of a single product involves a lot of work with people, processes, and inevitable bureaucracy. Growing the company by creating a new product, can be just copying of its existing structure.

- Several revenue sources can allow for aggressive market policies, so that the company might allow one of its products to be intentionally unprofitable, to gain market share.

- At last, there might be synergy between different products, for example ideas or methods from one product can be applied to another, or selling a combination of products might be easier.

Therefore, for me it is even more interesting to understand, why there are so many enterprises that have problems with innovations. Why some enterprises don’t keep creating more and more products? So far, I’ve seen the following scenarios:

- Cultural incompatibility. Discovering a new product is everything but safe: 90% of new products fail. The traditional 19-century world view of a safe, life-time workplace, and a state welfare system eliminate the necessity of innovation. “We will work in the same safe market niche, and hopefully it will last until we leave the job and have our rent, and if not, the welfare system will help us to remain afloat and to find a new job.”

- Ethical reasons. Growing a company can be seen as a consumeristic, anti-ecological activity. In this case, the company not only doesn’t create new products, also continuous development of its primary product is almost non-existing; it is in maintenance mode.

- While investing most of resources into establishing and developing its secondary product, the company’s primary product is hit and almost destroyed by a sudden market shift; its development is frozen and everyone keep working to make the secondary product the new primary.

- Even though the primary product is running well, most of its revenues are paid out to foreign shareholders running a short-time strategy. Innovation is barely possible, because there are not enough people and money for it.

If some innovation is nevertheless trying to happen, often there are cultural difficulties:

- The Sun and stars fallacy. Sun is so much brighter than stars that we don’t see stars at day. The scale of the primary product is much higher than the one of a new product; it always has more visitors, page views, registrations, orders, revenue and operational spendings. “What? Your new product only generates X orders per month? What a fail, our primary product generates YYYYY orders! Let’s spend more on the primary product!” The trick is, if you don’t invest into the new product to grow it, it will also never reach maturity. The primary product was also so small in its initial stages.

- The No-Fail mentality. When searching for a new product, everyone in the team (PM, designers, developers) must have the “Fail Fast, Fail Cheap” mentality. On contrary, developing a mature product, the team must have a “No Fails Allowed” principle. If you like test-driven development, run-time performance optimization, software security, writing source code commented and formatted to style guide, creating comfortable in-house frameworks and planning several sprints ahead, you should develop a mature product. But, if you like fast user feedback, discussions about usability and the minimal viable product, several releases each week, and your software works only in 80% of cases, your source code is dirty as devil, but you’d rather spend more time discussing one-pixel changes in the UI, then you should be in team discovering a new feature or product. When companies ignore these differences and assign their “No-Fail” developers to discover a new product, this only leads to everyone’s frustration.

- The additive development fallacy. Development of the primary product is often additive. Projects like “We expect X% more users, have to scale hard– and software”, “We need feature X due to law changes”, or “we need a more modern design, let’s do a relaunch”, when implemented, usually never need to be rolled back. The problems begin, when new products or features are also implemented in the additive manner. Instead of starting with hypothesis verification and then a prototype, a complete product or feature is conceived, designed and implemented. Several months later, it rolls out, gets some less-than-moderate user attention, and starts to rot quietly in its tiny dark corner. Nobody has the balls to sun-set this feature, because, well, the company’s culture is additive, and the months of development are perceived as an asset. In reality, such features are a debt, constantly sucking team efforts and energy for maintenance, support, porting, translation, and operating.

I’m not sure yet, how enterprises create a new successful product. When observing enterprises with several products, I have the feeling that either

- a charismatic leader builds his very own small empire and creates a new product as a by-product (no pun intended),

- or the merge and acquisitions department grabs a product together with its team, and successfully integrates it into the company,

- or the company organizes its own startup incubator. The company owns then only partially its new products, and a lot of the existing infrastructure is not re-used, but at least the cultural issues are solved,

- or, in 0,00001% of cases, companies such as Valve have an innovation culture from the very beginning on.

Please share your experiences of innovations within an enterprise.

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