Keep up the innovation

Inventiveness is easy when you are a start-up. Jason Sew Hoy, the chief operating officer of the global online marketplace for designers 99Designs puts his finger on it when he says: “When you start out and you are four people, it’s automatic to be innovative because you have probably selected pretty innovative people to be on your team to begin with.”

Where it gets harder is when the company has grown up, been around for a couple of years or even decades and, to a certain extent, got stuck in its ways.

“As you grow your team, it’s difficult to maintain that pace of innovation,” continues Sew Hoy, talking of the challenges his company faces now it’s moved from start-up into the mid-market, with 60 employees now split between Melbourne and San Francisco.

Most companies in the mid-market experience this. This sector makes up the backbone of the economy but being neither start-ups receiving lots of attention, nor small businesses that are courted politically, nor large companies with cash to throw at the problem, mid-market firms can suffer more than most once they get over the growth stage.

The founder and chief executive of COZero – a trading platform for environmental commodities such as carbon credits – Nick Armstrong is cognisant of how his mid-market company, with a turnover of $200 million, has hit the top of the innovation curve. “My big challenge is how to keep growing,” he says.

It was the fastest growing company in Australia last year in the BRW Fast 100.

Armstrong’s solution has been to look at acquiring smaller businesses and buy in invention but he’s frank that it hasn’t worked. The reasons were mixed, partly he feels he didn’t do enough due diligence but also “we brought in business models that weren’t geared to the speed of our organisation ... I don’t think that I would necessarily acquire again now.”

While acquisition may not be the right model, there are other models that allow larger companies to get closer to smaller and potentially more innovative firms.

Armstrong is now seeding some businesses to get them working with COZero. If the collaborations work out, the companies will be easier to integrate. He also points out the growing number of accelerators and incubators and suggests that established companies get involved as a way of meeting innovators.

Innovation consultant and founder of InventiumAmantha Imber says another way of tapping innovation is crowd-sourcing. Unilever, for example, is open about the 10 big challenges the company face on its open innovation website. “It is inviting consumers, customers and smart people to join the conversation,” she says.

Another solution to stalling innovation is to harness the power of employees. At 99Designs, Sew Hoy says a light bulb moment for the management team was when one of the engineers said he had a great idea on how to improve something but queried what was the point of raising it as it wouldn’t get done.

The solution has been for the company to introduce research and development days where engineers can take one day every fortnight to work on any project of their choosing that they felt would improve the business.

“If they saw a benefit for the business they could work on it without management approval,” Sew Hoy says. That’s introduced a wide range of benefits from improvements in how our support team handles customers to improvements in our speed of development.”

One big drag on innovation is funding. While the government offers a tax incentive on research and development and other specific grants that could fund innovation, for the most part companies have to pay for it themselves.

Armstrong says that this reticence has held him back. “We had a great business about 12 months ago but since then the business has slowed. We forgot how to innovate. As a business owner, I still own 70 per cent of the company and I want to preserve capital. That can make you reluctant to spend money on innovation.”

Reinvesting capital in innovation is key, however, as is retaining a thirst for risk.

“I had a management team in place that was really comfortable – they actually hated it when I came in with a new idea in the morning and so our business slowed down,” admits Armstrong.

It’s fair to say that the larger a company is, the harder it can be to maintain a culture of creativity as larger companies can be more risk-averse and more bureaucratic.

Imber says that one of the worst things she sees around innovation is companies paying lip service to the concept.

“They may have had a big company upset and brought in a keynote speaker on innovation,” she says. “That’s all very exciting but then nothing actually happens.”

That’s why as companies grow a process around innovation becomes more important. At GE Capital, for example, the company has created an innovation council that sets up processes to pull ideas out of its people and get them to market.

“In the post [global financial crisis] environment it is increasingly difficult to get the sort of growth that we experienced prior to the crisis,” the managing director of distribution finance, Simon Beckett, says.

“A lot of our focus so far has been on incremental innovation but probably the biggest challenge that we face is how to come up with more transformational innovations.”

One of the best things larger, more established companies can do is think like a start-up and look at how minnows use slender budgets to create a product.

“A lot of medium-sized or larger organisations think that innovation requires this massive budget and that the end goal has to be a perfect product that you bring to the market,” says Imber. “There’s a great book called The Lean Startup by Eric Ries where he talks about creating a minimal viable product which doesn’t have to cost a fortune.”

At GE Capital, for example, if the innovation council decides to back an idea, it seeds it with $50,000, provided the idea can be taken to market in 45 days.

“That might sound slow to some people but in financial services that is lightning speed,” says Beckett. “It changes the mind-set of people.”

It’s also had to change it’s attitude to failure, to encourage people to take risks. Beckett admits that the company is not good at dealing with failure. “We don’t like to talk about it,” he says.

However, one thing the innovation council does is try to celebrate failure.

“We try to put them up as poster children – saying this person should be celebrated because they tried and there’s a whole bunch of learnings that we can take from this failure.”

BRW and GE are taking the Momentum series around the country, with events in Brisbane and Perth. See www.brw.com.au/events for details.

For a video of the event go to tv.brw.com.au

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