Wednesday, April 20, 2011

Innovation distinguishes between a leader and a follower

What does it take to create an innovative breakthrough product? It is not an insignificant question because business innovators typically invest a lot of time and money getting their big idea to market. For those who make it, the rewards— financial and otherwise—can be incredible. The so-called “first mover’s advantage” is real and means the successful innovator just may dictate the terms in a whole-new field. Consider:

  • was the first big e-commerce company. It is still No. 1.
  • Starbucks was the first company to popularize gourmet coffee.
  • eBay was the first online auction site.

But for every eBay and Starbucks there are hundreds of other companies that never did break out. So what’s the difference? A look at some business innovations—some serious and some fun—sheds some light.

Envisioning a Market
During the World War II rubber shortage, the U.S. government put out a call for industry to invent a synthetic rubber. General Electric created a substance it called “gupp.” It was interesting, for sure—it could stretch and bounce, for instance—but artificial rubber it was not.

Yet, because the stuff was so interesting, GE sent samples to scientists and academics the world over, asking for ideas on what to do with it. Surely someone could come up with a valid scientific use for the strange substance.

“Innovation distinguishes between a leader and a follower.”
—Steve Jobs

No one had any idea. And then it happened—the eureka moment. After the war, an unemployed marketer named Peter Hodgson saw toy store owner Ruth Fallgatter pulling and playing with the stuff, and they both thought it would make a great toy. A year later, Hodgson borrowed some money, paid GE $147 for the patent rights and many pounds of the stuff, and got to work.

He gave gupp a new funny name, packaged it in a unique way, and actually got it into a few more toy stores and bookshops. But no one bought it… until a writer for The New Yorker bought some, played with it, loved it and wrote about it in the next issue of the magazine.

Peter Hodgson never had to worry about money again. He received 250,000 orders for his Silly Putty over the next three days, and when he passed away in 1976, Hodgson was worth $140 million.

The moral of the story is that sometimes nothing beats some good old-fashioned PR when trying to spread the word about a new product.

Mistake-Proof Ingenuity
In the 1950s, Bette Nesmith Graham was a single mom who worked at a bank as a secretary. Although she was not a great secretary, and made a lot of typos, she did happen to be a very good artist. So every year, the bank had her paint the Christmas scene for the bank’s windows.

One year, she made a mistake while painting the holiday scene, painted right over it and thought to herself: “I wish I could do that when I am typing.”

So Graham took some tempera paint to work and began to paint over her typos. She soon realized this was a great idea that could make a great business. Working from home after work, Graham began to experiment with paint.

After considerable effort she came up with the concoction that eventually became Liquid Paper. But unlike Peter Hodgson, Graham’s innovation was no overnight success. She continued to work at the bank and make batches of then-named “Mistake Out” in her kitchen, selling a hundred bottles a month.

“Every man must decide whether he will walk in the light of creative altruism or in the darkness of destructive selfishness.”
—Martin Luther King Jr.

The challenge was that because the product was so innovative, few people even understood why they might need it. But as people learned about the product, the business slowly started to grow. Yet, it was still a full 18 years after creating the product before Liquid Paper hit $1 million in annual sales. Five years later, it was $25 million a year.

The rest, indeed, is history, and ultimately Graham’s fame would be eclipsed by her son’s; Mike Nesmith became a member of the ’60s group The Monkees, as well as a movie and video producer.

There are many routes to innovation success. The instant home run is nice, but far more often it’s persistence that pays off. And it’s not hard to understand why. Creating an innovative product like Liquid Paper often means having to teach consumers why they need it.

Just ask the folks at the Coca-Cola Company about the challenges and hazards of doing that.

Innovative Blunder
In the history of bad business decisions, maybe the worst of all time was the decision by the Coca-Cola Company to scrap Coke for New Coke. As they found out, if you are going to toss out “old” Coke, you might as well ban mom and outlaw apple pie.

The decision came in the mid-1980s amid a battle waged by Pepsi against Coca-Cola. The “Pepsi Challenge” was a television ad campaign that had consumers taking a blind taste test and then saying how Pepsi tasted better.

As a result, nervous executives at Coke began to secretly experiment with new formulations, until they found one that beat Pepsi in taste tests. Convinced they had a winner, Coca-Cola triumphantly rolled out “New Coke.”

“I have always been driven to buck the system, to innovate, to take things beyond where they’ve been.”
—Sam Walton

Maybe never before has a new product been received so poorly. Late-night comedians had a field day; people boycotted the new stuff and even began to horde old Coke. New Coke was off the shelves within six months.

So what went wrong? Somehow the marketing wizards at Coca- Cola never took batches of New Coke and test-marketed them in stores in, say, Des Moines, Iowa. They also never warned folks that New Coke meant no old Coke. It was all too secret.

The lesson should be clear: Innovation is great, but innovation in and of itself is not enough. The truly great innovative product is not only new; it fulfills an unmet market need. There simply was no clamoring for something to replace good ol’ Coca-Cola.

Creating the Next Big Thing is no easy matter. It takes a great idea, perfect execution, a market need and more than a little luck. But boy, put those together, and you can change the world.

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