Turn innovation into a tool for business success

Kariuki followed the events of the Global Entrepreneurship Summit (GES) in Nairobi this past weekend carefully. He appreciated the public support provided by both President Uhuru Kenyatta and President Barack Obama and looked forward to the fruition of all the pro-entrepreneur promises.

In anticipation, Kariuki contemplated how innovative his service delivery was and the technological backend platform of his product. So he charged forth determined to invoke as much creativity as possible in his business and to set himself apart as the most innovative in his field.

However, Kariuki did not realise a critical hindrance of innovation – sometimes it boosts a startup, other times it kills it.
Fierce debate rages in literature as to the innovativeness of successful startups. Many aspiring entrepreneurs hear the common mantra to “innovate”.

Dozens of studies link the causal effect of innovation to startup business success, with research originating back to 1934 up to the present. But some recent explorations show that innovation can actually harm a new business. The latest research shows that the old cliché “one size fits all” does not work for creativity and innovation.

So how do you innovate with your startup in light of the new opportunities available following the Global Entrepreneurship Summit?
First, innovation takes on many forms starting with product development.

An innovative product delivers different types of value to customers such as newness, convenience, usability, accessibility or ease of use. Entrepreneurs should go online and search “design thinking” in order to think through innovative processes to imagine their own product development.

However, innovation and creativity also may come into force through the “how” of your business, such as how you distribute your product, or how you operate your offices.

Entrepreneurs can embed innovation that beats competitors in their manufacturing process like Apple, in their human resource process like Google and Safaricom, in the organisation structure like General Electric, in the technological backend platform like Djuaji, in marketing campaigns like OLX or in customer service interaction innovations like Naked Pizza.

Second, each industry passes through four key phases in its sector-specific life cycle: fermentation, shakeout, maturity and decline. Some of the Kenyan technology solutions featured at the GES still exist in fermenting their businesses and ideas, while others have begun competing with rivals in the shakeout phase.

The mobile money revolution in Kenya thrives in the maturity phase while in many other countries it still ferments. Analysts view landline phones in the decline phase of innovation.

Since all industries pass through the four stages, innovations become necessary to keep your business alive and profitable.
Third, know how innovation may help your startup. Research shows that your industry’s fermentation phase poses the most risk versus reward for innovation.

Researchers Steven Klepper and Wesley Cohen found that innovation lowers a firm’s production costs through creative techniques.

David Teece and team discovered that innovation improves dynamic capabilities of startups while Michael Porter famously delineated the link with improved abilities to escape competition. Interestingly, professors Shaker A. Zahra and Gerard George uncovered that innovation enhances startups absorption capacity.

Many new businesses struggle with meeting orders in a timely manner as they fight to grow and build economies of scale. Innovative firms find ways to absorb growing customer demand.

Fourth, innovation does not always lead to benefits; sometimes it poses tremendous risks. You never know whether your next creative idea will turn you into the next Google or Apple or whether it will sink you to the future Yahoo or Blackberry.

In 2009, Mikael Samuelsson and Per Davidsson uncovered that the pursuit of innovations produces riskier and often more complicated “less linear” startup processes. Such complication comes at a time when speed and agility prove critical in a fermenting industry.

Greater risk

Researcher Allen Amason and team found that innovative startups experience greater risks that their new products will be viewed by consumers as a novelty item as opposed to the competition that does not innovate.

One example studied in Kenyan university involves Clocky the Runaway Alarm Clock. The product featured in 2005 in the US as an alarm clock with wheels.

Once the alarm began to blare, the wheels started turning and the clock moved all over the floor of the user’s bedroom. The idea meant that the sleepy professional would be forced to get out of bed and search for the alarm clock in order to turn it off and, therefore, never miss a morning meeting.

Clocky received significant Press coverage in 2005. However, the firm innovated in the wrong way. It failed to innovate its processes so as to fill orders. Though the market viewed it as so fantastically the innovation came off as purely novelty with less functional appeal. Inasmuch, it received short market attention before it fizzled into obscurity.

Allen Berger and Gregory Udell published a work detailing how difficult it is for innovative startups to secure financing while Raoul Minetti in 2011 and Martin Brown in 2012 uncovered that banks view innovative firm assets as insufficient security or collateral for loans since liquidation of such items worries banks.

Finally, researchers Ari Hyytinen, Mika Pajarinen and Petri Rouvinen in Finland published this month stunning new findings that show innovation at the earliest stage of business startup hurts success and leads to firms dying off. On the other hand, innovation slightly later in the business formation process of fermenting industries helps business success.

One aspect remains clear: innovation is powerful. Whether you turn it into a tool for business success or the anchor that drags your business to drown depends on the timing.

Discuss Kenya’s innovative businesses with other Business Daily readers through #GES2015 on Twitter.

Professor Scott serves as the director of the New Economy Venture Accelerator at USIU’s Chandaria School of Business, www.ScottProfessor.com, and may be reached on: [email protected] or follow on Twitter: @ScottProfessor.