Today’s obsession with innovation: The upside and the downside
Matthew Cushen, co-founder of Worth Capital, says being innovative attracts listings and customers - but boosts pressure when it comes to keeping them
It’s a huge buzz to be introduced to the hopes and dreams of many entrepreneurs through The Start-Up Series.
But, alongside Worth Capital, I have another business. For about eight years now, I’ve been an ‘innovation consultant’ – before being approached to join an innovation consultancy I didn’t know such things existed.
However, it’s felt like a calling. Helping large business (such as IKEA, Waitrose and the Restaurant Group) to invent new products, services, experiences, brands and strategies; along with helping their leaders create the conditions within their business for innovation to thrive.
So, I am all too aware of how obsessed large businesses are about innovation – innovating themselves and finding new and innovative products and services for their customers.
The focus on innovation has created a much more benign environment for persuading large businesses to support new ideas. For example, it is still hard to gain a listing in one of the big grocers; but it’s nowhere near as hard as it used to be.
While still risk adverse, large supermarket buyers are targeted on a modest level of range churn at each occasion they change planograms. They are now much more likely to get out from behind their desks and hang out at interesting trade shows or take part in judging events and such like.
Beyond the grocers, there are loads of other examples of businesses proactively reaching out to entrepreneurs in efforts to get hold of innovation.
Unilever and Kellogg’s are two examples of large corporates who have venture funds to invest time and cash in return for equity. DHL, British Airways and many others are holding innovation competitions. John Lewis and Telefonica have ‘innovation labs’ where they will provide space and access to expertise and influence within their business. Compass and Mitchells & Butler are two among many who hold pitch days to efficiently see and consider listing many new brands.
Technology has also created more channels to market that are relatively easy to access. Pass some technical and content standards, and anyone can publish an app. Write a book and you can bypass getting a publisher – simply self-publish and sell on Amazon.
Going back to the grocers, Ocado have a much lower bar than the large supermarkets on what they will try out. While a brick-and-mortar retailer has an opportunity cost of the sales and margin an alternative product would have generated from the shelf space, Ocado just has the incremental cost of a small space in their dark warehouse.
However, there is a sting in the tail. Let’s stick to our supermarket example. It might be easier to gain a listing, but the next challenge is making sure that listing performs. The buyer will be even more ruthless as ever in turfing out an under-performing product and bringing in the next shiny new innovation.
Or think about apps. Once the app has been demoted from the front page of a user’s phone or tablet, it is hard to keep it sufficiently top of mind to continue to generate revenue.
So there is no respite for entrepreneurs. Bask in the glow of landing a key customer or distribution channel and celebrate wildly. But the next morning get straight to work, thinking about how to hold on to the listing or channel. What is the marketing plan that will support the sales? What is going to keep the product top of mind? How are you going to create loyalty? How can you create advocacy?
In the early days you are unlikely to have a high market presence, so these questions need answering specifically for the channels, platforms or retailers in which you are present.
Again, back to the supermarkets – say you have a listing in Ocado and 300 Waitrose stores. Sounds good, but Ocado is 1.3%, and 300 Waitrose is about 4% of UK grocery market share. So general ‘brand building’ activity would be about 95% wasted. You are better off targeting the 5 to 5.5% of the market that actually has access to your product. So develop targeted promotions, try sampling, etc.
As well as the obvious importance for growth and cash generation, I’d wager investors are getting savvy to having their heads turned by listings and channels and are much more demanding about understanding rates of sale, traction and retention in existing channels.
Are you seeking investment? Startups.co.uk, with Worth Capital, is running The Start-Up Series: monthly competitions giving two companies every month the chance to win equity investment of £150,000 each. To find out more visit: www.startups.co.uk/thestartupseries