Innovation Ends at Product-Market-Fit

This is the fifth myth in our series on innovation myths that tackles the notion that the more ideas and possibilities we generate, the more likely it is that we will have one that turns into a scaled venture. Click here to view the series or download the Busting the Myths of Corporate Innovation eBook now.

In the fourth book of Douglas Adams’ Hitchhikers Guide to the Galaxy trilogy, he explains why a crowd full of humans are unable to see an alien space craft hovering in front of them. He says they are subject to a “somebody else’s problem field” and their brains edit the image out of view. This is what seems to be happening when some innovators consider how to scale a venture to a revenue generating entity. They code it as somebody else’s problem to solve.

I saw this in action recently at an innovation conference in Austin, Texas. One of the breakout sessions was with the leader of an innovation lab for a large technology company. She made an impressive presentation of the company’s approach to bringing ideas from inside and outside the company, nurturing them until ready to exit the unit. I was impressed. This was a great example of ideation – coming up with ideas to solve customer problems – and incubation – using experiments to validate the opportunity. On the far right of the chart describing the process was the word “scaling” in much smaller font than the rest. I asked how they approach scaling the ventures that achieved “product-market fit.” I expected to hear of similar sophistication at this step in the process. Instead, she looked down, laughed, and said, that they do not really work on that. It was covered by a “somebody else’s problem field!”

In fairness, she is not alone. Our research finds that while 80% of companies claim to ideate and incubate new ventures, only 16% of companies successfully scale them. A key contributor to this problem is the almost exclusive focus that companies place on the first two innovation disciplines of ideation and incubation. These are methods that originated in the Silicon Valley startup ecosystem. Design thinking and lean startup have been honed to support entrepreneurs in their quest to create new businesses. They have now been disseminated to corporations by an army of trainers and consultants. However, when it comes to scaling, there are few methodologies to guide corporate decision-making. Scaling is the missing innovation discipline.

This is unfortunate, because it turns out that scaling is the innovation discipline where corporates enjoy the biggest advantage and have the least to learn from startups. The point is proved if you consider the most common approach adopted by entrepreneurs to scaling their ventures – they get acquired by a large corporation! There is no dominant methodology for scaling a startup because it’s not part of the problem that most seek to solve. Innovation to many startups and incubators ends when there is evidence that an idea has market traction – product-market fit. However, ignores the most vital step in the process – converting an idea into something that has market impact. A billion-dollar market valuation is very attractive, but it is based on the belief that it will convert into revenue. That requires work on how to get a product into the hands of customers in a way that they want to use it, in a way the company can support, and at an acceptable financial return.

How should corporates think about scaling? In an article in the MIT Sloan Management Review, my colleague Christine Griffin and I tell the story of the US electronics retailer, Best Buy, and how they have successfully scaled Best Buy Health into a business with $525 million business, projected to grow at a 35% to 45% compound annual growth rate through 2027.

When Best Buy announced it would enter the health market in 2018, it was an unexpected move for a consumer electronics retailer. Home health care was known to be a potentially lucrative market, forecast to be worth $265 billion by 2025. The big opportunity is to get patients out of hospitals and use technology to monitor them at home. This frees up hospital beds, is much cheaper to provide, and leads to better clinical outcomes because patients recover much faster at home.

What could Best Buy possibly offer that existing players lack? The key turned out to be its “Geek Squad.” The problem with home health care is in the home. Stressed out families lack the time to learn how to install and operate new equipment, so there is a critical barrier to realizing the potential for care at home. Best Buy have built the technical capabilities and links to hospital systems, mostly through acquisition, and connected this to its trusted brand. Americans are used to inviting the Geek Squad into their homes for technology installation, so it was an obvious easy step to have them start installing health monitoring equipment as well. All Best Buy needed to do is train them with the empathy skills they would need to manage patients, many of them elderly, so that they could train them to use the new technology.

What Best Buy did is use their assets to convert a nascent business idea into an operating business. They have customer access – routes to market, sales teams, brands; they have capabilities – technological, product, design; and, they have the capacity to scale – manufacturing, service teams, call centers. The same can be said of other successful corporate ventures, such as LexisNexis Risk Solutions, which leveraged the existing firm’s brand, go to market, and data assets to build a multi-billion-dollar unit. It is also true for AGC, as it moved into life sciences, leveraging the core chemistry capability of its traditional materials business.

Innovation is not finished at product-market fit. You need a path to scale that enables you to assemble the assets required to build a profitable business.

This is the fifth myth in our series on innovation myths. Download the Busting the Myths of Corporate Innovation eBook now >>