As reported on Inc.com:
As an investor, innovation is a term I certainly like to hear these days, but many entrepreneurs try to take it to the next level, by claiming to have ”disruptive innovation.”
What you probably don’t realize is that the term disruptive brings its own set of baggage, implying to investors extra high risk, high market building costs, and a long, slow ramp before payback.
For example, you may think that disruptive smartphones were an overnight sensation, but in reality, it took huge investments by several different companies starting in 1992, including IBM, Apple, and Google, before the market really took off in 2007.
The disruptive technologies in electric vehicles and artificial intelligence have taken even longer to see any dramatic payback.
Thus, if you are looking for initial funding for your new solution, I recommend that you focus your sights a bit lower initially, maybe even counter-intuitive to your thinking, and target markets and opportunities which have potential for a near term payback, with less up-front risk.
Here are some example strategies to pitch and practice:
1. Adapt an existing product to a new use. Innovation doesn’t even require technology. You may offer a different application for an existing product, a new pricing model, or a new level of support. Or find an entirely different application for an existing product. As an example, De Beers once produced only industrial diamonds, but found a market as well in engagement rings.
2. Pick a specialized technology within an existing movement. Let the heavy lifting on major technology evolutions be done by big players, such as Apple or Google. Think smartphone cameras, as opposed to a new smartphone design. Within all large markets, there are many opportunities for smaller innovations that don’t require a huge investment.
3. Focus on a large opportunity in a low-growth market. High-growth market segments always catch your attention, but also are likely to be attacked by bigger players with deeper pockets. Instead, find an innovation that doesn’t require market growth to thrive– adding technology in a big market segment can be a big win even if the market doesn’t grow.
For example, by most definitions, the retail market for a cup of coffee is mature, but that hasn’t stopped smart entrepreneurs like Roasting Plant from enjoying success by engineering a better cup of coffee. The opportunity is huge within the existing market.
4. Find a niche market where you have unique insight. Experience is a great teacher. If you can tell me with conviction about what you have learned to be a viable innovation opportunity in a specialized area you know well, I might believe that you can produce a return in my lifetime.
This step may also lead to a disruptive innovation in the future.
5. Target viable customer segments overlooked by competitors. Consider a non-mass-market segment less interesting to incumbents, such as needing a highly-customized solution, or customers who can’t afford the main-stream solution. Emulate the expansion of personal computers into industrial-strength versions, and cheap low-function boxes.
6. Move an existing technology into a new business area. Usually it’s an advantage to have insider knowledge, but insiders don’t always see how a new technology fits into their domain. Just as the telephone and watch industries never realized how computer technology could revolutionize their device, other areas may quickly buy your innovation.
In reality, neither Uber nor Lyft created any new technology, they just used existing GPS tracking and simple apps to improve the customer local transportation experience. Yet the customer and driver both appreciate the service innovations provided.
Another reason for implementing and pitching one of these alternatives is that market disruption is rarely predictable, so claiming your certainty can only hurt your credibility. Disruptive innovation is really only evident in hindsight.
Thus I recommend that all you passionate entrepreneurs aim your innovation for the stars, but don’t highlight that focus to early investors or early customers.
I have found that building a new startup is best thought of as an incremental process, fueled by small successes, many pivots, and growing credibility and confidence. Counting on a “big bang” disruptive technology approach up front is a sure way to maximize your risk.
Author: Martin Zwilling
Date: 2020 05 15
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