The Hardest Innovation Question: How to Know When it’s Time to Let Go

Question: What do AM Stereo, IOT and 3D printing all have in common?

Answer:  All three were on everyone’s powerful trends list…and all three have had a hard time finding their moment.

It happens more frequently than you might expect: leaders in mature businesses with some balance sheet resources get a sense of where a tech or market trend is headed and make a case for investment and staffing.  This is almost always based on “getting ahead of the competition.”

Yet a truth that is rarely spoken is that being on a hot trend has nothing to do with being a great business. In fact, there is a long list of firms that have invested significantly in trends that just seemed inevitable, that were eventually quietly abandoned.

So what homework can we do to know the princes from the frogs?

Great businesses are Built on Expanding Demand and Solvable Constraint.

We are always looking for lines of business that have demand that has a deep driver to scale.  However, there is a fundamental secondary need – we are looking for businesses that have demand and constraints to be solved.

What exactly do we mean by constraints and why are they so important?  Constraints are those materials, know how or processes that are in short supply to be able to meet the client demand for the new product or service – they are the headwinds that emerging business models needs to overcome to support  demand. What do they look like? Well, they vary by the phase of the opportunity:

1. The first constraint is existence.  Peter Thiel wrote about this in his book Zero to One.  This is the work of recognizing and bringing together the first solution that the client or customer needs to get the job done. This constraint is largely the domain of the inventor, researcher and early stage entrepreneur.  
2. The next constraint is usually know how to build the fledgling solution with minimal scale.  Real insight is generated with every time output is stepped up.  Early in the life of the product, this is the domain of job shop and short cycle manufacturing.  The hard won knowledge gained at each increase becomes very valuable for those projects that catch the demand wave, and frequently becomes a sustainable advantage.
3. When real demand shows up, the next hurdle is often efficient processes.   A true high volume supply chain is aptly titled as it truly is a chain of events from raw materials to final product steps accumulating value at each stage.  These supply chains become products themselves, setting up global flows, deep technical tracking and implementation tools that are optimized together. At this point, raw material constraints frequently show up as well, forcing strategic supply tradeoffs across firms and geographies.

Closely coupled to achieving high volume is a high-quality path to get the client or customer.  These distribution teams and partners typically grow in sophistication with each step up.  At first they are quite personal and specific, geared to serve early adopters, then they quickly progress to support the core of the market.  The larger volume, later adopters need stronger strategic support. As this function matures, more and more specialized support tools emerge – think about application engineers, simulation tools and test kits.

Sometimes the kite just won’t fly.

So, why then have the three solutions I cited in the opening not become great businesses?

The idea: AM stereo was the idea that the enormous coverage of AM radio could be melded with stereo technology to up the game for high mobility, high fidelity audio.  The users expectations shifted from one radio station to 100’s of options when XM and Sirius became available with satellite-based options that didn’t need a huge investment in new infrastructure.  When is it time to let go?  When better technical solutions can meet emergent client needs.

The idea: IOT (internet of things) is interesting. Many deep investment are going on as of the writing of this post.  Many of these technologies were developed at scale, before the application cases were well understood. There has been a lot of great research here, and there may well be some long term successful businesses.  When is it time to let go? It’s time to be very disciplined about investing only in those applications with constraints as described above and powerful value creation that clients are willing to support directly.

The Idea: 3D manufacturing uses additive technology to “build” parts from digital files on site.  There has been a huge surge amongst the “one of” application space, but has struggled mightily to live up to its billing as a tool for large scale manufacturing.   When is it time to go?  The promising business cases here will be very specific and combine unique raw materials, manufacturing processes and application needs.  If this trifecta is not present, it’s time to back away.

Making the call to fish or cut bait is always hard, particularly once you have some investment in the outcome.  A very objective product market fit analysis, looking through the lens of solvable, profitable constraints can lead you to high quality decision making.

Exercising critical thinking is key if you want to avoid running through time, money and resources on opportunities that simply will not converge. If you’d like to chat, please give me a call at 847-651-1014 or use this link to set up a 20-minute, (no-strings-attached) consult.