In a nutshell, there are two ways enterprises can foster innovation:
- Strategic: Create a dedicated innovation team, or
- Ad-hoc: Jump-start it with events like hackathons, idea challenges, workshops, etc.
I believe that a dedicated team ought to be created if an enterprise wants to make innovation a strategic effort. If you have no one fully focused on innovation, you’ve decided not to focus on innovation.
But how do you put a strategic innovation strategy in place if you’ve got a shoestring budget, and you’re surrounded by innovation skeptics?
If you’re familiar with the lean startup methodology, it espouses creating the simplest possible product that a customer might buy, and using that for market tests in which a customer can actually purchase it — rather than tell you in a focus group that they would buy it. That’s what is known as the “minimum viable product.”
Keeping the “minimally viable” point in mind, I argue that strategic innovation should fall in the hands of a dedicated team, and this dedicated team should be a reflection of this principle. It should be a “Minimum Viable Innovation Team” (MVIT).
The MVIT consists of two to three individuals that complement each other with business or technical skills. One could say that the MVIT is like a “startup within an enterprise.” It’s nimble, frugal, and can run experiments and learn from them quickly.
In addition to having a dedicated team, we need a reliable and repeatable process that will give the entire innovation effort a structure and discipline. We’ll call this the “Minimum Viable Innovation System” (MVIS). We’ve been deploying many of these concepts at Everbridge, the publicly-held software company where I work.
Minimum Viable Innovation System
The MVIS is a cycle that repeats itself and has four stages: Identify, Champion, Deliver, and Reflect.
In this phase the Minimum Viable Innovation Team works to:
- Identify innovation opportunities
- Validate and shortlist innovation opportunities
- Define success/failure criteria
- Obtain (borrow) resources
- Manage/develop/deliver innovation product(s)
The MVIT (using the lean methodology) will work with business units (or on its own) to identify, validate, and define the success/failure criteria for every idea. Opportunity identification and validation will be a one to three week effort where:
- A few key individuals within a business unit will be identified to participate in the effort
- These individuals will meet several customers and probe for unmet needs
- They will look within their BU where innovation opportunities may already be underway, but not recognized as a new-growth opportunity.
For each opportunity that comes out of this effort, it must satisfy at least one of the following:
- It should be a pain point that no one is addressing well
- Something that must be done better due to a legal/regulatory need
- It must be something that can be successfully built faster than others, because we have a “secret sauce” or capability that gives us advantage over others.
In addition to uncovering the opportunity, the BU and the MVIT will work on estimating the opportunity potential and the resource need to deliver.
Innovation opportunities are always surrounded by strategic uncertainty, and since the goal is to build an innovation system, we need an oversight or governance mechanism that will keep the MVIT in check by having the autonomy to make decisions about starting, stopping, or redirecting innovation projects. In addition to keeping the team in check, it will also approve or deny budgetary requests for such projects very much like a venture capitalist does in the startup realm. You might call this the “Venture Champion Group.”
The MVIT works with the VC group to gain approval and additional resources. A few guidelines to consider:
- When working with the VC group to get approval for an innovation opportunity, the MVIT does not need unanimous approval from the entire committee – it needs just need one who deeply believes in the opportunity.
- Each innovation opportunity should have a threshold investment amount that the MVIT can spend without asking for approval; for instance, $20,000 of a $500,000 approved budget for an innovation opportunity.
- As the opportunity and innovation delivery progresses, the team may run into a need for a “break-risk investment,” where additional funding may be needed to get over a risk; e.g., an MVP was being built on a public cloud service with a $50,000 approval, however there is now a need to have the MVP run on a private cloud, which increases the infrastructure cost.
With the approved list of innovation opportunities, the MVIT works with the various BUs to deliver, again using lean methodology.
During the Identify phase, resource needs will have been discussed. Ideally for an MVP, the BU and MVIT should look at using existing resources, as that drives engagement and builds a culture of innovation throughout the company. Resources could come from within the BU or from other BUs that may be interested in building and delivering the opportunity.
With each iteration of this cycle, there will be lessons learned that should be examined and acted upon. The reason the MVIS is a system is so that there is an opportunity to design and optimize a repeatable process. To build a culture of innovation, these learnings, successes, and failures should be shared with others who are outside the MVIT. That may happen through blog posts, videos, “lunch and learn” workshops, etc.
Cost & Revenue
In the startup world, there are various stages of funding and exits: seed, angel, venture, IPO, acquisition, etc. A startup within an enterprise will likely not run into those, but that doesn’t mean we cannot learn from them and model our cost and revenue after them.
Creating an MVIT is a strategic decision and will require some sort of funding allocation to cover the salaries of the two-to-three person team. In addition to the salary, the enterprise should consider creating a pool of “experiment capital” it is willing to risk.
If the salaries of the team require $500,000/year and the enterprise wants to invest in 10 innovation opportunities each year, at an average $100,000 per opportunity, we’re talking about a budget of $1.5 million/year, where $1 million can be a variable expense, but the $500,000 is fixed.A simple way to fund this activity is to split the cost equally among all the BUs, or proportionally based on the size of each BU. The funding could also come from corporate — but that may diminish the incentives of BU’s to be actively involved with, and supportive of, the MVIT.
It is the MVIT that is responsible for building the MVP and supporting the product in the earliest stages; it should be able to support a handful of customers with shared front-line resources from the BU that has the domain knowledge. Once the opportunity is ready for a broader roll-out, its ownership/management is moved from the MVIT to the BU, where the BU buys the opportunity from the MVIT. The following points can help illustrate the terms of the transaction and where the revenue is assigned.
- MVIT builds MVP, revenue target to exit MVP is $500,000, at a cost of $100,000
- MVP brings in some revenue, 100 percent of revenue is assigned back to fund
- MVP hits $500,000, reaches two customers, but it’s not ready for market
- BU “buys” 90 percent of the opportunity for $200,000 (2x cost);
- Opportunity continues to bring in revenue, 90 percent assigned to BU, 10 percent assigned back to fund.
This allows the fund to grow organically, by generating a return on its investments.
Why? Because it’s not easy.
The reality of innovation is that it only sounds easy – but it is not. Startups make it seem easy to innovate, but for them it is essential. Enterprises, on the other hand, have established streams of revenue that they work to grow over time, but which can create a culture of comfort and complacency.
The MVIS allows an enterprise to build a hybrid model, where you can have the discipline of an enterprise but also the fluidity of a startup. The MVIS allows you to create an engine that brings with it some repeatability and opportunity for optimization.
The main reason enterprises fail at innovation is because they simply do not recognize the long-term cultural and strategic effort needed to become “innovative”; the MVIS helps put a framework in place that an enterprise can build upon.
This post borrows and builds upon ideas/concepts from various sources:
- The Lean Enterprise, by Trevor Owens and Obie Fernandez
- Concepts from Steve Blank: “Why Companies are Not Startups”
- Works from Innosight:  Borrows and builds on the Harvard Business Review post “Build an Innovation Engine in 90 Days” by Scott Anthony, David Duncan, and Pontus Siren; remodels MVIS.
- Cool icons for some diagrams courtesy of Icons8