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Entrepreneurs doing VC pitching are providing solutions to a problem they solve in a market. When you are really good at entrepreneurship, you begin to see how things that are not even close to sounding like the same problem can be resolved by the same solution. This is how innovation starts. Large institutions are racing to open innovation centers in Silicon Valley, where they can source the talent to not only innovate, but apply the same solution to multiple problems.
Innovation is a competition — the battle for the dollar. No single customer could tell Uber founders that they wished they had an app that would allow them to get a driver to a club and a different driver home to avoid paying one to sit and wait for them. There’s so many different complaints that went into that idea. Listening to complaints is where innovation starts. Often times you’ll hear a story from an entrepreneur who went out to solve a personal experience problem. This works for lucky entrepreneurs. Good entrepreneurs have a process to innovation.
Business intelligence — taking all the data and making decisions about what the business will implement as a result of all the data — is central to innovation. For example, your company makes a $100 mobile phone featuring a two-inch screen. Then you find out, through gathered data, that your customers want a six-inch screen. If you listen to the data, you would have to make the decision to give up your core audience for a new audience because the cost of the bigger screen would drive the cost of the phone from $100 to $300.
If you are a good entrepreneur, you are a product manager, and you are doing customer-driven innovation. Listening to the customer is key. Listening to customer complaints is the first step to customer-driven innovation, what I usually refer to as customer- driven revision. Uber is an example of customer driven revision. The founder of Uber asked himself — who are my customers, what do they want — and then created his service. The Four Seasons CEO should have created AirBnB for their luxury customers, but they didn’t. Most companies, even the ones opening innovation centers, don’t do the innovation part correctly.
Here are the nine steps to customer-driven innovation for entrepreneurs:
Market viability via big data. Don’t let the term “big data” intimidate you. No, you do not have to have artificial intelligence or be a data scientist to test the market viability of your idea to ask big data questions. This can be a process as simple as a Google search. Find demand by combining complaint words with the keywords of your search.
Deep listening. Track down people who said they want what you are selling or are already using what you are selling, and get their story. Focus less on the what, and more on the why questions when you interview them. Be empathetic. Feel their pain.
Cost analysis. Great, now you have your feature set, and you know what you want. In this step you ask, “how much does it cost?”
Market fit. Based on what it will cost, how much profit will you have based on the market size?
Demand. Now that you have established the demand and what people will pay, determine what the potential market size is in actual dollars. You don’t have to know how to code for this analysis; Excel will do the trick.
Market capture. Ask how much of the market you can realistically capture and how. Figure out how you can scale.
Build a product. Do steps 1-7 in marketing six times per feature to determine what set of features will get the best traction. Simulate launch.
Bring product to market. You want to really penetrate that market, right?
Repeat steps 1-7 again. Marketing is key post-launch.
Customer-driven innovation is not a process only used by entrepreneurs. Large institutions want the most innovative talent, because innovation is a competition. Not every engineer coming out of Stanford wants to be an entrepreneur. In fact, there’s a growing talent trend towards intrapreneurship within an institution where young bright minds want to innovate within a large company. Instead of starting the future, they want to grow and learn within an old institution where they can change the world.
Ford is one of many companies that has opened an innovation center in Silicon Valley to gain access to the talent, technology and insights that will make their company relevant for the next 100 years. When Alan Mulally took the reins at Ford Motor Company in 2006, the company was losing big money — projections were 17 billion that year. At the time, analysts were saying the company would go bankrupt by 2016.
Up until 2004, Ford was developing cars through a process known as FPDS, Ford Product Development System, which included a phased approach with reviews. Best practices and gate reviews added so much friction to the system that employees adopted a defeated culture. Much of the criteria was unclear, overlooked or just not that important. Employees innovation became stifled by the FPDS.
Mulally, a self-proclaimed student of Toyota, turned the ship around. He decided to take a lean management approach to enable innovation and really bring Ford back to the glory days. He did this by reinventing the FPDS to what is today known as the Global Product Development System, GPDS — a move toward lean development practices that start with customer-driven innovation.
Here are the six enabling factors Ford implemented to achieve customer-driven innovation.
- Focus on the customer. Made great products customers want by listening to the “verbatims” from customers as part of weekly meetings. Read the customer comments to understand their complaints and issues with products.
- Observe how customers interact with the products. From the iconic cars like the Mustang to the F150, engineers and managers attended events and talked to the customers to get direct feedback.
- Look at the problems. Engineers participated in weekly meetings to take deep dives into specific issues analyzing quality.
- Benchmarking. They held regular benchmarking events where sub-systems were broken down including suppliers, manufacturing and product engineers.
- Design reviews. Engineers and managers presented test data and design issues to identify problems, but also reviewed the personal development of each employee.
- Cross functional walk arounds. Leadership would walk around the build sites to review prototypes and production vehicles so that managers could ask questions, give direction and set priorities.
Ford became an innovative culture all by listening. These customer- and employee-driven innovation systems allowed the employees and managers to deeply understand what they must do to deliver products their customers would want and buy. This development dug Ford out of the hole. By 2013, Ford posted 14 consecutive quarters of operating profit. Ford went from a defeated culture to a positive atmosphere of “we can do that” for our customers.
Every entrepreneur or intrapreneur needs to focus on the customer, have a passion to create great products, and solve big problems in big markets.