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Size Matters: Big Success in Small Business Innovation

Size Matters: Big Success in Small Business Innovation

I grew up in an era where nearly all of the businesses in my town were operated by individual small business owners.  My dad was one of them, and I was lucky – or cheap labor, depending on one’s perspective – to work for him.  One thing I noticed way back then was how little time Dad and his fellow business owners (they weren’t called entrepreneurs back then) had to think about what came next.  No one seemed to have time to plan ahead as everyday was, to quote my dad, “A fire drill.”

Today’s business owners continue to face fire drills, and time – an entrepreneur’s most precious resource – remains in short supply.  Entrepreneurs are preoccupied with addressing daily challenges, oftentimes with their company’s survival on the line.  That makes even the thought of innovation a luxury that many believe they can’t afford.  And yet, in these times of increased competition and hyper-demanding consumers, what company can afford not to innovate?

The harsh reality is that entrepreneurs cannot transform their companies, large or small, into innovation machines overnight.  Flipping innovation’s “on” switch today does not yield profitable results tomorrow.  It takes detailed planning and disciplined execution to create the profitable outcomes that result from a company’s innovation culture.  Even if there was an innovation switch, it takes patience and leadership to get a company’s employees to believe that innovation is key to unlock the company’s financial success. Faced with these challenges, it is no wonder that entrepreneurs are tasked with designing and applying a system that injects innovation into the company’s operations while accurately measuring the impact of innovation on financial performance.

That is the approach recommended by Andrew J. Sherman in his book, Harvesting Intangible Assets.  In reading Sherman’s book, I was struck by how practical and doable his methods are for successfully incorporating innovation into a company, regardless of its size. One of Sherman’s action items is to follow the Google “70/20/10” rule.  Google operates a structure that allocates 70 percent of an employee’s time to perform daily responsibilities. 20 percent of the employee’s time is assigned to innovating around those daily tasks, and the remaining 10 percent is assigned to what is described as “anything that drives value for Google or benefits society in general.”

The beauty of the 70/20/10 rule is its action-oriented simplicity.  Granted, very few companies have a bank account the size of Google’s, so what works for Google doesn’t mean it will succeed at lesser companies.  But what is telling is how the rule recognizes that most employees get caught up in the routine and rigors of daily work, allowing innovation to be placed on the backburner while daily tasks continue to take priority.

I had Google’s 70/20/10 rule in mind when I spoke with rising entrepreneur Tim Elmore.  Tim co-founded Gainesville-based Filastruder and serves as the company’s CEO.  Tim describes innovation as “The process of developing new things that have a net benefit to society.”  Imagine innovation’s net benefit if more companies followed the 70/20/10 rule with the outcome of adding value to the company and benefitting society in general.

Filastruder is a small company, but innovation doesn’t recognize size. The objective is to incorporate innovation and try it on for size regardless of timing; nothing should prevent a business from introducing and maintaining an innovation-centric culture.

Andrew Sherman can help with this transition.  Sherman maintains that regardless of size, companies mistakenly view innovation as only concerning cutting-edge ideas and green-field opportunities. This is incorrect for small businesses in particular because innovation is in the eye of the beholder and increasingly benefits in the eyes of customers and employees.  Sherman recommends that companies design and operate a disciplined system that evaluates and implements innovative solutions; he calls his system “RATS,” which stands for “Resources, Advocacy, Testing, and Steady Demand.” Though the term RATS doesn’t sound like it originated from an image conscious marketing department, the system is actionable and designed to produce profitable results.

Let’s examine RATS and how it benefits business operations.  First, this actionable system requires a commitment of Resources which include money, human capital, time and patience. If these resources are in short supply at a company, the goal is to do the best possible job with what little resources are available.  Next, business owners need the support of internal and external Advocates (champions) who support and encourage the company’s transition to an innovation-centric operation. Who is your champion?  If it is you, then deputize advocates both inside and outside the company to uphold and support the company’s mission.

Testing is next, where evaluating innovation’s effectiveness helps predict potential financial results. Key steps in the innovation process are to test, measure, evaluate, modify and re-test; a similar term I hear a lot from today’s entrepreneurs is “Wash, rinse, repeat.” Finally, quantify Steady demand by identifying targeted customers, penetrating profitable sales channels and aligning with prospective strategic partners. Do this by getting out of the office and talking to customers, suppliers and strategists; listen intently to what they tell you.  The most useful feedback is highly valuable.

The appeal of RATS is that it can be plugged-and-played into a company’s core business activity.  That is, innovation is not a distinct activity that is separated from daily routines, but is the daily routine. According to Valerie Sheehan, President & CEO of Gainesville’s ToneRite, Inc., that makes innovation “the core process that brings together creativity and ingenuity to solve problems and create value.”  Valerie’s company is practicing what she preaches: ToneRite is an industry leader that is experiencing explosive sales growth and expanding market share; ToneRite is fueled by innovation.

Even for a determined leader like Valerie, innovation success is not a given.  Markets shift, strategic partners find someone else to align with, technologies advance and core customers spend their money elsewhere.  These challenges ring true for a high-flyer like ToneRite as well as most small businesses; the crushing pace of change in modern business forces smaller companies to innovate more – not less – than larger companies.  Today’s leaders are required to think ahead and take proactive steps or marketplace advantages can and will disappear overnight. To paraphrase Intel’s former CEO Andy Grove, “Only the proactive survive.”

That’s why it is a great time for small business entrepreneurs to innovate. Most have close connections with customers, win-win relationships with suppliers and a “we’re-in-this-together” bond with their employees.  These emotional ties drive innovation success. I have learned never to underestimate the value of emotion and the personal bonds forged by business connections in achieving innovation success.

Finally, the way to innovate successfully brings us back to Andrew Sherman’s Harvesting Intangible Assets. Sherman is strongly vocal about entrepreneurs interacting with customers, whether in person or online via their company’s social-media platform. Engaging with active customers in the form of feedback, advice and criticism is a highly effective way to introduce and measure innovation.  Social media is an effective tool to do this, so use Facebook, Twitter and company websites as much as possible to engage customers.  If your innovative solutions don’t resonate with customers by solving their problems, you’ll have a product that goes unsold or a service that doesn’t get bought.  Asking customers for their experience in using your product or service is not a weakness but rather the sign of a company committed to innovation.

Seeking feedback is a trait of industry-leading, innovation-oriented companies.  These companies understand the importance of owning the “voice of the customer” which is a concept I learned from Gainesville’s own John Spence, a globally recognized CEO who has been recognized by Trust Across America as one of the top 100 business thought leaders in America.  “Voice of the customer” companies like Publix, Apple, LL Bean, FedEx, Southwest Airlines and Nordstrom “get it” when it comes to successful innovation and customer service excellence. These companies “get ideas from customers who enjoy using their products and suggest improvements to make them better. Customers serve as advocates for these companies,” says Spence .

Why don’t more companies follow this approach?  It seems obviously simple that listening to customers is the pathway to success, yet a company like Electronic Arts, which ranked #1 in a Consumerist reader poll as the “Worst Company in America” in 2012  and 2013, – doesn’t understand the value of owning the voice of the customer.

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Granted, the companies I cited are large ones, with plenty of resources.  Yet the lesson from this example can be best used by small-business entrepreneurs:  close customer connections propel innovation into a small company’s operations.  The strategy is practical and actionable because most small business entrepreneurs are fundamentally customer-focused and personally connected to those who buy their products and services. For these entrepreneurs, customer problems are challenges to be overcome and customer feedback improves the chances of selling to new customers. They and their companies are responsive, accountable, improvement-oriented and flexible.

Most small business entrepreneurs probably think they don’t have the resources to innovate. However, limitations are friend – not foe – to successful innovation. The best and most promising innovative solutions have been derailed by too much money, too much time and too many “cooks in the kitchen” combined with not enough customer feedback and advocacy.  Yes, innovation can feel like a fire drill and sure, it can cause heartburn. But, can your company afford not to innovate? I didn’t think so.

That’s why I encourage you to be smart and fearless when it comes to innovation.  Have the conviction and the guts to try new approaches.  Listen carefully to what customers tell you about their likes and dislikes; so what if it’s painful to hear?  Successful innovation is well worth the discomfort you might feel, so take bold steps to make improvements based on the most truthful feedback you receive.

Believe what experienced entrepreneur Gregg Pollack, founder and CEO of Orlando-based Envy Labs, says about innovation:  “When a company stops innovating, they stop improving. Then, it’s only a matter of time before someone else comes along and does it better.” Gregg’s advice reminds me of the nursery rhyme my Mom used to sing to us kids:

Good, better, best……never let it rest.

Until your good is better…..and your better is your best. 

Mom delivered a life lesson.  But she could just as easily have been talking about innovation.     

David Whitney always listened to his Mom.  He serves as the Entrepreneur in Residence in the University of Florida’s College of Engineering.   Whitney teaches a course, Engineering Innovation, to both undergraduate and graduate students at UF. In addition, Whitney is the founding Managing Director of Energent Ventures, a Gainesville-based investor in innovation-driven companies.

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