How Midsize Businesses Can Experiment Without Blowing Millions
A creative innovator in most startups can’t fail too badly since they don’t have a lot of money to lose. Yet that same innovator in a midsize company -- typically between $10 million and $1 billion in revenues -- can easily throw millions down the toilet. With the support of a profitable business throwing off free cash flow, too many entrepreneurs either waste it through dissipation or distraction or make reckless attempts at growth that too often blow up with millions in losses.
That’s not to say that innovation isn’t critical to midsize firms. In fact, it’s essential to continued growth and increased revenues. But unlike startups, midsize firms must follow a disciplined process that highlights those innovations that will support the company’s strategy and deliver powerful financial results.
To ensure that your firm pursues only those ideas that are likely to make a big improvement, be mindful of these four critical elements to a focused, powerful innovation effort:
Avoid dissipation and distraction
Midsize companies have functional teams that must drive the core business forward efficiently and effectively. After all, they’re producing the free cash flow. Just like a horse has blinders to keep it pulling forward, we must put blinders on the core business. Don’t let them see or hear about all the new strategic ideas that the top team or the R&D team are exploring. The CEO is usually the worst offender, whose excitement and authority often distract from and pull resources away from the core business.
Ideally, have a separate team experimenting with those ideas or identify a specific person in each function and allocate a limited amount of their time toward ideation and innovation. Both the core business functions and the innovation function should have explicit limitations on the resources they are allowed. Stealing resources up and back destroys accountability and encourages sloppy management all around.
Make a written 10-point plan
Every idea sounds amazing as it emerges from our brain and out through our lips. Thousands of dollars are wasted when lower-level employees try to make progress on an idea that is unclear and misunderstood. To remedy this, the idea generator should clarify the idea by writing it down. Use this useful tool called a "Ten-Point Plan" that requires the person to frame out the idea. It is best that the idea generator develops the habit of expressing their ideas in this format. Many times it’s the CFO or COO with the idea generator (often the CEO) who, together, create the first draft.
By using this strategy, many “brilliant” ideas die before that first draft is written because big flaws become obvious. That’s great -- an idea has been discarded with almost no wasted resources. Other ideas will continue to look good even after the plan has been passed around the C-suite. But don’t execute the plan just yet.
Make the ideas compete
A new idea that can propel a midsize company forward should not have a 30-day market window. Every quarter, collect those ideas that survived the creation of a ten-point plan (often called a business case) and compare them, choosing the top two or three that promise the best results. Take your entire R&D allocation for testing new ideas and focus it on these few top candidates. Table all of the other ideas until the next quarter’s review session, where they’ll be pitted against any new ideas (expressed in business cases).
With just a few promising ideas to work with, test them carefully, systematically reducing operational risk (meaning the risk inherent in building the product or service), the market risk (the risk that the market will buy at the planned price and quantity) and the forecasting risk (the likelihood that the team will be able to deliver results on time and on budget). See more on de-risking an idea here.
For midsize companies to continue strong growth, they must contain and direct their ideas and innovation energy through this simple process. The result will be more resources targeted towards higher potential opportunities, thus resulting in more robust growth.