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How Visionary Leaders Create the Conditions for Innovation to Flourish Every successful business has a culture focused on seeking better solutions to inevitable problems.

By Mike McDerment Edited by Dan Bova

Opinions expressed by Entrepreneur contributors are their own.

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Wake up. It's 3 a.m. I'm in a cold sweat. I can't sleep. I know I brought this on myself, so I only have myself to blame. This is the life of a founder who just bet his company on a risky effort to reinvent its core product.

Ten years ago, I accidently saved over an invoice and founded FreshBooks to make invoicing and accounting ridiculously easy for self-employed professionals and their teams. Since we started the company, a lot has changed. Ten years ago, there were no iPhones. Today, you can push a button on your phone and a car shows up at your door.

In a nutshell, consumer expectations have changed dramatically. At FreshBooks, we realized that to keep pace with change, we had to evolve. So, we replatformed our software business, recreating it nearly from scratch. It wasn't an easy decision to replatform; the entire process took nearly two years and was harrowing at times. Millions of people use our software every month, and wanted to make changes on the fly without losing them en masse. Now that we're standing on the other side of that experience, I wanted to take a moment and debunk some clichés about innovation and share some of what we learned from the process -- from the perspective of a founder and CEO.

Related: How Marketers Must Evolve to Remain Relevant in a 'Post-Millennial' World

My bias: Innovation is poorly understood.

There are a lot of platitudes surrounding innovation, but I don't find them helpful. In fact, after our experience, I find them downright misleading. The best advice I can give you is this: Your job as a leader is to create the conditions; the outcomes will follow.

What conditions? Here are my top four: transfer of ownership, ambitious objectives with clear constraints (they force creativity), existential urgency and a failsafe environment. Let's explore these four concepts, through the lens of clichés.

Myth 1: All you need to do is empower people.

I hate this. It's bologna. The key to innovation is not enabling people to do things. It's setting people up for success. And mark my words, those are not the same thing. Innovation, fundamentally, is not a straight line; it's a weaving path. The essential ingredient to navigating that path is imbuing your team with ownership of the projects they're working on, otherwise they will give up when the results don't come easily. So imbuing an ownership mindset -- not empowerment -- is the key.

In our case, we zeroed in on a handful of our longest-serving, highest-performing employees who also were chafing at how we did things. They had great customer empathy and high frustration with how we built software. This gave us a curated team of people predisposed to succeed at solving customer problems, and who had a desire to change how we built software and how we worked. The combination of past performance, customer fanaticism and the desire to change our organization led to a great ownership mentality. My point is "just empower people" would have gotten us nowhere -- empowering people who hadn't fallen in love with the problems would have undermined the whole thing.

Myth 2: Build a startup within a startup.

Being a startup is a loaded term -- too loaded to be helpful for your purposes. More important than building a startup inside your company is finding a way to build and maintain unbridled urgency. My take? That's tough to create within folks who get a paycheck every two weeks. Don't believe me? If you've ever struggled to meet payroll, then you know what I'm talking about. That's true urgency.

To achieve this level of urgency inside your company, the project needs to have an existential threat. It needs to live or die based on the efforts of the team. If you have imbued your team with an ownership mindset, the project will become their baby. The notion that it can die will make their skin crawl. You want that. Sorry, but it's true.

Related: Figuring Out What Can Sink Your Business -- and How You Can Save It

To create this effect, our team had milestones to achieve. The milestones were pass /fail, or live/die, if you will. We were so uncertain of the path that each milestone would be created as we completed the previous one. Why? We simply did not know where we were going. We, as the senior leadership team, were also on that uncertain, gut-wrenching path, and we knew trying to get the order of operations straight at the outset would have been impossible. I'll say that differently: We could have made a nice gantt chart, and it would have told us our delivery date -- the year 2051. Sometimes you really do need to change the engine on the plane mid-flight.

So what were the gates we used? The team had to:

  • Develop a two-dimensional product design in two weeks
  • Develop a working prototype a user could test and play with in two months
  • Generate $160 of revenue nine months
  • Launch to all our customers four months later

Looking back, these milestones seem sane and reasonable. Rest assured, it wasn't obvious at the time that these where the right gates, but they were good enough milestones. The team took care of the rest.

Myth 4: Embrace failure.

I won't disagree with this statement outright, but I think it's better to point out to leaders that to succeed, you have to create an environment where people can fail without consequences. And guess what? As a senior leader, you are utterly unqualified to know the answer to this question. You are high up the food chain, meaning you are safe. Then how do you know you are there? Ask the most vulnerable people in your organization. All that said, "consequences" can come in many forms, some of which may be hard to spot.

In our case, I wanted our team to be able to take risks so large that they might kill the company, all in the name of progress. At odds with that was our brand. Millions of people trust our service every month to manage their financial data. Naturally, our team was worried about things like losing customer data when making radical changes, and consequently undermining trust in our brand. When your team is worried about things like trust in your brand, it changes how your team works. Worry will lead to risk mitigation, which will lead to compromise, which leads to, well ...terrible products.

Related: The Foundation of Success Is Taking Disciplined Risks

So, we wanted our team to take risks, without compromise. It wasn't possible under the circumstances, so we had to create new constraints. We created a new brand -- name, logo, website – the whole shebang. It was called BillSping. We incorporated a new company. The team then developed a new product and launched it to people who weren't customers of ours, but were similar demographically. The result was a playground where the team could, and had to, take risks without the fear of consequences.

Create your own conditions to begin your own journey.

Innovation is a difficult concept. It's nebulous. My advice to you is to not worry too much about what other people say about innovation, and instead create the conditions where it can happen. With any luck, the rest will take care of itself.

Mike McDerment

Co-founder and CEO, FreshBooks

Mike is the co-founder and CEO of FreshBooks, provider of accounting software in the cloud for self-employed professionals. Built in 2003 after he accidentally saved over an invoice, Mike spent 3.5 years growing FreshBooks from his parents’ basement. Since then, over 10 million people have used FreshBooks to save time billing, and collect billions of dollars.

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