We’re so excited to share one final Future Foundry Live with you before the vacation season kicks off properly. Today we’re talking about how you can maintain support for your corporate innovation efforts, even in tough economic times.
Settle in to watch the full episode here, or read our write-up of the key takeaways below.
It’s no secret that 2023 is shaping up to be a pretty tough year economically. Because of macroeconomic forces conspiring against us, corporate innovation teams are having to do more with less. Less in terms of budget, less in terms of headcount, and less in terms of room for error.
These concerns are pretty consistent across our clients and network, so we’ve been having lots of conversations about how innovation teams can eliminate the amount of waste involved in their innovation process.
Let’s dive into how to focus your limited resources in the right places and strive for innovation success, even during the economic downturn.
Are we heading towards The Big R?
We don’t like to start our write-ups on a negative note, but it’s time to put away our rose-tinted glasses: the world is not in a good place economically.
With very few exceptions (we’re looking at you, Switzerland), the global economic outlook for the rest of 2023 is… Underwhelming.
Inflation is slowing in some regions, but ‘slow’ is the operative word here — sparking fears of The Big R. Ah, do we really need to type it out?
Slow economic growth is sparking fears of a recession. There, we’ve said it!
With tech layoffs totalling almost 200,000 being reported on left, right and centre, leading innovators like Alphabet, Amazon, Meta, and Microsoft are trying to weather the impending storm.
And unfortunately, these cost-cutting measures are by no means limited to Silicon Valley; businesses are downsizing across the entire corporate landscape as they attempt to right their courses and avoid the fallout from an economic slowdown.
Where are businesses cutting costs?
One 2023 survey found that almost 99% of Chief Financial Officers believe budget cuts may happen due to concerns about recession. And over a third are predicting cuts to costs associated with hiring or retaining talent.
Innovators are facing a problem: we can’t point-blank reject these cuts. While retaining and hiring new talent is critical to innovation success, we’ve got to be realistic about what our employers need to do to survive the recession.
But at the same time, we can’t simply stop innovation.
Not just because we don’t want to but because doing so would negatively impact our companies’ performance once the world rights itself again.
It’s a simple truth: companies that continue to invest in innovation during times of crisis experience better growth post-crisis than those that scale back. In fact, businesses that invested in innovation during the Great Recession not only outperformed their peers by 10% during the crisis but by upwards of 30% in the years following.
Let’s recap what we’ve covered so far: As many economies approach recession, corporate innovation teams need to do more than less. Yet, we also know that stopping innovating is not the answer.
So, what do we do?
How can innovators do more with less?
We know that when we face constraints around time, budgets and resources, we’ll have fewer opportunities to explore and turn into ideas, pilots and — finally — ventures.
That means having a long hard look at your portfolios and being brutal when assessing the opportunities, ideas and pilots you’re working on.
We guarantee you’ll find more than a few projects with little promise that are syphoning away resources. We call these…
Yes, Zombies. Zombies are projects that drain away our resources without providing any positive returns to the core business in terms of value or progress. These projects are the living dead of innovation and must be removed from your portfolio.
The trouble is that Zombies can be pretty difficult to spot. While they’re just as terrifying as the undead we see on the big screen, their identifying factors are much more subtle than rotting flesh and soulless eyes.
Moving on from that image, Zombies are the projects that:
- Lack a well-defined or compelling purpose
- Are trapped in a cycle of endless iterations, delays or internal bureaucracy that has caused them to stagnate
- Have no ownership or are only kept around due to internal politics or fear of failure.
During times of economic uncertainty where resources are tight, we can’t justify allocating resources to projects that are going nowhere fast. This is especially true if your company is under considerable financial pressure, as it may not have the cushion to absorb unnecessary failures.
That’s why your first step is to redirect resources to the projects that legitimise what you do as innovators and provide wins for the business. Plus, in challenging climates, you need your team to be excited about the contributions they make, so eradicating projects that are likely to fail and damage morale is a no-brainer (pun intended).
So, how do we get rid of these projects and make sure we don’t introduce more waste?
The answer lies in what we call ‘fit’.
Finding product ‘fit’: a brief history lesson
Through most of the 20th century, businesses took a linear approach to proposition development, creating products before trying to find markets for them. As these companies neglected to consider market needs during the development process, they saw massive failure rates.
In the 90s, methodologies that prioritised understanding customers’ problems and finding markets prior to fully developing products gained traction. While this approach sounds obvious now, the Lean Startup movement and Steve Blank’s Customer Development methodology were pretty revolutionary 30 years ago.
The next decade saw the term ‘product-market fit’ coined by entrepreneur and venture capitalist Marc Andreessen, offering a shorthand for ‘being in a good market with a product that can satisfy that market’. Eric Ries used this concept as the basis for his book, The Lean Startup, which popularised the idea of developing a minimum viable product (MVP), testing it in the market, learning from customer feedback, and then iterating on the product until achieving this fit.
While the concept of product-market fit once revolutionised product development processes, today it is widely used in the startup world, which emphasises the importance of understanding the market and customer needs first before investing significant resources. This is exactly what we want to be doing in times like these.
So, how do we make this work?
Reducing corporate innovation waste with product ‘fit’
In innovation circles, finding ‘fit’ goes deeper than simply uncovering a market need and developing a product to meet it. The innovation life cycle includes several stages, with different questions needing to be answered at each stage.
What we’re saying is that there is not one single type of ‘fit’. There are three. Let’s look at each in more detail:
- Company-opportunity fit: When we identify opportunities we’re interested in exploring, we need to ask ourselves how well-aligned they are to the business’s core objectives, resources, skills and culture. This ensures we’re playing in a viable territory for our company before investing in customer research and concept development.
- Problem-solution fit: If we decide that an opportunity is worth taking forward, we must next ensure there is a problem-solution fit. This means establishing whether an idea would actually produce a needed or desired solution to a real customer problem.
- Product-market fit: Finally, as we move onto the piloting stage, we establish product-market fit. This means determining how sizable the market demand is for a pilot and its likelihood of sustainably generating value. In other words, you ensure there’s sizeable market demand for the product or service before investing in rolling it out.
Let’s break down how you’ll know when you’ve achieved the three ‘fits’ you need to battle resource-draining Zombies.
Identifying company-opportunity fit
First up is company-opportunity fit. Let’s start by looking at an example of what this should look like.
Do you remember the launch of the iPhone in 2007? Of course, you do!
By the mid-2000s, Apple was already well-known for its design-focused approach to product development. It had enjoyed amazing success with personal computers and digital music services (as iTunes was known back then!).
When you consider that Apple leveraged its design expertise, huge existing customer base and key relationship with content providers to create a device it could seamlessly integrate into its thriving ecosystem, the iPhone seems an obvious extension of Apple’s existing product line. In short, the iPhone had a great company-opportunity fit and was a no-brainer for Apple.
Now, we’re probably not all going to change the world with our own take on the iPhone. The point of this example is to illustrate the importance of establishing whether or not any opportunity you’re considering is a good fit for your company.
You can establish whether you have a good company-opportunity fit by asking yourself five questions:
- Strategic alignment: Does this opportunity align with our mission, vision, strategic objectives, and core values as a business?
Consider whether the opportunity will support or enhance your mission, contribute towards your company's vision, support the wider organisation's key objectives, and align with the core business’s values.
- Resource alignment; Do you have, or could you procure, the required financial resources, human resources, and other assets to pursue this opportunity?
Exploring an opportunity properly means ensuring you have the budget to effectively test ideas within the space, the design thinking, lean startup and agile to do so, and core assets you can leverage.
- Cultural alignment: Is your culture supportive of the opportunity, and is there an appetite for it?
For example, if the core business wants you to focus on disruptive innovation, you may want to reconsider pursuing core or core-adjacent opportunities. Likewise, exploring an opportunity that sits in a risky space or doesn’t align with your sponsor’s goals may not be a smart use of resources.
- Skill alignment: Do you possess the technical skills, managerial capabilities and industry knowledge necessary to seize the opportunity?
If your business lacks the knowledge and skills needed to succeed in the space, the opportunity is unlikely to be viable. This can include technical skills like software engineering, capabilities like financial management or even a good understanding of the industry’s regulatory environment.
- Organisational alignment: Does your existing organisational structure support the execution of the opportunity?
You may need to set up a new entity or collaborate with other teams, business units or markets to pursue the opportunity. Would this be straightforward, and does the business’s structure support this type of collaboration?
If you answer ‘no’ to any of these questions, you can’t establish a good company-opportunity fit. Unfortunately, it’s likely any ideas developed will be killed sooner or later, resulting in wasted resources.
To put this into perspective, let’s throwback to the launch of Google+, Google’s answer to Facebook. Unfortunately, it was a huge failure because it didn’t resonate with users. The problem was that Google+ lacked a company-opportunity fit. It should never have been a product in the first place. As Google’s core strengths lie in algorithms, search optimisation and ads, it lacked any alignment with social networking, and after eight painful, expensive years, Google+ was mothballed entirely.
Poor company-opportunity fit leads to three things:
- GIGO: Garbage in, garbage out essentially means what it says. If you put rubbish into the top of your funnel, things will inevitably turn out poorly.
- Poor focus: Your team will work on the wrong things.
- Delegitimising innovation: Your senior leadership team and sponsors will be less likely to support corporate innovation in the future.
But if you answered yes to all the questions above, you’ve successfully established that the opportunity areas you’re working in are aligned with your corporate strategy, your resources, your culture, your skills and the organisational structure you’re operating in. Time to move on!
Determining problem-solution fit
Let’s assume you’ve looked at your portfolio and are happy with the opportunity area you’re working in. It’s time to develop ideas within that space — but first, you need to prove a problem-solution fit.
TurboTax is our favourite example of a great problem-solution fit. Completing and filing taxes in the US is an insanely complicated and time-consuming process for most people. In the 1980s, a high risk of human error meant most people paid too much or ended up with fines. Intuit recognised this serious customer problem and introduced TurboTax, offering a solution that automated tax filing for its customers, saving them time and money.
To establish whether your ideas have a problem-solution fit like TurboTax, you need to consider five key areas:
- Problem understanding: Has the problem been clearly defined and understood?
Have you spoken to customers and established whether the problem you’re working on solving actually exists? If yes, do customers care enough about it to justify paying for a product that solves it? If not, you will develop solutions that no one wants or needs.
- Solution relevance: Does the solution effectively address the problem by meeting the needs and wants of customers?
Does your prototype meet not just customers’ functional requirements but their emotional needs? And does it do so in a better or more effective way than existing solutions? If the answer is no, customers will not adopt your product or will be dissatisfied.
- Customer feedback: Do customers find the solution valuable and easy to use?
Would customers pay to use your solution, and how much would they pay? If the product’s cost outweighs the pain of the problem or is hard to use, customers won’t be pleased.
- Solution refinement: Have you iteratively refined the solution based on customer feedback and testing?
It’s essential you improve your solutions based on feedback and insight and validate them at scale with real customers.
- Feasibility and viability: Is the solution technically feasible and commercially viable at scale?
Can your solution be delivered either with your existing resources or with new technologies and skills? And is the market of customers willing to pay for the product large enough?
As before, you need to answer yes to each of these questions to establish a good problem-solution fit. Moving ahead with ideas that don’t meet these standards will just mean the product will fail checks later down the road.
This is exactly what happened to Pepsi in 1993 when it launched Crystal Pepsi. This clear, caffeine-free version of Pepsi was marketed as a healthier cola alternative. Sounds great! Except, Pepsi’s assumption that people wanted a healthier cola option was totally wrong. Not only did most soda drinkers not want a healthier alternative, but the shift to a clear liquid wasn’t something they cared about. A year later, the product was scrapped.
If you don’t make sure your ideas offer a good solution to real problems, you’ll end up:
- Wasting time finding a problem for your solutions after the fact
- Working on prototypes that nobody cares about
- Haemorrhaging money by jumping into expensive product development too soon.
To avoid Pepsi’s fate, make sure you have a deep understanding of your customer’s problems and that they agree your solution is a great answer to their issues — and one that they’d be willing to spend real money on.
Finding product-market fit
Finally, let’s look at product-market fit. This concept is talked about a lot, but from our experience, it is widely misunderstood.
Here’s another great example to frame your thinking:
When Toyota introduced the Prius in 1997, concerns about rising fuel prices and the environment were widespread. There was a massive market of consumers who were interested in fuel-efficient vehicles that could reduce their costs at the pump and lower their environmental impact.
The Prius offered significantly better fuel efficiency than any other model on the market at an accessible price point. These promises combined helped it become the best-selling hybrid in the world.
Put simply, Toyota was in a good market with a product that satisfied it — the very definition of perfect product-market fit. Here’s what you should ask to find yours:
- User retention: Are you seeing consistently high — and improving — customer retention rates?
If a significant proportion of users continue to use the product over time, this indicates customers find value in the product or service — and choose it over alternatives.
- Organic reach: Are you experiencing substantial organic growth through user recommendations and referrals?
If either social, word of mouth or a referral programme is your primary channel for customer acquisition, this is a strong indicator that customers find value in what you’re building.
- Customer feedback: Does the majority of your feedback indicate satisfaction with your ability to meet customers’ needs and solve their problems?
If your customers consider using your product to be worth their time and money, this suggests there’s high potential for organic growth.
- Quantitative survey: Would the majority of your users be ‘very disappointed’ if they could no longer use your product?
We love this question at Future Foundry. If more than 40% of respondents answer ‘very disappointed’ when asked how disappointed they’d be if they could no longer use your product, this indicates high perceived value and great product-market fit.
- Acceleration in usage: Can you observe an acceleration in usage, as shown by increasing user purchases, sign-ups and activity?
A steady rise in customer activity over time indicates that your product provides value and that people are willing to pay to access that value.
Say it with us: if you can’t answer ‘yes’ to all five questions, you can’t prove you’ve found a product-market fit. It’s time to kill your pilot and move on. This is exactly what Microsoft should have done when it launched Zune.
In 2006, Microsoft released its music player, Zune, in an attempt to compete with Apple’s iPod. The only issue was that by the time Zune was launched, the portable music player market was beginning to decline due to the rise of smartphones. No one wanted Microsoft’s music player (which also lacked the iPod’s streamlined design and intuitive interface).
If you fail to make sure the products you’re testing satisfy the needs of a big enough market, you’ll waste money on three things:
- Hiring teams to manage the product
- Creating production-ready products
- Building a business that will go nowhere.
Avoid this fate by testing and de-risking your products before you fully invest, making sure you can acquire users and generate revenue.
Identifying high-waste projects
Now you know what you’re looking for, it’s time to review your portfolio and identify how many of your projects are wasting time, budget and political capital.
Everything we’ve talked about today boils down to three key questions:
- Are the territories you’re working in aligned with your core’s business strategy, resources, culture, skill set and organisational structure?
- Are the prototypes you’re working on solving an actual problem with a better solution than exists today and are proven to be both feasible and viable?
- Are the MVPs you’ve launched truly satisfying the needs of a large enough market?
Our current economic climate will be unforgiving of innovators who waste their time and money because they fail to ensure a good ‘fit’ — as will their investors and core business teams.
So, if you want to eliminate corporate innovation waste and do more with less, kill your Metaverse projects!
We’re kidding. But the point stands — make sure you’re investing your resources in products you know have great company-opportunity, problem-solution, and product-market fits.
So, what’s next?
Before you put your OOO on and your feet up, we recommend taking ten minutes to decide your next steps while all this information is fresh in your mind.
At Future Foundry, we run programmes designed to help clients establish company-opportunity, problem-solution fit and product-market fit in a time-bound, outcome-driven way.
If you want to work with us on one of those programmes, we’d love to talk you through them. Book a time to chat with us here — we’re always happy to help.