Why innovation teams fail

More corporate innovation units have been mothballed in 2023 than in any other year I can remember, and the reasons I've heard from their sponsors are myriad:

• "We're focused on efficiency and cost-cutting this year rather than growth."
• "We're going through a reorganisation, so we needed to hit pause."
• "We're replanning our strategy, so it didn't make sense to continue."

But these weren't the reasons at all. The real reason is that these units, tasked with finding, building and scaling new revenue streams for their companies, simply couldn't point to a steady flow of businesses, products or services they were launching to justify further investment.

So why do so many strategy and innovation teams struggle to ship new propositions and, in turn, drive growth consistently?

In our experience, it's because they direct limited financial and human capital to too few projects, which means they're highly unlikely to find winners.

Across the clients we work with at Future Foundry, there is a huge variability in hit rates, from 1% at the most inefficient end to 10% at the most efficient end. I have never worked with a team whose hit rate is above 10%. That means that for every winner, you need to work on between 10 and 100 ideas at a time. Any less than that, and building this consistent flow becomes impossible.

In the inherently uncertain world of value proposition and business model development, the only way to succeed is to place a much larger number of much smaller bets.

You might think you don't have the resources you need to sustain this level of exploration. But it's entirely possible if you think more like a venture capitalist. Not by rushing out to buy a Patagonia vest, a pair of Allbirds and a SoulCycle subscription, but by:

• Investing micro amounts of budget and time to find ideas with good company/opportunity fit, typically ~100, that you can run quick, easy, low-fidelity tests on. Think of it as your pre-seed round.
• Investing a small amount of money and time in the ideas (~25) that you find company/opportunity fit for and trying to find problem/solution fit through medium fidelity experiments with which you can gather more evidence. A VC would call this a seed round.
• Investing a slightly more significant amount of money and time in ideas that you find problem/solution fit for (~5) and trying to prove product/market for them through higher-fidelity in-market pilots. This is your Series A round.

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By the end of this process - if the company/opportunity fit was right to begin with, you should be able to launch 1-2 propositions that will pay for the 98-99 that didn't make it ten times over.

As we head into 2024, the time when you could point to a post-it-filled innovation lab, some screen mock-ups, and a trial of a VR headset as evidence of innovation is officially (and mercifully) behind us. To win, you have to stop placing bets on one or two initiatives at a time and spread the risk by placing a much larger number of small bets across an entire portfolio by:

• Sensibily but significantly scaling up the number of opportunities you're identifying, the propositions you're developing and in-market pilots you're validating.
• Creating a diversified portfolio of bets covering time horizons, payback periods and growth territories.
• Accepting that most of your these will fail, but also know that the ideas that succeed will pay for those failures by an order of magnitude.

It’ll mean you get to work on a much higher volume of projects, and many more will get to market and generate significant returns. Which, after all, is what we all, but especially your sponsor, are shooting for.

For more advice, recommendations and support to bring you closer to a problem-driven approach to growth, join The Fold, our free membership community for corporate change-makers.