Most startups lack the freedom and capital X has. They should take a more methodical approach to innovation and keep three key points in mind.
June 15, 2018 7 min read
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We’ve come to expect innovation from Google, and sometimes innovation can be scary. In May 2018, an internal video titled The Selfish Ledger — which at that point had existed for at least two years — was leaked to The Verge. In the video, a secretive Google subsidiary company called X hypothesized a future in which data would be collected and analyzed so innately and thoroughly that people’s devices could predict their behaviors and influence their decisions.
The internet blanched. X shrugged. So goes the high-stakes innovation game. You win some, you lose more.
Calling itself “the moonshot factory,” and based at Google’s parent company Alpabet, X exists to push boundaries. It’s behind Alphabet’s self-driving cars project and Project Loon, an R&D project to provide internet access to rural communities across the globe via hot-air balloons.
As an innovator, X should serve as inspiration for startups and entrepreneurs everywhere. So, if you and your startup want to approach innovation correctly, you may find it helpful to get a firm grasp on how innovation really works.
Innovation can take time — a lot of time.
First, you must understand the time line on which innovation happens. Long-term and short-term innovation are very different. Long-term innovation shouldn’t be a consideration for a startup unless that company has enough funding to survive many years.
Even then, the long game may not be right, as it requires being able to withstand multiple failures. X can fail one hundred times in hopes of succeeding once. And toward that end, it will spend tens of billions of dollars to unearth the next paradigm shift that will solve some major global problem.
Most startups lack that kind of freedom or capital and should therefore take more methodical, careful approaches to innovation.
Remember that breakthrough technology results from two distinct activities — invention and innovation — that require two distinct environments. Invention is typically the work of scientists and researchers in laboratories; think about the development of the transistor at Bell Laboratories in the 1940s. Invention most often occurs in situations insulated from the pressure to generate profit and marketing agency buzz.
Innovation, on the other hand, is invention put to commercial use — like the transistor radios Texas Instruments sold in the 1950s. Competition and consumer choice encourage innovation, and it is shaped by the demands of the marketplace.
So, what does successful startup innovation comprise? Here are three keys.
Invention and innovation are both valuable to startups, but deciding when to invest in one over the other can involve a complex process. So is trying to forecast too far down the road versus planning in shorter bursts. In order to jumpstart this understanding of when to pivot and how to adapt your innovations quickly, there are three key points to keep in mind:
1. You don’t have to aim for the moon.
Innovation is the home turf of startups. That doesn’t mean startups can’t make major breakthroughs, but their chances of creating the next internet or transistor are slim.
Instead, startups should focus on short-term innovation, and have a diverse team that excels in bringing a product to market. For a startup, this can mean learning to pivot and adapt quickly, which is often the best guide to innovating.
Nearly all startups should focus on innovating short-term and building a better mousetrap. Some of the greatest successes happened using this approach to start out.
Twitter, for example, can be seen as a simplified blogging platform, with some added interactive capabilities. Facebook was not an entirely new technology, given the previous existence of MySpace; but was better. Google? It was just another search engine, among several, in its early days.
These were all “incremental innovations,” but the success they won couldn’t have been bigger. In fact, the whole ecosystem of recent tech innovation has a thriving history: Startups that were heavy on R&D in the decade leading up to 2017 grew 47 percent during those years, according to the Information Technology and Innovation Foundation.
An impressive current example is Kumbaya, which doesn’t have the deep pockets of X but is nonetheless bravely trying to solve one of the same problems: global connectivity to the internet and electrical power. For Kumbaya, the vehicle to this connectivity is zeroXess, a home energy and communications system powered by solar.
2. Innovation only gets tougher, so be tough enough to keep going.
Innovation will become more of a challenge as you scale. But stay committed. For instance, as a software product grows, its company likely finds it tougher to manage the product’s growing code base. That’s a challenge, because it’s a mistake to insist that all new products or features be bug-free and ready to ship.
Instead, entrepreneurs should adopt what entrepreneurial guru Steve Blank calls “good enough decision-making.” That includes assessing an acceptable degree of risk, then executing a good (but not necessarily perfect) plan.
This kind of execution can include what Blank calls “reversible” decisions. This means moves like introducing a new product feature which can be undone if they don’t work out.
Of course, there are no guarantees. For smaller startups, feature upgrades or other changes could prove risky to sales. As you scale up, risk amplifies. A compelling example is Netflix’s gutsy but unsuccessful pivot in 2011 when it separated its DVD rentals from its streaming service and rebranded its DVD-by-mail operation as Qwikster.
This was clearly not the right move, because Netflix lost 800,000 subscribers. But the company ultimately recovered and continues to thrive. So, keep in mind: If Netflix can surge past a 75 percent drop in stock value, your plucky startup can probably absorb smaller dips, re-adapt and continue its growth.
3. Let innovation, not investor pressure, drive growth.
Be wary of investors who pressure you to focus on short-term numbers and who disregard innovation once they see the traction they’re looking for.
They may pressure you to “not fix what isn’t broken” and to cut your R&D budget; and that’s a mistake. The right partners understand that tech businesses must continually innovate, take on new risks and experiment. So, try to get a feel for investors’ attitudes toward continual risk-taking before accepting their money.
Then, to manage your innovation effectively, consider spinning off a piece of your company once it gets to a comfortable size (from 20 to 100 employees). This “startup within your startup” can have its own objectives and goals, independent of the main company’s revenue targets, and a separate (or flat) organizational structure.
Many companies try this approach. Sometimes these spinoffs come from other corners of the tech world. Valossa, for example, spun off from a research program at the University of Oulu in Finland. It has scaled to the point of expanding to New York as it seeks to innovate in the AI space, using AI to analyze video. If it wants to succeed, it will need to let innovation lead.
Innovation, after all, is oxygen to startup life, and startups that make early and sustained commitments to innovation will be the big success stories of the future.
Most businesses won’t have the kind of freewheeling spirit or wide-open budget to chase improbable innovation that X has, but those that emphasize innovation will undoubtedly find newer and better ways to make products and service customers along the way.