Innovative Company Profile Report: Students will select and research a company that is regarded as innovative (companies used as case studies or exemplars in class and any companies previously written

For d eta ils a nd d is c o unt i n fo rm ati o n f o r b oth p rin t a nd e b ook f o rm ats , c o nta ct booksa le s@ harv ard busin ess.o rg , te l. 8 00-9 88-0 886, o r www.h b r.o rg /b ulk sa le s .

3 Cop yrig h t Copyrig ht 2 014 N ath an F urr a nd J e ff D yer All r ig hts r e se rv ed No p art o f th is p ub lic ati o n m ay b e re p ro duced , sto re d in o r in tr o duced in to a re tr ie v al sy ste m , or tr a nsm itte d , in any fo rm , or by any m eans (e le ctr o nic , mechanic al, p ho to co pyin g, re co rd in g, o r o th erw is e ), w ith o ut th e p rio r p erm is sio n of th e pub lis h er. Req uests fo r perm is sio n sh o uld be dir e cte d to perm is sio ns@ hb sp .h arv ard .e d u , or m aile d to Perm is sio ns, H arv ard Busin ess Scho ol P ub lis h in g, 6 0 H arv ard W ay, B osto n, M assa chuse tts 0 2163.

Fir s t e B ook E diti o n: J u ly 2 014 IS B N : 9 78-1 -6 2527-1 46-4 4 Con te n ts Copyrig ht Fore w ord In tr o ducti o n 1 T he I n no vato r’s M eth o d 2 L ead ers h ip i n th e A ge o f U ncerta in ty 3 I n sig ht: S av or S urp ris e s 4 P ro ble m : D is c o ver th e J o b-to -B e-D one 5 S olu ti o n: P ro to ty p e th e M in im um “ A w eso m e” P ro duct 6 B usin ess M odel: V alid ate th e G o-to -M ark et S tr a te gy 7 M aste r th e P iv ot 8 S cale I t 9 M akin g th e I n no vato r’s M eth o d W ork f o r Y ou Conclu sio n: T urn U ncerta in ty i n to O pportu nity Append ix : A n O verv ie w o f th e I n no vato r’s M eth o d Note s Ackn ow le d gm en ts About t h e A uth ors 5 Fore w ord At s o m e p oin t s o on, p le ase ta ke a tr ip p hysic ally o r v ir tu ally to N ew Y ork C ity , Hong K ong, S in gap ore , and D ub ai. In N ew Y ork , go to th e in te rs e cti o n o f 6 th Avenue a nd 5 7th S tr e et a nd s ta rt w alk in g s o uth , a w ay f r o m C entr a l P ark . O n th e l e ft sid e y o u w ill s e e R ockefe lle r C ente r— a s e t o f s k ysc ra p ers th at w ere b uilt in th e 1930s. T hen l o ok to y o ur r ig ht, w here y o u w ill s e e a s e t o f e v en b ig ger s k ysc ra p ers desig ned a nd b uilt in th e 1 960s. T hese a re m asse s o f re cta ngle s a nd rig ht a ngle s re achin g in to th e s k y, d iffe re nti a te d o nly b y th e ty p e o f s id in g th at w as u se d a nd wheth er th ey h ad s ix ty o r s e v enty s to rie s.

Then g o to H ong K ong, S in gap ore , a nd D ub ai a nd c o ntr a st th eir s k ylin es w ith th o se o n th e A venue o f th e A meric as i n N ew Y ork . M ost s k ysc ra p ers i n th ese c iti e s th at h av e b een b uilt in th e la st fifte en y ears a re u niq ue to th e w orld . M ost a re very attr a cti v e— and s o m e a re tr u ly s tu nnin g. T he c urv es, a ngle s, a ccents , a nd s ta te m ents are u niq ue to e ach b uild in g. W hat h as c hanged ? H av e th e a rc hite cts s im ply b eco m e more d arin g a nd c re ati v e? A re th e a rc hite cts in th o se c iti e s s im ply b ette r a t d esig n th an A meric an a rc hite cts ?

The a nsw er: N o. R ath er, th e s o ftw are th at a rc hite cts h av e b een u sin g in H ong Kong, S in gap ore , a nd D ub ai— and a ro und th e w orld — has b eco m e s o s o phis ti c ate d th at if a n a rc hite ct c hanges a n a ngle , a d ju sts th e w eig ht- b earin g o r a n ew c urv e in an H -b eam , o r a d ds a n ew ty p e o f w eld to b e u se d i n a n o rn am ent j u tti n g o ut o n th e 23rd f lo or, th e s o ftw are a uto m ati c ally r e calc ula te s th e d esig n o f e v ery o th er p ie ce, sh o w in g w hat e ach o ne n eed s to d o a nd w here it m ust b e p la ced to a cco unt fo r in te rd ep end encie s m and ate d b y th e u nusu al e le m ent o f e ach p ie ce. T he s o ftw are ’s pow er to c alc ula te a ll th e in te rd ep end encie s a m ong th e e le m ents o f th ese m assiv e sk ysc ra p ers h as y ie ld ed a s e t o f r u le s th at s a y “ If th is , th en th at.” T hese r u le s a re no t o f th e s o rt th at s a y “ D on’t d o th is , b ecause w e h av e n o i d ea w hat w ill h ap pen.” The r u le s o f c ausa lity a ctu ally e m ancip ate a rti s tr y i n d esig n.

6 The r e aso n w hy s k ysc ra p ers d esig ned i n 1 960s h ad s o l ittl e d iffe re nti a ti o n i s th at th ere w as littl e la ti tu d e fo r c re ati v ity : a nyth in g th at w as n o t a sta nd ard str a ig ht beam o r a 9 0-d egre e a ngle w as r is k y a nd v ery , v ery c o stl y . E ven th e b est a rc hite cts str u ggle d to c o m e u p w ith a ll th e a d ju stm ents th ey n eed ed to im ple m ent e ls e w here in th e s tr u ctu re to a cco unt f o r a nyth in g th at w as u nusu al.

So ho w does th is re la te to m anagem ent? H is to ric ally , m anagem ent is ab out “str a ig ht lin es” a nd “ rig ht a ngle s.” T he to ols o f tr a d iti o nal b usin ess p la nnin g— th e “so ftw are ”— th at m anagers u se to day h av e h elp ed th em p erfe ct th e a rt o f a naly zin g, pla nnin g, a nd e xecuti n g w hen th e p ro ble m i s s ta nd ard a nd th e i n te rd ep end encie s a re kno w n. B ut in no vati o n is a b out u ncerta in ty a nd n o nsta nd ard p ro cesse s— “curv es” and “ w eir d a ngle s” — and th e m anagem ent lite ra tu re a nd th e to ols w e u se h av e n o t yet c aught u p w ith th e n ew k in d s o f p ro ble m s th at m anagers a nd in no vato rs fa ce.

New “ so ftw are ” is n eed ed — a n ew s e t o f g uid elin es a nd r u le s— th at m anagers c an use f o r f a cin g h ig h u ncerta in ty p ro ble m s.

Furth erm ore , alth o ugh most co m panie s are la ced th ro ugho ut with in te rd ep end encie s, m ost e xecuti v es a ctu ally k no w littl e o f w hat th ey a re o r h o w th ey in te ra ct. S om e in te ra cti o ns in a c o m pany a re s ta ti c , o ccurrin g a t a g iv en p oin t in ti m e. O th ers a re d ynam ic , d oin g th eir w ork o ver ti m e. T he re aso n w hy m any executi v es and em plo yees ad here to sta nd ard pro cesse s is th at changes in in te rd ep end ent p ro cesse s a re ti m e-c o nsu m in g, r is k y, a nd c o stl y . S ta nd ard p ro cesse s miti g ate in no vati o n, but m any m anagers in sti n cti v ely opt fo r le ss in no vati o n no neth ele ss i n th eir q uest f o r o rd er.

Executi v es fa ce th ese p ara d oxes in p art b ecause s o fe w r e se arc hers o f b usin ess hav e achie v ed th e co m para b le exq uis ite und ers ta nd in g of busin ess in te rd ep end encie s th at s o ftw are h as b ro ught to a rc hite ctu re . M any m ore o f u s m ust fo llo w th e le ad o f th ese fe w , b ecause th e im pact th ese re se arc hers h av e h ad o n und ers ta nd in g s y ste m ic i n te rd ep end encie s o f p ro cesse s a nd o rg aniz a ti o nal s tr u ctu re has been pro fo und . F or exam ple , S te v en S pear and K ent B ow en co nd ucte d a re m ark ab le s tu d y o f th e T oyo ta P ro ducti o n S yste m , e xam in in g th e c o m ple te p ro cess of pro ducti o n in in d ustr ie s fr o m health care to alu m in um . Fro m th is deep und ers ta nd in g th ey w ere a b le to d is ti ll fo ur r u le s fo r m anagin g ( s u m mariz e d in th e HBR arti c le “D eco din g th e D NA o f th e T oyo ta P ro ducti o n S yste m ”) th at w ent beyo nd w hat p rio r r e se arc hers h ad tr ie d to d esc rib e in s im plis ti c te rm s. S im ila rly , in The A nato m y o f P ea ce , T erry W arn er a nd h is c o lle agues a t th e A rb in ger I n sti tu te chro nic le d th e in te rd ep end ent p ro cess b y w hic h c o nflic t is c re ate d a nd re so lv ed .

Edgar S chein s tu d ie d fr o m b egin nin g to e nd th e p ro cess th ro ug h w hic h c ultu re is cre ate d a nd re sis ts c hange, s u m mariz e d in h is b ook Org aniz a tio nal C ultu re a nd Lea dersh ip . A nd fin ally , C het H ub er w ro te Deto ur: M y U nexp ecte d , A m azin g, Life C hangin g Jo urn ey w ith O nSta r . A s th e in no vato r w ho built th is very su ccessfu l c o m pany w ith in G enera l M oto rs , H ub er e xp la in s th e s ta ti c a nd d ynam ic in te rd ep end encie s w ith in th e co m pany. H ub er did w hat no body th o ught w as possib le , b ecause h e i n f a ct d is ti lle d f r o m h is o w n e xp erie nce a nd th e r e se arc h o f a 7 fe w o th ers a s e t o f r u le s: “ If th is , th en th at.” I o w e m uch to th ese a nd a f e w o th er r e se arc hers a nd w rite rs w ho h av e ta ught m e to r e lis h r a th er th an r e tr e at f r o m th e s tu d y a nd u se o f i n te rd ep end encie s i n b usin ess and a cad em ia , i n c hurc h, a nd i n m y f a m ily .

And fo r th is re aso n I th ank P ro fe sso rs D yer and F urr. W ith The In nova to r’s Meth od , th ey are th e fir s t re se arc hers I am aw are of w ho hav e atte m pte d to chro nic le th e p ro cess o f i n no vati o n f r o m b egin nin g to e nd — la yin g o ut th e s ta ti c a nd dynam ic in te rd ep end encie s th at h is to ric ally h av e m ad e in no vati o n s o h ard . If o ne fa ces a h ig h u ncerta in ty p ro ble m , th en th e to ols o f l e an s ta rt- u p a nd d esig n th in kin g th ey d esc rib e are v alu ab le in no vati o n to ols . T hey, alo ng w ith m any o th ers , are help in g to b uild th e m anagem ent e q uiv ale nt o f th e s o ftw are a rc h ite cts u se to day to cre ate a m azin g n ew s tr u ctu re s.

With m y g ra ti tu d e, Cla yto n M . C hris te nse n Pro fe sso r, H arv ard B usin ess S cho ol 8 In tr o d uctio n As a s u ccessfu l s c a le d c o m pan y, y o u c a n not ru n t h e s h ip t h e w ay y o u u se d t o . Y ou ’ll g et ru n o ve r b y a s w arm o f s ta rt- u ps .

—Sco tt C ook , F ounder a nd C hair m an o f th e E xecu tiv e C om mit te e, I n tu it H AV E Y OU E V ER c o m e u p w ith a n id ea fo r a n ew p ro duct o r s e rv ic e th at y o u th o ught w ould b e v ery c o ol, b ut d id n’t ta ke a ny a cti o n b ecause y o u th o ught i t w ould be to o r is k y? O r m ayb e y o u j u st d id n’t k no w h o w to ta ke th e n ext s te p ? O r a t w ork , hav e y o u h ad w hat y o u th o ught c o uld b e a b ig id ea fo r y o ur c o m pany— perh ap s changin g th e w ay y o u d ev elo p o r d is tr ib ute a p ro duct, p ro vid e c usto m er s e rv ic e, o r hir e o r tr a in y o ur e m plo yees? T he fa ct is , m ost o f u s h av e th ese k in d s o f id eas a t one ti m e o r a no th er. B ut n eith er w e, n o r o ur c o m panie s, a re v ery g o od a t ta kin g ad vanta ge o f th em . W hy? B ecause ty p ic ally th ere is s ig nific ant u ncerta in ty a ro und wheth er th ese id eas w ill w ork . They are ris k y. A nd m ost in d iv id uals — and esp ecia lly c o m panie s— are p ro gra m med to a v oid r is k . B ut w hat if y o u c o uld ta ke much o f th e r is k o ut o f it? W hat if y o u k new a p ro cess to q uic kly te st a nd v alid ate wheth er th e i d ea h ad m erit?

The k ey m essa ge in th is b ook is th at n ew to ols a nd p ers p ecti v es fo r v alid ati n g big id eas c hara cte riz e d b y h ig h u ncerta in ty a re e m erg in g in m any d is p ara te fie ld s.

Wheth er y o u c all it le an s ta rt- u p , d esig n th in kin g, o r a gile s o ftw are d ev elo pm ent, th ese new m eth o ds are re v olu ti o niz in g th e w ay m anagers su ccessfu lly cre ate , re fin e, a nd b rin g n ew id eas to m ark et. T hese a nd o th er to ols h elp e ntr e p re neurs , 9 desig ners , a nd s o ftw are d ev elo pers lo w er u ncerta in ty a nd ris k th ro ugh c heap a nd ra p id e xp erim enta ti o n.

To h elp m anagers a p ply th ese n ew p ra cti c es in sid e e sta b lis h ed c o m panie s, w e offe r a n ew m eth o d fo r m anagin g in no vati o n th at w e c all th e in nova to r’s m eth od:

an e nd -to -e nd p ro cess f o r c re ati n g, r e fin in g, a nd b rin gin g i d eas to m ark et. D ra w in g on o ur r e se arc h o f h und re d s o f e sta b lis h ed c o m panie s a nd s ta rt- u p s, w e s h o w y o u when a nd h o w to a p ply th e in no vato r’s m eth o d, ta kin g y o u ste p -b y-s te p th ro ugh th ese n ew p ra cti c es. W e a nsw er s u ch q uesti o ns a s: H ow d o w e k no w w heth er th is id ea i s w orth p urs u in g? H av e w e f o und th e r ig ht s o lu ti o n? W hat i s th e b est b usin ess model fo r th is n ew o ffe rin g? W e fo cus o n th e “ ho w ”— ho w to te st, v alid ate , a nd co m merc ia liz e id eas u sin g th e b est to ols fr o m le an s ta rt- u p , d esig n th in kin g, a nd sim ila r te chniq ues u se d b y a fe w c o rp ora ti o ns a nd m ost s u ccessfu l s ta rt- u p s. W e ackno w le d ge th at th e in no vati o n pro cess is m essy and unp re d ic ta b le — and no pro cess c an fu lly r e m ove th e u ncerta in ty . B ut th ese to ols c an b e a p plie d to c re ate new in no vati o ns fo r c usto m ers o r s o lv e in te rn al p ro ble m s th at h av e a n e le m ent o f uncerta in ty , w heth er i n H R, f in ance, o r a no th er a re a.

Let’ s s ta rt w ith a s to ry .

10 Ren t t h e R unw ay In 2 008, Je nn H ym an, a se co nd -y ear M BA stu d ent a t H arv ard B usin ess S cho ol, sp ent T hanksg iv in g a t h er h o m e in N ew Y ork . D urin g h er v is it, H ym an n o ti c ed h er sis te r, B ecky— an a ccesso rie s b uyer a t B lo om in gd ale ’s — str u gglin g to d ecid e w hat to w ear to an up co m in g w ed din g. “B ecky d esp era te ly w ante d to b uy a $ 1,5 00 Marc hesa d re ss,” s a id H ym an. “ S he fe lt c o m pelle d to b uy a n ew d re ss— because sh e k new p ho to s w ould s o on a p pear o n F aceb ook a nd s h e d id n’t w ant to b e s e en tw ic e in th e s a m e o utf it.” 1 A s s h e w atc hed h er s is te r w re stl e w ith th e c o st o f th e dre ss, h er sis te r’s e m oti o n w as a c lu e to a n im porta nt jo b-to -b e-d one fo r y o ung wom en: h elp in g th em f e el s p ecia l a nd c o nfid ent. H ym an r e aliz e d th at o th er f a sh io n- orie nte d y o ung w om en m ig ht h av e a s im ila r c halle nge, a n o bse rv ati o n b acked u p b y her y ears s p ent b uild in g a w ed din g e v ent b usin ess a t S ta rw ood h o te ls a nd w ork in g in m ark eti n g a nd s a le s a t Wed din g.c o m . H ym an’s in sig ht le d h er to h yp oth esiz e a pote nti a l s o lu ti o n: in ste ad o f p urc hasin g d esig ner d re sse s, w om en m ig ht p re fe r th e opti o n o f r e nti n g d esig ner d re sse s o nlin e f o r s p ecia l o ccasio ns.

Lik e m any g ifte d y o ung in d iv id uals — bud din g e ntr e p re neurs a nd ta le nte d y o ung managers — Hym an h ad u se d h er p ow ers o f o bse rv ati o n to g enera te a p ote nti a lly valu ab le b usin ess i d ea. B ut w hat s h o uld s h e d o n ext?

Pop q uiz : im agin e s h e c am e to y o u. W hat w ould y o u a d vis e ? F or m ost b usin ess pro fe sso rs a nd e xecuti v es, th e a nsw er w ould b e, “ W rite a b usin ess p la n.” T he p la n would i d enti fy th e c usto m er n eed , d esc rib e th e p ro duct o r s e rv ic e, e sti m ate th e s iz e of th e m ark et, a nd e sti m ate th e r e v enues a nd p ro fits b ase d o n p ro je cti o ns o f p ric in g, co sts , a nd u nit v olu m e g ro w th . A fte r a ll, w ith o ut th is ty p e o f a naly sis , h o w c an w e kno w w heth er a n id ea is w orth y o f in v estm ent? In d eed , H ym an re ceiv ed ju st th is ty p e o f a d vic e.

She d id n’t d o i t .

In ste ad , H ym an r e cru ite d c la ssm ate J e nny F le is s to h elp h er te st th eir p ro pose d so lu ti o n. H ym an a nd F le is s s e t u p a n e xp erim ent to a nsw er tw o k ey q uesti o ns:

1 .

Will m id dle - to up per-c la ss yo ung w om en re nt a desig ner dre ss if it is av aila b le a t o ne-te nth th e r e ta il p ric e?

2 .

Will w om en w ho r e nt d re sse s r e tu rn th em i n g o od c o nd iti o n?

Then H ym an a nd F le is s b orro w ed o r b ought 1 30 d re sse s fr o m d esig ners lik e Dia ne v on F urs te nb erg , C alv in K le in , a nd H als to n a nd s e t u p a n e xp erim ent to r e nt dre sse s to H arv ard u nd erg ra d s. T hey a d verti s e d a ro und c am pus, r e nte d a lo cati o n, and in v ite d y o ung w om en. T he e xp erim ent a nsw ere d b oth q uesti o ns. O f th e 1 40 wom en w ho c am e in to v ie w th e d re sse s, 3 5 p erc ent e nd ed u p r e nti n g o ne, a nd 5 1 of 5 3 m aile d th em b ack i n g o od c o nd iti o n ( th e o th er tw o h ad s ta in s th at w ere e asily re m oved ). T his e xp erim ent re so lv ed s o m e o f th e u ncerta in ty re fle cte d in th e tw o 11 questi o ns i t w as d esig ned to a nsw er.

But w ould w om en re nt d re sse s th ey c o uld n’t tr y o n? T o a nsw er th at q uesti o n, Hym an and Fle is s se t up ano th er exp erim ent, th is ti m e on th e Y ale cam pus, allo w in g w om en to s e e th e d re sse s b efo re r e nti n g b ut n o t a llo w in g th em to tr y th em on. I n th e s e co nd tr ia l th ey h ad m ore d re ss o pti o ns, b ecause th e f ir s t p ilo t r e v eale d th at m any w om en d id n’t re nt b ecause th ey c o uld n’t fin d a n o pti o n th ey lik ed . T he Yale p ilo t s h o w ed tw o th in gs: w om en w ould re nt d re sse s w hen th ey c o uld n’t tr y th em o n, and th e p erc enta ge o f w om en w ho re nte d in cre ase d to m ore th an 5 5 perc ent b ecause th ey h ad m ore o pti o ns.

Now H ym an and F le is s w ere re ad y to te st th e b ig id ea: W ould w om en re nt dre sse s th ey c o uld n o t p hysic ally s e e? T he e ntr e p re neurs to ok p ho to s o f e ach d re ss and r a n a te st i n N ew Y ork , w here o ne th o usa nd w om en i n th e ta rg et a ud ie nce w ere giv en th e o pti o n to r e nt a d re ss f r o m P D F p ho to s. T he f in al e xp erim ent s h o w ed th at ro ughly 5 p erc ent o f w om en lo okin g fo r s p ecia l o ccasio n d re sse s w ere w illin g to tr y th e s e rv ic e— eno ugh to d em onstr a te th e v ia b ility o f r e nti n g h ig h f a sh io n o ver th e web .

So H ym an a nd F le is s g ath ere d d ata o n w heth er d esig ners w ould g o f o r th eir i d ea and w heth er th ey c o uld u se d esig ners ’ w eb site s a s th eir re nta l c hannel. L ess th an tw o w eeks afte r co nceiv in g th e id ea, th e tw o w om en co ld -c alle d D ia ne von Furs te nb erg , a n i n flu enti a l f a sh io n d esig ner a nd p re sid ent o f th e C ouncil o f F ash io n Desig ners o f A meric a. T he i n iti a l i d ea H ym an p ro pose d to v on F urs te nb erg w as to se t u p a r e nta l o pti o n o n th e w eb site s o f e xis ti n g d esig ners . H ym an’s s ta rt- u p w ould ta ke c are o f fu lfillm ent— ta kin g th e o rd er, s h ip pin g th e d re ss, a nd d ry -c le anin g th e re tu rn s. V on F urs te nb erg w as i n tr ig ued b y th e i d ea a nd h elp ed H ym an a nd F le is s s e t up m eeti n gs w ith m ore th an tw enty d esig ners .

The in iti a l re sp onse fr o m m ost d esig ners w as extr e m ely negati v e. “W e w ere go in g to d esig ners a sk in g to b uy th eir i n v ento ry s o w e c o uld r e nt i t a t th e s a m e ti m e it’ s a v aila b le a t S aks F ifth A venue a nd N ie m en M arc us fo r 1 0 p erc ent o f th e r e ta il pric e,” s a id H ym an. “ In th e fir s t m eeti n gs th eir re sp onse w as b asic ally , ‘o ver m y dead body.’ ” 2 D esig ners w ere w orrie d ab out cannib aliz a ti o n. R enti n g dre sse s in ste ad o f s e llin g th em s e em ed l ik e a b ad i d ea.

Hym an a nd F le is s r e aliz e d th at to m ake th eir i d ea w ork , th ey w ould n eed to h av e th eir o w n w eb site a nd i n v ento ry . S o th e i d ea o f R ent th e R unw ay— usin g th e N etf lix model to r e nt a w id e v arie ty o f h ig h-fa sh io n d re sse s f r o m m ulti p le d esig ners — was born .

Now th at H ym an a nd F le is s h ad r e so lv ed c o ncern s a b out w heth er th ere w ould b e dem and fo r th eir p ro duct— and w hat th eir in iti a l so lu ti o n m ig ht lo ok lik e— th ey were r e ad y to la unch. B ut th e c hange in b usin ess m odel m eant th ey n eed ed c ap ita l to p urc hase i n v ento ry . T he ty p ic al a d vic e w hen y o u’re g o in g f o r c ap ita l i s to m ake su re y o u h av e a to p-n o tc h b usin ess p la n a nd g et c ap ita l a s c heap ly a s p ossib le .

12 They d id n’t d o i t .

In ste ad , as th ey to ok th e id ea to p ote nti a l in v esto rs (in clu d in g B ain C ap ita l, whic h end ed up fin ancin g th eir fir s t ro und ), th ey sti ll had no fo rm al w ritte n busin ess p la n. W hen a sk ed w hy, H ym an r e p lie d , “ W e’re a nti - b usin ess p la n p eo ple .

We th in k th at s o m any p eo ple ju st s it a ro und a ll d ay a nd s tr a te giz e b ut th ey d on’t act.” F le is s c o ncurre d , s a yin g, “ W e h ad a b ia s f o r a cti o n, n o t b usin ess p la nnin g.” I n fa ct, o ne re aso n H ym an and F le is s cho se B ain C ap ita l, ev en th o ugh it w asn ’t necessa rily th e cheap est cap ita l, w as th e atti tu d e o f p artn er S co tt F rie nd . “H e sh are d o ur c o m mitm ent to l e arn in g b y d oin g,” s a id F le is s.

3 With c ap ita l in h and , th e tw o w om en w ere r e ad y to b uild th e te am . T he ty p ic al ad vic e is to h ir e e xp erts to h ead e ach fu ncti o nal a re a, p erh ap s s o m eo ne w ho c an le v era ge s ig nific ant c o rp ora te e xp erie nce to ta ke th e te am to th e n ext le v el.

They did n’t d o i t .

In ste ad , H ym an to ok o n m ark eti n g, a nd F le is s to ok o n fin ance. T hey th en lo oked fo r in d iv id uals h av in g b ro ad s k ills w ho c o uld w ear d iffe re nt h ats . “ H av in g J e nn se rv e as C M O and m e as C FO is ty p ic al o f o ur flu id ap pro ach to allo cati n g re sp onsib iliti e s,” s a id F le is s. “ W e n eed m anagers w ho c an w ear d iffe re nt h ats . W e le arn ed a b out th e v alu e o f a ll- a ro und a th le te s w hen L ara jo in ed o n a n u np aid tr ia l basis to h elp w ith o ur c o lle ge m ark et te sts . A lth o ugh s h e h ad y ears o f e xp erie nce a t Coach, s h e w asn ’t a fr a id to m ove d re ss ra cks. B ro oke, o ur d ir e cto r o f c usto m er in sig ht, h as h ad s e v era l d iffe re nt r o le s b ut s h e’s n ev er w orrie d a b out th e ti tl e . . .

We m ake h eav y u se o f u np aid in te rn sh ip s to te st w heth er e m plo yees h av e th e s a m e hungry j a ck-o f- a ll- tr a d es a tti tu d e.” 4 With a s m all te am in p la ce, th e ty p ic al a d vic e w ould b e to c are fu lly d ev elo p a fla w le ss w eb site a nd s e rv ic e w ith b ro ad a p peal, a d din g f e atu re s th at m ig ht a ttr a ct a wid er s e t o f c usto m ers .

They d id n’t d o i t .

In ste ad , R ent th e R unw ay q uic kly la unched a b eta v ers io n o f its s e rv ic e fo r fiv e th o usa nd in v ite d m em bers o n N ovem ber 2 , 2 009. R TR s ta rte d w ith e ig ht h und re d dre sse s fr o m th ir ty desig ners — a re la ti v ely sm all in v ento ry . “W e fo llo w ed th e min im um v ia b le p ro duct a p pro ach,” s a id F le is s. “ A t th e o uts e t w e ju st w ante d to pro vid e th e c ap ab ility to r e nt d re sse s. N oth in g fa ncy.” B ut w ith th e h elp o f a New Yo rk T im es a rti c le ti tl e d “ A N etf lix M odel fo r H aute C outu re ,” in iti a l d em and fo r th e s m all i n v ento ry p ro ved a lm ost o verw helm in g.

5 Now w ith p ro ven d em and a nd i n cre asin g c usto m er f e ed back o n h o w to i m pro ve th e s e rv ic e, R TR w as p re p are d to in v est in a c o m ple te s o lu ti o n. O ver th e e nsu in g month s, a s d em and c o nti n ued to in cre ase , it e xp and ed its in v ento ry to m ore th an th ir ty th o usa nd d re sse s w ith help fr o m a $ 30 m illio n ro und o f fin ancin g. “O ur re v enue g ro w th i s a m azin g,” H ym an to ld u s a t th e e nd o f R TR ’s f ir s t y ear. “ T his i s a d re am co m e tr u e.” B ut a m ore v is ib le sig n o f su ccess, p erh ap s, is th at “its in v ento ry d re sse d 8 5 p erc ent o f th e l a d ie s w ho a tte nd ed P re sid ent O bam a’s s e co nd 13 in augura ti o n.” 6 14 Lesso n s f o r M an agers: H ow t o T urn U ncerta in ty in to Opportu nit y Rent th e R unw ay’s sto ry p ro vid es a w in d ow in to th e in no vato r’s m eth o d. In a nuts h ell, it’ s a p ro cess b y w hic h s u ccessfu l in no vato rs m anage th e u ncerta in ty o f in no vati o n— a pro cess to te st and valid ate a cre ati v e in sig ht befo re w asti n g re so urc es b uild in g a nd la unchin g a p ro duct c usto m ers d on’t a ctu ally w ant. W e’v e fo und th at th is m eth o d i s w id ely u se d b y th e m ost s u ccessfu l i n no vato rs i n s ta rt- u p s as w ell a s e sta b lis h ed c o m panie s.

The m eth o d d oesn ’t i n clu d e w riti n g a b usin ess p la n. H ym an a nd F le is s r e fu se d to write one ev en th o ugh vir tu ally ev ery busin ess sc ho ol ho ld s “b usin ess pla n” co m peti ti o ns fo r “sta rt- u p ” id eas lik e R ent th e R unw ay. W hy do m anagem ent exp erts call fo r w riti n g a busin ess pla n? The re co m mend ati o n co m es fr o m tr a d iti o nal m anagem ent th eo ry th at w as dev elo ped to so lv e a certa in ty p e of pro ble m : esta b lis h ed fir m s atte m pti n g to opti m iz e und er co nd iti o ns of re la ti v e certa in ty . In d eed a clo se r lo ok at m any o f o ur m anagem ent p ra cti c es— su ch as str a te gic p la nnin g, th e p re curs o r to b usin ess p la nnin g— re v eals th at m any o f o ur fa m ilia r m anagem ent p ra cti c es w ere o rig in ally d esig ned to cap tu re v alu e und er co nd iti o ns of re la ti v e certa in ty . H ow ev er, m ost new busin ess id eas (in sid e or outs id e th e co rp ora ti o n) are chara cte riz e d by a co m ple te ly diffe re nt se t of co nd iti o ns: u ncerta in ty . F or e xam ple , h o w c o uld H ym an p ossib ly k no w w hat th e dem and f o r r e nte d d esig ner d re sse s w ould b e?

In cre asin gly e v id ence su ggests th at o ur fa m ilia r m anagem ent te chniq ues w ork poorly w hen a p plie d to th e c o nte xt o f u ncerta in ty . F or e xam ple , r e se arc h s h o w s th at und er c o nd iti o ns o f u ncerta in ty , p la nnin g s im ply d oes n o t w ork .

7 M ost o f th e ti m e i t waste s ti m e a nd re so urc es a s y o u c o nju re e v id ence th at y o ur h yp oth esis — th at is , yo ur g uess— is r ig ht; it d oes n o t r e so lv e th e u ncerta in ty . In o ur e xam ple , in ste ad o f writi n g a pla n, H ym an desig ned a se t of exp erim ents to te st th e le ap -o f- fa ith assu m pti o ns b ehin d h er b ig id ea. E ach e xp erim ent w as d esig ned to te st sp ecific assu m pti o ns, a nsw erin g s p ecific q uesti o ns to r e so lv e th e u ncerta in ti e s s u rro und in g her i d ea.

These exp erim ents help ed H ym an and F le is s “nail it” — our te rm fo r d eep ly und ers ta nd in g th e u ncerta in ty a nd re so lv in g it w ell. F or e xam ple , th e fir s t R TR exp erim ents w ere fo cuse d on re so lv in g dem and uncerta in ty : W ere H ym an and Fle is s r e ally u nd erta kin g a p ro ble m w orth s o lv in g? T he i n iti a l e xp erim ents s h o w ed th at th ere w as d efin ite ly a d em and fo r r e nti n g d esig ner d re sse s. T he r ig ht d esig ner dre ss fo r a big so cia l ev ent naile d th e jo b-to -b e-d one: m akin g a w om an fe el sp ecia l, c o nfid ent, a nd d esir a b le .

But th ese e xp erim ents d id n’t s h o w w heth er r e nti n g o ver th e i n te rn et w as a v ia b le so lu ti o n. T o te st th is a ssu m pti o n, H ym an d id n’t w aste ti m e a nd r e so urc es b uild in g a 15 web site . In ste ad , sh e c re ate d a sim ple su b sti tu te , o r min im um v ia ble p ro to ty p e:

PD F p ic tu re s th at s h e s e nt to p ote nti a l c usto m ers in N ew Y ork . T his e xp erim ent pro vid ed c ru cia l d ata o n w hat c usto m ers w ante d , a nd fr o m th ere s h e ite ra te d fr o m th e m in im um v ia b le s o lu ti o n to b eco m e a n aw eso m e so lu tio n, w here R TR fa sh io n ad vis e rs ta lk to c usto m ers “ lik e a w om an m ig ht ta lk to h er g ir lfr ie nd ,” s u ggesti n g sh o es, a ccesso rie s, a nd , w hen n eed ed , s h ip pin g tw o d re ss s iz e s in ste ad o f o ne to make s u re th e d re ss f it.

Only a fte r R TR n aile d th e p ro ble m a nd so lu ti o n w as it ti m e to fig ure o ut th e busin ess m odel to e nsu re th at th e g o -to -m ark et s tr a te gy w ould w ork . V alid ati n g th e busin ess m odel i n v olv es e xp erim enti n g to f ig ure o ut h o w to c o m munic ate w ith y o ur custo m ers and cap tu re v alu e fr o m th em — dev elo pin g th e rig ht p ric in g m odel to genera te r e v enue s tr e am s th at w ill c o ver th e o pera ti o nal a cti v iti e s ( c o st s tr u ctu re ) and th e k ey r e so urc es a nd c ap ab iliti e s th e fir m w ill n eed to d eliv er th e s o lu ti o n to custo m ers . H ym an’s in iti a l h yp oth esis a b out th e c hannel to th e c usto m er— desig ner web site s— tu rn ed o ut to b e w ro ng. A piv o t— whic h w e d efin e a s c hangin g a k ey ele m ent o f th e p ro ble m , s o lu ti o n, o r b usin ess m odel— was n ecessa ry . R TR p iv ote d fr o m a b usin ess m odel a s a fu lfillm ent p artn er fo r e xis ti n g d esig ners to a N etf lix - lik e b usin ess m odel.

Alth o ugh th is p iv ot tu rn ed o ut to b e c riti c al, th e N etf lix b usin ess m odel d id n’t exactl y w ork eith er. It need ed to b e ad ap te d to fit R TR clie nts ’ need s. N etf lix custo m ers d on’t n eed a d vis e rs to h elp c lie nts c ho ose a p ro duct, b ut R TR r e aliz e d th at its s u ccess d ep end ed o n th e e ffe cti v eness o f fa sh io n a d vis e rs to c o ach c lie nts .

More o ver, N etf lix d oesn ’t re nt a m ovie fo r a sp ecific nig ht— and if th e m ovie doesn ’t arriv e as exp ecte d , th e se rv ic e is n ’t a fa ilu re fo r custo m ers . S o R TR se arc hed f o r a no th er a p pro ach, f in d in g a n a nalo gy i n th e a ir lin es’ m odel o f s e llin g a pro duct ( re se rv in g a s e at) f o r a p arti c ula r ti m e a nd p la ce; R TR a d ap te d i ts b usin ess model a cco rd in gly .

FIG URE I -1 The in novato r’s m eth od 16 The R TR e xp erie nce i llu str a te s th e “ ho w -to ” o f th e i n no vato r’s m eth o d: a s e rie s of e xp erim enta ti o n c ycle s th at r e so lv e th e u ncerta in ti e s a ro und th e p ro ble m y o u’re tr y in g to so lv e, th e so lu ti o n yo u p ro pose , and th e b usin ess m odel to ta ke yo ur so lu ti o n to m ark et. W e d esc rib e th is m eth o d in a fe w ste p s— in sig ht, p ro ble m , so lu ti o n, a nd b usin ess m odel— durin g w hic h y o ur c o re ta sk s a re to s a v or s u rp ris e s (in sig ht) , d is c o ver jo bs-to -b e-d one (p ro ble m ), p ro to ty p e th e m in im um aw eso m e pro duct (s o lu ti o n), a nd v alid ate y o ur g o -to -m ark et s tr a te gy (b usin ess m odel) (s e e fig ure I- 1 ). N atu ra lly , in a w orld o f unc erta in ty , fe w th in gs are lin ear. B ut w e desc rib e th e in no vato r’s m eth o d a s a lin ear p ro cess to s im plify a c o m ple x p ro cess and a t o th er p oin ts in th e b ook tr y to d esc rib e h o w th e “ ste p s” m ay o verla p o r b e re curs iv e.

17 Sou rc es o f t h e I n nova to r’s M eth od We c o nd ucte d s e v era l o verla p pin g r e se arc h p ro je cts to u nd ers ta nd h o w in no vato rs su ccessfu lly b rin g th eir id eas to m ark et. T his r e se arc h s ta rts w ith The In nova to r’s Dile m ma, w hic h fir s t c all e d fo r a d iffe re nt w ay o f m anagin g in no vati o n, a nd th en The In nova to r’s D NA, w hic h id enti fie d th e fiv e dis c o very sk ills of dis ru p ti v e in no vato rs th at help th em genera te in sig hts .

8 A lth o ugh The In nova to r’s D NA pro vid es a d vic e o n h o w to g enera te in no vati v e id eas, a fte r y o u’v e g enera te d a n id ea fo r a n ew p ro duct, p ro cess, o r s e rv ic e, w hat is th e n ext s te p ? H ow d o y o u kno w w heth er th e i d ea i s w orth p urs u in g? H ow d o y o u k no w w heth er y o u’v e f o und a p ro ble m w orth s o lv in g? H ow w ill y o u k no w if y o u’v e n aile d a s o lu ti o n to th at pro ble m ? In sh o rt, w hat are th e to ols to te st, v alid ate , and co m merc ia liz e new id eas?

To a nsw er th ese q uesti o ns, w e r e v ie w ed a nd s y nth esiz e d e m erg in g p ers p ecti v es fr o m o th er d is c ip lin es a b out m anagin g u ncerta in ty . W e’re n o t th e f ir s t to i d enti fy th e need f o r a n ew w ay to m anage th e u ncerta in ty o f i n no vati o n. E ach m ajo r d is c ip lin e, up on e nco unte rin g u ncerta in ty , h as d ev elo ped i ts o w n a nsw er, i n clu d in g e ngin eerin g (d esig n th in kin g), c o m pute r s c ie nce (a gile s o ftw are ), e ntr e p re neurs h ip (le an s ta rt- up ), physic s (a cti v e le arn in g), th e m ilita ry (a d ap ti v e arm y), and so on. E ach pers p ecti v e offe rs valu ab le in sig hts and valu ab le co ntr ib uti o ns th at w e hav e sy nth esiz e d h ere . Y ou m ay re co gniz e e le m ents o f th e in no vato r’s m eth o d in o th er books, s u ch a s b ooks o n d esig n th in kin g ( T im B ro w n’s Change b y D esig n, R oger Marti n ’s The D esig n o f B usin ess ), sta rt- u p s (s u ch a s E ric R ie s’s Lea n S ta rtu p , Ste v e B la nk’s Sta rtu p O wners M anual, a nd A le x O ste rw ald er’s Busin ess M odel Gen era tio n) , in no vati o n (s u ch as C hris te nse n’s In nova to r’s D ile m ma , S ho na L .

Bro w n a nd K ath le en M . E is e nhard t’ s Com petin g o n th e E dge , B ob S utto n’s Weir d Id ea s th at W ork , o r R ita G unth er M cG ra th a nd Ia n C . M acM illa n’s Dis c o very - Driv en P la nnin g ) o r a gile s o ftw are ( s u ch a s J e ff S uth erla nd a nd K en S chw ab er’s The Scru m G uid e or K enneth S. R ub in ’s Esse n tia l Scru m ). W e re sp ect and re co m mend th ese a uth o rs to y o u f o r th eir th o ughtf u l c o ntr ib uti o ns.

Even w ith v alu ab le in sig hts fr o m th eir d is c ip lin es, th ese b ooks o fte n c o ver o nly a p art o f th e i n no vati o n p ro cess. I n th is b ook, w e p ull th e p ie ces to geth er to p ro vid e a ho lis ti c m odel— sta rti n g w ith genera ti n g an in sig ht, th en m ovin g to deep ly und ers ta nd in g th e c usto m er p ro ble m , r a p id ly p ro to ty p in g y o ur w ay to a n a w eso m e so lu ti o n, a nd f in ally a lig nin g th e b usin ess m odel w ith th e s o lu ti o n b efo re s c alin g i t.

As s h o w n i n fig ure I - 2 , d esig n th in kin g i s e xcep ti o nal i n h elp in g p eo ple u nd ers ta nd a custo m er p ro ble m , b ut it d oesn ’t ad dre ss th e need to fin d th e rig ht b usin ess model. L ean sta rt- u p excels at p ro to ty p in g th e so lu ti o n to a p ro ble m b ut o fte n pro vid es l ittl e g uid ance o n g enera ti n g i d eas o r d ete rm in in g w heth er y o u’v e f o und a pro ble m w orth so lv in g. B ooks o n b usin ess m odels p ro vid e excelle nt to ols fo r fig urin g o ut o th er e le m ents o f th e b usin ess m odel b ut d o n o t a d dre ss g enera ti n g b ig 18 id eas o r h o w to d eep ly u nd ers ta nd a c usto m er p ro ble m . O ur h o lis ti c m odel h elp s ta ke y o u th ro ugh th e s te p s r e q uir e d to n ail a b usin ess m odel b efo re s c alin g it. A nd because m ost b ooks fo cus o n e ntr e p re neuria l s ta rt- u p s, th ey d on’t ta ke y o u th ro ugh th e c ru cia l s te p o f h o w to a d ap t th ese p rin cip le s f o r a l a rg e c o m pany s e tti n g.

FIG URE I -2 The m eth od in d eta il To u nd ers ta nd h o w m anagers a p plie d a nd a d ap te d th ese p rin cip le s i n e sta b lis h ed co m panie s, w e c o nd ucte d e xte nsiv e r e se arc h— both q ualita ti v e a nd q uanti ta ti v e— with h und re d s o f c o m panie s to u nd ers ta nd w hat m anagers d o to b rin g th eir i d eas to mark et. W e s tu d ie d s u ccessfu l a s w ell a s u nsu ccessfu l c o m panie s to d is c o ver th e diffe re nces b etw een s u ccess a nd f a ilu re . T hese c o m panie s f a ll i n to f o ur c ate go rie s:

Esta b lis h ed co m panie s th at m ain ta in ed th eir in no vati o n cap ab iliti e s afte r fo und in g Esta b lis h ed co m panie s th at had lo st (o r w ere lo sin g) th eir in no vati o n 19 cap ab iliti e s b ut th en r e ig nite d th em Successfu l a nd f a ile d i n no vati o n i n iti a ti v es i n n ew v entu re s Successfu l a nd f a ile d i n no vati o n i n iti a ti v es i n e sta b lis h ed c o m panie s Alth o ugh w e d o n o t d esc rib e a ll th e c o m panie s i n th is b ook, ta b le I - 1 p ro vid es a sa m ple o f th o se th at fa ll in to th e fir s t th re e c ate go rie s. T hese c o m panie s r e p re se nt most o f th e c ase s tu d ie s w e u se i n th e b ook.

TA BLE I -1 Sam ple c o m panie s Esta blis h ed c o m panie s t h at main ta in in novatio n Esta blis h ed c o m panie s t h at have r e ig nit e d in novatio n Sta rt-u p in novato rs A mazo n I n tu it R ent th e Runw ay Sale sfo rc e.c o m H in d usta n U nile v er Q ualtr ic s G oogle P ro cte r & G am ble M oti v e Com munic ati o ns V alv e S oftw are M ond ele z G itH ub R egenero n B anco D av iv ie nd a A sa na S ta rb ucks G odre j & B oyce Manufa ctu rin g C hegg W .L . G ore A T& T U lti m ate Are na/X fir e I D EO C em ex B ig I d ea Gro up Som e c o m panie s, su ch a s A mazo n, G oogle , a nd V alv e S oftw are , h av e d one a re m ark ab le jo b o f in sti tu ti o naliz in g th e e ntr e p re neuria l m anagem ent p rin cip le s o n whic h th ey w ere f o und ed . F or e xam ple , u nd er th e l e ad ers h ip o f J e ff B ezo s, A mazo n has s u sta in ed a n e xtr a o rd in ary in no vati o n tr a ck r e co rd s in ce its fo und in g in 1 996.

In d eed , th e c o m pany h as m ain ta in ed a n in nova tio n p re m iu m ( IP ) th at h as a v era ged 20 73 p erc ent.

9 ( W e in tr o duced th is m etr ic in The I n nova to r’s D NA a nd u se it to r a nk th e Forb es lis t o f m ost in no vati v e c o m panie s.) A mazo n’s IP m eans th at in v esto rs are w illin g to p ay a p re m iu m fo r its s to ck th at is 7 3 p erc ent h ig her th an th e n et pre se nt v alu e o f c ash flo w s fr o m its e xis ti n g b usin esse s. A mazo n’s IP h as b een th e hig hest o f a ny c o m pany i n th e w orld d urin g th e p ast f ifte en y ears .

10 Oth er co m panie s, su ch as In tu it, P ro cte r & G am ble , and H in d usta n U nile v er, re p re se nt in no vati o n tu rn aro und sto rie s. A fte r years of sta b le but unin sp ir in g in no vati o n p erfo rm ance, th ese fir m s a p plie d ta cti c s w e d esc rib e to d ra m ati c ally boost in no vati o n. O th er co m panie s are sta rt- u p s, su ch as R ent th e R unw ay, Qualtr ic s, a nd M oti v e C om munic ati o ns, th at p ro vid e r ic h in sig ht in to th e p ro cess.

Fin ally , so m e c o m panie s tr ie d to b rin g te chniq ues lik e le an sta rt- u p in sid e th eir co m panie s b ut f a ile d . T heir e ffo rts te ach u s a b out th e c halle nges o f s u ch a tte m pts .

21 Does t h e I n nova to r’s M eth od M ake a D if fe re n ce?

We s ta rte d th is r e se arc h b y a sk in g, “ W hat p ro cesse s d o s u ccessfu l i n no vato rs u se to valid ate th eir id eas a nd b rin g th em to m ark et? ” D esp ite o ur c la im s o f s u ccess, y o u may a sk y o urs e lf, D oes th e i n no vato r’s m eth o d m ake a d iffe re nce? P erh ap s th e m ost te llin g e v id ence c o m es fr o m th e e sta b lis h ed c o m panie s w e stu d ie d th at b ooste d th eir in no vati o n p erfo rm ance a fte r a d opti n g e le m ents o f th e m eth o d. A mong th e pub lic ly tr a d ed c o m panie s w e d esc rib e i n th is b ook, w e o bse rv ed th at th re e to f iv e years a fte r a d opti n g k ey e le m ents , th eir IP s in cre ase d b y a n a v era ge o f 5 7 p erc ent (s e e ta b le I - 2 ).

TA BLE I -2 Gro w th in I P a fte r u se o f t h e in novato r’s m eth od Com pany In novatio n pre m iu m befo re a In novatio n pre m iu m afte r b Perc e nta ge in cre ase Addit io nal v alu e to m ark et c a p c I n tu it 2 0% 2 9% 4 5% $ 1.8 b illio n H in d usta n Unile v er 5 1% 6 1% 1 7% $ 2.0 b illio n M ond ele z 1 7% 3 1% 7 8% $ 8.3 b illio n P ro cte r & Gam ble 1 8% 3 6% 9 5% $ 40.5 b illio n G odre j 4 0% 6 0% 5 0% $ 0.9 b illio n A T& T – 13% 6 % n /a $ 35.8 b illio n a.

A ll “ b efo re ” I P p erc enta ges a re ta ken b etw een 2 006 a nd 2 008 b efo re th e c om pany in it ia te d p ro gra m s th at in clu ded im porta nt e le m ents o f th e in novato r’s m eth od ( e xcept P ro cte r & G am ble ’s , w hic h is f ro m 2 000, th e year A . G . L afle y b ecam e C EO ).

b.

A ll “ a fte r” I P s a re f ro m 2 013.

c.

C alc ula te d a s th e d if fe re nce in I P m ult ip lie d b y th e c om pany’s 2 013 m ark et c ap.

22 Alth o ugh it a lw ays ta kes ti m e fo r in no vati o ns to b ear fr u it, th ese n um bers a re acco m panie d b y g ro w th i n r e v enue, p ro fit, a nd g enera l e xcite m ent a t th e c o m panie s in v olv ed . F or e xam ple , H in d usta n U nile v er i n cre ase d i ts r e v enue b y 4 0 p erc ent i n a sin gle y ear; I n tu it m ulti p lie d i ts r e v enue f r o m s u ccessfu l n ew p ro ducts te nfo ld o ver th re e years ; M ond ele z C hin a w as fa ilin g b ut tu rn ed its e lf in to a su ccessfu l $ 1 billio n b usin ess; G odre j c re ate d a n ew c ate go ry o f c o nsu m er p ro ducts s o ld th ro ugh an enti r e ly new dis tr ib uti o n channel; Pro cte r & Gam ble cre ate d se v era l multi b illio n-d olla r b usin esse s; a nd A T& T tu rn ed a n egati v e IP in to a p ositi v e o ne (in v esto rs in th e m id -2 000s w ere e xp ecti n g A T& T’s c urre nt b usin esse s to s h rin k, but th ey n o w e xp ect th em to a chie v e g ro w th ).

23 Who N eed s The I n nova to r’s M eth od ?

Anyo ne w anti n g to in no vate o r fa cin g p ro ble m s c hara cte riz e d b y u ncerta in ty n eed s to und ers ta nd w hen and ho w to ap ply th e in no vato r’s m eth o d to in cre ase th eir chances o f s u ccess. W e e nv is io n th re e p rim ary a ud ie nces f o r th is b ook:

Managers fr o m any fu ncti o n or div is io n w ho w ant to in no vate or so lv e pro ble m s chara cte riz e d by uncerta in ty , but don’t kno w th e ste p s or fe el fr u str a te d b y th e i m ped im ents Lead ers w ho fa ce th e challe nges o f d eclin in g gro w th , th e need to su sta in exis ti n g g ro w th , o r th e d iffic ulty o f r e ta in in g ta le nte d m anagers w ho m ay l e av e fo r s ta rt- u p s Entr e p re neurs , m any o f w ho m m ay h av e b een fr u str a te d m anagers , w ho w ant to m axim iz e th eir c hances o f s u ccess Alth o ugh th e id eas in th is book cle arly ap ply to m anagers , le ad ers , and entr e p re neurs , th ey a re re le v ant to a nyo ne tr y in g to so lv e a c o m ple x p ro ble m — so m eo ne tr y in g to re in v ent e d ucati o n, im pro ve p oliti c al d ecis io n m akin g, o r e v en so lv e a c halle ngin g f a m ily p ro ble m . F or e xam ple , w e th in k U S g o vern m ent o ffic ia ls would b e m ore e ffe cti v e i f th ey w ould d esig n e xp erim ents a nd r u n th em i n p ara lle l to s e e w hat th ey c o uld le arn b efo re ro llin g o ut a p olic y to th e e nti r e c o untr y . (In fa ct, C hin a h as b een s u ccessfu lly s e tti n g p olic y th ro ugh e xp erim ents a nd i s c urre ntl y ru nnin g, in p ara lle l, se v en e xp erim ents to d ete rm in e th e b est w ay to c o ntr o l a ir pollu ti o n.) U lti m ate ly , o ur g o al i s to te ach y o u a b out th e p rin cip le s th at y o u c an u se to s o lv e a ny c halle ngin g p ro ble m .

The b ig i d ea th at d iffe re nti a te s th is b ook i s th at u ncerta in ty r e q uir e s a n ew s e t o f managem ent p rin cip le s. W hile tr a d iti o nal m anagem ent w ork s w ell fo r p ro ble m s o f re la ti v e c erta in ty , it w ork s p oorly fo r p ro ble m s c hara cte riz e d b y u ncerta in ty . B y usin g th e to ols desc rib ed here , yo u w ill le arn ho w to cre ati v ely so lv e hig h- uncerta in ty p ro ble m s. Y ou w ill le arn h o w to tr a nsfo rm a n id ea in to a r e ality . T his kno w le d ge is v alu ab le fo r le ad ers a nd m anagers in la rg e o rg aniz a ti o ns a s w ell a s bud din g e ntr e p re neurs . F or a nyo ne w ho h as th o ught, “ I w ond er w heth er th is id ea co uld w ork ?” b ut h asn ’t k no w n h o w to ta ke th e n ext s te p , The I n nova to r’s M eth od is y o ur o pera ti n g m anual.

24 1 The I n nova to r’s M eth od How d o w e t u rn I n tu it i n to a n e ig h t- th ou sa n d-p erso n s ta rt- u p? T hat’s w hat w e are t r yin g t o d o.

—Bra d S m it h , C EO , I n tu it I N 2 008, I N TU IT c ele b ra te d i ts tw enty -fifth a nniv ers a ry a nd n am ed B ra d S m ith a s CEO . Found ed by Sco tt C ook, In tu it— maker of su ccessfu l fin ancia l so ftw are packages lik e Q uic ken, Q uic kB ooks, and T urb oTax— had achie v ed re m ark ab le su ccess, g ro w in g r e v enues to m ore th an $ 3 b illio n a nd c re ati n g a m ark et v alu e o f $10.2 b illio n. B ut C ook a nd S m ith w ere w orrie d . In tu it h ad s e em in gly re ached a perfo rm ance p la te au, a nd i ts m ark et v alu e h ad b egun to f a ll. A nnual r e v enue g ro w th had d ro pped in h alf, fr o m 1 5 p erc ent ( 1 998–2003) to 8 p erc ent ( 2 004–2008), a nd annual in co m e g ro w th h ad s lo w ed e v en m ore d ra m ati c ally , fr o m 3 1 p erc ent to 6 perc ent. N ot su rp ris in gly , In tu it’ s a nnual m ark et v alu e g ro w th h ad ta ken a h it a s well, d ro ppin g f r o m 1 4 p erc ent to 5 p erc ent.

Wors e , a fte r s tu d yin g In tu it’ s n ew p ro duct la unches o ver th e p rio r d ecad e, C ook dis c o vere d th at fe w er th an 1 0 p erc ent c o uld b e c alle d s u ccessfu l fr o m a re v enue and p ro fit p ers p ecti v e. M eanw hile , I n tu it’ s n et p ro m ote r s c o re ( N PS), a m easu re o f wheth er c usto m ers lik e a p ro duct e no ugh to p ro m ote it to fr ie nd s a nd c o lle agues, had fla tte ned .

1 F in ally , th e c o m pany’s in no vati o n p re m iu m ( IP ), a m easu re o f s to ck pric e p re m iu m p aid b y in v esto rs b ecause o f e xp ecta ti o ns o f fu tu re g ro w th th ro ugh in no vati o n, h ad d ro pped fr o m 5 7 p erc ent in 2 000 to 2 0 p erc ent in 2 008.

2 A fte r 25 tw enty -fiv e y ears , b y e v ery m easu re , it s e em ed a s if th e c o m pany h ad r e ached th e te llta le lim it o f th e S -c urv e: In tu it w as m ovin g fr o m g ro w th to m atu rity , w ith th e th re at o f f a ilu re n o t f a r b ehin d .

Cook a nd S m ith d id n’t w ant th at to h ap pen. B ut w hat c o uld th ey d o?

26 The I n nova tio n C ris is : U npre ced en te d U ncerta in ty In tu it w as e xp erie ncin g w hat h ap pens to m ost s u ccessfu l s ta rt- u p s a s th ey g ro w i n to la rg e, esta b lis h ed co rp ora ti o ns: executi o n b eco m es th e hig hest p rio rity as th ey sc ale th e b usin ess to m eet th e d em and s o f e xis ti n g c usto m ers . O ver ti m e, th e fo cus on e xecuti o n c ro w ds o ut in no vati o n. In tu it w as lo sin g th e a b ility to p erfo rm w hat Pete r D ru cker calle d m anagem ent’ s fu nd am enta l ta sk : “to cre ate a custo m er.” 3 Ir o nic ally , a s c o m panie s fo cus o n c ap tu rin g v alu e fr o m c usto m ers , th ey o fte n lo se th e a b ility to c re ate c usto m ers .

And so m eth in g m ore h ad c hanged . It’ s a c lic hé to sa y th at th e w orld is m ore uncerta in th an e v er b efo re , b ut fe w p eo ple re aliz e th e e xte nt o f th e in cre ase in uncerta in ty o ver th e p ast th ir ty y ears . M ore im porta nt, th ey d on’t u nd ers ta nd th at gre ate r u ncerta in ty h as c re ate d th e n eed to c hange th e w ay m ost o rg aniz a ti o ns a re managed . T he c halle nge o f c re ati n g a c usto m er i s m ore c o m ple x a nd u ncerta in th an ev er b efo re . H ere ’s w hy.

There are tw o ty p es o f uncerta in ty th at in flu ence a fir m ’s ab ility to cre ate a custo m er:

dem and uncerta in ty (w ill custo m ers buy it? ) and te ch nolo gic a l uncerta in ty (c an w e m ake a d esir a b le so lu ti o n?).

* U ncerta in ty aris e s fr o m th e unkno w ns asso cia te d w ith so lv in g any pro ble m , w hic h are so m eti m es calle d “unkno w n unkno w ns,” su ch as hid den custo m er pre fe re nces or und is c o vere d ele m ents o f a te chnic al s o lu ti o n.

The m ore unkno w ns th ere are ab out custo m er p re fe re nces and b ehav io r, th e gre ate r th e d em and u ncerta in ty . F or e xam ple , w hen J e nn H ym an o f R ent th e R unw ay cam e u p w ith th e i d ea to r e nt d esig ner d re sse s o ver th e i n te rn et, d em and u ncerta in ty was h ig h b ecause n o o ne e ls e w as o ffe rin g th is s e rv ic e.

4 I n c o ntr a st, w hen S am su ng and S ony w ere d ecid in g w heth er to la unch L E D T V s, w hic h o ffe re d b ette r p ic tu re quality a t r o ughly th e s a m e p ric e a s p la sm a T V s, th ere w as l o w er u ncerta in ty a b out dem and b ecause c usto m ers w ere a lr e ad y b uyin g T V s.

Techno lo gic al u ncerta in ty r e su lts f r o m u ncerta in ty r e gard in g th e te chno lo gie s th at mig ht e m erg e o r n eed to b e c re ate d fo r a n ew s o lu ti o n to e m erg e. F or e xam ple , a wid e v arie ty o f c le an te chno lo gie s ( in clu d in g w in d , s o la r, a nd h yd ro gen) a re v yin g to p ow er v ehic le s and citi e s at th e sa m e ti m e th at a w id e v arie ty o f m ed ic al te chno lo gie s (c hem ic al, bio te chno lo gic al, geno m ic , and ro boti c ) are bein g dev elo ped to tr e at d is e ase s. A s th e o vera ll ra te o f in v enti o n acro ss in d ustr ie s in cre ase s, s o d oes te chno lo gic al u ncerta in ty .

To b ette r u nd ers ta nd th e u ncerta in ty f a cin g f ir m s l ik e I n tu it, w e s tu d ie d th e d ep th and d egre e o f th e s h ift i n d em and a nd te chno lo gic al u ncerta in ty . F ir s t, w e l o oked a t multi p le m easu re s o f th e ra te o f te chno lo gic al c hange. O ne m easu re is th e ra te o f in v enti o n p ate nti n g ( s e e fig ure 1 -1 ).

27 This i s a n i m perfe ct m easu re , b ut c le arly i t r e fle cts a s tr ik in g i n cre ase i n th e r a te of in v enti o n in th e p ast tw enty y ears .

5 N ot s u rp ris in gly , th ere h as b een a s im ila rly dra m ati c i n cre ase i n to ta l R & D s p end in g.

As n ew te chno lo gie s e m erg e, c o m panie s a re r is in g, a nd fa llin g, a t a m uch fa ste r pace th an e v er b efo re . T his p heno m eno n i s a m plifie d b y i n cre asin gly f a ste r c hanges in custo m ers ’ d em and s fo r a new m ix o f p ro ducts and se rv ic es. F or exam ple , co nsid er h o w q uic kly e nte rta in m ent p re fe re nces h av e c hanged . F or m ore th an th re e decad es— betw een 1 950 a nd 1 980— we a ccesse d T V s h o w s a nd m ovie s p rim arily th ro ugh th re e n etw ork s (A BC, N BC, C BS) o r a t m ovie th eate rs . T hen w ith th e ad vent o f th e V CR, w e’v e p ro gre sse d to w atc hin g m ovie s o n o ur h o m e T V s c re ens via v id eo casse tte s a nd th en D VD s, to w atc hin g th em o n o ur c o m pute rs , th en o n o ur la p to ps, th en o n ta b le ts , a nd n o w o n o ur p ho nes, m ostl y v ia in te rn et str e am in g.

When th e D VD e m erg ed , it w as a d opte d m ore q uic kly th an a ny p re v io us c o nsu m er ele ctr o nic d ev ic e s e llin g ju st o ver th re e h und re d th o usa nd u nits in th e fir s t y ear— unti l th e iP ad , w hic h so ld th re e m illio n units in its fir s t eig hty d ays.

6 In sh o rt, custo m er p re fe re nces a re n o t o nly c hangin g b ut a ls o c hangin g a t a n a ccele ra ti n g pace.

FIG URE 1 -1 Tota l U S p ate nt a pplic a tio ns 28 Sourc e : U S Pate nt and Tra dem ark O ffic e, “U .S . Pate nt Sta tis tic s C hart, C ale ndar Years 1963– 2012,” http :/ /w ww.u sp to .g ov/w eb/o ffic es/a c/id o/o eip /ta f/u s_ sta t.h tm .

A c lo se r lo ok a t d em and u ncerta in ty a m ong th e Fortu ne 5 00 u nd ers c o re s th is patte rn . The churn am ong th is hig hest- e chelo n gro up in cre ase d sig nific antl y betw een 1 950 a nd 2 010 ( s e e fig ure 1 -2 ): i n 1 960, tw enty -s e v en f ir m s m oved i n a nd out o f th e Fortu ne 5 00 p er y ear, b ut n o w th e c hurn h as in cre ase d to th ir ty -s e v en fir m s— an a lm ost 4 0 p erc ent in cre ase . T his m eans th at th e a v era ge fir m n o w s ta ys in th e Fortu ne 5 00 f o r s e v en y ears , c o m pare d w ith tw elv e y ears i n th e r e cent p ast.

Oth er a cad em ic s tu d ie s c o nfir m th at c o m peti ti v e a d vanta ge h as b eco m e h ard er to su sta in o ver a b ro ad r a nge o f h ig h- a nd l o w -te ch i n d ustr ie s.

7 FIG URE 1 -2 Avera ge a nnual Fortu ne 5 00 t u rn over 29 Sourc e : C om puS ta t, 2 013.

It’ s n o t a n e xaggera ti o n to s a y th at a s e co nd I n d ustr ia l R ev olu ti o n h as o ccurre d , a re v olu ti o n fu ele d b y n ew te chno lo gie s a nd c usto m ers a nd a cco m panie d b y r a d ic al uncerta in ty . C om panie s d on’t h o ld o n to c usto m ers a s l o ng a s th ey u se d to , a nd n ew te chno lo gie s a nd c o m peti to rs a re e m erg in g f a ste r th an e v er b efo re .

What d riv es th ese d ra m ati c i n cre ase s i n u ncerta in ty ? T here a re m any r e aso ns, b ut tw o d is ru p ti v e te chno lo gie s h av e p la yed a c ru cia l r o le : p ers o nal c o m puti n g a nd th e in te rn et. A no th er k ey is th e e m erg ence o f c ap ita lis m in c o untr ie s su ch a s C hin a, In d ia , R ussia , a nd B ra zil.

Pers o nal co m puti n g has pla ced pow erfu l analy ti c al to ols in to th e hand s of ev ery o ne hav in g th e moti v ati o n to maste r th em . It has dem ocra ti z e d and decentr a liz e d c o m ple x p ro ble m s o lv in g. S im ila rly , th e in te rn et h as h ad a p ro fo und effe ct a s a l o w -c o st m ark eti n g a nd d is tr ib uti o n c hannel f o r a nyo ne w anti n g to s e ll a pro duct. T his m eans th at m ore n ew p ro ducts c an b e la unched to a la rg er a ud ie nce, and f a ste r, th an e v er b efo re .

Fin ally , a s C hin a, I n d ia , R ussia , a nd B ra zil h av e j o in ed th e g lo bal e co no m y, th ey hav e e xp and ed th e p ool o f p ote nti a l e ntr e p re neurs b y 2 .5 b illio n p eo ple . T hese n ew entr e p re neurs e njo y lo w er te chnic al b arrie rs to e ntr y ( w ith o pen s o urc e s o ftw are , pro gra m min g p la tf o rm s, a nd c lo ud te chno lo gie s), lo w er c ap ita l b arrie rs (w ith th e gro w th o f v entu re c ap ita l, a ngel fu nd in g, a nd c ro w d-fu nd in g), lo w er p ro ducti o n barrie rs (w ith th e ad opti o n of 3-D prin te rs and glo bal su p plie rs ), and lo w er 30 dis tr ib uti o n a nd m ark eti n g b arrie rs (w ith th e in te rn et a nd th e e m erg ence o f d ir e ct sh ip pin g a nd s o cia l m ed ia ). A s a re su lt, th ere a re s im ply m ore c o m peti to rs th an ev er b efo re .

These c hanges h av e in cre ase d u ncerta in ty to a ti p pin g p oin t— a th re sh o ld w here th e tr a d iti o nal w ays w e o rg aniz e d a nd m anaged c o rp ora ti o ns w ill n o lo nger w ork to s u sta in g ro w th i n th e f u tu re . T his i s e sp ecia lly tr u e o f c o m panie s i n th e i n d ustr ie s hav in g th e h ig hest u ncerta in ty , s u ch a s c o m pute r s o ftw are a nd m ed ic al e q uip m ent (s e e “H ow M uch U ncerta in ty D o Y ou F ace?” ). In fa ct, th e co m pute r so ftw are in d ustr y — where In tu it c o m pete s— is a t th e h ig h e nd o f th e u ncerta in ty sp ectr u m , with v ola ti le re v enues, heav y R & D sp end in g, and new entr a nts em erg in g at an unp re ced ente d ra te . In tu it’ s S co tt C ook w as a w are o f th e d iffic ulty o f p re d ic ti n g and m eeti n g c usto m er d em and . T hat’ s w hy m any o f th e c o m pany’s n ew p ro ducts had flo pped . H e h ad a ls o s e en n ew c o m peti to rs c o m e a lo ng to a tta ck In tu it in n ew ways, w ith d iffe re nt te chno lo gie s a nd b usin ess m odels . H e r e aliz e d th at h e n eed ed to f ig ure o ut a n ew w ay to m anage i n th e h ig hly v ola ti le c o m pute r s o ftw are i n d ustr y if he ho ped to co m pete w ith th e sta rt- u p s. H ere ’s w here th e In tu it sto ry gets in te re sti n g.

How M uch U ncerta in ty D o Y ou F ace?

Not e v ery o ne fa ces th e s a m e le v els o f u ncerta in ty . S om e in d ustr ie s h av e gre ate r in here nt d em and o r te chno lo gic al u ncerta in ty . C onsid er th e 2 × 2 matr ix s h o w n i n fig ure 1 -3 . T he h o riz o nta l a xis p lo ts e ach i n d ustr y b ase d on te chno lo gic al u ncerta in ty , m easu re d a s th e a v era ge R & D e xp end itu re s as a p erc enta ge o f sa le s in th e in d ustr y o ver th e p ast te n years . T he verti c al a xis p lo ts e ach in d ustr y ’s d em and u ncerta in ty , m easu re d a s a n eq ual w eig hti n g o f in d ustr y re v enue v ola ti lity , o r c hange, o ver th e p ast te n y ears a nd p erc enta ge o f fir m s in th e in d ustr y th at e nte re d o r e xite d over th e p ast te n years . A lth o ugh th ese are im perfe ct m easu re s, th ey id enti fy th e in d ustr ie s fa cin g th e h ig hest, a nd lo w est b ase lin e le v els o f uncerta in ty ( s e e fig ure 1 -4 ).

FIG URE 1 -3 Dem and a nd t e ch nolo gic a l u nce rta in ty b y in dustr y ( 2 002–2011 ) 31 Sourc e:

C om pusta t, 2 013.

Note :

Q uadra nts d ra w n a t m edia n v alu es: ( 1 .4 , 6 7.5 ).

Note : B eer & liq uor, in su ra nce, u tilit ie s, p re cio us m eta ls d is p la yed a t d em and u ncerta in ty = 3 0 f o r vis u al p urp ose s. T ru e d em and u ncerta in ty v alu es a re 2 8.9 , 1 4.4 , 2 1.6 , r e sp ectiv ely .

Where d oes y o ur i n d ustr y s it? D o y o u f a ce h ig h o r l o w u ncerta in ty ? A s yo u can se e, so m e in d ustr ie s fa ce lo w uncerta in ty ; exam ple s in clu d e pro vid ers o f p ers o nal se rv ic es, su ch a s h air sty lin g a nd d ry c le anin g, who h av e u se d s im ila r te chno lo gie s to p ro vid e s o lu ti o ns f o r w ell- k no w n dem and s. B y co ntr a st, in th e lo w er-rig ht quad ra nt in fig ure 1-3 are in d ustr ie s th at fa ce lo w er dem and uncerta in ty but hig h te chno lo gic al uncerta in ty . For exam ple , air c ra ft m akers can genera lly pre d ic t th e dem and fo r a ir c ra ft p ro ducti o n. T he c halle nge th ey fa ce is te chno lo gic al uncerta in ty ; B oein g a nd A ir b us s p end la rg e s u m s d ev elo pin g a d vanced new a ir c ra ft l ik e th e B oein g 7 87 a nd th e A ir b us A 350.

32 FIG URE 1 -4 In dustr ie s r a nk ed b y le vel o f u nce rta in ty In th e up per-le ft quad ra nt are in d ustr ie s th at fa ce hig h dem and uncerta in ty b ut lo w te chno lo gic al u ncerta in ty . F or e xam ple , re sta ura nts and ho te ls o fte n hav e d iffic ulty p re d ic ti n g d em and fo r th eir se rv ic es, 33 because m any f a cto rs i n flu ence w heth er, w hen, a nd w here p eo ple e at o ut or tr a v el. H ow ev er, th e te chno lo gie s o f o ffe rin g f o od o r l o dgin g h av e n o t changed m uch o ver th e y ears .

Fin ally , in d ustr ie s in th e up per-rig ht quad ra nt— su ch as so ftw are , pharm aceuti c als , a nd m ed ic al e q uip m ent— fa ce h ig h u ncerta in ty in b oth dem and a nd te chno lo gy. F or e xam ple , w ho w ould h av e p re d ic te d th at med ic al ro bots w ould perfo rm su rg erie s? W hen In tu iti v e Surg ic al la unched th e D a V in ci S yste m m ed ic al r o bot— whic h a llo w s s u rg eo ns to opera te usin g 3-D vis u aliz a ti o n and fo ur ro boti c arm s— th e co m pany fa ced s ig nific ant te chnic al a s w ell a s d em and u ncerta in ty .

Our analy sis su ggests th at, on av era ge, th e to p te n m ost uncerta in in d ustr ie s re q uir e g re ate r in no vati o n m anagem ent s k ills th an th e b otto m te n. H ow ev er, ev en if yo ur in d ustr y pro vid es clu es ab out av era ge uncerta in ty , ev ery pro ble m is chara cte riz e d by its ow n le v el of uncerta in ty . F or exam ple , alth o ugh W eb van w as a fo od re ta ile r in an in d ustr y w ith re la ti v ely lo w uncerta in ty , its onlin e pla tf o rm of ho m e deliv ery fa ced both hig h dem and uncerta in ty (w ill custo m ers buy gro cerie s onlin e?) and hig h te chno lo gic al uncerta in ty (c an w e fu lfill ord ers in a c o st- e ffe cti v e w ay?). D em and u ncerta in ty w as h ig h, b ecause th e c o m pany h ad fe w fa cts a b out d em and a nd m any a ssu m pti o ns. T he sa m e w as tr u e o f te chno lo gic al uncerta in ty ; it had m any assu m pti o ns ab out w hic h f u lfillm ent te chno lo gie s w ould w ork b est.

The r a ti o o f a ssu m pti o ns to f a cts e q uals y o ur uncerta in ty r a tio .

I f y o ur pro ble m is c hara cte riz e d b y a lo w u ncerta in ty ra ti o , y o u c an p ro bab ly ap ply tr a d iti o nal m anagem ent. If y o u h av e a h ig h u ncerta in ty ra ti o , th en The In nova to r’s M eth od s h o uld g uid e y o u. U nfo rtu nate ly fo r W eb van’s in v esto rs , th e c o m pany w as n o t s u ccessfu l i n e xp erim enti n g to r e so lv e i ts hig h-u ncerta in ty p ro ble m s b efo re a fu ll- s c ale la unch— $500 m illio n— th at p ro ved d is a str o us.

34 A N ew W ay t o M an age: I n tu it ’s T ra n sfo rm atio n The sto ry of In tu it’ s jo urn ey giv es m anagers an arc hety p e fo r a new w ay of managin g in a h ig h-u ncerta in ty in d ustr y . In tu it’ s tr a nsfo rm ati o n a rg uab ly b egan in 2004 w ith i ts a d opti o n o f th e n et p ro m ote r s c o re . N PS i s b ase d o n a s in gle q uesti o n pose d to c usto m ers : H ow lik ely a re y o u, o n a s c ale o f 0 (n o t a t a ll lik ely ) to 1 0 (e xtr e m ely lik ely ), to r e co m mend th is p ro duct o r s e rv ic e to a c o lle ague o r fr ie nd ?

A p ro duct’ s N PS is th e p erc enta ge o f p ro m ote rs ( th o se w ho s c o re th em se lv es 9 o r 10) m in us th e p erc enta ge o f d etr a cto rs ( s c o re s 0 –6).

8 Net p ro m ote r s c o re = % p ro m ote rs m in us % d etr a cto rs His to ric ally , In tu it p ro ducts h ad d om in ate d th eir m ark ets b y b ein g s ig nific antl y easie r to u se th an c o m peti to rs ’. B ut s o on c o m peti to rs w ere c atc hin g u p , s o In tu it la unched a n e ffo rt to im pro ve e ase o f u se a nd N PS. It s p ent e v en m ore ti m e w ith custo m ers , o bse rv ed d etr a cto rs , a nd re d esig ned p ro ducts . “ W e p ut a b ig fo cus o n makin g o ur p ro ducts e asie r to u se ,” sa ys K aare n H anso n, d esig n v ic e-p re sid ent.

“A nd w hen th is c o m pany d ecid es to g o a fte r s o m eth in g, w e d o i t. S o w e p ulle d th e le v er.” B ut th ese tr a d iti o nal m anagem ent m oves fa ile d to m ove th e m ete r. “ O ur n et pro m ote r s c o re s d id n’t b ud ge,” H anso n s a ys. “ A nd it d id n’t r e su lt in a b ig ju m p in sa le s, w hic h is w hat w e exp ecte d . W e pulle d th e dam n le v er, and no th in g hap pened .” 9 In o th er a re as o f th e c o m pany, c usto m er r e sp onse to n ew p ro ducts w as e sp ecia lly dis a p poin ti n g. “W e w ere hum ble d w hen w e lo oked back at te n years of in no vati o n,” sa ys C EO B ra d S m ith , w ho to ok o ver fo r S te v e B ennett in 2 008.

“W e’d la unched fifty -fo ur pro ducts , and fe w er th an fiv e had achie v ed any co m merc ia l s u ccess, m easu re d b y r e v enue o r p ro fit. A nd w e w ere b ad a t s h utti n g dow n th e f a ilu re s. W hen w e d id , w e g o t l a b ele d a s n o t b ein g p ati e nt e no ugh.” 10 35 Desig n f o r D elig h t In tu it’ s le ad ers k new th ey n eed ed to fig ure o ut w hat w ould m ove c usto m ers a nd dis c o ver h o w to im pro ve th e s u ccess r a te o f n ew p ro ducts . S o a te am w as p ulle d to geth er. “ W e w ent o ut to u nd ers ta nd w hat w as b eyo nd e ase ,” s a ys H anso n. “ A nd we lo oked a t a lo t o f th e u su al s u sp ects . W e lo oked a t N ik e, w e lo oked a t th e W Hote ls , w e lo oked a t H arle y-D av id so n, a nd w e lo oked a t A pple . Y ou n am e it, w e pro bab ly lo oked at th em .” 11 T he In tu it te am re aliz e d th at th e m ost su ccessfu l co m panie s d id n’t ju st o ffe r p ro ducts th at w ere e asie r to u se ; th ey o ffe re d p ro ducts th at d elig hte d c usto m ers .

Pro ducts th at delig ht custo m ers do th e unexp ecte d . T hey so lv e a pro ble m custo m ers d id n’t k no w th ey h ad , o r th ey e v oke a p ositi v e e m oti o n. B ut h o w d oes a co m pany c re ate p ro ducts th at d elig ht c usto m ers ?

The te am d is c o vere d th at d esig n th in kin g o ffe re d c riti c al n ew to ols n o t in th eir fa m ilia r m anagem ent to ol s e t. C ook h ad th e b enefit o f s itti n g o n th e b oard o f P ro cte r & G am ble a nd s a w u p c lo se h o w P & G i n co rp ora te d te chniq ues l ik e d esig n th in kin g in to p ro duct d ev elo pm ent. D ra w in g o n d esig n th in kin g p rin cip le s, C ook, H anso n, and her te am cre ate d a tr a in in g pro gra m calle d D esig n fo r D elig ht (D 4D ), a pro gra m in te nd ed to tr a nsfo rm In tu it in to a desig n-d riv en in no vati o n m achin e.

In tu it’ s D 4D in iti a ti v e w as b ase d o n s e arc hin g fo r a b ig u nm et c usto m er n eed a nd th en a p ply in g th re e p rin cip le s.

Gain deep cu sto m er em path y.

Und ers ta nd custo m ers bette r th an th ey und ers ta nd th em se lv es.

Go b ro ad t o g o n arro w .

G enera te l o ts o f s o lu ti o ns b efo re w in no w in g th e l is t.

Exp erim en t r a pid ly w ith c u sto m ers.

S eek f e ed back e arly a nd o fte n.

Hanso n r e aliz e d th at to i n fu se D 4D p rin cip le s i n to th e D NA o f a ll e ig ht th o usa nd em plo yees, s h e n eed ed to g et to p m anagem ent o n b oard . T o j u m p-s ta rt th e p ro cess, Hanso n and C ook help ed p la n a tw o-d ay o ffs ite fo r In tu it’ s to p th re e hund re d managers . A t fir s t th e gro up p aid p olite atte nti o n, b ut as th e aud ie nce p lo w ed th ro ugh a fiv e-h o ur P ow erP oin t p re se nta ti o n, C ook sa w th at th e d esig n th in kin g ap pro ach w as fa llin g fla t. B ut th en A le x K aza ks, a y o ung a sso cia te p ro fe sso r a t Sta nfo rd , l e d th e te am i n a u niq ue p arti c ip ato ry e xerc is e : K aza ks a sk ed e ach p ers o n to d esig n, a nd p ro to ty p e, a w alle t fo r th e p ers o n n ext to h im . A s th e m anagers work ed th ro ugh th e d esig n challe nge, cre ati n g p ro to ty p es, getti n g fe ed back, and re d esig nin g, th e h and s-o n e xp erie nce h elp ed th em s e e th e v alu e o f d esig n th in kin g as a to ol to d is c o ver a nd d eep ly u nd ers ta nd c usto m er n eed s to c re ate n ew v alu e.

Hanso n th en o rg aniz e d a s e rie s o f d esig n fo ru m s, ty p ic ally a tte nd ed b y ro ughly th re e th o usa nd e m plo yees, to te ach p eo ple th e k ey p rin cip le s a nd le t th em p ra cti c e D4D . H ow ev er, afte r se v era l fo ru m s and a huge effo rt, H anso n dis c o vere d a 36 dis a p poin ti n g fa ct: th e co m pany w asn ’t changin g eno ugh to pro duce diffe re nt re su lts . “ W e d id th is f o r a b out a y ear,” s a ys H anso n, “ and w hat I w as h earin g i n th e hallw ays— th at m ad e m e fe el a b so lu te ly n ause o us— was th at ‘ d esig n fo r d elig ht’ is th is fla v or o f th e m onth . T his w as v ery d is h earte nin g, b ecause w e a ctu ally h ad se nio r le ad ers in v olv ed and engaged . A s it tu rn s out, se nio r le ad ers are no t eno ugh.” 12 37 In nova tio n C ata ly sts a nd “ L ea n S ta rt- I n ” W ork sh ops Str u ctu ra l changes w ere need ed d eep in sid e In tu it. H anso n and her te am b egan th in kin g a b out h o w to c re ate d eep er e xp erti s e in D 4D . If sh e c o uld c re ate D 4D co aches— what In tu it no w calls “in no vati o n cata ly sts ” — sh e th o ught th ey co uld co ach te am s ap ply in g D 4D in th eir ev ery d ay w ork .

13 So sh e se le cte d nin e in d iv id uals fr o m a varie ty of busin ess units and fie ld s— desig n, re se arc h, and pro duct m anagem ent— to b eco m e th e n ew D 4D e xp erts .

The in no vati o n c ata ly sts w ere c harg ed w ith a ssis ti n g p ro je ct te am s to g iv e th em th e c o nfid ence to u se th e D 4D p la yb ook. H anso n a sk ed th e c ata ly sts to s p end 2 5 perc ent o f th eir ti m e o n “ b ig -p ayo ff p ro je cts .” W hy? H anso n k n ew th at w ith o ut a vis ib le w in , th e p ro gra m w ould f a d e q uic kly . A s th e f ir s t f e w s u ccesse s tr ic kle d i n , th e d em and f o r e xp ert h elp g re w . O ver th e n ext f e w y ears , H anso n’s te am r e cru ite d and tr a in ed a n a d diti o nal tw o h und re d in no vati o n c ata ly sts , w ho s p ent r o ughly 1 0 perc ent o f th eir ti m e c o achin g te am s.

As In tu it ro lle d o ut th e D 4D p ro gra m , th e c ata ly sts fo und th at d esig n th in kin g pro vid ed h ig hly u se fu l to ols fo r g ain in g d eep c usto m er e m path y. B ut it d id n’t h av e gre at to ols fo r te sti n g pote nti a l so lu ti o ns once custo m er pain poin ts w ere dis c o vere d . C ook a nd h is te am b ecam e fa m ilia r w ith le a n e xp erim en ta tio n, id eas popula riz e d b y E ric R ie s i n The L ea n S ta rtu p a nd b y S te v e B la nk i n Four S te p s t o th e E pip hany.

T he to ols o f l e an e xp erim enta ti o n w ere w ell s u ite d to te st a le a p-o f- fa ith a ssu m ptio n, a te rm u se d a t In tu it to r e fe r to a h yp oth esis b ein g te ste d th ro ugh exp erim ent.

So In tu it b egan ru nnin g “ le an s ta rt- in ” w ork sh o ps. E m plo yee te am s b ro ught a n id ea to m eet a b ig u nm et c usto m er n eed , a nd i n tw o d ays th e te am w ent th ro ugh th e enti r e c ycle o f i d enti fy in g a c usto m er p ain p oin t, p ro to ty p in g a s o lu ti o n, a nd te sti n g with c usto m ers .

14 T hese w ork sh o ps h av e b eco m e a u se fu l v ehic le fo r d ev elo pin g and p ro to ty p in g new id eas. In d eed , th e co m bin ati o n o f fo ru m s, w ork sh o ps, and cata ly sts h as n o t o nly h elp ed e v ery o ne a t In tu it u nd ers ta nd th e n ew D 4D p la yb ook but a ls o p ro vid ed d eep e xp erti s e to s u ccessfu lly e xecute th e p la ys.

38 Im ple m en tin g t h e I n nova to r’s M eth od What e xactl y w as h ap penin g in sid e In tu it? A s m anagers w ere a d opti n g id eas fr o m desig n th in kin g and le an sta rt- u p , th ey w ere le arn in g ho w to sy ste m ati c ally exp erim ent th eir w ay to su ccess. M ore o ver, th ey b egan to c re ate sta rt- u p te am s th ro ugho ut th e c o m pany th at u se d a s im ila r p ro cess to th at u se d b y s ta rt- u p s to b rin g new p ro ducts to m ark et.

As w e o bse rv ed w hat w as hap penin g at In tu it— and w hat hap pened at o th er in no vati v e co rp ora ti o ns and sta rt- u p s— we re aliz e d th at th ese co m panie s w ere usin g a s im ila r p ro cess f o r te sti n g a nd v alid ati n g i d eas. T his p ro cess, w hat w e c all th e in no vato r’s m eth o d, c o nsis ts o f fo ur s te p s to s o lv e h ig h-u ncerta in ty p ro ble m s and tu rn i n sig ht i n to a s u ccessfu l i n no vati o n ( s e e fig ure 1 -5 ).

Ste p 1 . I n sig ht: s a vo r s u rp ris e s . L ev era ge th e b ehav io rs i d enti fie d i n o ur earlie r book, The In nova to r’s DNA— questi o nin g, obse rv in g, netw ork in g, and exp erim enti n g— to se arc h bro ad ly fo r in sig hts ab out pro ble m s w orth s o lv in g.

Ste p 2 . P ro ble m : d is c o ver th e jo b-to -b e-d one . R ath er th an s ta rti n g w ith so lu ti o ns, sta rt by exp lo rin g th e custo m ers ’ need or pro ble m — th e fu ncti o nal, so cia l, and em oti o nal jo b-to -b e-d one— to be su re yo u’re go in g a fte r a p ro ble m w orth s o lv in g.

Ste p 3 . S olu tio n: p ro to ty p e th e m in im um a w eso m e p ro duct . In ste ad o f dev elo pin g fu ll- s c ale pro ducts , le v era ge th eo re ti c al and vir tu al pro to ty p es o f m ulti p le s o lu ti o n d im ensio ns. T hen i te ra te o n e ach s o lu ti o n to dev elo p a m in im um via b le pro to ty p e and ev entu ally a m in im um aw eso m e p ro duct.

Ste p 4. B usin ess m odel: va lid ate th e go-to -m ark et str a te g y . O nce yo u’v e n aile d th e s o lu ti o n, y o u’re r e ad y to v alid ate th e o th er c o m ponents of th e busin ess m odel, in clu d in g th e pric in g str a te gy, th e custo m er acq uis iti o n s tr a te gy, a nd th e c o st s tr u ctu re s tr a te gy.

FIG URE 1 -5 The in novato r’s m eth od 39 Each s te p in th e m eth o d is c riti c al a nd in v olv es a n e xp erim enta ti o n lo op to te st le ap -o f- fa ith a ssu m pti o ns i n a r e p eate d “ hyp oth esis , te st, l e arn ” l o op.

15 L et’ s r e tu rn to I n tu it a nd s e e h o w i t h as a p plie d th e i n no vato r’s m eth o d.

40 In sig h t: S avo r S urp ris e s The in no vato r’s m eth o d sta rts w ith genera ti n g in sig hts in to pote nti a l custo m er pro ble m s b y lo okin g fo r s u rp ris e s o r o th er c lu es, s u ch a s s y m pto m s o f a p ro ble m .

We u se th e w ord pro ble m i n te rc hangeab ly to m ean a n eed o r p ro ble m th at c an e xis t fo r e xte rn al c usto m ers o r i n te rn al u se rs . ( F or e xam ple , a t I n tu it, h alf th e p ro je cts a re ta rg ete d a t s o lv in g a n u nm et c usto m er n eed ; th e o th er h alf ta rg et i n te rn al n eed s, s u ch as dev elo pin g bette r te chno lo gy to ols to se rv e custo m ers or cre ati n g a bette r work in g e nv ir o nm ent.) T he in sig ht c an c o m e fr o m a nyo ne, a nd th at e xp la in s w hy In tu it g iv es 1 0 p erc ent u nstr u ctu re d ti m e to e v ery e m plo yee to g enera te id eas a nd parti c ip ate i n a s ta rt- u p te am . I n a c o nv enie nce s a m ple , w e f o und th at i n sig hts w ere dev elo ped most ofte n th ro ugh use r or custo m er obse rv ati o ns and th ro ugh co nv ers a ti o ns w ith c usto m ers , In tu it e m plo yees, a nd v ario us in d iv id uals o uts id e In tu it.

In sig hts o fte n s ta rt w hen y o u n o ti c e a s y m pto m o r a s u rp ris e , w hic h p ro vid es th e clu es to a n o pportu nity . F or e xam ple , In tu it’ s B ara th K ad ab a a nd D eep a B achu ( a n in no vati o n c ata ly st) w ere lo okin g fo r o pportu niti e s to c re ate n ew b usin esse s to im pro ve th e fin ancia l liv es of th e 1.2 billio n re sid ents of In d ia . A fte r in iti a l obse rv ati o ns and analy sis , B achu and a te am o f th re e o th er p eo ple d ecid ed to exp lo re th e need s o f In d ia ’s 1 50 m illio n fa rm ers , a la rg e se gm ent o f p ote nti a l custo m ers w ith m any c halle nges.

The te am s p ent th re e w eeks fo llo w in g fa rm ers — in th e fie ld s, in th eir v illa ges, and at th e m ark ets w here th ey so ld th eir p ro duce. A s th ey w atc hed , th ey w ere su rp ris e d a t th e in cre d ib le c halle nges fa rm ers h ad s e llin g th eir p ro duce a t a g o od pric e. A s th ey lis te ned to fa rm ers c o m pla in , w orry , a nd o fte n lo se m oney, th ey h ad th e c lu es o f a p ote nti a l p ro ble m to s o lv e. F urth erm ore , th e te am w as s u rp ris e d b y th e p ow erfu l ro le p la yed b y m id dle m en in th e m ark et, w ho h ad n o in centi v e to pro vid e f a rm ers w ith a ccura te i n fo rm ati o n o n s u p ply a nd d em and . T hese s y m pto m s and s u rp ris e s p oin te d to a p ote nti a l o pportu nity . If th e p ro ble m w as a s s e rio us a s Bachu th o ught it w as, and if In tu it co uld co m e up w ith a so lu ti o n th at w ould tr a nsla te in to h ig her p ric es fo r fa rm ers , B achu k new it c o uld b e a b ig o pportu nity fo r I n tu it.

16 41 Pro ble m : D is c o ver th e J ob-to -B e-D one Managers te nd to sta rt b y b uild in g so lu ti o ns, b ut w e e m phasiz e th e n eed to fir s t deep ly u nd ers ta nd th e p ro ble m . K eep in m in d th at “ p ro ble m ” m ay m ean e ith er a custo m er’s p ain o r a c usto m er’s d esir e , s u ch a s a d esir e f o r c o nnecti o n, e xp re ssio n, fu lfillm ent, and th e lik e. A t th e co re yo u are tr y in g to d is c o ver th e fu ncti o nal, so cia l, and em oti o nal ele m ents of th e jo b-to -b e-d one— th e need fo r w hic h custo m ers m ig ht p urc hase y o ur p ro duct. F or e xam ple , a lth o ugh a B M W m ay d o a sim ila r fu ncti o nal jo b as ano th er car (tr a nsp ort) , a B M W can als o acco m plis h im porta nt s o cia l j o bs ( p re sti g e, s ta tu s) o r e m oti o nal j o bs ( fe els “ co ol” ) th at m ay b e overlo oked a t f ir s t b lu sh .

At In tu it, te am s fo llo w u p o n a n in sig ht in to a n u nm et c usto m er n eed b y u sin g a te chniq ue c alle d pain -s to rm in g.

A cco rd in g to R achel E vans, o ne o f th e in no vati o n cata ly sts w ho d ev elo ped it, “ T he p urp ose o f a p ain -s to rm is to g et c ris p o n w hat we th in k th e p ro ble m i s s o w e c an te st o ur h yp oth ese s.” Pain -s to rm in g in v olv es c re ati n g a c usto m er’s “ jo urn ey lin e” to u nd ers ta nd h o w custo m ers n o w c o m ple te a ta sk a nd id enti fy th eir m ain p ain p oin ts ( a nd e m oti o ns) alo ng th e w ay. T he te am th en co nd ucts a ro ot- c ause analy sis to und ers ta nd th e cause s o f th e b ig gest p ain p oin ts . O f c o urs e , it d oesn ’t w ork if te am m em bers ju st sit in th eir o ffic es a nd im agin e w hat c usto m ers m ig ht w ant. In ste ad , In tu it’ s te am mem bers d ir e ctl y o bse rv e a nd ta lk to c usto m ers i n th eir o ffic es o r h o m es. A s C EO Sm ith to ld u s, “ T o w alk a m ile i n y o ur c usto m er’s s h o es, y o u h av e to ta ke y o ur o w n sh o es o ff f ir s t.” 17 I n s h o rt, y o u m ust “ b e th e c usto m er.” As B achu and her te am sp ent w eeks liv in g w ith , obse rv in g, and ta lk in g to fa rm ers a nd m id dle m en in s e v en a gric ultu ra l m ark ets , s h e le arn ed fir s th and a b out th e p ain fa rm ers fe lt w hen fa ced w ith a d ecis io n to s e ll p eris h ab le c ro ps, w ho se pric es m ig ht flu ctu ate a s m uch a s 5 0 p erc ent in a s in gle d ay. T he te am v alid ate d th eir i n iti a l o bse rv ati o n th at th e f a rm ers h ad n o i n fo rm ati o n o n s u p ply o r d em and to guid e th em , r e su lti n g i n s p oila ge o r s u b opti m al p ric es. T hey a ls o v alid ate d th e f a ct th at fa rm ers w ere o fte n exp lo ite d b y th e m id dle m en, w ho had an in centi v e to min im iz e m ark et p ric e tr a nsp are ncy. A s th e te am m em bers g ain ed c o nfid ence th at th ey h ad i d enti fie d a n i m porta nt p ro ble m w orth s o lv in g, th ey tr a nsla te d th e p ro ble m in to a v is io n s ta te m ent fo r th e c usto m er: “ 1 0 p erc ent h ig her p ric es fo r fa rm ers .” Dra w in g o n th e in sig hts in to th e c ause s o f th e fa rm ers ’ p ro ble m — and u sin g th e vis io n sta te m ent as a guid e— th e te am th en w as re ad y to fo cus its energ ie s o n dev elo pin g a s o lu ti o n.

42 Solu tio n: P ro to ty p e th e M in im um A w eso m e P ro du ct Afte r id enti fy in g a c usto m er p ro ble m w orth so lv in g, m ost m anagers u nle ash th e pro duct d ev elo pm ent te am to b uild a fu ll- fe atu re d , e rro r-fr e e p ro duct to a ttr a ct a s many custo m ers as possib le . A lth o ugh th is ap pro ach m akes se nse in fa m ilia r mark ets , it is th e w ro ng th in g to d o w hen y o u fa ce u ncerta in ty . In ste ad , m anagers sh o uld se arc h b ro ad ly fo r a v arie ty o f so lu ti o ns and th en use a se rie s o f fo ur pro to ty p es to co nv erg e on th e so lu ti o n th at best so lv es th e jo b-to -b e-d one (th eo re ti c al p ro to ty p e, v ir tu al p ro to ty p e, m in im um v ia b le p ro to ty p e, a nd m in im um aw eso m e p ro duct) .

Alth o ugh r a p id p ro to ty p es m ay s e em lik e o ld n ew s, th ere is a s u b tl e p ro cess to le v era gin g p ro to ty p es in th e rig ht w ay to ra p id ly v alid ate y o ur h yp oth ese s. In th e early d ays, a lth o ugh In tu it a d opte d th e id ea o f ra p id p ro to ty p in g to te st s o lu ti o ns, th ey fo und it le d to pre m atu re dev elo pm ent, as hig h-p ote nti a l so lu ti o ns w ere quic kly th ro w n i n to I n tu it’ s tr a d iti o nal s o ftw are d ev elo pm ent p ro cess. T his p ro cess ofte n y ie ld ed lo ng d ev elo pm ent c ycle s a nd d is a p poin ti n g re su lts . In tu it’ s le ad ers so on r e aliz e d th at th e b ette r w ay to g ain m om entu m w as to f a ke th e p ro duct i n o rd er to g et so m eth in g in to u se rs ’ h and s m ore q uic kly . T his vir tu al p ro to ty p e , as w e would c all it, a llo w ed th e In tu it te am to q uic kly te st m any, m any so lu ti o ns w ith custo m ers to d ete rm in e i f th ey h ad a ny p ote nti a l.

For e xam ple , th e M obile B aza ar te am ( In tu it’ s n am e f o r th e te am s e arc hin g f o r a so lu ti o n to th e fa rm ers ’ pric in g pro ble m ) exp erim ente d w ith se v era l sim ple pro to ty p es to te st p ote nti a l so lu ti o ns. O ne p ro to ty p e w as an eB ay-lik e aucti o n where th e f a rm ers c o uld a ucti o n th eir p ro ducts d ir e ctl y to b uyers . H ow ev er, i n iti a l te sts o f v ir tu al p ro to ty p es, d ra w n i n P ow erP oin t, s u ggeste d s u ch a s y ste m w ould b e co m ple x fo r fa rm ers to s e t u p a nd u se ( m ost o f th em w ere n o t w ell e d ucate d , n o r did th ey h av e e xp erie nce w ith c o m pute rs ).

The te am o bse rv ed , h o w ev er, th at a ll th e f a rm ers h ad c ell p ho nes a nd k new h o w to s e nd a nd r e ceiv e te xt m essa ges. S o th e te am te ste d v ir tu al p ro to ty p es, a nd th en a min im um v ia b le p ro to ty p e, o f a so lu ti o n th at in v olv ed gath erin g in fo rm ati o n o n pric es th at b uyers a nd m id dle m en w ere p re p are d to p ay; th is in fo rm ati o n w as th en se nt to fa rm ers in re al ti m e th ro ugh te xt m essa ges. F arm ers th en w ould u se th at in fo rm ati o n to d ecid e w hen, a nd to w ho m , th ey w ould s e ll. T he te am “ fa ked th e back-e nd ” b y h av in g th re e te am m em bers m anually s e nd te xt m ess a ges to f a rm ers to se e h o w th ey r e sp ond ed . F arm er r e sp onse to th is s o lu ti o n w as e xtr e m ely p ositi v e.

With in o ne y ear, M obile B aza ar h ad 1 80,0 00 f a rm er s u b sc rib ers , a nd te sts s h o w ed th at f a rm ers ’ p ric es h ad i n cre ase d a n a v era ge o f 1 6 p erc ent.

In a d diti o n to d em onstr a ti n g th e u se o f s p ecific p ro to ty p es, th e M obile B aza ar exam ple d em onstr a te s a m ore genera l p rin cip le o f th e in no vato r’s m eth o d: “go bro ad to g o n arro w .” A t In tu it, te am s a p ply th is p rin cip le b y g enera ti n g a s m any so lu ti o ns as possib le durin g w hat th e co m pany calls a “so lu ti o n-ja m ” befo re 43 re d ucin g th e c o ncep ts to a s h o rt lis t fo r p ro to ty p in g. A fte r s e le cti n g a t le ast th re e so lu ti o ns, th e te am in iti a te s a “co de ja m ,” w ith th e go al o f cre ati n g a w ork in g so ftw are p ro to ty p e o f e ach s o lu ti o n th at i s n ’t p erfe ct b ut i s g o od e no ugh to te st w ith custo m ers . In th is w ay, In tu it p ro gre sse s fr o m p ain -s to rm in g to a c usto m er-te ste d pro to ty p e with in fo ur weeks, th ere b y enab lin g ra p id exp erim enta ti o n with custo m ers n um ero us ti m es b efo re th e s o lu ti o n i s p ut i n to s o ftw are d ev elo pm ent.

How ev er, as w e w ill arg ue, tr u ly delig hti n g custo m ers co m es fr o m th e unexp ecte d : i t c o m es f r o m u nd ers ta nd in g a p ro ble m i n a w ay th at o th ers h av en’t a nd th en g o in g b eyo nd c usto m ers ’ e xp ecta ti o ns in p ro vid in g a s o lu ti o n. T here fo re , th e ulti m ate g o al o f th is s ta ge o f th e p ro cess is to c re ate a min im um a w eso m e p ro duct — o ne th at r e m ain s “ unco m fo rta b ly n arro w ” i n f e atu re s e t b ut i s a w eso m e a t w hat i t does.

18 44 Busin ess M odel: V a lid ate th e G o-to -M ark et S tr a te g y At In tu it, K aare n H anso n arg ues, “U nti l yo u’v e fig ure d out ho w to delig ht a custo m er, don’t ev en th in k ab out th e busin ess model.” 19 But once yo u’v e dis c o vere d a s o lu ti o n c usto m ers w ant, y o u’re r e ad y to f ig ure o ut th e b est w ay to g et yo ur so lu ti o n in to th e h and s o f c usto m ers a t a p ric e th at g enera te s th e re v enues calle d fo r in yo ur str a te gy. H ow ev er, alth o ugh m ost m anagers assu m e th ey und ers ta nd h o w to g et p ro ducts to m ark et, m any c o m panie s h av e k ille d th eir n ew pro ducts b y fo rc in g th em in to e xis ti n g b usin ess m odels . F or e xam ple , m anagers ofte n u se th e sa m e d is tr ib uti o n c hannels , a sim ila r m ark eti n g str a te gy, a sim ila r pric in g str a te gy, and so on, as th ey use fo r exis ti n g pro ducts . B ut ev en w hen in no vati o ns a p pear s im ila r, th ey o fte n re q uir e th eir o w n u niq ue b usin ess m odels .

Pro perly a lig nin g th e b usin ess m odel in v olv es d is c o verin g a nd v alid ati n g y o ur g o - to -m ark et s tr a te gy d ir e ctl y w ith y o ur c usto m ers . T his p ro cess re q uir e s v alid ati n g ho w to a cq uir e a nd i n flu ence c usto m ers , h o w to s e t p ric e, a nd w hic h r e so urc es w ill be r e q uir e d to d eliv er y o ur s o lu ti o n to th e m ark et.

In tu it curre ntl y m anages th is pro cess by div id in g in no vati o n in to gro up s.

In no vati o ns r e la te d to its c o re fin ancia l s o ftw are p ro ducts ( Q uic ken, Q uic kB ooks, and T urb oTax) a re la b ele d “ H oriz o n 1 ” (H 1) p ro ducts a nd g enera lly b orro w th e exis ti n g b usin ess m odel. B ut p ro ducts o nly p arti a lly r e la te d to th e c o re a re l a b ele d “H oriz o n 2 ” (H 2), a nd n ew o r u nre la te d p ro ducts a re la b ele d “ H oriz o n 3 ” (H 3).

The n ew H 3 a nd H 2 p ro ducts , in p arti c ula r, re q uir e ra p id e xp erim enta ti o n to te st assu m pti o ns a b out th e n ew b usin ess m odel. F urth erm ore , H 3 p ro ducts re q uir e a uniq ue s e t o f m etr ic s to m easu re p ro gre ss i n n ailin g th e n ew b usin ess m odel. R ath er th an m easu re fin ancia l perfo rm ance, su ch as R O I or co ntr ib uti o n to to p-lin e re v enue, In tu it s ta rts b y m easu rin g w hat it c alls th e “ lo ve m etr ic s” ( s e e chap te r 8 ).

The p oin t is th at y o u c an’t a ssu m e th at n ew s o lu ti o ns w ill w ork w ith y o ur e xis ti n g busin ess m odel.

Mobile B aza ar ty p ifie s a n H 3 b usin ess, a nd th e te am is s ti ll in th e p ro cess o f exp erim enti n g w ith th e b usin ess m odel. U nlik e Q uic ken o r T urb oTax, th e M obile Baza ar d is tr ib uti o n c hannel to c usto m ers w ill o pera te v ia c ell p ho nes ( a s w ill a ll dig ita l m ark eti n g), a nd p ric in g m ust a ls o b e d iffe re nt ( lik ely th ro ugh s u b sc rip ti o n o r a “ fr e e” a d verti s in g s u p porte d o r f r e em iu m m odel) . I n tu it h as n o t a tte m pte d to s c ale Mobile B aza ar a t th is p oin t, b ecause it h as n o t y et v alid ate d a p ro fita b le b usin ess model.

45 A N ew S ty le o f L ea dersh ip Corp ora ti o ns are desig ned fo r executi o n, no t in no vati o n. B ut as uncerta in ty in cre ase s in th e w orld a ro und u s, th e w ay w e m anage h as to c hange to m eet th ese cir c um sta nces. T o a p ply th e i n no vato r’s m eth o d r e q uir e s a n ew s ty le o f l e ad ers h ip .

In th e age o f uncerta in ty , le ad ers are no lo nger chie f d ecis io n m akers . In ste ad , th ey’re chie f exp erim ente rs w ho fo rm ula te hyp oth ese s w ith th eir te am , co nd uct exp erim ents , a nd le t th e d ata sp eak fo r th em se lv es. “ W e w ant o ur le ad ers to b e co aches a nd fa cilita to rs , n o t d ecis io n m akers ,” s a ys C ook. “ T he e xp erim ents th at th e te am r u ns s h o uld p ro vid e th e d ata to h elp th e te am m ake d ecis io ns s o th e l e ad er doesn ’t h av e to .” 20 Thus th e m anager’s ro le sh ifts to co ach and fa cilita to r of “fa st and fr u gal” exp erim ents . I f th e m anager, o r a nyo ne e ls e o n th e te am , s a ys, “ I th in k w e s h o uld d o X” o r “ I b elie v e X ,” th at s ta te m ent i s tr a nsla te d i n to a l e ap -o f- fa ith a ssu m pti o n, a nd th e n ext q uesti o n s h o uld a lw ays b e, “ W hat’ s th e f a ste st w ay to r u n a n e xp erim ent to help us kno w wheth er we sh o uld do X?” 21 “W ith our new fo cus on exp erim enta ti o n, o ur l e ad ers s h o uld s to p tr y in g to b e J o bs o r B ezo s a nd p re d ic t th e fu tu re ,” s a ys C EO S m ith . “ O ur l e ad ers s h o uld n urtu re i n no vati o n w here v er i t c o m es fr o m . W ith le an exp erim enta ti o n, em plo yees can co m e to le ad ers and hav e th e bold ness to s a y, ‘ I’ v e g o t a n i d ea, a nd h ere ’s th e p ro of.’ ” 22 So w ith in e ach o f th e fir s t fe w s te p s (p ro ble m , s o lu ti o n, a nd b usin ess m odel) , In tu it te am s fo llo w th is p ro cess: ( 1 ) w riti n g d ow n th e m ost im porta nt le ap -o f- fa ith assu m pti o n, ( 2 ) d esig nin g a n e xp erim ent to te st i t, ( 3 ) c o nd ucti n g th e e xp erim ent to pro vid e th e a nsw er, a nd th en (4 ) lo opin g b ack to fig ure o ut th e n ext le ap -o f- fa ith assu m pti o n th at th e te am n eed s to a nsw er.

Lead ers h av e to w alk th e ta lk . K ey d ecis io ns th ey w ant to m ake s h o uld b e te ste d as le ap -o f- fa ith a ssu m pti o ns. R em em ber, in h ig h u ncerta in ty , a nyth in g y o u b elie v e to b e tr u e i s o nly y o ur b est g uess. W hat i s y o ur l e ap -o f- fa ith a ssu m pti o n?

46 In tu it ’s R esu lt s How h as In tu it’ s a p plic ati o n o f th e id eas w e d esc rib e h ere a ffe cte d in no vati o n a t th e c o m pany? F ir s t, In tu it h as b eco m e a n e xp erim enta ti o n m achin e. In 2 006 th e Turb oTax unit ra n o nly o ne custo m er exp erim ent; in 2 012 it ra n m ore th an six hund re d , a nd b y 2 013 it h ad ru n a lm ost 2 ,5 00 c usto m er e xp erim ents in a sin gle year. N ot s u rp ris in gly , th is i n cre ase i n m ark et e xp erim ents h as p ro duced a p le th o ra of s u ccessfu l n ew p ro ducts . M obile a p ps h av e i n cre ase d f r o m z e ro i n 2 008 to f ifty in 2 013, in clu d in g th e v ery su ccessfu l S nap Tax ap p, w hic h genera te d 3 50,0 00 dow nlo ad s i n i ts f ir s t th re e w eeks.

But th e p ro of is in th e fin ancia l p ud din g. In 2 010 In tu it g enera te d $ 10 m illio n in re v enues fr o m p ro ducts la unched in th e p rio r th re e years . T hat num ber ju m ped te nfo ld — to $ 100 m illio n— by 2 012, a nd th e c o m pany e xp ects to e arn m uch m ore a s th ese nasc ent busin esse s m atu re .

23 Perh ap s m ore im porta nt, In tu it’ s pro duct la unches a nd p ro duct im pro vem ents a re b ein g w ell re ceiv ed b y th e m ark et, a nd pro fits are up co nsid era b ly . O pera ti n g in co m e has m ore th an d oub le d , fr o m 7 perc ent a nnual g ro w th f r o m 2 004 to 2 008 to 1 5 p erc ent a nnual g ro w th f r o m 2 008 to 2012.

And in v esto rs h av e re w ard ed In tu it. Its m ark et c ap ju m ped fr o m $ 10 b illio n in 2008 to $ 17 b illio n i n 2 013— a 7 0 p erc ent i n cre ase ( fo r c o m paris o n I n tu it’ s m ark et cap in cre ase d o nly fr o m $ 9 to $ 10 b illio n fr o m 2 003 to 2 008). M ore o ver, In tu it’ s in no vati o n p re m iu m h as j u m ped f r o m 2 0 p erc ent i n 2 008 to 3 0 p erc ent i n 2 012— a 33 p erc ent in cre ase . In tu it is o nce a gain a cti n g, a nd p erfo rm in g, lik e a n in no vati v e co m pany a nd , so m e m ig ht sa y, lik e a sta rt- u p (s e e “Is Y our C om pany a n E ig ht- Tho usa nd -P ers o n S ta rt- U p?” ).

Is Y ou r C om pan y a n E ig h t-T hou sa n d-P erso n S ta rt-U p?

If y o u’re w ork in g in a la rg er o rg aniz a ti o n, y o u m ay w ond er, W hat d oes th is s ta rt- u p s tu ff h av e to d o w ith m e? A lth o ugh w e d esc rib e b oth s ta rt- up s a nd e sta b lis h ed c o m panie s, th e is su e is n ’t th e s iz e o f th e c o m pany.

The is su e is th e ty p e o f p ro ble m y o u fa ce a nd h o w y o u a re s o lv in g it:

uncerta in ty r e q uir e s a d iffe re nt m anagem ent a p pro ach th at is c riti c al fo r eith er e ntr e p re neuria l o r c o rp ora te s ta rt- u p s. H ow ev er, b ecause s ta rt- u p s ofte n sp end th eir ti m e so lv in g hig h-u ncerta in ty pro ble m s, yo u m ay in co rre ctl y a sso cia te th e in no vato r’s m eth o d w ith sta rt- u p s ra th er th an with th e ty p e o f p ro ble m .

We d efin e a sta rt- u p a s d oes E ric R ie s in The Lea n S ta rtu p:

a s “ a te m pora ry o rg aniz a ti o n d esig ned to se arc h fo r a b usin ess m odel u nd er 47 co nd iti o ns of extr e m e uncerta in ty .” 24 The defin iti o n in clu d es th re e im porta nt d im ensio ns. F ir s t, anyo ne (o r te am ) w ho is cre ati n g a new pro duct, s e rv ic e, p ro cess, o r b usin ess— no m atte r th e s iz e o f th e c o m pany —is th e fo und er o f a sta rt- u p . T he d efin iti o n in clu d es co rp ora te and entr e p re neuria l s ta rt- u p s.

Seco nd , a s ta rt- u p h as a s p ecia l p urp ose a nd s tr u ctu re ; i t’ s a te m pora ry org aniz a ti o n fo cuse d on se arc hin g fo r a pro ble m , a so lu ti o n, and a busin ess m odel. T hir d , th e fo und ers a re tr y in g to la unch s o m eth in g n ew und er co nd iti o ns of uncerta in ty . It is n ’t cle ar w heth er th ere w ill be dem and fo r th e new pro duct (d em and uncerta in ty ) or w heth er th e te chno lo gic al s o lu ti o ns w ill w ork a s d esir e d ( te chno lo gic al u ncerta in ty ).

If y o u’re a s ta rt- u p fo und er ( m anager o r e ntr e p re neur), y o u s h o uld a p ply th is m eth o d to a v oid th e n um ber 1 p itf a ll th at k ills s ta rt- u p s: s c alin g th e busin ess b efo re y o u’v e n aile d i t.

Sim ila rly , w e d efin e “ custo m er” a s a nyo ne w ith a p ro ble m o r n eed , wheth er i n sid e o r o uts id e th e o rg aniz a ti o n. Y ou c an a p ply th e i n no vato r’s meth o d to so lv e pro ble m s with so m e uncerta in ty in sid e yo ur org aniz a ti o n, w heth er in IT , H R, o r fin ance. W end y C astl e m an, a n In tu it in no vati o n c ata ly st, r e calle d s u ch a p ro cess fo r a n in te rn al c usto m er. A n em plo yee in IT obse rv ed th at billin g agents to ok fifte en m in ute s to answ er custo m er questi o ns. This sp ark of an in sig ht and fu rth er obse rv ati o n i d enti fie d th e c o re p ro ble m : b illin g a gents h ad to l o ok a cro ss multi p le s y ste m s to id enti fy th e v ario us c o m ponents o f a c usto m er b ill.

So sh e d esig ned a se rie s o f exp erim ents , te sti n g d iffe re nt p ro to ty p ed ap pro aches to so lu ti o ns fo r agents , ulti m ate ly fin d in g a new to ol th at decre ase d c all ti m es f r o m f ifte en m in ute s to th re e!

Usin g a s im ila r a p pro ach, I n tu it’ s F ull- S erv ic e P ayro ll te am w ante d to se e w heth er th ey c o uld i m pro ve th e c usto m er e xp erie nce o f c allin g i n f o r su p port. O ne id ea w as to a nsw er th e p ho ne in a m ore p ers o nal w ay.

In ste ad o f sa yin g, “ W hat is y o ur E IN n um ber? ” th ey h yp oth esiz e d th at th ey w ould g et h ig her c usto m er s a ti s fa cti o n b y b egin nin g w ith , “ H ow c an I h elp y o u to day?” T hey tr ie d it w ith o ne a gent, a nd th e re su lts w ere stu nnin g. T he agent’ s N PS sc o re s ju m ped m ore th an 20 poin ts , w ell beyo nd th e r e st o f th e te am ( o r h er p rio r s c o re s). T hey q uic kly r o lle d o ut th e c hange to th e r e st o f th e te am , a nd th e e xp erim ent u lti m ate ly le d to a 21-p oin t in cre ase in th eir N PS sc o re s. T he poin t? T he in n o vato r’s meth o d w ork s f o r i n te rn al a s w ell a s e xte rn al c usto m ers .

48 A G uid e t o T his B ook In th is c hap te r w e’v e e xam in ed h o w a n e sta b lis h ed o rg aniz a ti o n c an i m ple m ent th e key s te p s in th e in no vato r’s m eth o d, a nd w e’v e in tr o duced le ad ers h ip p rin cip le s th at e nab le th e m eth o d to f lo uris h . N ow y o u’ll ta ke a d eep d iv e i n to th e l e ad ers h ip prin cip le s th at w ill h elp y o u a p ply th e m eth o d a s w ell a s e ach s te p o f th e m eth o d.

Rath er th an g iv e y o u th eo ry a nd l e t y o u f ig ure o ut h o w to i m ple m ent i t, w e f o cus o n giv in g y o u b oth th e b ig i d ea ( w hy to ) a nd th e to ols a nd te sts w e’v e s e en s u ccessfu l in no vato rs u se ( h o w to ). ( S ee ap pend ix A f o r a s u m mary o f th e m odel a nd th e to ols and te sts d is c usse d i n e ach c hap te r. S ee www.th ein no vato rs m eth o d.c o m fo r fu rth er to ols a nd ti p s.) H ere ’s a n o verv ie w o f th e c hap te rs to c o m e.

In chap te r 2 , w e exp la in w hy bein g a go od m anager can m ake yo u a bad in no vato r. W e desc rib e ho w yo ur ro le changes w hen yo u’re m anagin g fo r in no vati o n in a h ig h-u ncerta in ty e nv ir o nm ent.

Chap te r 3 d is c usse s h o w m anagers genera te in sig hts — th e se ed s of in no vati o n— by ap ply in g fiv e key sk ills (q uesti o nin g, obse rv in g, exp erim enti n g, netw ork in g, and asso cia ti n g) and by se arc hin g b ro ad ly to u nd ers ta nd th e jo b-to -b e-d one. T hen in chap te r 4 y o u’ll le arn ho w to dete rm in e w heth er yo ur in sig ht re p re se nts a pro ble m w orth so lv in g.

Dis c o verin g th e jo b-to -b e-d one (fu ncti o nal, so cia l, and em oti o nal jo b) is th e criti c al fir s t ste p , and one th at’ s ofte n overlo oked . T his cha p te r has te sts fo r dete rm in in g w heth er y o u’v e d is c o vere d a w orth w hile p ro ble m .

In chap te r 5 y o u’ll fin d to ols to h elp y o u b ro ad en a nd th en n arro w y o ur s o lu ti o n id eas as yo u use pro gre ssiv ely deta ile d pro to ty p es to dis c o ver an aw eso m e so lu ti o n. O nce yo u’v e genera te d a so lu ti o n to a w orth w hile custo m er p ro ble m , yo u’re r e ad y to f ig ure o ut y o ur g o -to -m ark et s tr a te gy. I n chap te r 6 w e in tr o duce th e busin ess m odel s n ap sh o t, w hic h p in p oin ts s ix c o m ponents o f y o ur b usin ess m odel th at y o u n eed to id enti fy b efo re fu lly la unchin g y o ur p ro duct. T hese in clu d e v alu e (y o ur valu e pro positi o n and pric in g str a te gy), custo m er acq uis iti o n (c usto m er re la ti o nsh ip s a nd c hannels ), a nd c o st s tr u ctu re ( a cti v iti e s a nd r e so urc es).

The g re at b enefit o f th e i n no vato r’s m eth o d i s th at i t g iv es y o u th e to ols y o u n eed to r e so lv e u ncerta in ty ; it te aches y o u h o w to e xp erim ent to a nsw er y o ur q uesti o ns and th en p iv ot w hen n ecessa ry . B ut b ecause y o u fa ce u ncerta in ty , y o ur c hances o f guessin g r ig ht o n th e fir s t tr y a re n early z e ro ; th is m eans th at c hanges— piv ots a nd ite ra ti o ns— are c riti c al. I n chap te r 7 w e r e v eal c ru cia l p rin cip le s fo r m aste rin g th e piv ot.

Once y o u’v e tu rn ed m any o f y o ur h yp oth ese s in to fa cts , y o u c an s c ale y o ur id ea to r e ach a b ro ad er m ark et. B ut th e p ro cess th at h elp ed y o u n ail th e b usin ess m odel doesn ’t h elp y o u s c ale it. N ow it’ s ti m e to re ap ply tr a d iti o nal m anagem ent w hile keep in g y o ur a b ility to te st th e r e m ain in g u ncerta in ti e s. I n chap te r 8 w e e xp la in th e 49 ofte n o verlo oked a rt a nd s c ie nce o f s c alin g.

Lastl y , n o t e v ery o ne h as s u p port f r o m th e to p m anagem ent te am , a nd a t ti m es y o u may fin d y o urs e lf th e o nly b elie v er in y o ur id ea. In chap te r 9 w e a d dre ss h o w to ad ap t th e m eth o d to w ork fo r y o u in d iv id ually a nd fo r a te am , o r u se it to ig nite in no vati o n in th e o rg aniz a ti o n m ore b ro ad ly . W e a ls o e xp la in h o w to a d ap t th e meth o d b ase d o n w heth er y o u’re p urs u in g d is ru p ti v e o r i n cre m enta l i n no vati o ns.

In th e c o nclu sio n c hap te r, w e te ll th e sto ry o f h o w R egenero n, a n e sta b lis h ed co rp ora ti o n i n a te chnic ally c o m ple x i n d ustr y , u se d th e i d eas i n th is b ook to b eco m e one of th e w orld ’s le ad in g bio te chno lo gy co m panie s. U sin g th is exam ple , w e dis c uss th e f u tu re o f m anagem ent a nd c o m peti ti v e a d vanta ge.

A te cto nic s h ift h as e xp onenti a lly in cre ase d th e le v el o f te chno lo gic al a nd d em and uncerta in ty f a ced b y c o m panie s. E ven e sta b lis h ed o rg aniz a ti o ns n eed to b e g o od a t so lv in g hig h-u ncerta in ty pro ble m s— th e kin d s of pro ble m s th ey hav e te nd ed to le av e to sta rt- u p s. T he need fo r m anagin g uncerta in ty is a se rio us challe nge, because e sta b lis h ed o rg aniz a ti o ns m ust e xecute u nd er a n e xis ti n g b usin ess m odel to meet th e n eed s o f e xis ti n g c usto m ers . A s a r e su lt, th ey ty p ic ally a d opt m anagem ent pra cti c es th at r u n c o unte r to m anagin g f o r i n no vati o n.

But In tu it, and d oze ns o f o th er co m panie s w e stu d ie d , hav e sh o w n th at it’ s possib le to re co ncep tu aliz e th e ro le o f m anagem ent a nd to c re ate p ro cesse s a nd in fr a str u ctu re to ra d ic ally decentr a liz e th e pro cess of id ea genera ti o n and asse ssm ent. W hen a nyo ne in a n o rg aniz a ti o n is e nco ura ged to b e th e fo und er o f a sta rt- u p ( a n ew p ro duct, a n ew s e rv ic e, a n ew p ro cess) a nd k no w s h o w to d o it, it unle ash es th e k in d o f c re ati v e e nerg y th at c an c o unte r, o r e v en e m bra ce a nd e xp lo it, uncerta in ty .

That d oesn ’t m ean th at th e in no vati o n p ro cess is easy and cle an. In p ra cti c e in no vati o n is a lw ays m essy a nd r e curs iv e. T here a re o fte n p oliti c s, c o ntr a d ic ti o ns, and s e tb acks. B ut w ith th at c av eat, w e h av e tr ie d to s im plify th e m ess to c le arly exp la in th e m ost c o m mon s te p s a nd to ols w e o bse rv ed s u ccessfu l in no vato rs u se .

We d esc rib e th e in no vato r’s m eth o d in te rm s o f fo ur c o m mon e le m ents (in sig ht, pro ble m , s o lu ti o n, a nd b usin ess m odel) to h elp y o u c le arly g ra sp a nd u nd ers ta nd th em . A lth o ugh w e genera lly o bse rv ed th at su ccessfu l in no vati o ns sta rt w ith an in sig ht in to a b ig p ro ble m and th en p ro gre ss th ro ugh th e ste p s w e d esc rib e, in pra cti c e, th ese ste p s o fte n o verla p e ach o th er, o r so m eti m es o ccur in a slig htl y diffe re nt o rd er— th at is th e n atu re o f d ealin g w ith a n u ncerta in w orld . U lti m ate ly each e le m ent o f th e in no vato r’s m eth o d is m ore im porta nt th an th e o rd er, a s is und ers ta nd in g th e k ey to ols a nd ta cti c s to tu rn y o ur id eas in to in no vati o ns. A s y o u enco unte r th ese c halle nges a nd c o nfu sio ns, e m bra ce th em a s p art o f u ncerta in ty , re m em berin g th at alth o ugh uncerta in ty can be fr u str a ti n g, it is als o th e so urc e cre ati v ity , in no vati o n, a nd n ew g ro w th . T he in no vato r’s m eth o d is y o ur g uid e to 50 help y o u r e co gniz e w hat to d o w hen.

* T here is a th ir d ty p e o f u ncerta in ty c alle d en vir o nm en ta l u ncerta in ty , w hic h re fe rs to th e u ncerta in ty o f th e m acro eco no m ic e nv ir o nm ent a nd g o vern m ent p olic y; but d em and a nd te chno lo gic al u ncerta in ty a re m ore d ir e ctl y re le v ant to c re ati n g a custo m er.

51 2 Lea d ersh ip i n t h e A ge o f U ncerta in ty When M BAs c o m e t o u s w e h ave t o f u ndam en ta lly r e tr a in t h em — noth in g t h ey le a rn ed w ill h elp t h em s u cceed a t i n nova tio n .

—Sco tt C ook , F ounder a nd C hair m an o f t h e E xecu tiv e C om mit te e, I n tu it A BO VE, W E Q UO TE S co tt C ook c riti c iz in g tr a d iti o nal m anagem ent tr a in in g. I s h e sim ply b ein g in fla m mato ry ? P erh ap s. B ut m any o th er in no vati v e le ad ers h av e a ls o criti c iz e d tr a d iti o nal m anagem ent tr a in in g. F or exam ple , E lo n M usk , fo und er o f Tesla , S paceX , a nd P ayP al, a rg ued th at “ A s m uch a s p ossib le , a v oid h ir in g M BA s.

MBA p ro gra m s d on’t te ach p eo ple h o w to c re ate c o m panie s . . . A t m y c o m panie s, our p ositi o n is th at w e h ir e s o m eo ne in s p ite o f a n M BA , n o t b ecause o f o ne.” 1 While w e a ll r e co gniz e th at m anagem ent tr a in in g h as i m mense v alu e, w hy d o s o m e le ad ers of in no vati v e co m panie s offe r su ch hars h criti c is m s? Here ’s our exp la nati o n o f w here w e h av e m ad e a w ro ng tu rn w hen i t c o m es to i n no vati o n.

In 1911 F re d eric k Taylo r w ro te th e la nd m ark book Prin cip le s of Scie n tific Managem en t . It had su ch a pow erfu l im pact on th e em erg in g in d ustr ia l co rp ora ti o ns of th e tw enti e th centu ry th at it earn ed Taylo r th e ti tl e “fa th er of sc ie nti fic m anagem ent.” T aylo r’s m anagem ent p rin cip le s w ere ta ught a t th e n ew , em erg in g b usin ess s c ho ols o f th e d ay a nd a p plie d a t r is in g in d ustr ia l p ow ers s u ch as F ord M oto r C om pany a nd G enera l E le ctr ic . In d eed , H enry F ord , A lfr e d S lo an, and o th er c o rp ora te le gend s lo oked to s c ie nti fic m anagem ent a s th eir m anagem ent te xtb ook, a nd T aylo r’s i n flu ence i s s ti ll f e lt i n b usin ess s c ho ols w orld w id e.

52 What w ere T aylo r’s p rin cip le s o f s c ie nti fic m anagem ent? F ir s t, h e r e co m mend ed th at w ork b e c are fu lly p la nned a nd b ro ken in to s e p ara te ta sk s. T he id ea w as th at managers c o uld a naly ze th e ta sk s o f p ro ducti o n— fo r e xam ple , th ro ugh ti m e a nd moti o n s tu d ie s— to d ete rm in e th e fa ste st a nd m ost c o st- e ffe cti v e w ay to c o m ple te th em . T hen th e m anager’s jo b w as to m ake s u re th e ta sk w as s ta nd ard iz e d a s m uch as p ossib le a nd th at w ork ers fo llo w ed th e p re sc rib ed p ro cess. T aylo r a rg ued th at ta sk s p ecia liz a ti o n w as c riti c al b ecause i t o ffe re d n um ero us b enefits — fo r e xam ple , allo w in g fo r c le ar re sp onsib ility a nd a cco unta b ility . It a ls o e nab le d m anagers to matc h w ork er s k ills w ith th e ta sk , th ere b y f a cilita ti n g a d iv is io n o f l a b or.

2 These p rin cip le s— ta sk s p ecia liz a ti o n, w ork s ta nd ard iz a ti o n, a cco unta b ility , a nd div is io n o f la b or— quic kly s p re ad th ro ugho ut U S in d ustr y . T aylo r’s id eas g re atl y sim plifie d th e jo b of m anagin g th e co m ple x ta sk s of th e em erg in g in d ustr ia l co rp ora ti o ns. More o ver, his prin cip le s— when ap plie d effe cti v ely — had a pow erfu l p ositi v e i m pact o n th e p erfo rm ance o f th e l a rg e c o m panie s o f h is d ay. W e se e T aylo r’s h and iw ork e v ery w here . E very la rg e c o m pany is b ro ken in to fu ncti o ns fo r ta sk sp ecia liz a ti o n— R& D, pro cure m ent, opera ti o ns, m ark eti n g, H R, and fin ance. Every la rg e org aniz a ti o n se em s to str iv e fo r div is io n of la b or, sta nd ard iz a ti o n o f w ork , a cco unta b ility , a nd th e p urs u it o f b est p ra cti c es.

But e v en th o ugh T aylo r’s p rin cip le s h av e d one m uch g o od, th ere ’s o ne p ro ble m :

th ey’re exactl y th e w ro ng pre sc rip ti o n fo r m anagin g in no vati o n. T hey’re gre at prin cip le s fo r effic ie ntl y p erfo rm in g ta sk s to su sta in a custo m er, b ut th ey w ork poorly f o r g uid in g w ork to cre a te a c usto m er ( P ete r D ru cker’s “ centr a l p urp ose ” o f busin ess and th e cle ar fo cus of sta rt- u p s).

3 They tu rn in d iv id uals in to go od managers ( o f e xecuti o n) b ut b ad i n no vato rs .

How does it hap pen? C onsid er ta sk sp ecia liz a ti o n and div is io n of la b or.

Specia liz a ti o n m akes s e nse w hen a p ro ble m is w ell d efin ed a nd c hara cte riz e d b y lo w u ncerta in ty — th e k in d s o f p ro ble m s c o m panie s ty p ic ally fa ce a s th ey m ove u p th e fa m ous S -c urv e fr o m g ro w th to m atu rity ( s e e fig ure 2 -1 ). L et’ s s a y a c o m pany need s to p ro duce a th o usa nd w id gets a t th e l o w est p ossib le c o st, a nd to r e sp ond to fiv e th o usa nd d aily s e rv ic e c alls . T he c o m pany k no w s r o ughly h o w m any w id gets to p ro duce a nd h o w m any c alls to s e rv ic e; it n eed s to fig ure o ut th e m ost e ffic ie nt way to d o i t. B ecause th ese ta sk s a re q uite d iffe re nt, th e c o m pany d iv id es th em i n to se p ara te fu ncti o ns a nd h ir e s e xp erts in o pera ti o ns o r s e rv ic e to p erfo rm th e ta sk s.

Managers a re h eld a cco unta b le b ase d o n p erfo rm ance m etr ic s— sa y, c o st p er u nit pro duced o r r a ti n gs o f c usto m er s a ti s fa cti o n w ith s e rv ic e c alls . M anagers q uic kly le arn th e valu e of hir in g and dev elo pin g sp ecia lis ts w ith deep exp erti s e (a s oppose d to genera lis ts w ith bro ad exp erti s e ), because th e pro ble m s are w ell eno ugh d efin ed th at it’ s e asy to m atc h a s p ecia lis t w ith th e p ro ble m . T hese ta cti c s are in fa ct th e r ig ht o nes fo r m an y p ro ble m s th at m anagers fa ce, a nd a p ply in g th em is s im ply g o od m anagem ent.

53 FIG URE 2 -1 The S -c u rv e a nd t h e r ig ht s ty le o f m anagem ent Unfo rtu nate ly , th is is th e w ro ng ap pro ach w hen yo u’re tr y in g to so lv e hig h- uncerta in ty p ro ble m s, th e k in d a c o m pany o r s ta rt- u p fa ces a t th e in tr o ducti o n a nd gro w th s ta ges o f th e S -c urv e ( s e e “S lo an V ers u s D ura nt: A C ontr a st i n M anagem ent Sty le s” ). W hen y o u f a ce h ig h u ncerta in ty a b out h o w to c re ate a c usto m er, y o u a re n’t su re w hat ty p e o f e xp erti s e w ill b e m ost v alu ab le . S o y o u w ant p eo ple w ho h av e bro ad e xp erti s e , th e k in d o f p eo ple w ho c an s e e th e p ro ble m , a nd p ossib le s o lu ti o n, fr o m v ario us a ngle s. T hat’ s w hy th e p ra cti c es th at m ake s o m eo ne a g o od m anager can b e r o ad blo cks i n e ffo rts to i g nite i n sig hts a nd b rin g n ew i d eas to m ark et.

Slo an v ersu s D ura n t: A C on tr a st in M an agem en t S ty le s Alfr e d S lo an is k no w n a s th e fa th er o f th e m odern c o rp ora ti o n, h av in g tr a nsfo rm ed G enera l M oto rs in to th e m odel c o rp ora ti o n o f h is e ra b y in tr o ducin g prin cip le s su ch as sp ecia liz e d managem ent ro le s, decentr a liz e d org aniz a ti o n, and co st acco unti n g. Slo an’s id eas on 54 div id in g ta sk s in to m anageab le chunks le d him to bre ak G M in to div is io ns ( C ad illa c, B uic k, C hev y, P onti a c), e ach fo cuse d o n a d iffe re nt custo m er s e gm ent.

4 S lo an’s m anagem ent p rin cip le s— alo ng w ith th o se o f co nte m pora rie s lik e T aylo r a s w ell a s H enry F ord , w ho p io neere d m ass pro ducti o n te chniq ues— co ntr ib ute d m uch to th e early d ev elo pm ent o f managem ent th eo ry a nd p ra cti c e.

Slo an’s in flu ence is e v id ent to day in th e n um ber o f in sti tu ti o ns th at bear h is n am e a nd th e n um ber o f b usin ess s c ho ols th at te ach h is id eas.

But S lo an’s s u ccess a nd i n flu ence o n m anagem ent o verlo ok a n i n te re sti n g questi o n: W here d id G enera l M oto rs c o m e fr o m ? In d eed , S lo an to ok th e re in s o f G M o nly a fte r it w as g enera ti n g n early $ 4 b illio n in in fla ti o n- ad ju ste d r e v enues.

In f a ct, G M w as f o und ed b y B illy D ura nt, a c re ati v e e ntr e p re neur w ho mad e m illio ns in th e ho rs e -a nd -b uggy in d ustr y befo re sta rti n g G M .

Dura nt w as a n e xp erim ente r w ho p io neere d p ro ducts in b oth in d ustr ie s and g re w G M u nti l th e b oard o f d ir e cto rs , re co gniz in g th at h e w as a ta le nte d entr e p re neur but a poor m anager, re p la ced him . D ura nt th en co fo und ed C hev ro le t, e v entu ally r e p urc hase d c o ntr o l o f G M , a nd r a n th e fir m u nti l th e b oard re m oved h im a s e co nd ti m e a nd re p la ced h im w ith Slo an.

5 T hat S lo an is so w ell kno w n, and D ura nt so littl e kno w n, is in tr ig uin g. W hat w ere D ura nt’ s m anagem ent th eo rie s? W hy d id th ey w ork in th e e arly d ays b ut f a il a s G M b ecam e a l a rg e c o rp ora ti o n?

The a nsw er i s s im ple : m anagem ent th eo ry w as d ev elo ped to s o lv e th e la rg e-c o m pany m anagem ent p ro ble m a nd n o t th e i n no vati o n p ro ble m . T he fo rm er e m erg ed d urin g th e I n d ustr ia l R ev olu ti o n, w hen th e e co no m y w as tr a nsfo rm ed fr o m s m all w ork sh o ps to la rg e b usin esse s o f u np re ced ente d sc ale , p ro ducin g th in gs l ik e o il, te xti le s, a uto s, a nd r a ilw ays. T o m ake th e tr a in s ru n on ti m e and in cre ase th e pro ducti o n of auto s, th ese la rg e co rp ora ti o ns re q uir e d a new pro fe ssio n: m anagem ent. They need ed managers to p la n, c o ord in ate , r a ti o naliz e , a nd o pti m iz e th e o pera ti o ns o f la rg e, c o m ple x o rg aniz a ti o ns. B usin ess s c ho ols e m erg ed to tr a in th is n ew cad re o f m anagers to b e e ffe cti v e a t re so lv in g th e p ro ble m s fa ced b y la rg e co rp ora ti o ns, su ch as “W hat new fe atu re s sh o uld w e ad d?” o r “H ow can w e lo w er co sts b y 5 p erc ent? ” T hese are lo w -u nc erta in ty pro ble m s callin g fo r in cre m enta l changes to exis ti n g pro ducts or pro cesse s.

In co ntr a st, m ost sta rt- u p or co rp ora te entr e p re neurs are tr y in g to la unch new pro ducts th at hav e dis ru p ti v e pote nti a l. T hey fa ce hig h- uncerta in ty p ro ble m s su ch a s “ W ill c o nsu m ers w ant to u se a p ers o nal co m pute r ( a d em and p ro ble m fa ced b y A pple ), a nd c an w e m ake it e asy eno ugh fo r c hild re n to u se (a te chno lo gy p ro ble m )? ” O r, “ W ill p eo ple 55 buy pro ducts over th e in te rn et (a dem and pro ble m fa ced by Amazo n.c o m ), a nd c an w e p ro vid e f u lfillm ent i n a l o w -c o st a nd r e lia b le way ( a te chno lo gy p ro ble m f a ced b y Amazo n.c o m )? ” “ W ill p eo ple m ake paym ents o ver th e i n te rn et ( a d em and p ro ble m f a ced b y P ayP al) , a nd c an our te chno lo gy p ro vid e th em th e e ase o f u se a nd s e curity th ey n eed ?” Alth o ugh th ese fir m s su ccessfu lly so lv ed so m e hig h-u ncerta in ty pro ble m s, busin ess his to ry is litte re d w ith fa ilu re s— in m any case s, because th ey a p plie d th e w ro ng th eo ry : th ey fo llo w ed b usin ess-s c ho ol managem ent th eo ry (d esig ned fo r lo w -u ncerta in ty pro ble m s), and no t in no vati o n-s c ho ol m anagem ent th eo ry (n ecessa ry fo r hig h-u ncerta in ty pro ble m s).

56 Fou r K ey R ole s o f t h e L ea d er To ap ply th e in no vato r’s m eth o d, esta b lis h ed co m panie s m ust m ake a criti c al tr a nsiti o n f r o m th eir n atu ra l te nd ency to r e ly e xclu siv ely o n tr a d iti o nal m anagem ent to a p ply in g e ntr e p re neuria l m anagem ent w hen fa cin g th e u ncerta in ty o f in no vati o n.

We’v e id enti fie d fo ur k ey ro le s th at le ad ers m ust fu lfill if th ey h o pe to tu rn th eir org aniz a ti o ns in to su ccessfu l in no vato rs , c o m pose d o f te am s th at in no vate lik e a netw ork o f s ta rt- u p s. T hese r o le s a re c riti c al to e nsu re th at th e in no vato r’s m eth o d is in co rp ora te d in to th e co m pany’s pro cesse s and th e day-to -d ay behav io rs of em plo yees.

Fir s t, a nd m ost i m porta nt, th e l e ad er m ust b eco m e th e c hie f e xp erim ente r a nd n o t th e c hie f d ecis io n m aker. A s s h o w n i n fig ure 2 -2 , th e o th er th re e r o le s s u p port, a nd enab le , th e c hie f e xp erim ente r r o le . T he s e co nd r o le i s to s e t th e g ra nd c halle nge— no t only to in sp ir e oth ers to purs u e an opportu nity but als o to challe nge th e org aniz a ti o n to b re ak f r e e o f T aylo r’s p rin cip le s o f s c ie nti fic m anagem ent.

Thir d , th e l e ad er m ust b uild b ro ad a nd d eep e xp erti s e i n th e i n no vato r’s m eth o d, whic h is need ed to ensu re th at th e o rg aniz a ti o n has th e cap ab ility to genera te in sig hts , d is c o ver p ro ble m s w orth so lv in g, a nd ra p id ly p ro to ty p e so lu ti o ns. T he fo urth ro le o f th e le ad er is to re m ove b arrie rs to c hange a nd in sta ll sy ste m s to fa cilita te th e fa st e xp erim ents r e q uir e d to te st th e te am ’s h yp oth ese s— and r e so lv e th e u ncerta in ti e s— at e ach s te p .

FIG URE 2 -2 Be t h e c h ie f e xperim ente r 57 58 Be t h e C hie f E xp erim en te r In tr a d iti o nal m anagem ent, m anagers a re d ecis io n m akers . Y ou a naly ze in fo rm ati o n and m ake d ecis io ns th at w ill a ffe ct th e f u tu re o f y o ur o rg aniz a ti o n. I n a w ay, y o u’re tr y in g to pre d ic t th e fu tu re , and positi o n th e co m pany to su cceed . For m any managers , d ecis io n m akin g i s th e e sse nce o f w hat i t m eans to b e a m anager.

But w hen y o u’re a cti n g u nd er u ncerta in ty , th e a v aila b le i n fo rm ati o n i s to o s c arc e, or e v en a b se nt, fo r y o u to p re d ic t th e fu tu re w ith a ny c o nfid ence. T he b est y o u c an do is g uess, a nd y o u m ay b e w ro ng m ore o fte n th an y o u’re r ig ht. B ut if y o u a re n’t makin g d ecis io ns, w hat i s y o ur r o le a s a l e ad er o f i n no vati v e te am s?

The i n no vato r’s m eth o d e nab le s y o u to m ake e ffe cti v e d ecis io ns a b out th e f u tu re —but y o u m ust f ir s t d efin e a n ew r o le f o r y o urs e lf. Y ou m ust l e arn a n ew w ay to b e rig ht. F or In tu it’ s S co tt C ook a nd B ra d S m ith , it’ s o fte n a m atte r o f r e p ro gra m min g new hir e s. “U nfo rtu nate ly , yo u kno w ho w b ig co m panie s and hie ra rc hie s m ake decis io ns,” sa ys Cook. “T hey te nd to re ly on politi c s, Pow erP oin t, and pers u asio n.” So to f ix th at, y o u’v e g o t to c hange h o w a nd w here d ecis io ns a re m ad e . .

. e nab lin g d ecis io ns to b e m ad e b y th e b est id ea y o u c an v alid ate in th e mark et. T his m eans m ovin g d ecis io ns fr o m b osse s v oti n g th eir o pin io ns, to e nab lin g a nd m easu rin g c usto m ers v oti n g w ith th eir fe et. T his g o es again st w hat p eo ple h av e b een ta ught i n b usin ess s c ho ol. M ost l e ad ers i n busin ess h av e b een s u ccessfu l b ecause o f a naly sis . T hey s e e th em se lv es as d ecis io n m akers a nd th eir jo b is to d o g re at p la nnin g a nd a naly sis .

That’ s th e k in d o f c hange th at w e a re tr y in g to c re ate a t I n tu it.

6 Rath er th an b eco m in g g re at p la nners a nd p ow er d ecis io n m akers , th e c o m pany’s new le ad ers a re ta ught to c ham pio n e xp erim ents . S im ila rly , a t G oogle , fo und ers Larry P age a nd S erg ey B rin h av e a lw ays s u p porte d th e n o ti o n th at d ecis io ns s h o uld be m ad e b y r ic h d ata f r o m e xp erim ents — so m uch s o th at i n 2 002 th ey e xp erim ente d with a co m ple te ly fla t org aniz a ti o n, elim in ati n g engin eerin g m anagers . That exp erim ent la ste d o nly a fe w m onth s, u nti l to o m any p eo ple w ent d ir e ctl y to P age with q uesti o ns a b out e xp ense r e p orts a nd in te rp ers o nal a nd c are er is su es.

7 B ut th e philo so phy th at e v en to p G oogle e xecuti v es m ust b ack th eir id eas w ith d ata liv es on. T o illu str a te , in o ne in sta nce L arry P age a nd M aris sa M ayer (fo rm er V P a t Google w ho is no w C EO at Y aho o!) su p porte d th e id ea to d ev elo p a m assiv e dig ita l a rc hiv e o f b ooks. B ut ra th er th an sim ply u se th eir p ositi o ns to m ake th e decis io n to p ro ceed , th e tw o w ent s o f a r a s to c la m p a th re e-h und re d -p age b ook to a p ie ce o f p ly w ood, m anually p ho to gra p h e ach o f its p ages, a nd ru n th e im ages th ro ugh c hara cte r r e co gniti o n s o ftw are , a ll to e sta b lis h th at i t w ould ta ke o nly f o rty 59 min ute s to d ig iti z e a b ook.

How d o c hie f e xp erim ente rs d iffe r fr o m d ecis io n-m akin g m anagers ? T hey fo cus on th re e th in gs:

Form in g l e ap -o f- fa ith a ssu m pti o ns w ith th eir te am Rap id ly te sti n g th o se assu m pti o ns th ro ugh exp erim ents (m ostl y with custo m ers ) Letti n g th e d ata ( m ostl y f r o m c usto m ers ) m ake th e d ecis io ns As a le ad er, y o u d on’t h av e to d o e v ery th in g y o urs e lf: in ste ad , d ecis io ns m ove dow nw ard in th e h ie ra rc hy to s m all te am s, w here d ata re v eals w hat th e d ecis io n sh o uld b e— or w hat th e n ext e xp erim ent s h o uld b e. S ays C ook, “ [In tu it C EO ] B ra d Sm ith a nd I h av e c hanged th e q uesti o ns th at w e a sk . W e u se d to a sk th in gs lik e, ‘W ell, w hat’ s y o ur a nsw er, a nd w hat’ s y o ur a naly sis b ehin d it? ’ A nd n o w w e a sk , ‘O K, w hat’ s th e f a ste st w ay to g et a n e xp erim ent to te st th at i d ea?’” 8 Je ff B ezo s o f A mazo n m anages in a s im ila r s ty le u sin g s im ila r q uesti o ns. A fe w years a go , B ezo s c harg ed a te am w ith a naly zin g th e s u p ply c hain to c o m e u p w ith re co m mend ati o ns f o r a n o vera ll d esig n o f th e c o m pany’s l o gis ti c s. T he g o al w as to ensu re th at fu lfillm ent c o uld b e d one fa st a nd e co no m ic ally . A s o ne te am m em ber re calls , “ W hen w e p re se nte d o ur a naly sis , w hile a ll o th er e xecuti v es w ere h ap py with i t, J e ff w as n o t. H e i n sis te d o n b ein g m ore r ig o ro us a nd e nv is io ned e v ery b ody in th e co m pany m akin g d ecis io ns b ase d o n sim ula ti o n o utp uts . S o a te am w as fo rm ed to b uild s u p porti n g s u p ply c hain s im ula ti o ns— sim ula ti o ns th at a llo w ed u s to s e e th e re su lts o f d iffe re nt k in d s o f d ecis io ns. T hese s im ula ti o n to ols a re n o w curre ntl y use d th ro ugho ut th e co m pany to m ake decis io ns.” 9 The sim ula ti o ns allo w ed B ezo s to e xp erim ent u nd er u ncerta in ty b efo re b uild in g s o lu ti o ns.

This le ad ers h ip sty le is w ork in g at A mazo n, G oogle , and In tu it b ecause th e le ad er w alk s th e ta lk . S ays C ook, “ B ra d a nd I h av e to l iv e b y th e s a m e r u le s. S o w e end u p a sk in g o urs e lv es q uesti o ns l ik e, ‘ I h av e g o t a f u nd am enta l b elie f o f w hat w e sh o uld d o. N ow , w hat a re th e le ap -o f- fa ith a ssu m pti o ns o n w hic h it is b ase d ? A nd ho w are w e go in g to te st th e le ap -o f- fa ith assu m pti o ns th at are cru cia l to m y belie fs ? ’ W e n eed to d o th is j u st l ik e w e w ould d o f o r a nyo ne e ls e . . . E xp erim ents will b e n o th in g b ut w in d ow d re ssin g u nti l y o u c hange w ho a nd h o w d ecis io ns a re mad e.” 10 S o a k ey s te p in b eco m in g a g re at le ad er o f in no vati o n is to c hange h o w decis io ns a re m ad e— and th at s ta rts w ith y o u.

60 Set t h e G ra n d C halle n ge In a no w fa m ous 1979 vis it to X ero x P alo A lto R ese arc h C ente r (P A RC) in Califo rn ia , S te v e Jo bs re calle d se ein g a ro ugh g ra p hic al u se r in te rfa ce. “ It w as in co m ple te , s o m e o f it w asn ’t e v en rig ht, b ut th e g erm o f th e id ea w as th ere ,” h e sa id . “ W ith in te n m in ute s, it w as s o o bvio us th at e v ery c o m pute r w ould w ork th is way so m ed ay.” 11 Jo bs th en to ok his engin eerin g te am o n a to ur o f PA RC— and re tu rn ed to A pple fo cuse d o n d ev elo pin g a p ers o nal c o m pute r th at in co rp ora te d , and i m pro ved o n, th e P A RC te chno lo gie s.

Jo bs a sse m ble d a te am o f b rillia nt e ngin eers , g av e th em th e n eed ed re so urc es, and i n fu se d th e M acin to sh te am w ith a v is io n o f c re ati n g th e w orld ’s e asie st- to -u se pers o nal c o m pute r. T hat’ s w hat a n i n no vati v e l e ad er d oes. I n c o ntr a st, th e e xecuti v e te am at X ero x la cked th e dis c o very sk ills necessa ry to exp lo it te chno lo gie s dev elo ped i n th eir o w n c o m pany. A s P A RC s c ie nti s t L arry T esle r o bse rv ed , “ A fte r an ho ur lo okin g at d em os th ey [J o bs and A pple p ro gra m mers ] und ers to od o ur te chno lo gy a nd w hat i t m eant m ore th an a ny X ero x e xecuti v e u nd ers to od a fte r y ears of sh o w in g it to th em .” Jo bs agre ed w ith T esle r, sa yin g, “B asic ally th ey w ere co pie r h ead s th at j u st h ad n o c lu e a b out a c o m pute r o r w hat i t c o uld d o. A nd s o th ey ju st g ra b bed d efe at fr o m th e g re ate st v ic to ry in th e c o m pute r in d ustr y . X ero x c o uld hav e o w ned th e e nti r e c o m pute r i n d ustr y to day.” 12 Years l a te r, w hen A pple w as c o nsid erin g o ffe rin g a p orta b le m usic d ev ic e, J o bs and h is l e ad ers h ip te am s e t th e v is io n w ith th e ta glin e “ 1 ,0 00 s o ngs i n y o ur p ocket.” That’ s w hy th e fir s t iP od w as th e siz e it w as— sm all e no ugh to fit in a p ocket.

These e xam ple s illu str a te o ne r e aso n S te v e J o bs w as a g re at le ad er o f in no vati o n:

he h ad a n o se f o r o pportu nity , a nd h e s e t th e g ra nd c halle nge. Y ou d on’t h av e to b e Ste v e J o bs in te rm s o f id enti fy in g th e r ig ht o pportu nity , b ut y o u d o h av e to s e t th e gra nd c halle nge f o r y o ur te am .

To d o th at, s a ys I n tu it’ s C ook, “ L ead ers s h o uld a sk q uesti o ns l ik e th ese : ‘ W hat i s th e m ost im porta nt p ro ble m , th e b ig gest p ain p oin t, th at w e c an s o lv e? H ow d oes th e c usto m er m easu re th e g ain ? H ow c an w e m ove th e n eed le th e m ost fo r th e custo m er? ’” 13 Y ou d on’t n ecessa rily h av e to a rti c ula te th e s o lu ti o n (fo r e xam ple , th e num ber o f so ngs o n a d ev ic e), b ut yo u need to p ush p eo ple to se arc h fo r opportu niti e s. For exam ple , w hen In tu it co nsid ere d th e In d ia n m ark et as an opportu nity , A le x L in tn er, th e e xecuti v e o vers e ein g I n tu it’ s I n d ia n o pera ti o ns, a sk ed his te am to “ cre ate n ew b usin esse s th at w ill i m pro ve th e f in ancia l l iv es o f I n d ia ns.” This g ra nd c halle nge le d th e M obile B aza ar te am to id enti fy a n o pportu nity fo r th e 150 m illio n fa rm ers in In d ia to im pro ve th eir fin ancia l liv es b y getti n g b ette r pric es. T he I n tu it te am th en s o ught to c re ate a p ro duct th at w ould d o th at.

Ano th er d im ensio n o f s e tti n g th e g ra nd c halle nge m ay b e e v en m ore im porta nt:

giv in g th e te am a nd o rg aniz a ti o n p erm is sio n to b re ak f r e e o f tr a d iti o nal m anagem ent 61 and u se e ntr e p re neuria l m anagem ent. T his i s e xtr e m ely d iffic ult. I f y o u’re l ik e m ost peo ple , w hen y o u s ta rte d k in d erg arte n y o u w ere a ssig ned a d esk a nd g iv en c le ar in str u cti o ns o n w hat to d o a nd h o w to d o i t. M ost o f u s h av e b een i n th o se a ssig ned desk s e v er s in ce, c o m ple ti n g o ur a ssig ned ta sk s. T o b re ak th at p atte rn , l e ad ers m ust se t a d iffe re nt g ra nd c halle nge f o r th e o rg aniz a ti o n, s a yin g s o m eth in g l ik e, “ I e xp ect yo u to g o fig ure o ut w here y o ur d esk s h o uld b e, a nd d is c o ver w hic h a ssig nm ents will c re ate th e m ost v alu e f o r c usto m ers .” At V alv e S oftw are , a m ulti b illio n-d olla r c o m pany th at h as a lr e ad y r e v olu ti o niz e d th e v id eo g am in g in d ustr y , fo und er G ab e N ew ell s e ts a r a d ic al v is io n to r u th le ssly purs u e c usto m er v alu e. T o e nab le e m plo yees to d o th at, h e h as to rn d ow n a ll th e bure aucra cy.

14 H e in str u cts e v ery n ew h ir e , “ Y our d esk h as w heels . Y our jo b is to fig ure o ut w here yo u cre ate th e m ost v alu e fo r custo m ers , and m ove it th ere .” Valv e’s l e ad ers a rg ue th at a s a c o m pany V alv e h as “ sp ent th e l a st d ecad e g o in g o ut of its w ay to re cru it th e m ost in te llig ent, in no vati v e, ta le nte d p eo ple o n E arth ; te llin g th em to s it a t a d esk a nd d o w hat th ey’re to ld o blite ra te s 9 9 p erc ent o f th eir valu e.” 15 R ecent in no vati o ns in clu d e c re ati n g th e p la tf o rm o n w hic h 8 0 p erc ent o f all P C gam es are so ld and m akin g th e fir s t fo ra y in to th e v id eo gam e co nso le mark et b y a n ew c o m pany i n m ore th an a d ecad e.

Sim ila rly , A mazo n’s B ezo s use s th e slo gan “It’ s S ti ll D ay O ne” to re m in d em plo yees th at A mazo n is s ti ll a s ta rt- u p — and th ere is lo ts o f r u nw ay a head . It’ s su ch a c entr a l m oti v ati n g id ea th at B ezo s n am ed o ne o f th e c o m pany’s b uild in gs Day O ne. A sk ed w hen A mazo n w ill re ach “ D ay T w o,” B ezo s re sp ond ed , “ D ay Tw o w ill b e w hen th e ra te o f c hange s lo w s . . . A nd th at’ s th e s e nse in w hic h I belie v e it’ s sti ll D ay O ne, a nd th at it’ s e arly in th e d ay. If a nyth in g, th e ra te o f change is a ccele ra ti n g.” 16 A k ey ro le fo r B ezo s is to s e t th e g ra nd c halle nge fo r Amazo n: to b ehav e l ik e a s ta rt- u p .

62 Build B ro ad a n d D eep E xp ertis e When R ic ard o dos S anto s jo in ed Q ualc o m m, a Fortu ne 100 m anufa ctu re r of se m ic o nd ucto rs u se d in w ir e le ss d ev ic es, h e w as c o nfid ent h e c o uld tr a nsfo rm th e co m pany’s f a ilin g “ id ea m anagem ent p ro gra m ” ( e ffe cti v ely a s u ggesti o n b ox) i n to a co rp ora ti o n-w id e in no vati o n p ro gra m . D os S anto s h ad th e s u p port o f a v is io nary CEO , a m and ate to c re ate d is ru p ti v e n ew p ro ducts , a nd th e fr e ed om to d esig n a sw eep in g p ro gra m to k ic k-s ta rt n ew id eas. B ecause p rio r e ffo rts h ad fla ile d , d os Santo s se arc hed fo r w ays to te ach peo ple ho w to tr a nsfo rm th eir id eas in to exp erim ents to te st th eir v alid ity b ut w ith th e c av eat th at th e p ro gra m h ad to b e in te gra te d w ith e xis ti n g b usin ess u nits w here p eo ple c o nti n ue w ork in g fu ll- ti m e o n th eir c urre nt p ro je cts .

Dos S anto s b uilt a th re e-p hase p ro gra m c alle d V entu re F est. In th e fir s t p hase , em plo yees s u b m itte d i d eas, w hic h w ere th en r e d uced to th e tw enty b est i d eas b ase d on p eer re v ie w . T hen V entu re F est tr a in ees to ok p art in a th re e-m onth , p art- ti m e boot c am p, w here th ey te ste d th eir i d eas w ith c usto m ers a nd d ev elo ped p ro to ty p es.

In th e fin al p hase , th ey p re se nte d th eir id eas to to p e xecuti v es in a c o m peti ti o n fo r fu nd in g, a fte r w hic h th ey a tte m pte d to c o nv in ce a n e xis ti n g b usin ess u nit to a d opt th e new id ea. G enera lly Ventu re Fest w as a su ccess, w ith id eas su b m itte d in cre asin g fr o m e ig hty -tw o in th e fir s t y ear to m ore th an fiv e h und re d fiv e y ears la te r. M ore o ver, V entu re F est p arti c ip ants id enti fie d m any p ote nti a l b re akth ro ugh id eas.

But alth o ugh Ventu re Fest fo ste re d so m e tr u ly tr a nsfo rm ati o n id eas, a fe w org aniz a ti o n m em bers o uts id e th e p ro gra m b egan to q uesti o n, a nd e v en a tta ck, th e pro gra m . S om e m anagers w ere n’t h ap py re le asin g so m e o f th eir b est p eo ple to work o n p ro je cts n o t u nd er th eir c o ntr o l. A nd fr o m a m ore tr a d iti o nal m anagem ent pers p ecti v e, th e V entu re F est p ro je cts s e em ed to o o pen, f lu id , a nd f le xib le , c la sh in g with Q ualc o m m’s ra ti o nal, dead lin e-d riv en cultu re . P erh ap s m ore dangero usly , so m e R & D m anagers , m any o f w ho m fe lt th ey o w ned in no vati o n, a rg ued th at th e em erg in g n ew i d eas f e ll o uts id e th e s c o pe o f e xis ti n g R & D p ro gra m s o r d id n’t h av e as m uch in te lle ctu al p ro perty a s u su al. D esp ite th e b est in te nti o ns o f m any in sid e Qualc o m m, V entu re F est e nco unte re d th e k in d o f a lle rg ic r e acti o n to im ple m enti n g in no vati o n th at w e h av e o bse rv ed a t m any o th er c o m panie s th at e xcel a t e xecuti o n.

Afte r f iv e tu rb ule nt a nd e xciti n g y ears , V entu re F est w as q uie tl y f o ld ed i n to R & D.

17 63 Build B ro ad E xpertis e The Q ualc o m m e xp erie nce is s im ila r to th o se in m any o rg aniz a ti o ns th at tr y to “ d o in no vati o n” b y c re ati n g p ockets o f e ntr e p re neuria l m anagem ent a nd e xp erim enta ti o n exp erti s e w ith o ut genera ti n g bro ad aw are ness of th e pro cesse s and go als asso cia te d w ith s u ccessfu l p ro gra m s. T his la ck o f u nd ers ta nd in g a nd a p pre cia ti o n fo r g o als a nd m eth o ds c an l e ad o uts id ers to m is in te rp re t th e i n no vato r’s m eth o ds a s well a s i ts o utp ut. D os S anto s r e calls th at Q ualc o m m m ad e g re at s tr id es i n i g niti n g new i d eas o n th e “ se ll” s id e ( th e i n no vato rs ) a nd i n cre ase d th e s ta rt- u p s p ir it i n th e co m pany o vera ll. B ut i f h e w ere to d o i t a gain , h e w ould f o cus o n o ne m ore c ru cia l go al: e d ucati n g th e “ b uy s id e”— th e r e st o f th e o rg aniz a ti o n— “so th at w e c o uld a ll be u sin g th e s a m e l a nguage a nd m atc h d is c o very e ffo rts .” 18 The g re ate r th e a w are ness a nd a p pre cia ti o n in y o ur o rg aniz a ti o n th at in no vati o n re q uir e s a d iffe re nt se t o f m anagem ent to ols , th e e asie r it w ill b e to a p ply th e in no vato r’s m eth o d. W e a re n’t s a yin g th at e v ery o ne n eed s d eep e xp erti s e in th ese prin cip le s, but sim ply th at ev ery o ne need s so m e tr a in in g to und ers ta nd th at managin g u ncerta in ty r e q uir e s a d iffe re nt a p pro ach. O f c o urs e , if y o ur o rg aniz a ti o n fa ces g re ate r u ncerta in ty , y o u m ay c ho ose to e xte nsiv ely tr a in e v ery o ne. A t In tu it, Cook a nd S m ith m ake s u re a ll n ew h ir e s a re tr a in ed i n d esig n f o r d elig ht p rin cip le s, co m ple ti n g a w eeklo ng d esig n tr a in in g p ro gra m w ith in th e fir s t th re e m onth s. T he go al i s n o t to m ake e v ery o ne a n e xp ert b ut to m ake s u re e v ery o ne u nd ers ta nd s l e an exp erim enta ti o n p rin cip le s a nd k no w s th e s te p s fo r g enera ti n g in sig hts a nd n ailin g th e p ro ble m and so lu ti o n. E m plo yees gain a co m mon la nguage to d esc rib e th e effo rts to b rin g n ew id eas to m ark et. H av in g th e la nguage to e xp la in y o ur a cti o ns giv es p eo ple im mense p ow er in o verc o m in g th e in erti a th at o fte n im ped es c hange.

In o ur in te rv ie w s w ith d oze ns o f in no vato rs , th ey o fte n c ite d th e c o m mon la nguage as o ne o f th e m ost i m porta nt r e aso ns f o r tr a in in g e v ery o ne.

But th ere ’s ano th er re aso n sm art le ad ers w ant ev ery o ne to und ers ta nd th e in no vato r’s m eth o d: it g enera te s id eas. A lm ost e v ery stu d y sh o w s th at se arc hin g bro ad ly i s th e b est w ay to u nco ver n o vel i d eas th at a re w orth p urs u in g.

64 Build D eep E xpertis e Build in g b ro ad u nd ers ta nd in g is n ecessa ry b ut n o t su ffic ie nt. It’ s a ls o c riti c al to build d eep e xp erti s e w ith in y o ur o rg aniz a ti o n. W e’v e s e en it d one e ffe cti v ely in a co up le o f w ays.

One o pti o n is to c re ate a la b o r S W AT te am th at a p plie s th e in no vato r’s m eth o d to n ew i d eas. I n a d diti o n to r e le v ant e ngin eerin g a nd te chno lo gy e xp erts , th e l a b h as exp erts in d esig n th in kin g and le an exp erim enta ti o n. F or exam ple , A T& T— no t kno w n fo r in no vati o n in th e p ast tw enty y ears — re centl y c re ate d fiv e la b s ( A T& T calls th em “fo und rie s” ), each em plo yin g fo rty to fifty in te rd is c ip lin ary exp erts .

Their ta sk : te sti n g n ew in sig hts g enera te d in sid e a nd o uts id e A T& T. T he fo und rie s ho use m ark eti n g exp erts fr o m th e b usin ess units , exp erts in te le co m munic ati o ns te chno lo gie s, a nd e xp erts i n d esig n th in kin g. W hat’ s m ore , A T& T h as i n v ite d s ta rt- up s and esta b lis h ed co m panie s fr o m m any in d ustr ie s to parti c ip ate in ra p id ly dev elo pin g a nd e xp erim enti n g w ith n ew te chno lo gie s. E ach n ew i d ea i s r u n th ro ugh a tw elv e-w eek p ro je ct, w here a te am a p plie s th e k in d s o f to ols w e d esc rib e i n th is book to p ro duce v ir tu al o r p hysic al p ro to ty p es.

Where d o th e id eas o rig in ate ? A te am o f s e nio r le ad ers a cro ss A T& T s e le cts id eas f r o m th re e s o urc es:

An in te rn al id ea b oard c alle d T he In no vati o n P ro gra m ( o r T IP ), w here id eas are p oste d a nd v ote d o n A “ fa st p itc h” p ro gra m , w here in d iv id uals a nd c o m panie s, m ost o f th em fr o m outs id e A T& T (s u p plie rs , sta rt- u p s), m ake te n-m in ute p itc hes to k ey A T& T decis io n m akers The b usin ess u nits , w here le ad m ark eti n g e xecuti v es w ho a re a ssig ned to th e fo und ry f u ll- ti m e a re c harg ed w ith p ollin g th eir b usin ess u nits f o r n ew i d eas Each o f th e m ost p ro m is in g i d eas i s f u nnele d to a te am o f e xp erts — a S W AT te am —th at a p plie s e le m ents o f th e i n no vato r’s m eth o d to g enera te a p ro to ty p e.

Alth o ugh A T& T has b een at th is fo r le ss th an fiv e years , th e fo und rie s are cre d ite d w ith d ev elo pin g id eas th at h av e h elp ed p ush th e c o m pany’s in no vati o n pre m iu m fr o m m in us 1 3 p erc ent in th e m id -2 000s to a lm ost 1 0 p erc ent to day. “ A s th e fo und rie s hav e p ro ved th eir v alu e, w e’re no w usin g th e te rm fo undry as a verb ,” sa ys Jo hn D ono van, S E V P o f A T& T te chno lo gy a nd n etw ork o pera ti o ns.

“W e’v e pro ven w e get fr o m pro to ty p e to pro duct th re e ti m es fa ste r.” 19 O th er co m panie s hav e dev elo ped sim ila r la b s and cre d it th em w ith in cre asin g th eir in no vati o n o utp ut, in clu d in g H yatt H ote ls a nd H allm ark a s w ell a s le sse r-k no w n co m panie s l ik e B anco D av iv ie nd a, a l e ad in g b ank i n L ati n A meric a.

A se co nd o pti o n is to b uild e xp erti s e in a g re at m any in d iv id uals w ho a ssis t 65 sta rt- u p te am s. A s d esc rib ed i n chap te r 1 , In tu it h as tr a in ed m ore th an tw o h und re d in no vati o n cata ly sts (s e e “W hy D esig ners Excel: Synth esis ” ). Each year, an ad diti o nal tw enty to th ir ty p eo ple a re se le cte d to jo in th em . M any c ata ly sts a re tr a in ed a s p art o f a te am s e le cte d to a tte nd a “ L ean S ta rt- In ” w ork sh o p. E m plo yee te am s b rin g a n i d ea f o r a s ig nific ant u nm et c usto m er n eed , a nd i n tw o d ays th e te am go es th ro ugh th e e nti r e c ycle o f v alid ati n g a c usto m er p ain , p ro to ty p in g a s o lu ti o n, and te sti n g it w ith custo m ers . B en B la nk, a fo und er o f th e w ork sh o ps, p ro ud ly hig hlig hts th at m any I n tu it e m plo yees h av e b een k ic ked o ut o f H om e D ep ot s to re s o r re m oved fr o m th e C altr a in w hile te sti n g id eas w ith c usto m ers .

20 M ore th an tw elv e hund re d I n tu it e m plo yees h av e b een th ro ugh L ean S ta rt- In w ork sh o ps, b uild in g d eep exp erti s e i n th e i n no vato r’s m eth o d th ro ugho ut th e o rg aniz a ti o n.

Why D esig n ers E xcel: S yn th esis If e xp erim enta ti o n a nd a naly sis a re k ey, w hy d oes In tu it tr a in e m plo yees in d esig n th in kin g? A t th e c o re , d esig n th in kin g te aches p eo ple h o w to obse rv e th e w orld , m ake a guess, and th en, th ro ugh art and sc ie nce, co m bin e d is p ara te p ie ces i n a w ay th at c re ate s v alu e— in o th er w ord s, to sy nth esiz e . W here as a naly sis b re aks th in gs in to th eir c o m ponent p arts , sy nth esis id enti fie s th e co nnecti o n b etw een a p ro ble m and a so lu ti o n, th ere b y i d enti fy in g a n o pportu nity . A s R oger M arti n w rite s i n The D esig n of B usin ess, s y nth esis i s th e m arria ge o f i n tu iti o n a nd a naly sis .

21 Sta nfo rd U niv ers ity cre ate d an enti r e in te rd is c ip lin ary d.s c ho ol to te ach th ese p rin cip le s. In tu it, w hic h b orro w s heav ily fr o m S ta nfo rd ’s d.s c ho ol, te aches its em plo yees ab out d esig n as a co m ple m ent to th e analy sis em bed ded in le an exp erim enta ti o n, because , as D esig n V P Kaare n H anso n a rg ues, “ T he w in nin g c o m panie s in th e fu tu re w ill b e ‘d esig n-d riv en’— because of th e im porta nce (a nd ra rity ) of sy nth esis cap ab iliti e s . . . I a ls o s u sp ect th at ‘ w in nin g’ w ill c o m e f r o m b ein g c le v er ab out w ho to p ut i n to w hat p ositi o ns ( v ers u s a ssu m in g a nyo ne c an g o i n to any positi o n and pla y w ell) .” 22 H anso n’s poin t und ers c o re s w hy w e belie v e th e in no vato r’s m eth o d has uniq ue im porta nce fo r le ad ers , managers , and entr e p re neurs . E ach dis c ip lin e has dev elo ped its ow n ap pro ach to m anagin g uncerta in ty and in no vati o n (d esig n th in kin g is engin eerin g’s a p pro ach), a nd e ach o ffe rs v alu ab le in sig hts in to p arts o f th e p ro cess. In th is b ook w e’v e s y nth esiz e d th ese s im ila r, b ut d iffe re nt, pers p ecti v es to p ro vid e y o u a n e nd -to -e nd g uid e to th e e nti r e p ro cess, fr o m i d ea to c o m merc ia l s u ccess.

66 Rem ove B arrie rs a n d S upport E xp erim en ts Your fin al ro le is to re m ove o bsta cle s to e xp erim enta ti o n a nd p ro vid e th e to ols peo ple n eed to a ccele ra te e xp erim ents . W hat a re th e k ey b arrie rs , a nd w hat k in d s o f to ols a re n eed ed ? L et’ s ta ke a l o ok a t w hat w e f o und w hen w e i n te rv ie w ed d oze ns of i n d iv id uals i n l a rg e o rg aniz a ti o ns.

67 Allo ca te T im e f o r I n nova tio n We’v e o fte n a sk ed p eo ple w ho w ork f o r l a rg e c o m panie s, “ W hat p re v ents y o u f r o m movin g m ore n ew id eas to m ark et? ” T he m ost c o m mon a nsw er? “ I ju st d on’t h av e ti m e. I hav e to o m uch on m y pla te .” T hat’ s w hat it’ s lik e to w ork in la rg e org aniz a ti o ns d esig ned to execute ro uti n e ta sk s and p ro cesse s. G ood m anagers work to re m ove all sla ck in th e sy ste m so th at hum an re so urc es (in d eed , all re so urc es) a re f u lly u ti liz e d .

But i n no vati o n ta kes ti m e. W e’v e s e en c o m panie s s p ecify 1 0 p erc ent u nstr u ctu re d ti m e fo r e v ery e m plo yee (In tu it) , 2 0 p erc ent p ro je ct ti m e fo r e ngin eers (G oogle ), and , a t th e e xtr e m e e nd , a s m uch a s 1 00 p erc ent s e lf- d efin ed ti m e ( V alv e S oftw are ).

Acco rd in g to V alv e’s e m plo yee h and book, “ W e’v e h eard th at o th er c o m panie s h av e peo ple a llo cate a p erc enta ge o f th eir ti m e to s e lf- d ir e cte d p ro je cts . A t V alv e, th at perc enta ge is 1 00. S in ce V alv e is fla t, p eo ple d on’t jo in p ro je cts b ecause th ey’re to ld to . In ste ad , yo u’ll d ecid e w hat to w ork o n afte r ask in g yo urs e lf th e rig ht questi o ns. E m plo yees v ote o n p ro je cts w ith th eir fe et. S tr o ng p ro je cts a re o nes in whic h p eo ple c an s e e d em onstr a te d v alu e; th ey s ta ff u p e asily .” 23 Alth o ugh m any co m panie s hav e in no vati o n boot cam ps or oth er in no vati o n ev ents , fe w p ro vid e o ngo in g ti m e d ev ote d to g enera ti n g a nd te sti n g id eas— ev en th o ugh it c an m ake a sig nific ant d iffe re nce. H ow m uch ti m e c o m panie s a llo cate dep end s o n th e le v el o f u ncerta in ty th ey fa ce a nd th e im porta nce o f in no vati o n ( fo r exam ple , V alv e c o m pete s i n a h ig h-u ncerta in ty m ark et a nd b elie v es i t c re ate s a ll i ts valu e th ro ugh custo m er-fo cuse d in no vati o n). T im e has th e p ow er to le t p eo ple exp lo re n ew id eas th at m ay n o t m ake s e nse a t fir s t; b ut th e g re ate r th e v aria ti o n in new i d eas y o u te st, th e h ig her th e p ro bab ility th at s o m e w ill p ro ve v alu ab le . I n f a ct, Google ’s “2 0 perc ent” pro je cts hav e pro duced hits su ch as G mail, G oogle AdS ense , a nd G oogle D ocs. O ne se nio r e xecuti v e e sti m ate d th at ro ughly h alf o f Google ’s n ew p ro ducts a re g enera te d i n th is w ay.

24 S uch p ro je cts a cco unt f o r m ore th an 25 perc ent of re v enues.

25 Sad ly , lik e oth er m atu rin g co m panie s, G oogle re centl y p ut c o nstr a in ts o n th e p ro gra m , a m ove th at m any o bse rv ers p re d ic t w ill sh rin k its in no vati o n p ip elin e. H ow ev er, G oogle a p pears to b e p ourin g s ig nific ant re so urc es in to its G oogle X la b w ith p ro je cts lik e G oogle G la ss, G oogle E xp re ss, Google L oon, a nd G oogle S elf- D riv in g. J u st a s G oogle is d oin g w ith G oogle X , so m e co m panie s, su ch as A mazo n, id enti fy opportu niti e s and fo rm te am s to genera te so lu ti o ns to th e challe nges o f uncerta in ty . In no vati o n ti m e is exp lic itl y built i n .

No m atte r h o w it’ s d one, le ad ers m ust m ake s u re th at e m plo yees a re g iv en th e ti m e— and th e e xp ecta ti o n— to c o nceiv e a nd te st n ew id eas. It h elp s if le ad ers s e t an exam ple . F aceb ook’s M ark Z uckerb erg tr ie s to sp end fiv e ho urs a day on pro duct d ev elo pm ent, and S co tt C ook at In tu it tr ie s to sp end o ne d ay a w eek parti c ip ati n g o n in no vati o n p ro je ct te am s. R yan S m ith , C EO o f a b illio n-d olla r 68 su rv ey c o m pany c alle d Q ualtr ic s, to ld u s, “ E very le ad er is a p la yer a nd a c o ach.

You h av e to g et i n to th e tr e nches i f y o u w ant to i n no vate .” 26 69 Pro vid e C usto m ers, S pecia lis ts , a nd T ools Ano th er o bsta cle fo r s ta rt- u p te am s is a la ck o f to ols . F or e xam ple , te am s n eed to ru n e xp erim ents w ith p ote nti a l c usto m ers if th ey h o pe to d is c o ver th e jo b-to -b e- done a nd th en n ail th e s o lu ti o n. P ro vid in g q uic k a nd e asy a ccess to v ario us ty p es o f custo m ers c an f a cilita te r a p id e xp erim enta ti o n.

Amazo n p ro vid es e m plo yees a l is t o f c usto m ers ( a nd m erc hants ) w ith w hic h th ey can q uic kly te st n ew id eas. In tu it in v ite s c usto m ers to its h ead quarte rs o ne d ay a week f o r e xp erim ents . I t a ls o p ro vid es a l is t o f n earb y c usto m ers w ho h av e a gre ed to a ccep t v is its . T hese a cti o ns h av e d oub le d te am s’ fa ce-to -fa ce in te ra cti o ns w ith custo m ers .

27 N um ero us p eo ple to ld u s th at u nti l In tu it sta rte d re gula rly b rin gin g custo m ers i n to h ead quarte rs , th ey d id n’t r e aliz e h o w e asily th ey c o uld te st s o lu ti o ns with th em .

To help sta rt- u p te am s genera te a b ro ad lis t o f so lu ti o ns, In tu it d ev elo ped a te chno lo gy pale tte . T he co m pany id enti fie d and hir e d exp erts in te chno lo gie s re la te d to m obile d ev ic es, s o cia l m ed ia , u se r in te ra cti o n, c o lla b ora ti o n, d ata , a nd th e l ik e. T hese e xp erts a re v alu ab le f o r b ro ad enin g s o lu ti o n s e arc hes, a nd th ey h elp te am s i d enti fy w hat i s te chno lo gic ally f e asib le .

Google ’s le ad ers a ls o p ro vid e to ols fo r r a p id p ro to ty p in g, s u ch a s d ig ita l to ols fo r m akin g p ro to ty p es a nd m ock-u p s a s w ell a s f le xib le c o de s tr u ctu re s f o r r a p id ly pro to ty p in g so ftw are . G oogle X ’s “ d esig n k itc hen” w as c re ate d to b uild sim ple pro to ty p es f o r b ig i d eas. L ocate d i n a b uild in g n ext to G oogle X ’s m ain o ffic es, th e desig n k itc hen is a la rg e-s c ale fa b ric ati o n s h o p fille d w ith 3 D p rin te rs , h ig h-e nd la th es, and oth er so phis ti c ate d pro to ty p in g m achin ery . T hese to ols can hav e a pro fo und i m pact o n th e p ro ducti v ity o f s ta rt- u p te am s.

70 Rem ove O rg a niz a tio nal B arrie rs For e m plo yees a t c o m panie s th at h av e o ssifie d a ro und e xecuti o n, e xp erim enti n g fe els ris k y, unnatu ra l, ev en again st th e (u nw ritte n) ru le s. A nd because of th e div is io n o f la b or a nd a cco unta b ility , e m plo yees n eed le ad ers ’ p erm is sio n to te st id eas th at g o b eyo nd th e s c o pe o f th eir b usin ess u nits .

At V alv e S oftw are , le ad ers p ro vid e p erm is sio n in a ra d ic al w ay: th ere are vir tu ally n o m anagers o r f o rm al ti tl e s a m ong th e s o ftw are d esig ners .

28 “ E very o ne i s a d esig ner,” a cco rd in g to th e e m plo yee h and book. “ E very o ne c an q uesti o n e ach oth er’s w ork . A nyo ne can re cru it so m eo ne onto his or her pro je ct.” 29 N ot su rp ris in gly , V alv e’s a p pro ach to m in im iz in g o bsta cle s fr e es e m plo yees to p urs u e any s ta rt- u p i d ea th at i n te re sts th em .

Larg e co m panie s als o tr y to p ro te ct b ra nd im age and lim it th e lia b iliti e s o f mark et e xp erim ents . I n s u ch c o m panie s, h o w d o l e ad ers g iv e e m plo yees p erm is sio n to ta ke r is k s a nd fr e ely r u n e xp erim ents ? A t In tu it, th e le gal te am h as a sse m ble d a lis t o f g uid elin es; if y o u fo llo w th em , y o u’re fr e e to e xp erim ent w ith o ut a sk in g perm is sio n. F or e xam ple , y o u d on’t n eed p erm is sio n w hen th ese c o nd iti o ns a re met.

Teste rs ( c usto m ers ) u nd ers ta nd th ey’re p arti c ip ati n g i n r e se arc h.

The e xp erim ent d oes n o t in v olv e m ore th an th ir ty th o usa nd te ste rs o ver tw o month s.

The exp erim ent is la b ele d “In tu it L ab s” to sig nal to te ste rs th at it is an exp erim ent.

The p ro to ty p e d oes n o t a ctu ally c o m ple te tr a nsa cti o ns o r c o lle ct u se r d ata .

In tu it’ s d ata s te w ard sh ip p rin cip le s a p ply .

Parti c ip ants l e arn a b out th e p ilo t v ia c o m munic ati o n to th e g enera l p ub lic ( a nd no t ta rg ete d to g o vern m ent e m plo yees o r a gencie s).

Teste rs m ay b e g iv en a s m all to ken, i f a p plic ab le , f o r th eir ti m e.

In tu it d oes a c o m ple te p ate nt b ra in sto rm b efo re r e su lts o f th e e xp erim ent a re sh are d p ub lic ly .

30 These guid elin es se rv e as a sig nal to em plo yees: “W e exp ect yo u to ru n exp erim ents ! D on’t a sk f o r p erm is sio n, j u st d o i t! ” 71 The I -S ch ool L ea d ersh ip C urric u lu m If y o u a tte nd b usin ess s c ho ol, y o u ta ke c la sse s in fin ance, a cco unti n g, o pera ti o ns, org aniz a ti o nal b ehav io r, a nd sim ila r to pic s, a ll o f th em d ra w in g h eav ily o n th e lo gic in tr o duced b y F re d eric k T aylo r. R are ly d o yo u hav e a cla ss o n p ro duct dev elo pm ent o r th e in no vato r’s m eth o d a s a c o re c o urs e ( a lth o ugh m any fo rw ard - lo okin g p ro fe sso rs te ach s o m e o f th ese p rin cip le s, m ostl y in e le cti v e c o urs e s). In most b usin ess sc ho ols , le ad ers h ip is se en a s th e se t o f sk ills n eed ed to m anage matu re o rg aniz a ti o ns f o cuse d o n e xecuti n g u nd er c o nd iti o ns o f l o w u ncerta in ty .

But w hen y o u f a ce u ncerta in ty , y o u n eed a d iffe re nt s e t o f m anagem ent p rin cip le s.

Som e o f th ese p rin cip le s a re ta ught in d esig n s c ho ols , le d b y S ta nfo rd ’s d .s c ho ol.

But w e th in k th at b eyo nd d .s c ho ols w e need an in no vati o n sc ho ol— curric ulu m co nnecte d to B -s c ho ols th at te aches in no vati o n le ad ers h ip acro ss all of an org aniz a ti o n’s m ain fu ncti o ns. A n I- s c ho ol, in c o ntr a st w ith th e B -s c ho ol, w ould deal w ith th e e m erg in g s c ie nce o f m anagin g u ncerta in ty . E ntr e p re neuria l l e ad ers h ip fa lls u nd er th e u m bre lla o f th e I- s c ho ol, a s d o e ach o f th e o th er fu ncti o nal a re as, whic h yo u als o m ust m anage d iffe re ntl y w hen yo u fa ce uncerta in ty .

Fig ure 2-3 sh o w s th e d iffe re nces.

FIG URE 2 -3 Dif fe re nce s b etw een t h e in novatio n a nd b usin ess s c h ool 72 For e xam ple , in B -s c ho ol, w hen y o u stu d y m ark eti n g, y o u ty p ic ally le arn th e im porta nce o f b uild in g a nd p ro te cti n g y o ur b ra nd , o r d oin g q uanti ta ti v e a naly sis to id enti fy c usto m er s e gm ents a nd g et c usto m er f e ed back. B ut i n a n I - s c ho ol w e a rg ue th at y o u s h o uld i n iti a lly i g no re y o ur b ra nd a nd o bta in a ll c usto m er f e ed back th ro ugh dir e ct in te ra cti o n, o bse rv ati o n, o r in te rv ie w s. W hat’ s m ore , r a th er th an e m phasiz e build in g bra nd s by sa ti s fy in g a bro ad ra nge of custo m ers th ro ugh perfe cte d pro ducts , I- s c ho ol e m phasiz e s th e n eed to te st lo w -fid elity p ro to ty p es w ith s m all gro up s o f c usto m ers , e m bra cin g e rro rs a s o pportu niti e s to l e arn .

In B -s c ho ol, w hen y o u l e arn f in ance y o u’re ta ught a b out m arg in a l c o st l o gic : th e im porta nce o f l e v era gin g p rio r f ix ed -c o st i n v estm ents w ith n ew i n iti a ti v es. B ut th is ap pro ach b ia se s y o u to w ard in cre m enta l in no vati o n e ffo rts . In I- s c ho ol y o u le arn ab out th e d angers o f m arg in al c o st lo gic a nd o th er fin ancia l to ols .

31 In a w orld o f 73 uncerta in ty , l e v era gin g i n v estm ents c an o fte n b e a b ad p ra cti c e, b ecause i t m ay l e ad to b uild in g a w ork aro und s o lu ti o n i n ste ad o f o ne th at n ails th e j o b-to -b e-d one.

We a re n’t s a yin g th at o ne a p pro ach is g o od a nd th e o th er is b ad . B oth a re g o od.

The k ey to m anagem ent s u ccess is to r e co gniz e w hen to a p ply a m ore fa m ilia r B - sc ho ol ap pro ach and w hen to ap ply I- s c ho ol th in kin g— a decis io n th at re sts prim arily o n th e d egre e o f u ncerta in ty . W hen u ncerta in ty is h ig h, a p ply a n I- s c ho ol ap pro ach. W hen th e u ncerta in ty h as b een r e so lv ed , u se a B -s c ho ol a p pro ach. A fte r all, th ere ’s n o re aso n to w aste ti m e ru nnin g a n e xp erim ent w hen th ere is a lo w pro bab ility th at y o ur c ho ic e o f a cti o n i s w ro ng.

That b ein g s a id , in o ur d is c ussio ns w ith e xecuti v es w e s e e a r a p id ly in cre asin g need f o r a n I - s c ho ol m anagem ent a p pro ach. A s I n tu it’ s C ook o bse rv es, “ W e n eed to use th ese n ew le ad ers h ip p ra cti c es in o ur c o re b usin ess, b ecause w e fa ce s o m uch uncerta in ty a nd n eed to c o nti n ue to r e in v ent o urs e lv es.” 32 F or th o se o f y o u r e ad in g th is w ith a b usin ess d egre e, w e h av e tw o q uesti o ns: H ow m any A /B e xp erim ents did y o u r u n i n y o ur c la sse s b efo re g etti n g a b usin ess d egre e? H ow m any p ro to ty p es did y o u b uild ? F or m ost o f y o u th e a nsw er i s : z e ro . T hat’ s g o t to c hange.

The “I- s c ho ol” la b el desc rib es a gro up of em erg in g pra cti c es fo r m anagin g uncerta in ty , e sp ecia lly in sta rt- u p s. B ut in th e fu tu re , a s u ncerta in ty c o nti n ues to gro w , w e w ill s e e c hanges in h o w w e o rg aniz e a nd m anage a ll b usin esse s. A s th e sc ie nce o f m anagin g u ncerta in ty d ev elo ps, th e I- s c ho ol a p pro ach w ill n eed to b e ta ught s id e-b y-s id e w ith tr a d iti o nal m anagem ent d is c ip lin es i n B -s c ho ols .

74 3 In sig ht: S avo r S urp ris e s If y o u w an t t o i n nova te , s a vo r t h e s u rp ris e s.

Too o fte n w e o ve rlo ok t h e s u rp ris e s.

—Kim C la rk , F orm er D ean o f H arv ard B usin ess S ch ool 75 F OR T EN Y EA RS ( 2 000–2010) H in d usta n U nile v er ( H UL), s u b sid ia ry o f o ne o f th e w orld ’s le ad in g co nsu m er go ods co m panie s, exp erie nced d eclin in g re v enue gro w th , a fla t s to ck p ric e, a nd a fa llin g m ark et s h are . E ffo rts to im pro ve e xecuti o n and e ffic ie ncy le d to in cre ase d m arg in s b ut littl e g ro w th a nd e v en le ss in no vati o n.

Few new id eas b ub ble d up , and ev en th e fe w th at d id se em ed to str u ggle and dis a p pear. A s C EO N iti n P ara njp e a nd th e m anagem ent te am w re stl e d to f in d w ays to tu rn th e co m pany aro und , th ey hyp oth esiz e d th at th e only w ay to sa v e th e co m pany w as to g enera te n ew id eas a nd in sig hts . B ut h o w c o uld it g enera te n ew id eas a fte r te n y ears o f th e s ta tu s q uo ?

Fortu nate ly , P ara njp e re co gniz e d th at w hen y o u’re in th e ro uti n e o f d oin g y o ur curre nt jo b w ell, y o u’re n o t lik ely to h av e e p ip hanie s. S o to c hange c o urs e , th e managem ent te am decid ed th at th e co m pany need ed to bette r und ers ta nd th eir custo m ers ’ need s and challe nges. In 2010 Para njp e la unched a th re e-p hase in iti a ti v e c alle d P ro je ct B ush fir e , w ith th e g o al o f g etti n g e v ery e m plo yee— more th an f ifte en th o usa nd p eo ple i n I n d ia a lo ne— to v is it c usto m ers i n th eir w ork p la ces and h o m es.

In th e fir s t p hase , H UL la unched an in te rn al cam paig n to cre ate aw are ness, se nd in g e -m ails a nd h angin g p oste rs a sk in g, “ W hen w as th e la st ti m e y o u re ally lis te ned to th e custo m er? ” Para njp e als o e-m aile d em plo yees to exp la in th e pro gra m a nd to a sk fo r id eas, a d din g th at h e w ould re sp ond p ers o nally to e v ery id ea. B ut e v en w ith th is a p peal, sk ep ti c is m re m ain ed h ig h. In th e h alls , p eo ple whis p ere d th at th e p ro je ct w as a “ fla v or o f th e s e aso n.” 1 In p hase tw o, th e te am s e le cte d h und re d s o f s ite s a cro ss In d ia fo r m anagers to vis it a nd th en re q uir e d th em to re se rv e a d ate a nd ti m e th ro ugh a n o nlin e s y ste m .

Alth o ugh th e to p m anagem ent te am m ad e a sh o w o f lo ggin g in o n th e fir s t d ay, re sis ta nce b egan to m ount, w ith h und re d s o f re q uests to b e e xcuse d . O ne fa cto ry manager a rg ued , “ M y jo b is to m axim iz e th e p ro ducti o n in th e fa cto ry e v ery d ay. I am c o nv in ced th at m y a b se nce fr o m th e fa cto ry fo r a n e nti r e d ay w ill re su lt in a gre ate r lo ss fo r th e o rg aniz a ti o n th an a ny o bse rv ati o n o r in sig ht I m ig ht h av e fr o m meeti n g c usto m ers , w ho m eet w ith o ur s a le s a nd b ra nd m anagers q uite r e gula rly .” 2 Desp ite th e p ro te sts , P ara njp e h eld fir m , re q uir in g 1 00 p erc ent p arti c ip ati o n (h e had a ssis ta nts c all a nd a ssig n r e calc itr a nt m anagers to o bse rv ati o n s ite s).

For th e o bse rv ati o ns, m anagers w ere se nt to sh ad ow a fr o ntl in e sa le sp ers o n, meet c o nsu m ers i n th eir h o m es, o r v is it s h o ps a nd a sk q uesti o ns. E ach m anager w as giv en a s h eet w ith q uesti o ns s u ch a s, “ W hat d id I s e e th at c o nfir m ed w hat I a lr e ad y kno w ?” a nd “ W hat d id I s e e th at w as to ta lly u nexp ecte d o r s u rp ris in g?” T he g o al was to c ap tu re th e i n fo rm ati o n i n a c entr a l d ata b ase .

Then, as m anagers vis ite d th e fie ld in phase th re e, th eir early obse rv ati o ns pro ved tr a nsfo rm ati o nal: s o m e h ad n ev er m et c usto m ers b efo re a nd w ere s u rp ris e d to s e e th e is su es th ey s tr u ggle d w ith . O th ers h ad s u ch lim ite d in te ra cti o n w ith th e 76 re al p ro ble m s o f th eir c usto m ers th at th ey h ad o verlo oked m any o pportu niti e s. A s th e s to rie s p oure d in (th e B ush fir e te am m ad e it a p oin t to q uic kly s h are s u ccess sto rie s), th e re calc itr a nt a tti tu d e a m ong m any m anagers b egan to c hange. Ju st a s im porta nt, i d eas— sm all a nd l a rg e— began to f lo w i n .

Som e o f th e in sig hts p ro m pte d s m alle r in iti a ti v es. F or e xam ple , w hen P ara njp e him se lf s to od o n th e s a le s flo or d is c ussin g th e n ew S oya d rin k w ith c usto m ers , a wom an ask ed w hy a “health ” d rin k co nta in ed su gar. A t th at m om ent th e C EO re aliz e d th e te am had o verlo oked a criti c al fa cto r in th e w ay m ost custo m ers ev alu ate health pro ducts . O th er in sig hts had gre ate r im pact. F or exam ple , one manager w as s u rp ris e d to f in d th at Shakti A m mas, w om en w ho s o ld H UL p ro ducts in r u ra l a re as, c o uld n’t s e ll o th er, n o nco m peti n g p ro ducts . T his l e d to a n e xp ansio n in w hat th e Am mas se ll, in clu d in g te le co m m and bankin g se rv ic es fr o m oth er pro vid ers , a s w ell a s n ew H UL p ro ducts , su ch a s a lo w -c o st w ate r p urific ati o n sy ste m c alle d P ure it. Y et o th er in sig hts le d to th e c o m pany’s e xp ansio n in to fiv e th o usa nd a d diti o nal r e ta il o utl e ts a nd th e a d opti o n o f a z e ro -in v ento ry m odel.

Oth er c hanges h ad a d eep er im pact o n H UL’s c ultu re . F or e xam ple , th e p ro je ct re fo cuse d H UL on genera ti n g in sig hts fr o m custo m ers at all le v els of th e org aniz a ti o n. E very m em ber o f th e m anagem ent te am sp end s a t le ast tw o h o urs ev ery tw o w eeks in te ra cti n g w ith c usto m ers , a nd m anagers a re e xp ecte d to v is it a t le ast fiv e c usto m ers p er m onth . In a d diti o n, H UL c ap tu re s in sig hts d iffe re ntl y th an in th e p ast: w hen a n id ea is p ro pose d , a m em ber o f th e m anagem ent c o m mitte e ackno w le d ges i t, a nd w hen i d eas g o i n to p ilo t te sti n g, th e p ers o n w ho g enera te d th e id ea i s a ckno w le d ged a nd i n v ite d to p arti c ip ate .

The re w ard s fo r th ese e ffo rts h av e s h o w n u p in H UL’s fin ancia l p erfo rm ance.

Afte r a d ecad e o f a f la t s to ck p ric e, i n 2 012 s h are s c lim bed 3 4 p erc ent ( d oub le th e Sense x i n d ex), a nd s a le s s p ik ed 4 0 p erc ent.

3 M ore o ver, H UL’s i n no vati o n p re m iu m clim bed to 4 4 p erc ent, m akin g it th e to p-ra nked c o nsu m er g o ods c o m pany (a nd num ber tw elv e o vera ll) o n th e 2 012 Forb es lis t o f th e w orld ’s m ost in no vati v e co m panie s.

Genera ti n g i n sig hts r e p re se nts th e f ir s t s te p i n o ur e nd -to -e nd i n no vati o n p ro cess.

In th is c hap te r, w e s h o w th at i n sig hts a re n o t th e r e su lt o f m agic o r o f s im ply h ir in g “cre ati v e” p eo ple . R ath er, th ey r e su lt fr o m b ehav io rs o r p ro cesse s y o u c an a p ply .

You’ll le arn h o w su ccessfu l c o m panie s g enera te in sig hts a nd h o w to e ffe cti v ely cap tu re a nd s e le ct th em .

77 Fou r K ey A ctio n s T hat G en era te I n sig h ts In no vati o ns a re o nly v alu ab le i f th ey s o lv e p ro ble m s. S o th e f ir s t s te p i s to g enera te an in sig ht a b out a p ro ble m w orth s o lv in g. T he in sig ht c o uld b e fin d in g a p ro ble m th at o th ers h av e m is se d o r p erh ap s u nco verin g a p ote nti a l n ew s o lu ti o n to a w ell- und ers to od p ro ble m . W e’v e fo und th at th e c ata ly st fo r a n in sig ht is a “ su rp ris e .” A su rp ris e is th e c lu e th at y o u’v e le arn ed so m eth in g n ew th at m ig ht b e a v alu ab le in sig ht— because if y o u a re su rp ris e d th en o th ers m ay b e a s w ell. F or e xam ple , when In tu it’ s M obile B aza ar te am w as w atc hin g fa rm ers c o nd uct th eir b usin ess, th ey w ere su rp ris e d to fin d th at cro p p ric es co uld flu ctu ate b y as m uch as 5 0 perc ent i n a s in gle d ay. T his w as a s y m pto m o f a p ro ble m th at f a rm ers w ere f a cin g in th eir a tte m pt to g et f a ir p ric es f o r th eir c ro ps. S im ila rly , w hen M ic hael D ell h ad purc hase d a ll o f th e c o m ponents to b uild a P C i n h is d orm r o om , h e w as s u rp ris e d to d is c o ver th at th ey c o st o nly $ 600 o r $ 700 w hen a n IB M P C w as se llin g fo r $2,5 00. D ell to ld u s th is s u rp ris e r a is e d a q uesti o n: “ W hy d oes it c o st fiv e ti m es more to b uy a P C in th e sto re th an th e p arts c o st? ” 4 In tu it’ s S co tt C ook te aches em plo yees a t I n tu it to “ sa v or s u rp ris e s” a nd s a ys th at “ at I n tu it w e te ach o ur p eo ple to a sk th ese tw o q uesti o ns: W hat is s u rp ris in g? W hat is d iffe re nt fr o m w hat y o u exp ecte d ? T hat i s w here tr u e l e arn in g a nd i n no vati o n s ta rts .” 5 Our e arlie r b ook, The I n nova to r’s D NA , e xp la in s h o w g re at in no vato rs u nco ver su rp ris e s and genera te new in sig hts .

6 It desc rib es fo ur behav io rs th at pro voke asso cia tio nal th in kin g:

th e a b ility to c o nnect s e em in gly u nre la te d in fo rm ati o n o r id eas a nd p ut th em to geth er in n ew w ays— fo r e xam ple , c ro ssin g a k ayak w ith a su rfb oard to co m e up w ith th e id ea fo r a p ad dle b oard . A sso cia ti o nal th in kin g hap pens a s th e b ra in tr ie s to s y nth esiz e a nd m ake s e nse o f i n fo rm ati o n g le aned f r o m questi o nin g, o bse rv in g, n etw ork in g, a nd e xp erim enti n g. A s fig ure 3 -1 sh o w s, th e fo ur k ey a cti o ns o f q uesti o nin g, o bse rv in g, n etw ork in g, a nd e xp erim enti n g a re th e key to tr ig gerin g n ew i n sig hts th ro ugh a sso cia ti o nal th in kin g.

FIG URE 3 -1 The in novato r’s D NA b ehavio rs 78 Fir s t, p eo ple genera te in sig hts th ro ugh q uesti o nin g, co nsta ntl y challe ngin g th e sta tu s q uo w ith “ w hy” a nd “ w hy n o t” q uesti o ns to tu rn th in gs u p sid e-d ow n. T hey ofte n a sk “ w hat if” q uesti o ns to e nv is io n a d iffe re nt fu tu re . Q uesti o nin g g iv es y o u th e f u el to p ow er n ew a sso cia ti o ns a nd i n sig hts .

Hin d usta n U nile v er’s B ush fir e p ro je ct is a n e xcelle nt e xam ple . T he H UL te am mem bers s ta rte d w ith a lis t o f q uesti o ns a s th ey w ent o ut in to th e fie ld , in clu d in g “W hat s u rp ris e s y o u?” a nd “ W hat s h o uld H UL b e d oin g th at th ey a re n o t d oin g?” These questi o ns ofte n acte d as a cata ly st. T he m anager of an H UL fa cto ry in Mangalo re ask ed w hy he co uld n’t buy H UL pro ducts at th e lo cal sto re . T he obse rv ati o n w as a sy m pto m o f p ro ble m s in th e d is tr ib uti o n netw ork th at, afte r stu d y, le d th e c o m pany to e xp and in to n ew re ta il o utl e ts . Q uesti o ns h elp y o u s e e th in gs i n a n ew l ig ht a nd o pen n ew a v enues a nd p ossib iliti e s.

Seco nd , m anagers g arn er n ew i d eas b y o bse rv in g th e e nv ir o nm ent a s i f th ey w ere anth ro polo gis ts . T hey g et o ut o f th eir c ub ic le s to c lo se ly w atc h th e w orld a ro und th em — esp ecia lly c usto m ers , p ro ducts , se rv ic es, a nd p ro cesse s— to sp ark u niq ue ways o f d oin g th in gs. F or e xam ple , a n H UL m anager o bse rv ed th at a s h o pkeep er did n’t hav e in v ento ry ev en th o ugh th e dis tr ib uto r had a la rg e sto ckp ile . T he obse rv ati o n help ed th e m anager im pro ve in v ento ry b y ad opti n g a re ta il- d riv en 79 model: s h o pkeep er o rd ers a re s e nt d ir e ctl y to H UL, a nd H UL s h ip s th e re q uir e d pro duct to d is tr ib uto rs , e lim in ati n g s ta gnant i n v ento ry a nd i m pro vin g f u lfillm ent f o r th e re ta ile r. A nd d on’t und ere sti m ate th e v alu e o f sm all, unexp ecte d id eas. F or exam ple , o ne m anager, an exp ert in p ro duct p ackagin g, re calle d his su rp ris e at se ein g a custo m er re engin eerin g Tetr a Paks to hang th em fr o m th e ceilin g, in cre asin g th eir v is ib ility to p assin g c usto m ers .

Thir d , th e su ccessfu l in no vato rs w e stu d ie d e xcel a t n etw ork in g, ta lk in g w ith peo ple to fin d — or sp ark a new w ay to so lv e— perp le xin g pro ble m s. They re gula rly ta lk w ith p eo ple w ho d on’t lo ok, a ct, o r ( m ost im porta ntl y ) th in k a s th ey do. In ste ad o f netw ork in g sim ply to gain re so urc es, th ey in te ra ct w ith d iv ers e peo ple to g et n ew id eas. A lth o ugh th e H UL in iti a ti v e s ta rte d w ith fie ld v is its , a s managers met with peo ple outs id e th eir dis c ip lin e, th ey esta b lis h ed new re la ti o nsh ip s th at le d to n ew id eas; fo r e xam ple , th e m anagers in m ark eti n g a nd sa le s re aliz e d th at a s u p ply c hain m anager c o uld s o lv e a s a le s p ro ble m . A s o ne manager p ut it, “ Y ou w ould b e m akin g a h uge m is ta ke b y a ssu m in g th at a P h.D . in Org anic C hem is tr y h as n o v alu e to a d d to th e s e llin g p ro cess w ir e d in to a ta b le t PC .” 7 A no th er n o te d , “ A c o up le o f y ears a go , a b ra nd m anager w ould n’t b e c aught dead a sk in g h is f in ance c o unte rp art f o r a n o pin io n o n a p ie ce o f a d verti s in g. T oday, it i s c o m mon.” 8 Fourth , y o u g enera te i n sig hts b y c o nsta ntl y e xp erim enti n g. I n no vato rs tr y o ut n ew exp erie nces w here v er th ey g o . T hey ta ke a p art p ro ducts o r p ro cesse s to s e e h o w th in gs w ork — and h o w to i m pro ve th em . M ore o ver, a s y o u’ll s e e i n chap te r 5 , th ey ra p id ly p ilo t o r p ro to ty p e v ario us s o lu ti o ns to fin d o ne th at w ork s. F or e xam ple , when a n H UL f a cto ry m anager v is ite d a s h o pkeep er, h e w as a m aze d to h ear a b out a myria d of pro ble m s th at co uld hav e been re so lv ed by callin g th e fa cto ry ’s pub lis h ed h elp l in e n um ber. S o th e m anager tr ie d a n e xp erim ent: h e p rin te d th e h elp lin e n um ber o n th e o uts id e o f e v ery b ox. I m med ia te ly , th e n um ber o f c alls i n cre ase d dra m ati c ally , a nd th e n um ber o f l o ng-te rm i s su es p lu m mete d .

We stu d ie d a sa m ple o f fo und ers a nd le ad ers o f c o m panie s th at e njo y a h ig h in no vati o n p re m iu m ( th o se r a nked i n o ur Forb es lis t) . W e fo und th at th ey s p end 3 1 perc ent o f th eir ti m e e ngaged in th e fo ur d is c o very b ehav io rs in p urs u it o f n ew in sig hts . I n c o ntr a st, l e ad ers o f c o m panie s h av in g a l o w I P s p ent o nly 1 5 p erc ent o f th eir ti m e th us e ngaged .

What k in d s o f th in gs c an le ad ers d o to fa cilita te th e p ro cess? A nd h o w c an th ey make s u re th at i n sig hts a re c ap tu re d a nd th e b est o nes a re s e le cte d to b e p ut th ro ugh th e i n no vato r’s m eth o d?

80 Sea rc h B ro ad ly As y o u e ngage in th e fo ur b ehav io rs , it’ s c ru cia l to s e arc h b ro ad ly : lo ok fo r id eas acro ss c o untr ie s, i n d ustr ie s, c o m panie s, te chno lo gie s, f u ncti o ns, a nd s o o n. E in ste in calle d th is “co m bin ato ria l pla y.” A bro ad se arc h le ad s to varia ti o n in th e kno w le d ge yo u gain — and th at le ad s to more co m bin ato ria l th o ught tr ia ls , in cre asin g th e o dds o f d is c o verin g a n in sig ht. A nd w e’v e fo und th at p eo ple w ho se arc hed b ro ad ly a re m uch m ore l ik ely to h av e a n e p ip hany— an i n sig ht th at s e em s to c o m e f r o m n o w here .

Amazo n’s J e ff B ezo s i s a n e xcelle nt e xam ple . B efo re d ecid in g to s e ll b ooks o ver th e i n te rn et, B ezo s r e se arc hed th e to p tw enty m ail o rd er p ro ducts . H e h yp oth esiz e d th at p eo ple w ould b uy s ta nd ard p ro ducts ( th o se th at v ary l ittl e ) v ia th e w eb . T o h is su rp ris e , b ooks— certa in ly s ta nd ard — were n’t in th e to p tw enty p ro ducts . T hen h e dis c o vere d w hy: th ere w ere s o m any b ooks i n p rin t th at n o o ne c ata lo g c o uld c o ver th em a ll. I t w ould b e h uge a nd e xp ensiv e to m ail. A s B ezo s s a w i t, th e i n te rn et w as th e i d eal v ehic le f o r o ffe rin g s u ch a c ata lo g.

Alth o ugh r o ote d i n b ooks a nd p ositi o ned a s a l e ad in g b ook r e ta ile r, A mazo n h as a tr a ck r e co rd o f s e arc hin g b ro ad ly fo r n ew b usin ess id eas. It h as e xp and ed in to a wid e v arie ty o f p ro ducts a nd s e rv ic es, f r o m e le ctr o nic r e ad ers a n d ta b le ts ( w ith th e Kin d le ) to c lo ud c o m puti n g s e rv ic es (A mazo n E C 2) to v id eo s tr e am in g s e rv ic es (th ro ugh A mazo n P rim e) to d aily g ro cery d eliv ery (A mazo nF re sh ). A mazo n h as re centl y m oved in to m erc hant le nd in g (A mazo n Lend in g) and re p orte d ly is co nsid erin g e nte rin g c ate go rie s s u ch a s s m art p ho nes a nd T V s e t- to p b oxes.

Bezo s e nco ura ges e m plo yees to s e arc h b ro ad ly d esp ite c riti c is m th at A mazo n is no t f o cuse d e no ugh. “ E very n ew b usin ess w e’v e e v er e ngaged i n h as i n iti a lly b een se en a s a d is tr a cti o n b y p eo ple e xte rn ally , a nd so m eti m es e v en in te rn ally ,” sa ys Bezo s. “ T hey’ll s a y, ‘W hy a re y o u e xp and in g in to m ed ia p ro ducts ? W hy a re y o u go in g i n te rn ati o nal? W hy a re y o u e nte rin g th e m ark etp la ce b usin ess w ith th ir d -p arty se lle rs ? ’ W e’re g etti n g i t n o w w ith o ur n ew i n fr a str u ctu re w eb s e rv ic es. ‘ W hy ta ke on th ese n ew d ev elo per c usto m ers ? ’ ” 9 B ezo s a d ds th at m ost c o m panie s’ b ig e rro rs hav e b een acts o f o m is sio n and no t acts o f co m mis sio n: “It’ s th e o pposite o f sti c kin g to y o ur k nitti n g. I t’ s w hen y o u s h o uld n’t h av e s tu ck to y o ur k nitti n g a nd y o u did ,” h e s a ys. “ It’ s v ery f u n to h av e a c ultu re w here p eo ple a re w illin g to ta ke th ese le ap s. It’ s th e o pposite o f th e ‘ in sti tu ti o nal n o .’ It’ s th e in sti tu ti o nal y es. P eo ple a t Amazo n s a y, ‘ W e’re g o in g to f ig ure o ut h o w to d o th is .’ ” 10 Most p eo ple n atu ra lly se arc h n arro w ly , b ecause th ey’re to ld to le v era ge th eir exp erti s e . A lth o ugh th is s tr a te gy m akes s e nse fo r e xp and in g in to k no w n te rrito ry , it lim its y o u to o nly in cre m enta l in sig hts . S earc hin g b ro ad ly m ig ht in clu d e e xp lo rin g new in d ustr ie s fo r y o ur p ro duct, ta kin g a p art p ro ducts fr o m d iffe re nt in d ustr ie s, o r ask in g yo urs e lf challe ngin g q uesti o ns th at fo rc e yo u to lo ok els e w here (“ H ow 81 would w e m ake m oney n ext y ear i f w e w ere l e gally p ro hib ite d f r o m s e llin g a ny o f our curre nt pro ducts to our exis ti n g custo m ers ? ”). S earc hin g bro ad ly fo r new kno w le d ge o r n ew p ossib iliti e s g re atl y in cre ase s th e p ro bab ility o f u nco verin g a bre akth ro ugh i n sig ht.

82 Cap tu re t h e I n sig h t In th e p ast fe w d ecad es, m any c o m panie s h av e in iti a te d p ro cess e s to c ap tu re n ew id eas, s u ch a s id ea re p osito rie s a nd k no w le d ge d ata b ase s, b ut m any o f th em a re glo rifie d s u ggesti o n b oxes th at s im ply d o n o t w ork . S uccessfu lly c ap tu rin g i d eas i s a c riti c al p art o f in no vati o n, a nd m anagers n eed to u se th e r ig ht to ols a nd th e r ig ht pro cess.

A popula r pro cess w e stu d ie d is th e Am eric a n Id ol m odel. Y ou challe nge em plo yees to s u b m it id eas to b e s c re ened a nd s e le cte d b y a p anel o f ju d ges. F or exam ple , G oogle ho ld s an In no vato r’s C halle nge fo ur ti m es a year. E m plo yees su b m it i d eas f o r to p m anagem ent r e v ie w ; w in nin g i d eas r e ceiv e th e r e so urc es to b e push ed fo rw ard (w e d is c uss s e le cti n g id eas in th e n ext s e cti o n). M aris sa M ayer (fo rm er dir e cto r of co nsu m er pro ducts at G oogle and no w C EO of Y aho o!) cham pio ned r e gula r b ra in sto rm in g s e ssio ns d urin g w hic h e ngin eers h ad te n m in ute s to p itc h th eir id eas to M ayer a nd a g ro up o f a s m any a s o ne h und re d o th ers . T he go al o f th ese s e ssio ns w as n o t o nly to c ap tu re th e in sig ht b ut a ls o to b uild o n th e in iti a l i d ea w ith a t l e ast o ne n ew c o m ple m enta ry i d ea.

A s e co nd a p pro ach is to u se a d ig ita l c o lla b ora ti o n p la tf o rm , s o m eti m es c alle d an i d ea m anagem ent s y ste m . G oogle r e fe rs to i ts p la tf o rm a s a n i d ea b oard , a t I n tu it it’ s calle d B ra in sto rm , and at A T& T it’ s calle d T IP . M any co m panie s, su ch as Cis c o S erv ic es, so urc e fr o m an outs id e co m pany lik e B rig hti d ea (S pig o t and AHHHA a re o th er p opula r to ols ). T hese to ols a llo w e m plo yees (o r o uts id ers ) to post, v ie w , s o rt, a nd filte r id eas; v ote a nd p ro vid e fe ed back; a nd u se o th er s o cia l netw ork in g fe atu re s lik e n o ti fic ati o ns a nd ta ggin g. T hese to ols u se cro w d-s o urc in g (o uts o urc in g ta sk s to in d iv id uals or org aniz a ti o ns) to enco ura ge, re fin e, and ad vance i d eas i n w ays th at a s ta ti c , c entr a lly c o ntr o lle d s u ggesti o n b ox c anno t.

That bein g sa id , yo u m ust overc o m e challe nges to enco ura ge em plo yees to parti c ip ate . A t In tu it, use of th e B ra in sto rm pla tf o rm is ro bust because it’ s em bed ded in th e c ultu re , b ut it’ s s ti ll n ecessa ry fo r in no vati o n c ata ly sts to p ull o ut pro m is in g id eas to nurtu re and cham pio n. O th er co m panie s, su ch as C is c o and Qualc o m m, c re ate e ngagem ent b y u sin g a b atc h-ty p e p ro cess to fo cus e v ery o ne’s atte nti o n o n th e id ea p la tf o rm s a t p arti c ula r ti m es. Y et o th er c o m panie s, su ch a s HUL, a ssig n te am s to re sp ond to a nd d ev elo p e ach id ea. T he le sso n is to m arry cro w d e ngagem ent w ith e nco ura gem ent a nd c ulti v ati o n f r o m a tr a in ed te am .

AT& T’s T IP is th e la rg est id ea board w e’v e se en, w ith m ore th an half of AT& T’s tw o h und re d th o usa nd e m plo yees p arti c ip ati n g. I t h elp s tu rn th e c o m pany’s ty p ic al in no vati o n weakness— a vast em plo yee base — in to a str e ngth . It’ s egalita ria n; fr o ntl in e e m plo yees p arti c ip ate in e arly s ta ges w ith a v oic e e q ual to th o se o f se nio r m anagers . T he o nlin e p la tf o rm a llo w s e m plo yees w orld w id e to vote , c o m ment, a nd c o lla b ora te o n id eas. A t th e e nd o f a d esig nate d ti m e p erio d, calle d a “ se aso n” ( à la Am eric a n I d ol) , th e to p id eas a re e v alu ate d b y “ angels ,” a 83 gro up o f h ig h-le v el e xecuti v es, w ho th en s e le ct i d eas to b e p re se nte d i n a l iv e p itc h se ssio n. C ho se n id eas re ceiv e se ed fu nd in g. S ele cte d p ro je cts are m anaged b y in no vati o n cham pio ns: em plo yees w ho act as “C EO s” of each pro je ct. T hey sh ep herd th e id ea th ro ugh th e pro of- o f- c o ncep t phase and re ceiv e ad diti o nal fu nd in g i f a b usin ess u nit w ill m atc h th e i n v estm ent f o r a s e co nd r o und .

To illu str a te , a call- c ente r em plo yee w ho lo st a clo se fr ie nd in an accid ent cause d b y a d is tr a cte d d riv er c o nceiv ed o f a n a p p to h elp p re v ent te xti n g w hile driv in g. W ith in o ne w eek o f p osti n g h er id ea o n T IP , p eers w ere p ro vid in g h elp fu l guid ance o n im pro vin g a nd im ple m enti n g it. U lti m ate ly , s h e w as a sk ed to p re se nt her id ea to A T& T le ad ers h ip , in clu d in g C EO R and all S te p henso n. E xecuti v es pro vid ed fu nd in g and m oved th e id ea to an A T& T fo und ry , T IP ’s in cub ati o n pro cess, w here a p ro to ty p e w as d ev elo ped a nd e v entu ally r e le ase d to th e m ark et.

Dub bed D riv eM ode, th e a p p h as b een d ow nlo ad ed h und re d s o f th o usa nd s o f ti m es and w as a c o rn ers to ne o f A T& T’s “ It C an W ait” p ub lic s e rv ic e c am paig n.

Som e c o m panie s a ls o se t u p a d ata b ase to c ap tu re id eas. F or e xam ple , H UL ente re d a ll th e B ush fir e f ie ld o bse rv ati o ns i n to a d ata b ase . T o k eep th e i d eas a liv e, it d id tw o th in gs: i t p ro m is e d to r e sp ond to e v ery i d ea, a nd i t a ssig ned m anagers to pro be th e data b ase , fin d str o ng id eas, and th en push th em fo rw ard w ith parti c ip ati o n o f th e o rig in ato r.

Som e c o m panie s s e t u p p ro cesse s to c ap tu re in sig hts fr o m o uts id e th e c o m pany.

For e xam ple , P ro cte r & G am ble h as d ep lo yed s e v enty “ te chno lo gy e ntr e p re neurs ,” who s p end a ll th eir ti m e s e arc hin g fo r n ew id eas th at w ill m ake a d iffe re nce fo r P& G. These se nio r peo ple help id enti fy key custo m er need s and w rite th e te chno lo gy b rie fs th at d efin e th e p ro ble m s th e c o m pany is tr y in g to so lv e. T hey cre ate e xte rn al c o nnecti o ns b y, fo r e xam ple , m eeti n g w ith u niv ers ity a nd in d ustr y re se arc hers , a nd th ey c o m bin e a ggre ssiv e m in in g o f th e s c ie nti fic lite ra tu re , p ate nt data b ase s, and oth er data so urc es w ith physic al pro sp ecti n g fo r id eas— sa y, su rv eyin g s to re s h elv es i n R om e o r a tte nd in g p ro duct a nd te chno lo gy f a ir s . I t w as a te chno lo gy e ntr e p re neur, e xp lo rin g a lo cal m ark et in J a p an, w ho d is c o vere d w hat ulti m ate ly b ecam e th e M r. C le an M agic E ra se r. P & G’s te chno lo gy e ntr e p re neurs work o ut o f s ix C onnect a nd D ev elo p h ub s i n C hin a, I n d ia , J a p an, W este rn E uro pe, Lati n A meric a, a nd th e U nite d S ta te s. T o d ate , th ey h av e id enti fie d m ore th an te n th o usa nd p ro ducts , p ro duct i d eas, a nd p ro m is in g te chno lo gie s.

11 84 Sele ct t h e I n sig h t Recentl y th e e d ito rs a t Budget T ra vele r m agazin e h ad a g re at id ea to g enera te n ew mate ria l: W hy n o t c ro w d-s o urc e a n e nti r e is su e fr o m r e ad ers ? T hey s e nt o ut a c all fo r s u b m is sio ns a nd r e ceiv ed m ore th an 2 ,8 00, i n clu d in g m ore th an f iv e h und re d f o r a sin gle pie ce on “5 0 R easo ns Y ou Love N ew Y ork .” A lth o ugh th e pro je ct genera te d n ew m ate ria l, th e e d ito rs n o w fa ced a m onum enta l ta sk : H ow to so rt th ro ugh a lm ost th re e th o usa nd s u b m is sio ns a nd th en, fo r th o se c ho se n, r e w ork a nd ed it th em to fit in to a n a rti c le . In th e e nd , e d ito r E rik T ork ells re fle cte d o n th e bitte rs w eet e xp erie nce, sa yin g, “ L et’ s b e p erfe ctl y c le ar, m akin g th is is su e w as neith er c heap n o r e asy.” 12 Lead ers a t la rg e c o m panie s c an c re ate s im ila r p ro ble m s w hen th ey s u cceed a t in sp ir in g— and cap tu rin g— in sig hts b ut hav e b ro ken m echanis m s fo r w in no w in g th em to th o se th at a re m ost p ro m is in g. T o s o lv e th e p ro ble m , m ost c o m panie s fa ll back o n fa m ilia r te chniq ues, usu ally a co m peti ti o n re se m blin g a b usin ess p la n co nte st, ju d ged b y se nio r e xecuti v es. U nfo rtu nate ly , th is a p pro ach m ay n o t w ork well. R ecall o ur e arlie r d is c ussio n o f th e p ro ble m s o f le ad ers m akin g d ecis io ns und er h ig h u ncerta in ty . W e’v e fo und th at le ad ers a re m ore s u ccessfu l a t s e le cti n g in sig hts fo r th eir o rg aniz a ti o ns to fu rth er e xp lo re b y u sin g e ith er a “ v ote te st” o r a “p ro of te st.” 85 Vo te T est How c o uld Budget T ra vele r h av e s o lv ed i ts e d ito ria l p ro ble m ? W hat i f th e e d ito rs had u se d th eir r e ad ers to b oth s o urc e a nd e v alu ate th e m ate ria l? P eo ple b oth i n sid e and o uts id e y o ur o rg aniz a ti o n c an b e v alu ab le fo r s e le cti n g in sig hts th ro ugh a fo rm of c ro w d-s o urc in g w e c all “ cro w d-v oti n g.” O ne e xam ple is T hre ad le ss, a n o nlin e co m munity o f a rti s ts a nd a n e -c o m merc e w eb site . T hre ad le ss e nlis ts its c usto m ers in a m em ber c o m munity to s u b m it id eas fo r T -s h ir t s lo gans a nd d esig ns, ta p pin g in to n ew a rti s ts a nd g enera ti n g i d eas w ith o ut th e n eed to h ir e p ro fe ssio nal d esig ners .

Ju st a s im porta nt, T hre ad le ss u se s c ro w d-v oti n g (b y c usto m ers a nd d esig ners ) to se le ct w hic h d esig ns to ta ke to m ark et. B y u sin g th e c ro w d, T hre ad le ss c an b ette r pre d ic t w hic h t- s h ir ts w ill s e ll. I t h as d ev elo ped a n e nv ia b le tr a ck r e co rd o f n ev er hav in g p ro duced a f lo p; e v ery t- s h ir t e v er p ro duced h as s o ld o ut.

Cro w d-v oti n g w ork s w ell w hen yo u use a cro w d to ev alu ate an o ffe rin g o r pre d ic t u ncerta in e v ents . H ow ev er, u se it w ith c auti o n if y o u’re tr y in g to p re d ic t co m ple x, te chnic al, o r ra d ic al p ro ble m s o r so lu ti o ns. In th ese case s, exp erti s e matte rs , a nd h and s-o n u se c an b e a m ore v ia b le p re d ic to r th an o pin io ns.

As a n a lte rn ati v e, y o u c an c re ate a s y ste m f o r c ho osin g i n sig hts b ase d o n w heth er th e a d vocate c an g et o th ers to v olu nte er ti m e to p urs u e it. T his is w hat fo und ers o f sta rt- u p s m ust d o. S im ila rly , G oogle a nd V alv e S oftw are , a m ong o th ers , c halle nge em plo yees to re cru it oth er co lle agues to use th eir se lf- d ir e cte d ti m e on th e em plo yee’s p ro je ct. C om pellin g i d eas a re s e le cte d f o r f u rth er d ev elo pm ent b ecause th ey d ra w v olu nte er r e so urc es ( S ee “H ow to M ake I n no vati o n T im e W ork ” ).

How t o M ake I n nova tio n T im e W ork Rese arc hers a sk ed s tu d ents a t Y ale to d o s o m eth in g f o r th eir o w n b enefit:

get te ta nus s h o ts . T o o ne g ro up , th e r e se arc hers g av e th e ti m e a nd l o cati o n fo r th e sh o ts a nd th en tr ie d to sc are th em in to a tte nd in g. T o th e o th er gro up , th ey g av e th e s a m e in fo rm ati o n b ut a d ded a m ap to th e b uild in g.

All th e stu d ents w ere fa m ilia r w ith c am pus, b ut w hen th ey re ceiv ed a map th eir atte nd ance ju m ped fr o m 3 p erc ent to 2 8 p erc ent. E ven fo r stu d ents w ho knew w hat to do, pro vid in g a help fu l to ol in cre ase d parti c ip ati o n.

13 S im ila rly , giv in g yo ur te am m em bers ti m e to in no vate will b e m ore e ffe cti v e i f y o u p ro vid e a “ m ap ” to u se i t.

For e xam ple , w hen J e ff Z ia s w as p ut in c harg e o f u nstr u ctu re d ti m e a t In tu it, h e n o ti c ed th at fe w p eo ple u se d it. T o c re ate a m ap , h e s ta rte d b y enco ura gin g p eo ple to m ark th eir c ale nd ars w ith th e d ays th ey w ould u se unstr u ctu re d ti m e. T his a ct in cre ase d e m plo yee e ngagem ent 2 0 p erc ent.

Then Z ia s re cru ite d v olu nte ers to sh are b est p ra cti c es and cham pio n 86 in no vati o n ti m e.

Even s o , Z ia s f o und th at p eo ple d id n’t k no w h o w to u se th e ti m e. S o h e cre ate d a s e rie s o f “ hack-a -th o ns” : fo r tw enty -fo ur to fo rty -e ig ht h o urs , peo ple b lo cked o ut e v ery th in g e ls e a nd fo cuse d o n in no vati o n. A t fir s t, em plo yees g o t to geth er in “ id ea ja m s” a nd b ra in sto rm ed p ro ble m s a nd pro ducts . M ore th an a d oze n p ro ducts , in clu d in g T urb oTax o n th e iP ad , cam e out of th e early id ea ja m s. T hen Zia s cre ate d a pip elin e of in cre asin gly s p ecific ja m s: “ p ain ja m s” to fin d p ro ble m s w orth s o lv in g, “so lu ti o n ja m s” to b ra in sto rm so lu ti o ns, and “co de ja m s” to d ev elo p pro to ty p es o r tr y v aria ti o ns to e xis ti n g p ro ducts .

Zia s a rg ues th at m uch o f I n tu it’ s s u ccess i n n ew p ro ducts c an b e tr a ced to a n o vera ll in cre ase in th e u se o f u nstr u ctu re d ti m e. B ut th e g re ate r benefit m ay be its ro le as a m yth buste r. S ix years ago , In tu it w as perc eiv ed a s “ an o ld , s lo w c o m pany,” a nd p eo ple s a id i t w as to o h ard to be i n no vati v e a nd a gile . T he i d ea j a m s a nd c o de j a m s b uste d th o se m yth s by te llin g e m plo yees, “ G o a head — ju st h ack th at.” 14 Even m ore r a d ic ally , V alv e S oftw are h as c re ate d a n i n te rn al m ark et f o r i d eas— a tr u e n etw ork o f s ta rt- u p s— by r e q uir in g th at th e g enera to rs o f i n sig hts r e cru it o th ers .

Fro m V alv e’s e m plo yee h and book:

Sin ce V alv e is fla t, p eo ple d on’t jo in p ro je cts b ecause th ey’re to ld to .

In ste ad , y o u’ll d ecid e w hat to w ork o n. E m plo yees v ote o n p ro je cts w ith th eir f e et ( o r d esk w heels ). S tr o ng p ro je cts a re o nes i n w hic h p eo ple c an se e d em onstr a te d v alu e; th ey sta ff u p e asily . T his m eans th ere a re a ny num ber o f in te rn al re cru iti n g e ffo rts c o nsta ntl y u nd er w ay. P eo ple a re go in g to w ant y o u to w ork w ith th em o n th eir p ro je cts , a nd th ey’ll tr y hard to g et y o u to d o s o . B ut th e d ecis io n i s g o in g to b e u p to y o u. . .

There ’s n o r u le b ook fo r c ho osin g a p ro je ct o r ta sk a t V alv e. B ut it’ s use fu l to a nsw er q uesti o ns lik e th ese : O f a ll th e p ro je cts c urre ntl y u nd er way, w hat’ s th e m ost v alu ab le th in g I c an b e w ork in g o n? W hic h p ro je ct will h av e th e h ig hest d ir e ct i m pact o n o ur c usto m ers ?

15 This ap pro ach is unusu al. A s Valv e em plo yee Paul K ir s c hb aum (a fo rm er Amazo n e m plo yee) o bse rv es, “ It’ s d iffe re nt a t V alv e. Y ou h av e to f ig ure o ut w here to a llo cate y o ur ti m e— whic h p ro je cts y o u th in k w ill c re ate th e m ost v alu e. A nd if yo u w ant to p urs u e a n id ea, y o u’v e g o t to c o nv in ce o th ers th at it’ s w orth p urs u in g.

No m anager is te llin g y o u w hat to d o. Id eas d ra w re so urc es if o th ers th in k th ey hav e m erit.” 16 T he fr e ed om to c ho ose is c riti c al fo r in no vati o n s u ccess, b ecause re se arc h s h o w s th at c re ati v e i d eas c o m e f r o m f o lk s w ho a re i n tr in sic ally m oti v ate d 87 to g enera te a nd p urs u e th o se i d eas.

17 This a p pro ach a ls o h as th e b enefit o f c re ati n g a n e nv ir o nm ent w here fo lk s a re hap py and m oti v ate d because th ey w ork on th in gs th ey care ab out. “W e w ant in no vato rs , a nd th at m eans m ain ta in in g a n e nv ir o nm ent w here th ey’ll flo uris h ,” s a y Valv e’s le ad ers in th e em plo yee hand book. “T hat’ s w hy V alv e is fla t. It’ s o ur sh o rth and w ay o f s a yin g th at w e d on’t h av e a ny m anagem ent, a nd n o body ‘ re p orts to ’ a nyb ody e ls e . W e d o h av e a fo und er/p re sid ent, b ut e v en h e is n ’t y o ur m anager.

This c o m pany is y o urs to s te er . . . Y ou h av e th e p ow er to g re en-lig ht p ro je cts .” 18 That’ s a p ow erfu l v ote te st f o r a n o rg aniz a ti o n to u se to s e le ct i d eas to w ork o n.

88 Pro of T est It i s p ossib le th at i n d iv id uals ( o r te am s) w ho a re p assio nate a b out a n i d ea b ut l a ck th e “ v ote s” m ay b e o n to s o m eth in g. H ow d o y o u s o rt th em o ut f r o m th e p assio nate in d iv id uals w ho la ck v ote s b ecause th eir id ea is b ad ? G iv e th em th e to ols w e desc rib e, a nd a sk th em to ru n a q uic k e xp erim ent. If th e in sig ht h as m erit, th ey’ll re tu rn w ith data — th e pro of— th at th e id ea is w orth fu rth er exp lo ra ti o n. For exam ple , w hen P aul B uchheit, a n e ngin eer a t G oogle , c am e u p w ith th e id ea fo r a sy ste m th at w ould re ad keyw ord s dis ti lle d fr o m yo ur G mail m essa ge and auto m ati c ally f in d a r e la te d a d to d is p la y n ext to i t, M aris sa M ayer to ld h im to d ro p th e i d ea. “ I w as l ik e, ‘ P aul, P aul, P aul— ad s a re n ev er g o in g to w ork ,’ ” M ayer s a id in a S ta nfo rd U niv ers ity p odcast. “ W e’ll n ev er m ake a ny m oney, o r w e’re g o in g to ta rg et th e a d s a t th eir e -m ail, w hic h i s j u st g o in g to b e c re ep y a nd w eir d . P eo ple a re go in g to th in k th ere a re p eo ple h ere re ad in g th eir e -m ails a nd p ic kin g o ut th e a d s and it’ s go in g to be te rrib le .” 19 L uckily fo r B uchheit, em pir ic al re su lts tr u m p opin io ns i n G oogle ’s c ultu re . S o e v en a fte r M ayer m ad e h im p ro m is e n o t to b uild a pro to ty p e, h e s ta yed u p a ll n ig ht a nd b uilt o ne a nyw ay, g am blin g th at i t w ould p ro ve Mayer w ro ng. H e r e le ase d th e p ro to ty p e o f h is s y ste m , c alle d A dS ense , a t 7 a .m .

rig ht b efo re M ayer c am e to w ork . W hen M ayer fir s t s a w th e p ro to ty p e, s h e w as anno yed . B ut w hen sh e c hecked h er G mail sh e sa w th ere w as a n e -m ail fr o m a fr ie nd w ho i n v ite d h er to g o h ik in g— and n ext to i t, a n a d f o r h ik in g b oots . A no th er e-m ail w as a b out A l G ore v is iti n g S ta nfo rd U niv ers ity f o r a s p eech— and n ext to i t was a n a d fo r b ooks a b out A l G ore . M ayer g ru d gin gly a d m itte d th at A dS ense w as more u se fu l, e nte rta in in g, a nd re le v ant th an s h e im agin ed .

20 M ore im porta ntl y , th e data f r o m th e p ro to ty p e w on o ut. ( B uchheit’ s p ro to ty p e l e d to a d diti o nal p ro to ty p es, and A dS ense w as a d ap te d to id enti fy a d verti s in g o pportu niti e s th ro ugh k eyw ord se arc hes, w eb site c o nte nt, a nd b ro w sin g th at l e d to $ 10 b illio n i n a nnual r e v enues.) In fa ct, G oogle C EO E ric S chm id t w ould o fte n a d vis e G oogle rs to g et “ 1 00 h ap py use rs in sid e o f G oogle ” as p ro of o f co ncep t b efo re la unchin g a p ro duct to th e mark et.

In s im ila r fa sh io n, R egenero n, a n e m erg in g b io te ch s ta r, h as a chie v ed a lo fty 6 3 perc ent in no vati o n p re m iu m (n um ber 4 o n o ur m ost re cent Forb es lis t o f m ost in no vati v e c o m panie s) b y p la cin g m any s m all b ets i n l o ts o f p la ces— and l e tti n g th e exp erim ents re v eal w hic h id eas a re b est. A cco rd in g to a Forb es a naly sis o f 2 20 dru gs a p pro ved o ver th e p ast d ecad e f o r p ub lic ly tr a d ed c o m panie s, th e c o m panie s th at i n v ente d th re e o r m ore m ed ic in es s p ent a n a v era ge o f $ 4.3 b illio n i n R & D p er dru g. R egenero n’s c o st p er d ru g? O nly $ 736 m illio n. S etti n g c rite ria fo r s u ccess and th en l e tti n g f a st a nd f r u gal e xp erim ents s h o w w hic h b ets to m ake i s a f a r b ette r way th an h av in g s e nio r m anagers p ic k th e i n sig hts to te st a nd d ev elo p. A cco rd in g to Regenero n C EO L eo nard S chle ife r, h av in g le ad ers p ic k th e id eas to fo cus o n is a bad id ea. “ ‘ F ocus’ is a d ir ty w ord fo r u s, O K? It’ s a b ig m is ta ke to th in k th at y o u can p ic k th e v ery b est th in g th at y o u s h o uld fo cus o n a nd th en ig no re a ll th e o th er 89 th in gs.” 21 T he poin t: pic kin g w in ners und er co nd iti o ns of hig h uncerta in ty is extr a o rd in arily d iffic ult: l e t e xp erim ents v alid ate th e b est i n sig hts to p urs u e.

Watc h O ut: I n nova to rs I n nova te , C usto m ers V alid ate Most of yo ur in sig hts in to pro ble m s to be so lv ed w ill co m e fr o m watc hin g a nd i n te ra cti n g w ith c usto m ers a nd o th ers . B ut d on’t f a ll i n to th e tr a p o f a sk in g y o ur c usto m ers to in no vate fo r y o u. In la te r c hap te rs w e em phasiz e th e im porta nce o f a sk in g fo r fe ed back, b ut d on’t e xp ect th em to te ll y o u w hat th e in no vati o n s h o uld b e. C usto m ers h av e a h ard ti m e im agin in g th e fu tu re o r re so lv in g c o ntr a d ic to ry d em and s. F or e xam ple , when c usto m ers to ld K im berly -C la rk th ey d id n’t w ant th eir to ile t- tr a in ed child re n to w ear d ia p ers b ut th ey a ls o d id n’t w ant th em to w et th e b ed , th o se sa m e custo m ers co uld n’t im agin e th e so lu ti o n: dis p osa b le und erw ear w ith th e a b so rb ent fe atu re s o f a d ia p er ( c alle d P ull- U ps, th ey becam e a m ulti m illio n-d olla r c ate go ry ). T o a v oid th is tr a p , a s w e w ill te ach in th e n ext c hap te r, fo cus o n th e c usto m er’s jo b-to -b e-d one, c o m e up w ith a v arie ty o f p ro to ty p ed so lu ti o ns, a nd th en, u sin g to ols o f th e in no vato r’s m eth o d, r e ly o n c usto m ers to v alid ate th e s o lu ti o n.

90 The I n sig h t B usin ess You c anno t e xp ect to s e e a f lo od o f i n sig hts b y d oin g th e s a m e th in gs y o u’v e d one i n th e past. B ut yo u can genera te m any new in sig hts by changin g w hat yo u do.

Questi o nin g, obse rv in g, netw ork in g, and exp erim enti n g will in cre ase th e pro bab ility th at y o u w ill le arn s o m eth in g n ew th at w ill s u rp ris e y o u. S av or th o se su rp ris e s. T hey m ig ht b e th e c ata ly st to s o m eth in g b ig .

Let u s a d d th at y o u c anno t i g nite m ore i n sig hts b y j u st th ro w in g m oney a t p eo ple .

Counte rin tu iti v ely , so m e of th e m ost su ccessfu l in no vato rs w e stu d ie d offe re d alm ost no m oneta ry re w ard s fo r in no vati o n. W hy did peo ple parti c ip ate ? It’ s because m any p eo ple , o nce th ey g et a ta ste o f it, fin d in no vati o n th e m ost fu lfillin g acti v ity in th eir liv es. P eo ple ty p ic ally w ant to b e a ckno w le d ged a nd w ant to b e a part o f ta kin g th eir i n sig hts f o rw ard a nd tu rn in g th em i n to r e al b usin esse s, i n clu d in g ta kin g ti m e o ff to p ush th e id ea fo rw ard ( m any c o m panie s w e o bse rv ed o ffe r th re e to tw elv e m onth s o f s a b bati c al fo r o rig in ato rs o f th e m ost p ro m is in g id eas). Y ou sh o uld n’t fo rg et to re w ard peo ple , and it’ s a go od id ea to pro vid e fin ancia l parti c ip ati o n to r e ta in y o ur b est in no vato rs . B ut u lti m ate ly , g iv in g p eo ple th e ti m e and o pportu nity to p urs u e th eir i d eas m ay b e th e m ost i m porta nt th in g y o u c an o ffe r.

And c hangin g y o ur b ehav io r i n s im ple a nd e asy w ays c an m ake a ll th e d iffe re nce i n help in g tr ig ger i n sig hts th at c an m ake a d iffe re nce.

91 4 Pro ble m : D is c o ver t h e J o b-to -B e-D one No p ro ble m , n o o pportu nity . N o o n e w ill p ay y o u t o s o lv e a n on pro ble m .

—Vin od K hosla , F ounder, S un M ic ro sy ste m s a nd K hosla V entu re s W HEN M IK E M APLE S JR ., an exp erie nced executi v e w ho had w ork ed in te le co m munic ati o ns, d ecid ed to sta rt a new v entu re w ith so m e co lle agues, th e pro ble m w as th at th ey d id n’t k no w w hat ty p e o f v entu re to s ta rt. S o M ap le s a nd h is 92 te am m ad e a n u nusu al a gre em ent: th ey w ould n o t s ta rt b uild in g a nyth in g u nti l th ey fo und a p ro ble m th at w as w orth so lv in g. M ap le s a nd h is fr ie nd s b egan m eeti n g se v era l ti m es a w eek to d is c uss p ro ble m s th ey h ad s e en. T hen, th en d urin g th e w eek th ey m et in d iv id ually w ith p eo ple in th e in d ustr y to te st th eir id eas. A lth o ugh th e gro up genera te d m any in te re sti n g in sig hts , M ap le s and his te am kep t push in g, re callin g th at th ey w ere l o okin g f o r a p ro ble m s o b ig th at “ yo u n eed ed a to urn iq uet, or y o u w ere g o in g to d ie .” 1 Eventu ally , th e te am fo cuse d o n th e p ro ble m o f th e r a p id ly e xp and in g h elp d esk , a $ 70 b illio n p ro ble m b le ed in g th e IT in d ustr y d ry . R ese arc h re v eale d th at as so ftw are s o lu ti o ns h ad b eco m e m ore c o m ple x, th e h elp d esk r e q uir e d in cre asin gly kno w le d geab le sta ff to re so lv e custo m ers ’ te chnic al challe nges. Help desk fu ncti o ns th en c o nsu m ed 8 0 p erc ent o f M ic ro so ft’ s h ead c o unt, a nd g ro w in g. N ot su rp ris in gly , se v era l co m panie s had dev elo ped so lu ti o ns, usu ally kno w le d ge data b ase s o f a nsw ers to f r e q uentl y a sk ed q uesti o ns.

Map le s’s te am m em bers f e lt th at th ey, to o, s h o uld d ev elo p a k no w le d ge d ata b ase —but it w ould n eed to b e a b ette r s o lu ti o n th an c o m peti ti v e p ro ducts . B ut b ecause th ey h ad c o m mitte d to d eep ly u nd ers ta nd in g th e p ro ble m f ir s t, th ey a gre ed to d ev ote se rio us e ffo rt to o bse rv in g th e c halle nges o f th e h elp d esk .

So th e te am w ent i n to th e c all c ente rs a nd o bse rv ed te chnic ia ns, ti m in g c alls w ith sto pw atc hes and re co rd in g th e co nte nt. T hey als o sa t dow n w ith te chnic ia ns, managers , a nd e xecuti v es to d is c uss a nd u nd ers ta nd th e p ro ble m . T hey d is c o vere d so m eth in g sh o ckin g: o nly 2 5 p erc ent o f th e ti m e o n a call w as sp ent actu ally re so lv in g th e p ro ble m . U p to 7 5 p erc ent w as s p ent g ath erin g c usto m er i n fo rm ati o n, co nfir m in g w heth er c usto m ers h ad a s u p port p la n, a nd d ia gno sin g s im ple i te m s s u ch as th e o pera ti n g s y ste m ; k no w le d ge d ata b ase s w ere ta cklin g o nly 2 5 p erc ent o f th e pro ble m . If th e g ro up c o uld a uto m ate th e s im ple r ta sk s, it c o uld s o lv e a p ro ble m co nsu m in g m ore th an h alf th e p ro ducti v ity o f a $ 70 b illio n i n d ustr y . U sin g th is d eep in sig ht in to th e pro ble m , Map le s and his co lle agues la unched Moti v e Com munic ati o ns, a co m pany th at re ached a multi b illio n-d olla r mark et cap ita liz a ti o n b y p ro vid in g a b ette r s o lu ti o n to th e r e al p ro ble m .

2 Map le s’s exp erie nce re in fo rc es th e im porta nce of deep ly und ers ta nd in g th e pro ble m b efo re tr y in g to s o lv e i t. A lth o ugh s u ch a n o bse rv ati o n m ay s e em o bvio us, in fa ct, m ost m anagers a ctu ally sta rt w ith th e so lu ti o n fir s t, b efo re e nsu rin g th at th ey’v e d is c o vere d a p ro ble m w orth so lv in g. A s a re su lt, a lth o ugh th ey d ev elo p hig hly in no vati v e s o lu ti o ns, th e p ro duct o r s e rv ic e fa ils b ecause th ey d ev elo ped a so lu ti o n th at n o o ne w ants to b uy. T here fo re , th e m ost im porta nt th in g y o u c an d o next in th e in no vati o n p ro cess is to s ta rt b y d eep ly u nd ers ta nd in g th e p ro ble m y o u are s o lv in g— th e j o b-to -b e-d one.

93 Deep ly U ndersta n d t h e J ob -to -B e-D on e Cla yto n C hris te nse n a rg ues th at c usto m ers — peo ple a nd c o m panie s— hav e “ jo bs” th at a ris e r e gula rly a nd n eed to g et d one. W hen c usto m ers b eco m e a w are o f a jo b, th ey lo ok a ro und fo r a p ro duct o r s e rv ic e th ey c an h ir e to h elp th em g et th e jo b done. A s w ell- k no w n m ark eti n g p ro fe sso r T heo dore L ev itt o nce o bse rv ed , “ P eo ple don’t w ant to b uy a q uarte r-in ch d rill. T hey w ant a q uarte r-in ch h o le !” 3 For e xam ple , c usto m ers m ay p urc hase a n ir o n a nd ir o nin g b oard to h elp th em re m ove w rin kle s f r o m c lo th es. B ut th ey d on’t r e ally w ant a n i r o n a nd i r o nin g b oard .

They r e ally w ant w rin kle -fr e e c lo th in g. B y u nd ers ta nd in g w hat th e jo b is , y o u c an genera te v ario us in sig hts a b out th e p ro ble m o r s o lu ti o n. In ste ad o f th in kin g a b out ways to im pro ve th e ir o n o r ir o nin g b oard , y o u m ig ht c o nsid er c re ati n g a w rin kle - re le ase s p ra y fo r c lo th es, o r p erh ap s a p ro duct to b e u se d in th e d ry er, m uch a s a fa b ric so fte ner sh eet is use d . O r perh ap s yo u co uld dev elo p a pro duct to be atta ched to a w ash er— or p ut i n a s h o w er— to s te am o ut w rin kle s. W e’v e f o und th at ste p pin g b ack to d eep ly u nd ers ta nd th e jo b-to -b e-d one is a u se fu l te chniq ue, n o t only fo r s p aw nin g id eas b ut a ls o fo r la yin g th e fo und ati o n to n ail th e p ro ble m a nd so lu ti o n.

Furth erm ore , i t i s i m porta nt to r e co gniz e th at e v ery j o b h as a f u ncti o nal, a s o cia l, and a n e m oti o nal d im ensio n— and th e i m porta nce o f th ese e le m ents v arie s f r o m j o b to jo b. F or e xam ple , “ I n eed to fe el lik e I b elo ng to a n e lite , e xclu siv e g ro up ” is a jo b fo r w hic h lu xury b ra nd p ro ducts s u ch a s G ucci a nd V ers a ce a re h ir e d . In th is case , th e fu ncti o nal d im ensio n o f th e jo b is n ’t n early a s im porta nt a s its s o cia l a nd em oti o nal d im ensio ns. In co ntr a st, if yo u w ant to hir e a d eliv ery tr u ck yo u’re pro bab ly fo cusin g o n fu ncti o nal e le m ents , s u ch a s th e s iz e o f th e tr u ck o r e ase o f lo ad in g. B ut ev en w hen a jo b lo oks p ure ly fu ncti o nal, p ay atte nti o n to hid den em oti o nal o r s o cia l d im ensio ns. F or e xam ple , e v en th o ugh a H arle y-D av id so n is hig hly fu ncti o nal, m any p eo ple c ho ose it fo r s o cia l re aso ns; th ey w ant to jo in th e Harle y O w ners G ro up and be part of a clu b th at rid es m oto rc ycle s to geth er.

Und ers ta nd in g th e f u ncti o nal, s o cia l, a nd e m oti o nal d im ensio ns o f a j o b i s th e m ost criti c al e le m ent o f re ally n ailin g th e p ro ble m y o u a re tr y in g to s o lv e a nd s e tti n g yo urs e lf u p fo r a s u ccessfu l in no vati o n. It w ill le ad y o u to s o lu ti o ns th at y o u m ay nev er h av e c o nsid ere d b ut th at w ill b e m uch m ore s u ccessfu l.

Ano th er w ay of th in kin g ab out th e jo b-to -b e-d one is to ask yo urs e lf, W hat outc o m es d o m y c usto m ers w ant? A nth o ny U lw ic k d esc rib es th e e ffo rts o f C ord is , a str u gglin g m ed ic al dev ic e m anufa ctu re r, to gain a fo oth o ld in th e m ark et fo r pro ducts r e la te d to a ngio pla sty ( a h eart p ro ced ure i n w hic h d octo rs th re ad a d ev ic e th ro ugh a n a rte ry to re ach th e h eart, w here th ey in fla te a b allo on to p la ce a s te nt, re d ucin g b lo ckage in a c o m pro m is e d h eart a rte ry ). In th e e ffo rt to im pro ve th eir fo rtu nes, U lw ic k h elp ed th e C ord is te am s h ift th eir f o cus f r o m f e atu re s to o utc o m es.

In te rv ie w ers a p pro ached a s a m ple o f c usto m ers (s u rg eo ns a nd n urs e s) a nd a sk ed 94 th em to ta lk th ro ugh a n a ngio pla sty f r o m b egin nin g to e nd . A s th e c usto m ers ta lk ed , th e C ord is te am a sk ed th em w hat th ey w ould lik e, id eally , w ith o ut fo cusin g o n exis ti n g s o lu ti o ns. T hen th ey tr a nsla te d th o se d esir e s i n to o utc o m es.

For e xam ple , w hen s u rg eo ns s a id th ey w ante d a s m ooth b allo on, in te rv ie w ers ask ed w hy; th e s u rg eo ns w ante d to a v oid a ccid enta lly c utti n g a b lo od v esse l. S o th e te am tr a nsla te d th is d esc rip ti o n in to th e o utc o m e (th e jo b-to -b e-d one). T hey th en co m pare d a ll th e jo bs to b e d one in th e p ro ced ure a nd d ev elo ped a h yp oth esis o f th e b ig gest u nm et n eed ( th e m ost im porta nt o utc o m es h av in g th e le ast s a ti s fa cti o n):

min im iz in g re curre nce of arte ry blo ckage, w hic h w as ra te d 9.5 out of 10 on im porta nce, b ut 3 .2 o n s a ti s fa cti o n. T hey th en re d esig ned th e s te nt to a cco m plis h th at j o b. W ith in o ne y ear, C ord is i n cre ase d i ts m ark et s h are f r o m l e ss th an 1 p erc ent to m ore th an 1 0 p erc ent.

4 In y o ur s e arc h fo r jo bs to b e d one, it is w orth r e m em berin g th at n o t a ll jo bs a re cre ate d e q ual. T he w orld is fu ll o f o pportu niti e s; th e o nly re al q uesti o n is w hic h ones a re w orth s o lv in g. S o h o w d o y o u k no w i f i t’ s w orth s o lv in g? S earc h f o r w hat we c all a monetiz a ble jo b:

a sig nific ant n eed o r p ro ble m fo r a la rg e g ro up o f custo m ers w ho : ( 1 ) h av e m oney a nd ( 2 ) w ill r e ad ily p ay y o u to s o lv e i t. T oo m any in no vato rs hav e chase d v ery in tr ig uin g jo bs b ut fo r v ery fe w custo m ers o r fo r custo m ers w ho d on’t h av e m oney o r a re n’t w illin g to p ay! F or e xam ple , w hile many e le m enta ry s c ho ols h av e a m ulti tu d e o f j o bs to s o lv e, th ey a re o fte n s o b ud get co nstr a in ed th at th ey c anno t p ay to s o lv e th o se jo bs, u nle ss y o u c an fin d a w ay to als o s o lv e th eir b ud get c o nstr a in t a t th e s a m e ti m e.

As y o u th in k a b out d iffe re nt m oneti z a b le jo bs, a ls o c o nsid er th at o ccasio nally th ere c an b e m ulti p le c usto m ers fo r a s in gle jo b. F or a ny p arti c ula r jo b th ere m ay be u p to th re e c usto m ers : th e e co no m ic c usto m er ( th e p ers o n w ho p ays fo r it) , th e te chnic al c usto m er ( th e p ers o n w ho i n sta lls th e s o lu ti o n), a nd th e e nd c usto m er ( th e pers o n w ho u se s th e s o lu ti o n). N atu ra lly y o u w ant to u nd ers ta nd th e j o bs to b e d one fo r each custo m er ty p e to av oid so lv in g one custo m er’s jo b w hile cre ati n g a pro ble m f o r a no th er c usto m er. F or e xam ple , i f y o u s o lv e a h ealth c are p ro ble m f o r a co nsu m er (e nd custo m er) b ut in su re rs o r ad m in is tr a to rs (e co no m ic custo m er) re fu se to p ay, y o u c an’t a ctu ally ta ckle th e jo b. S o r e m em ber th at y o u m ay n eed to fin d c re ati v e w ays to s o lv e th e j o b-to -b e-d one f o r m ulti p le c usto m ers .

Lastl y w e re co m mend th at yo u se arc h fo r a m oneti z a b le jo b to custo m ers ’ pro ble m s th at c an b e d esc rib ed in te rm s o f s h ark b ite s— and n o t m osq uito b ite s.

Many o f u s a re b oth ere d b y m osq uito b ite s, b ut w e r a re ly b uy th e a nti - itc h c re am .

We j u st l iv e w ith i t. B ut i f a s h ark b ite s y o u, th en y o u w ill p ay a n y a m ount o f m oney to s o lv e th at p ain — im med ia te ly . Y our g o al s h o uld b e to lo ok fo r s h ark b ite s th at yo u c an s o lv e— th e k in d s o f p ro ble m s o r n eed s th at k eep y o ur c usto m ers a w ake a t nig ht, c o nsu m e th eir ti m e, e ngage th em d eep ly , o r c ause th em s tr e ss.

When w e are ta lk ab out sh ark b ite s, w e’re re fe rrin g m ore to th e d egre e o f custo m er e m oti o n a nd e ngagem ent th an th e s iz e o f th e m ark et. O f c o urs e , y o u w ant 95 to s o lv e a p ro ble m w ith b ig m ark ets , b ut o fte n th e m ark ets fo r n ew id eas a re v ery sm all a t th e b egin nin g. O ne o f th e b ig gest tr a p s m anagers f a ll i n to i s s h o oti n g d ow n new pro je cts because th ey’re to o sm all to sa ti s fy th e gro w th need s of la rg e co rp ora ti o ns. B ut s e ed s a re s m all b efo re th ey b eco m e tr e es— and th ey ta ke ti m e to matu re . F or th at r e aso n, e v en th o ugh y o u m ay b e e nco ura ged to s ta rt b y s iz in g th e mark et, w e e nco ura ge y o u to p ay m ore a tte nti o n to th e e m oti o n o f y o ur c usto m ers .

Str o ng e m oti o n o fte n le ad s to a ttr a cti v e m ark ets . F or th at r e aso n, d on’t b e fo ole d .

Som e th in gs th at m ay a p pear to b e a m osq uito b ite m ay b e a s e rio us c usto m er n eed worth s o lv in g ( s e e “Is I n sta gra m a S hark B ite o r a M osq uito B ite ?” ).

Is I n sta gra m a M osq uit o B it e o r a S hark B it e ?

To fin d a m oneti z a b le jo b, y o u c an fo cus o n w hat c ause s y o ur c usto m ers str e ss, w hat k eep s th em a w ake a t n ig ht, w here th ey s p end th eir ti m e, o r what th ey h ate to d o: th in gs w e m ig ht la b el p ro ble m s. B ut w hat a b out sim ple p le asu re s? A lth o ugh w e u se th e la nguage o f “ p ro ble m s” in th e chap te r, m any im porta nt jo bs a re a ctu ally n eed s o r p le asu re s s o ught b y custo m ers . W hen y o u e xp lo re c usto m er n eed s, ju st th in k c are fu lly a b out th e d iffe re nce b etw een nic e to h av e a nd need to h av e.

Many o f th e th in gs w e s e e a s s im ple p le asu re s a ctu ally s o lv e a d eep hum an need . P sy cho lo gis t A bra ham M aslo w id enti fie d a hie ra rc hy o f hum an n eed s, a rg uin g th at b eyo nd o ur b asic n eed s fo r fo od a nd s h elte r, we hav e in te nse desir e s fo r belo ngin g, lo ve, fr ie nd sh ip , and fe elin g im porta nt. O nce th o se n eed s a re m et, w e h av e a n eed f o r s e lf- fu lfillm ent, in clu d in g th e n eed to c re ate a nd e xp erie nce n ew th in gs. If y o u c an s o lv e one o f th ese need s, so m eth in g th at lo oks lik e a sim ple p le asu re m ay actu ally b e s o lv in g a b ig u nm et n eed .

Consid er In sta gra m , th e p ho to -s h arin g a p plic ati o n fo r sm art p ho nes.

What p ro ble m is In sta gra m s o lv in g? T hin k o f th is q uesti o n in te rm s o f nic e to h av e a nd n eed to h av e. In sta gra m s o lv es a d eep h um an n eed fo r se lf- e xp re ssio n, s o cia l c o nnecti o n, a nd p ro m in ence. B ut th at’ s n o t a ll: th e kic ker i s th at i t s o lv es th is n eed b ette r th an p rio r s o lu ti o ns. F or e xam ple , in te rn et b lo gs to ok o ff b ecause th ey, to o, s o lv ed a d eep s o cia l n eed fo r se lf- e xp re ssio n a nd p ro m in ence. T he p ro ble m w ith b lo gs is th at w riti n g th em ta kes a g re at d eal o f ti m e. T w itte r s o lv ed th is p ro ble m b y r e d ucin g posts to 1 40 chara cte rs , allo w in g p eo ple to sh are th eir th o ughts and achie v e so cia l pro m in ence m ore quic kly and w ith le ss w ork . N ow co nsid er th e sa yin g, “A p ic tu re is w orth a th o usa nd w ord s.” In so m e ways, I n sta gra m a llo w s u se rs to s h are a th o usa nd w ord s w ith o nly a f e w clic ks a nd , o n to p o f th at, r e ceiv e s o cia l f e ed back.

96 As y o u lo ok fo r jo bs, s o m eti m es p ro vid in g a s im ple p le asu re m ay b e so lv in g a n im porta nt c usto m er p ro ble m , d efin ed b ro ad ly . T o fin d n eed s, yo u c an a ls o e xp lo re w hat c usto m ers lo ve, w ant, a nd fe el c o m pelle d to do. O nly custo m ers can re v eal w hat’ s im porta nt. W hat lo oks sm all in iti a lly can so m eti m es be big . E ven m osq uito bite s can be se rio us pro ble m s, e sp ecia lly i f th ey c arry m ala ria .

97 Thre e T ools t o F in d t h e M on etiz a b le J ob To r e ally d is c o ver th e j o b-to -b e-d one, d on’t c o unt o n tr a d iti o nal m ark eti n g s tu d ie s, analy st re p orts , new s arti c le s, su rv eys, o r ev en fo cus gro up s. T hat m ay so und here ti c al, b ut i n o ur o penin g e xam ple , i f M ap le s h ad r e lie d o n a n a naly st r e p ort o r a new s a rti c le , h e w ould n ev er h av e d is c o vere d th e jo b-to -b e-d one. E ven if h e h ad ru n a su rv ey, h e w ould n’t h av e a sk ed th e rig ht q uesti o ns. C le arly th ese fa m ilia r to ols hav e valu e und er co nd iti o ns of certa in ty , but th ey fa il w hen yo u fa ce uncerta in ty . S o m uch s o th at G ia nfr a nco Z accai, th e d esig ner b ehin d P & G’s b illio n- dolla r S w iffe r p ro duct, s a id , “ In m y 4 0 y ears w ork in g in d esig n a nd in no vati o n, alo ngsid e so m e o f th e m ost b rillia nt m in d s in th e b usin ess, I hav e nev er se en in no vati o n c o m e o ut o f a f o cus g ro up . L et m e p ut i t m ore s tr o ngly : f o cus g ro up s k ill in no vati o n.” 5 T hese to ols fa il b ecause y o u c an’t g et d eep e no ugh to o bse rv e re al custo m er p ro ble m s. F or th is r e aso n w e i n tr o duce a d iffe re nt s e t o f to ols to d is c o ver th e j o b-to -b e-d one.

98 Pain -S to rm in g In chap te r 1 w e d esc rib e h o w I n tu it s ta rte d u sin g “ p ain -s to rm in g” to e nsu re th at th e te am had naile d a custo m er’s big gest pain poin ts befo re ju m pin g to build in g so lu ti o ns. T he p urp ose o f p ain -s to rm in g is to g ain c la rity o n w hat y o u th in k th e pro ble m is s o th at y o u c an te st y o ur h yp oth ese s. W e’v e fo und th at e ffe cti v e p ain - sto rm in g i n v olv es f iv e s te p s.

Ste p 1 : G enera te a p ro ble m h yp oth esis id enti fy in g th e c usto m er a nd th e jo b-to -b e-d one.

Ste p 2 : C re ate a jo urn ey-lin e fo r th e c usto m er a nd id enti fy p ain p oin ts and e m oti o ns.

Ste p 3 : S ele ct th e b ig gest p ain p oin ts , a nd c o nd uct a r o ot- c ause a naly sis .

Ste p 4 : P ic k a r o ot c ause th at y o u th in k i s m ost i m porta nt to c usto m ers .

Ste p 5 : Id enti fy a ssu m pti o ns b ehin d th e ro ot c ause , a nd th en te st th em with c usto m ers .

Let’ s lo ok a t e ach s te p . F ir s t, y o u c re ate a p ro ble m h yp oth esis o f th e c usto m er and th e jo b-to -b e-d one. T his in v olv es id enti fy in g w hat y o u th in k is a n im porta nt pro ble m fo r a sp ecific ty p e o f c usto m er. F or e xam ple , M oti v e C om munic ati o ns’ pro ble m h yp oth esis w as th at it c o uld r e d uce th e ti m e ( a nd c o sts ) o f h elp d esk s to so lv e c usto m ers ’ te chnic al p ro ble m s a t la rg e s o ftw are c o m panie s lik e M ic ro so ft.

To id enti fy a custo m er se gm ent fo r yo ur pro je ct, w rite dow n at le ast th re e id enti fy in g chara cte ris ti c s (fo r exam ple , la rg e so ftw are co m panie s, w ith la rg e num bers o f u nso phis ti c ate d c usto m ers , th at h av e la rg e c usto m er su p port b ud gets , who w ant a re p uta ti o n fo r g o od se rv ic e). T hese a re d esc rip to rs o f th e ty p es o f custo m ers w ith th e sa m e jo b-to -b e-d one (s e e “D ev elo p a C usto m er P ro file to Segm ent C usto m ers ” ). It m ay b e h elp fu l to fill in th e fo llo w in g te m pla te fr o m th e pers p ecti v e o f th e c usto m er.

I a m _ ____________ ( c usto m er, w ith a t l e ast th re e c hara cte ris ti c s) I a m tr y in g to _ ____________ ( o utc o m e/jo b tr y in g to s o lv e) But _ ____________ ( p ro ble m I a m f a cin g) Because _ ____________ ( th e d eep er r o ot c ause fo r w hy th e p ro ble m is hap penin g) Develo p a C usto m er P ro file t o S eg m en t C usto m ers To effe cti v ely nail th e pro ble m , it help s to build a pro file fo r each 99 custo m er w ith a d iffe re nt jo b-to -b e-d one. G ro up in g c usto m ers b ase d o n sh are d n eed s o r p ro ble m s is a fa m ilia r m ark eti n g to ol c alle d cu sto m er se g m en ta tio n . B ut in c o ntr a st to m ore fa m ilia r c usto m er se gm enta ti o n, th e p urp ose o f c usto m er p ro file s i s to b uild a d eep ly e m path eti c , i n ti m ate portr a it o f c usto m ers a nd th e j o bs th ey s tr u ggle to a cco m plis h .

To build custo m er pro file s, yo u m ig ht sta rt by fir s t se gm enti n g custo m ers b y th e jo b-to -b e-d one, ra th er th an m ore fa m ilia r m etr ic s lik e age o r i n co m e. T he j o b i s th e c riti c al u nit o f a naly sis , a nd y o ur c usto m er pro file s h o uld a im to d esc rib e y o ur in iti a l h yp oth esis a b out th e e m oti o ns aro und th e jo b and ho w custo m ers curre ntl y so lv e it. T hen te st yo ur hyp oth esis b y o bse rv in g c usto m ers to u nd ers ta nd th eir m oti v ati o ns ( lik es, dis lik es, a sp ir a ti o ns), b ehav io rs (h o w th ey sp end th eir ti m e; h o w th ey purc hase new p ro ducts o r se rv ic es), d em ogra p hic s (in co m e, in d ustr y , age, ed ucati o n, and av aila b le b ud get) , and , m ost im porta nt, ho w th ey curre ntl y th in k a b out a nd s o lv e th e j o b-to -b e-d one.

Afte r th ese o bse rv ati o ns, y o u w ill se e th e w orld in a n ew w ay a nd will need to re cre ate a new se t o f custo m er p ro file s b ase d o n yo ur obse rv ati o ns. E ach c usto m er p ro file s h o uld b e d iv id ed b y th e jo b-to -b e- done, a nd d esc rib e a ll th e e le m ents a b ove (e m oti o ns, c urre nt s o lu ti o ns, etc .) fo r th at p arti c ula r jo b. T his p ro file w ill p ro vid e y o u th e m ap o f what p ro ble m to s o lv e a nd h o w to s o lv e i t. B ut i t w ill a ls o p ro vid e y o ur te am fo cus a nd m oti v ati o n, h elp in g y o u a v oid th e tr a p o f tr y in g to s o lv e ev ery j o b, a nd i n d oin g s o , s o lv in g n o body’s . T o i llu str a te th is d anger, i n one h um oro us e xam ple , th e te le v is io n s h o w The S im pso ns fe atu re d th e main c hara cte r, H om er S im pso n, a sk in g c usto m ers w hat th ey m ost w ante d in a c ar. H om er th en b uild s a c ar th at in clu d es e v ery fe atu re fo r e v ery custo m er d esir e , s u ch a s “ p ow er lik e a g o rilla , y et s o ft a nd y ie ld in g lik e a N erf b all.” N ot su rp ris in gly th e c ar fa ils in th e m ark et, b ecause , in tr y in g to so lv e ev ery custo m er’s p ro ble m , th e car actu ally so lv es no one’s p ro ble m s. T he h um or h elp s u s s e e th e a b su rd ity o f tr y in g to s e rv e ev ery c usto m er n eed , b ut it is in sp ir e d b y re al e v ents . T he fa ile d F ord Edse l a nd P onti a c S ti n ger w ere d esig ned to se rv e to o m any c usto m er need s ( s e e fig ure 4 -1 ).

FIG URE 4 -1 The F ord E dse l a nd P ontia c S tin ger 100 Sourc e:

Tim e.c om a nd C ars ty lin g.r u .

Ste p 2 is to c re ate a c usto m er jo urn ey-lin e: a n in -d ep th v is u al p ortr a it in w hic h yo u id enti fy p ain p oin ts to u nd ers ta nd h o w y o ur c usto m ers d o th e jo b to day a nd ho w th ey fe el w hile d oin g it. V is u ally m ap o ut th e s te p s c usto m ers ta ke to a chie v e an o utc o m e. It h elp s to a ssig n a c usto m er e m oti o n to e ach s te p to id enti fy h o w th e custo m er is fe elin g. F or e xam ple , M oti v e C om munic ati o ns fir s t h ad to u nd ers ta nd th e jo urn ey ta ken b y d esk w ork ers , in clu d in g th e te d io us p ro cess o f id enti fy in g a custo m er’s so ftw are vers io n. Y ou m ay cho ose to dev elo p a m ore sim plifie d “sto ry b oard ” afte r co m ple ti n g yo ur jo urn ey-lin e to sh are at a la te r ti m e w ith custo m ers f o r th eir f e ed back.

The th ir d s te p i s to s e le ct th e b ig gest p ain p oin t a nd d o a r o ot- c ause a naly sis ( s e e fig ure 4 -2 ). It’ s h elp fu l to a p ply a “ fiv e w hys” q uesti o nin g p ro cess ( d ev elo ped b y Taiic hi O hno , fa th er o f th e T oyo ta p ro ducti o n s y ste m ). In m ost c ase s, w e’v e fo und th at ask in g “W hy d oes th is hap pen?” th re e ti m es (g o in g d ow n th re e le v els ) is su ffic ie nt. A s th e M oti v e C om munic ati o ns te am o bse rv ed p eo ple w ork in g a t th e help d esk , th ey m easu re d th e ti m e ta ken b y e ach s te p . T hey th en b ro ke o ut e ach s te p as a c o ntr ib uto r to th e o vera ll ti m e, a nd c o st, r e q uir e d to s e rv e a c usto m er, a sk in g, Why d oes th is h ap pen? T hey th us fo und o ut w hy th e te chnic ia ns h ad to g ath er th e custo m er i n fo rm ati o n, w hy th ey h ad to v erify a s u p port p la n, w hy th ey h ad to s e arc h certa in k no w le d ge d ata b ase s, a nd so o n. Y ou c an b ra in sto rm th is in fo rm ati o n a s hyp oth ese s to b e te ste d la te r, b ut ulti m ate ly yo u w ill need to gath er it th ro ugh obse rv ati o n ( a s w e d esc rib e i n th e n ext s e cti o n).

FIG URE 4 -2 Root-c a use a naly sis 101 The fo urth s te p is to p ic k a ro ot c ause to e xp lo re in g re ate r d ep th b ecause y o u th in k i t’ s a c riti c al r e aso n f o r th e c usto m er’s p ro ble m . A s y o u d ev elo p a r o ot- c ause tr e e ( th e m ap o f r o ot c ause s u nco vere d b y a sk in g “ W hy” m ulti p le ti m es) f o r v ario us pro ble m s, y o u m ay s e e th at a p arti c ula r ro ot c ause s h o w s u p in m ulti p le p la ces.

This in d ic ate s a n im porta nt r o ot c ause to e xp lo re . If y o u in clu d e c usto m ers in y o ur pain -s to rm in g s e ssio n, th ey c an a ls o h elp y o u id enti fy w hic h r o ot c ause s a re m ost im porta nt— and w hy.

Ste p 5 is to c re ate a lis t o f q uesti o ns a b out (o r a ssu m pti o ns b ehin d ) th e ro ot cause — questi o ns y o u n eed to a nsw er th ro ugh c usto m er e xp erim ents . Y ou c an u se th e questi o n-s to rm in g te chniq ue to dev elo p th e key questi o ns, alo ng w ith th e custo m er a cti v iti e s o r e xp erim ents th at w ill a nsw er th e q uesti o ns a nd v alid ate y o ur assu m pti o ns.

6 Moti v e Com munic ati o ns use d help desk obse rv ati o ns and sto pw atc hes to a nsw er th eir k ey q uesti o ns.

In tu it e xcels a t p ain -s to rm in g, a nd w e’v e s e en o th er c o m panie s u se v aria ti o ns o n th e p ro cess w e’v e j u st o utl in ed . F or e xam ple , M ond ele z I n te rn ati o nal ( K ra ft) h as a site d ed ic ate d to th is p ro cess, c alle d th e F ly G ara ge, w here p arti c ip ants g enera te in sig hts in to pro ble m s and th en te st th ese in sig hts w ith custo m ers . To fin d a pro ble m w orth s o lv in g, y o u m ust i n v olv e c usto m ers .

102 Eth nogra phy to E xplo re A ssu m ptio ns Sitti n g in a n a ir -c o nd iti o ned c o nfe re nce ro om o verlo okin g th e sp ra w lin g c ity o f Bogo tá , th e e xecuti v es a t B anco D av iv ie nd a b ecam e c o nv in ced th ey’d d is c o vere d a big p ro ble m w orth s o lv in g. A lth o ugh B anco D av iv ie nd a d om in ate d th e C olo m bia n bankin g m ark et, alm ost half th e popula ti o n had no bank acco unt. E xecuti v es re aliz e d th at if th ere w as a w ay to ta p in to th is m ark et o f n o nuse rs , th ey c o uld dra m ati c ally g ro w th eir m ark et s h are a nd h elp th e C olo m bia n p eo ple a t th e b otto m of th e i n co m e p yra m id .

They f o rm ed a c ro ss-d is c ip lin ary te am to d ev elo p a n o ffe rin g th at w ould a p peal to n o nuse rs — a str e am lin ed , e asy -to -u se v ers io n o f e xis ti n g b ank a cco unts . A fte r se v era l m onth s o f h ard w ork th e b ank l a unched th e n ew p ro duct, a nd th e o pti m is ti c te am c ele b ra te d . D esp ite a ggre ssiv e p ro m oti o n, h o w ev er, fe w c usto m ers a d opte d th e n ew a cco unts . E ven a fte r s e v era l m onth s, th e te am s a w littl e g ro w th , a nd b y year-e nd th ey c o nclu d ed th at th e p ro je ct h ad f a ile d .

As te am m em bers a naly ze d th e in iti a l fa ilu re , th ey c am e to r e aliz e th at a lth o ugh th ey h ad c o m mis sio ned a m ark et s tu d y a nd ta lk ed to a fe w c usto m ers , th ey h ad n’t und ers to od th e jo bs to b e d one fo r th e “unb anked .” R ath er, th ey had le t th eir kno w le d ge o f e xis ti n g c usto m ers a nd so lu ti o ns d is to rt th eir u nd ers ta nd in g o f th e pro ble m . S o th e te am d ecid ed to tr y a d iffe re nt a p pro ach: to g o th em se lv es in to poor n eig hb orh o ods to in te ra ct w ith , a nd c re ate p ro file s o f, th e ta rg et c usto m ers .

They s p ent w eeks l iv in g i n v ario us n eig hb orh o ods a s th ey o bse rv ed p eo ple ’s d aily acti v iti e s. S aid o ne te am m em ber, “ W e d ecid ed to g o o ut a nd tr y to u nd ers ta nd w hat peo ple w ante d , no t by ask in g dir e ctl y ‘w hat do yo u w ant,’ but by tr y in g to und ers ta nd h o w p eo ple b ehav e i n r e al l ife w ith o ut a ny k in d o f p re ju d ic e.” 7 The te am d ev elo ped c usto m er p ro file s ( a s d esc rib ed in th e s id eb ar) o f d iffe re nt ta rg et c usto m ers a nd th e jo b-to -b e-d one, a lo ng w ith th eir m oti v ati o ns, b ehav io rs , and o th er c hara cte ris ti c s. F or e xam ple , th e te am d ev elo ped th e fo llo w in g p ro file fo r “ M arth a.” Marth a is one of th e 3 m illio n lo w -in co m e su b sid y benefic ia rie s in Colo m bia . S he w akes u p a t 2 a .m . to g et re ad y to m ake th e lin e a t th e bank a t 3 a .m . i n o rd er to c ash o ut h er s u b sid y. S he w aits i n l in e f r o m f iv e to s ix h o urs to f in ally g et h er tu rn , a nd c ash th e m oney. T hen, s h e u se s th e cash to se nd a d om esti c re m itta nce, p ayin g a 1 0 p erc ent fe e fo r th e se rv ic e. I n o rd er to p ay h er u ti lity b ills , s h e w ill th en m ove to a “ d is tr ic t co lle cti o ns c ente r” w here s h e w ill w ait in lin e fo r a no th er tw o h o urs to get th e p aym ent d one. T he r e m ain in g c ash w ill s ta y “ und er th e m attr e ss” because s h e h asn ’t h ad th e o pportu nity to o pen a s a v in gs a cco unt d ue to th e d is ta nce s h e l iv es f r o m th e b ank a nd th e h ig h c o sts i t w ill r e p re se nt to her.

8 103 By build in g th ese custo m er pro file s, th e te am at B anco D av iv ie nd a quic kly id enti fie d th e ro ot c ause o f th e fa ilu re o f th e m in i b ank a cco unt: it d id n’t d ir e ctl y so lv e a ny o f M arth a’s b ig gest p ro ble m s. I n f a ct, M arth a’s m ain j o b-to -b e-d one w as sim ply re ceiv in g money and makin g paym ents . Now th at th e te am deep ly und ers to od M arth a’s p ro ble m s, th ey w ere ab le to im agin e a ra d ic ally d iffe re nt so lu ti o n: a m obile w alle t th at w ould a llo w M arth a to m ake a nd r e ceiv e p aym ents fr o m m erc hants d ir e ctl y u sin g a n a cco unt s e rv ed b y a m obile p ho ne. T his a cco unt, unb urd ened w ith u nneed ed fe atu re s lik e a n A TM c ard , w ould a llo w M arth a to d o ev ery th in g b y p ho ne (in clu d in g c re ate th e a cco unt) w ith o ut e v er h av in g to v is it a bra nch. E ventu ally th e “ M arth a” s o lu ti o n th at th e te am d ev elo ped w as a d opte d b y hund re d s o f th o usa nd s o f u se rs . T he p ro duct w as th en la unched in se v era l o th er co untr ie s ta rg ete d to c usto m ers l ik e M arth a.

The B anco D av iv ie nd a te am le v era ged th e num ber 1 to ol fo r te sti n g and valid ati n g th e ro ot c ause s o f c usto m ers ’ p ro ble m s: e th no gra p hy. T his te chniq ue, whic h w e m ig ht m ore d esc rip ti v ely c all “ fly o n th e w all” b ecause th at’ s h o w y o u do it, r e q uir e s th at y o u g et d eep in to th e liv es o f y o ur c usto m ers b y w atc hin g th em in th eir n atu ra l h ab ita t. Y ou a re n’t tr y in g to s e ll y o ur s o lu ti o n o r p ush y o ur a gend a.

In ste ad , yo u’re tr y in g to deep ly und ers ta nd th eir acti v iti e s, lik es, dis lik es, asp ir a ti o ns, c halle nges, a nd s o o n ( s e e “W hat to L ook F or a s a F ly -o n-th e-W all” ).

Then, u sin g th is d ata , y o u b uild s y nth esiz e d p ro file s o f a p ro to ty p ic al c usto m er— in clu d in g h is o r h er jo b-to -b e-d one a nd w ays sh e o r h e c urre ntl y so lv es it. Y ou dev elo p p ro file s fo r e ach c usto m er se gm ent a nd th en u se th em to c ry sta lliz e th e big gest p ro ble m y o u c an s o lv e f o r e ach p ro file .

You c an ta ke f ly -o n-th e-w all f u rth er b y a ctu ally d oin g th e j o b y o ur c usto m ers a re tr y in g to d o, ra th er th an ju st w atc hin g, th ro ugh w hat w e c all ro le p la y re se a rc h .

This re q uir e s, as In tu it C EO B ra d S m ith su ggests , th at yo u “b e th e custo m er.” In ste ad o f w atc hin g, tr y to d o th e jo bs w ith th e c urre nt s o lu ti o ns w heth er th at b e rid in g in deliv ery tr u cks or bala ncin g fin ances usin g so ftw are . W e str o ngly re co m mend th is p ow erfu l f o rm o f c usto m er r e se arc h, b ecause y o u o fte n g et th e m ost accura te a nd s u rp ris in g i n sig hts f r o m l iv in g th e l iv es o f y o ur c usto m ers .

What t o L ook F or a s a F ly o n t h e W all What a re y o u lo okin g fo r w hen y o u a re tr y in g to fin d m oneti z a b le jo bs?

Sta rt by lo okin g fo r obsta cle s th at get in th e w ay of th e jo bs yo ur custo m ers a re tr y in g to d o. L ook f o r a re as w here c usto m ers a re s p end in g lo ts o f ti m e (ti m e s in ks) e v en if th ey d on’t re aliz e it, w ork aro und s th ey may hav e dev elo ped to so lv e a pro ble m , or th in gs th at ig nite th eir em oti o ns. Cussin g, cry in g, w aste d ho urs , ab and oned acti v iti e s, or fig ura ti v e “ d uct ta p e” w here c usto m ers ju st m ake it w ork a re g re at s ig ns th at c usto m ers a re s tr u gglin g to d o th e jo b. Y ou m ig ht a ls o lo ok b eyo nd 104 th e o bsta cle s to th e e nab le rs th at fa cilita te so m eth in g c usto m ers w ant.

Look f o r h o w p eo ple s p end th eir ti m e e xp re ssin g th em se lv es, c o nnecti n g to o th ers , o r c re a ti n g s h o rtc uts . P eo ple i n v est ti m e to s o lv e n eed s a nd y o u may fin d a b ette r w ay to m eet th at n eed . L astl y , d on’t fo rg et to c lo se ly exam in e no nuse rs as w ell as extr e m e use rs . A lth o ugh it can se em co unte r-in tu iti v e th ese u se rs c an h elp y o u u nd ers ta nd th e p ro ble m m ore cle arly th an m ain str e am u se rs . M ost o f a ll, l o ok f o r s u rp ris e s. I t’ s e asy to overlo ok th em , b ecause o ur m in d s tr y to c o nfo rm w hat w e s e e to fit o ur pre exis ti n g b elie fs . B ut s u rp ris e s p ro vid e th e c lu es a nd b re ad c ru m bs to th e r e al j o b-to -b e-d one.

105 “A dvic e” I n te rv ie w s A fa st te chniq ue fo r d ev elo pin g y o ur in iti a l p ro ble m h yp oth esis is to in te rv ie w custo m ers usin g w hat w e call th e “ad vic e” in te rv ie w . Sta rt by id enti fy in g a pote nti a l s a m ple o f c usto m ers th at y o u th in k h av e a s im ila r j o b to d o. W hen y o u a sk fo r in te rv ie w s (v ia e -m ail o r c o ld c all) , a lw ays a sk fo r a d vic e a b out a s p ecific custo m er p ro ble m .

Advic e i s th e m agic w ord . I n f a ct, y o u m ay w ant to m enti o n th at yo u a re n’t s e llin g a nyth in g, ju st to p ut p ote nti a l c usto m ers a t e ase . T hen le t th em kno w y o u w ant to g et th eir f e ed back o n a p ro ble m y o u’re tr y in g to s o lv e. Y our g o al is to l is te n a nd l e arn .

Once y o u h av e i n te rv ie w s a rra nged , w e s u ggest y o u a sk th re e q uesti o ns a nd th en lis te n, l is te n, l is te n. T hese q uesti o ns a re a s f o llo w s.

1 .

Quic kly a nd c le a rly d esc rib e th e p ro ble m y o u s e e.

D esc rib in g th e p ro ble m will m ake c usto m ers c o nfid ent th at y o u k no w s o m eth in g a nd w il l s e rv e a s a n ancho rin g p oin t to th e c o nv ers a ti o n. D on’t g o to p ote nti a l c usto m ers w ith a bla nk s h eet a nd e xp ect s o m eth in g to h ap pen.

2 .

Ask , “ D o y o u fa ce th is s a m e c h alle n ge, to o, o r a d iffe re n t c h alle n ge? T ell me a bout it.” T his g iv es y o u a c hance to fin d o ut w heth er c usto m ers re ally hav e th e pro ble m yo u hyp oth esiz e d . If th ey don’t, yo u can exp lo re w hat challe nges th ey r e ally f a ce.

3 .

Ask , “ W ould so m eth in g lik e th is so lv e th at p ro ble m ?” a nd th en d esc rib e yo ur th eo re tic a l pro to ty p e (s e e ch apte r 5 ).

A t th is sta ge yo u sh o uld n’t beco m e to o s o lu ti o n-fo cuse d , b ut d is c ussin g a p ote nti a l s o lu ti o n w ill h elp y o u get b ette r fe ed back o n th e p ro ble m . C usto m ers re act to th e c o ncre te , n o t th e ab str a ct. So yo u m ig ht th in k ab out brin gin g a dra w in g, sto ry b oard , or Pow erP oin t s lid e to h elp th em v is u aliz e a s o lu ti o n. T his w ill h elp th em ta lk ab out w hy th e s o lu ti o n m ig ht, o r m ig ht n o t, w ork to s o lv e th eir p ro ble m .

Afte r f iv e to te n i n te rv ie w s, p atte rn s a nd tr e nd s w ill b egin to e m erg e, w hic h w ill allo w y o u to te st y o ur h yp oth esis a nd c hange a cco rd in gly .

106 Have Y ou N aile d t h e P ro b le m ? T w o T ests When Zip D x dem onstr a te d its new te le co nfe re ncin g so lu ti o n, obse rv ers w ere su rp ris e d b y th e c ry sta l- c le ar a ud io c o m in g fr o m th e c o nfe re nce-c all s p eaker. T he new s o lu ti o n, w hic h Z ip D x d esc rib ed a s “ b ro ad band a ud io ,” w ork ed s e am le ssly with a v aila b le P oly co m p ho nes a nd re q uir e d littl e se tu p to a chie v e sim ila r c all quality . D esp ite th e p ositi v e r e acti o ns, h o w ev er, Z ip D x c o uld n’t s e em to c lo se a ny deals . P ote nti a l c usto m ers s e em ed i n te re ste d b ut n o t e no ugh to p la ce a n o rd er.

Lik e m ost i n no vato rs , th e Z ip D x te am f e lt c o nfid ent th at i t h ad f o und a p ain p oin t:

th e p oor a ud io o f c o nfe re nce c alls . B ut h ad it r e ally n aile d th e c usto m er p ro ble m ?

When our te am w as calle d in to help clo se sa le s, w e ask ed th e Z ip D x te am mem bers w hat custo m er pro ble m s th ey fe lt th ey w ere so lv in g. M ost answ ers in v olv ed vague re sp onse s ab out th e poor aud io quality of co nfe re nce calls pro je cte d in a ty p ic al c o nfe re nce ro om . B ut w hen p ush ed , th e te am a d m itte d th at pro ble m id enti fic ati o n h ad c o m e m ore fr o m th e Z ip D x te am th an fr o m c usto m ers .

This le d u s to b elie v e th at th ey h ad b uilt a so lu ti o n b efo re c re ati n g a c usto m er pro file a nd i d enti fy in g th e j o b-to -b e-d one.

Because Z ip D x h ad a lr e ad y d ev elo ped a s o lu ti o n, it fa ced m ore c o nstr a in ts th an if it h ad in v esti g ate d c usto m er p ro ble m s fir s t. S o o ur te am w ork ed w ith Z ip D x to use i ts e xis ti n g c usto m er k no w le d ge to p ain -s to rm a f e w h yp oth ese s a b out th e ty p es of c usto m ers w ho m ig ht h av e a p ro ble m r e la te d to th e Z ip D x s o lu ti o n. T hey c am e up w ith th re e c usto m er p ro file g ro up s: (1 ) P oly co m p ho ne re se lle rs (th e o rig in al hyp oth esiz e d c usto m er), ( 2 ) v oic e o ver i n te rn et p ro to co l ( V O IP ) s e rv ic e p ro vid ers , and (3 ) co m panie s atte m pti n g to cap tu re brid gin g re v enues. The te am th en id enti fie d n in ete en c usto m ers b y n am e ( ro ughly s ix i n e ach p ro file g ro up ) a nd c o ld - calle d th em , l e av in g a v oic e m ail a b out th e p ro ble m Z ip D x b elie v ed i t w as s o lv in g.

Som eti m es th ey le ft a s e co nd m essa ge. T hen th ey w aite d to s e e w ho c alle d b ack.

Only fiv e c usto m ers c alle d b ack. B ut th ey h ad r e tu rn ed th e c o ld c all o f a n o -n am e co m pany w ith a n u nkno w n p ro duct. W ho w ere th ese p eo ple , a nd w hy d id th ey c all back?

As i t tu rn ed o ut, f o ur o f th e f iv e V O IP s e rv ic e p ro vid ers th ey c o nta cte d r e tu rn ed th e c all. W hen th e Z ip D x te am m em bers d esc rib ed th e p ro ble m a nd th e s o lu ti o n (u sin g th e a d vic e-s e ekin g in te rv ie w ) a nd th en lis te ned , th e re su lts stu nned th em .

VO IP s e rv ic e p ro vid ers a ctu ally d id n’t c are v ery m uch a b out a ud io q uality — what Zip D x th o ught w as th e key fe atu re . In ste ad , th ey str u ggle d to diffe re nti a te th em se lv es w ith r e lia b le , e asy -to -u se c o nfe re nce-c all s o ftw are f e atu re s. A s i t tu rn s out, th e Zip D x so ftw are th at acco m panie d th e “b ro ad band aud io ” had oth er attr a cti v e fe atu re s th at allo w ed use rs to sc hed ule , jo in , and m anage co nfe re nce calls fa r b ette r th an m ost s o lu ti o ns o n th e m ark et. T hese fe atu re s s o lv ed th e V O IP pro vid ers ’ m ost i m porta nt j o b-to -b e-d one.

Usin g th is d eep er u nd ers ta nd in g o f th e sp ecific p ro ble m s o f a sp ecific ta rg et 107 custo m er, th e te am q uic kly re fin ed its so lu ti o n and th e m essa gin g to th at ta rg et custo m er. T he C EO th en ta rg ete d k ey l a rg e c usto m ers w ith th at p ro file . W ith in th re e days h e c lo se d th e l a rg est d eal i n c o m pany h is to ry . Z ip D x w as o n i ts w ay to n ailin g a c usto m er p ro ble m .

9 How do yo u kno w w hen yo u hav e naile d a pro ble m w orth so lv in g? W e re co m mend tw o te sts : th e co ld -c all te st and th e sm oke te st. In both te sts , th e measu re o f w heth er y o u h av e f o und a j o b-to -b e-d one i s i f c usto m ers g iv e y o u th eir ti m e.

108 The C old -C all T est One o f th e b est te sts o f w heth er y o u’v e d is c o vere d a m oneti z a b le jo b is w heth er pote nti a l c usto m ers r e ceiv in g a c o ld c all ( o r e -m ail) w ill g iv e y o u th eir ti m e. Y ou sta rt b y id enti fy in g y o ur h yp oth esiz e d c usto m er s e gm ents a nd th eir jo b-to -b e-d one.

Then y o u re ach o ut to e ach c usto m er g ro up v ia p ho ne o r e -m ail (it’ s O K a t th is sta ge to u se y o ur c o nta cts ), b rie fly d esc rib e th e p ro ble m , a nd a sk fo r th eir a d vic e on y o ur th eo re ti c al p ro to ty p e.

Then o bse rv e w ho c alls b ack, w hy th ey c all b ack, a nd w hat th ey s a y. I n iti a l c all- back r a te s te nd to b e lo w ( le ss th an 1 0 p erc ent) , b ut w e’v e s e en s o m e c o m panie s achie v e c all- b ack ra te s a s h ig h a s 5 0 p erc ent w hen th ey’v e h it o n a m oneti z a b le jo b. Y our fin al g o al is to a chie v e a sig nific ant le ap in th e c all- b ack ra te . W hen peo ple do no t re tu rn yo ur call or e-m ail, it m ay be th at yo u hav en’t cle arly desc rib ed th e p ro ble m o r h av en’t d esc rib ed a p ro ble m th ey c are a b out. It’ s a ls o possib le y o u c o nta cte d th e w ro ng c usto m er p ro file o r ta rg et g ro up , o r y o u c o nta cte d th em a t a n i n o pportu ne ti m e.

As y o u w ork y o ur w ay to w ard a 5 0 p erc ent c all- b ack ra te , y o u n eed to a sk yo urs e lf, W ho re tu rn ed th e c all (v ers u s th o se w ho d id n o t) , a nd w hy? (If y o u’re doin g b usin ess-to -c o nsu m er e -m ails , y o u’ll a chie v e l o w er r a te s, s o c o m pare to th e benchm ark re sp onse ra te s fo r th at c hannel.) F or Z ip D x m ost o f th e h yp oth esiz e d custo m er g ro up s d id n o t c all b ack. F or th ese g ro up s, th e c o m pany n eed s to w ork th ro ugh fr ie nd s to get co nta cts w ith th ese custo m ers and se e w here th ey w ent wro ng. H ow ev er, fo r o ne custo m er gro up , th e V O IP se lle rs , nearly 7 5 p erc ent calle d b ack— an e xtr a o rd in arily h ig h ra te . T he in fo rm ati o n fr o m th ese c usto m ers help ed th e c o m pany u nd ers ta nd th e r e al p ro ble m i t w as s o lv in g.

Natu ra lly y o u m ay h av e to a d ju st th e th re sh o ld d ep end in g o n y o ur c o nte xt. F or exam ple , B 2C e -m ail re tu rn ra te s te nd to b e m uch lo w er (w e a ll g et a lo t o f e - mail) . B ut ask yo urs e lf w heth er yo u’re cle arly and co ncis e ly desc rib in g th e pro ble m . W hat are th e chara cte ris ti c s of th e peo ple w ho are re sp ond in g?

Rem em ber, th e re al te st th at yo u are dis c o verin g a pro ble m w orth so lv in g is wheth er p eo ple a re g iv in g y o u th eir ti m e. T he p erc enta ge o f p eo ple g iv in g y o u ti m e sh o uld i n cre ase w hen y o u h av e d is c o vere d a m oneti z a b le j o b.

109 The S m oke T est Sm oke te sts w ere f ir s t u se d i n th e 1 800s b y p lu m bers , w ho p ush ed s m oke th ro ugh a sy ste m to d is c o ver le aks. T he id ea o f a s m oke te st p ro ved s o u se fu l th at th e id ea sp re ad to e ngin eerin g, in str u m ents , a nd in fo rm ati o n te chno lo gy, a m ong o th ers , a s a way to te st fo r c riti c al fla w s. W e’v e b orro w ed th e c o ncep t a s a w ay to te st fo r wheth er yo u’v e dis c o vere d a pro ble m w orth so lv in g. R ath er th an use sm oke bom bs, w e u se a b it m ore s m oke a nd m ir ro rs to te st w heth er c usto m ers c are .

To p erfo rm a s m oke te st, c re ate a w eb site , a d verti s e m ent, p ho ne n um ber, o r o th er channel th at d esc rib es th e p ro ble m , th eo re ti c al s o lu ti o n, a nd p ro vid es a n o pti o n to “le arn m ore ,” “ b uy n o w ,” “ re se rv e n o w ,” o r s o m e o th er c all to a cti o n. F in d a w ay to g et y o ur s m oke te st in fr o nt o f c usto m ers , p erh ap s b y u sin g G oogle A dW ord s, a prin t a d verti s e m ent, a p oste r a t a tr a d e s h o w , o r a no th er v enue w here y o u s u sp ect custo m ers w ill s e e th e c all to a cti o n.

When c usto m ers a cti v ate ( c lic k, c all, e tc .) th e c all to a cti o n, th ey d on’t a ctu ally get to b uy a p ro duct, b ut th ey e ffe cti v ely i d enti fy th em se lv es a s h av in g a n i n te re st i n th e p ro ble m y o u a re i n v esti g ati n g. Y ou c an th en f o llo w -u p to l e arn m ore a b out th em and w hy th ey to ok th e acti o n. T he te st its e lf lo oks at th e re sp onse ra te (th e co nv ers io n r a te o n th e c all to a cti o n), w ith a nyth in g h ig her th an 5 p erc ent s u ggesti n g th at y o u’v e id enti fie d a re al p ro ble m w orth so lv in g (a lth o ugh y o ur e arly e ffo rts won’t a chie v e n early th is ra te ). B ut p eo ple ’s w illin gness to s p end ti m e w ith y o u and th eir g enera l e xcite m ent a b out a p ote nti a l s o lu ti o n w ill b e th e k ey i n d ic ato rs .

You c an e asily u se th e s m oke te st fo r s o ftw are o r o nlin e p ro ducts , b ut y o u c an als o u se i t f o r o th er s e rv ic es a nd p ro ducts . F or e xam ple , o ne o f o ur s tu d ents w ante d to sta rt a fo od tr u ck, th e la te st ra ge in m obile c uis in e. A fte r le arn in g a b out th e re gula ti o ns, in clu d in g need in g an in sp ecte d co m mis sa ry , he w ond ere d w heth er th ere m ig ht b e a b usin ess o pportu nity to h elp w ould -b e e ntr e p re neurs ju m p th is le gal hurd le . R ath er th an w rite a busin ess pla n or re nt a co m mis sa ry , w e enco ura ged h im to c o nd uct a s m oke te st. S o h e p la ced a n a d i n th e l o cal n ew sp ap er:

“W ant to s ta rt a fo od tr u ck? W e c an h elp . E -m ail o r c all . . .” T hat w as it. W ith in one d ay o ur s tu d ent r e ceiv ed th re e c alls , a nd b y th e e nd o f th e w eek h ad r e ceiv ed more th an a d oze n e -m ails . P erh ap s m ore s u rp ris in g, in c o nv ers a ti o ns w ith th ese custo m ers , h e le arn ed th at p eo ple w anti n g to s ta rt fo od tr u cks d id n’t n eed h is h elp fin d in g a c o m mis sa ry o r j u m pin g th ro ugh th e l e gal h urd le s. I n ste ad , h e f o und th at th e criti c al o bsta cle w as a ffo rd ab le , le ase -b ase d a ccess to th e tr u ck its e lf. H is s m oke te st w as k ey to d is c o verin g th e p ro ble m a nd th e o pportu nity .

11 0 Develo p a V is io n o f t h e C usto m er P ro b le m Y ou W ill S olv e Lastl y , w riti n g a c le ar s ta te m ent o f y o ur vis io n o f th e c usto m er p ro ble m c an s e rv e as a g uid e a nd a n a ncho r a s y o u b egin to s e arc h fo r th e r ig ht s o lu ti o n. It c an a ls o help u nify y o ur te am a nd y o ur o rg aniz a ti o n a ro und th e b ig p ro ble m y o u’re s o lv in g.

A vis io n te m pla te h elp s y o u d ev elo p th e a rti c ula ti o n o f y o ur v is io n. T o u se it ( s e e fig ure 4 -3 ), a sse m ble th e d ata y o u’v e g ath ere d , u sin g th e to ols d esc rib ed in th is chap te r, to f ill o ut th e te m pla te f r o m l e ft to r ig ht.

FIG URE 4 -3 Vis io n t e m pla te Fir s t, id enti fy w ho th e custo m er is — and w ho th e custo m er is no t. U se yo ur custo m er p ro file s to d efin e a n arro w c usto m er s e gm ent fo r w hic h y o u w ill s o lv e a big p ro ble m . S eco nd , d esc rib e th is b ig p ro ble m — th e m ost c riti c al jo b-to -b e-d one —th at y o u h o pe to a d dre ss, w ith s u p porti n g d ata a nd in sig hts a b out th at p ro ble m .

Thir d , cre ate a sh o rt, fo cuse d vis io n sta te m ent fo r th e jo b yo u w ill do, w ith su p porti n g d ata .

111 Consid er th e d ev elo pm ent o f A mazo n L end in g. A s d esc rib ed in chap te r 2 , Je ff Bezo s h as se t h im se lf u p a s A mazo n’s c hie f e xp erim ente r a nd h as v ocaliz e d th e gra nd c halle nge. A s a r e su lt, e v ery o ne i n th e c o m pany r e co gniz e s th e i m porta nce o f se arc hin g fo r a nd g enera ti n g in sig hts . F or e xam ple , e v ery s p rin g, th e c o m pany s e ts asid e ti m e w hen a ny e m plo yee c an p ro pose n ew id eas fo r c usto m er p ro ble m s to so lv e. O ne new busin ess, desc rib ed in th e Wall Str e et Jo urn al , is A mazo n Lend in g.

10 The orig in al id ea cam e fr o m th e fr o nt lin e: custo m er se rv ic e re p re se nta ti v es assis ti n g sm all merc hants no ti c ed a co m mon th em e: sm all merc hants c o m pla in ed a b out th eir c ap ita l c o nstr a in ts l e ad in g to e arly s to cko uts . T he dis c ussio n o f th is p ote nti a l p ro ble m m ad e it a ll th e w ay to B ezo s, w ho a sk ed a sm all te am to e xp lo re th e p ro ble m .

The te am sta rte d b y exam in in g th e custo m er fe ed back and th en ta lk in g w ith custo m ers . W hile as a genera l ru le , “w e alw ays p ut o urs e lv es in th e sh o es o f custo m ers ,” a no th er o bse rv er n o te d th at “ T he te am ’s g o al w as to u nd ers ta nd th e big gest c usto m er n eed th at w as n o t b ein g m et. O nce th ey c o nfir m ed th eir b elie f re gard in g w hat custo m ers w ante d , th en th ey th o ught ab out ho w th ey co uld im ple m ent a so lu ti o n to so lv e th eir challe nge th at w ill w ork fo r A mazo n.” T o exp lo re th e need , th e te am co nd ucte d ad vic e in te rv ie w s and als o em plo yed eth no gra p hy: “ T hey w ould c all u p s m all m erc hants a nd a sk , ‘H ey, w ould y o u b e willin g to s p end a n h o ur w ith u s s o w e c o uld g et y o ur a d vic e?’ S in ce s o m e o f th em are h ere i n S eattl e , th ey w ould g o v is it th em a nd s e e w hat th ey w ere d oin g a nd ta lk to th em .” 11 Usin g th e data fr o m in te rv ie w s and obse rv ati o ns, th e te am th en dev elo ped custo m er p ro file s and m ad e a lis t o f p ro ble m s fa ced b y th em . T eam m em bers no ti c ed th at m any sm all m erc hants fa ced sto cko uts b ecause th ey la cked c ap ita l.

Bric k-a nd -m orta r m erc hants o fte n c an b orro w c ap ita l f o r i n v ento ry u sin g th eir s to re build in gs a s c o lla te ra l, b ut o nlin e m erc hants d on’t h av e th ese k in d s o f a sse ts a nd s o canno t easily access tr a d iti o nal bank lin es of cre d it. O th er cre d it opti o ns are ty p ic ally co m ple x, and th e pap erw ork can be overw helm in g. Som e of th ese merc hants , w hic h th e A mazo n te am la b ele d “ cura to rs ,” c arrie d u niq ue ite m s th at bro ad ened th e Amazo n.c o m p ro duct c ata lo g. B y c o ntr a st, o th er m erc hants , la b ele d “re se lle rs ” b y th e te am , f o cuse d o n i d enti fy in g a l o w -c o st s o urc e o f c o m mon i te m s and th en pro vid in g th ese lo w er-c o st opti o ns fo r Amazo n.c o m buyers . These diffe re nt m erc hant g ro up s h ad s o m e n eed s th at w ere s im ila r, a n d o th ers th at w ere diffe re nt.

Reco gniz in g th at A mazo n co uld no t so lv e ev ery custo m er p ro ble m , th e te am wante d to f o cus o n a s p ecific c usto m er g ro up . B ase d o n th e s iz e o f th e p ro ble m , th e te am decid ed th e ta rg et custo m er w as no t lo w -v olu m e m erc hants (in clu d in g cura to rs ) and lo w -v olu m e re se lle rs . R ath er, it w as hig h-v olu m e re se lle rs th at re p eate d ly sto cked o ut. T heir b ig gest p ro ble m w as lim ite d (o r hard to access) cap ita l fo r sh o rt- te rm in v ento ry fin ancin g, as th e te am le arn ed fr o m custo m er 11 2 in te rv ie w s a nd o bse rv ati o ns a nd b y e xam in in g d ata o n h o w o fte n th ese c usto m ers lo st s a le s b ecause o f s to cko uts . H av in g c re ate d a c le ar p ro ble m s ta te m ent, th e te am th en m oved to cre ati n g a vis io n of th e jo b-to -b e-d one: quic k, easy -to -a ccess in v ento ry f in ancin g ( s e e fig ure 4 -4 ).

FIG URE 4 -4 Am azon L endin g v is io n t e m pla te With th e c la rity a nd e nerg y o f th is v is io n s ta te m ent, th e te am m oved to th e n ext sta ge: pro to ty p in g th e so lu ti o n. It sta rte d by bra in sto rm in g a w id e varie ty of pote nti a l s o lu ti o ns, in clu d in g lin es o f c re d it, lo ans, p riv ate la b el c ard s, a nd s o o n.

Then, a fte r e xp lo rin g th e c halle nges, a nd le gal lim ita ti o ns, o f e ach so lu ti o n, th e te am w ent b ack to c usto m ers w ith a se rie s o f p ro to ty p es. T he te am sta rte d w ith th eo re ti c al pro to ty p es to quic kly get in iti a l custo m er re acti o ns, th en vir tu al pro to ty p es m ocked u p i n A mazo n’s w eb l a b , a nd f in ally m in im um v ia b le p ro to ty p es te ste d w ith a ctu al c usto m ers ( w e d is c uss th ese to ols in chap te r 5 ). W ith e ach te st, th e te am d is c o vere d m any s u rp ris e s a b out th e fe atu re s c usto m ers w ante d m ost ( fo r exam ple , c usto m ers w ante d fin ancin g o nly fo r fo ur to six m onth s a nd n o t a fe w 11 3 years ; fu rth erm ore , m ost c usto m ers str u ggle d in iti a lly to u nd ers ta nd th e p ro gra m and th e tr u e c o st o f l e nd in g).

Ulti m ate ly th e te am ite ra te d , te ste d , and valid ate d an in v ita ti o n-b ase d lo an pro gra m i n w hic h A mazo n u se s e xis ti n g d ata to p re ap pro ve l o ans a nd e lim in ate th e te d io us p ap erw ork o f a ty p ic al lo an. A fte r r e ceiv in g th e in v ita ti o n, a m erc hant c an quic kly a ccep t th e lo an a nd h av e fu nd s tr a nsfe rre d to its a cco unt w ith o nly a fe w clic ks. A lth o ugh w e c anno t r e v eal s p ecific p erfo rm ance fig ure s, th e n ew b usin ess has p ro vid ed a s ig nific ant l ift i n s a le s to r e se lle rs ( a nd tr a nsa cti o n f e es to A mazo n), and th e te am h as d is c o vere d a s o lu ti o n a nd b usin ess m odel ( d is c usse d i n chap te r 6 ) th at h as a llo w ed it to o pera te a s a p ro fita b le , in d ep end ent b usin ess u nit w ith in Amazo n.

Hav in g n aile d th e p ro ble m a nd s o lu ti o n f o r th e o rig in al c usto m er g ro up , th e te am is no w w ork in g to nail th e b ig gest p ro ble m fo r a d iffe re nt custo m er se gm ent, begin nin g w ith th e v is io n s ta te m ent. “ R ig ht n o w th e te am i s e xp lo rin g a no th er g ro up of c usto m ers ,” s a id a no th er o bse rv er. “ B ut I c an te ll y o u th ey h av en’t to uched th e so lu ti o n y et, n o t u nti l th ey g et m ore f e ed back f r o m c usto m ers to m ake s u re th ey a re go in g d ow n th e rig ht ro ad fir s t.” 12 T his A mazo n L end in g te am und ers ta nd s th e im porta nce o f d eep ly u nd ers ta nd in g th e b ig gest p ro ble m fo r a sp ecific c usto m er se gm ent b efo re s p end in g ti m e d ev elo pin g a s o lu ti o n.

Watc h O ut: I n cre m en ta l, U rg en t P ro b le m s C re a te Lim it e d G ro w th Larg e c o m panie s f a ll i n to tr a p s w hen i t c o m es to f in d in g j o bs to b e d one.

Their e xis ti n g c usto m ers o fte n c o m e to th em w ith in cre m enta l p ro ble m s re la te d to th eir c o re a cti v iti e s. T hey w ant fe w er d efe cts , a n ew fe atu re , fa ste r s e rv ic e, lo w er p ric e, a nd s o o n. T here ’s a lw ays s o m eth in g m ore th at c usto m ers w ant— and it’ s a lw ays u rg ent. S o la rg e c o m panie s— in a n atte m pt to b e re sp onsiv e— tr y to lis te n to c usto m ers a nd e nd u p s o lv in g th eir i n cre m enta l p ro ble m s. T his c re ate s a d ile m ma: S ho uld y o u f o cus o n so lv in g th e u rg ent p ro ble m s o f y o ur e xis ti n g c usto m ers ? O r s h o uld y o u tr y to so lv e a p ro ble m fo r no ncusto m ers th at co uld cre ate gro w th in th e fu tu re ? W e a ll te nd to c ho ose th e u rg ent o ver th e i m porta nt.

This is a b ig w atc h o ut. It’ s n o t th at th e u rg ent p ro ble m s o f e xis ti n g custo m ers a re n’t im porta nt, b ut s o lv in g th ese c o ncern s u su ally g iv es y o u le ss b ang f o r th e b uck th an b rin gin g a n ew s o lu ti o n to n ew c usto m ers ( o r ev en a n ew s o lu ti o n to e xis ti n g c usto m ers ). It’ s a m atte r o f d im in is h in g re tu rn s: a fte r y o u’v e s o lv ed th e m ost im porta nt p ro ble m th at a ffe cts th e gre ate st num ber of exis ti n g custo m ers , yo u th en w ork on so lv in g a pro ble m fo r a s m alle r s e t o f c usto m ers . S o y o u m ust c are fu lly c o nsid er 11 4 th e c rite ria y o u u se i n s e le cti n g p ro ble m s. D is ru p ti v e i n no vati o n p ro je cts must b e in th e in no vati o n p ro je ct p ortf o lio — and th at m eans tr y in g to so lv e th e pro ble m s of no ncusto m ers . Unfo rtu nate ly , it’ s hard fo r pro sp ecti v e c usto m ers to te ll y o u th at th eir p ro ble m i s u rg ent, to o.

11 5 Fir st T hin gs F ir st Alth o ugh it m ay fe el “ slo w er” to s ta rt w ith th e c usto m er p ro ble m ra th er th an th e so lu ti o n, y o u sa v e ti m e b y d eep ly u nd ers ta nd in g th e c usto m er’s jo b-to -b e-d one.

You av oid w asti n g re so urc es in purs u it of a so lu ti o n th at doesn ’t so lv e a moneti z a b le j o b. Y our f ir s t ta sk a s a m anager i s to d eep ly u nd ers ta nd c usto m ers a nd th e p ro ble m s yo u’re tr y in g to so lv e fo r th em . Y ou canno t ask custo m ers w hat in no vati o ns th ey w ant, o r r e ly o n th eir f e atu re r e q uests . I n ste ad y o u h av e to o bse rv e th eir j o bs to b e d one, p ro pose a s o lu ti o n, a nd th en w atc h th eir r e acti o n. A s w e l ik e to s a y, i n no vato rs i n no vate , c usto m ers v alid ate , a nd n o t th e o th er w ay a ro und .

11 6 5 Solu tio n: P ro to ty p e t h e M in im um “ Aw eso m e” P ro d uct If y o u c a n i n cre a se t h e n um ber o f e x perim en ts y o u t r y f r o m 1 00 t o 1 ,0 00, y o u dra m atic a lly i n cre a se t h e i n nova tio n s y o u p ro du ce.

—Jeff B ezos, C EO , Am azon.c o m I N CH APT ER 4 W E d esc rib e h o w B anco D av iv ie nd a ( B D ) tr ie d — and fa ile d — to 11 7 re ach th e la rg e “unb anked ” popula ti o n in C olo m bia by cre ati n g sim ple bank acco unts w ith lo w er fe es. A fte r its in iti a l, s o lu ti o n-fir s t a p pro ach fa ile d , th e b ank se nt te am s i n to p oor n eig hb orh o ods to u nd ers ta nd th e p ro ble m th ro ugh e th no gra p hy.

This fly -o n-th e-w all a p pro ach g av e m anagers a d eep u nd ers ta nd in g o f th e jo b-to - be-d one a nd a v is io n o f w hat th e s o lu ti o n w ould h av e to d o f o r c usto m ers . B ut h o w did th ey a ctu ally d ev elo p a s o lu ti o n?

To g et o uts id e th e b ox, th e B D te am tr ie d s o m e u nusu al th in gs. F ir s t, th e te am mem bers lis te d th e k ey e le m ents o f a b ank a cco unt, su ch a s b ra nches, a cco unts , deb it c ard s, f o rm s, s ig natu re s, p ap er, f e es, a nd s o o n. T hen th ey s u b tr a cte d o ne i te m at a ti m e a nd a sk ed , “ C an w e b uild a b usin ess a ro und th is o ne i te m ?” 1 I n iti a lly m ost te am m em bers s c o ffe d . H ow c o uld y o u b uild a s o lu ti o n u sin g o nly o ne e le m ent? B ut when th ey s u sp end ed th eir d is b elie f, th ey r e aliz e d th at, fo r th e u nb anked , a s im ple so lu ti o n to a sp ecific pro ble m m ig ht be th e best ap pro ach. D urin g th eir fie ld re se arc h, te am s no te d th at v ir tu ally ev ery o ne, in clu d in g th e unb anked , had cell pho nes. S o th e te am stu d ie d w ir e le ss se rv ic e pro vid ers and fo und th at so m e co m panie s h ad d ev elo ped p ro ducts th at th e u nb anked w ould p ay f o r, s u ch a s v ir a lly ad opte d g am es o r a j o ke o f th e d ay. T he te am a ls o b egan l o okin g a t o th er i n d ustr ie s, su ch a s i n te rn et r e ta ile rs , to s e e h o w th ey p ro vid ed s o lu ti o ns th ro ugh m obile p ho nes to a lo w er-in co m e custo m er se gm ent. Lastl y , th e te am obse rv ed fin ancia l in sti tu ti o ns in A sia , A fr ic a, a nd o th er a re as o f L ati n A meric a to se e h o w o th ers were s o lv in g s im ila r p ro ble m s.

As m enti o ned e arlie r, e v entu ally th e B D te am te ste d a m obile p ho ne w alle t th at custo m ers c o uld u se to d o o ne th in g: r e ceiv e a nd m ake p aym ents . T he n ew s o lu ti o n str ip ped a w ay tr a d iti o nal e le m ents s u ch a s a p plic ati o n fo rm s, d eb it c ard s, a nd s o on. C usto m ers d id n’t h av e to c o m e in to a b ra nch to sig n d ocum ents o r p re se nt pers o nal ID ; ev ery th in g co uld be done on th e m obile pla tf o rm . To overc o m e co m plia nce a nd r e gula ti o n is su es, B anco D av iv ie nd a b orro w ed e m erg in g b ig -d ata te chniq ues to a naly ze ty p ic al b ehav io rs f o r s im ila r c usto m er g ro up s a nd m onito r o r re je ct a ty p ic al u sa ge.

When th e te am h it a s u b sta nti a l r o ad blo ck— ho w to l e t c usto m ers w ith d ra w c ash with o ut a d din g a n e xp ensiv e a nd c um bers o m e A TM c ard p ro gra m — th e b ank tr ie d so m eth in g h ig hly u nusu al in b ankin g b ut c o m mon a m ong in te rn et re ta ile rs : a o ne- ti m e p assw ord , w hic h, in th is c ase , le t c usto m ers w ith d ra w c ash fr o m a ny A TM .

Banco D av iv ie nd a’s so lu ti o n pro duced sig nific ant gro w th , w ith BD quic kly enro llin g m ore th an a m illio n u se rs i n v ario us c o untr ie s.

2 11 8 Solu tio n -S to rm in g t o G en era te S olu tio n O ptio n s To d ev elo p its n o vel s o lu ti o n, th e te am a t B anco D av iv ie nd a u se d a to ol w e c all so lu tio n-s to rm in g (b ra in sto rm in g m ulti p le so lu ti o n opti o ns) to help it se arc h bro ad ly fo r s o lu ti o ns b efo re u sin g c usto m er te sts to h elp it n arro w th e o pti o ns to a sin gle s o lu ti o n. G oin g b ro ad i n th e s e arc h f o r a s o lu ti o n i s a f o und ati o nal p rin cip le fo r s o lu ti o n-s to rm in g— and fo r in no vati o n g enera lly . It le ad s to m ore o pti o ns a nd co m bin ati o ns, a nd th at in tu rn le ad s to n o vel s o lu ti o ns. F or e xam ple , m ost p eo ple cre d it H enry F ord w ith d ev elo pin g th e m odern p ro ducti o n lin e— an in v enti o n th at allo w ed h im to m ake th e a uto m obile a ffo rd ab le . F ord ra d ic ally tr a nsfo rm ed th e auto i n d ustr y a nd A meric an l ife . H ow d id h e d o i t?

We s e e th e p ro ducti o n lin e a s a “ so lu ti o n,” b ut F ord a ctu ally d ev elo ped it b y se arc hin g b ro ad ly , b orro w in g id eas s u ch a s in te rc hangeab le p arts ( u se d in s e w in g machin es, fir e arm s, and watc hes); co nti n uo us-flo w manufa ctu rin g (u se d in pro cessin g flo ur, cannin g fo od, and makin g cig are tte s); and asse m bly -lin e te chniq ues ( u se d i n m eat- p ackin g p la nts a nd b re w erie s).

3 I n s im ila r f a sh io n, th e B D te am g enera te d so lu ti o n o pti o ns b y fir s t se arc hin g b ro ad ly , in p art b y o bse rv in g pra cti c es i n o th er i n d ustr ie s a nd o th er c o untr ie s.

11 9 Sta rtin g S olu tio n-S to rm in g Sta rt y o ur s o lu ti o n-s to rm w ith a p ro ble m a nd c usto m er v is io n s ta te m ent l ik e th e o ne desc rib ed in chap te r 4 . A s w ith all kin d s o f b ra in sto rm in g, a key p rin cip le o f su ccessfu l s o lu ti o n-s to rm in g is th at y o u d on’t s h ut d ow n a ny p ro pose d s o lu ti o n o r so lu ti o n p ro cess to o e arly .

Recall th at B anco D av iv ie nd a w as s k ep ti c al th at s u b tr a cti n g th e e le m ents o f a fa m ilia r so lu ti o n w ould w ork . W e c an to p th at: w e o nce h ad a p arti c ip ant in a so lu ti o n-s to rm fo r L eath erm an, a m anufa ctu re r o f m ulti to ols and p ocket kniv es, pro pose s h ip pin g a liv e m onkey w ith e ach to ol to a sse m ble th e p ro duct. It to ok a ll we c o uld m uste r to n o t s h ut d ow n th at id ea im med ia te ly . B ut th en th e id ea tu rn ed out to b e p iv ota l i n h elp in g th e te am d is c o ver a s u p er-s im ple a sse m bly — one e v en a monkey c o uld d o e asily .

To help yo u bra in sto rm so lu ti o ns, w e su ggest yo u cho ose fr o m a m enu of te chniq ues (s e e fig ure 5 -1 ). Y ou w on’t u se a ll th ese te chniq ues a t o nce; in ste ad , th in k o f th em a s c ho ic es o r o pti o ns.

120 Analo gs: C lo se a nd F ar A w ay Thin k a b out th e p ossib le s o lu ti o ns a ro und y o u o n a s p ectr u m fr o m th o se th at a re clo se to y o ur i n d ustr y to th o se th at a re f a r f r o m y o ur i n d ustr y . C lo se st to y o u, c heck to se e w heth er one of yo ur custo m ers has alr e ad y dev elo ped a w ork aro und .

Usu ally , th ese m ake-d o s o lu ti o ns a re h eld to geth er b y fig ura ti v e d uct ta p e, b ut th ey pro vid e in sig hts in to w ays yo u co uld so lv e th e pro ble m . For exam ple , one entr e p re neur w e in te rv ie w ed in iti a lly fe lt dis c o ura ged w hen he dis c o vere d a pote nti a l c usto m er h ad a lr e ad y d ev elo ped a w ork aro und to s o lv e th e p ro ble m . B ut th en h e lic ense d th e s o lu ti o n fo r a s m all r o yalty a nd u se d it to b uild a s o lu ti o n a nd co m pany th at e v entu ally r e ached a m ark et v alu e o f w ell o ver a b illio n d olla rs .

Look fo r a nalo gs a nd c o m ple m ents to y o ur e xis ti n g so lu ti o ns th at c an su ggest alte rn ati v e so lu ti o ns (b e aw are th at th ere m ay be no vel so lu ti o ns in ad ja cent in d ustr ie s). F or e xam ple , o ne fu el c ell c o m pany w e s tu d ie d b orro w ed n ew sp ap er prin ti n g te chniq ues to p rin t fu el cell m em bra nes. T hese exam ple s o f b orro w in g dem onstr a te th e p ow er o f a nalo gs o f w hat to d o o r w hat n o t to d o. F or e xam ple , Rent th e R unw ay borro w ed analo gs fr o m N etf lix and fr o m air lin e re se rv ati o n sy ste m s, and B anco D av iv ie nd a borro w ed analo gs fr o m in te rn et re ta ile rs and fin ancia l i n sti tu ti o ns i n o th er e m erg in g m ark ets .

FIG URE 5 -1 Tools f o r s o lu tio n-s to rm in g 121 122 Ele m en ts : P arts a nd W hole s Consid er s o lu ti o ns in te rm s o f p arts a nd w ho le s. A t o ne e nd o f th e s p ectr u m , a s with B anco D av iv ie nd a, su b tr a ct o ne e le m ent o f a n e xis ti n g so lu ti o n a nd tr y to build o n i t a s th e e sse nti a l c o m ponent. O r c o nsid er h o w y o u c o uld s w ap i n o r s w ap out parts of a so lu ti o n, as th e iP od did by sw ap pin g in th e m ovem ent of a co m bin ati o n lo ck to se arc h ra p id ly fo r so ngs. A ls o th in k ab out ho w yo u co uld multi p ly , d iv id e, o r u nify fe atu re s. In th e c la ssic e xam ple , G ille tte m ulti p lie d th e bla d es in a r a zo r to c re ate a n ew s o lu ti o n. O r y o u c an c o nsid er s te alin g th e e nti r e so lu ti o n fr o m ano th er co m pany b y ask in g yo urs e lf q uesti o ns lik e, “H ow w ould Amazo n ( o r A pple , o r D is n ey, o r . . .) s o lv e th is ? ” 123 Obse rv a ble s: V is ib le a nd I n vis ib le Thin k a b out s o lu ti o ns th at m ig ht b e n earb y b ut d iffic ult to s e e. F or e xam ple , o th ers may h av e tr ie d a nd fa ile d to c re ate th e s o lu ti o n y o u s e ek. W hat c an y o u le arn fr o m se arc hin g th e gra v eyard o f p rio r fa ilu re s? N ext, co nsid er unre la te d m ark ets o r dis c ip lin es to b orro w an id ea th at co uld tr a nsfo rm yo ur in d ustr y . F or exam ple , id eas fr o m bio lo gy (s u ch as fitn ess la nd sc ap es or th e pro cess of varia ti o n, se le cti o n, a nd re te nti o n) h av e c hanged h o w w e th in k a b out str a te gy a nd c hange.

And l o ok f o r w ays to b re ak th e c o nv enti o nal w is d om o f y o ur i n d ustr y . F or e xam ple , IK EA bro ke th e co nv enti o n th at fu rn itu re had to co m e asse m ble d and th ere b y re v olu ti o niz e d i ts i n d ustr y . L astl y , d ayd re am a b out th e f u tu re b y i g no rin g th e c urre nt te chno lo gic al lim ita ti o ns y o u s e e a nd im agin e w hat th e p erfe ct s o lu ti o n m ig ht lo ok lik e. F or e xam ple , w hat w ould th e p erfe ct p orta b le m usic d ev ic e lo ok lik e? T he iP od i s a g re at s o lu ti o n, b ut p erh ap s a b ette r s o lu ti o n w ould b e to a llo w c usto m ers to s p eak th e s o ng th ey w ant to l is te n to , s a y “ p la y,” a nd th en h ear i t i n s te re o s o und .

How m ig ht yo u m ake so m eth in g lik e th at hap pen? E xam in in g “aw eso m e” new pro ducts i s a n a cti v ity th at m ig ht i n sp ir e y o u to i m agin e n o vel s o lu ti o ns.

124 Sele ctin g S olu tio n s t o P ro to ty p e Afte r y o u’v e g enera te d a r a nge o f s o lu ti o n o pti o ns, y o u’re r e ad y to s e le ct th e m ost pro m is in g id eas to te st w ith c usto m ers . R ecall In tu it’ s e xp erie nce fr o m chap te r 1 :

when th e te am v ote d o n th e “ b est” i d eas, th ey te nd ed to p ic k th o se th at w ere e asie st to u nd ers ta nd a nd im ple m ent. W end y C astl e m an, th e in no vati o n c ata ly st c o m munity le ad er a t I n tu it, c o m ments :

Pro je ct te am s had tr u ly m aste re d “go in g bro ad ”; th ey w ere go od at genera ti n g lo ts a nd lo ts o f id eas . . . B ut te am s d id a b ad jo b o f p ic kin g th e b est id eas to w ork o n b ecause o ur s e le cti o n c rite ria w ere g enera lly fa ulty . T he p ro ble m ste m med fr o m th e te am v oti n g o n id eas, a c la ssic desig n th in kin g a p pro ach . . . T he i d eas w ith th e m ost v ote s g et e xp lo re d fu rth er. B ut it tu rn s out th at peo ple ofte n vote fo r w hat is easy to im ple m ent a nd f a m ilia r, a nd th at r a re ly y ie ld s i d eas th at w ill s u rp ris e a nd delig ht c usto m ers .

4 Base d o n o ur o bse rv ati o ns a t In tu it a nd o th er c o m panie s, w e re co m mend y o u post th e s o lu ti o n o pti o ns o n th e w all a nd u se th e fo llo w in g p ro cess. F ir s t, th in k o f th e d iffe re nt th em es o r chara cte ris ti c s re p re se nte d am ong th e so lu ti o ns, su ch as “ease o f u se ” o r “ hig h p erfo rm ance.” T hen se le ct a n o pti o n fr o m e ach th em e to exp lo re s o th at y o u c an o bse rv e h o w c usto m ers r e sp ond .

Seco nd , defin e th e pro pose d so lu ti o ns alo ng a dim ensio n or sp ectr u m . F or exam ple , one sp ectr u m m ig ht in v olv e ra nkin g so lu ti o ns fr o m lo w to hig h on dim ensio ns su ch as “gam e changin g,” “b old /r is k y,” “m ost easily atta in ab le ,” “te chnic al d iffic ulty to d eliv er.” T hen s e le ct s o lu ti o ns to te st a t d iffe re nt e nd s o f th e sp ectr u m . T his a p pro ach w ill h elp y o u to g o b ro ad i n th e s o lu ti o ns y o u te st.

Thir d , o nce yo u’v e se le cte d so lu ti o ns to te st, w rite d ow n yo ur le ap -o f- fa ith assu m pti o ns or lis t th em as questi o ns to be answ ere d . Then prio riti z e th e assu m pti o ns b ase d o n th o se th at y o u th in k a re m ost im porta nt to v alid ate in o rd er fo r a so lu ti o n to su cceed . F or e xam ple , w hen th e B anco D av iv ie nd a te am w as bra in sto rm in g so lu ti o ns fo r th e u nb anked , th ey w ante d to te st w heth er c usto m ers would sig n up fo r b ank acco unts th ro ugh th eir sm art p ho nes w ith o ut v is iti n g a bra nch o r sp eakin g to a p ers o n. It w as c riti c al to te st th is a ssu m pti o n fo r ta rg et custo m ers , w ho d id n’t h av e th e ti m e o r m eans to g et to a b ra nch. O nce th e c riti c al assu m pti o ns hav e been m ad e exp lic it, th e te am can desig n exp erim ents (u se pro to ty p es) to te st th em .

125 Fou r K in ds o f P ro to ty p es In a se m is e cre t lo cati o n, th e G oogle X la b has been exp lo rin g cra zy new te chno lo gie s s u ch a s f ly in g w in d tu rb in es a nd w ifi b allo ons. T hese a re th e k in d s o f te chno lo gie s, g iv en th e le v el o f te chnic al a nd d em and ris k , th at m ost c o m panie s don’t e v en c o nsid er. T he fir s t p ro duct, G oogle G la ss, b egan to ro ll o ut in e arly 2012, w ith c usto m ers lin in g u p to p ay $ 1,5 00 to tr y a b eta v ers io n. A lth o ugh th e su ccess o f G oogle G la ss is a nyth in g b ut a ssu re d , th e p ro duct d ev elo pm ent p ro cess offe rs l e sso ns o n p ro to ty p es.

The G oogle G la ss te am o rig in ate d w ith a p ro je ct b y U niv ers ity o f W ash in gto n pro fe sso r B ab ak P arv iz .

5 A lth o ugh in iti a lly a n in te re sti n g te chno lo gy, it b ecam e a n in te re sti n g so lu ti o n w hen th e te am no ti c ed a pro ble m : H ow ofte n in so cia l in te ra cti o ns p eo ple “ check o ut” to c heck th eir s m art p ho nes. T he G oogle X te am ask ed , “W hat if yo u co uld use th is te chno lo gy to sta y engaged w ith th e w orld aro und y o u w hile a ls o u sin g th e in te rn et? ” A t th e s a m e ti m e, y o u c an im agin e th e im mensity o f th e te chnic al c halle nges: H ow c o uld y o u a llo w s o m eo ne to c o nnect to th e in te rn et u sin g a lig htw eig ht, to uchle ss d ev ic e? G iv en th e te chnic al ris k , a sk yo urs e lf, H ow lo ng sh o uld it ta ke th e te am to c re ate th e fir s t fu lly o pera ti o nal, weara b le p ro to ty p e th at p ro je cts liv e im ages fr o m th e in te rn et? R ead y? It to ok o ne day.

In a re cent p re se nta ti o n, T om C hi, h ead o f e xp erie nce a t G oogle X , d esc rib ed ho w th e te am c re ate d a nd te ste d th e f ir s t p ro to ty p e. H ow d id th ey d o i t? C heck o ut th e i m age i n fig ure 5 -2 .

FIG URE 5 -2 Google G la ss f ir st p ro to ty pe 126 Afte r c re ati n g a w eara b le d ev ic e, C hi a nd th e te am n eed ed a w ay to n av ig ate it.

If y o u’v e se en th e m ovie Min ority R ep ort, y o u p ro bab ly re m em ber T om C ru is e movin g h is h and s in th e a ir to m anip ula te th e c o m pute r. T he G oogle X te am a ls o sa w th e m ovie a nd a sk ed , “ W hy n o t tr y it? ” A ny g uesse s a s to h o w lo ng it to ok to pro to ty p e th e m oti o n d ete cti o n s y ste m ? R ead y? A bout fo rty -fiv e m in ute s. C hi a nd th e te am a llo w ed u se rs to m anip ula te th e d ev ic e b y a tta chin g b orro w ed h ead band s (w orn a ro und th e w ris t) to a c lic kin g d ev ic e ( m ad e fr o m a p encil, a b in d er c lip , a cho psti c k, a nd a m ouse ) v ia a ta ut fis h in g lin e ( ru n o ver th e b ack o f a w hite b oard ) so th at a ny m ovem ent b y th e u se r p ut te nsio n o n th e l in e a nd c lic ked th e d ev ic e ( s e e fig ure 5 -3 ).

FIG URE 5 -3 Google G la ss n avig atio n p ro to ty pe 127 Rig ht a w ay th e te am l e arn ed th at e v en th o ugh i t w ork ed f o r T om C ru is e , i t l o oked and fe lt s tr a nge in p ra cti c e, s o th ey e xp erim ente d w ith o th er a p pro aches. D esp ite what a t f ir s t a p peare d to b e a s e rie s o f d ead e nd s, e ach r a p id p ro to ty p e h elp ed th e te am n