The Salt Test for Corporate Innovation
Product innovation is critical for established companies to remain ahead of the competition. This is particularly the case in the modern climate, where the democratisation of technology means that start-ups can disrupt and become market leaders within a few short years. Uber and Airbnb are perfect examples of this. It took them less than 10 years to completely disrupt their industries.
Another classic example is Netflix. In early 2000, Blockbuster was a $6 billion company with close to 9,000 rental stores globally. Netflix was only two years’ old and was offering DVD rentals distributed by post. Netflix went on to offer streaming services online, using its experience in the online entertainment business, while Blockbuster was declared bankrupt by 2010.
Despite these warnings, many established companies resist major, disruptive innovation. It is not because they don’t appreciate the importance of it, but rather because the managers of these organisations focus on what is important to the current success of the business. For them, that means optimising the performance and quality of existing products.
As Clayton Christensen describes it in his book The Innovator’s Dilemma:
“The reason [for why great companies failed] is that good management itself was the root cause. Managers played the game the way it’s supposed to be played. The very decision-making and resource allocation processes that are key to the success of established companies are the very processes that reject disruptive technologies: listening to customers; tracking competitors’ actions carefully; and investing resources to design and build higher-performance, higher-quality products that will yield greater profit. These are the reasons why great firms stumbled or failed when confronted with disruptive technology change.”
There is another compelling reason why established companies shy away from disruptive innovation. Innovation requires investment, with no guaranteed success. It is therefore seen as expensive and risky. There is a lot to be said for this argument, however it doesn’t have to be that way.
In The Salt Test, I demonstrate how to de-risk product innovation. By first identifying your assumptions, then testing them in a specific order, you can align the risk of your investment with the confidence in your success.
For example, the first step is to ensure that you are solving a problem for your target market. This step can be done cost-effectively by a single person. Once proven, you can confidently move on to the next phase, which is finding a solution for that problem. Even at this stage, discovering and testing the viability of the solution can be achieved cost-effectively with limited resources. The following step, building the actual solution, will be the first major investment. However, by this stage, you are confident that the problem you are trying to solve exists and that your proposed solution is a good fit. Your investment is now aligned with the confidence in your success.
Corporate Innovation with the Salt Test
