Evan Shellshear

Innovation Tools Cover

Best Low Risk Innovation Tools For Your Startup – Free Book

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LEGO has earned the right to celebrate. Not only are kids playing with more mini LEGO people than there are human beings on the planet but in 2015, they were nominated by Forbes as the most powerful brand in the world. For a company which was on the brink of bankruptcy in 2004, the toy maker has made an amazing turnaround. They restructured, hired a new CEO, and forged more licensing partnerships than ever before. Most importantly, they discovered the secret to some of the world’s most successful, low risk innovation strategies.

These strategies helped LEGO create a powerful brand envied by every other company in the world. However, successes like these are not, and need not be, restricted to global companies with billions in revenue. The point of low risk innovation tools is that one can use them to test ideas in any setting and with any budget. Whether you are a cash strapped startup or a Forbes 500 firm, sustainable innovation can be your ticket to success.

Out of LEGO’s lessons and that of hundreds of other companies, I have distilled the most successful techniques to innovate cheaply and effectively. They are all contained in my book Innovation Tools and, as an additional bonus, the readers of the Startup88 community can get it for free at Amazon this week by clicking here. Among others, my book answers questions regarding how strategies used by companies like LEGO are able to turn companies around from looming bankruptcy to industry leading success.

When LEGO restructured and returned to their core business to climb out of a $300 million loss in 2004, they realized innovation as usual was not an option. The first step on the toy maker’s journey was to embrace their loyal and creative fan base.They hired so-called “adults fans of LEGO” for their design team and began to crowdsource new toy kits.

As the crowdsourcing venture proved successful, the block manufacturer turned this into a full blown open innovation policy by opening up the LEGO Ideas portal. Through user input, this online platform generates hundreds of new product suggestions each year and uses some subtle and powerful open innovation techniques, employing everything from social media to peer selection to entice fans into contributing new designs.

Within its factories, LEGO has also embraced a philosophy of rapid prototyping, even to the dismay of its older engineers. In an interview with the AFR, David Gram, head of marketing at Lego’s Future Lab, stated that “[W]e only develop the few key features that are really needed. A typical engineering mistake is wanting to invent all the things the product might consist of in one go … we throw that into the market and get feedback from consumers”. This is a technique blossoming all over the world in Maker Faires, Hackerspaces, and Makerspaces.

As big and successful as LEGO is, they could still benefit from the many other innovative strategies employed by other industry leaders. For example, there are powerful forces driving both the creation and dissemination of knowledge to the world. As many technical discoveries are driven by access to the latest information, this will be a game changer for business. For startups or large companies pursuing numerous risky ventures, information is power, and risk mitigation is the name of the game.

Another powerful shift disrupting traditional industries is the new way software is delivered around the world. Products are now able to be delivered in smaller parts, requiring less commitment from a consumer and turning the decision to use a tool into a “no-brainier.” This is even affecting industries with business models based on completely unrelated ways of delivering their services such as medicine.

Another important piece of the innovation puzzle is us; you and I. In the end, it is up to us to make the innovation decisions, but how do we decide? This question can be answered by one of the most exciting developments of the 21st century: a symbiosis between two powerful branches of science, behavioral economics and innovation.

Although these tools are important for a company’s and entrepreneur’s day-to-day work, we also want to know why all this innovation stuff even matters. What happens when we innovate cheaper? What benefits are there to simply lowering our innovation risk beyond the obvious?

Understanding the basics of these techniques and integrating them into your innovation strategy is what differentiates the disruptors from the disrupted. Up until now, it has been difficult to find them all collected in one place with enough details to be able to successfully use these innovation tools.

Competition never sleeps and LEGO is continuously being challenged by new disruptive innovators attacking their market side-on, such as Minecraft. Although the block manufacturer has a license to produce Minecraft styled pieces, challenges can come from anywhere. Full throttle up the innovation curve requires low risk tools to balance the innovation and fiscal imperatives. LEGO has discovered this, but have you?

The point is that we need to keep innovating without risking financial ruin. This is a difficult balance that my book seeks to discover. It details some of the best techniques available to not just turn an almost bankrupt company around, but also to supercharge any business or entrepreneur wanting to develop the next unicorn opportunity. Before you go, get your free copy now before it’s too late at Amazon. This offer is for this week only!

Confused Man Behavioral Innovation

Behavioral Innovation, the Need To Pivot, Why We Don’t and What We Can Do About It

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Written by Christine Thong and Evan Shellshear

When was the last time you seriously thought about your blue chip investments going broke? At what point will those shares be worth nothing? Although it may sound ridiculous, the question is serious because at the current rate of disruption, it has been predicted that half of the S&P 500 will be replaced over the next 10 years. Where does that leave your investments?

The need and act of a business pivoting is natural. It can almost be seen as a form of corporate evolution. Over the years, the largest businesses only keep their top spots by evolving and chasing the sunrise markets and leaving the sunsets. Intel famously pivoted from manufacturing memory sticks to microprocessors. HP pivoted from making precision oscillators to computers and peripherals. And Nokia has famously taken its business model from a paper mill to rubber goods and then finally to mobile phones until they crashed, failing to pivot in time.

However, for each success story there are hundreds of other businesses which failed to pivot and stuck with a dying business plan. Why?

In mature businesses there are a myriad of reasons – corporate culture, shareholder inertia, lack of capital, bureaucracy, etc. Many large companies can be forgiven for not having seen the woods for the trees and stuck to their guns in what they thought was a successful market. Companies which have less of an excuse are startups. Businesses with a sole purpose to exploit a single technology. They are portrayed as nimble, agile, market focused but many display characteristics opposite to that, sticking with a dying product until the company dies itself.

In the startup space, one study found around ten percent of all startups die due to a failure to pivot. Many of the most famous startups only exist because of a pivot – Twitter from Odeo, Paypal from Confinity, Instagram from Burbn, etc. Unlike in the large corporation case, it is much easier to hypothesize why a startup didn’t pivot and it has a lot to do with a cutting edge field of research called behavioral innovation.

Behavioral Innovation

Behavioral innovation is a field still in its infancy. At the moment, it suffers from having its main theoretical framework copied and pasted from behavioral economics. People typically take known behavioral biases from economics and simply apply them to an innovation framework. However, it should be more than this. The field should, at a minimum, be looking at the unique psychological shortcuts we take to be innovative and how this affects our innovation efforts both positively and negatively. It could take inspiration from many fields such as behavioral economics, psychology, innovation economics and more. By having a better grasp of these processes we can design better innovation policies, brainstorming activities, investment decisions and much more.

Innovation has become the zeitgeist of the 21st century and if there was one area that researchers should be focusing their efforts to bring about tangible positive change in society, then innovation is it. The fact that the field of behavioral innovation has been left as the ugly duckling of the behavioral economics swan needs to change because a better understanding of this new discipline will have profound effects on everything from macro policy setting to startup decision making.

There are a myriad of techniques and approaches to doing innovation; such as idea generation, co-designing with stakeholders, speaking to users and potential customers, mapping value propositions, collaborating across disciplines. This is widely taught across Universities. For example, at Design Factory Melbourne, Swinburne University, design, engineering and business students are educated to collaborate and use various innovation doing techniques applied to real project briefs with companies for many years.

However the techniques for innovation doing are not enough. We know an open mind-set is necessary for innovation and you are able to see peak creativity when you are happy and having fun, but how much do we really know about achieving this desired state of behavior in a business setting and how does this relate to the hard business decisions that need to be made?

Despite all the training, we still see startups refuse to pivot in spite of a failed product/market fit, a lack of market validation or minimal traction, then we can see an application of behavioral innovation in action. These companies are trying to innovate. They have the goal of successfully developing an innovative product on their agenda and they fail miserably. Why? The sunk cost fallacy of innovation. Although not the only possible cause of this behavior, it is one which interests us here.

In behavioral economics, the sunk cost fallacy of economics occurs when we ascribe an overly optimistic probability to the success of an outcome after we have invested in it. The probability just seems to change. For example, if an individual were to buy a theater ticket but then find out that the performance had changed to one which they no longer wanted to see, then they would be more likely to go to the show and waste their time than if they had not purchased a ticket.

Think about that. Instead of doing something else they enjoyed, people would incur an additional cost by going to watch a show they didn’t want to watch merely because they paid for the ticket!

Startups and Behavioral Innovation

For startups we see the sunk cost fallacy of innovation occurring. It occurs when a new business follows an idea over the financial cliff because they have invested our time and effort (and often money!) in exploring it. When a startup fails to pivot, then I believe that a major contributing factor is the sunk cost fallacy of innovation. If we can beat this, then maybe we can save an extra ten percent of our startups. An easy win!

What can we do about this and how does one know that one has reached the point of no return? The answer to this question is something investigated in the forthcoming book “Innovation Tools”, available on Amazon, and it comes down to finding the point where perseverance no longer makes sense. This is the point is not difficult to find. It occurs when a startup asks its mentor or another independent third party, that if they had a choice between investing their time and money in the startup’s opportunity or using that money to do something else, and the advisor says do something else. At this point we are starting to sink. When someone else would not invest in your opportunity given the facts you have presented to them, then by going further you are displaying the sunk cost fallacy of innovation.

A word of warning: although we have framed it as something undesirable, if the psychological mechanisms behind the sunk cost bias cause you to be more resilient and tenacious, then in many startup situations this can be a good thing. It just depends on the context.

The sunk cost fallacy is only one of many biases which people can display and as a starting point to look at behavioral innovation, it is an obviously applicable one. However, as mentioned earlier, the field should be much bigger than this and its elucidation here will hopefully lead to others to explore more.

As stated earlier, the applications of behavioral economics biases to behavioral innovation like the above only scratches the surface of the possibilities in this field. The analysis above, like much previous work, is a direct translation from behavioral economics to innovation but it is clear that if researchers put their head to it, there are amazing possibilities right in front of us. And if the motivation to do some interesting research is not enough, then the trillion dollar imperative to transform the world’s economy to something sustainable should be.

Idea light bulb

Is Your Startup Idea Worth Nothing?

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The mantra of ideas being worthless can be heard from all corners of the globe. Venture capitalists back founders and not ideas. As mentioned in another blog, in 2009, the entrepreneur and author Seth Godin got the nine of his alternate MBA students to come up with 111 ideas each to create 999 business ideas. The point? To prove that “Ideas are a dime a dozen. The money is in the execution.” But is this correct? Your gut feeling demands that your best ideas are worth more than nothing, right? Right.

There are many reasons why people say ideas are worthless. Some claim that for VCs ideas are worthless so they can pay you less for your business early on. Others have seen so many ideas that they feel like there is an oversupply and so their value is nothing. The most common one, however, is that the value is not in the idea but in its realization. Take two companies with a similar idea, Google and AltaVista, one is the multibillion dollar envy of the tech world, the other a broke, wound up company bought out by Yahoo. The difference? The execution.

On the other hand, sure, lots of businesses fail but a great execution isn’t going to turn a rubbish idea into a success. Bad ideas that are driven to profitable businesses often turn out to be a sham, cheating people of their money and time.

Idea vs Execution

In this dichotomy, idea vs execution, people assume you only have two things you can control, your idea and your team (execution). Other factors such as timing, competition, etc are assumed out of one’s control. With only two things to decide upon, where does this leave us? Are ideas really worthless? The answer is no and it has been clearly demonstrated by a German company called Rocket Internet.

In 2007 three brothers, Marc, Oliver and Alexander Samwer founded the company Rocket Internet in Berlin, Germany. Its business model has been described as a “copycat” by the New York Times and its products would seem to confirm this. In 2012 Rocket Internet started FoodPanda, a food delivery service, copying the GrubHub (established 2004) business model from America. For most other popular business ideas, they have their own version. Uber – EasyTaxi, AirBnB – WidMu, Blue Apron – Hello Fresh, etc. The model is clear, take a successful American business and found a copycat somewhere else in the world where the business is not yet active. Mostly this means in their home country Germany but it can be anywhere else such as Sao Paolo for EasyTaxi.

Rocket Internet has demonstrated that ideas are worth a lot because they take the good ideas and repeat them with another team and a simple execution formula. The execution becomes routine, the teams are composed of whoever is available, so where does it leave the value? In the idea.

So It’s In the Idea?

But clearly ideas without a good team to execute them are worthless. Lacking good people, a good idea is like a stray dog looking for a master. The most famous example of this is the Shockley Semiconductor Laboratory. Started by the Nobel Prize winning William Shockley, the laboratory built some ingenious products in the semiconductor industry that were set to revolutionize the industry. The problem? Shockley himself.

Although his ideas were revolutionary, William’s management style has been described as abrasive and paranoid in many articles and books. He routinely insulted and belittled his staff making working with him near to impossible. As to be expected, his relationship with his initial backer disintegrated and Shockley was left to his own devices with the company floundering in 1969 as the transistor industry flourished.

If our ideas are worth something then how do we value them? TED speaker and author, Derek Sivers has suggested a tongue in cheek formula to compute the worth of an idea but convincing propositions are hard to come by. As we now know, a billion dollar idea in right hands is worth a billion dollars. In the wrong hands nothing.

What To Do?

My suggestion is the following: If you have a great team who can execute on your billion idea, then it is worth exactly that. Companies such as Rocket Internet have shown us that a good execution can be orchestrated. The wide range of businesses they have entered also show that being an expert in the given field is not necessary and so the value of the team is less. Once we realize that all the different parts can simply be clipped on to generate success, then all that is left to drive value is the idea. Each part of the business becomes a commodity apart from the one thing which isn’t formulaic.

A good idea is exactly that, good. People can create hundreds of ideas but this doesn’t mean any of them are good. Because so many of the parts of a startup have become systematic, the most valuable thing now is a tool to determine the value of an idea. What we need is an idea to value ideas. Now that is something valuable and worth much more than any single idea. It is something VCs have struggled with for years and still seem not to have cracked it. If you have one great idea, then this should be it. Any takers?

image credit: Flickr – Ramunas Geciauskas

kicking ass

The 5 Tricks To Build A Startup In 6 Months Like A Pro

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I wanted to reach out to everyone in this blog post and share with everyone some awesome tricks to build a startup lightning fast, validate your idea within six months and have a growth-ready startup or die trying. Ok so not the latter, just the former.

What I want to discuss here are the great things you can take advantage of because you live in Australia. We have an amazing safety net to catch fallen entrepreneurs and a startup environment which now has pretty good infrastructure. So let’s get to it, what should you do? Well the first thing is to have an idea and assuming you have one, let’s get to the first step:

  1. If you are new to the startup game, time to get a business plan for your idea. So to get some free advice to put together a powerful business plan, go to the government’s business websites and look at the new enterprise incentive scheme or the grow your business development plan if you are anywhere, the small business bus if you are in VIC or the small biz connect if you are in NSW.

This is important because you are going to use your business plan for the next step. And in any case, it doesn’t hurt to have a roadmap to try and avoid taking the road to bankruptcy.

  1. The next thing to do is, if you are eligible, go on NewStart Allowance – yes, the dole. If you are a recently graduated student over 22, go on NewStart right now if you haven’t started working. You will use your business plan from 1 to qualify for this!

For those of you with a lot of pride this step can be hard. But trust me it is the way to go. However, care is needed if you currently work as quitting your job may disqualify you for NewStart. There is no point in lacking a cash flow while you a building a startup, so swallow your pride and open your bank account.

  1. Get all the benefits you deserve: rental assistance, concession health care cards, etc. Check out Centrelink for more info on what’s available to you.

This step is all about reducing costs to a minimum so that your NewStart goes as far as possible. Once we’ve got you living and able to have the food tank full so the sparks keep flying in your idea factory upstairs, it’s time to start supercharging that idea and taking it to the next level. How? With someone else’s money.

  1. Go find an incubator and use your wonderful business plan from 1 to trade 10% or so of your company for at least $20,000.

This step is essential. Basically you should be getting office space, more mentoring, access to a network of other likeminded individuals and more. There are many incubators around Australia which offer this, e.g. IgnitionLabs. A great blog at the fetch lists a longer list. This step is critical because it will fund step 5:

  1. Use your incubator money to hire your gun programming mate for 6 months.

Here you will be giving employee number one $20,000 and equity in your company to get the rocket primed for launch. The point of doing this is so both of you now have a wage, so that you can both be laser focused on your business idea and don’t need to work on the side. You now have two of you to develop twice as fast and discover twice as quickly if your idea is going to work.

Obviously you’ll use best practices to refine your product, lean startup methodology, design led innovation, etc. However, the point is, you’ve got your money, office space and team to start kicking some butt. Doing it this way means that instead of knowing if something will work in 12 months, you’ve got double the man power to do it in 6. So if you haven’t done it yet, get out there and do this and launch your business in 6 months and know whether it will work or not instead of wondering what if…

Failure Success Sign

How You Can Really Turn Failure Into Disruptive Success

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After six months of hard work, we were sitting together on a warm spring afternoon enjoying a beer in one of Melbourne’s new hipster bars. We had learnt a lot, travelled all over Australia and met amazingly passionate people. We’d put together a lean startup with a focus to test a simple business idea and we’d heard countless times how much our tools were needed. There was only one problem. We had failed.

It was over. We’d decided to fold the company. Our hypothesis that Australian Manufacturers would collaborate as a means to an end and thereby solve their problems was false. We had tested it with a dozen SMEs and a group of billion dollar multinationals. In both cases we had failed to get the companies to commit. So we sat there and looked at each other realizing it was a failure we had to embrace and not a success. But how would we cope?

Our problem is one faced by everyone from lone entrepreneurs to global corporations. Things go wrong, perfected plans fall apart and momentum grinds to a halt. We were not alone. But everywhere we looked, phenomenally successful businessmen were telling us to embrace failure, to learn from it and benefit from its edifying nature. It was just when you were broke and had to admit to the failure, it seemed a lot easier said than done.

The lean startup methodology tells us to fail fast to learn fast. Iterate through the build, measure, learn cycle as quickly as possible to improve our product market fit. Top product developers opine on the benefits of failure. According to an article in the Journal of Neuroscience, the lack of success has even been proven to be a better way to lead to disruptive new ideas than success itself because it forces us to look for alternative strategies! The problem is no-one says what to do when it all goes wrong. What to do when you fail.

If we turn to statistics, then the best thing an entrepreneur can do is to get up and try again. Numerous studies show that a second time entrepreneur is more likely to succeed than a first time entrepreneur. In fact, in Business Insider it was been claimed that one of the reasons why Israel’s startup scene punches so much above its weight is that most entrepreneurs have a number of failures under their belts.

When we get to the bottom of it, innovation is all about taking risks. To drive innovation in large corporations it is critical to have a culture which embraces risk taking because the flip side of taking risks is that failures will occur. A company culture which demands innovation but does not support and accept failure is clearly one which is destined to fail. Obviously this is not to endorse failure due to sloppy work or avoidable mistakes. Failure arising from testing the unknown is the type of failure which can be valuable and must be allowed.

Jorge, one of the world’s top innovation bloggers, recognizes the importance and difficulty of failing. Having been part of a number of failed enterprises he wrote “[I]n order to figure out which ideas will work, people move fast to implement those ideas. I’d argue that more important than that is the ability to recover from failure just as fast”. So what I’d like to know is how do we quickly and sustainably recover from a failure?

To answer this we turn to the most reliable source of answers – cutting edge research. For companies the latest research points to creating frameworks to support failure. Whether that is failure tolerant leaders, collaborative innovation schemes to share risk or an empathetic corporate culture, Harvard Business Review listed many ways companies can support the necessary failure involved in any risky innovation. The benefits? Companies which develop such a supportive climate, and provide employees with psychological safety to pursue their initiatives and an article in the Journal of Organizational Behavior showed this has been positively related to a number of firm performance measures.

For startups and entrepreneurs one of the best way to deal with failure is to be realistic and not fall victim to the latest wave of romantic headlines about “youngest billionaires” ever. 90% of startups fail and this applies to you. If you don’t think you are the special 10% but one of the 90% and set yourself the goal of starting three or four startups from the outset (or at least pivoting three or four times), then you will be able to cope with the failures that much better. This has helped me significantly – to know I’m not a lone loser but just like everyone else. It gives me the edge to grit my teeth, dust myself off and go again.

In addition to that, I have spent the last few years thinking about how we can reduce this level of failure and the result is my new book “Innovation Tools”. It lays out a method to help companies innovate in a low risk way to avoid the one thing we have discussed here the most – failure.

Another strategy which worked well for me is to launch all three of my startup ideas at the same time while I was still validating the market for each idea. This not only brings you faster to your goal but a Harvard Business Review report even demonstrated that when pursuing multiple businesses at the same time, the failures in one business seem to help raise the chances of success in the other ventures! The added benefit is that it will force you to focus on the core of each business and help you stick to doing the minimum to test each idea instead of adding unnecessary bells and whistles too early – a core part of methodologies such as the Lean Startup.

Coping with failure is important not only for us psychologically but for the economy at large but many people simply don’t know how. As Jorge put it succinctly “Failure isn’t the goal as it relates to innovating. Rather, your ability to recover from failure fast is just as important as your ability to fail fast.”