Forget STEM – Australia Needs A Chief Technology Officer

Commercial innovation in the 21st century is very focused on IT engineering and much less so on science. By way of example, I would suggest that over 90% of Silicon Valley’s investments over the last decade have gone into IT start-ups. At the moment, science is considered very ‘20th century’ in the tech investment world. The reason is that the comparative financial rewards for investments in IT are much higher, and with lower risks. It will take some time before this equation changes – we have a mountain of IT opportunities to work through and it will take decades before science once again becomes a primary focus of tech investment.

The comparative problem with a science outcome as a focus of technology investment is the long time to market and the corresponding heavy capital investment required in the development phase. Investment in technology is measured by internal rate of return, which is ruined by large investments that have long periods before profits are returned. And this problem is even further exacerbated by the fact that IT solutions are returning higher ‘multiples’ – the perceived value of a working IT solution usually has a much higher relative value compared to a working solution based on a science outcome.

Australia’s well-publicised poor performance in innovation has very little do with science and everything to do with our corporate sector being users of IT technologies, and not vendors and exporters of IT technologies. They can afford to be so because of the implicit oligarchical environment in which they operate (e.g. four large banks, two large supermarket chains, etc) which to a large degree protects them from foreign competitors. Essentially they have no strong driving force to become global technology vendors because there are easier profits to made serving their protected Australian markets with off-the-shelf technology solutions.

If history is a measure, any solution to an innovation ‘problem’ that has an Australian government at its core is almost certainly going to fail. We have had program after program over the last three decades focused on innovation, knowledge nation, and various other catch-cries. And yet our high tech exports continue to fall as a percentage of our GDP. The reason is that government expenditure, focused on technology innovation usually starts with a misdiagnosis of the ‘problem’ followed by what could only be called a perversion of the process of remedy, i.e. it gets muddied by pork-barrelling and self-serving parties looking for government funding.

Contrary to oft-repeated pronouncements, Australia is not a risk-adverse nation. Indeed in mining exploration and other areas we are more than happy to invest in risky venture because we have been doing so for a century and a half and there is an investor class that fully understands the risks.

What we don’t have is large investment in tech-sector innovation because the return on investment into the tech sector in Australia, which has historically eked out a small existence usually with government support, has traditionally been very negative. This will not change unless our large corporations start becoming global vendors of technology solutions; without this driving force to create a local market for innovation assets, most of our high-value technology ideas (and their progenitors) will continue to disappear overseas and we will be left with the rump that ensures a negative return on investment. In this scenario our investors are not ‘risk adverse’ but ‘loss adverse’, i.e. very sensible indeed.

So do we actually have a problem? The only one that I perceive is that less than 1.5% of our exports can be considered as high tech, and this number is shrinking. We rely heavily on exports of resources and agricultural products, as well as imports of students and tourists. All of these revenue sources are susceptible to profitability and revenue cycles and if they all trend down at the same time we may be in a little strife.

Is there a role for government to fix the ‘problem’? Maybe, but only if the issue is handed over to a modern day Senator John Button; these political characters that can cut through the self-serving noise seem to be few and far between these days. The primary focus of any government-sponsored solution should be incentives, tax and otherwise, that act to get our large corporations into the business of exporting technology solutions to global markets. Short of this focus I can’t see the opportunity for meaningful change.

In terms of other actions, this country badly needs a Chief Technologist. We have a Chief Scientist but this role, absent a large corporate R&D sector, pretty much serves the needs of research institutes and universities. The widely publicised focus on STEM needs to be broken up into IT and SEM; STEM is an unholy grouping that does not recognise that a large fraction of IT innovation occurs in start-ups, SMEs and the corporate sector, and has very little to do with universities (other than training of the graduates that go into this sector). And finally, ‘Innovation and Science Australia’ needs to be supplemented with a body called something like ‘Innovation, Companies and Exports, Australia’.

Finally I would suggest that the success of any investment of public funds into the innovation ‘problem’ needs to measured in the context of high-tech exports. Without a quantitative metric of success it is all too easy for governments to invest in one failed program after another, with no carried-over learning.

Best Low Risk Innovation Tools For Your Startup – Free Book

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!

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

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.

How You Can Really Turn Failure Into Disruptive Success

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.

Why is the CEO of Australia’s largest massage company down on “innovation”?

Andrew Ward CEO 3 Minute Angels

Andrew Ward CEO 3 Minute Angels

Andrew Ward is the CEO of 3 Minute Angels Australia’s largest massage company and one of my old fellow members of Entrepreneurs Organisation.

Andrew is actively involved in shaping the debate on Crowdfunding and has created a community website to help stimulate discussion and formulate a submission for the Australian Crowdfunding Legislation review.


To answer the headline question, I’m not your average masseuse. I’m a seasoned entrepreneur and am immersed in crowd-sourced equity funding within Australia.

The risk of vanity when telling your own story is high, but I will try to be brutally honest with my assessment, and in doing so demonstrate something even better than “innovation”, it’s called: “a better service”.

It could be the key to successful start-ups.

It’s concepts like “provide a better service” that matter to a start-ups long term survival and not just “innovation”, which unless they are able to be patented and defended will matter only briefly, if at all.

Almost every start-up business has some level of innovation – so innovation is not in itself useful. If it were then more would succeed.

The same was true when I stumbled into the massage industry. Massage professionals have a similar or worse failure rate than start-ups – less than 10% of people with a massage qualification are earning their living from massage 2-years after graduating.

The massage industry constantly promoted “health” as it’s benefit. People would advertise the “health benefits” in marketing, masseuses would try and be seen as quasi physiotherapists or “healers” – it was definitely all about “health”.

Now I have a confession to make. I run the biggest massage company in Australia, but I’m not a qualified masseuse. So, I had none of the typically held beliefs about what massage stood for and we just started.

So, we launched a massage business in pubs and clubs. By targeting bars we didn’t have to compete with traditional masseuses and the customers were spending time and money in that environment . This was convenience – one key to “a better service” – and not “health”. (ED: I remember using the 3 Minute Angels in the early days, drinking beer with your mates and getting a massage, fantastic)

We made an innovative pricing policy of letting the customer determine the value of payment after the massage. We found more people said “yes” if not confronted with a fixed price and because its an instant gratification product we always got paid well.

This was considered “innovative” and 3 Minute Angels got its start. (Ed: this pay what you think its worth model was very innovative 13 years ago, long before this was experimented with by Rock Stars and Writers)

It wasn’t all that bad. In fact it was a blast, we had a great team and loads of fun. We had the classic hockey stick growth you expect of a digital business but we were a tactile, real-world business.

By bringing massage mobile – into pubs, airports and shopping centres – we had created “a better service” and were rewarded for it with growth.

But growth did not equate to profitability and after 6 years in the business-to-consumer massage market we found ourselves with high-visibility, low-margins and no profits.

By that stage however, we had made inroads with corporate Australia and provided them with massages in a new business-to-business model. We leveraged technology to allow us to manage the supply chain of masseuses across Australia and then integrated a lower-cost management team from Manila.

Profitable despite the GFC we had started to lose revenues and sought to expand our product offerings. We opened a new brand called “Workplace Incentives” convinced that businesses spending money with us on massage would also want to buy one of the now 178 other products we stocked.

We stuck with this ill-conceived strategy for too long and sales were now below $1m per annum, which was a third of it’s peak. We had tried “innovating” with the Workplace Incentives brand and business model and we had got it wrong. We had invested hundreds of thousands in this innovative idea.

This was a bit of ‘black’ time for me as a business owner and entrepreneur because I had listened to the keynotes, read the books and drunk the “kool aid” on “Innovation” and yet it wasn’t paying off. I was trying to innovate and serve up to my existing database new products that rationally they should have wanted.

I wasn’t the masseuse selling “health” but I was the entrepreneur selling “innovation” and it had the same result.

The breakthrough came as a “slow hunch” – as these things so often do. It occurred to me that “innovation” is nothing but a weasel word. It’s used as a “can’t think of another word filler”. And when you can’t think of that other word and you use the “innovation” word, it probably means you don’t have a real value proposition.

I had been addicted to innovation and now like any good addict had to admit my problem before I could get over it.

It took a few months as recovering innovator to get to grips with the more meaningful side of business like “a better service” or “easier”, “more convenient”, “trusted”.

But, we started small when we worked out that we could no longer go on with this “innovation” ruse. We started to use an iPad and web-application to improve the massage consent, insurance and legalities that come with our business.

This new “digital worksheet” in turn would provide us with a new type of interaction with recipients and add their email addresses to our database. But the final piece of the puzzle fell into place when watching a TED Talk by Jane Magonigal:

[ted id=1501]

This fantastic talk taught me the value of games and of building resilience. With the iPad in the hands of recipients during their massage we could actually, with a scientific straight face, claim to add 7.5minutes extra life expectancy per massage that we performed.

Our interaction with each person we massaged (we do 5-minute massages even though we’re called 3 Minute Angels) was ‘life generating’. This was “innovation” again, but being wise the innovation trap I was still looking at what else could be done that took this “innovation” and make it more enduring.

The answer was elegantly simple. Granted, it could only meaningfully be applied when we introduced the technology of the “digital worksheet”.

By simply asking the person whom we massaged how they felt before the massage and then asking them again how they felt after the massage we were able to generate a customer-by-customer assessment of the service quality we deliver.

It sounds simple because it is. We asked people to assess themselves on a mood scale.

How do you feel? 3 Minute Angels

How do you feel? 3 Minute Angels

In aggregate these self-assessments tell a picture of the mood of the office prior to the massage and tell a great story about the difference the massage has made to the mood of the office.

In the hands of a switched on HR or Office Managers, this sort information becomes gold…

This finally has made us “a better service” we could offer to clients. Thanks to the use of technology like the iPad and innovation such as the multi-media presentation we provide during the massage, we now had something to start with – but the thing that is working (again) is “a better service”.

Better Service is something clients prefer compared to the “innovation” they didn’t ask for.

The corporate and event clients that book 3 Minute Angels now receive a Key Contact Report that details the pre and post mood scale, person-by-person and provides useful metrics like how these data points relate to previous visits.

Mood scale graphs - 3 Minute-Angels

Mood scale graphs – 3 Minute-Angels

Clients and teams that use our service are buzzing off the visibility Angels get into the staff via self-assessment, when compared with the visibility management gets when assessing staff and culture.

Would you tell your boss how stressed you are?

All this buzzing is paying off too with re-bookings and referrals going through the roof. December now looks to be a bigger month than November and that has never happened in the 13 years of this business.

The 3 Minute Angels business is probably more tech-savvy than most massage companies and we will happily take the moniker of being “different”, but what really is going on for us in the massage industry is the same as goes on in every industry.

You see, what works for our 13-year-old company is the same as what will work for your start-up, that is provide “a better service”.

If your business plan contains the words “innovation” but not “better service” then I fear that your business will be the one that becomes one of the statistics of “failed” tech start ups that by far and away make up the majority of all start ups.

If your business offers “a better service”, then you stand every chance of making it.

Good Luck.



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