Hundreds of millions of startups are launched every year in the world, but not many make it past this point. In the first year, the average business failure rate is 10%. From the second to the fifth year, approximately 70% of new businesses do not survive.
In Canada, approximately 20% of startups fail in their first year, and 60% fail within the first three years.
So, what are the 10-20% of businesses that not only survive, but thrive, doing differently?
They stay innovative, naturally!
What Does it Really Mean to be Innovative as a Business?
Innovation simply means a new approach. It can be a better product, a different way of doing things, or a new business model. It doesn’t necessarily have to be novel or unique; it could even be borrowed from another company!
Innovation allows companies to meet the changing needs of customers, stay competitive over long periods of time, keeps employees feeling creatively fulfilled, ensures resources are effectively utilized, and value is maximized.
In fact, BCG’s ‘Most Innovative Companies 2023’ study also reinforces for the 3rd year straight, that companies emphasizing innovation and ensuring their readiness to implement it consistently widen the gap over their less adapt competitors.
However, being innovative and staying innovative, is easier said than done. ‘Innovation’ can take many different forms and doesn’t just look one way. Innovation can be:
Incremental: Where businesses continuously make minor changes to enhance efficiency, process or product. Generally, this is a culture embedded into the business, not requiring separate manpower or long time frames to execute. A prime example of incremental innovation is the iPhone. Even though smartphones were already on the market before Apple’s debut, it was their subtle enhancements like a more extensive touchscreen, the introduction of the app store, user-friendly features, and overall experience that truly popularized smartphones for the masses.
Expansive: Where businesses venture into new areas unexplored by competitors. These innovations tend to require longer periods of time. For example, Adidas collaborating with environmental group Parley for the Oceans to produce shoes made from recycled ocean plastic, expanding its brand into sustainable products.
Disruptive: Generally a paradigm-shifting innovation that reinvents products or services, forming a brand new business model. For example, Netflix at the peak of it’s DVD-by-mail service with 20 million subscribers, turned a mail-order business into a tech-company by offering streaming services to their customers.
Innovation can even choose not to fit into any of these boxes, like Google’s Principles of Innovation. Google claims innovation is in their lifeblood, and every Google employee is encouraged to innovate. For example, Gmail started as a single engineer’s pet project, and Google Drive also started as a small project inside Google. Both these products are now a core part of Google suite serving billions of users.
Time and time again we have seen even the most promising, successful businesses struggling to overcome challenges, because of lack of innovation or innovation gone wrong.
Blockbuster was the titan of the video rental industry, as it became known worldwide by the 1990’s. However, as services like Netflix began streaming content, Blockbuster was slow to adapt to this new mode of media consumption. They believed customers preferred the physical store experience, including unboxing items and social interactions. This hesitancy to go digital allowed Netflix to overtake them. Blockbuster clung to its brick-and-mortar business model, and by the time they attempted to transition into digital, it was too late. Blockbuster declared bankruptcy in 2010, while Netflix became a streaming giant.
2. Toys “R” Us
Toys R Us also serves as a cautionary tale. For many, the store was a childhood haven, yet, with the rise of online shopping consumer preferences shifted to the convenience of buying online. Rather than embracing this change, Toys R Us resisted, even outsourcing their online sales to Amazon. This decision inadvertently bolstered platforms like Amazon and Ebay, which offered greater convenience and often lower prices. Ultimately, Toys R Us filed for bankruptcy in 2017.
For two decades before the pandemic, Skype was synonymous with video communication. It should have dominated pandemic communications too, but it was far away from that reality. After Microsoft acquired Skype in 2011 for $8.5 billion, they tried to make it compete with everyday communication apps like Whatsapp and Snapchat. However, in doing so, they compromised its core functionality of reliable video calling. By 2017, Skype’s average app store rating dropped from 3.5 stars to 1.5 stars. Meanwhile, platforms like Zoom focused on enhancing their call quality and adding relevant features.
As the COVID-19 pandemic hit, Zoom took over and Microsoft planned to retire Skype, with Teams taking over its functions. While Microsoft might see Skype’s acquisition as successful, early adopters of Skype were disappointed.
A renowned name in the corporate world, GE has faced many challenges since the 2008 financial crisis. The GE Capital division disastrously misjudged the energy market and heavily invested in fossil fuels just as global momentum was shifting towards cleaner, renewable energy sources. A chain of bad decisions kept straying the company away from where energy innovation was moving.
These missteps and many more made the company lose hundreds of billions, forced the CEO Jeff Immelt into early retirement and cost his successor, John Flannery, his job after less than a year. As of 2021, GE, which was a behemoth that dominated electricity, lighting, aviation, television, radio, music, appliances, finance and health care, only has 3 separate publicly traded companies – aviation, healthcare and energy.
Source: The Sun
In 1984, two Canadian students, Mike Lazaridis and Douglas Fregin founded Research in Motion (RIM). They ventured into various projects, eventually focusing on mobile communication. By 1996, RIM introduced its first two-way pager, and by 2002, a phone-like device. In its prime, BlackBerry held 50% of the US smartphone market and 20% globally. However, as competitors like Apple innovated rapidly, BlackBerry prioritized gradual improvements over major innovations, leading to its slow adaptation in a rapidly changing market.
Although Canadian company OnwardMobility did offer to revive Blackberry phones with a 5G keyboard-equipped Android device, that plan did not survive the pandemic. In a press release on December 22, 2021, BlackBerry announced that it was shutting down its remaining services.
Lessons Learnt from Companies That did not Innovate:
1. Adapt to Industry Shifts:
It’s not just about acknowledging technological and market advancements, but also about taking proactive measures. Successful companies remain vigilant about industry changes and respond with agility.
2. Understand Your Core Strengths:
Diversification can open new opportunities, but companies should be careful to not compromise their original value proposition in the name of innovation. Brands must recognize and nurture their unique strengths.
3. Avoid Overreliance on Legacy Strategies:
While tradition and legacy strategies have their merits, rigid adherence can make a company stagnant. Today’s companies need to re-evaluate legacy strategies regularly, ensuring they remain relevant in the modern context.
4. Anticipate and Embrace Market Evolution:
It’s become insufficient to react to industry changes; anticipation has become pivotal. Forward-thinking companies actively invest in market research, trend analysis, and forecasting to ensure they’re prepared for, if not ahead of, market evolutions.
5. Balance Stability with Rapid Innovation:
While customers appreciate the stability and reliability of products, they also seek innovation. To thrive, companies must find the balance between consistency customers rely on and the innovation they desire.
The time is Ripe for Innovation Again
Two years post-pandemic, once again, the world finds itself on the brink of an unpredictable global scenario with looming macro-economic conditions. This has prompted businesses to tread with caution.
According to BCG’s ‘Most Innovative Companies 2023’ study, innovation surged as a top corporate objective in 2023, with 79% of firms placing it in their top three priorities. The leading innovation avenues include product development and the exploration of adjacent business models. Notably, 62% cite cost as a primary innovation driver.
While most companies adopt a cautious approach, focusing on incremental core innovations, an emerging group of ‘innovation-ready’ companies are prioritizing radical breakthroughs. For these firms, innovation is at the core of their growth strategy.
The study also reveals that success in innovation hinges on three tenets:
- Prioritization of innovation
- Committed investment
- Effective conversion of this investment into tangible outcomes.
In essence, it’s clear: the frontrunners in the business world of 2023 are those that aren’t just participating in the innovation race but are defining its very direction.
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