Innovation is critical for startups as it provides a competitive advantage over larger established companies. For startups to innovate effectively, they must focus on three key areas: ideas, experimentation, and customer intimacy. Ideas can come from identifying problems, observing waste or discontinuities, or understanding unarticulated customer needs. Experimentation is important to validate assumptions through low-cost, high-speed trials. Customer intimacy involves gaining deep insights into customer experiences and emotions. Startups also need to ensure they capture value from their innovations through continual improvement, product platforms, or legal strategies like patents. Being a first mover provides advantages if it helps build reputation, creates cost advantages, or makes imitation difficult.

1. Innovation for Start-ups
Rishikesha T. Krishnan
November 10, 2012 Professor & Area Chair, Corporate Strategy & Policy, IIM Bangalore

2. 2 What is Innovation?

3. What is Innovation?
3
Innovation = Invention + Application
The Traditional View

4. What is Innovation?
4
Problem + Idea + Execution + Benefit
Challenge? Novelty Utility
Application of new ideas to
solve problems resulting in
benefits to users

5. Solving Problems…
5
How do you provide clean
drinking water at low cost?
How do you convert an existing
car into a hybrid?

6. What are the different types of
6
innovation?

7. Innovation could be…
7
New to the New to the
company country
New to the New to the
industry world

8. Prominent Innovations
8
Petroleum Long-distance
I C Engine
Refinery telephony
Electric arc Information
Nylon
furnace Technology
Semiconductor
Microprocessor Internet
foundry
Do you see a pattern here?....

9. Prominent Innovations
9
Product Process “Enabling”
Petroleum Long-distance
I C Engine
Refinery telephony
Electric arc Information
Nylon
furnace Technology
Semiconductor
Microprocessor Internet
foundry

10. Prominent Innovations
10
Joint Stock Company
What’s
special
Multi-divisional
about
Organization
these?
Global Delivery
Model (Software)

11. 11 What are the other types of innovation?

12. Innovation Typology
12
Product /
Offering
Business Types of
Model innovations Process
Customer
Experience

13. The Six Levers of Innovation
13
Value Product &
Proposition Services
Business Technology
Supply Process
Model
Chain Technologies
Target Enabling
Customer Technologies
Source: Davila, Epstein &Shelton, 2006

14. Incremental vs. Radical Innovation
14
Incremental
Radical Innovation
Innovation
• Requires new knowledge &
• Builds upon existing
resources
knowledge & resources
• Existing competence loses
• Competence-enhancing
value?
• Relatively small changes
• Step changes in
in performance / utility
performance
• The lifeblood of innovation?
• Relatively rare

15. The Power of Incremental Innovation
15
“There is no genius in our company. We
just do whatever we believe is right, trying
every day to improve every little bit and
piece. But when 70 years of very small
improvements accumulate, they become a
revolution”
From Interview with Katsuaki Watanabe
in HBR, July-Aug 2007

16. Existing companies are good at sustaining
Innovation, but newcomers are better at
disruptive innovation

17. 17 Why is innovation critical for start-ups?

18. What is the advantage of a start-up
vis-à-vis a large company?
18
As organizations mature over time
Bias towards Balance creativity Focus on
creativity & value capture value capture
Challenge for Challenge for
startup companies mature companies
Innovation is the critical differentiator for a start-up

19. But start-ups in India…
19
 Tend to fall in “no-man’s land”
 No breakthrough technological innovation
 Lack clear understanding of customer domain /
application
 Even if they come up with one good innovation,
struggle to come up with another!

20. THE RAW MATERIAL FOR
INNOVATION….

21. The Raw Material of Innovation
21
Ideas
Experiments
Customer Insights

22. IDEAS

23. WHERE DO YOU LOOK FOR
GOOD IDEAS?

24. 24
Gandhiji was asked:
What have been the most creative
experiences of your life?

25. 7 June 1893, Maritzburg railway station
25

26. 26
“Why is so much steam getting wasted?”
James Watt, 1765
“Are you serious? It means
computing will be free”
Bill Gates, 1971, at age 16 to Allen on hearing “Moore’s law”

27. 3 sources of itch
27
Pain Wave Waste

28. The Four Lenses of Innovation
28
1. Challenging Orthodoxies
 Question dogmas about what drives success
2. Harnessing Discontinuities
 Spot trends that could change the game
3. Leveraging Competencies & Strategic Assets
 Think of organisation as a portfolio of skills and
assets, not in terms of products and markets
4. Understanding Unarticulated Needs
 Learn to live inside the customer’s skin
Source: Skarynski & Gibson, 2008

29. Buyer Utility Map
Stage Purchase Delivery Use Supple- Maint- Disposal
29
Utlility ments enance
Customer
productivity
Simplicity
Conven-
ience
Risk
Fun &
Image
Envir
friendli.
Another source of ideas is to look for blank spaces on the buyer utility map

30. EXPERIMENTATION

31. 31
What is an experiment?
Activity that validates assumptions

32. 32
What kinds of assumptions does an
experiment validate?

33. Improve the Idea Velocity
33
Experiment with Low Cost at High Speed

34. 34
Feb 2004
Sep Nov Apr 2004
2003 2003
impact
demo
idea
itch
Feasibility Loop Viability Loop
2 months 3 months 2 months

35. Will people use Internet?
Need
Can we 4 types of Do we have the
Commerci-
monetize lization
assumptions
Technology
technology
of every to create Internet
this? risk
idea
apps?
Production
Can we scale this?

36. Iterate on the Business Model
36

37. Google’s search sandbox
37
Guess how many experiments were
carried out in 2010?
20,000!
How many went live? 500
Source: “How Google makes improvements to its search algorithm?”, YouTube video

38. Create a Climate for
38
Experimentation
 Have a high trial rate: fail fast, learn fast
 Can you do the “last” experiment first?
 Failure plays a critical role in innovation
 Post-It Notes & failed adhesives
 Nylon: a lab experiment that went wrong
 TVS Spectra failed, but Victor succeeded

39. Avoid the “Failure Fallacy”
39

40. CUSTOMER INTIMACY

41. Source: H. Rao, Stanford GSB, 2007
Importance
to
customer
High Disguster Delighter
Low Annoyance Frills
Negative Positive
A Relentless Focus
41
on User Experience is Critical Emotions

42. 42
 Big Bazaar: India’s Largest Hypermarket Chain
 Part of the Future Group (Kishore Biyani)
 Philosophy: Rewrite rules, retain values
 India: Confidence & Change → Consumption
 But consumers here demand ideas and solutions that are uniquely Indian
 Inspired by Saravana Stores, Chennai
 Low margin, high turnover model
 Possible to operate on multiple floors
 Has to be located in the city, near transport points
 People come shopping in families – meet needs of entire
family

43. HOW DO YOU MAKE SURE
YOU “APPROPRIATE” THE
VALUE OF INNOVATION?

44. The Problem
44
 Google created a powerful search engine, but
couldn’t monetise it until it created its advertising
model…
 Mobile VAS applications is a popular area for
start-ups in India, but its difficult to squeeze money
out of mobile operators (remember Porter’s 5-
forces?)…
 In financial services, innovations can be copied
almost overnight…

45. Innovation Value Appropriation
How do you
appropriate
value?
Product-Market Continual Legal (IP)
Actions Innovation Strategy
Standards Continual Improvement Patents
Barriers to Imitation Cannibalization Copyright
Collaborative Product Platform Trade Secret
Agreements Radical Innovation Trademarks
45
Adapted from Grant

46. Inimitability/Complementary Assets Framework
Holder of
complementary
High Difficult to
resources makes
make money
Money
Ease of Imitation (Coke)
Party with
Low
Inventor Innov .+ Compl.
makes resources makes
money Money
(Pixar vs Disney)
Freely available Tightly held
or unimportant and important
46 Complementary Assets
Source: Afuah, 2004

47. WHEN DOES BEING “FIRST-
MOVER” HELP?

48. FIRST MOVER
ADVANTAGES

49. Being first succeeds when…
49
1. Pioneering helps build a firm’s reputation and
image with buyers
2. Early commitments to new technologies, channels,
etc. can produce an absolute cost advantage
3. First-time consumers remain strongly loyal to
pioneering firms in making repeat purchases
4. Moving first constitutes a pre-emptive strike
making imitation more difficult

50. FIRST-MOVER
DISADVANTAGES

51. Late movers benefit when…
51
1. Pioneering leadership is more costly than imitating
followership and only negligible experience
benefits accrue to the leader
2. Products of the pioneer do not live up to buyer
expectations so that a follower can win customers
away from the pioneer
3. Technology is advancing rapidly so that followers
can leapfrog pioneers with second or third
generation products

52. LIMITATIONS OF
PATENT STRATEGY

53. Robert Kearns & the Intermittent Wiper
53
 Kearns invented first intermittent wind-
shield wiper for cars in the early 1960s
 Filed patent application in 1964
 Tried to license his technology to
auto majors but, no one took a licence
 Majors introduced their own wipers 5 years later
 Kearns filed patent suits against Ford, Chrysler
 Won suits only in early 1990s…divorced…almost
went mad
 See 2008 movie Flash of Genius

54. 8 Steps to Innovation Excellence:
Building a Systematic Innovation Capability
3 Improve
Batting Avg
1
Build a
pipeline
2 Improve idea velocity
Forthcoming book by
Vinay Dabholkar & Rishikesha T. Krishnan

55. http://jugaadtoinnovation.blogspot.in
55

56. THANK YOU
rishi@iimb.ernet.in +91 98450 22710