What do you get when you combine innovation with cost-cutting? Costovation.
The best innovations reduce costs while adding value at the same time.
PHOTO CREDIT: Getty Images
With all the hype these days around the impending disruptions on the horizon such as blockchain, artificial intelligence, augmented reality and the like, it's natural to assume that breakthrough innovation requires breakthrough technology.
And if you consider the mind-boggling burn rates of recent innovation icons like Uber, WeWork, and MoviePass, it's also easy to assume that monstrous investments are needed to grow a successful new venture.
In today's PR buzz-based world, we need a gut check when it comes to innovation
Is innovation really all about breakthrough technology and big financial investments? For most entrepreneurs and new ventures, it isn't at all.
As I tell my executive education classes, business strategy is as much about what you don't do as it is what you decide to do. In a similar vein, when it comes to innovation, the future is about doing less, not more.
Whether you're creating a new product, service, process, or business model, innovation is about keeping an eye on costs while pushing forward to create novel new solutions.
The whole "lean" movement has focused on the concept of scrappy innovation for a while, but I recently came across a new book by Stephen Wunker and Jennifer Law called Costovation: Innovation That Gives Your Customers Exactly What They Want--And Nothing More that does a good job at highlighting approaches anyone can use to reduce costs while adding value to customers.
Here are 12 strategies to use for innovation no matter what you're doing:
- Simplify your product. Focus on just the features that matter to your customer, and have the conviction to cut the rest. The gym chain Planet Fitness chooses not to offer extensive free weights, instead filling that space with cardio equipment--which is what its target users want.
- Take your customers behind the scenes. Operations don't need to be sealed off; sometimes they can actually enrich the customer experience. At Build-A-Bear Workshop, for instance, kids go crazy for the privilege of being able to stuff their own teddy bears.
- Leverage external innovation. Work with other companies to lower the costs--and the risks--around new product development. This is also known as open innovation, and it can take many forms ranging from idea competitions to longer-term partnerships or equity investments.
- Rethink waste. Create new uses for it, incorporate it back into your product, or find a way to have it stand out as an offering on its own. One of the primary ingredients for DuraFlame logs (a $250 million a year business) is humble, leftover sawdust.
- Sell straight to the customer. Vertically integrated businesses like online eyeglass retailer Warby Parker and clothing-maker Everlane circumvent traditional middleman retailers at great cost savings to themselves and their customers.
- Don't underestimate the power of self-service. Have you noticed all the airport restaurants with self-service tablets planted into the tables? Travelers in a rush love that they can order, eat, and check out fast, all without having to flag down a waiter.
- Tap into people's desires to help others. When customers really love the products they use, they are happy to spread the word and teach other users how to use them. Companies such as Intuit and Atlassian have created online spaces to facilitate this kind of informal "customer service."
- Focus on services, not the goods. On-demand alcohol-delivery service Drizly, for instance, bypasses legal formalities because it never touches the drinks. Instead, it manages an asset-light marketplace that connects liquor retailers with individual customers.
- Unbundle your pricing, isolating the most expensive parts of the business or customer experience. By being upfront about your cost drivers, you give your customers the option to help you cut your own costs.
- Share costs in your supply chain. If you have excess capacity--perhaps on your trucking backhauls or in your warehouses--explore how you can share that space (and its costs) with others.
- Get paid early. Alinea, a three-Michelin-starred restaurant in Chicago, has its guests pay at the time of booking. That way, it knows exactly how much food to order and it can make sure every seat in the restaurant will be filled.
- Treat your suppliers like customers. Helping your value chain become more productive helps you serve your own customers better, faster, and more efficiently.
Delivering a solid customer experience is key to building a thriving business. But creating that experience doesn't have to involve the latest gadgets, technologies, or a multi-million-dollar fundraising round. Instead, innovate how you conduct your business. Deciding what you'll do and how you'll do it - and what not to do - is as important the thing you're selling. That's "costovation."