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Taking Calculated Risks

“Taking Calculated Risks”

So many ideas, so little time. How do you decide which innovations are worth pursuing?

This is the second part of a story on innovation. In October entrepreneurs shared their methods for gleaning feedback.

"There’s no shortage of inventions out there," says Thomas Nardone, founder of Isdera Corp., a $1.5 million Web retailer in Livonia, Mich. "But there is a shortage of analysis."

Nardone believes the key to innovation is "white space" — a hole in the market that you or competitors aren’t serving. To determine where that white space is, Nardone turns to graphs.

Example: ShopInPrivate.com, Isdera’s flagship Web site, specializes in items that may be embarrassing to buy in brick-and-mortar stores, ranging from hemorrhoid creams to sensual products. Before launching the site in 1998, Nardone charted his potential competition:

  1. First he drew a horizontal line representing the spectrum from public to private shopping environments.
  2. Then he drew a vertical line representing the gamut of products that could be considered embarrassing.
  3. Finally, Nardone mapped where various competitors fell along the two axes.

His chart indicated that adult stores were moving toward a more private shopping environment by going online, but there weren’t many places to buy pharmaceutical products discreetly. "We knew that we couldn’t compete head-on with drug stores once they moved online, which was only a matter of time," explains Nardone. "But we thought there was a lot of middle ground between drug stores and adult shops that we could cover."

Graphs enable you to convey a lot of information quickly, which "helps everyone get on the same page," says Nardone.

Chart 1

Charting opportunities

Another proponent of charts is Fred Lisy, COO of Orbital Research Inc., a $2 million R&D company in Cleveland.

Two years ago Lisy implemented a formal evaluation process for product development. His staff examines new-product ideas along two dimensions — their ease of execution and impact on potential markets — which causes ideas to fall into one of four categories:

  • Quick wins. Products that will have a high impact in the market and are easy to execute.
  • Must haves. Products that will have a high impact in the market but are difficult to execute.
  • Low-hanging fruit. Low impact, easy to do.
  • Money pit. Low impact, hard to do.

"This really helps us decide where to invest our limited resources, which include manpower and money," says Lisy. He hopes to find "quick wins" because products with high impact and ease of execution translate into big financial payoffs. Unfortunately, there aren’t many of those around, so Lisy also targets "low-hanging fruit" or "must haves."

When it comes to the "must haves," difficult execution isn’t necessarily a negative because it may be why larger companies, which are slower to respond, aren’t already in that market. As a smaller company, Orbital has an edge by being able to modify products faster and integrate innovative technologies.

As for "low-hanging fruit," Orbital may be able to produce a cost-effective product for a market that is too small for big companies to consider. "A small business may consider $10 million in sales a very good payoff, but big companies would not reap their return on their investment," says Lisy.

Lisy’s evaluation process forces objective decisions on which markets and products to pursue. "The reality of product development is that the people closest to the product sometimes overestimate its potential," he says.

Chart 1

Road test with a customer

Road testing a new idea with customers can mitigate risk.

At Cristek Interconnects Inc., a $12 million manufacturer of electronic connectors, much of the company’s work is semicustom. Yet whenever the company moves into a new area, it approaches a customer who might have a potential application and involves them in the development process. "That way, you get immediate feedback and have some initial funding," says Cristi Cristich, founder of the Anaheim, Calif.-based company. "Also, the customer may have additional resources that can help you, such as better testing labs."

In fact, Cristek’s nano connectors, one of its most rapidly growing product lines, started five years ago with one customer.

"My background is in marketing, not engineering," says Cristich. "I much prefer to be out with customers, learn what they need, and then let something evolve that fits those needs. The results may not be as technologically innovative, but we know there’s a home for anything we make."

Let ideas marinate

Haste makes waste, says Brian Scudamore. The founder of 1-800-Got-Junk?, a $12.5 million junk-removal company in Vancouver, Canada, Scudamore adopted a more analytic approach to innovation.

Scudamore used to implement new ideas whenever they struck. But about two years ago, an employee approached him. "He told me I was driving everyone nuts with ‘flavor-of-the-week’ ideas," recalls Scudamore. "That was a real turning point."

Scudamore began to practice "controlled innovation." When he has an idea, he writes it down in a book — and encourages employees to do likewise. Then at quarterly retreats, management discusses and evaluates those ideas. If an innovation still seems to have merit, it’s prioritized and work begins.

"I’ve learned that you don’t have to act on new ideas right away. If you give yourself time to think of that innovation as a part of your business, you’re better able to anticipate and correct flaws," adds Scudamore.

Alternative perspectives

Consider subjective reasons as well as objective ones when pursuing a risk, advises Mark Vlassopulos, founder and chairman of Daedalus Group, a $15 million company in Singapore that specializes in resort and leisure development.

That means not only asking questions such as "Does this fit our growth profile?" and "Can we fund this?" but also "Is this stimulating for me and my organization?" and "Will it be fun?"

"If a risk aligns with your corporate culture, then it can feed the company spiritually as well as financially," says Vlassopulos.

The fun factor was partly what drew Vlassopulos to his current venture — the development of an indoor snowboarding center in Las Vegas.

To mitigate risk, Vlassopulos tested his concept by seeking the opinions of industry insiders — ranging from top athletes to television executives.

Discussions with such "industry influencers" give you a very different perspective on whether or not your idea will fly, says Vlassopulos. And involving them in the development process can help win their support. "But you’ve got to listen intently," he cautions. "You can’t engage in selective listening, or their input won’t benefit you."

Writer: TJ Becker.