Innovation and risk

I recently saw a tweet (I still feel silly saying that word, haha) by someone asking whether innovation was about “small companies, having limited resources and limited time coming up with great ideas”.

I think there’s an enormous disconnect with the idea that innovation comes from these things.

Innovation is about coming up with ideas that disrupt the ways things are done or drastically improves a consumers life. And what they require BY DEFINITION is risk.

If an idea has a 100% probability of being a blockbuster, it is highly likely that that idea will have already been tried and will be in the market.
Conversely, if an idea has a 1% chance probability of being a blockbuster, it is highly UNlikely that someone will have tried this.

The ability to come up with an innovation (ground breaking, blockbuster, whatever you wanna call it), depends on how RISKY you’re willing to be.

Now for the good stuff. Small companies are naturally more risky. They HAVE to be, they have the leeway to be, they don’t have to the protocols in place to make them shy away from it, they don’t have shareholders to answer to or breathe down their neck.
Start-ups are risky. That’s why many do well extremely well and create innovative things. And that’s ALSO why many die.

Large companies are naturally less risky. They have incentive to be. They have figured out a way to win and any large deviation from that winning strategy could mean they lose their core business.

HOWEVER, large companies command the resources to make them innovative. ¬†Innovation is about failure. It’s about trying all the new and good ideas you can imagine, expecting most to fail and some to be amazing breakthroughs. But companies are not setup like this to accept failure. They reward people who simply do well, so everyone at large companies has incentive not fail even a single time.

The best advice I’ve ever heard about running a company is to fire people for NOT failing… Take that with a grain of salt, but you get the idea. Put up a gambling fund, allow for pet projects that are crazy and expected to fail, have crazy leaders that foster free thinking, brain storm like its the wild-damn-west, built things up and don’t be afraid to smash them down. Whatever tactic you take, the strategy should be: Get 100 good ideas. Expect that most will fail. Enjoy the ones that hit big. And reward people for good process work, not necessarily pure results.

And so it’s the small companies that will usually bring about innovation. But it does not have to be this way. Big companies have an opportunity.

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