Reducing Business Risk: Predictive Innovation Method
Every investor is concerned about risk. How do you accurately assess the risk of an innovation investment? Can you calculate an Innovation Quotient to measure it? How do you control your exposure to the risk? Can you reduce your risk and still maintain desirable profits? Yes, with the Predictive Innovation Method.
All traditional methods of risk management assume you can’t truly measure risk, thus you just try your best to reduce the impact of risk. Techniques such as diversification, or stage-gate assume you can’t measure the risk and must resort to trial and error. Basing your decision on past results also is inadequate, especially when dealing with innovation. As the disclaimer states, “past performance does not guarantee future results.” Any real innovation has no past performance; it’s new, that is the point.
Predictive Innovation Method reduces or eliminates the three sources of risk.
- Will the customers buy it?
- Can you profitably make it?
- Can you beat the competition?
The Predictive Innovation Method first converts customers’ subjective desires into precise objective outcomes. This allows you to measure how well each idea satisfies the current and future desires. This is essential because releasing a product too soon is as dangerous as too late. Once you have an outcome diagram you don’t need costly surveys. You can actually measure how well your product meets objective requirements.
The next step of Predictive Innovation Method shows you how to profitably make it and beat the competition.
All the solutions to any problem can be described by a set of 7×15 Alternative Matrices. Each of the 105 boxes in the Alternatives Matrix is an approach to solving the problem or satisfying the requirement. These 105 types describe every solution even if current technology can’t yet build it.
Since you can describe all the solutions there is no risk. You simply look at each alternative and choose the one that works. Plus you have every response to competition laid out ahead of time. You can design your product and business strategy so you can easily shift from one solution to the next always staying ahead of competition.
Perhaps best of all, you can accurately measure the risk and reward with an Innovation Quotient. Each box of the Alternatives matrix for each Outcome is an innovation. Some of them are on the market, others are Blue Ocean waiting to be developed.
To calculate risk, simply count the number of untapped boxes and divide by the total for an Innovation Risk Quotient. The higher your Innovation Risk Quotient the greater your chance of success.
To calculate value, use normal market size and value methods for each box then sum the available boxes. This is the real total available market. Since you already have detailed descriptions of each innovation you can accurately estimate cost providing you with Return On Innovation.
Predictive Innovation Method Maximize profits, Eliminates risk, and neutralizes competition.
Where to Start? Always Start With Customers!
I recently taught a short introduction to Predictive Innovation class for a group of design students at Eastern Michigan University (EMU). One of the students listed his biggest problem as, “not knowing where to start.” He had a product idea and hundreds of ways to approach it but he didn’t know how to begin to get it to market.
I must apologize to that student because I did not clearly answer his question. The correct answer of where to start is always, “Start With Customers!”
Outcome diagram the customers’ desires. Find the most pressing must be satisfied outcome then base your product and marketing around that desire. Make sure there are enough customers you can reach and who will pay for the product or service you plan to offer. If you can, pre-sell your product to them. Use their up front commitment to get financing to develop the product. That might mean actually having them pay or it might mean showing the width and depth of demand to investors.
Figure out what products the customers already own or use and try to use those as resources to develop your product. If they already own items that perform 80% of the tasks then its much easier for you to be an add-on rather than reinventing the wheel. For instance if they have a laptop with a USB connector then you can get power for your device from their laptop battery. Or you can use the keyboard and screen of their laptop to see and change settings in your small USB device.
Figure out all the desires that your product or future or generations of your product could satisfy. Look at the lifetime value of the customer relationship.
If you’re planning to partner with another company to get your product to market they are your customers as much as the end consumer. Draw the outcome diagram for all the desires related to buying and selling your product. Make sure you satisfy those outcomes.
The particulars of manufacturing or a design alternative over another are just details. The most important thing to remember, “Start With Customers.”
How are Predictive Innovation and Evangelism Marketing related?
The world business environment has fundamentally changed Customers can now both find and filter information to get what they want. This means traditional interrupt based advertisement is losing its effectiveness. At the same time customers can search the entire world for exactly what they want. Technology is also making it possible for customers to easily build more of what they want for themselves. So to succeed you need to:
Provide exactly what the customer wants, when the customer wants it, in the way the customer wants, and for the price the customer is willing to pay.
And you must communicate to customers you have what they desire while the customer is actively trying to ignore you because so many others are trying to get their attention.
Innovation gets you half way, but you can’t just innovate, you must Predicatively Innovate to stay ahead of the competition. And how do you communicate something new to people who are ignoring you? Search based marketing won’t work very well because people must first know something exists in order to search for it. That is why Evangelism Marketing is so important.
The great news is Evangelism Marketing doesn’t just introduce a new product; it builds the confidence of each level of user from early adopter to mainstream to late comers. But it’s not just a technique for selling. Evangelism Marketing guides the processes of innovation. In order to get customer to freely sell your product for you, you must first Make them so happy they want to do it. Giving them exactly what they want when they want how they want in the way they want for the price they are willing to pay is essential to Evangelism Marketing.
Evangelism Marketing is a relationship. You are helping someone by giving them information. They in turn give you back information and continue to spread the information you gave them. You might say surveys and marketing research does that, but it doesn’t. How do you get someone to take a survey? Often you can’t. Even with bribes it’s hard and the data is frequently heavily skewed. What about getting customers to freely spread the message? Traditional top down concepts don’t work in a distributed environment. More power, more widely spread is the wave of the future. There are HUGE opportunities for people willing to embrace it and horrible disruption for those that cling to the old way. Which will you be?
Predictive Innovation Training
Predictive Innovation: Core Skills Book
RoundSquareTriangle.com