Dashboard: Do Small Businesses Have to Innovate to Succeed?

[Music] welcome to another 21 hats dashboard I'm here with Sean busy who is CEO and founder of Kinesis which is based in Portland Oregon and works with small businesses on marketing culture and strategy welcome back to dashboard Sean hey good to see you Lauren great to have you here Sean I want to talk today about Innovation a topic you recently brought up I I think we can all agree that Innovation is a very good thing that if you can find new ways to do things and create new products and services that people will pay for it that's that's a good start to building a business however I sometimes think that we and I'm especially referring to people like me and the media I think we sometimes overrate Innovation I think we lose sight of the fact that you can build a successful business and create generational wealth and live a happy life without innovating anything um I was thinking about that because you sent me an email recently in which you suggested that businesses need to adopt a posture of what you called constant Innovation tell me about that what are you thinking sure yeah um and I think I start by saying there's some truth in in that the hyping of innovation is real you know like look at the cover of like Forbes and you'll see all these people that some of whom go to prison for their quote unquote Innovations I'm not there anymore you can't blame me yeah so so I I I'll totally acknowledge that you know I think there you know as I've thought about this I think there are three really good reasons to uh push more innovation in your organization so uh one is internal and two are external so the the first internal one and the one I love the most is that uh really great Innovation can help you fulfill your mission just more effectively right you can serve more customers you can help your mission you know you can just do more good in the world you know and so I think that's a a real benefit of great Innovation you know you can uh generate more income more profitability pay your people better yeah can I stop you for a second yeah yeah can you maybe Define how broadly you're thinking in terms of innovation when you say that is innovation a product we've never seen before or a process that a business uses to operate more efficiently what are you thinking of as Innovation yeah I I have a very broad definition of innovation so I I tend to think of it as as the offering itself um how you bring that offering to Market um how you service your customers all of those things are great places to find Innovation and uh there's I mean I I can you know aside from the reasons that you know I can say like like I like to use in marketing there's a concept of the four Ps this is kind of an old idea but I think it's still pretty relevant right which is that you know the the four Ps are product uh price uh uh uh position and and uh promotion right so in marketing right you have a product what is you want to sell how you want to price it that's easy where are you going to promote it you know at where you going to place it at and how are you going to promote it so am I going to put it on Facebook am i g to run an ad in the Yellow Pages am I gonna you know do direct mail so most people and they're thinking about marketing are thinking about uh promotion and placement they're thinking about you know say digital marketing where can I put ads or how can I promote the thing very few people actually look at the product and the price and I actually think that's a place of tremendous potential for Innovation that that's been my experience with the small businesses and the owner run businesses that we we service and so um good good example right so I know a guy here locally that runs a hops business right it's a commodity right hops for brewing beer and he's like fourth generation you know which is pretty remarkable to kind of make something last that long and you know to his credit he innovated a couple things one is he pelletized the Hops which is like a thing that wasn't being done so they became a smaller unit easier to ship easier to get to people which then also enabled him to make smaller packages that he could sell instead of you know giant containers of hops so he's decomod himself right he's changing the fundamental product from like a giant bin full of hops to these tiny little pellets which can be bought in small amounts which just so happens to work really well with a craft Brewer mindset right we saw the rise of craft brewing what a cool thing right innovating the product how it's sold escaping the commodity trap providing greater value to the customer so you don't have to buy huge packages you can buy small amounts and run experiments on new beer so that's a really good example of like small business Innovation not not sticking to what's known that's a great example do do you know what drove that Innovation I mean was the company successful before or did it have to find a way to do something differently my guess is like a lot of he's a smart guy I really like Blake a lot and and my guess I haven't asked him you know I I would love to have this conversation but my guess is you know he's my age Gen X guy he witnessed you know sort of the rise of globalization and and he probably saw there's no reason people can't buy hops from China or from Canada or from Mexico right so you're going to have you know price pressure on my product you know I could see that being a thing he also might have like paid attention to the marketplace and realized that the craft brewing phenomenon was really taking off and that's another thing you know where you know I like the four Ps as a place of inspiration for innovation I also like customers I love interviewing customers and figuring out what they're doing and how they're thinking and what's frustrating them and he might have had those conversations he's like you know talking to a brewer is like dude I don't need 10,000 pounds of hops I need like 50 right and I can't liter I literally can't buy 50 pounds you know so and then he probably thought about it and you know so I hard to say with him but you know paying attention is a big part of it the the customer thing is really interesting how often do you see businesses really taking the time to to talk to customers and understand their needs I mean this is going to sound crazy to you but in like 25 years of doing this work I have never interviewed a potential client and have them say to me we have a diligent process we use to interview our customers and learn from them on an ongoing basis most people don't even talk to their customers like on any any kind of like meaningful way I can it's kind of a secret trick of mine in the sales process I'll say so when was the last time you really sat down and interviewed your customers it's not a secret anymore Sean it's great because people look at me and they like they realize in that instant they realize it's something they should have been doing and they haven't been doing it and I think what why that is you know you can have very successful businesses who don't do this I think a lot of entrepreneurs when they get their start they actually are listening to the market they're paying a lot of attention maybe they were in the market and something about it frustrated them and so they started something new they their business was an innovation right from the from the get-go and what happens is over time that you know that momentum of that initial Innovation builds and builds and builds and they build a great business but then the market does catch up to you right and people start doing what you do and they sort of for get like the power of that uh creation of building something uh because they're they're kind of fixated on operational excellence and kind of perfecting the doing of the work uh and so it's helpful to have somebody from the outside like me you know say to them hey what about this or have you thought about that or let's go talk to your customers and from there can come really cool new ways forward yeah that makes a lot of sense and I get exactly what you mean now by constant Innovation you know for example that your hops guy um clearly so anybody else in the in the business could do the same thing um so if he wants to keep being on the the Leading Edge he's got to find other ways and um clearly that's what you're talking about but I wonder I I feel like I see a lot of businesses where this is not really relevant to what they're doing I mean there's clearly there's there's no world in which this isn't a good thing uh where if you can innovate you should innovate but I think you can also build a pretty strong business without it I mean I do you do you need to reinvent Landscaping to have a successful landscaping business yeah I mean I think there are some businesses where the the potential for Innovation might be lower and the the reward risk reward ratio is different um but I I've just been like I've been around long enough to where I have seen supposedly bulletproof businesses crumble you know like uh gosh commercial real estate you know here in Portland Oregon if you were in commercial real estate you were absolutely the smartest guy in the room or at least your p&l said it said you were I've met multiple commercial folks who are they're they're done like they're done they're bankrupt I there's a guy here in town just the darling of Portland in terms of development he's done he's moved over he's moved to New York and is starting a new life you know and and I just think that that this gets me to kind of the the three reasons of innovation you know one was you know kind of like fulfill your mission pay your people better you know take home more money have a more calm business that's a really good reason to do Innovation but the other two are external and they are that private Equity is eating the world um so you might be that landscaper and if private Equity turns its sight on like local landscaping companies your life is going to get a lot harder right and if you're just like everybody else in the market actually private Equity is going to bring Innovations into that space that's going to make your life more difficult I've seen this happen with the HVAC industry the plumbing industry the dental industry the veterinary industry I mean I keep going on right like so those guys are are are devouring the world so stable businesses have challenge that didn't exist before because of because of the rise of private equity and then the Third and I think even more important is that we're living in a vuka world you know so vuka vuka is a um an acronym for volatility uncertainty um complexity and ambiguity so we things that were reliable and we could count on for years are just less so and that rate of change is increasing and the impact of change is increasing and we all know this from the pandemic that's the most drastic example but there's plenty of other you know examples of how traditional businesses can be just totally disrupted through technology or globalization or politics and so forth so these are all really good reasons to be Innovative I think of those poor business owners out there though who are having a hard enough time doing what they do and now you're telling them that they have another role that they maybe haven't really been thinking about and 22 hats 22 hats exactly 22 hats do you believe any business can be Innovative yeah I do I do I do i' I've seen quote unquote there's this whole term out there I hate hate hate which is boring businesses and that's often a euphemism for Blue Collar businesses um I've seen amazing innovation in HVAC companies I I have a a a former client that innovated a really cool way to recycle furnace filters and turn them into biomass energy and that that innovation in itself enabled him to get clients like the size and scale of Nike that he never could have gotten in the past you know so it's a boring business we're ducting air in and out of a building and heating it and cooling it and you know he came up with a really really cool Innovation that helped his business business in such tremendous ways it it shifted him from a I am one of many issu you know responding to rfps to I am the only one who can offer this service and so you're going to negotiate with me for a fixed price which I'm competing with no one else you know you're either working with me or you're not you know so it's it was just profound you know just the way that's that's worked and and so again product price right he's he's he's in in ating on product what he's selling uh you know to to actually win on price as well he's not using promotion and placement he's not focused on those things so yeah so if somebody listening to this podcast is is buying this and thinking you know what this is not something I've been focusing on but I'm I want to I should do you have any thoughts on how someone should get started do you need to create an R&D uh Department within your business what uh what what are the first steps yeah I uh I I really admire people who think like this they they're my people you know like they they're like they want to build something meaningful and there's lots of different ways to kind of skin this cat so to speak you know I mean there's there's hiring people like us of course there's doing it internally I would say the challenge to that is people already have jobs so adding on another job can be really tough um but if you want to do that kind of work I would say find ways to talk talk to customers set aside um uh space to dream right to dream what's possible to take off that operations hat take off that you know performance hat and just think what could the business be what is our vision for the future and I think visioning as a process is a really good way to start to be more Innovative um and then you know if you want to like stress test ideas um I think it's good to have you know peers who are outside of your industry because your your industry people will tend to want to fall back on best practices and things that have already been done so I think it's great Innovation often come outside it so I'd say make sure you have friends who are owners outside of your space it's a good idea one last thing I would just say this gets into kind of the realm of strategy which is one of those words like marketing that there's no agreement on like what is marketing What is strategy so I would say a definition that is useful for people who want to be more Innovative is that and this is from Michael Porter it's not my mine but it's a really simple definition of strategy which is you want to achieve a goal with limited resources in a face of uncertainty so to to stress test strategy and also I think to stress test Innovation there's like key ideas is that it's uncertain there is risk you have to make an investment uh and and and that investment isn't just money but it's often creativity and that is really different than business's best practices um and then the last piece I would say is really good Innovation also a really good strategy you're measuring it in terms of its exponential potential that if the thing you're doing is kind of producing 1 1.2 1.3 1.5 two 2.1 2 like that's a linear Roi it's it's probably not Innovation it's probably not strategy and the measurement of good strategy and of good innovation in my mind is like it's a one a one one 1 point2 2 4 8 12 like that the curve looks like that that that's been my experience and it usually takes longer for that to manifest can you anticipate that in the early days that's the rub right like I think people who are good at strategy and Innovation have a better sense of what has the potential to do that and and that's a unique mind I mean that usually is a Founder is an entrepreneur um it's somebody who's creative you know it's a if you follow music it's Rick Ruben right like it's it's a it's a profound producer who says hey Johnny Cash um I know you're a great musician but that note you just play there try more of that right or you know he talks to Bono of you two hey you know what why don't you two play that Harmony together instead of you doing that and you doing that right so like people who have that skill of like seeing what's possible are there's very few of them in the population they're usually business owners or you know doing something creative in like music or the Arts yeah well you you did emphasize that there's risk in this have you seen it go go arai have you seen businesses that tried to be Innovative and I'm I'm wondering if there's any guide rails you can suggest to avoid the bad examples you've seen I'll credit my friend David with this one um his sort of Paramount idea of strategy and risk-taking is that you don't ever want to do something to where if it fails it kills you you know you know so that's sort of like the the core idea is you have to make sure that the floor doesn't doesn't kill you because in Innovation and risk-taking and strategy you have to accept that n out of 10 probably won't work and that one out of 10 that that's the trade-off right exponential return means you have to have some failures um so in our practice what we do is we try to do small experiments small risk-taking to really see oh that that has potential so good small risk taking would be talking to your customers in engaging your sales team and seeing if in the sales process you can start to use ideas that feel Innovative and new and see if the market says yes to those ideas I love working with salespeople who really get the offering and the customer because you can say to them hey next time let's let's push on this idea and see if the if the if the person doing the buying shows enthusiasm for it that's a really low super low cost right you're not building out a whole brand and a website and all this sort of stuff you're just using sales as a way to get a a pulse on on the on the market cool Sean busy is CEO of Kinesis which is based in Portland Oregon and works with small businesses on marketing culture and strategy thanks for taking the time sea thanks Lauren that was fun have a great week everybody [Music]