For the last 35 years, the Inc. 5000 has tracked America’s fastest-growing private firms. These are the job creators, the driving forces behind the country’s economy, and joining their ranks is the ultimate aspiration for all entrepreneurs.
However, it is not an easy list to get on. In order to make it into the top 10%, companies have to have experienced a massive +1000% growth over a three-year period. Even those towards the bottom must hit a minimum of 40%.
At the Digital Marketing Innovation Summit, New York, Inc.’s Global Vice President of Marketing, Patrick Hainault discussed the list’s findings and what the companies on it can teach us about the role of innovation in growing businesses. “How did they get there?” he asked. “From doing something different. A culture that embraces change can significantly improve its chances of success.”
The secret of innovation is hidden in plain sight
Patrick observes that when you look at consistent innovators, the common factor is that they have a high level of R&D intensity. They are reinvesting around 12% of revenues into product development, so one dollar from every ten goes back into experimenting.
“How much do you put into innovation?” he asks. “If zero, it’s not going to happen. Innovation comes at a cost. These companies have a mechanism so that innovation is built-in and not an accident.”
One of the positive side-effects of innovation is that it creates a winning culture. By experimenting, companies are giving themselves far more opportunities for wins.
“If you innovate you have a muscle memory for how to change. You can spread your bets over a portfolio and give yourself a chance to get lucky”
According to Patrick, companies can be divided into a number of different styles of innovation:
1. Disruptive innovation
While the word ‘disruptive’ has been over-used, for those who truly manage, the word will never lose meaning. One example is Groupon, who in three years grew from nothing to going public for $3.8 billion. While the shine may have worn off Groupon’s business model, they are still selling $2.8 billion of merchandise a year because they have kept at it, continuing to innovate.
2. New product
Many towards the top of the Inc. 5000 are delivering new types of products. Skillz, for example, topped last year’s list with their mobile gaming streaming and competition platform. The platform provides a space for players to participate in tournaments and for fans to interact. The company has experienced 50,000% three-year revenue growth, hitting $52.4 million in 2016.
3. Business model
CEOs can’t be good at everything, so we encourage them to spend most of their time working on the business model as that’s where the action is. It is possible to skyrocket to growth with business model adjustments.
Ultra Mobile, for example, went from $0-180 million in sales by creating a business model with a lazer-sharp focus on the needs of immigrants. They offer a straightforward, low-cost service that allows users to talk and text to foreign countries for $19 per month.
4. New processes
Processes may not be sexy, but they can be a great source of value creation.
This kind of innovation is perhaps best exemplified by Automotive Masterminds, who upgraded the process of the showroom selling experience, thereby helping dealerships to target potential customers.
By bringing together different marketing technologies, they have essentially licensed a process on a subscription basis to 1000s of dealerships and notched up $23 million in sales as a result.
One of the easiest forms of growth is ‘coattails’ – the idea that when all boats in your market rise, we may rise too.
Children’s tablet computer ‘the Nobby Tablet’ was released shortly after the Kindle. It captured half a percent of the market that Apple created with the iPad, and in doing so saw stratospheric sales. While they over-leveraged, the business still sold successfully to Mattel for $26 million.
Another example of this type of innovation is Loot Crate. The company saw the growth of the superhero franchises and fan passion, and married it to a subscription service. They now ship thousands of subscription boxes of superhero-related products.
How do you create innovation in a mature market? A good example of this is Club Pilates, which has gone from 30 to 600 Pilates studios nationwide. The secret to their success is that they made it comfortable for men to attend and in doing so doubled their market.
7. Pastiche (used to be ‘me too’)
These are the innovations which are not really innovative at all, just repackaging. An example of this is the Juicero Press - a $400 juice machine which is highly designed and expensive but in actual fact did nothing new. Juicero ended up giving the money back.
A recipe for innovation
Patrick states that there are two necessary conditions for companies to innovate:
“To be innovative, companies need to put money into it and they need to have a plan. The plan doesn’t need to be an IBM-style dissertation with graphs, it could be written on a napkin. But if you don’t have one, you’re flailing”
Here’s his advice for those who are seeking to innovate:
1. Do it step by step. “You won’t solve everything all at once. The home run is fun, but incremental is the approach that works.”
2. Be deliberate and inquiry-based. “A/B testing isn’t for fun - what are trying to do?”
3. Everything is on the table. “Keep an open mind. Why restrict yourself? A few years ago who would have thought that people would rush to purchase Alexa, a device that listens to you 24/7?“
4. Collaborate. “You have to be ready to leverage other people’s assets.”
5.Study, learn, borrow. “Many of the most innovative companies got there by a desire to learn, not afraid to borrow idea and stick two ideas together. What’s the next Innovation you want to latch on to? A.I.? 3D printing? Voice marketing? Whatever the idea is, decide when is the right time for you to jump on it.“