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Innovation in Small Businesses

| On 20, Mar 2008

Praveen Gupta

How can a small business benefit from innovation? Can small business afford innovation? How can innovation help small business grow revenue, and how quickly? These are some of the most frequently asked questions about innovation.

I believe most of the innovation talk is about large businesses benefitting innovation, ignoring the fact that small businesses are a very significant part of the business community in terms of revenue, employment, and opportunities for innovation. Looking from outside, and having worked inside businesses of all sizes, I can tell it is very difficult to move a mountain or roll it over, vs. a rock, or a pebble. One can see that it is relatively easier to be innovative with small businesses, but challenge is its justification. Small businesses tend to be more innovative as they work with fewer resources, are more agile due to fewer layers and reduced organizational complexity, and are more adaptive than larger organizations. However the challenge remains that a smaller company cannot grow like Wal-Mart in billions of dollars, and does not have billions of dollars like Google to invest in innovation.

That leads us to sizing innovation. Smaller businesses tend to focus on Variation type of innovations rather than fundamental innovations as the small businesses supply to Original Equipment Manufacturers (OEMs), or when small businesses are OEMs then they are not dealing with the volume of the larger businesses. The fact remains that purpose of innovation is the same for any business irrespective of its size that is to realize profitable growth.

To achieve the profitable growth, the company must identify opportunities to develop new solutions, be products or services. To identify opportunities for revenue growth, leadership must recognize its position in the market place, listen to its customers, understand suppliers’ capability, and utilize its employee’s intellectual potential. Benchmarking for knowing position in the industry, Kano’s model for listening to customer requirements, value-based partnership for suppliers’ capability, and the management process for employee ideas are some of the tools to deploy. Evaluation of various ideas for revenue growth, feasibility of the solution, resources, and capability to commercialize are critical factors for creativity to become innovation. There must be a formula that is suitable for the industry, and customized for the company to evaluate revenue potential of the solution in the available market segment. One must be realistic in assessing the market potential.

Half the solution to revenue growth is realized once the opportunities to grow revenue are identified. Rest of the innovation process must include steps for developing innovative solutions quickly, be able to produce and reproduce, and optimize in operations to minimize waste. In order to convert solutions into cash, one can learn from Microsoft’s model of partnerships with potential customers, distributors, or resellers. In other words, strong marketing and utilizing multiple channels to commercialize its solutions have been Microsoft’s secret to rise from its early beginnings, similar to any small business.

Finally one must remember a small business can not afford to take the same amount of time to develop its innovation. Small businesses must innovate faster than the larger businesses, and must innovate for now rather than for future.

If you would like to share your ideas about innovation in small businesses, please comment.