How to turn your small and midsize enterprise (SME) into an innovation powerhouse

So today we are going to talk about how to turn your small or mid sized enterprise or SME into an innovation powerhouse. And we chose this topic today because we know that a lot of information about innovation relates to large corporations. And while many of our clients are from such organizations, we also have a good number of SMEs, like some of you today who are joining us, that are from SMEs. So we thought it would be beneficial to spend some time focusing on that and what it takes for innovation to happen. We started to work substantially more with SMEs with our programs and platform actually. So, you know, one of the things that we've seen is that costs a lot of money when we do this with large corporations. It costs them a lot of money and they're willing to spend it. SMEs do not have the same kind of budget. So one of our missions is to democratize innovation and that's why we're starting to sell programs actually to SMEs in a very affordable way. So we can get back to that maybe at the end of the day, webinar. Because first we want to just kill this myth that innovation is for large companies or business model innovation. It's extremely accessible and we're trying to make that even more accessible with our program licenses. One of the reasons why we're actually doing this webinar, first one we're going to go into and we call these myths, right? And worldsby is a little bit black and white to be provocative. Growth and innovation needs a lot of investment to be done, right? Well, let's give you an example first of a company that I really like to use this one as an example, but there are a ton of them. This was a startup and they started big and they wanted to disrupt big and they raised quite a lot of money. So Quibi, type into the chat window if you remember Quibi. Actually, a lot of people don't even remember Quibi. Never heard of Quibi. Why? Because they went from raising a lot of money to irrelevance in a very short, short time frame. So their goal was to disrupt Netflix by optimizing micro content for viewing on mobile devices, mobile phones. And they raised money and they failed. Well, question is, of course, type into the chat window. What do you think? How much money did Quibi raise? What they wanted to do is to create a platform to watch movies, et cetera, content like Netflix, but for mobile devices. Here you have two very senior executives that launched Quibi. So you have Meg Whitman, who was CEO at eBay before she became CEO of Quibi. And you have Jeffrey Katzenberg, who is at Disney, ton of experience in content, right? Like, could you get more experience than these two? Very hard. Yet they failed with a budget of US$1.75 billion. So you could say, wow, it's an outlier. But they had a lot of money, they had a very experienced executive team. The challenge is, of course, that they did not understand the difference between exploration and exploitation. So you cannot pick the winners in innovation, even if you're one of the most experienced executives and you have a lot of money. So if we just quickly go back to these 1.75 billion, they burnt 1.3 or 1.4 billion in cash and they gave 300 million back to investors again. What was the mistake? The mistake was that they didn't distinguish between explore and exploit, and that in innovation you can't pick the winners. What you do is you create the conditions for winners to emerge and you do not need a lot of money and you do not need magic powers to do so. So we're going to show you a small company example that created these conditions. And with relatively small budget, they invested in a couple of possible ideas to let one emerge. And some of you have maybe seen us talk about it. Our counterexample to Bosch, we use Bosch for the big numbers and we use Lora Star Swiss company. And Carol said, you want one of these, right? As an example? Would like one now. Yes, A company that makes high end steam irons. I have one at home, works like a marvel. They now have apps, etc. But they at one point said, what if we took our core technical capability here, which is steam, and we created a different device? They did make a mistake here. They went right into product and technology innovation. And we'll go to that myth after with Tendai. So they said, we are going to create a handheld steamer that you can take with you in your suitcase when you're traveling and you can steam your shirts, your suit, et cetera. But then I kind of realized, well, these strategizer folks, because we know the founder and the children who took over Mike and Julie quite well, these strategizer folks, they actually tell us we shouldn't just build products, we should explore value propositions in business models. So they said, okay, well let's apply this approach of a funnel where we invest in several ideas, explore and iterate, and that let one winner emerge. So you can see the portfolio map here. Google it if you want more around that. This case they brainstormed, came up with 14 ideas. They didn't explore all 14 because they didn't have the budget for that or time budget. They said, well, what if we explored three different directions? So what do you mean with different direction? Well, one was, okay, what a handheld steamer to travel. But you could think of this as a device that you use in hotels to disinfect the rooms after people use it. Guess what? Covid times, that was actually a real topic. Still is today. Room cleaning takes a lot longer. And now after Covid, what about hospitals? Maybe that's a thing. Or what if we actually took the health aspect and said, well, their parents in particular, first time parents. I don't know how it is for you, but your first child, you're obsessed, right? You're afraid with the toys, you disinfect them and then Tendai, how many do you have now? I think four, right?

Yeah, I have three boys. I don't actually really care where they are right now.

Even so at the end, the last one, you just don't care anymore, right?

You just, ah, it's going to be fine.

Like so think of it, they explored these three and they just did one sprint. We all often talk about several sprints. You then have one that you select based on evidence. So they did not invest a lot of money. They invested in three teams exploring in parallel three different potential business models to come up with one. I think you wanted to add something.

No, no, please go ahead.

So just kind of where they landed was a handheld device that looked at the health aspect and, you know, the potential you need to kind of iron your shirts very quickly. But they really honed in on the health aspect and mass market distribution through direct to consumer. So little video just to kind of illustrate where they landed in in their Hello, I'm Iggy. I steam and purify all your fabrics with my ultra powerful dry microfine steam. I instantly steam your clothing. I also purify your fabrics by eliminating bacteria and dust mites and I reduce the risk of allergies. Efficient even for items that aren't washed in a washing machine. I'm portable and stay by your side to keep you looking impeccable. Okay, Tendai, over to you for the second myth. You need technology in R and D to innovate.

But I'd like to go back to the whole notion that you need technology. Because one of the things that companies are really concerned about SMEs is that it costs a lot from just the technology standpoint to get started with innovation. But actually having A cool technology is not the same thing as having an innovation. And so I want to ask this question first, though. There's a lot of. A lot of large companies invest in R and D. And so what do you think is actually the correlation between how much companies invest in R and D and whether or not they get returns in terms of sales, growth, company valuation, revenue from those investments? Do you think the correlation is a zero or do you think the correlation is there but it's weak, or do you think the correlation is actually quite strong?

This is interesting, right, because there was a comment right before saying, well, in some industries, you know, so we have this preconception that, yeah, in some industries, innovation comes from R and D, but as we know, from pharma. Actually, pharma has new molecules, but actually very little innovation. Right. So it's interesting where this response is going to go.

Exactly. And even their new molecules don't necessarily always create the revenue or business model success that they expect. And so what is surprising is that, and I can see that the tendency in the responses is to say there's either some relationship and it's weak or the relationship is strong, which is what we often find. But actually there's been. So PwC, they own a strategy, Strategy and Innovation, which is one of their consulting firms, and they've been studying all kinds of companies, from automotive industry to pharma to whatever you think, right? And every year they publish their Innovation 1000, I think it's nearly 20 years now. And every single year they found that the correlation between how much a company invests in R and D and the returns they get, the correlation is zero. So whenever you see a question like that from Strategizer, just always know it's a trick question. The unlikely answer is the correct answer. It's a big zero. And you can see here, just visually, this thick line here, this thick black line here, is the line that explains the correlation between how much companies are investing in R and D as a portion of their sales and whether or not they get sales growth on this one dimension here. And when people see a zero correlation, they get really upset, Alex. They're like, well, maybe we should stop investing in R and D at all. But actually, there's a difference between a positive correlation and a negative correlation. A negative correlation is the more you do, the less you get. And that's not what we're talking about here. It's not that the more you invest in R and D, the less returns you get. A positive correlation is the more you do the more you get. But it's also not a positive correlation. When you see a zero correlation, it actually begs the question, why is it that this one company invests the same amount of money as this company, but this company got returns and this one didn't? That's what a zero correlation begs us to ask. Right? And the answer to that question is you need other things to make your innovations actually become successful. And that's why we often say that having a cool technology is not having the same thing as a value proposition. You really need to think about how you're making products people want. Right. That's a really important aspect of innovation success, which is why, in fact, right now I'm in a conversation with a company saying to them that they don't actually need to invest in new molecules. They're a food ingredients company. They don't need to invest in new molecules. If they go back to their catalog of currently existing molecules, they can actually start thinking about new value propositions and business models that they can use to actually scale. Now, here's a slightly controversial take. You know how with lean startup, it was like, mixed up people want, mixed up people want, and that's enough. It's actually also possible to make stuff people want and still fail. So it's not enough that you're just making products people want. You really need to start thinking about the entirety of the business model. A lot of companies make cool products. Customers love them, but then the business model just doesn't work because the process of creating value, delivering value, and capturing value back from these customers doesn't actually really work that well. And so it's really important that we're solving for the entirety of our business model in addition to coming up with cool products and services, et cetera. And this is where SMEs, if we got over the myth that you need cool technology, SMEs can really start to innovate. And so in order to successfully innovate, you just need to sort of deal with this formula where, yeah, invention, you could do that, but it's optional. What really matters is what we call business R and D, where you focus on making, creating customer value and also, you know, finding business models that, that, that actually work. Go ahead, Alex. You're. You. You're up next anyway, because you're going to tell us how Laura Star did this, Right.

But leave this one up for a moment because there was a question in the chat. Well, it would be good to hear Tendai's and Alex definition of what innovation is versus Technology. And this is exactly why we put this one up. Because at the end of the day, innovation is very simple. It's creating value for customers and for your company. And you may or may not use technology. You may or may not need R and D. So they're just different things. Innovation is creating value in new ways for customers and for the company. And that could be with technology. Often is the case. We're not saying technology doesn't matter, but it's not the key driver. And I think the one you just added right now, which is really, really important, is the business model, at the end of the day is just as important, right? As the products. People are very product focused. And this goes for SMEs and for large companies. It's just a big mistake. And business model innovation sounds really scary. So that's what we're going to take away now. Business model innovation for an SME just means the right business model for your market, for your product. It doesn't mean coming up with somebody, something nobody has done. You don't need to invent the Airbnb. Nobody asks you that, right? You don't need to make a billion dollars would be nice. That's not the SME's goal. So if I can quickly share now.

And actually just before you share, it just made me realize that there's a lot of comments about how large companies have more people, more resources, et cetera, et cetera. The hardest thing to do in the large companies, business model innovation. Think about trying to turn around that Titanic to, like, do a new business model. That's really difficult. And I think for SMEs, business model innovation is the superpower that they can actually leverage. Right?

And we'll get to that right in the last section that we have this myth that large companies, because they have more people, can do more stuff. Our experience is the exact opposite, because they have more. More people is more like a Titanic, right? And they focus on efficiency, innovation, and they will more efficiently sink the ship. So business model innovation is actually something that's pretty accessible, and we'll get to that in a bit. So if we go back to Laura Starr, we kind of look at what they did, right? They did product or technology innovation first. They have an R and D budget. It's not huge, but it's there. And we actually think that it was a mistake that they focused on this first. You actually want to do the technology part later, informed by customers. But what I want to hone in here is that there are three types of innovations that happened. One is technology innovation. So creating that handheld steamer was using steam in a different way. So there was a technology aspect, but there was also a value proposition aspect which is much more about positioning this technology or product. And, and then the big one was business model innovation, which again sounds scary, doesn't have to be. We're going to show you business model innovation is a bit of a scary word for some very down to earth stuff. So we have here technology, product innovation, portable steamer. But technology or products don't matter in a vacuum. So let's ask, what's the value proposition in positioning? Well, they realized that the steaming aspect for health was actually more important to certain customer segments. Important thing here is to certain customer segments, somebody who's looking for a device to iron doesn't care about the health aspects. But there are segments I mentioned a couple like hospitals, hotels or health conscious people, or first time parents. So what does that mean if we take this completely new positioning? Well, very likely we need a new business model. So in this case for Lora Star, it was a business model innovation. Is it a radically new business model? No, but it was selling to a mass market through retail and direct to consumer. Was that fundamentally different to the business model they had before? Quite so. There are some overlap, yes. So this was substantial business model innovation to Laurastar. So again, we need to take away this myth that, oh, you need to invent the next Airbnb. No, it's finding a business model that makes sense to you in your context that can get you to the next growth wave. If you look at this, you can invest in all three. And in many cases you don't actually even need the R and D budget and the technology innovation because thinking about new value propositions and slightly different business models can mean an entirely new growth market for you. So wonderful example just to illustrate this, and we have a conviction at Strategizer that we believe that business small innovation is the biggest unexplored possibility for large and small companies because very few people master it. Most people are focused on technology or on products. That's great. It's actually freaking hard to compete on technology and products. So that space I'd stay out of as much as possible.

So there's a conversation happening in chat right now about whether or not you can protect business model innovation with intellectual property. And the pushback that I'm giving to that conversation is you don't need IP or being able to protect your business model with intellectual property to make it a good definition. That's something that you have to do if you're thinking of just competing based on your technology. And what's fascinating is, and Nico and I were just talking about this when we were in Dallas last week, we're like, a lot of companies are always concerned that they're going to get copied, but nobody really knows the mechanics of a business model in the background. Like, once you crack a really breakthrough business model for competitors to sit there and try and work out what exactly you're doing, it takes a while. Business model innovation is actually can be a moat without any intellectual property protection.

Yeah. And you know, it's telling that. So Jeb Bezos, when he was CEO, he used to say, look, as long as we focus on customers and competitors focus on us, we're fine.

Right.

Because you're learning which products and business models work. So sometimes you're probably actually copying a business model or product they just figured out doesn't have the margins, doesn't make the, you know, the success because they're failing. Too many companies still today launch products that don't deliver on expectations. If that's what you're copying, good luck to you. So there's this overemphasis on intellectual property. Business models per se are even hard to copy. Like, why is there no other Ikea? Because there's so many components to it. Why is there, you know, why is Moxie, Sorry, if anybody is here from that big hotel chain that owns Moxie, why is Moxie so terrible compared to Citizen M? Because they superficially copied a business model and don't understand the business model of CitizenM, which is a hotel chain, you know, that really honed in on one business model for mobile travelers, mobile citizens. So we really believe that there's an overemphasis on ip. Now, let's not be naive. There are IP aspects when it comes to certain technologies or science. Don't be naive. Of course not. But you know what? Testing value propositions in business models, let others copy you because they're going to copy what you just learned. That doesn't work. There's this quote. I can't really remember it, but it's somebody, you know, if you copy somebody's stuff, you're probably copying they're behind because they're way ahead of you. So you might not want to do that. Right. But I think it's super important what you brought up. Tinder. Okay, so to finish off this one, this is a business model shift that Laura Starr pulled off. So in the Invincible Company, you can learn about all these shifts. Business model innovation and business model shifts are accessible to SMEs. In this case, they honed in on one technology or competence or capability, which was steam. And bringing that into this new business model, like we've seen, they came up with a different positioning, value proposition for this with a different business model by focusing on health, etc. So with that myth three that Tenday already mentioned, innovation is harder in SMEs because you have less people, because you have less budget. Well, part of that might be true when you look at certain innovations. Again, if it's R and D heavy and you put that at the center of your innovation. Big ones, big companies, they have an advantage. But pharmaceutical companies also realize that the smaller, nimble biotech competitors, they outsourced most of the technology innovation. But now, let's just see in the chat, we believe that it's better than to be an innovator in small companies. And as the first kind of hot or not showed, a lot of you agree, so type what you think are some of the advantages you have compared to working in a large company in an SME. And all of those of you who said, no, that's not true, also try to argue what is actually better. Even if you think it's harder. What's better today? Think hard. Agility, speed, less bureaucracy. Flexibility, Shorter paths. Yeah.

Less red tape.

Easy access to.

This is, this is powerful.

Yeah.

Short decision making cycles, shorter time to market, less tunnel vision, less money, which is good actually for innovation. Those are the constraints.

And let me bring that one back up with somebody who said less money. So we showed you with Quibi, they had a lot of money, they failed. You know, you might know Vinod Khosna, you know, very famous venture capitalist, used to be an entrepreneur. He says the more money you give a team, he's talking about the startup world. But the more money you give a team, the likelier they are to fail. The likelier they are to fail. Why is that? Very simple. You give people a lot of money, what are they gonna do? They're gonna build the thing, they're not gonna test anything. It's extremely hard to stay frugal when you have a hundred million or 1.8 billion like we've seen before. There's no chance you're gonna be frugal with 8, 1.8 billion in the bank. So we believe that the culture, and we're going to use the culture map here very quickly, the culture in SMEs to innovate, if you focus on it, really can work. So you might have seen the culture maps. Let's quickly go through it. Dave Gray is the inventor of the culture map. Together with us at Strategizer, we helped him do this. The behaviors you see is the key of the culture. And then you have certain outcomes. You innovate or not. Now it's most interesting. Like in a garden with flowers, the only thing you can work on is the fertile ground, and that is the enablers and blockers that help us create the right outcomes.

So in the work that we've done using the culture map inside many organizations is we've identified three key characteristics that actually drive how well an innovation culture can actually manifest. The first one is leadership support. So, you know, organizations need to provide innovators with a lot of support in terms of leadership so that they can actually do the work. The second element is how the company's organized. So, you know, the level of hierarchy and structure and organization, the way the key functions collaborate and how those folks work together. And then the last piece of that we have is the innovation practice within the company. So Alex and I were having a conversation around our experience with large companies, and we're thinking, which elements in large companies really block innovation for which SMEs can actually be their superpower. Right. And one of the few things we kind of picked up on was, for example, when it comes to leadership support, it's really hard to have access to decision makers. And one of the conversations we have, Alex, right, is like, where does your innovation leader sit? And innovation leaders sometimes sit like, four, five, six layers into the organization. Have one meeting with the CEO every quarter, maybe. So innovation does not have that central role. So they don't have access to decision makers, which means that you have slower decision making around investing in innovation or whether or not something is going to be scaled within the organization. So that's a blocker that you see inside large companies. And then in terms of organizational design, there's a lot of hierarchical structures inside large companies. And you have siloed functions. And so once you have siloed functions, siloed functions can start acting as blockers to each other. We have conversations inside large companies where, you know, people aren't allowed to talk to customers because only the sales department is allowed to do that. Legal and compliance doesn't let you run experiments because you know you're going to be hurting the brand. So these are some of the challenges that large companies have that, you know, SMEs don't have. And then when it comes to innovation, there's so many Formal processes. Right. There's always a person standing there going, if you could just fill in this form, then we'll let you launch your landing page or whatever. And so that makes it really hard. And then you don't really have access to customers to actually tag. And what's interesting about this, these weaknesses of large companies. When we asked people to type superpowers for SMEs, there were the exact opposite of this, like less bureaucracy, speed, closer connection to customers. So more accurate learning. All of these things came up in the superpowers for SMEs. Go ahead, Alice.

Yeah. One of the things Lars pointed out in the chat is that it's much more common in large listed companies to have a short term focus. Right. So it is something that we definitely see in SMEs. It's a longer term focus in particular when they're family owned or when the shareholder base is not as aggressive and doesn't expect the same kind of short term delivery of results. And you have analysts who are running behind you all the time and then not even talking about the activist investors. So I think the longer term focus is one that is much more common. We can't generalize. There's also a trend on. It doesn't mean you shouldn't have any short term results, but there's a longer term outlook in particular in family owned enterprises.

Exactly. In fact I can actually say in my working career the worst innovation experience I've had is in a large organization. And the best innovation experience I've had is in a small organization. So the worst one, and I tell the story in our upcoming newsletter, it was Michael Wilkins and I and we're sitting with a large bank in one of the Nordic countries and the innovators were just lamenting. It was as if like we had put them on a psych on a psychologist chair. They were lamenting on all the challenges they had. And when Michael and I walked out of the, walked out of the office, Michael was like, man, people in large companies whinge a lot, right. He was like, you know, commenting about how because he works a lot with small companies, in fact he like sits on several boards in small companies and he was talking about the superpowers of small companies. The best experience I've had is when I worked with a small middle stand company in Germany and it was family owned and the two brothers who owned the company, we'd inherited it showed up for the workshop along with the two CEOs and we worked together and it was so much enthusiasm, so much Work that was getting done and kind of because of the energy that that brings and how close it is, the hierarchies much, much closer together. And so that can be really, really powerful.

So one of the questions that came up Tenday, is how do we define SME? So maybe we can just give a bit of an idea where we would draw the line. Again, of course it's different, right. If you're 30, you're 300 or you're 30,000. 300,000. But where do you generally draw the line? Where you say this is now a big corporate, where we have challenge. A big corporate.

Yeah, I think, I mean, it's a small company. If it's maybe 50, 60, 100 people, maybe up to 300 folks, then maybe we can call that like a small company. And then a thousand to a couple of thousand might be medium, medium size. And then once we get beyond that, it's now a large company. Exactly.

Because I draw the line also, you know, around 3, 500. And then when you get to thousand, we're definitely in larger company territory. They're not huge. We work with everything from thousand, five thousand above to like 100,000. But you see the very similar dynamics. Right. In a company with 100,000, you'll just have a lot of, you know, $10,000, 10,000 people, business units. Right. So it comes together. It's just that you have another layer in there.

Yeah. And what's interesting as well, I think one of the comments there is if you're a medium sized enterprise, you have to be really careful that you don't find yourself in the middle of nowhere. So you now don't have the nimbleness of a smaller company. And you're starting to put in the bureaucracy of a larger company, but you're not yet large enough to sort of carry that weight. And so it's important for those companies sort of manage that balance so that they don't really lose some of that and some of that entrepreneurial spirit.

John was giving the official definition in the US right? Small is up to 500 staff, we would say in innovation, that's kind of what we're looking at as small. Right. So what we're seeing in terms of program license buyers, it's anywhere between 100 and 500. They buy what we have as kind of an SME license to get world class innovation processes. And they get the same basically that we designed for large corporations. So they get access to the world's best content, the world's best process, but in a bundle, you do not need to have 10,000 people to do that. It's actually better if you just let those people who do just innovation figure that out for you. And the dynamics we see are very positive because of everything that Tendai just showed here. Again, it's hard in small companies and in large companies, but it's different hard. We see better results in smaller ones also, longer term results.

Right, Exactly. So just to just to wrap up right, SMEs have superpowers. You deal with less hierarchy because you have access to decision makers. This gives you the ability to actually influence business model innovation. You don't have to protect your R and D product. Right. And teams can go faster because of easy access to decision makers. And you can be more effective because you're closer to customers. Exactly these things. And I think if SMEs took those superpowers and really leveraged them, plus with what Alex was talking about, that it doesn't have to be expensive. You can take off the shelf platforms, off the shelf tools like some of the stuff that we offer at Strategizer, and you can really accelerate your innovation process.