When you innovate the truth is that sometimes things are just going to go wrong. Despite all the planning in the world and the management skills your firm has things are going to fail from time to time. Here is a look at some of the things that can happen.
New ventures require funding. The entrepreneur knows they get funding from banks and venture capitalists (and increasingly corporate venture capital) but finding funding for internal projects can be difficult at times.
Remember that at the end of the day the CEO and board want a plan that will work. If you present them with something that is full of holes they’re never going to approve your plan – and if your firm is in trouble and simply doesn’t have access to the cash they’re certainly not going to approve it. That’s understandable. At the end of the day though your funding is likely going to come from top management so you’ll have to appeal to their interests.
Funding can also dry up in the middle of a project as a firm decides to reallocate resources. In that case it’s best to simply state your claim and hope for the best.
Georges Haour notes in Resolving the Innovation Paradox: Enhancing Growth in Technology Companies that there is an increasing issue with diminishing returns in industries that rely on R&D. He notes that in the pharmaceutical industry the cost of developing a new drug soared to reach approximately 800ドル million in 2002. The reason this is so high is because of all unsuccessful developments that have to be taken into account. To make matters worse, only about 25% of new drugs generate revenues that exceed development cost.
One way your company can reduce the problems that arise from diminishing R&D costs is to ensure that every product is evolutionary in nature. This was suggested by Justin Camp in Venture Capital Due Diligence: A Guide To Making Smart Investment Choices. Evolutionary products are generally in the "better, faster, and cheaper" route as opposed to the truly revolutionary.
With that said, Mr. Camp does point out that the outcome from innovative R&D must be significant and needs to enhance a product’s value to the consumer. Products that are significantly better are more likely to pull customers away from existing market offerings and build market share.
If your company is experiencing diminishing R&D reading Haour’s book is highly recommended. His main suggestion is that companies move to a distributed innovation model (which is very similar to open innovation) in order to take advantage of increased knowledge efficiencies.
From time to time your venture is going to lose support and while there is another article on this site that goes in depth into that problem this can be rather devastating. To prevent losing critical internal partners be sure to read that other article.
Venturing internally does require a few different things to line up. The first, and most important, is your company knowing that venturing is a good idea. Having management that not just understand but truly believes that innovation will be the key to their company’s future success is beyond critical. Without that kind of support you’re just not going to be able to get the success your company wants.
Next up is your firm’s own internal politics. Strategically this can be bypassed largely by having a firm that strongly supports venturing. That all important entrepreneurial and venturing culture actually does prevent a lot of those so-called negative politics from coming into play.
Without the culture in place and a top management that believes in innovation you’re going to have your work cut out for you. Bypassing that sort of red tape is immensely challenging.
As you’re probably noticing there is no one way to guarantee that things will never go wrong with a new venture. Let’s be honest, your company can’t fully stop bad things from happening in its regular business so there is no reason why your company would be able to prevent all problems in a new entity that was just created.
As a manager you’re going to have to be flexible, you’re going to have to be resilient but yet adaptive. Ironically the things that make an entrepreneurial venture successful are going to be the same things that make your management of this venture successful.
Take a moment to think on your own management style. How can you adapt your own systems to better ensure not just your venture’s, but also your own success?