My friend Matt Filios in Colorado launched a publishing business last year called Sourcebeat. Sourcebeat is a digital publishing company and charges $29.95 for a digital book on a topic like open source. While this looks attractive, this price is for one year of updates on the book. The authors are contracted to submit updates on a regular basis and these are posted on a secure website. The rational is that most of the traditionally printed open source books are rendered outdated by the time the books hit the stands (open source software changes fast!).

Another friend of mine, Steve Lapidus in Florida launched an online business as interesting as the name sounds—Bag Borrow or Steal, Inc. Women can rent luxury bags for a monthly rental fee. The service has received phenomenal press and the initial response has been heartening. Lapidus used “knowledge arbitrage” to borrow the concept from Netflix into Bag Borrow or Steal, Inc.

These are classic examples of innovation in action. Filios and Lapidus have taken a road less traveled and are succeeding. So, what am I saying? Only that irrespective of whether your company is a startup or an established company, Innovation is the only sustainable competitive advantage.

Business models are decaying at an alarming rate, and the only defensive and offensive weapon you have with which to survive and thrive is Innovation. The lure though, is to build something faster, better and cheaper!

Faster, Better and Cheaper or Different?
The traditional way to compete in any market is to build something “faster, better and/or cheaper.” A good example for this model is Handspring. They did an excellent job of building a device with Palm-like functionality (the founders were from Palm). Handspring was acquired by Palm after only a few years in existence. Handspring was successful, but the success ratio in the “faster, better and cheaper” space is quite limited. Companies that have achieved significant success have done something “different”. Here are some examples:

Dell: “Build To Order” PCs on the web, extended model to printers, handheld devices, servers, cameras etc.

Southwest Airlines: Moved away from the hub and spoke model of airline travel.
•

Amazon.com: Now operates as a technology infrastructure company to sell stuff online.
•

EBay: Encouraged ancillary businesses that depend on eBay. (Example: Auction Drop that saves time for eBay sellers by handling the packaging and fulfillment of the sale items.)
A word of caution: Being different may be a necessary condition for success in this new world but it is not a sufficient condition.

Pets.com: Selling pet foods online—a novel concept but it had a flawed business model, as it did not account for the shipping costs associated with heavy items.

Webvan: Good business model, but a flawed execution—busy with rebranding (painting vans with new logos) when running low on cash.

ValueAmerica: Failed to execute on the “inventory-less” eCommerce model.

Since any single company can—at best—influence the changing business context marginally, the easiest way to thrive and succeed is to adapt to the changing business context as quickly as possible. Gary Hamel, noted business guru, calls this “resilience.” If innovation is the answer to the question of survival and growth, why are companies not obsessively innovating to make this world a better place?

Why not innovate?
Here are some possible causes:
The success trap: Some initiatives succeed initially and that will force companies to invest more resources to do more of what has succeeded. Since the business context is changing constantly, what worked today may not work tomorrow. This is the success trap and you need to get out of it. You need to be willing to destroy what is working and re-invent.

Innovation requires “real” openness: A truly resilient organization needs to be “open” to options that come along the way. These options may at first seem like “distractions.” It requires laser focus to determine which “distractions” to embrace and which ones to let go.

More effort required: Truly “resilient” organizations read and respond to market needs and business context changes. “Reading” involves investment in looking at trends that are shaping the overall economy and in particular the industry in which the company operates. For example, a key trend in the healthcare business is that “people are more inclined towards prevention than cure.” If you are in the healthcare business, are you doing something to capitalize on this trend or are you just watching this from the sidelines?

Willingness to try new things: Fear of failure prevents most organizations from trying new things. My friend Steve Shapiro who conducts “Goal-free growth” seminars for corporations around the world asks a startling question – “On how many days have you taken a new route for your work in the morning?” Inertia is pervasive in personal and professional life.

No precedence: If you follow what has been done before, you assume that you can predict the outcomes (highly questionable!). If you try flat out new things, only imagination, creativity and intuitiveness are on your side. That’s hard to imagine for most corporations.

No commitment: Although exceptions can be made, most innovation efforts fail if there is no top management commitment. So, where do we start?

Fresh Start?
For starters, here are a few items you can try to embrace innovation within your organizations:
Commit to innovate: When top management commits to innovate, it sends a powerful signal across the organization. Innovation projects will not be treated as passing fads. A senior member of the management team should take the additional role (to start with) of heading innovation initiatives.

Change your attitude towards failure: If all your innovation projects succeed, pat yourself on the back, but know that you are not trying things different enough. Reduce the safety factor on innovation projects and increase the tolerance factor. Remember, “either we succeed or we learn.” If your employees know that failure is tolerated, they will be willing to risk more.

Watch trends: Trends are powerful forces and going against them is like swimming upstream with no help. You can’t win! Resources are available (for a cost!) on and off the Internet that describe trends shaping our new world. Focus on the trends that may affect your company, your industry and/or your geography. Very few companies pay enough attention to trends, and most reserve their response to a crisis situation. You have an unfair advantage if you are one of the companies that are constantly watching trends and taking suitable action.

Create an idea management infrastructure: While not innovating is bad, half-baked innovation initiatives are disastrous. It will confuse everyone and also drain scarce resources. If creating a framework for managing ideas (from concept to completion) and innovation pipelines seem alien to you, get help—you owe it to yourself.

What are some of the signs that your innovation initiatives are succeeding? The first sign of success is to watch people’s reaction—most will say that it was so obvious and had to happen. Look at freeconference.com—a teleconferencing service that is extremely successful. These folks allow you to setup and run a teleconference of up to 100 participants for free. The catch is that all participants have to dial long distance. You have a premium service at 10 cents per minute per participant and if you chose it, you will be assigned an 800-number. It’s a great business model and the company is growing through viral marketing mostly. If you have participated in one freeconference, you tend to use it again the next time. I am sure that several carrier companies are underwriting the costs of the free conference. It’s a win-win-win situation and you feel that it was the most obvious thing to do!

Innovation is not magic and most organizations can learn to innovate. If you are already innovating, congratulations! If not, it’s never too late to start!