Most of the businesses considered to be the most successful today, like Amazon, Apple, and Google steal the spotlight when it comes to innovation. In fact, some believe innovation is reserved for these technology giants.
But many growth stage companies find themselves in a unique position to harness innovation as well. Growth companies aren’t bogged down by rigid, traditional cultures or outdated success metrics. They’re young and agile enough to pivot, enter new markets, and even rewire their company culture.
Growth companies are also looking to make the leap into their next stage of development and don’t want to be left behind the times. There’s a tremendous financial incentive for them to innovate considering the breakneck pace of change in industries around the globe. According to a McKinsey survey of business leaders, 80% of executives believe their business models are at risk, and 84% said innovation is important to their growth strategy. However, the survey also found that only 6% of leaders are satisfied with the outcome of their innovation performance, and very few understand exactly how to become a more innovative organization as a whole.
Companies in the growth stage find themselves at a perfect inflection point to begin building a foundation of innovation to fuel their next wave of growth. As a private equity firm that invests almost exclusively in growth companies, we’ve seen the power of innovative thinking and taking risks at our own portfolio companies. For example, employee engagement company Energage recognized an industry need for a software solution as opposed to its legacy consulting operations, and pivoted its core business model toward filling this need. Arrive made a similar transformation after seeing a greater opportunity to market to businesses like Ticketmaster Live Nation and national parking garage operators, rather than individual consumers, that can integrate its ParkWhiz mobile app to help over 40 million people find and book convenient, economical parking.
Both of these leaps were driven by the innovative cultures that had been built over the course of years by senior management. In our experience, the first step to becoming an innovative company is to start with your company culture. But for companies today hoping to build a culture of innovation, it can be difficult to know where to begin.
Based on our experience and our observations, below is a blueprint of what the best growth stage companies have in common when it comes to doing so:
- Establish clear communication paths up and down the corporate ladder
It only takes one bad manager to stop a good idea dead in its tracks. Often, multiple perspectives are required to see the full value of an innovative concept. The free flow of communication across a company’s entire org chart is the best way to allow new ideas to spread. Growth companies committed to innovation are wise to set up systems that allow ideas that originate from lower level employees to reach the ears of upper management. Even if most of these concepts aren’t viable, executives must make their employees feel like they are being heard to encourage out-side-the-box thinking. Limiting red tape and reducing bureaucracy can help facilitate this flow of ideas and information.
- Set smart innovation measurement metrics
Companies today are leveraging data and analytics to produce powerful business insights. But attempting to measure innovation or an innovation culture can present challenges. Traditional metrics like ROI or ratios comparing R&D spend to annual sales are no longer the best way for many businesses to track and measure the success of their innovation efforts. Growth company leaders should instead determine the most important factors that can lead to a significant breakthrough and focus their innovation metrics around them. For some, this could mean tracking the amount of time employees dedicate to discovery or the amount of resources spent on innovation trainings.
- Encourage random acts of innovation
You never know when inspiration will strike. Many companies have found success in spontaneity by springing into ad hoc brainstorms at a moment’s notice. Sometimes launching into exercises dedicated to innovative thinking is what’s needed to get the creative juices flowing. It can even prompt an employee to bring forward an idea they’ve been holding on to. We’ve seen this strategy work at our portfolio companies. For instance, leadership training and development company ExecOnline holds an annual company-wide “hackathon,” a coding and hacking event that often leads to new ways of thinking and problem solving. For many employees, it can be easy to let innovation time get lost in the shuffle of endless emails, customer requests, and other daily tasks. Facilitating these surprise sessions demonstrates to the team that management and the company as a whole is committed to making time for innovative thinking, no matter how busy the team may be.
- Don’t punish failure
Part of the challenge of developing a culture of innovation surrounds becoming comfortable with failure. Discovery always comes with some level of trial and error, and growth companies committed to continued innovation cannot be afraid to take risks. According to Harvard Business School, 95% of new consumer products fail each year, and businesses must prepare for inevitable stumbling blocks. Punishing employees that take risks in the name of innovation will only damage employee morale and stifle future efforts. Growth company leaders are better off empowering their staff with the flexibility and freedom to pursue new ideas without the fear of reprimand if they don’t turn out as planned. As opposed to focusing on the time and money lost exploring a new concept or idea, businesses truly dedicated to innovation should try to take away a few lessons from the experience.
Growth company leaders have a lot to gain by adopting innovative mindsets and leveraging new ways of thinking. But effectively doing so can present challenges. Businesses must start by looking inward at their organization. Outside perspectives from other business leaders with experience leading this charge is also invaluable. From there, executives can reflect on the best path forward based on their company’s unique needs and challenges. But the one common thread across all successful and innovative businesses is a company culture that’s dedicated to this pursuit. With innovation top of mind for every employee, from the CEO down to the interns, there’s no limit to what an organization can achieve.
Written by Marc Lederman.
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