Organizations are always trying to create the next big thing. What drives these organizations to create something new to bring to the marketplace? These are solving problems, creating opportunities, removing barriers, etc. What do all these things add up? They create value. How do you find out what people value? Look at who is going to benefit from what you are creating. You may think you know who they are, but odds are, you’re wrong. I’ll bet you are wrong. Why? You are too close to what you are creating. On today’s show, we will walk through perspectives and the value of innovation.
Identifying the Customer’s Wants
When I was at HP, there was an engineer who was pitching new features for a product line. At the end of his pitch, I asked him what the customer asked for the specific function. Did it come from a feedback form, a customer care call, or user surveys? The engineer replied, “I came up with this idea because it is a feature that I would really want.” Why did I ask this question? Because of the complexity that the feature would add to the product. It would take an HP engineer to figure out how to use the feature. The engineer mistakenly put himself in the position of the target customer.
It is vital that you, as the creator of a product/service, get out and observe what the customers want. During my years at HP, I frequented Best Buy on my weekends. If a customer looked at an HP laptop and ended up buying another computer, I’d hand them my business card and ask them a simple question. What caused you to look at this product and buy another? The answer to that question showed me what they valued. In today’s show, I am going to be discussing what the value of innovation is.
Understanding the Value of Innovation
How do you find what the customer values? You need to know their perspective. Their perspective has a significant impact on their decision making. An excellent example of this is my wife. My son Logan was a fencer back around 2009, and we were in Las Vegas at a two-day competition.
Logan was doing well and advancing in the tourney. That was great, but it also made us tight on time to get to the airport. After the competition, we raced to the airport. The person informed us at the check-in counter that there has been a delay in our flight to Phoenix. I corrected her, saying it must be a mistake because we were going to San Jose. She said that our ticket was Las Vegas to Phoenix to Los Angeles and then to San Jose. A typical flight from Phoenix to San Jose takes about one hour, but this one took 6 hours. I called my wife, and she said that booking the 6-hour flight saved $20. I thought she was kidding—at the time, I was the CTO at HP. She didn’t value my time the way I did.
Why does my wife think that way? My wife is the most frugal person in the world. Why? Because of her upbringing. She was one of six children, and her family struggled to say afloat. Her father worked double shifts in the steel industry, seven days a week, to provide for them. During this time, her family lost their home multiple times, and she was often forced to live with other family members. When she looks at the value of money, her experiences shaped her perspective. When you’re thinking about the value innovation, you may think you’ve got it all figured out. That doesn’t matter. What matters? The perspective of the person buying your product. It doesn’t matter what you think, but what they think. Do you know the “who” and what they value?
Creating Enhanced Value
Beyond understanding how people make decisions and what they value, let’s look at how we create enhanced value. I remember, there was a social media meme that showed an iron bar: An iron bar costs about $5. If you pound out that iron bar into horseshoes, equates to $12. It’s the same amount of iron, but making the bar into horseshoes created six extra dollars. Now take that bar of iron and put it through a manufacturing process and make sowing needles. That $5 bar of iron turned into needles gives you $3,500 worth of needles. Take that same bar of iron and turn it into springs for watches, and it will be worth $300,000. That is the power of innovation.
This instance is the creation of the value of innovation. Take the raw goods and produce something that the “who” values, and they will pay the premium for it. Take birthday cakes for example. My grandmother would make my birthday cakes from scratch when I was a kid. Each cake probably cost around a dollar. When she passed, my mom started making my birthday cakes with cake mix, which probably cost around $3. It was much easier than making it from scratch. When my mom started working full-time, she would get my cake from a bakery. What began as a $1 homemade cake, was now around a $15 bakery cake. The value of the convenience was hugely valuable.
Today, with my grandkids, it has to be an experience. You go to a trampoline park and pay a couple of hundred bucks for pizza, cake, and games. Why do you do this? It’s all about the value creation brought in by innovation. People will reward you with an innovation premium because of what they value.
“Me Too” Innovation
How do you earn the innovation premium? By conveying value uniquely and differently. If you’re an avid listener of the show, you know that I tend to rant about the “me too” innovations. Look at bottled water. There are thousands of brands of water bottles. There was a handful of them in the 70s. In the 70s, there were four types of milk and 19 in the 1990s. Today, there are hundreds of types of milk. How many different types of water bottles or milk do we need?
I was in the store the other day getting some Lays potato chips for my grandkids. I realized there were a ton of different flavors of chips. All this created complexity, and for what? The unnecessary complexity is the problem with “me too” kind of innovations. When talking about the value of innovation, you need to create something unique. Look at who your customers are, how they make decisions, what is the perspective that fuels that decision, and what is the unit of value that will convey a premium. Is what you are selling unique?
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To learn about perspectives and the value of innovation, listen to this week's show: Value of Innovation: Know What is Important.