Innovation, Ideas and Selling a Business

In startup circles, the buzzword “innovation” enters the conversation so frequently, it’s practically a sixth vowel. Innovation is what every hopeful founder is chasing. An innovative product can be the basis of a business, while innovative thinking seems to be the only possible savior of bloated incumbent companies.

In its broadest form, innovation is coming up with something new or better than what came before. The other side of that coin is dissemination – the promotion of a novel idea. Despite that, strategies for spreading innovations don’t command nearly as much attention from entrepreneurs as the process of innovation itself.

This seems to be largely because spreading an innovation has so often been seen as a matter of selling product. If you create a piece of world-beating productivity software, getting your innovation adopted by business people is synonymous with your basic strategy: sell as many units as possible. However, dissemination of ideas isn’t always so straightforward.

In the medical world, for example, developing a new form of cancer treatment can seem easy compared with the task of convincing regulators and doctors to adopt it. In medicine, as in other highly regulated industries, laws and guidelines of best practice exist to ensure new processes are adopted and applied consistently. When the owners of a healthcare business considers selling their company to a firm such as New Orchard Capital, having followed best practices will make for more motivated buyers, and more competitive offers.

In other words, the rules are designed in part to help good ideas spread more efficiently. Unfortunately, by codifying the behavior of their professionals, these industries make it more difficult for the next light bulb moment to occur. After all, a code of best practice, by definition, rewards a conservative approach.

There is a trade-off between the dissemination of good ideas and the creation of new ones. The more new ideas are on offer, the harder it is for the good ones to spread. But the more wedded people are to familiar good ideas, the harder it is for any better ideas to gain currency. Importantly, the advantage for someone adopting an innovation in the latter climate is often marginal. In startup parlance, widely accepted ideas have a strong network effect.

At the same time, a reliance on innovation – particularly for its own sake – can be a bad thing. Not every new idea is a good idea, but each and every innovation jockeys for people’s attention and money. Moreover, a competitive marketplace is no guarantee that the best ideas will win. In fact, competition rewards the most marketable product, rather than the best idea. That’s something to keep in mind if you ever intend to sell your business.

Think of well regarded but ultimately failed products like Google Wave. Replacing email with a more flexible, extensible platform was (and still is) a fundamentally good idea. But trying to explain the product in more detail than that just confused the average user and Wave floundered. It didn’t matter to the market how good the idea was.

According to Entrepreneur, that’s not to say the innovation behind the product is unimportant; far from it. Facilitating the spread of good ideas is one of the highest aims of the Web, and any entrepreneur should be proud to see their innovation influence the world. However, since the market can’t be relied upon to spread good ideas, the dominance of a product and the dominance of the idea behind it are distinct, though related, goals.

Look at the way Tesla Motors pursues the two goals in tandem. On the one hand, they’ve worked hard to cultivate the image of their cars as the transport of the future. Tesla’s car sales are increasing, and they’re moving to sell in more and more countries. They’re doing a good job pushing their product. On the other hand, they’ve allowed competitors – and anyone else who’s interested – to make use of Tesla patents free of charge to build their own electric cars.

At first, it might look as though Tesla is sacrificing a commercial advantage in their zeal for spreading innovations. In this case, ensuring the dominance of the idea behind their product will indirectly encourage sales of the product itself. The global market for electric cars is still very small when compared with the market for traditional internal combustion engine cars.

The widely adopted product has a strong network effect in the form of easily accessible petrol stations and experienced mechanics. Right now, in many cities and towns around the world, the benefit for an individual who switches to an electric car is offset by the lack of access to appropriate recharge points, service stations and so on.