Category: business failures

Top 16 reasons of innovation failure

Is your company struggling with coming up and implementing innovative ideas?

Does innovation sound good for you but you still have to reap any tangible profit from those nice-looking, suggestive and “innovative” ideas that you hear from your employees, employers and read on Internet?

Do you think that innovation sounds good is but hard to capitalize on?

Before drawing any foregone conclusions and debunking anything dubbed innovative, please check whether your company’s approach to innovation is sound.

The seven deadly sins that choke out innovation in all sorts of companies and industries include:

  1. Thinking the answer is in here, rather than out there
  2. Talking about it rather than building it
  3. Executing when there is need for exploring
  4. Being smart
  5. Being impatient for the wrong things
  6. Confusing cross-functionality with diverse viewpoints
  7. Believing process will save your company

These are common in both brainstorming, analysis and execution stages of implementing innovative ideas.  Additional reasons why (supposedly) innovative ideas might fail are:

  1. Ideas don’t solve an important and relevant problem
  2. Ideas take too long to get to market or needs shift
  3. Ideas are poorly launched
  4. Understand the adoption cycle or barriers

In my previous post, a recap on Umair Haque‘s article,  following strategic factors yield failure if present during implementing and managing innovation in your company:

  1. Focusing on short-run numbers
  2. Applying surface economics
  3. Being strategy-blind
  4. Failing to see the right context
  5. Never having an ideal

Use this “innovation failure” checklist of factors to make sure your company is not trapped in or following one of the above factors.

Will Google fail… again?

If you work just for money, you’ll never make it, but if you love what you’re doing and you always put the customer first, success will be yours.

Ray Kroc, founder of McDonald’s said. Google founders loved their search engine. Today Google seems to love money more than anything.

Google Catalogs, Google Answers, Google Wave and even the most recent, hyped up Google Buzz feature on a growing list of Google flops, with, on average, 200 projects that are being worked upon at any time at Google.

A seeming common denominator of all its failed attempts is its chase of existing and successful business models or competitors. Google Wave was to reinvent email; Google Buzz was to be a direct response to Twitter; Google Answers was to counter Yahoo! Answers and so on.

Since 2001, Google embarked on acquisition of middle and small size companies, in its bid to enhance the range of its services both vertically and horizontally. More than 80 acquired companies and 10 years later, yet its strategy, approach and mentality have hardly changed.

In a certain sense, Google stopped innovating. Many of its failures could be somewhat explained away by looking at how it tries to go about chasing others’ success. An enlightening interview with a Google exec revealed some crucial points –  scope of work, team size and usage of infrastructure, etc. – of how Google cannot, for example, build an Instagr.am equivalent.

And now Groupon. Google’s unsuccessful story of trying to buy it for USD 6 billion did not finish there. It now decided to come up with its own answer. A déjà vu?

Of course, Google did and does good things. Adwords, Adsense, Analytics, Android and its transformation of online advertising using acquired DoubleClick technology, have done and will continue bringing value to businesses and end users.

But, is the value offered by Google justified by the growing number and impact of its flops?

It all boils down to a company’s DNA. Google’s DNA is search, and it built around it, growing and becoming successful. Now it tries to “go out” of its DNA and diversify, not an unusual drive for a company of its size and track record. It needs t keep in mind, however, that similar attitude brought down other big and successful companies in the past. Instead, what it could do is to make its own search smarter and richer (in relevancy, targetting and search result contents).

The usual question that Google and other failed/successful entrepreneurs/businesses ask themselves daily is, “Should we Innovate or Copy?” The word “Innovation” became a cliché, despite the fact that innovation wars lead nowhere and hurt everyone.

Perhaps it is time we start to mInnovate.

How companies fail in commonsense marketing

Beware of making five-year projections, unless you’re thinking of leaving the company after four years.

These words belong to the King of Manhattan, David Ogilvy. Perhaps what he meant is not to go without planning, but plan carefully, adjust consistenly and execute relentlessly, all of it driven by commonsense.

Commonsense indicates a certain approach to marketing: figure out your company’s goals, then decide on what and how (communication, advertising and contact) to market goods/services your company offers.  Drayton Bird’s book “Commonsense direct and digital marketing” puts it in the following order:

  1. business mission (what do you want to achieve?)
  2. business objectives (are your goals SMART?)
  3. marketing aims (ex. get new customers)
  4. marketing strategy (ex. how you will market)
  5. communication objectives (ex. tell your existing customers about your new products)
  6. communication strategy (ex. building up a new database of customers via limited offers)
  7. advertising objectives (what do you want to achieve by advertising, a general, mass communication weapon?)
  8. advertising strategy (via channels will you advertise – TV, online, print?)
  9. creative strategy + media strategy (how will you convey your message? + which media and how much?)
  10. contact strategy (points of communication between your company and your customers – when/how you will use selected media to reach out your target?)

You work your way from business mission, answering all relevant questions  to business objectives and so forth. Your end result, after going stage by stage, is a well-conceived and solid marketing plan.

Yet, as simple is this sequence looks, it is regularly and sometimes consistently violated/omitted/ignored. An impressive list of small, medium and big brand and product failures is a testimony to that. Financial and other consideration matter, but marketing represents a big chunk of and reason for failures both for new and existing products/services.

According to one research, fewer than 10% of all new products/services survive past the 3rd year, some of the reasons being wrong assessment of existing markets, insufficient awareness generated by advertising, and wrong target group. Even the largest (and most successful) direct-selling, person-to-person marketing company and manufacturer of health/beauty/homecare products, Amway, has not been immune (Amway’s China failure).

The recurring theme among the most famous product failures is also conspiciously featuring wrong pricing, erroneous market assessment, ambiguous positioning, unclear message and wrong naming.

The underlying logic (and its failure) is notably manifested in the online part of marketing planning and execution. Inappropriate channels, wrong targeting and poor execution are prominent in social media marketing failures.

To conclude, marketing planning and execution errors originate either while not following the inherent commonsense order of marketing mentality (in accordance to the list above) or in insufficient, erroneous, unclear research, planning and implementation of one or more stages of marketing.

Commonsense is indeed a sum-total of logical thinking, gut feeling and intuition. Unless we use commonsense in our marketing efforts, we will be a man Nietzsche had in mind when remarking:

To a man with a hammer everything looks like a nail.

Entrepreneurship is a journey – fail or endure

If we’d known we were going to make it, the challenge would not have been the same – we might have not gone. If we’d known what lay ahead, we certainly would not have gone.

The paragraph above typifies most entrepreneurial undertakings. It always starts with a bright idea, sense of uniqueness, and feeling of going to accomplish something important and doubtlessly rewarding.

However, the excerpt has little to do with business. It is an account of journey, the longest  at the time (1980-1982) from the Bronx Park (in Northern Winnipeg, Canada) to Belém (in Brasil, where Amazon meets the Atlantic) on canoe, spinning some 12,000 miles (20,000 km). Below is the final entry in the original diary (links are mine).

We have taken some 20 million paddle strokes to get here and have traveled every variety of waterway. We have slept on beaches, in jungles, in fields – sometimes in canoe, on the open water. We have shared simple food and lodgings with the Cuna Indians, the Guajiras, and the Miskitos; we have dined aboard million-dollar yachts. We have eaten shark, turtle, paca, tapir, wild pig, manioca, palm hearts, cactus. In Cartagena, we ate heaps of roasted ants.

We have encountered hundreds of species of creatures: snakes, crocodiles, piranhas, morays, sharks, whales, bees and scorpions. Strangely enough, the only animal that has given us any trouble was man; we have been arrested, shot at, robbed, jailed, and set upon by pirates. At one point we were led off at gunpoint to be executed.

We have been taken for spies and sabotoeurs, have capsized 15 times at sea and spent terrifying nights in pitch blackness riding the ocean breakers without navigation. We have had brushes with the drug trade, suffered food poisoning, blood poisoning, and dehydration. Forty-five times our canoe has been broken on rocks or reefs. Our skin has been baked to scab by the sun. We have been close to starvation.

This is reminiscent of journeys of so many of those leaving their mark in history of business, politics, arts – all human endeavor. Only the details differ, yet how many of those aspiring entrepreneurs have an idea of what awaits them alongside their journeys? How many would carry on having a foresight of future? How many would continue and endure? Not many. Yet at the end, winners always invariably stand alone:

In spite of all we’ve endured, our arrival here in Belém was anything but triumphal. No banners, no champagne, no tears or kisses. Nobody at all… Perhaps we deserve such a fate. We have come too far.

The book documenting this journey is called Paddle to the Amazon by Don Starkell.

Top 10 misconceptions associated with starting your business

Many aspiring entrepreneurs, without having previously started a business, already have a fixed set of conceptions about embarking on a new venture. The most wide-spread and misconceived of those are:

  1. I need lot of money to start a business (many ways to start-up with no money or with a bit of bootstraping)
  2. I will get rich soon (although some successful startup founders get rich and advise others how to get rich, it will require time till your business gets traction and starts making profit for itself and for you; brace yourself to get rich slowly, in the best of cases)
  3. I need to have a well-conceived and thorough business plan (it is true that business plan is an important fact, but many consultancy and web  service providers started off without one). As a matter of fact, when it comes to business models, statistics show that only 35% of failed startups had the wrong business model.
  4. I need a unique and great idea to build upon (it is far more important that the idea addresses an open need or delivers in a better, more efficient or more affordable manner that currently available on the market; Betamax vs. VHS story)
  5. I am the boss and I know better (your employees, your customers, your shareholders, and most importantly, your competition will affect and have sawy on your decisions)
  6. It will take lot of time till my business makes profit (while number crunching to project profit is useful, it is by no means sufficient; focus on customer needs and offering value is what will eventually bring profit; some take lot of time and other take a year or two)
  7. I will have more time and freedom (nothing can be further from truth; this is your business and every idea, problem and solution – especially at the beginning stage – will have to go through you, worry you, make you sometimes anxious and other times happy)
  8. I have this nice/cool product/service and will surely get customers/market share (Apple Newton, Motorola Iridium, and many of top dot-coms were built with this idealogy and resulted in failure)
  9. I am the boss and I can pay myself as much as I want (while there is much debate about how much a founder’s salary must be, it is obvious that a founder needs to share love with employees if he expects their loyalty, devotion and passion in work)
  10. I need to take a bold risk in order to succeed (was Bill Gates a risk taker? you rather need to be flexible and adopt to realities, solving problems as you go)

The misconceptions above (and any of their combinations) usher in a bad start, difficult and eventually unsustainable growth of businesses.

Why failure is the ONLY path to success

Failure. Success. What association do we have with each? Google search of the word “success” returns nearly 281 million results whereas that of “failure” 119 million. These are telling numbers and they seem to reveal the underlying “logic” of our lives. We are afraid of failures, whether they are in our personal lives and in our careers (whether changing a job/career or starting your own business).

Many are driven and inspired by success stories, recipes and recommendations of others. Success, even if it is not yours, feels good. It feels comfortable. Present and future, in that one instant, seem to become brighter and more rewarding. We live in that instant and want to stay in it.

Many are afraid of failure. We hide our failures. We try to forget them. We mostly attribute our failures to a bad luck, an out-of-control happenstance or an incident. Very few of us openly admit a failure, even less their part in it.

What we don’t necessarily know is that fear of failure destroys any chance for a possible success in future. What we also might not know is that failure breeds success.

Throughout our history, many a successful entrepreneurs, businessmen, politicians, scientists failed first before reaching success. Google returns about 672,000 search results for “failure quotes,” and each of those pages – this is a good example –  contains quotations and saying of those who made history.

I selected excerpts from some of modern (and currently very) successful entrepreneurs, businessmen and bloggers who tell of their failure stories and experiences.

Brazilian blogger Luciano Passuello, who is passionate about the world of our minds, thinks that failure “is the only way to go far enough”

Have you failed before? Was it as terrible as you had anticipated? Well, here you are reading this article, so it seems you survived all right. Truth is, failure is almost never as bad as we imagine. Fear of failure is usually much worse than failure itself.

Ryan Healy, dubbed “Most Referred Direct Response Copywriter on the Internet,” during his early youth, trying to grab on courses and lectures promising success and fortune,  admits

I was what they call a “hyper responder.” I’d buy just about anything that promised freedom and fortune. I bought programs about how to trade the commodities market (and I actually did that and made money); I bought programs on how to bet the horses; I even bought a program about how to become a “waste auditor.”

…

But as my drive intensified, I began to make larger investments.

I dropped $5,000 on a real estate investment course. I realized too late that I was uncomfortable using the techniques in the program; it was basically worthless to me.

And while that loss hurt, it didn’t hurt nearly as much as the next mistake I was about to make.

Yes, he made mistakes. We all do. But he came out of these mistakes and experiences a stronger person.

Ben Settle, an email marketing expert and web entrepreneur, thinks that

Because weird as it sounds, failure is a requirement for success.

And like it or not, without failure you can’t truly succeed, so avoiding it pretty much makes you dead in the water right out the gate.

…

I’ve met (and worked with) some serious “power players” in business. Not just on the Internet, but offline biz owners, too. I’m talking about people who sometimes make more scratch in a DAY than the average working stiff makes in 6 months toiling away for the corporate beast masters.

And you know what all these people have in common?

They started out as miserable FAILURES.

Last but not least, remember one thing. If you are failing or what you are doing is failing and things just seem plain bleak and without any perspective, then perhaps, it is time to give up what you are doing and start anew. Or perhaps, it is time to start doing something else.

As a serial entrepreneur and bestselling co-author of Trust Agents, Chris Brogan puts it

There is a right time to give up. There’s a right time to quit. The trick, and it is a HUGE trick, is knowing which is which.

adding that

Remember that surrender is every bit as much a part of strategy as victory. Learning when to surrender or lose a smaller battle has been part of the success plan of every major war ever fought. The trick is in knowing what really matters, and never letting go of that. The problem we have is that we fall into the trenches and think the battle is the war.

Failure. Success. Two sides of the same coin. One cannot exist without the other.

Embrace your failure and you will succeed.

Guidelines: from red failure to blue value-based model

There is no ready receipt to make your business succeed, but their are components many successful companies embrace in order to go from red, bloody competition-driven mindset into a blue, value-based, innovation driven one. The name of the game must be value (for employees, customers, stakeholders, society and environment) innovation.

To build a viable and sustainable business model based on value innovation, the following four strategic dimensions need to be decided upon: buyer utility, price, cost, and adoption.

Business model strategic dimensions

To decide upon each of the dimensions above is equivalent to finding exhaustive and compelling answers to certain questions. For example, at the first stage, Buyer utility, to go or not go ahead with a service/product you are thinking of (re-) introducing to the market is determined by seeing whether your offer is useful and whether there is a compelling reason to buy it. If any of the two questions do not get a resounding YES, then you are risking to enter a competitive market without guarantee of attracting a big enough crowd or having to put forth your offer without getting expected/necessary revenues.

The most important part in Buyer utility stage is to position your product/offer on the following target “buyer map,” you will determine whether your product/service will create new demand/market (like Nikon is now trying to do, a market for energy goods or in a production of arts) or enter into an already existing market. The map also allows you to check existing competitor products/services, their locations and where the gaps, hurdles and unmet demand exist for your offer.

Buyer map

Essential for Price stage is to understand the economics of similar offerings. Target buyers will more eagerly buy a product/service recommended/referred to them by their peers/others rather than one that only few buy – network externalities. Hence, the need for correct pricing to attract that initial threshold of customers, which will then cause a snowball effect.

Another important factor for determining a price is the idea of rival (for example, production materials, which exclude their use by their rivals/competitors) versus non-rival (for example, ideas, which can be adapted/used by their rivals/competitors) types of products/services. By looking at similar offerings – same form and function; different form, same function; and different form and function, same objective – you will be able to narrowly define a price corridor for your target customers that will be feasible from your side (ensuring sales and profit).

For the Cost stage, the counterintuitive but winning strategy is to have price-minus costing rather than cost-plus pricing, if you are willing to have a cost-structure that is both hard-to-match for competitors and profitable. To be able to attain your preset cost target, there are three ways:

And finally, for Adoption stage, you need to consider that new things tend to always be met first with resistance even by those for whom they are made/offered. Hence, a need to clearly communicate, address issues and receive “acceptance” before going ahead with employees, stakeholders, target market, generic public.

Failing at any (or few) of the four strategic dimensions is what usually leads a company down the drain..

P.S. A more complete elaboraiton of this dicussion about value innovation and more can be found in “Blue Ocean Strategy.”

Top 4 assumptions that cause market failures

Many articles have been written (including my blog post) and much ink has been spent on this topic. Let’s now have a cursory look at the history of modern finance, which will help explaining how modern finance works, hence how the regular market crashes/failures (by the way, have a look at an excellent round-up economic history of finance and market failures by John Cassidy; also check out the article about the three recent Nobels for explaining market failure from an unemplyment perspective) happen.

You might or you might not know, but the modern financial theory is built upon a legacy of a son of a French wine merchant and diplomat,  Louis Bachelier. His doctoral advisor was Henri Poincaré, one of the most celebrated and influential mathematicians of all time. The defense of his 68-page thesis, “Théorie de la Spéculation,” took place in March 1900 and was about trading of government bonds on Paris exchange. In his thesis, he laid the foundations of financial theory, and more generally, for all theories of probabilistic change in continuous timeframe. The cornerstone of his thesis was to explain how the prices change.

Bachelier died unknown as his thesis was respectfully discarded in the annals of French academia and only by accident discovered in 1963 by Eugene Fama, the creator of Efficient Market Hypothesis, the foundation of the orthodox financial theory. What he proposed – and the his proponents Markowitz, Sharpe, Black and Scholes elaborated on – was a coin-tossing model of finance. He assumptions can be formulated as follows:

  1. People are rational (if this were true, there would be no science of behavioural economics)
  2. All investors are/think alike (ignoring different types of investors)
  3. Price changes are practically continuous (of course prices jump in a discontinous manner – almost every day, NYSE reports “imbalances” due to exogenous changes)
  4. Price changes follow Brownian motion (Bachelier proposed to use Fourrier formula of heat spreading to describe how bond prices change)

A little further elaboration on point #4. Bachelier’s adaption of Brownian motion had three critical implications: independence (prices last day/week/month have do not influence prices today); statistical stationarity (prices change in the same manner in the past/present/future); normal distribution (price changes follow Gauss’ bell-curve). The third implication, which underpins almost every tool of modern finance,  is the one most obviously contradicted by the facts.

Ever since rediscovery, utilisation and expansion of his theory in 1960s, Bachelier’s ideas found their way into virtually every aspect of modern financial theories. Capital Asset Pricing Model (one study suggested that about 75% of financial managers/CFOs use it to estimate cost of capital), Modern Portfolio Theory (the most widepsread method of selecting investments) and Black-Scholes formula (for valuing options contracts and assessing risk) are the three pillars of modern orthodox finance theory. All three are part of every MBA curriculum and are translations of Bachelier’s ideas into practical tools.

The above (wrong, or in the best case, narrowly applicable) assumptions being at the core of every modern financial tool, it is clear why markets failed and will continue to fail, unless a radically new approach, a paradigm shift takes place in the financial market. This tectonic shift has already started taking place…

Round-up: failed startup post-mortems

I have previously blogged about top dot-com flops.  By chance I came accross this great round-up of failed startup post-mortems on ChubbyBrain.  The list includes, among others, the following:

An article (also pointing to the above source) on GigaOm featured information about post-mortem of the infamous StandoutJobs . As for main reasons why statups fail, have a look at Paul Graham’s article and my previous blog post. Finally, here is good set of lessons from Mark Goldenson, founder of PlayCafe (one of failed startups on the above list). I especially like his “Set a dollar value on your time,” which helps prioritize tasks and clarify what is and is not important for your business.

Does your business need a model to be successful?

What is business model?

Many people assume that as long as they have a great product or amazing service, success is a guarantee. This is an illusion, especially in the rat-race of the 21st century. Without a  solid and well-thought business model, organizations/firms struggle to grow or even to survive.

Let’s define few terms, before continuing. Traditional business model has six components: value proposition, market segment, value chain structure, revenue generation/margins, position in value network and competitive strategy. The successful ones, however, tend to have the following three common features: offer a unique value, are difficult to imitate, and meet/create an (untapped) market demand.  For the Internet, online business models became essential for online companies and traditional ones expanding their reach into the online. Online business models form an ecosystem comprising of four parts: company, customer, product and experience.

Some,  Dot-com bust exposed an armada of good “look-and-feel” online companies, which had no working/sustainable business model and were a mere fluff in the market.  But it is not only dot-coms that fail to conceive a deeper value in their offer. Some traditional businesses (such as newspapers), which branch out into online, blur their existing business models (by charging for access to obituaries while charging fee from those who choose to put them in the paper).

Is there a “right” business model for a company?

Some companies, both purely online or traditional, finding a business model that works, try to protect it as as Netflix did when it filed and was granted a patent for its business models (subsequently suing Blockbuster for patent infringement). An example of a very successful business model was at Xerox. It created the world’s first automatic paper copier. Xerox saw that with the high expense for each machine, there was no room for a substantial profit by simply selling machines. Their initial business model was based on the idea of leasing the machines and charging a fee per copy made. Because of its innovative and strong marketing activities, Xerox brand-name gradually became a verb “Xerox” which stands for copying paper (like Google stands for search). Recently, by incorporating environment-friendly concepts into their business model, Xerox started producing earth friendly designs that helped it save USD 2 billions in last 2 years.

On the Internet, where some social networks take a gigantic chunk of users’ online “time” are not, generally speaking, a commercial success and the investors are generally apprehensive about the business model they pursue – Facebook (which makes money from brand ads, partnerships, paid applications like virtual goods and performance ads) and Twitter that are still with us contrary to countless others that did not survive. Some suggested Twitter – it recently debuted its promoted tweets – to build business models around data mining and performing trend analysis, feed advertising, SMS ads, and subscriptions, integrating contextual ads, apps, and pages or even selling/suggesting friends. Lastly, few envision a tiered/freemium model whereby “basic” Twitter remains free but a premium service (a version of promoted tweets with more flexibility, options and cost structures) is offered for online brand builders and commercial businesses. Indeed, the whole business model/monetization topic for Twitter (and for Facebook) are so hot a topic that there are few dedicated topical channels as this one on Business Exchange.

Society + business = ?

Few days ago, the US state of Maryland has become the first state in America to recognize a new type of socially responsible corporation that can consider the public good in addition to shareholder obligations in business decisions. Until now the term “corporate social responsibility” was a badge for innovative, brave and socially conscious businesses such as Ben & Jerry’s whose social activism is well-known. There was no law supporting what they did. From now on, businesses that become (by amending their charters) “benefit corporations” may consider factors like employee interests, the environment and promoting arts and sciences, as well as shareholder interest.

And last but not least, what have you heard of a company called TOMS? Even if you have not, you will, very soon because they just completed giving away a million shoes. Their business model is simple: for every pair of shoes bought, they give one pair away. TOMS calls their model – unsurprisingly – One for One. Their name, TOMS, is taken from the word “tomorrow,” being part of the idea that if you buy a pair of TOMS shoes today, a pair is given away tomorrow.

What is the business model you currently operate in? Is your business model in-line with trends and values of your society, your target market and in the 21st century?