When my son Michael was in high school, he worked after school at a local ice cream shop. They had all the traditional flavors, of course: vanilla, chocolate, strawberry, etc. But… they also experimented with some that were new and unusual.
One flavor that stood out to me was jalapeno! I always wondered: Who in their right mind would think it a good idea to put hot peppers into ice cream? (Maybe the same people who put salt on caramel?)
In any case, I was thinking about my son’s experience recently, as I was preparing to discuss innovation with the entrepreneurship students I teach at Boston University. Innovation can be challenging in the best of times. But it’s especially so in the face of the uncertainty people are living with these days.
And that uncertainty causes organizations to be risk averse. They exercise a great deal of caution and base decisions on past experiences and intuition. This tends to result in safe, but incremental change.
It’s an understandable cautiousness. What’s less obvious, however, is the risk these same organizations face by not innovating, especially if others in their space are doing so.
With that in mind, here are some things to consider when working to minimize risk while attempting to innovate:
Consider the Potential Upside
Some of the best innovations come from ideas that are outside established norms. These ideas may involve non-traditional combinations (e.g., jalapeno ice cream, bacon on donuts) or changes to established behaviors (e.g., making scientists and engineers share the same kitchen at the Koch Institute so they interact with people who think differently).
Market research alone doesn’t always tell the full story. The more unusual the idea, the harder it is for people to predict how they would respond if actually presented with a given product or service.
For example, a software executive in charge of innovation was excited by a new product feature that he felt would be valuable. He followed the typical process — launching a consumer survey — only to learn there was no interest. Undeterred, he launched a MVP (Minimal Viable Product) test to see what consumers would do when presented with the opportunity. That, too, indicated no interest in the concept.
But he was so convinced of the feature’s value — and realizing that it would not cost much to complete the code and launch the option — that he went ahead and put it out to the market. You know the rest: once available, the feature proved extremely popular with users.
When the upside is high, and the cost/risk is low, there is room to take chances.
Consider the Potential Downside
Humans are risk-averse by nature, so downside outcomes are naturally a concern. And while we need to be especially cautious with risks that could have large financial consequences, it’s important we don’t overestimate risk either. An objective assessment is essential.
Consider our jalapeno ice cream example. How big a risk is it to put that idea out there? If people don’t like it, the store discontinues it. There would be some product costs, but that’s about it. (By the way, I’ve now seen this concept expanded, with online recipes offered for Pineapple Jalapeno, Pickled Jalapeno, and more.)
Similarly with the software example earlier. If it didn’t get sufficient use, it could have been removed in the future.
Develop a Clear Hypothesis
It’s been said that “hypothesis” is just a fancy word for guess. But in order to get the most from experiments, you need a testable hypothesis. That means defining success before the fact, something that requires a bit more thinking than just guessing.
In the ice cream example, perhaps the threshold is whether the new flavor sells out as quickly as an average flavor. Above that level, it’s made again and added to more shops. Below that level, it’s put to bed.
Don’t be Afraid of (Manageable) Failure
Even when something doesn’t work as hoped for, it can provide insights about other ideas that might. In this way, experimentation can be thought of as “tuition:” so long as downside risk is managed, it’s a way to continue learning.
But fear of failure — of any size — keeps many organizations from testing new products, features, or service offerings. We are conditioned to avoid failure, which is why some innovative companies celebrate it as a way of signaling that it is safe to take manageable risks that don’t always pan out.
One positive outcome of the pandemic is that it forced otherwise risk-averse companies to take chances they would have avoided during “normal” times. For example, when large gatherings suddenly were off the table, many nonprofits experimented with online virtual events as a means of bringing supporters and donors together to raise funds. The practice has been found valuable and continues in many circumstances.
Companies — nonprofit and for-profit alike — need to bake innovation into the way they do business. It’s not always predictable and there are bound to be failures along the way.
But doing nothing may be the riskiest gamble of all.