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White Paper: Strengthen Small Businesses Through Bumpy Economic Times

Table of Contents

ABSTRACT
THE PROBLEM
ECONOMIC ROLE OF INNOVATION
1 THE SYSTEM Skeletal System of Business
2 RESEARCH The Nervous System Provides Input
3 DESIGN Design is king!
4 EVALUATION sharpens potential and lowers risk
5 PRODUCTION The Deliverable
6 LAUNCH Make or Break Product Success
7 LIFECYCLE Manage for the Harvest
BONUS Watch for the Next Big Wave

EXCERPT

Small businesses thrive on innovation, and are known as the innovation engine of the economy, however, the success rate of new product development (from initial ideas to launch) is typically less than 10%. And success of launched products is less than 50%. Recent research finds that a systematic approach to new product development can improve those odds when applied consistently, broadly and continually, using specific management tools. The best innovators achieve twice the sales from new products.

Small businesses can turn creativity into a system for impact by thinking innovatively about traditional business tactics. Lifecycle management of products, services and systems is a natural system for greater market appeal, greater productivity and greater profitability. A systematic approach to product, service and system development helps manage the harvest.

Active Innovation management is a systematic balance of creativity and craft in marketing, product design, supporting services and the business system. A.I.M. is not a revolution -- it's an evolution.

THE goals of Active Innovation Management include:
  • Business growth based on customer value, competitiveness & company valuation.
  • Productive idea generation, development and marketing
  • Quality solutions, products, services and systems to meet customer and company goals
  • Lower business risk by using a system to research, design, evaluate and manage.
  • Reduce resources spent on product development and deployment
  • Reduce time to market and lengthen product lifespan
  • Respect and reward team members

THE PROBLEM

When asked the greatest challenge facing their business, small businesses in Westside Los Angeles overwhelmingly -- 51% -- reported 'the economy'. The next closest challenge was employment issues at 8%. (On average these businesses employed 21 full time workers, 9 part time workers and 5 independent contractors.*

The concepts of business remain the same, but technologies and marketing have changed rapidly and dramatically. The Internet. Globalization. Multiculturalism. Regulatory complexities. Even networking has changed with increased security issues. But one reality that has not changed is that small businesses are still the heart of their local communities. The communities of Los Angeles provide an example of the small business success profile.

LOS ANGELES: A 2004 survey of small businesses in Los Angeles found that 84% sell their products in their own city and 37% in the Westside Region. 37% sell in Southern California, 36% in Ventura and LA Counties, and 29% sell nationally and internationally. How does globalization impact the 77% who said they do not want to sell internationally? The world has come to LA!

Only 58% of small businesses (1-9 employees) and 77% (20-249 employees) have web sites, and learning how to use them effectively is the most popular service of small business support centers. They need the basics -- and are overwhelmed by e-commerce, e-mail marketing, downloaded products, online databases and interactive forms to collect customer research.

ECONOMIC ROLE OF INNOVATION The Small Business Administration and the Kauffman Foundation reported in 'Entrepreneurship in the 21st Century' (March, 2004) that innovation fuels progress in the following ways:
  • Innovation fuels entrepreneurship
  • Fuels economic growth
  • Improves productivity
  • Adds resilience to the economy
  • Adds new jobs
  • Fosters knowledge spillover in local regions
  • Provides competitive advantages
  • Develops valuable new and emerging technologies
  • Empowers serial entrepreneur development
  • Develops technology and research alliances for greater innovation
Small companies represent 65% of the new companies in the list of most highly innovative companies in 2002. The industries in which the number of small firms has increased most rapidly are chemicals, pharmaceuticals, biotechnology, medical equipment, office equipment and cameras, and telecommunications.

The most significant patents (those referenced most frequently) are 13-14 times more likely to come from small companies, even though large corporations file the overwhelming majority of patent applications.

The small business sector is an important participant in technological innovation, which contributes to a large share of economic growth. Large businesses, because of their size and the widespread acceptance of their brand names, are often considered the originators of new processes or innovative products. Research funded by the U.S. Small Business Administration (SBA), however, shows that many of today's large producers may have capitalized on the innovation of a small firm. http://www.sba.gov/advo/stats/

THE CHALLENGE TO INNOVATE

Business owners struggle with change. And their customers struggle with change. Innovation gives small business teams the skills to swim and survive in the turbulent stream of constant change. Today, the average North American entrepreneurial business lasts just four years, the average sole proprietorship even less.( Dave Pollard)

The rate of change in business, in the social world, in technology is staggering. Innovation is the only way to keep up with the changing world, but even attempts at innovation can fail if a system isn't put into place that is as strong as an accounting system and as creative as an advertising campaign. Today's innovation management system is more than a brainstorming session followed by off-the-cuff selection of the quickest fix or the boss's pet project. Now that emotional buy-in is out of line -- it just needs to be based on some cold hard facts and sound business strategy.

Nearly 32,000 new products were introduced in the packaged consumer goods arena in 2000, according to "Build a Better Mousetrap 2000 New Product Innovations of the Year," by Tom Vierhile. The number was more than double the number of new consumer goods products launched a decade ago - over 15,000. (Joan Schneider, President, Schneider & Associates)

Having a business system in place is a great boon to introducing a new product or service. Innovation is more successful when it provides a solution for an identified problem -- and where better to identify a real problem than among your customers who are asking for a solution.

Innovation comes in all sizes, all applications, and for many purposes. Nonprofits use innovative strategies to make a difference. Startups use innovation to create low-cost promotion. Small, successful companies use innovation to extend their successful product lines and reach new target markets. Large companies use innovation to create industry breakthroughs and transformations on a very large system-wide scale.

Start-ups and innovation:
  • The largest number of start-ups pursue less-than-innovative ideas in highly competitive industries. The grass-roots entrepreneurs are companies that take something someone has done before and do it better, or cheaper, or offer better service," he said. "That's the core of the economy.
  • In the highly competitive U.S. market, 27 percent were pursuing an idea that was "not new to any customer." Start-ups considered most innovative -- pursuing an idea "new to all" in a market with "no competitors" -- amounted to only 4 percent of the total.
  • The landscape of entrepreneurship includes everyone from a fast-food franchise owner to a high-tech innovator. The advantage of the former -- no new product, many competitors -- is that the ubiquity of the idea shows it can work. The company will not face the task of having to convince customers to buy it. The downside, of course, is that the customer may not choose to buy it from this particular company, since so many others offer a similar product or service.
  • One solution -- innovation -- is risky and costly, but small, incremental innovations can be highly profitable.
Babson College, the London Business School and the Ewing Marion Kauffman Foundation of Kansas City
Active Innovation Management has identified a need for innovation techniques scaled for small businesses. Innovation attitudes and templates to help busy entrepreneurs and managers stretch their limited resources and develop targeted solutions that will improve their performance, their bottom line, and their company's value.

The solution is a simple, unified system that brings results over and over and over as it is applied in a wide variety of problem areas. Active Innovation Management is that simple system. Seven practical elements of an effective idea management plan that can turn frustrations and ideas into marketable products, services and systems that also add value to the company.

When the pathway of systematic innovation is followed, the resulting products, services and systems are more customer-oriented, more cost-effective, have greater market appeal and can even have a longer lifespan. And this system even brings a bonusÂ…a systematic way to observe feedback from the field to fuel the next generation of innovations.

The 7 elements of an Active Innovation management system include:
  • 1. The System
  • 2. Research
  • 3. Design
  • 4. Evaluation
  • 5. Production
  • 6. Launch
  • 7. Lifecycle Management


Marketing experts estimate that two-thirds of all new products fail within two years. Many factors contribute to this high failure rate, including the creation of products which simply do not match consumer needs or unforeseen competitive countermoves. In addition, each year it becomes more difficult to break through the noise generated by the thousands of existing products and line extensions. (Joan Schneider, President, Schneider & Associates)

It is important to plan and act for success:

Just do it -- get started in business, rather than spend a lot of time creating the ultimate concept that will very likely fail to win the attention of venture capitalists. All of which points to the conclusion one might glean from this study: Highly innovative ideas are rare, whereas modest ideas backed by friendly capital might very well be the root of a successful business, if not the economy.
Babson College, the London Business School and the Ewing Marion Kauffman Foundation of Kansas City

Excerpt from:
Strengthen Small Businesses Through Bumpy Economic Times
With the Seven-Step A.I.M.
Active Innovation Management System

By Carolyn Allen, Sunshine By Design


To download the complete, free white paper that shows how innovation can be scaled for small business, DOWNLOAD COMPLETE WHITE PAPER HERE: PDF, 21 pages, 308k