Why good concepts are strangled at birth

Companies need to assess innovations without prejudice, and with an acceptance of some risk, says David Aaker

one key to winning the brand-relevance battle by creating new categories or subcategories is to evaluate and select the right concepts to develop. In doing so there is a risk that a concept with high potential is not funded or has its funding cut off. As a result a firm loses the opportunity to create a category or subcategory in which the firm could hold an ongoing advantage and a potential source of profits and growth. The problem is hard to correct because the results of such decisions often are forever hidden.

What kills concepts with potential to make a difference with an innovative offering?

 1. Many are terminated by a gloom-and-doom bias that takes on several forms. Pessimism about technological advances meant that GM killed the EV1, a battery-operated car in 1998 just before a breakthrough in battery technology occurred. In 2005, GM CEO Rick Wagner said this was GM’s biggest strategic blunder.

Synthetic detergent was under development at P&G for five years when the firm killed the project. Luckily a P&G scientist pursued the effort without permission or funding and five years later Tide was born. Had the firm enforced their decision, P&G would still be a soap company. In contrast, Toyota charged its product team to come up with the Prius, despite the fact that at the outset the technology was inadequate. There was a commitment to find or create the necessary technology.

2. Market-size estimates are based on existing flawed products. Digital readers, termed e-readers, were around for a decade but never had traction, in part because accessing books was difficult and the units were clunky. Then in November of 2007, Amazon launched the Kindle with its Whispernet fast download system, its 30-hour battery life, a book-like reading experience, and a market buzz. The Kindle sold more than one million units in just over a year and made sales of previous products irrelevant as points of reference.

3. The belief that offering limitations is fatal. For example, Mint.com, the US personal finance service, had trouble getting funding because the judgement was made that no one would provide personal financial information. However, it proved that judgement to be wrong because it was able to argue that its read-only system was not vulnerable to moving money around; that its track record of never having been compromised was persuasive; and that its use of third-party brands such as VeriSign and Hacker-safe ensured safe communication.

4. Another problem is the failure to identify the right application. Intel, during the development of the 80286 microprocessor that began in 1978, came up with 50 possible applications. The personal computer, the ultimate application that became the basis for the Intel business for decades, was not on the list. This failure was in part due to an understandable inability to forecast the development of technologies and software programs that made the PC a runaway success. A powerful technological breakthrough with the right creative effort will find an application.

5. In some cases, the wrong market is targeted. Joint Juice is a firm founded by an orthopedic surgeon who had the breakthrough idea of making glucosamine, which is effective in reducing joint pain, available in a liquid form. The initial target market, young to middle-aged athletes, was disappointing. However, a refocus on an older demographic, people who wanted lower-calorie, lessexpensive products, resulted in a successful health business. At the early stages a variety of markets should be on the table.

6. The ultimate reason to kill a potential offering is that the market is too small. For that reason Coca-Cola avoided the water market for decades, a decision that was a strategic disaster in retrospect. Niche markets can grow and can go mainstream. Nike, Starbucks, and SoBe are examples of brands that have successfully scaled their value proposition. Beware of snap decisions based on instinct or superficial metaphors and be willing to accept some risk. The future is hard to forecast. But the upside of the creation of a new category or subcategory can be strategically important and can justify the acceptance of risk. It can provide a business platform for the future and a profit flow that can support strategic growth. A firm needs to take care that a bias toward doom and gloom does not result in the wrong decision.

 Dave Aaker is chairman of Prophet and author of Brand relevance: Making competitors irrelevant, Jossey-Bass, 2011. [email protected]

 The ultimate reason to kill a potential offering is that the market is too small, but niche markets can grow