The Innovator’s Dilemma

Evan Spiegel is a 26 year old Californian, with a nice car, a stunning girlfriend, and an estimated net worth near $5 Billion.  The story of a college dropout turned billionaire is often heralded as a crowning achievement of the American way.  Innovators like Steve Jobs, Bill Gates, Sergey Brin, Mark Zuckerberg, and Elon Musk are so revered by aspiring entrepreneurs that pictures of them adorn many college dorm room walls (ok, maybe not Gates). Spiegel’s story is similar; a top-tier college student creates a business with a couple college buddies, their product becomes an over-night success, and they are inundated with venture capitalists begging to invest in their company and make the kids exceedingly rich in the process.

However, perhaps a more interesting story is why don’t these new billion-dollar ideas come from any of the existing companies who employ highly paid, well-trained engineers?  Furthermore, why is it that these founders only hit success after they either drop out or otherwise leave top universities?  Why is it the most developed teams with vast resources and experience fail to see the latest startup sneaking up behind them?

In 2012, Facebook held its initial public offering where it raised over $16 billion dollars and the company’s estimated valuation rose to over $100 billion. Later that year, Facebook (by then, still only 8 years young and led by a hoodie wearing CEO) was forced to spend a billion dollars to acquire an even younger company with only 13 employees, Instagram. The investment turned out to be a sound, (Instagram brought in an estimated $3.2 billion dollars for Facebook in 2016, and has more users than twitter) but the question no one seems to be asking is, if Facebook had given 13 of its best employees a billion dollars, could they have come up with Instagram?

The phenomenon goes by several names, but the best known is “The Innovator’s Dilemma,” or the idea that as firms grow, their ability to foster true innovation declines.  Many organizations are wrestling with this issue, as Evan Speigel’s company Snap Inc. (formerly SnapChat, a company so young my spell check doesn’t even recognize it) described in their S1 filing:

“In a world where anyone can distribute products instantly and provide them for free, the best way to compete is by innovating to create the most engaging products.”

Innovation is the new competitive advantage.  There are no twenty-something billionaires that made their wealth through better accounting policy, or more precise record keeping, or even better marketing teams. Innovation is a huge market opportunity for companies, but it is often so neglected (or the search for it so misguided) that the benefits are left to be collected by college students with nothing more than a six pack of red bull and some coding experience.

How can your firm cultivate its own innovation so that it doesn’t have to buy it at a premium later? By injecting Collaborative Innovation into your organization.  Hint: It’s not ping-pong tables in the break room and it’s not 60-hour work weeks either.

Leave your thoughts below on how to avoid becoming the next Kodak or America Online of your industry.

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