Netflix is now the undisputed leader in entertainment streaming services, owning 36% of the US market, contrasted with its nearest rival Amazon, which has 13% market share (according to the most recent figures available). Its early introduction of technologies that now dominate the home entertainment industry led to its supplanting its traditional rival, the DVD rental store, most famously Blockbuster.
In 2002, Netflix’s market capitalisation was $288 million, against Blockbuster’s $1.62 billion. Eight years later, Netflix’s value had grown to $9.18 billion. Blockbuster? It went bust after years of struggling against the market. Most galling of all, Blockbuster had passed up an opportunity to buy Netflix in 2000, which could have been Blockbuster’s own streaming service. The rest is history.
Innovation is about being ahead of the curve, rather than adapting to a marketplace already shaped by your competitors. Invention is about creating new ideas and innovation is about transforming existing things.
While constant, incremental improvements in product and processes need to be part of the ongoing progression of the business, both invention and innovation are about material changes that cause radical breakthroughs. Rather than a two percent improvement this is the stuff that results in doubling or tripling profits; dominating or even creating an entirely new sector.
The best businesses don’t launch with one proposition and then sit back, they are hungry for breakthroughs, for things that will lead to even greater competitive advantage. For the most part inspiration comes from outside the business and often from the most unlikely of sources.
Modern surgery is premised upon one thing – anaesthesia. Without reliable, effective anaesthetics, we could forget about lengthy and complex procedures such as organ transplants or the removal of tumours deep inside the body. But the birth of anaesthesia came from observations in a context that had little to do with medicine. In the 1800s, it was common for people to take part in inhaling ether or nitrous oxide at so-called “laughing parties,” as a recreational activity.
On one particular occasion, one of the earliest pioneers of anaesthesia, Horace Wells, attended a party where he noticed a man under the influence of laughing gas badly injure his leg. The man told Wells he felt no pain. After this accidental discovery that these substances caused the sense of pain to be inhibited, Wells went on to experiment with the compounds, initially on himself as he removed a tooth. It was the start of a medical revolution.
But such serendipitous discoveries can’t be relied upon. In business, you have to be on the front foot – something that companies like Google understand when they set aside 20% of employee time for them to work on projects that they personally believe have potential. The speed with which new ideas come to market has also given rise to concepts like the Minimal Viable Product (the idea being you should get the simplest version of your offering out to real customers as quickly as possible and adapt as fast as you can). This is easier in smaller, nimble start-ups which is why we see so many corporates buying innovation (rather than successfully generating it internally) or increasingly investing in it through corporate venturing: something hardly seen even ten years ago.
Innovation sometimes just “happens.” But most often it’s about pairing skills with the space and culture for innovation to happen. And that includes you! Taking time out of the business, to talk to other business owners, read business books, or just take a break, will enable you to make the most of your creative, strategic mind. That’s not a luxury, it’s a must-do.