What is the best way to assess investment opportunities for innovation?

Evaluate investment opportunities for innovation by analyzing market demand, technological feasibility, competitive landscape, and potential ROI. Consider customer needs, emerging trends, scalability, and alignment with organizational goals. Conduct thorough market research, assess risks, and prioritize projects with high growth potential and strategic fit. Collaborate with cross-functional teams, leverage data analytics, and iterate based on feedback to make informed investment decisions.

While assessing market potential, consider disruptive innovation strategies that challenge existing market norms. For instance, examine how David (smaller companies) can disrupt Goliath (larger competitors) by targeting niche markets or underserved customer segments. A classic example is Dollar Shave Club challenging giant razor brands like Gillette. Explore the concept of "Blue Ocean Strategy," where businesses create uncontested market spaces by reinventing industry boundaries. Burger King's "Whopper Detour" campaign is a prime example, leveraging mobile app technology to redirect customers away from McDonald's by offering one-cent Whoppers when they order through the app within proximity of a McDonald's restaurant.

Beyond the traditional analysis, I find leveraging "Social Listening Tools" ?? an underutilized yet powerful method. These tools enable us to monitor social media platforms and forums for mentions of relevant keywords, sentiments, and trends. This real-time data provides invaluable insights into consumer behavior, emerging needs, and potential market disruptions that might not be captured through conventional market research methods. It's a way to "listen" ?? to the market's pulse, identifying untapped opportunities and understanding the nuances of consumer desires.

When analyzing a market, it's crucial to consider its current size and growth rate. Understanding the market growth rate can help you identify how quickly the market is expanding, and this information can be crucial in determining the potential return on investment. One way to determine the growth rate is by comparing historical and current market size data. Doing so lets you gain insights into the market's trajectory and make informed decisions about your investments.

In assessing investment opportunities, delve into guerrilla marketing tactics to exploit competitors' weaknesses. Small businesses can emulate Burger King's creative campaigns like the "McWhopper Proposal," where they proposed a one-day truce with McDonald's to create a joint burger, leveraging McDonald's brand equity to gain attention and market share. Consider the concept of "Flank Marketing," where smaller players identify gaps or weaknesses in larger competitors' offerings and capitalize on them. Ghadi detergent's success against Hindustan Unilever Limited (HUL) in India is a notable example, targeting rural consumers with affordable pricing and superior quality, exploiting HUL's focus on urban markets.

Another key factor is the value proposition: the unique advantage your innovation offers. Ask, "Does it solve a problem, fulfill a need, or create a desire better than existing solutions?" Tools like the Value Proposition Canvas can help you define and test this, ensuring your innovation truly resonates with customers.

Beyond the canvases, I advocate for integrating "Customer Journey Mapping" ??? as a vital, albeit underutilized, approach. This technique allows us to visualize and understand the customer's experience from first awareness through to long-term use. It helps in pinpointing where our innovation can seamlessly fit into and enrich the customer's life, highlighting unique benefits not just in isolation but as part of a broader ecosystem. Implementing customer journey mapping into our strategy offers a comprehensive view of the customer's pain points and delights, ensuring our value proposition isn't just a statement but a story that resonates deeply. ??

Explore the concept of "Cost Leadership Strategy" where small businesses aim to become the lowest-cost producer in the industry. Patanjali, an Indian consumer goods company, disrupted HUL's dominance by offering natural and affordable products, leveraging cost efficiencies in production and distribution. Investigate the role of "Disruptive Innovation" in challenging established players. Nirma's entry into the Indian detergent market disrupted HUL's market dominance by offering a low-priced product, appealing to price-sensitive consumers and reshaping industry dynamics.

Let's add some examples to make financial feasibility clearer. Imagine a company developing a new plant-based meat alternative. Financial feasibility would involve estimating: Costs: Research & development, production facilities, ingredients, marketing. Revenues: Projected sales based on market research and pricing strategy. Profitability: How long will it take to recoup investment and turn a profit? Financial tools like break-even analysis can pinpoint the sales volume needed to cover all costs. This helps assess if the innovation can be profitable in a realistic timeframe.

In addition to the mentioned tools, I recommend "Scenario Planning" as a forward-thinking yet underappreciated approach. This method involves creating detailed narratives about possible futures based on different variables affecting the market and our innovation. By mapping out various "what-if" scenarios, including best-case, worst-case, and most likely scenarios, we can better understand potential financial impacts under different conditions. Scenario planning allows us to prepare for uncertainty and make more informed decisions, ultimately leading to a more robust financial strategy. ??

The Technology Adoption Lifecycle predicts how fast a new technology will be accepted in the market. The process starts with a small group of adventurous people, and as more people become aware of the product, it gains popularity. Innovations gain market share slowly in the early stages, then speed up before slowing down again. Knowing where your customers stand on the adoption curve helps tailor marketing and sales strategies. For instance, Early Adopters require proof of benefits and potential, while the Early Majority wants evidence of widespread use and efficacy.

Assessing strategic fit for innovation involves considering multiple dimensions rather than a single one. It's essential to identify strategic areas or directions for innovation activities. By evaluating how well an investment opportunity aligns with these strategic areas, you can rate its overall fit within the organization's broader goals and priorities. This ensures that resources are allocated to initiatives that contribute most effectively to strategic objectives.

Strategic fit is an important part of making the right investment decisions for innovation projects. A simple method is to define which projects are strategic fit, which are to be discussed and which are out of scope. These could be evaluated according to the following criteria: Financial Characteristic, Relation to Core, Role of M&A, Type of Offering, Profis Model and Geography.

In the world of innovation, the foundation of success is evidence-based validation. It is crucial to verify customer problems, potential solutions, and their willingness to pay. The Lean Startup is my go-to strategy for achieving this. By validating a Minimum Viable Product (MVP), you rapidly determine if you are tackling a genuine customer problem and offering sufficient value to motivate them to invest in your solution.

A sixth and final factor is customer validation. Gather evidence and feedback from potential and existing customers to test your assumptions. Don't just imagine their needs! Validate your innovation with a minimum viable product (MVP) – a basic version you can refine based on real user reactions. The build-measure-learn loop helps you iterate quickly based on customer feedback. For example, an e-commerce company could use an MVP landing page to gauge customer interest in a new product line before full development.

Consider "Influencer Marketing" to validate innovation opportunities. Leveraging influencers can help small businesses reach their target audience more effectively and gather valuable feedback. For example, a skincare startup could collaborate with beauty influencers to test and promote new products, gaining insights and validation from their engaged followers. Explore "Crowdfunding" as a way to validate demand and gather early feedback. Platforms like Kickstarter and Indiegogo allow entrepreneurs to showcase their innovations directly to potential customers, who can pledge support or pre-order products. This not only provides validation but also generates funding to bring the innovation to market.

Customer validation is essential to determine whether an innovation investment is viable. To validate, create prototypes to simulate real-world scenarios and observe customer behavior. The mantra "fake it until you make it" emphasizes the need for realistic simulations. Through this process, gain insights into whether investing in the idea aligns with customer needs and market demand, answering the crucial question: "Should we make it?"

Disruptive Pricing Strategies: Businesses can disrupt established markets by offering innovative pricing models, such as subscription-based services or pay-as-you-go plans. i.e. Netflix subscription-based model, challenging traditional cable TV providers and disrupting the market. Open Innovation: New businesses can collaborate with customers, suppliers, and even competitors to co-create innovative solutions. i.e. LEGO launched its community-driven Ideas platform, allowing fans to submit and vote on new product ideas Agile Methodology: Small businesses can adopt agile principles to iterate quickly, test ideas, and gather feedback from customers. Hence, can respond to changing market dynamics more effectively.

Investment choices are all about context - which opportunity, out of many similar ones, will you choose? The criteria mentioned in this article are great, but they work best when used in a portfolio approach. What does this mean? Firstly, assign them weightings based on your company's strategy, core competencies and resources. Secondly, cluster similar proposals either by market, industry, tech used etc., and compare their individual ratings. Thirdly, apply a temporal lens - you may want to invest in solar panels in the short-term as you prepare a longer-term energy transition to full autonomy including battery storage, for ex. The result will be a balanced portfolio aligned to your strategy and active over time.

Assessing investment opportunities for innovation requires avoiding simplistic categorizations of opportunities as 'good' or 'bad'. Embrace nuance to prevent false negatives, uncovering hidden value in seemingly unimpressive opportunities. Similarly, guard against false positives by rigorously evaluating promising concepts to prevent resource drain. Experiment through prototyping and testing to unearth real potential and learn from successes and failures. This nuanced approach fosters an environment where true innovation flourishes.

In the early stages, swiftly evaluating a broad spectrum of ideas is crucial, focusing on learning as a key benchmark. Utilize Key Learning Indicators (KLIs) to gauge what and how much you're learning from each experiment. This not only accelerates the ideation process but also ensures that each iteration brings valuable insights, guiding you towards more informed investment decisions in innovation.

A good starting aid to validate innovation projects in order to make investment decisions is the Innovation Project Card from Strategyzer (Download as pdf). This summarizes many points from the above-mentioned question. You can use it to document and evaluate the amount of quality and evidence in order to make decisions based on the score.