Profits & Innovation, A Challenging Perspective

‘The ones who are crazy enough to think that they can change the world, are the ones who do.’ - Steve Jobs

I wrote this piece as I thought about the lack of progress, advancements, and innovation that most of our businesses are driving. Businesses for the most part are driven by the pursuit of profits. However, the most ironic fundamental element is that the heftiest profits actually sit with things that are advancements and innovation. Advancements are breakthroughs that do not occur by chance, they are very deliberate. I have here 5 inferences that build up to explain this challenge to the traditional way of thinking about profits & the innovation for our society, country, & world. 

Inference 1: The real profits lie in innovations for our world & businesses are responsible for that.

In order to obtain innovations for our society, country, and world that help to point us in a better direction, we need breakthroughs. Those breakthroughs can be innovative products or technologies, new ways of solving new/old problems, improvement/simplification of life in various forms (better experience, increased happiness, accessibility to information, quicker access to things, etc.) or medical breakthroughs. For the most part, those assumed with that responsibility are businesses and individuals. Individuals end up becoming entrepreneurs, who in essence start businesses, so essentially businesses carry that responsibility. The businesses that are successful in this (innovation for us), end up generating the most profits because they end up owning their markets. Here they can set their own prices and their enticement factor ends up not being price but rather other things because they have very little competition. Some examples of companies that can charge what they want and similarly, their profits margins show for it: a) Netflix - who leaves when they change their price, b) Google - you either advertise with them or you don’t get web traffic, c) Intel - the prices they charge doesn’t even matter anymore, and d) Sirius XM Radio - same as Netflix, if you want quality satellite radio you pay their price.

Inference 2: Businesses would rather choose to do the same & play in the same sandbox with competitors. 

However, what ends up happening is the majority of businesses due to risk aversion, would rather opt for minor tweaks, minor improvements, and minor changes to existing business/industry models, products, and technologies. By doing this, they essentially jump into the same sandbox of their peers, and duke it out teeth and nail in fierce competition, to battle it out for pennies of difference in profit margins. Then what ultimately ends up happening is businesses are forced to squeeze out every penny possible for survival and the death spiral begins for those whose business models become unsustainable. The reason for this is all of those businesses in the same sandbox end up thinking the same, acting the same and also similarly rely on markets or external factors to help them become profitable. So their success, basically becomes a roll of dice. Ultimately, all those in the sandbox become commoditized and customers end up making their decision of who to go with based on a few pennies or dollars of price. It is better to have no competition, than any competition as far as a business & profits are concerned. 

Inference 3: Businesses end up rewarding the signal of progress rather than true value creation.

This playing in the same sandbox mentality, leads businesses to end up focusing on their competition (in the same sandbox) and focusing on what their competitors are doing, rather than putting that energy into creating the true value that customers and the world wants/needs. In addition, as a form of self-encouragement businesses end up rewarding based on signaling progress in the form of avoidance of risk rather than bringing true (long-term) value & innovation that often comes with risk. This phenomenon trickles down into individual employees and a company culture is formed that rewards those that simply 'signal progress' and avoid risk. 

Inference 4: Short-term visions, led by self-interested individuals leads to no progression. 

To really drive innovation and thus to bring in those hefty profits, businesses need to aim for breakthroughs. Breakthroughs, do not come from minor tweaks to existing models or industries, but rather come from new models, new ways of doing things, new technologies, and new products altogether. Breakthroughs come from envisioning a completely different future, putting a long-term plan in place to execute on that vision, not relying on any form of serendipity, and owning the building of that future. Today, most businesses aim for short-term goals because businesses are led by individuals. Those individuals are applauded for displaying the signal of progress in the short-term, rather than recognition for long-term visions and the execution of those visions. Thus, the repetitive cycle continues as leaders move up and away to other roles, causing business to literally sit still in place without advancing, at a macro level. Business in this state, is analogous to sitting still in outer space hoping for some external factor to help improve the situation, meanwhile, ‘hoping’ to not get hit by a meteor. 

Inference 5: We need to define our own opportunities & future, then design & build it.

Individuals and businesses that want the large profits, need to aim for breakthroughs and innovation. Some innovations are small and some are large, nonetheless that is where the real profits are. When we are blinded by short-term goals, that turns into a company culture comfortable with the signaling of progress, we end up at a standstill and truly miss out on the big profits. To obtain a better future, we need to envision, plan and literally build a different future. What we are struggling to see is that innovation & changing our world, is where the biggest profits are to be made. Key note: minor tweaks to existing business models are not to be confused with true innovation. That better future is not defined at this point so we need to own defining, designing and building it. 

Closing

There are so many undiscovered opportunities & innovations out there - ranging from small to large, ranging from finance to technologies, and ranging from services to products. Those few businesses that choose to innovate or innovate the way we have always operated in certain industries, will end putting others out of business or best case leave them competing in their limiting sandbox. 

Why have our businesses become so complacent? Why are we ‘hoping’ for a better future instead of owning the building of it? Or a different angle, why are we waiting for innovation to come to us?