Did You Know These Depressing Facts on Innovation?

Innovation is seen by a lot of corporate executives and venture capitalists as a black hole, where large sums of money go in and very seldom really innovative products or services come out. And most of the time they are right.

The facts are quite depressing. Of the approximately 12,000 new introductions in fast moving consumer goods to Western European markets between 2011 and 2013, only seven generated more than €10 million in the first year, and an even smaller amount maintained similar performance through year two. On top of that, 76% of all so-called innovations did not even achieve 52 weeks of sales (and barely half achieved even 26 weeks of sales).[i] Market Research Company Nielsen states that new fast moving consumer goods have only a 10% chance of succeeding. Booz & Company reports that 66% of new products fail within 2 years. And Doblin Group reported in a 2012 study that 96% of all innovations fail to return their cost of capital.[ii] Financial giant Morgan Stanley estimates that, of the $ 2.7 trillion that companies pour into technology each year, more than $ 500 billion is wasted, in large part due to implementation failure of new innovations.[iii]

High failure rates of innovation don’t start at market launch. The innovation process from idea to market itself is full of pitfalls and inefficiencies too. Stage-Gate founder, Robert Cooper, shows that for every seven new product ideas about 4 enter development, 1.5 are launched, and only one succeeds.[iv] A study of Stevens and Burley gives even more disastrous ratios. Their study shows it takes 3,000 raw ideas to come up with 1 successful product. This means that enormous amounts of enthusiasm, energy, time and financial resources of organizations are spent in the innovation process without direct returns. Innovation of course is a learning process full of experimenting and trial and error, where you can’t expect to always get it right the first time. You learn an awful lot from all the iterations in a new concept, which pays off in other projects or in your daily business. But do you accept wasting more than 85% of your time and money in innovation, because it’s so risky? Well, I don’t! I see an enormous potential for improvement.

Startups are not doing much better by the way. Eric Ries, author of The Lean Startup, defines a startup as “a human institution designed to create a new product or service under conditions of extreme uncertainty.” And the facts reflect the extreme uncertainty mentioned.  A US study among 2000 startups financed with venture capital between 2004 and 2010 reveals that more than 95% of the startups fail to see the projected return on investment. An estimated 30% to 40% of high potential US startups liquidate all assets, with investors losing all their money. Of all startups, about 60% of the companies survive to age three and roughly 35% survive to age ten, according to the US Bureau of Labor Statistics.[v] Startups fail according to Ries because the old management methods of a good plan, a solid strategy and thorough market research don’t work for startups, as they operate with too much uncertainty. Also according to Ries, adopting the just-do-it mentality does not work either.[vi]

Reflecting on these facts you will certainly conclude that innovation is indeed a messy business. Are you personally prepared to run a risk? A calculated risk, perhaps? I do hope so, because not innovating is not an option anymore! It's essential for corporations to professionalise their people, processes, structure and culture in search for innovation excellence, as this will drive future growth.

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[i] Source: https://www.nielsen.com/content/dam/nielsenglobal/eu/nielseninsights/pdfs/Breakthrough_Innovation_Report_EU_FINAL.pdf

[ii] Fast company, April 4, 2012.

[iii] K.J. Klein & A.P. Knight, Innovation Implementation, American Psychological Society, Volume 14 – Number 5, pp. 244-245.

[iv] Robert G. Cooper, Winning at New Products, Basic Books, New York, 2011, p. 18.

[v] The Wall Street Journal, https://www.wsj.com/articles/SB10000872396390443720204578004980476429190)

[vi] Eric Ries, The Lean Startup, Penguin, 2011, p. 9.