Innovate or perish.

The main aim of a business is to find a customer. In order to continue to thrive in the marketplace the business must also innovate. A business innovates to stay ahead of its competitors and thus find more customers. The customers are the main beneficiaries of this. There are many examples of businesses failing to innovate in an historical sense; Kodak is one of the best known cases. But with the rise of internet shopping we are seeing this play out in a huge way.

It is a time of chaos, and chaos is another word for opportunity.

Shortly before I left Melbourne I had a conversation with a businessman who owned a liquor store that specialized in overseas wine, hard to find spirits, and craft beer. He had recently opened a second store and business was booming to such an extent that he could barely keep up. This was in contrast to the anemic retail conditions that have plagued Melbourne for the past 18 months. Most other businesses were struggling.

I asked for his opinion on why he was doing well and so many others were doing badly. He gave as an example the shopping strip where his new store was located. In a three kilometer section of busy road there were four bakeries. Three of the bakeries looked like holdouts from the 1980’s. They were doing the same thing that they had done for the past 30 years. They thought that it was enough just to open their doors and sell the same products that they had always sold. A distinct lack of innovation.

In contrast was the final bakery which had diversified its business. It sold many different types of bread and was famous for developing a specific sourdough culture. It had many different homemade products including jams and marmalades. It sold takeaway coffee to a high standard and also sold picnic hampers for the summer and hampers to take to the ski fields in winter. It also held cooking classes and baking classes on a weekly basis.

He told me that on a Sunday morning the line to get served went out the door, down the street, and around the block. In contrast the other bakeries were either deserted or closed as they didn’t like working on Sundays.

It was the same thing with regards to his own competition in the retail alcohol segment of the market. His competitors were moribund and living in the past, endlessly attempting to compete with the major liquor chains and failing. In contrast his own stores were quite small but the products on offer were all excellent quality at reasonable prices. I myself purchased my regular hits of Italian wine from him without fail. I had never had an average product, and his staff were knowledgeable and friendly. I could purchase online and pick it up or have it delivered when I purchased it in the shop.

I received an interesting comment on yesterday’s post that is connected to this topic:

On the positive side some shops seem to get the message. I regularly visit a motorcycle shop and their service is really great. You can see online if they have in stock what you want to buy and even order it online for pickup in their shop. Or you can go there and if they don’t have something in stock they will send it directly to your home, no need to come back a second time. Same for stuff that is too big to transport if you are there with your bike. They give you the possibility of test riding new equipment like a helmet before purchase and are generally very competent. Also they have a service that sends your old stuff to your home. So if you buy for example a new helmet, you can put it on directly and they will send your old one to your home if you want to. That is real service. Needless to say, they get a lot of money from me.

This is an excellent example of a business that is innovating and profiting as a result. The internet can be the kiss of death for many businesses, but it doesn’t have to be.

When you’re running a business it’s easy to fall into the trap of just opening your door each morning and what happens after that is beyond your power. It becomes a vicious cycle as sales start to fall and with it goes your confidence. You know you have to try something new but you lack the ability to be able to see the bigger picture. The emotional investment that you have in the business has turned negative, and with it goes your drive and passion. The last thing that usually happens is a gigantic banner announcing a desperate sale as the owner throws everything he has left at a final big push, which is simply more of the same and just precedes the inevitable closure, and with it the shattered dreams and bank balances.

It’s easy to lay the blame for the demise of many businesses at the internet and the fickle nature of people who try before they buy and then buy online. But to be fair it is a relationship that has two sides. Innovation that brings a level of service that a customer cannot get online and that makes the trek into the city a pleasurable experience for them is vital to a business’s future viability in the modern market.

 

6 thoughts on “Innovate or perish.

  1. bob sykes

    On the other hand, innovation often leaves niches for older stuff. For example, there is a low level regrowth in film cameras. You can buy new film cameras in all formats, even Polaroids, and Kodak, presumed dead is reintroducing Ektachrome. In your particular examples, the long lines themselves are a defect and likely drive business to “less successful” enterprises. Innovation has merely expanded the option space for customers.

    Like

    1. Innovation has merely expanded the option space for customers.

      Exactly my point. Customers are the main beneficiaries of innovation, and for businesses innovation is not a zero sum game.

      Like

  2. TNA

    @bob Sykes

    “In your particular examples, the long lines themselves are a defect and likely drive business to “less successful” enterprises. ”

    Baumol’s cost disease.

    Like

  3. Bernd

    Just posted for the first time here and already my comment is featured in a blog post. Now that i had my five minutes of internet fame i can finally die in peace ;).

    I just bought your first book and started reading. The beginning of your journey reminded me a little bit of how i came to where i am now. Did the same thing, sold all my stuff, loaded some clothes and the rest of my posessions on my 22 year old 125ccm Suzuki and rode it across the country. Rented the cheapest room in some shitty hostel because no money. Started a job and things escalated very quickly from there in a very positive way. 10 months later i bought my first car. Brand new. In cash.
    Unfortunately the engine of my trusty little companion broke. Basically exploded, so fucked up beyond repair. Felt a little weird to give away the motorcycle which gave you
    so many good memories.

    Anyway, can’t wait to continue reading about your adventures. They seem a little bit crazier than mine.

    Liked by 1 person

  4. Pingback: In The Mailbox: 07.25.17 : The Other McCain

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