Do you want to create a culture of innovation?  Ask these questions

Do you want to create a culture of innovation? Ask these questions

Opinions expressed by Entrepreneur the contributors are theirs.

Last weekend I had a rare opportunity to relax and unwind. I needed a few supplies before I settled into my couch, so I grabbed my Amazon Fire phone and headed to the local stores. I didn’t need to bring any cash – my Amazon wallet has me covered. When I got home, I nearly tripped over the box of laundry detergent my Amazon Dash had ordered. I remembered to book my trip to New York on Amazon Destinations, and just as I confirmed my hotel, the doorbell rang, signaling the arrival of my Amazon Restaurants order. I grabbed my food, settled into my comfy couch, and spent the rest of the day playing Amazon’s online game, Crucible.

Of course, none of this happened. Because if all those Amazon products and services are real, they don’t exist anymore. These were experiments that failed to reach critical milestones, and Amazon shut them down.

One of the things that made Jeff Bezos a great founder was his embrace of experimentation and failure. It has invested tirelessly in the development of new products. But he didn’t fall in love with any product or tactic to achieve his vision. Instead, if an experiment didn’t meet minimum performance expectations, no matter how much time and effort it put in, it was quick to unplug, leaving room for future experiments.

Innovation and experimentation are crucial in the journey of a startup. You are looking for a scalable product-market fit. Many of your assumptions will be wrong. Many of your experiments and tests will fail. It’s okay as long as you follow one key rule.

Believe in your vision, but be ruthless in shutting down initiatives that don’t meet expectations. If you don’t shut down unsuccessful projects quickly, your team will get bogged down in work that can’t scale, draining time and money for ideas with much higher potential. Here are three questions to ask yourself when evaluating the potential of a new product or service:

Related: Fostering a Culture of Innovation and What It Takes to Do It Right

1. Will your early adopters accelerate organic growth?

When you first launch a product, you should be able to find a core of early adopters. Your target early adopters have problems to solve. You launch a product that solves these problems. If you hit the mark on features and price and can easily convey your value proposition, they should be willing to try your product with very little incentive or marketing effort. If they like it, they can quickly become evangelists within their community, creating your first wheel of organic growth.

You have a crucial decision to make if you can’t find a group of early adopters that will help drive organic growth. Repeat and test again, or kill the product and move on to your next idea. Unfortunately, the biggest mistake most startups make at this crucial juncture is to increase marketing spend beyond a sustainable level by mistakenly assuming they have a marketing problem rather than a product problem. . This path only accelerates the consumption of cash and missed opportunities.

Related: 3 Common Mistakes That Inflate Your Marketing Budget

2. Are your customers asking for more?

Once you have discovered the messages that attract customers to your product, you must meet their expectations. Do they continue to use your product after these first attempts? Do they come back to buy you more? Or do you suffer from high return rates, product cancellations or discontinuations? You need to have clear KPIs for customer behavior, measuring regularly to ensure you’re creating a consistent enough offer to scale your business.

Successful startups rely on customer lifetime value (LTV) that can sustain profitable and scalable growth. High LTV is fueled by strong customer retention and consistent repeat buyer behavior. If most of your customers are unique, it’s unlikely you’ll be able to scale your business profitably.

Related: Are You Sitting on a Customer Retention Goldmine?

3. Do you have enough pricing power to ensure profitability?

Sales volume and customer retention only matter if each sale generates enough profit. The path to profitability and positive cash flow is a healthy contribution margin. Contribution margin is calculated by subtracting the variable costs needed to produce and sell your product from your net selling price.

It’s easy enough to get customers to order a free trial or accept delivery of a try-before-you-buy subscription box. But can you attract enough customers willing to pay a price that offers an acceptable contribution margin? Too many startups fall into the trap of focusing on vanity metrics to measure the performance of their products – downloads, gross sales, and free trial downloads. Ultimately, your product and your startup will only succeed if you can consistently charge a price that will generate the profits you need to support sales and marketing, new product development, and your day-to-day operations.

Related: 4 Reasons Pricing Is Key to Startup Success

The Amazon Fire phone may have failed, but the technology developed for the phone has accelerated the development of two very successful products: the Echo and the Alexa. Building a culture of innovation is not easy. It requires an acceptance of failure, supported by a culture of measurement and accountability. But it’s a powerful force for finding the product-market fit, scaling your startup’s profitability, and creating business value. It’s also a much more fun and rewarding way to build your business.

Leave a Reply

Your email address will not be published. Required fields are marked *