Firms have been moving away from large internal R&D operations and are using incubators and accelerators to develop and scale new products and services much faster.
Success comes more from the speed of these incubators and accelerators than from the initial quality of ideas offered for consideration. By making a small investment to test a large quantity of ideas in the incubation phase, a company reduces its risk when it chooses to make a bigger investment to build out and scale an innovation to bring to market or deliver new value propositions.
An incubator team made up of about 6-10 people (a mix of both intrapreneurs from inside the firm and entrepreneurs from outside) can iterate on up to 50 product ideas in three months, quickly moving from one idea to the next and killing off bad ideas early in the process before the company makes a larger investment to roll out a product.
The innovation team will engage both customers and people across the organization, soliciting rapid, continuous feedback.
The idea is to generate lots of ideas, weed out the bad ideas quickly, refine the business models for the winning ideas, and pass those winning business models onto the accelerator stage to go through a similar process to roll out and scale quickly.
A corporate incubator can derisk investment by building value propositions through the process of engaging the customer and people throughout the firm before a big investment to commercialize is made.
Severin Schwan, CEO of Roche, one of the world’s largest pharmaceuticals, says it’s important to establish stage gates early in the process to minimize investment risk: “Our aim is to find things that will one day be breakthrough innovations,” said Schwan in an interview with McKinsey Quarterly, “and to ‘derisk’ them during the early stage, to the point where they are not big gambles if they get to the late stage.”
At each stage-gate hurdle, the innovation team can:
• Stay the course with the design
• Pivot the design/business model
• Kill the project
When a project is killed or fails during these early stages, it’s a victory for the company. The firm hasn’t lost tens of millions of dollars by investing in an untested product.
Perhaps just as important, the company has learned something about what the customer wants. By killing the project, the organization is able to take what it learned and apply that knowledge toward finding a different value proposition for the customer.
Every step of the innovation process is an opportunity to learn more about the customer and market. This knowledge will help the company ultimately deliver better products and value propositions to the customer. And it will help guide the company’s strategic vision.