CEO Roundtable participants:
Karl Scheible, President, Market Sense, a sales force development company.
Bob Fabbio, CEO, WhiteGlove Health, providing health solutions to employers.
Leon Chen, CEO, Tiff’s Treats, delivering warm cookies to 11 locations in Austin, Dallas & Houston.
Dan Graham, CEO, BuildASign, an online e-commerce/manufacturing company that creating custom printed products, primarily signage.
John Arrow, CEO, Mutual Mobile, a 300-person mobile solutions company for enterprise companies.
Barrett Thompson, GM/Pricing Solutions, Zillient, helping companies make their numbers by turning sales data into targeted guidance for their sales forces.
Gail Page, President & CEO, Vermillion, developer of the first FDA approved blood test for ovarian cancer.
Marsh Lavenue, Ph.D, President & CEO, Intera, a 40-year-old company helping clients manage risk with environmental pollution and their water supply using computer simulation.
It’s been said that innovation is the fuel for growth and when a company runs out of innovation, it runs out of growth.
Today we live in an age of austerity, so how does a company innovate when it has to be frugal?
That’s one of the questions tackled by participants in a CEO Roundtable in Austin.
Authors Rita Gunther McGrath and Ian C. MacMillan asserted in their 2009 book, “Discovery-Driven Growth: A Breakthrough Process to Reduce Risk and Seize Opportunity,” that companies using conventional ways to pursue growth are doomed to be disappointed. What they really need, the authors claim, is innovation – new ways to move the company forward.
The roundtable group agreed that innovation is important, but that it’s only part of the puzzle, and it depends in large part on the industry. Mutual Mobile’s John Arrow said it comes down to execution – “being passionate with a vision beyond innovation for innovation’s sake.” In the mobile field, he said, “A lot of companies are doing a lot of things.”
“If you’re talking about the big idea that’s going to propel the company forward, I think that’s helpful in a lot of spaces,” said Build-A-Sign’s Dan Graham. “Maybe as a society, that’s what pushes ideas to the next level, but when it comes to competing day to day, it comes down to your team and your execution.”
In the health care field it’s a bit different, said Vermillion’s Gail Page. “The big companies don’t innovate anymore,” she said. “All they are is a big manufacturing machine with marketing and systems, but they lack innovation, so they look to startups like my company to bring the innovation to them.
“You can innovate until the cows come home, but if a physician doesn’t believe that that innovation fulfills an unmet clinical need for them, they are not going to take that innovation,” she added.
Couple that with unresponsive bureaucratic systems, and innovation is hard to propagate. Page told of working for Hoffman-LaRoche, which produced some things in Switzerland that couldn’t get approved in the United States.
WhiteGlove Health’s Fabbio echoed that sentiment. “We’ve innovated around technology, a business model and the delivery of care and at each juncture we executed like banshees to bring it to the marketplace,” he said, “and we met roadblocks like crazy because the system is bureaucratic and slow to change. With enough persistence, we’ve broken through certain barriers and are starting to see tremendous growth.”
At the other end of the spectrum, businesses that deal in commodities have their own set of challenges. “You’d think there’s nothing less low-tech or less innovative than cookies,” said Tiff’s Treats CEO Leon Chen, “but our lynchpin to our success now and in the future is our advances in technology compared to a normal bakery. If a bakery wanted to deliver warm cookies in the Texas market, they’d have to spend $1 million in information systems. We have technology that’s proprietary.”
Sometimes innovation comes not in developing new products, said Zillient’s Barrett Thompson, whose company serves clients in the office supply sector. “There’s nothing new about the number two yellow pencil,” he said. “They are innovating in the process, and in our case it’s helping them set the optimal price when delivering a product. Their innovation is one of process versus product.”
It’s easy to get stuck in innovation for innovation’s sake, said Karl Scheible of Market Sense. “When we look at our client base, one-third are product centric innovators who are too centered on innovation and not getting out to market,” he said. “At some point you have to make money with it.”
In order to innovate, a company needs to employ innovators. In a “Harvard Business Review” article, authors Gary Hamel and Gary Getz maintain that companies can find those forward-thinking types both internally and externally. Intera’s Marsh Lavenue said his company grows them from within. “Oftentimes they come into our group from some of the best schools in the country and we put them in an environment to freely bring some of their skill sets and they appear and blossom,” he said. “We look for the ones who seem to have the initiative to innovate because when you’re billing time in a service-based business, sometimes innovation is done on their time.”
Thompson said it’s important to make sure employees have time to develop new products or processes. “If every hour is clocked or committed to other activities there’s really not the bandwidth to think about solving the problem differently,” he said. “We innovated a product a year ago and created a skunk works on the side. We took the data, and working nights and weekends, we came back with a prototype – I think there’s was internal competition that helped.”
But the Hamel and Getz article says that recruiting from the outside is another way to get innovators in your doors. “We have an innovative culture,” Lavenue said. In such cases, he added, the innovators are likely to find you.
“You begin to focus on a specific area of business and those who enjoy innovation look for companies with that type of focus,” said Arrow. “Ultimately, because we’re a pure play on mobile, we get a lot of those types of people and once you get a lot of those types of people, innovation just happens – you don’t need to create that culture or environment because you have a company full of innovators.”
Page agreed. “We set the vision and then people are attracted to that,” she said. “The whole industry had just given up on finding a biomarker for ovarian cancer. We took a new approach. People were looking at multiple genes, so why wouldn’t you look at multiple proteins, right?”
Other external sources for innovative employees include your market, customers, and other companies.
Thompson draws from his customers. “Sometimes they tell us things about the way we deliver our solutions that could be different,” he said, “or they explain an obstacle in getting our solution implemented that causes us to go back and look at the product or the service or even our business model. Other times they talk about a hang-up or a hold back they are feeling. Then if we’re aware, we will interpret that as a signal we should be innovating in that area.”
Other companies can be an inspiration, too, said Chen. “I may look at Amazon.com and I find something I may want,” he said. “In our company we think simplicity is the best innovation you can come up with. On Amazon you can buy something in two clicks – well, how about in one click? You have all these ridiculously smart people who are trying to make things easier, not more complex; that’s what we’re trying to do.”
“I used to work for a company everyone thought was in the lab testing business, but really, we were in the distribution business,” Page said, “because the biggest part of what we had to do was get the sample from the doctor’s office to the lab and back. I encouraged everyone to go to Fed Ex to see how they operated. When you look at a company that’s doing a component of your business really well, then you can better figure out how to bring it into your company.”
And don’t forget the financial community, said Fabbio. “When you talk to really smart investors, venture capitalists, private equity people and even analysts, they see everything out there and they are also outspoken people who will share all sorts of insights on what’s right and wrong,” he said. “There are often good takeaways.”
It’s just as important to foster a company culture that encourages employees to take chances. In a big company, Page said, no one wants to upset the apple cart. “There are certain people who are happy in the corporate world and work 8 to 5, and then there are people like me who want to test the system,” she said. “So folks like me branch out and attract those types of people by the nature of the business and the vision. Within your network, people will seek you out and find people who are on the cutting edge.”
Fabbio agreed that hiring the right kind of person is vital, but then they must continually be challenged to think outside the box. “People become complacent,” he said, “especially when organizations grow and become larger and larger. When somebody comes into my office with a problem, I challenge them to come up with an idea.”
Just as important, noted some on the roundtable, is creating a culture that lets people fail. Page pointed out that some older employees are reluctant to take chances to avoid jeopardizing their retirement.
“That says something about the penalty for failure, right?” asked Thompson. “I don’t know that we say, ‘Failure is OK, or please go fail, or fail forward.’ Some of those things happen.”
“It’s about how managers say, ‘No,’” responded Scheible. “A lot of times you can shut somebody down real quick by saying, “We’ve done that before and it’s not going to work.” And sometimes that inhibits them from stepping forward again.”
On the flip side, what are some of the factors that kill growth?
“Complacency is a big one; when you think you’ve made it, you can become complacent,” said Scheible.
“Not being able to say, ‘No,’” observed Chen. “As you start out you get more and more success and more opportunities come your way and more people want to do business with you.”
“Taking your eye off the ball on who you’re serving, what they need and what you say to them to influence them and the channels you use to ultimately drive sales – it doesn’t take much of a miss to experience a significant lack of growth,” said Fabbio.
“Our poor choices led to poor growth periods for us,” Lavenue said. “One wrong choice we made was not pre-testing and not believing the market research we’d done and thinking the research was wrong and we were smarter. By not testing and verifying a growth area the market would be interested in, we almost killed one of our lines of business.”
One area of concern for CEOs is letting things go – letting those innovative employees take the ball and run with it.
“Making those decisions is an art,” Fabbio said. “This is my seventh company, so I no longer suffer from the things I suffered from when I was younger like the struggles of letting go of everything. Now, it’s trying to find the right people at the right time to accelerate growth.”
Leon Chen said he was reluctant to take his board’s recommendation to hire a CFO and a chief technology officer. “Both times, I thought we were a year or two from needing those positions filled,” he said. “I’ve come to realize that having them on for that year was important because it took a year to get integrated to our culture.”
“I think it relates to organizational maturity, more than anything else,” said Arrow. “We hired a CFO earlier this year and as a boot shop company, we realized in order to be a mature organization and make data driven decisions, we needed somebody who was only focused on that data. Since we made that big investment, we’ve seen all these results we couldn’t even appreciate, so it was one of the best decisions we’ve made.”
“The one thing I would share on growing is to be very careful on who you hire,” Scheible said. “I’ve seen small people bring in huge ‘A’ level players that fail miserably because they can’t relate.”
That also applies to yourself, noted Page. She is phasing herself out of Vermillion, because the needs of the company no longer mesh with her strengths. “It’s time for a growth oriented CEO,” she said. “It’s time now for the person who can take it to the next level. It’s the right time because now the company is not about the R&D and fixing lawsuits and raising money – we’ve done all of that, and now it’s time to focus every day on the top line of revenue and experience more growth.”