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Saying a large company can innovate more than a small one is wrong

Q: We’re with our co-SME friends attending an SME association Christmas party when someone brought up your MRx column of last month (December 2013), about the first or second Friday.  You talked about who between a small and a large company can innovate more.

Just because the Forbes Magazine’s 2013 list of 100 most innovative companies in the world had no small companies in it does not necessarily mean that a big company can innovate more than a small company.  It was disappointing to hear you favor the big company.  Most of us who are small including those who are micro-enterprises believe that the true reality is that a small business is as innovative as a large company.

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Why don’t you look at another list?  Why not a list of most innovative SME companies and not just large companies?

A: You made a good point. There should be two or even three separate lists.  But that’s the case when it comes to the issue of “who’s more innovative.”  In any case, if you look again at the Forbes’ list and go over the next 100, you’ll see a good number of medium sized companies qualifying.

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We thought of starting with the Forbes’ list because it was the better way to broaden the issue.  As we said, if you look at who’s able to remain in that list over time, it’s no longer just an issue of who can innovate more.  It’s more a question of who can innovate more and at the same time do so continuously.

This broadening of the issue has profound importance to you as a small company.  It’s just as critical for those who are micro-enterprises.  It redefines what in essence is your true business-growing problem.  If the engine of growth is innovating continuously, then that business-growing problem is how to scale up to have the resources and be capable of continuous innovation.  As we pointed out, innovating is not a question of size.  Any company of any size can innovate.  But to do so on a continuing basis is a matter of size and resources.  This is where the large company has the advantage over the small.

In SME conferences and seminars, we’ve been asked: “How does a small company scale up?”  There are almost as many answers as there are speakers.  “If you’re a store, look for another location and put up a store there” is an often repeated refrain.  Or, says another, “if you’re making a product, why not partner or acquire another maker  of a related product and you double or more than double in size?”

We have to admit that these are not at all bad recommendations.  That’s because they sometimes work.  But they will work only if their underlying assumption about market response and need happens to be true and realistic.  If the buyer need for another store in another location is already more than satisfied by an overpopulation of the same kind of stores, then the anticipated scaling up won’t happen.  The same is true if the market demand for the acquired company’s product is near saturation or already saturated.

So it’s not an issue at all of what you as a small company will or can do.  It’s not about you.  It’s about the market and its buying consumers.  It’s about their need for another store or for the same product.  You have to have a correct reading of that market need.  If that need is underserved, then find out how you can fill what’s underserved in a distinctive way versus competition and your potential for scaling up can become a reality.  The superior opportunity of course is in the case of an unserved need.  Find out how you can satisfy the unserved need and scaling up comes immediately when you’ve served the unserved.

Of course, it’s not that simple.  You have to be careful about what you’re offering to the underserved or the unserved need.  You have to be alert to what customers will count as “true perceptible difference” in your offer.  For example, third quarter of 2013, our students  “researched” on hamburger at Jollibee, McDonald’s, and Wendy’s at Greenbelt 1 in Makati.  Only those who have tried the hamburger from all three fastfood stores at one time or another in the past three months were interviewed.

A summary of the fastfood customers’ comparative evaluation of the hamburger is captured in this most often mentioned comment: “Yung McDonald’s at Jollibee, parehong di mainit yung hamburger patty.  Yung sa Wendy’s talagang hot kasi bagong luto.  Kaya dito kami sa Wendy’s ngayon.”  (McDonald’s and Jollibee’s hamburger is the same.  Their hamburger patty is not hot.  But Wendy’s is really hot because it’s just been cooked.  So now, we’re for Wendy’s.)  Wendy’s service innovation meant to satisfy a simple hamburger eating segment’s need for “really hot and just cooked hamburger patty.”  It was a market segment need that the two other fastfood stores were underserving or not serving at all.

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Here’s a second “be-careful” item to keep in mind.  Is what you’re offering just a fad to your market?  Will that quick market response and popularity also just as quickly go down to a disappointing unprofitable level of demand?  You’ve witnessed this happening in the case of Krispy Kreme as well as with the frozen yogurt shops.

What market needs were these “innovative products” satisfying especially at the start?  Research on consumer eating out habits and practices tell us about consumer propensity for “trying out anything new.”  Even casual observations will remind all of us about how very different were the customer crowd lining up at the start versus now for Krispy Kreme.  The more conspicuous contrast is with the frozen yogurt shops.

When facing a fad or a likely fad, what you have to really be careful about is where the decline in demand is headed.  Unless you have a veritable fad like in the case of “pet rock” of the ’90s, it’s very rare that the decline will be towards a fade-out.  It’s either a decline toward a still profitable demand level or an unprofitable one.  How can you tell?  You can’t.  To get some reliable clues, research those who have given up early and later as well as those staying.

Keep your questions coming.  Send them to us at [email protected] or [email protected] God bless!

To discover how to get mentored by Dr. Ned, visit www.NedMarketingAcademy.com

ED’S note: In last week’s MRx column, Dr. Ned pointed out the Inquirer “had decided a year ago to venture into a limited-audience specialty magazine. In Twitter, RED Magazine declared that it is “a modern and luxurious monthly representing the Inquirer’s response to the growing need for a minimalist yet informative publication.”

Inquirer’s corporate affairs manager Connie R. Kalagayan says the paper has launched Hinge Inquirer Publications, its magazine arm as far back as 2005 and has gained very good advertising revenue by targeting different niche markets. More on Inquirer directions can be seen in the website of  Hinge Inquirer Publications.

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