There is a great article in this week’s BusinessWeek magazine entitled ‘Fertile Ground for Startups’ that illustrates the opportunities that are at hand for truly innovative ideas in today’s economy.  The article outlines that investment by angel investors and venture capitalists is up significantly over the first half of this year, and that as many as 50,000 new businesses will obtain some form of angel or venture investment in 2009 in the US.

The article also highlights some of the ideas that are getting money, and there seems to be a pretty consistent theme – innovation gets investment.

After the past 18-24 months of economic turmoil it shouldn’t surprise anyone that it is innovation that is leading the way out of the mess.  Innovation has been a great buzzword for the past 10-15 years, but only a few of the really great companies have been able to really harness its power within their existing corporate frameworks, leaving much of the opportunity for the development of new business ideas to startups and Entrepreneurs.  The difficulty for big business is that it is difficult to think ‘outside the box’ when you are working within prescribed processes and frameworks.

Some of the examples of those that have pulled it off are Proctor and Gamble and GE, both taking different approaches to gain similar successes.  Proctor and Gamble (P&G) made significant efforts within the company to destroy the not-invented-here (NIH) mentality that existed and actually mandated that a significant portion of the innovation for the company had to come from outside the walls of the organization.  By mandating this behaviour, P&G has been able to leverage the research and development work happening in small business and educational institutions to create new value in the organization that is benefiting shareholders and employees alike.

GE took a slightly different approach under Jeff Immelt‘s leadership, shedding business units that were on their downswing, regardless of whether they were ‘cornerstone’ businesses within the GE organization, to enable them to focus on growing business sectors like wind energy and other green initiatives.  In GE’s case creating growth is significantly harder than for most given their size, but with the changes and innovative approach to business that has come under Immelt’s reign in the CEO office GE has enjoyed almost 30% growth in under 10 years.

But GE and P&G are anomolies in the big business world – much more of the real innovation and out of the box thinking is coming from small companies and start-ups and if the ideas wind up within a big business it is usually as a result of an acquisition rather than of any type of internal innovative thinking.

A couple of recent examples of the start-up idea that became the darling of a big business enterprise are YouTube and Bing.  YouTube is perhaps the most talked about of the three given the extraordinary price tag that Google paid to buy the video sharing site in 2006 ($1.65 billion).  In the world of game changing ideas, YouTube is right up there among the best of them.  Until YouTube came along, sharing video on the Internet was bulky and painful – anyone who has tried to email a movie file from their camera to a friend will know that it’s not that easy to send a 80-100MB video file with any quality via email.  By offering free storage and streaming playback on-line as well as a stage to create one’s own 15 minutes of fame, YouTube quickly created a whole new entertainment vehicle that is now (along with its competitors) threatening traditional TV services.

Bing is the new search offering from Microsoft that they are marketing as ‘the decision engine’, but much of the differentiating technology behind Bing doesn’t come from the Microsoft R&D centre.  In July 2008 (when Microsoft had been virtually beaten out of the search engine business), Microsoft bought a little San Francisco based company called Powerset and immediately amalgamated them into the ‘Live Search’ team.  Powerset had technology and knowledge that enabled contextual indexing of web-pages, technology that could potentiall provide better search results than the ones that we were all accustomed to from Google.  When Microsoft rebranded their search to ‘BING’ in 2009, it was the advantage and technology that came from Powerset that sets it apart (and in my opinion allows it to provide significantly more relevant search results than Google does).

So what does this mean to Entrepreneurs out there?  Between the dollars being spent on investment and the types of ideas that are being invested in, it means that the economy is counting on YOU to be innovative, think outside the box, and bring the next big idea to the table.

Some of the areas that are seeing the most innovation right now are mobile applications (thanks to the iPhone and Google Android primarily), pharmaceuticals (thanks to the cracking of the human genome), and green energy (thanks to our wasteful and inconsiderate use of fossil fuels over the past 80 years).  If you are working in these three areas, you can be sure that there is a LOT of competition for the angel and VC dollars for your investment (although it also means that there is a lot of attention on your market space which should make it easier to get an audience with an investor).

I personally think that in order to truly think outside the box, you need to go one step further than trying to reinvent somethere where everyone else is already playing – as in reinvent and be disruptive in an industry where nobody is focusing – that way you have a shot at 100% of the investment that will occur in that market (and some big first mover advantages too).

What about:

  • Automation of SEO (search engine optimization) activities within a CMS (content management system) framework.  Everyone and their dog has a CMS and is hocking web-sites for as low as $750 including hosting for the first year – think about the additional value added by enabling your clients to actually self-manage their search engine optimization through intelligent context sensitive editing engines that can reword sentences and paragraphs to highlight targetted terms.
  • Personal document management systems that enable people to print less from their home printers by storing documents in ways that are relevant to the household (rather than the business structure) and allowing them to gain access to them from anywhere (including their mobile phone, their Kindle or other e-Book reader, or by phone-to-email systems).  I can tell you that if I could eliminate this ugly file cabinet that is full of personal documents, tax receipts, manuals and receipts, etc etc, I would be a very happy man.
  • Virtualized travel experiences that enable people to actually experience (via the Internet using rich media) some of the areas and places that they were looking to travel in conjunction with their booking experience.  Travel is an old industry and there has to be 1000 ways that one could disrupt the consumer experience to provide significantly more value at lower cost than the current systems allow.

What other areas do you think are ripe for innovation?  Where (other than green, mobile, and health care) do you think there is a market that is ripe for disruptive creativity by the right Entrepreneur?  I’d love to hear your ideas in the comments below!

Now get out there and start INNOVATING!

About Tim Empringham, MBA
Tim Empringham is a passionate advocate for Innovation in organizations of all sizes as a mechanism to drive growth, create uncontested market space, create new customer value, and drive efficiency into the internal organization. His focus is on disruption of thinking and markets through integrative thinking, structured Innovation frameworks, and leadership development of Innovation and Change leaders within the organization.

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