Steady Breakthroughs: Where Does Innovation Come From?

avatarWhen we talk about innovation, the examples that often come to mind are of significant upheaval and disruption. Consider the way that iTunes completely changed the way we buy music, or how the first television sets in family households impacted marketing and advertising strategies. However, these disruptive innovations are far from guaranteed successes. For every Facebook, there's a Google+ and ten other platforms that never left the trial stage. Some big ideas and innovations may change the world, but there are probably more instances in which ambitious ideas fell flat. 

Instead of reinventing the wheel all at once, some innovations take small steps along the way. This is the route that many innovators, inventors, and business owners choose to pursue: find inconsistencies in the current market and make improvements to an existing service. This lower-risk, less disruptive form of innovation, which arises at a much more methodical pace, is known as incremental innovation. Sandeep Kishore, writer for HCL technologies, covers the power of incremental innovation in a piece for Wired:

“These developments often started with a basic platform which provided an initial framework for additional innovations and improvements.”

While incremental innovations can be seen everywhere — Gmail, iPhones, Rustoleum NeverWet — let's take a look at the incremental innovations that facilitated the rise of one of the world’s fastest growing companies — Netflix.

Humble Beginnings

When Reed Hastings, the founder and CEO of Netflix, launched the company, it championed itself as a doorstep DVD delivery service that rivaled rental stores like Blockbuster. The service featured no internet streaming capability and no original programming; it was just a delivery service that allowed customers to watch as many DVDs as they wanted through a monthly subscription format.

Hastings was smart, and like all incremental innovators, he identified a few customer pain points to address. People hated going to video stores, renting one movie, and paying late fees when it wasn’t returned on time. Rob Ebrahimi, CEO at ReadyForZero, explains in Forbes why simple incremental innovations like this are so successful.

“If this customer pain point is tied to a P&L (profit and loss), then the business will be well aligned with your customers’ needs; succeeding will mean your customers succeed too i.e. the business needs will get addressed if the customers needs are met.”

In other words, Netflix tied its business model into the pain point that many of its customers had. But they weren't about to stop there. With one alteration to an existing service, Hastings would soon revolutionize the way people watched movies and television shows in their own homes.

Think Big

Hastings always knew video streaming was the future of his business. Even as Netflix continued to grow in both valuation and number of users, Hastings knew his service could be more accessible and user-friendly. The physical act of mailing DVDs would soon be obsolete, and he wanted Netflix to initiate this revolution.

Just as Netflix began to firmly establish itself as a mail delivery service, Hastings began researching and developing streaming capabilities. Chunka Mui, author and cofounder of Devil’s Advocate Group, explains Netflix's innovation plan in an article in Forbes,

“As far back as 2001, Hastings spent $10 million a year on research into streaming; he was willing to forgo most of his tiny company’s profits to get started on his preparation.”

Hastings knew that the future largely revolved around the internet allowing for greater accessibility to videos and movies — a great lesson for companies to always be searching for technologies on the horizon that will make products and services easier to consume. If there's one thing that stifles innovation, it's complacency, so it's important that we always be dialed in to the latest trends and developments.

Build Methodically

Netflix is a great champion of steady, incremental development. When Netflix introduced their streaming service in 2007, Hastings didn’t eliminate the mailing system, which had proven results. Instead, he initially offered the streaming service as part of the DVD-by-mail package, allowing his users a grace period to acclimate to the new capability. Streaming video was still revolutionary at the time, and even when the original reactions to the streaming platform were iffy, Hastings didn’t abandon it. His incremental approach to a new and sophisticated medium allowed Netflix’s customers to fall back on a service they trusted (the mailing system) while they gained confidence in something new and innovative (the streaming service). 

Keep Innovating

Even as the streaming service grew into a huge success, Netflix didn’t become complacent. As streaming video became more and more common, Hastings kept searching for ways that Netflix could continue to innovate.

When streaming competitors like HBOGo and Hulu arose, Hastings found a new way to distinguish the company — by courting television writers and developers to create original content outside the constraints of network TV. An article on Investopedia explains how Netflix is changing the TV industry:

“Showrunners were given leeway in being allowed to pursue their own visions without notes or approval from the network. This resulted in some of the best new TV shows being on Netflix instead of TV networks.”

By giving show creators more creative leeway, Netflix enticed high-profile talent. The results, prestige shows such as House of Cards and Orange is the New Black, became critically-acclaimed successes and brought new value to the Netflix brand. 

Incremental Change, Sustained Success

Netflix is the model for incremental innovation leading to sustained success. When Hastings launched Netflix, he envisioned a streaming service unlike anything that was currently on the market. Since the technological capability wasn't there quite yet, he chose the less-risky delivery service as the jumping off point, and then slowly progressed towards the Netflix we know today.

What we learn from Hastings' incremental changes is that not every innovation has to be disruptive and high-risk — we don't always have to reinvent the wheel. Small, calculated, incremental innovations can lead us to the disruptive technologies and products that we envision when first launching our companies.

Have your own examples of incremental innovations or companies that have successfully used this strategy? Tweet them to us @EidsonPartners!

1 thought on “Steady Breakthroughs: Where Does Innovation Come From?

  1. Pingback: Yea or Nay? Key Guidelines for Determining if Your Business Idea is a Good One | Eidson & Partners

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