Beyond the search for the really cool idea.

Where does innovation usually begin? With the product—the cool idea; the colorful gizmo whose ad copy writes itself, the paradigm-shifting process with the PowerPoint presentation that draws applause from the management committee.

Somebody in R&D develops a cell phone that will allow you to make calls from the top of Mount Kilimanjaro to anywhere in the world. A bunch of really smart people sit in a room and decide that “what this new Internet thing needs is its own online money to serve as an alternative to credit cards.” Someone in the company says, “I have the perfect solution to the problem that there are too many cars on the road, and people are too darn lazy to walk short distances or take a bike. Why don’t we create a two-wheel motorized scooter?”

What consumers eventually got, of course, was the Iridium phone, Flooz currency, and the Segway.

In each case, the product did exactly what it was designed to do; the problem was that too few people cared. Indeed, every year, companies lose hundreds of millions of dollars—and thousands of jobs—in an innovation abyss, the place where seemingly promising new ideas go to their justifiable death. While some companies consistently nail the right insight and deliver evolutionary or revolutionary ideas against it, others spin their wheels creating new products and services that are at best irrelevant and at worst career-ending.

The difference: The companies and marketers that struggle don’t fully understand how cost-effective innovation really happens. And even those that have had some success probably are starting in the wrong place and would be more successful—and far more profitable—if they modified the way they do things.

Where It All Begins
How does industry-changing innovation happen? Innovation occurs at the synchronized intersection of: 1) a meaningful insight or market need; 2) a new product, service, or business model that meets that need; and 3) communication that connects the two. Think of that definition of a three-legged stool. Most companies successfully build only one or two of the legs, causing their innovation efforts to fail. You need all three to be successful. And you will be a lot more successful, and waste far less money, if you take the steps in order.

That’s why you want to start by devoting a disproportionate amount of your time to discovering the market need. If you think you already have The Greatest Idea Ever, by all means test it.

For instance: Ask if people would like to be able to call anywhere in the world at any time. (Just about everyone would say yes.) Then tell them what it would cost for the phone (a lot) and per minute (yikes!) and then see if your potential market still thinks your new product is a good idea. It’s OK if they don’t—failures are a key part of innovating efficiently. (See “Small Disasters Welcome”.) You just don’t want them to cost you a fortune.

And the best way to develop your nice product efficiently is by figuring out what the market needs—more specifically, what the market needs that customers would readily accept coming from you, your brand, or a company you could acquire. You already know the methods for doing that: Everything from market-segmentation exercises and insight workshops to online panels and focus groups will help you come up with a market need. But rather than rely on the tried and true, you should infuse outside experts into all of these well-tested methodologies. Ask them to be part of the interaction, the data review, and the insight development. They will help you see things that your expertise keeps you from seeing; they will help you come up with even more needs than you would on your own.

Now, take the most compelling insights and quantitatively test them to see which ones your customers tell you are the most valuable to them. While your favorite insight may not make the cut, you want to fish where the most fish are, so it is important that you focus your team on developing products against the needs that rank highest. That is intuitively obvious, of course. But the next step is not.

Matching the Product to the Market
When it comes to creating a product to fill the marketplace need they’ve discovered, companies often stumble at the same place: They get greedy and aim to have their product or service appeal to too wide an audience. TiVO serves as a case in point. I am convinced that one reason it took so long to catch on—and why it’s now seen as just another form of DVR—is that the company was never clear about which need it was meeting.

The challenge for TiVO, as for many other innovative products and services, is that it is capable of meeting too many different kinds of needs. It can record whatever show you want it to, so it replaces your VCR (you remember the VCR, right?). It can anticipate and find shows that you may be interested in watching, so it replaces your best friend’s recommendations. It allows you to skip over commercials, so it gives you more time to do the things you love to do. These are just a few of the many, many benefits of owning a TiVO, and they all sound great—too great, as it turns out. For the longest time, the company tried to promote all its features—presumably to appeal to as many people as possible—and wound up confusing the masses.

By the time TiVO discovered that perhaps its strongest selling feature was that it was easier to use than a VCR, it had squandered tremendous momentum. If marketers had focused on a single insight/need and let reviewers and consumers discover all of the other benefits on their own, TiVO—a great product—would likely have dominated the market. I believe that by properly quantifying insights, the company would have been able to avoid this incredibly costly and common error.

So not only do you have to create a product or service that meets the marketplace need you have discovered, you must make sure that customers understand that is what you have done.

Get the Message Out
I mean this with all sincerity: Insurance is one of the most innovative industries. The fact that your first reaction was, “Huh?” or, “You must be kidding” underscores insurers’ ongoing inability to effectively tell the world how they have created products and services to meet everyone’s needs. But there’s no gainsaying the industry’s track record. You want to figure out a way to leave money to your heirs—when you don’t have a lot—or replace the annual pension your company has eliminated, or induce a really smart businessperson to join your board (when she is petrified she will be sued if you make a dumb decision)? The industry has a product for you. (Respectively: life insurance, immediate annuities, and directors and officers liability insurance.)

The fact that insurers are poor communicators is, unfortunately, not unusual. Poorly executed messaging often overwhelms the best insights and products. How to avoid the insurance industry’s fate? Three ideas:

Press 1 for English. Do you know what “Universal Life,” “Variable Life,” or “Whole Life” is? Don’t be embarrassed if you don’t. Like most industries, insurance often forgets that its professionals are the only ones who understand its language. You want to talk to your customers using the words and terms they do in describing your offering.

Get the benefit right. This is similar to the TiVO problem. TiVO couldn’t figure out what benefit to stress; the insurance industry can’t decide how to describe it. They aren’t selling “life insurance”—they are selling “making sure your spouse is taken care of and the kids can go to college” protection. When companies connect the correct insight/benefit to the product and communicate the benefit evocatively, something magical happens: It sells.

Engage the influencers. Now more than ever, social media allows us to find those who really care the most and get them engaged in our new idea. We can ask for their insights about how to communicate it, and give them credit. Make them evangelists and carriers of the message. Once your campaign starts, they will be invested in it and help propel it. In the case of insurance, what kind of people are we talking about? Well, insurance agents, of course, but also CPAs, attorneys, bankers, and financial planners—all the people to whom we turn when we have financial questions.

Innovating successfully is hard enough, without getting in our own way. Following these three steps in order will make innovating more efficient (read: less costly) now, while the economy struggles to improve, and put you substantially ahead of the game when things finally take off. 

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