Innovation can drive your growth

Want to become a market leader? If your business can use innovation to target a new market or change its market position, then you can dominate your niche. TOM McKASKILL explains.

By Tom McKaskill

Want to become a market leader? If your business can use innovation and target a new market, or change its market position, the best leader in that niche will be a natural choice.

If you are producing the same product or service as everyone else, you are destined to end up in a commodity market competing around promotions and price.

Unless you happen to have the benefit of economies of scale or preferential access to low cost components or ingredients, your profits are always going to be marginal and growth is going to elude you.

Only by moving away from commodity marketing and building a sustainable competitive advantage can you start to push your price and margins up. In the end, you need to be a market leader in a highly targeted market with a product that solves a compelling need to provide the fuel for growth. This is where innovation plays a big role.

Innovation, in its most basic form, is simply bringing something new to a market situation. It is more than invention, although many products brought to market are based on new knowledge.

Innovation changes a market situation by upsetting the established order, by finding new ways to solve old problems, better ways to solve an existing problem or new ways to bring established products into the market. Innovation can be though product features and design, new processes or new business concepts.

The advantage to the business that uses innovation to change its market position is that it gets to lead the market in some dimension, which plays well to a segment of the market who desire that differentiation.

By tapping into an unmet need it can establish a higher price, higher margin and capture market share. Providing this is done in a sustainable manner, such as through some form of protection, that new market share can be held for some period of time.

Thus copyright, patents, brands, trademarks and licenses are strong forms of innovation protection. Other methods such as loyalty schemes, long term preferred supplier contracts, embedded operations and control over channels to market can also form barriers to competition.

Innovation, however, needs to be directed towards solving a specific problem in the market that can create this leading position. The aim should be to target innovation around problems that can form longer term barriers.

A focus on difficult to solve problems, problems that have a sense of urgency about them or are associated with meeting compliance requirements, will always drive higher market growth. Incremental innovation which simply keeps pace with the competition will not drive growth in its own right.

Although it is very tempting to see innovation as a logical extension of existing product specification, it only protects what has already been achieved but it doesn’t capture market share from competitors or gain a greater share of a growing market. So while all innovation has an impact, it is the bold innovator who will change the game.

Smaller companies are better suited to differentiated niche markets where specialised solutions can give them a protected market, but also allow them to set higher prices. In this context, innovation driven through customer feedback, internal research and development and market scanning, can bring forth periodic improvement in products and services to keep them in a leadership position.

What is very clear is that without innovation, a leadership position will never be established nor maintained.

Tom McKaskill is a successful global serial entrepreneur, educator and author who is a world acknowledged authority on exit strategies and the former Richard Pratt Professor of Entrepreneurship, Australian Graduate School of Entrepreneurship, Swinburne University of Technology, Melbourne, Australia.