Large companies are rarely thought of as innovators, except by the folks who do their advertising. But smaller businesses can improve their own odds of innovation success by steering clear of the barriers big companies often face.
The first is scale. The Fortune 500 recently had average annual sales of $24 billion. For a business that size to increase sales 10 percent a year through new product innovation, it needs the equivalent of a $1 billion idea every five months. Consequently, big companies tend to only pursue ideas that are big from the start — and overlook less obvious, but potentially more exciting opportunities.
The second obstacle is scope. I once asked an experienced Sand Hill Road venture capitalist what percentage of VC-backed companies broke the $1 billion mark in sales. His best guess was fewer than 1 in 10,000. Given these odds, large companies often pursue many new ideas simultaneously — expanding their reach but diluting their focus.
The third barrier is time. Many leaders of large companies are impatient when it comes to topline growth. Most companies that have hit $1 billion in sales took more than a decade to get there — yet, according to a recent report from The Conference Board, the average current tenure of a Fortune 500 CEO is just over nine years. That’s rarely enough time for a promising idea to grow into a billion dollar revenue generator.
Why not take a different path to innovation-driven growth?
Instead of looking for $1 billion in sales, try to create a growing and profitable $10 million business. Instead of pursuing a broad portfolio of opportunities, focus on just one at a time.
And instead of looking all the way down the road to $1 billion in sales, work toward $50 million in your seventh year (which just happens to be a typical milestone for businesses that eventually got to $1 billion in sales). Because the cliché is true: It usually takes many years to become an overnight success. But it’s doable. Look at Chipotle.
When Steve Ells invented the category of fast, casual, Mexican-inspired food, friends warned him that people wouldn’t like the idea. But Ells opened his first Chipotle anyway, and remained single-minded in his focus, reportedly working in the store almost every day for two full years.
Initially, he was just reaching for breakeven sales of about 107 burritos a day; and, even with a $360 million investment from McDonald’s, it still took seven years to break the $50 million sales mark. Yet today, Chipotle posts sales that exceed $1 billion every quarter — that’s a lot of burritos.
Not every innovation that breaks the billion dollar sales mark adheres to this basic pattern — but so many do that it’s worth thinking about. The takeaway? Innovation works best when you are open to truly different ideas, when your energies are focused, and when your growth expectations are reasonable.
Assemble those ingredients and your idea might just be the next Chipotle. ●
