You’re eager to take your business to the next level and have the big ideas to get you there. As thrilling as a shift in your business can be, it’s essential to hit “pause” on innovation in order to assess risk.
From rookie entrepreneurs to successful CEOs, people across industries agree that the best businesses are constantly on the lookout for opportunities to change and improve lest time and inaction render them a statistic. However, it’s all too easy to get caught up in the glamour and excitement of innovation. In order for a business shift to be profitable, you must acknowledge that innovation is a complex process with inherent risks.
Did the mention of “risks” stop you in your tracks? Whether you’re looking for a new way to transform a digital marketing campaign or working out the details of the greatest idea since sliced bread, you can’t let the fear of failure hold you back.
It’s imperative that you find a way to balance innovation and risk in your business shifts. If such a task seems impossible, you’ll be happy to learn there are strategies for minimizing risk and unintended consequences. While no one can possibly foresee all the potential risks of an innovation, you can take steps to cultivate an environment where innovation and risk work together.
Types of Innovation Risks in Your Business
When you make a shift in your business, there are several types of innovation risk you could potentially face. Understanding these different kinds of risks as well as the accompanying consequences is critical for weighing the impact of implementing an innovation.
The first type of risk is operational. When you make a change in your business, there is a chance you could fail to meet your quality, cost, or scheduling standards. For example, if you’re a clothing manufacturer, deciding to switch to a new fabric could increase the price or time it takes to produce various items.
Next, commercial risk is another issue to consider. Not everyone loves every innovation and instituting a change without doing the proper market research could result in a failure to attract sufficient customers. That’s why it’s vital to extensively test new features before rolling them out in order to determine the best user experience.
Finally, the third type of risk is financial. Perhaps the easiest risk for businesses to understand, you see its impact on your bottom line. Even if an idea looks good on paper, there’s a chance you’re investing in an innovation project that will ultimately turn out to be unsuccessful.
What to Know About Using a Model to Assess Risk
Now that you understand the different types of innovation risks in your business, you must make a plan for how you’ll evaluate them.
Successful innovators often use models to assess risks before moving forward with significant shifts. The best models with the highest probability of making an accurate assessment require you to compile data, estimate parameters for the various factors involved, and establish (to the best of your ability) how those factors could potentially interact with one another.
For the best results, your model should incorporate as many factors as possible. You want an assessment that is as complete as possible so you can decide if and how you should implement a particular innovation. But, be wary of how much stock you put in your model.
The moment you start to feel comfortable in your assessments you need to take a step back. Sure, you know to toss out a model once it is found to be based on a fundamentally wrong assumption, but what about when everything seems to be in working order? Never forget that even the most thorough models are still incomplete.
Since you can’t account for every single situation, you must adopt a mindset to expect the unexpected. The more you’re prepared for the better equipped you are to balance innovation and risk.
Things to Consider to Reduce Risk
Once you’ve taken the time to understand the different types of innovation risk and put a plan in place to evaluate them, you should look to implement strategies to manage risk. Fortunately, you have a myriad of approaches to choose from and can make your choices based on what is the best fit for your business.
To start, one proven way to reduce risk is by seeking professional advice. It’s worthwhile to seek a second (or third or fourth) opinion about any business shifts you are contemplating. Consider meeting with consultants or other industry professionals. The networking you’ve done in the past will pay off when you can reach out to contacts in related markets and ask for their insight.
You can also bounce new ideas off of your own employees. Within your organization, you should strive to create an environment where people feel comfortable sharing. Encourage your team member to ideate creatively. Instead of immediately discounting an idea, see if there is a way to hone and develop a new concept. When your employees see that you take their suggestions seriously, they will be more likely to share again in the future.
Another idea to consider is embarking on a joint venture. Rather than going into the development process alone, bringing in a business partner would help spread the risk. Similarly, you could look into licensing which would allow someone else to take on the risk of realizing your innovation in exchange for a fee and royalties.
If you’re set on developing your idea yourself, then applying for grants could help to lessen the financial risk. More capital also means that you could expand your innovation and improve the overall quality which might help combat operational risk. More money not an option? Don’t overlook incremental innovations based on customer feedback or industry trends. Sometimes, just building upon your current products or services can have a big payoff.
Whichever risk management strategy you choose, keep in mind that innovation is a complex process. When you decide to make a business shift, be prepared to invest time and money for a period before you see any return. By making the effort to understand, evaluate, and manage risk, you’re giving your innovation the best possible chance to succeed.