Money. I can’t stop thinking about everything in terms of money. Do you? Or is it all things medical for you? I think about ways to make more, to save more, to give more – constantly. When I rise and when I rest. The endless pursuit of more. After almost 20 years of consulting others on how to run their businesses more profitably I finally learned there is no end. That’s when it hit me. Innovate or become obsolete. Innovate to stay in business or you will soon close your doors and not be able to fulfill your mission or your purpose.
Now for those who wish to start their own company, may I offer some insights that may help you avoid pitfalls so many seem to encounter? It is twofold – personal and business. If you are not good with handling your personal finances, get them in line first and then go for the business. Seek counsel or help from someone if you lack the knowledge or drive to tame them. Too often the bad habits in personal finance carry over to the business and prevent you from achieving success. Second, be prepared for exponential time and money investment. I mean count the costs before you build the amazing company you have in mind. From legal fees to set up the company and register, hardware and software, rent, utilities, payroll, taxes, and more. Make wise choices so that if things don’t work out well that it will not destroy you personally. However, don’t let what may sound insurmountable deter you from sharing your passion or vision for the future. It is that drive that can fuel the tank of the next explosive and innovative idea or process.
Innovation is at the heart of moving things forward. Companies know they have to do it or die. With that in mind the next obvious question to ask is how much is this going to cost me. My response is to reframe the question. So how would I reframe it? I would say “How much should I invest in innovation?” Exchanging the word cost for invest.
What’s the big deal - let me explain.
Whenever I use the word cost, I get the sense of control. You control a cost. You may determine if it is fixed or variable. You may think how do I minimize it so that profits aren’t hurt. These thoughts are what lead to little money spent on innovation which as I said at the beginning is at the heart of moving things forward. If you don’t move things forward, then how long is your company going to stay relevant? How are you going to improve your products faster than the competition?
When I use the word invest, I get the sense of manage. You look for a Return on Investment (ROI). You should diversify when you invest. AKA – don’t put eggs all in one basket. You recognize there is risk involved and you win some and lose some. However, you have a long term perspective that pays off. I’ve heard it said “the longer term your perspective the better decision you make today.” If we would look at the financing of innovation as an investment, then more people would get involved because they understand the “cost” if it doesn’t happen!
Now how much to invest follows closely behind the reframing. I learned from a wise man named Solomon to divide my portions into seven or eight because I do not know what disaster may come. However, similar to personal investing, if everything goes up or down together then you are not truly diversified. The same principle I think applies to innovation. As William Kerr and Ramana Nanda mentioned in their working paper 15-034 from November 2014, “the challenge of making investments in the face of extreme uncertainty is compounded by the fact that the return from the innovation process is extremely skewed (e.g., Scherer and Harhoff, 2000). In fact, there is some evidence that the distribution of profits from innovation may hold characteristics of a Pareto distribution, where the variance does not exist or converge in large samples. Standard ways of evaluating projects are therefore extremely difficult.” If you take 100 divided by 8 you get 12.5% to spend on innovation. Now that might be extreme for most so my encouragement would is to start where you are and add 1 or 2%. Your goal may not be to get to 12.5% but what are you aiming for? We can’t expect innovation to happen if it isn’t funded. Just like a personal investment portfolio would have some stable investments, large caps (conservative), international and small caps (aggressive), you would find a similar make up in innovation. This would allow you to slowly build momentum and learn over time what works more often and begin to increase funding where it makes the most sense.
The key is to not to give up. I try to follow the lead of others who have said – Fail Forward!
The last part is deciding how to monetize the innovation. Innovative ideas without profitability are akin to blockbuster video! Here you must find wisdom from the counsel of others who can help direct you. As the visionary or innovator you can be blind or biased to your own ideas. This is where truth tellers are worth their weight in gold. Know that wounds from a friend can be trusted but an enemy multiplies kisses. Your counselors can help you determine the investment and the needed return to break even or make money to help keep the process going. Once you get the flywheel turning, the next steps become easier and easier!
Which leads you to continue to innovate by asking: What is next? What can I learn from others that, although not in my industry, could be applied to what I do? How can I not reinvent the wheel so that I can move exponentially further than if I did it on my own? I can sum it up in two quotes that have stuck with me and hopefully will inspire you:
“Employ your time in improving yourself by other men's writings, so that you shall gain easily what others have labored hard for." “Learn from the mistakes of others because you can’t live long enough to make them all yourself.”
I look forward to hearing and seeing how we all learn and grow from each other at The Lab so that we can save lives around the world.
Jim is on PHI's Board of Advisors and also owns his own financial consulting company.
'What is my purpose? After some quiet time and reflection I found a statement that has become my foundation and family purpose statement for moving forward: “Each one should use whatever gift he has received to serve others, faithfully administering God’s grace in its various forms.” 1 Pet 4:10. This simple statement transformed my beliefs which changed my decisions and is now changing my behavior and outcomes. This “curse” of always thinking about money, not in a greed mindset, could be used or harnessed to help others who don’t naturally think financially. The same concept applies to you. What do you naturally gravitate towards? How can you use it to serve others?'