Tough times: The innovation solution
Tuesday, January 22, 2008/
The economy is looking dicey. So now is the time to get an edge through innovation. Nudie founder Tim Pethick tells you how and why companies get it wrong. By AMANDA GOME.
By Amanda Gome
Very few entrepreneurs can really claim to have revolutionised their industry with a new line of products. Tim Pethick (right) can make that claim.
The creator and founder of Nudie shook the staid fruit juice market in Australia, introducing cheeky branding with a great fresh taste and value proposition. It forced incumbents like Berri to change their products while a plethora of entrepreneurs pushed the envelope launching innovative products and changing the market for good.
In 2005, Pethick was sacked as CEO of Nudie after criticism that he burned too much cash, and while a genius at innovation and branding, did not have the managerial skills to run a larger company.
After he left Nudie, he worked on the launch of Max Super and Geko kids mobile phone. He is now managing director of ?What If! Australia, which consults to established businesses that want to know how to catch ideas and turn them into reality.
He talks to Amanda Gome, and is happy to answer your questions. Email [email protected]. Tim is posed a question from reader Kevin Reece (see below).
Amanda Gome: Take an ordinary business cycle – when is the best time to innovate?
Tim Pethick: When you enter a boom time, everything swings along. When the economy wobbles that’s when you need to get smart about what you are doing and look for an edge. A large chunk of consumers will pay a premium price for something more valuable but what happens when the economy wobbles? You get price competition and you have got to differentiate yourself from the pack.
Who is going to do it tough? Not the NAB with their big profit. But a 10% downturn can put a business out of business.
So when the economy wobbles, the small businesses who don’t innovate are in trouble?
That’s right. It will be the incumbent small businesses that will suffer in the downturn because they have not innovated when things were good and don’t have the funds to innovate in a downturn.
So we will get the next wave of start-ups who will eat the lunch of the incumbents.
So business owners turn to innovation too late…
Yes. At the beginning of last year I was invited to talk to a wine grape grower. There was a glut, the price had crashed and they were chasing government hand outs. The time for them to think about innovation was 12 months ago – not when there is a glut and they are facing bankruptcy.
What is the first question a company asks when they consult you?
They say: I have a great idea but it is not making the traction I thought it would. What do I do?
Effective innovation comes with customer insight. You might have a great idea but is it anchored or grounded? Many people pursue an idea without thinking about whether there is a customer need, and does the business model make sense.
They don’t understand the margins, they don’t understand the costs. People focus on the sexy bits not the end-to-end delivery service
You can have the best innovation at the front end, but if it is not supported at the back end that delivers to customers forget it.
Are people getting better at this?
They will have to. We have the Gen-Ys coming through and they live on the web. They won’t suffer bad service. They are used to ecommerce sites and they want things delivered to their door. They won’t go to the post office to pick things up and they won’t queue for half an hour at a bank.
What has surprised you about the way business innovates?
I haven’t worked with big business for quite a while so I was surprised at their attitude.
I naively assumed that everyone was focused on the customer experience and to getting outrageous growth through innovation.
But they are not customer centric at all, and not keen to rock the boat.
What does it mean to be customer centric?
It is simple – it means to understand how your customers really feel. Lots of businesses do customer satisfaction indexes or qualitative research. But many times it fails to uncover the truth. As Sir Humphrey used to say; you can get anything you want out of market research. A lot of times people don’t ask the right questions.
I went to a regional council about two hours from a city and the leadership team at the council was asking how to be more customer centric. I asked them; what happens if you have a problem with the garbage collection? They replied we’d pop down and see Fred and sort it out.
So they could not begin to empathise with the customer experience, what’s driving their frustration. It is the same with big business; they are selling things to small business and have a completely different experience than their small business customers.
So innovation does not have to be ground breaking? It can be simple solutions to customers’ problems?
Yes. I had a problem with my office internet, which is typical of many small businesses that are so dependent on broadband. The access went down (there was a problem over the billing address). And you know what it’s like. For a small business not to have internet they may as well pack up and go home.
I was trying to get it reconnected for three weeks and finally got it escalated to a complaints handler who told me that they would put me on hold and fix it. I waited on hold for three and a half hours. Then the line dropped out. She called back two hours after that and explained that she had been on hold all of that time – to her own company! She told me that she had been working for Telstra for 15 years and it was the first time she had experienced what a customer experienced.
So would it just be cheaper for business if they got their staff to pose as customers?
Absolutely. Send a person to spend a day and they will quickly find out several ways to innovate and it would be a lot cheaper and more effective than market research.
Take automation. What a false economy that is. A good innovation can be as simple as putting a real person into a position. If every insurance business has an interactive voice response system and you have a person that answers the phone, you are doing something differently in the marketplace for the benefit of customers and the business.
You have been quoted saying that Australia is losing out in the innovation stakes…
Yes we have lots of problems. For a start we are a small market. The big businesses here are often offshoots of multinationals from elsewhere so they are implementing things from elsewhere.
Also we face cultural issues. We don’t tolerate or encourage failure. In the US it is a badge of honor. Being an entrepreneur is like being Bozo the clown, a big plastic clown who when you punch on the nose keels over and bounces back up again.
We also face huge problems with our broadband. I have an extremely high speed internet connection at home through Optus. But that is still down the bottom of internet speeds when compared to some other countries. It’s a huge problem. How can we compete when our broadband speeds are dramatically lower than countries like Korea?
What else is wrong with Australia?
The capital markets have shifted away from seed funding. Five years ago there was a trickle. Now with a bull market and the increase in the size of the super funds pouring millions into the capital markets, most VCs can buy an existing business for $20 million, financially reengineer it, roll it up, aggregate a couple of others and refloat it and make three times the money rather than invest in an early stage start up.
VCs used to want a 25% return. Now they want a 50% return. Per annum I can tell you of three private investment companies who no longer invest in seed companies. In my experience there are loads of good businesses that can’t fund the money needed to make them work effectively.
How do you get people to be more creative?
It can be taught. Yes, some kids are more creative than others, but you can train creative behaviours. There are a whole lot of things that can be taught like attitude to risk, ability to take on risk, how to see things differently.
What is one critical element of thinking creatively?
Having your eyes open. Many people think I am aloof but I am actually observing. I love watching people interact. I love to see what’s happening in the marketplace. To do that you need an inquiring mind. I am also a voracious reader of the business press and I do try and stay current of who is doing what, who owns what and a snappy understanding of where the opportunities are.
You are managing director of ?What If! Australia. Why didn’t you start your own business? Why not do another start up called IfWhat?
Look, when you are an entrepreneur you can only change one thing at a time. That’s too slow. I thought I could change the world working with more companies than through one start-up.
Kevin Reece at GlassesOnline.com.au writes: Great to hear your thoughts on innovation in relation to small businesses. Two things particularly struck a chord and it would be great if you could share your experiences.
First, as a challenger brand, how did you ensure that Nudie continued being innovative to sustain its momentum and stay fresh in the customers mind? Are there behaviours/practices that you would suggest?
Second, regarding capital markets, do you believe that VCs and investors will be more inclined to look at early stage opportunities with the recent turmoil in the sharemarkets and increased uncertainty of returns there?
I look forward to any comments you may have.
PS: As a man in the know, I’d appreciate your advice on a suitable nickname. Unfortunately “Big Kev” is trademarked and Kevin07 is, well, so last year.