_Making the shift from competitive advantage to transient strategy_  Rita McGrath, Columbia

Entrepreneurs and leaders better be spending 40% of their time on innovation, says Dr Alex Osterwalder, author of _The Invincible Company_ , or they face a risky future. He quotes Logitech CEO Bracken Darrell who uses the analogy of a tree and seeds. The tree will fall over one day. You need to be always planting seeds.

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**Masterclass with Business Model Canvas co-inventor**

Alex Osterwalder ran a masterclass for Growth Faculty, to answer the question: _How do we build the future while managing the present?_ A first step, he told delegates, is to stop thinking youre invincible.

The moment you feel like youre invincible you are at risk of disruption," he says.

**Tesla doing things that build an invincible company**

Look at the industries disrupted by Tesla. It started in the **car industry** but, its also an **infrastructure company** $building battery charging stations$, its increasingly a **software company** with the best data on the planet to create autonomous vehicles, and its moving from a **transaction model** to a **subscription model** $selling feature updates$. They are now also a **solar company** , becoming an integrated energy solution, and a **space company** , normally the preserve of governments and huge private corporations $not start-ups\!$.

**3 factors to stay ahead**

Alex explains 3 factors that help a company stay ahead:

1. **Constantly Reinvents Itself**  They dont believe theyre invincible, quite the contrary, they constantly reinvent themselves..and that makes them invincible.

2. **Competes on Superior Business Models**  They dont compete just on product innovation, service innovation, or technology innovation, or price. They compete on superior business models.

3. **Transcends Industry Boundaries**  They are very hard to classify in an industrythey increasingly transcend industry boundaries. You might have been taught Michael Porters 5 Forces, that youre a victim of industry forces. That is 1985 thinking. Today, you can shape industry forces, no matter what your company.

So, how do we explore the future while taking care to exploit the present?

**1.** ******Explore and Exploit**

Innovation is a topic found in both exploration and exploitation $existing business$. There is efficiency innovation $improve and refine what you do$ and transformative innovation $inventing the future$. The latter requires a different mindset. Heres what to do:

**Dont focus 99% on managing the existing business.** The existing business develops antibodies that kills any exploration of the future that looks different from the present.

**Business plans are the enemy of innovation.** They describe a fantasy of an idea, and you are in danger of executing on that fantasy. They are good for executing, not for innovating. This maximises the risk of failure.

**Embracing failure is crucial in exploration projects $innovation$.** When you explore its inevitable you will make a tonne of mistakes, but you adapt and improve.

**Different approaches are needed for each side**. For example, for Explore you need venture-capital style risk taking, expecting a few outsized winners. For the Exploit current business you need it to be a safe haven with steady returns and dividends. The two worlds are different but need to live in harmony.

**3 types of innovation** :

- **Transformative** $inventing the future$.

- **Sustaining** $replace and extend value propositions, new channels, new geographies$.

- **Efficiency** $improve processes and existing business model, refine value propositions$.

**Transformative innovation** means _testing an idea_ until you have enough evidence that shows it warrants execution and scaling or needs to be successfully terminated. Germany company Bosch rejected over 90% of 214 innovation projects in its accelerator programme.

**You need to accept the success rate is low**. The larger your company, the larger your funnel of innovation projects needs to be.

**In innovation, you dont pick a winner**. You successfully retire those that dont produce evidence of success. You create the echo system for the successful teams to emerge. Increase investment as the teams show results.

**2.** ******Compete on Business Models**

Innovation too often gets stuck in the new products and new customer segments baskets. Sometimes its the **business model** that has the most exciting potential to be the disruptor in your industry. So first we must unlearn the business models we use in our company or our industry. Sometimes you need a new business model to bring an invention to the market. Heres what to do:

**Use a business model canvas**. $[www.Strategyzer.com](http://www.strategyzer.com/)$

**Add different business model patterns** to your business design as shown in _The Invincible Company_.

- **Invent patterns** include those made by Nespresso, Microsoft Windows, iPod who all added the **gravity creators** pattern into their business design. They created **switching costs**  they made it difficult for customers to leave or switch to competitors. Fortnite, salesforce, XEROX and Spotify added the **revenue differentiator** pattern into their business design.

- **Shift patterns $pivots$** improve business models, and include those made by Hilti machine tools, they moved from selling product to selling a **recurring service**. Nintendo Wii went from **hi-tech to low-tech** to reach a new group of users. Apple went from a **no or low-touch** service to a **high-touch** service with the Genius Bar.

**3.** ******Establish an Innovation Culture**

_There is a fine line between vision and hallucination,_ Steve Blank, entrepreneur and author.

_For every one of our failures, we had spreadsheets that looked awesome,_ Scott Cook, co-founder and chairman Intuit.

An idea or a business plan can look good, but it can all go horribly wrong unless **you test** the idea. The key is admitting _you dont know_ if something is a good idea. Heres what to do:

**Design as if you are right, and immediately test as if you were wrong.** Ask: What are the underlying assumptions of the hypothesis? Ask: What will it take for my idea to work? You will take the most important hypotheses and ideas, and test, experiment, adapt, and experiment again. Gradually you will get closer to the point at which you will execute.

**Reduce the risk of implementing and scaling a bad idea.** Test, test with cheap experiments. Build only comes later. The myth is that you need to build something to test. You could make a brochure of a fictional product or service, and use this brochure to test with real customers.

**Actions speak louder than words**. Put a call-to-action $CTA$ in your brochure or on your website. Ask people to make the effort to call you or send an email $or ideally, reach into their pocket and pay for something$.

**Give your team time to run experiments.** 100% of their time is time well spent.

**You cant outsource testing.** No agency can do the testing for you, they can help you, but you need to do this internally. You need to understand your customers first.

**In innovation its not possible to pick winning ideas**. Ideas most likely to succeed _will emerge_ after testing and experimenting $and failing$. You could be most confident in an idea if there is evidence from your call-to-action experiments.

**3 things to improve the innovation culture:**

- **Leadership support** $the leadership team needs to spend time on innovation$ **,**

- **Organisational design** $put entrepreneurship, innovation, or learning in the C-suite$

- **Innovation practises** $not how much a team works on a project but the amount of evidence a team can show to support an idea or hypothesis$ **.**

**To wrap up, ask these 3 questions**

1. How much time does your leadership spend on innovation? If its not 40% your company wont innovate.

2. Where does innovation live in the org chart? If its not at the top, youre company wont innovate.

3. What is your ability to kill projects? The ability to kill successfully terminate projects is key to innovation.

Good luck with planting those seeds\!

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