How to innovate: A step-by-step guide

Jul 10, 2018 | Uncategorized

Jennifer Alsever is a writer for Fortune Small Business.

Our six-part program for fostering business creativity

The funeral business might not be the first place you’d look for inspiring new products or services. But in recessionary times, necessity drives invention all across the economy. So when Louis Salazar quit the undertaking company his great-grandfather had founded and launched one of his own, he had to think outside the casket.

Salazar had seen the warning signs back in 2004, when his customers started choosing $1,000 cremations over full-service burials costing $3,000 to $7,000. So he and his wife, Gloria, decided to get personal. Death wasn’t just an opportunity for grim commiseration, after all. What about celebrating unique individuals and the lives they lived?

With the exquisite delicacy of undertakers, they started interviewing customers about the dearly departed in order to brainstorm how best to honor them.

It worked. In the past five years the Salazars have hauled furniture, fishing poles and a Harley-Davidson into their funeral home for services. They have held fully catered memorials on golf courses. They’ve hosted games of bingo in which the deceased’s name was spelled out on the cards, and sold jewelry etched with the departed’s thumbprints.

As the recession continues to bite, the other 13 funeral homes in town have laid off workers, sold out to conglomerates or shut down. Salazar’s business, Reflections Funerals and Life Celebrations, grew sales by 19% between 2007 and 2008. Business is growing this year too.

“You have to change with the times,” says Salazar, 48. “You have to give people new options. If you’re not willing to learn, it’s time to get out.”

It has never been easier or cheaper to alter the direction of a business, and companies that don’t evolve in response to changing market conditions may not survive at all.

“In an economic downturn, innovation isn’t your best friend,” says Jeff DeGraff, director of the Innovatrium Institute for Innovation at the University of Michigan. “It’s your only friend.”

You don’t need to be Steve Jobs to come up with a novel business idea. Nor is innovation all about high-tech inventions or new products. As many successful entrepreneurs will tell you, incremental ideas can be just as important as breakthroughs. The Eureka Moments we’ve profiled may have happened by accident, but in all cases the business owners were paying attention and followed through on their initial flash of inspiration.

But how do you find that clear, purposeful frame of mind amid the pressures of modern business life? What makes for an innovative company? How much should owners listen to their employees? Is there an ideal company size for generating good ideas? Does time off get the juices flowing?

Here are some tips from the trenches of modern American entrepreneurship.

STEP 1: Look behind you

For generations, old-money families have managed their complex affairs through family offices. These offices employ full-time C.P.A.s, attorneys, financial planners, financial analysts and, sometimes, fraud examiners. So when Joe Kopcynski was looking at ways to expand his investment-management firm, Universal Advisory Service, in Albuquerque, he first studied the family-office model.

Kopcynski saw an opportunity to offer a similar suite of services to a new breed of wealthy individuals — business owners, top executives, entertainers and athletes. On average, his 14-employee business has grown 25% annually since 1990.

“History can be a great teacher,” says Kopcynski. “We were always looking back to see what did and did not work. It was fundamental. And it was what my clients were telling me to do.”

Before you set out to change an industry, know its history.

“It’s like trying to catch a baseball,” says Steve McKee, author of When Growth Stalls, which surveys executives at 700 companies about what they learned from crises. “You’re in a better place if you know where the ball has been. Then study the needs of your customers. Where are their frustration points? Where is their productivity being hampered?”

Jay Steinfeld, CEO of, knew from years of experience that his customers hated having to measure and install his product. In 2007, Steinfeld’s 67-employee company, based in Houston, hired a videographer to make 70 instructional videos that would teach neophytes everything they needed to know about installing blinds. It was a haphazard approach, but “we knew we had to do something,” says Steinfeld, 55.

Steinfeld’s team created a YouTube channel for the videos, sent links to Twitter users who had tweeted about installing blinds and sprinkled the videos throughout the site. Today, video-equipped pages on his site bring in three times more revenue than pages without videos, Steinfeld says. He projects that profits at will be up 20% this year on revenues of $50 million.

STEP 2: Lose the routine

Robin Chase is no slouch when it comes to launching successful startups. The 50-year-old CEO founded her first successful business, car-sharing service Zipcar, 10 years ago. In 2007, she shifted up a gear and started GoLoco, a company that helps carpoolers connect with one another online.

Her two big tips for aspiring innovators? Goof off and read.

“Time wasting is an excellent source of innovation,” says Chase. “Make time to read widely, and cultivate a variety of friends and online groups who send you wacky articles.”

In 1999, Chase heard from a friend about a European car-sharing service, which inspired her to start Zipcar. She’d also been reading up on Internet and wireless technology, so she quickly built a service that allowed users to book cars online and to unlock their rented vehicle via cell phone.

GoLoco, she says, came from thinking about Craigslist, Google (GOOG, Fortune 500) text alerts, online transit-message boards and comments from Zipcar users. GoLoco participants use the site to arrange trips and split the cost, while GoLoco collects a transaction fee on those deals. In two years, the service has attracted 20,000 users. And it isn’t just owners who are creatively goofing off.

At the Chicago firm Total Attorneys, which provides accounting, marketing and back-office services to lawyers, founder and CEO Ed Scanlan lets employees take paid sabbaticals, with the understanding that the time will be spent on creative pursuits such as acting in a play or touring with a band.

Scanlan, 32, argues that personal freedom promotes creativity and risk taking.

“If you move more quickly in your own life, innovation moves more quickly,” he says. The impetus for two new services — virtual reception and virtual personal assistance — came from employee suggestions. Scanlan expects double-digit growth at his $24 million business this year.

Nature — the Australian outback in particular — proved to be the perfect muse for Ben Duncan, founder and CEO of e-mail provider AtMail, based in Sydney and Coeur d’Alene, Idaho. Duncan dreamed up the company during a camping trip in the Australian Outback eight years ago.

This past summer he spent several months traversing the Outback in a Land Rover decked out with a server and satellite broadband access. He used the time to bang out an improved version of AtMail’s software.

“I get way more done out of the office,” says Duncan, 28. A key AtMail perk: Any of the company’s 13 employees can now use Duncan’s Land Rover for their own two-week inspirational jaunts.

Other entrepreneurs recommend jumping out of your rut by hitting a trade show or attending a seminar about an unrelated industry. Or try spending a day in the life of a client, suggests Julie Lenzer Kirk, CEO of Path Forward International, an entrepreneurship consulting firm in Rockville, Md.

In the late 1990s, Kirk ran Applied Creative Technologies, a software firm that sold inventory-management applications. Her problem was that her programmers tended to create new features that customers hated. “They didn’t understand how our customers managed inventory,” says Kirk, “so they actually made the software worse.”

Kirk’s solution: She ordered her staff (and all new hires) to spend a day working at a food processing plant that used their software.

The fieldwork paid off immediately. One programmer watched a manufacturing manager go through multiple steps while searching for old products in an inventory database. The programmer dashed back to his office and tweaked the software so that data could be found in a single step. At the same time Kirk started sending out annual customer satisfaction surveys. The scores have consistently averaged 4.9 out of 5.

“It cemented customer loyalty,” says Kirk. “It’s really powerful when they see you’re listening.”

STEP 3: Use the brains you hired

Smart entrepreneurs maximize innovation by encouraging all employees to think creatively about the business.

“You need to give people the license to take risks and to fail often enough to realize that they will not be punished for doing the right thing even though the outcome might not be what they expected,” says Thomas Koulopoulos, author of The Innovation Zone, a study of corporate innovation. “Small failures encourage big successes.”

When Koulopoulos was running Delphi Group, a technology and management consulting firm in Andover, Mass., he held hour-long innovation meetings once a week. Before each meeting a couple of employees would collect ideas and create an agenda for the conversations.

The sessions focused less on breakthrough innovations and more on continuous improvements in the business, but they helped Delphi expand its services and hit $15 million in revenues before Koulopoulos sold the business four years ago.

In 2007, Daren Cotter, owner of CotterWeb Enterprises in Mendota Heights, Minn., began sharing financial information with his 12 employees. It was seven years since he’d started the company, which administers Web-based customer loyalty programs. His goal: to build a tight-knit culture and boost morale by showing workers how their jobs affected the company’s bottom line.

By 2008, Cotter was inviting all employees to strategic planning meetings that stretched over a period of weeks. “We have a lot of smart employees, and they have great ideas,” says Cotter. “It would be crazy for us not to include them.”

The investment paid off. In 2007, when Cotter invited half the staff to a strategic planning session, he ended up with 40 pages of ideas. The next year, with all 26 employees involved, he harvested several hundred pages.

One new hire suggested that any consumer who bought a product or service from one of CotterWeb’s advertisers should receive an e-mail with a link to a Web page listing similar offers. Another offered that each salesperson should focus on a single industry, such as insurance or online education. CotterWeb’s revenues rose 8.2% in the first half of 2009 — thanks, Cotter says, to those ideas.

You don’t have to drag your staff into the meeting room to get them brainstorming — simply use their natural propensity to gossip. Each day employees at New York City executive job listing company log on to an internal social network hosted by They chat about what customers are saying, discuss problems with the company’s Web site or with its business model — and vote on potential improvements.

Depending on how well the group receives their ideas, Spigit users may earn points for rewards such as iPods, free lunches and laptop bags. (The reward system is built into the software.) The service costs companies $15 per user per month. Launched in November 2008, Spigit is gaining momentum with clients such as Allstate Insurance (ALL, Fortune 500),AT&T (T, Fortune 500), IBM (IBM, Fortune 500) and Wal-Mart (WMT, Fortune 500), along with 20 small businesses like TheLadders.

For San Francisco advertising agency owner P.J. Pereira, creativity is all in the hiring. When he launched Pereira & O’Dell in 2008, he sought employees with unusual backgrounds rather than advertising experience. Soon his staff boasted a wine industry veteran, a music producer and a Hollywood screenwriter.

Pereira also hired Russell Dodson, a baker turned shark wrestler. Four weeks into his copywriting job, Dodson came up with an award-winning promotion. Pereira, 35, wanted to create buzz about a new men’s fashion collection at a San Francisco boutique called Carrots. Dodson, 28, suggested a beer made out of carrots.

“I didn’t know how it was going to taste,” says Pereira, “but it sounded interesting.”

Dodson’s crew created Carrots beer bottles and wrapped them in burlap emblazoned with a stencil of a drunk rabbit. These were handed out at events and given to friends of friends who could afford the boutique’s high-end clothing. The beer was a hit, and the promotion won a prize at One Show Design, a major advertising and design award show in New York.

Pereira’s growing client roster includes Lego, the University of Phoenix and Muscle Milk. He attributes his success to the unique perspectives that his 50 employees bring to their work.

“The simplest way to help a company think outside the box,” he says, “is to bring in people who have lived in different boxes.”

STEP 4: Get cozy with customers

“You can’t be too close to your customers,” says David Fields, managing director of Ascendant Consulting in Ridgefield, Conn. “Your customers are your lifeblood. The heart of innovation is understanding what problems they have that you can solve.”

Keene Addington, president of Flat Top Grill, a Chicago-based restaurant chain, takes that philosophy to heart. In January he assigned a full-time marketing person to chat via e-mail and Twitter with as many of the chain’s 75,000 customers as possible.

One customer suggested serving make-your-own wraps prepared with lettuce. These wraps are now the chain’s most popular appetizer. Amid hard times for the restaurant industry, Flat Top Grill’s same-store sales climbed 6.5% last year. Addington expects sales to grow by an additional 3.9% in 2009.

“Your guests are going to tell you how to be successful,” he says.

For Canadian shoemaker John Fluevog, customers do more than make suggestions — they design the products. Fluevog runs an “open-source footwear” project. Anyone can submit shoe designs to an online community of customers who vote on their favorites. In the past six years Fluevog has received more than 1,000 design ideas and turned a dozen of them into marketable shoes.

Fluevog took the open-source concept one step further by asking customers to vote on which of his existing lines should be cut or retained and which print ads to run. Whatever the majority says, the company does. After customers voted on color combinations for the Sencha Tap high heel, it became one of the best-selling shoes of the fall 2007 season. Despite the recession, the 115-employee company continues to grow its same-store and wholesale sales.

For companies in serious need of fresh ideas, Cincinnati consulting firm SpencerHall organizes intensive three-day online brainstorming sessions with an unusual group of thinkers, including artist Alyce Gottesman, science fiction writer Alma Alexander, consumer psychologist Steve Hoeffler and “science of happiness” expert Shawn Anchoto.

Each session costs $75,000, and here’s the twist: To avoid inhibition, each guru’s words are presented anonymously in a secure online chat room.

“It’s a blast,” says H. Scott Nesbitt, executive vice president at Healthy Advice Networks, a Cincinnati firm that hired SpencerHall last year to help revamp the consumer displays it provides for medical offices. On the first day, the panel discussed ideas that Healthy Advice Networks was already considering, such as showing product information on digital screens.

“Once you get past that and build on these ideas, that’s when you get creative,” Nesbitt says.

The conversation ebbed and flowed for 72 hours (with breaks). At 3 a.m. a participant suggested distributing printed handouts that patients could take home. A few hours later: How about a wallet-size card showing each patient’s cholesterol information and prescription history? What about interactive CDs with information on how to use those tricky new Advair inhalers?

SpencerHall helped prioritize the hundreds of ideas, took the top 30 and distilled them into a 16-page report. Healthy Advice Networks shopped the report to doctors and pharmaceutical companies. A year later several of those ideas are in the works, including the interactive CDs and a digital tablet that delivers medical journal news to doctors. Nesbitt says it could be a game-changer for the $50 million company.

“It’s so easy to get yourself in a rut with conventional wisdom,” says SpencerHall managing partner Jon Hall. “Creative thinking from outside your company challenges the status quo.”

If brainstorming with authors and artists sounds too much like a liberal arts college seminar, there are harder-edged alternatives. Companies can tap the brainpower of thousands of scientists and researchers at, an online forum for R&D problems that has typically catered to big companies like Procter & Gamble (PG, Fortune 500).

Here’s how it works: A large company may pay $85,000 to consult a network of 180,000 academics, research organizations and scientists who sign nondisclosure agreements, then brainstorm solutions. Participants can win up to $50,000 if the company adopts their ideas.

Innocentive will soon roll out a cheaper service for small businesses, says Dwayne Spradlin, CEO of the Boston company. “Our service levels the playing field for small businesses,” he adds. “It allows them to innovate better, faster and more cost-effectively.”

STEP 5: Share the load

Getting outside feedback and vetting new concepts doesn’t have to be expensive or time-consuming. Dig into your Rolodex to find a partner or vendor who might be interested in sharing the time and money to see if an idea is viable, says Scott Anthony, author of The Silver Lining: An Innovation Playbook for Uncertain Times. owner Jay Steinfeld says he has boosted his margins per customer visit by 25% for the past eight consecutive quarters by striking cross-promotion deals with, and, which have similar customer bases.

Shoppers who spend a certain amount at any of the four companies receive coupons that can be redeemed at all of them. and also split the cost of entering these customers into a sweepstakes for a kitchen makeover. “This is very low-cost marketing,” Steinfeld says.

Then there’s the lowest-cost labor of all: student interns who work for college credits.

“Students are hungry,” says Travis Hollman, 40, a serial entrepreneur in Dallas who regularly enlists Southern Methodist University students to do market research. In recent years Hollman has started a film company, a toy manufacturer that made marshmallow shooters and, most recently, a relaxation drink called ViB.

The students were instrumental in ViB’s development. None of them even wanted to taste an early version because of its thick texture and “gross-out” shade of green. So Hollman hired a food scientist to craft a new concoction. The students tried it and loved it, as did consumers they interviewed. A year after its launch, the drink is expected to bring in $5 million in 2009 sales.

“When it comes to ideas and energy, students are on top of it,” says Hollman. “They don’t work for you, so they’re not afraid to tell you something is dumb.”

STEP 6: Try to fail quickly

Once you find a good idea, don’t move halfheartedly. Scott Anthony owns Innosight Ventures, a 60-employee consulting firm in Watertown, Mass. He often assigns one employee to examine all of the company’s new ideas.

“When we think of an idea, we don’t ask for a person to spend 5% of his or her time on it,” says Anthony. “We say, ‘This is your focus for three to six months.’ If you’re serious, you need to commit them to it.”

Case in point: When one of Anthony’s partners at Innosight wanted to create a new business focused on incubating and investing in startups, the other partners gave him the freedom to spend all his time on the project. Innosight has since invested in three successful international companies — a business that wouldn’t have been built if pursued part-time, says Anthony.

Moving from brainstorming to action can be tough, entrepreneurs admit. Set goals and benchmarks — time or money — for your idea so you know when to quit.

And beware of getting trapped in “shiny-penny hell,” where you become enamored of too many great ideas at once, says Kirk, the CEO of Path Forward International. “You have to separate out the emotion.”

Unless, of course, you’re trying to turn your funeral home into a life-celebration service. In which case you’ll need all the emotion you can get.

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