For innovation to succeed, how much money you should connect to the innovation effort?
The obvious answer is that it should be as large as possible. Surely, the more money the team has, the better the chance of getting some productive innovation do? If you control the budget, you are in the driver’s seat, right?
Certainly, its pretty hard to do anything if you do not have a budget. But having a big budget is wrong for the new team innovation because they are almost certain to lose hope. Here’s why.
When launching innovative projects, especially if it is radical but gradual, the time between investment and the income is can be long. New entrepreneur, however, are in a race against time to show that they can make a decent return. On average they have only 18 months before their stakeholders get bored with the lack of results and stop them. At that time, they have to show they can deliver, but several large projects that do not deliver quickly is not much help.
challenge big budget innovation do not do here, because even when innovations eventually start to show again, they will usually not be that big. It takes time for new things to ramp up to the point where the revenue they are generating comparable to the scale of the mainline business.
If the entrepreneur has been given a big budget, they will feel the pressure to show the returns they are getting are better than those available from traditional business investment. They need to show that this is due to the higher risk of investing in innovation. Traditional firms, on the other hand, is much more certain, and that is a lower risk, and the benefits from capital perspective.
A large budget innovation team needs to do things on a large scale to justify their money. Failing to do so means they will not have enough going on, but almost immediately that this brings them in comparison to the business core. Almost 80% of the parts innovation team will do will fail for one reason or another, so it makes this innovation effort look terrible compared to making traditional businesses.
It is much easier to start with a completely innovative small amount of money, because you can hit a decent return numbers easier. You do not have a large number of items going to make it. And you have time to sleep in systems and processes, and then grow organically as capacity develops.