A Culture of Innovation
Some thoughts on the topic.
There are a lot of books, media, and content out there that tries to “crack the code” on innovation. Why certain companies are successful and how you can use these “best practices” to jumpstart your own innovation team. This newsletter primarily is focused on polymer chemistry and materials science and when it comes to innovation in this space you need a few things. The three most important “things” you need are as follows:
A lab that can become well equipped and know when to invest money in equipment and when to outsource.
A collaborative commercial side of the business who understands what it means to be in a lab.
A culture that can do the following:
Take enormous risks via spending money on what might be considered “weird” or “crazy” or “out-there” ideas.
Give these ideas time and space to develop.
Be willing to shelve super promising or heavily invested areas.
Be willing to go revisit projects and pick them back up with new people.
Allow for seamless communication between technical, commercial, customers.
These three things to me are the keys to success to chemicals or businesses that are a bit downstream such as packaging, construction products, apparel, and the materials that enable everyday life.
The Lab
Safety
If you want to do “hard tech” or “deep tech” or something involving chemistry, biology, or both then you need a laboratory. This may resemble a commercial kitchen in a lot of ways in that it can be full of danger, experimentation, anger, colorful language, the potential to get stabbed, burned, and exposed to things that could be very harmful to your health. You need people who know how to operate in a lab. If you want an illustration of what it can look like then I refer you to this clip of The Bear from Season 1:
This might seem like a bit of an extreme example, but I’ve seen really bad shit happen in labs. Giant spills of really bad smelly chemicals. Calling a bomb squad in to remove an old bottle of picric acid or ethyl ether. Fires. Explosions. Death. If you’re in a business that is reliant on ideas coming out of a lab then just remember that people can die trying to get “new ideas” that “create shareholder value.” Viewing safety seriously and taking an appropriate amount of time for an experiment are basic things to get right. You don’t want to end up like Roman Roy’s exploding rocket launch because you were trying to speed up the timeline.
Investing in Ideas That Pay Dividend and Compound Growth
Usually, in any established business there are the “holy grail ideas” that if you can just “get this to work” then you are going to win a ton of new business, make a boatload of money for the company, and ensure success for years to come. Even if you can figure out the “holy grail” ideas that everyone wants in the lab you may need to spend a lot of time and money at the plant to actually implement the idea at scale. This might involve millions of dollars of capital expenditure (CAPEX) that could take years. Also, you still need to go through the customer qualification/approval process, and they need to be able to realize that value at a price that works for them.
That “holy grail” even when you can figure it out in the lab might take another 3 years to actually realize any revenues and maybe a few more after that to see big profits. Nothing is fast here. If you think the industry of chemicals and materials is kind of shitty then trust your instincts.
Laboratory research and implementation needs long-term thinking with respect to product development, projection of revenue, thoughtful assessment of costs and profits. A great idea that works in the lab, is patentable, and can be scaled up to pilot and commercial quantities might not be feasible from a profit perspective right now with current raw material or shipping prices. In three years? Maybe.
Just getting to that point of making the decision to shelve a project or scale it up and really try to sell it and launch it to the public is the real success. If you can decide to shelve or launch something based on the lab alone—then from an innovation and product perspective you are successful. The fact that it isn’t marketable or profitable at is the other side of the innovation equation and knowing when to “hold-em” and when to “fold-em” is really difficult.
If you can get 10 successful products where you can make a decision to launch/not launch based on early customer feedback and an excellent view into costing and manufacturing, then you are world class. You need just a few products to break through and grow. You also need enough time for them to grow. Do not expect software like growth here.
Where Sales and Research Meet: Marketing
Accessible Data
Your marketing team are like the headlights for your company as it drives down a dark country road with occasional flashes of bright light in your face. You can have the fastest car (e.g., the best scientists and engineers), but if you can’t see where you are going commercially then you will crash. Your marketing team is essential in finding new and existing markets for your products and providing constraints to the product team in the lab as they develop something new. A new material for Lego that is sustainable, has the right colors, has that satisfying “click,” but smells like a burnt campfire might not be a success. Yes, even how something smells can make or break a product launch.
Having accessible data that straddles both the R&D efforts as well as the marketing efforts are everything. Typically, this information is locked away in someone’s head or best-case scenario it’s locked away in a CRM like Salesforce. The technical people are probably not using Salesforce. Hopefully, your technical people are using something to track their data though and not random spreadsheets and paper lab notebooks. Knowing the efforts around a specific product development area from 6 months ago or 5 years ago and why you did or did not launch a product is a literal superpower for a company, start-up or established. I’ve personally gone through unorganized servers with just folders of files with random names to look for why a specific technical project never succeeded. I usually never found the reason.
If your technical team and sales & marketing teams are going to communicate, I hope they use software platforms that can collaborate. Having accessible technical data can allow you to build complex models that reduce your time in the lab. Pair that data with an excellent map of the markets you are trying to sell into (e.g., automotive coatings) that includes customers, preferred packaging, preferred specifications, spot prices, and any sort of “voice of the customer” data you can get, and you are going to be a world class organization. It sounds dumb and simple, but it’s surprising how often this stuff is not taken seriously.
In order to do this, you need marketing professionals who are 1) good at marketing 2) can talk to the technical team in technical language and 3) can communicate up to the executive team while potentially also managing projects. I don’t think you necessarily need MBAs or PhDs in these roles either.
Structuring Your Teams
The most common structure to any company’s internal product development team usually as the following:
Sales + Marketing reporting to CEO or CCO
Technical/R&D reporting to specific P&L leader who reports to the CEO or maybe the CTO.
Engineering / Manufacturing reporting to a CEO or COO
Regulatory Compliance/Product Stewardship reporting to a CEO/COO
Finance reporting to the CFO
I call out the potential executives above to highlight how you can have the multiple silo effect in part driven by the executives themselves. You could have 5 executives!
In the end, everyone just reports to the shareholders. Ideally, you would have a team across sales/marketing, technical, finance, regulatory (EPA), and manufacturing that will enable better communication. Your new product that could change the world might need $10 million in CAPEX and a 5-year time horizon to get built if permitting is perfect. It should be obvious that someone from the finance team can account for the product actually being profitable after all of that CAPEX and time to develop, but that isn’t necessarily the case. I’ve seen plenty of products get launched/maintained/sold where every sale costs the company money. Imagine working on something for 5 years and find out that it was never profitable.
We can’t get spent time back. Knowing as much as you can as early as you can and getting the right information to the right people is also a superpower. Accurate costing of your products is a superpower. Your innovation team needs people from all of these areas to be in constant contact. Usually, it’s the product manager who runs the team, but really it should be a technical project manager unless you want your product managers to burn out and quit (I’ve seen that happen too).
The sales, regulatory, and finance people have a lot of value to add during the innovation process. They need to be included early and often.
The Culture
If you have everything above, then you’ve got the right setting for establishing a high-performance culture. Your teams will know how to assess “a crazy idea” and really understand if it’s crazy or actually relatively risk free. If that crazy idea doesn’t pan out, then you’ve got a record of trying it and why it didn’t work. This “failure” can be your basis for the next success. Having all of the information easily accessible and documented, while a potential IP theft risk, also provides an easy way for cross-functional teams to communicate in their own languages. Chemists can have structures, sales teams can have customer needs/wants, marketing can have total addressable market, the regulatory team can have an opinion on when to file a pre-manufacturing notice or if one is even needed, and the finance person can know the actual gross margin before anything is launched and how many units to payoff your new piece of equipment.
Getting the culture of innovation is hard because it requires more than just technical excellence. Having a great technical team is good for publishing papers or doing basic research, but if you want to be a successful business that has innovative products you need the people that work within your company to actually talk to each other. Ideally, they actually like each other too.
If your finance team wants to cut the R&D budget to save 0.5% of revenue and temporarily boost profits and has no opinions on what types of products need to get developed, then you are probably working for shareholders who really value the private equity business model of managing a decaying business.
Get to a place with a culture of innovation and bail on the zombies.
Nice summary!