Risk and Innovation

T.S. Eliot once said, “”Only those who will risk going too far can possibly find out how far it is possible to go.”

Innovation is about pushing boundaries. It’s about venturing from the world of the known to the world of the unknown. It’s about uncertainty. It’s about risk-taking.

Many CEOs like the concept of innovation and will go out of their way to talk about it. But they often fall short of committing their words to action because innovation is risky. Most innovative ideas fail, and rather than risk failure, business leaders would prefer to keep doing what they’ve been doing. There’s comfort in the status quo, especially when the company’s in a profitable stage.

Early-stage ventures, more often than not, must innovate to survive. But as these companies grow and progress through the business life cycle, their focus changes from innovation to protecting what they have by avoiding risk. This is a sure formula for ultimate extinction. If you’re not changing you’re dying. We have been unable to find a single company that survived by standing still.

Perhaps the most compelling lesson of risk aversion can be taken from the story of Kodak. When George Eastman founded the company in 1888, he was taking a big chance on something no one knew would work, let alone be a huge commercial success. He was brash. He was bold. He was innovative. He took a big risk but it paid off.

For decades, Kodak was on the cutting edge of innovation. Few companies can make that claim. And while Kodak is primarily known for pioneering film photography and home movie making, we must not forget that the company literally invented digital photography. In the mid-seventies, a Kodak electrical engineer named Steve Sasson pushed the boundaries far beyond the company’s core technology and developed a system to capture an image and display it without the use of film. It is worth noting that Sasson was in his early twenties at the time. It took twenty years for Kodak to refine the technology and take it to market, with the launch of the DC40 in 1995. This was years before most others got into the game. But Kodak never leveraged its early market position and was soon overtaken by new entrants.

In 1962, the company employed 75,000 people and by that time had exceeded $1 billion in sales. By 2012 the company was bankrupt. So what happened? In a nutshell, Kodak failed to continue to innovate and take risks, while others did. Its rivals continued to innovate, with such things as enhanced megapixel resolution, face and smile detection, red eye fixes and consumer appealing camera designs. Kodak found itself always trying to catch up, no longer a technology leader but a late adopter.

The root of Kodak’s failure to capitalize on its early momentum in digital photography lies in the fact that it went to great lengths not to cannibalize its core business. Kodak’s leaders were dependent on the rich profits from their bread and butter 35mm film business and worked hard not to endanger them. In short, they sacrificed innovation for the status quo, unwilling to accept that the days of film were numbered. And as a result Kodak was out-innovated and ultimately defeated by its rivals.

It took one hundred years for Kodak to go from cutting-edge innovation to Fortune 100 success to bankruptcy. One wonders where the likes of Apple, Google and Tesla will be in a century. The answer lies in their relentless commitment to continual innovation and risk taking. Constantly changing. Not accepting the status quo as a given. Not protecting what they have at the expense of where they can go. And never standing still .

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