With most ideas, there is a correlation between how audacious or risky an idea is and its potential for economic reward. Disruptive or radical innovation produce ideas which disrupt industry and dramatically change a business sector. These are audacious and highly risky but if they work out as hoped, they bring huge rewards.
Niklas Zennström and Janus Friis developed their own voice over Internet protocol (VoIP) and then built a business around it – Skype. They offered free telephone calls over the World Wide Web as well as cheap calls via the Web to ordinary telephones. Their business model was audacious. A couple of unknown Swedish guys took on the world’s telephone service providers. Their idea was both innovative and seriously risky. Potential users might well have decided they did not trust VoIP or Internet Service Providers who might have tried to block Skype calls. In which case, the two Swedish guys would have lost a lot of money.
Skype has been a huge success story. There are more than 100 million Skype users around the world and the two founders sold their company to eBay for USD2.4 billion. Not bad for an audacious idea.
To visualise the importance of audaciousness in business innovation, imagine a simple graph with X and Y axis. The right end of the X axis is marked “Audacity”, the left end is marked “Boringness”. The top of the Y axis is labelled “Risk/Rewards”. The bottom is labelled “Stability”. Next, draw a narrow diagonal bar from the bottom left corner of the graph to the upper right corner. This bar represents the range where most business ideas fall. Audacious business ideas are risky yet innovative. Boring business ideas are safe and not very risky. But they do not bring high rewards. Most business ideas, of course, tend to fall near the axis.
There are several useful things we can learn from this exercise.
- In Europe and America we tend to favour highly innovative ideas, but it seems that a handful of boring business ideas resulting in incremental innovation can also bring benefits. You should not focus all your innovative efforts on big, disruptive innovation. A number of smaller, moderately innovative ideas should be mixed in.
- Many companies have an overly strict review process that requires every single dea pass a number of hurdles before it is implemented. All too often committees reduce the risk of the idea. They seek to protect the company against risk or most likely they seek to protect their own jobs by not sanctioning risk projects. By reducing risk, they are also making an idea more boring, less innovative and reducing the potential reward.
- Conversely, an idea can often be pushed to be more audacious, thus increasing its reward potential – but also its risk. Bear this in mind the next time you brainstorm ideas. When you get a few good ideas, don’t stop there. Push the best ideas further.
- If an idea is very boring and of low risk, its reward potential is also low. Thus you need to be certain that the cost of implementing the idea will not be greater than the rewards it brings in.
So, the next time you have a business idea, go on and be audacious. Push the idea to the limits and don’t be afraid to go with it.