Monday, July 09, 2007

Constraint Creates Innovation

***Originally published in Austin Business District Magazine

“Necessity, who is the mother of invention” – Plato

As a business owner, I’m sure you are familiar with a very uncomfortable situation where everyone in the business is committed full time, success is within reach, but the venture has yet to be come profitable. Cash flow (or lack thereof) becomes all consuming in the entrepreneur’s mind.

At Bootstrap Austin we call this the “Valley of Death” (VoD), and it can be an intimidating and scary place. Many times, the desire to avoid it causes many entrepreneurs to prematurely seek funding from investors hoping to propel the venture over the VoD with minimal pain both for the founders and the venture. 

But that would be the wrong thing to do. The concept of funding too early belies a fundamental misunderstanding of the role of constraints in the innovation process. 

Constraints are not the enemy – they are the ally of the venture. They cause it to innovate and ultimately, to discover its unique business model. 

In the early days of Southwest Airlines, the lack of cash caused the company to sell one of its four airplanes. Instead of viewing this as a step backwards or seeking investor capital to solve the problem, the team asked themselves a question they had never asked before: how can we deliver the same rate schedule with three airplanes as we did with four?

They noticed the hour-and-a-half turnaround time (an “industry standard”) and wondered if they could reduce that down significantly. This led to the many innovations – only using Boeing 737s, flight attendants cleaning the aircraft, etc. – that today give Southwest the shortest turnaround time in the industry. Notice, for example, the urgency you feel to board a Southwest flight because of the free seating and A/B/C grouping. Unlike other airlines, Southwest has their passengers helping to speed up the turnaround of their airplanes! 

Many other examples abound: Virgin’s move from a mail-order music business to retail stores came from the constraint of a postal worker strike in pre-Thatcher Britain. The transporters from Star Trek (inspiring the phrase “Beam me up Scotty!”), were invented because the production company didn’t have the funds to make the sets. Dell’s direct business model emerged from the lack of money to buy the parts when making computers. 

The list goes on and on. 

It bears repeating: constraint creates innovation. Indeed, the great ventures discover their business models by directly facing the constraints they experience during that first VoD. This also reveals the issue with formulating a “business plan” in the Ideation stage of a venture. After all, how do you know your market if you haven’t proven it yet?

Yes, VoDs are repeating themes in the life of every business—and it means that Growth stage could be just around the corner. So the next time you are asking yourself, “how am I possibly going to make this work?” Just realize that companies that learn to embrace their various “valleys of death” eventually propel their ideas into growth and profit. 

And without it, it might not happen at all.

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