Have you ever experienced the thrill and satisfaction of building something new from an idea or inspiration? Have you ever taken the risk of trying something new? The “10 Rules for Strategic Innovators” will increase your success rate and confidence in starting to work on that next innovation.

I promised to continue sharing some of the great ideas that come from my summer reading in an earlier post. This post is about 10 Rules for Strategic Innovators, by Vijay Govindarajan and Chris Trimble. (Actually, I forgot to include this book in my original list.) This book is for anyone who has started a new venture, division or business inside an established business or, as the authors would say, strategic experiments that target untested markets.

I saw author Chris Trimble at one of my favorite, must-attend conferences, the Association Digital Now in Orlando (see my earlier post). You can watch highlights from that speech by clicking this link. What I really liked is the way he put innovation in an understandable context. He explained why it is critical to growth and why it often fails. The book outlines how to increase your chances to make innovation successful.

Here are my Cliff Notes and takeaways:

Innovation is the flip side of efficiency: Organizations should seek a balance between the two. This is similar to a common condition we find as CPAs — the quest for efficient operations and cost control versus the focus on top-line (revenue) growth. The book focuses on the latter and makes the case that it shortens the path to profitability. Having experienced the challenges that come from starting a new business inside a successful, established one, I can say these skills would have helped significantly. The three fundamental challenges of executing a successful innovation are:

1. Forget: What elements of the core company (or CoreCo) business model must we forget for this new innovation? The new company (NewCo) must ask some key questions that may be very different than the CoreCo (and cause internal turmoil and conflict if not understood). Who is the target customer? What is the new value proposition? What core processes do we need? At what competencies must we excel?
2. Borrow: What “assets” can NewCo borrow from CoreCo? Are there existing assets that we can leverage to help make CoreCo successful? Assets like brands, customer lists, capacity and supplier relationships are all forms of intellectual capital in CoreCo that can be used to launch a growth initiative.
3. Learn: NewCo must learn to predict its performance and emerging business model as quick as possible. In fact the authors suggest understanding and creating a new organizational DNA, an often overlooked piece of this type of innovation.

Here are the 10 rules for strategic innovators that will speed your “path to profitability”:

1. Ideas are only the beginning. Successful execution is the true indicator of success.
2. Sources of organizational memory are powerful. Hire outsiders in influential positions or make sure there is a way to truly get new thinking inside NewCo. (Forget.)
3. Established companies can beat start-ups if they can leverage their assets and capabilities. NewCo reports above CoreCo — executive sponsorship at the highest level is a critical success factor. (Forget.)
4. Strategic experiments face critical unknowns. Redefine performance measures and expectations. Don’t strap an innovative start-up with immediate financial pressure. Give them time to learn and figure out the new business model. The authors suggest holding NewCo accountable for learning, not performance against plan. They introduce a concept called TFP, or Theory Focused Planning (Chapter 9), as a new accountability measure. (Forget.)
5. NewCo must be built from scratch. Create a distinct but linked organization with a few crucial links to CoreCo. (Borrow.)
6. Managing tensions is a job for senior management. Anticipate tensions at points of interaction between CoreCo and NewCo. Conflict will be natural, but it is important to keep tensions down to productive levels. (Borrow.)
7. Identify opportunities to leverage CoreCo assets and make borrowing easy for CoreCo. Backfill resources to CoreCo and make sure there is a payback plan to reward CoreCo for “lending.” (Borrow.)
8. Hold NewCo accountable for learning, not results. (Learn.)
9. NewCo needs its own planning process. Increase NewCo’s planning frequency. Planning periods should be more frequent than CoreCo’s and organized to harvest learning. (Learn.)
10. Companies can build a capacity for breakthrough growth through strategic innovation.

“The limits to innovation have nothing to do with creativity, nothing to do with technology. They have everything to do with management sophistication.” Ray Stata, chairman ADI

Chris finished up his speech with these thoughts:

• “What is your ambition for your organization?”
• “If you aren’t leading the journey, who will?”
• “If not now, when will you start?”

“My hope is that you will experience the thrill of a new inspiration, a new idea. Experience the satisfaction of the sweat and hard work in bringing that idea to life.”