October 5, 2016 • Bookshelf

“The Innovator’s Dilemma”

Over the past six months we had a summer associate who inspired me with an innovative way to get more reading in than I ever thought possible, taking my appetite for continuous learning to a whole new level.  How, you may be asking?  I was introduced to “Speed Listening.”  An innovation I didn’t know I needed. It took our 25 year old mathematician intern (a true old soul, wise beyond his years) to make the introduction.  And while our intern did leave us in September to embark on an exciting journey with McKinsey, he did not leave us empty handed.  Not only do we all have a new friend and colleague, but I gained a new skill and an expanded reading list (yes, it is possible!).

So, to continue on with the theme of innovation and anticipating future needs, today’s reflection is on The Innovator’s Dilemma by educator and author Clayton Christensen.  To be honest, this was my kind of read.  It was not too lengthy, but had enormous impact.  Mr. Christensen shares great ideas to consider and reflect on.  Both during and after listening, I often thought about the inspiring companies and their leaders that we have the pleasure of partnering with at ScaleCo.  I thought about the success, but more importantly the biggest challenges that we have faced as we attempt to “innovate.”

Disruptive technologies upset the existing order of things no matter the industry.  The usual process is sometimes viewed as a lower-end innovation, where companies are attempting to appeal to customers who are not served by the current market.  Not perceived as a threat by market leaders at first, eventually the performance of the innovation exceeds the market’s needs, and the innovation comes to displace the market established firms.  The incumbent leading companies don’t react until it’s too late.

As small business investors at ScaleCo, below are two of the themes from the book I reflected on most.

Separate Old from New

Partnering with scaleup companies, established and profitable businesses looking for help to execute on their vision to be disruptive in their industry, the theme of “separate old from new” really resonates.  Launching new ideas in an existing culture proves to be extremely difficult.  Often it makes sense to invest resources in a new team or hire a new leader to chase the innovative idea or product, importantly leaving the existing team to keep the traditional business thriving (or paying all the bills).  If executed well, both the old and new win!  As an example, Evolution partnered with and invested in the Accurate Group based in Charlotte, NC in 2009.  The vision was to scale the business from a title agency in only a few states to a technology driven real estate services business in all fifty states.  Management successfully maintained the base business in Charlotte while launching a much smaller technology driven services business in Cleveland.  Today the real estate services side drives the company growth.  A true culture of innovation was created, anticipating the future needs of its customers.

Find Leaders that Embrace the New

Similar to what was discussed above, when our partner companies enter a new market, we encourage management to hire someone that is solely responsible for that new market.  If you don’t have a “different” leader or team driving the new ideas, the chances of success have proven to be much less.

For a quick summary of additional highlights of this book, check out the following:

Again, a highly recommended read.  And give speed listening a try (for me, 1.5 to 2.0 X’s speed worked best).  Let me know what you think.

About ScaleCo

ScaleCo Capital is a Cleveland-based lower middle market private equity firm that focuses on control-oriented leveraged buyout and growth equity investments in fast-growing companies based primarily in the Great Lakes region. ScaleCo partners with companies in the verticals of business services, tech-enabled services, value added distribution and assembly, and training, compliance, and education sectors, bringing operational expertise and strategic resources to scale their growth potential and build long-term value. To learn more, visit scaleco.com.

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