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Until the past few years, innovation was mainly an inside job, with inventors from outside company walls facing a host of challenges trying to break in with new product ideas.
But Evergreen Innovation Partners bridges the gap between inventors and the larger companies they hope will run with them according to the firm’s top executives, who outlined challenges and possible solutions for the Innovation Roundtable. The May 27 event at Gleacher Center was sponsored by the Kilts Center for Marketing.
Independent inventors — or smaller companies with innovative ideas — have low opportunity costs, “so they can afford to go into the fog and explore some wacky terrain,” said David Bayless, an Evergreen principal. “Because they don’t have as much to lose, small firms or individuals can ask questions differently.” Occasionally, they strike gold with an idea, but many don’t have entrepreneurial knowledge or skills to convert the idea into a marketable product, he said.
On the other side, a large, established company has onsite marketing and manufacturing. While that side is becoming more open to outside innovation, “the market is not perfect. Information is not freely available. It is full of friction,” Bayless said. That’s where an intermediary such as Evergreen comes in. “We underwrite the coordination costs. We underwrite the resolution of uncertainty,” Bayless said.
The process of a company looking outside for innovation has been termed “open innovation.” Marketplace shifts — including new technology and a broader distribution of know-how — are lending themselves to the approach. “Innovation, at least in the consumer product markets we’re pursuing, is becoming more open over time,” Bayless said.
Bayless told the story of the Crest spin-brush toothbrush (not an Evergreen-affiliated product), which inventors had refined from the original product: a “spin pop,” or battery-powered lollipop holder. Turned back by Proctor and Gamble, the inventors found a way to manufacture the spinning plastic parts so cheaply that the company was able to sell the spin brush for only $7.99, Bayless said. The product went on to become a bestseller, with the inventors earning roughly $475 million in revenues, he said.
A company such as Evergreen finds licensable ideas, then performs such tasks as assessment, refinement, and test marketing, — all functions that normally handled by a large company’s in-house incubation process, said John Funk, Evergreen principal and chief product scout. After ideas are refined, Evergreen presents them to large companies, hoping to obtain a percentage of royalties.
Despite the trend toward open innovation, Evergreen found itself on the frontier, facing slow-moving companies reluctant to unlock budget plans or take risks, Funk said. He contrasted those challenges with the mergers and acquisitions process, which typically is funded through the balance sheet, not the budget.
Funk saidopen innovation needs to live high up in the organization. Companies willing to take the plunge and make the effort that open innovation requires likely will be rewarded, he added. “Companies can create more rapid, more vibrant new product development queues,” he said.
Christopher Johnston, a student in the Evening MBA Program, said the presentation clarified the workings of open innovation for him, particularly about how a company can protect itself when it acquires rights to new technology or intellectual property. “It’s more of a structured transaction than I thought it was,” Johnston said. “I had thought it was much more throwing nuts out there and fishing for ideas.”
—Mary Sue Penn