Manage the pace of innovation through outsourcing

Have you ever had an outsider review your new service, product or technology? Someone who is removed from the project but has the technical prowess to understand what they are looking at, and is able to provide an objective opinion or insight about its commercial potential?

As an investor, it is certainly worth vetting every idea beyond your internal resources before making the decision to invest in it. Doing so will not only give you more confidence about your decision but can boost the pace of innovation, whether you are a VC, company or university technology transfer office.

Beware of the limitations of an internal review team: they only have so much objectivity, time and money. Outsourcing, on the other hand—whatever your feelings about it may be—can provide real benefits when it comes to an objective review. Many industries take advantage of using external parties, such as independent taste testers for the food industry or focus groups in entertainment. Gaining insight into how new goods and services will be received by real consumers is important in understanding if there is a market. However, in-house reviewers cannot provide this kind of objective evaluation, as they are too close to the product and may have their own interests in seeing it succeed.

Getting an external opinion is especially important because innovations have a high failure rate, to begin with. According to Harvard Business School Professor Clayton Christensen, each year, more than 30,000 new consumer products are launched and 80 percent of them fail. One that comes to mind is Colgate Beef Lasagne, which launched in 1982. Yes, you heard right. Toothpaste and pasta go hand in hand—or so Colgate thought. (Just thinking about it makes me gag). This is what happens when internal teams are left to review a new idea. Money is wasted. Innovation slows down, and other good ideas are left in the dust. To prevent this from happening, rationalize all potential investments early on.

Here are three methods to help you determine the likelihood of success or failure of a new product or technology, enabling you to make an objective and informed decision about whether or not to invest further:

1. Obtain an objective review

Nothing compares to getting objective feedback about a new product or technology. Although you can be extremely diligent in your own research, it is easy to be attached and overlook certain aspects—especially when you may have your own biases. To gain valuable insights, seek out unbiased opinions from someone who knows what they are talking about.

And while it might be tempting to use an internal review team to accomplish this task, again, don’t waste your time and money on opinions that are not objective. It can be more efficient than you think to request an external review. And once you do, you may be surprised by new insights, such as a potential market that was not previously considered, and who may be your competitors, if any. In other words, a timely and fresh perspective from the outside can allow you to get out of your own way—so don’t miss this step.

2. Verify that it works

You may have met the management team of a startup and even completed a background check on them, but can you actually verify that the technology or product in question exists and works? This may seem obvious, but trust me, it’s not. I can think of at least two examples where hundreds of millions of dollars were committed to startups that failed because the technology did not even exist or wasn’t that great, to begin with.

According to the Wall Street Journal, the blood testing startup Theranos raised $750 million from investors for a technology that did not exist. Two years ago, one of my colleagues (who happens to be a food scientist) and I had a conversation about Theranos. We were talking about probiotics and she warned me about this hot new startup everyone was pouring money into. Probiotics were all the rage, but apparently, too much of a good thing could actually trigger allergies and lead to digestive problems, such as diarrhea, flatulence and bloating. I then asked her about Theranos. She remarked adamantly that the technology was not possible and her chemist friends all agreed: they would never invest a dollar into it.   

Another example of similar magnitude was Fisker Automotive, which I interned at in 2011 and went bankrupt in 2013. The technology they utilized for their engines was sourced from GM and their batteries were from A123. Their unique value proposition was a beautiful, luxurious design. They also wanted to make you think the car was “green” because it was hybrid electric, but I did not buy into that. At the end of the day, a car is an engineering feat. Design matters, but engineering matters more. I disagreed with the founders, who always chose form over functionality. One of them told me the car I drove “has no soul.” I get it—they are designers and artists, and they have passion in what they do. Unfortunately for them, I found myself driving past a broke down Fisker Karma on the freeway every other day on my way home with the engineers all huddled around the car. I could not help but think that I would happily choose my little reliable Japanese car with 100,000 miles on it over a $100,000 technically deficient Karma “with a soul.”

Have the technology verified by someone who knows what they are looking at. It’s not uncommon to get a second or third opinion when it comes to your health, so why not question and verify the technology that the business depends on?

3. MBA 101: SWOT Analysis

Don’t underestimate the power of a SWOT analysis. This exercise in identifying the strengths, weaknesses, opportunities, and threats of a business can help you realize its full market potential and determine whether your goals are attainable. What is so unique about your value proposition? Are there any vulnerabilities in your business or plan? What are the biggest opportunities to exploit in the market identified? And what are potential roadblocks standing in the way of the opportunity?

Entrepreneurs are very confident and set in their strategy, so it should be easy for them to identify their core strengths and opportunities. Assessing their own weaknesses and threats, on the other hand, can be more challenging, as it can be likened to calling their own baby ugly. Obtaining a SWOT analysis from an external reviewer or outside expert to compare with one done internally can strengthen a plan and potentially identify ways to address shortcomings that have not been thought through.

It is exciting to get caught up in a potential opportunity when there is a charismatic management team, trendy product with a huge market, and/or other peers who have already jumped in the boat. But before you do, rigorously and objectively assess every product or service’s commercial viability. One of the most efficient ways to save time and money is to work with an external reviewer or service. Working with unbiased third-party experts can give you confidence in your investment decisions and ultimately help you get closer to the return on investments you want to realize.

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DISCLAIMER: This article expresses my own ideas and opinions. Any information I have shared are from sources that I believe to be reliable and accurate. I did not receive any financial compensation for writing this post, nor do I own any shares in any company I’ve mentioned. I encourage any reader to do their own diligent research first before making any investment decisions.