Innovation Versus Profit: Its Not A Zero Sum Game

Recently, I had Jake Jorgovan of Lead Cookie and Content Allies on my show to discuss his business building framework. Jake is a serial entrepreneur who has built several businesses over time. I asked him on my show after sending a note to his newsletter subscribers, which piqued my curiosity.

As an innovation guy, I always think that new businesses and startups should pursue brand-new innovative products and services. Something unique and different that no one has seen before expands the set of things humans can do for each other. Decidedly not a copy of something already out there. I valued things that were new to the world most of all.

Sure, the company might need to educate their prospects a bit, but I always thought that the novelty aspect was super important. I almost felt that those startup founders who just created “yet another XXX clone” were not very innovative and worthy of praise.

So Jake, who has successfully launched several businesses, outlined his framework for successful startups, and it completely disagreed with this approach. In fact, he said something to the effect of

The next time I start a business it won’t be anything no one has ever done before.

I thought – what a cop-out. What kind of a startup can you create which is a clone of something someone else has done?

Apparently, a profitable one. It was so obvious – it hit me. The key drivers of profit and the key drivers of innovation are completely different.

Typically, innovative new businesses are innovative first and profitable second – if at all. So if I were a smart business person, I’d forget about innovation completely and only focus on profitability. That is the key.

Is it any wonder why corporations go through the “innovation cycle” – the alternating growth phase and subsequent purge? The difference is stark in many of these companies. It really all comes down to a failure to multitask. The top, most innovative companies, can be both innovative and profitable. They need the profitability to stay afloat, and they need the innovation to grow.

But many leadership teams can’t perform that kind of multitasking. It’s like being able to have two simultaneously oppositional opinions at the same time. Not everyone can do this. It would help if you had exceptional elasticity in your leadership brain trust to simultaneously hold both of these opinions.

Ideally, your company should be split in two. One-half is tasked with maintaining profitability. The other half is tasked with growth, which is naturally tied to innovation. This is how it should be. Innovation and profitability CAN co-exist. It is not a zero-sum game between the two.

But startups are cash poor at the beginning. And if they focus all of their efforts on developing an innovative product or service, they may not survive long enough to innovate (unless they get funding). That explains why Jake is right when it comes to small, self-funded startups – profit is king. So it just makes sense that your first steps need to be profitable.

However, when it comes to corporates who are already profitable, what is their excuse to treat innovation so poorly? What are a few pennies to support new initiatives when the rest of the company is already doing so well?

Funding innovation in your organization is an investment in your future. It is building the future of your business. If you don’t have the funds for that, do you deserve to be here in 10 years?