The Five F’s of Innovation
I spend a lot of time on this blog touting the many start-ups and entrepreneurial innovators that are helping to drive our economy. But, more established firms—the middle market—also innovate. In fact, when these firms innovate, they can likely have more profound economic development impacts as their rapid growth creates more jobs, more capital investment, and more spin-offs than their newer start-up brethren. A new report from the National Center on the Middle Market, a research center on these growth companies, offers a useful typology of how these middle market firms innovate—what they call the Five F’s.
The Five F’s stand for First, Focused, Frequent, Finder, and Fat. Most of the categories are pretty straightforward. “First” firms are first to market with a new idea. “Focused” firms own a niche market, and “Frequent” firms live and die on their ability to design new products/services and predict the next thing in advance. Unfortunately, many middle market innovators employ the “fat” strategy, where profits from a lucrative market niche prevent managers from rethinking the business model or developing new markets. Blockbuster Video is classic example of this model. “Finders,” the clear favorites in this report, “create value by anticipating previously unarticulated needs.” Apple is a classic example of a finder, but many smaller and less-well known firms, such as Jen’s Ice Cream and Patagonia, also fit the bill.
While the “fat” strategy is not recommended, each of these business models can be sustained over time. But, they require a different mindset and approach. For example, “Frequents” must become masters of process so that they can do things quicker and better than the competition. This is why many of the world’s most successful food chains, like McDonald’s or Subway, can also boast that they have the leanest processes and procedures. In contract, “Firsts” need to be first to market and continue to out-innovate the competition or convert their technology into the market standard. Again, the secret is not necessarily to have the best business model, but to build practices and procedures that align with your “best” business model.