Byte Breakfast – The economics of innovation

Byte is our regular meetup of people from across different sectors and organisations to talk product, innovation and changing customer behaviour.

For our May event, we looked at the reasons why companies often approach innovation activity with trepidation and how they could take some concrete steps to reduce the perceived risks involved.

When we think of large companies introducing new ‘innovations’, it’s all too easy to think of the costly (and in hindsight, pretty embarrassing) failures.

Businesses tend to want to protect what they already have, only spend money on sure bets and perceive failure to be the end of an experiment. However, for every innovation born out of what organisations thought customers wanted (such as Colgate Ready Meals – these really existed), there’s a truly useful and profitable product or service that has been the result of a customer-led, failure-accepting innovation process.

During the breakfast, we outlined the following five strategies as a starting point for any company who wants to embrace this attitude.

Five Strategies to Reduce Risk

1. Ensure that innovation and strategy are aligned

It’s essential that any efforts to innovate are aligned with the business strategy as a whole. Although it’s good to think of what you can do outside of what you’ve always done, companies who try to create a new product and/or service that sits miles away from the market that they truly understand is likely to fail. The sweet spot is the creation of an adjacent service that continue to solve customers’ current and near-future problems.

2. Engage senior sponsors

Executive-level people really care about innovation; but they are better at talking the talk than they are at walking the walk. You need senior people to allocate resources and help you to engage the right people internally to make stuff happen. Ideally, this should be more than just a hat-tip; they should be intrinsically involved throughout.

3. Build a team that ‘gets it’

Whether you build a team internally or hire from the outside, you need the best people to be able to build a repeatable, scalable innovation process. Take Google; their 20% time allowance to build new things has led to Gmail, but other projects and their creators have since left the company and thrived. Don’t let your next big thing get away.

4. Always start with a clear customer view

It’s repeated time and time again but big innovation projects often fail because they didn’t really get to the bottom of customers’ true problems.

Instead, they focus too much on their ‘wants’ – that’s not really what people pay to have solved.

5. Get things to market at speed

Although companies sometimes like to sit back and let the first movers into a market make all the mistakes, there’s a huge amount to be gained by releasing imperfect products early, building in constant feedback loops and then iterating on real customer feedback.

Another way to reduce the risk involved in new product and service development is to simply reduce the costs involved; which leads me on to the work carried out by Lisa-Marie Smith, our guest speaker for the morning, and the team at Forrest Brown, a specialist R&D tax consultancy.

Getting into the Economics of Innovation; R&D Tax Credits

Lisa, who’s a Director at Forrest Brown, talked to us about how small and large companies can claim back relief from project expenditure, as long as the work carried out meets specific criteria, defined by the government:

‘R&D takes place when a project seeks to achieve an advance in science or technology through the resolution of scientific or technological uncertainty’

Although there’s a certain amount of interpretation possible in that statement, in Lisa’s experience it’s rare that a project where new products are being created won’t contain at least some eligible expenditure, usually on staff costs or software.

Companies tend to think, ‘we don’t do R&D’, but you don’t have to be doing something completely new and unique to qualify – you could be simply enhancing an existing product. The process is fairly quick too, with a typical claim lasting between 8–12 weeks from start to finish (anyone with experience of a HMRC claim will know how swift in comparison this is!).

Just as one example, a company who had developed an e-commerce payment platform was able to claim back £250,000 from their staff wage bill in their 2015 tax return – typically up to 33%.


As always with Byte, we like to recommend some great starting points for further reading. These are two books on the top of our lists for this topic:

The Lean Enterprise: How Corporates Can Innovate Like Startups

Little Bets: How Breakthrough Ideas Emerge from Small Discoveries

If you’re interested in viewing the full talk videos or simply chatting to us over a coffee about any of these topics, then just drop me a quick email.