Creative destruction, trial and error, lateral thinking: but always keeping a focus on customers

Giuseppe Donvito, partner of P101 SGR | May 17th, 2019

If there is a universal guide to innovation that every company should read, it is in the letters to shareholders that Jeff Bezos, owner of Amazon, writes every year. In particular, in the latest (published in April), the CEO of the largest e-commerce globally wants to give us a real winning-business lesson. He starts from an assumption: that it is necessary to invent things of which customers do not yet feel the need. In his words it almost seems to hear the echo of those by Henry Ford, who said “if I had asked my customers what they wanted, they would have replied: faster horses.

The power of wandering (which balances efficiency)

The entrepreneur’s imagination must be able to overcome the current market demand to imagine the future most likely one. Bezos calls it wandering and praises its power, stating it is as an essential factor that compensates for efficiency. He writes: “Sometimes (often actually) in business, you do know where you’re going, and when you do, you can be efficient. Put in place a plan and execute. In contrast, wandering in business is not efficient … but it’s also not random. It’s guided – by hunch, gut, intuition, curiosity, and powered by a deep conviction that the prize for customers is big enough that it’s worth being a little messy and tangential to find our way there. Wandering is an essential counter-balance to efficiency. You need to employ both.

Accept that failures are steps in a process of improvement

To put it another way, the process of building a product or service involves trials and errors. And as a company grows, it must accept that the size of its failures may grow with it. So a multi-billion dollar bankruptcy for a company that has a capitalization of over one trillion dollars is not unbearable: the reference – reminded by Bezos – is to Fire phone, a resounding failure from which “we were able to take our learnings (as well as the developers) and accelerate our efforts building Echo and Alexa.

Creative destruction? It works if the customer is at the center

Bezos emphasizes that the customer is at the center of this whole process of creative destruction in his latest letter. However, this concept is also present in his previous letters. Moreover, since founding Amazon in 1994, Bezos has guided the company following a single rule: that the focus should be on the customer so that everything else goes automatically in its place. It worked. And because, as he says, Amazon only occupies a small space in retail – 90% of which is still dominated by the brick-and-mortar – for many years “we considered how we might serve customers in physical stores, but felt we needed first to invent something that would really delight customers in that environment. With Amazon Go, we had a clear vision. Get rid of the worst thing about physical retail: checkout lines. No one likes to wait in line. Instead, we imagined a store where you could walk in, pick up what you wanted, and leave.

Echo and Aws: products that customers didn’t know they wanted

This is how innovation comes to life, from the intuition of what the market will ask next: “No customer was asking for Echo. This was definitely us wandering. Market research doesn’t help. If you had gone to a customer in 2013 and said “Would you like a black, always-on cylinder in your kitchen about the size of a Pringles can that you can talk to and ask questions, that also turns on your lights and plays music?” I guarantee you they’d have looked at you strangely and said “No, thank you.

And so was with Amazon Web Services, Amazon’s subsidiary that provides cloud computing services through an on-demand platform and has a business of 30 billion dollars and millions of customers ranging from large companies, to government agencies, to non-profit companies.

Wonderflow: from data flow to the product of the future

In short, the first step towards innovation consists in making each business consumer-centric: which is also the work of a startup, Wonderflow, that is in P102’s portfolio (P102 having invested 1.5 million euros). Wonderflow was born in Trento, Italy, (inside Trentino Innovation Hub) and then transferred to the Netherlands, in Amsterdam precisely, to be incubated by Rockstart. Their core business is an artificial intelligence software that can find useful indicators to support the development of a product’s marketing, starting from the analysis of consumers’ online feedback and comments and the information contained in corporate customer services. Wonderflow’s technology can process 150,000 documents per hour in ten different languages, scaling the capabilities of any human data scientist. And it is no coincidence that among their clients are giants like Philips, Samsung, TomTom, Uber, Dhl.

The Big Data industry is one of the most interesting investment trends for the years to come in terms of market size and disruption capacity. According to Statista, it will be worth 50 billion dollars by 2019. Customer analytics has an estimated value of 4 billion dollars by the end of 2019: according to research company Idc, the annual Cagr of predictive analytics software platforms will be around 40% over 3 years (to reach 8.4 billion dollars in 2021). Without considering that we are talking about technologies that can support the customer-centered innovation of which Bezos has made a real mantra.