Open Innovation: What Works, What Doesn't and Why?

On Tuesday evening this week I attended the GSB Innovation Roundtable event at the Gleacher Center in downtown Chicago. David Bayless and John Funk from Evergreen IP were there to talk about Open Innovation: What Works, What Doesn't and Why? This was an excellent event. Evergreen IP is the bridge between inventors and the large consumer products companies.

David and John talked first about general developments in Open innovation including what P&G has been up to. They then talked about some of the challenges they’ve seen in trying to work with large consumer products companies. Things like presenting a new invention after the ‘innovation’ budget has already been allocated – “Sorry, it’s not in our budget” or “Our new product queue is already full”. Or working where decision-making authority is not really delegated, or where the company does not really embrace risk. In the case of dealing with risk, they are faced with calls for more prototypes, more focus groups, or more analysis. John and David talked about other ways companies use to validate the market such as DRTV , or Pop-Up Retail, or an on-line launch. They also discussed the difficulty in getting companies to appreciate the product’s value – “The devil is in what you know.” When a product manager becomes deeply invested in the established product, it is sometimes difficult for him or her to see value in an alternative.

I had the opportunity to talk to John Funk after the meeting. Evergreen IP has looked at about 3,000 inventions in the past three years. Using an internal qualitative test, they narrowed the list down to 100 promising products. Then using a tool called Merwyn they determined that 25 of these products were worth pursuing. At that point Evergreen IP has about $1,000 invested in each of the 25. Of the 25, 23 signed a contract. Then, on average, they spend about $25,000 more doing further risk analysis looking into IP issues, manufacturing costs, market price points, threat of competition, etc.,. If the decision is to go no further, the inventor is released and gets to keep the market research gathered to that point. Currently Evergreen IP is pursuing 12 products. Of those one has an annual sales prospect of over $200 million in retail sales. At a 3-5% royalty on net wholesale revenues, that could be $3-5 million to be shared annually by the inventor and Evergreen IP as long as the patents last.
I also talked to John about the background of the inventors. Other research has suggested that discontinuous innovation usually comes from someone who is not an expert in the field, whereas evolutionary innovation comes from the experts. Consistent with this research, in the case of Evergreen IP, 10 of the 12 inventions come from ordinary people who don’t work in the product space and are certainly not experts in the field.