How smaller companies encourage innovation.

Smaller companies have significant advantages over large corporations when it comes to innovation. During a rapidly growing economy, every business is forced to keep up with demand for its products and services, and struggles to make investments that increase productivity. Other investments, such as those that drive innovation, are often put aside in order to meet short-term commitments. During an economic downturn, small businesses (and startups) can inexpensively access top talent as part-time consultants if not as full-time staff. By working closely with these talented engineers and designers, smaller businesses that invest in encouraging innovation will be ready with new products and services when the economy eventually turns around.

Where small companies generally fall down, however, is in building disciplines around the creation, capture, and execution of new ideas. Most small companies develop from a single successful idea, usually the brainchild of the founder. But founders can't afford to remain the sole font of innovation in their businesses any more than they can remain the sole salesperson. Nor can they rely on the passions of their staff and the mental sparks created when 30 people interact each day in close quarters. Innovation requires work. Work requires structure. For smaller companies, invention is 1% inspiration, 49% perspiration, and 50% smart routines. Typically, small companies can't spare employees to spend days or weeks observing customers to understand what turns them on. Instead, most ideas have to come from the employees themselves. So it’s critical to hire creative people and make them open channels to consumers by teaching them to sharpen their powers of observation as they go about their everyday lives.

Good leaders reward the behaviors they want by creating an incentive system for innovation. At an early stage in the company's growth, it pays to keep it simple. Give small awards - $100, perhaps, or a dinner for two - for new ideas. Present these awards at quarterly review meetings, to publicly celebrate the ingenuity of the employees. Later, if the company proceeds further with any of those ideas, their creators might receive $500. Employees who's ideas are taken to market, get paid more.

Innovative small business owners need to be:
- clear about what they want to achieve,
- able to assemble and lead teams of talented people,
- comfortable when dealing with the unexpected,
- able to learn at an accelerated rate.

These entrepreneurs don’t just wait for new ideas - they wheedle them, hunt for them, flirt with them, and coax them into being. They make a list of every possible way a product could be designed or something could be done. Then they try to figure out what hasn’t been done, or ignore physical laws and other constraints. They decide what would be the best possible way to do something; then move backwards, reverse engineering it step-by-step into reality. Inventor David Levy says he used to lie in bed every Saturday morning forbidding himself to get up until he thought of something new.

However, according to Dee Hock, “The problem is never how to get new innovative thoughts into your mind, but to get the old ones out.”