Innovation 101 – Why innovate?

Innovation 101 is a series of post to cover, initially, 3 main questions: Why Innovate? What is the difference between innovation, creativity, change and invention?  and finally What are the greatest barriers to innovate?

A lot is being said recently about innovation. Everyone wants to innovate. Some describe it as a necessity or even an imperative: do it or die. Well, I know it’s a bold sentence but, does it hold true?

The Santa Fe Institute released in 2015 an alarming study: The mortality of companies. In a dataset that includes every US public company from 1950 till 2009 it became clear that after IPO the average company dies in 10 years. It doesn’t matter in which area – bananas, airplanes, computer hardware or any other – an acquisition, merge, split or liquidation happens.

You can ask about the companies that already passed the hundred year mark, I got it covered (actually Santa Fe’s study covers it). By extrapolating the data only 9 in every 200,000 companies will survive long enough to blow a hundred candles at one birthday party.

When we talk about small businesses the scenario is a little better. A 2013 study from US Small Business Administration states that only 48.4% of the companies survived 5 years (starting in 2004). Better than the mythical 10% survival rate. Still a long shot. Want to stay in business for 10 years? You got a 33.5% chance. And that’s a record for 3 decades of studies!

So we know one in every tree small companies can survive 5 years and almost no company will survive 10 years after its IPO. There is no clear causality in theses studies that explains why exactly companies die, but we know for sure these numbers are very similar in every sector. Businesses die at an impressive fast rate!

Someone told me once “if you are not working on ways to kill your own business, rest assured someone else is”. This pretty much summarizes why you must innovate. The race is on. Accepting you must innovate is recognizing you want to at least have a chance to survive.

Hope to see you on the next article exploring what is innovation!

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Can you see innovation as a survival matter? Do you have questions about innovation? Want to see more questions covered in the Innovation 101 series?