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Inside Open Innovation
Open innovation is both the art and science of companies searching outside their walls for breakthrough products and platforms they can manufacture, market, and retail under their own brands. I have helped construct three successful corporate open innovation programs. What follows in this chapter is drawn from my unique open innovation experience, and it is intended for every inventor, product developer, designer, maker, and patent holder who is considering taking their own product to market.
HONEST TIPS
Open Innovation
Open innovation is a term used to promote innovation developed outside of companies and the traditional secrecy of corporate research and product development departments. Use of the term “open innovation” was pioneered by Henry Chesbrough, adjunct professor and faculty director of the Center for Open Innovation of the Haas School of Business at the University of California, who articulated this enlightened perspective in his book, Open Innovation: The New Imperative for Creating and Profiting from Technology. Today, many large companies have open innovation divisions, are receiving outside submissions, and are licensing disruptive products.
My Path to Open Innovation Director
Before I established my first corporate open innovation program, I needed more experience within the inventor community, so I joined my local inventor association in Connecticut. I had a strong desire to learn everything from the ground up, so I began talking to many inventors, listening to their challenges, concerns, and issues. One of the problems I often heard about was that many for-profit invention marketing companies were collecting thousands of dollars from novices but not earning back any real money for the inventors. It wasn’t long before I became involved with the national United Inventors Association (UIA) and became exposed to a much larger platform of inventors. Yet, I still heard the same complaint over and over.
About the same time, in 2008, I attended the International Housewares Show in Chicago, Illinois, where I ran into my old friends at Lifetime Brands, including my former mentor and boss at Abraham & Straus, Bob Reichenbach, along with the chairman of the company, Jeffrey Siegel. Bob was then running the cutlery division of Lifetime Brands. I learned that he and everyone at Lifetime Brands had kept a watchful eye on what I had been doing over the years. They knew all about the success of Misto and Smart Spin and asked me, “Would you be interested in helping us find new outside products for Lifetime Brands?” Lifetime Brands initially started over forty years earlier when the company founder invented and patented the kitchen counter Knife Block. Grassroots innovation was clearly in their company DNA.
Today, Lifetime Brands is a large, publicly traded consumer goods corporation that has a significant internal development and design team. But before I became involved, they were not working directly with outside inventors. All product development was done inside their walls. Inventors might send them new product ideas, but those ideas often ended up ignored. Like many large companies without an open innovation program, Lifetime Brands didn’t truly understand the outside inventor world.
In 2008, the US housing market and the economy crashed, but CEO Jeff Siegel had sagely decided that Lifetime Brands would innovate their way out of the national recession! This was music to my ears. We met a few times and brainstormed on what the new outside product search and submission program would look like. Specifically, I would serve as an outside contractor, not an employee. This arrangement would provide me considerable latitude for searching for great products while developing credibility within the inventor community. During this time, the innovation director of Lifetime Brands, Dan Siegal, was reading a terrific business book called Blue Ocean Strategy by W. Chan Kim and Renee Mauborgne. They wanted to find a way of separating themselves from their competitors. We all put our heads together and started the Lifetime Brands Open Innovation program. The mission was on.
Different Open Innovation Models
There are many approaches to open innovation, each crafted to fit the specific needs of individual companies. Thirty years ago, most large companies developed all their products in-house and kept the secret ingredients to themselves. Today there are large consumer product companies, like Procter & Gamble, who have hundreds of people assigned to their open innovation departments and gather many of their new products from outside the company. The premise for any robust open innovation program is this: Not all great ideas necessarily start within the company. Why not tap into the collective wisdom of consumers and the population at large?
There are other benefits to a strong open innovation program, not the least of which is that research and development costs can be kept down while the flow of outside ideas inevitably sparks internal innovation as well. The main challenge that most corporate open innovation programs face, however, is they are typically overseen by career employees subject to internal management restrictions, profit motive, and timeline pressures. There is a great deal of financial risk for companies pursuing disruptive, external technologies, and many companies are not willing to take on that risk without close oversight and in-house management. The challenge is that without innovative, out-of-the-box thinking and some reasonable tolerance for risk, many open innovation programs fail. At Lifetime Brands, we wanted to avoid those mistakes. The novel outside-contractor approach we pioneered turned out to be the answer.
Why My Unique Hero-Model Open Innovation Works
The three companies I have helped oversee open innovation programs for have all hired me as an outside contractor. This model has many wonderful benefits. First, I am not an employee and, therefore, am free to operate outside of internal company pressures. Second, I am not restricted by company protocol or guidelines. This is important because it allows me to build strong relationships with inventors, as I am accepted within the innovation community and can directly relate to their challenges. Third, I put a friendly face on companies that innovators have historically distrusted.
Many corporate employees have never owned their own business and are uncertain where to look for outside innovation. I vet things independently and make sure both companies and innovators are protected. What’s vital is having a unique skillset developed from an entrepreneurial background that allows me to relate simultaneously with company management and inventors, gaining both sides’ trust through sustained credibility. Because this hands-on approach takes a great deal of extra effort, this type of program is referred to as the “hero model” of open innovation. I’m the hero.
10,000 Hours
In his 2008 book Outliers, Malcolm Gladwell wrote, “Ten thousand hours is the magic number of greatness.”2 He wrote about Bill Gates, who coded through the night while he was a teen in high school. He also wrote about The Beatles, who played eight-hour gigs every day in Berlin nightclubs long before they invaded America. They became phenomenally successful from spending ten thousand hours developing their craft. Few shortcuts pay off in life, and even fewer in the innovation business. I have put in my ten thousand hours in business building, product vetting, and serving on the front lines of many innovative product launches.
Inside Lifetime Brands
I’m in my fourteenth year of working with publicly traded Lifetime Brands (LCUT on the NASDAQ Stock Exchange). They are the largest non-electrics housewares company in the United States, with 40,000 SKUs and close to 2,000 employees. The company has grown from scratch in the 1960s to almost a billion dollars annually today. Lifetime Brands not only owns the brand name Farberware, they either own or license forty other well-known household brands, such as KitchenAid, Sabatier, and Mikasa. They are the number one seller of kitchen utensils in the world and the largest cutlery company in North America. Chances are you have a Lifetime Brands product in your home right now.
Before coming on board as an outside contractor, it was vital for me to make sure we established certain fundamentals building the program. We agreed upfront to always treat inventors fairly, and that I would be involved hands-on with every outside product submission that comes to the company. I would explore and vet every lead, including both the person and the product. Even if I liked the product, if I found the inventor was close-minded or had irrational expectations, we would move on. Experience has taught me that if folks are rude, or tone-deaf, or not well-prepared, the chances that an eventual licensing agreement will ever be reached are remote, so why bother investing a lot of time and effort. I will not waste the busy people of Lifetime Brands’s time on red herrings.
Protecting the company is a big part of my mission. I find lots of products are not ready for prime time or have been done before. Not being prepared hurts an inventor’s credibility, so inventors need to take time to prepare before submitting. If I find a worthy product, and the inventor is open to civil discussion and listening, I will present it to the division heads and advocate for both the product and the inventor. After stringent product reviews, I reconnect with all inventors within a reasonable amount of time to either work toward a licensing agreement or considerately turn them down. I spend a vast amount of time educating inventors on the real path to a licensing agreement and stay involved until we sign and seal the deal. (I will cover more about navigating the submission process in later chapters.)
Lifetime Brands has nine different divisions, and I work directly with the heads of each one. When we put the program into place, I knew we had to build everything from the ground up to create a strong foundation. After extensive research into other open innovation models, I knew several fundamentals had to be respected in our agreement, or I could not participate. My reputation in the inventor community must always come first. I made sure that the inventor’s ideas were protected from workarounds, so we agreed the program would not serve simply as an idea-generating design platform. If we did not have an interest in the product, we would not pursue it. For example, if an inventor submitted a revolutionary new garlic press and Lifetime Brands turned it down, then a month or two later introduced something similar, it would destroy any credibility that I built. We also agreed that if an inventor submitted a product idea and Lifetime Brands turned it down, the inventor had the right to take it to another company, and I could continue to help them. This ensured the product would get an in-depth review, and if it were turned down, there had to be a good reason. The Lifetime Brands Open Innovation Program was unique from day one.
We then turned our focus to one of the essential aspects of licensing—royalties. I was adamant from the start we pay the highest royalty possible to any inventor on every licensing deal, provided the cost of goods and the suggested retail was priced right to sell lots of units. Additionally, inventors would not share any of their royalty with me. Plus, inventors would never pay for any service that Lifetime Brands would provide getting to market, an essential ingredient in making the open innovation program a success. Inventors had to know they were submitting to an honest end-user program and would be treated with respect and fairness. To me, this was the heart and soul of the program...