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Business Models And Innovation

In the EU world we hear about “innovation” all the time, but what does that actually mean?

I am currently re-reading “More Money Than God” by Sebastian Mallaby. It tells the stories of the pioneers in the hedge fund sector, explaining their methods and the workings of this secretive arena.

It has made me realise just how important business model iterations are. I knew this anyway, but seeing it relating to a totally separate business sector is instructive.

Each chapter of the book tells the story about one company and their role in the growth of hedge funds, from George Soros to Jim Simons to Ken Griffin, they are all here. And actually, each story follows a similar pattern.

That pattern can be summarised as: a few very smart people work in fund management and are very, very good. They leave their employer to set up their own shop. Things go very well. Everyone makes lots of money. Then their method stops working as well, there is a big market shock and they lose money. A number of team members decide to leave. A few stick around, rethink their approach, improve their business model, innovate in some way and go on to be even more successful than before.

This sounds a little like the forced curve used in large consulting firms – get promoted or leave. Up or out. Improve or exit.

To quote Mallaby, “the truth is that innovation frequently depends less on grand scale academic breakthroughs than on humble trial and error – on a willingness to go with what works, and never mind the theory that may underlie it. Even in finance, a field in which research findings can be translated directly into business plans, trial and error turns out to be key.”

This suggests that innovation within a business is simply a mindset and does not require academics in white coats.

For most businesses, the path is simple. They learn how to do something reasonably well, make some money and then keep on doing it forever. If and when the marketplace changes there will be little or no experience in making the changes and improvements needed.

The question therefore seems to be, how can policy help teach and encourage small business owners and managers to innovate in the way they do business? In a rapidly changing business climate, this would seem to be a core skill for long-term survival and success.

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