Excerpt from Transformative

We too often think of innovation in a linear fashion: faster, better, or more features. But those performance improvements keep the solution on an existing basis of performance, making it better but rendering only a temporary advantage.

In contrast, the most significant game-changing innovation strategies produce nonlinear, innovation that puts solutions on a different track altogether. Possibly the most important takeaway from this book is this: there is greater opportunity in breaking out of traditional product and market definitions than there is in trying to follow them.

Take the fitness company Peloton as an example. Breaking traditional market boundaries, this startup created a new solution to personal fitness by combining the benefits of fitness center coaching and group classes with the convenience of superior quality at-home exercise equipment. Peloton didn’t just offer a better stationary bike; they created a unique customer outcome of more engaging, impactful, and convenient workouts that became a new category of fitness. Their ability to create a new customer outcome combined with a new business model has led Peloton to over a billion dollars per year in revenue and a market capitalization of more than $13 billion.

Peloton took its origin from existing markets and solutions and developed something altogether different. We have a name for these types of companies that cross over market definitions to deliver unique solutions: category creators. Category creators defy current market definitions and often solve problems customers didn’t even know existed. In this case, customers didn’t usually think of the “problem” of going to the gym for their spin class until they were offered a better option of high-quality classes at home.
A solution like Peloton may seem like it was born of some epiphany, a sort of “eureka” moment of genius. Such innovation seems out of reach for most of us because we often limit our thinking in two ways. First, we tend to orient innovation around products, features, and functions, anchoring us to what already exists and limiting the scope of what we can improve. Second, we draw boundaries around innovation to keep it within the confines of markets (a group of customers), company capabilities (what organizations do well), and industries (the external structure of how the solution is delivered).
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Transformative organizations are category creators that don’t anchor themselves in existing solutions. Instead, they focus on redefining innovation by creating new outcomes for the customer. In the case of Peloton, they created a new outcome by upleveling—focusing on the customer’s ultimate goal to be more fit. In this chapter, we’ll examine how transformative companies succeed in creating outcome and structural innovation—the first two fundamental principles of the transformative framework.  Together, these principles create a transformative advantage.

Explore this and other topics in the upcoming book Transformative.