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Forbes: How Open Innovation Can Reduce The Costs Of Innovation

Updated: Sep 28, 2022

Open innovation - collaborating with external companies toward innovation goals - offers tremendous potential for supporting just this type of innovation whilst also helping to tame the costs associated.



There are few organizations that don’t wish to innovate, but whilst most aspire to develop creative new products, services and processes, the evidence is mixed as to their ability to do so successfully. A big contributor to this gap is the cost of innovation.


A recent study from the Stanford Institute for Economic Policy Research highlighted the growing costs involved in innovation. The research shows that companies are investing far more than their historic peers to achieve the same results. Organizations today are devoting approximately 20 times as many people to R&D as their peers did in 1930, but the output from all of this endeavor is not rising in unison.


It’s getting harder and harder to make new ideas, and the economy is more or less compensating for that,” the authors explain. “The only way we’ve been able to roughly maintain growth is to throw more and more scientists at it.”

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Open Innovation


Open innovation - collaborating with external companies toward innovation goals - offers tremendous potential for supporting just this type of innovation whilst also helping to tame the costs associated. Rather than inventing the wheel from scratch and in house each time a company wants to improve a product, service or process, organizations are partnering with a wide range of external parties such as startups and independent software vendors to tap into their ideas, insights and solutions.


As well as providing a broad range of ideas, perspectives and insights to tap into, there are also clear commercial advantages. By turning to open innovation approaches like running proof-of-concepts with startups and technology vendors, you’re reaching a large crowd of potential partners relatively easily. What’s more, you are usually only paying participants if a solution is found, thus giving you not only a practically risk-free source of innovation, but also one that has heavily reduced costs by not requiring you to fund the failures that are an inherent part of innovation.


 
 
 

Comments


 Young Woman Contemplating

Hardships of
raising capital
.

Raising capital for a startup can be incredibly tough, especially given the current market conditions and the varied needs of investors.

 

  • Investors have scaled back on opportunity investments leaving early stage founders struggling to innovate, go to market, scale, and raise capital
     

  • Investment rounds are taking longer to close if they close at all, leaving founders competing with a 90% fail rate 

 

  • Founders of early-stage startups understandingly lack the resources required to launch and scale

 

  • Due diligence is time consuming and expensive from legal and finance, to marketing and operations 

Outdoors Meeting

What founders don't know.

What makes raising capital so challenging is that the market can be unpredictable, and investors have their own specific criteria and expectations.

  • Market conditions, inflation and interest rates
     

  • Wait and see approach from investors means you have to work harder on persuading them 
     

  • Startup valuations have been high, and investors are waiting for valuations to continue to drop

  •  M&A has slowed and gone to larger deals 
     

  • VCs typically invest in 1 out of 500 companies that pitch them, and I've even heard an established VC say why so many
     

  • Startup accelerators and other venture programs have a 90% rejection rate and VCs are no better
     

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