John Nottingham, Co-President at Nottingham Spirk, shares his thoughts on what companies must do to reach their innovation potential. Executive-level support, patience and collaboration and forward-looking thinking are crucial.
HALO Innovations, Inc. was a soft goods manufacturer, specializing in safe baby sleepwear, when the company approached Nottingham Spirk about a strategic partnership. In our wide-ranging discussions, we got into the issue of co-sleeping — parents and infants sharing beds. It’s a polarizing topic, but it also represented an opportunity: Could we bring the safety of a bassinet into an adult bed in a way that’s comfortable for babies and parents? The resulting product, the Bassinest, went on to win awards and was mentioned in the announcement when Swander Pace backed aiden + anais, another children’s soft goods maker, acquired HALO in 2016.
The ability to innovate disruptively — not with incremental tweaks to existing lines but by expanding into adjacent categories or, even better, creating new ones, as the Bassinest did — is a powerful variable in a company’s worth. However, it’s difficult to measure. Traditional due diligence efforts look at history, because that’s where the data is. Innovation due diligence looks at possible futures, therefore, calling for different methods of evaluation. The SpinBrush, which NS co-developed with Dr. John’s SpinBrush, LLC, sold for $475 million, 24 times EBITDA — not because of its surprising but still modest first-year sales, but because we were able to show Procter & Gamble what was possible in second and third generation versions in the Crest SpinBrush line of products.
Working with hundreds of partner clients, of all shapes and sizes, over four-plus decades, Nottingham Spirk has learned - and can measure - which factors most accurately predict whether an organization can successfully innovate; not just once, but over and over again. This innovation potential is significant for driving value for both the organization that’s being acquired and the acquirer. Some critical success factors that we’ve identified are outlined ahead:
“When evaluating a company for potential sale or acquisition, the key is to focus on the future and the potential for innovation within an organization to determine value and maximum multiples of EBITDA. Keep your eyes on the road ahead, not in the rearview mirror.”
Empowered Innovation “Champions”
The CEO of a prospective partner company once told us: “I have three innovations and I have no one inside to drive them.” CEOs can’t be everywhere. While many companies today have Directors (or Vice Presidents) of Innovation, not all seem to grasp that innovation requires more than making the word part of someone’s title. When these people have few or no direct reports, they can find themselves hemmed in by varying levels of resistance from the individuals and departments whose cooperation they need to move concepts forward.
Only with the full backing from the C-suite can a champion build consensus and overcome natural internal resistance to change. This often calls for tearing down non-load-bearing walls between departments that can thwart progress. Of course, a mandate from above won’t automatically quell concerns among staff about loss of control. Insecurities are natural and should be addressed, not dismissed. The champion needs to assure colleagues that the organizational changes are not about power, but about maximizing collaboration. Insights, design, engineering, commercialization, manufacturing and marketing should not be treated as distinct stages; they overlap and all of these departments should have a seat at the table from start to finish. Vertically integrated teams are more nimble than silos.
Sustained, Collaborative Effort
Buy-in is important, because innovation that goes beyond incremental improvements to existing product lines is rarely quick or easy. Patience and focus are crucial. Take market and customer research: done right, research does not just lead to or support an idea, it drives and informs every step in the development of that idea. This mitigates risk. Taking two steps forward, one step back, ensures continuous progress, but also discreet review points to reassess the market, customer interest and patent issues, etc., in order to pivot if the landscape changes. Spending and risk rise gradually, as you gain confidence in the venture. In a way, that process never stops. Even after launch, it’s important to seek out the end user for feedback in a constant cycle of listen, create, listen, create.
Often the most difficult transition for companies to make is rethinking commercialization, which includes design for manufacture; decisions about materials, sourcing and tooling, certifications and shipping from factory to warehouse. We often refer to it as “the last mile of innovation,” to emphasize that while it represents the home stretch, it’s as much a part of the process as ideating, insights and design.
C-suite support remains imperative even after launch. Sales, marketing and distribution of the new products often require re-alignment and adjustment of how products are typically sold within the organization. The product must be treated as a full-class citizen within the larger, preexisting product portfolio — which brings us back to C-suite support.
Nottingham Spirk recently worked with a packaging company that, at first, just wanted help solving a manufacturing dilemma. Then we partnered on a new product within its category and most recently, we have collaborated on identifying opportunities in adjacent categories, areas where competitors are unlikely to follow. All of this was done with an eye towards eventual acquisition, with an enhanced multiple to reflect this thoroughly researched and IP-protected concept portfolio.
When evaluating a company for potential sale or acquisition, the key is to focus on the future and the potential for innovation within an organization to determine value and maximum multiples of EBITDA. Keep your eyes on the road ahead, not in the rearview mirror.
John Nottingham is Co-Founder and Co-President at Nottingham Spirk.
This article first appeared in IMAP's Creating Value online publication, December, 2018 and in the January 2019 print edition. Reprinted with permission.
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