Paul Jozefak, managing director of Liquid Labs, believes small businesses should outsource innovation if they want to make their mark on the financial services sector.
The IMF issued George Osborne with a pretty stern warning in March – innovate or be left behind.
With the UK’s expenditure on research and development dropping below many of its European allies in recent years it is clear more needs to be done to support innovation in order to boost business growth.
This couldn’t be truer of the financial services sector which exists in a constant state of flux.
The London FinTech scene is booming, technology is challenging traditional banking models and with it the emerging needs of customers are changing.
Opportunity is there for those with the most agile product development methods and the ability to innovate in areas where demand is high.
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So where does this leave small businesses? Innovating can be both costly and time-consuming and therefore suits the bulging budgets of large multi-national companies.
But what if this process was outsourced to someone else?
Here are the main reasons small businesses should outsource innovation:
Risk-taking frequently leads to success in business.
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But when your gamble doesn’t pay off it can have serious, sometimes irreversible, repercussions for the people involved.
But the rapidly evolving landscape of the financial services sectors demands risks must be taken in order to keep up with the industry’s rapid change.
If only there was a way to take a risk without facing the backlash if things didn’t go according to plan?
Imagine, say, you carried out this entire process under a different moniker?
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This is what outsourcing innovation allows you to do.
You can’t usually have your cake and eat it too, but by entrusting the responsibility of developing and building new products to an outside entity, you can outsource the risk factor as well.
Managers are much more likely to go for it because the responsibility will not be on their heads if things go wrong, though at the same time if things do work out, they will be in prime position to take credit.
So how does this work in reality? Let’s say you are losing market share to a competitor developing the latest cutting-edge fingerprint authentication technology.
This might not be your company’s niche area of expertise nor may you have the experience or resources to create a competing product.
But the opportunity is a good one so the company will begin assembling an in-house innovation team (costing both time and money).
Then once the team has battled its way through the inevitable onslaught of internal company politics, red tape frustrations and multiple rounds of tedious corporate approval they will finally be in a position to submit a product proposal – which is most likely to be ripped to shreds by the people from above.
The risk here is tenfold.
Not only will the product be unlikely to meet the same standards of their competitors but its intended release into the market will probably come too late.
Customer needs will probably have changed, new innovations will be emerging and your competitor has probably released a product update.
Outsourcing this process will give small businesses access to talent and handover the risk to a specialist team not bounded by corporate bureaucracy and the pressures of getting results.
Failure to produce will not damage the reputation of the company, and the managers responsible will not be held to account.
Though it is important to bear in mind that innovation does not mean your business will relinquish all responsibility.
It may delegate risk, but you can’t fund and forget.
Like any other business development project, it is critical to remain involved and updated on the progress of the innovation lab. I
t’s not a set-it-and-forget-it model. Businesses need to keep innovations close at heart and provide input to ensure the products being built are aligned with business objectives.
There has to be a strategy in place for going to market when the product is finally created.
Access to talent
Competing in a market where money needs to be invested heavily in talent can be hard for small businesses, especially when the big players have the resources and money to invest in internal innovation teams.
But outsourcing innovation actually puts small businesses at an advantage when it comes to putting the best teams together.
Outsourcing will give you access to niche pools of talent for significantly less money.
Surely it makes more sense to excel and lead the market in one specific area than to remain mediocre in all of them?
Having a team of experts build your product in an innovation lab will allow for creativity to occur without the hindrances of being part of a large corporation.
There will be no internal politics or meddling executives at hand to spoil that ground-breaking vision.
Creating an environment in which innovation is supported and celebrated allows for far better recruiting tactics and strategy as opposed to trying to convince “high performers” to join corporations.
Retaining top talent can be a difficult task, not to mention costly and time-consuming.
Raising capital as a small business can be an arduous task.
Most entrepreneurs would have to rely on venture capital funding, small business loans, angel investors and even their own pockets to fund their business model.
But by being the provider of outsourced innovation it allows small businesses access to alternative avenues of funding.
They can dig deep into the pockets of corporates whom they have as customers, which is a much better way of raising finance.
Innovation in Financial Services
It’s clear from the recent disruptions in the financial services sector that innovation is key for a business looking to get ahead of the game.
Risk can make or break a business, but risk is also paramount in a sector dominated by new innovative technologies.
But if this risk is delegated to a separate entity then businesses will have the liberty to create without corporate pressure.
As is the case with talent: richer companies will headhunt the hottest talent giving no hope to startups and SMEs who are looking to recruit on a budget.
Finance is a key component in all of this, and just as outsourcing innovation allows you to get creative with ideas, it also allows you to get creative with funding.
The reason why outsourcing innovation is the answer in this ultra-competitive market is because it gives you the best of both worlds.