There are times when larger companies have a distinct competitive advantage as a function of their systems or scale. It is intuitive to entrepreneurs that their advantage is driven by their ability to adapt and drive innovation. Yet, on the path to innovation, the structure of a smaller company can be limiting.

What is true in all companies (large and small) is that they are typically organized in functional departments (such as accounting, engineering, and sales). It is the objective of each of these departments to create systems and processes that further the effectiveness of the status quo.  So how can you overcome these inherent limitations and be best-in-class in terms of innovation?

Clearly smaller businesses are more impacted by resource constraints than larger organizations that have entire departments dedicated to strategic planning, R&D and innovation.  Further; the strength of functional managers in solving operational problems can be a weakness when it comes to innovation. For example, a company may spend a year or more implementing lean manufacturing which may be game changing in terms of profitability but does not revolutionize the business or open it to new markets.

Recent articles written by Kotter, author of Leading Change, and Kahneman of Thinking Fast and Slow suggest that people and organizations have two parallel tracks of thinking: one that is left brain (logical and detail oriented) and right brain (more innovative and intuitive)[i].  Further, the structure of organizations puts these two tracks in conflict.  In other words, it is impractical to believe that people who are responsible for preserving a company’s existing competitive advantage are capable of leading the charge to reshape it.  The theory is not an indictment of the capabilities of managers, but of an environment where people are working at or above their capacity, and on many initiatives at once.

Kotter calls for companies to operate “two systems”, one building out the capabilities within the core business and another tasked with exploring external opportunities. For most entrepreneurial companies, it is all hands on deck in terms of growing the business within a core competency while satisfying customers and remaining profitable.

Thus, it is incumbent upon the entrepreneur to drive innovation and to be purposeful in doing so.  Such thinking only reinforces the need to have strong C-level management (such as COO’s and CFO’s) so that the CEO can lead forward thinking initiatives that transcend incremental improvements (such as implementing a CRM or ERP).

Another issue is brain trust (reinforcement of the need for peer groups.)  If you do not have innovators within your business, you may need to create a group of confidants and advisors who can assist with the formation of your strategy.

Once these resources are in place, the team responsible for innovation must have a forum for research, vetting new ideas and seeing through various opportunities so that they can be incorporated into the business.

I am proud to have authored one of the top 10 most popular posts in the history of Executive Street: The 3 Stages of Innovation. In that post, I pointed out that various innovation strategies are directly correlated with industry stage. When it comes to innovation, timing is everything.

The other critical variable in continuous innovation is an entrepreneur’s tolerance for risk, which is often driven by a multitude of factors such as the profitability of the business, level of private equity investment, etc. What wagers to make and in what amounts could be the single most important decision a business owner makes.

In the 3 Stages article, I referenced three distinct innovation types: market disruption (white space), up-market disruption (service innovation) and low-end disruption (commoditization). Another spin on this theory was recently articulated in the Harvard Business Review (Managing Your Innovation Portolio-Nagji and Tuff May, 2012) who outlined the optimum innovation allocation strategy for established firms.

Naji and Tuff suggested that the most profitable of companies (according to two recent studies) allocate roughly 70% of resources to core businesses, 20% to adjacent businesses and 10% to disruptive innovation. This allocation is based on risk and reward: companies can realize the highest likelihood of ROI in the business they already know, can invest in short term growth in businesses directly adjacent, and invest for the future in white spaces.

The science employed in these studies would validate previous writings of Keith McFarland in the Breakthrough Company who maintained that many entrepreneurs are overly eager to expand into adjacencies (and disruptive innovation) when they sense they are running out of runway in their core business. There are many variables to consider, but as a general rule, it is easier to grow share from 20% to 40% in an existing business than to try to grow from zero to 20% share in a new market. Naturally, the amount of competition, channels of distribution and other factors can dramatically affect the impact of any innovation strategy.

The motivation of the entrepreneur can not be understated when considering risk tolerance. Some business leaders (such as those in technology or those that employ high levels of financial leverage), may be driven towards a higher appetite for risk (and resulting returns). In such cases, investment in core businesses could be significantly less (perhaps 40%-50%) while investment in new offerings and disruptive strategies are ratcheted up.

The chosen risk tolerance will dictate which innovation investments will be made. For example, to grow into white space may require hiring staff with specialized skills. To expand a core competency may require better systems, processes or command over raw materials, such as is often achieved in a vertical integration strategy.

It is important for management teams to consider these factors early on in the formation of strategy.

They taught us in business school to be attentive to the Pareto principle; also known as the 80/20 rule. Pareto states that 80% of outcomes are a result of 20% of causes, or more commonly in business, that 20% of customers drive 80% of volume. Larger competitors are governed by Pareto, and spend significant time, money and resources to capture market generated by the vital few.

The 80/20 rules assumes that a provider can leverage a higher return on investment by addressing behemoth customers who require fewer interactions at high volume. Such efficiency is intuitively satisfying to our management sensibilities.

One counter that can be employed by smaller competitors is to seize an underserved market often described as “the long tail”.[i] The Long Tail flips Pareto on its head, and suggests that money can be made from addressing the remaining market, made up by those who buy infrequently and in smaller increments. To serve such a market requires the provider to offer a wide offering.

The Long Tail concept has been an enabler to the e-commerce revolution. Amazon (for example) has proven that a provider can reach the mass-market one customer and one product at a time, which is quite different than the customer buying multiple products from a retailer in a single trip.

In B2B (business-to-business), the long tail may provide some respite from vicious competition. However, to compete in this space requires a mindset of low cost, operational efficiency and virtually no inventory. Numerous e-commerce sites utilize “pack-n-ship” methodologies, outsourcing the bulk of the manufacturing, distribution and transactions to others. To provide the wide breadth of offering through pack-n-ship requires an integrated logistics system.

As with many other things, technology is the great equalizer and can provide a solution for what would otherwise yield higher acquisition and distribution costs. Much of the premise of retail is the last mile of distribution, which dictates that the last mile is the most expensive (which is why products like food don’t fare well in e-commerce, as getting the product to the consumer is too costly). Certain products that are not too costly to ship fit within this strategy seamlessly.

To pursue the long tail requires a penchant for serving niches, and the unmet needs of buyers with unique tastes or buying patterns. The larger competitors will often ignore these markets as too costly or difficult.

So if you’re looking for a novel strategy with less competition, consider the long tail.

One must contemplate the distinction between branding and rebranding. Rebranding is often miscast as an exercise in repairing one’s reputation. Some rebranding efforts focus on mitigating a negative image (such as Philip Morris’s name change to Altria or AIG’s move of their advisory business to Sagepoint). Yet rebranding may also represent subtle changes in positioning, or the recasting of visual identify, such as Starbucks recent move to a more contemporary look.

If you’re thinking about rebranding your company, bear in the mind the following considerations:

Seek out simplification-Today’s rebranding efforts are often a function of providing clarity to the marketplace and removing brand confusion. Citi’s recent rebranding removed a single word (if the word bank is in your name, it may not be a bad idea to remove it). Our cluttered market values simplicity.

Leverage Social Media from the ground up- Within our firm, we recently rebuilt our website, refreshed our brand, and printed new business cards (including a QR code). All of our marketing includes embedded social media components, with the intent of driving traffic to our website where prospects can experience various multimedia tools that are featured online.

Use emotional triggers-Google famous Parisian Love ad (when an American finds love in Paris) is a classic example of using emotional messaging to capture the imagination of your audience. All marketing should utilize emotional triggers.

Enter new markets- Pabst Blue Ribbon, perceived as an also-ran in the U.S. rebranded in China as an ultra-premium American lager (PBR) and is selling for upwards of $44 a bottle (the Chinese may not have everything figured out).

Reshape perceptions about quality-Rebranding should not appear cosmetic or contrived. Harley Davidson’s slide in perceived quality in the 80’s was magnified by stiff competition from Japanese competitors.  The company’s drastic repositioning included a return to its core products and the formation of the Harley Owners Group (HOG’s),  which reestablished Harley a bad boy brand.

Identify unmet needs- Your offer may need to change as the utility of your product or the benefits that differentiate it may shift over time.  Marketers will often use a tag line when they wish to preserve their brand equity, and point out new features or benefits.

Use professionals- Rebranding can back fire when companies draw attention to their marketing.  Many smaller companies try to utilize self service template web sites and similar home grown tools that come off as……home grown. Marketing requires constant investment. Hire people who can assist you with both messaging and technology.

Understand the hard and soft costs- Change can be expensive, given the need to reprint, re-sign, change email addresses, etc. Consider all your hard and soft costs (including management team band) with as you refresh your brand.

Organizations often under appreciate the importance of branding. In this world of hyper-competition, the way you communicate the nuances of your brand are more important than ever.

I just recently wrote in this space about the housing market’s affect on our broader economy. It appears as if real estate is the Pareto principle at work. Five states (Arizona, California, Florida, Michigan and Nevada) have generated a shocking 46% of the nation’s foreclosures[i].

While there are a number of forces as work, there is one explicit predictor of foreclosure activity. States where judges must approve foreclosures in writing have 260% more activity than in other states.  As homeowners and banks wait for the government to take action, markets spiral downward, only diminishing the value of properties that have positive equity.

In the states where foreclosures are dealt with quickly, the market has already begun to turn.  Each of us can reach our own conclusions about the role of government (this is not the appropriate venue for such a debate).

The broader point is that the U.S. real estate market, like many other markets has vast regional differences and elements within it moving in different directions.  The concept of the “business cycle” is a bit of a misnomer. Traditional cycles have been disrupted and replaced with a series of variables that drive markets very quickly, sometimes without pretense or warning.

The events that created the recent housing bubble created the perfect storm.  The recovery will be another type of storm, with regions and even areas within regions recovering more quickly than others. We see similar phenomena in employment and growth in various industries.

It used to be that selecting the right industry was enough to ensure some level or prosperity. Today, entrepreneurs and investors need to find very specific opportunities and niches where growth and profit are plausible.

Like everything else, choose your real estate carefully.

You would have to be living under a rock not to have heard about the grass roots effort to capture Joseph Kony of the Lord’s Resistance Army in Uganda.  A video posted on You Tube this week went viral, with over 56 Million hits (as of this writing.) In my case, my 15 year old daughter pleaded with me to turn off 60 Minutes to watch it; providing a stunning commentary on our movement to new forms of media.

The video, shot by a little known videographer is being promoted by the advocacy group “Invisible Children” and tells the story of a Ugandan child and others like him, who have been the victims of horrific crimes against humanity.

While the story and cause is compelling, it is the story telling that should capture our attention.  The 30-minute video is presented like a short, part documentary part sensationalism. The themes of children killing their own parents and mutilating others are shocking and captivating.

All marketers should become aware of this medium. The movie blurs the line between amateur videos on You Tube and professionally produced movies. Companies often attempt to tell their story through static documents that lack color and texture.  Those of us who are on the wrong side of aging must recognize that  those who we market to no longer process information in the form of static text. We have been conditioned to view our news, our sports and our marketing offers in multimedia form.  The marketing of the future will include many dimensions, including video, sound, and info-graphics launched online, rated by others and spread through sites that have not even been built yet.  Media will be in constant flux, with new views, tidbits and vignettes wetting our appetite for real time information.

The other thing unique about the video is its call to action; setting a very clear goal to capture Kony in 2012. If you think that this is just another cause being thumped by a set of leftist activists, think again. The U.S. military has dispatched 100 Special Forces “advisors” to Uganda in an attempt to find Kony, and senior U.S. officials are scrambling to harness the populism of the video.

As the video proclaims “Nothing is more powerful than an idea whose time has come.” View it here

Globalization has enabled unprecedented hyper-competition, and all types of dynamic comparative pricing models. Yet pricing within many segments of our economy appear like something from the The Stone Age.

If you go into a white tablecloth restaurant and order the sea bass on a Wednesday, you might pay $30.  If you return to the same restaurant on a Saturday the price would be the same, even though demand in the restaurant is likely to be very different.  Eateries price on the cost plus model built in the industrial age; the price is based on some multiple of raw materials (or labor).

Our economy doesn’t work this way anymore.  Consider the market for sports tickets. Sports franchises (the Lakers for example) set the initial price for a ticket. But the market resets the price in real time based on supply and demand. If it is a Tuesday night game against the Raptors, a seat may command a few dollars more than the face value.  A Sunday game against the Celtics could command double that within a market being energized by the likes of Stubhub and other online exchanges.

Variable pricing based on nuanced supply and demand is the future, and it is the present.  Marriott has historically been the most profitable hospitality company, as its revenue per available room (the industry benchmark) often exceeds that of rivals. In the case of hotel rooms (or airfares), business-to-consumer pricing models can shift daily based on numerous variables such as weather, events, or the calendar.  Like it or not, exchanges that provide comparative prices are proliferating, in both B2C and B2B.

I am not advocating the companies participate in such portals: they the fastest way to commoditize an industry. What I am saying is that the acceptance of such tools points out a broader problem (or opportunity), that markets re-price based on real demand, not arbitrary prices set by the seller.

Businesses, including those that market products and services business-to-business will need to be more analytical about which products and services could and should command higher prices and which will command less.  To set up a fixed pricing schedule seems overly convenient in a world where buyers have far more sensitivity over some purchases than others.  A software developer may need to sell a project at a low cost to win the business, but could charge far more (on an hourly basis) for change orders that are not foreseen by the client.

Most small and mid-market companies have not done enough research to understand the relationships between the products and services they sell.  If an accounting practice sells tax work and audit services, how should they price one against the other and what is the likelihood that clients will gravitate to them as a result of their pricing model or other variables? I think few really know.

Companies should test various pricing strategies to see what works best, and be more purposeful about tweaking pricing to reflect current demand.