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Bill Gates has said “Success is a lousy teacher. It seduces smart people into thinking they can’t lose”. The sweet afterglow of success has a way of redefining as brilliant decisions all of the ways you got lucky, and glossing over a lot of little things that never were quite right along the way. It can also blind you to a shifting landscape and emerging threats and opportunities. The skills, strategies, and activities that got you to this point may not be the same ones that that can take you to the next level.

Blockbuster has become an easy punchline for those looking to describe the very public failures of a fallen giant, but the company was a giant. They were tremendously successful for nearly two decades, becoming the largest video rental store chain in the world, at one point controlling nearly a third of the home rental video market.

It’s hard to imagine from today’s digital perspective the pain points that consumers endured for a couple of hours of video entertainment, but it was a sorry state of affairs before Blockbuster came along. (Check out this time capsule of a guide for new video store entrepreneurs at the time.)

In 1985 Blockbuster founder David Cook pioneered the use of a customer database to better match supply and demand to the demographics of his stores, and the use of barcodes to manage a huge inventory of 10,000 movies per store, versus a few hundred in the average local store.

Suddenly customers had a much better chance of finding that new hit movie in stock, and the second and third choice options were now considerably better too. If you were in the mood for something different, you could browse rows and rows of movies, and now video games too, or get recommendations from a large and well trained staff. Gone were the pesky upfront membership fees.

Within a couple of years, Cook had sold the fast growing company to successful entrepreneur Wayne Huizenga, and it was soon opening a new store every 24 hours. The home video market was growing rapidly as the cost of VCRs came down, and the growth accelerated as videotapes gave way to DVDs. Over the next decade the company would continue to expand rapidly, eventually growing to 8,000 stores at its peak. The local video stores closed or were bought by regional chains, most of which were eventually acquired by Blockbuster.

Your strategy works until it doesn’t

The apocryphal story of the beginning of the end for Blockbuster takes place in 1997 when a California software engineer returned a rented copy of Apollo 13 back late and had to pay $40 in late fees. That engineer was Reed Hastings, and he started Netflix in August of that year.

Imagine what the first Blockbuster board meeting must have been like when they first heard of this new so-called “competitor”.

“They what? Mail you a DVD, then when you mail it back, they send you the next one on your list?  I couldn’t imagine any of our customers wanting that. We have a store in every neighborhood, filled with thousands of movies with friendly and knowledgable staff. What’s next on the agenda?”

At the time, nobody was better at the business of renting out movies through physical stores than Blockbuster, and the company was busy leveraging its superior operating leverage to acquire just about all of its major competitors. The company was unquestionably successful at executing the industry’s dominant business model, but success was a poor teacher for helping them see the potential vulnerabilities of that business model, how the landscape was beginning to change, and how new competitors with new business models might challenge the status quo.

It was expensive to build and maintain all of those brick and mortar locations and to stock and staff them. Netflix had no physical locations to build and maintain and stock and staff, and they were able to create convenience advantages of their own. Renters no longer had to endure the weather and traffic to visit a store to find something to watch, they now could build their own queue of entertainment choices in the comfort of their own homes.

Netflix maintained one inventory that could serve the whole country. This larger market also meant they could profitably stock more rare, unique, and special interest programming, creating what Wired Magazine editor Chris Anderson would later call “the long tail”. This advantage was further expanded as Netflix was able to reinvest its profits into developing their digital streaming service that would completely change the game and eventually come to dominate home entertainment.

In other words, Netflix didn’t beat Blockbuster at their own game, they changed the game.

Your business model works until it doesn’t, and your success in the past is a poor teacher for what it will take to be successful in the future, particularly in this era of rapid and dynamic change. Delivering this quarter’s results today is important, but don’t forget to set aside a little time to work on how you’re going to deliver even better results a few quarters from now.

Postscript: In 2000, Hastings offered to sell Netflix to Blockbuster for $50 million. Blockbuster declined the offer.

Innovation is all about value creation.

Or at least it should be.

It’s easy to get caught up in the front end of the process. Brainstorming new ideas, drawing on whiteboards, and moving different colored sticky notes around the wall is fun. But all of that should be a means to an end. That end should be about creating value; whether it’s improving the customer experience, taking the cost out of a process, or creating a new feature or a completely new product category.

Most of the work I do is centered in financial services, which is not exactly known as an industry that excitedly embraces change. I spend a lot of time trying to convince leaders that they need to innovate, and that maintaining the status quo is a slow train to irrelevancy (and that the train is heading down a steep grade and picking up speed).

Over the past ten years (most of) the industry has gotten the message, helped more than a little bit by the perceived threats and opportunities of FinTech. A recent PWC survey showed that 83% of bankers said that at least part of their current business is at risk of being lost to standalone FinTech companies.

In 2013 I said that the innovation maturity of the financial services industry is best represented by a power curve, with a very small group of Leaders, followed by a small but growing group of Learners, and a long tail of Laggards. As we enter 2017 all three groups are still represented, but there has been some fattening in the middle as more and more Laggards have entered the status of Learners.

Learners get that just doing the same old same old is a sinking proposition within a rising tide, even if they’re not sure exactly what to do or how to get started. Naturally, they are often inspired by the cool and interesting things that the Leaders are doing.

Tempering Inspiration with Reality

This inspiration should be tempered with a strong chaser of reality. Some of the flashier things are simply what I like to call “Innovation Theatre”. Sometimes that’s intentional, part branding exercise to position the company as a thought leader in the minds of its customers (and/or competitors). Other times it’s unintended, a result of losing track of the whole purpose of innovation.

Shiny new objects can be compelling, especially to those people whose job description contains the word “innovation”. Don’t get me wrong, innovation labs that look like Silicon Valley startups, hackathons, and teams of bearded hipsters in hoodies leading design workshops are a few of my favorite things. But they too are just means to an end. (The great Steve Blank has his own deep thoughts on this. Read this if you’re thinking of standing up an innovation outpost. )

Innovation Is Implementing New Ideas That Create Value

If you ask a group of people in a room their definitions (which we have done on many occasions), you often get back nearly as many definitions as there are people in the room. Some people cite examples of innovative companies or products, other mention technology, most people say something about “new ideas”.

So let’s level-set right here, our working definition for innovation at the highest level is this: Innovation is Implementing New Ideas That Create Value. We agree about the “new ideas” part, but everyone has new ideas. In order to count as innovation in our book, they have to be implemented, and they need to create value.

If you don’t implement the new ideas, or if they don’t create value, why did you waste organizational time and resources on them?

That value can be defined in a lot of different ways- new products or services, reduced costs, better customer experiences, extending the life of mature products, etc. – so organizations (and managers) will have differing views on value creation. More on that in future posts.

The Real Work of Innovation

With that as a working definition of innovation in the broadest sense, most innovation work— at least that which is truly about value creation, not just branding—  is usually much more bland and quotidian than the flashy activities of Innovation Theatre. “Blue Collar innovation” is how one innovation leader of a top 10 U.S. Bank recently described it to us. With one eye firmly fixed on a few key questions:

• What value are we creating for whom?

• What job does our customer need us to do here?

• How do we know when we get there?

Clayton Christensen’s book The Innovator’s Dilemma will turn 20 years old this year. The lessons of how new technologies disrupt mature industries are still being played out today in financial services, media, transportation, and just about any other industry you can name.

In his new book Competing Against Luck: The Story of Innovation and Customer Choice, he focuses on making innovation a reliable engine for growth, and it is centered on the Theory of Jobs to Be Done— “What exactly did you hire this product to do?”

Christensen points out that a primary reason why some new innovations don’t reach wide market adoption is because the new offering does not do a better job than the existing thing that the customer “hired” to get a specific job done (let alone overcoming the cost and pain of making a change).

Knowing that you are being disrupted and committing to doing something about it is an important first step. Focusing on the Jobs to be Done ensures that you’re solving the right problems for the right people in the right way at the right time.

That is value creation.

Anything less is just Innovation Theatre.