Innovation expert Stephen Shapiro has written five books, including 24/7 Innovation: A Blueprint for Surviving and Thriving in an Age of Change and his most recent, Best Practices Are Stupid: 40 Ways to Out-Innovate the Competition.  Shapiro is also a much-sought-after speaker and consultant in the area of innovation. He’s helped companies such as GE, Microsoft, Marriott, Nike and 3M foster cultures of innovation. We spoke with Shapiro recently about middle market innovation.

Why is innovation necessary for middle market companies?
Innovation is necessary because the world is changing around us. If no one else decided to innovate, then we wouldn’t have to. But we have new entrants coming into the market, we have new technologies, we have disruptors, and your competition is constantly changing the game. If you’re not keeping up, you’re actually going backwards. So innovation is necessary, whether you’re a mom-and-pop shop, a middle market company, or a multi-billion dollar Fortune 10 company.

How can middle market firms better understand what innovations their customers might want?
The best thing you can do is actually observe customers. I would say “be like Indiana Jones,” put on your fedora and get out there to observe. If you look at it from a cultural anthropology or ethnography perspective, you can see what customers are doing and try to figure out what problems they’re having.

Another way is to map the client’s processes. Do you actually understand how the client does business with you? What are the things customers do on a regular basis? Figure out what you can do to improve their processes instead of worrying about your own processes. 

Do middle market companies have a disadvantage compared to larger companies when they seek to innovate?
They have advantages in some areas, and disadvantages in others. Obviously, when you don’t have billions of dollars to put into R&D, that's a disadvantage. But I think the advantages are that middle market companies can be more nimble and adaptable. Innovation isn't about new products or processes, but about the ability to adapt to change and stay relevant. Compared to bigger companies, middle market companies have the ability to make changes faster. 

How should middle market companies decide where to focus their innovation efforts?
Innovate where you differentiate. You can’t be the best at everything for everybody. The key is to figure out how you differentiate yourself. What is it that makes you special, why do customers do business with you and not with someone else. If you’re trying to replicate what somebody else is doing, that’s not innovation. 

So carve out your unique space, play to your strengths, and innovate around those. For everything else that's not your differentiator, you don’t need to be the best,

What are the challenges middle market companies face as they pursue innovation?
Innovation just isn’t a natural act for human beings. Our brains are wired for survival rather than innovation. So we want to perpetuate everything we’ve done before because that’s what’s kept us alive. So that's one of the biggest challenges for any company: past success often leads to future failure.

We can also get into grooves that hamper our vision. So say you’re in the hospitality industry, and spend all your time talking to people in the hotel industry and to people inside your company. When someone comes into the industry and disrupts you with a completely different business model, whether it’s an AirBnB for hotels or Uber for taxis or whatever, it catches you off guard because those disruptors aren’t even in your peripheral vision. 

Why do diverse or cross-disciplinary teams seem to have better results when innovating?
First of all, diversity doesn’t work unless we have a deep appreciation for what diverse people bring to the table. Part of the reason why our political system is so messed up is that we have diversity, but there’s no appreciation for it. There’s this mentality of “we’re not playing on the same team." However, if we have these different perspectives and we have a deep appreciation for them, that's when breakthroughs happen. 

Harvard Business School has found that big breakthroughs only come from multi-disciplinary teams. 3M found that their biggest revenue producing products only came when they put together adhesives, and braces, and reflectors into one product rather than just having one discipline creating a product. So diversity and cross-disciplinary approaches work when there’s appreciation for the value they bring.

What can middle market companies do immediately to improve their innovation efforts?
The biggest mistake that companies make is having a solution mindset.  So they'll say, “Don’t bring me problems, bring me solutions." The biggest opportunity is to start asking better questions: What is it we’re working on? Why are we working on it? What is it going to produce in terms of value? Einstein reportedly said, “If I had an hour to save the world, I would spend 59 minutes to define the problem, and one minute finding solutions.” Most companies are spending 60 minutes on problems that don’t matter.

How can middle market companies create a culture that supports innovation?
The key is to have strong leadership in this area. I’ve never seen a company where the leader was sort of ambivalent about innovation and innovation took place. You really need somebody at the top who says, “We need to change. We support change." A culture of innovation really does come from the top and it has to cascade down, and you also have to have the right organization structures and measures. What gets measured, gets done.

Any final insights for middle market leaders on how they might improve innovation?

Middle market companies need to be more purposeful and focused on what they do best. They need to innovate where they differentiate, so get clear on your differentiators and put all of your energies there. You want everybody to participate in innovation, but you don’t want them solving every problem. So ask better questions. If you do those two things, focus on your differentiators and ask better questions, you’re going to have a profound impact on your results.