CandidCapital

David Sainsbury, the former Science & Innovation Minister, visited the Design Council earlier this month to attend a seminar looking at the impact of design on technology businesses. Blimp considers the lessons that Lord Sainsbury might take away from the seminar.

The Question

Are investors more likely to invest in a business taking a design-led approach than one that doesn't, even where the core technology is broadly equivalent?

Rational Investment Behaviour

Rational investors should look to invest in businesses with the lowest possible risk profile relative to the upside potential of the product or service being exploited.

Innovation often implies risk that cannot be directly avoided - selling a new product, addressing a new market, even building a new business itself are intrinsically risky but may be necessary features of a disruptive business model that offers the potential for exceptional profitability.

Whilst accepting the necessary risks that go with innovation, rational investors should:

1. establish that there is an attractive market for the innovative product, and that it can meet the needs of that market, in order to compensate for the risk;
2. identify businesses that seek to minimise the risks that are internal to the business and which can be controlled (to a greater or lesser extent). Obvious characteristics of such businesses are:

• capable management with a track-record of building innovation based businesses;

• well researched and thought-through business plan that shows an understanding of the challenges of launching a new product or building a new business;
• good financial planning and management;
• adequate capital to achieve critical milestones;
• a well grounded new product development process;
• a sound market introduction and exploitation strategy.

The Impact of Design

In the nearly ten years that I've been involved with the Design Council's innovation support initiatives, I have come to see that businesses taking a design-led approach are better able to control internal risks than other businesses:

1. Design-led businesses value research, planning and review as integral parts of business execution - leading to early identification of market trends and challenges and enhancing the ability of the business to address them;
2. Design-led businesses have inclusive management style and systems that leverage the skills and experience of all employees to optimise product development, marketing and sales processes;
3. Design-led businesses understand the requirement to identify and periodically review market needs and how the product offering meets that need;
4. Design led processes mesh well with agile development processes that allow a business to react fast to market change or evolution.

The challenge for the design community is to educate investors - business angels as well as venture capital fund managers - about the effectiveness of the design process in reducing product development, market entry and management risk in innovative technology businesses.

The Woeful Ignorance of Investors

Frankly, UK venture investors don't properly understand or value the design process and don't see how it complements the strategic marketing process (which they do value - even if they don't completely understand it).

I think that the Design Council has done well to use case studies as a means of communicating the role that the design process has played in businesses such as Owlstone. However, to date, I don't think the implications have dawned on the majority of UK venture investors who simply don't understand the strategic role of design. Too often they see design as primarily about aesthetics - though aesthetics are an important component of effective design.

Illumination

I'd recommend that every venture investor reads Steven Levy's "The Perfect Thing" which describes the strategic design process at work in developing and launching the iPod to become the dominant global music player (and it doesn't overplay Jonathan Ives' role in that process, which Britons are prone to do).

25 February 2010