Customer interaction as a source of innovation for start-ups

Most start-ups manage outplay more established players when it gets down to innovate. They think differently, challenge the traditional vision of business and are inclined to take risk. But how come that firms like Windows, that benefits from a huge market power, considerable financial means and count some of the brightest minds among their employees, fail to duplicate their method to innovate?

Part of the answer is to be found in the goals and the strategy of these firms. Their research of growth and profits is not always compatible with innovation (Volberda, 2011). But another part of the answer is to be found in the way they deal with customers. In this post, we will discuss whether start-ups are better equipped to turn benefits from customer interactions into innovation.

Start-ups have an impressive capacity to adapt and absorb the signals and information coming from their environment. And that capacity seems to disappear with the company grows. The backlash experience by Instagram two years ago (Warren, 2012) seems to illustrate it. At that time, Instagram, a firm known for its ability to predict and match customers’ needs as well as for its reactivity during its start-up stage, substantially deteriorated its image and lost a large part of its customers in 48 hours over a stubborn change of the product and privacy policy.

Figure 1. Foss, 2011. Innovation through customers interaction (Foss, 2011).

Foss & al’s model on innovation (Foss et al. 2011; see Figure 1) allows us to understand the importance of customers’ input for the start-ups’ innovations. This model links the firm-customer interaction through two paths. The common base of those paths is the extensive interaction between the employees and the customers. By making the customers active stakeholders of the products development and through an extensive exchange of information, the employees become more “customers-savvy” and are in the best position to report the needs of the customers. At that point, nothing is new yet.

Foss’ model predicts that the first step for a firm to harness this knowledge of customers’ needs is to allow the employees to make more choices based on those insights. In other words, instead of having a top-down approach in which the managers hold the keys of every decision, the firm delegates responsibilities to the employees. Empowering the employees allows the firm to better take into account the information gained through the customer relationship. This empowerment then leads to innovation through two main paths.

The first of these paths is to give an incentive to these employees to share this information with the rest of the firm/organization. The second path is to create routines that efficiently and automatically transfer these knowledge across the organization. Both these path have in common that they represent the spread of the knowledge from the source within the organization (i.e. the employee who got the idea/info) towards the rest of the organization. The spread of customers-related insight thus directly facilitates innovation.

This model thus shows that customer interactions indirectly lead to innovation through an empowerment of the employees and an enhanced internal communication. If we come back to the comparison between start-ups and larger firms, it becomes clear that start-up are structurally more efficient for internal communication due to their small size. Therefore, they can way more easily harness customers-related knowledge in order to create innovation.

Figure 2. Ms Amoruso makes a savvy use of social networks to interact with her customers (Gittleson, 2014).

 Nasty Gal Vintage, a fashion start-up that recently rocketed up in Los Angeles, is the latest illustration of these mechanisms. The success of Nasty Gal’s founder, Ms Amoruso, is remarkable both for her background (or her lack of background) and the extent to which she relies her strategy on customer interaction (Gittleson, 2014).

Figure 3. Mixing new and old, Nasty Gal Vintage’s products are described as ‘pioneering’ and ‘unique’ (Gittleson, 2014).

Ms Amoruso’s path is definitely original and far from what you would imagine for one of the most famous fashion entrepreneur of these years. Aged only 17, she left home and asked to be emancipated to become a “freegan” and “an anarchist”. After getting caught shoplifting, Ms Amoruso moved to San Francisco. There, bored, she opened an eBay profile to re-sell vintage clothing. ‘Nasty Gal Vintage’ was born.

At first a simple interface for a hobby, Nasty Gal Vintage quickly became a profitable business. Ms Amoruso attributes a big part of her success to her reactivity to her customers’ comments posted on eBay. Interacting her customers on a daily basis taught her to style the pieces she sold ‘to appeal to her demographics’. Through her unique combination of original ideas and response to the market’s needs, Ms Amoruso built a fast-growing brand. Described as ‘pioneering’ and ‘unique’, Nasty Gal Vintage has truly changed the local fashion market. Now helped by a whole team, Ms Amoruso finally opened a retail shop and partnered with an investor in a bid to further concquer the market.

Although the success of Nasty Gal Vintage is without question powered by her owner’s savvy utilisation of social media and marketing techniques, one of the main sources of innovation is clearly the customer interaction. The direct contact between the manager and the customers allowed Nasty Gal Vintage is made possible thanks to the small size of the start-up. The only remaining question is: will Nasty Gal Vintage’s growth be a threat to its innovation power?

 Sources:

• Volberda, H.W., Morgan, R.E., Reinmoeller, P., Hitt, M.A., Ireland, R.D. & Hoskisson, R.E. (2011). Strategic Management: Competitiveness and Globalization. London: Cengage Learning EMEA.
• Warren, C. (2012). Is This Instagram’s Netflix Moment? Consulted on May the 18^th and retrieved from http://mashable.com/2012/12/18/instagram-netflix-moment/.
• Foss, N., Laursen, K., and Pedersen, T. (2011). Linking Customer Interaction and Innovation: The Mediating Role of New Organizational Practices. Organization Science 2011 22:4, 980-999
• Kalliatakis, A. (January 2014). 7 customer service trends that Start-ups should know about in 2014. Consulted on May the 18^th, retrieved from http://ventureburn.com/2014/01/7-customer-service-trends-that-Start-ups-should-know-about-in-2014/.
• Alton, L (2013). 7 Ways Startups Can Better Manage Customer Relationships. Consulted on May the 18^th, retrieved from http://www.policymic.com/articles/27173/7-ways-Start-ups-can-better-manage-customer-relationships
• Gittleson, K. (2014). Nasty Gal’s Sophia Amoruso: ‘Shoplifting saved my life’. Consulted on May the 18^th, retrieved from http://www.bbc.com/news/business-27414760