Managing Internal Risk Tolerances To Innovation

Jonathan TofelMay 9, 20237 min

Anything perceived as new to an established organization system naturally feels risky. Large companies focus huge resources to operate with excellence, so while innovation teams are often pushing forward into new spaces, the rest of the organization that has to make those ideas come to life can be naturally and properly hesitant about going after anything that conflicts with their current expertise, knowledge base, or efficiency. It is the inherent bias to stick to what you do best and often this means that new ideas, categories, or technologies that fall outside of current internal expertise are initially viewed with a skeptical eye.

This is most often what leads a larger CPG to focus on line extensions and ideas already close to the core. Crafting and launching something disruptive requires shaking up internal systems, processes, and gaining new expertise and manufacturing capabilities to make it work, which is always harder than doing more of the same where everyone knows what is expected. Plus, protecting the existing profitable business is important to the survival of the entity, and taking away focus or resources from the base business can have serious implications that, again, feels like big risk.


Startups generally do not have “established systems” to disrupt or big brands to protect. They are building their expertise and inherently have flexibility. Plus, everything about what they are doing is risky—every day can feel like a battle to stay alive. In that context, the need for growth through change and adaptability far outweighs the value of “doing what we’ve always done.”

“In a typical organization, some people generate ideas then let other people decide whether to go ahead with them. The decision makers are motivated by what you’d expect: how feasible something is and whether it’s likely to make money, but also, and most often unconsciously, by social approval…how weird is this and how crazy am I going to look if I greenlight it?” —JEFFREY LOEWENSTEIN, Director, Executive MBA University of Illinois

Undifferentiated Concept Testing

Big companies utilize concept-testing tools like BASES (Booz-Allen Sales Estimating System) to determine the “potential” of new product ideas. There are multiple companies with slightly different ways of concept testing, but they all do roughly the same thing: consumers are shown a product image and written description of that concept, then they answer survey questions that help to gauge the strength of their interest in the new idea. This methodology works particularly well when you’re showing consumers either a known brand, a known product benefit in a familiar category, or a previously experienced benefit. And as such, it’s a great way of establishing a yardstick of success when you compare one line extension to another.

But we find that big companies often run into trouble with using concept testing when they evaluate all ideas, whether line extensions or disruptive category smashers, on the same concept-testing yardstick. Not all innovations are the same, and not all testing methodologies should be applied the same way to every innovation.

We have observed time and time again with our clients how truly category-disrupting product ideas—especially products that require a consumer behavior change, a new way to perceive a category, or an experience that is hard to put into words—just do not test well in traditional concept testing.

Unfortunately, we routinely watch companies deprioritizing disruptive platforms that don’t have strong concept scores even though other indicators suggest they have a winner on their hands. As a theoretical case study, consider how consumers might have reacted to a written description of kombucha before it first entered the market: “Introducing a unique, lightly effervescent sweetened fermented tea beverage that is tart and a bit sour tasting with good-for-you benefits. Note that a small cloudy mass at the bottom is a normal part of the beverage, and don’t shake it as it can explode.”

It likely would have sounded unpalatable and maybe a bit scary to anyone who was unfamiliar with it, even if they were open to carbonated drinks and tended toward healthy eating. Our guess is that kombucha would have failed most traditional concept-testing formats because you needed to experience it to understand it. Interestingly, numerous kombucha brands now flourish in both natural and conventional grocery stores and the category exploded in only five years, from $1 million in sales in 2014 to $1.8 billion in sales in 2019, with the total number of brands increasing by about 30 percent a year annually for the last several years.


Let’s start by pointing out that startups don’t generally have the funding to run concept tests. They rely on direct and early live feedback rather than theoretical concept testing, thus bypassing this challenge. They must accept the risk that they do not know how their product stacks up to the industry norm. They are also most likely a believer and ground their passion in bringing a unique offering to others. No words on paper—just samples in people’s mouths to get feedback.

“If you see a bandwagon, it’s too late.” —JAMES GOLDSMITH

Data As King

Some companies rely chiefly on available data about category growth or segmentation when deciding whether, where, and how they want to innovate, and to help them de-risk their overall innovation efforts. These teams often think, “If this segment is big and we see growth, then that’s where we want to be with our brand.”

It’s a top-down approach, and if pursued without both consumer and customer insights, it becomes largely hypothetical and can lead down long and winding roads of exploration that end up at dead spaces where it’s ultimately determined that the brand does not have a right to win or is simply too late to the table.

We also see innovation stall behind analysis paralysis. Marketers, whose early training is steeped in brand performance analysis, get used to proving their point of view through data. It’s required. As they move to innovation teams, they look for conviction through data. We often hear at kickoff meetings, “We have a great idea, but we’re having trouble getting organizational buy-in on what to do next.” The client then shares reams of data where they have tested, retested, and analyzed the category, platforms, and ideas repeatedly.

What we see in these scenarios is that the innovation teams often have the right gut feeling based on the correct consumer insight—it’s just that they don’t have the data to back it up, so the opportunity stalls out with key internal stakeholders. Maybe the challenge is they are a little ahead of the curve of consumer trends, maybe the concept just needs a little tweaking, but the need for the perfect set of data is what ends up getting them stuck with how, or if, to move forward.


Startups generally have very limited access to data and few stakeholders to convince. They read what data they can get but are not burdened by segmentations and reams of data. That means the place to look for feedback is the consumer and the place to look for trends is the internet. Plus, small hands-on teams tend to hone their gut through direct interactions. It is a double-edged sword but tends to provide the freedom to move and take action.

“I’ve never seen a model that comes to fruition. The best companies will outperform the models, the worst companies will underperform the models. No one ever hits their model. I think there’s analysis paralysis because they’re all based on assumptions. So, how do you start to test assumptions without being in market? We always want people to start small, test it in a market. Once you’ve gotten that engine working, then scale.” —CARLE STENMARK, General Partner, VMG Partners

Shiny Objects And The Fear Of Failure

In the marketing function of big CPG, you’re rewarded with career progression for all the things you do well with your business, including launching products successfully. It can be seen as a career-limiting move to be part of a string of failures, even if you personally learn from each one and help the company improve a launch on your next assignment.

Additionally, the CPG up-or-out culture, where only the strongest marketers—often the ones who make the least mistakes—make it to the next level creates an inherent Catch-22 when it comes to innovation. If you can’t afford to fail, then you’re going to take smaller risks with a higher probability of success. But if you only take smaller risks, then you’re less likely to create a true breakthrough innovation that company leaders are always seeking.

Even when an innovation team’s culture allows risk taking and pushing boundaries, the fear of failure might still exist in other places throughout the organization, specifically within the cross-functional teams who are going to be critical to making an idea come to life, and whose own annual review is measured on different metrics like quality, consistency, and efficient throughput.


Entrepreneurs and small companies simply don’t have the layers and hierarchy to face this challenge. With a singular focus and smaller teams, there tends to be alignment on what everyone needs to do to win. Plus, there is no expectation to win each wave of the work they do—it’s more of a one-up, one-down roller coaster.

“Don’t be afraid of the unknown. The unknown is out there. It’s identifying where there are unknowns and deciding how you’re going to deal with it—if that’s modeling out the answer to an unanswered question or deciding that you’re going to try X, Y, and Z in order to close the gap on the unknown. Just don’t be afraid of it.” —ANNIE RYU, CEO and Founder, the Jackfruit Company and Jack & Annie’s

Contributed to Branding Strategy Insider by: Jonathan Tofel, author of Fire In The Machine: Driving Entrepreneurial Innovation In Large CPG Organizations

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