Traditional approaches to researching and writing business plans don’t work in fields where a high degree of uncertainty exists, such as new markets or areas where a disruptive approach is being taken in traditional markets.

That's the opening premise of Nathan Furr and Jeff Dyer's latest work on innovation, which expands from the latter's earlier, well-received book, The Innovator's DNA.

Increased evidence suggests that familiar management techniques work poorly when applied to uncertainty, the authors suggest. Planning, for example, wastes time and resources as you conjure evidence that your hypothesis or guess is right. But it doesn’t resolve uncertainty.

A better approach is to design a set of experiments to test “leap of faith” assumptions behind big ideas.

Witness the approach taken by disruptive innovator Rent the Runway, who successfully launched a business around giving women the option of renting designer dresses online for special occasions rather than buying them.

Promoters Jenn Hyman and Jenny Fleiss eschewed writing a business plan. Instead, they borrowed or bought 130 dresses from leading designers – Diane Von Furstenberg, Calvin Klein – and set up an experiment to rent to Harvard undergraduates on campus.

This and follow-up experiments tested various hypotheses, such as: would women rent dresses that they couldn’t try on, and would they return the dresses in good condition.

Following promising results, they took the idea to a group of top-end fashion designers. The designers reacted negatively, as they felt that renting rather than selling dresses would cannibalise their business. Hyman and Fleiss realised that to make their idea work they needed their own inventory, so they shifted to a Netflix model of renting a dresses from multiple designers.

Pivot points

This shift was a classic example of a pivot, a necessary change in a key element of the solution or business model proposed. This is often a key differentiator between success and failure.

The key steps in the authors’ proposed Innovation Method can be summarised as: insight, problem, solution, business model.

Your core tasks as an innovator, therefore, are to savour surprises (insight), discover jobs to be done (problem), prototype the minimum “awesome” product (solution), and validate your go-to-market strategy.

Some well-established companies are good at maintaining innovation. Amazon, Google, Starbucks and Salesforce.com rank highly here. Amazon has done a particularly good job of ingraining an innovative culture in its management. Its Innovation Premium, as measured by the authors, means that investors are willing to pay a premium for its stock that is 73 per cent higher than the net present value of cash flows from its existing businesses.

Getting innovation efforts going in established firms is often tougher than in plucky start-ups. The advice here is to apply the innovation method to the problem of building innovation capability. That involves a small team, reaching out to early adopters to understand their problems, using prototypes to test solutions as quickly as possible, and finding the right model for innovation within the organisation.

Most disruptive innovations are adopted by non-users who are not served well by existing solutions. A good rule of thumb if you are pushing a disruptive innovation is that you should always explore that innovation with non-users in great depth.

Negative feedback

This is not without difficulties. Customers may not fully recognise the problem, or the solution may be unfamiliar. This can often result in negative feedback.

It may also be difficult to get a handle on new products until they can be sampled. In an example given here, basketball players and coaches were sceptical of the Reebok Pump (an athletic shoe with a button to inflate air-pockets around the ankle) until they actually tried them. When they did, they loved the shoes.

This problem is referred to as the “agnostic marketing” problem, meaning that for disruptive innovations, no one – not experts, not traditional market research, not even customers themselves – can tell you what is wanted or whether it will actually succeed. Instead, customers have to try it to fully appreciate it.

Furr and Dyer display great clarity of thought here and the book contains excellent, clearly explained case studies to back up their key points. The Innovator's Method will useful to anyone concerned about fostering innovation in their organisation regardless of its size or age.