We all want to win the lottery. Don’t we? The same primitive logic applies to innovation. We all want to develop a world changing product or idea. But what if your ship comes in? What if the product you developed in your bedroom becomes a multi-billion dollar industry? What if people actually buy things and keep buying them?
In 1997 a company based in London’s Soho had sales of £13.7 million. After 10 years of operating it had established itself as a successful niche player in a market dominated by global giants. Progress was steady rather than meteoric; but that was about to change.
In the same year it brought a new product to market. Totally unexpectedly, the product swept the world and transformed the company. By 2002, the company’s sales were £68 million – an increase of 500 percent over 1997.
The company is Bloomsbury Publishing. Its runaway success, Harry Potter. The books in the series have now sold over 130 million copies world-wide. Bloomsbury is the latest company to face one of the business world’s most underestimated challenges: something we call windfall economics.
A business windfall is an unexpected success. It begins with a single product or brand that generates revenues far in excess of those anticipated or normal for the size of the company or the market.
Windfalls bring obvious good news. Sales rocket. Money floods in. The result is a transformed business. Nothing is ever the same again. How companies create windfalls has been lengthily analyzed. They innovate, they experiment, they take risks, they nurture star performers. Sometimes they simply get lucky.
Everyone hopes to sit under an apple tree and watch as a bounteous harvest falls to the ground. Yet how you manage a windfall is rarely considered. This is a pity because, paradoxically, windfalls bring profound management challenges.
Good fortune can be squandered. For every Bloomsbury, which has handled its windfall with aplomb, there is a windfall failure, someone left clutching a bag of rotting apples with no idea what to do next.
Windfalls tend to be highly concentrated in sectors where the primary asset is individual talent. In the movies, sports, music, fashion and TV broadcasting, individual stars generate windfalls. Some industries – the Hollywood film industry, for one – rely on creating a steady stream of windfalls. Everything from casting to merchandising is geared to the harvesting process.
Sometimes, of course, even the most carefully nurtured fruit trees can produce lemons. The same process is at work in other high capital investment sectors – including pharmaceuticals, high-tech and consumer electronics.
True windfalls are unanticipated money spinners. They are harvests that take everyone by surprise. With the Harry Potter series Bloomsbury hit the jackpot. But it might have been very different. Harry Potter and the Philosopher’s Stone, JK Rowling’s first book in the series, was famously turned down by nine publishers before Bloomsbury picked it up.
Other windfalls are equally unpredictable. Consider the beer Corona. In the late 1990s imported bottled beer – and Corona in particular – became ultra fashionable in the US. Corona took its first trip to the US in 1979, starting out in California and Texas. By the late 1980s the beer with a slice of lime had caught on in a big way. By 1997 it had toppled Heineken as the number-one imported beer in the US. Sales rose from 14 million 2.25-gallon cases in 1993 to 38 million cases in 1997. A new brewery had to be built – at Zacatecas, Mexico – to meet the surge in demand.
Other windfalls take a while to drop. Brushed suede Hush Puppies had been kicking around for 30-odd years before they hit the height of fashion. Introduced in 1958 they settled down to life as a safe but comfy casual shoe for the middle-aged. But, in the mid-1990s, they were rediscovered by a fashion conscious East Village crowd in New York. Clothes designer John Bartlett used the shoes as accessories in his 1995 spring collection. On the West Coast, Los Angeles designer Joel
Fitzpatrick turned over an art gallery to the sale of Hush Puppies, installing a 25ft inflatable Bassett Hound on the roof.
Windfall economics propelled Hush Puppies into urban chic. Jazzed up in a range of brightly colored coats the Puppies soon found their way onto the feet of the rich and trendy. Seen in the company of Friends stars Matthew Perry, David Schwimmer, Lisa Kudrow, Matt LeBlanc and Jennifer Aniston, Hollywood luminaries like Jim Carrey and Sharon Stone, and pop icon David Bowie, by 1996 Hush Puppies were being honored by the Council of Fashion Designers of America as top accessory of the year. And the effect on sales? In 1995 430,000 pairs of classic Hush Puppies scampered out of the stores. In 1996 that figure was 1.6 million.
There are many other such windfalls. Walt Disney’s Mickey Mouse reinvigorated his flagging business fortunes. Cadillac’s Escalade, was intended as a white yuppie super SUV (sports utility vehicle) but was adopted by hip hoppers and NBA stars. No marketing guru could plan for such commercial bounties.
Indeed, one of the perplexing things about business is that windfalls can happen any time, anywhere. It doesn’t matter where you planted the tree.
Think back to the 2002 Winter Olympics at Salt Lake City. The Games got off to an explosive commercial start from the moment the US team emerged in fetching berets. The images were beamed around the world. The berets were an instant hit. In a few days the $19.95-priced berets were on offer on eBay for $200 as the Canadian manufacturer, Roots Inc., struggled to meet the huge demand.
Another windfall came courtesy of a singing fish. Big Mouth Billy Bass is an anatomically detailed bass that croons Take Me to the River and Don’t Worry, Be Happy. Billy was spawned by Gemmy Industries, a small, privately owned novelty toy company based in Irving, Texas. The company started in 1993 with a product called Pete the Repeat Parrot and by 1998 had moved on to produce three other animated novelty items – a dancing cactus, a dancing palm tree and the Caddyshack Dancing Gopher. But Billy Bass surpassed all expectations.
When Billy was tested at Pro Bass Shops and Cracker Barrel restaurants, the singing fish, retailing at between $19 and $24, sold out in four days. The product became a best seller at an industry show in Atlanta. Dillard’s department stores ordered 100,000 – and came back three weeks later for another 100,000. Other national chains joined in, and sales of Billy Bass became a feeding frenzy. The tuneful fish became Gemmy’s biggest seller.
So, as you contemplate another few hours spent in the innovation cauldron consider the seemingly impossible truth: it could happen to you.
This was originally published in What we mean when we talk about innovation by Stuart Crainer and Des Dearlove (Infinite Ideas, 2016).