In the realm of technology, not all groundbreaking changes emerge from sudden, radical shifts. Contrary to popular belief, the vast majority of advancements—98% in fact—are born from incremental innovation. This approach, often overshadowed by its more glamorous counterpart, disruptive innovation, is no less critical in shaping the landscape of markets and industries.
However, what is often missed is targeting of larger, more disruptive innovations while following an incremental approach. At Gaussian, we call these Incremental Moonshots—and they represent a paradigm shift in how we perceive and pursue innovation.
An Incremental Moonshot is a company or product that grows gradually and continually towards a disruptive vision.
Incremental moonshots stand at the intersection of ambition and prudence, embodying the pursuit of disruptive, large-scale goals through steady, manageable steps. This approach is more sparing with the typical high-risk, high-reward scenarios associated with press-worthy innovation, opting instead for a path characterized by sustainable growth and improved likelihood of success. In today's fast-paced and often unpredictable business environment, the incremental moonshot strategy offers a compelling alternative. It provides a framework for companies to innovate and grow, not through massive leaps, but through a series of calculated, strategic steps. As we delve deeper into this concept, we will explore its philosophy, key elements, challenges, opportunities, and real-world examples to illustrate its impact and significance in modern business innovation.
Key Elements of Incremental Moonshots
At the core of incremental moonshots lies a methodology that challenges traditional hype of innovative processes. The fact that the vast majority of innovation is incremental is a testament to the power of gradual, consistent steps, rather than relying solely on disruptive leaps. Incremental moonshots do not seek to replace "growth-at-all-costs" innovation but to complement it, offering a more sustainable and less risky path to significant achievements.
The key elements of incremental moonshots revolve around sustainable growth, risk management, and continuous innovation, with the imperative of remaining financially viable and ideally profitable. At its heart, this approach is about creating products and services through incremental wins that improve financial positioning and boost unfair advantages (particularly around customer knowledge and relationships), thereby guaranteeing an improved strategic position at every increment. The key elements include:
- Moonshot Vision: Having a bold or disruptive multi-year vision and mission. This is crucial for motivation, alignment, and checking progress. Example: "Go to the moon".
- Continual Growth: Focusing on consistent steps to always be moving in the long-term direction.
- Gradual is OK: Market dominance and "blitzscaling" are not required to yield optimal outcomes for innovators and parent companies. (See the linked article for why blitzscaling is not a universally optimal approach.) Together with "Continual Growth", this means that the venture is continuously growing, but without any external requirement of how fast.
- Customer-Centric Innovation: Continuously building and adapting products and services based on customer feedback and market trends to result in services that are always creating more total customer value at each iteration. Embracing a culture of ongoing learning, feedback, and adaptation to drive innovation.
- Focus on Cashflow: Targeting profitability and cash-generation early on, both as a financial input and as a mark of customer success. It's hard to argue with whether you've created customer value if customers are paying. (Note hat this limits the use of certain tactics like "blitzscaling" which have a probability of success in some B2C scenarios.)
- Snowballing Unfair Advantages: Seeking to increase unfair advantage (particularly strength of customer relationships, and depth of customer understanding) with each success.
- Financial Stability and Risk Management: Achieving cashflow positivity to reduce operational risks and maximize flexibility (versus running out of cash and having no options). This is particularly important when market conditions change or when unpredictable disasters occur, which would require financial resilience. This also means minimizing gambling, and maximizing the expected value of the outcome, as opposed to the maximum upside. This is critical given that somewhere between 99% and 99.99% of new ventures fail, depending on definitions.
The result is that the incremental moonshot becomes a virtuous cycle between revenue generation, customer relationship/knowledge, and financial stability, resulting in high likelihood of increasing success at each increment.
Benefits of Incremental Moonshots
Incremental moonshots provide several tangible advantages for businesses pursuing innovative growth:
- Greater Chance of Success and Longevity: Entrepreneurs and businesses are more likely to succeed and grow continuously with this approach, as it minimizes risks and maximizes opportunities for ongoing development.
- Higher Expected Outcome for Entrepreneurs: As the likelihood of success is higher, even though potential upside is lower, the expected value (likelihood x maximum upside) is higher. This means that entrepreneurs and owners have a better outcome on average, despite lower valuations. Note that for risk investors (e.g. venture capital), this model creates a worse outcome, as small valuations do not mathematically create the required returns (see the section below).
- Stronger Financial Health: Prioritizing consistent profitability and positive cashflow contributes to a more stable and resilient business.
- Deeper Customer Connections: Focusing on customer needs leads to products and services that consistently meet and exceed market expectations, strengthening customer loyalty.
- Distinct Market Position: By gradually building unique advantages, especially in understanding and relating to customers, businesses can distinguish themselves in competitive markets.
- Steadier Growth: This method ensures a company grows at a sustainable pace, reducing risks and setting the stage for long-term success. This can have positive cultural impacts too.
Challenges of Incremental Moonshots
Adopting an incremental moonshot approach in innovation presents its own set of challenges and opportunities. One major challenge is balancing the focus on quick wins with the broader strategic vision. In incremental innovation, there’s a risk of becoming too absorbed in immediate improvements, losing sight of the long-term goals. The pursuit of these quick wins must be critically evaluated, ensuring they are aligned with the overall objectives and the needs of the users. This calls for a deep understanding of customer desires and a commitment to align product enhancements with these needs.
Another critical challenge is that for small companies, the risk-reward profile of incremental moonshots (i.e. slow growth with higher likelihood) doesn't work well for early stage investors like venture capital. Time matters for investment funds, and valuations are often driven by far-future expectations of technological power (and therefore cashflow), versus near-term expectations of cashflow. Private equity investors and large corporate investors are very good at valuing cashflows, but they are less likely to reward the prospect of value in the far future by a continually innovating business. (There are private equity firms increasingly at the intersection of high-growth and mature companies, however.) The net result is that investors are often unexcited by incremental moonshot companies.
Companies with Incremental Moonshots
Many companies showcase the power of the incremental moonshot approach. They started with a simple, focused idea, and through continuous improvement, customer-centric innovation, and strategic growth, they have made significant impacts in their respective industries. The below case studies demonstrate that transformative success doesn’t always require massive leaps or risks but can be achieved through a series of well-calculated, incremental steps.
Starting as a design consulting firm in 2000, MailChimp represents a classic example of an incremental moonshot. The company was born from a need to simplify the process of creating e-newsletters. This modest beginning led to a platform that now serves over 14 million users, generating more than $400 million in revenue by 2016. MailChimp’s growth is a testament to the power of being "privately owned, bootstrapped, and proud of it", focusing on customer needs and evolving steadily. By gradually adding features and improving the user experience, the company transformed into a leading player in the email marketing space, all while maintaining its original vision and independence.
The well-known electronics marketplace had a humble beginning. Limor Fried, while studying engineering at MIT, founded AdaFruit Industries in 2005. It started as a small project to make learning about electronics fun through DIY kits. Demonstrating the essence of incremental moonshots, AdaFruit grew from a simple idea into a company with a revenue of $22 million in 2013, expanding to $33 million in 2014. This growth was achieved by continually enhancing the product offerings and focusing on the unique needs of the electronics DIY community, illustrating how passion and consistent innovation can lead to substantial business success—all without any funding.
GitHub, founded in 2008, stands out as a prime example of customer-focused incremental growth in the tech industry. Prior to their major venture capital boost of $100 million in 2012, GitHub had already built a significant user base, underpinned by its commitment to fulfilling the evolving needs of developers. Its revenue-driven model, leveraging subscription plans and third-party app sales, not only ensured operational sustainability but also funded its growth. This customer-centric approach and self-financed expansion strategy led to an impressive valuation of $750 million in 2012, further skyrocketing to about $40 billion by 2021.
The incremental moonshot approach stems from the reality that big ideas do not always necessitate big risks. Instead, it favors a methodical approach, where each step is a calculated move towards a larger, often disruptive, goal. The beauty of this approach lies in its flexibility and adaptability. It allows businesses to respond to market changes, customer feedback, and technological advancements in real-time, thereby reducing the risk associated with large-scale, untested changes.
The incremental moonshot mindset also embraces learning and evolution as core components. By taking a series of smaller steps, companies can learn from each move, making adjustments along the way. This continuous loop of feedback and improvement is crucial for navigating today's rapidly changing business environment. It encourages a culture of continuous learning and adaptation, which is essential for long-term sustainability and growth.
One of the key pillars of the incremental moonshot is resilience. In a landscape where resistance to change is a widespread challenge, this approach equips businesses to overcome inertia and gradually introduce changes without overwhelming their teams or operations. It’s about building a robust foundation for innovation, one that can withstand market fluctuations and evolving consumer demands.
The philosophy of incremental moonshots is not just about the end goal but about the journey. It’s a strategic, thoughtful approach to innovation that values consistency, learning, and resilience, offering a viable alternative to the high-stakes gamble of traditional innovation strategies.