What’s Your ROI on Your R&D

By Jarl Jensen

June 20, 2019


You’re leading a company — congratulations. You’re passionate. You’re motivated. It’s time to take over the world!

You’ve got to create new products, break into new markets, and create opportunities. All of your profits are pouring into your R&D to help make it happen and keep you charging ahead of your competitors.

All of the big Fortune 500 companies are doing the same thing, so that’s got to be a good strategy… right?

The untold story behind investing in R&D is that it hardly ever pays off. I’ve spent the past three decades immersed in R&D.

R&D is complex and difficult. By definition, it’s almost doomed to fail from the onset — even if you’re running a billion or million-dollar company. The danger of wasting resources on R&D is rarely recognized because so many people in your position deem it essential.

Shareholders see R&D as an investment that often costs 5 to 10% of sales. The R&D expense line item gets a pass time and again — and that’s a big mistake.

Why is R&D futile?

The problem with throwing money at solving problems is that problems often don’t need money to be solved. Problems need to be solved with sweat, tears, and mindful observation — but that is just the start.

Problems often need time to be solved.

In other words, problems need a certain set of conditions to become possible in order to be solved. Those conditions often have nothing to do with the money being spent on R&D.

Tangential Opportunity

Most of the time research and development is successful because of an accident. The famous example is the post-it note. A scientist was trying to make a gentle adhesive for a bandage and instead created the adhesive for a post-it note.

If it was not for the realization that the adhesive could be used for something completely different, then the time and money spent would have been completely wasted.

Instead, the 3M Post-It note is hailed as a successful result of R&D despite the fact that the R&D failed to meet its original objectives.

Companies Should not Have an R&D Department

Most companies are complicated, regardless of size. There is marketing, sales, production, quality assurance, shipping, and more. Each function requires time-consuming and skilled attention.

Companies need to continue to improve their product, but most of the time those improvements don’t come from R&D. Ideas for improvements typically come from quality assurance that methodically improves production and fixes customer complaints.

Improvements and opportunity can also come from the sales department. Sales should always listen to customers who often find unique uses for products. Small requests for product changes or improvements from customers can lead to big opportunities for your business.

Companies often have R&D departments with big ambitions for products that leapfrog current products or even create new markets.

It’s time to realize that ambitious invention and innovation at this magnitude can’t be forced.

This kind of progress only happens when progress in other typically-unrelated fields can be used for a new revolutionary design. It is very difficult for scientists and engineers to put these pieces together and to know when, where, and how the missing piece will finally fall into place.

Small Acquisitions

The unpredictability of innovation is why it’s often smarter to not spend on R&D and instead save up those needless expenses for acquisitions. Buying a startup that has a leg up on new technology that can revolutionize a market is a lot smarter than wasting years on an R&D budget that will likely not be able to duplicate the work of a startup.

Acquiring the next breakthrough may seem very expensive as the multiples are usually high for strategic purchases — but so what. The return on investment for R&D will look a lot worse than it does right now once that annual budget is added up year after year.

Startups have a huge advantage over established businesses R&D pursuits.

Startups are typically forced to succeed with limited resources in a short period of time or they will run out of money. It is difficult to get that kind of urgency into the work of an R&D department.

A good startup is the result of an entrepreneur seeing a better way to do something.

The right timing allows your company to buy that startup before it becomes a competitor and after it has proven its business model. So, instead of plowing money into R&D, save it up and let an entrepreneur figure out a better way. Then, you can buy it before it gets too big.

What is Needed is an Enthusiastic Visionary

Not all businesses fail to innovate, but the common link between innovative businesses is almost always at the top. The leader of the company is a visionary. Steve Jobs and Elon Musk are perhaps the most famous examples.

Their innovative companies didn’t innovate because of a big R&D budget. They innovated because they got personally involved.

Steve Jobs had pet projects with a very small team. One of those projects led to the iPod and another led to the iPhone.

Elon Musk personally launched rockets into space from a remote Pacific island. His experiments lead to Space X.

Innovation is never about departments, budgets, and teams of scientists and engineers. Innovation is about the vision of a leader. In a company, innovation must come from the top.

Elon Musk and Steve Jobs are perhaps the rarest of leaders. Their contribution to the advancement of technology is certainly unmatched.

It is folly to think that everyone leading companies can innovate as they have. What is needed is not the intelligence of Steve and Ellon, but their mindsets.

  • A leader needs to dedicate some time to a small team to create the transformative solution they see for their business.
  • A leader needs to clarify and test the transformative solution.
  • A leader must decide to look to acquire that potential or to build it with a small team or even themselves.

There simply is no substitution for hands-on leadership from the top when it comes to innovation.

This is Where Inventagon Fits In

nventagon can help define the transformative solution.

We can help:

  • build the small innovative team
  • determine the potential for acquisitions
  • provide the rationale for reducing and eliminating wasteful R&D departments and expenditures.
  • most importantly — avoid the pitfalls of exuberance, inexperience, and distraction that often accompanies the executive offices when it comes to innovation.

Contact us today to discover how we can help you.

Our Office :

20 Charles Street 
Northvale, NJ 07647 

+(201) 875-1805