3 Steps to Succeed at Open Innovation

2018 was the year that insurance embraced open innovation. From medium-sized insurers to Fortune 50 incumbents, everyone seemed to be launching a challenge, accelerator or incubator -- to the point where we now have too much of a good thing. This has led to a certain ennui in the startup and VC ecosystem. Every insurtech startup, the good, the bad and the ugly, seems to have been part of one or more programs. It is hardly surprising that new programs are greeted with a collective shrug. In such a context, how can you create a compelling and differentiated program? Simply put, a compelling program creates immediate business value for both the program sponsor and the program participant. The keyword is "immediate" -- which means the program focus should be on core business processes and customer experience. In other words, ROI should mean return on investment, not reservoir of ideas! Programs to scout for new business models (like accelerators and incubators) have their place in an innovation portfolio but do not add immediate value -- certainly not to the sponsor (and rarely to the participant). In general, it is better to have a narrower focus on digitization and differentiation, before trying to tackle disruption. See also: Era of Insurance Innovation Is Upon Us   For the program to be more than PR spin, it should fulfill the following conditions:

1. The program should tackle well-defined, real business problems. As a rule of thumb, the problem should be costing the incumbent north of $1 million per year. This size of problem ensures that there is scope for a long-term relationship and a significant opportunity for the startup partner. The problem should also be well-defined -- the improvement metric should be clear. The Netflix prize, which required a 10% improvement to Netflix’s own recommendation engine, is a good example.
2. The pilot should be with real data and real customers. The end stage of the program has to be more than a demo day, with abstract promises of next steps. A differentiated program will guarantee a pilot that interfaces with the business and is implemented in a live environment. By definition, this will require certain maturity on the startup partner side, which is a good thing.
3. The pilot should have a real budget. No more "toy prizes" of $20,000 to $50,000. A pilot should have a budget of at least $100,000 to create meaningingful skin in the game, so that both sides are serious about making the pilot a success.

Finally, we need a new brand for programs that meet these conditions. I suggest "implementation challenges" to make clear that the program is about creating value in the here and now. See also: With Innovation, Keep It Simple, Stupid   A well-run implementation challenge can add significant value to both the sponsor and the participant: For the participant:

1. A "lighthouse" customer -- an actual implementation at a Fortune 500 company makes it easier for the startup to attract both investments and other customers.
2. Revenue leverage -- depending on the type of product, investors attach a multiple of 8X to 10X. Hence, a $100,000 contract can create a $1 million increase in valuation

For the sponsor:

1. Access to world-class talent and technology
2. Kickstarting the digital transformation process

I hope to see more implementation challenges in 2019.