Nespresso was a breakout hit for Nestle and for a long time its biggest profit contributor. Yet, the innovative business model and value proposition was launched over 30 years ago. Since then, the largest food & beverage company in the world seems unable to produce a similar home run. Here’s why.
You can’t create a multi-billion dollar growth engine by investing in just a couple of projects--in particular when you expect all to succeed. That’s the challenge for Nestle in trying to produce another major success like Nespresso -- they’re not investing in enough “losers”.
I’ve written about this before. The statistics from early stage venture capital show us that we know we can’t pick the winners without investing in the losers.
Large and established companies like Nestlé expect the majority of innovation projects to succeed because they believe they can pick the winners. In reality, you need to invest in a portfolio of “potential winners” or “options” in order to catch the real winner.
A counter-argument I often hear is that large companies don’t need that because they have the resources to make acquisitions. That’s true, but I believe the best innovators play the full innovation spectrum: they experiment with potential growth engines to learn, and when they need to go faster they acquire.
That’s where Amazon is pretty good. They learn and acquire when acquisition makes sense, but they also do a lot of experimentation. It’s this portfolio of many losers, some mediocre ideas, and maybe 1 or 2 home runs that allows them to explore the next big hit.
So far Nestlé has entered the acquisition game, but from what I see they’re painfully neglecting the exploration game. Another Nespresso-like success is not on the horizon. OK, now I need to go buy some Nespresso pods, since I ran out of them while writing this post.