Successful innovation is the way companies deliver better products or services to customers, and is an outstanding driver of growth and profits for investors in the companies that know how to do it. Although innovation is usually associated with tech companies, which of course operate in a very innovative environment, it can really be in every line of business.
In fact, looking for innovative companies outside the tech industry can be a very profitable idea for long term shareholders. An enterprise can develop a new concept, a better marketing strategy or simply a more convenient way of doing things, and that usually creates enormous business opportunities. Better technology is a very useful tool, but not necessarily the main driver of innovation.
Consider Starbucks for example, coffee stores are not precisely a new kind of business, but Starbucks brought a new concept to it. The idea that Starbucks should become a third place between home and work, a place to meet with friends and relax, read a book or just use your laptop for a while has been part of Howard Schultz´s vision since the beginning, and management has executed that concept efficiently.
Starbucks doesn´t just sell coffee, it´s an experience, a different and better experience than the one provided by other coffee stores. That´s clearly an innovation and it´s not precisely based on better technology. Although Starbucks has made some smart moves with the help of new technologies, like its mobile payments solution, the company´s historical success has been based on a more conceptual idea.
Mexican food has been around forever, and you don´t need a lot of high technology to operate in this business, but that doesn´t mean there is no room for innovation as we can see from Chipotle Mexican Grill . Chipotle maintains the basic speed and experience of the fast food industry, but offers higher quality food and better ecological and sustainability standards.
Most fast food companies move into highly processed ingredients as they grow in size, but Chipotle has done exactly the opposite, focusing every day more on fresh ingredients for its tacos and burritos. Instead of looking for low cost suppliers, Chipotle has developed its own network of high quality providers of natural and environmentally sustainable food.
Customers have to pay a little extra to eat at Chipotle, but they are willing to do so in exchange for the extra quality the company brings to the table. This company didn´t invent the iPad, but the stock has been more profitable than all mighty Apple over the last five years: from a $62 USD price five years ago shares of Chipotle have recently made new all time highs above $418 USD.
Who would have thought that selling highly priced athletic apparel for yoga practitioners could be a business with outstanding growth potential? But Lululemon sells more than that, the company provides self improvement tools for both its clients and employees, and a strong sense of belonging for people trying to achieve a higher quality of life.
Lululemon uses almost no advertising at all; instead the company focuses on promoting certain ideas, philosophies and practices while building a strong network of yoga instructors and other influencers that promote the company´s image and products. Free yoga classes, self help books and a strong focus on personal relations are part of the Lululemon´s successful marketing strategy.
They don´t talk about selling expensive yoga pants for high profit margins, the company´s mission is “to elevate the world from mediocrity to greatness”. But shareholders in Lululemon are probably doing some Tibetan chants to celebrate the company´s performance; this stock could have been bought for less than $3 USD during its lows in the 2009 recession and it´s currently trading above $76 USD.
Innovation can be found anywhere: building a better experience, identifying customer’s needs and looking for more effective and uncommon marketing strategies are some of the examples of powerful innovations that can bring enormous benefits for companies and their shareholders. Those who are looking for highly innovative companies should broaden their scope beyond the world of technology stocks.
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