Can you leave a business better off than you found it? That is the measure of success in private equity, and a deep toolkit of tried-and-true operational and financial improvement levers exist to help achieve it—from Six Sigma to LEAN to optimized data monitoring and working capital management. But improvements to some business functions, including many critical to driving growth, are inherently difficult to systematize and replicate across a variety of companies. Chief among these is innovation. It’s often seen as a creative, almost mystical activity, something vaguely tied up in an “innovation culture” that companies either have or they don’t. But is this really true?
Not completely, as innovation and product design firm Nottingham Spirk (NS) has proven for over half a century, with a novel approach that has yielded outsized results and made them the innovation guru to some of America’s leading corporations. While research and development has traditionally been a function that corporations keep tightly in-house, the success of NS makes a strong case that at least partially outsourcing this critical function can also pay dividends, literally, all while demonstrating that, when done right, structured, systematic approaches to innovation can have a meaningful impact on performance over the long term.
Since being founded in a garage in 1972 by college buddies John Nottingham and John Spirk, the company has registered over 1,550 patents, more than Thomas Edison. Even more amazing is that 95% of these have been commercialized (successfully brought to market and/or licensed), versus a national average of around 5% (link). Some of the products you have surely heard of and probably used, such as the Spinbrush, Swiffer Sweeper and Dirt Devil vacuum. Others, such as recent work on a platform for treating concussions, are tremendously impactful but not widely known.
In this post we will break down Nottingham Spirk’s technique, which at a general level can be applied to almost any type of business to make it more innovative.
The approach starts with a sense of childlike wonder. As John Nottingham said in a podcast, he believes in skipping in to work in the morning and crawling out at the end of the day, exhausted. In between is where the magic happens.
Children love magical thinking. In their hands a stick can become a sword, or a paper towel tube a rocketship. Nottingham Spirk’s very first product involved a similarly whimsical transformation. The client, Rotation Dynamics Corporation (Rotadyne), wanted additional ways to monetize their technology for making hospital bedpans. By equipping the bedpans with wheels and a roof, a popular new toy was created and sold under the brand name Little Tikes. Per the podcast, Rotadyne rebranded as Little Tikes and grew revenue from $1 million to $600 million.
That expansive and creative sense of possibilities is now baked into Nottingham’s Spirk’s culture. Their five-story corporate headquarters in Cleveland is a former church with an architecture designed for wonder and inspiration through features such as high ceilings and a rotunda. And the floor plan retains large common areas to facilitate random as well as planned interactions.
According to Nottingham, a big key to maintaining an innovative edge is to avoid falling into a rut. All healthy businesses have both a “core” of operations that generates profits and pays bills, and an innovative periphery that seeks new and better product and service offerings. While the core is undeniably important, most businesses overemphasize it by neglecting their innovative periphery.
More specifically, Nottingham Spirk nurtures innovation through a brainstorming process that involves divergence followed by convergence. Participants in ideation sessions first diverge by coming up with new ideas, from the most mild to the most wild. At this stage, no idea is denigrated. In a followup session, participants revisit all the ideas to identify the most likely winners, converging down to a small number worth pursuing.
But how do they achieve a 95% commercialization rate? According to Nottingham, the secret is “vertical innovation.” He explains that the typical company keeps its research and development efforts in “silos” far too long. For example, a new product might be conceived and refined in an ideation silo, then passed along to a marketing research silo to see if a market exists, then passed along to an engineering silo to be prototyped, and so on. Nottingham Spirk integrates all these silos so they work in lockstep early on, which results in less time being wasted on products that make it through one or two silos only to be rejected by the next.
The Spinbrush is a perfect example of how well the overall system works. The initial proposal—a great electric toothbrush that could retail for $5—was definitely on the wild side of the ideation spectrum. This was 1999, and the only offerings—from brands like Oral B and Sonicare—were in the neighborhood of $50-$100.
To make the challenge even more difficult, a $5 retail price would require a wholesale price half of that, and a production cost half of that to $1.25. Though it seemed ludicrous, NS decided along with its client/partner John Osher that it could be done. As Nottingham himself says in the podcast, sometimes “the impossible just takes a little longer.”
Knowing that copper was the most expensive element in a toothbrush motor, NS worked to design a new motor with much less copper, and eventually got it mass produced for only fourteen cents. Through a reverse internet auction, they cut the price of an alkaline battery by more than half, and followed the same process for the bristles and other parts. They eventually got the landed cost down to $1.25. With three Johns leading the project, the Dr. John Spinbrush was born, and the rest is business history. Sales exploded. In 2001, Proctor and Gamble bought the $5 brush for $475 million and it became the bestselling toothbrush in the world. It is now sold by Arm & Hammer, and still retails for under $8.
The success of the Spinbrush, and the NS innovation process more generally, captures the essence of private equity and of capitalism itself. A recipe of belief, best practices, and sustained and determined effort can result in something that improves people’s lives, enriches your bank account, and changes the world.