The importance of innovation for small businesses

Innovation is an important factor in the growth and success of your start-up – developing new products and services or improving business processes can play a role in achieving a competitive advantage.

In turn, being innovative when running your new business can help you increase productivity and boost sales.

If your business fails to be agile, adapt to market changes, or try new things, you might miss out on valuable opportunities.

But what exactly does innovation mean in practice for your start-up?

What is innovation?

In business, innovation often means the development and launch of new products or services, but it’s not just limited to that – it can also be the development of a new business process or the improvement of an existing one.

One description of innovation used by The Department for Science, Innovation and Technology (opens in a new window) is ‘ideas, successfully applied’, while the UK Innovation Strategy has described it as ‘the creation and application of new knowledge to improve the world’.

Examples of ways your start-up can be innovative could include:

• launching entirely new products and services
• using new technology to create and launch a new product or service
• improving a business model by adding complementary products or services
• improving the design of a product
• adapting an existing product for a new use
• introducing new technology to improve business processes
• improving business processes to reduce costs
• improving customer service or customer experience processes
• improving a marketing strategy to reach new customers.

Why is innovation important for start-ups?

A culture of innovation has lots of benefits for a new small business, including:

Increased productivity

Innovation helps you streamline business processes, which can lead to improved productivity.

You can spot ways to make processes more efficient by monitoring how you do things.

Taking steps, such as adopting new technology, can lead to increased productivity by speeding up tasks.

Reduced costs

Business innovation can help to cut costs.

Examples include using automation to reduce labour costs, introducing energy efficiency measures, and using new digital technologies to save time.

A competitive advantage

An innovation mindset can help you spot market changes quickly, take advantage of new opportunities, and stand out from competitors.

In addition to benefiting from the creation of new products or services, regularly improving the experience of customers buying from your business can also lead to more sales.

A survey by Salesforce in 2022 found that 88% of buyers believe the experience a company provides to its customers is as important as its products or services.

Improved turnover and profitability

Innovation can lead to increased sales and profit as a result of generating new revenue streams and cutting costs.

Improved employee retention

A business that encourages new ideas and tries new things is an exciting, stimulating, and rewarding place to work.

With a culture like that, you may be more likely to retain employees for longer than you would without an innovative approach to business.

A business that is attractive to new talent

An innovative business can help to attract talented new employees who want to work in a dynamic workplace.

How to encourage a culture of innovation and experimentation

Having a culture of innovation in the workplace will encourage your employees to think differently, develop new ideas, and seek out untapped opportunities.

All this is beneficial to overall business growth.

Ways to encourage an innovative working environment could include:

Having a process for capturing ideas

Ensure a system is in place for recording feedback and ideas from across the business.

You could have physical suggestion boxes, use online collaboration tools, or organise regular team away days to brainstorm ideas.

Keeping your meetings varied

Running staff meetings in different styles can help to encourage new ideas.

For example, holding stand-up meetings can make them more action-focused, while walking outdoors has been shown to improve creative thinking.

Giving staff a change of scene by using locations away from their usual workplace, such as co-working spaces, can also help to foster innovation.

Rewarding staff for their ideas

Rewarding staff for their ideas, even if they aren’t taken forward, can help to encourage further creativity and innovation.

Encouraging collaboration

Encourage employees to work together to come up with innovative ideas.

This can be done by teams within the same department or by bringing together staff from different business areas who don’t usually work together.

Collaboration among people from varied backgrounds and departments can often help to encourage innovation and provide a broader range of perspectives.

Providing training

Offering employees training helps them learn new skills, which can lead to new ideas and improved business practices.

Embracing new technologies

Taking advantage of the latest technology helps to drive innovation.

For example, artificial intelligence (AI) tools can help with creativity and data analysis.

AI services can also take on more mundane tasks, freeing up employees to work on innovative ideas.

Innovation and R&D funding

Businesses carrying out innovation activities may be able to access grants from the UK government, regional bodies, local councils, and other organisations.

This is known as research and development (R&D) funding.

Subject to the terms of the grant, the money could be used to research, develop, and commercialise a process, product or service, test innovation ideas, and collaborate with other organisations.

The UK government delivers R&D grants via UK Research and Innovation (UKRI).

Alternatively, you may be able to access regional funding, and local councils could also help.

Find out more about R&D funding to see if you might be eligible.