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Product managers are under a lot of pressure to be innovative. Everybody expects us to be the main innovators in our companies and build products that can "change the world."

But what is product innovation about exactly, and how can you guide your team to think innovatively?

As you might have guessed, you're about to find out.

Why Is it Important to Keep Innovating?

I know, we’re all sick and tired of hearing the word “innovative” everywhere. But believe me, it’s not a buzzword, and you should take innovation seriously. The main reason is that the world (especially the digital one) is evolving crazy fast, and staying innovative is the only way to stay afloat.

There are plenty of other good reasons why you should keep a constant pace of innovation for your existing products, including:

Your Adaptability to Market Changes

It’s not only your competitors that move fast and evolve faster. Your potential customers will most certainly change the way they solve their day-to-day pains over time, too.

Cruelty-free cosmetics are among the most prominent examples of this. Thanks to the efforts of animal rights protection organizations, the general public has become increasingly sensitive towards animal testing. Over time, consumers started giving their preference to makeup products that were not tested on animals.

As a result, we saw new brands like Lush emerging (and thriving in the market) thanks to their “cruelty-free” positioning.

a girl wearing a bag that says "fight animal testing"
Credit: Lush

They even started handing out bags at checkout with “fighting animal testing” messages printed on them.

To keep up with this market trend, other cosmetic brands quickly stopped animal testing—and now virtually every company in this space touts the term "cruelty-free" in their marketing materials.

Your Ability To Outcompete Others In the Market

It's really hard to differentiate your product and truly shine beside your competitors if you offer something at the same level of innovation as them.

But, you can focus on building a novel product that can solve problems better than the others. You can even solve something that was deemed unsolvable before. With this, you will create a massive competitive advantage over the others and easily capture their market share.

Netflix's story is my favorite example of a company out-competing everyone using radical innovation. When Blockbuster and others were offering DVD rentals at their brick-and-mortar stores, Netflix decided to innovate and offer the same service over mail in their legendary red envelopes.

Apart from this, they also offered a subscription model (contrary to Blockbuster’s pay-per-rental approach) with no late fees, which was innovative for the industry. With all of these disruptive innovations, Netflix started growing rapidly and grabbed a significant portion of Blockbuster’s market share.

But being an innovation-first company, Netflix did not stop there. Soon, the company realized that digital streaming was the future and decided to be a pioneer for that offering. This led to Nexflix becoming the largest streaming service in the market and completely killing brick-and-mortar rentals as an industry.

Your Ability To Enter New Market Segments

Innovation is not just about staying afloat in your current market. It can also allow you to explore and successfully address new customer needs. This way, your value proposition can reach many new customers and demographics.

The logic here is fairly straightforward. If you want to enter a new market, you will need to compete with the incumbent products there. What’s the best way to do that? Innovation, natch!

This type of innovation-driven expansion is what the FAANG are good at.

Amazon, for instance, understood that scaling its eCommerce operations had given it world-class know-how in cloud server infrastructure. To keep up with the demand for online shopping, it introduced a wide range of new technologies to its cloud, including S3 file storage and DynamoDB.

Their innovation strategy was to use their expertise to enter a new market—SaaS cloud computing with AWS. This strategy was highly viable and feasible (and had a high profit margin), so AWS quickly became the #1 cloud service.

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What Does The Product Innovation Process Look Like?

Honestly, there’s no single standard framework for the innovation process out there. Instead, each company creates its own based on its product nature, industry, and other factors. 

Some use dedicated idea management software, while others keep the ideas in their mind.

Author's Note

If you’re curious about ways to get better ideas out of your team, I suggest checking out our guide on design frameworks for ideation workshops.

They do, however, use the general philosophy of innovation-driven development that consists of the following elements:

Innovative culture: There is no way you can innovate if your company culture is not optimized for it. Innovative companies always actively encourage everyone on their team to be bold with their ideas, always share everything that comes to their minds, and constantly strive to make something amazing.

Valve: A Shining Example of Innovative Culture

Half-Life 2 promotional image.

Valve, the game studio responsible for arguably the best video game of all time (Half-Life 2, fight me if you disagree) is a role model for establishing innovative culture in the company. The structure of the company is flat and people can work on whichever product they want. What sets Valve apart, though, is the fact that any employee can come up with a new game idea, form a team, and start developing it.

Agility and short feedback cycles: Innovative companies hate strict plans and guidelines. Instead, they usually encourage their teams to be agile and quickly shift priorities and work styles when needed. These teams also make sure that whatever they build gets real-life customer feedback as quickly as possible using short iterations.

Embracing failure and learning from it: Innovation is all about solving a problem that nobody has solved before. So, you are very likely to fail at least a couple of times before you come up with something useful.

This is completely natural for innovative products, and great companies embrace it. They usually follow this philosophy:

It's not a failure, it's an opportunity to learn and improve the product.

Of course, we can't talk about embracing failure without mentioning SpaceX. Before they managed to land their first-stage rocket booster (it still amazes me), they literally blew up a gazillion prototypes.

They even came up with a joke term describing their screw-ups—a "rapid unscheduled disassembly."

Where Does Innovation Fit into the New Product Development Process?

Some people argue that innovation happens at the very beginning of the product development lifecycle.

Honestly, I could not disagree more. You should continue innovating no matter the lifecycle phase. Why? Because innovation is not only about coming up with a novel product idea and trying to implement it.

Successful product innovation can take many forms. It can involve an innovative business model, customer support, development process, tech stack, and even management style. So, each phase of the development process has its own type of innovation opportunities.

Different Types of Product Innovation For Each Phase

As I already mentioned, the most popular phase for people to stretch their innovative muscles is during ideation. Here, you are usually trying to develop an innovative solution or new features to solve a new problem or improve the solution in an existing market.

But, apart from that, the ideation phase is also the point where you can develop an innovative business model. Spotify, for instance, built its entire product with the innovative streaming business model in mind.

Here are the other phases, each with its own type of radical or incremental innovation.

Product Design Phase

This is when you can pass the innovation baton to your UX team and come up with a visual design and user experience that is new and different from the way others do it.

Example: Slack

Slack’s chats and channels are a prominent example of this type of innovation. Before Slack, people communicated about their work over email or by using other tools with terrible UX. The UX team at Slack decided to be bold and introduce a new experience that was heavily inspired by social media and was completely different from the way people communicated at work.

Development Phase

At this point, you can focus on two forms of innovation—code and architecture. In terms of code, you can either write logic that is solving something new or introduce a ready piece of code (e.g. open source AI models) that does the same.

But architecture is another place where you can innovate and stand out from the competition.

Example: Blizzard Entertainment

MMORPGs (massively multiplayer games) were terrible in the past because the ping (the time it takes for others’ character actions to reach you) was too high, and you could not play with people from the other side of the world in real-time. When Blizzard Entertainment introduced World of Warcraft, they developed a novel network architecture that solved this problem and made real-time mass online gameplay a reality.

WoW 1.12 packet header encryption infographic

This diagram shows the HTTP request header encryption and barely scratches the surface of what the real architecture looks like. You can read about the whole thing here.

Testing Phase

During this phase, you can focus on process innovations (although this type is valid for all phases). The advent of automated tests was the result of this. When products became large and complex, people realized that testing them before each release was highly time-consuming. So, developers innovated their process and introduced scripts that would test the code base automatically in mere minutes (instead of days of manual work).

Launch and Scale-up Phase

In this phase, you can develop an innovative go-to-market strategy and monetization strategy. AirBnB, for instance, piggybacked off Craigslist as part of its GTM.

3 Tech Giants That Failed to Innovate (and Didn't Survive)

When talking about a certain topic, I usually talk about the success stories of prominent companies that have applied it (e.g. Apple with iPhone and Macbook laptops or Tesla). This time, however, I want to talk about the failure stories to show you how companies can fail if they stop innovating.

Here are the three examples of product innovation gone bad.

Back in the early 2000s, Yahoo was the number one online platform out there. They were what you would consider the FAANG of that era. At the time, virtually everyone’s emails ended with and the majority of users searched the internet using the Yahoo search engine.

However, having become a behemoth in tech, Yahoo had lost its innovative edge and could not properly evolve the engine. As a result, the company started steadily losing its market share over the next decade.

US market sales

By late 2002, Google overtook the market leader position thanks to its new innovative search engine, which ranked pages based on their backlinks and content relevance. Fast-forward 20 years, and Yahoo is practically gone while Google’s market share nears 90%.


Another story of a behemoth in the digital world that moved too slow and could not keep up with changing customer needs. I still love Nokia. They were responsible for some of the best mobile phones in the world. I am still a proud owner of the legendary Nokia 3310 (as my backup phone).

Yes, only the infernal flames of Mount Doom could destroy that thing.

Now, back to our topic. When the world started rapidly shifting towards smartphones, Nokia, for some unknown reason (maybe production costs, I don’t know), did not believe in their potential and preferred to stick to producing dumbphones.

Obviously, everyone started buying smartphones, and Nokia was out of the game.


No list of failed companies due to lack of innovation would be complete without mentioning Kodak.

Just like Nokia, the senior leadership at Kodak refused to take the digital photography revolution seriously. When the team responsible for product innovations at Kodak presented the idea of shifting the company towards digital photography, one of the senior executives famously said:

"That's cute—but don't worry about it."

Well, it was not cute, and they definitely should have worried about it. Kodak’s miserable failure in the photography market was not cute either.

Innovation Lies At The Heart Of Product Management

There’s a good reason we associate product managers with the term “innovation,” especially in the startup world.

It is usually us, the PMs, who act as the main driving force behind some of the most innovative projects in our companies.

We're also the ones pushing our stakeholders to accept the path of innovation, encourage our teams to think creatively and push our innovation-driven metrics forward.

Innovation is hard, but it is definitely doable.

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By Suren Karapetyan

Suren Karapetyan, MBA, is a senior product manager focused on AI-driven SaaS products. He thrives in the fast-paced world of early stage startups and finds the product-market fit for them. His portfolio is quite diverse, ranging from background noise cancellation tools for work-from-home folks to customs clearance software for government agencies.