By Maurie Cashman
The need to continually innovate was sighted by 58% of family owned business in a recent PWC survey as one of the top five concerns over the next five years. I would argue that 42% of the companies in that survey are in big trouble.
I attended the Berkshire Hathaway meeting two weeks ago and came away with many insights, which I hope to write more about over the next few weeks. One theme they struck was the need to continue to innovate in every one of their businesses. 
I came into the meeting very curious to see what their position would be on the Keystone Pipeline. Buffett has been publicly in favor of the pipeline, which I’ve found curious since the BNSF Railroad is one of Berkshire’s top holdings. A large amount of BNSF traffic is hauling crude from the Canadian sand oil fields to refineries in Texas and Louisiana. When questioned about this Buffet acknowledged that the pipeline would impact the railroad. He then went on to announce that, the previous day, Berkshire had acquired all of the power transmission lines in Alberta and had also acquired a small chemical company that had a product that increases the viscosity of oil so that it will be easier to transport through pipelines.
So Berkshire now holds the rail lines that currently haul crude from Canada to refineries in the gulf, the electrical lines that will be needed to power any pipeline that may be built, and the means necessary to make the crude flow through that pipeline. And, not to be overlooked, they have avoided investing in the one piece carrying the highest cost and most risk to an investor, the pipeline itself.
My takeaway from this is that the need to continually innovate should be very high on the list of every company, and probably much more aggressively than most family companies are prepared or equipped to manage. The more traditional approach involves continuous improvement of processes. However, I believe that forces in the economy are now pointing to a basic fact: No matter how much you improve your current processes, it may not be enough to outpace the competitive advantages that someone may be gaining by taking a completely different approach to a problem. I am not trying to debunk the value of continuous improvement. I am suggesting that if your processes or products are outdated it will make no difference how much you improve them. I am reminded of the feather duster factory in my hometown, Monticello. By all measures it was a leader in its industry and produced about half of the world’s feather dusters. It is now a senior living center. Monticello was once known as the “Pittsburgh of the Prairie†due to all of its industries. Only one has survived under its current structure to today.
I have found that the process of innovation is different from the improvement process. In order to innovate you have to get out of your own head, and by that I mean you have to get out of the head of your existing organization. The natural inclination is to get better at what we do. What you may need is to begin to get out of what you do and begin to move into another product or process for producing your product.
How do you do that? First, you need to pay very close attention to your customers and what they are doing. They can, and will lead you in directions that you should explore. Second, look at industries that are closely related to what you do but not direct competitors. These are more likely to lead you to new thinking than looking at competitors, who are in the same box as you. Third, seek advice from people outside your usual advisor set to understand the issues they have and are facing and how they are addressing them. Outside and objective advisors are invaluable in getting you out of your box and thinking about ways to continually innovate.
Finally, be sure that you are deliberate about your innovation processes. Innovation does not mean abandoning what you do. It means continuously looking for new processes, products, and services to offer to your customer so that you are keeping your company relevant. A good innovation program can help to keep your business attractive to customers and position you to be able to transfer ownership on your terms someday.
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