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How well a small company innovates new products and technologies will predict its ability to weather the economic hurdles of the present and future. But successful innovation can’t just be small incremental innovations – it must be “disruptive” or radical innovations that shake up the status quo.

That’s the take-home message of a new article from the University of Pennsylvania’s Knowledge@Wharton. There are many roadblocks to innovation, especially as companies grow older and bigger. Multiple layers of bureaucracy make it difficult for companies to shift gears quickly and to abandon old ways.

“The largest gains in business come from more daring innovations that challenge the paradigm and the organization,” Paul J.H. Schoemaker, research director for the Mack Center for Technological Innovation, told Knowledge@Wharton.

The article asks some innovation experts about how companies, small and large, can foster a wildly innovative culture. Here are some recommendations:

- Emphasize “disruptive” innovation. You can’t expect employees and managers to embrace innovation unless it becomes a recognized value or core mission of the organization. It needs to be something company leaders stress and communicate all the time.

- Make contingency plans. Innovation moves quickly so it’s unwise to pin your dreams on one plan or one idea. Innovation experts recommend looking at other areas in your business arena for possible new ideas, in case your original plan doesn’t pan out.

- Create strong teams. The best innovations come from collaborative teams of employees that truly like and trust each other. So companies should foster an environment where employees know each other – both inside and outside of work – so they’re willing to let their guards down and willingly share off-the-wall ideas with each other.

Does your workplace use these practices to innovate? How important is innovation to your business?

Photo: Getty Images

I recently tried to find movers for an upcoming move, and the experience left a bad taste in my mouth.

Some threw out so much moving industry jargon (like “binding estimates” and “released value”), I felt helpless trying to compare. Others seemed impatient with my questions. It didn’t help that when I went online for guidance, I mostly just read horror stories of people with bad moving experiences, such as damaged belongings, movers that didn’t arrive on the day they were suppose to, or prices doubling the original estimate.

I eventually chose a nationally known moving company figuring that at least I recognized the name. But the experience got me thinking about how small companies in industries with bad reputations can stand out from the crowd. Here are some ways:

– Be friendly and transparent. Customer service can make or break a business, especially in industries where customers are leery — like residential moving, airlines, remodeling or health clubs. Make sure you have friendly, patient people manning the phones who really understand the business and what they’re selling so they can calm customers’ nerves. And make sure they fully explain (with as little jargon as possible) what the customer is getting.

- Make your customers ambassadors. Enlist previous customers to be your best marketers – perhaps directing them to Web sites where they can leave a review about their experience and to tell their friends. Word of mouth is especially important in these industries.

- Manage your online reputation carefully. People more and more get their referrals from online customer-review sites such as Angie’s List or CitySearch. It’s extra important then to ensure a couple bad reviews aren’t tainting your reputation. Figure out which sites your prospective customers use to read reviews in your industry. If you spot a negative review, respond to the complaint to show you’re willing to address problems or upset customers head on. Some customer-review sites, like Yelp.com or Google Business, even include tools in which business owners can now set up their own profile and add a photo. Creating a dialogue with customers and prospects will evoke trust.

- Third-party validation. Many consumers check sites like the Better Business Bureau or their local magazine’s “Best of” listings to find out which businesses are reputable. Some awards require businesses to to apply for them. Winning awards for business practices is always nice, but it’s especially important in industries with a bad reputation.

Did I miss anything? What practices have you seen businesses use to bolster trust among consumers?

On Monday, Subway, the second-largest fast food chain in the world, repudiated the action of one of its franchise owners who used the corporate name when contributing $2,500 to the campaign that ultimately banned gay marriage in California.

In a letter to the Subway franchisee in Merced, Calif., the company wrote: “While we understand that as an individual you have a right to your personal beliefs and freedom of association, when you use the Subway trademark it reflects on the entire Subway brand. … Further [the franchise agreement] states that you agree to ‘not use the Trademark in a manner that degrades, diminishes, or detracts from the goodwill of the business associated with the Trademark’ and ‘to promptly change the manner of such use if requested to so by us.’”

Subway got wind of the franchise agreement violation last Friday from a gay blogger, who found the contribution on a list of ‘Yes on 8’ contributors compiled by the Human Rights campaign. Mike Rogers, 45, of Blogactive.com threatened to rally a major boycott of Subway sub-shops if his demands weren’t addressed: repudiating the gift, adding ‘sexual orientation and gender identity’ to the company’s nondiscrimination policy and giving an equal gift to the other side.

The franchisee, Subway says, has asked for a refund of the $2,500 contribution. A person at the Subway shop in Merced Mall said the manager isn’t available today and will be back tomorrow. Subway has also updated its nondiscrimination policy to include the ‘sexual orientation and gender identity’ clause. Mr. Rogers dropped the last demand for a quid-pro-quo contribution.

In a phone interview, he says he was quite surprised by Subway’s quick response. “I thought it was great. It was amazing.”

He adds, “The time for complacency is over. With the power of the Web, corporations will be brought to the table or suffer the consequences of ignoring the call for justice and equality.”

Subway, which generated $8.2 billion in the U.S. last year, says it has sent a letter to all of its franchisees that it is a violation to use the Subway name when making political and/or controversial topic donations.

“We offer our apologies if you were offended by this action and hope you will view our quick response to this as a sign that we will not tolerate discrimination, of any type, in our system,” the company says in a statement.

Was Subway’s response adequate or did it go too far?

Photo: Associated Press

If you live in the U.S. Northeast or Pacific Northwest, chances are you see plenty of entrepreneurial-minded companies creating new ideas, jobs and technologies and embracing globalization. But you might not be so lucky if you live in the South or the Great Plains.

The Kauffman Foundation yesterday released its annual report ranking U.S. states on how well and how much they’ve adapted to what it dubs the “new economy.” The report grades each state on 29 different indicators in five general categories including knowledge jobs, globalization, economic dynamism, transformation to a digital economy, and technological innovation capacity.

The top five states are all based in the Northeast or Northwest, while 16 of the 20 lowest-ranking states are in the Midwest, the Great Plains and southern U.S. states.

It’s still the information-technology boom that started in the 1990s that’s fueling the top states’ economies. But lower-ranked states have certain competitive advantages, Kauffman points out: Many of these states are less congested and less expensive to live in, so they can lure start-ups looking for a better quality of life than they might find in innovation hotbeds like Massachusetts or New Jersey.

The report shows how there is an interconnectedness between a state’s higher educational system and the types of companies and jobs created there. Massachusetts boasts universities such as MIT and Harvard that have helped spur business formation in innovative fields like biotech, software and hardware. It also points out other attributes or strategies that have helped the states succeed: Delaware (No. 4 on the list), for instance, has focused on being friendly to financial-services firms and currently has the most direct foreign investment of any U.S. state.

Here’s a look at the top 5 and bottom 5 states, according to the ranking:

Top 5:
1) Massachusetts
2) Washington state
3) Maryland
4) Delaware
5) New Jersey

Bottom 5:
46) Wyoming
47) Alabama
48) Arkansas
49) West Virginia
50) Mississippi

How well does your state foster innovative companies? Do you think this is a valuable ranking?

The predictions list for Obama cabinet members is an impressive one. But where are the entrepreneurs?

As we’ve noted, many small-business owners are feeling pretty blue about policy makers’ lack of attention to small-business matters right now. They complain that politicians are either ignoring the great financial burdens entrepreneurs face (no bailout for you!), or they’re championing the wrong cause (think Joe the Plumber).

Some entrepreneurs and their advocates think President-elect Obama could use a little first-hand help understanding the issues entrepreneurs face – perspective that can’t come from the perennial CEO or longtime politician.

“Since Mr. Obama is a very sharp man, it would be a wise move to bring the perspective of entrepreneurs into consideration as he develops his new Administration’s priorities,” writes Karen Kerrigan, president of the Small Business and Entrepreneurship Council in a recent blog post.

Serial entrepreneur and Dallas Mavericks owner Mark Cuban (who has other personal matters to contend with these days) was even more pointed in his criticism recently that no entrepreneurs seem to be making the cut. He wrote on his blog: “We need to know what the impact of his policies will be on the individually owned Chrysler Dealership in Iowa. The bodego in Manhattan. The mobile phone software startup out of Carnegie Mellon. The event planner in Dallas. The barbershop in LA. The restaurant in Boston.”

Mr. Cuban offered to advise Mr. Obama himself, if Obama was so inclined.

Others, such as HuffingtonPost blogger Steve Strauss, point out that Obama already has an entrepreneur in the most important position in his administration: himself.

Do you think Obama needs a real-life start-up enterpreneur in his cabinet? Whom would you recommend?

Photo: Getty Images

A new survey finds the gloomy economy may be turning more people off entrepreneurship as a career option – before they’re even old enough to have careers.

A poll released yesterday by Junior Achievement USA, a Colorado Springs, Colo., organization that hosts after-school programs for youth, found that fewer teens surveyed were interested in eventually starting their own businesses than just a year earlier. It found 60% of the 712 13- to 18-year-olds surveyed indicated they’d be interested in becoming entrepreneurs, compared with 67% in 2007.

The online poll was conducted in February and March, but timed for release this week in conjunction with Global Entrepreneurship Week. Though the survey was taken before the financial crisis of recent months, Junior Achievement suggests that economic uncertainty might have dissuaded some young teens from wanting to work for themselves.

The survey results seem to counter the trend of recent years, which has seen more teens and young adults showing an interest in entrepreneurship. Many youth entrepreneur programs and summer camps have emerged, with the aim of sparking an entrepreneurial drive in youth, and an increasing number of colleges are adding entrepreneurship courses and programs. The whole purpose of Global Entrepreneurship Week is to encourage more young adults to think about entrepreneurship as a serious career path.

What’s more, it’s possible that today’s bad economy will spur more teens and young adults to consider joining the ranks of entrepreneurs. As they watch people around them losing their jobs in big companies, they might see working for themselves as a more secure alternative.

What do you think? Will the current economic climate increase or decrease the number of people, young and old, looking seriously at entrepreneurship?

Photo: Getty Images

Editor’s note: On Mondays, we’ll be interviewing 2008 Top Small Workplaces winners about their companies and the unique workplace practices that help make them successful. You can read the full 2008 Top Small Workplaces package here. You can also nominate a business for Top Small Workplaces 2009 here.

Performance-review season is here, and many people aren’t happy about it. In fact, many feel traditional annual reviews dash workplace morale and sever trust between managers and their reports.

Integrated Project Management, a Burr Ridge, Ill., project-management firm with 80 employees takes a unique approach to employee reviews. Instead of just banging out written reviews once a year, managers sit down with each direct report individually every week to discuss performance and how the employee can improve.

We spoke with Chief Executive Richard Panico about what makes the company’s review process special. Edited excerpts follow.

WSJ: How is your review process different than most companies’?
My goal has been to create an extraordinary culture and in order to do that our philosophies need to be very clear. A strong performance-review process helps. Managers give their reports a written performance document after an employee has been with us six months and then once a year. They spend 12 to 14 hours assembling each employee’s review. But we don’t just rate them on performance, we also review them on character elements, such as dependability, fairness, loyalty, commonsense, passion and the ability to elicit trust. We have two absolutes: honesty and integrity. If someone lies, they will be discharged. On a weekly basis, managers also meet with the direct reports one-on-one for an hour to an hour-and-a-half and give direct feedback on recent performance, such as how they handled a specific event like leading a meeting or speaking to a group. We have a rule that no criticism can show up on a review document that wasn’t mentioned to the employee beforehand. We have learned that the best development occurs when you’re providing real-time feedback.

WSJ: Why do you think your process is better than the typical annual review?
First of all, I think it’s the time and all the touch points that make our process unique, along with our focus on character – not just performance. In our environment, you could be a top performer, but if you’re failing on the character elements side you’ll ultimately be discharged. Bad character degrades the culture to the point where it is no longer a nurturing culture and all of a sudden you start developing these cliques with the company that bring down others. I think if you were to audit companies with a traditional annual-review process, people will tell you it’s so rote that there’s no true personalization. When our people get their feedback, they feel good about it because you can clearly see the amount of time, energy, attention and care that goes into it.

WSJ: That’s quite a lot of time devoted to employee feedback. Doesn’t that hurt productivity?
The greatest asset that any company can have is a motivating culture. You can’t have that unless people feel appreciated. We have some very, very high standards complemented with very, very caring people. I think that’s probably the misconception many companies have – that so many hours per year we spend on helping our employees perform better could be better spent billing clients. How could we treat our clients well if we don’t even treat our own employees well?

What do you think of this review process? Is holding employee reviews more than once or twice a year a good idea?

Is it almost time to say goodbye to yellow pages?

Publishers of the local directories often dropped on doorsteps are bleeding money, my colleague Emily Steel writes today. These directories rely on small businesses in particular for advertising, but many businesses are reining in their marketing budgets in the bad economy and buying fewer yellow pages ads — not to mention just the steady migration over time to online advertising. The publishers are trying to recoup some of their lost revenues by selling online ads along with their print ads (think SuperPages.com), but it’s not nearly enough to offset the steep decline on the print side. Internet ads command only a third of the price of a print ad.

Some businesses also feel their money is better spent online by focusing on search-engine optimization or getting a local search ad listing through a company like Google rather than sticking with online ads offered by the traditional print directory publishers.

One analyst projects spending on print yellow page advertising will drop 39% within the next four years.

If yellow pages directories were indeed to go extinct it would be a big jolt for the many small businesses that use them as the primary way to generate leads to their business. A survey we featured last winter found that 60% of small businesses still advertise in the print yellow pages – and some rely almost exclusively on the print directories for sales leads. Several commenters said the yellow pages offered a good return on investment compared with other forms of advertising.

Do you advertise in the yellow pages? Do you think the growth of online advertising will or should make them obsolete?

On Fridays we’ll be linking to a roundup of useful, informative, or entertaining articles and blog posts related to entrepreneurship from across the Web. Have a great weekend!

- Online customer review site Yelp.com is introducing a new feature that lets business owners write descriptions of themselves. [Entrepreneur]

- Don’t forget to ask these questions before buying a business. [Seattle Post-Intelligencer]

- Seth Godin reveals his secrets to a successful blog. Hint: Find a tribe. [Seth Godin]

- Want more people to follow your tweets on Twitter? Rule #1: Follow the “Smores” (Social Media Whores) [Guy Kawasaki]

- Immigration reform unlikely to be top priority in Obama administration. [WSJ]

- The glum economy is spurring a new wave of barter exchanges that let entrepreneurs swap goods and services instead of cash. [NYT]

- Google just unveiled a new online voice and video tool. Does this spell doom for Skype? [DuctTapeMarketing]

- Next week is Global Entrepreneurship Week. Here are some ideas for how to celebrate. [Kauffman Foundation]

Four days with no sleep. Almost round-the-clock physical challenges. Mandatory push-ups (at least 10) for every meal, at exactly every six hours. And swimming 1,000 meters in the Pacific Ocean.

“I had never swam in my life before, in the ocean,” says Yacov Wrocherinsky, founder and chief executive of Infinity Info Systems Corp., a New York-based company that specializes in customized integration of customer service, marketing and sales management for other companies. (He’s also afraid of sharks.)

These are just the kinds of stresses that Mr. Wrocherinsky and 47 other business executives from around the world underwent as part of an unusual physically and mentally taxing leadership program from one of the elite commando forces in the world. Held in early October, the YPO/U.S. Navy SEALS Challenge: Leadership Under Fire Seminar is not for the faint of heart or the out-of-shape.

“You’re beyond tired,” says Mr. Wrocherinsky, who recently turned 49. “You’re accessing areas of your brain that you’ve never done before. But the amazing thing is, I had more energy than I ever had.”

About six months ago, he found out about the Navy SEALs program as a member of the Young Presidents’ Organization, an Irving, Texas-based peer-based executive leadership organization. It was the first time the organization had ever put on a program, and it required participants to pay about $5,500 and to train for the fitness challenge. Mr. Wrocherinsky prepared by visiting San Diego, Calif., hired a personal trainer and worked out for months to get ready.

“They emphasized leadership principles we could use,” he says about the dozen or so Navy SEALs who put them under stressful conditions. “They thrive on chaos. When everybody’s confused, they know what to do. They plan for it. They prepare for it.”

From the brief training, Mr. Wrocherinsky says he learned to use intelligence about his clients to develop plans to adapt to rapid changes in the business market. That’s why afterward, he put the lessons he learned to good use by meeting with his employees and customers to tell them that even with the economic downturn, the company is in a growth spurt, having seen a 15% to 20% jump in revenue to $18.5 million. Being proactive, he also says that his company will be holding a seminar series that would help his clients – other small-business owners – share information about business practices that have helped them weather difficult business conditions right now.

“One of my philosophies is to learn and grow as a person, and to learn as a leader,” says Mr. Wrocherinsky, who was honored this year as the Small Business Person of the Year in New York City and the state by the Small Business Administration.

He not only won over his employees and clients, but he lost, too: about 13 pounds, he says. “I think every person should challenge themselves to another level,” he says. “Standing still is not an option.”

Would you go through a Navy SEALs program to learn survival skills? Or do you have a better solution?