Why Innovation Matters: Lessons From the iPhone

EXPERT OPINION BY PETER COHAN, FOUNDER, PETER S. COHAN & ASSOCIATES@PETERCOHAN

Innovation means identifying problems that cause humans to hurt and relieving the pain by creating and delivering solutions. The innovations that matter most offer the world's best solutions to important problems that cause pain for almost everyone. 

Apple's iPhone: the ultimate innovation

By that measure, one of history's most significant innovations is Apple's iPhone. Launched in June 2007, Apple sold 1.39 million iPhones that year -- growing at an average annual rate of 53.2 percent -- before peaking at 233.9 million units sold in 2019. Between 2007 and 2023, Apple sold an astonishing 2.39 billion iPhones, according to Bankmycell. 

The iPhone was so compelling that a few months after the product's launch, Time named it 2007's "Invention of the Year." While highlighting the device's flaws -- difficult typing, slow response time, excess size, lack of instant messaging, and a too-high price -- the magazine explained five reasons for honoring the iPhone:

• Excellent design -- people feel "smart and attractive while using it," 
• Tactile touchscreen -- gave users the illusion they could physically manipulate objects on the screen - such as "shrinking photographs with their fingers,"
• Partnership with AT&T -- freed Apple to build a device of its choosing, thus pressuring AT&T to loosen restrictions on other phone makers and elevating the industry,
• Application development platform -- the Apple operating system and App Store enabled third-party developers to build and sell applications that turned the iPhone into a useful handheld computer, and
• Upgradability -- Apple's clunky first version would be relatively easy to improve so future versions would be able to do more and operate more smoothly in response to consumers' wants and Apple's technological innovations, noted Time.

What makes an innovation great?

This world-changing innovation would not have happened without the leadership of Apple's then-CEO Steve Jobs. While Jobs's ability to bring the world innovations that matter was unique, the iPhone's success provides valuable insights for aspiring innovators. After interviewing hundreds of entrepreneurs, I identified four tests that startup ideas must pass to become successful innovations. Here is how I see the iPhone performing on these tests:

1. Does the innovation aim to relieve a significant source of customer pain? PASS. 

For years, Apple fans had been begging "Jobs to put a cellphone inside their iPods so they could stop carrying two devices in their pockets." Yet it was not until the iPhone launch that those customers realized they were suffering from not owning a powerful handheld computer and music and video player all in one device, according to the New York Times Magazine.

2. Does the idea avoid competing with established companies? PASS.

I developed this test because customers prefer to buy from an established company rather than a cash-constrained startup for the simple reason that the startup might not be around for long. When it comes to the iPhone, this test takes on a different relevance since Apple was a well-established company in 2007, not a startup. Yet the iPhone passes this test because -- while plenty of cell phone companies existed at the time -- there were no other competitors that offered a product with the iPhone's valuable new features.

3. Does the entrepreneur field a leadership team with the skill and passion to relieve the customer's pain well? PASS. 

Apple employed a uniquely skilled, highly motivated, and passionate team to design, build, and enhance the iPhone. The team included luminaries such as Scott Forstall, Jonathan Ive, and Tony Fadell -- and many others -- who worked in a high-pressure march leading to the 2007 iPhone launch and beyond, noted the New York Times Magazine.

4. Does the innovation deliver so much value that a fast-growing number of customers will pay a high price? PASS. 

The rapid growth of the iPhone cited above and the device's high profitability -- for example, as I wrote in Forbes, in September 2012, people paid a 44 percent premium for the iPhone 4s, yielding a 71 percent gross margin (way above the Nokia Lumina's 54 percent gross margin) -- spoke eloquently of the product's value to Apple customers.

The iPhone story is not all sweetness and light. After 17 years, the product has matured and attracted competitors. In 2023, Apple sold 234.6 million iPhones -- surpassing its 2019 peak, Silicon Angle reported. This represents virtually no compound annual growth between 2019 and 2023 -- a far cry from the iPhone's blisteringly fast 52.3 percent average annual growth in the first 12 years after its launch.

If Apple hopes to enjoy rapid growth, it must innovate at an even more significant scale than it did in 2007.

Innovation matters because it can make life better for many people. Apply the lessons from the iPhone's world-changing success to bring innovation to life in your startup.

Photo Credit: Getty Images.