The SnapTax Story: An Example of Disciplined Process of Innovation

16 June 2015 | When Eric Ries – in The Lean Startup­ – tells the SnapTax Story about how a lean startup rose within a seven-thousand-person corporation he provides a very good example of the disciplined process of innovation. He also suggests innovation is learnable and manageable.

In 2009, a startup decided to try something really audacious. They wanted to liberate taxpayers from expensive tax stores by automating the process of collecting information typically found on W-2 forms (the end-of-year statement that most employees receive from their employer that summarizes their taxable wages for the year). The startup quickly ran into difficulties. Even though many consumers had access to a printer/scanner in their home or office, few knew how to use those devices. After numerous conversations with potential customers, the team lit upon the idea of having customers take photographs of the forms directly from their cell phone. In the process of testing this concept, customers asked something unexpected: would it be possible to finish the whole tax return right on the phone itself?

That was not an easy task. Traditional tax preparation requires consumers to wade through hundreds of questions, many forms, and a lot of paperwork. This startup tried something novel by deciding to ship an early version of its product that could do much less than a complete tax package. The initial version worked only for consumers with a very simple return to file, and it worked only in California.

Instead of having consumers fill out a complex form, they allowed the customers to use the phone’s camera to take a picture of their W-2 forms. From that single picture, the company developed the technology to compile and file most of the 1040 EZ tax return. Compared with the drudgery of traditional tax filing, the new product—called SnapTax—provides a magical experience. From its modest beginning, SnapTax grew into a significant startup success story. Its nationwide launch in 2011 showed that customers loved it, to the tune of more than 350,000 downloads in the first three weeks.

This is the kind of amazing innovation you’d expect from a new startup.

snaptaxHowever, the name of this company may surprise you. SnapTax was developed by Intuit, America’s largest producer of finance, tax, and accounting tools for individuals and small businesses. With more than 7,700 employees and annual revenues in the billions, Intuit is not a typical startup.

The team that built SnapTax doesn’t look much like the archetypal image of entrepreneurs either. They don’t work in a garage or eat ramen noodles. Their company doesn’t lack for resources. They are paid a full salary and benefits. They come into a regular office every day. Yet they are entrepreneurs.

Stories like this one are not nearly as common inside large corporations as they should be. After all, SnapTax competes directly with one of Intuit’s flagship products: the fully featured TurboTax desktop software.

Usually, companies like Intuit fall into the trap described in Clayton Christensten’s The Innovator’s Dilemma: they are very good at creating incremental improvements to existing products and serving existing customers, which Christensen called sustaining innovation, but struggle to create breakthrough new products—disruptive innovation—that can create new sustainable sources of growth.

One remarkable part of the SnapTax story is what the team leaders said when I asked them to account for their unlikely success. Did they hire superstar entrepreneurs from outside the company? No, they assembled a team from within Intuit. Did they face constant meddling from senior management, which is the bane of innovation teams in many companies? No, their executive sponsors created an “island of freedom”where they could experiment as necessary. Did they have a huge team, a large budget, and lots of marketing dollars? Nope, they started with a team of five.

What allowed the SnapTax team to innovate was not their genes, destiny, or astrological signs but a process deliberately facilitated by Intuit’s senior management. Innovation is a bottoms-up, decentralized, and unpredictable thing, but that doesn’t mean it cannot be managed. It can, but to do so requires a new management discipline, one that needs to be mastered not just by practicing entrepreneurs seeking to build the next big thing but also by the people who support them, nurture them, and hold them accountable.

In other words, cultivating entrepreneurship is the responsibility of senior management. Today, a cutting-edge company such as Intuit can point to success stories like SnapTax because it has recognized the need for a new management paradigm. This is a realization that was years in the making.

* Eric Ries (2011). The Lean Startup: How Today’s Entrepreneurs Use Continuous Innovation to Create Radically Successful Businesses. Crown Business

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