10 June 2015

Confusing Innovation and Entrepreneurship

Innovation and entrepreneurship are closely related but you can make a big mistake by thinking that they are the same thing. They are not.

Innovation results in a new technology or product. It is technological invention, which lets parts do what they could not previously do. You have an engine and wheels and axles and you put them together to invent a car. Progress depends on innovation and great innovators can get rich.

Entrepreneurship, by contrast, results in a new company or organization. It is social invention, which lets people do what they could not previously do. You have people with more money than they need now and people who need money and put them together to make and get loans and you have a bank. 

Progress depends on entrepreneurship and great entrepreneurs get even richer than great innovators.
Henry Ford

Ray Kroc didn’t invent the hamburger but when he died he was worth half a billion dollars. He was an entrepreneur. Sam Walton didn’t invent the retail store but his heirs are worth more than $100 billion. He was an entrepreneur. Henry Ford didn’t invent the car but he when he died in 1947, he was worth nearly $200 billion (inflation adjusted). He, too, was an entrepreneur.

Sam Walton
Given the way we use the term, all of these entrepreneurs were innovative. And indeed, it is hard to imagine an entrepreneur who wasn’t innovative having much success. You have to distinguish your product or service from competitors and that usually calls for innovation.

But thinking that your job as an entrepreneur is the same as the job of an innovator can create unnecessary confusion and failure.

Imagine two people with equal skills for creating companies and software. One – Seo-joon - thinks of himself as an innovator and focuses on creating a great app. The other – Emma - thinks of herself as an entrepreneur and focuses on creating a great company.

Seo-joon uses his scarce attention to analyze the market, software tools, and to code. He does a great job and creates a valuable app.

Emma uses her scarce attention to analyze markets, business plans and processes, and to create a company where people who want to focus on creating and selling great products will want to work. She does a great job and creates a valuable company.

When Seo-joon completes his great app, his work has just begun. He will need a way to distribute the app, to market and sell it. He will need to find a way to support it as customers begin to use it and either encounter bugs or simply have questions. He will need to do research on how the product is being used to decide how to improve the product and to find new markets for it. He will need to set up payroll, finance, HR, and a host of other business processes to support his app.

What is likely to happen? Probably, after realizing how much more work he has to do – work he has not even focused on understanding or learning – he will sell his product to Emma who will either buy it outright or offer him royalty payments. Emma has engaged in entrepreneurship and has built a company. Seo-joon’s app is just one of her products. She has a portfolio of products. Emma is actually in a position to create more value with this portfolio of products – even though she may not have designed or created a single one – than Seo-joon is with his great app.

The world needs both innovators and entrepreneurs. R&D labs, though, are full of innovators who work for entrepreneurs or someone who manages a company founded by an entrepreneur.

Decide if you are building a company or a product. Decide, that is, whether you are an innovator or entrepreneur. If you try innovation without a way to sell and support your product, you’ll likely flounder. If you try entrepreneurship without some innovative approach or with partnerships with innovators, you’ll likely flounder. Be clear about what you are doing and then try to excel at that. Great innovators and entrepreneurs tend prosper; people who divide their attention between both of these important tasks tend to be either unlucky or superhuman.

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