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Entrepreneurship: Innovation more than a product
by H. Randall Goldsmith, Ph.D.

Chester Carlson represented the consummate entrepreneur. Chester invented and developed the Xerox photocopier – out of inspiration, if not near desperation. One of Chester’s early jobs was copying, by hand, the patents that his employer might have an interest in. In pursuing his research, he discovered the concept of electrophotography and launched his entrepreneurial efforts. Eventually relegated to operating out of a supply room in his mother-in-law’s beauty shop, it proved to be an ideal environment for camouflaging the odor of his chemicals with those of the ladies’ hair perms. The date and location of his proof-of-concept was reflected in the first photocopied message in the history of the world, 10-28-38 Astoria. Astoria was the name of the beauty salon. Chester Carlson stuck with his effort for decades; was rejected by companies such as RCA, GE, and IBM; struggled for financing; overcame personal setbacks; but eventually launched his product and earned more than $150 million. Chester was stubborn, strong-willed, tenacious, bright, focused, and innovative.

There have been some great inventors throughout history who have been successful entrepreneurs. Thomas Edison was not only the world’s greatest inventor; he is the father of the electrical, movie, and music recording industries. But few inventors have the skills to be an entrepreneur. Edison and Carlson represent the rare individuals who start a company with a break-through invention, but because these entrepreneurs and their technologies generated so much excitement and notoriety, many people often believe that inventions are the basis for successful ventures.

While inventions may not be critical for success, few entrepreneurial growth companies survive without the competitive advantage of distinctive products and services. This typically means continually upgrading the product, monitoring the competition’s products, and moving quickly to stay ahead. In Five Myths About Entrepreneurs: Understanding How Businesses Start and Grow, Amar Bihde for the National Commission on Entrepreneurship points out the High-Tech Invention Myth: “Most successful entrepreneurs start their companies with a break-through invention – usually technological in nature.”

It is interesting to note that 2 out of every 3 companies listed in the Inc 500 are technology-based, but only 1 out of 10 was based on a technological innovation. Success for these companies is achieved through quality implementation, flexibility, ability to meet customer needs, and most importantly, successful delivery of productivity benefits -- the fundamental underlying condition that supercedes all other criteria taken alone for investment.

Innovation usually conjures up images of Edison’s light bulb, Bell’s telephone, Whitney’s cotton gin, or the Wright brother’s airplane. Wal-Mart, McDonald’s, and Saturn Automobiles are three examples of many companies that have secured, if not dominated, a competitive market niche based upon an innovative business model. Wal-Mart, while not recognized as a technology-based company, is a huge consumer of market intelligence facilitated by a huge super computer infrastructure that serves as its central nervous system. Their technology infrastructure allows them to employ the most innovative supply chain management system in the world. McDonald’s employs an innovative business model to sustain its dominant market position by ensuring a high price-quality perception, rapid real-time delivery, and customer satisfaction. Like Wal-Mart, McDonald’s is highly dependent upon a technology-based back office infrastructure. The innovative business model for Saturn automobiles addresses a target market that prefers to buy a car based upon a known price. Many buyers are repelled by the game of pitting their limited negotiating skills against those of a commission-based sales person who has the advantage of knowing the bottom line.

Innovations to the business model can occur within the company’s processes, products, materials, designs or know-how. Deloitte Consulting recommends that companies pursue their efforts toward successful new business models by recognizing that: “1) innovation doesn’t require an ability to predict the future, but an ability to redefine the present; 2) successful innovators tap huge unmet needs by redefining a customer segment, creating a new segment, or changing the decision maker; 3) in tailoring their offerings, business model innovators use multiple levers, including customizing a product to individual customers or letting them configure it themselves; enabling customers to access offerings through new channels; and dramatically expanding the product/service selection; 4) successful innovators create cost advantages that competitors can’t match; and 5) innovators prey on the inherent constraints of competitors – disadvantages that include commitments to existing supply chains and fears of disrupting existing channel relationships. They create business models that are both sustainable and difficult to imitate.”

In a comparatively few instances, highly successful entrepreneurial growth companies have resulted from a breakthrough technology-based invention, but far more successes have arisen from companies that have adopted a philosophy of innovation and incorporated it throughout all aspects of their enterprise. Amar Bhide, author of The Origin and Evolution of New Business, reports that nine out of ten entrepreneurs cited the key to their success as the “exceptional execution of an ordinary idea.”