Becoming an entrepreneur is not limited to individuals with a particular personality type. In fact, anyone can become an entrepreneur with the right knowledge and skills. To succeed as an entrepreneur, it is essential to employ effective strategies and understand the significance of innovation. Innovation does not necessarily involve inventing something new; it can also mean approaching things in a new and creative way.
Entrepreneurship is often attributed to factors such as luck and hard work, but one crucial aspect of success that is often overlooked is the ability to identify and leverage sources of innovation. These sources can be internal or external, and the most successful entrepreneurs are those who are adept at recognizing and exploiting them.
One internal source of innovation is the unexpected. When unexpected trends or shifts occur within a business, market, or industry, a savvy entrepreneur will be quick to capitalize on them. For example, Macy’s, New York’s largest department store, initially struggled to respond to a sudden increase in sales of appliances. Instead of embracing the trend, they tried to suppress it, leading to a loss of market share. In contrast, competitors like Bloomingdale’s recognized the opportunity and invested in marketing their appliance departments, resulting in increased profits.
Another internal source of innovation comes from changes or developments within an industry or market. The rise of multinational corporations in the automobile industry in the 1960s is one example. Companies like Volvo were able to seize the opportunity by aggressively marketing themselves on a global scale, leading to widespread success. Meanwhile, companies like Citroen that failed to adapt to the changing landscape were left behind.
To be a successful entrepreneur, it’s essential to be on the lookout for sources of innovation, both internal and external. By embracing unexpected trends and leveraging changes in the market, entrepreneurs can gain a competitive advantage and achieve long-term success.
Internal Sources of Innovation: Process Need and Incongruities
Innovation can come from identifying weaknesses or misdiagnoses in a process or situation. In addition to the two internal sources of innovation, there are two more: process need and incongruities.
Process need involves finding a weak link in a process, as these weaknesses present opportunities for entrepreneurs to innovate. An example of this is the cataract-removal process, which was nearly perfect except for a problematic step where a ligament had to be severed. William Connor, a pharmaceutical salesman, recognized this weak link and found a solution by developing an enzyme that could dissolve the ligament without cutting it. This innovation became an accepted stage in the process and allowed Connor to sell his company for a substantial profit.
Incongruities refer to gaps between reality and perception, and where there is a gap, there is an opportunity to innovate. For instance, shipping companies in the 1950s attempted to make their ships faster to move between ports more quickly, but this caused shipping costs to rise dramatically. This was due to a misdiagnosis of the problem, as the issue was not the speed between ports, but the time that ships spent idle in ports. The gap between the perceived problem and the reality of the situation was closed through the innovation of the container ship, which could be loaded and unloaded much more efficiently, leading to a 60 percent reduction in shipping costs.
Overall, identifying weaknesses and misdiagnoses in processes and situations can provide opportunities for innovation, and entrepreneurs who recognize these opportunities can potentially achieve success and create value.
Exploring External Sources of Innovation: Demographics and Knowledge-based Innovation
Innovation can originate from internal or external sources. The former comes from within a company, market, or industry, while the latter refers to opportunities outside of these spheres, such as in social, political, or academic fields. Understanding external sources of innovation can help entrepreneurs prepare for future trends and stand the best chance of success.
Demographic changes are one such external source of innovation. As the makeup of a population changes, so does the market. Different age groups have different needs and demands, and entrepreneurs who can anticipate these changes and adapt their products or services accordingly are more likely to succeed. For instance, Melville, a shoe retailer, successfully targeted the teenage market in the early 1960s during the post-World War II baby boom in America.
Knowledge-based innovation is another external source of innovation. This type of innovation involves the development of a new idea or invention based on a long history of research and development in various fields. For example, the computer was the result of centuries of work in mathematics, electronics, and programming. Its development began in the 17th century with the invention of the binary number system, followed by the creation of a simple calculating machine in the early 19th century, and the invention of a way to program instructions into a machine in 1880. However, it wasn’t until 1946 that the first computer became operational. While not all inventions take centuries, this shows that knowledge-based innovation can be a complex and lengthy process.
Four Steps to Building a Successful New Enterprise
Having a clear plan is essential for the success of any new enterprise. To create an effective business plan, entrepreneurs should follow four key steps.
The first step is to focus on finding a market. Entrepreneurs should keep an eye on various markets and be open to exploring different options. For example, one small Indian company found success when they bought a license for a European-designed bicycle with a small engine, which they thought would be ideal for India. However, they found that the engine was in high demand for irrigation pumps, which helped the company exploit an unexpected market and profit from it.
The second step is to have the right financial focus. While maximizing profits is important, entrepreneurs should also ensure that they have enough cash available for investments, expansion, and survival during tough times. It is recommended that entrepreneurs have a clear view of how much cash is needed for the next 12 months in advance, and for what purposes.
The third step is to build the best management team as soon as possible. Founders should begin building a management team before the business becomes too big for one person to control. Once the team is in place, founders should assess their own strengths and determine how they can best serve the company. In some cases, it may be better for the founder to leave the company if they can no longer add value to it.
The fourth and final step is to decide on the role of the founding entrepreneur. The founder should ask themselves how they can best serve the company and what they could do best to further its success. It is important for entrepreneurs to be open to the possibility that their role may need to change over time, and that they may need to leave the company if it is in the best interest of its success. By following these four steps, entrepreneurs can build a solid plan that will help their enterprise thrive.
Benefits and risks of being the first to enter a market as an entrepreneur
Entering a market as an entrepreneur requires a strategic plan to secure a market share, and being the first to enter a market can yield significant advantages. One effective entrepreneurial strategy is to aim to be the “Fustest with the Mostest” by being the first in your field and then capitalizing on that advantage. This requires going all-out and pushing hard to get there first. However, this strategy is risky because if you miss your target, you can’t start over, and you may lose the dominant market position if you don’t get there first.
To succeed with this strategy, you need to know the market inside out and ensure that the opportunities you are aiming for are viable. If you make the wrong choice, you will fail. For example, in the 1920s, Hoffmann-La Roche took a gamble in the vitamin market, which was newly discovered but had attracted little interest elsewhere. After acquiring the patents, they hired discoverers with huge salaries and invested all the money they could come up with, including large borrowed sums, to manufacture and market the vitamins. Their gamble paid off, and they became the world leader in the vitamin market.
To achieve a dominant market position, you need to focus on the details and ensure that your aim is accurate before launching. This is much like aiming a rocket at the moon, where you need to get the calculations and measurements right at the beginning. If your aim is even slightly off, you’ll miss the moon altogether. Therefore, being the first to enter a market can yield significant advantages, but it requires an accurate and viable strategy, and a deep understanding of the market.
Exploiting Market Gaps for Entrepreneurial Success
To achieve massive success in entrepreneurship, it is crucial to identify market gaps that competitors are overlooking. This is called a “Hit Them Where They Ain’t” strategy. There are two ways to execute this approach: creative imitation and entrepreneurial judo.
Creative imitation involves copying an existing idea and modifying it in a way that is more appealing to customers. For instance, in the 1940s, IBM built the world’s first computer but eventually gave up on it after realizing that a rival’s computer, called ENIAC, had more potential. ENIAC was focused on mathematical calculations, while IBM recognized that its potential as a tool for business operations, such as completing payrolls. IBM copied ENIAC and improved upon it to create a hugely successful computer model.
Entrepreneurial judo, on the other hand, involves targeting a rival’s weak spots. For example, many established companies are arrogant and dismiss new ideas that aren’t invented by them. In the 1970s, the transistor was invented by a small company in the United States, but big American firms rejected it as it wasn’t invented by one of them and wasn’t considered important enough. Sony exploited this arrogance by recognizing the potential of the transistor and buying it for $25,000. Sony used it to design the world’s first portable transistor radio, and within a few years, it had captured the market in the USA.
It is important to note that both strategies involve recognizing market gaps and exploiting them before your competitors do. To execute these strategies successfully, it is crucial to stay updated on industry trends, have a deep understanding of your market and your rivals, and be willing to take risks.
Strategies for Finding Ecological Niches in a Market
Entrepreneurs can increase their chances of success by finding a niche market to specialize in. This is known as the ecological niche strategy, and there are several ways to identify it.
One such way is through the toll-gate strategy, which involves developing a product or service that is essential to another product or service. This creates a market leader that competitors cannot easily beat. For example, William Connors developed an enzyme that was vital in the removal of cataracts. Surgeons cannot perform the procedure without the enzyme, and its low cost compared to the overall operation means there is no demand for a cheaper alternative. As a result, Connors’ company has a solid position in the market. However, this strategy is dependent on the other product, and if a better alternative were to arise, the company would be in trouble.
Another way to identify a niche market is through specialty skill and market niches. This involves developing unique knowledge or skills that others do not have, which can be used to profit from a specific market. For example, in the early years of the automobile industry, many electronics companies profited from the lack of knowledge about the electronics needed in each car. However, there is a risk that the specialty skill could eventually become universal, leading to loss of the niche market.
It is important for entrepreneurs to carefully consider their niche market strategy, as it can be highly effective but also risky. Finding the right niche market can lead to long-term success, but businesses must also be adaptable to changes in the market and technological advances.
Innovative Strategies for Entrepreneurial Success: Creating Customer Demand for Established Products
Entrepreneurs can achieve success by using a range of strategies to innovate. One such strategy is the creation of customer demand for an established product. There are two ways to do this. The first is to create customer utility, whereby you improve an existing product to satisfy customer needs better. For instance, the Lenox China Company adapted the bridal register system to enable guests to choose from a range of preselected options. This satisfied the customers’ demands for “good china” without changing the product.
The second strategy is to use a pricing strategy, which focuses on what consumers are willing to pay rather than the cost of the product. For example, when Gillette introduced its safety razors, they cost more than a traditional shave at the barbers. In response, Gillette sold the razors at a loss but ensured that only Gillette blades could be used, which were sold at a profit. This pricing strategy helped Gillette make a long-term profit.
It is important to note that entrepreneurs need to be careful when using this strategy. They should ensure that the innovation they create does not change the original product significantly, as the customer demand may decline if the product loses its original appeal. Furthermore, they should be wary of imitators who may copy their strategy or create an even better one. Therefore, entrepreneurs need to keep their innovation fresh and relevant to customer needs to remain successful.
To become a successful entrepreneur, it is essential to identify sources of innovation that can give you an edge over your competitors. By keeping a watchful eye on these sources, you can take advantage of the perfect opportunity to gain a competitive advantage. However, the most crucial aspect of being a successful entrepreneur is to be customer-focused rather than product-focused. This entails identifying a market and aligning your products or services with its demands.
Inspired by a book “Innovation and Entrepreneurship”; Peter Drucker