Entrepreneurship & Innovation

11 October 2006

What does it mean to be an entrepreneur? The archetypal entrepreneur is an inventor working out of his garage. No so. Although entrepreneurship depends on innovative thinking, it needn’t be (and seldom is) based on a technological breakthrough. It is primarily a business discipline that small and large enterprises must embrace in order to maintain a competitive advantage.

Entrepreneurship is good management. The larger, established company is better able to adopt entrepeneurial policies, primarily because it has typically already cracked vital management issues. Nevertheless, a smaller enterprise (including the ‘self-employed’ professional or consultant) can benefit from incorporating an entrepreneurial approach.

By one definition, anyone who doesn’t draw a salary and who works independently is an entrepreneur. That makes most of the street vendors and bargirls in Thailand entrepreneurs, along with Richard Branson, Michael Dell and Oprah Winfrey.

I prefer a more workable definition: 1) the business provides an innovative product or service; 2) you have an exit strategy.

An important aspect of an entrepreneurial business is to develop and implement a number of management disciplines.

  • The first is to determine what is the true value that you provide to the customer. Not what you value, or what you think they value, but what they actually value. Very often it will be different from what you think, so it’s a good idea to go and talk to your customers in a systematic way in order to find out.
  • Define systematic business processes so that most or all of the business can operate without you. At the very least it frees you up to focus on improving and growing your business. It also improves communication – enabling staff or sub-contractors to understand the business and run various aspects of the business independently.
  • This then makes it possible to set standards and provide training based on the work to be done. Training is often wasted by not having a clear idea of its purpose. A description of the necessary processes makes it easier to develop an effective training programme.

An innovation in providing value is where entrepreneurs and professionals alike can gain a considerable advantage. A financial advisor may assume that his customers value investment tips and ways of increasing their wealth. But many customers have no interest at all in investing or becoming wealthy; they simply want peace of mind. An infallible scheme to maintain a client’s standard of living satisfies the desired ‘value’ here.

An innovation could be as simple as the accountant that also acts as a personal assistant for small businesses.

In Thailand, one can often find dozens of fruit vendors all vying to sell identical produce. A competitive innovation based on customer value might be simply to set up a juicing service nearby.

What do tourists value most? Is it the quality of breakfast, or the pampering of attentive staff? Unless they intend to hang around the hotel, it’s likely to be information about where to go, where to find things and how to get there. An innovative service might be to provide comprehensive tourist information & coordination. A small hotel could effectively compete against many larger hotels in this way.

According to Peter Drucker (Innovation & Entrepreneurship), there are three main entrepreneurial strategies that a business can adopt.

The riskiest – yet popularly associated with a successful venture – is to aim for a permanent leadership position. It requires a precise targeting of the market, a massive market presence and an ongoing effort to sustain a leadership position. Only for the likes of 3M, Johnson & Johnson or DuPont… Apple or Sony may have started with a different entrepreneurial strategy, but now it is undoubtedly to retain leadership. Their ‘Value Discipline’ (Wiersama & Treacy) is Product Excellence and their target market is primarily those who want the best regardless of price.

Another strategy is to target the untapped market. It doesn’t necessarily have to involve a technological advance. Edward de Bono (in Sur/Petition) identifies a number of ways to exploit or combine existing technologies to provide a product or service tailored to the customer’s unique value expectations. Some innovations are so commonplace that we forget how absurd they appeared at the time. Whoever believed that there would be a demand for bicycles without wheels!? Check out California Fitness…

What you sell is seldom what your customer buys! Most technical innovators are not market-driven, so they often fail to exploit the demand they create. The mobile phone market is a typical example. In fact, the humble SMS was never intended to be a customer service. It was originally developed as a mechanism for technicians to communicate with each other.

A new technology is seldom fully exploited by its inventor. A classic example is the transistor, invented by Bell Laboratories in 1947, but exploited by Akio Morita (president of Sony). He bought a license and produced a portable transistor radio costing one third the price of a ‘hi-fidelity’ vacuum tube radio, thereby reaching customers that valued portability and affordability over sound quality.

Many dominant companies often overlook their customers’ needs, thereby unwittingly providing an opportunity for a competitor. I had a problem with my Sony Vaio which, despite being stylish and rugged, cannot be serviced quickly and conveniently. Acer sells not only a cheaper notebook but also a warranty programme that guarantees a five-day turnaround. They have understood that it is not the quality and design of a notebook that counts, but its productivity.

The final strategy is to aim to control a niche market. If you develop a solution to one step of an expensive and complicated process then it is unlikely that anyone else will bother to compete, as price is often insignificant in relation to the total process. You can also aim to develop a speciality skill in the early stages of an emerging industry. Regardless of what you drive, the brakes in your vehicle are probably manufactured by Bendix.

You could also develop a speciality market, which often entails developing a relationship with every supplier in the market before anyone else. The bank cards in Thailand probably all come from a single manufacturer.

There are several techniques that can be followed to generate innovative ideas (e.g. Edward de Bono’s Six Thinking Hats, Six Value Shoes & Lateral Thinking, or Systematic Inventive Thinking developed by SIT in Israel), but first a company must actively incorporate an entrepreneurial spirit as part of its overall business policy. Indeed, a Director of Innovation is often required, who has the prestige and authority to explore and implement innovative projects. Procter & Gamble, 3M and Johnson & Johnson go so far as to launch separate business ventures, each with its own project manager.

Entrepreneurship is necessary to maintain a competitive advantage. Those who set aside time and resources, and make it an essential component of the business will thrive.

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