Innovation and entrepreneurship are often assumed to be one and the same. In reality, they are different things, and a clear understanding of the difference is vital to building successful ventures.
Innovation comes in a variety of forms. Many new ventures are based on new product or service innovation. This is the most commonly recognized type of innovation. Product innovations abound, and one need only tune into one of the ubiquitous infomercials to see some these innovations. Service innovations are equally abundant.
Process innovation is another type of innovation that is often the basis of new ventures. Process innovation can transform entire industries. A good example of a new venture that was built on a process innovation is Amazon. Amazon radically changed the process of browsing and buying books. While it has taken time for people to adapt to this process — many prefer physical bookstores — the Amazon process innovation is here to stay and likely will be one of the more potent success stories of the dot.com generation of ventures.
In addition to process innovation many successful ventures have been built on strategy innovation. One of the most striking examples of strategy innovation is that used by Cirque du Soleil.
The company was founded by individuals who had worked in the circus industry. Wanting to leverage the best of that industry and at the same time create a compelling new value proposition — one that would allow substantially higher prices and lower costs — the founders used a so-called “blue ocean” strategy. This approach seeks strategy innovation by re-creating an industry on four dimensions: eliminate, raise, create, and reduce. That is, it asks of an existing industry the four questions:
What can be eliminated?
What can be reduced?
What can be raised?
What can be created?
The final type of innovation is people innovation. There are many examples of companies that have been built on people innovation. The transcontinental railroad is one of the first examples of this type of innovation. The Central Pacific was the east-bound segment of the line, and its major challenge was traversing the Sierra Nevada Mountains. The leaders of the project had difficulty finding and retaining workers.
Most of the white workers they hired were lured away by the siren call of potential gold and silver riches in the surrounding hills. Reluctantly, the leaders turned to Chinese laborers who were available in abundance and who they thought would be more likely to stay on the job. In the end, it was a brilliant stroke as the Chinese workers proved not only to be reliable, but also highly resourceful. Their work on the tunnels, bridges, and cuts that enabled 19th century trains to cross the Sierra Nevada range remains a marvel of engineering to this day.
New ventures can be based on any of these types of innovation, but entrepreneurship is required to make it happen. Entrepreneurship is the process of taking an innovation and building a business around it. This is where many innovators run into trouble — they don’t have the entrepreneurial skills to turn an innovation into a business.
Entrepreneurship starts where the innovator leaves off. Innovation must come to an end, at least temporarily, for the entrepreneur to go to work. The entrepreneur can’t build a business around a moving innovation target. The entrepreneur has to go to the market with a specific value proposition. Of course, that value proposition may change based on market feedback, but it cannot be in constant flux.
In my work I meet many innovators, but only a few entrepreneurs. Some of the innovators that I meet want to be entrepreneurs. However, when I explain that they must cast aside their innovating for a while and test the market they often disappear, never to be seen again. In my experience, it is rare that the innovator and entrepreneur are one and the same person.
And so we come to the nub of the distinction: Innovation can occur without entrepreneurship, but entrepreneurship is sterile without innovation. This is not to promote nor denigrate either the role of the innovator or the entrepreneur. Each is necessary for the other to succeed. The innovator without the entrepreneur is just a tinkerer.
The entrepreneur without the innovator is just a dreamer. Together, however, they make a powerful combination that is the foundation of our modern wealth and the most likely combo to tackle effectively all future economic, climatologic, environmental, and, yes, political, challenges.
Duening is director of the Center for Entrepreneurship in the College of Business and Administration at UCCS. He can be reached at email@example.com.