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The Power of Innovation

How will entrepreneurs change the world?
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Tomorrow's Entrepreneur

"Innovation is the specific tool of entrepreneurs, the means by which they exploit change as an opportunity for a different business or a different service."

The person who wrote that was Peter Drucker. The book was Innovation and Entrepreneurship: Practice and Principles, which was published in 1985 but which (like much of Drucker's work) is as relevant and timely right now as on the day it was written. Drucker was one of the first to point out that most entrepreneurs are not themselves inventors of some major new technology. Rather their innovations consist of putting things together in new combinations. They take advantage of new technology to create markets that didn't exist before (Amazon.com). They offer something familiar but improved and repackaged in certain key ways (Starbucks). They focus on individual market segments and deliver a combination of features that customers in those segments couldn't find elsewhere (Lands' End).

Or maybe entrepreneurs just figure out how to make a product or deliver a service better, faster, and cheaper than anyone else. To put Drucker's book in (recent) historical perspective: Dell Computer Corp. was exactly a year old when the work was published. But there's no doubt that today Drucker must have a keen appreciation of Michael Dell's innovations in manufacturing and marketing a product that otherwise is little different from his competitors'.

The entrepreneur's job, said Drucker, is to pursue systematic, purposeful innovation. The first steps: monitoring what Drucker calls the "seven sources for innovative opportunity" and then trying the idea out. "Go out, look around, and listen," he advises. Figure out what the innovation has to have so that customers will want to use it, will "see in it their opportunity." Keep it simple. Start small. Stay focused. But -- remember this -- aim at market leadership, regardless of how big or small a market you're envisioning. "All entrepreneurial strategies, that is, all strategies aimed at exploiting an innovation, must achieve leadership within a given environment," Drucker writes. "Otherwise they will simply create an opportunity for the competition."

Drucker's Seven Sources of Opportunity
Monitor these trends and indicators, advises Drucker, and you'll spot opportunities for new-business creation.

1. The unexpected. The forgotten product that suddenly catches on. The service you're not focusing on, but that customers seem to want. An unexpected trend, such as the surprising rise in the number of books bought by Americans year after year -- a trend that has spawned huge chains of bookstores.

2. Incongruities. A discrepancy between what is and what ought to be -- indicated, for example, by widespread dissatisfaction. Case in point: O. M. Scott was once just another struggling lawn-products company, and customers were applying its products every which way, with uneven results. Then Scott invented its big hit, the Spreader, which finally allowed customers to apply the products in the right proportions.

3. Process needs. The missing link or bottleneck in some sort of process. Eye surgeons long knew how to do cataract surgery. An enzyme that made the process easier had been known for decades but wasn't usable, because it was too hard to preserve. In the 1950s an entrepreneur named William Connor figured out how to preserve the enzyme, thereby closing the circle.

4. Industry and market structures. Think outsourcing. Think deregulation, as of trucking or telecommunications or energy. When some big event or trend changes the way an industry does business, entrepreneurs can usually figure out how to elbow their way in.

5. Demographics. Shifts in the population, both in space and in time, nearly always open up business niches. (See " Graying Boomers, Booming Teens.")

6. Changes in perception. Americans are healthier and living longer, yet they're more worried than ever about getting sick and growing old. The result: a booming market in health care and nutritional products and advice.

7. New knowledge. Drucker puts this source last on the list because it's the chanciest -- in part because new inventions or technologies like the PC usually attract dozens of competitors. There's an explosion of entrepreneurship, then a shakeout that destroys most of the start-ups. "After that period is over, entry into the industry is foreclosed for all practical purposes," he writes.


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