Entrepreneurship and Innovation

Any attempt at starting a new business, regardless of the size of the firm or the sophistication of its products or services, falls squarely within the definition of entrepreneurship and generally carries the same levels of risk and stress for the persons involved in the process.  Entrepreneurship programs launched and administered by governmental agencies and non-profit organizations are primarily geared toward “small businesses” that often rely on readily available technologies and their goal is to ensure that interested persons have access to basic information about starting a business, complying with applicable laws and locating financing sources.  Proprietorships and small firms with less than 20 employees have always been an important part of the economic landscape and this should continue in the future as technology, such as the Internet, makes it easier for entrepreneurs to put their business ideas into practice and quickly and efficiently reach prospective customers and other business partners.

An important niche within the entrepreneurial community, which has been readily filled by universities, focuses on new business formation for the purpose of identifying, developing and commercializing relatively risky and unproven technologies and business processes.  The study of entrepreneurs and their firms that are involved in these sorts of activities is referred to as “entrepreneurship and innovation.”  A number of different definitions and explanations of “innovation” have been offered by academicians and commentators.  For our purposes, it is useful to think of innovation as the process of successfully acquiring and implementing new ideas within a business organization.  As suggested by this formulation, new ideas can be developed and created internally, or can be borrowed or purchased from other organizations.  New ideas are not confined to new products and services, but also include new or improved processes that enhance productivity or reduce costs associated with manufacturing or distributing existing products.  Put another way, innovation involves firms doing new things in new ways to increase productivity, product development, sales and profitability, including finding new ways of identifying the needs of new and existing clients and making and marketing products that satisfy those needs. 

In his book, Innovation and Entrepreneurship, Peter F. Drucker forcefully promoted the interrelatedness of entrepreneurship and innovation and the need for entrepreneurs to recognize and learn the disciplines and principals of innovation and practice them in the planning for their ventures:  “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.  It is capable of being presented as a discipline, capable of being learned, capable of being practiced.  Entrepreneurs need to search purposefully for the sources of innovation, the changes and their symptoms that indicate opportunities for successful innovation.  And they need to know and apply the principles of successful innovation.”  Drucker believed that entrepreneurship could be understood as a systematic process and that opportunities for successful entrepreneurship could be uncovered through purposeful innovation and exploration of identified sources of innovation including incongruities, process needs, industry and market structures, demographics, changes in perception, new knowledge and unforeseen events.

Certainly there are important and obvious differences between launching a small shoe repair shop and developing and commercializing a cutting-edge pharmaceutical product to fend off cancer; however, those who link entrepreneurship and innovation believe that any new venture, be it a separate start up business or a product development project within a large company, can increase its chances for success by understanding and applying the principles that have been gleaned from studies of what has been referred to as the “innovation process”.  Of course, while opinions vary on exactly what that process might be it has traditionally flowed sequentially through the following phases: idea generation, concept development, resource acquisition, ramp up and launch.  Studies have shown that many the elements required for successful innovation are constant across industries and business activities and include an emphasis on product innovation, a strong customer orientation and a firm commitment to high quality reliable service.  Presumably these findings can be effectively deployed by all entrepreneurial ventures; however, it is should be understood that additional innovation strategies may be required in response to specific competitive factors in particular industries.

Others who have studied whether it is possible to differentiate “entrepreneurs” from small business owners have concluded that merely conceiving a new business was not sufficient to qualify as entrepreneurship and that the term was appropriate only for those persons who identified and created combinations of resources for the purpose of seeking profit and growth and then pursued those goals through innovative behavior and the implementation of creative management practices.  This position is consistent with the perspective taken by those who believe that strategy, rather than the personal characteristics of the founders and senior managers, is the most important and accurate predictor of whether or not a new firm will be successful in achieving its goals with respect to profits and growth.  For persons in that camp the entrepreneurial event is a moving target composed of parts that are in constant motion.  While certain personal characteristics of the founders and other members of the senior management team are important, particularly their leadership skills, it is their ability to develop and execute the appropriate strategy that is the most crucial success factor.

The content in this post has been adapted from material that will appear in Business Transactions Solutions (Winter 2008) and is presented with permission of Thomson/West.  Copyright 2008 Thomson/West.  For more information or to order call 1-800-762-5272.


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