i) First Principles of Innovation
Since the maximization of individual happiness appears to be the goal of every individual, an innovative product must offer an improved way for the consumer to be happy. Every product in the marketplace fundamentally sells happiness and nothing else.
But because there are very many competing vehicles for human happiness, a successful new product must offer more happiness per dollar of price than its alternatives. A new product that lacks this competitive advantage is doomed to fail.
Fundamentally a new product sells only if its perceived value by the consumer (utility)
divided by its price exceeds that of its best competing alternative. The greater the
difference in the ratios; the greater the opportunity.
Utility of New Product / Price of New Product > Utility of Existing Competing
Product / Price of Competing Product
(There is ALWAYS a competing product; See MARKET RESEARCH,)
Assume a benchmark of 100 for the utility of the best competing product and $1 for its price. Therefore, a new product can be successful under the following conditions:
e.g. 110/1 > 100/1
e.g. 150/1.2 > 100/1
Note that this possibility is true only if the price difference is proportionately less than the difference in utility. In practice, mistakes are often made in this type of estimation.
e.g. 90/.5 > 100/a
Note that the price difference must be proportionately more than the difference in utility
e.g. 150/.8 > 100/1
This is potentially the most powerful possibility; this is true of much of the computing industry.
Unlimited wants could be taken to mean that human being are by nature insatiably greedy gluttons ready to pillage and plunder, parasitic leaches eager to drain the host to death. (Some certainly are.)
Or unlimited wants can be taken to mean that human beings have an infinite capacity for growth, development, experience and exploration and that this manifests itself in an unending series of new interests, activities, technologies and market demands.
The prevalence of boredom reflects either a restless search for new arenas for accomplishment or mindless caprice. Some products offer the mind enrichment, others a way to pass the time until death.
Which market you choose is your choice.
The search for new products basically is a search for a problem to which a better solution can be offered. Every problem is a potential new product. And identifying the problem with the best potential often is more difficult than actually generating the solution.
It is very important to recognize that an innovative product occurs when any aspect of a product is an improved solution to meet human want. We have a new product when any one of the following conditions is satisfied.
You can create an innovation either by finding a problem and then finding a solution or by finding a solution (technology) and then finding a problem to be solved. However, when doing the latter make sure you find a problem which is actually there, not one you want to be there. While you should love the technology you are working with, you must never be blinded by love.
Every step in the development of new products must be conducted as efficiently as possible. Research and development projects must be planned with efficiency as a primary goal. You never have resources to waste. A concern for efficiency does not just begin with large-scale production.
The development of a new product is always an experiment and therefore always involves a risk of failure. The objective of methodical product development is to contain this risk to its irreducible minimum.
Warning, warning! Danger, danger! This advice is often confused and abused.
You are usually told to start small and do not be too ambitious. Be realistic.
That is good advice.
Yes, be realistic. No fantasy and wild, ill-considered schemes. Plan, document, research, sweat. Critique your idea and plans ruthlessly. Pay others to do so. See MARKET RESEARCH, CAPITAL RAISING, PLANNING
But that just means you are looking for a big idea which is real and practical. That is very difficult. Being an entrepreneur is very difficult work. Stupid big ideas are everywhere and frequently seduce the unwary.
Yes, start small. But think big.
Starting small is the only practical way to begin. It minimizes risk, preserves flexibility and affords the opportunity to follow unexpected turnings in the marketplace.
You can be unrealistically ambitious and prematurely ambitious; but you cannot be "too" ambitious.
When you are big, you can harvest the effects of small changes; when you are small, it is much more difficult to do. Do not try to compete with Northern Telecom, Bombardier or Microsoft.
[Note that some persons start a small business with a small idea to practice their entrepreneurial skills and/or to troll for a larger opportunity. That is entirely appropriate as long as these goals are pursued explicitly and aggressively].
BUT the form of the idea is not related to its degree of difference from the past. A small idea can have an elaborate form even if it is a small departure.
e.g. 1 million-line software program can be less radical than a one-sentence instruction.
And radical ideas often look evolutionary in retrospect but do not be deceived: Even if they look logical, easy, non-creative now, they were radical when they were introduced. For example: PC's and mainframes and just in time inventory.
Entrepreneurs always battle the conservative bias of society. They recognize that there is resistance to change always and everywhere in the marketplace and in society. The resistance to change is pervasive, relentless, insidious, unyielding and generally a problem. Recognize that the force of habit is a rational part of everyone's life. There is also the resistance of existing entrepreneurs who are defending their ideas and ventures. It takes energy, time, effort and resources to change - the transformation cost is often very high and often ignored by prospective entrepreneurs. There will be resistance by those who will be disadvantaged by the change (someone is always disadvantaged), in particular by powerful, entrenched interests.
And no large entity of any kind, public or private can change quickly. Slow change is the best they can do. There is the resistance by those who are afraid, and often uninformed. Never underestimate the power of fear; never treat it with disrespect. For these reasons only the commitment of the entrepreneurs is strong enough to deflect the resistance.
All problems and their solutions ultimately address one of these basic concerns. The more strongly the solution addresses the basic concern, the more successful it is likely to be. If a particular solution addresses more than one basic concern, the more successful it is likely to be. Strongly addressing more than one basic need with one solution can be very advantageous.
It is essential to understand that recognizing a problem is as much an act of imagination as solving a problem.
If, after such examination, your principal interest remains non-commercial, you prepare to create an innovation for which you will raise funds from either an appropriate employer or from non-commercial sources, such as private donors, foundations and public agencies.
Successful entrepreneurs, by contrast, use the force of their determination to hold the imaginative and the practical, these two mutually repelling forces, side by side in absolute balance. They do so until the tension is relieved by a lightning bolt of penetrating insight; the imaginative and the practical meld into one.
ii) Intellectual Property: Barrier to Entry
Assuming you have a feasible solution and willing customers, how will you protect yourself from competition, from the imitation of your solution? How will you make yourself a monopoly? This step is frequently overlooked or minimized; many entrepreneurs just expect competitors and intend to fight them off in some vague way. Note: protecting intellectual property effectively requires legal advice. The following is only enough information to ask informed questions of your advisors.
Enforcing a patent is an expensive and lengthy process. A patent can be a powerful monopoly. All new solutions should be searched for patentable aspects. If the idea cannot be patented, can a vital part of it or the machine which makes it or the package which holds it or the attachment to another product or etc. be patented?
Can the design be reoriented to create more patentable aspects? Note: patenting successfully requires highly-trained, highly-paid professional advisors.
Can also sue based on trade secrets, proprietary knowledge, industrial espionage (see below).
The TRUE and ULTIMATE barrier to ENTRY is INFORMATION. The real lesson of the information economy is not that we all sell computers or write software. It is that for all of us information is a powerful tool and weapon. A competitively powerful venture has a growing fund of exclusive, highly-valued information. It is irrelevant through what vehicle that information is sold - through a physical product or on a database. The information is EXCLUSIVE because only you took the time to find it, to analyse it. Only you know where to look. Then it appears easier to buy it from you, than to chase you. You are more powerful than your competitors when you know more than they and you always do (which is why the innovative thrust of your venture can never ease). "We have taught our competitors everything they know. We haven't taught them everything we know." Mercedes-Benz
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This page was last updated 24 June 1997.