Table of Contents
The Era of Entrepreneurship
There seems to be a change of values developing in society. In Innovation and Entrepreneurship, Drucker asks, “where are the hedonists, the status seekers, the “me-too-ers”, the conformists?” Instead, we live in a society where more people want to work like demons and sacrifice comfort and pleasure for the remote risk that they might make instead of finding security with a big corporation.
Definition of an Entrepreneur
An entrepreneur isn’t just someone who opens another restaurant. He is someone who wants to innovate new products, reinvent previous business models or exploit change in a new way. This entrepreneur can succeed in any industry. Entrepreneurship is risky, but moderate success makes it worth it.
The common perception is that entrepreneurs are risky, but this isn’t really the case. People who inject large investments into industries that have already been established are being risky. Entrepreneurs look for opportunities far less risky than that. Many entrepreneurs fail because they aren’t systematic enough.
To succeed, you need to be purposeful in your search for opportunities. The entrepreneur who just waits for the winning lottery idea to hit him will never get his feet off the ground, but the entrepreneur who organizes his efforts to analyze the opportunities around him constantly is much more likely to find a breakthrough idea.
Ideation
What inspires that insight?
- Unexpected results. If you find a guy who succeeds at something even though he is nothing like his competition, then figure out why.
- Incongruity: Find the difference between what reality is – and what it ought to be. Uber started out by questioning whether hailing a cab (the reality) was the way it should be.
- Process need: Whether the process involves organizing your day, converting PDF to word documents, or notifying your coworkers of important updates, there is always a way to do things better.
- Changes in industry or market structure: Online media has changed the way the news is being consumed. It has changed the way information, in general, is being consumed. That could be a prompt for ideas. Look for other industry changes, and what they could mean for the future.
- Demographics: The demographic profile of the location you’re living in is constantly in a state of change. What changes do you anticipate over the next few years, and how can you be a pioneer in exploiting those changes?
- Changes in perception, mood, and meaning: Culture gives rise to technology. Technology, in turn, changes culture. We are in an infinite loop of cause and effect. Things that used to be taboo in the past are today common place. Anticipate how you can be part of the next change of perception. Air bnb would have been considered a psychopathic idea not very long ago. Today, there are few people who haven’t used the service in some way. What is strange and pathological today will be embraced and normal tomorrow.
- New knowledge, both scientific and nonscientific: It could be some breakthrough in the nutrition industry, or someone might have discovered something uncanny about human psychology or biology. We are exposed to new breakthroughs on a constant basis. It wouldn’t be imprudent to build a business on that basis.
To innovate, you need to profess your ignorance and then ask questions and listen.
Everyone Knew
When TV became popular, everyone knew that books would become obsolete. The experts thought that young people (teenagers and college students) would give up on reading. Guess what, that didn’t happen. Book stores fired their nerdy staff and hired ex cosmetics sales people and saw their sales fly for the next decade. Don’t just listen to the experts, see what’s working, and capitalize.
Why did young people keep reading books? Who knows? More importantly, who cares? Your job isn’t to investigate why things happen, there are too many potential explanations. Your job is to ignore people who think they have the explanations and measure results.
You stand the best chance of succeeding if your knowledge set matches the opportunity you’re exploiting. Don’t swim in waters you’re too unfamiliar with, you’re likely going to get outcompeted.
What Citibank Saw
Citibank spotted an important demographic change. They realized that women were going to be break into the job market very soon. Instead of holding on to tradition the way other banks were, they jumped on the opportunity. They recruited and trained exceptional women who were being overlooked by everyone else in the 30’s and 40’s and built an army that would bring the company a lot of success.
Changes in Perception
In the 1950’s, Americans regardless of income, considered themselves to be middle class. Benton asked people what “middle class” meant to them, in contrast to working class, and they said it was believing the ability of their children to rise through performance in school. This was a perceptual shift. Benton bought the Encyclopedia Britannica company and used his discovery to close deals by using the term “middle class”, he took the company from near bankruptcy to soaring success. Ten years later, same strategy was applied in Japan with success.
The automobile market used to be segmented by income, it’s now segmented by lifestyles. perception is never determined by objective reality. The English feel more working class than the Americans even though a larger proportion of them earn wages that are higher than a typical working-class salary.
Advice on Innovating
- Organize and systematize the study of opportunities
- Understand how your customers perceive ideas, don’t just make assumptions.
- Always aim for simplicity. Things that are too complicated never take off.
- Start small. A bit of money, a small team, a focused market.
- Simple works. if it’s too complicated, it won’t work.
- Aim at being a market leader and a thought leader of your space.
What You Should Avoid?
- Don’t be too clever. Anyone should be able to understand how to use your product.
- Don’t diversify too early. Focus one thing at a time.
- Don’t innovate for the future, innovate for the world today.
Find Your Fit
To innovate, the opportunity needs to match you. It needs to match your skills, temperament, strengths, and knowledge. To put up with the inevitable disasters you’ll come across, you need to find something that you feel matches who you are at a very basic, fundamental level. But that’s not enough, your innovation also has to be connected to what the market wants. It has to be driven by demand.
Realistic considerations before starting a business
- Know how much money you’ll need to run the business for a year
- Find out how to delegate the tasks you can’t handle
- What are the key activities?
- Who should be handling these key activities?
- What are you good at?
- What do you really want to do and are willing to do for many years?
- Is this something the business needs?
Soichiro Honda didn’t start his company until he found the perfect partner who would handle the business side of the company. He knew that he was only capable of handling the engineering side. This self-knowledge led to the success of the Honda Motor Company.
Ford did the same thing 40 years earlier He found a partner called Couzens, who handled the business side, while he focused on engineering. Couzens was, in fact, the guy behind the famous $5 a day plan. And things went badly for Ford ever since Couzens left the company. When Ford tried to handle more than what his core competence was (engineering), things started to go wrong for his company.
Entrepreneurial Strategies
There are four specifically entrepreneurial strategies:
1. Being “Fustest with the Mostest”
it aims from the start at a permanent leadership position. – of all entrepreneurial strategies it is the greatest gamble. “Putting a Man on the Moon” is an example of this strategy being used. It’s a high risk, high reward approach, and it requires impeccable timing and a big investment.
2. “Hitting Them Where They Ain’t”
This calls on a company to attack its competitors where they’re weak. IBM’s personal computer was virtually identical to Apple’s when it came to technical features. But they used all kinds of distribution channels to sell their product while Apple only used their specialty stores. That made it easy for customers to buy their products and they dominated the personal computer market for a long time.
3. Ecological Niches
The previous strategies focus on positioning. This one is all about controlling a small market. This is the idea of finding 1000 true fans. –
4. Changing values
This one involves creating a customer, and you can do that by creating utility, pricing, or adapting to the customer’s social and economic reality. An example of this is Gillette. It used to be the case that only the aristocrats in society would look after their facial hair. In the late nineteenth century, “large numbers of men, tradesmen, shopkeepers, clerks, had to look respectable.” But they didn’t know how to use a razor, and it was cheap to go to the barbers – it cost ten cents.
A razor would cost five dollars. But Gillette used an innovative pricing strategy. They sold their razors for fifty-five cents retail, or twenty cents retail. But that’s not how Gillette made money. The secret was in the razors. They cost only one cent, but were being sold for five. And each razor could be used six or seven times, making it a much cheaper option that going to the barbers.
Evaluation
- Durability (I Will Read This Again): 9/10
- Originality (This Taught Me Something New): 9/10
- Experience (This Was Enjoyable to Read: 7/10
- Efficiency (This Was Concise): 7/10
- Shareability (I Will Recommend This Book to My Friends): 8/10
UW Score: 80/100
Customers are not irrational as many people seem to claim. They are rational in their own way. They have their own idiosyncratic set of needs that need to be met by businesses. When they aren’t, it’s the result of a business’s failure to recognize these needs. There are only a few books on business that I’ve had the pleasure of reading and understanding where all the new books and authors get their information from. That’s what a classic is. Innovation and Entrepreneurship is a classic.
Most of the new “entrepreneurship” books you’ll read get their ideas from this one in some way or another. But every book has its purpose. If you’re looking for a business book that will teach you about why companies have succeeded and failed in the past, how society has transformed and who was there to take advantage, look no further. In other words, if you’re looking for an education, and not just a few cheap tricks and hints, this is the book you should read.
If you’re an entrepreneur and you want a quick guide to know what to think about before launching you business, check out The Myth of Entrepreneurship.