Welcome backFinish your .
Raise your hand if you know of an entrepreneur who went out of business recently.
I’ve had the pleasure of hanging out with thousands of entrepreneurs over the years—thanks to being involved in leadership roles through Entrepreneur’s Organization and Young President’s Organization—and, sadly, my hand is up too.
If you ask academics why do so many entrepreneurs fail inside of three years, you will hear answers like lack of funding, lack of resources and competitive conditions. All true. But in my experience, these are often symptoms of a greater issue that may surprise you.
Unfortunately, the death knell for many wide-eyed entrepreneurs is that they consider themselves inventors. More specifically, they confuse being inventive with being innovative. And when they do, they run out of cash, time and customers. In other words, they run out of business.
Invention vs. Innovation
Wait, isn’t invention the same as innovation? No, and if you don’t understand the difference, you may soon find yourself joining all those people who have seen their businesses fail. In fact, I grew up thinking that “big ideas” were the keys to success and now feel fortunate to know better.
The difference between invention and innovation has everything to do with need.
Inventors make up an idea, and then look for someone who needs it. The best innovators find a HUGE need, and then create a way to solve it.
The challenge with starting with the invention is that you may come up with something new but not necessarily what enough of the world is willing to pay for. The folks who created the Iridium phone—which would allow you literally to call anywhere in the world from anywhere in the world—invented something wonderful. Unfortunately, they then found out that not enough people were willing to pay what they had to charge to make the idea viable. Ouch.
Thinking up new ideas is relatively easy. If we gave you five minutes, we bet you could come up with 10 if you had to.
Solving a significant market need is much harder but far more profitable—which leads us back to where entrepreneurs and companies stumble. Because it is harder, too many companies find themselves choosing invention over innovation—what I call “The Invention Trap”—and that is a potential recipe for failure.
If you are considering becoming an entrepreneur, or if you run an innovation group at a larger firm, here are three ways you can avoid the invention trap:
1) Start with a meaningful unmet need. Finding the burning unmet need is the superhero power of the most innovative entrepreneurs and companies. Get really, really good at consumer insights and the big ideas will follow. Big ideas should not be your starting point. They should flow from a meaningful insight into an unmet market need.
2) Consumers first, sales partners second. Your channel partners are experts at what has worked in the past, not what consumers need tomorrow. Incentive plans, time constraints, expertise and fear conspire to keep them looking backward, not forward. When you become the expert about emerging consumer needs, your channel partners will beg you for the next meeting. Why? Because, remarkably, everything you give them to sell, actually sells.
3) Dream big. I call it “a Napster Moment,” when someone who has no business being in your business comes along and puts you out of business. You know an industry is right to be Napstered when there are shrinking margins, consolidation and consumers interested in alternatives. This points to categories like health care, insurance and higher education. Find the right consumer need in these categories and you could be running the next Amazon, Netflix NFLX +0.82%, CarMax KMX +1.99% or LegalZoom.
Don’t invent. Solve a (gigantic) problem.