Read full chapters here:
Chapter 1:
The Most Basic Answer
“The lessons taught in great books are misleading. The commerce
in life is rarely so simple and never so just.”
- Anita Brookner
in life is rarely so simple and never so just.”
- Anita Brookner
The drive to become an entrepreneur these days is as strong as it has ever been. Most of you probably feel overdue to take the plunge. However it probably isn’t the motivation that is stopping you. The more likely roadblock is; what business should I start? or, how do I find a great idea for a business? At first, this doesn’t seem like too difficult a barrier to overcome. In fact, it shouldn’t take long to come across the standard “how-to” answer. You’ve likely already encountered this answer if you have explored the topic before. The obligatory response is that you simply “solve a problem.” You may also get the same answer with slightly different phrasing such as, “fulfill an unmet market need.” However, they are essentially saying the same thing. I truly wonder if anyone has ever encountered these responses and been satisfied with the advice. Where should you look for this “problem?” It doesn’t say. How do I create novel solutions? It doesn’t say. In fact it doesn’t give you any direction at all. What is sad is that this response might be the only answer that most people encounter in their lifetime. It might be all the face time that the origin of business ideas gets as you continue your search. Most classes, most books and most discussions do not branch beyond this simple answer. Why? Because expanding on that answer directs you down a road of fuzzy concepts and hard to conceptualize notions. The answers to those questions do not fit into a process or an easy to explain theorem for innovation. I do not claim that this basic answer is incorrect, but it is cliché and extremely vague. This chapter examines the basic answer and then the rest of the book requires that you go beyond it to get a full understanding of how to create truly great business ideas.
Entrepreneurial books and teachings consistently glaze over the idea creation stage of business. They would say something to the effect of “Ok, you have a business idea, now this is how you start the business.” In my mind the second phase of business building after the idea is the most concrete. It is more of a process. As a marketing and logistics major, I am fully aware of how to manipulate marketing principles, logistical problems and the like once something exists. I know the concepts and I know how to put them in motion. The thing that bothers me is that the foundation of all those things we study so in depth gets the least attention, meaning the idea. So the rest of this chapter is the basic understanding of the origin of business ideas. It is a foundation for future discussions and needed to be mentioned. At the same time, do not let it be the only concept that forms your mindset on the sources of innovation. You need to dive deeper.
We begin with the premise that you need to find a problem or fulfill an unmet market need in order to form a business. Albeit vague, this is generally a true statement. So what are these problems and unmet needs? How do you characterize them? Even when probing beyond the first generalized answer, you would most likely get another such generalization. You might find something to the effect of “problems and unmet needs are where a gap exists between what the consumer demands (or should demand) and what they are actually getting from the market.” Essentially, consumer demands or ideal states of being are not being met. A gap exists that needs filling. That is where entrepreneurs come in. Entrepreneurs fill, or at least close, the gap between what consumers want and what they actually are getting. How do they do that? Most simply, they achieve this by employing innovation and starting innovative ventures. They take the inputs that are available in the market and combine them in new ways to create value. That increase in value is what closes the gap for the consumer and gets them closer to their ideal solution. This second level of generalization is not much more helpful than the original answer. In fact, it barely elaborates on it. Sources that give you these type of answers will keep generalizing until you go away. Committing to a “how-to” statement is not in their best interest.
Another caveat to the most basic answer is that it does not differentiate between different levels of problems. When it instructs you to find a problem to solve, it does not say whether you should be looking to create an entirely new market or whether you should uncover a problem with a specific machine in a manufacturing plant. I guess this is purposeful so that you consider all problems, however, this also creates a problem of its own. There are different levels of problems. Finding out that machine A has only 67% efficiency when it could have 72% efficiency is a minor consideration in the overall scheme of the business world. However, figuring out that the attitudes of 37 million people are shifting and are going to change an industry’s landscape in the next five years is a much more interesting problem. In this book we are going to show you the different levels of where problems occur. It has to first start with consumers and their changing needs. Then you can get incrementally more specific in the business world to consider problems at the industry level, the firm level and finally individual products and processes. Not all problems are created equal and the most basic answer fails to distinguish that for the entrepreneur.
Somewhere between the basic sources of ideas (problems / unmet needs) and the end product of an innovative idea, a venture, is the process of actually formulating one. Many people aspire to be entrepreneurs and yet so few take the plunge. Even of those few who do, only a fraction of them succeed. Is it that entrepreneurs have great ideas and fail at the more concrete skills such as marketing and financing? Or is it the case that all of their more concrete practices such as marketing and financing are based on a poor idea? It is hard to say and obviously a bit of both. The one thing that is apparent is that one of these downfalls is much easier to avoid. You can read volumes of textbooks and readings on the major topics in business such as finance, marketing and economics. College business students probably read in excess of 30 such texts. However, the most course reading I ever had in college on the topic of idea creation and formulating ideas amounted to seven pages of a 560 page entrepreneurship text. Even then, those seven pages were encountered in an elective course, and weren’t required. Those seven pages produced no new insights but did harp on the “most basic answer” that I keep referring to. The point here is that among all of the teachings available to aspiring entrepreneurs, few go beyond the most basic answer to creating business ideas, even in a scholarly business setting.
Think about it this way. Every business in the world was founded on an entrepreneur’s desire to bring an idea to life. The intensity with which we study everything that happens after the idea is set in motion is incredible, yet the idea which was a tipping point to becoming entrepreneurial is rarely given a second glance. Of all the interesting ideas in the world and the “why didn’t I think of that” type moments, the best we can come up with is that formulating business ideas is about “fulfilling an unmet need.” The best tactic for formulating these unmet needs is something I learned in second grade; brainstorming. Literally, it is the best that all of the great business thinkers of the world could come up with since brainstorming was first articulated over six decades ago. Innovation has been left to AHA! random connection of neurons. Creativity and ideation is seen as a “fuzzy art” and the best way we can articulate what happens is that entrepreneurs envision ways to “fulfill an unmet need.” What it truly boils down to is that they simply do not care to go further. Why should they? Business schools and business teachings are more interested in making you successful as an employee as opposed to teaching you how to become an employer.
Enough ranting. Lucky for me, I’ve had a few professors and friends over the course of the years who pointed me in the right direction. As I will strive to do in this book, they gave me my starting point, somewhere to start looking. A book was recommended to me by my Professor of Marketing, Roger Blackwell. That book was “Innovation and Entrepreneurship” by Peter Drucker. That book is what started me down the path to writing this book. Drucker believed that the sources of innovation were identifiable and knowable. He believed that you could systematically identify and manage for innovation. He was also the first to assert that innovation should not be left to randomness. Drucker believed in a proactive and systematic search for ideas. That core theme will guide the remainder of this book.
As I mentioned, there is not a lot of good material on the subject of creating great business ideas, but in the same breath I said that Peter Drucker has a book on it. Let’s add a little bit to the most basic answer. Let’s briefly take a look at the first people who have attempted to characterize these “problems” and “unmet needs.” We’ll look at some of the first attempts to expand beyond these base statements. Granted, there is more material and ideas than I could put into this chapter, but I do want to touch on two of the main thinkers who are mentioned when we speak of innovation. These are usually the first two people you would encounter if you did any serious searching for answers to your innovation questions. Their ideas and theories changed the way we categorize innovation and think about it. Their ideas are the next steps beyond the most basic answer. The first individual is economist Joseph Schumpeter.
Joseph Schumpeter’s name is mentioned quite often in the entrepreneurship realm. His work in the area bears his namesake, Schumpeterian Economics. Schumpeter is well known for examining the entrepreneur’s role in the economy and describing how entrepreneurs affect markets. Basically, Schumpeter said that the entrepreneur was a disruptive force in the marketplace. They are the agents of change. His view was that entrepreneurs employ “creative destruction” to overthrow established industries and players.(1) Schumpeter looked at how individuals had the power to affect entire industries with their ideas. The title of creative destruction comes from the idea that the new and novel business ideas that entrepreneurs employ have the power to change the way things are done. They destruct the industry by creating new rules and bases of competition. Months or years down the road when the original entrepreneur becomes the incumbent firm, they are also susceptible to being on the other end of the equation. The point of this is that Schumpeter’s thinking in economics began to bring to light how entrepreneurs accomplish what they do. His ideas started to give us a basis beyond “solve a problem.”
The second thing that Schumpeter described was a categorization of what new innovations are. He described for us what the end products are that entrepreneurs bring about. Although his initial purpose was categorization for the sake of economic thought, we, as innovators of the present can use his theories to figure out the “how” of innovation. We do this by taking his end categories and reasoning backwards. Schumpeter said that innovation came from new products, new processes, new knowledge, new markets and new business models.(2) While he doesn’t go on to tell you how to create them, it does form a good base of where innovation comes from in a general sense. His ideas start to put meat on the bones of our proposed structure. We went from an original nugget of where to start thinking about business ventures, to his theories about the end results of innovation. It is up to us to fill in the gaps. It is up to this book to figure out how to get you from point A to point B. Eventually we should have a relatively clear picture of what innovation is and how we can capture it. Our objective is going to be the “how” instead of the “what” that Schumpeter has contributed.
The second person that was influential in building on the most basic answer is Peter Drucker. While Drucker is probably best known for his ideas and writings on management, he also penned a book that gave shed some light on the origins of innovation. Drucker took a lot of criticism for the book, Innovation and Entrepreneurship, in which he attempts to identify the sources of innovation and how to recognize them. I think the most crucial thing that Drucker accomplished with the book was instilling the thought that sources of innovation could be known and that humans could actively pursue innovation. His ideas were the first attempt to fill in the gaps that Schumpeter left us with. Drucker said that innovation comes from seven places that can be systematically identified and managed. Those places are: The Unexpected (random occurrences), Incongruities (unmet consumer needs), Process Needs, Industry and Market Structure Changes, Shifting Demographics, Changes in Perception and New Knowledge.(3) Drucker expanded on some of Schumpeter’s thoughts and also added some of his own. In chapter 34 I will elaborate on each of these seven sources and how they fit into the overall picture of innovation, but for now just realize his efforts to fill in the gap of innovation knowledge. Drucker’s ideas are about being able to recognize chances to innovate. His focus was to prepare managers to see opportunities in the constantly changing business landscape. He was the first to make such a bold assertion that innovation could be systematically identified and managed. For that reason, Drucker was an inspiration for this book. However, Drucker stopped well short of producing a comprehensive text on the topic of innovation and entrepreneurship. While influential, his ideas lock practitioners into a waiting mode, waiting to identify change. His work doesn’t focus on the creation of ideas or the creation of new markets. This book is going to expand on Drucker and try to take it from recognizing opportunity to creating opportunities.
In this chapter I have presented to you the most basic answer for the sources of innovation and some supplemental thinking around the most basic answer. Don’t expect much more from any other source. The most basic answer is what a majority of the business population understands as the way to create business ideas. I would guess that most business people actually have less depth of knowledge on the subject than I just presented you. The goal of this book is to go way beyond this. The goal is to get specific and tread the same controversial waters that Drucker did. It will follow the theme that sources of innovation are identifiable and knowable. The rest of the book is designed to fill in the rest of gaps for you. Knowing about point A and point B is relatively worthless unless you have the means to get from one to the other.
(1) Baretto, H., “The Entrepreneur Throughout the History of Economic Thought,” pp. 4-44.
(2) Schumpeter, Joseph. The Theory of Economic Development. Cambridge, MA: Harvard Business
School Press, 1934.
(3) Drucker, Peter. Innovation and Entrepreneurship. New York, NY: HarperCollins Publishers Inc.,
1993 pp.35
Entrepreneurial books and teachings consistently glaze over the idea creation stage of business. They would say something to the effect of “Ok, you have a business idea, now this is how you start the business.” In my mind the second phase of business building after the idea is the most concrete. It is more of a process. As a marketing and logistics major, I am fully aware of how to manipulate marketing principles, logistical problems and the like once something exists. I know the concepts and I know how to put them in motion. The thing that bothers me is that the foundation of all those things we study so in depth gets the least attention, meaning the idea. So the rest of this chapter is the basic understanding of the origin of business ideas. It is a foundation for future discussions and needed to be mentioned. At the same time, do not let it be the only concept that forms your mindset on the sources of innovation. You need to dive deeper.
We begin with the premise that you need to find a problem or fulfill an unmet market need in order to form a business. Albeit vague, this is generally a true statement. So what are these problems and unmet needs? How do you characterize them? Even when probing beyond the first generalized answer, you would most likely get another such generalization. You might find something to the effect of “problems and unmet needs are where a gap exists between what the consumer demands (or should demand) and what they are actually getting from the market.” Essentially, consumer demands or ideal states of being are not being met. A gap exists that needs filling. That is where entrepreneurs come in. Entrepreneurs fill, or at least close, the gap between what consumers want and what they actually are getting. How do they do that? Most simply, they achieve this by employing innovation and starting innovative ventures. They take the inputs that are available in the market and combine them in new ways to create value. That increase in value is what closes the gap for the consumer and gets them closer to their ideal solution. This second level of generalization is not much more helpful than the original answer. In fact, it barely elaborates on it. Sources that give you these type of answers will keep generalizing until you go away. Committing to a “how-to” statement is not in their best interest.
Another caveat to the most basic answer is that it does not differentiate between different levels of problems. When it instructs you to find a problem to solve, it does not say whether you should be looking to create an entirely new market or whether you should uncover a problem with a specific machine in a manufacturing plant. I guess this is purposeful so that you consider all problems, however, this also creates a problem of its own. There are different levels of problems. Finding out that machine A has only 67% efficiency when it could have 72% efficiency is a minor consideration in the overall scheme of the business world. However, figuring out that the attitudes of 37 million people are shifting and are going to change an industry’s landscape in the next five years is a much more interesting problem. In this book we are going to show you the different levels of where problems occur. It has to first start with consumers and their changing needs. Then you can get incrementally more specific in the business world to consider problems at the industry level, the firm level and finally individual products and processes. Not all problems are created equal and the most basic answer fails to distinguish that for the entrepreneur.
Somewhere between the basic sources of ideas (problems / unmet needs) and the end product of an innovative idea, a venture, is the process of actually formulating one. Many people aspire to be entrepreneurs and yet so few take the plunge. Even of those few who do, only a fraction of them succeed. Is it that entrepreneurs have great ideas and fail at the more concrete skills such as marketing and financing? Or is it the case that all of their more concrete practices such as marketing and financing are based on a poor idea? It is hard to say and obviously a bit of both. The one thing that is apparent is that one of these downfalls is much easier to avoid. You can read volumes of textbooks and readings on the major topics in business such as finance, marketing and economics. College business students probably read in excess of 30 such texts. However, the most course reading I ever had in college on the topic of idea creation and formulating ideas amounted to seven pages of a 560 page entrepreneurship text. Even then, those seven pages were encountered in an elective course, and weren’t required. Those seven pages produced no new insights but did harp on the “most basic answer” that I keep referring to. The point here is that among all of the teachings available to aspiring entrepreneurs, few go beyond the most basic answer to creating business ideas, even in a scholarly business setting.
Think about it this way. Every business in the world was founded on an entrepreneur’s desire to bring an idea to life. The intensity with which we study everything that happens after the idea is set in motion is incredible, yet the idea which was a tipping point to becoming entrepreneurial is rarely given a second glance. Of all the interesting ideas in the world and the “why didn’t I think of that” type moments, the best we can come up with is that formulating business ideas is about “fulfilling an unmet need.” The best tactic for formulating these unmet needs is something I learned in second grade; brainstorming. Literally, it is the best that all of the great business thinkers of the world could come up with since brainstorming was first articulated over six decades ago. Innovation has been left to AHA! random connection of neurons. Creativity and ideation is seen as a “fuzzy art” and the best way we can articulate what happens is that entrepreneurs envision ways to “fulfill an unmet need.” What it truly boils down to is that they simply do not care to go further. Why should they? Business schools and business teachings are more interested in making you successful as an employee as opposed to teaching you how to become an employer.
Enough ranting. Lucky for me, I’ve had a few professors and friends over the course of the years who pointed me in the right direction. As I will strive to do in this book, they gave me my starting point, somewhere to start looking. A book was recommended to me by my Professor of Marketing, Roger Blackwell. That book was “Innovation and Entrepreneurship” by Peter Drucker. That book is what started me down the path to writing this book. Drucker believed that the sources of innovation were identifiable and knowable. He believed that you could systematically identify and manage for innovation. He was also the first to assert that innovation should not be left to randomness. Drucker believed in a proactive and systematic search for ideas. That core theme will guide the remainder of this book.
As I mentioned, there is not a lot of good material on the subject of creating great business ideas, but in the same breath I said that Peter Drucker has a book on it. Let’s add a little bit to the most basic answer. Let’s briefly take a look at the first people who have attempted to characterize these “problems” and “unmet needs.” We’ll look at some of the first attempts to expand beyond these base statements. Granted, there is more material and ideas than I could put into this chapter, but I do want to touch on two of the main thinkers who are mentioned when we speak of innovation. These are usually the first two people you would encounter if you did any serious searching for answers to your innovation questions. Their ideas and theories changed the way we categorize innovation and think about it. Their ideas are the next steps beyond the most basic answer. The first individual is economist Joseph Schumpeter.
Joseph Schumpeter’s name is mentioned quite often in the entrepreneurship realm. His work in the area bears his namesake, Schumpeterian Economics. Schumpeter is well known for examining the entrepreneur’s role in the economy and describing how entrepreneurs affect markets. Basically, Schumpeter said that the entrepreneur was a disruptive force in the marketplace. They are the agents of change. His view was that entrepreneurs employ “creative destruction” to overthrow established industries and players.(1) Schumpeter looked at how individuals had the power to affect entire industries with their ideas. The title of creative destruction comes from the idea that the new and novel business ideas that entrepreneurs employ have the power to change the way things are done. They destruct the industry by creating new rules and bases of competition. Months or years down the road when the original entrepreneur becomes the incumbent firm, they are also susceptible to being on the other end of the equation. The point of this is that Schumpeter’s thinking in economics began to bring to light how entrepreneurs accomplish what they do. His ideas started to give us a basis beyond “solve a problem.”
The second thing that Schumpeter described was a categorization of what new innovations are. He described for us what the end products are that entrepreneurs bring about. Although his initial purpose was categorization for the sake of economic thought, we, as innovators of the present can use his theories to figure out the “how” of innovation. We do this by taking his end categories and reasoning backwards. Schumpeter said that innovation came from new products, new processes, new knowledge, new markets and new business models.(2) While he doesn’t go on to tell you how to create them, it does form a good base of where innovation comes from in a general sense. His ideas start to put meat on the bones of our proposed structure. We went from an original nugget of where to start thinking about business ventures, to his theories about the end results of innovation. It is up to us to fill in the gaps. It is up to this book to figure out how to get you from point A to point B. Eventually we should have a relatively clear picture of what innovation is and how we can capture it. Our objective is going to be the “how” instead of the “what” that Schumpeter has contributed.
The second person that was influential in building on the most basic answer is Peter Drucker. While Drucker is probably best known for his ideas and writings on management, he also penned a book that gave shed some light on the origins of innovation. Drucker took a lot of criticism for the book, Innovation and Entrepreneurship, in which he attempts to identify the sources of innovation and how to recognize them. I think the most crucial thing that Drucker accomplished with the book was instilling the thought that sources of innovation could be known and that humans could actively pursue innovation. His ideas were the first attempt to fill in the gaps that Schumpeter left us with. Drucker said that innovation comes from seven places that can be systematically identified and managed. Those places are: The Unexpected (random occurrences), Incongruities (unmet consumer needs), Process Needs, Industry and Market Structure Changes, Shifting Demographics, Changes in Perception and New Knowledge.(3) Drucker expanded on some of Schumpeter’s thoughts and also added some of his own. In chapter 34 I will elaborate on each of these seven sources and how they fit into the overall picture of innovation, but for now just realize his efforts to fill in the gap of innovation knowledge. Drucker’s ideas are about being able to recognize chances to innovate. His focus was to prepare managers to see opportunities in the constantly changing business landscape. He was the first to make such a bold assertion that innovation could be systematically identified and managed. For that reason, Drucker was an inspiration for this book. However, Drucker stopped well short of producing a comprehensive text on the topic of innovation and entrepreneurship. While influential, his ideas lock practitioners into a waiting mode, waiting to identify change. His work doesn’t focus on the creation of ideas or the creation of new markets. This book is going to expand on Drucker and try to take it from recognizing opportunity to creating opportunities.
In this chapter I have presented to you the most basic answer for the sources of innovation and some supplemental thinking around the most basic answer. Don’t expect much more from any other source. The most basic answer is what a majority of the business population understands as the way to create business ideas. I would guess that most business people actually have less depth of knowledge on the subject than I just presented you. The goal of this book is to go way beyond this. The goal is to get specific and tread the same controversial waters that Drucker did. It will follow the theme that sources of innovation are identifiable and knowable. The rest of the book is designed to fill in the rest of gaps for you. Knowing about point A and point B is relatively worthless unless you have the means to get from one to the other.
(1) Baretto, H., “The Entrepreneur Throughout the History of Economic Thought,” pp. 4-44.
(2) Schumpeter, Joseph. The Theory of Economic Development. Cambridge, MA: Harvard Business
School Press, 1934.
(3) Drucker, Peter. Innovation and Entrepreneurship. New York, NY: HarperCollins Publishers Inc.,
1993 pp.35
