Innovation and Entrepreneurship: How they differ and why it’s critical to entrepreneurs

Entrepreneurship is a wide subject and those who venture into it need to have a wide understanding of the word in order to succeed in their undertakings.

641 views
10 mins read
innovation and entrepreneurship

When discussing the twin issues of innovation and entrepreneurship, it is important to understand the distinction between them for they do not mean the same thing. Neither are their meanings interchangeable. The importance of understanding innovation is the first step towards being a successful entrepreneur and the importance of understanding entrepreneurship is the first step in being an innovator.

Peter Drucker has probably made the sharpest distinction between innovation and entrepreneurship. In his book Innovation and Entrepreneurship, he quotes the French Economist J.B. Say who around the year 1800, described an entrepreneur as one who “shifts economic resources out of an area of lower and into an area of higher productivity and greater yield”. This definition did not tell us what an entrepreneur is, creating an ambiguity as to the clear distinction and definition of the entrepreneur and entrepreneurship.

In many societies, the entrepreneur is often defined as one who starts his own new and small business. The question from this definition emerges, “Is a new small business entrepreneurial? Or does every new and small business constitute entrepreneurship?” To elaborate on this point, if a husband and wife open a restaurant in a city suburb, we know that they are taking a risk which is one of the characteristics of entrepreneurship. But does this risk-taking attribute make this couple entrepreneurial?

The above question arises because all that this couple has done is what has already been done by many people before. People open saloons, hardware, bakeries, spare shops, motor vehicle bazaars, food, bar and restaurants on a daily basis. But do these people qualify to be called entrepreneurs? Yes, they gamble on the increasing popularity of customer behaviors such as eating out, looking smart, and self-driving which are hallmarks of an increasing middle-class society. But have these so-called “budding entrepreneurs” created a new satisfaction or new consumer demand? Seen from this perspective, Peter Drucker argues that these owners of saloons, bars and restaurants, motor bazaars and so on are not entrepreneurs even though they have opened new ventures. Consequently, the entrepreneur is a person who creates wealth by meeting a new consumer demand.

Read Also: Entrepreneur culture: What modern-day entrepreneurs should avoid

Professor Henry Bwisa, a Kenyan entrepreneurial Guru argues in his book Entrepreneurship Theory and Practice that a single universally accepted definition of entrepreneurship is elusive. He attempts to provide a definition of entrepreneurship in the following terms:

  • An art – an inborn talent that propels individuals towards successful self-employment.
  • A science – a systematized factual knowledge about how to successfully start and grow a business.
  • A theory – that explains why some people are more successful owners/managers than others.
  • A practice of generating creative and gainful ideas that are commercialized.
  • A process – a dynamic process of organizing resources to create incremental wealth.
  • A discipline that teaches the theory and attitudes needed in the venture creation and management process.

From the above definition, it is clear that the term entrepreneurship is a wide subject and those who venture into it need to have a wide understanding of the word in order to succeed in their undertakings. No wonder research studies have established that almost 90 percent of new business ventures do not succeed and close shop in 6 months or a year’s time. This occurs because of the limited knowledge of what entrepreneurship is all about.

In other words they started businesses without knowing whether they needed to satisfy a new customer need or a new customer segment, hence creating a new customer satisfaction. This is in spite of the fact that in Professor Bwisa’s definition, these business people initially engaged in the process of organizing resources intended to create incremental wealth, which is one of the components of his definition of entrepreneurship.

For success to be achieved in entrepreneurship, and in order to prevent failure, it is important to dig deep into what Peter Drucker referred to as the creation of new satisfaction or new demand in his book. Perhaps the history of McDonald’s can help in understanding what it is to create new satisfaction or new demand. This is because McDonald’s is an example of successful entrepreneurship within the definition of J. B. Say’s 1800 definition. Its final product, the Burger, was what any American restaurant had produced many years before. Its success has largely been achieved through what Professor Bwisa described as “the practice of generating ideas that are commercialized”. What ideas did the founder of McDonald’s apply?

The founder of McDonald’s asked the following questions prior to establishing the business; what value do we want to offer the customer? He set upon standardizing the production of the Burger in the kitchen, designing the processes and tools and offering basic training to Chefs on the analysis of the work to be done, setting the standards required to produce a unique taste of the Burger. In this process, McDonald’s both drastically upgraded the yield from the resources utilized and created a new market and a new customer. This, according to Peter Drucker, is what amounts to entrepreneurship.

All new businesses have many factors in common. But to be entrepreneurial, an enterprise has to have special characteristics over and above just merely being new and small. They have to create something new, something different. Entrepreneurs ought to be change masters – not copy cats – who create value at the same time. The need for creating a new customer demand, hence a new satisfaction takes us to the arena of business competition. Without being competitive, the entrepreneur cannot succeed in the business world. As government policy is geared towards encouraging small and medium enterprises to open shop, a lot of competition is henceforth being unleashed daily into the playing field. Only the most creative entrepreneurs will survive!

In order to win more customers than rivals at the marketplace, the entrepreneur has got to be more creative, hence more competitive than rivals. How is this done? This is achieved by having a business strategy not only at the time of market entry but also for sustainable growth in the future. Joel Ross and Michael Kami, two business authors and consultants wrote “Without a strategy, a business is like a ship without a rudder”. Sharon Oster, Professor of business at Yale University wrote “A strategy is a commitment to undertake one set of actions rather than another”. Other writers on the subject particularly A Thompson Jr and his co-authors in the book Crafting and Executing Strategy: The Quest For Competitive Advantage have aptly defined strategy as consisting “the competitive moves and business approaches that managers (and owners) employ to attract and please customers, compete successfully and conduct operations to achieve targeted results”.

In conclusion, the success of an enterprise depends on a strategy that should be aimed at providing a product or a service that is distinctive from what competitors are offering. For instance, a car hire dealer may choose to reduce its daily charge per day from 3k to 2k and deliver the car to the renter’s home and pick it up at the end of the rental period. In doing this he/she may win more customers than most other car rental businesses. This is creative and distinctive.

What separates a successful enterprise from a weak one is the ability to tell the difference between innovation and entrepreneurship, to forge a series of strategic moves, both in the marketplace and internally in the business. The moves should make the business distinctive and tilt the playing field in its favor by giving customers reason to prefer its products or services, and produces a sustainable competitive advantage over its rivals.

Dr. Francis Fondo

Governance and Devolution Specialist, Member Of ICPAK, ICPSK and KIM