Innovation-Driven Entrepreneurship
By Grant Ruffinengo, Innovation Research Specialist - ONSIDE
It’s quite the phrase isn’t it, but dig a little deeper and what does it really mean?
Nathan Rosenberg of Stanford University says there are really only two ways of economic output: (1) you can increase the number of inputs that go into the production process, or (2) if you are clever, you can think of new ways in which you can get more output from the same number of inputs.
Due to this, back in the mid-1950s life-long Stanford economist Prof. Moses Abramovitz sought to track the growth of economic output in America from 1870 to 1950. Then he measured the growth in inputs (of capital and labor) over the same time period.
It turned out that the measured growth of inputs (i.e., in capital and labor) between 1870 and 1950 could only account for about 15% of the actual growth in the output of the economy.
So, what about the other 85%?
Economists conducting similar research found that the major force for this growth in the output of highly industrialized economies must had some process of technological innovation.
So, maybe that explains what innovation is, but what about innovation-driven entrepreneurship?
The Kaufmann Institute in their Tale of Two Entrepreneurs will tell you the main distinction(s) between an Innovation-Driven Entrepreneurship (IDE) vs. your everyday Small-Medium Entrepreneurship (SME) are things like:
Focus on Global/Regional Markets
Based on innovation (Tech., Business Model/Process)
Scalable Jobs. Do not have to be performed locally
More diverse ownership base, including external capital owners
The company starts by losing money, but if successful will have exponential growth
Requires investment. When you put money into the company, the revenue/cash flow/jobs numbers do not respond quickly
From this, Kaufmann wants you to think about the types of entrepreneurs who are driving IDEs.
The notion of being innovation driven is critical, as it emphasizes the entrepreneur’s awareness of the need to build competitive advantage, which for an entrepreneur can only be done by taking today’s resources and doing something distinctive with them: what Joseph Schumpeter called “new combinations.”
These “new combinations” are what we would consider innovation.
But, to confuse this conversation further, let me tell you a quick story:
A former boss of mine, Andrew Button, CEO of the rural business incubator Mashup Lab, loved to tell the story of Rubbish Boys Disposal Service, or as you may know them, 1-800-GOT-JUNK.
1-800-GOT-JUNK is a $300-million waste disposal company started by Brian Scudamore, as a means of helping pay college tuition after poor academic performance made Brian’s father no longer want to foot the bill.
With $1000 investment ($700 for a used pickup truck and $300 for fliers and business cards) Brian turned his college side-hustle into a company that employs thousands of people and has 155 franchises.
If it were me, and I was looking at a 20-something college kid driving a beat-up old pickup truck, I don’t think the first thing that would pop into my mind would be high-growth potential.
So I pose this question to you:
What is Innovation-Driven Entrepreneurship, is it the process of the innovation itself or is it the Entrepreneur behind the idea that drives the innovation and creates the enterprise?