Pitfalls of entrepreneurship, ecosystems of innovation

March 21, 2012

Two new books recently landed on our desks, on two different subjects:  the pitfalls of entrepreneurship and the ecosystem of innovation.  We’ll consider them for The Library in St.Pete, but in the meantime the reviews were interesting enough to merit spilling some ink here.

The Founder’s Dilemmas, by Harvard Business School professor Noam Wasserman, compiles 10 years’ worth of studies of 3,600 start-ups (and nearly 10,000 founders) to examine the pitfalls of entrepreneurship:

People are motivated by high-profile stories of hugely successful entrepreneurs, but the truth is that it’s very hard to become one.  The “ultimate” entrepreneur combines someone who’s passionate and has a strong vision that they pursue single-mindedly with someone who is analytical and looks down the road and wants to understand the pitfalls along the way before they make early decisions that will get them in trouble.  [It’s a hard combination to strike.]  My mission is to inform entrepreneurs about key lessons based on data, rather than merely what’s anecdotally “known,” so they don’t have to learn the hard way and they don’t get burned by anecdotes that capture the wrong lessons.

In one review, Professor Wasserman is asked, in light of this analysis – the rare combination of skills required to succeed – whether or not co-founders make sense:

You have to judge founder by founder, and idea by idea. Some ideas lend themselves to one person being able to tackle it. Others that are more complex require disparate skills, and to maximize success you need things that you don’t have. Some founders who’ve accumulated work experience in the industry and are able to manage multiple functions, and whose goals and personalities fit with being solo, might be better off alone than a founder with big holes [in his experience] who will open himself up to much bigger risks if he doesn’t fill them.

Irrespective of how many founders are involved in the idea’s germination, growing the acorn into a mighty oak is a long-term project that will eventually include adding partners who share the vision and can bring additional resources – financial, expert, and network – to bear.  Choosing partners who best fit requires as much rigor and thoughtfulness as any decision an entrepreneur makes.

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The Wide Lens, by Tuck School of Business professor Ron Adner, explores the “business ecosystem” – distributors, retailers, and salespeople – critical to the launch of any successful innovation.  Adner recounts successes (Apple’s path to market dominance), monumental failures (Michelin’s run-flat tires or Pfizer’s inhalable insulin), and works-in-progress (electric cars or electronic health records).

Companies understood how their success depends on meeting the needs of their end customers, delivering great innovation, and beating the competition; but [they fell] victim to the innovator’s blind spot: failing to see how their success also depended on partners who themselves would need to innovate and agree to adapt in order for their efforts to succeed…  To be sure, great customer insight and execution remain vital, [but] two distinct risks now take center stage:

  • Co-Innovation Risk: The extent to which the success of your innovation depends on the successful commercialization of other innovations.
  • Adoption Chain Risk: The extent to which partners will need to adopt your innovation before end consumers have a chance to assess the full value proposition.

When you try to break out of the mold of incremental innovation, ecosystem challenges are likely to arise… a strategy that does not properly account for the external dependencies on which its success hinges does not make those dependencies disappear.  It just means that you will not see them until it is too late. … Dependence is not becoming more visible, but it is becoming more pervasive. What you don’t see can kill you.

Adner provides an easy-to-grasp example in an excerpt printed in The Atlantic:  the first portable digital audio player (1998), cleverly (?) named “MPMan”:

It sold 50,000 players globally in its first year. But [it was very different than the Walkman] 20 years earlier.  You couldn’t purchase them in traditional retail settings.  Downloading an album – legally or not – could be a multi-hour affair. It didn’t matter that MPMan was first – it wouldn’t have mattered if they were 6th, 23rd, or 42nd. Without the widespread availability of mp3s and broadband, the value proposition could not come together.

As we reported in The 10 rules of entrepreneurship, the best products don’t always win.  Compelling innovations can and do fail after launch – as did this precursor to Facebook.  It’s a long and difficult journey from idea to successful business, involving many inter-related factors.

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