Thursday, December 17, 2009

The difference between innovation, invention and entrepreneurs

After all I read on the blogs and on Twitter, and all the new innovation programs and initiatives in state and local governments, I feel the need to revisit the definitions of these key words.  While innovation, invention and entrepreneurs are important and somewhat interconnected, they aren't synonyms and they have different needs, intents and purposes.  Whether accidently or on purpose, we can't allow them to mean the same things.

First, the definitions

An entrepreneur is a person who starts a new business.  That's not necessarily innovative, but it can create new jobs and new wealth, so it is valuable.  Sometimes, entrepreneurs create new businesses based on new ideas, either inventions or new innovations.  However, a person running a McDonald's is also an entrepreneur, but not necessarily innovative.

An inventor is someone who creates a new to the world product or solution.  Inventions become interesting when they create value for the inventor or consumers or the world at large.  Inventors are often innovative, but innovative solutions don't have to be inventions.  Many innovations are new business models, new services or new experiences that aren't necessarily "inventions".

An innovation is a new idea that is put into valuable or profitable action.  An innovation can be created by an inventor who then licenses her invention to others to commercialize, or commercializes the concept herself as a small business person - in this case as an entrepreneur.  An innovation can (and often is) created by a large organization to disrupt an existing market space or create an entirely new market (the iPod or Flip Video recorder are two good examples).  Innovation can happen in any organization, of any size.  Additionally, there's innovation in governments, in academic institutions, and in not-for-profits.  We typically don't think of these organizations as entrepreneurial or as inventing new things, yet they can be innovative. Further, innovations can be new products, but can also be new service models, new business models and new customer experiences.

The reasons the distinctions are important are hopefully obvious.  There are a number of state governments, as well as the federal government talking about innovation policy.  Read the fine print and they are really talking about funding and sponsoring entrepreneurs and technology transfer from institutions and universities.  This may have some aspect of innovation, but doesn't really consider organizations outside the start-up realm.  A vast majority of disruptive and incremental innovations come from larger, commercial organizations, and these organizations can become more innovative as governments adjust tax policies, intellectual property rights and a number of other components of regulation and legislation.  Yet most of the state and federal initiatives are really targeted at starting and funding new entrepreneurs and small businesses. 

Interestingly, if you stop to consider the most "innovative" locations in the US (Boston, Research Triangle Park, Austin, Silicon Valley as a few) you'll note that they have all three things in common - government, education and technology are closely linked and vital to all of these cities.  Innovation thrives in an interlinked, internetworked community.  The same isn't necessarily true of inventions or entrepreneurs.

The overwhelming focus as well is on product innovation, yet we see consistently that business model innovation and customer experience innovation are much more compelling.  After all, the icon of innovation, the iPod, is simply another MP-3 player unless iTunes is attached.  It was the radical change in the business model and customer experience that made the iPod a true disrupter.  Yet we don't find too much focus or government initiatives in these areas.  And almost no policy or funding for the organizations that need innovation the most - governments and educational institutions and bureaucracies. 

Another thing - having been a founder in a start-up, most entrepreneurs don't need or want a lot of help from an "innovation" perspective.  They are betting the farm on their one great idea.  For them, its all a matter of execution to bring that one idea to life, and then successfully scaling that idea.  In contrast, larger organizations which have lost the passion and initiative of the entrepreneurs need a great deal of help and encouragement to innovate, since they have much to lose if a new product or service fails.  In larger firms there is almost never a shortage of ideas, but a shortage of risk-taking, passion and resources to develop the new idea.  Interesting that the problem the small firms have (scaling) is one the larger firms can offer, and the challenge the larger firms have (risk-taking, passion) is one the smaller firms can offer.

We need all three of these concepts work well to succeed.  We need inventors to create new products and new processes, and we need entrepreneurs to disrupt existing markets and bring these new products and services to the market.  We also need innovation from large existing firms, because without innovation they stagnate and die.  When we talk about innovation, invention and entrepreneurs, and when we put policies in place to encourage certain types of activities or investments, we need to understand the implications and ramifications of those words and actions.  While closely related, invention, innovation and entrepreneurs are not the same things, and should not be treated in the same fashion.
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posted by Jeffrey Phillips at 1:54 PM


Anonymous Tim Kastelle said...

Thanks for another excellent post - I really enjoy your blog.

The policy issue is a great point - we run into the same issue here in Australia. I've been talking to some people doing a government review of public sector innovation here, and these are all issues that have come up.

4:52 PM  
Anonymous David Kline said...

You make some very good points, but I think the evidence is clear that small entrepreneurial businesses rather than large multinational companies have always been the primary source of breakthrough innovation, new job growth, and the development of whole new industries that create higher living standards for all Americans.

Of the major innovations that powered the American economy to unrivaled prosperity over the last 40 years -- semiconductors, personal computers, telecommunications, software, and the Internet -- in each case the key breakthroughs were made by small startups that went on to become independent public companies. In fact, economists have found that although venture-funded research by small entrepreneurial firms account for only 3 percent of all corporate R&D, it produces 15 percent of all industrial innovations.

And as for job growth, the U.S. Census Bureau reports that between 1990 and 2003 small entrepreneurial firms created 79.5 percent of all net new jobs in America, despite themselves employing only 18.4 percent of the workforce.

To be sure, big companies also innovate. But their innovations tend not to be the kind that historians of technology call “disruptive” -- meaning, they generally don’t create whole new products and services or whole new industries that lead to the development of millions of new jobs and higher living standards for all Americans.

And the reasons for this are simple. First, the sheer scale of operations at most large firms makes them much slower-footed than smaller firms in responding to new market and technological opportunities. But even more importantly, most large firms are obviously going to be far more interested in maximizing the return on their existing businesses than they are in disrupting these businesses by making risky bets on untested new products and services aimed at markets that are still unproven.

That’s why Hewlett-Packard rejected as “non-viable” the first prototype personal computer when it was developed by employee Steve Wozniak in 1976, who later went on to found Apple Computer with Steve Jobs using venture capital backing. That’s why that same year the giant Xerox corporation also rejected multiple proposals from its own researchers to market a personal computer -- and then later rejected laser printing, Ethernet networking technology, and the graphical user interface now used by all PCs.

If it weren’t for then-small startups like Apple and Microsoft, the personal computer industry and its millions of jobs might never have been created (or at least it would have been substantially delayed).

6:46 AM  
Anonymous Dale B. Halling said...


Excellent points. I would like to add that the real issues holding back are a weak patent system, Sarbox and the FASB rules on stock options. The innovation and enterpreneurial economy of the 90s was built on three pillars, intellectual capital, financial capital and human capital. All have been significantly weaked by the laws mentioned above. For more information see the book "The Decline and Fall of the American Entrepreneur: How Little Known Laws and Regulations are Killing Innovation."

8:25 AM  
Anonymous Todd Jordan - tojosan said...

Solid breakdown of these three different words and ideas.

I enjoyed how you worked with those definitions to define and understand current government plans to improve the economy via tech.

Shared out via Retweet and Facebook.
aka @tojosan

3:53 PM  
Anonymous Anonymous said...

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5:08 AM  
Anonymous Anonymous said...

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7:28 PM  
Blogger Alok Asthana said...

I particularly agree that when government talks of 'innovation policies' they are mostly talking of funding and sponsoring entrepreneurs and technology transfer. This may or may not have an element of innovation ( value added mainly by a new idea). Usually not.
See more details on

7:04 PM  

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