Small businesses, as Tom Peters points out, are less innovative (Peters, 1994). Their successes get in the way of their need to change. They continue down the same path, day in and day out, operating on the idea that “if it’s not broke, why fix it?” All the while the market is diminishing, the competition is increasing market share, and the product is no longer serving the needs of the customer. It can be a slow and agonizing death for a small business. Too often, entrepreneurs do not realize the need to change or “Pivot” a facet of their business until it is too late, and this may be a factor in the high rate of small business failure.
For most entrepreneurs, a “Pivot” typically means a rethinking of the original business model. If what once worked is now failing, it seems time to move on to a different plan—a different way of generating money. It can be an anxious time, but it does not have to be a time of despair for an entrepreneur. Instead, it should be a time when the entrepreneur reexamines the business assets—both physical and human—to look more broadly for solutions to customer problems (Spoon, 2012). The Pivot, then, creates an opportunity to refine and refocus the business on the customer needs, values, and expectations. It does not always mean the entrepreneur should blow the business up and start over.
The initial thinking behind the Pivot is that of forced entrepreneurial innovation and, as we have explored in a previous post, a key purpose of entrepreneurial innovation is to improve the delivery of a product or service to the customer—to improve customer satisfaction—then the outcome of innovation for the entrepreneur is an economic improvement. Why, then, would an entrepreneur not continually evaluate the venture for opportunities for “micro-Pivots” to the business and operations to keep the customer at the center of the business? Arguably, these micro-Pivots (i.e., continual innovation) may have cost factors associated with them; however, there should be offsetting new revenue over the long-term (Shumpter, 1939). Each micro-Pivot should have a financial payoff. Regardless of the cost associated with any level of innovation, improving the relationship between the customer and the venture, or more specifically the customer and the product or service offered, will without question improve the economic viability of the business.
What once worked, will not always work. Entrepreneurs often forget this. That “passionate attachment” to the initial idea that gave birth to the business is too often insufficient to keep the company viable in the face of increasing competition (Peters, 1994). The skills and abilities required to get a business off the ground are not necessarily the same skills and abilities that are necessary to keep the business operating successfully. Many entrepreneurs do not have the capacity to transition from the start-up phase to ongoing successful operation--that is, a business that is continually profitable. For those who do, the key to that success may be as simple as “always be Pivoting.”
Take a good look at your business. What “micro-Pivot” might you make today that would improve your relationship with your customers? Are you willing to do it?
Peters, T. (1994). The Pursuit of Wow! Every Person's Guide to Topsy-Turvy Times (1st ed.). New York: Vintage Books.
Shumpter, J. (1939). Business Cycles: A Theoretical, Historical and Statistical. New York: McGraw-Hill Book Company. Retrieved from http://classiques.uqac.ca/classiques/Schumpeter_joseph/business_cycles/schumpeter_business_cycles.pdf
Spoon, A. (2012, August 10). What 'Pivot' Really Means. Retrieved February 7, 2017, from inc.com: http://www.inc.com/alan-spoon/what-pivot-really-means.html
Image Source: Getty Images, Alberto Ruggieri
A good many entrepreneurial ventures are born on a napkin, built on sand, and grown through a series of flips and flops that would make even the most seasoned stunt pilot nauseous. It should not surprise then that longitudinal studies show that a little over 20% of new startups fail within the first year; the startup survival rate falls to roughly one-half around their fifth anniversary (Bureau of Labor Statistics Staff, 2016). Thinking more broadly and implementing effective organizational systems (i.e., planning, processes, procedures) may be the key to building, scaling, and sustaining a startup long-term.
Some researchers suggest the most common cause of small business failure is the lack of senior management focus on matters of strategy within the organization (Jennings & Beaver, 1995). At the most basic level, this falls to the focus on tactical challenges of the business, rather than broader strategic issues. More specifically, for example, it is firing a salesperson who did not achieve the stated sales goals or meeting quotas for the year while ignoring marketplace and demographic changes that render the product being sold increasingly meaningless, or at the very least, price-noncompetitive to the company’s customers. A more strategic approach could allow the company to look long-term at the marketplace, and using systems and processes that engage the market, the customer, and the sales team, create a plan for more stable and predictable long-term growth. This approach may seem difficult for entrepreneurs who are forced to live with the reality of today’s environment. In fact, some of this difficulty may be deeply rooted in the factors surrounding the startup itself.
There are two theories of startups. The Push Theory suggests that some form of hardship – unemployment, dissatisfaction with a current position, few employment options due to skills, abilities or education—“pushes” the entrepreneur into action to generate a stream of personal income (Islam, 2012). Entrepreneurs who might open retail stores, services business (e.g., cleaning, computer services, mechanics), or tackle similar ventures where specific skills and abilities become the fastest way to generate income, are likely to be driven by push factors. Conversely, those entrepreneurs driven by ambition—financial freedom, higher cultural or social standing, or “to change the world” with an idea or invention—are driven by pull factors (Islam). The fundamental difference here is the motivation: Is the entrepreneur being pushed into a venture due in large part to external circumstance, or pulled into the venture by his or her passion or ambition?
The “pull” entrepreneur is likely to have a formal plan, while the “push” entrepreneur may not. Not having a plan does not necessarily mean a startup is doomed to failure, but it does suggest a focus on the tactical, rather than the strategic matters of the venture. This is not to suggest a plan is something set in stone. To the contrary. A plan must regularly be revisited, fed new information, refined and retooled--blown-up if necessary—to allow for the “radical innovation” that is always needed for an entrepreneurial venture to survive (Peters, 1994). A plan is necessary for success, but it takes the entrepreneur's deliberate desire to test the plan to make the business successful over time.
It would seem to have long-term sustainable growth an entrepreneurial venture must first establish a more solid foundation that allows it to produce for its target audience a desired product or service. The next steps are perhaps the most difficult: Make the desired product or service at an acceptable price and consistently deliver it at the time and place the customer desires. Successful entrepreneurship is not necessarily about creativity or invention; it is about process—getting from an idea to the hands of the customer. Not only that, but getting into the hands of the customer in some way that outshines the competition and gives the venture unparalleled top-of-mind awareness for whatever that product or service may be. That “delivery process” to the customer is just as important, if not more so than the product or service itself. Still, it cannot go unchecked if the business is to grow. One might argue, then, that the best reason to innovate—to continually review and improve—the process of getting the product or service into the hands of the customer is to ensure long-term business survival.
How can you innovate to get your product or service into the hands of your customers in a more meaningful way?
Bureau of Labor Statistics Staff. (2016, April 28). Entrepreneurship and the U.S. Economy. Retrieved January 28, 2017, from bls.gov: https://www.bls.gov/bdm/entrepreneurship/bdm_chart3.htm
Islam, S. (2012, March). Pull and push factors toward small entrepreneurship development in Bangladesh. Journal of International Business Management, 2(3), 65-72.
Jennings, P. L., & Beaver, G. (1995). The managerial dimension of small business failure. Journal of Strategic Change, 4, 185-200.
Peters, T. (1994). The Pursuit of Wow! Every Person's Guide to Topsy-Turvy Times (1st ed.). New York: Vintage Books.
Image Source: Getty Images, Thomas Barwick
Entrepreneurship in the United States is lagging. The United States Bureau of Labor Statistics reports that between 1994 and 2015, the number of new jobs created by start-ups has decreased by more than one million (Bureau of Labor Statistics Staff, 2016). Insufficient financial resources, risk aversion, and perhaps the “lack of a good idea” are all possible reasons for the lack of entrepreneurial activity. Some research suggests those without experience in a start-up environment appear to be less motivated by the spirit of enterprise and, within a generation, the inclination to start a business may further decline (Guilles, 2016). Entrepreneurs may well need to gain experience and relevant knowledge by working within a start-up environment. And such an environment is likely to provide a hands-on way to learn financial responsibility and risk management. But, perhaps, more importantly, a start-up environment enables a foundational way of thinking that is rooted in innovation rather than in invention that is necessary for long-term success.
One does not necessarily need to have a “good idea” to launch a business; a fact that may confuse many prospective entrepreneurs. The entrepreneurial focus is more on planning and execution than on ideas and inventions (Stibel, 2009). Good ideas are easy to come by, it’s the execution of those ideas that proves difficult. Indeed, many entrepreneurs have taken good ideas and inventions and created viable businesses. However, there are far more entrepreneurs who have, through innovation, took a “second-mover advantage” approach, thereby redefining business models, categories, and even industries for success (Anderson, 2013). Entrepreneurs who, through planning and execution, can improve upon that original “good idea” in a way that increases the value to the customer can reap significant benefits through their innovation.
So what is innovation? For some “innovation” means to create something new, for others, it means an improved approach or way of doing something. The most modern definition of the word “innovation” itself supports both meanings. Merriam-Webster defines it as: “The introduction of something new; a new idea method, or device” (Merriam-Webster Staff, n.d.). One might argue these definitions are better suited to the word “invention,” or maybe “creativity.” And while invention, creativity, and innovation are closely related, they are not the same.
Creativity, for example, enables an entrepreneur to look at life differently. A creative view may lead to a novel solution or a new invention that helps to overcome some life problem. An improvement to that invention would be considered an innovation. So, creativity fuels invention, which in turn supports innovation. The initial idea and the first application of that idea provide only the foundation on which an entrepreneur can build a business. Growth depends on planning, execution, and continual innovation.
Technological advances that disrupt existing industry sectors, and not new inventions, have driven much of the entrepreneurial growth opportunities in the past twenty-five years. More recently, consider firms like Uber and Airbnb both of whom have facilitated job creation through innovation (Guilles, 2016). Both companies looked at established sectors—personal transportation services and lodging—and through innovation transformed each industry’s standard offering to create greater value for the customer. Neither company invented anything; both applied new thinking to present challenges. Innovation, not invention, may provide the fastest and most likely route to entrepreneurial success.
If we look at the Uber and Airbnb examples again, we may see that creativity is present in the approach to overcoming a challenge, but the challenge itself is not new. In the case of Uber: A faster and easier way to get a ride (Uber Staff, n.d.). For Airbnb: A way to create more lodging space in a market where hotel rooms are a limited and at a premium (Brown, n.d.). In both cases, the founders of these companies used creativity to solve a personal or life problem through innovation, not with an invention.
In the 1990’s everyone seemed to be starting a business. Many of those businesses were born from advances in technology that encouraged new thinking about how to do things better, faster, and cheaper. From my experience during the dot-com era, I witnessed numerous technology entrepreneurs developing applications to improve processes and procedures that reduced operational costs while improving delivery to the customer. Few of these companies invented anything new; they found a way to improve upon the way things were being done. Innovation, not invention, drove entrepreneurial activity then, just as it has since the Industrial Revolution.
The lack of entrepreneurial activity is potentially a serious economic problem for the United States. Consider that 99% of the 28 million U. S. employers are private small businesses, providing nearly half of all non-government jobs, and generating approximately 63% of new non-government employment (Babson College and Goldman Sachs, 2016). Without an active and vibrant entrepreneurial start-up environment, job creation, wages, and government programs supported through tax revenue wane. Some prospective entrepreneurs are waiting for inspiration—that new idea or invention that will make them wealthy. It is true that creativity and invention are often the seeds of entrepreneurship, but it is innovation—improvements on existing ideas and inventions, or to business models and industries that provide the greatest entrepreneurial opportunity.
What do you see that needs to be improved? And when will you start?
Anderson, T. (2013, November 4). The Second-Mover Advantage. Retrieved January 21, 2017, from northwestern.edu: https://insight.kellogg.northwestern.edu/article/the_second_mover_advantage
Babson College and Goldman Sachs. (2016). The State of Small Business in America: 2016. Wellesley: Babson College. Retrieved January 15, 2017, from http://www.babson.edu/executive-education/custom-programs/entrepreneurship/10k-small-business/Documents/goldman-10ksb-report-2016.pdf
Brown, M. (n.d.). Growth Studies - Airbnb: The Growth Story You Didn't Know. Retrieved January 21, 2017, from growthhackers.com: https://growthhackers.com/growth-studies/airbnb
Bureau of Labor Statistics Staff. (2016, April 28). Business Employment Dynamics: Entrepreneurship and the U. S. Economy. Retrieved January 18, 2017, from bls.gov: https://www.bls.gov/bdm/entrepreneurship/entrepreneurship.htm
Guilles, W. (2016, February 17). Kauffman Foundation 2016 State of Entrepreneurship Address. Washington: Ewing Marion Kauffman Foundation. Retrieved January 19, 2017, from http://www.kauffman.org/~/media/kauffman_org/resources/2016/soe/2016_state_of_entrepreneurship_speech.pdf
Merriam-Webster Staff. (n.d.). Definition of Innovation. Retrieved January 19, 2017, from merriam-webster.com: https://www.merriam-webster.com/dictionary/innovation
Stibel, J. (2009, June 30). Are You an Inventor or an Entrepreneur? (Harvard Business School Publishing) Retrieved January 21, 2017, from hbr.org: https://hbr.org/2009/06/are-you-an-inventor-or-an-entrepreneur
Uber Staff. (n.d.). Finding the way: Our trip history. Retrieved January 20, 2017, from uber.com: https://www.uber.com/our-story/