Old ways won’t open new doors sign: the need for strategic innovation on emerging trends
Should the Entrepreneurial Development infrastructure, i.e. business schools, incubators and area developers, shift from product focus, which helped 1% of unicorn entrepreneurs (UEs), to strategy focus, which helped 99%?
Entrepreneurial development today focuses on finding viable products, promoting them through pitch competitions and shark tanks, and funding them with angel capital and venture capital (VC), i.e. the Product-Angels-VC method, to build a growth business .
But is this the best strategy for entrepreneurial development?
Consider how some of the great entrepreneurs of the past 60+ years, the VC era, have grown:
Microsoft: Gates bought the operating system and overthrew the mighty IBM by negotiating a licensing agreement for the IBM PC without IBM having an exclusive or purchase option. Gates used personal capital and licensing revenue to secure the deal and get it going. He accepted VC after launch because he wanted advisors to join it skin in play. VC was not the key to his success.
Walmart: Sam Walton built Walmart and defeated Kmart starting with $25,000 of his in-laws. His initial strategy was to initially focus on the rural market, dominate it, and use these profits to launch an unassailable assault on Kmart’s urban stronghold. There was nothing unique about his idea and VC played no part in his success – he didn’t use it.
Facebook: Mark Zuckerberg beat Rupert Murdoch by imitating MySpace and improving strategy. Zuckerberg did it with a brilliant strategy, not a unique idea. He targeted university students and used the capital of family and friends. He used angel capital and venture capital – but only after proving the unicorn potential of his venture.
· Wayfair: Niraj Jain built Wayfair into an online giant with no VC until he established his venture’s dominance in the online furniture industry. His first capital round was $36 million when the company was 10 years old and had about $600 million in sales. That’s not early stage VC. That is late stage capital.
The reality among $85 billion unicorn entrepreneurs is that only 1% got VC based on the technology. Unicorn entrepreneurs received VC, if they needed it, mainly after strategic innovation, i.e. after developing, proving and implementing the strategy for a potential unicorn. 76% never received VC.
Strategic innovation and execution skills have generated 99x more unicorns than product innovation because:
· Most products can be imitated and improved. Only 11% of first-mover products dominated. 89% of first movers failed to dominate. It takes more than a first-mover or viable product to succeed. It takes a smart strategy and the skills to execute it.
· An emerging trend often changes the rules of the game and strategic innovation takes advantage of the new rules to dominate. Emerging trends based on revolutionary innovations are making old products, strategies, assets and skills obsolete. The first movers may enter based on a product that fits the emerging trend, but savvy movers use the evolving influence of an emerging trend to dominate with the right strategy and execution skills.
· Funding VCs after Aha and strategic innovation helped 99% of Unicorn entrepreneurs move to Aha. Entrepreneurs can benefit by knowing how to bridge the VC gap from Idea to Aha with financially savvy strategies and skills – not ideas. In emerging industries, where almost every Unicorn entrepreneur grew, almost all bridged the gap by finding the right strategic innovations, not product innovations.
MY TAKE: Entrepreneurial Development can serve more students and entrepreneurs, in Silicon Valley and beyond, by teaching strategic innovation and Unicorn-Entrepreneurs’ financially savvy skills to bridge the VC gap – instead of wasting resources on pitch competitions and the use of ideation incubators.