Strategies for Innovation and Entrepreneurship

The role of a business is to create value and capture a portion of that value for its shareholders. By doing this, businesses make the world better; they leverage their resources to improves the lives of their customers and, in doing so, earn a reward. In Strategies for Innovation and Entrepreneurship, I was introduced broadly to many of the considerations that should be taken into account when starting and managing a new venture. In addition to learning about key financial tools, I came to take a point of view that emphasizes the importance of truly knowing the segment being served, frequently taking in customer feedback, and maintaining the agility needed to minimize waste and adapt to change.

Any startup should focus on creating value that consumers can recognize; typically, consumers buy products in order to make their lives better in some way. A customer’s decision to buy, however, is much more complicated than simply deciding whether or not an offering has the features they need. Often, many solution options are available, each of which solves the same basic problem but is differentiated from the others in the exact benefits the user can derive from it. These benefits may or may not be closely related to its function. To succeed in a competitive industry, companies need to employ purposeful differentiation and take into account aspects of the product apart from its direct functionality.

Clayton Christiansen and colleagues at the Harvard Business School suggest one method of getting to the root of what will make a product valuable to consumers: viewing products as entities that perform “jobs” for customers. Christiansen explains that, on the most foundational level, consumers have “jobs” that need to be done and they “hire” products and services to do these jobs for them. Take, for example, oral health products: a customer’s decision about which of the many options to purchase will depend on the exact jobs they want their product to perform. While one customer may implicitly be looking to avoid the expense of going to the dentist to have a cavity filled, another may be looking for teeth-whitening and breath freshening products in order to do the job of helping them make a positive impression at their job interview. Although these two consumers might buy products with similar functionality, the jobs they employ products to perform are distinct, and businesses should (and do) differentiate their products in order to appeal to different customers’ desires.

A successful product – one that truly does the right jobs – provides the benefits that a customer is looking for at a price they are willing to pay. Identifying customers’ “jobs to be done,” however, is often challenging. When a company called NeoNurture designed a baby incubator for the developing world, they did not consider all the jobs their product would need to perform. Their incubator was designed to do two jobs very well: incubate babies and facilitate its own maintenance – key parts of the incubator were made from car parts, which mechanics could service and replace easily. However, the incubator did not perform the job of providing parents with a sense of security; hospitals worried that mothers would be reluctant to place their babies in the care of a machine made from repurposed headlights, intake filters, and dashboard fans, and as a result, the new incubator never became profitable. Validating demand for a product and making sure that it does the right jobs before going to great expense developing it is critical for young companies.

Validating demand is one of the key aspects of the lean startup methodology, which has been shown to improve a company’s chance of success in any sector and regardless of its age. The lean approach focuses on using consumer feedback to inform product design and business strategy as well as working with minimal resources to test hypotheses about every aspect of customers’ responses to the company’s offering.

Many methods are available for learning about potential customers and validating demand, some of which can be performed early in a venture’s development and some of which require a partially or fully-functional product. One of these methods, conducting interviews with potential customers, is a proven way to gather information about the shortcomings of existing solutions even before a company has developed its own solution to saleable level. A prepared interviewer can gain much more information from interacting with consumers than could be gained in a survey or in an impersonal focus group by asking questions to get to the root of the problems that consumers face. Interviews can also provide surprising feedback about non-traditional solutions that customers are employing, providing information that may lead to a pivot in the company’s early-stage focus.

Once a product is more developed, companies should perform market trials before beginning to scale aggressively. These trials help measure demand for a new product and can teach a company a great deal about how customers interact with the product and vendors, revealing information that may indicate a need for a pivot before scaling occurs. Experimentation with price in a market trial along with an analysis of the product’s true economic value can also inform pricing strategy, one of the most important aspects of how a business captures value.

Problem solving and demand validation require a great deal of work within a business – too much for a single person in most cases. Every economically significant business divides the work among members of a team. Much of my personal experience leading teams has taken place in organizations with clear leadership structures, which are typically present in relatively large companies and rely on first dividing a large project into tasks then delegating those tasks to members. I found quickly, however, that coursework in Strategies for Innovation and Entrepreneurship did not lend itself well to this kind of work structure and that the creative, innovative work done in a startup requires a different template for organization. A delegation-based structure is not conducive to cohesiveness in a small team and fails to take advantage of the main benefit of working together: being able to build off of and complement one another’s contributions. Active, in-person collaboration proved much more effective for the thoughtful analysis and ideation we performed to complete assignments, activities that are critical in an early-stage business. in a startup, founders must be careful to establish an inclusive and collaborative team culture early in the life of their company. Inability to pivot cohesively in response to customer feedback can prevent a company from adapting to changes in its market, diminishing its ability to create and capture value.

Ethics also play a role in shaping interactions both within a team and between the team and its business ecosystem. The basic purposes of a business are to create value and to serve the interests of shareholders – if a business serves these two purposes in a holistic sense, it may be considered ethically sound. Entrepreneurs are constantly looking for new ways to achieve these goals, so some modern companies are trying out unconventional methods. Better World Books (BWB), for example, operates on a business model that takes much more into account than merely acquiring books and selling them at a profit. A vendor for used books, BWB collects donations of used books that might have otherwise been thrown away and sells them to consumers to be enjoyed again. This keeps books out of landfills and reduces the number of books that need to be reprinted each year; protecting the environment is part of how BWB creates value. They also give 15% of their revenues to literacy-promoting charities, setting them apart from other vendors in terms of social impact and serving their founders’ selfless interest of making the world a better place. These two focuses, of course, contribute to BWB’s marketing and branding efforts, which ultimately augment the company’s ability to generate revenues, benefitting shareholders regardless of their commitment to BWB’s other causes. The non-zero-sum mentality that inspired BWB’s founders to turn unwanted books into revenues is a key characteristic of ethical businesses; not every well-run company needs to give money away, but all should focus on making money rather than merely taking it.

The mindset and skillset that enable entrepreneurs to be successful are also applicable in contexts other than running new ventures. The lean startup methodology, for example, takes its name from lean manufacturing principles, a set of waste-reducing strategies employed by manufacturers to make the most of available physical and human resources. “Lean” principles are broadly applicable; in human-centered design, iterating through minimally-complicated solutions while taking in feedback from users can help engineers deliver exactly what is needed while expending as few resources as possible. The process of validating demand by testing market assumptions with falsifiable hypotheses is derived from the scientific method, which is a valid method of inquiry for answering any question about the physical world. Overall, the discovery skills that successful founders typically have help them develop a deeper understanding of their world and how their actions affect it. As a mechanical engineer, inquisitive learner, and potential entrepreneur, I plan to employ the skills introduced in Strategies for Innovation and Entrepreneurship to be as effective as possible in all of my creative work.