The first widely recognized answer to the question “What is an entrepreneur?” is attributed to the Frenchman J.B. Say who in 1800 said “The entrepreneur shifts economic resources out of an area of lower and into an area of higher productivity and greater yield”.
Peter Drucker, the world-famous author of “Innovation and Entrepreneurship” remarked that this original definition was the best. Nevertheless, he remarked that “(The) entrepreneur is one who always searches for change, responds to it, and exploits it as an opportunity. Entrepreneurs innovate.”
Another great mind, Clarence Danhof, suggested four types of entrepreneurs:
Innovative entrepreneurs – The ones that introduce new concepts including products, markets, methods of production, etc. They are revolutionaries. Read a list of ten traits they possess here.
Imitative entrepreneurs – They adopt successful innovations that were launched by innovative entrepreneurs.
Fabian entrepreneurs – They approach experimentation with lots of skepticism and only decide to imitate when circumstances compel them to do so.
Drone entrepreneurs – These are perpetual loss-makers thanks to their extreme conservativeness and unwillingness to make modifications or improvements to current methods of production.
Here we can add a fifth category:
Social entrepreneurs – Those who bring social innovation and transformation to various aspects of human endeavor including education, human rights, enterprise development and health.
Peter Drucker also left us another gem. He described innovation as “whatever changes the wealth-producing potential of already existing resources”.
What do J.B. Say’s description of an entrepreneur and Peter Drucker’s description of innovation have in common?
They both make reference to using existent resources to achieve higher productivity and yield or returns.
We all agree that small business owners are entrepreneurs. Drucker has shown us that entrepreneurs are innovators. Regardless of where Danhof places you in his classification of entrepreneurs, therefore, you are thriving by harnessing innovation.
What type of innovation though?
Read on to find out.
Researchers William Abernathy and Kim Clark came up with four categories of innovation.
1. Architectural innovation – This type of innovation employs new technology that represents a groundbreaking departure from conventional systems of production. This results in the creation of new linkages, users and markets. Subsequently, new industries are created and old ones are restructured.
This can also be referred to as transformational innovation. The Sony Walkman and the automatic washing machine (with washer and spinner combined in a single drum) are good examples of architectural innovation.
2. Revolutionary innovation – As a result of revolutionary innovation, conventional technical and production systems are rendered obsolete, despite having been accepted as competent. These changes are implemented on existing markets and customers.
This type of innovation typically follows architectural innovation and is characterized by a “technology push”. Some of the most memorable victims of revolutionary innovation are the Disk Operating System (DOS) and mechanical calculators. This can also be referred to as breakthrough innovation.
3. Regular innovation – This mode of innovation introduces change by building on existing technical and production competencies. It is also applied to existing markets and customers. As a result, current skills and resources become entrenched.
It is quite difficult to monitor the resulting changes individually; only by examining these changes cumulatively can the effect be fully appreciated. Again, these changes come into play over a significant period of time. This can also be referred to as incremental innovation. The launch of washing machines that had increased spin speeds is a good example of incremental innovation.
4. Niche market innovation – This type of innovation involves the use of current technology to access new market opportunities. A proven and established technology is refined and altered in such a way that it gains the capacity to support a new marketing push.
The best results are attained when the new technology is a fit for customer needs. If, however, a niche market innovation can be readily duplicated, chances of long-term market success may be drastically reduced.
Success therefore requires proactive thinking on the part of the innovator, to constantly come up with new products and services and therefore stay ahead of the competition. The factors of success for niche market innovation, therefore, are prudent timing and prompt responsiveness.
The next Ten Types of Innovation were developed in 1998:
5. Profit model innovation – This has to do with making money. Here it is about finding a fresh and unique approach that can be used to earn money using the business’ products/services and other sources of value.
The best results are attained when an entrepreneur is able to identify what the target market really requires and match this to a section of the target market where there’s potential for new pricing opportunities and therefore new revenues.
An entrepreneur must be willing to go against the established market norms concerning product/service type, pricing, and the method of revenue collection.
6. Network innovation – This is about connecting with others to create value. This totally exemplifies the adage “No man (read company) is an island”. Entrepreneurs therefore seek to capitalize on their business’ strengths while taking advantage of what other businesses can offer including technologies, channels, brands, processes and offerings. Collaborations can be brief or long-term and may be formed between allies or competitors.
7. Structure innovation – This has to do with the organization of your assets and talents. Here entrepreneurs seek to create optimal value by uniquely structuring business assets (human, hard or intangible).
This sort of innovation results in improved fixed costs and results-oriented corporate functions including HR, R&D and IT. The result is often a productive working environment that appeals to top talents in the industry, and subsequently top-notch performances that the competition can’t cope with let alone replicate.
8. Process innovation – This has to do with the adoption of superior work processes.
Here the entrepreneur seeks to introduce a novel approach to work that will result in more productive activities and operations. The aim is to make operations more competent. In turn this enables the business to adapt quicker, function more efficiently, harness unique capabilities, and become the market pacesetter.
Computerized airline reservations and Henry Ford’s moving assembly line are good examples.
9. Product performance innovation – This is about developing unique features and functionality. The entrepreneur seeks to improve the business’ offerings in terms of quality, features and value. These offerings include existing products/services or entirely new ones.
This is often the easiest form of innovation to replicate and as such it is only in rare cases that businesses have managed to enjoy long-term competitive advantages.
One of the best illustrations of this is the manner in which different detergent manufacturers always seem to come up with new improved formula versions of the same product.
10. Product system innovation – This has to do with the creation of complementary products and services. Here entrepreneurs find ways of bundling products and services together, aiming to create a perception of their valuable connection to customers, despite the fact that these offerings are individually very distinct.
A good example is when a popular sports apparel manufacturer introduces bags that athletes will use to carry their kits. It’s clearly an effective way to stifle external competition.
11. Service innovation – This has to do with strengthening the value of your offerings. Here entrepreneurs seek to woo their target markets by enhancing the performance and utility of their products/services.
Customers will definitely be motivated to buy products/services that are conveniently easy to use and that have desirable features and functionalities. Credit cards are a good example.
12. Channel innovation – This is about how products/services are delivered to the market. Entrepreneurs seek to introduce systems that will enable customers to buy their offerings with the greatest convenience and at the least cost.
13. Brand innovation – This has to do with the manner in which a business and its offerings are perceived. Skilled entrepreneurs create superior brands that become instantly recognizable and memorable for customers.
Customers and users typically identify with such brands and will almost always buy these firms offerings.
Effective branding strategies are employed over time to create distinct identities for these firms. In many cases such firms’ offerings are transformed into prized products.
14. Customer engagement innovation – This has to do with fostering strong interactions between businesses and the consumers of their offerings. By encouraging customers to identify with their businesses in this way, entrepreneurs continually find new and better ways to connect with their target markets.
Here are five customer engagement innovations from 2016 that will help to drive the point home.
Other varieties include:
15. Generational innovation – This has to do with introducing changes to subsystems that are linked to the mechanisms currently in use.
16. Manufacturing innovation – This describes all the activities required for the invention and introduction of new manufacturing processes.
17. Cumulative innovation – This refers to the use of multiple sources to create something new. A remixed music track is a good example.
18. Financial innovation – This has resulted in the launch of many financial instruments that feature pay-offs or have values depending on stock prices. Exchange-traded funds (ETFs) are an example of these solutions.
For my blogging and copywriting services business I have made use of Service, Product System and Product Performance innovation. I’m in the process of implementing Profit Model and Brand innovation.
I’d like to know which types of innovation you have employed for your small business and the results you expect from doing so.