Innovation and entrepreneurship – the words are very often spoken in the same sentence – are two very important concepts that often linked and too often confused. A while back I had the good fortune to be selected to participate in a National Academy of Engineering workshop to take an open-ended look at how we might better educate students about the concept of “innovation.” The workshop included leaders from industry, education, and government, and was quite stimulating. A question that arose early on was whether the focus was innovation, entrepreneurship, or both? The moderator instructed us to keep the focus on innovation, but as the brainstorms ensued, I couldn’t help but notice that the ideas swirling around were a head-spinning mix of topics that would best be labeled as one or the other, and sometimes both. It occurred to me that the best way to explain the differences between innovation and entrepreneurship, as well as how and why they are so often linked, is to talk about them together.
It turns out that trying to understand the terms innovation and entrepreneurship and how they relate by looking them up in the dictionary is not particularly helpful. Webster defines innovation as 1) “the introduction of something new,” or 2) “a new idea, method, or device.” Webster also tells us that an entrepreneur is “one who organizes, manages, and assumes the risks of a business or enterprise.” These are fairly narrow, perhaps “old school” definitions that don’t really capture what we think of when using these terms today. The important relationship between the two is certainly not obvious by those definitions taken at face value. One of the challenges is that the use of the terms has become so contextual that it is not that easy to come up with concise definitions that make sense. Rather than trying to simply define innovation, the book resulting from the National Academies workshop (Educate to Innovate, National Academies Press, 2015) presented a list of characteristics of innovation:
- Innovation provides societal value.
- Innovation is an improvement.
- Innovation occurs at the interfaces of different disciplines.
- Teamwork is important to the process of innovation.
- Innovation is part of an invention-value continuum.
Clearly, the above list is much more encompassing than the Webster definition. Similarly, there have been many attempts to define entrepreneurship that captures the concept in a more encompassing way than Webster. My favorite is probably the one put forth by Jeff TimHarmons and Stephen Spinelli in their book New Venture Creation (McGraw Hill, 2008):
Entrepreneurship is a way of thinking, reasoning, and acting that is opportunity obsessed, holistic in approach, and leadership balanced for the purpose of value creation and capture.
This definition goes way beyond the idea of organizing, managing, and assuming the risks of a business, and suggests that we can be entrepreneurial in our approaches to virtually any endeavor in life. This is certainly more consistent with the way I like to think about entrepreneurship.
So, now we have defined (or characterized, at least) innovation and entrepreneurship in ways that much better fit how we use those terms these days. Still, with those definitions I have trouble connecting the dots between the two. My engineering brain just needs a more tangible linkage for it all to make sense.
The “ah-ha” moment for me came a couple of years ago in a casual conversation with a friend and colleague, Paul Mugge, who heads the Center for Innovation Management Studies at NC State. We were talking about people often use the adjectives innovative and entrepreneurial interchangeably in various contexts. I asked Paul, “So, how do you define innovation?” His answer: “Quite simply – value creation.” OK, so now that’s a definition I can wrap my head around. Everyone understands value. If it saves me time or money, it has value. If it makes me or my family healthier, more secure, or happier, it has value. If it makes me more efficient and effective at my job, it has value. Value, once it has reached a certain threshold needed to get my attention, is something I may be willing to spend money, time or effort to acquire.
If we accept that innovation is value creation, it’s not a stretch to then figure out what entrepreneurship is, and how the two relate. Suppose you cultivate a garden, plant some seeds, nurture them, and grow a crop of luscious fruits and vegetables. Obviously, your crop has value (and hopefully more value than you expended in growing it), because everyone wants and needs food, especially good, fresh fruits and vegetables! But then what? Unless you have a plan to realize the value you’ve created, in other words, to harvest and eat or sell your crop, and unless you have the ability to act on that plan, the fruits of your garden will sadly rot on the vine.
Ideas, like seeds, are a dime a dozen. They may be the starting point of value creation, but require a lot of effort, knowledge, skill and nurturing to grow into something of value. Many people think that ideas have value. Generally, they don’t. Ideas may be the seeds of innovation, but innovation is the arduous process of creating of value from those seeds. Entrepreneurship, then, is value realization. Like innovation, entrepreneurship is not easy, not by a long shot. But with the proceeds I gain from successfully harvesting my crop, I can put food on the table, and buy the seeds and fertilizer I need to grow and harvest next year’s crop. I like to think of innovation and entrepreneurship as the cycle through which we create jobs and improve the human condition. Through innovation we create value, and through entrepreneurship we harvest, or realize, that value. That provides the resources to further innovate – you see how it goes. Walt Disney described it perfectly when he said, “I don’t make movies to make money, I make money to make movies.” Well said, Walt.