104 ◾ The Guide to Entrepreneurship: How to Create Wealth for Your Company
of meetings and pay lip service. You must execute. Some companies, such
as Apple, are always innovating popular products, while most others are
merely spectators in a contact sport.
Innovations are either (1) sustaining or (2) disruptive, as shown below:
1. Sustaining innovation; technologies
− Continuous (incremental, evolutionary)
− Discontinuous (radical, transformative)
2. Disruptive innovation; breakthrough innovations
− Improve products in an unexpended fashion
− Lower price
− Enabling technologies
Incremental innovation is done by those actually implementing and
using technologies and products as part of their normal activities. Most of
the time, user innovators have some personal experience as motivation.
9
Incremental innovation is frequently observed within large established
organizations, and is generally performed by intrapreneurs.
Sustaining innovations give customers the same value they already
have, but with better attributes. Sustaining technologies improve the per-
formance of established products, along the dimensions of performance
that mainstream customers value. The rate of performance improvement
can progress faster than the market demand. This means that in their
efforts to provide better products than their competitors, companies often
“overshoot” the ability of consumers to absorb the technological progress.
The following is an example. Due to the improvements of the USB ash
drive, the data storage capacity increased from 8 MB in 2000 to 8 GB in
2007.
Radical innovations create new value and create entirely new com-
petencies in an industry. An example is the following. The introduction of
minimally invasive coronary stents nearly erased the practice of open-heart
procedures for coronary artery bypass surgeries.
Disruptive or breakthrough innovations destroy the competencies
of incumbent rms in an industry. Breakthrough innovations are gener-
ally considered “out-of-the-blue” solutions that cannot be compared to
any existing practices or techniques. These innovations employ enabling
technologies and create new markets. Most breakthroughs are developed
by R&D groups that often have not thought specically about a particular
commercial market application. These technologies originate on the supply
New Venture Creation ◾ 105
side of the supply chain. Conventional wisdom says listen to the market,
but breakthroughs come from labs that do not have what the customer
wants in mind. These technologies are then pushed onto the consumer.
10
Examples include digital medical records, super-strong glass that keeps
mobile device screens from breaking, and Starbucks leading the way for
mainstream mobile payments.
The term disruptive technologies was coined by Clayton M.
Christensen and introduced in his 1995 article “Disruptive Technologies:
Catching the Wave,”
11
which he co-wrote with Joseph Bower. Currently, “dis-
ruptive” is a word used in the business and technology literature to describe
innovations that improve a product or service in ways that the market does
not expect, typically by lowering price or designing for a different set of
consumers.
Disruptive innovations create a new (and unexpected) market by apply-
ing a different set of values. This is summarized in Table5.6.
Innovative startups command a price premium in the nancial markets.
The price premium may be seen in the startup initial valuation, or may
become apparent during subsequent nancing rounds. Innovation is what
gives startups their strength, staying power, and value. The concept of inno-
vation continuum is shown in Figure5.9.
Porter’s Value Chain
Modied after Porter 1985
Infrastructure
Human Resource Management
Technology Development
Procurement
Elapsed Time - Value added time cost
Inbound
Logistics
Operations
Outbound
Logistics
Marketing
& Sales
Service
Support
activities
Primary activities
Competitive
advantage
Figure 5.9 Value equation—How much “value” (benets) are you delivering to your
customers?
106 ◾ The Guide to Entrepreneurship: How to Create Wealth for Your Company
5.7 Creating Your Own Innovation Culture
“Culture eats strategy for breakfast.”
An innovation culture is concerned with (1) the discovery of hidden oppor-
tunities and (2) the systematic commercial exploitation of proprietary
technologies. As Gary Hamel, the Harvard business strategy guru stated,
“Pursuing incremental improvements while rivals reinvent the industry is like
ddling while Rome burns.”
12
An innovation culture is one of the key drivers for the success—or
failure—of a startup organization. A good, well-aligned culture can propel
it to success. However, the wrong culture will stie its ability to adapt to a
fast-changing world. So, how do you attempt to understand your corporate
culture? In addition, what steps can you take to create a strong corporate
culture that will best support your organization’s activities?
As founder, you must decide what type of organization culture your orga-
nization will follow. Organizational culture is the collective behavior of
humans who are part of an organization and the meanings that the people
attach to their actions. Culture includes the organization values, visions,
norms, working language, systems, symbols, beliefs, and habits. It is also the
pattern of such collective behaviors and assumptions that are taught to new
organizational members as a way of perceiving, and even thinking and feel-
ing. Organizational culture affects the way people and groups interact with
each other, with clients, and with stakeholders.
13
Deal and Kennedy
14
dened organizational culture as the way things get
done around here. They created a model of culture that is based on four
different types of organizations. They each focus on how quickly the orga-
nization receives feedback, the way members are rewarded, and the level of
risks taken.
1. Work-hard, play-hard culture: This has rapid feedback/reward and
low risk resulting in stress coming from quantity of work rather than
uncertainty. High-speed action leads to high-speed recreation. Examples
include restaurants, software companies, and shoe manufacturers.
2. Tough-guy macho culture: This has rapid feedback/reward and
high risk, resulting in stress coming from high risk and potential
loss/gain of reward and focus on the present rather than the longer-
term future. Examples include police, surgeons, politicians, and
sports gures.
New Venture Creation ◾ 107
3. Process culture: This has slow feedback/reward and low risk, result-
ing in low stress, plodding work, comfort, and security; stress that
comes from internal politics and stupidity of the system; development
of bureaucracies and other ways of maintaining the status quo; focus on
security of the past and of the future. Examples include banks, insur-
ance companies, teaching hospitals, and universities.
4. You-bet-your-company culture: This has slow feedback/reward and
high risk, resulting in stress coming from high risk and delay before
knowing if actions have paid off. The long view is taken, but then much
work is put into making sure things happen as planned. Examples
include aircraft manufacturers, oil companies, and startups.
5.8 Strategic Planning for StartUps
“Plans are nothing. Planning is everything.” —Dwight D. Eisenhower
Strategic planning is the process used by an organization to visualize its
desired future and develop the necessary steps and operations to achieve
those aims. It directs managers to determine how they will be expected to
behave. In order to determine the direction of the organization, it is neces-
sary to understand its current position and the possible avenues through
which it can pursue a particular course of action. Generally, strategic plan-
ning deals with at least one of three key questions:
15
1. What do we do?
2. For whom do we do it?
3. How do we excel?
The key components of strategic planning include an understanding of
the rm’s vision, mission, values, and strategies. Often a Vision Statement
and a Mission Statement may encapsulate the vision and mission.
16
◾ Vision: Outlines what the organization wants to be, or how it wants
the world in which it operates to be (an “idealized” view of the world).
It is a long-term view and concentrates on the future. It can be emo-
tive and is a source of inspiration. For example, a charity working with
the poor might have a vision statement that reads, “A World without
Poverty.”
◾ Mission: Denes the fundamental purpose of an organization or
an enterprise, succinctly describing why it exists and what it does to
108 ◾ The Guide to Entrepreneurship: How to Create Wealth for Your Company
achieve its vision. For example, the charity above might have a mission
statement as “providing jobs for the homeless and unemployed.”
◾ Values: Beliefs that are shared among the stakeholders of an organiza-
tion. Values drive an organization’s culture
and priorities and provide a
framework in which decisions are made. For example, “Knowledge and
skills are the keys to success” or “Give a man bread and feed him for a
day, but teach him to farm and feed him for life.” These example max-
ims may set the priorities of self-sufciency over shelter.
◾ Strategy: Strategy, narrowly dened, means “the art of the general”—a
combination of the ends (goals) for which the rm is striving and the
means (policies) by which it is seeking to get there. A strategy is some-
times called a roadmap, which is the path chosen to plow towards the
end vision. The most important part of implementing the strategy is
ensuring the company is going in the right direction, which is towards
the end vision.
Unlike operational planning—which stresses how to get things done—and
long-range planning—which primarily focuses on translating goals and objec-
tives into current budgets and work programs—strategic planning is con-
cerned with identifying barriers and issues to overcome. Managers are more
likely to act on the assumption that current trends will continue into the
future (steady-state management), while entrepreneurs need to anticipate new
trends and possible surprises that represent both opportunities and threats.
5.9 Your Value Chain Analysis
The term “value chain” was rst used by Michael Porter in Competitive
Advantage: Creating and Sustaining Superior Performance.
17
The value
chain analysis describes the activities that an organization must undertake
and links them to its competitive strength and position.
The value chain concept revolves around the notion that an organiza-
tion is more than just an agglomeration of machinery, equipment, facilities,
technology, and human resources. Only when these support activities are
aligned with primary activities will customers be persuaded to buy its prod-
ucts or services. The combination of all these factors becomes the source of
competitive advantage. This is illustrated in Figure5.10.
Notice the important distinction between primary and support activities.
Primary activities are those directly involved with the creation or delivery
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