How does one take their ideas and create value from them? Some people seem to do this effortlessly while others don’t know where to begin. Perhaps a more meaningful question is this: What links are there between innovation and entrepreneurship? Is such a linkage critical to creating value, and if so, why? We think the simple answer is “yes,” and finding these answers helps an innovator become an entrepreneur and therefore possibly wealthy. One definition of entrepreneurship is scaling an innovation and thereby impacting society.
Innovation is like the weather: It’s widely discussed and poorly understood, but also critically important. Much has been written about how innovation drives competitiveness, be it as a person, community, business, or country, and how it is critical to increasing our quality of life.
The innovation process, however, is plagued with uncertainty, risk, surprise, and failure. For US-based companies, more than 90% of all innovation initiatives are either abandoned or fail, costing Fortune 1,000 firms alone nearly $80 billion per year. This nationwide view can be applied to any of us, or perhaps all of us.
Fortunately, the innovation process doesn’t have to be a chance occurrence or a random event that is contingent upon serendipity or luck. There is a better way, but it requires people to think differently about innovation.
It’s clear that only humans can innovate and that innovation really can be taught, learned, and mastered, just like any other discipline. In fact, it can be as easy as learning to ride a bicycle – and once learned, it’s never forgotten. Most importantly, it’s clear that our educational system is perfectly designed to destroy a person’s natural tendency to innovate.
Innovation occurs when a person recognizes the potential value created by a change that they take advantage of by responding to the change, mitigating its impact on people, and by doing so gets rewarded with money. The act of making money, at scale, on the innovation converts an innovator into an entrepreneur. Clearly, being either an innovator or entrepreneur is difficult, and being both is very challenging indeed. Entrepreneurship is occurring rapidly in response to increasing rates of change, although change today is often difficult to perceive and therefore easy to miss unless once looks for it carefully. In fact, this rapid pace of change has become the “new normal” for almost everyone. The new normal, and with it rapid innovation, is spawning entrepreneurship on a grand scale, changing many aspects of everyday life like never before.
Our approach in writing this book is to examine the process by which someone becomes an innovator, how an innovator migrates to become an entrepreneur, and how an entrepreneur is validated by raising funds, first from family and friends, and then professional investors from angel investors to venture capitalists and private equity concerns. The evidence showing an innovator has started the transition to entrepreneurship is this ability to secure funds from dispassionate investors who only invest for an adequate return.
Both innovation and entrepreneurship have “fractal” elements – those found in all innovation and entrepreneurial activities – and elements that are situation dependent. Our treatment of the topic considers only those elements that are fractal such that the content applies to everyone, breaking innovation down into easy-to-understand and easy-to-use ideas.
Once the principles of an innovator are considered, we’ll transition to how the innovator becomes an entrepreneur – scaling the innovative ideas into a pathway to wealth and societal impact.
Entrepreneurism involves much more than we’ll discuss here. We’ll limit our focus to the first elements of creating wealth – the value proposition and a method for taking the value created by the innovation into the market via a business model. The business model will consider how the innovation is made available to customers and in what order, the value chain required for that delivery, what elements make an idea fundable, and then finding the funds from family and friends, angel investors, and professional sources of money in the form of venture capitalists and private equity firms. As the innovators migrate from friends and family to private equity, rigor also increases dramatically, especially around the value proposition and go-to-market models. This rigor will be reviewed briefly since a detailed consideration is beyond the scope of this book.
Next we’ll provide an overview of what a business plan should contain and how the investor pitch should be drafted. While business plans and investor pitches have many fractal parts, the critical success factor is the ability of the emerging entrepreneur to communicate their innovation with passion, convincing unfamiliar investors they should invest their money and possibly their clients’ money, in your venture.We’ll close the book with an overview of the VentureForge process for obtaining the financial capital required to make any startup successful. The “forge” is a metaphor for the kind of work that needs to happen when starting and financing a new business venture. It is not unlike what the blacksmiths of bygone years did when shaping metal in a forge. You begin with an unshaped lump of an idea you think might be viable, but there’s a whole lot of pounding and reshaping that goes into making it a finished product worthy of receiving investors’ attention and dollars.