RESEARCH & INNOVATION

Innovation Factor in Entrepreneurship Startup Success, by SCOTT BELLOWS

Kariuki followed the events of the Global Entrepreneurship Summit held recently in Nairobi very carefully. He appreciated the public support provided by both President Kenyatta and President Obama and looked forward to the fruition of all the pro-entrepreneur promises. In anticipation, Kariuki contemplated the innovativeness of his service delivery and technological backend platform of his main product.

So he charged forth determined to invoke as much creativity as possible in his business and set himself apart as the most innovative in his field. However, Kariuki did not realise a critical hindrance of innovation: sometimes innovation boosts a startup business and sometimes it kills the firm off completely.

Fierce debate rages in literature as to the innovativeness of successful startups. Many aspiring entrepreneurs hear the common mantra to "innovate, innovate, innovate". While dozens of studies link the causal effect of innovation as it positively relates to startup business success with research originating all the way back to 1934 up to the present, some recent explorations discovered that innovation can actually harm a new business. The latest research shows that the old cliché "one size fits all" does not work for creativity and innovation. So how do you innovate with your startup business in light of the new opportunities available to Kenyans following the Global Entrepreneurship Summit?

First, understand that innovation takes on many forms. Most commonly, people imagine innovation as it relates to product development. An innovative product delivers different types of value to customers previously unseen, such as newness, convenience, usability, accessibility, ease of use, among many other possibilities. Entrepreneurs should go online and Google "design thinking" in order to think through innovative processes to imagine their own product development.

However, innovation and creativity also may come into force through the "how" of your business, such as how you distribute your product, or how you operate your offices, etc. So entrepreneurs can embed innovation that beats competitors in their manufacturing process like Apple, human resource process like Google and Safaricom, organisation structure like General Electric, technological backend platform like Djuaji, marketing campaigns like OLX, or customer service interaction innovations like Naked Pizza.

Second, each industry passes through four key phases in its sector-specific life cycle: fermentation, shakeout, maturity, and decline. Some of the Kenyan technology solutions featured at the Global Entrepreneurship Summit still exist in fermenting their businesses and ideas, while others have actually begun competing with rivals in the shakeout phase. The mobile money revolution in Kenya thrives in the maturity phase while in many other countries it still ferments. Then analysts view landline phones in the decline phase of innovation. Since all industries pass through the four stages, innovations become necessary to keep your business alive and profitable.

Third, know in what ways innovation may help your startup business. Research shows that your industry's fermentation phase poses the most risk versus reward for innovation. Researchers Cohen and Klepper found that innovativeness lowers firm production costs through creative techniques. Teece and team discovered that innovation improves dynamic capabilities of startups while Porter famously delineated the link with improved abilities to escape competition. Interestingly, professors Zahra and George uncovered that innovation enhances startups absorption capacity. Many new businesses struggle with meeting orders in a timely manner as they fight to grow and build economies of scale. Innovative firms find ways to absorb growing customer demand.

Fourth, in a romantic view of innovation, many entrepreneurs feel that innovation always leads to benefits. However, innovation also poses tremendous risks. You never know whether your next creative innovation will turn you into the next Google or Apple or whether it will sink you to the future Yahoo or Blackberry.

In 2009, Samuelsson and Davidsson uncovered that the pursuit of innovations produces riskier and often more complicated "less linear" startup processes. Such complication comes at a time in business formation when speed and agility prove critical in a fermenting industry. Researcher Amason and team found that innovative startups experience greater risks that their new products will be viewed by consumers as a novelty item as opposed to the competition that does not innovate.

One example that many university students in Kenya study involves Clocky the Runaway Alarm Clock. The product featured in 2005 in the United States as an alarm clock with wheels. Once the alarm began to blare, the wheels started turning and the clock moved all over the floor of the user's bedroom. The idea meant that the sleepy professional would be forced to get out of bed and search for the alarm clock in order to turn it off and therefore never miss a morning meeting.

Clocky received significant press coverage in 2005. However, the firm innovated in the wrong way. It failed to innovate its processes so as to fill orders, like researchers Zahra and George lament. On the product side, though, the market viewed it as so fantastically innovative that it came off as purely novelty with less functional appeal. Inasmuch, it received short market attention before it fizzled into obscurity.

Berger and Udell published a work detailing the difficulty that innovative startups possess in securing financing while by 2011 and 2012 Minetti and Brown respectively uncovered that banks view innovative firm assets as insufficient security or collateral for loans since liquidation of such items worries banks in potential events of default.

Then finally, researchers Hyytinen, Pajarinen, and Rouvinen in Finland published this month (July 2015) stunning new findings that show innovation at the earliest stage of business startup hurts success of startups and actually leads to firms dying off. While, on the other hand, innovation slightly later in the business formation process of fermenting industries actually helps business success.

So, while taking into account all the plethora of impactful research on new business startups, one aspect remains clear: innovation is powerful. Whether you turn innovation into a tool for the success of your business or the anchor that drags your business to drown, it depends on the timing of when you utilise your most creative innovations.

 

Scott is Assistant Professor of Management, NEVA Director, & Faculty Senate Chair at the United States International University (USIU) Africa.