Startups 101

Finding Uniqueness through Innovation

March 2008

By Jon M. Garon*

This column is part of a series of book excerpts from Own It: The Law and Business Guide(tm) to Launching a New Business Through Innovation, Exclusivity and Relevance.

The tools of intellectual property provide a series of techniques to protect the entrepreneur's innovation. Through the lens of patent and trade secret protection, entrepreneurs often look to methods of creating uniqueness — technological innovation, invention and discovery. Certainly invention and discovery add great value, but they are often costly in terms of both time and expense.

Publicity rights provide the easiest road to exclusivity by connecting the pre-existing fame of the celebrity to any product or service endorsed by that celebrity. For the celebrity entrepreneur, this relationship is self-evident. For other entrepreneurs, it can be achieved through a contractual relationship between the celebrity and the enterprise. Copyright and trademark can provide more indirect methods of developing uniqueness by focusing on the message associated with the product or service rather than directly on that product or service.

The five intellectual property systems provide different methods of protecting the uniqueness of a new product or service, but they only hint at the factors which foster the uniqueness. Instead, the best innovation is triggered by a perceived need. In computer software and hardware, this metaphor is often described as the "killer app," the computer application that is so important that it will trigger a new round of consumer hardware upgrades. In the early days of computing, no one anticipated that the spreadsheet programs were the killer apps that would drive thousands of companies to invest in so-called personal computers. Other killer app opportunities were identified well before they were realized. When Professor Paul Goldstein wrote of the Internet's potential Celestial Jukebox, he anticipated both the music swapping phenomenon of Napster and the universal adoration of the personal MP3 player captured by the iPod five years before their arrival.1

Innovation, as suggested by the killer app phenomenon, is not identifying something new, but taking something that is useful, but which has not been practical in the past, and making it widely available to the public. In some cases the impractical is made practical through engineering or technical breakthroughs. In other cases, the technology or science for innovation has been available for years or decades, but the market had not yet matured to make use of the innovation. For example, the computer mouse predated Windows by many years, but text-based computers had no need for the mouse, so it was not used by IBM. Once the opportunity was combined with the tools to meet that opportunity, success was achieved. Often, this is not genius; it is good timing or great understanding of the needs of the marketplace.

The seven sources of innovation

Management legend Peter Drucker identified seven key sources upon which to build the innovative company. Four of these he identified as internal to the company and three as external, belonging to broader societal changes. He identified the societal changes as:

  • Demographic (population changes)
  • Changes in perception, mood, and meaning
  • New knowledge, both scientific and nonscientific.2

Drucker identified the internal sources as:

  • The unexpected — the unexpected success, the unexpected failures, the unexpected outside event
  • The incongruity — between reality as it actually is and reality as it is assumed to be or as it "ought to be"
  • Innovation based on process need
  • Changes in industry structure or market structure that catch everyone unawares.3

For a start-up entrepreneur, all seven changes are external to the new company, but the "internal" changes are those happening with particular competitors or sectors. The external changes, in contrast, are not tied directly to any industry or sector.

Each of these sources of innovation is a stressor on the status quo. In fact, the list is not confined to these categories. Anything that creates significant stress on the status quo will create a demand to relieve the tension within the current system, and a new system which relieves the tension will eventually replace the old.

Almost all of Drucker's seven stressors are self explanatory, but none are simple to use. Among the societal trends, a change in perception is the stressor social relevance. As new products, services, fashions and trends become popular, they create tremendous stress on the previously popular trends. Manufacturers must retool, quickly expanding capacity to deliver new products and services while reducing output in their efforts that support the fading markets.

What Drucker refers to as new knowledge is detailed in the chapters on patents and trade secrets. Drucker suggested that new knowledge is overrated as a source of innovation, but he underestimates the power of new knowledge to beget innovation. Patents and trade secrets may be more difficult to predict than demographic trends, but each new patent brings with it the potential for innovative transformation.

Demographic change provides the best example of societal change. When Drucker first wrote Innovation and Entrepreneurship in 1985, the demographics focused on the baby-boom generation dominating the work force and the "baby-bust" population creating significant excess capacity in public schools and universities. Today, headlines focus on the "boomers" hitting retirement age (with the appellation 'baby' quietly deleted) while the upcoming generations have been parsed into generation X, generation Y, and millennials.

Press reports on these generations are far from complete. In addition to the children, grandchildren and great-grandchildren of the World War II veterans, there are many immigrant communities who have come into the United States during the last half century. These communities are not evenly distributed, have different educational experiences (some better, some worse) than their suburban counterparts, have different purchasing patterns and different stressors.

In addition, the urban, suburban and rural populations have had significant population shifts. Americans move from location to location more fluidly than populations anywhere else in the world. This creates stressors on housing markets, house design, communications, relocations and many other needs of people shifting locations. Even their reasons for moving vary: better jobs, better environment, better community or some other opportunity.

Just as demographics are complex and constantly creating many smaller stressors - and so many opportunities for innovation - the other six identified stressors create similar complexities and opportunities.

This is part of a series of book excerpts from Own It: The Law and Business Guide(tm) to Launching a New Business Through Innovation, Exclusivity and Relevance, which provides a step-by-step guide to developing successful start-up companies using concepts of intellectual property in all aspects of business planning and financing.

* Jon M. Garon is admitted in New Hampshire and California.

 


Footnotes.

1. Paul Goldstein, Copyright's Highway: From Gutenberg to Celestial Jukebox (1994).

2. Peter Drucker, Innovation adn Entrepreneurship 35 (1993).

3 Id.


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