Entrepreneurship in the early 19th century originated with inventions, whether it was Edison Electric with lighting or Westing House Electric with steam brakes. Later proceeded to discovery of new methods like Hershey’s recipe of milk chocolate. The trend continued until the last decades of previous century as computers became the new hot thing. In the last few years of the decade, with the advent of dot com bubble, it evolved in to solutions to enable people and continued until recently.
But what most forget is that the such success stories like Facebook; have a success to failure ratio of 1:10 minimum. Before and after Facebook, we had hi5, Orkut, Myspace and maybe a dozen more which did not survive to see the light of the day.
1:10 ratio is the unicorn to NPA ratio for VCs investing in seed rounds.
If you want to argue regarding my choice of example – let me give a few more – iPod vs Zune, Walkman and dozen others. Rewind it back to 80s, for operating systems, it was Microsoft vs dozen others, and it was not until Microsoft – IBM licensing deal had been signed that Microsoft came up with its operating system MS – DOS. While rewinding it further none of the icons of the industrial revolution including Carnegie Steel, JP Morgan or Westing House Electric were alone in the game.
One common thing that we notice among all is their ability to emerge as winners with margins such big that they established a status quo of their own. Their ability to emerge as such winners is what we should be discussing rather than the ideas or solutions that sparked the domino effect.
Today merely technical prowess is no longer the key to building a successful business.
An idea itself has marginal importance – it is the ability of the entrepreneurs or founders, to pull it off, is what matters the most. And for the ones are still betting on the idea, they better be among the first movers for the particular idea.
And still there are people who expect to replicate the successes of 19th century ideas in 2020! Few examples in the Indian context include detergent plant to replicate the success of Nirma, CRM software to recreate Zoho or Salesforce and even trading textiles with the goal to emerge in to manufacturing as Tata, Mahindra or Reliance.
Ideas yield returns only when they are closely guarded secrets!
For example, consider mobile phones or LED light fixtures; once the manufacturing technology had became widely available, dozens of companies emerged and internal competition ruined margins. Unless of course, the industry players cooperate like the Mafia to maintain profitability. However, this is a rare phenomenon in a capitalist market. Take the case of airlines, they knows their margins are thinner than air but they lack cooperation, over and above that, every once in a while low cost carriers disrupts the market drops the margins further down in red. (Read more here..)
To skip our previous conclusion, one must either be among the first movers or have exceptionally deep pockets.
With the foreseeable fate of some unicorns in coworking and aggregation, not many will have the courage to bet millions on similar ideas anytime soon.
To not further diminish the significance of idea, I would use an analogy of the sperms that gave birth to humans who changed the fate of millions. Although it was important, numerous other factors including adversities brought the best out of them and have more significance than genetics.
Idea is important but its significance towards the success of most businesses is debatable, evidence suggests a reducing trend.
Everything is created twice, first in your mind and then manifested in to reality, but there is a fundamental difference in both creations. Mind is an empty space without any laws but once you start manifesting it to ‘physical’ reality, your creation needs to withstand the laws of the land including physics, legal and capitalism.
Without such consideration, ideas remain merely hallucinations with numerous consequences but none being exponential success.
An average human being has more than 60,000 thoughts on an usual day. One must have a certain benchmark to qualify a thought as an idea. My intention is not to kill crazy ideas but to caution you about the seemingly ordinary fate of most ideas. For example, when Steve Jobs launched the iPhone and Mike Lazardis had a good laugh as networks back then lacked the bandwidth. BlackBerry had the technology to make it work on few kilobytes when everything else failed. If Steve Jobs had considered this as a constraint, our generation would have been deprived of plenty!
Instead I am trying to focus on two adjacent concerns that one should consider along with an idea, the ability to pull it off (it also includes your ability as well as the dedication required to acquire the missing abilities) and the refinement of idea.
From 1900s till today, many things have changed – but two changes are rather important – the increase of population and the speed of information. In 19th century, an entrepreneur from a third world country could visit the first world bring in some crazy idea, tweak it to local context and build a successful business. But today, not only going abroad is within the means of many but also YouTube subscription is quite affordable.
This has resulted in elimination of inefficiencies and increase in competition. This has caused a drastic reduction in the margin of error. Hence, today it is ever more important for an entrepreneur to understand the fundamentals of business and not merely rely upon their technical prowess.
Baking is also technical, but only being good in the kitchen will not build the next bakery chain!
To help new age entrepreneurs get their basics right, we have curated a special course “Entrepreneur Success Essentials” available online on Udemy.
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Feature Photo by Finn Hackshaw on Unsplash
Savvy Munshi 