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City Mouse and Country Mouse

April 4, 2013

Met two different flavors of entrepreneurs last Tuesday, and wondering whether and how they might correlate with success.  The first was a phenomenon; one of those guys who, at least by appearances, “looked at the world sideways and realized it was his oyster.”  He took apart vacuum cleaners and televisions when he was eight, learned to code at twelve, started his first company in college and sold it shortly after, currently running two pretty hot startups at once.  The prototypical story was when he hacked into some company’s system to make it do what he wanted, got banned for it, but later went into business with the CEO of that company, who appreciate his chutzpah and skills, and besides, had made another fortune by appropriating the hack.

I’m not calling this person Allan Grant, because the details are wrong, but at a guess, details about stories like this are usually/always wrong.    The important part isn’t about exploits anyway, but about an outlook.  Not-Allan ‘s outlook is that you never know what will work, and can’t go about learning or teaching it scientifically.  What you can do is come up with an idea, use it to make something happen (cheap and fast) that gets some result, and then start tinkering (adding and subtracting partners and features and customer types and value propositions.)

If you’re smart and quick in your tinkering, taking lots of steps, and taking the next one based on educated guesses about what happened when you took the last one, then you can do something cool:  You can grow appendages and lop off pieces of the idea until it morphs into a real business.  This works best under two conditions:  First, the idea has to be in the realm of something you know about, ideally a need you have, so that it’s somewhere in the ballpark of being a good idea and also so that when you tinker and get a reaction, you can make sense of what just happened.  Second, and for the same reason, it has to be crisp enough so that failures and successes can be traceable back to something.

I met entrepreneur number two driving my Uber back to the airport.  His name was Luka, and he was from Lagos, Nigeria.  In addition to driving a town car, Luka had started several businesses, all back in Lagos.  He had a fish farm going, a cab business, a business exporting fancy cars from the U.S. to Nigeria, a software VAR with several small Nigerian government contracts, and a business he was trying to get going importing containers and equipment for liquefied natural gas.  He ran this empire from his phone in the town car and by going back to Nigeria a couple times a year.

Luka didn’t have any domain skills for any of his businesses, except the very important one of understanding how people do things in Lagos.  He explained it to me this way:  “In Nigeria, you might see a sign on the street that says ‘don’t park at this curb.’  An American might think the meaning of the sign is ‘no one is allowed to park at this curb.’”

Both Luka and not-Allan are running multiple businesses at once, though they both complain about lack of hours in a day.  Both are focused on and have a hard time with raising capital – sometimes it falls into place easily and sometimes it’s a bitch.   Both are smart.  Both are opportunistic.  Both have the ability to create reality distortion fields around their opportunities and prospects.  There’s probably no difference about scaling prospects either – Luka’s LNG equipment company could conceivably scale as big, or bigger, than not-Allan’s online startups.

The main difference is that not-Allan is doing what we’re pleased to call “innovating,” while Luka is just hustling.  So what, really, does that difference amount to?

Where people often go wrong is thinking of innovation as a clever new tech thing that can find itself a market.  A better bet is to start with the customers.  But beginning there starts with a puzzle:  You can look at your customers two ways:  On one hand, they’re alive and doing whatever they’re doing, so the world and the world’s economy is making available to them everything they need to live and do.  On this hand, it’s a closed system, and you can only create a business by stealing a piece of your customer’s attention and purse from some other provider.  On the other hand, in the foreseeable future, all your potential customers will die, so the world doesn’t provide the thing they want most of all.  And working down from there, everyone is in endless pain and there are endless gaps to be filled by endless new products and services.  In this scenario, innovation doesn’t need to squeeze into a closed system, it fills in empty holes.

But whether you think of innovation as displacement or as filling empty holes, it always means new approaches to solving problems or addressing improvement goals.  The problems and goals themselves – hunger, status, sex, health, shelter, etcetera, never change much.  But the value of different approaches to solving those problems or meeting those goals not only change, but are extremely volatile and are hugely sensitive to context.  The telegraph machine that so magnificently addressed long-distance communications problems 170 years ago wouldn’t register as a solution to anything today.   The smart phone, which wouldn’t have registered as a solution to anything a decade ago, has become the indispensable communications solution for many people today.  Big innovations like these move markets, but so do small feature changes.  A new generation game console, or this year’s car, can pull a big, valuable market out from under last year’s product.

This volatility in the relative value of solutions means that small product changes are capable of producing big market outcomes.  So improvements in service, price, features, etcetera, are at the line of scrimmage for big market players. Lots of R&D and marketing money and talent goes into incremental change both because that’s what big companies know how to do, and because the cost can be justified by the potential ROI.

With the bulk of the money, talent, and resources struggling over small changes at the scrimmage line, real innovation is more like an end run.  Startups are little and quick and don’t have the advantage of helmets or an offensive line.  Their only chance is to make a move that takes them to where the defense isn’t – an innovation.

In the Silicon Valley, angel-and-VC world of scalable startups, innovation is a must – but not in Nigeria.  Even there, Luka would fail in the oil business, or the road building business, and he probably has little chance as a VAR selling software to government offices.  Where you have big players and entrenched interests and a lot at stake over small product changes, hustle alone rarely wins.  But in liquefied natural gas, which is brand new to Nigeria, or in importing fancy cars, like to emerging cities where no fancy cars have been sold before, he can just hustle and not worry about innovation.

Back in Tech Crunch America, we’ve got a mythology going about startup innovators.  We love the end run, the company that can suddenly materialize on an unexpected point in the field of solutions to a problem.    But there’s nothing intrinsic that makes that approach smarter or more likely to succeed – it’s a question of context.

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