Innovation is the fuel that sets an entrepreneurial venture apart. But it is often confused with creativity, and sometimes reduced to "inventing a new product." In this chapter we clarify the difference between the two concepts, classify innovation by type and degree, and explain how new things spread among people, and why that matters to a venture owner.
After studying this chapter, you should be able to:
The two words are sometimes used to mean the same thing, but distinguishing them is essential for understanding entrepreneurship.
Creativity is the ability to generate ideas that are new and useful. Researchers agree that a creative idea needs two conditions together: it must be novel (original, unfamiliar) and appropriate (useful, workable, solving a problem). A new idea that is not useful is mere oddity; a useful idea that is not new is repetition.
Innovation is turning a creative idea into a product, service or way of working that people actually use and that adds value for them. The Oslo Manual, the international reference the OECD uses to measure innovation, defines it as a new or improved product or process that differs significantly from what came before and has been made available to users or brought into use.
So a person can be very creative without being innovative, because they never complete the road to execution. And someone else may innovate successfully with a moderately creative idea, because they mastered execution and understood the customer. Entrepreneurship needs both: creativity to generate the idea, and innovation to turn it into value.
When we talk about innovation, a new product comes to mind, such as a phone or a device. But innovation can happen in any part of a venture, and many of the most successful innovations did not change the product itself; they changed the way it is delivered or sold.
A new product, or a clear improvement of an existing one in its function, quality or ease of use. Example: a water bottle that reminds you to drink with a small light, or an abaya made from fabric suited to summer heat.
A new way of delivering a service, or of the customer's experience of it. Example: booking a barber appointment through a link, with a notification ten minutes before your turn, instead of waiting in the shop. The service itself (the haircut) has not changed, but the customer's experience has changed completely.
A new method of production or internal operation that makes the venture faster, cheaper or more accurate, which the customer may not notice directly. Example: a kitchen that preps its basic ingredients in advance in an organized way, cutting order preparation time in half.
A new way of making money or of distributing value among the parties. It is one of the strongest types of innovation because it is hard to copy. Examples: a monthly subscription instead of paying each time, "buy now, pay later" in interest-free installments, or a platform that connects service providers with customers and takes a commission instead of employing them.
A new way of presenting, packaging or pricing a product, or of reaching the customer. Example: a small farm that sells its produce in a weekly box with a card telling the story of the harvest, instead of selling wholesale at the market.
New solutions to social problems, whose first goal is to improve people's lives. Example: a platform that connects young volunteers with older people in the neighborhood to help them with errands and online transactions.
Besides the type of innovation, we ask: how much change does it bring? Innovation is usually classified into three degrees:
Small, continuous improvements to an existing product or service: a better camera in the new phone model, or a new flavor of a familiar product. Its risk is low, and its return is limited but relatively assured. Most innovation in the world is of this kind.
A major change that creates a new category of products or changes the way an entire sector works, such as the arrival of the smartphone itself, or the shift from in-store selling to e-commerce. Its risk is high and its cost large, but its impact is wide.
This concept was coined by Clayton Christensen, a management professor at Harvard, in The Innovator's Dilemma (1997). It is not a synonym for "big innovation"; it describes a specific pattern:
The "dilemma" is that the major companies do not fail because they are badly managed, but because they do what is supposedly right: they listen to their current customers and focus on their most profitable products. That is exactly what makes them ignore the threat coming from below.
Sociologist Everett Rogers studied how new ideas and products spread through society, and published his theory in Diffusion of Innovations (1962; fifth edition 2003). He found that people do not adopt something new at the same time, but fall into five groups according to how quickly they adopt:
| Group | Approximate share | Characteristics | What convinces them? |
|---|---|---|---|
| Innovators | 2.5% | Love trying new things for their own sake, and tolerate flaws and risk | Novelty itself |
| Early adopters | 13.5% | Opinion leaders, looking for an advantage or a solution to a problem they feel acutely | Clear benefit and the chance to stand out |
| Early majority | 34% | Practical; wait for others to try it and for the product to prove itself | Evidence and recommendations from people they trust |
| Late majority | 34% | Skeptical; adopt once the product is common or necessary | Social pressure and lower risk |
| Laggards | 16% | Attached to the traditional; resist change | Often adopt only when no alternative remains |
Why does this matter to a venture owner? Because a common mistake is for a venture to target "everyone" from the start. The right approach is to look first for innovators and early adopters: people who feel the problem acutely and are willing to try a new solution even if it is not complete. They give you the first feedback and talk about you to others.
Geoffrey Moore added an important observation in Crossing the Chasm (1991): between early adopters and the early majority lies a chasm into which many products fall. Early adopters accept an unfinished product because they like experimenting, but the majority wants a complete, reliable, proven product. To cross the chasm, a venture needs to focus on one specific segment of the majority, win it over completely, and then move on from it to others.
Rogers identified five characteristics of the innovation itself that make people adopt it faster. You can use them as a checklist for your idea:
The answers are on the Answers to Self-Assessment Questions page. On the interactive course page you can answer and check these questions directly, with practical tools linked to the chapter.
Name a product you adopted late and another you were among the first to try. What made you late or early?