Five skills that distinguish innovative entrepreneurs

Q. In your work with Harvard Business School Professor Clay Christensen for The Innovator’s DNA, you distinguished between two categories of entrepreneurs. Please describe them.
The typical definition is ‘an individual who starts a new business’, but within that definition, there are actually two categories: regular entrepreneurs and innovative entrepreneurs. A regular entrepreneur starts a business that is either a franchise or an imitation of other businesses—for example, a McDonald’s franchise or a dry cleaning business. These people are not offering anything new or unique.  Innovative entrepreneurs, on the other hand, launch a venture that offers a unique value proposition, and it is based upon their own idea.

Only about 15 per cent of all start-ups fit into the innovative category. This is the group that we studied closely over an eight-year period, in an effort to uncover the origins of innovative—and often disruptive—business ideas. We interviewed nearly 100 inventors of revolutionary products and services, as well as founders and CEOs of game-changing companies built on innovative ideas—people like Amazon’s Jeff Bezos and Intuit’s Scott Cook. Our goal was to understand as much about these people as possible.

Q. Your key finding was that innovative entrepreneurs possess five ‘discovery skills’. What are they?
We asked each entrepreneur to identify the moment when they came up with the idea for their new business or product, and as we reflected on their answers, some patterns emerged. We were able to identify five skills that distinguish these individuals: questioning, observing, networking, experimenting and associative thinking.

In some cases, the idea came after they asked a question, which triggered an answer for them. Soon after amazon.com was launched, Marc Benioff of Salesforce.com was literally swimming with the dolphins in Hawaii, when he asked himself, ‘Why shouldn’t all software follow the Amazon model?’ That led to the original business model for Salesforce.com.

Others were observing when it happened.  Scott Cook talks about when he saw the Apple Lisa—the first computer to offer menus and a graphical user interface. He suddenly realized that it was possible to create software that included a box for a check mark, and that people could click on it, to fill it in.  Basically, he realized that he could create accounting software that didn’t ‘look like’ accounting software—that it could actually look like interfaces that people were used to seeing in the real world. That was the seed of the idea for Quick Tax [now called Turbo Tax.]

For others, it was a conversation.  Mike Lazaridus, one of the original founders of BlackBerry [now Research in Motion] told us about a conversation he had with someone who described to him how Coca Cola vending machines were able to send wireless information to their warehouses, indicating that a particular machine needed a refill.  He thought, “Wouldn’t we all love to hold something like that in our palms, and be able to send data to others?”  That was the idea that led to the BlackBerry.  

Others were out exploring and experimenting when their idea hit.  Jeff Bezos talks about the idea for Amazon coming to him as he was surfing the Internet. One day, he came across some data on Internet usage, which said that it was growing at some crazy rate, 3200% per year.  That led him to ask himself, ‘What product could I sell using this popular new tool?’

Many of the entrepreneurs also described how they associated things together that hadn’t been associated before.  When mastered, these five skills will enable anyone to improve their ability to innovate.  

Q. Which of the five is most important?
We all have our own unique style for getting new ideas, so one isn’t necessarily better than the others. Jeff Bezos is a fabulous experimenter, so he tends to get his ideas from experimenting; and, that’s okay.  He doesn’t have to be good at all five things—he just has to leverage what he’s comfortable with.  Meanwhile, people like Scott Cook are very strong at observing.  He told us, “That is my ‘go-to’ behaviour whenever I’m looking for new ideas: I just go out and observe.”  Others really like networking and talking to lots of different kinds of people.  You just need to figure out what you’re good at, what you’re comfortable with, and that will be your ‘go-to’ approach.

Q. You found that innovative entrepreneurs do a special kind of networking: ‘idea networking’. How does it work?
Lots of people network for social reasons; they just really like talking to people.  Others do it for resources—in order to get something done, or to get a job. But we found that when innovative entrepreneurs network, it isn’t for either of these usual reasons: they are actually looking for ideas from people, or seeking feedback on their own ideas.  The mindset with idea networking is, ‘I am authentically interested in hearing your ideas and seeing what I can learn from you.’

You have found that there are three ways to experiment. Please describe them.
The first way to experiment is to dismantle something—whether it be a product, a process, an idea or a concept—and then put it back together to see what you learn. If, on a regular basis, you take apart your product or processes (or those of a competitor) and try to put them back together, it can trigger new ideas about how to do something better.

The second form or experimentation is the classic testing an idea. Thomas Edison once said, ‘I have never failed—I just had 10,000 ideas that didn’t work.’ He kept testing and learning, testing and learning, over and over. So, launch a pilot; run an experiment; or just try something, and see what happens. The third approach is simply to be an explorer: visit a new country, company or environment; learn a new skill, like Steve Jobs did when he took Caligraphy classes (and then brought that knowledge to the design of the McIntosh computer.)

Q. Tell us a bit more about the discovery skill of associational thinking. How does it work?
Associational thinking can be triggered by any one of the other four skills, and it’s what happens as the brain tries to synthesize and make sense of novel inputs. For example, at one point under-the-arm deodorant designers looked to ball-point pens for their ability to let liquid flow from a source. This skill basically helps innovators discover new directions by making connections across seemingly-unrelated questions, problems or ideas.  

Q. Salesforce.com founder Mark Benioff has said that his job is ‘to create a culture of entrepreneurship’. In your experience, what does this look like?
There are two important components to it. First, a culture of entrepreneurship supports and encourages the five discovery skills.   That includes encouraging people to question the status quo, and to ask, ‘what if?’  If you can create a culture where questioning is encouraged and supported, you will increase the generation of new ideas.  

It also means having processes in place that encourage and support observing.  That means allowing people to observe customers, other companies or other divisions of your company.  And it entails encouraging networking. For example, you might bring people from other parts of the company to your department or division, to share their ideas; bring people in from outside of the company; or send people to conferences or networking events. Finally, you can design processes that support and encourage experimentation, so that, when someone comes up with an idea, you can say, ‘Let’s run an experiment on that’.  

The second part of building a culture of entrepreneurship is, you have to have people who know how to create a pilot or develop a prototype, so that people can test and validate their ideas and see whether they’re going to work.  A lot of people come to me and say, “I have this idea.  Should we take it to market?”  That’s why I wrote the follow-up book with Nathan Furr called, The Innovator’s Method. We went and looked at companies and start-ups that were really good at figuring out which new ideas to take forward and doing fast and frugal experiments to test them before launching them. We call this ‘bringing lean start-up methods into an organization’.  

Q. When you look around today, do you see enough organizations  embracing innovation?
There is a natural pattern in the evolution of an enterprise that makes it very difficult for established companies to do this.  In the earliest stages of any new business, the most important thing is to come up with a product or service that people will pay for; and this is the stage when the discovery skills are so important.
 
Once you hit upon an idea that starts making traction, you have to focus on scaling the business.  What naturally happens is, you bring in folks who are good at process and good at standardization.  And the organization becomes dominated by people who are really good at execution.  

We often see founders either leave or get thrown out at this point, because they don’t have the skills required to scale the business. What they fail to realize is that, as soon as a business is in the process of being scaled, you need to be working on more new product and service ideas. But as indicated, they’ve often lost the leadership that understands how to generate new ideas.  In The Innovator’s Method, we call this set of skills ‘entrepreneurial management techniques’,  and they are more and more important these days. Most senior executives are still working hard to efficiently deliver the next thing that should be done, given the existing business model; entrepreneurial management involves turning that model on its head.

Q. In terms of disruptive innovation, which industry or area should people keep an eye on?
I would point to the Internet of Things, where people bringing the Internet and the Cloud into anything and everything that you can manufacture—basically making products and services ‘smart’. Home automation is an example.  Say you’re at the store, and you think you might be running out of dishwasher detergent. Imagine if you could push a button on your smart phone and the computer would tell you that you’re out of detergent—and that in addition, there is almost no ink left in your printer. Imagine, further, that with the click of another button, these items automatically get ordered and shipped to you via Amazon.  So you don’t have to lug home that heavy detergent bottle.

Another promising area involves leveraging resources and assets that are already out there, as companies like Uber and Airbnb have done.  Uber said, ‘Just about everyone has two assets: people have cars, and people have time; so, we’re going to leverage these things to create a new business model for transportation’.  The question for entrepreneurs is, Which assets or resources could you leverage in a new business model?  I think we will see a lot more of that happening, as well as more crowd-sourcing. The fact is, if your company doesn’t have plans to do anything new or different over the next 10 years, you will be left behind.



The Innovator’s DNA
Innovative entrepreneurs spend 50 per cent more of their time on the following discovery activities than executives with no innovation track record.

Questioning: innovators are consummate questioners who show a passion for inquiry, and their queries frequently challenge the status quo—as Steve Jobs did when he asked, “Why does a computer need a fan?” They love to ask, ‘If we tried this, what would happen?’, and are always looking to understand how things might be changed or disrupted. Their questions always outnumber answers in a typical conversation, and are valued at least as highly as answers.
Observing: Innovators are intense observers.  They carefully watch the world around them, and their observations help them gain insights into new ways of doing things. Steve Jobs’ observation trip to Xerox PARC led to both the Macintosh’s operating system and mouse as well as the current OSX operating system.
Networking: Rather than simply doing social networking or networking for resources, innovators actively search for new ideas by talking to people who may offer a radically different view of things. For example, Apple Fellow Alan Kay advised Jobs to go visit “two crazy guys up in San Rafael.” The ‘crazy guys’ were Ed Catmull and Alvy Ray, who headed a small computer graphics operation called Industrial Light & Magic. Fascinated by their operation, Jobs bought the company for $10 million, renamed it Pixar, and eventually took it public for $1 billion. Had he never chatted with Kay, the world might never have seen films like Toy Story and Up.
Experimenting: Innovators are constantly trying out new experiences and piloting new ideas. They visit new places, seek new information and experiment to learn things.  Jobs, for example, sampled everything from meditation and living in an Ashram to calligraphy.  
Associating: This means putting things together that didn’t previously occupy the same space, and this ability to synthesize things is born out of experience with the first four skills.

Jeff Dyer is the Horace Beesley Professor of Strategy at Brigham Young University and Professor of Strategy at the Wharton School of Business. He is the co-author, with Clayton Christensen and Hal Gregersen, of The Innovator’s DNA: Mastering the Five Skills of Disruptive Innovators (HBR Press, 2011) and co-founder of iDNA [The Innovator’s DNA], a consulting firm based on the book’s principles whose clients have included General Electric, Harley Davidson, Johnson & Johnson, Intel, Medtronic and Sony.  His most recent book is The Innovator's Method: Bringing the Lean Start-up into Your Organization (Harvard Business Review Press, 2014).

[This article has been reprinted, with permission, from Rotman Management, the magazine of the University of Toronto's Rotman School of Management]