There are a number of interesting concepts worth noting within Lecture 3.2 – Knowledge Conditions within the Developing Innovating Ideas for New Companies course. These concepts, which include industry categorization, knowledge conditions, meaningful partnerships, and leveraging knowledge will be discussed in greater detail within this article.
The first relates to industry categorization and is demonstrated in the following slide:
I recall having a difficult time when categorizing a new venture. Actually I still do find it challenging. For some reason I find it difficult to select a pre-defined category that my business fits into. I never understood why, but it finally hit me. The best things happen in the space in between. All ventures and ideas do not necessarily fit neatly in a predefined bucket. A new business may fall between categories or may even create an entirely new category. There appears to be a point at which reductionist principles fall apart.
Categorizing businesses does have value though, perhaps as a risk assessment tool. The ventures I describe in the preceding paragraph might be more risky when compared to a Buffett Business. Because the business does not fall within a neat predefined category, it may not have been done before. On the other hand, a business that falls squarely in the Retail Trade category would likely be less risky as this category of business has been around since the very first traders.
The final point on this slide really opened my eyes concerning barriers to entry:
High knowledge industries favor new entrants when compared to low knowledge commodity type businesses. Why? Because there are fewer potential entrepreneurs with the required knowledge to execute on an idea within a high knowledge industry. When someone with the deep knowledge combined with the entrepreneurial mindset and motivation does come along it likely benefits the whole industry given the rarity of such new entrants.
Compare the preceding high knowledge example to an e-commerce entrepreneur who opens a business reselling a commodity item online. New entrants join the industry on a regular basis. Margins are already lower when compared to high knowledge industries. Each new entrant brings potentially lower profitability to the incumbents.
Everyone wants to partner these days. Collaboration is esteemed while egoists are frowned upon. Collaboration may be beneficial to everyone involved but only if it is meaningful. There are a few items that Dr. Green identifies as being key to successful partnerships:
1. Idea(s): Someone who has a novel idea or ideas that you would like to work with and help move forward.
2. Industry Knowledge: Someone who possesses deep knowledge of a given industry. The example provided was a doctor partnering with a medical device entrepreneur. The doctor adds credibility, a customer voice element, and social capital to the venture.
3. Capital: Someone who brings money to the venture.
4. Relationships: Someone who brings their network to the partnership. Having someone with contacts relevant to the venture could really help move things forward faster. Who do they know and do they carry influence? Just because a potential partner has an impressive looking LinkedIn network does not necessarily mean they can influence these contacts to act in the best interests of the new venture. This relational aspect is also referred to as social capital.
Ignorance of the preceding four items is likely why most partnerships fail. A truly mutually beneficial relationship grounded in self-interest has a high probability of success. Lopsided relationships where others latch on without bringing equivalent value are doomed to fail. So prior to entering into a potential partnership, do not be afraid to ask – what are you bringing to the table? Do not feel obligated to add anyone and everyone to your team based on what they could potentially do for you in the future. Determine what tangible result they can bring to the business right NOW.
A final point that resonated with me in this lecture was related to the topic seeking ideas, the second bullet point on the following slide.
Seeking out ideas that are congruent with your knowledge seems fairly self-evident, but it may be overlooked. In my opinion, the stronger your knowledge in a potential core competency, the greater the potential for success. I recall Warren Buffett commenting about how the tendency for some professional managers to stray outside their core competency and go on acquisition sprees purchasing businesses outside of their core was not tolerated in his companies. Preserve the core.
Interests may also seem obvious, but I find this one to be a bit tricky. As an entrepreneur you certainly need passion in your business to fuel momentum during the challenging times. However, I have heard many an instance where entrepreneurs ruin their hobbies by turning them into a business. I guess the true balance here is the intersection between these three items – know-how, interests, and social capital.
Social capital feels the trickiest for me. I have many contacts but few have been relevant to my entrepreneurial pursuits. I have been interested in growing my circle for greater relevance but have found it very difficult. By definition there are very few true entrepreneurs in the world. I meet many people but many appear to be simply interested in building their LinkedIn contact count and having contacts in queue just in case they are needed in the future. It has been very difficult to meet relevant contacts that are presently of mutual benefit. At the moment I have resigned myself to sticking to the things I enjoy – mainly creating and growing businesses. However, my involvement in this course has really caused me to look inwards on the social capital aspect. Perhaps I may need to re-evaluate how I am going about this.
Image Credit: I Was Just Thinkin…’