Innovation or Copying?
- Posted by Jeff Carter
- on October 21st, 2013
There is a lot of focus on innovation and starting companies. That’s cool. The problem is many of the people doing the innovating aren’t being too creative. Instead of really pushing the envelope and taking risk, they come up with ankle biter ideas, or derivatives of a popular idea.
These ideas don’t usually solve problems. They fail.
To be an innovative entrepreneur is to walk around the earth and look for problems to solve. I call them pain points. Pain points can have big or small markets.
The first question you should ask is “Can it be solved with software or automation?”. If the answer is yes, keep thinking about it. If the market is big enough, you have a potential investable startup. If it’s small, it might be a lifestyle business that should be started-but it’s probably not investable unless something changes.
That’s how to find future pain points. Look for solvable problems. Too often, the “innovation” isn’t really any thing at all. It’s just a copy of something else, or a derivative of something else.
An example might be a photo sharing app that concentrates on weddings or events. Is that really that different than a hashtag on Twitter or Instagram? We don’t need another Facebook, Twitter, Snapchat, etc etc etc.
But, someone could take the principles of those businesses and turn them into an innovative company in something else. Yammer is an example of that. Usually those companies don’t sell for big dollars, but if executed correctly they can be successful.
Novel pain points are something that become interesting. Usually, the innovator needs some sort of inside insight into how business or processes are done. Then they solve it with software. Estimize, Riskalyze and PaletteApp are all companies in this category. Additionally, Estimize and Riskalyze take core academic Nobel Prize winning concepts and translate them into software that solves conundrums. They move the needle.
Innovation sometimes allows inventors to solve pain points that weren’t there previously. The advent of social media allowed LikeFolio to get started. Peter Lynch investment philosophy meets technology. Then, there are innovations that are highly technical in nature, like a microscopic sensor that transmits big data. The University of Illinois has tested these on arteries and veins inside human organs. All of a sudden, there is demand for a company to collate and analyze data 24/7 and generate probabilistic outcomes based on inputs.
At Stocktoberfest, legendary investor Andy Kessler called this, “investing in the fog”. If you are starting a company, and it’s as plain as the nose on your face to lots of people, then there is a high probability that it’s being done somewhere else. There is a high probability that it’s being done in many places.
Instead, look at the nooks and crannies of the world where no one is playing. Instead of chasing the next shiny object which is easy to see, chase things that are opaque.
Great innovation makes them transparent.
The information in this blog post represents my own opinions and does not contain a recommendation for any particular security or investment. I or my affiliates may hold positions or other interests in securities mentioned in the Blog, please see my Disclaimer page for my full disclaimer.
Jeffrey Carter is an angel investor and independent trader. He specializes in turning concepts into profits. He co-founded Hyde Park Angels one of the most active angel groups in the United States in April of 2007. He previously served on the Chicago Mercantile Exchange Board of Directors. He has done market commentary for (More...)
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