The Yin and the Yang of Corporate Innovation

NYT by STEVE LOHR

In the hunt for innovation, that elusive path to economic growth and corporate prosperity, try a little jazz as an inspirational metaphor.

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Minh Uong/The New York Times

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Peter DaSilva for The New York Times

In business as in jazz, the tension between training and improvisation can result in great new works, says John Kao, the innovation adviser (and pianist).

That’s the message that John Kao, an innovation adviser to corporations and governments — who is also a jazz pianist — was to deliver in a performance and talk on Saturday at the World Economic Forum in Davos, Switzerland. Jazz, Mr. Kao says, demonstrates some of the tensions in innovation, between training and discipline on one side and improvised creativity on the other.

In business, as in jazz, the interaction of those two sides, the yin and the yang of innovation, fuels new ideas and products. The mixture varies by company.

Mr. Kao points to the very different models of innovation represented by Google and Apple, two powerhouses of Silicon Valley, the world’s epicenter of corporate creativity.

The Google model relies on rapid experimentation and data. The company constantly refines its search, advertising marketplace, e-mail and other services, depending on how people use its online offerings. It takes a bottom-up approach: customers are participants, essentially becoming partners in product design.

The Apple model is more edited, intuitive and top-down. When asked what market research went into the company’s elegant product designs, Steve Jobs had a standard answer: none. “It’s not the consumers’ job to know what they want,” he would add.

The Google-Apple comparison, Mr. Kao says, highlights the “archetypical tension in the creative process.”

Google speaks to the power of data-driven decision-making, and of online experimentation and networked communication. The same Internet-era tools enable crowd-sourced collaboration as well as the rapid testing of product ideas — the essence of the lean start-up method so popular in Silicon Valley and elsewhere.

“These are business and management innovations lubricated by technology,” says Thomas R. Eisenmann, a professor at the Harvard Business School.

The benefits, experts say, are most apparent in markets like Internet software, online commerce and mobile applications for smartphones and tablets. “The cost of creation, distribution and failure is low, so it takes relatively little time, money and effort to float trial balloons,” says Randy Komisar, a partner in Kleiner Perkins Caufield & Byers, the venture capital firm, and a lecturer on entrepreneurship at Stanford.

That style of innovation is being applied well beyond Google’s products and Internet start-ups. The National Science Foundation, for example, is embracing the formula to try to increase commercialization of the university research it finances. Last fall, the foundation announced the first of a series of grants for what it calls the N.S.F. Innovation Corps. The 21 three-member teams received a crash course at Stanford in lean start-up techniques, and have been given $50,000 each and six months to test whether their inventions are marketable.

The lean formula, with its emphasis on constantly testing ideas and products with customers, amounts to applying “the scientific method to market-opportunity identification,” says Errol B. Arkilic, program director at the foundation.

Yet while networked communications and marketplace experiments add useful information, breakthrough ideas still come from individuals, not committees. “There is nothing democratic about innovation,” says Paul Saffo, a veteran technology forecaster in Silicon Valley. “It is always an elite activity, whether by a recognized or unrecognized elite.”

Successful innovation, Mr. Saffo observes, requires “an odd blend of certainty and openness to new information.” In other words, it is a blend of top-down and bottom-up discovery.

OPEN innovation isn’t a new idea. It flourished, in its way, even in the late 19th and early 20th centuries, notes Tom Nicholas, a historian at the Harvard Business School. In fields like electricity, pharmaceuticals and communications, big corporations including General Electric and Dow Chemical routinely monitored the research beyond their walls, and bought or licensed promising work, especially the inventions of university scientists. The result, Mr. Nicholas says, was a thriving “ecosystem of private and corporate innovation.”

A century later, the corporate labs at G.E. are trying to quicken the pace of innovation — but this is long-cycle innovation, since G.E.’s power generators, jet engines and medical-imaging equipment last for decades. The company is opening a software center in Northern California to make its machines more intelligent with data-gathering sensors, wireless communications and predictive algorithms. The goal is to develop machines, such as jet engines or power turbines, that can alert their human minders when they need repairs, before equipment failures occur. Such smarter machines, the company says, are early arrivals in what it calls the Industrial Internet.

To tap outsider ideas, G.E.’s research arm has made investments with venture capital funds in clean-energy technology and health care, and it works with corporations, government labs and universities on hundreds of collaborative projects. “We’re much more externally focused and connected to the outside world than we were several years ago,” says Michael Idelchik, G.E.’s vice president of advanced technologies.

Apple’s smartphones, tablets and computers typically have life spans measured in a few years instead of decades, with new models introduced regularly. But like G.E., Apple is in the hardware business, where innovation cycles are beholden to the limits of materials science and manufacturing.

Apple’s physical world is far different from Google’s realm of Internet software, where writing a few lines of new code can change a product instantly. The careful melding of hardware with software in Apple’s popular products is a challenge in multidisciplinary systems design that must be orchestrated by a guiding hand — though it will no longer be the hand of Mr. Jobs, who died last October.

Yet Apple has also repeatedly displayed its openness to new ideas and influences, as exemplified by the visit that Mr. Jobs made to the Palo Alto research center of Xerox in 1979. He saw an experimental computer with a point-and-click mouse and graphical on-screen icons, which he adopted at Apple. It later became the standard for the personal computer industry.

In 2010, Apple bought Siri, a personal assistant application for smartphones. At the time, it was a small start-up in Silicon Valley that originated as a program funded by theDefense Advanced Research Projects Agency of the Pentagon. Last year, Siri became the talking question-answering application on iPhones.

Apple product designs may not be determined by traditional market research, focus groups or online experiments. But its top leaders, recruited by Mr. Jobs, are tireless seekers in an information-gathering network on subjects ranging from microchip technology to popular culture. “It’s a lot of data crunched in a nonlinear way in the right brain,” saysErik Brynjolfsson, director of the M.I.T. Center for Digital Business.

Apple and Google pursue very different paths to innovation, but the gap between their two models may be closing a bit. In the months after Larry Page, the Google co-founder, took over as chief executive last April, the company eliminated a diverse collection of more than two dozen projects, a nudge toward top-down leadership. And Timothy D. Cook, Apple’s C.E.O., will almost surely be a more bottom-up leader than Mr. Jobs.

“What we’re likely to see,” Mr. Kao says, “is Google and Apple each borrowing from the playbook of the other.”

Peer Advisory Groups Will Throw You For A Loop

by Leo Bottary

A reinforcing loop that is. One of the most powerful dynamics of the peer advisory group is the momentum created when peers engage in a cycle of learning, sharing, applying, and achieving. Whether they

are executives with different skills sets from the same organization or CEOs collaborating with fellow CEOs from entirely different industries and backgrounds, they participate in a process that by its nature fuels continuous improvement. For larger companies, even those with robust formal training programs, internal peer advisory groups can play a major role in maximizing a company’s Return On Development. For small businesses, it’s often a brilliantly effective stand-alone solution for developing people and growing the enterprise.

The prevailing model in many large companies today is what I’ve described in earlier posts as Trickle-Down Leadernomics:Traditional episodic training designed to stimulate positive behavioral changes, aimed to build better leaders who inspire commitment rather than mere compliance, in an effort to create a healthier culture, a more productive workplace, and happier employees whom you hope will one day perform like a well-oiled machine and drive double-digit growth and profitability for years to come. (Notice the amount of “trickle-down” it takes to achieve the desired result).

The two big problems with Trickle-Down Leadernomics are 1) If you believe the axiom that “practice makes perfect,” then you would probably agree that what you learn in training, while inviting and practical, is not likely to find its way into your daily routine unless you have the discipline and support system to assure its application. And even then, short term behavioral changes tend to give way to old habits. 2) Since most companies don’t have a formal mechanism for helping individuals share and apply what they’ve learned, the organization by definition gets shortchanged. It’s a bit like planting a garden and not giving it water or sunlight.

Believe it or not, I’m a HUGE fan of formal executive development, which is the reason I can’t stand to see so much of it go to waste. That’s why I believe the reinforcing loop inherent in a highly functioning peer advisory group is worth some thoughtful consideration:

Learning – It’s the first stage of the process and, for too many organizations, it’s often the last. In Peter Senge’sbook, The Fifth Discipline: The Art & Practice of the Learning Organization, he describes learning organizations this way: “…where people continually expand their capacity to create the results they truly desire, where new and expansive patterns of thinking are nurtured, where collective aspiration is set free, are where people are learning how to learn together.” Senge goes on to say that we wouldn’t suggest we learned how to ride a bicycle if we only actually rode the bike once. It’s about demonstrating the capacity to produce quality results repeatedly. It’s the difference between riding a bike and being a bicycle rider. Peer advisory groups create bicycle riders by fostering deep learning.

Sharing – Whether it’s knowledge gained from reading a book or attending an offsite training program, sharing delivers value to our peers and colleagues and, in our role as teacher or conveyor, helps us embed what we’ve learned. Peer groups not only engage in rich dialogue about cutting-edge concepts, but the group members tend to ask hard questions and challenge each other to tackle complex issues using their newfound knowledge. Peers reinforce and essentially give each other permission to try new ways of working. As I wrote last week, peer to peer influence is incredibly powerful.

Applying – It’s hard to stress the importance of applying what you’ve learned. Can you imagine a football team showing up for a game without having practiced? It’s unconscionable. The best of the best don’t rely on talent alone to excel or win championships. They take what they learn and apply it until it becomes second nature. Peer groups hold us accountable for practicing our craft and fine-tuning news ways of working.

Achieving – Good behaviors will replace bad ones, but only over time and after repeated success. Achieving inspires believing. And once you believe in yourself and grow to trust a newfound way of working, it fuels the hunger to learn more and the cycle continues. Achieving also inspires others to emulate your behavior. Jim Kouzes and Barry Posner call it modeling the way! As a CEO you can model the way for your peers and your employees and, as leaders in larger companies, you can do the same. It’s about walking the talk and others following your lead. There’s nothing more powerful.

If you don’t mind getting thrown for a loop, then you’re an excellent candidate for either joining an external peer advisory group or starting one in your organization. If you’re planting the garden anyway, why not help it grow?

Why You Need an Advisory Board

An outside perspective is critical to building the future of any business, big or small.
By Karl Stark and Bill Stewart | @karlstark

As we built our business from a bedroom start-up to an Inc. 500 company, our priorities were creating a differentiated offer to our customers, building a world-class team, and managing cash flow to keep us afloat as the business grew.

The last thing on our minds was building an advisory board.

Advisory boards, we reasoned, was something that big, slow-growth companies have. We could get around to creating one after we took care of the more important business at hand.

We were wrong. Every company can benefit from a well-structured advisory board. External advisors bring networking opportunities and much-needed advice, but most importantly they bring something that is priceless to any successful business: an outside perspective.

One of our clients is a large, publicly-traded technology company, with a highly profitable business. They are no stranger to rapid growth, with revenues having risen from less than $100 million in 2002 to more than $1 billion last year. But guess what: they need an advisory board!

They have a business model that will be stable for years to come, but given the evolution of cloud computing, they also have some major opportunities for reinvention. As is true of many fast-growth companies, they are fraught with the innovator’s dilemma and have a strong incentive to stick close to their core business–a strategy that conflicts with the new paradigm and market opportunities offered by the cloud.

This is the problem when management teams that have incentives to maximize the core business are also expected to create a disruptive technology in a new space. For our client, winning in the cloud space will likely require strategic acquisitions and solid R&D investments. But to do this in a new paradigm, they need an outsider’s perspective. Specifically, they need a view that is removed from their core business.

A well-structured advisory board would provide this perspective. An advisory board can make critical contacts with CEOs of potential acquisitions and get real-time market knowledge of the start-ups that are currently working toward disrupting their core business. The right advisors will think about market transition as a start-up rather than an established company.

Our company is in the same boat. Seven years after founding the firm, we are finally getting around to building an advisory board. In fact, when we mentioned it to one client last week, he said, “I thought I was already a member of your advisory board.” That was a sign that we are behind the eight-ball. We need to move our company to the next plateau. And an advisory board will be critical to getting us there.

Location, Location, Location: The Strategy of Place

via Harvard Business Review

When companies thrive in their home base, temptation can be great to expand to new locations, either across town or around the world. The problem: Many companies think of geographic strategy as a short-term checkers match rather than as a long-term chess game.

"Many companies don't understand that what works in one location may not work somewhere else."

"The decision to expand is sometimes driven by the wrong reasons," says Associate Professor Juan Alcácer, who teaches in the Strategy Unit at Harvard Business School. "In many cases companies are not thinking of the long-term consequences of what they are doing."

Such snap decisions can result in geo-mistakes that sap energy out of an organization and cause it to lose focus on what it was doing well in the first place.

Geographic expansion should provide access to a fresh market and to additional resources. But companies that take a strategic view also realize that the new territory should increase a firm's competitive advantage by complementing and adding value to its current business.

After all, the strategic value of a new location depends on three things, Alcácer says: the strength of available resources, such as nearby supporting industries; the company's ability to seek and retrieve knowledge in this setting; and its capability to do something better than competitors.

An example of a firm playing tactical checkers instead of strategic chess is one that decides to expand simply by finding the cheapest places to open up shop; Alcácer says it's a mistake to allow low costs to completely override other factors.

"You should not only think about whether there's a market there or cheaper labor," he says. "You also have to think about what your competitors are doing, whether it's the right time to enter or exit that location. Reducing your costs might not provide you with a competitive advantage at all."

Walmart has been a smart expander since it opened its first store in Rogers, Arkansas, in 1962. Sam Walton slowly branched his growing enterprise to other small rural towns, where the retailer was able to outmaneuver mom-and-pop competitors. The management team again waited until they had developed enough resources before going head-to-head in suburban areas against big-box retailers like Kmart.

Timing is critical

A crucial consideration for managers to get right early on is whether the business can afford to spend the required resources—especially when it means siphoning time and attention away from an existing successful business.

"When you open a new operation, it requires not only money but also the time and energy of managers to make sure it's going the right way, and that means you can't focus as much on the base business back home," Alcácer says.

In addition to making sure the resources are in place, corporate strategists must decide which locations to target. Companies often blindly follow their rivals from city to city or country to country without analyzing whether that same situation is right for them. Many businesses that jumped on the China expansion bandwagon are now sorry they made that move, says Alcácer. "They are realizing that they were not well prepared for the market or that it wasn't the right market for them."

Alcácer advises companies to consider sending an advance team to live in a target locale to research the market and business models before expanding.

Another problem with following competitors: an increasing risk that those rivals will gain insight into your operations and even poach highly skilled workers. Sometimes it's best to avoid following the herd and seek out an original niche.

That was the road taken by animation studio Pixar, which established itself near the mudflats of Emeryville, across the bay from San Francisco. Pixar deliberately steered clear of LA, where the bulk of the movie industry resides. Alcácer says that when Disney bought Pixar in 2006, Pixar executives asked to remain based in Northern California because they didn't want the company's culture to be negatively affected by the culture in Southern California.

In some industries, however, executives believe they don't have much choice but to cozy near the competition, especially when they need to plug into unique knowledge that exists in certain areas. Biotech companies, for instance, often operate close to top-notch universities to interact with scientists and cutting-edge research that could potentially feed growth, even if their competitors are also on the same block. Detroit and Silicon Valley, likewise, provided valuable clusters of talent and suppliers where, Alcácer realized, "whenever you saw one firm, you saw the other ones."

In an effort to keep key information from spreading around town, firms operating in these types of highly competitive environments need to maintain strong internal linkages between units and create a culture of collaboration among workers across distances, according to the working paper Local R&D Strategies and Multi-Location Firms: The Role of Internal Linkages, by Alcácer and Minyuan Zhao of the University of Michigan's Ross School of Business. By internalizing its innovations better and faster than nearby competitors, a firm can gain lead-time and a stronger competitive product position in the market.

A company can also prevent pilfering of key information by cutting a project into pieces and shuffling the parts piecemeal to workers in different regions. Alcácer says this model can work like a "need-to-know" spy operation, in which certain information is assigned to specific employees, who are not privy to the whole picture.

Going global

Expanding operations to another country brings a whole new set of complications, says Alcácer. For one, businesses that expand internationally need to adjust their offerings to a completely different market since each country has its own "knowledge profile."

"Companies often don't consider adapting products to the different markets," he says. "Successful companies that expand assume that by doing the exact same thing they are doing in the home market, they will be successful overseas. But many companies don't understand that what works in one location may not work somewhere else. We tend to believe that technology has made us homogeneous, but distance matters. Countries are different; consumers are different. People in India are different than the people in the United States."

Vodafone learned that lesson the hard way. The London-based telecommunications venture initially forayed into Japan on a learning expedition to better understand the country's sophisticated consumers, but was soon captivated by the established market. The exploratory mission quickly morphed into sell mode. Vodafone bought handsets used in Europe in bulk and tried to introduce them in Japan. Unfortunately, Japanese consumers were hooked on a completely different technology, forcing Vodafone to abandon ship after a few rocky years.

"Vodafone needed to study the Japanese handset," Alcácer says. "When you enter a market to provide a service or product and try to learn at the same time, these two [goals] can be conflicting. You can successfully do both at the same time, but you need to be conscious of the two activities."

Another consideration for an international expansion is that the resources required are greatly magnified, and success might only make matters worse in the short run. "When you start to expand overseas, you often see a negative effect on your operations back home. You are literally going through growing pains, and the more quickly you grow, the more likely you are to have problems."

About the author

Dina Gerdeman is a writer based in Mansfield, Massachusetts.

Why I Decided to Join Vistage: A Member's Perspective

By MP MUELLER

BRANDED

An insider’s guide to small-business marketing.

As kids, when we used to wrestle and play around, we had an expression for when someone had you pinned, and you were in enough pain that you wanted to concede — you would yell, “calf rope!” The rodeo term is not one I have used in running my business. At least not until recently.

When I started my advertising business 17 years ago in Austin, Tex., I knew I needed to learn some things about running the business. A steady diet of self-help, business and motivational books taught me just enough, and my instincts took over from there. And then luck kicked in. We eventually grew to more than $8 million a year in annual revenue. But the lingering effects of the recession left me scrambling a bit late last year when many of our clients cut their ad budgets for the second year in a row.

There was a time when I could check the bank account balance monthly, and things would always work out. Those days are over. More recently, whenever my staff looks to me for answers, I dance as fast as I can and try to make it look effortless, but the answers that come out often sound hollow. Gradually, I have accepted that I need some new financial tools. I have to start making better projections and paying attention to the right ratios. I need to get some advice on when to pull the trigger when hiring additional employees.

These thoughts had been building for some time, but something really clicked when, in an exit interview, a departing employee asked, “Why hasn’t this company grown more?” This person clearly had been expecting a bigger career arc here. And, it bothered me that we hadn’t managed to produce one. We have never expanded meteorically like other agencies. Of course, we have never had layoffs either, something that is very important to me. But why haven’t we grown more? I came to the conclusion that maybe I didn’t know what I didn’t know.

Yes, I was in need of some real time, real world advice. And while friends and family are wonderful and well-meaning, I have learned it’s best to stick to questions like, “How do you grill a turkey?” So, last fall, I began to think again about joining a business group, the kind where you meet regularly with other owners and talk about what’s working and what isn’t.

I had been approached a few years ago to join Vistage by a client who belonged. I attended one session and decided it wasn’t a good fit or investment. At the time, the meetings seemed a bit too structured for me, and I didn’t really connect with the group chair. Three years, and a recession later, a guy who serves on a nonprofit board with me and whose business acumen I respect, encouraged me to meet with his Vistage group chair.

I was first vetted over drinks by a couple of the group’s members, a tradition they use to conduct chemistry checks. The checks, I learned, are important in a group that reveals all to one another with a pledge of complete silence to the outside world (a pledge I will not violate in these posts). As we were leaving, these two personable, accomplished businessmen gave each other a hug and said, “I love you man.” Somehow, as I contemplated becoming the only woman in a group of men, that openness reassured me. Of course, I was also impressed by a 2010 Dun & Bradstreet analysis (pdf) that showed Vistage member companies in the United States had grown between 2005 and 2009 at an average annual rate of 5.8 percent while other D&B companies had declined at an average annual rate of 9.2 percent. Sign me up.

The concept of Vistage is to gather chief executives from complementary businesses into small groups. There is a group chair, usually a former chief executive who enjoys mentoring others, who organizes the monthly all-day meetings, and who also meets monthly with each member one-on-one for an hour and a half or so to offer individual coaching. When I first met our group chair, Bill LaRosa, a native New Yorker and a former global semiconductor executive who dresses Savile Row but with handmade, exotic leather cowboy boots, I was a little hesitant. Could my small business benefit from someone who had spent much of his time in huge corporations?

It turns out it could. Bill sees his business group as extended family, sincerely wants you to succeed and is truly on the leader board for smarts. For all of his corporate experience, his demeanor is closer to that of a counselor or therapist. He never tells you what to do; he leads you to a logical course of action through a series of smart questions. Recognizing that success is holistic, our one-on-one and group meetings always start with a numerical assessment — one for poor, five for great — of how each member is doing in three areas: health, personal and business. In our one-on-one sessions, we sometimes spend more time talking about family matters than business. And there’s a release in that, too. Getting feedback on personal matters can free your mind to focus better on issues that affect your business more directly.

The fact that I am the only woman in this group has had its advantages. Much of my thinking and communications style is high-touch relationship centered. While this can be a strength, I also recognize it has shortcomings. I want to assimilate a more direct approach. At one point, the group asked how I felt about cursing. I responded with a sentence that included some four-letter evidence that I’m O.K. with it. It was a bonding moment.

Part of the appeal is the supportive honesty. While I encourage people at the agency to be honest with one another and with me, I know there’s always a tendency to hold back a bit around bosses. It’s been refreshing to have someone say, as Bill did, “I’m not going to accept that, MP. What is it I’m not understanding?” I think it was in response to my saying that I didn’t know what to do about a certain business challenge. Deep down, of course, I really did know. But I needed someone to tell me that.

More on what I’m getting from my Vistage experience in my next post.

MP Mueller is the founder of Door Number 3, a boutique advertising agency in Austin, Tex. Follow Door Number 3 on Facebook.

How Do You Pick the Right Business Group?

By JAY GOLTZ

There are many variables to consider before you join a business group. The harsh reality is that whether you spend $100 per year or $13,000, business groups can provide a mediocre experience. If you’ve read my other posts, you know I’m a veteran (and a dropout) of four groups, which I think leaves me well positioned to suggest some questions you should ask yourself and the group before you decide to join:

1. Why exactly are you joining? There are no good or bad groups — just the right or wrong groups depending on your goals and your needs. Are you looking for people to compare notes with, to do some networking with, to commiserate with occasionally? If so, a Chamber of Commerce group might do the trick. But please don’t think this is the same as a professionally run group that spends an entire day examining all aspects of a business from its financials to its sales plans. There is also a huge difference between running a $1 million business and running a $1 million business that you want to turn into a $10 million business. Try to be honest with yourself about whether you will be comfortable spilling your business guts to a group of strangers. Do you really want input? Or do you just think you want input?

2. Who, if anyone, will be running the meetings? Does the person have the right background, experience and training to do a great job? Are you comfortable with the person? Is there a one-on-one component?

3. Will there be outside speakers? Are they paid? How are they chosen? What topics have they covered in the past?

4. Are there any events, Webinars, or other opportunities to meet other people and see other things?

5. Where and when are the meetings? Are you confident that you will be able to attend on a consistent basis? I have seen numerous problems with people who planned to attend but frequently had to miss meetings.

6. How many people are in the group? How often do they add new members? What are the qualifications to join? How many meetings can you miss before it becomes a problem?

7. What do they do, if anything, to ensure that all of the members contribute? This can be ugly. A nice person shows up at every meeting but has nothing to contribute or for whatever reason doesn’t participate. What do you do? Remember, you might be spending about $1,100 and a day of your life to sit through a meeting with this person who has little ability to help anyone else, or doesn’t take anyone’s advice and continues to make the same mistakes year after year. Maybe you are nicer than I am, but I have a problem with this. Business can be cruel. I want to be in a group that has some mechanism in place to maintain the quality of the experience. I have seen first hand what happens when the expertise of a group gets dragged down. The better people leave. Just like a business. And that’s the point: to be well run, a group has to be run like a business.

8. How much will this kind of feedback be worth to you? I cannot emphasize this enough. If you can’t make back the $13,000 cost many times over, you are in the wrong group. If your company is small and you can’t handle $13,000 per year, there are cheaper options that are available that are probably a good start. But again: a networking group is not a business advisory group. Sure, there can be an element of networking, but the primary function of an advisory group is to educate or advise the chief executive on how to run a better company.

I know there are many groups around the country that people are very happy with. Please feel free to give us your 2 cents.

Jay Goltz owns five small businesses in Chicago.

What's an Entrepreneur? The Best Answer Ever

This classic 25-word definition pares entrepreneurship to its essence and explains why it's so hard. And so addictive.
By Eric Schurenberg | @EricSchurenberg

As an entrepreneur, you surely have an elevator pitch, the pithy 15-second synopsis of what your company does and why, and you can all but repeat it in your sleep. But until recently, I’d never seen a good elevator pitch for entrepreneurship itself—that is, what you do that all entrepreneurs do?

Now I've seen it, and it comes from Harvard Business School, of all places. It was conceived 37 years ago by HBS professor Howard Stevenson. I came across it in the bookBreakthrough Entrepreneurship (which I highly recommend) by entrepreneur and teacher Jon Burgstone and writer Bill Murphy, Jr. Of Stevenson’s definition, Burgstone says, “people often need to say it out loud 50 or 100 times before they really understand what it means.” Here it is:

Entrepreneurship is the pursuit of opportunity without regard to resources currently controlled.

I talked to Stevenson about his classic definition this weekend. Back in 1983, he told me, people tended to define entrepreneurship almost as a personality disorder, a kind of risk addiction. “But that didn’t fit the entrepreneurs I knew,” he said. “I never met an entrepreneur who got up in the morning saying ‘Where’s the most risk in today’s economy, and how can I get some? Most entrepreneurs I know are looking to lay risk off—on investors, partners, lenders, and anyone else.” As for personality, he said, “The entrepreneurs I know are all different types. They’re as likely to be wallflowers as to be the wild man of Borneo.”

By focusing on entrepreneurship as a process, his definition opened the term to all kinds of people. Plus, it matched the one demographic fact HBS researchers already knew about entrepreneurs—they were more likely to start out poor than rich. “They see an opportunity and don’t feel constrained from pursuing it because they lack resources,” says Stevenson. “They’re used to making do without resources.”

The perception of opportunity in the absence of resources helps explain much of what differentiates entrepreneurial leadership from that of corporate administrators: the emphasis on team rather than hierarchy, fast decisions rather than deliberation, and equity rather than cash compensation.

What would you expect, asks Stevenson: When you don’t have the cash to boss people around, like in a corporation, you have to create a more horizontal organization. “You hire people who want what you have and not what you don’t have,” Stevenson says. In other words, entrepreneurs offer their team members a larger share of a vision for a future payoff, rather than a smaller share of the meager resources at hand. Opportunity is the only real resource you have.

Or, as Burgstone puts it:

Every time you want to make any important decision, there are two possible courses of action. You can look at the array of choices that present themselves, pick the best available option and try to make it fit. Or, you can do what the true entrepreneur does: Figure out the best conceivable option and then make it available.

And that, folks, is what makes entrepreneurship so friggin' hard. And so friggin' necessary.

Eric Schurenberg

Eric Schurenberg is the editor of Inc.com. Before joining Inc, Eric was the editor-in-chief of CBS MoneyWatch.com and BNET.com and managing editor of Money Magazine. As a writer, he is a winner of a Loeb Award and a National Magazine Award. He is a regular commentator on Nightly Business Report on PBS.

@tomcuthbert

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