Innovation is the specific tool of entrepreneurs, the means by which they exploit change as an opportunity for a different business or a different service.” – – Peter Drucker
Over half of businesses are doomed to fail. Just Google various statistics, or approach government agencies and you can get an idea of how difficult it is to succeed.
But over half even before the pandemic? While that may seem discouraging, just don’t immediately assume the failure rate is as high as 90%. I still believe in business, and refuse to have confirmation bias and even encourage my own people to go into business ventures.
Why Do Most Negosyos Fail?
Let us investigate. Why is it that despite many going into entrepreneurship, the failure rate of businesses remains high? Many reasons have been cited, the most common being the following:
- Lack of financing
- Ineffective marketing
- Incompetent management
- Ignoring competition
From three decades of consulting and mentoring entrepreneurs, I can tell you that these are the wrong reasons. These are just symptoms and not root causes. I will argue that the root cause, at least for the above four symptoms, is an overall lack of innovation orientation. Let us revisit each of them:
- Lack of financing – Why should someone invest in a business that is simply parity or “gaya-gaya” when a lack of innovation means profits may not soar in the future?
- Ineffective marketing – When a business has minimal differentiation other than cheaper prices, how else will they market their products?
- Incompetent management – Who will tell entrepreneurs that without innovation and planning a robust value chain, they will suffer from the law of double jeopardy? That is, lower prices coupled with higher costs. Consequently, instead of gaining prosperity, their small margin will squeeze them out of it.
- Ignoring competition – How can firms be different in a different way, when there is a gap and a lack of understanding of how business design or business models can help create value and differentiation through innovation. Ignoring their competition like this can result in a lack of scale and growth progression, a whole new symptom of a deeper problem.
A deeper dive into the next funnel will help us examine how schools, government and NGOs are addressing this need for entrepreneurial education to address the lack of innovation.
First is related to who is teaching entrepreneurship, and what is being taught in entrepreneurship.
In K-12 senior high schools, most entrepreneurship teachers I have encountered do not have their own business. In fact, they are not allowed to, because it may be a violation of the terms of their employment contract or treated as conflict of interest, even if it will enhance their competencies as entrepreneurship teachers. These teachers have little experience as entrepreneurs, with many not even having work experience other than academia. How can we properly develop future entrepreneurs under this reality? It is for this reason that our new subsidiary Sensei Business Academy (www.senseiacademy.net) has started teaching innovation skills to high school and college students, among other subjects not taught in schools like influencing skills, problem solving and decision making, and more.
For practitioners teaching neophytes, the orientations, tools and frameworks they use must be updated. We have noticed many entrepreneurs, namely mentees who came to Day 8 Business Academy (www.day8.org), Mansmith and Fielders’ social enterprise foundation for SMEs offering subscription based learning as low as P1,688 a year, could not pass 3 tests of value proposition, explain how they plan to create value through their value chain, or how they plan to be innovative. Instead, much of what they previously know is to offer lower prices because “they are micro enterprise!” This is flawed logic that mentors and educators must help them change.
A Ready Solution Amidst the Pandemic
I learned from former Namfrel chairman Jose Concepcion Jr. that “It is better to light a candle than curse the darkness.” I promised to do just that by making it easy for everyone to learn, and ended up producing a total of 55 videos in 4K quality on the topic of the Business Model (aka Designing a Business), with 4 videos dedicated to an introduction to designing a business, 18 videos about marketing, and 25 videos about operating (including 5 videos about the critical missing link of value chain, often confused as supply chain) and 8 videos on innovation. This was done in collaboration with 10 major Filipino companies, which comprise 40% of the videos as our case studies. Kindly check our digital platform, Continuum Academy (www.continuum-edu.com) for details, a public service all for the low price of a good book.
Mindset and Mastery: What Can Be Done
In my view, two of the most important fuels needed by entrepreneurs are Mindset and Mastery. They are like the alpha and the omega for entrepreneurs. The pain point of lack of innovation should now be included in the mindset entrepreneurs need to master. How innovation is reconfigured and linked in the entire business model must be understood.
In our Mansmith seminar “5 Skills of Master Strategists,” I shared the 5 commonalities of successful entrepreneurs and businesspeople as featured in my book “The Rainmakers: Marketing and Strategy Lessons From 25 Top CEOs” (2017).” This book broke all-time launch sales records in the Philippines, with 800% more orders in the first two hours than the typical business book launch, and went on to be included in the bestsellers list for many months. Thanks to those who believe in what we shared.
In the book, we shared the first of five skills entrepreneurs and strategists must master is sensemaking while the fifth is innovating, the result of sensemaking and discovering. “Sensemaking is about seeing present day matters and how people behave and decide based on their current needs; innovating is about achieving the desired state that addresses people’s unmet needs tomorrow.” The way an entrepreneur does sensemaking depends on his or her mindset or belief system, which in turn is influenced by how he or she is affected by his subconscious pattern of adaptation. Meaning, if one were to simply price low rather than innovate in business, no matter how simplistic that can be, that is what they will keep practicing as a result of their mindset!
Mastery, on the other hand, is equally important because it is the last gate in an entrepreneur’s journey to prosperity. Self-Mastery is the ability to take control of one’s life and not be a slave to paralyzing thoughts and behaviors. Having a correct mindset is a prerequisite to self mastery. To get unstuck from an old mindset, you need to inject the new belief system, an insight, a new truth, that innovation offers a firm better value than low prices do. Even offering low prices requires a thinking process of what to abandon from existing practices to gain lower cost structure. After all, other than product innovation, there is process innovation, as well as business model innovation.
Classic Advice From Peter Drucker
As 2020 comes to a close, let me remind all entrepreneurs, as well as stakeholders helping entrepreneurs, of another famous quote from Peter Drucker: “In order to grow, a business must have a systematic policy to get rid of the Outgrown, the Obsolete, the Unproductive.”
Instead of making yesterday last a little longer, many will have to abandon old mindsets that are actually obstruction to the growth of entrepreneurs and entrepreneurship!
So what will you stop doing and start doing in 2021?
Josiah Go is the author of the Mansmith Business Model Map with 11 building blocks. He is the course designer of the 55-video Business Model Course available in Continuum Academy (www.continuum-edu.com)