Want Innovation? Lower the initial investment.

I read an article a few months ago where the author complained that there isn’t much innovation outside of web and mobile applications. I thought about what makes them special and came to the conclusion that their initial investment is extremely low. I’m part economists therefore investment shouldn’t just be viewed as monetary investment. There are different costs and factors. I will take web application development as an example for this reasoning.

Educational Cost These include the costs of learning the techniques of your trade. Today, you can build simple web or mobile apps in less than a year without previous knowledge of programming. For programmers it’s even faster, maybe two or one month.

Capital requirements This is was a business major understands under initial investment. In the case of a web app it’s probably a hosting space and a domain. Maybe $5 per Month.

Administrative Cost Do you need any special certificates or are they any regulations? For web apps there aren’t any special restrictions.

Social Cost of Failure I think this is an important factor in more risk averse cultures, like in Europe. Let’s say you build a web app for two months, launch it and it fails. OK, happens often, no big thing.

Let’s compare this to some other, less innovative, industries like mechanical engine design. The educational costs are high, often you need some sort of advanced degree. The capital requirements are tremendous, you’ll need a work shop with very expensive equipment and so are the administrative costs with insurances, worker safety. The social cost of failure is increased because of the high capital requirements.

So how can these factors be reduced? One thing are definitely hacker spaces or shared work spaces. BioCurious provides the required equipment for the biotech endeavors (capital requirements). Furthermore, they provide classes to learn how to use this equipment (educational cost). This will also lower the social cost of failure.

I can imagine that this concept will be transfered to other industries like mechanical engineering, chemical processing, etc.

#14/111: The Wizard of Menlo Park

What is it about?

Thomas A. Edison – the inventor of the modern world! Really? Randall Stross investigates Edison’s story and tries to find the real Edison. He doesn’t talk so much about the technical achievements, he rather focuses on Edison’s self-marketing. Showing how Edison exaggerated, told lies and played with the media.

Key points?

Famous doesn’t mean profitable: Edison got famous while working on the first version of the phonograph. But it took him four years for the first commercial version and another 20 years for the improved one.

It’s not about you: Edison’s life and business was about Edison. He wanted that the phonograph was used as a dictating machine. But the customers wanted to use his machine for music because its dictating abilities were pretty poor. It didn’t interest Edison, he was too pigheaded to commit himself to his customers.

Don’t try to control everything: Moreover it did not stop there. Henry Ford called Thomas Edison “the world’s worst business man” but it didn’t bother Edison. Also, there were so many opportunities which were missed. Furthermore, he had big problems operating his companies efficiently. While building his first power grid he needed about $30,000 per square mile to install the power lines, while his competitions only needed about $500.

Look into new fields: Edison worked in lots of businesses. From providing electricity to mining. He immersed in different fields which helped to stabilize his aura as the inventor of the modern world.

Conclusion

The stories are highly interesting because you see how he failed (See: Confessions of a Serial Entrepreneur) and you’ll learn about his most remarkable move: He built a strong relationship with important journalists how praised him continuously. He knew how to market himself.

In conclusion, Edison didn’t invent the light, but he did invent personal branding for business people.

#6/111: Confessions of a Serial Entrepreneur

What is it about?

Stuart Skorman tells about his business and private life. He started several companies in his life, worked as a band manager and played high stakes poker for two years. All in all a pretty adventures life.

Key points?

Choose your business idea/model on logic and profitability. He tried to make an educational business to give something back to the world but forget to make it profitable. Result: The business failed and he and his investors (family, friends) lost a lot of money.

Conclusion

This is one of the few books where people wrote a lot about the failures. This makes is very valuable. He excelled on his first company (video renting) because he loved movies, had enough information about the customer and the retail business. This example shows greatly that you should rather go for boring ideas than for clever, new, exciting ones, which will probably fail.