The Anatomy of Innovation: Lessons from Silicon Valley

Bill Reichert is a Partner, at Pegasus Tech Ventures, a global venture capital firm headquartered in Silicon Valley and with offices around the world. Pegasus has over $2 billion of capital under management and invests in a very broad range of market sectors

One of the most important lessons we have learned about innovation over the past few decades is that innovation is not the same as invention. And innovators are not the same as inventors. When it comes to entrepreneurship and venture capital, innovation is more important than invention, and innovators typically make better entrepreneurs than inventors.

20th Century Era of Invention

A long time ago – in the middle of the last century – corporations and governments looking to innovate built large R&D teams consisting of PhDs, then stick them in a separate building, or a university lab, and tell them to invent new technologies. From this approach we got jet engines, computers, transistors, televisions, tape recorders, cell phones, and the Internet – among many other world-changing inventions.

21st Century Era of Innovation

Fast forward to the new century and consider the companies that dominate the world of technology and dominate the top ranks of the Fortune 500. Apple, Google, Microsoft, Meta, Airbnb, and Uber. What did these companies invent? None of these companies built their success on technologies that they invented. Apple did not invent the microcomputer; Apple didn’t invent the mouse, or WYSIWYG, or laptops, or MP3 players, or even smartphones or smart watches. Microsoft did not invent the microcomputer operating system or any of the productivity applications we use that carry the Microsoft name. Google did not invent search. Meta did not invent social media. Airbnb did not invent couch-surfing. Uber did not invent gypsy cabs.

 

Innovation Builds on Invention

This is not to say that invention is not important. We need basic research and scientific breakthroughs to enable the products and services of the future. But the scientific research that led to the breakthroughs of the last 75 years required many years of toil and collaboration. The research and inventions that enabled supercomputers and global telecommunications networks and new generations of life-saving drugs and vaccines were generally the result of a combination of government-funded programs and private company research. But most of the value that has been created from these inventions has not accrued to the original inventors.

Sure, there are a few companies that became successful because of their inventions. But it is stunningly difficult to name more than a few. Motorola invented the cell phone. Intel invented the microprocessor. Cisco invented the network router. Many, more companies, however, became successful by leveraging the inventions of others into novel commercial products.

The lesson is clear: The technologies on which the billion-dollar companies of the next ten years will be built are already out there. The challenge – for corporate executives, for entrepreneurs, for investors – is to identify the market opportunities for commercial products that these new technologies can enable. The microcomputer, the Internet, the cell phone, CRISPR, and blockchain have spawned thousands of successful companies that learned to leverage those technologies.

Invention vs. Innovation

This is the distinction between Invention and Innovation. Invention is the creation of a new technology. Innovation is the novel application of a technology, or combination of technologies, to create a new solution that solves a problem or meets a need. You can quibble with the precise definition of each, but the key point is that invention is what enables innovation, and Innovation is what creates the most value when it comes to developing new products or services and building successful companies.

Inventors vs. Innovators

This distinction is further illuminated by the difference between an inventor and an innovator.

 

Sometimes we meet entrepreneurs who are inventors. They are convinced that they have come up with a new technology or solution that will disrupt a multi-billion-dollar market. Frequently, they come from the school of thought, “build a better mousetrap, and the world will beat a path to your door.” A voice has whispered to them in their dreams, “if you build it, they will come.” Unfortunately, these entrepreneurs are primarily focused on having the world acknowledge the brilliance of their invention.

 If a prospective customer does not see the brilliance of their invention, it is because the customer is either blind or stupid.

Of course, I’m exaggerating, but I hope you get the point. This mindset is problematic if you want to build and scale a successful company.

"Invention is the creation of a new technology. Innovation is the novel application of a technology, or combination of technologies, to create a new solution that solves a problem or meets a need."

The other type of entrepreneur that we meet are innovators. They have a product or service that they think will fulfill a significant market need or want. If a prospective customer does not see the brilliance of their product, their reaction is to find out why not, and then adjust to meet the broadest and deepest customer need. If necessary, they will throw out their current product and start all over. Or go after a different target market.

The Secret of Innovation

The point is that innovators are committed to their customers, not to their products. This is the insight that led Silicon Valley to emphasize the “customer-centric” mindset of innovators, and to be wary of the “product-centric” mindset of inventors.

The secret to successful innovation is to focus on the customer, not on the product or the technology. As much as we love inventors and inventions, we invest in innovators and innovations.