Inventors Turn Cash into Ideas. Innovators Turn Ideas into Cash.

In business circles, "inventor" has become a bit of a dirty word. Why?

When I think of inventors, I think of mad scientists from the movies of my youth: Emmett "Doc" Brown from Back to the Future, Hoyt Axton from Gremlins, or Belle's dad Maurice from Beauty and The Beast. Eclectic, optimistic dreamers with a penchant for creating clever new solutions to life's little problems. They're lovable, if not exactly successful.

On the flip-side you've got a character like Robert Downey Jr.'s Tony Stark (a.k.a. Iron Man). An inventor if there ever was one, Dr. Stark leaves us with a decidedly kicked-up "genius billionaire playboy philanthropist" vibe. Why is that? Well, leave it to an anonymous Wikipedia user to capture the essence of the distinction as well as I've ever seen:

"Invention is the conversion of cash into new ideas. Innovation is the conversion of new ideas into cash." ~63.45.89.104 (Wikipedia, 2009)

Tony Stark isn't an inventor. He's an innovator.

New and Improved

Innovation is the worst kind of board-room buzzword. Like her wicked stepsisters LeverageSynergy, she's become a catch-all, at risk of connoting everything and nothing all at once. Everybody knows they want it, but few know precisely what they're going on about.

After spending nearly 2 years working to develop a sophisticated (read: overly complicated) definition of innovation for my old firm, I am happy to report that I've since recovered my sanity and settled on a simpler definition.

Something is innovative if it is both new and improved.

That's it: New and Improved.

New and Improved may be a simple definition, but it's not simplistic. Let's take a look.

NEW vs. new

Broadly speaking, there are two kinds of "new" ideas:

1. NEW: New-To-World.
2. new: new-to-you.

Precious few concepts are NEW. Objectively novel thinking tends to be the product of deep expertise and extreme specialization. My friend Dr. Mark Grechanik taught me that PhD's are awarded for fundamentally new work that expands the boundary of human knowledge.

While NEW work is both noble and necessary, it's also typically costly, complicated, and anything but investor-friendly. This is a big part of the reason why most of the amazing IP developed at universities struggles to see the light of day: Scientists and academics get their energy from discovery... not business development. More Emmett Brown than Tony Stark.

NEW ideas move human knowledge forward, but more often than not, the creative application of existing ideas to different problem spaces moves business forward. Thanks to Atul Gawande's 2011 book The Checklist Manifesto, The standard pre-flight checklist, a no-brainer in aviation since 1935, became a sweeping sensation in global healthcare. Tesla has made standard procedures from the software industry appear revelatory to the auto industry. As author William Gibson told the Economist in 2003: "The future is already here - it's just not evenly distributed."

We get jazzed when we see businesses that creatively cross-pollinate a proven solution from Market A with a problem-worth-solving from Market B. "Pandora for News". "Skype for Hiring". [Proven_Solution] for [Novel_Context].

The point is this: Investors are looking to maximize upside, not novelty, and so we typically favor "little-n-new" business plans to NEW ones. Your venture doesn't need to be employing New-To-World revelations at every turn to be successful. Rather, you just need to be more novel than your competition in the eyes of your customers. No one else matters. Don't burn cleverness cycles trying to impress your haters (they're irrational), the media (if it bleeds, it leads...) or the IRS (creative accounting is an oxymoron and never ends well...)

Improved

"Improved" is a measure of relative value. You can't claim something is better than something else without specifying the specific dimension that you're measuring.

Is my child better than yours? Most would say that's an unanswerable (and rude!) question. I'd say that it simply depends on what we're specifically measuring. Height? Speed? Grades? Flexibility? Facial Symmetry? Church-Attendance? Bass-Fishing-Success-Rate?

The ascendance of data science has shown us that even the most abstract and qualitative attributes can be measured given enough effort and cleverness. In turn, I believe that an entrepreneur needs to build their business in pursuit of measurable superiority vs. the alternatives they're out to displace.

Every company stresses their feature-level superiority relative to their competition. We've all seen the cliched table wherein Company A shows how they outgun Company B in not just 1, but in fact 5 critical categories. Never mind that Company B touts a similar chart, only with their own carefully selected (ahem, arbitrary) categories that play to their own strengths.

Everyone will tell you how why their "child" is best, if they're free to choose their own criteria.

This is why your business case must ultimately ladder up to a value proposition rooted in the only two apples-to-apples metrics that matter to everyone: Time and/or Money. Superior business plans lay out a superior customer value prop, concretely described in time or dollars saved. Period. Inferior plans cite interesting vagaries and feel-good abstractions.

In their classic book "Freakonomics", Steven Levitt & Stephen Dubner looked at thousands of real estate listings, and learned that blurbs with factual, measurable descriptors like "granite, maple, and 3,150 sq. ft" regularly priced higher than those with squishy, immeasurable superlatives like "charming!, unique!, and cozy!". The takeaway: Offerings without much going for them retreat to fuzzy qualitative descriptors. Winners walk softly and carry a big stick (full of hard data).

Bottom Line: Be (little-n) new and (a whole lot) improved.

Investors favor companies that creatively apply proven ideas to new problem spaces in new ways that are a measurable improvement over existing alternatives. "Improvement" should be concretely expressible in customer money and/or time saved.