Entrepreneurs vs. Innovation

There are many books written about innovation and guides to help entrepreneurs, but what is the difference?  Does one need to be innovative to be an entrepreneur or have entrepreneurial talent to be innovative?

One of the most entrepreneurial corporations historically has been Citibank, particularly in the international field.  Citi had offices in far flung Buenos Aires and Shanghai before there were telephones or air travel.  The local manager had to be entrepreneurial.  I was Citi’s country executive in Sweden, Ireland, and Singapore in the 1980s and it was still that way.  We had an expression that “sometimes its easier to ask forgiveness later for a decision than to get approval before.”

I also had the excitement and challenge of starting and leading an Internet business with a gang of entrepreneurs.  While there are overlaps,  they are two quite different activities.  Entrepreneurs don’t fit in corporations, even innovative ones.  Entrepreneurs have a dream, not necessarily an innovation, and they want to be independent and see if they can create it. Having a boss is difficult for an entrepreneur.   Innovative managers in corporations who leave to start their own business find it to be a completely different world.

Innovation is creativity and thinking out of the box.  It generally is not associated with management levels and is driven by a minority of employees at lower levels in an organization.  Think of a lab as compared to a founder and owner.  Thomas Edison and Leonardo DaVinci were innovators and inventors.  Ted Turner and Craig McCaw were entrepreneurs.

When I was Citi’s country executive in Ireland in the early 1980’s the currency option market was just getting started.  Our creative treasury team in Dublin wanted to launch an Irish Punt option, but did not know how to cover the unlimited risk of writing an option.  We had local trading limits that allowed risk taking, but not unlimited risk taking.

What the group came up with was a very innovative approach that had the market wondering how we could take these unlimited risks.  Here’s how it worked.

When a call option for, say, 1 month was written and a fee charged, the strike price and position were entered with the FX trading desk as if they had decided to take a position.  If the option was in the money (it would be economic to exercise), the treasury desk would make sure they had a long position ready to deliver the Punts.

If the option was out of the money (it would be uneconomic to exercised), the treasury desk sold the position and was out.  This meant that we had the Punts in our position if the option would be exercised, and did not if it would not be exercised.  The risk was then if the exchange rate fluctuated around the strike price.  If it did, we would incur small losses/costs going in and out which would use up the fee charged the customer.  However, there was no “unlimited” loss.  This risk was acceptable and we launched the first local Punt/USD options in Ireland to the mystery of the other market participants at the time.  That’s innovation.

An example of executive entrepreneurial action was when Inter.net in Brazil created Apartnet (renamed Fastbee) in 2001.  Broadband had become available in Brazil, but not yet for consumers.  Clovis Lacerda, then country manager for Inter.net in Brazil, developed a technology to distribute broadband to individual apartments within a high rise building using the existing copper wiring.  He organized broadband to be connected to target buildings and created the delivery, billing, and portal for bringing it to individual apartments within the building.  A new company was established to build the business and, with over 200 high rise apartments connected in Brazil, went on to form businesses in Panama and Argentina.  That’s an entrepreneur.

Of course there is an overlap between innovation and entrepreneurs, but understanding the distinction between the two  is important for executives committed to winning in the Internet age.  Innovation will be as important as ever, but an entrepreneurial attitude at the top will be required to be a winner and builder of shareholder value..

 

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