What Innovation Demands

What does innovation mean in business?

Before answering, we have to separate two very different beasts that get lumped together under "starting a business".

On one side, you have the small business built around predictable returns. On the other, you have startups (the "what on earth do these kids even do all day?" variety). On paper they look similar, but from day one they walk different paths.

Let’s start with the part everyone cares about: the money.
The dividing line is predictability. Can you forecast returns on capital using settled market comps? If so, you are building a small business. If you have no idea whether a market even exists and returns are impossible to project, you are running a startup. [1]

To anyone outside that bubble, the whole premise sounds absurd:

Wait, you call yourself a company, but you don't even know if this makes a dime? Isn't the whole point of a business to, you know, MAKE MONEY?

What drives someone to step into that void? Entrepreneurship.

The Difference

A small business sets up shop where innovation already ran its course. The playbooks exist, customer habits are fixed, and unit economics are bounded. When you open a cafe or an auto repair shop, you do not need to invent new human behavior; you fight for a slice of existing demand. That is a red ocean. Competition narrows to location, margin squeeze, and ad spend: a war of attrition where deep pockets outlast everyone else.

A startup exists to attempt that missing piece: innovation. That is why we call them ventures. They are not running settled formulas; they are expeditions into the dark. [2]

Which brings us to the core question: what does innovation mean here?

Innovation Is Birth

Innovation is birth. It is bringing something into existence where nothing stood before. [3] The rare teams that succeed open brand-new territory: a blue ocean where no competitor has set foot.

If only birth were gentle.

Pulling new things into the world demands labor and pain. In the East Asian root character for venture creation (chang, 創), the word carries two meanings: to originate from nothing, and a wound cut by a blade.

Watch a machine learning agent learn to walk inside a physics engine: it stumbles, crashes, and resets millions of times. Watch a toddler learn to stand: dozens of hard spills against the floor every day. Look at water molecules forming ice crystals: they collide millions of times before locking into a crystal lattice.

We all nod along to the idea that failure is inseparable from innovation, yet whenever we stumble, we treat it like an embarrassment we should have avoided. [4]

"Find a Blue Ocean." Easier Said Than Done.

Innovation comes with countless failures. Cruelly, it feeds on those failures to produce something that actually works in the real world: true value. Paradoxically, innovation is failure. Countless products must appear and vanish, teams must endure painful restructuring, and entire companies have to rise and disappear just to yield that value.

That is why I consider "Don't go into a red ocean, go find a blue ocean!" some of the most irresponsible advice in the world. A small business operates where that cycle of death has slowed down or faded away. People enter expecting predictable income, only to find themselves fighting a daily war of attrition just to survive. [5]

What Entrepreneurship Costs

So what is entrepreneurship?
It is producing that innovation.

And what does producing innovation mean?
Failing again and again.

And what is repeated failure?
Dying.

Stripped bare, entrepreneurship is the refusal to fear failure. It is the willingness to die.

So if you have a founder friend building something where you have no clue what they do all day, go buy them coffee and pat them on the back. They are dying daily, driven by the conviction to give birth to something this society needs.

The philosophical divide between a small business owner and a startup founder comes down to the question they ask themselves:

• Small business owner: 'How much do I put in, and what do I take home? What expenses can I cut to widen margins?'
• Startup founder: 'What problem in the world demands solving, and is it worth betting years of my life and eating endless failures just to fix it?'

Whoever seeks to preserve his life will lose it, but whoever loses his life will keep it.

➔ Why pursue innovation in the first place, and what does it bring? More on that in the next post.

[1] Paul Graham defined it: "A startup is a company designed to grow fast."

[2] This is why startups carry the label "ventures": they are expeditions into uncertainty rather than executions of known formulas.

[3] Peter Thiel described this dynamic as going from "zero to one".

[4] Jeff Bezos wrote in an Amazon shareholder letter: "Failure and invention are inseparable twins."

[5] Red oceans or blue oceans, making a buck is brutal either way. No wonder everyone complains.