Competition vs. Innovation

There are some interesting thoughts in this New York Times opinion piece about a class at Stanford taught by Peter Thiel, the founder of PayPal.

Thiel says most capitalism is just competition. While competition gets people to create better and better mousetraps, it usually doesn’t lead to anything that’s truly creative or innovative. Only those who choose to play a different game and move into an obscure area, then create and dominate a new market, are innovating. (This is just my paraphrase, which I’m sure is inadequate. A student named Blake Masters posted an essay from his notes if you want to delve in further.)

From my perspective this is why most innovations are first seen as trivial and even laughed at. Only when a technology or service has dominated a new market does everyone change their tune and herald it as an innovation.

The best example of this is Twitter, which spearheaded and later dominated the trend of microblogging. Be honest. When you first saw Twitter, did you imagine that it could completely disrupt the way people received information about major news stories, or do a better job at it than blogging — another technology / movement that was initially laughed at? I know I didn’t. My first thought was that nobody could possibly share enough meaningful information in 140 characters to make a difference.

Was I ever wrong there! After the Arab Spring uprisings, we all see Twitter for what it is: a democratized, distributed media platform that’s often more effective than CNN. So much quality information is being shared as tweets amidst so much noise that a new class of companies are creating a journalistic / curation layer on top of it. Storify, FlipBoard and Zite are three of my favorites.

What does this mean for entrepreneurs or innovators within existing companies or organizations? First, we need to think differently about innovation. Are we stretching far enough to find truly new and innovative solutions to real problems, or just being 10% better than what’s already out there?

Second, we need to be comfortable with the prospect of our ideas being initially dismissed, or even laughed at. Once I started my own company I realized how much easier this is when you don’t have to constantly promote and defend your ideas with coworkers. You have to do that in the marketplace — which takes even more work — but the psychological effect of being ridiculed by a complete stranger isn’t quite as daunting as it is from someone you work with every day.

And third, we need to redefine the concept of failure. A failure is only real if you give up when one approach doesn’t work. This isn’t to say that failures in quality should be tolerated or encouraged, but in the effort to drive adoption among a target market and reach profitability, there are always course corrections that need to be made.

It’s an organic process that in most cases doesn’t result in world domination, but you learn a lot in the effort to get there. Eventually maybe you’ll even create the next PayPal — something Peter Thiel did only after he got off the competition bandwagon.