Think of some entrepreneurs you admire, people who founded companies. Perhaps it’s Richard Branson of Virgin, or Mark Zuckerberg of Facebook, or Jack Ma of Alibaba.


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Think of some entrepreneurs you admire, people who founded companies. Perhaps it’s Richard Branson of Virgin, or Mark Zuckerberg of Facebook, or Jack Ma of Alibaba.

Then, think about the couple who opens a restaurant beside the local train station, or the guy who starts an office cleaning company by buying some cleaning contracts. Are they entrepreneurs?

Then, think about the couple who opens a restaurant beside the local train station, or the guy who starts an office cleaning company by buying some cleaning contracts. Are they entrepreneurs?


Peter Drucker, the great 20th-century management thinker, argued no. Although such people have exposed themselves to some risk, they’re simply going down a well-trodden path applying an existing model. No new product nor consumer segment is born.

Peter Drucker, the great 20th-century management thinker, argued no. Although such people have exposed themselves to some risk, they’re simply going down a well-trodden path applying an existing model. No new product nor consumer segment is born.


So, what is an entrepreneur? In his classic work Innovation and Entrepreneurship (1985), Drucker said that entrepreneurs have four characteristics.

So, what is an entrepreneur? In his classic work Innovation and Entrepreneurship (1985), Drucker said that entrepreneurs have four characteristics.


1) They substantially increase output from existing resources. 2) They create a genuinely new and different product or service. 3) They pave the way for new markets and new customer bases. 4) They pursue change and exploit it.

1) They substantially increase output from existing resources. 2) They create a genuinely new and different product or service. 3) They pave the way for new markets and new customer bases. 4) They pursue change and exploit it.


The core difference between entrepreneurs and managers: the manager is simply a good husband of resources, while the entrepreneur takes those resources and turns them into something much more valuable. Their role in the economy is transformative.

The core difference between entrepreneurs and managers: the manager is simply a good husband of resources, while the entrepreneur takes those resources and turns them into something much more valuable. Their role in the economy is transformative.


Is a traditional industry such as restaurants able to produce a real entrepreneur? Of course. Ray Kroc didn’t invent French fries, or the burger, but in replicating the McDonald brothers’ original model thousands of times, he brought incredible standardization to the fast food business.

Is a traditional industry such as restaurants able to produce a real entrepreneur? Of course. Ray Kroc didn’t invent French fries, or the burger, but in replicating the McDonald brothers’ original model thousands of times, he brought incredible standardiz

The streamlined service of McDonald’s made customers happy, greatly improved efficiency and created high profits. Again, that is the role of the entrepreneur: taking existing resources and turning them into some system or enterprise that produces astounding value.

The streamlined service of McDonald’s made customers happy, greatly improved efficiency and created high profits. Again, that is the role of the entrepreneur: taking existing resources and turning them into some system or enterprise that produces astoundi

Most people believe entrepreneurs are an adventurous bunch, but successful entrepreneurs are not focused on adventure and risk but on *opportunities.* Instead of taking crazy risks, real entrepreneurs try to control risks as much as possible. If they don’t, their innovation won’t succeed.

Most people believe entrepreneurs are an adventurous bunch, but successful entrepreneurs are not focused on adventure and risk but on *opportunities.* Instead of taking crazy risks, real entrepreneurs try to control risks as much as possible. If they don’

Entrepreneurship is essentially *purposeful and organized innovation.* Innovation is not a flash of the imagination or a kiss from a Muse. It’s a systematic science that can be learned by anyone.

Entrepreneurship is essentially *purposeful and organized innovation.* Innovation is not a flash of the imagination or a kiss from a Muse. It’s a systematic science that can be learned by anyone. 


Four characteristics of the entrepreneur

In his classic Innovation and Entrepreneurship, Peter Drucker lists several sources of innovation. These sources help innovators and entrepreneurs systematically grasp opportunities that come out of change – either within the industry or from outside it.

In his classic Innovation and Entrepreneurship, Peter Drucker lists several sources of innovation. These sources help innovators and entrepreneurs systematically grasp opportunities that come out of change – either within the industry or from outside it.


One source of innovation is ‘the unexpected’. When companies stumble upon some unexpected success, they usually wonder at their luck, take the gains and move on. This is a big mistake. Every unexpected success – or unexpected failure – can be the foundation of a whole new business.

One source of innovation is ‘the unexpected’. When companies stumble upon some unexpected success, they usually wonder at their luck, take the gains and move on. This is a big mistake. Every unexpected success – or unexpected failure – can be the foundati

In the 1950s, department store Macy's was seeing rapid growth in the number of home appliances being sold. But for a long time Macy's didn’t appreciate this change, because their focus was on the traditional fashion business. All they saw was that their main fashion business seemed to be endlessly shrinking.

In the 1950s, department store Macy's was seeing rapid growth in the number of home appliances being sold. But for a long time Macy's didn’t appreciate this change, because their focus was on the traditional fashion business. All they saw was that their m

It wasn’t until the 1970s, after more than a decade of persistent effort to revive their fashion merchandising, that a new Macy’s management team saw the light. They decided to change focus from fashion to making the most of home appliances. From then on, Macy’s slowly returned to prosperity.

It wasn’t until the 1970s, after more than a decade of persistent effort to revive their fashion merchandising, that a new Macy’s management team saw the light. They decided to change focus from fashion to making the most of home appliances. From then on,

An onlooker might wonder: how were the Macy's executives so stupid for so long? The answer is simple: “The unexpected success is a challenge to management’s judgment”, Drucker says – so it’s ignored.

An onlooker might wonder: how were the Macy's executives so stupid for so long? The answer is simple: “The unexpected success is a challenge to management’s judgment”, Drucker says – so it’s ignored.


Innovation can also mean ‘simplifying or standardizing a process.’ Kodak's founder George Eastman invented a new type of photographic film which eliminated the need for a photographer to carry a heavy glass plate when shooting. The innovation hugely simplified photography and made it possible for millions to do it.

Innovation can also mean ‘simplifying or standardizing a process.’ Kodak's founder George Eastman invented a new type of photographic film which eliminated the need for a photographer to carry a heavy glass plate when shooting. The innovation hugely simpl

Another kind of innovation is ‘process need’. This is about removing inharmonious links in a business process. For example, as battery power increased, electric cars became powerful and attractive, but the process need to make them really popular was availability of charging stations.

Another kind of innovation is ‘process need’. This is about removing inharmonious links in a business process. For example, as battery power increased, electric cars became powerful and attractive, but the process need to make them really popular was avai

In the US, Tesla solved this initially by making charging stations free and putting them across the American highway network. In China, there are now companies that have mobile vehicles that drive around charging cars. Solving a process need is like adding the final link in a chain.

In the US, Tesla solved this initially by making charging stations free and putting them across the American highway network. In China, there are now companies that have mobile vehicles that drive around charging cars. Solving a process need is like addin

Another source of innovation is ‘industry and market changes.’ The entrepreneur sees the way an industry is going and determines to be a part of the revolution. Transformations in the urban transport field have birthed Uber and (in China) Didi. Changes in the accommodation industry produced Airbnb. The revolution in retailing online produced Amazon.

Another source of innovation is ‘industry and market changes.’ The entrepreneur sees the way an industry is going and determines to be a part of the revolution. Transformations in the urban transport field have birthed Uber and (in China) Didi. Changes in

As Lei Jun, the founder of Chinese mobile phone maker Xiaomi, put it, “Even a pig can fly if it stands at the center of a whirlwind.” Constantly be on the lookout for the opportunities for innovation brought about by industrial and societal transformation.

As Lei Jun, the founder of Chinese mobile phone maker Xiaomi, put it, “Even a pig can fly if it stands at the center of a whirlwind.” Constantly be on the lookout for the opportunities for innovation brought about by industrial and societal transformation

Look for the unexpected success

We’ve looked at some sources of innovation, now let’s move on to practices.

We’ve looked at some sources of innovation, now let’s move on to practices. 


We tend to think it’s easier for a small business with a small team to practice innovation, but there are many innovative large companies, like Amazon, Google and Tencent. What really restricts enterprise innovation is not size, but how innovation takes place.

We tend to think it’s easier for a small business with a small team to practice innovation, but there are many innovative large companies, like Amazon, Google and Tencent. What really restricts enterprise innovation is not size, but how innovation takes p

The first step to create an atmosphere of active innovation within a company is by making it a process, a system.

The first step to create an atmosphere of active innovation within a company is by making it a process, a system.


Drucker says: “Entrepreneurship is not ‘natural’, is not ‘creative’, it is work…Entrepreneurial businesses treat entrepreneurship as a duty. They are disciplined about it…they work at it…they practice it.”

Drucker says: “Entrepreneurship is not ‘natural’, is not ‘creative’, it is work…Entrepreneurial businesses treat entrepreneurship as a duty. They are disciplined about it…they work at it…they practice it.”


The company's organizational structure must also reflect the spirit of innovation. It has to make sure that lines of accountability, incentives &amp; pay, and personnel decisions encourage innovative behavior.

The company's organizational structure must also reflect the spirit of innovation. It has to make sure that lines of accountability, incentives & pay, and personnel decisions encourage innovative behavior.


Sometimes, it’s easier to create new teams tasked with specific projects and give them resources and freedom. When Steve Jobs was developing the iPhone, he placed the iPhone project team in a separate building. Their work was strictly confidential and outsiders could not enter.

Sometimes, it’s easier to create new teams tasked with specific projects and give them resources and freedom. When Steve Jobs was developing the iPhone, he placed the iPhone project team in a separate building. Their work was strictly confidential and out

Innovation has a reputation for being ‘risky’, yet no company will survive unless it innovates. Embracing change and assiduously trying out different things is actually the best way to invest resources.

Innovation has a reputation for being ‘risky’, yet no company will survive unless it innovates. Embracing change and assiduously trying out different things is actually the best way to invest resources.


Drucker points to the amazingly successful record of constantly innovating hi-tech companies – Bell Lab, IBM, 3M (today, you would replace these names with the tech giants) – to see that this is true.

Drucker points to the amazingly successful record of constantly innovating hi-tech companies – Bell Lab, IBM, 3M (today, you would replace these names with the tech giants) – to see that this is true. 


Innovation is only ‘risky’, he observes, when so-called entrepreneurs “violate elementary and well-known rules”.

Innovation is only ‘risky’, he observes, when so-called entrepreneurs “violate elementary and well-known rules”. 


What are these rules? For innovation to be transformative, it must be 1) systematic, 2) managed and 3) purposeful.

What are these rules? For innovation to be transformative, it must be 1) systematic, 2) managed and 3) purposeful.


Innovation is work

Peter Drucker emphasizes throughout his classic book that innovation doesn’t need to be ‘high-tech.’ A key example is shipping. As world trade grew, demand for cargo transportation climbed. Ports struggled to move the mountains of goods that piled up. The initial solution in the shipping industry? Build more ships.

Peter Drucker emphasizes throughout his classic book that innovation doesn’t need to be ‘high-tech.’ A key example is shipping. As world trade grew, demand for cargo transportation climbed. Ports struggled to move the mountains of goods that piled up. The

This didn’t solve the fundamental problem. It was only the invention of the container, and the building of a logistics system around it, that enabled a quadrupling in world trade and reduced consumer costs. Some of the innovations in container shipping were technological, but by and large it was a managerial innovation.

This didn’t solve the fundamental problem. It was only the invention of the container, and the building of a logistics system around it, that enabled a quadrupling in world trade and reduced consumer costs. Some of the innovations in container shipping we

Management, or how things can be done better, is best appreciated as a ‘social technology’, or discipline like engineering or medicine. McDonald’s famed system, for example, was not ‘high tech.’ It was doing things in a different way, and in the process creating new value.

Management, or how things can be done better, is best appreciated as a ‘social technology’, or discipline like engineering or medicine. McDonald’s famed system, for example, was not ‘high tech.’ It was doing things in a different way, and in the process c

Many of the greatest innovations are a kind of social value creation e.g. insurance, the modern hospital, buying by instalment, the textbook. None involved technology to any great extent, but rather ingenuity. Something new was created out of existing resources.

Many of the greatest innovations are a kind of social value creation e.g. insurance, the modern hospital, buying by instalment, the textbook. None involved technology to any great extent, but rather ingenuity. Something new was created out of existing res

This is the essence of entrepreneurship as JB Say meant the word when he coined it in 1800. Say wrote: “The entrepreneur shifts economic resources out of an area of lower and into an area of higher productivity and greater yield.” This definition is still the best.

This is the essence of entrepreneurship as JB Say meant the word when he coined it in 1800. Say wrote: “The entrepreneur shifts economic resources out of an area of lower and into an area of higher productivity and greater yield.” This definition is still

The nature of the entrepreneur is to “upset and disorganize”, Drucker says. They act as a wildcard, generating wealth by dealing with uncertainty and with the unknown. They spot or imagine new services and products that exploit change or respond intelligently to change.

The nature of the entrepreneur is to “upset and disorganize”, Drucker says. They act as a wildcard, generating wealth by dealing with uncertainty and with the unknown. They spot or imagine new services and products that exploit change or respond intellige

Drucker quotes the economist David Ricardo: “Profits are not made by differential cleverness, but by differential stupidity”. Meaning: the most successful products or services are those which allow their users not to have to think. They save effort, money and time.

Drucker quotes the economist David Ricardo: “Profits are not made by differential cleverness, but by differential stupidity”. Meaning: the most successful products or services are those which allow their users not to have to think. They save effort, money

A good example: shaving had been a time-consuming, difficult and expensive business best left to barbers. Then, the cheap disposable razor was developed by King Gillette. Good innovations attract the comment, ‘Why wasn’t this done before?’

A good example: shaving had been a time-consuming, difficult and expensive business best left to barbers. Then, the cheap disposable razor was developed by King Gillette. Good innovations attract the comment, ‘Why wasn’t this done before?’ 


The purpose of innovation is to provide extra convenience, speed, safety, comfort or beauty where before it was lacking. Each era presents its own unique opportunities for innovation. You are never too late to innovate.

The purpose of innovation is to provide extra convenience, speed, safety, comfort or beauty where before it was lacking. Each era presents its own unique opportunities for innovation. You are never too late to innovate.


In our Internet and A.I. era, the ideas of business thinker Peter Drucker continue to shed light on what it means to be an entrepreneur and innovator. Now you know what an entrepreneur really is, and the powerful impact they have on society, is there anything stopping you from being one?

In our Internet and A.I. era, the ideas of business thinker Peter Drucker continue to shed light on what it means to be an entrepreneur and innovator. Now you know what an entrepreneur really is, and the powerful impact they have on society, is there anyt

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Program Manager at Memo’d and host of the Book Insights podcast. Non-fiction nerd specializing in all things marketing, design and communications.

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