Entrepreneurship is not always innovative – on the meaning/referent of innovation

Some readers might ask themselves why in my entry on defining entrepreneurship I put “new” good in quotes and why I didn’t include innovation as one of the concepts related to entrepreneurship. The reason is that I don’t believe all entrepreneurship is innovative. Actually, innovativeness needs to be qualified, as I discuss below.

Many entrepreneurs set up businesses which are just the copy, imitation or replication of existing businesses in the same geographical area. That is the case for many service businesses such as retail, hospitality (hotels), bars and restaurants, fast-food service, coffee shops, movie theaters, barbers, … An important fraction of them even do so through franchises, which are an explicit contractually-based and enforced replication of an existing business formula. This is also the case in manufacturing industries such as textiles or car making, even though there might be some degree of innovative differentiation relative to the existing supply in a given territory.

In many instances, entrepreneurs do not innovate even relative to their own experience but they just decide to replicate what they have seen in prior job experiences and employers.

Actually, I believe that when talking about innovation, it is capital to define what is the referent that the newness of a good or practice is assessed relative to. Ideas can just be new relative to one own’s experience, or they can be novel relative to the local environment (neighborhood, district, city,…) or to a broader geographical or industry domain (see Castañer & Campos, 2002). These are very different kinds of innovations. For instance, the potentially substitutive or Schumpeterian role of innovations might only exist when newness is relative to the local or broader environment and not just relative to the individual or organization’s history.

Castañer, X. and Campos, L. (2002). “The Determinants of Artistic Innovation: Bringing the Role of Organizations”. Journal of Cultural Economics, 26: 29-52.Reprinted in Towse, R. (ed) (2007), Recent Developments in Cultural Economics. Edward Elgar.