Innovation and Entrepreneurship Need Effective Marketing, Not Just Money

Article first published as Marketiing as a Driver of Innovation and Entrepreneurship on Technorati.

Although finance and investing seem to be the darlings of federal efforts to spur innovation and entrepreneurship in the US, marketing deserves a seat at the table.  Of course, the administration wants to increase innovation and entrepreneurship because they represent the best hope for improving the economy, reducing unemployment, and balancing trade.

Yesterday, I attended a public session of the National Advisory Council on Innovation and Entrepreneurship (NACIE) where plans for encouraging innovation and entrepreneurship were discussed.  Among their recommendations are:

• Tax incentives for Investors including a 30% tax credit – Angels and VC
• Capital gains exclusions for money invested in small businesses and held at least 5 years.
• Reduced or NO taxes on the profits of small businesses for a short time to allow them to reinvest funds in operations and growth.
• Improved technology transfer from Universities and Federal labs.
• Speeding up the patent application process to guarantee approval within 1 year for patents (for an additional fee).
• Improve federal grant approval process for SBIR (Small Business Innovation Research) and STTR (Small Business Technology Transfer).
• Reduced capital gains taxes on later-stage investment in innovation and entrepreneurship.

Missing from this discussion, however, was a discussion of how marketing can help entrepreneurial businesses.

How Marketing Can Drive Innovation and Entrepreneurship

If you think about it, there are 2 ways businesses get the funds they need to operate — financial activities and marketing activities.  Unfortunately, NACIE only focused on financial activities in stimulating innovation and entrepreneurship.

Even in the early stages, before the firm has a product to sell, there’s still a role for marketing to play in driving innovation and entrepreneurship.  Most people think of marketing as just advertising, but there’s a lot more to marketing and these elements can help new small businesses develop successful models.

Consumers Buy Solutions, Not Products

Think about it.  Do you really buy a product — whether its a car or toothpaste? Not really.  What you buy is a solution to your problem.  You need to get from 1 place to another — buy a car.  You need a symbol of success — buy a luxury car or sports car.  Need clean teeth — buy toothpaste.  We don’t buy these products for themselves, we buy them because they solve a problem (or maybe several problems).

Finding problems then solving them generates success (profits) for small businesses.  Not doing so, accounts for much of the failure rate for new products (up to 90%).

Entrepreneurs should focus on discovering consumer problems and solving them — not innovating just because the technology exists or they think it is cool.  I once worked on a new product feasibility study for a company (NDA says I can’t give specifics).  They had developed a new B2B product and hired us to test consumer acceptance of the product.  Our study showed consumers didn’t NEED this product and the innovative features designed into the product not only didn’t create value for them, but they saw the new features as a negative — more things to break.

Marketing, especially marketing research and marketing strategy, offer tools to help discover unmet consumer needs.

Understanding Consumer Behavior

• Adoption of innovations. Marketing contains an entire sub-area related to adoption of innovations including a list of factors that increase chances an innovation will be adopted.
• Consumer confidence. Whether consumers FEEL confident about their world contributes greatly to their planned purchases.  When they don’t feel confident, they don’t buy things — it doesn’t matter that things are getting better (or worse), its how consumers fell things are going.
• Positioning and target marketing. Who will be most likely to buy the innovation?  What are their hot buttons — the things that drive them to buy?  An entrepreneur maximizes the potential of her innovation when she clearly targets a particular segment of consumers and positions the product in a way that resonates with them.
• Other marketing concepts. Certainly, other marketing aspects impact the success of the firm in selling their products.  Concepts such as psychological pricing and promotional tactics such as integrated marketing communications, influence, and social media all impact firm success.

Actions to Boost Innovation and Entrepreneurship Using Marketing

• A clearinghouse linking entrepreneurs with marketing talent should be established.  I run Ask a Marketing Expert (look for events) where every Friday anyone can ask marketing questions and get answers from experts who attend.  A more systematic approach is needed.
• Link university marketing department with entrepreneurs for class projects, internships, etc.
• Offer forgiveness of student loans to marketing students who take jobs below market salaries to help small businesses or start one.
• Encourage marketing and advertising agencies to do pro-bono work for small businesses with tax incentives.

What are your ideas?

Members of the Council are some pretty high powered folks including serial entrepreneurs, university administrators, and business folks from companies like AOL, Boston Consulting Group and others.  The session was hosted by Howard University School of Business and featured Gary Locke, the Secretary of Commerce