Some of the biggest entrepreneurial fortunes have accrued to people who have started businesses to take advantage of a radical technological change.
Google is probably the most notable recent example — Internet search clearly was a radical change in the way people look for information and Google’s founders certainly have made a lot of money from their business.
Identifying a radical technological change and capitalizing on it with a start-up isn’t easy to do. You need to find a radical technological change that disadvantages incumbent firms. If a new technology comes along, but existing firms are able to transition to it fairly easily then you aren’t going to be very successful as an entrepreneur. We saw a lot of Internet start-ups fail when the existing firms they were founded to compete against figured out how to migrate some portion of their businesses to the Web.
Even if you know that radical technological change is coming and will some day transform an industry, you will only be successful as an entrepreneur if you can figure out when that change will occur:
- If you start too early, you will be saddled with an inferior technology that hasn’t yet reached the point where it is competitive with existing alternatives and probably run out of cash before it does, as happened to the first generation of entrepreneurs in VoIP.
- If you start too late, other people will move up the learning curve, develop a first mover advantage, and get the prime customers before you.
Then there is the problem of picking the right technology. We all know that something will replace the internal combustion engine as the technology to power cars. But what will it be? Electric cars? Plug-in hybrids? Fuel cell-powered vehicles? Biofuel-powered cars running on excess grease from fast food restaurants? Something else?
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According to VentureBeat, there are 30 companies that have been founded to sell electric cars. According to Wikipedia, at least two start-ups are investigating or producing plug-in hybrids. Other entrepreneurs have started companies to make fuel-cell powered and biofuel-powered cars.
And then there is the issue of incumbent firms. The major automakers all have programs in place to come up with vehicles powered by these and other technologies.
I don’t know when the gasoline-powered car will be replaced, which technology will replace it, or what company will be the one that succeeds at this effort. I don’t even know if an entrepreneur starting a new company or a major automaker will be the one to lead this change.
All I know is that if an entrepreneur picks the winning technology, gets the timing right, and makes a lot of money off the transition, he or she will be put on the cover of Fortune, Forbes, and BusinessWeek and will be hailed as a business visionary.
Of course, identifying entrepreneurial visionaries after the fact is easier than identifying them in advance. Anyone want to try predicting who he or she is today?
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About the Author: Scott Shane is A. Malachi Mixon III, Professor of Entrepreneurial Studies at Case Western Reserve University. He is the author of eight books, including Illusions of Entrepreneurship: The Costly Myths that Entrepreneurs, Investors, and Policy Makers Live By; Finding Fertile Ground: Identifying Extraordinary Opportunities for New Ventures; Technology Strategy for Managers and Entrepreneurs; and From Ice Cream to the Internet: Using Franchising to Drive the Growth and Profits of Your Company.