Peter Drucker on Why Entrepreneurs Reject Unexpected Success

Peter Drucker outlines four entrepreneurial pitfalls, starting with rejection of a new product’s success in a market that is different than was expected.

Peter Drucker: Why Entrepreneurs Reject Unexpected Success

When Peter Drucker passed away in November of 2005, Inc. Magazine assembled collection of articles, book reviews, and interviews from their archives entitled “Peter Drucker: an Intellectual Compass” to honor his legacy. The first one listed is longtime editor-in-chief George Gendron‘s interview “Flashes of Genius” for the May 1996.

Gendron’s introduction has a great analogy for what it was like to interview Drucker:

A friend who is a lifelong Drucker devotee and I were fishing the San Juan River in New Mexico recently when a violent thunderstorm hit. We stayed on the river until we could feel static electricity building in our fishing poles. Finally we ran for cover. “Remember you were asking what it was like interviewing Peter Drucker?” I asked. “Well, it’s a lot like holding a fiberglass fishing pole during a violent storm.” If you enjoy a bit of electricity in your life, the interview that follows offers an alternative to standing in a large body of water in the middle of a thunderstorm.

I have excerpted the sections related to the first of the four pitfalls for entrepreneurs that Drucker details: the rejection of unexpected success (note: in the original interview italics were used for emphasis, in this excerpt they have been replaced by bold text):

Drucker: Innovation requires us to systematically identify changes that have already occurred in a business — in demographics, in values, in technology or science — and then to look at them as opportunities. It also requires something that is most difficult for existing companies to do: to abandon rather than defend yesterday.

Drucker: There are actually four points — I call them entrepreneurial pitfalls — where the new and growing business typically gets into trouble. All four are foreseeable and avoidable.

The first comes when the entrepreneur has to face the fact that the new product or service is not successful where he or she thought it would be but is successful in a totally different market. Many businesses disappear because the founder-entrepreneur insists that he or she knows better than the market.

Inc.: So, often the entrepreneur is actually succeeding but doesn’t realize it?

Drucker: No, it’s worse than that. He or she rejects success. You want examples? There are thousands of them, but one of the best is over 100 years old.

A man by the name of John Wesley Hyatt had invented the roller bearing. He made up his mind that it was just right for the axles of railroad freight cars. Railroads traditionally stuffed the wheels of their cars with rags soaked in oil to handle the friction. The railroads, however, were not ready for radical change; they liked their rags. And Mr. Hyatt went bankrupt trying to persuade them otherwise.

When Alfred Sloan, the man who later built GM, graduated from MIT at the head of his class in the mid-1890s, he asked his father to buy him Hyatt’s small bankrupt business. Unlike Hyatt, Sloan was willing to broaden his vision of the product. It turned out that the roller bearing was ideal for the automobile, which was just coming to market. In two years Sloan had a flourishing business; for 20 years Henry Ford was his biggest customer.

Inc.: Good story, but is the rejection of success really all that common?

Drucker: I’d say that the majority of successful new inventions or products don’t succeed in the market for which they were originally designed. I’ve seen it again and again. Novocaine was invented in 1905 by German chemist Alfred Einhorn for use in major surgery, but it wasn’t suitable. Dentists immediately wanted the product, but the inventor actually tried to stop them from using it for the “mundane purpose” of drilling teeth. To the end of his days, Einhorn traveled all over the world preaching the merits of novocaine as a general anesthetic.

More recently, I know of a company whose founder created a software program that he was absolutely sure was what every hospital needed to operate smoothly. Well, the hospitals told him they weren’t organized the way he assumed. He didn’t make a single sale to a hospital. By pure accident, though, a small city stumbled over the program and found it was just what it needed. Orders began to come in from medium-size cities around the country. And he refused to fill them.

Inc.: Why do entrepreneurs reject unexpected success?

Drucker: Because it’s not what they had planned. Entrepreneurs believe that they are in control.

The entire interview is definitely worth reading. It borrows from Drucker’s Innovation and Entrepreneurship, also worth reading despite its 1985 publication date. The four pitfalls that he identifies in the interview are:

1. The new product or service is not successful where the entrepreneur thought it would be but is successful in a totally
   different market.
2. Entrepreneurs believe that profit is what matters most in a new enterprise. But profit is secondary. Cash flow matters most.
3. A successful firm outgrows its initial management base, typically by the fourth year of operation.
4. It’s when the business is a success, and the entrepreneur begins to put himself before the business.

Drucker closes with a pithy definition of an entrepreneur: someone who gets something new done.