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The uncertainty of innovation

As well as in-depth knowledge of their chosen field, entrepreneurs need to be emotionally prepared for adversity

Arthur Vergani

Although more and more young researchers are creating startups, the experiences of entrepreneurs who have struggled with their business are rarely discussed. “Everyone hears about the success stories, but it must be remembered that many successful entrepreneurs experienced failures beforehand,” says Mario Sergio Salerno, from the Production Engineering Department at the University of São Paulo’s Polytechnic School (POLI-USP) and coordinator of the Innovation and Competitiveness Observatory at USP’s Institute for Advanced Studies.

As well as being able to translate scientific knowledge into a business opportunity, entrepreneurs need to be prepared to deal with risks and uncertainties. “It is essential to highlight the difference between these two aspects, which are often confused by new entrepreneurs, who end up preparing only for risks,” he notes. According to Salerno, risks can be defined as situations where the likelihood of an undesirable event can be calculated. Uncertainty, meanwhile, is something that cannot be predicted—requiring the entrepreneur to deal with unforeseen emergency situations. Salerno, who recently started a research project on managing uncertainty in innovation, is also one of the authors of the book Gestão da Inovação Mais Radical (Radical innovation management; Elsevier, 2018), which is about creating competitive advantages based on how new business platforms are structured.

The production engineer addresses another frequent challenge involving the concepts of discovery, invention, and innovation. He defines discovery as a physical or scientific concept that needs to be validated by society. Invention is considered as a physical and intellectual construction, which in most cases, results in a design or prototype. But what entrepreneurs really need to pay attention to is innovation and the market viability of their product. “Innovation is an economic concept—simply discovering or inventing something new is not enough. You have to think about whether it can feasibly be produced and sold in accordance with current economic rules,” he explains. “That’s where a lot of entrepreneurs get lost when structuring their business.”

In pursuit of success, there is something very important that people often do not consider when starting a new venture: setbacks are a valuable experience that can help develop your career. As well as financial losses, entrepreneurs often suffer psychological distress when startups fail. In a 2015 survey of 242 entrepreneurs in the state of California, USA, 49% of respondents reported having experienced episodes of depression and anxiety. The study, conducted by researchers at Stanford and the University of California, found that exposure to stress as a result of entrepreneurial activities can lead to attention deficit, hyperactivity, and bipolar disorders in predisposed individuals.

Innovation is an economic concept. Simply discovering or inventing something new is not enough, you have to think about whether it can feasibly be produced and sold, says Salerno

After graduating from INSPER, economist Henrique Leal Teixeira, 28, felt the pressure of uncertainty in his working environment. After a few years in the financial sector, he accepted an invitation from an old college friend in 2014 to join a travel and tourism startup called Easytown. The company has invested in personalized travel planning and tourist itineraries. Assuming the position of chief financial officer, Teixeira soon realized that despite the significant funding obtained from 15 investors, the company was operating with high expenses and had no defined product. “At first, we didn’t know enough about the industry yet, whether to work with advertising, content production, or travel planning itself,” he explains. For Teixeira, the ease with which the company managed to raise a large amount of capital was actually one of its biggest problems. “When I arrived, the company already had a large office space, eight directors, and a big marketing budget, but no financial return,” he says.

Over time, given the excessive costs of the company’s early stages and the difficulty creating a product, the early backers stopped investing. With the drop in funding, Teixeira and his partner had to put in money from their own pockets. “I invested about R$100,000 of my own money,” he says. Another challenge highlighted by Teixeira is that no one at the company had any previous knowledge of the tourism industry. They lacked an understanding of the market, which led to problems when making decisions. “It is important to be aware of the particular elements of every sector, because anyone who doesn’t know the industry will find it difficult to recognize situations of uncertainty,” he explains.

Starting Your Own Business
1. Find out as much as possible about the market in which you want to operate
2. Analyze the performance of the industry’s leading companies
3. Learn how to differentiate risks (foreseeable challenges) from uncertainties (unpredictable situations)
4. Design different uncertainty scenarios and plan how to react if they occur
5. Study the future prospects in your line of business. In most cases, trends are set by major companies

The experience was traumatic. “I suffered from serious depression, I didn’t want to leave the house or see my friends anymore. I had to get psychological help,” he says. Currently working at an e-commerce startup investment fund, Teixeira uses his experience to help make decisions and advise new entrepreneurs. “Now I can see that failure was important, because it gave me a new understanding of things,” he says, noting that today he prefers to work with smaller budgets and less stress. “There is a lot of pressure from investors when a company receives a lot of funding.”

Business administrator Andre Losada Pereira, 28, has also learned lessons from failure. After graduating from INSPER, he invested in his own business in 2013, when he and a partner realized the potential for innovation in the health food distribution industry and founded Origem Alimentos. “We started with the production and distribution of gluten-free bread, and we soon noticed that other companies were interested in logistics processes for these kinds of products,” he says. Pereira then began to invest in selling and distributing health foods manufactured by third parties. In 2018, the company had 60 employees and a portfolio of 2,700 clients in the city of São Paulo. But a few months later, business started to go downhill. After the truck drivers’ strike and the resulting nationwide food and medicine supply crisis, many consumers stopped buying products they deemed superfluous, and the company ended up folding.

“My mistake was investing all of our money in stock, which left us unprepared to face such a crisis,” he explains. Since then, he has been striving to learn from his mistakes. Currently working with a restructuring consultancy, he uses his entrepreneurial experience to help advise other companies. “It was a very difficult process that actually made me question my own competence, but today I know that this kind of situation is faced by many entrepreneurs.”

Redefining strategies
Another challenge commonly faced by young entrepreneurs is the need to reorganize and change their business strategy, known as pivoting. “It’s like changing the tires of a moving car,” says Fernando Paes Lopes, 27. With a degree in mechatronics engineering from POLI-USP, he is one of the founders of MVisia, a startup created in 2012 and incubated at USP’s Center for Innovation, Entrepreneurship, and Technology (CIETEC-USP).

The company created an automated visual classification system that has gone through several changes. Initially designed to identify ornamental plant seedlings, the system was then adapted to eucalyptus seedlings, then sugarcane, and finally, grape tomatoes. “Although the technology has been well accepted, the costs of developing specific equipment for each crop made it more difficult to scale up production,” explains Lopes.

MVisia now focuses solely on manufacturing smart cameras to monitor industrial processes, such as quality control and product counting. “These obstacles are typical of entrepreneurship, but they can teach you important lessons that help you deal with other uncertainties that may arise in the future,” he adds.

Uncertainty management in innovation (nº 15/26662-5); Grant Mechanism Thematic Project; Principal Investigator Mario Sergio Salerno (POLI-USP); Investment R$859,020.82.