Happy Thursday, 👋
Over the past 70 years, technology has changed what startups build and how they build it, but one basic principle of business has remained consistent. In his 1954 book The Practice of Management, Peter Drucker identified innovation and marketing as the two basic functions of a business. We can express that concept as a simple formula:
Innovation+ Marketing = Business
This simple formula can often get lost among the numerous books, conferences and other guides discussing how to launch a startup. The process of starting a business can often feel overwhelming, especially for those who have little exposure to the operational side of a company.
Drucker’s observations provide a useful and straightforward reference point for founders. From the beginning, a company needs to create something new or meaningfully better (Innovation) and develop a way for customers to adopt it (Marketing). Keeping these two aspects in focus during the early stages of a company can often be more helpful than a stack of business startup books.
Beginning With Innovation
The simplest way to define innovation in the context of the formula is developing a new or better way to solve a customer problem. The key is delivering meaningful value beyond what the customer can achieve with their current approach. An improvement or innovation might involve a new technology, a simpler process, or a more economical way to deliver a service.
As we previously discussed in Problem First, the reason for developing an innovative product should remain connected to the problem it addresses. A founder should understand who experiences that problem, how they deal with it today, and where the existing approach falls short. That understanding gives the innovation a purpose and the team a way to evaluate early progress.
Marketing Begins With The Customer
Marketing begins with understanding the customer’s priorities, then determining how to reach the right customers and turn their interest into demand for a product or service. In an earlier Insight, Path To The Customer, we discussed how marketing extends beyond advertising. A website, launch announcement, or social media post may help attract attention, but customers still need to understand why the product matters and whether its benefits justify the effort and cost of adopting it.
Understanding how customers make purchasing decisions, what they are willing to pay for, and what prevents them from adopting a product also provides feedback to further refine the product. Marketing therefore begins while the product is taking shape and continues as customers start using it.
Not Just 1 + 1
The equation is simple, but combining innovation and marketing does not automatically produce a successful business. The two functions need to work together, forming a continuous loop in which each informs the other. Understanding that relationship is what makes the formula a useful reference beyond the initial idea or product launch.
Customer conversations help shape the initial innovation. As the product reaches customers, their feedback and behavior reveal where it delivers value and where it falls short. What the team learns drives further improvements, which may also change how the company explains the product or which customers it pursues. Both parts of the equation need to keep advancing as the team learns what makes customers willing to adopt and continue using the product.
As investors, we look for teams that put this relationship into practice. A strong technical team that overlooks customer feedback may focus on features which are unimportant to customers. A capable marketing team may understand what customers need but struggle to retain them if the company cannot deliver the necessary improvements. We look for evidence that customer feedback influences product decisions and that the team evaluates whether those changes improve customer adoption and continued use.
Final Thoughts
The complexities of launching and running a business can feel overwhelming, especially for someone who has a great idea but limited operating experience. Drucker’s framework gives founders a way to step back and evaluate where their attention is going. When a team becomes absorbed in the details, it is worth asking whether the work is improving the value of the product or helping customers understand and adopt it.
Businesses face complexity from the beginning, and growth brings additional demands. Keeping innovation and marketing in view gives founders a consistent way to evaluate those demands as the company develops. For founders, the challenge is to keep the growing complexity of the business from obscuring its two essential responsibilities: innovating and marketing.
Wishing everyone a great weekend,
-Eric.