Dog and Cat. Coffee and Tea. Great Gatsby and Catcher in the Rye. Everyone knows there are two types of people in the world. What are they? Inspired by an alumna of the Class of 2006

This was one of the essay topics for the University of Chicago, back when I was first applying over two and a half years ago. It was an interesting question, but ultimately not the one I chose to answer. Today, though, I want to consider the two types of companies there are.

I believe most companies, but especially startups, can grouped by their key differentiating factor – broadly speaking there are only two types. A company can either by more innovative than their competitors, or they can execute better than their competitors. Now, certainly, most companies must do both to succeed and there is quite a large amount of overlap. But when you dig down deeper, a company’s main value is in either execution or innovation, rarely both.

Speaking of startups, a common mistake of many entrepreneurs starting out is to think of themselves as innovators. It’s not surprising, considering the entire mythos that has taken root, especially in recent years, of the entrepreneur as the heroic, creative pioneer. It’s a comforting mindset, and an easy one to fall into. So many of the startups of the last decade that have become ingrained in our culture – Facebook, Twitter, etc. – do indeed represent companies that are more within the innovative sphere. But the problem of course is that with 600,000 new companies every year in the US alone, not all of them, will be Facebook or Twitter, or come anywhere close.

Part of it is luck, but the other part of the problem is that the vast majority of companies and startups are just not innovation-centric companies. Most businesses must rely on distinguishing themselves from the competition by executing their strategy better. Certainly they will be different from their competitors in many, many ways – maybe it’s the ideas, the team, the resources, the location, or anything else really. The thing is, no matter how many little differences there may be, the vast majority of companies are not fundamentally different from their competitors.

It’s always disheartening to realize that not only are you not unique, but that now your business has to compete against a host of other similar businesses. Still it is an important realization and one that is better the earlier you come to accept it. For an execution company to be successful, they must perform better, provide better service, deliver better results and so on and so forth. In short, they should be better in as many aspects as possible. To compete, there is much less margin for error, and a mistake can set you back much further.

However, it’s not always a bad thing to be an execution centered company. Indeed most companies are, and most successful companies are as well. Often, the first mover advantage is nil; rather it’s the first to critical mass that holds the edge; many times it is a company who comes just a little later and learns the lessons taught by the mistakes of the first, lessons the first mover never had the chance to learn properly.

Of course, I will say again that innovation and execution are not mutually exclusive and must go hand in hand. Innovative companies must execute well and execution companies must innovate, but by knowing what type of company you really are, you will be better positioned for success.

Author: Shao-Yi Qian