It’s fun to imagine the vast potential of a new product that is attempting to create a brand new market. Space exploration, nanotechnology, virtual reality, breakthrough cures for diseases, etc. This type of innovation has enormous potential to change people’s lives and with that, huge potential investment returns. Many early-stage investors focus on companies developing cutting-edge products or technology.

It’s easy to be seduced by these sexy new ideas. These investors easily envision a world (or at least a target market) positively impacted by these innovations and they project outsized returns by investing in the first-movers. While this investment approach is helpful in terms of serving as a catalyst for important, technological advanc...