Category Archives: opportunity

Corporate Innovation – Back to The City

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I recently attended a Chief Innovation Officer conference in New York. My goal in attending this event was to learn more about how corporate ventures manage their innovation processes and what tools they currently use to develop and attain innovative processes and new products. I was glad I attended because I learned a few useful pieces of information. However, I felt that there were some concerns I have about managing innovation that were not covered in the conference.

Let me start with what was addressed:

Culture is a key tool to creating an environment of innovation success. Many of the speakers talked about the difficulty in moving that big ship called bureaucracy and focus on innovation.

Many of the speakers felt that not everyone in the company needs to focus on being innovative. I, personally disagree with this. Everyone in any company can always add value to his/her job, department, and processes. Just make it easy to suggest change, and allow employees to play with new ideas and concepts. This should be rewarded not punished in both success and failure.

Open innovation is still daunting to many companies, but it is beginning to gain acceptance. The basic tenet of open innovation is the use of external ideas to advance their technology. A number of issues inhibit open innovation: intellectual property issues, ownership, field of use, and confidentiality issues all play a restraining role. However, I was intrigued with the use of crowdsourcing to help with project work. One of the speakers found success through competitions that are external to the organization that uses gaming techniques to entice experts to compete and help the organization find the best solutions. This helps to provide “A” level talent, including workers that prefer not to work steady hours, to help companies solve problems faster and cheaper than a hiring process might provide.

Failure as a long-term learning strategy was not celebrated, nor discussed much because there still is a strong focus on short-term achievements. In the corporate world, companies are seeking 3-5 year payouts from innovation. This means that incentives and reward structures are geared toward execution on known outcomes rather than a focus on a disruptive or even iterative innovation.

Corporate opportunity recognition is still a struggle. How far innovation can successfully deviate from current strategy into adjacent markets is a difficult decision for many large companies.

One of the more interesting points the concept of focusing on a “quest.” Quests are driving forces for firm’s strategy that allows for innovative ideas and adjacent marketplaces. It is the aspirational mission of the firm. This could even allow for an oddball type of product line. One example provided was Redbull, which is clearly in the refreshment market but also important in arranging airplane racing competitions and other high-powered sporting events, such Formula One racing and other sports ownerships, and partnering with game companies (such as “Call of Duty” and “Destiny”), the HALO jump, and web marketing. The quest is that, “Red Bull helps more of us live our lives to the extreme” uses storytelling combined with action to illustrate their quest. Red Bull’s quest brings their entire product and brand lines together.

There was also a focus on data-driven innovation. This attempts to make use of big data so that intrapreneurs in an organization can become experimental. This was quite the opposite of what I might expect. Strategic innovation doesn’t necessarily have data, but rather ambiguity and uncertainty.

One of the better concepts reminded me of a Kodak moment. Kodak invented the digital camera and its failure to adapt and take on this innovation led to its downfall. The lesson: innovate or die and don’t have that Kodak moment.

The Kodak moment is also about understanding opportunities. That is where the Alex Osterwalder model in lean startups models is key. Even large companies need to try to understand how to better evaluate when an innovation is key to their strategy.

Here is what I would like to see or wished was on the agenda.

For the most part, I was disappointed in how little the large companies appeared to understand how to create an innovative culture. No one talked about learning from failures, and no one really discussed that innovation is a process that must be ingrained into the culture with a reward system for trying.

The goals of many of the Chief Innovation Officers were mostly short-term and revenue driven. I heard ROI on innovation too often. This translates to small incremental wins, no home runs or disruptive innovation and most importantly, the unwillingness to take risks. I personally don’t like the term risk when talking about innovation. I prefer the term “reducing uncertainty.” Risk can be measured and may fit the mindset of a large company, but the real goal is to reduce the uncertainty that cannot be exactly measured. However, uncertainty can methodically be calculated within a statistical range of probability. I concede that there are perils in trying to predict the future. Although we can’t forecast the future, but we can work the means and ways to get to a better future.

Jeff Bezos said, “Advertising is a tax you pay for lack of innovation.”

Opportunities

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Our new program, Accelerate, asks entrepreneurs to be mindful of opportunity recognition in a number of ways. Technology researchers and developers often see many options to pursue. An important goal for very early stage entrepreneurs is to ideate as many possibilities for their technology in order to determine as many potential products or markets as possible. Then, with the use of a few tools and secondary research, they need to narrow their focus to only a few reasonable and potentially profitable choices.

At our Accelerator we start with two tools: One is to examine the technology opportunity and a second to represent the business opportunity. This approach helps provide an opportunity to examine the scope of the opportunity and make better choices. The narrowing of opportunities is usually represented by easier adoption rates, shorter buying cycles, and leverage to a larger market.

With this data in place, we have our interns dig in and research the market and industry both on a macro and micro basis. On a macro level, we assess the market size and industry attractiveness. Markets are composed of groups of buyers so that determining which groups compose the Total Available Market (TAM), Served Available Market (SAM) and Target Market (TM) is important to determine which should be pursued. Also, by definition, an industry is a group of sellers that represent potential completion. As it turns out, some markets and industries may be clearly more attractive for an individual startup to enter than others. On a micro level, industry attractiveness is, in part determined by the competitive response and current benefits offered by competitors. On the market side, we focus on whether the real or perceived benefits a startup offers are better, different, faster or less expensive than the competition. We ask whether a startup can create a perceived differentiation of improved benefits or costs in the minds of their target market?

We examine trends in both the startup’s market and industry. Is the startup ahead of the trend analysis? If it is too far ahead it becomes difficult to sell the value and benefits that are offered and the market will likely not see the need. The dead pool is littered with products and startups that never materialized. Some examples include Webvan, Ask Jeeves, Pets.com. If it is too far behind in the trend analysis, the startup will never catch up. The goal is to ride the wave of each trend with a base of intellectual property that protects the opportunity and stalls or slows the competition. We also investigate the economic and social forces potentially impacting the startup. Is there a political or regulatory change? Is there a technological advance that provides a customer desire? Do you have the window of opportunity? Good entrepreneurs know that timing is everything.

In the early stage, an entrepreneur needs to access an ability to execute on a potential opportunity. However, validation of the opportunity, product market fit and Business Model Canvas must be present while confirming that financial viability is likely.

First Impressions Matter

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We are in the process of evaluating the applications for Angel funding for our current round. Like most investor groups we use Gust as the platform for entrepreneurs to load their company information. Overall, I must admit I am disappointed in many of these applications. Many of the applications look strong in terms of idea or concept. Some apparently have traction. Some claim to have traction, but don’t support that claim. However, the real problem is that for more than 90% of these applications, it is the first time I am exposed to you. The application is my first impression. And first impressions matter! Here are a number of items that are problems.

Incomplete applications. Gust is a standard format platform. The executive summary, financials section, team composition are all fairly straightforward. Missing items or incomplete items leave a bad first impression on me. If an entrepreneur does not provide all the information by the deadline, then it requires substantial explanation. Leave a note somewhere on the document telling me when the document will be completed, and why you require the additional time. I understand, we are looking at a moving target, but at some point I need to review a snapshot.

Financials Section. On Gust, the financials section is where the entrepreneur asks for funding and offers a summary of projections. It includes a place to upload documents. Upload your documents. I expect to see a spreadsheet with details of the projections.

  • I don’t want to see a pdf file. With pdf I really can’t see the basis of your numbers. Load an Excel spreadsheet with assumptions and a polished look and flow.
  • One tab of sales projections is not enough. In addition to the assumptions tab, there should be at least tabs for a cover summary, a cash flow projection, hiring guide, balance sheet and revenue models. You need a minimum of five and don’t overwhelm me with 20. I don’t need that level of detail…yet.
  • Hidden tabs that include details I need to review are a minor inconvenience. Why should I work harder on your application? Make your data clear and easily accessible.
  • On the positive side, I have seen a few spreadsheets, that have a nice summary up front, a tab with an assumption table linked into the spreadsheet, a hire/HR table and clear, bottom up projections that go over time until past cash flow positive. The revenue projections are important and should not be overlooked.
  • Spreadsheets are a complete topic for another blog. For now, I will admit that spreadsheets are something of a work of fiction, because they are guesses. But the closer the entrepreneur comes to being correct about these numbers, the higher my confidence level in the venture.

Articulating the Value Proposition. Don’t make me guess what your real value is to customers. If you are not perfectly clear in articulating the product to the target market, then how will I know you will be able to effectively sell the product/service?

Proof Points – Gust does not ask for this, but it is important that you be very specific as to the stage of your venture’s development. This will come out in due diligence. But if you have a finished product or channel partners already lined up, that leads to a much better impression for investors.

Know the Rules of the Game. An understanding of how our Angel group operates will benefit the entrepreneur immensely. For example, if our average investment is $400,000 and you are seeking $900,000 then be certain how you can fill out the rest of the round. I don’t particularly like building piers. I want to build a bridge to the next round. If you have funding that supplements ours, then great. However, know that we prefer to lead rounds unless the terms of the other funding is sufficient. So, be careful uploading the other term sheet – know what we like.

Stage of Development. Don’t hide the point that customers aren’t paying or you don’t have any customers yet. Be honest and forthright and just tell us exactly how you will conquer the world. Make me take a bet on you through truth telling.

Traction. Traction is right. Traction works. Traction clarifies, cuts through, and captures the essence of the evolutionary spirit. Traction, in all of its forms …has marked the upward surge of saving the world (thanks to Gordon Gekko for the quote).

Traction is the basis of all that is good in a startup. Traction is the market validation of a value proposition with its target market. Traction shows proof points on its business model. Traction is based in real sales (not a give away product) and has evidence of other proof points – channel partners, a supplier base or existing value chain.

No Faith Based Entrepreneurship. I am really not interested in what you believe. Save that for church. Show me the proof. All that matters are evidence based startups.

Get these right and investors will be your friend.

Disclaimer: These are my own views and not those of any investor group that would have me as a member.

The Short Rules of Entrepreneurship

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Today I offer you my personal rules for entrepreneurship. This set is by no means complete, but they are hopefully food for thought.

Rule 1: Entrepreneurship is about action – The Captain’s chair is yours.

Rule 2: Some people dream about doing great things. Keep your eyes wide open and your feet on the ground, and then do great things.

Rule 3: A sports metaphor for Rule 2. There is no crying in baseball. There is no sleeping in entrepreneurship.

Rule 4: Focus on customers and building a business that is client centered rather than focused on technology. Make sure your company solves customer pain or creates great results for your customer.

Rule 5: Entrepreneurship is not fair. Neither is angel or venture capital funding.

Rule 6: Treat your 3F (Friends, Family and others (known as Fools) round as if they are professional investors. All 3F angel investors have an investment committee – their spouse. Respect the relationship.

Rule 7: Angel and venture capital is like a series of locked doors. Someone must unlock the door for you. Find the people with keys.

Rule 8: Build your company by building a customer base. Build for one client at a time. Later, build for multiple clients.

Rule 9: You have exactly one minute to make your pitch. Practice making them.

Rule 10: Learn the language of entrepreneurship and tell the truth. (Do not tell the typical lies: “Our market cap will scale up to $27.1 billion in five years” or “our competition is too big and slow to move as fast as us,” unless you are Elon Musk and build spaceships in your spare time.)

Rule 11: Get a champion who will work with you.

Rule 12: Bootstrap. Frugality is a virtue. Put some skin in the game.

Rule 13: You are only as good as your cash.

Rule 14: So what? Why you? What have you accomplished so far?

Rule 15: Build a team. One person cannot do everything.

Rule 16: Be a good listener and a better filter.

Rule 17: Network!

Rule 18: If you build it they will not come. You must sell to them.

Rule 19: Never BS yourself or your team. Always pause to understand the bias in all decision making.

Rule 20: This rulebook is incomplete.

Do you have additional tips for entrepreneurs? Feel free to add to the list.

Customer Development Interviews

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A new book by Cindy Alvarez about customer interviews reminded me that it is often important to review the basics of our tradecraft.

There are a number of important points to consider when reaching out to potential customers. In the Lean Methodology, it is essential to complete customer interviews before building your first minimally viable product. Ongoing interviews with clients also helps you to stay in touch and cement relationships with clients as well.

It is best to interview someone face-to-face. Clearly, that is more time consuming approach, yet more effective than Skype, telephone, or online interviews. A key component of these interviews is the observation of body language. That observation is lost with anything less than face-to-face meeting. Video conversations only capture part of the picture, and the nuances of observation cannot be completely captured.

The second important issue is to help the interviewee get past the politeness factor. No one wants to deliver bad news. Your goal is to make them feel comfortable. There are two ways past the politeness factor. The first is to change the way questions are asked. Asking, “What do you dislike about the product?” makes it difficult to yield honest results. Instead, asking “How would you improve this product?” frames the question as a respectful call for assistance. Everyone wants to help. No one wants to be impolite.

Cindy Alvarez starts just about every interview with four basic questions:

Tell me about how you do __________ today?

Do you use any other tools or have any specific tips or tricks you use to help?

Is there anything specific that you always do before or after you do _______?

If you could have a magic wand and be able to do anything else that you can’t do today, what would it be? (Forget about whether or not it’s possible, just anything.)

These questions are open-ended and allow for understanding customer behavior and activity. It is also crucial that there is not a single mention of your product.

Here are a number of other tips to use during customer interviews:

  • Try to have two people attend
  • Work from an outline of 3 – 5 questions
  • Focus on real behavior not hypothetical
  • Shut up
  • Probe
  • Don’t overstay your welcome
  • Debrief the same day
  • FOLLOW UP!
  • Work to their Schedule
  • Disarm the politeness training
  • Ask open ended questions
  • Don’t influence
  • Ask the Right Questions
  • Frame the Questions Correctly
  • Parrott back
  • Get Psyched to hear things you don’t want to hear
  • Ask for Introductions

The goal of your interviews is to position the interviewee as the expert. A good interview avoids yes/no answers, and gives potential clients an opportunity to tell a story – one that may cause them to think of related problems they’re having, or may trigger more questions for you to ask later.

Remember, your goal is to determine how your customer is currently dealing with specific tasks.  What do they like about their current solution or process? Is there some other approach that they have taken in the past that was better or worse?

Attempt to discover what they wish they could do that currently isn’t possible or practical. How would that make their lives better? Who their organization is directly involved with addressing such approaches? How long does it take to make a decision?

Your interviewees’ feelings and state of mind are also important. How do they feel when they are performing this task?  How busy/hurried/stressed/bored/frustrated? You can learn this by watching their facial expressions and listening to their voice as they answer your questions. What are they doing immediately before and after their current task? How much time or money would they be willing to invest in a solution that made their lives easier?

There is a lot more to being good at customer interviews. Like most anything else, practice is crucial to getting better.

Recognizing Opportunities

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The Oregon State Advantage Accelerator is not just an accelerator. We are not an incubator. We are a hybrid—a combination of both at the same time. Both accelerators and incubators provide important services, education and community to entrepreneurs. The major differences between the two is that incubators tend to provide office space and companies can stay there much longer than the typical three month accelerator stay. University research takes a significant investment of time, money and grit. Everyone dreams of the overnight success, but in fact original research takes years of hard work and persistence.

Working with our aspiring entrepreneurs—particularly those in the very early stages—requires patience. We must introduce key business components and enlighten scientists to the commercialization process. This is critical because almost all grants (federal, state or private) now require a commercialization plan that is focused on market-based application. Grant acceptance is determined by the marketability of the research.

We also accept later stage companies. These businesses are taken back to the beginning, to their roots. All clients must make certain that each opportunity is examined thoroughly. An opportunity has the qualities of being attractive, durable, and timely and is anchored in a product or service, which creates or adds value for its buyer or end user.

Opportunity is the basis for the company’s existence. At the OSU Advantage Accelerator, we have our entrepreneurs scrutinize as many possible opportunities as possible. With each potential opportunity we consider a number of variables, and for each variable we examine one set of opportunities for the business aspect and another for the technology itself.

For the business aspects, each opportunity is compared to:

Total market, addressable and reachable

The major benefits for each opportunity

Ease of entry

Cost of entry

Adoption rate and ease of customer reach

Key drivers of change

Channels, both physical and digital

Intellectual property or other market protection

Competitive response

Price/margins (price re-frames customers)

Potential early adopters

Strategic partners

Application platform, early features leading to a minimal viable product

Unique Value Proposition (What really does make you so special?)

List the unknowns, questions to explore, and the decision making process for the targeted customer in each opportunity.

On the technology side, the focus remains on commercialization but seeks the answer to other important questions:

Is the inventor or good substitute readily available to join the team?

What is the amount of the pain for our solution?

How far along is the technology? Is it prototype ready?

What are customers doing now? Are there other substitutes?

What is the industry’s infrastructure?

What is the regulatory environment?

Going back to the beginning helps to cut down on pivots during and after working through a business model canvas exercise. A pivot is a substantive change to one or more of the nine business model canvas components. Pivots may cost money.

Not pivoting when appropriate may also cost the business. Going through an opportunity recognition exercise before working on a business model canvas saves time and money. Is it possible to choose the better option earlier on? I know it is and our clients at the Advantage Accelerator know it as well.

We teach our clients to follow the three D rule: Be Daring, be Different and be Delightful (More on the three D’s in a future post). Test the opportunities as well as the nine elements of the canvas and the answers to each hypothesis will be found. These answers will eliminate and/or reduce the pivots when starting the new great entrepreneurial venture.

Start with the Business Model Canvas – Not Yet

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We at the Oregon State University Advantage Accelerator are big believers in the Business Model Canvas methodology. We use the Canvas, we also use software for the Canvas, and we make our clients read the books by Steve Blank and Alex Ostervalder. However, the fact is that Canvas may put a technology entrepreneur at a disadvantage before he or she gets out of the lab.

Our clients at the University tend to be in the early stages of their development. Most of our researchers are doing cutting edge research. The entire set of potential opportunities for these clients have not yet been examined. Under normal circumstances, using the Canvas, clients would start with one or two potential target markets then try to validate the opportunity.

I suggest that this may not be the best way to begin. One of the tools, we use at our Accelerator is the opportunity matrix. The founder or Principal Investigator (PI), my co-director, mentor(s), intern(s), and I brainstorm on the possibilities of applications and industries in which this innovation can be productized. We also look at the numerous variables that could affect market entry. This tool was originated by the strategist Igor Ansoff and there are many versions found online.

The matrix provides focus and guides decision making prior to a long course of validating tests as required by Canvas methodology. Along the y-axis, we list the potential products and/or industries in that the innovation may be successful. Along the x-axis, we list variables such as size of market, ease of entry, competitive response and so on. The list of variables can be quite large and is on my version. The purpose is to determine through online research, phone calls with industry experts, which industry or market should be the top areas of concentration, which then becomes the business focus. This leads to a much clearer start on the Canvas.

The technology also needs to be checked for the opportunity as well. We have a great spreadsheet that checks on the viability of commercialization for the technology. It is similar to the opportunity matrix in that the various markets or projects are listed on the y-axis and a number of strategic questions about commercialization of technology are listed with weighting scores along the x-axis. This is another easy way to envision the technology side of the opportunity. Send me a note and I will send you either matrix.

These pre-cursors to the validating steps in Canvas will shorten the steps from hypothesis to validation testing.

It is highly likely that an entrepreneur will save time and money by doing the secondary research up front. This also creates a more focused entrepreneur who can easily begin the primary research work on Canvas.

There are a number of other activities that we take our clients through before beginning to work on Canvas. But overall, in the early assessment stages, we are seeking feasibility. Is the technology feasible within the means of customer wants? Does the business proposition make sense both in terms of its ability to succeed and financial viability?

Overall the big questions in this stage are:

  • Do I have a technology that has potential applications in the commercial market?
  • Are there customers and a market of sufficient size to make the concept for this technology viable?
  • Based on estimates of sales and expenses, do the capital and other resource requirements to start make sense? And;
  • Can you create an appropriate start-up or management team to execute the concept?

Just like in the Canvas, the answer to all the above questions is not that you believe the response, but rather, I know my response is true and here is why.

This early work provides sufficient data to understand the industry, examine an early value chain and process flow, understand your potential first and/or second market, organize yourself for validation of market(s) and get an early justification of pricing.

As I stated above, the secondary research requirements will enhance the primary research efforts required by Canvas. Go in smarter and ask better questions in order to obtain better results.