Innovator's Dilemma - We're that broken

The Great Recession ... do we really understand how severe the damage is the fundamentals? This is the third Spring-eve of this economic nuclear winter (remember the mythical 'green shoots' of the early Spring of 2008?).

With Spring 2011 just over a week away, banks are still closing, housing values are still in decline, unemployment - while just inching below 9% for the first time in 2 years ... the longest duration at this 9% level EVER [and note that this dubious streak could come back to life as subsequent statistical corrections during the Great Recession typically have revised bad numbers upward after reporting] is still anemic.

As human nature tends to be, rather than mull impersonal big numbers that most find virtually impossible to digest (i.e.: billion, trillion, quadrillion), an example of one can often resonate more powerfully because people have a better ability to process examples that can be personalized.

In today's climate where folks are asking: "Where is a growth opportunity?", imagine a truly remarkable breakthrough invention, proven and even embraced by major market players, yet struggling to get funding necessary to mostly implement (not sell)? Here is a real-time example that illustrates just how broken today's fundamentals are:

Start-up's solution:
A patented invention that stops fires from starting in environmentally controlled facilities.

Key Value Proposition:
Eliminates damage from fire, as well as fire suppression agents from water to chemicals.

Application examples:
Data centers, storage facilities, archived materials, museums, etc.

Patent's estimated value:
$20-$25M

Endorsements:
- A major defense contractor projects sales potential in the neighborhood of $.5B.
- A major insurance company will offer a significant discount to clients who adopt the solution (due to the significant cost-savings from paying claims).
- A major utility embraces the solution.
- Industry experts anticipate the start-up to be acquired in just a few years.

That said:
- Deep pocketed entities that could seed now have a policy to not venture into start-ups, but to pay a premium later to acquire.
- The start-up's leadership is still pursuing an investor to fund scaling (seeking ~$10M).

Intuitively obvious to the casual observer, this start-up's invention is brilliant. The applicability of the solution is a no-brainer. The value and benefits are significant - from stopping costly damage to property, to significantly reducing the risk of injury to fire fighters and emergency service personnel, to savings lives where the solution is deployed.

Isn't it telling that in the late winter of 2011, a new business opportunity like the above is having a challenge to find funding? (If you happen to know of potential investors who may be interested in learning about this opportunity, contact me directly and I can share more details.)

Talk about an innovator's dilemma. We are that broken right now.

Innovator's Dilemma - Book recommendation: 'Do More Faster' (by Cohen & Feld)

An easy-to-read collection of advice for those embarking on start-up businesses ... from dozens of leaders of start-ups. Nicely organized across the major 'theme' areas of:

1) Idea and Vision
2) People
3) Execution
4) Product
5) Fundraising
6) Legal and Structure
7) Work-Life Balance

Each theme area includes 8-16 sub-topic perspectives and advice from entrepreneurs of all ages who have run the gauntlet and have generously shared guidance that can help future start-up leaders be more prepared and effective with navigating these inevitable challenges.

Here's the opening intro inside the front flap:

It is a cold, hard fact of business life that most start-ups fail. Even many of those entrepreneurs who ultimately succeed have stories of personal challenges, unsuccessful companies, and difficulties along the way. The founders of TechStars, a mentorship-driven start-up accelerator, have worked with entrepreneurs and companies over the past twenty-five years, and have seen a number of the same issues come up again and again.

In Do More Faster, the founders of TechStars identify the key issues that first-time entrepreneurs encounter, and offer advice from successful entrepreneurs who have worked with the TechStars program.

Innovator's Dilemma - Think out of the ... (uh) ... USB

Now this is creative innovation! Push those boundaries into the great-beyond! (If the Star-ship Enterprise can utilize a transporter in the 1960's, then why not this creative app for the USB port of a PC?)

Visit their site to see a demo (have your Rosetta Stone software handy!) http://www.1jour1vin.com/fr/landingpages/usbwine

Think about how the sophistication of transmitting has evolved in the few short decades since 1's and 0's were discovered and the world began its rapid digital transformation. Along with more creative and aggressive use of the bandwidth spectrum and the seemingly endless trend to pack more processing power from tinier and tinier 'engines', I can envision a future when breakthroughs are made with transmitting more that sound and data.

From a layman's perspective, does that mean that once discoveries are made - with how to map digital representations of physical 'stuff' (animate and/or inanimate) - then humanity is in a position to embark upon the next frontier of 'transport'? I know I am getting a little sci-fi here, but isn't that one of the ways discoveries are made ... by imagining and envisioning (a theory) then going out and trying to figure out how to connect the dots (as opposed to accidental discovery)? Break though this barrier and you'll be Back To The Future with Doc, traveling across the stars.

Think about the progress recently with virtual reality technology. Think about the imagination reflected in The Matrix (brain-updates via a direct man-machine interface and download). From Star Trek, to The Fly to countless other sci-fi movies ... it's fun and instructive to reflect on the imagination of yesteryear in venues like Flash Gordon, Dick Tracy and others ... and now living - just a few decades later - with some of those once 'impossible' concepts as part of our daily routines.

Now matter what your background or IQ, its fun to imagine and figure out ways to be a part of influencing innovation!

Innovator's Dilemma - Where is our vision and commitment to colonizing space?

Whether one subscribes to the notion of accelerated global warming as a result of human activity, three inevitable facts are on the long, longer and very long term horizons:

1) Global population continues to grow.
2) Earth has been hit by large meteors that have exterminated species (i.e.: dinosaurs).
3) The Sun will not burn forever.



Are all three inevitable? At least 1 & 3 are, with 2 having a strong statistical probability of happening.

For most of the past half century, the USA has led humanity with remarkable achievements in space exploration and development. In recent years, other nations have gained stature with the growing sophistication of their space exploration efforts - either independent and/or in collaboration with other nations. However, this past week marked a bittersweet chapter in American space exploration history. The final mission of the Discovery Space Shuttle is underway (http://en.wikipedia.org/wiki/Discovery_space_shuttle). The 39th mission for Discovery - a record - only two additional space shuttle flights (by are Atlantis and Endeavour) remain before the 30 year old space shuttle program is retired (with no new manned space flight programs planned).

So let's think about this. Economically, the USA is still suffering under the suffocating Great Recession. Each month, unemployment records get shattered (currently the USA is in the depths of the longest duration of unemployment over 9% EVER [closing in on 24 consecutive months at this unsustainable level] ... with overall unemployment rates in the high teens neighborhood of the Depression era). Bank closings quietly continue nationally every week. Foreclosure rates remain at record levels, etc., etc., etc.

Consider these basics: When a bridge is under construction, there is a hiring boom for a variety of jobs spanning designers, builders, transportation to bring in materials and supplies along with countless other direct jobs, as well as countless indirect jobs to provide food, lodging, entertainment and more.

Now go big picture. The USA is pretty developed - at least at a plateau for the early 21st century. From roadways (which always require maintenance), to hi-tech infrastructure ... since the baby boom America has grown on about all fronts. However, over recent decades as the average age of population in USA got older, infrastructure became reasonably built out (i.e.: the bridge was completed). In parallel, the global environment evolved. Economies of scale coupled with a more open and sophisticated global market facilitated shifting some significant job sustaining industries off shore ... partially due to demand shifting from the US to other markets and partially due to better economics in other markets ... freeing up US workers to pursue opportunities in emerging industries (which are now mostly sputtering).

The growth trajectory of the US is stalled (at best) and in a decline (at worst). Where is a meaningful growth sector (forget 'boom') for the foreseeable future? There isn't one (other than possibly mobile commerce).

So .... let's connect the dots. Last week there was an announcement by a large group of international scientists that the demands from Earth's growing population (#1 above) of humanity will outstrip the world's food producing capabilities based on today's technologies in about 50 years.

Assuming we can dodge any neighborhood asteroids over the next half century, how about a multinational 'investment' in the future of humanity by seriously accelerating efforts to colonize space?

With this opportunity presented to humanity on a silver platter .. instead, funding for NASA is in retreat.

Really? This is the best we can do? This qualifies as vision? When (not "If") humanity is facing extinction, no short term emergency undertaking will viably save our species (or any other species we could protect in a modern Noah Space-Ark).

A half century ago, would the US Space program gotten off the ground if there was not a Cold War threat from the USSR? (Did you know the the USA's Interstate Highway system became a reality by riding on the coattails of a Defense readiness bill back in the 1950s? Follow the lessons of history?) National policy planners (and voters who put these representatives into office) have minimal concerns for passing along financial liabilities to future generations to appease short-term voter demands for trash and trinkets, so the prospect of visionary policy makers having a snow ball's chance in you-know-where to get a visionary space colonization program off the ground seems impossible.

That said, we know by experience that the US Space program unleashed unintended innovation that spanned consumer entertainment, safety, medicine and more. Similar to the notion of constructing a bridge and constructing national infrastructure .... authorizing a commitment to a space colonization program can have short term employment benefits, unleash a variety of growth industries and lay the investment foundation for spreading the risks of having "everything" in one place - the good ship Earth - which will (according to scientists last week) face a significant food shortage crisis in 50 years, and statistically will face another Cretaceous-Tertiary like extinction event that could dwarf the last one of 65.5M years ago.

Vision, courage, commitment to capitalize on opportunity. This isn't that hard to embark upon if we have the maturity and discipline to understand and seize this short, intermediate and long term opportunity!

Innovator's Dilemma by Clayton Christianson

Introduced to this author and book about a decade ago by a colleague at AT&T Labs, Clayton Christianson's book is a masterpiece of insight, wisdom and guidance. A must read for anyone interested in innovation. Expect to be inspired!

Innovator's Dilemma: Why innovation makes executives uncomfortable

In my inbox today was a "SmartBrief on Leadership" email that included a eye-catching story: "Why CEOs secretly hate innovation". Here is the link to that interesting story and discussion thread (which I chimed in on ... also included below).
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What has changed over recent decades to cause the USA to loose the top spot in driving innovation? Randy Voss made a key observation with his point about the compensation plan (as did Matt Snyder with his remark about retail gift cards to reward corporate innovators).

What influences a compensation plan? Leadership. What influences leadership? I say ultimately investors. What do investors of recent decades demand ... more than investors of the mid-1900s? Optimal short term profits (then stampede to the next optimal short term profit opportunity). My assessment is that the aggregate rationale of the investment community - at all levels (from investment houses to individuals) - has evolved away from having a meaningful component of longer haul investing ... thus creating a business climate and leadership culture that focus more than ever on in-year/in-quarter profit optimization decisions.

Most of my career was in big corporate. For most of my 20+ years there, the company tried to evolve from a regulated entity which had a government sanctioned guaranteed rate of return, to being competitive. Reorganize/ downsize was the annual drill with cost-cutting being the flagship. That said, I found a small business unit that had a unique arrangement of being a virtual entrepreneurial shop with a team of a dozen+ having in-(bu)house control of our own network, our own billing system, our own sales force, as well as virtually all other key functions except legal (we did have a dedicated attny in big-corporate).

In this ~$100M "small" business unit, I championed an innovative initiative that fundamentally harnessed existing assets and core competencies of a product in its decline stage, and with a modest add-on investment, enabled the product and business unit to capitalize on the emerging boom of the eCommerce industry. With a 5 year plan that projected a $.75B opportunity, the network-centric leadership was unable to sustain support for a billing-centric solution ... even after a reincarnation effort was made earlier this decade out of a unique incubator-organization that funneled 20 top innovative initiatives into a CEO authorizes shop (since none of the BUs could afford having out-year break-even line items on their balance sheets). While mine was 1 of 2 (of those 20) to make it to market (again) and scale ... the unimaginable happened: the corporate icon company was acquired. Earlier this week eBay announced it realized over $2B in mobile commerce sales - exceeding their forecasts (and reasonably mapping to my 5 year outlook at the beginning of this decade). In hindsight, my corporate leadership was chasing a ghost in the industry (leadership of that ghost is now behind bars) ... but investors too were chasing that ghost, influencing leadership decision making at my former corporate giant.

Companion to the contemporary investors' influence in changing the US business culture is globalization of recent decades. The plateau of the US playing field has been eroding away by a combination of a retreat from tariff protections, to technologies that allow for accessing lower cost human resources in developing nations, to the challenges of competing with firms from nations with an ability to access financial assistance from their sponsor states. Rhetorically, do investors have the patience for US firms to alter their ecosystems to tap the advantages of the new global playing field that is leveling? How do a majority of US business leadership make financial commitments to speculative out-year opportunities in this investor climate?

Another consideration - commercial viability of innovation will typically be key. One of the best examples I have come across recently to illustrate is Corning Inc's "Gorilla Glass" - developed almost 50 years ago ... but only recently getting meaningful marketplace traction with its virtually unbreakable, unscratchable glass that is perfectly suited for mobile devices, flat screen TVs and much more. A remarkable anomaly, Corning was able to survive in recent decades with its core business and now is fortunate to be in the position to capitalize on an innovative development that served no commercially viable purpose until recently.

To me, it fundamentally comes back to the investor-culture which influences how companies and leadership, and ultimately innovators are compensated. It's a human nature-thing.

Innovator's Dilemma - Quote of the Day

You can be demanding, perfectionistic, unrelenting, ambitious and a full-fledged success -- and still be kind." -- Davia Temin, writing in Forbes

Innovator's Dilemma - Validation of Vision

Innovators know. Innovators experience gratification when their visionary ideas finally get acceptance and traction. Today's headline is personal:

AT&T to Trial Mobile Payments for Online Shopping

During 2001 at AT&T's AT&T Labs incubator organization, I championed an incubator initiative (1 out of 2 to make it to market out of 20 AT&T Labs incubator initiatives) that encompassed mobile payments for online shopping (as well as wireline payments, pre paid payments, ISP payments and cable payments) that over phases would leverage all the major AT&T businesses' vast and vital assets of direct billed customer bases of tens of millions (as well as pre-paids robust partner distribution network).

AT&T's direct billed customer bases were not just generally overlooked strategic assets ('trusted billing relationships with a infrastructure core competency on a scale that was second to none'), they were basically viewed internally by leadership as a nuisance cost-center. Efforts were made to outsource the billing function ... but this complex, robust, overlooked asset turned out to be too big to outsource. Ironically, history was repeating itself from the 1984 Divestiture when AT&T c-levels and consultant advisors viewed AT&T's network as the crown-jewels to keep, jettisoning the LECs (Local Exchange Carriers) and their huge billing infrastructures as the antiquated portion of the business.

In late 3Q01 the then AT&T Labs President was days away from approving the incubator's launch when he jumped to another company, was replaced by a new Labs President who in short order axed the entire incubator organization - including the multi-phased, multi-business unit, eCommerce incubator initiative that F500 c-levels literally called "the Holy Grail of online billing" (the target customers got-it!). Phase 1 did launch directly by the prepaid group and began to scale with the likes of Disney, Sony, Rhapsody Music, Vindigo, CBS Sportsline and other premium content providers, coupled with distribution partners including Wal-Mart, BestBuy, 7-Eleven, fye and others ... but then came the SBC acquisition of AT&T.

Note that AT&T c-levels back in '01 were chasing the fraudulent industry-ghost Worldcom, a significant environmental factor that clouded their ability to focus on and genuinely appreciate the longer term harvest-potential these assets and core competencies represented on the silver plate before them [but also post SBC acquisition too as I learned while interfacing with new AT&T leadership based in Texas years later].

Innovators, especially in today's unprecedented economic climate, driving innovation takes more than strategic vision, persuasive evangelizing skills along with political adeptness at building alignment across leadership representing diverse stakeholder groups - internally and externally, it also takes relentless determination, soul-testing sacrifice and at least sometimes, relentless patience. (Here's the link to the story: http://www.cio.com/article/630963/AT_T_to_Trial_Mobile_Payments_for_Online_Shopping?source=rss_news)

Innovator's Dilemma - US News lauds Ball State University as having a Top 10 in nation entrepreneurship program & innovative initiatives

Ball State University has been driving innovation for decades (i.e.: first in the nation to implement a fiber optic infrastructure is just one of many of their leadership efforts). Nice to see my alma mater recognized by US News' 2010 survey of 1,400+ universities as having a Top 10 undergraduate entrepreneurship program in the USA per this linked story ("U.S. News lauds innovative programs, initiatives"): http://www.bsu.edu/news/article/0,1370,7273-850-64605,00.html

Innovator's Dilemma - Evolving

Two days ago the President of the European Commission - Jose Manuel Barroso (possibly a distant relative ... he and I have connected via social media and the family tree detective work is underway) spoke to an audience in Hungary about the role of universities in an innovative, globalized market. The commission is planning to introduce a new initiative to modernize European higher education to help keep pace with workplace demands for skills (which suggests to me that they hope to keep up with innovation elsewhere vs. driving innovation ... but maybe both if I am misinterpreting their aims).

In this clip (http://ec.europa.eu/commission_2010-2014/president/index_en.htm), President Barroso said "We want to free up the reservoir of talent, energy and knowledge that universities represent." This comment suggests a recognition that a relevance-gulf has emerged between what is being taught in European schools vs. what is required of young European adults in the real world ... now being influenced from beyond the EU's borders more than ever.

I see a common thread between what this EU Commission initiative is targeting to address and the challenges the US economy and society face. Roughly 3 decades ago a tide of deregulation was unleashed in the USA. A rising tide of magnificent innovation and fundamental life style changes resulted as artificial barriers were dismantled and policy decisions were made to open up new frontiers to development (i.e.: wireless spectrum). Opportunities came into focus for inventors, innovators, pioneers and of course investors. In parallel, the companion investor demand of ROI performance put increasing c-level pressure and focus on cost reduction. While formally regulated enterprises were organizationally bloated from guaranteed rates of return that instituted inefficiencies, over the ensuing deregulation decades, a cost-reduction paradigm emerged as a leading tactic for more 'easily' addressing investors' aggressive ROI demands. I say 'easily' pejoratively as contrasted with making the tougher decisions to pursue and commit to innovative, new revenue generating initiatives that almost always have out-year break even projections. With top officers eventually demanding business unit/line of business heads to cut into bone to meet investor demands, who could afford to make speculative investment decisions?

Just about everything I can think of evolves (including a mountain or even a rock exposed to the elements). European higher education gradually evolved based on environmental factors it faced within, but beyond Europe new competition emerged from evolving environments elsewhere. Certainly Europe's education system was aware of the evolving environments elsewhere, but possibly had institutional constructs that prevented it from adequately adapting. President Barroso's announcement shows that the EU Commission recognizes that Europe's education systems required fundamental structural changes that will facilitate more effective adaptability (that could also have evolved/resulted from too insular, parochial thinking).

Concerning the US business environment, beyond regulatory and taxation matters (a huge and separate issue), the 'easy' cost-reduction decisions by c-levels happen because their financial compensation incentives are focused on annual (and quarterly) performance ... derived from investor expectations and demands.  

Over the last 3-4 decades, has the US investor-culture (and thus this c-level reward system) evolved from a balance of short and long term, to short term excessive? My opinion is that the Baby Boom generation has gravitated the US investor- culture in the direction of being more focused on bigger and faster returns (vs. patient, longer haul investing that I saw as a more common investor-trait of prior generations).

While the USA's post-deregulation era has unleashed technological innovation that has also opened up vastly lower cost manufacturing markets in nations like China and Vietnam, as well as highly skilled and again vastly lower cost services markets in India and elsewhere, the US is facing a perfect storm of 'now-what?' after 3+ decades of post-deregulation, cost-reduction investor demands that logically influenced c-levels to outsource, offshore, move and shutter-up a significant percentage of the USA's onshore business base. Most oversized businesses have exhausted their annual dance of reorganize-downsize-repeat. Coinciding with this trend has been the downward trend in the USA's relative position on scholastic performance from elementary aged through collegiate aged students. These fundamentals cannot be changed overnight.

President Jose Manuel Barroso's announcement suggests more than recognition/acknowledgment, but commitment to making meaningful structural change. Beyond the obvious importance of sensible regulatory and taxation policy that facilitates US business' global competitiveness, and similar to the EU ... a need to close the relevance gap of the US education system, I still sense that some core structural aspects of our investor community's expectations and investment behavior (and the resulting c-level compensation-reward packages) needs attention - but that may be a cultural, evolutionary-thing that may only change out of necessity as the ebb and flow of consequences are fully understood. Survivors evolved because they evolved to survive.