By choice I read about 200 blogs every day. My reading has grown from about 100 blogs three years ago probably because my interests have increased. After Google reader died I have been very happy with Feedly to manage my blog reading. I also use Google+ to get a more international perspective on my interests and I use Facebook to get a local perspective on entrepreneurship and social entreprenership. I only use Twitter to distribute my content and rarely read it, although the Spanish language content on entrepreneurship is excellent.
There are two content providers that I read on their blog, Google+ and FB:
Stanford Social Innovation Review SSIR(social entrepreneurship)
Harvard Business School (management, capitalism, other stuff)
My experience is that I find different articles on different sites for each of these sources. In other words to get all the content from either one I have to go to three places on the web (or maybe more). No one "channel" offers all the content for either publication. In fact I stay on FB because I like the SSIR articles and one person who posts interesting stuff on local Miami entrepreneurship.
My question is "why can I not find all the SSIR or HBS content in one place with an RSS feed"? Why do I have to go to three sites? The answer is that HBS and SSIR are tailoring their content to the distribution channel--FB, Twitter, LinkedIn, etc. in the mistaken belief that the users are different on the channels. This is a mistake. I am the same person with the same interests whether I am on FB, Google + or LinkedIn. World class publications such as SSIR and those from HBS need to put all their content in one place to make it easy for the user. They can still duplicate all their content on FB, Google+ or LinkedIn, but I will follow them in only one place.
As content increases and the hosting sites multiply, world class publications will be better off to concentrate all their content to make it easier for the user. A better user experience will be appreciated.
This weekend I read an article in Pieria, the British equivalent of 3 Quarks Daily, both of which promote intellectual thought (2008) on a wide range of subjects. In Pieria a writer defined the extremes of thought on economics as Marxism and the Austrian School. Given my hearty respect for the Austrians, I was somewhat disturbed to be categorized as an extremist.
I actually think anarchists are at the opposite extreme of Marxists, but the anarchists write very little about their economic system. Marxists define the one extreme because of their heavy reliance on centrally planned economies, whereas the anarchists advocate for no government and consequently no regulation. However, I digress.
The Austrians were probably the first economists to acknowledge the role of self-interest in markets and economic activities. From these writings many derived a negative view of capitalism and the Austrians. Both the capitalists and the Austrians have suffered from this association with self-interest for over 100 years, the same period in which perhaps the greatest economic development in history has taken place. What has been overlooked by the critics is one simple fact:
" A man may promote the interests of others even though the interests he seeks to promote are his own. " (1)
If you do not understand this quote, then it could be re-stated:
to build a large company, solve a problem for a large number of customers
to design a value proposition you have to create value for the customer
What has been overlooked by the critics of capitalism and many capitalists is that the most fundamental premise of capitalism is that one serves one's self-interest by serving others....profitably.
This really interesting article on Brain Pickings referenced a quote from NPR:
"NPR recently shared a survey that found 40% of the American public doesn’t believe the world is more than 6,000 years old."
Of course, when was the last time you saw a reference to something older than about 2000 BC or about 4,000 years ago? Given the peculiar nature of Americans, we rarely reference anything that pre-dates the founding of the U.S. All of this just points out that we have a predjudice in the Kahneman sense with respect to time or perhaps more precisely history. The brain conserves energy by considering a very short timeline compared with the actual time that humans have walked the earth.
What this suggests is that we do not study and understand sufficiently the basic nature of humans, which may be constraining our abilityto really understand consumer problems and develop new business concepts.
If we go back about 40,000 years, two interesting things happened which enabled early humans to advance beyond their then current status as hunter gathers. First humans learned to trust beyond their immediate family and tribe and technology appeared for the first time. Technology allowed abundance and scarcity, fundamental economic concepts, to appear, which led to sharing (which required trust) and specialization. Specialization led to barter and the emergence of those efficient organizations called "firms", another economic term. However, as specialization and firms succeeded and made lives better, barter broke down and the more efficient money emerged. Congratulations, we have now reached approximately 12,000 BC.
Now we can argue about whether trust preceded sharing or not and whether firms came before specialization, but what is clear here is that the fundamentals of civilization include:
trust
sharing
firms
money
You might ask why this is important. The reason is that every time you change one of these four concepts a huge new market opportunity emerges. A huge new market opportunity emerges! For example, look at this abridged list of changes in money:
gold coins
paper money
bank accounts
credit cards
Pay Pal
Bitcoin
Every single change created a huge market opportunity and large companies that recognized the opportunity.
If you can insert trust or sharing into a new situation, one spawns a huge market opportunity. Ebay succeeded when it solved the issue of buyers trusting sellers, Airbnb allowed us to share our real estate. Amazon redefined the retail "firm".
Not a lot has been written about the techniques to identify the large market opportunities. Change one of the four fundamentals of civilization and you may have a large opportunity.
Everything else in hotel management is not a core competency or outsourced.
What does Airbnb do well?
Operate a reservation system to sell under utilized assets as accomodations
What would happen if Airbnb bought a hotel?
They should sell the rooms to individual investors
They should outsource all of the required services
They should cancel the franchise/brand agreement with the hotel chain
They would be the exclusive provider of the reservation system for the "hotel"
Following this strategy, Airbnb would strip out much of the "overhead" in hotel operations. This additional cash flow could flow to the investor and/or to the guest in reduced room rates. Such a strategy would also give Airbnb better control over its available room inventory and the ability to predictably grow that "asset".
Selling services to consumers using under utilized assets (rooms, cars, etc.) may just be in its early stages. But selling off all those hotel rooms to investors suggests that investment bankers may become the driving force in this trend.
Also, the investment bankers need a new class of real estate asset--hotel rooms--to play with.
My very old friend @suzyhut sent me this article from HBR Blog Network, "The Two Questions Every Manager Must Ask". The article discusses Aravind Eye Care in India, an organization that specializes in cataract surgery and treats 70% of the patients for free. Aravind is a classic example of “doing well by doing good”.
The article explains that because of the large number of patients, Aravind has broken the entire procedure of outpatient services and surgery into steps, developed experts to deliver each step and tasked everyone to focus on ways to reduce cost in each step of the procedure. Effectively, the scale of the operation, which is largely free patients, prompts a focus on efficiency that enables Aravind to succeed financially with only 30% paying patients.
The lesson to be noted here is that every medical services company should constantly be working to reduce costs, especially marginal costs, because an Aravind-like competitor could be right around the corner. Labor costs as a percentage of medical revenue are much higher in the U.S., but if we substitute robots for medical technicians Aravind could be done in the U.S. Just the process of designing and developing the robots would probably improve medicine and lower costs in the U.S.
Maybe this is the solution to robots replacing human workers. Free medical care for 70% of the people who no longer have jobs. Seems fair that the robots should provide free medical care. Haha.
I recently saw a story where 18 student teams from Harvard University were competing for a prize in "cultural entrepreneurship". Not being familiar with the term "cultural entrepreneurship", I googled it.
This article from Stanford Social Innovation Review“Social or Cultural Entrepreneurship: An Argument for a New Distinction” provides some thoughts on a definition. This story in Cultural Entrepreneurs provides a nice history of the efforts to define the term. I like the following definition from the article:
Given that I question the need for a definition of "social entrepreneurship", it should not come as a surprise that I also question the need for "cultural entrepreneurship". Next perhaps we will have sports entrepreneurship or ceviche entrepreneurship.
"Ceviche entrepreneurship" is practiced by the indigenous in Peru to perpetuate .........
Crowd funding and Kickstarter in particular are becoming increasingly popular. With this popularity, the success of a Kickstarter campaign has become quite "competitive". Now Fallon, a worldwide advertising agency based in Minneapolis, is offering Fallon StarterKit. The StarterKit is described beautifully in the image below and designed to increase the likelihood a Kickstarter project reaches its funding goal.
This post is a synopsis of this story on Fast Company.
Lately I have been reading Ray Kurzweil's "How to create a mind: the secret of human thought revealed". The book deals with the history of neuroscience, AI and thinking, with a dash of epistemology and meta-ethics thrown in for completeness. One of those rare books where you read for twenty minutes, go away and think about what you read for several days and then read some more. Kurzweil's book provides much of the intellectual underpinning for an article in The Economist,"Technology and jobs: Coming to an office near you".
The Economist chronicles the upcoming dislocation in jobs, with computer technology replacing up to 47 percent of jobs in the next 20 years (numbers very similar to other sources I have seen). Basically artificial intelligence and their devices, what you call robots, have advanced to the point where many traditional jobs can be done by devices of one type or another. You have been following Google's driverless cars and contact lenses to measure sugar levels for diabetes patients?
Back to Kurzweil, who along with Marvin Minsky and Herbert Simon (founders of AI), point out that AI and neuroscience advances are teaching each other about their subjects. AI teaches us about neuroscience and neuroscience helps us to improve AI, all with the outcome of computers increasingly approaching the abilities of the human mind. I think Kurweil might be saying that critical thinking may be the only function of the brain/mind that cannot yet be duplicated through a computer.
This increasing sophistication in AI suggests that the disruption to jobs may be underestimated significantly and especially by the governments in developed countries such as the U.S. While certain governments talk about wealth concentration, this is just a number of no consequences. Popular politically but of no consequence in the lives of ordinary people. Jobs might be the better issue but the government does not have a solution, which is why they are distracting us with the speciousness of wealth concentration.
Actually, the issue the government needs to address is how do people need to be educated and trained to live productively (economically) in a world where computers and robots will be able to do 90-95% of all the work performed in 1900. Governments are not designed to handle environmental change of such consequence. Governments manage status quo adequately but do not shine in rapidly and dramatically changing environments they have not seen before. Governments can barely handle a hurricane let alone the complete disruption of the labor force...in the U.S. Perhaps the days of government as "Big Brother" are numbered. Perhaps the private sector will need to take more responsibility. I guess organized religion is another alternative. Probably does not matter where the solution comes from, but someone needs to prepare people for this new world where AI plays a bigger role.
Sounds like a business opportunity to me. Maybe the charter schools were just practice for a declining role for government.
Publix Super Markets is a publicly-traded supermarket operator that has dominated the Florida market for decades. With annual revenues of over $27 billion and almost 800 stores in the state, Publix and Florida are almost synonomous. The business was built on their famous slogan, "Where Shopping is a Pleasure", and the company genuinely operated to make the slogan a reality for many years.
To support the strategy Publix used an advertising campaign that focused on family, traditional values and holidays. Rather than show stores or food aisles, Publix showed happy families sitting around holiday tables enjoying each other's company over food. The best traditional values advertising I have ever seen (outside of U.S. military ads).
Recently Publix changed their strategy and advertising to focus on price. This change was in response to the increasing presence of Walmart in Florida and a re-invigorated Winn-Dixie (owned by private equity firm Lone Star Funds) who promotes price savings.
Publix is making a mistake!! I have competed twice with Walmart, in Mexico and Indonesia. Both times the companies succeeded and grew. Both times we ignored Walmart's pricing message and focused on promoting merchandise where we were strong and Walmart was weak. In Mexico we promoted all the Mexican meats, chorizos and salchichas. In Indonesia we promoted fashionable clothing. Both of these strategies are similar to the successful strategy of Target. Never compete where Walmart wants to compete-price-but rather compete where you are stronger.
Pick the part of the market you want to dominate rather than fighting with the entrenched competition (Napoleon)
Execute a strategy that plays to your special strengths and expertise
Bring sufficient resources to succeed
In preparing this post I visited Publix website (pictured below), which may be the single worst website I have seen in years.
I also went to You Tube to see whether the new Publix TV ads were posted there. Much to my surprise no new TV ads and none of the holiday, family values ads were posted. Maybe Publix thinks their market segment does not use the Internet?
Maybe Publix does not think in terms of market segment but rather thinks they serve everyone. Such a strategy may have succeeded in homogeneous 1960s Florida but not today. If I were Publix I would move upmarket in my positioning to serve the better customers and those that aspire to such a lifestyle. I would remodel the stores to match this positioning. The better part of the market is underserved today in Florida with perhaps only Whole Foods operating multiple stores.
Sad to see an icon of Florida making such mistakes.
Banks are a type of utility to allocate capital to worthwhile third party investments. In return for this privilege, they are regulated the same as water and power companies.
Banks went astray when they diverted so much capital to support trading schemes in the new derivatives they developed, which was not part of their original mandate as utilities.
In bringing so much innovation to the development of derivatives, the banks failed to consider a fundamental requirement of innovation, that it create economic value.
Effectively, the large banks have trading operations that dwarf their original purpose to allocate capital productively, such trading amplifies market risk and such trading does nothing to contribute to transparent efficient markets. In summary, the benefits of the financial innovation in derivatives is not sufficient to warrant the scale or the increased risk
Interestingly, The New Yorker does not raise the issue that the capital used by the banks to support derivatives trading could have been deployed for more productive investment in third party borrowers.
Bitcoin is the peer-to-peer virtual, encrypted currency not issued by a government authority.
Albert Wenger at USV, the New York VC, had an interesting blog post, "Bitcoin As Protocol". In the post Wenger talks about the possibilities for innovation if one recognizes and preserves Bitcoin as a shared "public ledger". Bitcoin could become the world's bookkeeper or bookkeeping protocol not just for monetary transactions, but also for stock holdings, trusts, etc. This apparently excites Wenger. OK.
What excites me about Bitcoin is that it could possibly "redefine the protocol for trust". When man first started doing commerce around 7-10,000 years ago, the big issue was trusting people outside their immediate community. Trust is the fundamental concept that underlies money, promissory notes, eBay and many other parts and types of commerce. The oldest concepts like money use government backing or some suitable authority to establish the necessary trust. The newest concepts, like eBay, use peer ratings of vendors to establish trust. Somewhere in the middle of this timeline, legal systems became a part of the trust framework.
While some would argue that modern technology made possible the emergence of peer mechanisms to establish trust, I think such an approach misses an important point. The Snowden disclosures of secret NSA information made public the scope of U.S. government surveillance worldwide. I do not condone in any way the Snowden disclosures, but I understand the widespread anger at the scale of the surveillance. Nassim Taleb, author of The Black Swan, was one of the first writers to point out that we are outraged by the federal government’s behavior but no one complains about Google’s collection of so much private data related to our Internet behavior. Effectively, we have more trust and confidence in a Google or a Facebook than in the U.S. government. Whether Google or Facebook warrant the trust may still need to be determined, but they portend a new future.
What Bitcoin may be is an early step in the replacement of government as a mechanism of trust. That is pretty exciting! IT technology provides the basis to reduce or restrict government involvement in our lives. Bitcoin could replace the U.S. Dollar or at least the Argentine Peso. No partisan politics involved. Just a return to the original concepts of Locke and Hobbes initiated by individuals linked by technology.
Can Bitlections or Bitferendums be far behind. They will show up at the local level, where government is most effective and the resources are most limited. Urbanization may be a major contributor to such a change as the scale of social problems overwhelm the politicians to the dismay of "voters". Taxes payable in Bitcoins to Google, acting as a trustee??
Remember: disruptive innovations are frequently classified initially as "crazy".
About a month ago I wrote a story,"Phonebloks: Absolutely the Coolest Geek Idea of 2013". Today Fierce Wireless published a story that Motorola's project Ara is joining the Phonebloks' movement. Setting aside poetic license, I love the idea of a Phonebloks "movement". Every great idea should target the status of a movement. Martin Luther King, One Laptop per Child and the early days of PCs, to cite a few examples, all achieved the status of a movement. Perhaps Google's ownership of Motorola was all that it took to go from "crazy idea" to a community and soon a movement.
For those of you who do not memorize SF blog posts (which you should), let me remind you of Phonebloks. Phonebloks is built on the idea that instead of upgrading a phone by buying a new one, one could merely purchase upgaded components (screen, processor, wi-fi antennae, etc.) that would snap on to what Motorola calls an endoskeleton. Every phone would become reparable or upgradeable at a fraction of the current cost.
Now that Google has announced replaceable component phones, Samsung will soon come out with their take on the Phonebloks concept. Like the popularity of open software, perhaps this new variation of open hardware will inspire upgradeable TVs and printers. Just the reduction in carbon emissions from shipping parts rather than new units should motivate us to support the Phonebloks idea. Perhaps we will even see the return of electronics repairmen to swap out compnents for those of us challenged in the physical world. Turning IT into a components design and manufacturing business (ignore operating systems for the moment) would probably lead to the breakdown in the industrial clusters in China and the return of manufacturing jobs to the U.S. If most applications move to the web because of ubiquitous Internet connectivity, the complexity of computing devices including phones could be simplified. This would result in the simplification of operating systems and a reduced requirement to re-write for new components.
I pre-ordered a Palm Pilot and the first Blackberry with voice. I think a phone based on the Phonebloks concept could be a change of similar proportions.
This post is a synopsis of my lecture today in my three entrepreneurship classes.
It is widely recognized that a product/service must induce emotional engagement by a customer for a sale to occur. Seems simple enough an idea, but in practice it is quite challenging to achieve. Many would say that if you solve a customer problem, you will generate sufficient emotional engagement for a sale. Solving the customer problem is necessary, but not sufficient--especially in a competitive market.
One way to think about emotional engagement is the increasingly popular Golden Circle. Simon Sinek popularized this technique in his Ted Talk in 2009 where he discusses a three-part communications strategy of why-how and what. Personally, I like the fact that a process was being applied to understand emotional engagement and communicate it, but the talk, despite its popularity, was insufficient for me to be able to apply it until recently.
The hard part of the Golden Circle is picking the "why". Everybody can answer the "what"--the product or service--and "how" is also straight forward. The "why" is the key to achieving that comparative advantage in emotional engagement.
Fortunately a recent Fast Company story, "Want Your Kickstarter To Work?", provides such an excellent example of the "why" that even I now get it. Make sure to watch the video in the article, where the concept of "why" is beautifully illustrated.
About 40,000 years ago the human brain changed and for the first time we could use representational art to mirror objects in the physical world. Representational art is the foundational concept of innovation Not surprising was that at this time the first cave drawings appeared. What also happened, which is surprising, is that the exchange of goods, the predecessor to business as we know it, appeared. Innovation gave man the ability to manage abundancy and scacity, which lead to the division of labor and the ability to enter into exchanges of goods.
With the advent of innovation and business, man was no longer trapped in the hunter-gatherer life style and cities first emerged. Cities basically were organized because they provided certain efficiencies which fostered the division of labor and exchange. With each major introduction of new technology thereafter (agriculture, steam engines, electricity, etc.), the number of people in cities as a percentage of the total population increased. Today many authorities expect 70 percent of the world's population to live in cities by 2050, or approximately 7 billion people.
Of course most cities were planned and organized when people road horses or used trolley cars for public transportation. Little attention was paid to air pollution, mortality rates or supply logistics. Basically no large city in the world was designed for the expected scale of urbanization by 2050. Government, almost always focused on maintaining the staus quo, has given little attention to the issues related to urbanization.
Fortunately, the Santa Fe Institute (SFI) and some other leading think tanks and universities are studying the problem. SFI focuses on complexity research "where physicists, biologists, mathematicians and the like congregate in attempts to decipher how the world works". (More on complexity.) This article from Big Think,"The Science of Cities: Is Urbanization Sustainable?", describes how SFI is approaching cities as large biological organisms as a way to better understand them. The Great Reset, by Richard Florida, does an excellent job of explaining the inevitability of increased urbanization as a result of the advent of computerization.
While everyone is focused on social media and big data to find the next Google, the bigger opportunities may lie in addressing the issues of urbanization. The first response may be "who wants to deal with the government". Recent events have surely reinforced such feelings, but I think that we will increasingly see the private sector take over traditional government services. Government lacks the resources to address social problems. According to HBS professor Michael Porter in a recent Ted talk (6.43 minutes in), government and foundations combined have annual revenues of of $4.3 trillion in the U.S. and the private sector has revenues of $20.1 trillion. The private sector will use these funds increasingly to fund privatization because they will no longer be able to tolerate government shortcomings in transportation, food, energy and health infrastructure.
So, the good news is I think future urbanization entrepreneurs ("urbaneurs") will have to deal less and less with government. The bad news is the problems are very near and inadequate resources are being directed to corrective action.
The Miami Herald blog, The Starting Gate, written by Nancy Dahlberg provides the best coverage of the Miami tech scene. The Starting Gate has excellent coverage of events, company fundings and infrastructure development. Infrastructure would include new incubators, new venture capital funds and the other types of organizations required to support entrepreneurship.
Lab Miami (an incubator) and Endeavor (a venture capital fund) have backing from the Knight Foundation. The Knight Foundation also has a program to provide seed funding to early stage companies. The program, Knight Prototype Fund, provides grants up to $35,000 for companies to develop demos. In a perfect scenario, a company could be awarded a grant from the Knight Protype Fund, move into Lab Miami to work on its demo and then be funded by Endeavor. Effectively,the Knight Foundation has funded all the key parts of the startup ecosystem in Miami. Particularly insightful on their part is that each piece of the ecosystem is a private sector type initiative, which is the same way that Israel successfully launched itself as a high tech hub.
Someone said that if you want to learn a subject, teach it. For seven years I have been learning about entrepreneurship through university teaching. The more I learn about entrepreneurship, the more I realize that classical economic theories provide tremendous insight into better entrepreneurship. A few examples to demonstrate my point might include:
Individual empowerment is the foundation of entrepreneurship--Friedrich Hayek
The asymetry of information leads to the entrepreneur's insight for a new business concept--Israel Kirzner
Economics also provides several methods to identify a new business concept:
Look for what is abundant and then look for that related item that is scare--economics of abundance
Look for ways to eliminate transaction costs--theory of the firm (Ronald Coase)
Economic value is related to the flow of information--information economics (Michael Spence)
Many more examples could be cited to demonstrate the two themes above (which is why we have comments on blogs).
I have finished my second book on social entrepreneurship and I am now thinking about a new book on techniques and processes to identify new business concepts to build large companies. Maybe I will call it "20 Techniques to Identify New Business Concepts". I have eight techniques already identified, but if I read more Nobel Prize winning economists (Hayek, Coase, Spence) I am sure I'll get to twenty.
As an alternative to a new book, I could always teach a new course (for me) on the economic fundamentals of entrepreneurship. Regrettably, that course would probably attract about one undergraduate student.
Read more economic theory, especially the Nobel Prize winners. It will help your entrepreneurship.
Today's post was inspired by an article I found on Google+. If you have a bit of the geek in you, you should use Google+. The Math Group is particularly good.
All the business/tech news recently is about Apple's new 5S phone. For a gazillion dollars you can have a better processor, a better screen, a better camera and a few other new features. If we look at the real benefits of the new phone, the new processor maybe cost $15, the new screen about $25 and the camera let's generously say $10. Adding a generous 40% gross margin, the total value of the three new features was around $80. However, a purchaser will actually pay a gazillion, which is a lot more $80.
Why can't we just buy the new components and plug them into an existing iPhone? Two reasons:
The iPhone (and every other mobile device) is not designed to be repaired by the owner
Nobody sells individual components for mobile devices
(If you are wondering why you never asked yourself this question, read this article on functional fixedness.)
Less you think I am crazy, a new project is being launched to addreess repairability and individual component sales in mobile devices--PhoneBloks. Think of lego blocks embedded with the major components of a mobile device. Want to buy a new screen, just buy that Lego block. Want the latest wi-fi antennae, just buy that block. See the picture below.
Now the phone may not be pretty enough for celebrities and those who go clubbing on South Beach, but for those of us who only upgrade our devices when the old one dies or a new version of the operating system has terrific new features (which in my case has never happened with a phone), a Lego block phone might actually get me to upgrade....a component. Follow PhoneBloks. It's a very cool idea.
Note: If Microsoft wanted to gain share in phones and tablets, this is a bold strategy that might work. Talk about disruptive!!
I now believe that entrepreneurship can be best understood as two seperate but interrelated processes:
Design Thinking
Business Model
Design Thinking, popularized by the Stanford University Design School, provides a systematic and collaborative approach to understand the customer at the emotional level as the basis to formulate a wide ranging problem statement and proposed solution which is then refined through several processes to be ready for market testing. The result of design thinking is the value proposition, which I define as:
"The unique [competitive] combination of emotional and economic benefits for which a customer will enter into an exchange [sale]."
Business Model is the process to commercialize the value proposition or "product", which provides additional opportunity to create value for the customer. Business model considers requirements such as revenue stream, selling method, distribution, partners and cost structure. There are many ways to think about business model, including Alexander Osterwalder's "Business Model Canvas", BCG's approach and my book on the subject--"Billion Dollar Company". Each of the approaches has a slightly different slant, but what they share in common is that the "product" is typically separated from the commercialization strategy. The value proposition is developed independent from the "go to market" strategy. Such a separation allows each of the two processes to be developed in a less constrained environment which generally leads to better thinking about each of the outcomes--value proposition and commercialization strategy.
Incrementalism, the addition of small changes or features [of little value], is common in business. It generally appears in businesses when revenue growth does not meet expectations or forecast. Incrementalism frequently is triggered by the realization that there is a lack of product-market fit, the inability to find a customer segment for the "product". Incrementalism also appears under pressure from the mantra--"constant innovation"--and small changes to the product are an easy fix.
To combat incrementalism and produce large changes valued by customers, I recommend:
Focus on the value proposition and not simply the product or service. Focusing on the value proposition should led to revisiting the emotional needs of the customer, wherein lies the understanding that produces the large opportunities. Also, customer needs are constantly changing, but emotional needs are usually more important than factors such as technology (as evidenced by the small percentage of customers that only buy the newest tablets with the fastest processor) or price.
Focus equal time and energy on business model changes. Value is a perception of the customer that extends well beyond the physical product characteristics or software features. Simple changes such as changing payment terms or using local distributors to improve customer service may unlock a segment of the market that is holding back on purchasing.
Systematically review value proposition and business model rather than waiting for the crisis of a missed revenue forecast. Calm, deliberate thought allows for a better understanding of the customer environment, better framing of the "problem" and more innovative solutions that avoid the trap of incrementalism.
Design thinking can also be applied as a method to develop meaningful changes in business model, but I will save that post for the future.
This post on value proposition from Fast Company provides a useful supplement to today's post.
This post originally appeared in The Starting Gate, the Miami-Herald blog by Nancy Dahlberg on entrepreneurship and the SFL tech scene.
Entrepreneurs who dream of starting a new business typically dream of creating the next Google, Crocs or Starbucks. To reach that scale, one needs to examine successful, large entrepreneurial companies. In doing so, one identifies two key factors that explain their scale:
1. The business concept or Quality of Idea.
2. The business model or Quality of Execution.
Execution, how the idea is implemented, determines the pace of revenue and company growth. To better understand successful execution in a startup one should focus on “business model”, which is a systematic approach to commercializing a product. There are many good writers on business model, such as Steve Brand at Stanford, Eric Ries of Lean Startup and Alexander Osterwalder, author of the “Business Model Canvass.” However, the slope of the revenue growth curve, reflecting the quality of execution, does not explain how big the company will be. Execution only determines how quickly the company will realize its potential and perhaps how capital efficient it will be. We will come back at another time to Quality of Execution and business model.
The key to building a really large company is the Quality of Idea or business concept because this is the factor that determines the market potential and therefore the ultimate potential size of the company.
Having worked hands-on with many entrepreneurs and their companies, I have found that many fail to give sufficient depth of thought to the original idea. Interestingly, serial entrepreneurs tend to put much more energy and thinking into the Quality of Idea for their second or third business than first timers. The question that the entrepreneur looking to build a large, scalable business should be asking at this point is “how do I improve the quality of the initial idea or business concept” of my company?
The most effective process that I recommend is “design thinking”. Design thinking has proven so effective a process that its use has expanded beyond product and service design to include almost any complex problem. For example, the U.S. Army adopted design thinking as the way to successfully approach the issue of insurgents in Iraq and Afghanistan. Design thinking has been popularized in part by the Stanford University Design School, and the school's website is an excellent resource to understand the process and the concepts.
To better understand the customer, design thinking begins with three key steps:
1. An environmental analysis to fully explore the needs of the customer
2. Formulation of a tentative problem statement
3. Proposal of a hypothetical solution to the problem
Part of the power of design thinking is the initial focus on the potential customer or user. The goal of the environmental analysis is to understand the customer such that you empathize with their situation. Without such an emotional realization one cannot generate the emotional reaction required from any customer to complete a sale. With this depth of understanding, the formulation of the problem tends to be a larger, more thoughtful concept. With the problem defined more broadly, the range of the hypothetical solutions naturally expands to consider many more alternatives, wherein lies the “quality”.
A recent example may illustrate my point. Suppose that you were tasked to develop an educational tablet for children. A superficial survey of parents would immediately lead one to the conclusion that parents want “electronic babysitters” and an entertainment device for children would be produced. A more thoughtful understanding of parents might show that they want to supplement what their children learn in school and they have difficulty choosing new software from the thousands of titles available. Parental control of website access and fear of exorbitant download bills might also surface. This type of analysis leads to a deeper understanding of the emotional issues of the parent and a more profound understanding of their problem. Properly framing the problem in an emotional context increases the likelihood of customer acceptance of the proposed solution and thereby increases market potential. (This example merely illustrates the first three major steps in design thinking. Reaching a market ready solution also involves collaboration, iteration, prototyping and many other concepts and techniques.)
To build a really large new company, one needs a high quality, well thought out idea and design thinking is one proven technique to produce such ideas. To increase the likelihood of realizing the market potential of the idea, execution is key and business model development is an effective process to formulate the execution strategy.
The Pino Center for Entrepreneurship at FIU, where I am a Board member, recently relocated off campus to Brickell Avenue in downtown Miami. With this change has come a new approach to workshops. Now Pino will offer lunch time workshops from 11am-1pm.The first workshop will be held on Friday, September 13.
I will be the speaker at this first workshop and the topic is how to develop an effective growth strategy. The topic will be relevant to companies from napkin stage to $30 million in annual revenue and examples will be drawn from both the non-profit and for-profit sectors. Very practical workshop with little theory.
I have been re-thinking the whole process of business concept development and will be presenting some new ideas since my book, Billion Dollar Company, was published in 2010. I now have a more formalized approach to identifying the opportunities that create large companies. If you have not heard me speak in 2-3 years, it may be worthwhile to come by for a refresher.
More details on the workshop are here. (Pino incorrectly identifies me as the current CFO of One Laptop per Child. This is a previous position.) If you are not familiar with FIU Downtown, the address is 1101 Brickell Avenue, Miami, FL 33131. The fee, which includes lunch, goes to Pino.
I also do workshops and training sessions outside of universities and would welcome the opportunity to speak to groups, companies and organizations. Possible topics include entrepreneurship, social entrepreneurship, innovation, finance, strategy, customer acquisition and financial management for non-finance executives. Topics can be tailored for both profit and non-profit organizations.
