Building an entrepreneurial society

Archive for the category “Trends and realities”

Leadership with a 20 year horizon

We have talked about the need for a 20 year horizon to bring about systemic changes that are badly needed.  One of these changes is a building an entrepreneurial society in a region.  What we also need to consider is how, in this world of short attention spans and 144 character messages, that we do that.  Let’s start by considering the type of leadership we need.

When we turn to our existing leaders we run into the limitation of four year terms or the need to hit the next quarterly results.  We also tend to find people more into their own image or well-being than that of the people they are supposed to be serving.  So we clearly need a new leadership model.

When we go about trying to make a change with a 20 year horizon we can’t just come up with a 20 year plan and then execute.  Most of us don’t know what will happen in the next six months to a year let alone 20 years.  So we need someone who can start the process and continue to drive it using vision and experimentation.  This person has to be comfortable with learning as they go and with a lack of structure.  They also have to recognize that they may not be driving the bus when it starts to demonstrate the envisioned impact.

The process has to be designed in a way that people who take over in the future build on the learnings and progress made by those that came before them.  The current leader has to build such a system and the future leaders have to accept and build from there.  Contrast this style to the throw it out and do it my way of many politicians and business leaders.

One person does not have the time, knowledge and energy to make these kinds of changes on their own.  They need to let people in; lots of them.  Some of the people will be long time, fully committed participants while others will be more transient.  As the path winds towards its destination there will be a need for changing skills.

While the end result may be years away there have to be interim measures along the way that help us determine our progress and make course corrections as required.  It is not practical to wait twenty years before we find out if something has a desired impact.  We need to set interim steps with measures and use these to learn and act.  Based on the results of a chosen path we can decide if it had the impact we expected and if it appears to be moving us in the long term direction.

The leaders have to be able to communicate the vision and the short term measures to keep their teams, funders, beneficiaries and other stakeholders interested.  There will be times when this leader will have doubts and will need to dig deep to keep the faith.

There are many traits of great leaders that are discussed and researched by a vast array of people and I won’t repeat them here.  I wanted to highlight the unique elements a leader will need to drive a long term systemic change.  Anyone fitting this description can send their resumes to me or better yet to those organizations that need this type of leader for their future success.

Misuse the term disruptive at your peril

The term disruption comes up constantly in the world of innovation but often in the wrong context.  Most people think of it as a big, breakthrough technology that will become the next big thing.  Most of the time it isn’t that at all. It usually starts out as something very unremarkable but has the ability to unseat market leaders over time.  It is because of its humble beginnings that a disruptive technology or business model is so dangerous.  By the time you recognize them it is too late to respond.  That is why it is also important to have a solid grasp of the concept.

The term was made famous by Clay Christensen in Innovator’s Dilemma and expanded by him and his colleagues in several works since.  A disruptive innovation is most often cheaper and of lower functionality than incumbent products.  They are aimed at the low end of the market who can’t afford the existing solution or don’t have the ability to use it.  The market leaders don’t pay much attention to the product or the market segment since they are focussed on building increasingly better versions of the product sold to the high end of the market.  But two things end up happening over time.  The increasing features of the existing products begin to exceed the ability of the market to absorb them and the product becomes more expensive and complex to use.  Secondly the disruptive product has improved over time so that it is now good enough for the mainstream market and usually at a lower cost.  The disruptor often has a lower cost structure than the incumbents and can make profits at lower margins.  It is almost impossible to companies used to high profit margins to lower their cost structure.

An established company with existing products aimed at existing customers could come up with a breakthrough on that product line.  But that breakthrough is not disruptive.  It is a sustaining innovation since its impact is to make the existing product better.  Companies should be looking for ways to improve their key products keeping their most profitable customers happy.  But they also need to set up a separate group with its own funding to find the disruptive opportunities.  Those that don’t often find themselves being blind sided by true disruptive products or business models.

Large companies as platforms for enterpreneurship

Entrepreneurship is not something that often arises when we think of large companies.  Maybe that is because we think of the legacy products and large scale infrastructure when we think of a large company.  We see bureaucracy and a commitment to productivity over change.  That perception would not be wrong because in most instances that is what they are.  They have legacy products and services that absorb most or all of their resources and attention.  Some have entrepreneurial units intended to create new products for the future that are poor second cousins and often amount to nothing more than window dressing.

I have long been curious as to the mix of large and small companies and how they will fit together going forward.  There are many cases of large companies becoming irrelevant as upstarts disrupt their markets and push them out.  Others just fade away over time as their market erodes or their performance declines.  Only a few seem able to go on through all kinds of change and turbulence and that number is declining.  Most struggle with innovation and rethinking their business models.

What if we looked at big companies in a different way?  We might see the potential for real innovation.

Large companies have some resources that would be valuable to the entrepreneurs as they develop their business models and try to scale them.  Large companies often have global reach with distribution and people in markets around the world.  They have infrastructure that enables large scale production and distribution.  There are lab facilities and other means of building and testing products and services.  There are usually financial resources that can be used to fund and build new ventures.  Finally they have people used to running larger entities and systems and processes that early stage companies can graduate to once they prove their business model.

With that in mind we could look at large companies as platforms with pools of capital on which to start and grow new ventures.  Thinking from this perspective will give a whole new structure to the lifecycle of businesses and products.  The company would not be the products but would be the mechanism to create, scale and retire a constant stream of products and services.

Part of the company would continue to focus on operational excellence in delivery of active products by constantly finding ways to improve their access to markets around the world and to efficient production and delivery of products and services.  The strength of this part of the organization will be essential in the ultimate success of products being developed.

Under this model all products would lack permanence.  They would be in place until the next generation moves them aside and funds would not be spent trying to extend the life of a dying product through price cuts and advertising campaigns.  The role of senior management would be to manage a portfolio of products and ensure that the knowledge and resources flow between the venture development and operational sides of the business.

With the market access, core product and technology knowledge and scaling infrastructures these companies would incubators on steroids.

Social entrepreneurs as catalysts for building entrepreneurship

In the last post we identified the need to have entrepreneurs become the leaders in building an entrepreneurial society.  We also acknowledged that these entrepreneurs would have to choose to take a leadership role and that is not always easy to encourage.  But there may be a sub-segment of the entrepreneurial community that would be predisposed to leadership and that is social entrepreneurs.

Social entrepreneurship is a rapidly emerging segment and will eventually evolve to the point where the social prefix will no longer be necessary.  But social entrepreneurs do bring a unique approach and that is one of being substantially driven by passion.  They also have to overcome many obstacles not experienced by traditional entrepreneurs since they tend to work with difficult problems.  Finally, they have been forced to support each other since they fall into a gap between traditional not-for-profit and traditional private enterprise.

It might also be possible that regions with low levels of entrepreneurship have more social issues to deal with compared to thriving entrepreneurial communities.  We should consider starting to build an entrepreneurial community with social enterprises led by social entrepreneurs.

Social entrepreneurs will also rely on the same support networks that traditional entrepreneurs require.  As the entrepreneurial community builds the support networks will become stronger.  These entrepreneurs will also serve as role models and mentors for traditional entrepreneurs.

Finally, if we look at a major objective of an entrepreneurial society it is to resolve the challenges we face through multiple entrepreneurial ventures.  Since that is what social ventures are about we could find ourselves better off by having them take the lead.

Moving from the lab to the practical world

There is constant research going on in government, university and corporate labs but we are left wondering how much of it is actually commercialized.  By most estimates only a small proportion ever is.  Presumably the rest sits on the shelf in the hope or expectation that someone, someday will find a use for it.  Too often we expect that the breakthroughs discovered will be self evident and the market will come to them.  There is a way to try and improve on this record by going back to our jobs to be done analysis.

As we have discussed in a number of posts, a technology will be marketable if it helps someone do a job they are trying to do better than they could without it.  If there is a solution in a lab that will fit this purpose then it has an opportunity for commercial success.  When we find a job to be done that we believe can be done better we can look then to research breakthroughs to see if there is something we can utilize.   By framing the breakthrough in the jobs to be done analysis we start to bring it out of the lab into the practical world.  From there we can apply the business plan process to test it out in the market and, hopefully, scale up a business around it.

There is another trend happening that creates a variation on the jobs to be done analysis.  Organizations are performing meta analysis where they gather data from basic research that has been done and look for ways to put some breakthroughs together in a useful manner.  If this form of analysis shows some patterns with a potential market viability we can then look for jobs that would be effected and determine if they could benefit.  While we have gone about it in a reverse manner (i.e. starting with the technology) we still need to tie it to jobs to be done before we can assess the potential for market success.  A technology that does not provide a practical world solution will not be successfully commercialized.

I believe that the reason universities and some corporate research facilities fail to commercialize technology breakthroughs is their technology first mindset.  They assume that any breakthrough has value in and of itself.  They need to link these technologies to uses in the market which is something they have little experience in.  That is why corporations have to ensure there is a good communication flow between their business units and their research facilities.  There a further opportunity for corporations to make breakthroughs they can’t use available to other organizations who can capitalize.  This step would create additional value for the company doing the research turning their facilities into profit centres.  It also benefits society when value is created from something that would otherwise sit on a shelf shielded by patent protection.

Universities and government labs have to ensure they work with private enterprise or even other government departments to find market benefits.  The non-research government departments need to start becoming more market aware as well.  There is no reason why it should only be private enterprise commercializing technology.  Governments around the world are facing critical financial problems that need innovative solutions.  Maybe they should be looking in their own research labs.

There is a hesitation in sharing that results from parties wanting to monopolize the financial and publicity benefits of their discoveries.  However these benefits will not arise if there is no commercialization.  So universities, government labs and corporations need to work out reasonable profit sharing models or we will be here next year, and the years after that wondering why we can’t commercialize discoveries.  It all starts with the people making the discoveries working with the people looking for ways to improve on the jobs being done.

Putting productivity into perspective

I read yet another column in the Globe and Mail that states that productivity improvement is the key to the future.  This productivity improvement was also the key for lower wage earners and the sustainability of a middle class.  That may be true depending on where the productivity improvement comes from.  If there is an increase in productivity from existing companies it could result in an increase in revenue and profits from sales to new customers.  It could also result in no new revenue and increased profits from reducing the need for people.  The former could help or sustain the middle class and low income earner while the latter will further erode them.

If we get productivity improvements from new companies that hire people then that is definitely a potential lifeline for middle and low income earners.  But first we have to start these new companies.  In that regard new enterprise creation is by far more important than productivity improvements.

The benefit that new enterprises have over existing ones is the absence of legacy infrastructure and corporate culture.  There is an opportunity to build in cost structures that enable them to compete on a global basis.  They can utilize technology and business model innovation with specific cost structure targets in mind based on the need to compete.  But there is also a need to have products or services that the world wants.

We need to lever Canada’s natural advantages and one of them is natural resources.  But we need to innovate around these to make more from value added production and the creation of new technologies and services.  There are other sectors besides resources where we can start to build enterprises around existing strengths and experiences.  This need was discussed in an earlier post.

The point I am making here is that a knee jerk comment that we need more productivity has no merit on its own.  But we do need to wake up and start looking for opportunities where we can build competitive new enterprises that have the appropriate cost structure built in.  That is the key to a sustainable future for Canada all of its people.

Where does Canada fit in a global economy?

As a country we have not been successful in building companies that have been successful in a global marketplace.  We have also been concerned about our inability to grow companies into strong mid or large market competitors.  There is a relationship between these two issues.  Canada is not a large market that is capabable of sustaining larger companies with a few execptions in protected industries.  We need to be able to build success in international markets if we are to create the kinds of companies that become long term success stories.

There is a constant complaint that there is not enough risk capital or follow on funding to build large companies in this country.  But I think we have this backward.  Capital follows opportunities and if we had the kinds of enterprises with growth potential then we would find the capital was there.  So we should start with the opportunity side of the equation.

If we try to mimic the Americans by competing in all market segments we will find ourselves spread too thin to match up to them.  We don’t have the population, management depth or financial resources to do this.  We have to look for areas where we have natural strengths and start focussing there. 

We have vast natural resources which is what has been sustaining a large part of our economy in recent years.  We have huge expanses of farmland and one of the worlds largest supply of fresh water that can make us a power in food production.  But despite these two obvious advantages we still fail to fully capitalize on them.  That brings me to the next step which is finding the right opportunities within these areas of strength that will have a global impact.    

We can sell raw materials such as oil and mineral or wheat to international companies that in turn process these into finished goods or we can find a way to do some of the processing ourselves.  If the world needs food and resources then they have to come to us.  All of the low cost labour in the world can’t make up for a shortage of water or arable land.  We will need to understand what products the world needs in these areas and start finding a way to produce the finished products ourselves using innovative techniques to keep our cost structure low.  This process will take some time to fully develop but we need to get started. 

We want to make sure we participate in technology innovation as well but here we also need to determine which technologies we have the best chance of success at.  We can try to compete against the world in digital media and computer technology and we will have some successes.  However, we may also find these markets much more competitive than ones where we have a natural advantage.  Competing in these markets is a numbers game.  The more participants we have the more successes we will have but the percentage will be small and it will be difficult for us to build sustained global market leaders.  There may be better ways to spend our money.

Turning again to food and natural resources there are many technology development opportunities.  With a capitve market sector we have a built in lab to test out and develop new technologies.  These technologies can be used by our producers to build competitive business models and to sell into international markets.  Right now we do not have strength in these markets and it will take time to build them.  But done with focus, we should be able to build some world leaders more cost effectively than competing in other areas of technology.

We can expand our advantages further by looking at agriculture not just as food production but as a health and nutrition market.  This expanded perspective will enable us to develop broader knowledge around health and nutrition that we can use to build stronger competitors in our own country but also to inform and consult to global food and health product producers.  We can do the same by looking beyond oil and gas to energy and environmental management.  We can use this wider scope to become world leaders in alternative energy and environmental technology.  We should also be able to provide expertise to other countries in natural resource management in mining and oil and gas.

If we could teach our telecom companies and banks how to compete globally, without the market protections they have enjoyed at home, we might be able to offer additional services to the world.  They will need to grow autonomous units that have low cost models before this opportunity becomes available but they have the resources to launch these ventures. 

Building strong global leaders in key markets will also build strong domestic companies especially in services.  We will need professional and financial services to support the companies with Canadian head offices.  Other support sectors in retail, hospitality, entertainment education and healthcare will thrive with a strong base of global competitors.  Without the ability to compete globally we will be just providers of natural resources and we will see our support economy continually hollowed out.

We obviously can’t solve all of the challenges preventing Canada from competing globally in one post.  There are other factors we will cover in future posts such as the need for private companies and owners that want to grow businesses and not just flip them at the first opportunity.  But the point I wanted to make here is that we need to work with the natural advantages we have in this country that will become increasingly larger in the future.  We have to focus and start now to build on them.  We have to push aside the notion that innovation only means IT and social media or that anything to do with natural resources or agriculture is old school.  We also have to avoid thinking we have to be smaller version of the US.  The same way we can lead the world when we focus on certain sports in the Olympics where we have an advantage we can do in business.   




What to do for the next ten to twenty years

Increasingly we are reading and hearing about major structural changes that are taking place in the global economy.  These changes are apparent in the weakness in Western economies while developing economies are still growing.  The seemingly permanent nature of some unemployment in the developed countries as manufacturing has moved offshore.  Some previously safe activities in accounting, medicine and engineering are also being moved to lower cost countries.  But what is most interesting is that these developing countries are starting to build their own businesses and institutions and will not rely on worked handed out by Western businesses.  The other comment that goes along with this discussion is that the transition will play out over the next ten to twenty years.

When a timeline like ten to twenty years is thrown at us we tend not to react with any sense of urgency.  In fact, we probably ignore the issue and carry on business as usual.  Maybe we believe someone else will take care of the problem or that we can suddenly just jump back into the game once the event takes place.  But this line of thinking is dangerous in the circumstances we now face for several reasons.

Firstly, the old way we have enjoyed for fifty or so years is not coming back.  It is not a case of just holding on for 10 or 20 years, get rid of our debt problem, tax some rich people and everything will be back to the way it was.  Setting aside the fact that 10 or 20 years of that would not be pleasant, it is not going to happen that way.  Too much has changed already and the changes will continue.

The impact of developing countries building self sufficient economies and pushing to create prosperity will evolve over this period of time and will not just suddenly appear.  We need to start evolving our way of doing business to mesh with these changes because future competitors, suppliers and markets will come from some of these countries.  They will also greatly impact the cost structure of business with the ability to complete at much lower prices than we currently can.

The modern world populations are aging while the developing world still has a large workforce of younger people.  We had been relying on immigration from some of these countries to maintain our workforce.  However, they will find increasing opportunities in their own countries and be less interested in ours.  We need to ensure we keep our innovative edge and we need to make sure we utilize the experience of all of our people.  Younger generations of tech saavy people combined with the business knowledge and experience of older generations is a combination the developing world doesn’t have.  We need to figure out how to mobilize that strength.

We have legacy infrastructures, institutions and attitudes to overcome.  The developing world has none of this and can build them from the ground up.  Many are currently held back a little by incompetent and corrupt governments and laws but will overcome these at some point.  We have to evolve our institutions and businesses to enable entrepreneurs and society to keep pace with developing societies.

When a business is faced with challenges from newcomers they have the choice of innovating their own new products and business models or eventually going out of business.  The successful ones will create internal startups that are looking for the new products that come online as the old ones retire.  They strive to make their own products obsolete before someone else does.  We need to do the same with our entire economies.  We need a strong entrepreneurial base that will mirror the approaches of the developing economies.  These new businesses will create new infrastructure, have lower cost bases, look at the world as the market and be ready to compete head on with these new economies.

As these entrepreneurs build these new business models and products they will help to define the kinds of laws, government, infrastructure and financial system needed.  We have to stop trying to bring the world back to the way things were because that is no longer an option.  We have to stop propping up obsolete industries and look for ways to evolve them or to create new ones.  We need everyone to think about how they will be effected and what they can do to contribute; you can’t be assured someone else will take care of it.  We need to start now not in ten to twenty years.

Business model versus technology innovation

When you mention innovation people often jump straight to R&D and think about the development of technology breakthroughs.  The key measurement often used is the amount of R&D spending per employee or number of patents.  While these are interesting measures they don’t tell the whole story.  The true questions is how much money does the company make from products using these technology breakthroughs?  Does the company make money from new products and processes or are the usually extensions of existing products?  Clearly, just spending money on R&D and filing patents does not alone make a company innovative. 

A difficulty entrepreneurs have with technology innovation is that it often requires deep technical skills in science and engineering and large funding commitments.  Further, much of the R&D spending fails to produce successful breakthroughs or take years to do so.  However, there is another type of innovation that is available to anyone and that is business model innovation.  This type of innovation involves establishing a form of business structure that serves a market in a unique way.   To use some of the terms from prior posts, the business model helps customers with their jobs to be done in a way that is disruptive to the market.

Many people believe that the technology exists today to solve most of the jobs to be done in the world, both big and small.  Whether or not you believe this is true you, have to agree that there is more technology available than people are able to use to its full potential.  There is also more data being produced than we are able to process effectively.  Entrepreneurs can find ways to tie some of these technologies and information together in ways that have not been tried before through business model innovation.  This new business model might create the ability to offer a product or service at a cost new customers can afford, the creation of a distribution channel that opens up information or services to previously unreachable markets or the simplification of complex products for less sophisticated users.

Some ventures could use a combination of both technology and business model innovation.  The entrepreneur could find a job to be done that can be improved, determine how to deliver the service and then build some software or other technologies to suit the business model.  Another person could use an existing technology, develop a business model to utilize it and then customize the technology to fit the business.

The power of business model innovation, in combination with the jobs to be done and disruption, is that they are often hard to replicate.  Technology, on the other hand can be leapfrogged, making it instantly a commodity or obsolete.   A business model can be designed in a way to swap in advances in a technology further enhancing the model.  

The important takeaway from this post is that an entrepreneurial venture does not mean having to conduct R&D, take big risks and create a technology breakthrough.  The most efficient first step is to look at what technology already exists and determine how it could be used in a unique way to solve a customer’s job to be done.  Avoid the idea that you have to create your own technology all of the time.  Even if you succeed in building something that is better than what is out there it may not be worth the money invested or the delay in launching the product or service.     

Business planning — from analysis paralysis to active learning process

We are used to seeing business plans that are many pages thick and have taken the startup team many weeks to build.  That would probably be a good way to go if we knew exactly who the customer was, what they wanted and how we were going to build it.  We would also know what our organization structure would look like and exactly how much money we need.  Unfortunately in a startup we don’t really know any of these things with any certainty.  A major problem with this planning approach, aside from over analysis, is that we tend not to want to change it once we have put it on paper.  We are destined to ride this one right off the cliff if that is where it takes us.

We need a different way to plan our business that acknowledges what we know and don’t know and gives us direction but with the flexibility to adapt as we learn.  This post will layout a new approach to planning that builds in active learning.

We have started by looking at jobs to be done and the people who do them.  Our plan will have a model of who the person is, how they do the job now and how we believe they can improve on it.  This is the beginning of the planning process.  We will constantly add to this model as we learn more.  We may also add new user profiles as we find other potential users over time.  We should have a belief that there will eventually be enough users to build a sustainable business around.

We have also assessed whether there is any other provider of these services to determine if it is a disruptive innovation.  If it is not then we need to look at different jobs to be done, different target users or abandon the venture.  We need to be constantly aware of competitor responses and new introductions and adjust parts of the plan accordingly.

Out study of the potential  users will also give us some insight into where they might purchase the product, where they might use it, what assistance or training they may require.  This part of the plan helps us plan for the distribution channel and part of the organization structure (i.e. do we need people to train).  This part will also evolve as we learn more.

Now we are ready to create a model of the business that will pull together all of the pieces we have assembled so far.  We want to build a model in Excel that demonstrates what success will look like.  How much revenue we need, what our margins will be, what our costs structure has to be, etc.  It is essential that the whole team be involved in building this model since the degree of learning that falls out is significant.  I am always interested in how much the team does not know about how the business works or needs to work until we put the model together.  There are many instances where it is necessary to go back to the product, customer or channel and rethink it based on what the model is demonstrating.

The model is a representation of the business strategy and is the bridge that links our customer/product/channel/organization planning to the execution.  We will use the assumptions in the model to develop the product in a way that let us test them out and evolve the product.

Once the model is constructed the team then has to separate facts from assumptions and then rank the assumptions based on how critical to the success they are.  Having identified the key assumptions we will test them using a structured experimentation process.  As in a scientific process the experiment will have a purpose (i.e. we want to test the assumption that users will download the product from our website), a hypothesis (a prediction taken from the model on the user acceptance rates) and a procedure which is what we will include in our launch product.  We create features, A, B and C to determine if the users will find them useful and download them from our site.

In Lean Startup, Eric Ries identifies two types of hypotheses, a value hypothesis test whether the product or service actually delivers value that the customer is willing to pay for, and a growth hypothesis tests how new customers will discover the product.  We will need to make sure we are moving in both directions by making the product more valuable and growing the user base.

We will also decide on how we will measure the results and include that in our experiment description.  The plan will have a series of these experiments along with the results.  The results may support or refute our hypothesis.  If they support it we will then move on to subsequent assumptions creating experiments for each of them as we go.  In each instance we will build only enough into the product to test the specific assumption we want to learn about.  We will also be updating the earlier segments of the plan such as product and customer for what we have learned.  The model should remain fairly stable at this point unless some of our learning significantly changes one or more of our assumptions.

If the results fall short of what we expected or demonstrate an unexpected turn they should be followed up with users to understand why.  This is a deeper learning tool that will help us to get the product back onto a user acceptance path.  What we learn from these investigations will inform the earlier parts of the plan.

The company could reach a point where there is no significant traction from the product as it is being delivered.  The company then has to revisit whether there needs to be a shift in the strategy by making changes to the major assumptions and redrafting the model or whether they should abandon the project.  The results from the testing and discussions with potential users will provide direction for these decisions.  We will discuss these types of decisions in future posts.

We can see by looking at this approach that the planning phase was not some big investment of time up front but was built as the company progressed through strategy and execution.  Also, by incorporating learning early it was possible for the company to identify missteps and correct them before they has exhausted their resources.  If the business ended up not proceeding then this process will let the company fail early before they spend excessive time and resources trying to prop up something that isn’t working.

A reason why people use the old way of planning is that some investors expect to see things in that format.  Using the learning approach will often mean fewer resources are needed up front and investors will have better insight into how the product is progressing before any revenue or profits start to accrue.  If you find yourself being pushed into the old planning model by investors then it may suggest you have the wrong investors.  Having the wrong investors for your business is something you want to avoid at all costs but that is a topic for another day.

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