The Reason Why Corporate Innovation Is So Hard

Gijs van Wulfen

Innovation is a paradox for all of us. On the one hand you are well aware that you have to take new roads before you reach the end of the present dead end street. On the other hand it is incredibly risky. It takes a lot of time. And it takes a lot of resources. Research shows that only one out of seven innovation projects gets launched and is successful. So saying yes to innovation is a step into the unknown. It creates fear of failure, which causes fear to innovate, especially in big organisations where a conservative corporate culture prevails.

On average it takes 18 - 36 months to develop a new concept, which often will only be profitable 2-3 years after introduction. Stimulated by short-term targets managers in big corporates focus on 'the business of today'. As innovator you want them to shift money and resources to the business of tomorrow, which is really hard.

Now be honest now: "Do you want to invest your personal savings in a project with a 1 out of 7 chance that it will be successful?" Probably you won't, unless you have to. And that is the real reason why a lot of managers wait until not innovating is not an option anymore. We all are humans.

I like to quote the CEO of BMW AG, the German luxury car producer, Dr.-Ing. Norbert Reithofer. When asked why BMW started the risky E-car project with the BMWi-3 and i-8 he responded very honest: "Because doing nothing was even a bigger risk" [Autoweek 41-2013].

Big corporations have often a very clear mission statement with an emphasis on innovation, a very well organised innovation process and professional innovation departments. Shareholders, board and bosses will however only stick out their necks for innovation if doing nothing is a bigger risk. This is the main reason why corporate innovation is so hard in practice.

So you how can you break the status quo and create momentum for innovation? Make them nervous that doing nothing is indeed a big risk. How? Identify the key persons in your company and confront them personally with concrete reasons for change that will move them out of their comfort zone.

So how can you make your managers nervous?

• Take them to visit start-ups challenging your position.
• Invite a trend watcher to confront them how quick the world is changing.
• Visit ex-customers who just changed to a very innovative competitor.
• Take them to Tech Universities to see experiments with new technologies.
• Spam them with articles of new successful business models;
• Visit young customers and ask what they think of your brand and - products.

Your conservative managers will say yes to innovation as soon as they get the insight themselves that doing nothing is an even bigger risk.

Go for it! Good luck.

Harnessing the Power of Awe To Engage and Inspire Your Team

When I’m in the wilderness, I love looking up into the sky and feeling awestruck by the magnitude of the universe. It blows my mind when I try to comprehend that that every star is a sun like ours. I feel both tiny in comparison and connected to infinite possibilities.

We’ve all experienced awe. We have those experiences that stop you in your tracks, catch your breath and open your heart and mind.

It turns out these experiences are important because they actually positively affect health and well-being. Studies found people who experience the emotion of awe felt they had more time, were less impatient and more willing to volunteer to help others.

As a manager, you can create experiences that inspire awe as a way to engage your team and bring them closer together. You can use it to sell your product or services more effectively. Or, you can use it to amaze your customers and turn them into raving fans. And why not? As a tool for influence awe is incredibly effective.

As a magician I make awe work for me. I often say I manipulate my audience’s feelings for their own benefit. The experience of awe opens people’s minds, and activates their creativity and problem solving skills. It has the potential to create a deep and meaningful impact.

The more awestruck you are, the better I’ve done my job. As a manager, you can use the same principles to manipulate your team for their own benefit. 

What Inspires The Feeling Of Awe?
While the feeling of awe is subjective, there are a few common traits:

1. The unknown - the pursuit of understanding the unknown inspires scientists, scholars, explorers and enthusiasts alike.
2. Nature - mountains, oceans, natural wonders, exotic animals.
3. Extreme size - what we see in the sky, or through a magnifying glass.
4. Technology - the possibilities of what it allows us to do and the rate it changes.
5. The future, and in some cases the past. We are amazed about what is to come and the history of the world.
6. Mastery - People who have really mastered their craft often are awe-inspiring. Watching a Cirque Du Soliel show is a prime example of this.
7. The unexpected - when your expectations are defied, you can get a moment of wonder.
8. Generosity - acts of kindness, unconditional love and generosity. 

5 Situations In Which Awe Can Help Influence Your Team To Their Benefit

1. When implementing large organizational changes 
Change can affect morale, commitment and productivity. When people become worried, they start becoming focused on their own needs. By facilitating experiences that use awe, you help your team to shift perspective from that of worry to seeing the positive opportunities that change brings. 

2. Resolving conflicts
Conflict is often a result of only seeing things from a single perspective. Awe is a pattern interrupt. By nature, awe expands someone’s thinking.  This is useful when people are stuck in old patterns and need to shift their perspective. 

3. Improving communication
I recently posted about The Empathy Toy - a tool that gets people to experience how easily miscommunications can occur, and elicits self learning and adjustment of communication. Participating in an experience like that creates moments of awe and wonder. 

4. Inspiring Innovation
Awe lurks in the heart of innovation. People who ponder how to fly, go faster or make something more efficient all harness the power of awe. When you want your team to think big, awe is a great way to get them there. 

5. Problem solving
Effective problem solving requires big picture thinking and the ability to see things from different perspectives. Awe helps to inspire new connections and ideas. 

Make Your Team Awesome!

 
Whether you are helping to break the everyday routine to spark some creativity, innovation and problem solving or you need to make changes and resolve conflict, awe is a powerful tool to influence your team members for their benefit.

A little awe can go a long way.

About the Author
Dan Trommater is a Speaker and Magician who transforms passive event attendees into engaged participants with unique keynotes and workshops. By using world-class magic, humour, stories and interactive exercises he delivers a powerful message about learning to see things from other people’s perspective. This provides business and life changing opportunities for those who adopt it.  Connect with Dan on Linkedin and visit him at www.dantrommater.com.

Why product strategy is key to innovation and new markets

Want to be a leader in sustainability? Start focusing on your product or service. 

 You're in business because your product or service delivers what your customers need. And a sustainable product strategy gives your customers the opportunity to reduce their impact through the purchase and use of sustainable products. That said, making the transition away from traditional products takes patience, perseverance and organizational buy-in.

Perhaps your organization's corporate sustainability evolution began with reporting and tracking metrics such as safety incidents or environmental violations. From there, you saw opportunities to drive operational efficiency and cut costs through initiatives like reducing fuel consumption by switching to electric or hybrid vehicles. A sustainable product strategy is a logical next step in the organizational evolution of corporate sustainability programs and has the potential to provide a huge upside.

A recent survey found that 32 percent of CFOs anticipate that over the next few years, about five percent of annual revenue growth will come from products and services that reduce environmental and social impacts. For instance, Dow Chemical's investment in sustainable product development to help customers address environmental challenges is projected to be a $350 billion market opportunity. While companies might see entering this market as a risk, we see it as an area of opportunity that is not as difficult as some might think.

For example, ThyssenKrupp Elevator Americas (TKE) understands that its industry is full of products that require regular maintenance and updating to keep riders safe and comply with regulations. The constant use of its products causes significant wear and tear. Therefore, TKE developed a suite of products called Modernization that allow building owners to choose the parts they need to repair their existing elevators without purchasing an entirely new elevator.

Furthermore, these Modernization products are more efficient, reliable and durable, so they can extend the elevator's life over a longer period of time with less maintenance. TKE has also developed a line of sustainable products that lowers energy costs, reduces power consumption by eliminating the use of a motor generator, and captures and reuses energy through advanced regenerative drive technology. Again, these products extend the elevator's life but they also reduce travel time for riders, reduce noise inside the cab and increase the overall ride quality.

Making a leap from operational efficiencies to sustainable product design requires a change in the way you view your company's products and services. It is an opportunity to see what you already do in a new light but also see the potential for further innovation and leadership. There are two distinct paths that you could take if you decide to make this leap from traditional to sustainable products and services.

1. Recognize the sustainability attributes inherent within current products and services.
Many companies do not see the sustainable attributes of their products. This is often due to being too close to those goods or having an outdated perspective. Once a company looks at its own products with an eye for where the environmental and social benefits are, it's often surprised at what it finds.

The Davey Tree Expert Co., a professional tree care and landscaping company (and a BrownFlynn client), is early in its sustainability journey and has been focused on operational efficiencies. Initially, Davey was hesitant to promote its products and services as sustainable -- even though a large part of its business is based on the preservation of trees and vegetation - because it was afraid of greenwashing. The best way to ensure environmental claims are trustworthy is to use research and analysis like a lifecycle assessment (LCA) to back it up.

A number of companies out there are highlighting the sustainable attributes of current products. A great example is Salesforce, which came out with its first sustainability report earlier this year, proclaiming that its cloud computing platform produced less carbon than a traditional client server IT environment by 95 percent. Salesforce's aim here is to show customers that using its platform will help them reduce energy consumption and achieve sustainability goals.

2. Redesigning with sustainability in mind
Redesigning products using sustainability as a lens for development is evident of true leadership in this space. Nike's Considered Design initiative enabled the company to recycle 82 million plastic bottles into high-performance sportswear and increase the use of environmentally preferred materials by 20 percent. The initiative resulted in additional operational efficiency success such as reducing waste by 19 percent in its footwear business, and achieving a 95 percent reduction in volatile compounds. These activities have never been seen before in the footwear category, showing how sustainability is a tool for innovation and differentiation in the marketplace.

Making the decision to move from traditional products and services to thinking and designing in a more sustainable way will help companies secure a place in the market for years to come. A sustainable product strategy boosts reputation and credibility amongst peers and customers. It opens up doors for new customers and opportunities not yet realized. To become a truly sustainable enterprise, offering a sustainable product or service is the final evolution.

Sara Kennedy is an analyst with BrownFlynn, working on sustainability strategies that drive business value.

Read more from Sara Kennedy.

Marissa Beechuck is an associate consultant and marketing manager for BrownFlynn, serving clients in a number of industries while managing the firm’s brand and social media presence.

Read more from Marissa Beechuk

CASE STUDY: COMPETING IN RETAIL– “DAVID VS GOLIATH”

By: Richard Peters

The retail industry and retail strategy have been major influences on the marketing and sales operations of a number of the companies with which I have been involved. I marvel at the innovation and creativity shown by some small retailers in the face of what may appear to be insurmountable competitive threats from much larger players. Probably the largest single threatening development facing small retailers are the “big box stores” the most notable of which is Wal-Mart and the niche market “category killers” such as Best Buy and Future Shop in the technology retail sector.

I want to share a few examples, which I believe,  you will find to be inspiring and motivating competitive advantage stories. These are cases where small retail owner/operators have grown and prospered by turning potential adversity into opportunity at a time when their peers were folding their tents in face of what they perceived as impossible odds.

As I write this case study, I am reminded of the bestselling book entitled “Who Moved My Cheese?” If you have not read this book, you must.

CATEGORY KILLERS

I have spent over 10 years helping software, hardware and internet organizations brand and market their products and services. In that time,  I dealt with dozens of retailers who either exclusively or primarily sold computers and related technology. As this industry started to consolidate “category killers” such as Best Buy and Future Shop became the nemesis of small technology retailers.  Aggressive pricing and extensive product selection caused numerous smaller retailers to close their doors.

Here are few examples of small IT retailers who through innovation managed to survive despite the odds. 

1.   As Best Buy and Future Shop were expanding and smaller retailers were closing their doors, one of our IT retailer’s was actually opening. If memory serves me correctly, he had 3 or 4 stores. I noticed that they were located very close to if not directly across the street from a Best Buy or a Future Shop. I asked him about the wisdom of this strategy. His perspective was that the big guys were either an opportunity or a threat and he chose to capitalize on viewing them as an opportunity

His competitive strategy focused on what he perceived were weaknesses or deficiencies in the big store business model. These were:

• When a consumer purchased a computer, TV etc. from a big store, they would invariably end up being sold cables etc. to accompany their major purchase. Often the additional cost of these ad-on items could be a few hundred dollars.  The store owner advised me that the prices being charged for these cables etc. were significantly marked up from what they had originally cost the store. Actually, the cables etc. were relatively inexpensive to the retailer but provided a significant margin opportunity. The same, by the way, is true of the “extended warranties”  often purchased when someone buys a new computer etc. These warranties represent significant bottom line revenue for retailers.
  
  
  This store owner began to advertise that, at his store, the cables etc. were included in the purchase price of any equipment. The owner noticed that while his big ticket items prices were fairly competitive with the big stores, his clients were willing to pay a little more for these major items to avoid the additional cost of the add-on items. In many cases, despite the fact that some of his big ticket item price was higher, when the customer  factored in the “free” cables and accessories, that they would be required to buy a “big store” , the total cost was less at the small retailer. 

•  Another competitive advantage was his “knowledgeable staff” and outstanding customer service.  In his stores he hired what he referred to affectionately as “nerds” who lived and breathed IT. The big stores on the other hand were less inclined to do so. The big operators offered clients access to in-store tech services such as “Geek Squad”at Best Buy who, if they were unable to deal with your issue in the store would visit your home or office and, for an hourly fee, would resolve whatever issues you had.  The smaller operator also offered to send a technician to a customer’s home “free-of-charge” to help them setup whatever new equipment had been purchased as well as resolve issues with existing equipment. He also opened his stores earlier and closed later than the big stores. He encouraged people to stop by on their way to work and on their way home.

The retailer found that people quickly discovered where he was. Word-of-mouth and referrals were a significant source of business. Once new customers did business with him, he found they tended to check with him before visiting the big stores for future purchases.

2.   Another IT retailer had his stores located in close proximity to supermarkets. He noticed that men were less inclined to want to spend time shopping with their wives or partners if they had someplace to which they could easily escape after parking the car and kill time while their other half was shopping. He trained his staff not to pressure people to buy but to create an atmosphere where people could come to relax, check out the equipment, have coffee, relax, ask questions and feel comfortable. He found that he developed a dedicated clientele who felt a loyalty to his store where they had developed relationships. They were even willing to pay slightly higher prices to shop there because of the level of service, customer relationship practices and convenience.

THE WAL-MART ADVANTAGE

Media and public interest groups have ensured we are well acquainted with the plight of small retailers as they face the “big box” effect caused by large operators moving into their markets. Wal-Mart, of course, has come to define everything that is evil about these big box operations. However, there have been instances where smaller retailers have risen to the challenge and turned even Wal-Mart adversity into opportunity.

A few months ago I read a story about a small “general merchandise” store in Alberta which had the misfortune to be located across from a new Wal-Mart location. The store had been operating for years prior to the Wal-Mart opening its doors but the effect of discounts and expansive product lines was taking its toll on the small store’s business. The owner decided that closing her doors was the final option but not the only one. She looked for opportunities that her new neighbor might provide. She came to realization that by altering her product line to consist of products not sold in Wal-Mart, she could take advantage of the traffic coming to Wal-Mart to also visit her store. 

The Wal-Mart parking lot became her store’s parking lot and her business did better with the Wal-Mart next store than it had before the Wal-Mart arrived.

CONCLUSION

In all these cases, the store owners looked out their store windows and did not see potential customers shopping somewhere else but rather people arriving in their neighbourhood looking for opportunities to spend money.

The challenge as these store owners saw it was to redefine the terms of competitive engagement and they chose to “complement” and “supplement” rather than compete.

 




Other case studies by Richard Peters:

• How Your Site R.A.T.E.S.
• Owning The Client Relationship
• Achieve and Maintain Competitive Advantage
• The Anatomy of a Turnaround
• Ancillary Business Opportunties

Why product strategy is key to innovation and new markets

Want to be a leader in sustainability? Start focusing on your product or service. 

 You're in business because your product or service delivers what your customers need. And a sustainable product strategy gives your customers the opportunity to reduce their impact through the purchase and use of sustainable products. That said, making the transition away from traditional products takes patience, perseverance and organizational buy-in.

Perhaps your organization's corporate sustainability evolution began with reporting and tracking metrics such as safety incidents or environmental violations. From there, you saw opportunities to drive operational efficiency and cut costs through initiatives like reducing fuel consumption by switching to electric or hybrid vehicles. A sustainable product strategy is a logical next step in the organizational evolution of corporate sustainability programs and has the potential to provide a huge upside.

A recent survey found that 32 percent of CFOs anticipate that over the next few years, about five percent of annual revenue growth will come from products and services that reduce environmental and social impacts. For instance, Dow Chemical's investment in sustainable product development to help customers address environmental challenges is projected to be a $350 billion market opportunity. While companies might see entering this market as a risk, we see it as an area of opportunity that is not as difficult as some might think.

For example, ThyssenKrupp Elevator Americas (TKE) understands that its industry is full of products that require regular maintenance and updating to keep riders safe and comply with regulations. The constant use of its products causes significant wear and tear. Therefore, TKE developed a suite of products called Modernization that allow building owners to choose the parts they need to repair their existing elevators without purchasing an entirely new elevator.

Furthermore, these Modernization products are more efficient, reliable and durable, so they can extend the elevator's life over a longer period of time with less maintenance. TKE has also developed a line of sustainable products that lowers energy costs, reduces power consumption by eliminating the use of a motor generator, and captures and reuses energy through advanced regenerative drive technology. Again, these products extend the elevator's life but they also reduce travel time for riders, reduce noise inside the cab and increase the overall ride quality.

Making a leap from operational efficiencies to sustainable product design requires a change in the way you view your company's products and services. It is an opportunity to see what you already do in a new light but also see the potential for further innovation and leadership. There are two distinct paths that you could take if you decide to make this leap from traditional to sustainable products and services.

1. Recognize the sustainability attributes inherent within current products and services.
Many companies do not see the sustainable attributes of their products. This is often due to being too close to those goods or having an outdated perspective. Once a company looks at its own products with an eye for where the environmental and social benefits are, it's often surprised at what it finds.

The Davey Tree Expert Co., a professional tree care and landscaping company (and a BrownFlynn client), is early in its sustainability journey and has been focused on operational efficiencies. Initially, Davey was hesitant to promote its products and services as sustainable -- even though a large part of its business is based on the preservation of trees and vegetation - because it was afraid of greenwashing. The best way to ensure environmental claims are trustworthy is to use research and analysis like a lifecycle assessment (LCA) to back it up.

A number of companies out there are highlighting the sustainable attributes of current products. A great example is Salesforce, which came out with its first sustainability report earlier this year, proclaiming that its cloud computing platform produced less carbon than a traditional client server IT environment by 95 percent. Salesforce's aim here is to show customers that using its platform will help them reduce energy consumption and achieve sustainability goals.

2. Redesigning with sustainability in mind
Redesigning products using sustainability as a lens for development is evident of true leadership in this space. Nike's Considered Design initiative enabled the company to recycle 82 million plastic bottles into high-performance sportswear and increase the use of environmentally preferred materials by 20 percent. The initiative resulted in additional operational efficiency success such as reducing waste by 19 percent in its footwear business, and achieving a 95 percent reduction in volatile compounds. These activities have never been seen before in the footwear category, showing how sustainability is a tool for innovation and differentiation in the marketplace.

Making the decision to move from traditional products and services to thinking and designing in a more sustainable way will help companies secure a place in the market for years to come. A sustainable product strategy boosts reputation and credibility amongst peers and customers. It opens up doors for new customers and opportunities not yet realized. To become a truly sustainable enterprise, offering a sustainable product or service is the final evolution.

Sara Kennedy is an analyst with BrownFlynn, working on sustainability strategies that drive business value.

Read more from Sara Kennedy.

Marissa Beechuck is an associate consultant and marketing manager for BrownFlynn, serving clients in a number of industries while managing the firm’s brand and social media presence.

Are you too busy?

Six Myths About Venture Capitalists

by Diane Mulcahy 

Steve Jobs, Mark Zuckerberg, Sergey Brin: We celebrate these entrepreneurs for their successes, and often equally extol the venture capitalists who backed their start-ups and share in their glory. Well-known VC firms such as Kleiner Perkins and Sequoia have cultivated a branded mystique around their ability to find and finance the most successful young companies. Forbes identifies the top individual VCs on its Midas List, implicitly crediting them with a mythical magic touch for investing. The story of venture capital appears to be a compelling narrative of bold investments and excess returns.

The reality looks very different. Behind the anecdotes about Apple, Facebook, and Google are numbers showing that many more venture-backed start-ups fail than succeed. And VCs themselves aren’t much better at generating returns. For more than a decade the stock markets have outperformed most of them, and since 1999 VC funds on average have barely broken even.

The VC industry wouldn’t exist without entrepreneurs, yet entrepreneurs often feel as if they’re in the backseat when it comes to dealing with VCs. For someone who’s starting (or thinking of starting) a company, the myths surrounding venture capital can be powerful. In this article I will challenge some common ones in order to help company founders develop a more realistic sense of the industry and what it offers.

Myth 1: Venture Capital Is the Primary Source of Start-Up Funding
Venture capital financing is the exception, not the norm, among start-ups. Historically, only a tiny percentage (fewer than 1%) of U.S. companies have raised capital from VCs. And the industry is contracting: After peaking in the late 1990s, the number of active VC firms fell from 744 to 526 in the decade 2001–2011, and the amount of venture capital raised was just under $19 billion in 2011, down from $39 billion in 2001, according to the National Venture Capital Association (NVCA).

But less venture capital doesn’t mean less start-up capital. Non-VC sources of financing are growing rapidly and giving entrepreneurs many more choices than in the past. Angel investors—affluent individuals who invest smaller amounts of capital at an earlier stage than VCs do—fund more than 16 times as many companies as VCs do, and their share is growing. In 2011 angels invested more than $22 billion in approximately 65,000 companies, whereas venture capitalists invested about $28 billion in about 3,700 companies. AngelList, an online platform that connects start-ups with angel capital, is one example of the enormous growth in angel financing. Since it launched, in 2010, more than 2,000 companies have raised capital using the platform, and start-ups now raise more than $10 million a month there. (Disclosure: The Kauffman Foundation is an investor in AngelList.)

Another new source of start-up investment is crowdfunding, whereby entrepreneurs raise small amounts of capital from large numbers of people in exchange for nonequity rewards such as products from the newly funded company. Kickstarter reports that more than 18,000 projects raised nearly $320 million through its platform in 2012—triple the amount raised in 2011. Passage of the JOBS (Jumpstart Our Business Startups) Act last year promises to support even faster growth by allowing crowdfunders to invest in exchange for equity and by expanding the pool of investors who can participate. 

Myth 2: VCs Take a Big Risk When They Invest in Your Start-Up
VCs are often portrayed as risk takers who back bold new ideas. True, they take a lot of risk with their investors’ capital—but very little with their own. In most VC funds the partners’ own money accounts for just 1% of the total. The industry’s revenue model, long investment cycle, and lack of visible performance data make VCs less accountable for their performance than most other professional investors. If a VC firm invests in your start-up, it will be rooting for you to succeed. But it will probably do just fine financially even if you fail.

Why? Because the standard VC fund charges an annual fee of 2% on committed capital over the life of the fund—usually 10 years—plus a percentage of the profits when firms successfully exit, usually by being acquired or going public. So a firm that raised a $1 billion fund and charged a 2% fee would receive a fixed fee stream of $20 million a year to cover expenses and compensation. VC firms raise new funds about every three or four years, so let’s say that three years into the first fund, the firm raised a second $1 billion fund. That would generate an additional $20 million in fees, for a total of $40 million annually. These cumulative and guaranteed management fees insulate VC partners from poor returns because much of their compensation comes from fees. Many partners take home compensation in the seven figures regardless of the fund’s investment performance. Most entrepreneurs have no such safety net.

Other investment professionals often face far greater performance pressure. Consider mutual fund managers, whose fund performance is reported daily, whose investors can withdraw money at any time, and who are often replaced for under performance. VC performance is ultimately judged at the end of a fund’s 10-year life, so venture capitalists are free from the level of accountability that’s common in other investment realms. They take on less personal risk than angel investors or crowdfunders, who use their own capital. And all investors take fewer risks than most entrepreneurs, who put much of their net worth and all of their earning capacity into their start-ups. 

Myth 3: Most VCs Offer Great Advice and Mentoring

A common VC pitch to entrepreneurs is that the firm brings much more than money to the table: It offers experience, operational and industry expertise, a broad network of relevant contacts, a range of services for start-ups, and a strong track record of successful investing.

In some cases those nonmonetary resources really are valuable. But VCs vary tremendously—both as firms and as individuals—in how much effort they put into advising and assisting portfolio companies. Among those who do mentor their CEOs, ability and the quality of advice can differ widely. There are no solid data about the industry’s delivery on this mentoring promise. But if you asked the CEOs of 100 VC-funded companies how helpful their VCs are, some would say they’re fabulous, some would say they’re active but not a huge help, and some would say they do little beyond writing checks. This last group isn’t necessarily bad, of course: Some CEOs may be happy to skip the mentoring and just take the cash. But for founders who have bought into the idea that VCs provide lots of value-added help, it can be a source of great disappointment.

The best way to determine whether a VC firm or partner brings resources other than capital to the table is to conduct your own due diligence, just as you’d do a thorough reference check on a key hire. Talk with the CEOs of the firm’s other portfolio companies and ask if the partner is accessible, how much he or she adds to boardroom discussion, and whether the CEO has received constructive help in dealing with company problems. Ask about resources the firm offers—PR, recruiting, and so forth—and whether those have been useful.

Some questions you should ask the VC firm directly, such as: Whom does it intend to put on your board? Is the person a partner or an associate? Does the person have any experience (or any other portfolio companies) in your industry? On how many other boards does he or she serve? Asking such questions may seem like common sense, but it’s shocking how few company founders actually make the necessary calls before signing up for a long-term relationship with a VC. If part of what makes a firm attractive is that it offers expertise, mentoring, and services, the entrepreneur needs to confirm that both the firm and the partner have a track record of delivering them. 

Myth 4: VCs Generate Spectacular Returns
Last year my colleagues at the Kauffman Foundation and I published a widely read report, “We Have Met the Enemy...and He Is Us,” about the venture capital industry and its returns. We found that the overall performance of the industry is poor. VC funds haven’t significantly outperformed the public markets since the late 1990s, and since 1997 less cash has been returned to VC investors than they have invested. A tiny group of top-performing firms do generate great “venture rates of return”: at least twice the capital invested, net of fees. We don’t know definitively which firms are in that group, because performance data are not generally available and are not consistently reported. The average fund, however, breaks even or loses money.

We analyzed the Kauffman Foundation’s experience investing in nearly 100 VC funds over 20 years. We found that only 20 of our funds outperformed the markets by the 3% to 5% annually that we expect to compensate us for the fees and illiquidity we incur by investing in private rather than public equity. Even worse, 62 of our 100 funds failed to beat the returns available from a small-cap public index.

Venture capital investments are generally perceived as high-risk and high-reward. The data in our report reveal that although investors in VC take on high fees, illiquidity, and risk, they rarely reap the reward of high returns. Entrepreneurs who are distressed when VCs decline to fund their ventures need only review the performance data to see that VCs as a group have no Midas touch for investing.

Myth 5: In VC, Bigger Is Better

Venture capital in the United States began as a cottage industry, notable in the early years for investments in companies such as Intel, Microsoft, and Apple. In 1990, 100 VC firms were actively investing, with slightly less than $30 billion under management, according to the NVCA. During that era venture capital generated strong, above-market returns, and performance by any measure was good. What happened? During the peak of the internet boom, in 2000, the number of active firms grew to more than 1,000, and assets under management exceeded $220 billion. VC didn’t scale well. As in most asset classes, when the money flooded in, returns fell, and venture capital has not yet recovered. The number of firms and the amount of capital have declined since the boom, though they are both still far above the levels of the early and middle 1990s.

What’s true for the industry is also true for individual funds: Bigger isn’t better. Company founders often feel that signing a deal with a large VC firm lends cachet, just as MBA students may get special pleasure from being offered a job by a big, well-known employer. But industry and academic studies show that fund performance declines as fund size increases above $250 million. We found that the VC funds larger than $400 million in Kauffman’s portfolio generally failed to provide attractive returns: Just four out of 30 outperformed a publicly traded small-cap index fund. 

Myth 6: VCs Are Innovators
It’s ironic that VC firms position themselves as supporters, financers, and even instigators of innovation, yet the industry itself has been devoid of innovation for the past 20 years. Venture capital has seen plenty of changes over time—more funds, more money, bigger funds, declining returns—but funds are structured, capital is raised, and partners are paid just as they were two decades ago. Any innovation in financing start-ups, such as crowdfunding and platforms like AngelList and SecondMarket, has come from outside the VC industry. 

The story of venture capital is changing. Entrepreneurs have more choices for financing their companies, shifting the historical balance of power that has too long tilted too far toward VCs. Entrepreneurs will enjoy a different view as they move from the backseat into the driver’s seat in negotiating with VCs. An emerging group of “VC 2.0” firms are going back to raising small funds and focusing on generating great returns rather than large fees. And the industry’s persistent underperformance is finally causing institutional investors to think twice before investing in venture capital. As a result, VCs will continue to play a significant, but most likely smaller, role in channeling capital to disruptive start-ups.

Diane Mulcahy, a former venture capitalist, is the director of private equity for the Ewing Marion Kauffman Foundation, an adjunct lecturer in the entrepreneurship division at Babson College, and an Eisenhower Fellow.  

6 Success Questions YOU Must Ask

Progress and innovation - and ultimately success - are significantly influenced by questions which have been asked. Either asked out of necessity or out of general curiosity.

Unfortunately many of us have forgotten how to ask questions. Others have become too lazy to ask them. And again others might not have many opportunities to raise questions or are afraid of doing so. Why?

Let´s face it: Our education systems, way of life, and even the business world is not geared toward questions. Moreover, we often tend to address topics in a superficial manner by asking questions which rather test and reward knowledge (mostly using closed questions) than stimulating inquisitiveness (applying e.g. open questions).

To flip that I suggest to apply the following set of powerful questions both in personal and professional settings:

The WHY? Question
This should be the very first question to be asked. It encourages you to step back. It makes you think about the deeper purpose, the vision, and the need for change. Restless and successful companies, often also start-ups, are true Why Question Masters. Examples:
"Why am I doing that?“
"Why have they chosen this color?“
"Why are we doing it this way?“
"Why are we in this business?“

The WHY NOT? Question
It´s more than just the opposite of the „Why?“ question. It is about overcoming resistance. Your own inner one and/ or objections from others who challenge your thinking and ideas. Examples:
"Why am I not stopping it right now?“
"Why are we not selling dog food instead of cars?“
"Why might our customers not like this offer?“

The What If? and What If Not? Questions
These questions take us further in the decision making process. They make our ideas more real and bring them closer to a possible implementation. They also help us to find out which answer and solution is the most adequate one. And which ones might not be suitable at all. Examples:
"What if we were to do it like x or y?“
"What if money were no issue?“
"What if I did not run this project?“
"What if our company were not to compete in this market segment“

The What Else? Question
This is a crucial question which frequently and easily is forgotten. Still, it´s key as it motivates us to change our perspective even more drastically. It assists to continue to ponder on different options and on possible alternatives. It stimulates us to think in bolder terms and to further peel the onion. Examples:
"What else can we do?“
"What else would Warren Buffet do?“
"What else can product X deliver?“
"What else do our customers expect?“

The How? Question
This is the second last question. Usually also the most difficult one as it bridges the creative and strategic thinking and questioning process with more operational aspects, questions, and tasks. Examples:
"How I can I improve my life by doing this?“
"How can we best launch the product“
"How would Peter or Sarah do it? How would company X do it? How would they do it in another industry?“

The Who? and When?/ By When? Questions
Finally, and to ensure implementation of our answers, ideas, and concepts we need to raise these two sets of closed questions (note: do not ask any closed question any earlier than at this stage of the evaluation process). Examples:
"Who will take care of such customer complaints?“
"When can we deliver it?“
"By when will Fred have changed the material?“

Regrettably, asking the right questions is typically not taught in schools or MBA programs. Using questioning in your daily life, i.e. using the right questions to overcome fear of failure, bringing more alteration to your life, and helping you uncover what you really want to do with your life is very powerful and assists in triggering improvements and innovations.

Today´s speedy business world often considers asking questions as a waste of time and a distraction from executing. I´m a general supporter of the "just do it and bias for action“ mentality. At the same time, I believe in thinking, analyzing, reviewing and drafting a thorough strategy.

And to do that in a solid and comprehensive manner, we firstly need to ask the right questions. Or, in other words:

He who asks a question is a fool for five minutes; he who does not ask a question remains a fool forever. (Chinese Proverb)

Andreas von der Heydt is the Head and Director of Kindle Content at Amazon in Germany. Before that he hold various senior management positions at Amazon and L'Oréal. He's a leadership expert and management coach. He also founded Consumer Goods Club. Andreas worked and lived in Europe, Australia, the U.S. and Asia. Andreas enjoys blogging as a private person here on LinkedIn about various exciting topics. All statements made, opinions expressed, etc. in his articles only reflect his personal opinion.

Disrupting Yourself

If you aren't disrupting yourself, someone else is.

In this blog, I want to teach you about a powerful tool you can use to disrupt yourself.

Your survival as a company and as an entrepreneur depends on it.

It all began at Lockheed in World War II…
In 1943 the defense department called Kelly Johnson, the head of engineering at Lockheed, with an impossible task.

The German fighter jets had just appeared over the skies in Europe and America desperately needed a counterpunch.

Johnson accepted the critical mission and designed, tested and delivered America's first jet fighter, the P-80, in a record 143 days.

Today you can't even negotiate a contract in 143 days, let alone deliver a final product!

Johnson's success and his team (Lockheed's Skunk Works) changed the course of the war.

It also created a philosophy for rapid innovation which is still used by the most innovative companies today.

"Going Skunk": The 4 Secrets to Innovation

Today, "going skunk" is often used to describe the creation of an especially enriched environment that is intended to help a small group of individuals design a new idea by escaping routine organizational procedures.

Beyond Lockheed's Skunk Works, incredibly inventive companies like Google's GoogleX organization use the same principles.

In general there are 4 big secrets to their success that are worth learning and repeating.

Secret #1: Big Goals – Setting Moonshots

Companies do not "go skunk" for business as usual.

They do so to tackle Herculean challenges.

Skunkworks are built around what psychologists call high, hard goals.

Big goals lead to the best outcomes -- If you want the largest increase in motivation and productivity, then form teams around "moonshots," as Google calls them.

Big goals significantly outperform small goals, medium-sized goals, and especially vague goals for two reasons: focused attention and increased persistence.

The team is more willing to try again if they fail the first, or second, or third, or one hundredth time.

Secret #2: Extreme Isolation

Steve Jobs famously said, "it's better to be a pirate than join the Navy," as he hoisted a pirate flag outside the building housing his Mac development team.

This may be the most important key to success in a skunkworks.

You have to wall the skunkworks off from the rest of the corporate bureaucracy.

Isolation stimulates risk taking, encourages weird and wild ideas, and acts as a counterforce to organizational inertia.

Organizational inertia is fear of failure writ large.

It is the reason Kodak didn't recognize the brilliance of the digital camera, IBM initially dismissed the personal computer, and AOL and Radio Shack barely exist anymore.

Astro Teller, the director of Google X (Google's skunkworks innovation lab), says, "In any organization, the bulk of your people will be climbing the hill they are standing on. That's what you want them to do. That's their job."

"A Skunkworks does a totally different job. It is a group of people looking for a better hill to climb."

"This is threatening to the rest of the organization. It just makes good sense to separate these two groups." 

Secret #3: Rapid Iteration – The Importance of Rapid Feedback Loops

As my coauthor Steven Kotler likes to point out, "the road to BOLD is paved with failure."

This means it is critical to have a strategy in place to handle risk and learn from mistakes.

As the unofficial motto of Silicon Valley goes, "Fail early, fail often, fail forward."

Instead of launching a finely polished gem, companies now release a "minimum viable product," then get immediate feedback from customers, incorporate that feedback into the next iteration, release a slightly upgraded version, and repeat.

Instead of design cycles that last years, the agile process takes weeks and produces results directly in line with consumer expectations.

As LinkedIn founder Reid Hoffman says, "If you're not embarrassed by the first version of your product, you've launched too late."

This is rapid iteration.

Trying out crazy ideas means bucking expert opinion and taking big risks.
It means not being afraid to fail – because you will fail. 

Secret #4: Intrinsic Rewards

For most of the last century, science focused on extrinsic rewards, that is, external motivators.
These are "if-then" conditions of the "do this to get that" variety.

With extrinsic rewards, we incentivize the behavior we want more of and punish the behavior we dislike.

For example, in business when we want to drive performance, we offer classic extrinsic rewards: bonuses (money) and promotions (money and prestige).

The problem is: a growing plethora of research shows that extrinsic rewards have greater costs than benefits.

Once people's basic needs are no longer a constant cause for concern, extrinsic rewards lose their effectiveness and can crush the high-level, creative, conceptual abilities that are central to current and future economic and social progress.

Intrinsic rewards, meaning internal emotional satisfactions, become far more effective.

The secret to high performance is our deep-seated desire to direct our own lives, to extend and expand our own abilities, and to fill our life with purpose.

Gaining autonomy, mastery, and purpose are motivators enough to make us work to our highest potential. 

Being Bold, Going Skunk

Since Lockheed's massive success, everyone from Raytheon and DuPont to Walmart and Nordstrom has gotten in on the skunk game.

In the early 1980s, Apple cofounder Steve Jobs leased a building behind the Good Earth restaurant in Silicon Valley.

He stocked it with twenty brilliant designers and created his own skunkworks.

The result – the world's first Macintosh computer.

This approach can by applied to any business, group, organization that wants to innovate and go bold.

Written by

Peter Diamandis

Taking Risks

6 REASONS TO JOIN AN ADVISORY BOARD

VIDEO:     6 REASONS TO JOIN AN ADVISORY BOARD 

In this video, Rhonda Barnet, Vice President at Steelworks Design, explains how independent advice and support from a board helped her company survive difficult times and find new success.

 

Advice you can count on

BDC - First-ever Canadian study on the use of advisory boards by SMEs. Impact: 86% of leaders believe that having an advisory board has had a significant impact on the success of their business. Areas of impact most often cited: ·         Company vision ·         Innovation ·         Risk management ·         Profitability. Main reasons that SME leaders set up advisory boards: ·         Complementary expertise ·         Need for advice and support in decision-making. Statistical analysis of businesses’ financial results: ·         Sales growth stronger after instituting an advisory board: ·         66.8% sales growth in first three years after an advisory board was set up vs 22.9% in the three previous years. ·         24% higher sales - businesses with advisory board vs businesses without.

ROLE OF AN ADVISORY BOARD - BDC Study

ROLE OF AN ADVISORY BOARD ACCORDING TO AN SME BUSINESS LEADER

It is not unusual for the CEO of an SME to be a “one-man band,” personally seeing to every detail and micromanaging his business. Isolated, he tends to manage everything himself. According to Jean-Yves Sarazin, CEO of the Delom Group, an advisory board allows entrepreneurs to break free from their isolation and to have a sounding board to validate their strategies. An advisory board allows business leaders to question themselves and forces them to reflect. The mission of an advisory board is to ask the most relevant questions and delve deeper into underlying issues. It can also help compensate for weaknesses. An entrepreneur who lacks financial expertise can benefit from the recommendations of an advisoryboard member who has financial expertise. Moreover, an advisory board forces theleader to be prepared, triggering the thinking process: [Translation] “When preparing, one often self-corrects one’s strategy. Having an advisory board builds discipline.”

BENEFITS ACCORDING TO LEADERS

As a governance tool, advisory boards are not common among Canadian SMEs. However, according to business leaders who have set them up, they yield tangible benefits. When asked to rate the advantages on a scale of one to 10, they responded that the advisory board:

·         is an essential tool                                                                        8.2

·         is like having a sounding board                                                    8.1

·         is a support for the owner/management team                              8.1

·         allows you to develop a broader vision                                        8.0

·         strengthens the management team’s convictions                        8.0

·         forces management to look at the company                                7.5

·         challenges the company’s management team                            7.5

·         brings rigour in to the company                                                   7.2

·         is a driving force for the growth of the company                          7.1

            In particular, the existence of an advisory board allowed them to:

·         improve strategic business choices                                             8.0

·         broaden the universe of knowledge and skills                             7.8

·         develop new ideas                                                                       7.8

·         put in place a better management structure                                7.4

·         improve company reputation and image                                      7.3

·         reassure shareholders and investors                                           7.2

·         avoid costly mistakes                                                                   6.7

·         break down the isolation of company executives                         6.4

·         ensure succession of the company                                              6.1

IMPACT OF ADVISORY BOARDS

Most (86%) respondents who have benefited from the advice of their advisory board believe it has had a significant impact on their company. In particular, respondents note that advisory boards had a direct, positive impact on:

·         company vision                                                                            7.7

·         innovation within the company                                                     6.9

·         risk management                                                                          6.8

·         company profitability                                                                     6.8

·         company survival                                                                          6.6

·         sales growth                                                                                  6.6

·         labour relations                                                                             6.5

·         hiring the best emp                                                                       6.2

These results clearly show that an advisory board improves the company’s vision and enables better strategic decisions. Moreover, an advisory board encourages entrepreneurs to think long term and define a direction for their company.