Braden Kelley, founder of Business Strategy Innovation, shares his thoughts and observations on innovation and creating new profits
Tuesday, December 23, 2008
The War for Talent Escalating
Here is an interesting video on how China has started advertising on Silicon Valley billboards to attract tech talent from Silicon Valley back to China.
America used to be the top magnet for tech talent in the world, but now risks losing that mantle as other countries develop. Will American companies be able to find a way to stop the brain drain back to immigrants' home countries?
I came across an article today about Sprint offering a 3G/4G USB Modem for $149 with a $79.99 per month contract. This USB modem will automatically switch between Sprint's 3G network and Clearwire's 4G WiMax network when it is available (which is currently only in parts of Baltimore).
It is a great step forward for Sprint/Clearwire that will make the service more attractive, but will people really pay an extra $20 a month for such a big external device?
If they really want Clearwire to be a runaway success, they need to find a way to embed this kind of technology into the phone and allow tethering of the phone to any computer (especially laptops). If they did that and threw in 1000 minutes and unlimited texts and unlimited data for $60 per month. I'm in.
Snow in Seattle today. It will be interesting to see how many of my current clients make it to their office today. I for one am taking the bus and despite it being a bendy bus, it looks like it will manage to make it downtown. It had to go out and around a jack-knifed bus to make it up and over the bridge out of my neighborhood, but it made it.
Forecasters were sure we would get snow Tuesday night, but we didn't, nor did we get snow yesterday despite their predictions all day that we would. Snow didn't come to Seattle until last night. Most schools even announced closures based on these forecasts rather than waking up early to see if it had actually snowed. Forecasters blamed it on a "donut effect" meaning that the mountains to the west and east of Seattle took all the snow.
This Seattle snow fiasco is a good lesson in risk management. Is there really such a thing as 100% probability? While it is important to have a risk management strategy to protect yourself against events of low probability and high impact and every other combination, the key aspect of any such strategy is flexibility.
What if Costco or Nordstrom's had decided to close all of their stores based purely on the weather forecast? What would the unnecessary financial losses have been?
Flexibility is key. Flexibility in everything you do, from human resources to manufacturing to risk management. Without flexibility any strategy, policy, or process is doomed to have some snowless "snow" days.
Look at GM. Underinvestment in flexibility when times were good has left GM on life support and begging for money from the federal goverment because they only are capable of producing cars people don't want at a cost structure they can't sustain.
So when you are building any business or policy or process, look at whether or not you are designing it with the necessary flexibility.
Last week I came across an interview with Nassim Taleb, author of "The Black Swan." Mr. Taleb went on to talk briefly about the main thesis of the book - that every so often events come along that change our vocabulary and our way of thinking about the world around us. The example given, related to the title of the book, was that people in England used to sometimes say "I'm as likely to see that happen as to see a black swan." That of course was before the discovery of Australia, and before the discovery of - black swans. The point being that people always seek to explain the world around them using the past as a guide, but "black swans" always come along that don't fit people's previous understanding of the world.
The author then went on to talk about how he saw the financial crisis coming, and how beginning in about 2006 he started advising everyone close to him to move everything into cash. Living in Silicon Valley back in 2001, I saw the stock market and housing and consumer debt bubbles all forming, but I wrongly assumed that when the stock market bubble burst that the housing and consumer credit bubbles would also pop. We now know of course that they didn't and instead actually got bigger thanks to the acceleration of mortgage securitization and risky lending. This time however, the real estate bubble's explosion has of course popped the stock market and consumer debt bubbles.
Now of course, every economist and stock picker out there is seeking to explain the current situation using the past as a guide and the government is seeking to avoid the "mistakes" of the past. You have people calling a bottom in real estate, you have people calling a bottom in the stock market, and you have a few people saying the stock market will go down another 20-30%.
The truth is, this is a black swan.
Nobody has ever seen a residential real estate bubble, a stock bubble, and a consumer credit bubble all pop at the same time. One bubble not included in the list, but about to be added is the popping of the commercial real estate bubble. Because all of these bubbles have never all popped at the same time with the financial markets seizing up for good measure, nobody can really tell you what is going to happen next. I won't endeavor to either. But I will share with you my top five hopes and fears.
Hopes:
Things will bottom and the huge amount of money sitting on the sidelines in treasuries and money market funds will move back out into stocks and bonds and help to avoid some of the layoffs that would otherwise occur
The actions of the fed will be sufficient to keep the capital markets functioning
The stimulus package of Barack Obama and Congress will not result in a pork explosion and will help to set a floor to the downturn
The government will actually make money on its rescue efforts and the dollar won't collapse under the weight of all this new debt (meaning China and others won't dump dollars)
Private industry working with the Obama administration and state/local governments can help to spur the country into a leadership role in the next wave of global innovation
Fears:
Consumer spending will hold up better than expected in this holiday season and everyone will get all excited and the market will rally, only to realize that it was one last big debt-fueled hurrah and personal bankruptcies will surge in the first quarter (January-March)
Housing foreclosures which dropped in November will also remain relatively tame in December as people seek to be home for the holidays, only to see home foreclosures spike in the first quarter (January-March)
As retailers accelerate store closures in the first quarter and commercial real estate companies come under pressure, it will spark another round of trouble in the financial services sector and the credit markets may seize up again
Companies that have a heart and chose not to lay people off right before the holidays, will finally succumb and turn loose an avalanche of layoffs in the first quarter, making credit card and mortgage default problems even worse
The pent up aggression that we have seen erupt in places like Greece may erupt here if things get substantially worse
Clearwire recently completed the acquisition of Sprint's WiMax assets. Sprint's assets merge together with Clearwire's original WiMax assets to create the nation's largest WiMax operator.
I hate to beat up a local business, but Clearwire/Sprint represents a perfect case study of the perils of:
1) Letting ego drive strategy instead of market fundamentals 2) Launching into the marketplace too soon
Clearwire originally launched in smaller American cities where fixed-line consumer broadband was not widely available (making wireless broadband an attractive option). But, not content to fully exploit this niche, Clearwire instead began building out and promoting wireless broadband networks in first-tier cities like Seattle with a product that provided inferior speeds, service, and value. Instead of maximizing their niche strategy and waiting for technology and execution that provided a compelling value proposition for first-tier markets, they chose to launch with a sub-optimal offering and significantly increase their cash burn. I would argue that Clearwire made a mistake going after tier one cities when they did (destroying valuable brand equity they'll need later).
Meanwhile, Sprint was facing its own challenges in the wireless market (where they were now #3) and hoped WiMax would somehow propel them back into the top spot. Millions of dollars later Sprint decided the WiMax effort was a distraction and a money pit and agreed to merge their newly created Xohm unit into Clearwire in order to shore up their balance sheet and restore focus to their core business.
Collectively, Clearwire and Xohm have burned through a ton of cash and expect to lose an ever increasing amount now that they are starting to build out their network. A network they are starting to build out 1-2 years too soon. Why do I think that?
First, WiMax-capable mobile phones are a rarity and it will be another year before smart phones really start exploding in the United States. Plus, there are only a few laptops currently that come with WiFi/WiMax chips built-in. Given current economic conditions, in one to two years a huge majority (probably 70-80%) of people will still have laptops, desktops, and mobile devices without the capability of connecting to Clearwire's network. That means very few urbanites are going to subscribe to the network they are building.
So what should they do?
Delay building the network. Delay the start by 1-2 years. Lobby Congress to help make it an infrastructure project (Why not? - everyone else has their hand out). Roll out the network in line with technology adoption, not in advance of it.
Begin building the network when combination WiFi/WiMax capabilities begin to be built into the cheapest laptops, desktops and smart phones. If Clearwire starts building the network in network in 1-2 years instead of now, they'll be able to install faster or longer range hardware (probably for less), and there will be exponentially more people who will see the value of switching and potentially ditching both their fixed broadband and mobile carriers.
Personally I would love nothing better than to pay $40-60 a month and get both mobile phone service and broadband (for home and to go). If Clearwire can deliver that, I'll be first in line.
Verizon, Sprint, and AT&T have all tried to launch mobile TV in the United States, but with takeup at only 1% of cell users it's pretty easy to say that mobile TV has failed to prove itself to be an innovation.
Sure people might find it to be a useful invention, but customers refusal to pay an extra $10-25 per month for it on top of their $40-80 monthly contract, proves that it is not a valuable innovation. So if in the current environment customers might only take up mobile television if it were free, what are the mobile operators to do?
Stop offering mobile television as fast as they can....
That might be a little problematic for Sprint, given that they just signed a $500 million deal with the NFL, but maybe they have an out.
Why do I think that killing mobile TV as fast as possible is the way to go?
The article indicates that the existing offering were launched before sufficient technology was in place. Experience teaches us that launching a technology too soon is sometimes more damaging than not launching it at all. If people have a bad experience with a technology they are likely to do one of two things:
Stop using the technology and not try it again for a long time
Think the technology provider is at fault, ignore improved options from the same provider, and switch to a different provider instead
Either way the existing operators are likely to lose money in the short-term and long-term revenue opportunity and market share in the long run.
T-Mobile USA has the opportunity (if they are smart) to observe where the others are failing, talk to lots of customers to better understand their needs, and partner with someone like Slingbox to deliver something that customers find worth paying for.
While most individuals and organizations natural reaction to an economic downturn is fear and retrenchment, they also present a time of great opportunity.
Where would Microsoft be if they hadn't continued investing through the downturn of the early 90's?
Microsoft may never have finished the hugely successful Windows 95.
Where would Apple be if they hadn't continued investing through the technology crash of 2001-2003?
Apple may never have fully realized the promise of the iPod and subsequent iPhone.
When a recession arrives, great opportunity presents itself:
The unemployment rate increases (more available workers)
Interest rates drop (lower cost of capital)
People become fearful of losing their jobs making it easier to recruit from companies reducing or eliminating their innovation investments (increased labor mobility)
People are more open to moving if a spouse's job is eliminated or at risk (increased labor mobility)
When a recession arrives, it is easier to acquire tax breaks or other incentives for expansion, new sites, etc. (lower investment costs)
So, if companies have positive cash flows or significant amounts of cash on their balance sheet, or promising ideas to invest in, then there is no better time to invest. Companies with the courage and financial capability to invest in innovation through a downturn, absolutely should.
In addition to all of the other benefits, there is no better opportunity to achieve competitive separation through continued investment in innovation.
It does, however, take a strong CEO and steady board to have the courage and conviction to make such an investment. Innovation is not a perfect science and requires a tolerance for failure and a long-term commitment.
In today's short-term Wall Street quarterly profit-driven corporate reality, investors' short-term outlook may be the biggest impediment of all. But, smart organizations will find strategic solutions to overcome this impediment.
Organizations should take the following strategic actions to maintain or expand their innovation initiatives, despite the current global economic downturn:
Secure the leadership flexibility capable of continuing to invest in innovation despite financial pressures
Identify resources that you would like to have had access to during good times, that you might now have access to such as:
Labor in scarce specialties
Affordable capital
Scarce real estate
Increase competitive monitoring to identify opportunities that may be created in areas where the competition reduces previous innovation investment
Increase customer research to identify opportunities to refine your ability to deliver products and services that deliver increased customer value, ideally at lower cost
Improve your innovation processes to improve your ability to innovate more quickly and effectively than your competition
Improve your organizational agility to increase its flexibility to adapt to changes in market conditions caused by the downturn and to shift resources efficiently and with increased speed
Organizations that take these necessary strategic actions, will come out the other side stronger than the competition, stronger than ever before, and create opportunities to preserve or attain market leadership.
Interview with Humdinger Wind Energy's Shawn Fayne
I had the privilege yesterday to interview Shawn Frayne, a founder of Humdinger Wind Energy. This being the Internet Age, we didn't have to wait until we could sit down in person to chat. Instead it was an almost commonplace phone to Skype, to mobile (Skype Forward) call from Seattle to Hong Kong.To my parents, I would say "I interviewed him by phone."
Background
Humdinger Wind Energy was inspired by Shawn's discovery of the story of the Tacoma Narrows Bridge collapse of 1940. From seeing video of this historic collapse, Shawn became inspired to try an alternative approach to generating electricity from wind energy. The genesis of the wind belt and subsequent founding of Humdinger Wind Energy Was the result of an initial goal 4 or 5 years ago to create an inexpensive wind generating device to power simple LEDs for lighting, or to recharge cell phones in Haiti. This original goal then evolved to a goal of developing affordable rural lighting and rural electrification solutions.
The genesis for the company may have come out of seeking to do social good, but Humdinger Wind Energy is not a pure social play. They are a for-profit start-up that can stand on its own. Humdinger has already gone through a significant angel round that is enabling it to a technology transfer level.
Implications - Wealthy vs. Developing Countries
Though the wind belt technology has developing country implications, it also has wealthy country uses that they can address through technology licensing to existing energy players. The goals of the organization when fused together are to use revenue from wealthy country applications to fund longer term developing country applications. They are more akin to someone like Motorola developing an inexpensive phone to address low-income customers, than an international development organization. Humdinger has a triple bottom line, but also endeavors to meet traditional company goals of making revenues and profits.
Education
In part to support the different goals for wealthy countries and developing countries, Humdinger has decided to make part of their intellectual property available for educational exploration. One of the purposes of doing that is to treat the wind belt as open source hardware in the developing countries while at the same time patent protecting it in developing countries. Shawn had some of the following things to say about this:
"We've built the system described in the education document ourselves in three minutes."
"Hopefully having more people working on it will advance technologies faster."
"People were downloading videos and experimenting with the idea itself and a community was starting to develop."
"This community inspired us to put out more information than we had previously explored."
"So far we have had 1,100 downloads of the document."
"To this point we haven't gotten much feedback other than saying they are excited to work on it."
"This approach is also in our best interests because any company seeking to harvest or create energy in a new way has to convince people that the new approach works in order to move out of the fringe."
Open Innovation
We also discussed the open innovation movement and Shawn doesn't fully agree with the open innovation approach. He doesn't think that the human species has reached the point where invention is highly social at scale. He believes that optimal invention is still limited to small groups of people working together in person. Also for Humdinger to be financially viable he feels they must have some amount of protection around their ideas in wealthy countries. Here are some more of his thoughts:
"The problem is not generating new ideas..."
"There are 1000 different ways to address a problem, the bigger problem is how do you effectively select what to test. You can't test all the approaches. How do you pull out the right ones to test?"
" You still need a small group to select the correct solution to pursue."
Social vs. Commercial
There are four primary members of the leadsership team: Shawn Frayne, Jordan McRae, Jerry Chun, and Kurt Kornbluth. As they grow, they will likely merge some of their ideas with those of one of their informal advisors (Paul Hudnut at Colorado State University) and create small incubators of 4-5 people ("Virtual Innovation Factories"). These teams will not be together under one roof (the Edison or Dean Kamen approach), they will be dotted around the world and bring the best minds to bear on very fundamental problems (energy harvesting, energy storage, and water treatment).
Humdinger was formed to generate funds over time for this grand experiment. This is not what we are currently doing with the group in Xela, Guatemala. As they are a separate organization that we partner with - we like to call this "Cloud Inventing".
"When we talk to the group in Guatemala (we Skype in to see what's going on at the site and to talk to them), there is a lot of personal contact and we know that they are very good at inventing and engineering, and it is a small group."
Humdinger is trying to develop a new type of wind cell that is flexible and modular and works inexpensively on a smaller scale that only solar or batteries could have before.
"What if you could break up a big turbine and split it up into 1000 pieces at the same efficiency ($2/watt)?"
"Most of the folks we talk to get really excited about this being a fundamental change in how power can be generated."
Conclusion
Overall it was a great talk and I hope this gives the readers a bit of insight into an example of one of the many hybrid commercial and social good models that we are blessed to have existing during our lifetimes. There are obviously a lot of potential applications for this technology in the wealthy countries - everything from powering sensors to other types of micro-generation. I wish Shawn and Humdinger every success with this endeavor.
Sites mentioned during the conversation that are worth checking out:
It used to be that Wipro was an Indian company employing mostly Indians in India and that when they did an outsourcing deal with you, they would offshore the work to India.
Times are changing though. An increasing number of potential outsourcing clients are becoming disillusioned with offshoring (especially for software development work). The reasons can vary, but include:
Development overhead that wipes out most of the financial gains
Finding that senior development staff is better suited to coding than directing Indian subcontractors
Time zone hassles
Language barriers
Employee retention issues
I can't say that I think this is a bold or innovative move. This is something that Wipro has to do or they will not be able to compete with IBM, CSC, Accenture, HP/EDS, etc.
While doing a process analysis for a large UK-based financial and healthcare software company I personally witnessed some of the drawbacks and the company's reactions to them.
The fact is that as more commercial and internal software development moves to using agile methodologies, companies will require any external partners to be in the same country or even the same time zone or possibly even the same building.
This is one more proof point that the world is not as flat as people once thought. In this undulating world, success will come in part from differentiating between times when the world is flat and when it is round.
I've posted the last of my notes from Business Innovation Factory (BiF-4), so I will now be returning to writing original blog posts for you. When Business Innovation Factory posts the videos from BiF-4, I will update all of my BiF-4 posts with links to the video for the speaker.
If there are any topics you would like me to cover or you come across any interesting innovation articles that you would like me to comment on, please send them my way via the Contact Us link.
New venture - New Chapter (Vitamin company sourcing from Costa Rica)
Would it be possible to make shampoos that when flushed into the oceans, they might help make the oceans better?
In the financial crisis, will sustainability be the first thing to go?
Pepsi just announced layoffs of 3,300 people including the head of sustainability
Meanwhile, Wal-Mart hasn't pulled back their commitment to sustainability
We are now going to sell thru Wal-Mart
I may have said we never would do this, but the fact is that it helps us help more people to do less bad
Wal-Mart is taking many positive steps ahead of other retailers:
Wal-Mart influenced laundry soap manufacturers to cut half of the water out of their liquid products
Intentionally becoming the largest seller of compact flourescent lightbulbs ahead of the curve
Exploring green energy for stores
Exploring fuel efficiency improvements for its fleet of trucks
Changing price of salad & water meal in their store canteens to match the price of pizza & soda meal
To create a productive workforce you have to create the ability for people to grow.
We have one day a month devoted to learning some far out things:
Training on raising consciousness
We've been helped by Carol Sanford as the architect of this
Every six weeks I also sit down with employees and answer all their questions.
We were forced to talk about a chemical being in our products that we were working to remove, but wasn't gone yet, because we were not yet being transparent.
As a result, we started to publish transparently what's wrong with our products, which may seem dangerous, but competition does not capitalize because they do not want to answer the same questions about their products.
Josh told the story of getting his book published:
He wrote the book, tried to sell it unsuccessfully, and so it was sitting in his drawer
So, he gave it away via Creative Commons license
He gave it away everywhere he could (including getting it included into the first e-book reader software for the iPhone)
12,000 downloads and comments/fan mail/formatting suggestions
He then looked around for Print On Demand options to print a copy for his mom
He collaborated to get cover art for the book (using his college alumni list)
She got a url on the back of the book and a mention on the inside of the book
12,000 people ended up downloading her work
Commiserate - He told the story to an Amazon Print on Demand tech support person and they gave him a Pro account and Amazon ended up offering to distribute his book internationally
We want to de-risk ideas and help move them towards being taken into clinical trials.
We sometimes add money to company investments in order to make Phase 1 trials more robust than originally planned:
$4 million VC-funded trial, we incremented by $750k to fund neuro-imaging and extra doctor visit
In order to get more data out of the trial
We are almost filling the role of an early stage investor (in some cases).
Giving foundation money to drug companies must be a challenge for people giving money to the foundation to take, but we are pushing the envelope in order to do whatever we can to accelerate the finding of a cure.
Innovation that matters, for our company and for the world
Trust and personal responsibility in all relationships
Global Innovation Outlook (GIO) program (similar to an innovation jam):
Brainstorming around big societal issues
2-3 times per year at sites around the world
Ideas were going global
Innovation was becoming more open
Have now run about 50 GIO's in 36 countries
Started with the question of:
What would happen if we took the five best scientists (IBM fellows) and five of the top, connected people from the consulting business and brought them together?
Problem was that it wasn't open
So we started inviting external people and opened it up
We opened up our planning process
Videos posted on the web
Shame on us if we can't execute first
We took it to the Chairman:
We estimated it would take 18-24 months to implement the idea
The chairman asked if we could do it in five months
Of course we stupidly said yes
Chariman said that if we ever get comfortable while implementing it then we are probably doing it wrong
Executive response:
"We already do this"
"What you're proposing is very dangerous..."
"Your guys are taking drugs"
"I forbid you from talking to my customers"
"If you must go ahead with this folly, my job will be to prevent you from embarassing the Chairman"
"Don't let your job desription define who you are or what you do."
Consider the impact of calling someone to congratulate them versus e-mailing them.
In designing a building, he starts by talking to the people who will be living in the building and identifying what their experience might be (what would they like).
We have a lab focused on craft and technology. We know it is not a profit center, but we think it is important to our desired outcome of designing great spaces.
Design is about embracing the central core elements and infusing them throughout.
We only go to theater for the memory (from a speech on "Theater and Architecture" connections).
Reasons people come together:
A mission bigger than themselves
To connect to other people
I see more festivals happening in the near term:
An increasing need for public spectacle
Storytelling is still telling people whether or not they want to listen to it.
Importance of mocking up what's important to the people you are designing for.
Listening is important but prompting a key skill:
To try and pull out important insights from the interviewee
Dennis was doing a great job as a high school principal in New Hampshire (dropout rate down, college rate up), but then a new conservative board came in and fired him for doing the same things that made him successful.
There a was a big drama over this and a book was written and titled "Doc" which unfortunately turned out to be the title of a book about a serial killer that came out at the same time, so the book was renamed "Teacher" and then years later, renamed to "Doc" again.
Then he was hired to create a new high school approach at the Met High School in the Providence area:
What's best for students? (Our mantra)
What would school look like if we closed our eyes and designed one from scratch
Classes three days a week and internships in the community on the other two days
The Gates Foundation then became aware of our school, visited and then asked him to create another 15 schools and funded their creation, then they came back and gave more funding for more schools
There are now 72 schools around the world (mostly in USA, but also seven in the Netherlands and two in Australia)
We were also asked to do a high school in Liberia
Now we are looking at re-imagining the college because of the high college dropout rates among minorities
Sequoia Capital is asking CEOs (Partners) to take 20% pay cuts and people earning over $100,000 to take 10% pay cuts:
This is a really bad time to raise VC funds
Sequoia sees this slowdown lasting up to 8 yrs
Flagship ventures does traditional VC work, but also does building of companies from scratch or building of companies around a professor or innovation:
One example is LS9 - 60 people in South San Francisco
Sugar goes in and petroleum comes out
Uses e-coli bacteria that have been modified
What if you could turn CO2 into oil?
Joule Biotechnologies
Using organism created from scratch
Don't want to sell out to or take investment from big oil:
Other countries are interested in these technologies but also states in the USA because the inputs are otherwise waste products in states like Tennessee
We are also investing in genome sequencing and understanding genome mutations:
60 year old male has hundreds of thousands of mutations at the cell level in the heart by this time of his life, and these are non-dividing cells...
94% of cancer deaths come from metastacies and yet we typically only treat the primary cause.
I came across an 
Snow in Seattle today. It will be interesting to see how many of my current clients make it to their office today. I for one am taking the bus and despite it being a bendy bus, it looks like it will manage to make it downtown. It had to go out and around a jack-knifed bus to make it up and over the bridge out of my neighborhood, but it made it.
Last week I came across an 
I came across an 
