The 20 Most Innovative Startups in Tech

I just finished reading the article on “The20 Most Innovative Startups in Tech.” The concepts these twenty entrepreneurs have come up with are definitely fascinating and some of them I never would have thought you could make money with. However, they all are doing well enough to have made this article and provide some motivation for those who are considering pursing they own tech startup in future.  As I read through the startup profiles, the following thoughts occurred to me:

1. Some of the concepts seem similar to ideas I that I have heard talked about for years. For instance, BankSimple which allows people to keep track of their bank account in one place is basically the same idea as many other financial websites other there, including mint.com.  Just goes to show you do not necessarily have to have an earth shattering idea to start a successful business…so far BankSimple has raised $13 million dollars of venture capital! 
2. Another business that seems less than novel is Dowolla, which allows people to transfer money to each other without using credit cards. Sounds to me like the idea of using your phone to pay for stuff instead of a credit card and is just an electronic check. The only question I have it what is the company’s security procedures and what happens if someone hacks my account using Dwolla? My credit card offers me zero fraud liability for unauthorized transactions…I would not use Dwolla unless they offered the same protection.
3. As I read though the businesses I was surprised to see TaskRabbit listed as one of the startups. Why, because earlier this evening I watched two Wall Street Journal video clips on “Virtual Assistants,” both which spotlighted sites like Task Rabbit and a competitor,  Zaarly.  Check them out here: http://online.wsj.com/video/daunting-task-hire-someone-from-the-web/971E8FE5-B201-4406-8FDA-6B3CF3B60B01.html and http://online.wsj.com/video/a-new-kind-of-task-master-virtual-assistants/6D9B0E56-2E9C-4107-87F8-2B122CB90C4D.html.
4. Many of the ideas do not appear to have any IP associated with them. For instance, H.Bloom, Kaggle, MoviePass, Joor, Dropbox, and Makerbot to name a few do not appear to have any IP associated with their business. Yet, each has raised venture capital and seems to be expanding in size. Their ideas might provide a good opportunity for someone to be a quick follower and jump on board the market opportunity.

Overall, the twenty ideas were very fascinating to read about and got me thinking about some twists that I potential could pursue on my own to make a few extra bucks on the side. Of course, the biggest limiter I see to competing with these companies is having the technical know-how to create the web-interface they use to make their business successful. So, while these companies may not have much patentable IP, they have closely held company trade secrets that are leading to their success over the competitors.

Shark Tank Blog Post

I recently wanted a Shark Tank partial episode featuring OrigAudio, a startup company founded by Michael Szymczak and Jason Lucash. Mike and Jason have created several portable speakers options that allow travelers to convert traditional household items into speakers for their iPod or MP3 player. The two entrepreneurs are seeking a $150,000 investment from the sharks in return for a 15% stake in their business. So far they have generated $750,000 of revenue over the past twelve months, of which they netted $149,000 of revenue (a 20% net profit margin). They currently distribute their product in over 500 retail stores and online.

The sharks where initially very impressed by the speakers and by the fact that OrigAudio had already generated $750K of revenue. However, as the questions started rolling, the shark’s tone and interest in the speakers started to change. They pushed Mike and Jason on whether or not their business is really profitable if they have not paid themself a salary yet. They questioned who owns the IP and manufacturing license on the product.  When the shark’s find out that a China company owns the license and Mike and Jason only have a five year deal with the company to sell the product, they start questioning the sustainability and growth prospects of the company and realize that Mike and Jason are not the inventors of the product.  At this point, one of the sharks, Kevin O’Leary, tells Mike and Jason he does not believe in the company is worth $1 million dollars and says he is out and will not invest in OrigAudio.

Next, Barbara Corcoran asked if the guys have to demonstrate how their product works before people will buy it. Mike and Jason indicate that they would like to install in-store displays featuring their product with part of the $150K investment they hope to get form the sharks. Jason indicates they currently generate most of their sales from QVC television sales. The sharks are impressed that the two have been on QVC and more impressed by the fact that OVC invited the two to sell on their network. This seems to break open the negotiations between the sharks. Mark Cuban steps up and tells Mike and Jason he wants them to re-consider their 15% stake in the business, stop dealing with the other sharks, and offer him a larger stake in their company in return for the $150K they are seeking. Mark indicates that if he does not agrees with their revised evaluation of OrigAudio’s value, than they can go back to seeking funding from the other sharks.

At this point, the other sharks (except Kevin O’Larry) jump in and tell Mark they also want to be involved. Daymond John offers $300K for a 100% stake in the business. Barbara offers $150K for a 25% stake in the business and a partnership with a New York TV station. Robert Herjavec offers $150K for a 15% stake in the business, the exact offer Mike and Jason had proposed to the sharks initially, along with an assurance that he will be there for Mike and Jason down the road when they need more cash to continue growing their business.

Mike and Jason take their “time-out” and discuss the options. They decided to accept Robert’s offer of $150K for a 15% stake in the business and the assurance that Mark will be there for them down the road when they need more cash. The prospect of having a long-term partnership with an investor and only have to give up 15% of their business sold them on Robert’s offer.

This is the first shark tank episode I have ever watched and I must admit I found it very interesting and enlightening. The sharks asked key questions that got to the bottom of the entrepreneurs business model. Just like we have learned in class, IP and market prospects were key factors that the sharks required before they would invest in a company. I highly recommend watching Shark Tank and look forward to watching more episodes in the future.

Fostering Disruptive Innovation

According to our textbook (Technology Ventures: From Ideas to Enterprise), disruptive innovation, also known as radical innovation, “uses new modules and new architecture to create new products” (p. 119). Examples of disruptive innovation include the automobile (sorry carriage makers), the telephone (no more telegraphs), the computer (no one really liked un-jamming typewriters anyway), the internet (no more hitting the stacks at the library), and the cell phone (actually, it is really an electronic leash). The list could go on, but each of these innovations has changed the way we operate as a society. Each has, in theory, made life better for the users.

So, how does a company best foster disruptive innovation considering that many times it means current product offerings will head quickly into the declining phase of the product life cycle curve (and we all know what that does to profits on those products)? Here are a few thoughts: 

• First, since disruptive innovation is inevitable, resisting such innovation will untimely lead to a company’s downfall. Consider Motorola…they used to be a leader in cell phones; however, the shift to smart phones (a disruptive technology) has all but eliminated Motorola form the mobile phone business.
• Second, both large and small companies should look for avenues to pursue disruptive innovation in a controlled environment. Such avenues include universities, laboratories, R&D groups, etc. By constantly looking for the next new product, a firm stands a better chance of staying completive in today’s consentaneity changing world. According to our textbook, universities can be an especially good source of innovation. Companies can access this innovation by funding university research studies and by hiring graduates in the science and technology fields to work in their R&D departments.
• Third, companies should carefully listen to the voice of their customers. Doing so will allow them to identify potential new applications for their current products as well as identify potential new products that consumers want, but that are not currently available in the marketplace. However, customers do not always know what they want and are somewhat adverse to change, so companies need to balance listening to the customer and ultimately showing the customer what they really want, as Apple did with the iPod.
• Fourth, companies need to be aware that disruptive technology has a high degree of “radicalness” associated with it. As such, the new product “introduce[es] a set of attributes to a marketplace different from the ones that mainstream customers historically have valued…as a result, mainstream customers are unwilling or unable to use disruptive products in applications they know and understand” (textbook p. 125-126). As a result, companies need to realize that initially the disruptive technology needs to address a niche market and will only be used by technophiles and early adopters; however, with patience the new technology could have astronomic possibilities.
• Fifth, to the extent possible, companies need to foster disruptive technology in such a way that it does not completely cannibalize its current products offerings. However, keeping point one in mind, holding back too much will ultimately leave the door open for competitors to take over the new technology.
• Finally, for large firms, it would be best to set up a largely autonomous and self standing R&D department to focus solely on disruptive innovations. Doing so will eliminate some of the bureaucracy of the corporation and reduce existing product owners from nay-saying the new innovations.

These points summarize some of the basic steps a company should take to help foster disruptive innovation. At the end of the day, change is one of the only constants in life, so a company that embraces the change is best positioned to be a market leader in the future decades.

VAK Learning Styles

I just completed a VAK learning style self-assessment and figured I would share the results on my blog. To start, VAK represents the three learning styles assessed in the questionnaire…(V) visual, (A) auditory, and (K) kinaesthetic.

After answering the thirty questions, I totaled up my answers and had the following results. I selected 13 visual responses, 7 auditory responses, and 10 kinaesthetic responses.  Based on these results, I have a preference towards a visual learning style. However, there was only a six point spread between my lowest score of 7 for auditory response and a three point spread between my secondary learning style of kinaesthetic. I tend to agree that I can learn a lot through visual observation; however, I also learn a many processes by jumping in and doing them, so it makes sense that I also selected a lot of kinaesthetic responses as well.  I also find that I can learn well from listening to someone explain a process, but would prefer to learn by either watching or doing. At the end of the day though, I feel that I am able to learn using any of three methods discussed in the VAK self-assessment, but the results show I have a preference to either visual or kinaesthetic learning.

Apple iPod/iTunes Business Model Canvas

Attached is the current draft of my  Apple iPod/iTunes Business Model Canvas.

To invest or not to invest in I-MOS Semiconductors, that is the question

I conducted a little survey before I started writing this blog. I took a look at the investment recommendations of fellow ETR500 bloggers who had already provided a review of I-MOS. Of the five blogs already written on the topic, four indicated they would invest or would strongly consider investing in I-MOS. One was strongly opposed to the idea (Chris Foreman, I don’t mean to single you out here). So, of course you are wondering what I would do. Well…I will not make you read my whole blog to find out where I stand on I-MOS…I would not touch I-MOS with a ten foot pole…so now that makes two of us opposed to the idea. Here is why….

For a minute, let’s forget about some of the obvious problems with the overall I-MOS business plan and start by taking a look at the company’s financial models.  First, I-MOS indicates they plan on charging their customers a one-time $1.5M license fee to use their semiconductor manufacturing technology, yet they cite no evidence that customers will be willing to pay this hefty licensing fee. However, let’s assume they will agree to pay the fee. Based on I-MOS’s customer acquisition plan (Figure A4), they will acquire their first five customers in year 3 (2006 in terms of years).  They will acquire an additional seven customers in year 4 and an additional six customers in year 5. So, if they can collect $27M if licensing fees from these customers, that still leaves them $10M of revenue to generate from their 2% royalty fees.  In theory, this should be possible since the I-MOS customers would only have to $500M of semiconductors if I-MOS collets a 2% royalty on the sales. Okay, so far so good, right? Well, not so fast…. why is I-MOS only adding six total customers in year 5 if they added five customers in year 1 and seven customers in year 2? If their technology is so great, I would expect their customer base growth rate to increase year over year, not decrease.

Next, how about their Engineering costs? They indicate they will need to spend $1.5M of development costs per fab customer per year and they will have three fabs customers by year 5. They also indicate they will need to spend $1.2M a year on leased testing equipment and software and $1M plus per year on wafer costs. So, that equates to $3.7M of expense per year (unless they can capitalize their $1.5M mask sets, however this does not appear to be the case based on the company’s pro-forma balance sheet).  Alright, so when I add up these costs it means the company will have to spend at least $23M in the first five years on these three activities. There goes their licensing fees…easy come, easy go.

Alright, how about cash flow? We all have heard the saying that cash is king, and that is especially true for start-up companies. In the case of I-MOS, they don’t reach a breakeven cash flow position until Q4 of year 4. Ouch…basically four years of burning cash before you can start saving a dollar…. This means I-MOS is dependent on all three financing offering going according to plan. Yes, they plan on investors dumping $24 million of cash into their company before they project they can swim on their own. Let me say that again…they need $24 million dollars from investors to survive…and that assumes everything works perfectly according to their business plan. We all know that reality will prove otherwise.

These only represent just a few summary thoughts on the company’s financial picture. Now, throw in the following facts in the mix:

• The company has not proven there technology works and they do not have a working prototype of the technology.
• They have not conducted a comprehensive market analysis.
• They have not clearly defined their initial target market.
• They don’t hold the license yet for their proposed product.
•  IBM and Intel have a $10B R&D budget to burn through each year to create a better technology than I-MOS has conceived.
• With the exception of the CTO, management has no experience in the high-tech industry.
• The risk mitigation strategy is all but non-existent….I mean, common, do they really think they can start making millions a year selling “simple semiconductor products” if their technology does no pan out?
• The business plan is too technical and the benefit of the product is unclear to the common reader. What does 1000x reduction in static power dissipation really mean anyway?

So, these facts boil down to one conclusion…do not invest in I-MOS.  While the paper concept sounds intriguing, the probability of success is slim at best. In my opinion, there are way too many factors that have to happen perfectly for this start-up to ever get off the ground.

Consumer Goods Manufactures Face Innovation Challenges

You would think that consumer goods (CG) manufactures would be the best positioned to generate new and innovative products. However, the findings of a recent research study found that CG manufactures may be struggling to successfully introduce new, innovative products to the marketplace (Sopheon). The study found that CG companies generate 25% of their revenue from new products introduced in the last five year, yet only half of the new products these companies launch ever become profitable. Additionally, of the “new products” introduced, the article indicates that only twenty percent or so of the products are truly considered highly innovative vs. a simple upgrade or modification to an existing product.

Are these bad numbers or a success story for CG manufactures? Based on the article title alone, “New Research Study Uncovers Product Innovation Challenges Facing Consumer Goods Manufactures,” it is clear the researchers are interpreting them as bad results (Sopheon).  However, I am not sure I agree with this conclusion. Having one out of two product launches be profitable is not bad for such a competitive marketplace. In comparison, pharmaceutical companies only have a one in ten success rate for bringing new drugs to the market place and the R&D costs in the sector are much higher than in the CG sector (Reuters). Restaurants have a 25% failure rate in their first year of operation and a 60% failure rate over three years (BusinsesWeek). So, in comparison, having one in two product launches be profitable is not necessarily a crippling to the CG industry by any stretch of the imagination. Do CG manufactures want the success rate to be better? Sure. Should it be better? That is up for debate.

Imaging if each week a new innovative product was released to the market place? While the concept may be every CG manufactures dream, such innovation could not be support by consumers demand since consumers have limited. Perhaps the researcher finding that CG manufactures are “mired in processes that inhibit breakthrough innovation, depress portfolio value and contribute to competitive vulnerability” is not really a fault. Could it be intentional?  What do I mean? Consider the new iPhone 4s. Why 4s? Why not 5 or even 6 or 7? I would propose that Apple is intentionally phasing in technology in the smallest increments possible to generate the largest potential return of each incremental change vs. introducing a revolutionary new iPhone 7 or whatever they would call it and missing out on the incremental profits along the way (Computer World blog). Does such a technique leave Apple vulnerable to competition? Yes, in fact it could be part of the reason that the Android operating system so quickly overtook and surpassed Apples OS.  However, market share is not everything. For Apple, the iPhone 4s has already set initial sales records (Business Insider).

 

As pointed out in the article, there are certainly things that CG manufactures can do to improve their innovation and product development success rate. However, my guess is that some of the CG companies may not be in a hurry to change…. Perhaps they are using their position as innovators to strategically regulate innovation? This could work for a while, but all companies need to be carefully they don’t miss the critical jumps to new technology, or they will find them self on the wrong side of disruptive innovation curve.