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.

Triz Matrix Review

One of the assignments from our last class was to write a blog on http://www.triz40.com. So, off I went to check out the site and see what it had to offer and how its contents where related to ETR 500. Here is what I found:

1. They say that first impressions are lasting impressions. When I first browsed to triz40.com I was not impressed by the sites layout, color choices, or ease of use. Initially it was not apparent what the sites intended purposes was. Also, over half of the site's home page consisted of advertisements...must be a few hosting site or something.

2. Anyway, after I got past the initial impression of the site, I begin investigating the site to try to figure out what it was intended to promote, advertise, sell, or communicate. After a little poking, I concluded that the site is intended to provide a matrix solution to various engineering problems. Basically you can use two drop down boxes to select any two of the 39 contradiction conditions (yes, that is correct, there are 39 options, not 40...but I guess that leaves them room to add one condition in the future) to find a principle that would allow both selections to co-exist together. For example, how do you reduce the weight of a stationary object without compromising its strength.

3. Conclusion...this is a website is for engineers.

Until next time, enjoy solving the worlds known engineering problems with proven solutions from Triz40.com.

Yahoo! Case

I found the Yahoo! Case a fascinating read. Here are a few thoughts on Yahoo!s history. First, I did a little research to find out what financing options Yahoo! decided to go with in 1995 after finishing their pepperoni and mushroom pizza. They decided to go with Sequoia Capital, which according to a Yahoo! Media Relations article I read, ended up proving Yahoo! with nearly $2 million in initial investment funding. This funding was in exchange for a 25% ownership share in Yahoo!. So, since I like numbers and inventing, I wondered how much Sequoia Capital could have profited from their funding of Yahoo!. Well, as of today's market close, Yahoo! has a $17.1 billion dollar market capitalization. That means Sequoia's investment of $2M is now worth $4.3B assuming they still hold their 25% steak in Yahoo!. In case you were wondering, that would equate to a 213,750 % return over sixteen years, or an average annual return of 13,359%! Not bad.

Another factor that made reading this case interesting is the fact that there is currently speculation that Yahoo might be the target of an acquisition bid from a company called Alibaba. The speculated acquisition price is said to be between $18 and $22 per share. If acquired at $18 a share, Yahoo! would be valued at $23.4B. Not bad for a tech start-up that was founded out of a trailer by two PhD candidates (needless to say, they chose to start Yahoo! over completing their degrees).

New Blog Site

Well, I could not for the life of me figure out how to leave comments on my posts at my old blog site (http://etr500nathan.tumblr.com/), so I decided to switch to blogger.com and so far it seems more intuitive. I have re-posted my original two blogs on this sites and will use this blog for the rest of ETR500.

Blog Post 2: Startup Professionals Analysis

Startup Professional, Inc. is a startup company intended to help startup companies start their new business and achieve their dreams of success. You might need to read that sentence again to make sure you got it strait…. Anyway, sounds to me like the new business owners that Startup Professionals are seeking to help not only those looking to start their own business, but also themselves. So how about it…does Startup Professionals really have a good business plan? Will they be able to differentiate themselves from their competitors?  Will they ultimately be a profitable startup company? And most importantly, if you were thinking of starting a business, should you consider using Startup Professionals’ services, or should you seek advice and counsel elsewhere? To help answer these questions, let’s take a look at a few elements of Startup Professionals’ business plan.

1.    How strong is the company’s industry position? Startup Professional does not appear to be offering a unique or new business solution to the market place. They even highlight this fact in their business case via their profile of five other companies that office similar products and services to startup companies.
2.     How clear is their value proposition? Not very clear. In fact, Startup Professionals’ business plan really never highlights any specific sectors that they specialize in; rather, they offer their service to all startups indicating they have helped companies in “multiple industries” and “multiple countries.” Additionally, the company talks about saving companies time and money by guiding them through the startup process, but they offer no clear examples of actuals savings recognized by companies they have helped to date. In short, the value proposition is vague at best and lacks supporting examples.
3.    How targeted is Startup Professional’s customer base? As discussed in the analysis already,  the customer based being targeted is very broad with the only real defining factor being they seek to enable entrepreneurs to more successfully start their business. If you are an entrepreneur, than Startup Professionals wants your business.
4.    How unique is the business model? Again, Startup Professional’s business model does not appear to be unique. They note that there are at least five other companies that already provide similar services to entrepreneurs.
5.    How protected is the IP? In this case, I would submit that there is little if any true intellectual property in this line of business service.
6.    How experienced in management? Startup Professional’s fails to impress in this regard as well…. Only one of the two founders of Startup Professionals holds a master’s degree, and his degree is from a non-US business school. Also, neither founder graduated from a well know undergraduate university (not that this matters, but it could hinder the company’s success until it builds a strong enough name and reputation to override ride an initial perception of limited education). Some of the competing company founders have MBA’s from graduate schools such as Harvard. Also, the founders of Startup Professionals have not been profiled any national magazines or newspapers as many of their competitors have been. Again, these factors can be overcome, but will present initial challenges to the company’s startup prospects.

In summary, there is certainly a market for startup business services. However, after reviewing Startup Professional, Inc. as one of the choices, they receive a “D-“ grade at best when it comes to startup solutions for entrepreneurs.

Stay tuned for continued coverage of our journey though ETR500….

Blog Post 1: Opposites Attract

We have all heard the saying “opposites attract.”  However, after reading “Opposites Attract” by Katharine Mieszkowski, the mental picture I associate with this saying has been expanded beyond romantics to the workplace. Indeed, the concept of intentionally hiring opposites to drive design creativity is fascinating and unique. But that is exactly the approach that Jerry Hirshberg took in building his team at the Nissan Design International (NDI) facility he started in 1979. While I am sure this concept was somewhat of an experiment when Jerry initially hired his first “divergent pair” of employees, the results and benefits of doing so have probably far exceeded what Hirshberg thought possible when he stepped out on a limb to make it a reality.

I think many companies today could benefit from modeling, at least in part, the principle that Hirshberg has turned into an organizing principle at NDI. Too often I get the impression that everyone is just a “yes” person when it comes to meetings with their boss or working on company initiatives. In my opinion, many shun someone playing the “devil’s advocate” when it comes to projects and initiatives at work. They feel offended when they ideas and projects are called into question. As a result, it seems that even when individuals know of problems or reasons why a given initiative will not succeed, they fear going against the flow and challenging the mainstream thinking at the time. However, I think every team project and every company decision would be made stronger and more successful if there was at least one or two individuals who were specifically placed on the project to prove why the project or initiative was not worth pursuing and would fail. Such individuals would help illuminate unseen flaws and risks in the original project and as a result allow risk mitigation strategies to be included in the final project or initiative. This would in turn significantly increase the likely hood that the project or initiative will succeed. So, while most companies are not able to hire everyone in pairs due to limited resources (i.e. budgets and headcount restraints), I feel that all companies would reap significant benefit from having at least one or two opposites on every major project or initiatives the company is pursuing.