Why the Navy Needs Disruption Now (part 2 of 2)

The future is here it’s just distributed unevenly – Silicon Valley view of tech adoption

The threat is here it’s just distributed unevenly – A2/AD and the aircraft carrier

This is the second of a two-part post following my stay on the aircraft carrier USS Carl Vinson. Part 1 talked about what I saw and learned – the layout of a carrier, how the air crew operates and how the carrier functions in context of the other ships around it (the strike group.) But the biggest learning was the realization that disruption is not just happening to companies, it’s also happening to the Navy. And that the Lean Innovation tools we’ve built to deal with disruption and create continuous innovation for large commercial organizations were equally relevant here.

This post offers a few days’ worth of thinking about what I saw. (If you haven’t, read part 1 first.)


The threat is here; it’s just distributed unevenly – A2/AD and the aircraft carrier
Both of the following statements are true:

  • The aircraft carrier is viable for another 30 years.
  • The aircraft carrier is obsolete.

Well-defended targets
Think of an aircraft carrier as a $11 billion dollar portable air force base manned by 5,000 people delivering 44 F/A-18 strike fighters anywhere in the world.

The primary roles of the 44 F/A-18 strike fighters that form the core of the carrier’s air wing is to control the air and drop bombs on enemy targets. For targets over uncontested airspace (Iraq, Afghanistan, Syria, Somalia, Yemen, Libya, etc.) that’s pretty easy. The problem is that First World countries have developed formidable surface-to-air missiles – the Russian S–300 and S-400 and the Chinese HQ-9 – which have become extremely effective at shooting down aircraft. And they have been selling these systems to other countries (Iran, Syria, Egypt, etc.). While the role of an aircraft carrier’s EA-18G Growlers is to jam/confuse the radar of these missiles, the sophistication and range of these surface-to-air missiles have been evolving faster than the jamming countermeasures on the EA-18G Growlers (and the cyber hacks to shut the radars down).

Hq9

This means that the odds of a carrier-based F/A-18 strike fighter successfully reaching a target defended by these modern surface-to-air missiles is diminishing yearly. Unless the U.S. military can take these air defense systems out with drones, cruise missiles or cyber attack, brave and skilled pilots may not be enough. Given the F/A-18’s are manned aircraft (versus drones), high losses of pilots may be (politically) unacceptable.

Vulnerable carriers
If you want to kill a carrier, first you must find it and then you have to track it. In WWII knowing where the enemy fleet located was a big – and critical – question. Today, photo imaging satellites, satellites that track electronic emissions (radio, radar, etc.) and satellites with synthetic aperture radar that can see through clouds and at night are able to pinpoint the strike group and carrier 24/7. In the 20th century only the Soviet Union had this capability. Today, China can do this in the Pacific and to a limited extent, Iran has this capability in the Persian Gulf. Soon there will be enough commercial satellite coverage of the Earth using the same sensors, that virtually anyone able to pay for the data will be able to track the ships.

During the Cold War the primary threat to carriers was from the air – from strike/fighters dropping bombs/torpedoes or from cruise missiles (launched from ships and planes). While the Soviets had attack submarines, our anti-Submarine Warfare (ASW) capabilities (along with very noisy Soviet subs pre-Walker spy ring) made subs a secondary threat to carriers.

In the 20th century the war plan for a carrier strike group used its fighter and attack aircraft and Tomahawk cruise missiles launched from the cruisers to destroy enemy radar, surface-to-air missiles, aircraft and communications (including satellite downlinks). As those threats are eliminated, the carrier strike can move closer to land without fear of attack. This allowed the attack aircraft to loiter longer over targets or extend their reach over enemy territory.

Carriers were designed to be most effective launching a high number of sorties (number of flights) from ~225 miles from the target. For example, we can cruise offshore of potential adversaries (Iraq and Syria) who can’t get to our carriers. (Carriers can standoff farther or can reach further inland, but they have to launch F-18’s as refueling tankers to extend the mission range. For example, missions into Afghanistan are 6-8 hours versus normal mission times of 2-3 hours.)

In the 21st century carrier strike groups are confronting better equipped adversaries, and today carriers face multiple threats before they can launch an initial strike. These threats include much quieter submarines, long-range, sea-skimming cruise missiles, and in the Pacific, a potential disruptive game changer – ballistic missiles armed with non-nuclear maneuverable warheads that can hit a carrier deck as it maneuvers at speed (DF-21d and the longer range DF-26).d21d range

In the Persian Gulf the carriers face another threat – Fast Inshore Attack Craft (FIAC) and speedboats with anti-ship cruise missiles that can be launched from shore.

The sum of all these threats – to the carrier-based aircraft and the carriers themselves –  are called anti-access/area denial (A2/AD) capabilities.

Eventually the cost and probability of defending the carrier as a manned aircraft platform becomes untenable in highly defended A2/AD environments like the western Pacific or the Persian Gulf. (This seems to be exactly the problem the manned bomber folks are facing in multiple regions.) But if not a carrier, what will they use to project power?  While the carrier might become obsolete, the mission certainly has not.

So how does/should the Navy solve these problems?

Three Horizons of Innovation
One useful way to think about in innovation in the face of increasing disruption / competition is called the “Three Horizons of Innovation.” It suggests that an organization should think about innovation across three categories called “Horizons.”

  • Horizon 1 activities support executing the existing mission with ever increasing efficiency
  • Horizon 2 is focused on extending the core mission
  • Horizon 3 is focused on searching for and creating brand new missions
    (see here for background on the Three Horizons.)

Horizon 1 is the Navy’s core mission. Here the Navy executes against a set of known mission requirements (known beneficiaries, known ships and planes, known adversaries, deployment, supply chain, etc.) It uses existing capabilities and has comparatively low risk to get the next improvement out the door.

In a well-run organization like the Navy, innovation and improvement occurs continuously in Horizon 1. Branches of the Navy innovate on new equipment, new tactics, new procurement processes, more sorties on newer carriers, etc. As fighter pilots want more capable manned aircraft and carrier captains want better carriers, it’s not a surprise that Horizon 1 innovations are upgrades – the next generation of carriers – Ford Class; and next generation of navy aircraft – the F-35C. As a failure here can impact the Navy’s current mission, Horizon 1 uses traditional product management tools to minimize risk and assure execution. (And yes, like any complex project they still manage to be over budget and miss their delivery schedule.)

Because failure here is unacceptable, Navy Horizon 1 programs and people are managed by building repeatable and scalable processes, procedures, incentives and promotions to execute and the mission.

In Horizon 2, the Navy extends its core mission. Here it looks for new opportunities within its existing mission (trying new technology on the same platform, using the same technology with new missions, etc.) Horizon 2 uses mostly existing capabilities (the carrier as an aircraft platform, aircraft to deliver munitions) and has moderate risk in building or securing new capabilities to get the product out the door.

An example of potential Naval Horizon 2 innovations is unmanned drones flying off carriers to do the jobs fighter pilots hate such as serving as airborne tankers (who wants to fly a gas tank around for 6 hours?) and ISR (Intelligence, Surveillance and Reconnaissance), another tedious mission flying around for hours that could be better solved with a drone downlinking ISR data for processing on board a ship.

However, getting the tanker and ISR functions onto drones only delays the inevitable shift to drones for strike, and then for fighters. The problem of strike fighters’ increasing difficulty in penetrating heavily defended targets isn’t going to get better with the new F-35C (the replacement for the F/A-18). In fact, it will get worse. Regardless of the bravery and skill of the pilots, they will face air defense systems evolving at a faster rate than the defensive systems on the aircraft. It’s not at all clear in a low-intensity conflict (think Bosnia or Syria) that civilian leadership will want to risk captured or killed pilots and losing planes like the F-35C that cost several hundred million dollars each.

Management in Horizon 2 works by pattern recognition and experimentation inside the current mission model. Ironically, institutional inertia keeps the Navy from deploying unmanned assets on carriers. In a perfect world, drones in carrier tanker and ISR roles should have been deployed by the beginning of this decade. And by now experience with them on a carrier deck could have led to first, autonomous wingmen and eventually autonomous missions. Instead the system appears to have fallen into the “real men fly planes and command Air Wings and get promoted by others who do” mindset.

The Navy does not lack drone demos and prototypes, but it has failed to deploy Horizon 2 innovations with speed and urgency. Failure to act aggressively here will impact the Navy’s ability to carry out its mission of sea control and power projection. (The Hudson Institute report on the future of the carrier is worth a read, and a RAND report on the same topic comes out in October.)

If you think Horizon 2 innovation is hard in the Navy, wait until you get to Horizon 3. This is where disruption happens. It’s how the aircraft carrier disrupted the battleship. How nuclear-powered ballistic missile submarines changed the nature of strategic deterrence, and how the DF-21/26 and artificial islands in the South China sea changed decades of assumptions.  And it’s why, in most organizations, innovation dies.

For the Navy, a Horizon 3 conversation would not be about better carriers and aircraft. Instead it would focus on the core reasons the Navy deploys a carrier strike group: to show the flag for deterrence, or to control part of the sea to protect shipping, or to protect a Marine amphibious force, or to project offensive power against any adversary in well-defended areas.

A Horizon 3 solution for the Navy would start with basic need of these missions (sea control, offensive power projection – sortie generation) the logistic requirements that come with them, and the barriers to their success like A2/AD threats. Lots of people have been talking and writing about this and lots of Horizon 3 concepts have been proposed such as Distributed LethalityArsenal Ships, underwater drone platforms, etc.

Focussing on these goals – not building or commanding carriers, or building and flying planes – is really, really hard.  It’s hard to get existing operational organizations to think about disruption because it means they have to be thinking about obsoleting a job, function or skill they’ve spent their lives perfecting. It’s hard because any large organization is led by people who succeeded as Horizon 1 and 2 managers and operators (not researchers). Their whole focus, career, incentives, etc. has been about building and make the current platforms work. And the Navy has excelled in doing so.

The problem is that Horizon 3 solutions take different people, different portfolio, different process and different politics.

People: In Horizon 1 and 2 programs people who fail don’t get promoted because in a known process failure to execute is a failure of individual performance. However, applying the same rules to Horizon 3 programs – no failures tolerated – means we’ll have no learning and no disruptive innovations. What spooks leadership is that in Horizon 3 most of the projects will fail. But using Lean Innovation they’ll fail quickly and cheaply.

In Horizon 3 the initial program is run by mavericks – the crazy innovators. In the Navy, these are the people you want to court martial or pass over for promotion for not getting with current program. (In a startup they’d be the founding CEO.) These are the fearless innovators you want to create new and potentially disruptive mission models. Failure to support their potential disruptive talent means it will go elsewhere.

Portfolio: In Horizon 3, the Navy is essentially incubating a startup. And not just one. The Navy needs a portfolio of Horizon 3 bets, for the same reason venture capital and large companies have a portfolio of Horizon 3 bets – most of these bets will fail – but the ones that succeed are game changers.

Process: A critical difference between a Horizon 3 bet and a Horizon 1 or 2 bet is that you don’t build large, expensive, multi-year programs to test radically new concepts (think of the Zumwalt class destroyers). You use “Lean” techniques to build Minimal Viable Products (MVPs). MVPs are whatever it takes to get you the most learning in the shortest period of time.

Horizon 3 groups operate with speed and urgency – the goal is rapid learning. They need to be physically separate from operating divisions in an incubator, or their own facility. And they need their own plans, procedures, policies, incentives and Key Performance Indicators (KPIs) different from those in Horizon 1.  

The watchwords in Horizon 3 are “If everything seems under control, you’re just not going fast enough.”

Politics: In Silicon Valley most startups fail. That’s why we invest in a portfolio of new ideas, not just one. We embrace failure as an integral part of learning. We do so by realizing that in Horizon 3 we are testing hypotheses – a series of unknowns – not executing knowns. Yet failure/learning is a dirty word in the world of promotions and the “gotcha game” of politics. To survive in this environment Horizon 3 leaders must learn how to communicate up/down and sideways that they are not running Horizon 1 and 2 projects.

Meanwhile, Navy and DOD leadership has to invest in, and clearly communicate their innovation strategy across all three Horizons.

Failure to manage innovation across all three Horizons and failure to make a portfolio of Horizon 3 bets means that the Navy is exposed to disruption by new entrants. Entrants unencumbered by decades of success, fueled by their own version of manifest destiny.

Lessons Learned

  • Our carriers are a work of art run and manned by professionals
    • Threats that can degrade or negate a carrier strike group exist in multiple areas
    • However, carriers are still a significant asset in almost all other combat scenarios
  • Speed and urgency rather than institutional inertia should be the watchwords for Horizon 2 innovation
  • Horizon 3 innovation is about a clean sheet of paper thinking
    • It’s what Silicon Valley calls disruption
    • It requires different people, portfolio, process and politics
  • The Navy (and DOD) must manage innovation across all three Horizons
    • Allocating dollars and resources for each
  • Remembering that todays Horizon 3 crazy idea is tomorrow Horizon 1 platform

Thanks to the crew of the U.S.S. Vinson, and Commander Todd Cimicata and Stanford for a real education about the Navy.

Why the Navy Needs Disruption Now (part 1 of 2)

The future is here it’s just distributed unevenly – Silicon Valley view of tech adoption

The threat is here it’s just distributed unevenly – A2/AD and the aircraft carrier

Sitting backwards in a plane with no windows, strapped in a 4-point harness, wearing a life preserver, head encased in a helmet, eyes covered by googles, your brain can’t process the acceleration. As the C-2 A Greyhound is hurled off an aircraft carrier into the air via a catapult, your body thrown forward in the air, until a few seconds later, hundreds of feet above the carrier now at 150 miles per hour you yell, “Holy Shxt.” And no one can hear you through the noise, helmet and ear protectors.


I just spent two days a hundred miles off the coast of Mexico aboard the U.S.S. Carl Vinson landing and taking off on the carrier deck via a small cargo plane.nimitz class carrier

Taking off and landing is a great metaphor for the carrier. It’s designed to project power – and when needed, violence.

It’s hard to spend time on a carrier and not be impressed with the Navy, and the dedicated people who man the carrier and serve their country. And of course that’s the purpose of the two-day tour. The Navy calls its program Outreach: Americas Navy. Targeting key influencers (who they call Distinguished Visitors,) the Navy hosts 900/year out to carriers off the West Coast and 500/year to carriers on the East Coast. These tours are scheduled when the carriers are offshore training, not when they are deployed on missions. I joined Pete Newell (my fellow instructor in the Hacking for Defense class) and 11 other Stanford faculty from CISAC and the Hoover Institution.

I learned quite a bit about the physical layout of a carrier, how the air crew operates and how the carrier functions in context of the other ships around it (the strike group.) But the biggest learning was the realization that disruption is not just happening to companies, it’s also happening to the Navy. And that the Lean Innovation tools we’ve built to deal with disruption and create continuous innovation for large commercial organizations were equally relevant here.

The Carrier
U.S. aircraft carriers like the Vinson (there are 9 others) are designed to put the equivalent of an Air Force base anywhere on any ocean anywhere in the world. This means the U.S. can show the flag for deterrence (don’t do this or it will be a bad day) or to control some part of the sea (to protect commercial and/or military shipping, or protect a Marine amphibious force – on the way or at a place they will land); and project power (a euphemism for striking targets with bombs and cruise missiles far from home).

On an aircraft carrier there are two groups of people – the crew needed to run the carrier, called the ship’s company, and the people who fly and support the aircraft they carry, called the Air Wing. The Vinson carries ~2,800 people in the ship’s company, ~2,000 in the Air Wing and ~150 staff.

Without the Air Wing the carrier would just be another big cruise ship. The Air Wing has 72 aircraft made up of jet and propeller planes. The core of the Air Wing are the 44 F/A-18 strike fighters.

The F/A-18 strike fighters are designed to do two jobs: gain air superiority by engaging other fighter planes in the air or attack targets on the ground with bombs (that’s why they have the F/A designation). Flying on missions with these strike fighters are specially modified F/A-18’s – EA-18G Growlers that carry electronic warfare jammers which electronically shut down enemy radars and surface-to-air missiles to ensure that the F/A-18s get to the target without being shot down.

Another type of plane on the carrier is the propeller-driven E-2C Hawkeyes, which is an airborne early warning plane. Think of the Hawkeyes as airborne air traffic control. Hawkeyes carry a long-range radar in a dome above the fuselage, and keep the strike group and the fighters constantly aware of incoming air threats. They can send data to the fighters and to other ships in the battle group which identifies the location of potential threats. They can also detect other ships at sea.

The other planes in the carrier’s Air Wing are 16 helicopters: 8 MH-60S Nighthawk helicopters for logistics support, search and rescue and special warfare support; and 8 MH-60R Seahawks to locate and attack submarines and to attack Surface targets. seahawk helicopterThey carry sonobuoys, dipping sonar and anti-submarine torpedoes. And last but not least, there is the plane that got us on the carrier, the C2-A Greyhound – the delivery truck for the carrier.

You’re not alone
Carriers like the Vinson don’t go to sea by themselves. They’re part of a group of ships called the “carrier strike group.”  A strike group consists of a carrier, two cruisers with Tomahawk cruise missiles which can attack land targets, and two destroyers and/or frigates with Aegis surface to air missiles to defend the carrier from air attack. (In the past, the strike group was assigned an attack submarine to hunt for subs trying to kill the carrier. Today the attack subs are in such demand they are assigned by national authorities on an as-needed basis.) The strike group also includes replenishment ships that carry spare ammunition, fuel, etc. (The 150 staff on the carrier include separate staff for the strike group, Air Wing, carrier, surface warfare (cruisers with tomahawk missiles) and air defense (Aegis-armed destroyers.)

strike groupThe strike group also receives antisubmarine intelligence from P-3/P-8 anti-submarine aircraft and towed arrays on the destroyers, and additional situational awareness from imaging, Electronic Intelligence (ELINT) and radar sensors and satellites.

Before our group flew out to the carrier, we were briefed by Vice-Admiral Mike Shoemaker. His job is aviation Type Commander (TYCOM) for all United States Navy naval aviation units (responsible for aircrew training, supply, readiness, etc.) He also wears another hat as the commander of all the Navy planes in the Pacific. It was interesting to hear that the biggest issue in keeping the airplanes ready to fight are sequestration and budget cuts. These cuts have impacted maintenance, and made spare parts hard to get. And no pay raises make it hard to retain qualified people.

Then it was time to climb into our C-2 Greyhound for the flight out to the aircraft carrier. Just like a regular passenger plane, except you put on a life vest, goggles, ear plugs, and over all that a half helmet protecting the top and back of your head while enclosing your ears in large plastic ear muffs. Then you and 25 other passengers load the plane via the rear ramp, sit facing backwards in a plane with no windows and wait to land.

On the U.S.S. Vinson
Landing on an aircraft carrier is an equally violent act. When you make an arrested landing, a tail hook on the plane traps one of the four arresting cables stretched across the deck, and you decelerate from 105 mph to zero in two seconds. When the plane hit the arresting wire on the carrier deck, it came to a dead stop in 250 feet. There was absolutely no doubt that we had landed (and a great lesson on why you were wearing head protection, goggles and strapped into your non-reclining seat with a four-point harness). As the rear ramp lowered, we were assaulted with the visual and audio cacophony of crewmen in seven different colored shirts on the deck swarming on and around F-18s, E2Cs, helicopters, etc., all with their engines running.

flight deck shirts

Captain Doug Verissimo and his executive officer Captain Eric Anduze, welcomed us to the carrier. (One of my first problems onboard was translating Navy ranks into their Army/Air Force equivalents. For example, a navy captain equals an Air Force/Army Colonel, and a rear admiral is a brigadier general, etc.)

flight deckThen for the next two days the carrier’s public affairs officer led us on the “shock and awe” tour. In four years in the Air Force I had been stationed on four fighter bases, three of them in war zones, some with over 150 planes generating lots of sorties. But I had to grudgingly admit that watching F­-18s landing on a 300-foot runway 60 feet above the water, on a pitching deck moving 30 mph at sea – one a minute – at night – was pretty impressive.  And having us stand on the deck less than 50 feet away from these planes as they landed trapping the arrestor wires, and launched via a catapult was a testament to the Navy’s PR acumen. Most of crew on the flight deck are in their late teens and maybe early 20s. (And for me, hard to believe 4 decades ago in some other life I was doing that job.) Standing on the deck on a Navy carrier, it’s impossible not to be impressed with the precision choreography of the crew and the skill of their pilots.

Our group climbed the ladders (inclined at a 68-degree angle – there are no stairs) up and down the 18 decks (floors) of the ship. We saw the hangar deck where planes were repaired, the jet engine shop, jet engine test cell, arresting cable engine room, the bridge where they steer the ship, the flag bridge (the command center for the admiral), the flight deck control and launch operations room (where the aircraft handler keeps track of all the aircraft on the flight deck and in the hangar), and the carrier air traffic control center (CATCC).LPO

At each stop an officer or enlisted man gave us an articulate description of what equipment we were looking at and how it fit into the rest of the carrier.

(What got left out of the tour was the combat direction center (CDC), the munitions elevators, ships engines and any of the avionics maintenance shops and of course, the nuclear reactor spaces.)

During lunch and dinners, we had a chance to talk at length to the officers and enlisted men. They were smart, dedicated and proud of what they do, and frank about the obstacles they face getting their jobs done. Interestingly they all echoed Vice-Admiral Shoemaker’s observation that the biggest obstacles they face are political –  sequestration and budget cuts.

Just before we left we got a briefing from the head of the Carrier Strike Group, Rear Admiral James T. Loeblein about the threats the carrier and the strike group face.

Then it was off to be catapulted back home.IMG_8187

It’s clear that the public affairs office has a finely tuned PR machine. So if the goal was to impress me that the Navy and carriers are well run and manned – consider it done.

However, it got me thinking… new aircraft carrier’s cost $11 billion. And we have a lot of them on order. Given the threats they are facing are they going to be viable for another 30 years? Or is the aircraft carrier obsolete?

Tomorrow’s post will offer a few days’ worth of thoughts about carriers, strike groups and how the Navy can continue to innovate with carriers and beyond.

Lessons Learned – part 1 of 2

  • Our carriers are a work of art run and manned by professionals
  • Lots more in part 2, in the next post…

Thanks to the crew of the U.S.S. Vinson, and Commander Todd Cimicata and Stanford for a real education about the Navy.

Entrepreneurs are Everywhere Show No. 37: Michael Ingle and Graeme Gordon

I simply wasn’t happy in corporate America. I was a square peg in a round hole and needed to be someplace where I could think creatively.

You are 100% responsible for your own decisions, your career, your failures, your success. You can’t rely on anybody else.  


Self-motivation, drive and creativity are key entrepreneurial traits that can’t be discounted or ignored, say the guests on today’s Entrepreneurs are Everywhere radio show.

The show follows the journeys of founders who share what it takes to build a startup – from restaurants to rocket scientists, to online gifts to online groceries and more. The program examines the DNA of entrepreneurs: what makes them tick, how they came up with their ideas; and explores the habits that make them successful, and the highs and lows that pushed them forward.

Michael Ingle

Michael Ingle

Joining me in the Stanford University studio were

Graeme Gordon

Graeme Gordon

Listen to my full interviews with Michael and Graeme by downloading them from SoundCloud here and here.

(And download any of the past shows here.)

Clips from their interviews are below.

Michael Ingle ran away from home at age 14 with $140 and a dream of bettering himself. In the years since, he’s been driven to succeed. Before founding Clean Sleep, he worked for Boeing as a teenager, did mechanical drafting and design for a combustion engineering company, ran a beach volleyball bar with friends and founded Quick Set Concrete.

He says that being on his own from a young age provided a critical learning experience:

I didn’t really have a childhood, but I don’t regret anything. Every step along the way has put me where I’m at today and has driven me as an entrepreneur. I realized how important relationships are, and how important hard work is.

It taught me that in the end, you are 100% responsible for your own decisions, your career, your failures, your success. You can’t rely on anybody else.

If you can’t hear the clip, click here

Graeme Gordon founder of Sneak Guard had 20 years of manufacturing and retail marketing experience working for companies like Ashley Furniture and Mattress Giant. Over the years, he dabbled in startup ideas, but frequently returned to the safe haven of a steady paycheck.

Working in corporate America, he gained enormous experience that serves him today, he says, but his heart wasn’t in working for others. Instead, he yearned to channel his creative energies.

When you’re hooked to getting a paycheck for over 20 years with the great benefits, stepping away from that is difficult, but I simply wasn’t happy in corporate America.

I didn’t fit. I was a square peg in a round hole. I’m entrepreneurial and creative. I needed to be someplace where I could think creatively.  

I’m definitely a happier person now, doing my startup.

If you can’t hear the clip, click here

Partner disagreements and a lack of planning killed Michael’s beach volleyball bar venture, but he doesn’t consider it a failure:

It cost me about $80,000, but the way I look at that is it was tuition money. It cost me what it cost me to learn what I learned, and I used that, and moved into the next deal, Quick Set Concrete.

There was a bit of serendipity around that opportunity, he says:

I didn’t really know a lot about construction, but a friend of mine said, “Well, I can run the crews and do the work if you can get the business,” so I said, “OK, let’s just figure it out.” With $24, I started the company: $3.99 to print your own business cards, and 20 bucks to register with the comptroller.

It’s still around, and we’ve evolved into adding dirt work and masonry to our scope.

If you can’t hear the clip, click here

Both Michael and Graeme started their companies after identifying a personal need. Michael came up with the idea for Clean Sleep in one sleepless night after falling asleep on his bare mattress.

SneakGuard was developed after Graeme’s 4-year-old daughter managed to open a prescription medicine child safety cap. The experience pushed him, once and for all, out of his corporate comfort zone. Here’s what he did:

I quit my job, went out and raised some capital from angels, strictly on a drawing, basically, and a concept.

I went out and talked to customers, friends. I did all these focus groups. I actually built prototypes, sat down with people and asked them, “What do you think of this? Would you buy it? How much would you buy it for? How much space can it take up, because it’s going to go in your refrigerator, if you want it to?”

I did a lot of groundwork before I moved forward.

If you can’t hear the clip, click here 

The customer feedback he received led him to a market he hadn’t considered:

I learned SneakGuard was a good product for cannabis, because once you take the air out of the container, it’ll make it the cannabis last longer. Also, there are some real problems with edibles like cookies and gummies.

There have been liability cases where parents have actually been charged with criminal charges for kids getting hold of dad’s pot cookies, so it’s a big part of our market.  

But it’s an interesting challenge to approach. Safety doesn’t pay attention to borders. Cannabis is legal in some states, and it’s not legal in others. Even though we’re selling a container and not cannabis, it’s a difficult pitch to retail America, because they don’t want to have anything to do with it. 

If you can’t hear the clip, click here

Initially, things were going well for the company Graeme originally named SnoopGuard. He quickly received orders and amassed an inventory of containers.

His launch was short-circuited by a lawyer, though:

We got a cease and desist letter from a very well-known celebrity whose name had the word Snoop in it.  

Although the U.S. Patent Office gave me the registered mark that I owned for SnoopGuard, that was a pivot point for me because we had already produced product that had the name on it.

Lack of time and money kept me from fighting it. It really tore my heart out, but I decided I’d have to make a really quick recovery, or potentially not recover.

I changed the name to SneakGuard, then had to change the product, throw away a lot of original product and move on.

If you can’t hear the clip, click here

Although a February appearance on the reality TV show SharkTank brought Clean Sleep some brand recognition, Michael is struggling to find a scalable business model.

Until I got the machine to work, I hadn’t even thought about the business plan. I just knew that this was a huge problem, that everyone has a mattress.

Then I realized, “Okay, this is a perfect franchise model.” That’s how we starting writing our projections.

I spent every dollar I had to go to the best franchise attorneys, and got the franchise disclosure documents done, and agreements, and everything else. I thought a franchise model was the ticket.

But through a lot of trial and tribulation, we’re still growing the company into the Dallas/Fort Worth metroplex. So now we’ve decided to push franchising off until we can figure out how to scale the business.

If you can’t hear the clip, click here

Because Clean Sleep is creating a new market, Michael recognizes he must educate consumers who don’t know about his product or understand why they should clean their mattress. Looking back he wishes he’d spent more time and money on sales and marketing to do that, because things have been tough financially:

I’ve spent a lot of money on this company.

To this day, I don’t know how I’ve managed. I’ve got everything except my underwear in this thing. 

If you can’t hear the clip, click here

Listen to my full interviews with Michael and Graeme by downloading them from SoundCloud here and here. (And download any of the past shows here.)

Next on Entrepreneurs are Everywhere: Ryan Smith, co-founder of Qualtrics; and Lane Merrifield, founder of Fresh Grade.

Tune in Thursday at 1 pm PT, 4 pm ET on Sirius XM Channel 111.

Want to be a guest on the show? Entrepreneurship stretches from Main Street to Silicon Valley, from startups to big companies. Send an email to terri@kandsranch.com describing your entrepreneurial journey.

Entrepreneurs are Everywhere Show No. 36: Jim Semick and Peter Arvai

Given all that I’ve seen in my career I don’t sweat the small stuff.

We didn’t talk about product; we didn’t talk about organization or raising money. We talked about our values, we talked about our hopes and dreams for the world, and that helped us realize why we were doing this project together.

Startups aren’t only for twentysomethings. And a founding team needs more than a complementary skill set.

Experience and vision were the focus of today’s Entrepreneurs are Everywhere radio show

The show follows the journeys of founders who share what it takes to build a startup – from restaurants to rocket scientists, to online gifts to online groceries and more. The program examines the DNA of entrepreneurs: what makes them tick, how they came up with their ideas; and explores the habits that make them successful, and the highs and lows that pushed them forward.

Jim Semick

Jim Semick

Joining me in the Stanford University studio were

Peter Arvai

Peter Arvai

Listen to my full interviews with Jim and Peter by downloading them from SoundCloud here and here.

(And download any of the past shows here.)

Clips from their interviews are below.

Peter Arvai – cofounder of Prezi dreamed of being a particle physicist but working in a startup changed his career path.

In Sweden, he founded omvard.se a company that aggregates data on treatment outcomes for hospital patients. Soon after, he developed the world’s first mobile newsreader so people could follow TED Talks from their mobile devices.  

Prezi’s founding team is a classic startup mix of hacker, hustler and designer. However, Peter says the company’s success is also driven by the co-founders’ shared values and vision:

For us, it was about really getting clear about why we were doing what we were doing. When the three of us met in a café in Budapest we didn’t talk about product, we didn’t talk about organization or raising money. We talked about our values, we talked about our hopes and dreams for the world, and that helped us realize why we were doing this project together.

No matter how much you know your co-founders, you need to have more than understanding of them. You need an element of love, because you will have conflicts, you will have issues and then you need to have the foundation to work those through.

If you can’t hear the clip, click here

Prior to founding ProductPlan, Jim Semick was part of the founding team at AppFolio, helping validate and launch its first products. Before AppFolio, Jim created the product requirements for GoToMyPC and GoToMeeting which was acquired by Citrix.

Jim lectures at University of California Santa Barbara and elsewhere on the process of discovering successful business models.

Having started ProductPlan in midlife, Jim found that his age and the knowledge he’s acquired have given him an edge:

I think that my experience with validation and launching other products has helped me immensely. So does my experience as a writer and instructor. I’m able to communicate effectively and that has contributed to ProductPlan’s success.

Given all that I’ve seen in my career I don’t sweat the small stuff.

Plus, having a family motivates me to make this successful.

If you can’t hear the clip, click here

Peter says they launched Prezi in the middle of the 2008 crash, with the audacious goal of taking on Apple, Microsoft and Google. To say it was an uphill battle at first would be an understatement. However they got early signs that they might be on to something:

Most people thought we were very wrong. Again, remember, everyone was losing their job, no one was willing to invest and so we had to bootstrap Prezi in the beginning.

We went a full year without raising any serious money.

We launched Prezi at a startup competition. Unfortunately we came in second place, but within five minutes of introducing Prezi, the moderator asked the audience, “How many of you would be willing to pay for this?” and half of the audience members raised their hand.  

That was the first time we knew that we were onto something really meaningful.

If you can’t hear the clip, click here

Peter and his co-founders were committed to making Prezi a global company. In doing so, they applied lessons Peter learned from working previously at Mobispine, a mobile communications company that developed the first mobile newsreader so people could watch TED talks from their smartphones:

At Mobispine we fell into the trap of thinking too local.  When we shipped, Mobispine worked perfectly in the Stockholm subway. But then I went to other places in the world and it didn’t work. We didn’t understand what would work in the rest of the world. 

One of the key things that I took away from the experience was that if you want to build a global company, you really have to understand the specific conditions in each of the places that you are going to. You have to think globally from day one. 

If you can’t hear the clip, click here

Although Jim enjoyed bringing new products to market while working for others, starting ProductPlan allowed him fulfill the dream of being be master of his own fate:

I’ve always wanted to create a product that lived beyond me.

In my last job, when I was doing customer discovery, even though I was very invested and very passionate about the products, it was really for the organization, for someone else’s company. It wasn’t for myself.

This time, at ProductPlan it was for myself. That actually makes a real difference. I get so much more satisfaction out of this.

If you can’t hear the clip, click here

Jim offered this advice for entrepreneurs doing customer discovery:

People want to be nice; people want you be successful. And it’s human nature to want to hear good stuff about what you’ve built.  But believing it all will put you out of business. 

You need to ask polite, but challenging questions to confirm that you’re not hearing these false positives.

If someone tells you: “I love the idea,” ask, “Why do you love the idea?” That takes you down a path, because so many entrepreneurs take that answer at face value and they run with it and say, “Everyone says they love the product,” which may or may not be the truth. 

If someone says, “I love the idea,” you need to ask them whether they’d give you the money they have in the wallet _right now_.  If they won’t they really didn’t love it that much!

If you can’t hear the clip, click here

Listen to my full interviews with Jim and Peter by downloading them from SoundCloud here and here. (And download any of the past shows here.)

Next on Entrepreneurs are Everywhere: Michael Ingle, founder of Clean Sleep; and Graeme Gordon, founder of Sneak Guard.

Tune in Thursday at 1 pm PT, 4 pm ET on Sirius XM Channel 111. 

Want to be a guest on the show? Entrepreneurship stretches from Main Street to Silicon Valley, from startups to big companies. Send an email to terri@kandsranch.com describing your entrepreneurial journey.

Entrepreneurs are Everywhere Show No. 35: Jessica Mah and Peggy Burke

At 19 I thought that I would be able to work really hard on my startup, and then in a year we’d have break out success. We’d raise this money, users would just grow like crazy, and we’d have a huge company, and I’d be able to retire before I turned 25.  … Just like in the movies.

What happened?

Well, I’m 25 and that’s still not the case.


Getting funding and press attention doesn’t automatically equal success. And world-class entrepreneurs never quit.

How founders cope with startup challenges was the focus of today’s Entrepreneurs are Everywhere radio show.

The show follows the journeys of founders who share what it takes to build a startup – from restaurants to rocket scientists, to online gifts to online groceries and more. The program examines the DNA of entrepreneurs: what makes them tick, how they came up with their ideas; and explores the habits that make them successful, and the highs and lows that pushed them forward.

Jessica Mah

Jessica Mah

Joining me in the Stanford University studio were

Peggy Burke

Peggy Burke

Listen to my full interviews with Jessica and Peggy by downloading it from SoundCloud here and here.

(And download any of the past shows here.)

Clips from their interviews are below.

Jessica Mah started InDinero in 2010 to help entrepreneurs with their accounting and tax needs after going through the same challenges with her own businesses.

Jessica has been starting her own Internet businesses and programming since middle school. She left high school at 15 to attend Simon’s Rock Early College, then studied computer science at the University of California, Berkeley.

She has been featured in the Forbes and Inc. 30 Under 30 lists, and was on the cover of Inc. Magazine’s Inc. 5000 issue in 2015.

Early on, however, it looked like InDinero would fail. Their initial product was nice-to-have, but people didn’t want to pay for it, Jessica explained:

Everything was going so well. I was able to get the money pretty easily up front, and I was able to get the press. The fairy tale was supposed to have a successful end right there.

But we were about to burn a $700,000 hole in our bank account in the next 12-months if we didn’t do something. We were depending on investor funding, but with $60,000 in revenue no one would fund it. 

I was turning 21 when I realized all this was going down the hole. I was really fricking scared.

I tried to pitch this to investors again. No one was interested.

I looked at my cash balance, and thought, this is going to blow up in flames in the next four months if I don’t do something drastic.

I talked it over with some friends that night, and decided the next morning we’d have to cut all of our costs.  

We got rid of the hot tub in our office and told everyone that they’d have to find a new job.

If you can’t hear the clip, click here

Jessica ran things as lean as she could for the next few months while figuring out what to do. Here’s how she discovered what her customers actually wanted:

I worked backwards from the optimal solution: What would people pay hundreds of dollars a month for, thousands of dollars a year for, that isn’t too far off from what we’re doing today?

I went to a customer’s office and I watched him use my software. He was paying us $20 a month, and he’s like, “Why the hell am I doing all this myself? Why can’t I just pay you thousands of dollars, and you’ll make this problem go away for me?”

A lightbulb hit, “Aha.”

If you can’t hear the clip, click here

Peggy Burke is a 30+-year design executive with expertise in creating global brands. She and her company, 1185 Design, has developed the brands of enterprise companies like Cisco, SAP, Sun Microsystems, VeriSign, Semens, Adobe; consumer products companies like Sears, Chiquita, Apple, Stanford Hospital & Clinics; and over 350 startups.

When Peggy first arrived in Silicon Valley, she worked for Boole & Babbage, before founding her own firm. She quickly learned that running a startup was no picnic, but she was driven to succeed:

I pushed through some of the most difficult challenges. A lot of my competitors – those that were much larger, smaller, every size — just completely blew up and went away. They gave up. They had to. It was too hard.  

But I never gave up.

If you can’t hear the clip, click here

She often went without sleep in the early days of building the business:

The biggest challenge was time.

I would run around all day long meeting with clients. Then I would have to come back and work all night long. I would never ever present anything that I didn’t think was “legendary.”

If you can’t hear the clip, click here

Especially difficult were the days after the Internet bubble burst:

2001 was a staggering blow to technology. Everything disappeared. It went from a massive fire hose of incredible work — lots and lots and lots of money to spend on branding and events and really pushing the envelope — to a complete turnoff. It’s as if somebody pulled the plug on the entire thing.

I had 60 people at the time. I cut the company in half. That was excruciating.

If you can’t hear the clip, click here

Jessica learned an important lesson about hiring:

I thought, wow, it’d be great to work with friends, but it was horrible.

It wrecked our friendships. It was very hard for me to be direct and candid and strict with them. It was very conflicting, and it was hard to keep myself honest and separate the two from each other.

If you can’t hear the clip, click here

Looking back, she realizes she had a too-rosy view of what doing a startup would be like:

I wish I had a better appreciation for how difficult it would be to accurately forecast where I’d be 12 months or 18 months from now. I should have just kept more of an open mind for where I could have been, and thought more about the failure cases.

I thought all about the good upside, I didn’t think about the risks and the problems I might run into at all. 

If you can’t hear the clip, click here

Today, she constantly challenges herself

Every 6 months I go through a small internal crises where I wonder, am I on the path to success? That path keeps on changing.  

For me now, I really do want to build a big company here. When we first started the business, I’m not sure if that was so crystal-clear. Now, I’m really driven by the idea of having a really big company that impacts thousands or millions of people.

If you can’t hear the clip, click here

Peg credits Silicon Valley’s pay-it-forward culture to giving her a leg up when she was starting out:

Peggy: When I resigned from Boole & Babbage, I had no clients at all.

I had $3,000 in the bank and I was sending my parents money, so there was no support, no safety net at all. I spent a $1,000 a month on my car and my rent and my expenses. I thought, “I can do this.”

My first client was Boole & Babbage. My boss at the time said, “We’d like to put you on a retainer.” For a $1,000 a month, they retained me.

Steve:  How did you get new clients?

Peggy: I networked. I shared an office in Palo Alto with my friend Elizabeth Horn. Elizabeth was making a film called My Dinner With Apple. Everyone you could possibly imagine related to Steve Jobs, including Andy Cunningham, came in and Elizabeth interviewed them in her office. 

I was introduced to Andy. I was introduced to David Kelly. I was introduced to all kinds of people who, to this day, are some of my best friends in the world. Elizabeth opened the doors to these introductions.

And, Pitch Johnson who was the chairman of the board at Boole & Babbage and a venture capitalist, took me around and introduced me to every venture capital firm in Silicon Valley at the time. I started working with startups and venture capitalists.

He took an interest in my business. He was incredibly generous. 

If you can’t hear the clip, click here

Here’s how she stays a step ahead of her competitors:

Peggy: Every three months I sit down and I try to define what tomorrow’s agency looks like, what the agency of five years from now looks like.

I put it on a board, make a few notes. Then we’ll have retreat for the company. I take all of these notes, split them up, give them to different teams, and say, “Go brainstorm this.”

Steve: Because if you don’t do it, some competitor’s doing for you.

Peggy: Absolutely.  

If you can’t hear the clip, click here

Listen to my full interviews with Jessica and Peggy by downloading it from SoundCloud here and here. (And download any of the past shows here.)

Next on Entrepreneurs are Everywhere: Jim Semick, founder of ProductPlan and Peter Arvai, co-founder of Prezi. 

Tune in Thursday at 1 pm PT, 4 pm ET on Sirius XM Channel 111. 

Want to be a guest on the show? Entrepreneurship stretches from Main Street to Silicon Valley, from startups to big companies. Send an email to terri@kandsranch.com describing your entrepreneurial journey.

Entrepreneurs are Everywhere Show No. 34: Deputy Secretary of State Antony J. Blinken

Countries or people you meet sometimes don’t like our policies on a given issue,
but what they almost universally admire and aspire to is American entrepreneurship,
innovation, education, science and technology, and volunteerism, philanthropy.

The State Department is working at the intersection of foreign policy and technology to keep Americans safe, serve the country’s interests and promote freedom of expression around the globe.

Tony_BlinkenHow and why the State Department is involving the nation’s top innovators in its efforts was the focus of my interview with Deputy Secretary of State Tony Blinken on today’s Entrepreneurs are Everywhere radio show.

The show follows the journeys of founders who share what it takes to build a startup – from restaurants to rocket scientists, to online gifts to online groceries and more. The program examines the DNA of entrepreneurs: what makes them tick, how they came up with their ideas; and explores the habits that make them successful, and the highs and lows that pushed them forward.

Listen to the full interview with Sec. Blinken by downloading it from SoundCloud here.

(And download any of the past shows here.)

Clips from his interview are below.

Antony J. Blinken, Deputy Secretary of State since 2015, has held senior foreign policy positions in two administrations over two decades.

He most recently served as Assistant to the President and Principal Deputy National Security Advisor, and chaired the inter-agency Deputies Committee, the administration’s principal forum for formulating foreign policy. During the first term of the Obama Administration, he was Deputy Assistant to the President and National Security Advisor to the Vice President.

From 2002-08 Sec. Blinken was Democratic Staff Director for the U.S. Senate Foreign Relations Committee. Before that, he was a member of President Clinton’s National Security Council staff and Special Assistant to the President and Senior Director for European Affairs – President Clinton’s principal advisor for relations with the countries of Europe, the European Union and NATO.

Prior to joining the Clinton Administration, Sec. Blinken practiced law in New York and Paris. He has been a reporter for The New Republic; has written about foreign policy for numerous publications; and is the author of Ally Versus Ally: America, Europe and the Siberian Pipeline Crisis.

Sec. Blinken explained that the U.S. innovation culture is greatly admired and has become one of the State Department’s diplomatic devices:

Everywhere I go around the world I find one thing comes back again and again and again: Countries or people you meet sometimes don’t like our policies on a given issue, but what they almost universally admire and aspire to is American entrepreneurship, innovation, education, science and technology, and volunteerism, philanthropy.

So for us in the business of American diplomacy trying to advance our interests around the world, this is an incredibly powerful thing. It’s the best of America and it opens doors sometimes when our policies may actually shut them or keep them closed. 

If you can’t hear the clip, click here 

Technological advances borne of that innovation culture are a double-edged sword, he explained:

On the one hand, technology has lowered barriers to access to that technology for all sorts of actors, some of them with very bad intentions.

At the same time, technology offers extraordinary new opportunities to better police arms control agreements, to better detect nuclear materials, chemical weapons, biological weapons, and to actually make us more secure.

At the State Department we’re trying to bring together technologists, innovators, philanthropists, NGOs, all of these groups to think about, in very practical terms, “OK, how do we use technology to more effectively deal with stopping the spread of weapons, technologies, materials?”

If you can’t hear the clip, click here

Technology is a critical tool in the State Department’s efforts to foster freedom of expression around the world.

Sec. Blinken: Technology is not inherently good or inherently bad. It all depends on how you use it and who’s using it.  

What we’re trying to do is help empower the positive actors and at the same time, we try to look for ways to deny the negative actors access to technology themselves. The lines get very blurry but it’s something that we’re working hard on.

Steve: The first example I remember hearing about that was getting printing presses and Xerox machines into Poland during the Solidarity movement.

Sec. Blinken: Absolutely, or even before that in the Soviet Union. The copy machine was one of the greatest instruments of dissent, so much so that the Soviets controlled the copying machines and looked very carefully at the numbers of copies that were made. That’s what you had to do then before the Internet. That was a powerful way of spreading ideas.

Steve: Facebook, Twitter messenger, Instagram, etc., are 21st-century versions of that but it assumes you have smartphones. How do you drop those on North Korea? 

Sec. Blinken: We found that defectors getting out of North Korea have much greater access than we thought to technology, much of it coming in from China. DVD players, thumb drives, cell phones — that technology has the capacity to carry all sorts of information and ideas.

There is an organic quality to the spread of technology — often American technology — that people around the world want access to. Then the question is, will their governments allow them to use it and if not, are there workarounds?  

Much of what we see is really developed indigenously. If you go to countries where the Web is heavily regulated, people’s access to different content is blocked or prohibited. 

You’ll see extraordinarily creative people finding ways around that and sometimes we may have a good idea to share to help them do that.

If you can’t hear the clip, click here 

The State Department is working to connect DC policy-makers with the country’s top innovation leaders, he said:

So much of what we’re doing at the State Department or for that matter, the National Security Council or the White House, is really at the intersection of foreign policy and technology. The problems that we’re trying to solve — whether it’s the use of cyberspace or the use of outer space — go right to that intersection. The big things that we’re trying to do around the world — build global health security, food security, energy security – there, too, we’re right at the intersection. 

One of the shortcomings has been that there is not sufficient connectivity between the policy community in Washington and the innovation community out here at Stanford and Silicon Valley or for that matter on the East Coast or points in between.

We’re trying to build that connectivity. We started something at State Department at the beginning of the year called the Innovation Forum. We’re bringing together policy makers at a senior level with technologists, with entrepreneurs, with philanthropists, with NGOs, looking at discrete problems that we’re trying to solve and getting them to put their minds, their energy, their creativity towards solving it.

If you can’t hear the clip, click here

He explained one such initiative:

President Obama created something called the U.S. Digital Service and that enables us to bring people in quickly for six months, for a year, from Silicon Valley, from other places (like the) East Coast and points in between.

They’re formed into teams and they then go out and work with different agencies on discrete technology problems that they’re trying to solve. This has been a very powerful way of bringing some of the smartest young minds, the most energetic people, into government to do it quickly but also not to make it life servitude. They come in and apply the skills and the passions and the ideas, and it benefits government and it benefits them in getting that kind of experience.

If you can’t hear the clip, click here

Because entrepreneurism is the ultimate freedom of expression, the State Department strives to foster a global spirit of innovation, he added:

The wealth of a nation is found in its human resources and countries that are able to free those human resources, to reach their full potential, will thrive no matter how big or small they are.

We tell other governments, “Look. You’re putting a ceiling on your potential if you are not allowing people to express themselves freely. The reason our entrepreneurs have been so successful starts almost from the time they’re born because they go to school and instead of learning by rote, they are there to question and to argue and to push back and not to accept conventional wisdom.  

That’s the most powerful thing. If it doesn’t start from that early age, and if you don’t allow it to thrive going forward, you’re limiting yourself.

If you can’t hear the clip, click here

Listen to my full interview with Sec. Blinken by downloading it from SoundCloud here. (And download any of the past shows here.)

Next on Entrepreneurs are Everywhere: Jessica Mah, founder of InDinero and Peg Burke, founder of 1185 Design.

Tune in Thursday at 1 pm PT, 4 pm ET on Sirius XM Channel 111.

Want to be a guest on the show? Entrepreneurship stretches from Main Street to Silicon Valley, from startups to big companies. Send an email to terri@kandsranch.com describing your entrepreneurial journey.

 

Intel Disrupted: Why large companies find it difficult to innovate, and what they can do about it

In the 21st century it’s harder for large corporations to create disruptive breakthroughs. Disruptive innovations are coming from startups – Tesla for automobiles, Uber for taxis, Airbnb for hotel rentals, Netflix for video rentals and Facebook for media.

What’s holding large companies back? Here are four reasons:

First, companies bought into the false premise that they exist to maximize shareholder value – which said “keep the stock price high.” As a consequence, corporations used metrics like return on net assets (RONA), return on capital deployed, and internal rate of return (IRR) to measure efficiency. These metrics make it difficult for a company that wants to invest in long-term innovation. It’s a lot easier to get these numbers to look great by outsourcing everything, getting assets off the balance sheet and only investing in things that pay off fast. To do that, companies jettisoned internal R&D labs, outsourced manufacturing and cut long-term investment. These resulting business models made them look incredibly profitable.

Second, the leaders of these companies tended to be those who excelled at finance, supply chain or production. They knew how to execute the current business model.

Intel under their last two CEOs delivered more revenue and profit than any ever before. They could point to record investment in R&D for more expensive chip fabs yet today the writing is on the wall that Intel’s leading days are over.  Why?

Over the last decade, Intel missed two important disruptive trends. First, the shift away from desktop computers to mobile devices meant that Intel’s power-hungry x86 processors weren’t suitable. ARM, a competitor, not only had a better, much lower power processor, but a better business model – they licensed their architecture to other companies that designed their own products. Intel attempted to compete, (and actually owned an ARM license) but fell victim to a classic failure of ignoring a low-end disruptor and hobbling their own chances by deciding not cannibalize their own very profitable x86 business. All of Intel’s resources – fabs, manufacturing strategies, and most importantly executive mindset — were geared towards large, expensive x86 processors, not low-cost mobile cores of someone else’s design.

The result, Intel just laid off 12,000 people, 11% of their company.roadkill

But it’s not over for Intel. Their most profitable segment is very high-end processors used in data centers in servers and the cloud. Today that’s built on the premise that an x86 architecture is the one best suited for big data. It’s becoming clear that extracting intelligence from that big data requires machine learning architectures which are better implemented with non x86 chips from companies like NVidia. It’s possible that by the end of this decade history might repeat itself in Intel’s most profitable segment.

The third reason why companies find it hard to innovate is the explosive shifts in technology, platforms and markets that have occurred in the last 15 years–personal computers moving to mobile devices; life science breakthroughs in therapeutics, diagnostics, devices and digital health; and new markets like China emerging as consumers and suppliers.

Which brings us to the fourth reason it’s harder for large corporations to offer disruptive breakthroughs: startups.

For the first 75 years of the 20th century, when capital for new ventures was scarce, the smartest engineering talent went to corporate R&D labs.

But starting in the last quarter of that century and accelerating in this one, a new form of financing – risk capital (angel and venture capital) — emerged. Risk capital has provided financing for new ideas in the form of startups. Capital is returned to these investors through liquidity events (originally public offerings, but today mostly acquisitions).

Startups have realized that large companies are vulnerable because of the very things that have made them large and profitable: by focusing on maximizing shareholder return, they’ve jettisoned their ability to do disruptive innovation at speed and scale. In contrast, startups operate with speed and urgency, making decisions with incomplete information. They’re better than large companies at identifying customer needs/problems and finding product/market fit by pivoting rapidly. Their size lets them adopt flatter and more agile organizational structures while providing incentives that reward risk-taking and collaboration.

Startups are unencumbered by the status quo.  They re-envision how an industry can operate and grow, and they focus on better value propositions. On the low-end, they undercut cost structures, resulting in customer migration. At the high-end they create products and services that never existed before.

As we’ve seen, corporations are very good at maintaining, defending and refining existing business models, and they’re pretty good at extending existing models by identifying adjacencies. But corporations are weak, and have become weaker, in identifying new disruption opportunities.

Innovation can come from inside the corporation, by adopting Lean Startup language and methods, developing intrapreneurship, and fostering innovation-driving behaviors such as GE’s FastWorks program. And corporations can foster innovation from the outside by promoting open innovation and buying startup-driven innovation. Google has bought close to 160 companies in the last decade. Its acquisition of Android may have been the biggest bargain in corporate history.

So to succeed, corporations must re-think and then re-invent their corporate innovation model, replacing a static execution model with three horizons of continuous innovation: This requires a corporate culture, organizational structure, and employee incentives that reward innovation. It requires establishing acceptable risk level and innovation KPIs for each horizon.

And it also requires understanding the differences between executing the existing business model, extending the business model and searching for and disrupting the business model.

Lessons Learned

  • Even the most innovative companies eventually become yesterdays news
  • To survive companies need to run three-horizons of innovation
    • Horizon 1 – execute their existing business model(s)
    • Horizon 2 – extend their existing business model(s)
    • And for long-term survival – Horizon 3 – search for and create new/disruptive business model(s)


(this article first appeared in the Peoples Daily.)Peoples Daily

Follow

Get every new post delivered to your Inbox.

Join 208,445 other followers