Steve Blank Innovation and Entrepreneurship June 2016

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

Posted on June 23, 2016 by steve blank

In the 21^st 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.

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 20^th 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.)

Filed under: Corporate/Gov't Innovation, Customer Development | 15 Comments »

Entrepreneurs are Everywhere: Show No. 33: David Comisford and Omar Zenhom

Posted on June 16, 2016 by steve blank

A huge lesson is to raise money at the appropriate time. We didn’t understand our value proposition. We didn’t even have a fully baked-out product. We weren’t ready. So we failed.

Every time I started a business it was because I saw them as good short-term financial opportunities. In hindsight I realize none of these businesses lasted because it wasn’t authentic. I didn’t feel like they were my legacy or something I could really leverage my strengths with.

Lessons in raising money and making money were shared by 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.

David Comisford

Joining me in the Stanford University studio were

David Comisford, founder and CEO of EduSourced
Omar Zenhom, co-founder of The $100 MBA.

Listen to the full interviews with David and Omar by downloading them from SoundCloud here and here.

Omar Zenhom

(And download any of the past shows here.)

Clips from their interview are below.

David Comisford is an entrepreneur currently focused on higher education and ed tech. David was named to the 2016 Forbes 30 Under 30 for his work in launching the EduSourced software platform. His previous startup was Frewg, a regional online textbook rental service.

While building EduSourced, David learned some lessons around getting funded:

David: We weren’t ready to scale when we first took investors money, which tells me that we took the money too early, but I didn’t know that at the time.

Taking money from investors meant that there was pressure to scale, and pressure to hire, and that hire included a high-powered sales executive, but we did this without understanding our own value proposition.

Steve: You mean that’s who your investors were telling you to hire? Go hire a sales exec to scale?

David: Yeah. I can understand from the outside looking in, that would seem to make sense, bring somebody in who’s done that before, but we didn’t understand our value proposition. We didn’t even have a fully baked-out product. We weren’t ready to layer a sales team on.

The huge lesson for me was to raise money at the appropriate time (or from people who have patience at the appropriate time).

If you can’t hear the clip, click here

Omar Zenhom is a former educator and the co-founder of The $100 MBA and the co-founder of Webinar Ninja, a webinar platform for online business owners.

Earlier in his career, Omar had a series of what he calls side hustles, including a fashion company. The experience taught him that being a founder isn’t just about the money:

Omar: Every time I started a business it was because I saw them as good short-term financial opportunities. Then I realized none of these businesses were having any kind of longevity because I can’t add value to them in a way that it has meaning to me.

I didn’t really ask, “How can I add my strengths to any business?” I just saw an opportunity and ran with it. It was working and it was profitable so I continued to do it.

Then I realized I don’t want to do this anymore. It wasn’t authentic. I didn’t feel like this is my legacy or something I can really leverage my strengths with.

If you can’t hear the clip, click here

—

David launched his first startup, Frewg college textbook rentals, while in college:

David: Initially Frewg was a hobby. Over time it became an online book rental platform serving Ohio. We developed a simple algorithm for pricing the textbooks, predicting when a price would fluctuate, when a book would go out of print, that kind of thing. We weren’t reliant on a wholesaler, which was interesting. Most people in that business work with wholesalers.

Steve: How did you learn about the economics of the business?

David: Initially we learned by doing simple stuff like going to the bookstore and getting information out of them about what do they pay for a book. I took 5 or 10 different textbooks, got their pricing, and then went and compared it to what I could sell them for.

If you can’t hear the clip, click here

Between Frewg and EduSourced, David tried starting a startup dedicated to digital textbook content. Here’s why it failed:

David: No one really cared about our solution. That was the biggest reason why it wasn’t going to work. I don’t think I would have known that if I hadn’t talked to people.

Steve: No one cared, meaning the students?

David: The students weren’t my market. It was the faculty that had to adopt the textbooks.

Steve: So this sounds like a multisided market. There were students, there was faculty, there were content providers, there were re-sellers, there were authors. There were about 20 moving parts.

David: Exactly. I didn’t know when I started how far in over my head I would have been.

It was interesting learning to recognize defeat, and not even think of it as defeat, but think of it as, “I tried this. I had a concept. I developed it as much as I could.”

If you can’t hear the clip, click here

—

Omar was a teacher before becoming an entrepreneur. Here’s why he left his teaching job:

Omar: The moment that really clicked for me is I was asking for a promotion that I thought I deserved. The person I was replacing, I was already doing their job for over a year.

I realized that, hey, what if I left today? I put in so much work into this institution. I’ve put in policies. I’ve built structure to this place and I can’t take anything with me. I have no legacy, I have nothing to show for it.”

If you can’t hear the clip, click here

As a founder, Omar learned to leverage his strengths. Here’s what happened with a podcast he launched before the $100 MBA:

Omar: I realized I’m not a good interviewer. I didn’t take it as seriously as I should have. I thought podcasting was a great idea. I believed in the medium, and I just said, hey this is easy. Just get on the mic and talk to people. I didn’t really have a strategy .

After 46 episodes we decided to close it down. I realized I wanted to utilize my ability to teach. I never saw a business podcast that teaches. I saw interview podcasts. I saw discussion podcasts with panelists.

But I wanted to do what Coffee Break French or Coffee Break Spanish does, where they have a regular 15-, 20-minute lesson on how to learn that language.

I knew that if I was on the mic teaching, I would have a competitive advantage.

If you can’t hear the clip, click here

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

Next on Entrepreneurs are Everywhere: Deputy Secretary of State Antony J. Blinken.

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.

Filed under: Customer Development, SiriusXM Radio Show | 2 Comments »

Entrepreneurs are Everywhere Show No. 32: Evangelos Simoudis and Ashok Srivastava

Posted on June 6, 2016 by steve blank

Innovation outposts in Silicon Valley allow big companies to sense and respond to rapid changes in technology. Big data is changing how we view the world, and is the fuel for machine intelligence.

How to make corporate innovation work and drive success in startups were the topics of discussion with the guests on today’s Entrepreneurs are Everywhere radio show.

Joining me in from the studio at Stanford University were:

Evangelos Simoudis

Evangelos Simoudis, venture investor and senior advisor to global corporations
Ashok N. Srivastava, chief data scientist at Verizon

Ashok Srivastava

Listen to the full interviews with Evangelos and Ashok by downloading them from SoundCloud here and here.

(And download any of the past shows here.)

Clips from their interview are below.

Ashok N. Srivastava leads Verizon’s innovation outpost (their Silicon Valley R&D center) in Palo Alto focusing on building products and services powered by big data and analytics. He is also a Consulting Professor at Stanford in the Electrical Engineering Department and Editor-in-Chief of the AIAA Journal of Aerospace Information Systems. Ashok formerly was the Principal Scientist for Data Sciences at NASA Ames Research Center.

A thought leader in the area of big data analytics, social media, optimization, machine learning, and data mining, he also served as a Venture Advisor focusing on big-data analytics at Trident Capital, and was on the advisory board of several startups.

Ashok explained how our use of data continues to evolve:
Issac Newton said, “We can understand the world through physics-based equations.” We certainly did. We have a tremendous understanding of the physical world through equations.

Now we’re in a world where we have the ability to take data and try to understand the physical world again, moving from mathematical models to data models, to reveal new things about the world.

I view the kind of the work that I do … as part of that continuum.

If you can’t hear the clip, click here.

The right data can deepen understanding of a problem, he added:
Ashok: What we see today are tremendous numbers of data points, billions, trillions of data points, coming in through various systems, but we want to have a deeper understanding of the systems that those data points are generated from.

Steve: Is that what makes machine intelligence possible, not only having the hardware and the algorithms but the a stream of data that was never available before?

Ashok: Absolutely…. If we have hardware and if we have algorithms that doesn’t complete the picture. The third element you need is data. You need to have it at scale, it needs to be updated regularly.

It also needs to be depicting the data-generating process.

For instance, if you want to model an economic system, you need to have economic data. You can’t use weather data to do it. You might be able to use a bit of weather data to understand some parts of the dynamics but you really need to have data that’s relevant to the process you’re trying to understand.

It sounds very obvious, but I’m amazed sometimes that I see that people are trying to solve a problem using data that’s not particularly relevant to a problem.

If you can’t hear the clip, click here.

Evangelos Simoudis’ is the founder and managing director of Synapse Partners. His investing career started 15 years ago at Apax Partners and continued with Trident Capital. Today Evangelos invests in early- and growth-stage companies focusing on the enterprise in the areas of data and analytics, SaaS applications, and mobility. He is a senior advisor to several multinational corporations and a recognized thought leader on corporate innovation, big data, cloud computing, and digital marketing platforms.

Prior to his investing and advisory career, Evangelos spent 20+ years in high-technology industries, in executive roles spanning operations, marketing, sales and engineering. He was the CEO of two startups.

In his current work, Evangelos helps corporations innovate:
As corporations start to think of how to take advantage of innovation ecosystems like Silicon Valley., they often confuse the vehicles to innovation –a venture fund, or an incubator or something else — with actual innovation.

What I’m trying to make them understand is how to separate those two and to do so they need to create an organizational structure, an outpost, here in Silicon Valley, to do two things.

They need to be able to sense what is happening in the ecosystem of choice and then respond.

If you can’t hear the clip, click here.

He also counsels startups to think about potential partnerships with large companies:
Just having an idea is not enough. You need to be able to understand how to take advantage of the market you’re operating in, including how to take advantage of corporations.

A lot of times entrepreneurs want to create distance from corporations Today’s environment creates some wonderful opportunities and conditions of the two to come together and create slingshots for taking companies and giving companies and startups, escape velocity.

If you can’t hear the clip, click here

—

Ashok has taken a Lean approach to innovation at Verizon:
Within a couple of weeks of joining Verizon, they said, “Before you learn a lot about the company, write down what you think we should do.” So I wrote a 9-page charter of what I thought we should do.

It included things like advertising, marketing analytics, cyber security. There were things like drones in there. Very, very far-fetched ideas, frankly. I presented them to our chief product officer and our CTO. Both of them started to see that these things could be executed. I said, “Rather than making a huge investment first, and seeing whether we could do it, let’s build some small prototypes.” Let’s define an MVP, a minimum viable product. Let’s just see if it’ll work. We started to do that in the advertising space first. Just took some things together, wrote some code, made some partnerships.

Together, as we brought the code, the partnerships together, we started to see, “Yeah. This could be a business.”

Then we ended up buying AOL last year …

If you can’t hear the clip, click here.

Having the buy-in of the company’s highest executives is crucial:
When we had our first discussions about what the Verizon Silicon Valley innovation outpost might look like, the senior executives within the company — the CEO, the CTO, our chief product officer, — said, “We understand that if we’re going to do this, it’s not going to be in Basking Ridge, New Jersey,” which is where our headquarters are, “It’s going to be in California and it’s going to be in Palo Alto.”

They made very, very deliberate choice to do that, to their credit because in formulating the hypothesis that data could be turned into a product, that’s leaping out into the unknown.

Secondly, to do it in a physical geography removed from the headquarters is also a pretty big idea.

They invested in it with capital but, equally importantly, they invested in it with their own attention to detail and attention to the vision that I started to lay out.

If you can’t hear the clip, click here.

As in a startup, listening to customers is paramount for a big company’s innovation efforts, he added:

If it’s an individual, if it’s a company, they all have a point of view and I always assume that they’re acting in good faith and they’re telling me what they really think.

I try to listen wherever I go. Whether it’s with a brand-new employee, whether it’s with a CEO of a big company, anyone, I always try to understand where they’re coming from and what I need to communicate to them so that they have a better understanding of who I am and what I’m doing and why I’m doing it.

Generally speaking, I find that if I take this approach, people realize that I’m there to collaborate and I can listen and … also tell you what’s possible and what’s not possible and why.

If you can’t hear the clip, click here.

—

In his experience with large companies and startups, Evangelos found one thing critical to success:

Evangelos: For me, there is a common lesson that has come from different perspectives in every stage of my career: the importance of the team.

As an entrepreneur, and later as an investor, I came to see sometimes, by associations, and sometimes very directly, what a good team can do. (And) what an incomplete or a mediocre team cannot do.

The difference is in how you can … achieve the goal that you’re setting up to achieve.

There are a lot of people who make things happen.

The right team can make the right things happen, and make them happen in the right way.

If you can’t hear the clip, click here.

And he offered the following insight into the VC- founder relationship:

Evangelos: As you understand product-market fit, this is where finessing and reworking of the management team, is very important. You need to understand given who you have and where you need to go in order to capture that value, to create that spectacular success-

Steve: Does that mean changing out people or does that mean growing people?

Evangelos: You need to be able to change people, you need to be able to put the right people in the right role. This is (why it’s important to have) a cohesive board and a cohesive investors’ syndicate because the investors sit on the board of the company and make the company work.

Steve: And they need to agree.

Evangelos: Yes.

Steve: Did you sometimes tell the founders they won’t be taking the company to 10,000 people?

Evangelos: Actually, I have said that to founders more times than I thought I would and that didn’t always endear me to the founders. Though what has been rewarding is that a number of founders who I had to either change roles or even let go, have told me, “You were right. Now I understand what was happening because I applied it to my next company.”

There is certain amount of … reward in having that acknowledgement.

If you can’t hear the clip, click here.

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

Next on Entrepreneurs are Everywhere: David Comisford, founder and CEO of EduSourced; and Omar Zenhom, co-founder of The $100 MBA.

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

Filed under: Customer Development, SiriusXM Radio Show | 2 Comments »

Hacking for Defense @ Stanford – Lessons Learned Presentations

Posted on June 3, 2016 by steve blank

We just held our tenth and final week of the Hacking for Defense class. Today the eight teams presented their Lessons Learned presentations.

We’re a little stunned about how well the first prototype of this class went. Over half the student teams have decided to continue working on national security projects after this class. Other colleges and universities have raised their hand and said they want to offer this at their school.

(This post is a continuation of the series. See all the H4D posts here. Because of the embedded presentations this post is best viewed on the website.)

What Were Our Goals for this Class?
We had five goals for the class. First was to teach students to develop the mindset, reflexes, agility and resilience an entrepreneur needs to make decisions at speed and with urgency in a chaotic and uncertain world.

Second, we wanted to teach students entrepreneurship while they engage in a national public service. Today if college students want to give back to their country they think of Teach for America, the Peace Corps, or Americorps or perhaps the US Digital Service or the GSA’s 18F. Few consider opportunities to make the world safer with the Department of Defense, Intelligence Community or other government agencies.

Third was to teach our sponsors (the innovators inside the Department of Defense (DOD) and Intelligence Community (IC)) that there was a methodology that could help them understand and better respond to rapidly evolving asymmetric threats. That if we could get teams to rapidly discover the real problems in the field using Lean methods, and only then articulating the requirements to solve them, could defense acquisition programs operate at speed and urgency and deliver timely and needed solutions.

Fourth, we wanted to show our DOD/IC sponsors that civilian students can make a meaningful contribution to problem understanding and rapid prototyping of solutions.

Fifth, we wanted to create the 21^st Century version of Tech ROTC by having Hacking for Defense taught by a national network of 50 colleges and universities. This would give the Department of Defense (DOD) and Intelligence Community (IC) access to a pool of previously untapped technically sophisticated talent, trained in Lean and Agile methodologies, and unencumbered by dogma and doctrine. At this size the program will provide hundreds of solutions to critical national security problems every year.

The result will be a network of thousands of entrepreneurial students who understand the security threats facing the country and engaged in partnership with islands of innovation in the DOD/IC. This is a first step to a more agile, responsive and resilient, approach to national security in the 21^st century.

What Did We Learn From the Class?
Not only did the students learn, but the teaching team got schooled as well.

First, we validated that students were ready and willing to sign up for a class that engaged them in national service with the Department of Defense and Intelligence Community. We had more applicants (70+) for the 32 seats in this class than we usually get in our core entrepreneurship class.

Second, we found that the islands of innovation inside the DOD and IC were willing to engage this new and eager pool of talent. We were soliciting 8 problems for the students to work on and had to shut down the submission process after we reached 25.

Third, some students took the class because they thought learning entrepreneurship with tough real-world problems would be interesting. We surveyed their motivations before and after the class and were surprised to find that a large percentage became more interested and engaged in national service. Over half the student teams have decided to continue working on national security projects.

Fourth, other schools have said they want to offer this class next year. To help kick this scale into high gear, the National Defense University will be funding Hacking for Defense at colleges and universities across the country. To train other educators and future problem sponsors we we will hold our first Hacking for Defense/Diplomacy Educators Class September 7 through 9^th. Contact Pete Newell peter.newell@gc.ndu.edu to sign up.

Finally, the teaching team (instructors, TA’s, mentors) and students debriefed on our own Lessons Learned from the class. Joe Felter and his research assistants will spend the summer building out the formal educator’s guide (capturing all the “wish we would have known’s” and “here are the points you need to make in this lecture”,) sponsor guide (yep, we learned we need to train our sponsors as well), creating new DOD/IC-specific video lectures. And we will build a knowledge base of DOD/IC acquisition primers, customer development best practices, org charts, etc. Finally, for universities interested in running future courses, HackingForDefense.org will act as a central clearing house for student-ready problems that have been vetted and unclassified. While H4Di.org gets on its feet Pete Newell and his team of RA’s will continue to source problems for upcoming H4D courses.

What Surprised Us?

The combination of the Mission Model Canvas and the Customer Development process was an extremely efficient template for the students to follow – even more than we expected.
It drove a hyper-accelerated learning process which led the students to a “information dense” set of conclusions. (Translation: they learned a lot more, in a shorter period of time than in any other incubator, hackathon, entrepreneurship course we’ve ever taught or seen.)
Insisting that the students keep a weekly blog of their customer development activities gave us insight into their progress in powerful and unexpected ways.

What Would We Change?

Train the sponsors on commitment, roles, etc.
Decide how we want the teams to split their time for potential dual-use products. How much time spent on focusing on the sponsors particular problem versus finding a commercial market. And what week to do so.

This is the End
Each of the eight teams presented a 2-minute video to provide context about their problem and then gave an 8-minute presentation of their Lessons Learned over the 10-weeks. Each of their slide presentation follow their customer discovery journey. All the teams used the Mission Model Canvas, Customer Development and Agile Engineering to build Minimal Viable Products, but all of their journeys were unique.

The teams presented in front of several hundred people in person and online. You can watch the entire presentation here

https://vimeo.com/169155566

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