It just hit me this morning why the US seems to dominate the world in the creation of innovative companies and products and I think we’ve gotten it all wrong. The Americans aren’t better than the rest of us at research and development and product creation, they’re just better at us in market development.
If you’ve been following my recent research you’ll have seen that I’m on a path to discover why Canada lags many of its peers at the development of an innovation economy. My thesis is that our problem has been misunderstood for years and the problem is not that Canada fails at research and development, patenting or financing startups. The problem is that we’re no good at market development.
I’ve recently started to look at why the US is so good at launching new products and companies. The general consensus seems to be that the US and in particular Silicon Valley is more innovative than the rest of us. But wait a second, this is the country that hasn’t adopted the metric system or replaced low denomination paper currency with coins. This is the country without universal medical care, that still executes citizens, even minors. It is a country with a completely dysfunctional political system and one that is still embroiled in debates over abortion and gay marriage while the rest of the world has moved on. Is this evidence that they lead the world at innovation?
Despite what they claim about innovation and what we think, I think they’re wrong. There is no evidence that the US is better than the rest of us at research and product development. But if they seem to be so good at creating products and companies, what are they better at? I think they’re better at market development.
Over the years across the US, entrepreneurs and companies have perfected the art of market research and in particular design thinking. They have perfected product marketing, developing alliances through business development. They have perfected marketing communications and even more so, sales. They have perfected the art of incubation through such entities as Y Combinator. They have perfected the use of private venture capital and how to best assist the companies reach markets through the assistance these VC firms provide. They have created a machine that can turn average research into world-leading products and companies.
If we want to improve our ability to help innovative new products reach markets we have to stop focusing on the research and development side and focus, as the US has on market development.
I was surprised that Finance Minister Bill Morneau warned Millennials that they should “get used to so-called job churn – short-term employment and a number of career changes in a person’s life.” Does this mean he’s giving up on the economy?
I looked around the other day and decided that as a group, my friends who had stuck with one job or one career all of their lives were on the whole, financially better off than the ones who skipped around between jobs and careers. Even the ones in lower paid jobs had done well financially as they could plan and save knowing how much they were earning.
So is Bill Morneau effectively stating that Millennials should get used to the idea that they are not going to be as well off financially as their parents?
Here’s what happens. If you don’t have a secure career, you won’t spend as much on a house or maybe you won’t buy one at all. After all, Bill’s saying that you better play it safe as you might not know when your next gig will start even though we’re going to train you so that you can keep switching careers regularly.
If you don’t buy a house or spend as much on one then you probably won’t need all sorts of furniture and will not be spending much on renovations. As for buying a cottage, to hell with that idea.
So what happens to the economy when all those job-churning millennials stop spending money? Well the economy tanks and who then will pay for all of us boomers to retire?
What’s the solution? Well it isn’t only training plans. Somehow we need to be de-risking this world of churning jobs so that millennials can plan properly for their future. (And in that way contribute better to boomer retirement – did I mention that it’s still all about boomers anyway?)
There was a great article on the Harvard Business Review site yesterday that said that companies that have a founder’s mentality deliver returns to shareholders that are three times higher than in other companies. It goes on to say that a founder’s mentality has three traits that are insurgency, an owner’s mindset, and a frontline obsession.
The article that goes on to show that as a company gets bigger, it loses its founders mentality. While I was reading it, I suddenly thought that there is another thing that happens as companies get bigger; they hire more MBAs.
Now before I get jumped on for inventing a correlation between the number of MBAs that a company has, the loss of its founder mentality, and inevitable slow decline to irrelevancy let me say that I have an MBA. Not only that, I actually taught MBAs at York’s Schulich School of Business for seven years. And what did I learn and what do we teach?
Well there certainly isn’t much in an MBA about insurgency. We’re more likely to teach students how important it is to understand and develop process and ensure it is followed so that we can have a consistent level of quality. I don’t remember any courses on insurgency, just frameworks like Porters Five Forces, the BCG Matrix. Lots of analysis and risk reduction instead of radical wild ideas.
As to an owner’s mindset, students are more likely to learn about accounting, finance, and driving shareholder value through short term profit maximization. I just checked Rotman’s site and even in their specialization in Innovation and Entrepreneurship, there is no course that looks like it focusses on ownership thinking.
As to a frontline obsession, an MBA will spend a lot more time understanding the concept of materiality and how to look at the big picture than to obsess over operational details. In fact people who obsess over frontline details are told they are too operational, not strategic enough and they don’t get promotions.
The article says that owners “abhor complexity, bureaucracy, and anything that gets in the way of the clean execution of strategy. They are obsessed with the details of the business and celebrate the employees at the front line, who deal directly with customers.” That doesn’t sound very MBA like to me. MBAs celebrate process and analysis, not details.
So my hypothesis is that MBAs are being taught the wrong things. They are taught the things that make businesses predictable and safe instead of dynamic and bold. And when companies hire too many of MBAs, they begin to lose their founder’s mentality, they become predictable and safe, and they begin a slow decline to a merger (aka death).
As time goes on, I become more and more convinced that logic and facts don’t matter. This is tremendously upsetting as I’ve grown up to favour the logical over the emotional. In fact I actually get turned on by facts. (Yes, how nerd-like can one be?)
The death of Rob Ford and the ascendancy of Donald Trump (Drompf?) brought this to the fore. Here are two politicians whose brazen manipulation and ignorance of facts didn’t hurt them at all in political battles. What they understand is that all that matters is emotions. And they did a great job appealing to the basest of human emotions.
I blogged about some of this this yesterday on LinkedIn which I’m experimenting with as a blogging platform. Today though I was reading an article in Harvard Business Review on the Science of Emotions which really focussed my thinking.
Because emotions are messy, hard to predict and difficult to use in marketing, this group created a standard lexicon of emotional motivators that can be used by marketers. This will allow companies to use data analytics to identify emotional motivators and use statistical modelling to determine the most profitable customer motivators.
This is all slightly upsetting to think that I am being manipulated like this all the time. But then I thought about what I buy. For some odd reason, I have an emotional attachment to Apple products because of their design. My hyper-logical son is quick to point out though that I’m buying a closed system at tremendous cost and that it doesn’t make logical sense. But I love Apple products. There’s that emotional reaction.
And I wear a lot of Patagonia clothing. Not because it’s the best manufactured outdoor wear but because I love the image they portray and how I identify with their image.
But does this mean logic and facts are dead? Maybe not dead yet but failing. If we can turn emotional appeal into a science then maybe we have merged emotion and logic in a way that will turn consumerism fully into a new wave religion.
In a startup world full of ideas, it’s difficult to separate the Sitcom Startup Ideas from the good ideas. I must admit that I didn’t coin the phrase but am copying something that Paul Graham wrote in his post on How to Get Startup Ideas. To quote his post for those of you too lazy to click on the link, “Why do so many founders build things no one wants? Because they begin by trying to think of startup ideas. That m.o. is doubly dangerous: it doesn’t merely yield few good ideas; it yields bad ideas that sound plausible enough to fool you into working on them.”
And from the research I’m doing, it seems that most ideas that people start Techno with are ideas that could be classified Sitcom Startup Ideas. But there is a problem here as you could think of AirBnB as a Sitcom Startup. After all it was started by a few guys in San Fransisco who couldn’t pay rent so they put up a website to rent out three air mattresses. And Uber was started by another three guys who couldn’t stand waiting in the rain to get a taxi.
I suspect that Sitcom Startup Ideas are in the eye of the beholder. One VC’s sitcom is another’s documentary. After all, Bessemer passed on FaceBook, Google, and EBay. Not only did they pass, they ran away from these ideas and their founders as if they were nuts. You can see the list of all their epic fails here.
Paul Graham goes on to say that: “If you look at the way successful founders have had their ideas, it’s generally the result of some external stimulus hitting a prepared mind…..The verb you want to be using with respect to startup ideas is not “think up” but “notice.” “. Now I don’t want to criticize Paul Graham as he is much more successful than I will ever be but I don’t get the difference between thinking and noticing. After all, AirBnB and Ebay, were not noticed, they were thought up and then noticed.
I’m struggling to come up with a methodology of separating the Sitcom Startup Ideas from the good ones. (If I am successful in doing this maybe it will atone for my earlier bad ideas.) What I have seen as a trend is the good ideas are the things that come out of something the inventor or someone the inventor has actually talked to, would pay for in time or money. When founders stray from something someone would pay for then they risk creating a lousy idea.
And ‘someone’ is not a concept but a person, an actual living person who would put time or money towards purchasing whatever flows from the idea. I’m not married to this concept and still paying with it as it keeps me coming back to an expression I’ve been using lately: “Don’t find the problem, find the budget.”
I’m doing a piece of research with U of T that looks at where good business ideas come from and it’s making me look back at some of the very bad business ideas I’ve had over many years. It seems that age doesn’t prevent me from having bad ideas.
Several years ago I decided to try to solve the problem of strategy execution that bedevils many companies. This was a problem that I had had when I was CEO of Synamics. We could come up with strategies (whether they were good or not is another matter) but I felt we fell short in their execution. At the time I wished I had software to help keep track of whether my strategy was being executed effectively or not but I never got around to creating it.
Fast forward a few years and I kept seeing articles, many of them in the Harvard Business Review that reported that strategy execution is the biggest problem in business today. Even polls of CEOs will confirm that strategy execution is their biggest problem. So I figured, this is a problem that I had as a CEO and HBR says that this is the biggest problem in business today, so maybe this is a good idea for a business.
‘They’ say that when you’re starting a business you should look for a problem to solve, not create a product that goes in search of a market. So here I was, trying to solve a well documented problem. But was it successful? No, not even close. I teamed up with Mike Tobias at Mercanix to launch software and services to address problems in strategy execution and we bombed.
And when I say bombed, I mean that we couldn’t even find anyone to talk to. We went out to the market aggressively but met blank stares. I’ve spent some time analyzing what we did wrong and in the process I’ve learned a lot about launching new products. What I discovered when I did the analysis was that there really isn’t a market for what we created. But wait a second, this is documented as the biggest problem in business today but there is no market for a solution?
Well as it turns out, most companies haven’t assigned the generic function of strategy execution to anyone. (If you want to check this out, take a look at how many of your LinkedIn contacts mention strategy execution in their bios. According to my stats there are 100 people doing strategic planning for every one that is doing any strategy execution.) Most companies don’t have any one individual responsible for strategy execution as a job function. Instead they say that everyone is responsible.
So when no one person is responsible for something there is no one looking to buy software and services, even if the problem is the biggest one the company is experiencing. And with no one responsible for buying solutions, there is no one to talk to when you call up a company. So there is no market and you’ve come up with a bad idea.
It’s obviously not enough then, to base a company around a personal need or even around published problems. And if these aren’t enough of a source for an idea, then I’m trying to find out exactly where good ideas come from. The research I’m doing is telling me a lot but I thought I would ask the question in case any of you can add to the conversation. If you have any feedback, let me know. Where have your good business ideas come from?