Disruptive Marketing

Disruptive Marketing

In the traditional approach to marketing, companies develop products or services and then implement strategies to help attract new customers to their business.

In this article…

  • What is disruptive marketing?
  • Who employs disruptive marketing?
  • How is a disruptive marketing plan developed and employed?
  • What career titles work with disruptive marketing strategies?
  • How can a marketing school help you succeed in a company that uses this type of marketing strategy?

But times have changed. Today’s consumers drive a market, not just a business. Therefore, companies must tap into a market’s mood and provide what consumers want. This is where disruptive marketing takes its cue.

What is disruptive marketing?

In truth, disruption is more a business model than a marketing approach. Most companies still tend to market through traditional means, which provide plenty of opportunities for rival companies to disrupt current messages. However, consumers have become stubbornly resilient to shifting messages, thanks to an increasingly crowded market. To combat this, a company’s product or service must innovate and and pay attention to consumers, delivering exactly what the market wants.

Apple created a prime example of the latter approach when it introduced a truly innovative product through its online music store. When iTunes first launched, average music consumers wanted to purchase the songs they were hearing on the radio without necessarily buying an entire album from those artists. Singles were no longer available on compact disc, and the government was regulating online file-sharing sites such as Napster. By introducing a brand-new approach, iTunes delivered on the consumers’ desire to purchase one song by an artist, as well as their desire to avoid owning hours of music they weren’t going to listen to.

Companies attempting to employ disruptive marketing need to be prepared to change their business model, their outbound product or service, and the message they send to consumers. Depending on the size of the company, this can be a risky venture. However, maintaining the same business model over time can be even riskier. Just ask Kodak, which in less than 20 years went from the fourth most valuable brand worldwide to bankruptcy. Why? Because they weren’t prepared for customers to stop buying film and switch to digital photography. The market had been disrupted, and Kodak failed to adjust.

A disruptive company has one of two goals: design its product or service to match the demand of an emerging market, or re-shape an existing product or service to meet the demand of customers unsatisfied by the current offering. From this starting point, a marketing team designs an advertising campaign with disruptive messages that either challenge the conventional thinking in an existing market or speak to a new one.

Two Types of Market Disruption

  • New-Market Disruption – targets customers who have needs that have been unserved by existing companies. Apple’s iTunes application is one such example.
  • Low-End Disruption – targets consumers who don’t need all the features valued by customers at the high end of the market. For example, the personal computer disrupted the mainframe market and took over the computer market; this, in turn, is now becoming the case with laptop computers. Initially, laptops didn’t have the computing power of a PC, but appealed to consumers who wanted minimal computing “on the go.” Over time, innovations have made laptops more powerful; and thus, they’ve taken an even large market share from PCs.

Who employs disruptive marketing?

Given the rapidly changing face of business – and the technology supporting it – every company should at least prepare to use disruptive marketing. The most prominent industry currently employing market disruption is the technology industry. Computers, phones, the web, or any electronic device or service can be shipped as a minimally viable product, and then be updated regularly while already in the possession of its customers.

A broader target for disruption marketers, however, is any product or service that historically had only been accessible to consumers with either a lot of money or a lot of skill. One such example is Turbo Tax. The company was able to mediate a service that usually required the expertise of a highly qualified individual—the accountant or “tax guy.” Turbo Tax offered a comparable degree of service at home, with the option of segmenting a customer’s time, and it was cheaper.

The key in finding a company likely to use disruptive marketing is to see who is targeting emerging markets and/or making a product or service more accessible to customers in an existing market.

A Case of Market Disruption

When Apple introduced the iPad to the world, tech companies scrambled to catch up. Many manufacturers entering the tablet market used the Android operating system to run software on their devices. However, since they were trying to deliver a product similar to the iPad, with similar features and with a similar price, the Android tablet market couldn’t match the success of the iPad. Meanwhile, Amazon was quietly developing the Kindle Fire. It didn’t have the same features, interface, or capabilities as an iPad—but it also didn’t have the same price. In a prime example of low-end market disruption, Amazon found consumers who didn’t want all the great features of the iPad, but wanted the basic features at a baseline price. Prior to the fourth quarter of 2011, the Kindle Fire wasn’t even available. By the end of the first quarter of 2012, it had grabbed more than half of the Android tablet market.

How is a disruptive marketing plan developed and employed?

Any business that’s serious about causing market disruption must be willing to shift or even completely change its infrastructure. Successful disruptive marketing requires a long-term commitment, and likely a fundamental shift in a company’s business model.

The first step in launching a disruptive marketing campaign is obtaining internal buy-in from top to bottom. Whether a company is simply trying to change the message about its brand or is completely redesigning the product, everyone must commit themselves to the change in brand perception.

Next, the marketing team will need to collect all the current data about the target or emerging market. Determining spending patterns and the profiles of existing customers is important, but the disruptive marketing team must discover more—such as why a customer purchased a particular product or service. In order to do this, the team will need to use qualitative research methods, such as physical observation, interviews, and surveys. All this data mining is used to unearth the parameters of a market, profile it, determine its mood, then speak to it.

Once the market has been determined, it’s time for the marketing and design teams to develop a strategy that will use effective media channels in the market. This will almost inevitably include developing an online presence. The design team must develop content, create a social-media presence with a unique sales position, and write a substantial amount of copy (often via blogging).

Before launching the campaign, executives must set consistent brand guidelines and marketing messages. Once these are established, it’s time to execute the plan. And as the plan unfolds, the marketing team will continue to collect and interpret data revealing the effectiveness of the strategy, and adjust the approach as needed.

What career titles work with disruptive marketing strategies?

Brand Manager

What do they do?

Think of this position as the brain of the disruptive marketing strategy. Brand managers handle all internal and external messages, guidelines, and developments in a disruptive strategy. In this crucial role, brand managers:

  • help organize and interpret data collected by market researchers, to determine either new markets or messages and improvements that will disrupt current targeted markets.
  • lead the marketing team in designing creative and highly interactive content for consumers, and push it directly to customers through social media so it beats out other market messages.
  • ensure that marketing team’s brand message is representative of the company’s mission.
  • manage each marketing project from start to finish, reporting progress of a campaign back to the company’s executives, and then help determine the company’s next steps.
  • facilitate a company’s public contact with its executives through interviews, networking events, and speechwriting.
Education and experience

A bachelor’s degree in public relations, marketing or communications is required for consideration as a brand manager. Courses in business administration, public speaking, and creative and technical writing will also be helpful. Although it’s beneficial to have a master’s degree in a marketing-related field, experience and a proven track record are more important.

Future brand managers can enter the field in a variety of positions: public relations specialists, advertising agents, sales managers, etc. Anywhere from five to 10 years of experience is needed. Another item that helps a resume stand out is the certification offered by the Public Relations Society of America. This can be earned based on years of experience and passing an exam.

Market Research Analyst

What do they do?

In the realm of disruptive marketing, a research analyst must have a perceptive eye, able to notice trends in data that competing market researchers miss. Often in a disruptive marketing campaign, there is useful information about a particular market in plain sight that no one has noticed. With their creative approach, these market researchers can make that crucial “catch.”

Instead of a numbers-only approach, analysts in this field need hands-on market interaction. Market research analysts involved with disruptive marketing:

  • research current market trends, consumer spending habits, and consumer perception of a brand’s delivery, mining the data for undiscovered patterns.
  • host face-to-face interviews or focus groups to determine what customers want when buying a product or service.
  • use research to create a profile and recognize the boundaries of a target market for an employer or client through determining what the customer in this market wants from a product or service.
  • generate and visualize reports on all relevant data before, during and after disruptive marketing campaigns and publish them in an executive’s desired format.
Education and experience

The disruptive market research analyst will need at least a bachelor’s degree in market research or a related field, such as statistics, math, or computer science. However, since these researchers will be interacting directly with customers, courses in communication and public speaking are a must. Other degrees or classes to consider include business administration, behavioral science, or public relations. An advanced degree in one of the above areas is often a requirement for management, or for positions that perform more specialized research.

Entering this field through a sales position proves an excellent starting point. In a sales position one gets the experience of interacting directly with customers, discovering what makes them say yes to one product while turning down another. Also, any position requiring analysis, report writing, or data collection will give an applicant useful experience.

Advertising Director

What do they do?

These are the people who present the first images and impressions of a brand to the market. In a disruptive marketing campaign the game is changed even further, requiring directors to make real-time decisions, rapidly scaling winning ideas up and abandoning ideas that don’t work. Directors collect data at a rapid pace, enabling advertisers to change their message or approach while a campaign unfolds, instead of waiting for batch results. More specifically, directors:

  • lead and oversee the team that develops an advertising campaign.
  • work hand-in-hand with the finance department to prepare a manageable budget and cost estimates for an advertising campaign—which usually is noticeably larger for a disruptive marketing campaign.
  • lead a team in web development, generating interactive content, overseeing SEO copy writing and working closely with social media that aims to connect directly with customers.
  • develop a product road map that communicates the company’s unique assets, and create an image or message with a disruptive feature that attracts new and existing customers.
  • define, measure, and disseminate metrics for the product or service, and adjust accordingly.
Education and experience

As with the positions above, the only baseline requirement educationally is a bachelor’s degree, preferably in advertising, marketing or journalism. Other relevant areas of course study may include consumer behavior, market research, sales, communication methods and visual arts (specifically, graphic arts). Marketing students will need experience before attaining the role of director. A job as an advertising sales agent is a good place to start. After at least five years of experience at this level, agents may be eligible for the lead role of director.

What type of salary should I expect?

Brand Managers
Median Pay: $43,500
Top Earners: $76,910
Market Research Analysts
Median Pay: $60,570
Top Earners: $111,440
Advertising Directors
Median Pay: $80,630
Top Earners: $163,430
Source: U.S. Bureau of Labor Statistics, 2012

How can a marketing school help you succeed in a company that uses this type of marketing strategy?

Since disruptive marketing is a more specialized field of study, there will be few, if any, schools that offer lower level courses for this concept. Instead, schools offering a bachelor’s degree in marketing or business administration will maintain a broad view of the field of marketing. Undergraduate schools offer the widest understanding of marketing and business administration, and thus lay a foundation to fully grasp the concept of disruptive marketing.

The skills needed to be successful in this field have a lot in common with all marketing degrees. Excellent communication skills, for report writing and making presentations involving a marketing plan, are integral in disruptive marketing. Classes that develop these abilities don’t simply lecture about communication, but give students real-world models and routine practice in engaging these skills.

Student will become familiar with both quantitative and qualitative research procedures, and draw accurate conclusions about the results to develop a viable disruptive marketing plan. Most schools with marketing programs offer courses that survey broad applications of research and analysis, as well as more focused applications for those students interested in a career in marketing analytics.

For the student who intends on working with disruptive marketing, certain ancillary courses are recommended. Behavioral science courses are beneficial for the disruptive marketer. It’s also wise to take one or more courses in graphic design, in order to learn how to visualize a brand.

If you’re simply fascinated by the concept of disruptive marketing and all its qualities, then perhaps the best option for you is an advanced degree in marketing. Moving on to a master’s degree allows students to focus their area of study; students can work toward a master’s thesis on the subject of disruptive marketing techniques and their effectiveness. And if you’re looking to become an expert in the field, there’s always the option of continuing to a Ph.D.

There are many ways to positively disrupt your career path. So start looking into the marketing schools that can help you to do that.

Original article from marketing-schools.org can be found here

Corporate Venturing

When the genomics revolution was transforming the pharmaceutical industry, Eli Lilly realized that its survival might hinge on its ability to catch up with this disruption. So in 2001 the company launched a corporate venture-capital fund in order to engage with cutting-edge biotech firms when they were just start-ups. By 2013, Lilly Ventures had been involved in more than 30 such collaborations, many of which gave its parent company valuable insights into the science of developing drugs by analyzing biological data.

A corporate VC fund like Lilly Ventures can move faster, more flexibly, and more cheaply than traditional R&D to help a firm respond to changes in technologies and business models. In some cases, such a fund can even help stimulate demand for a company’s own products. At the same time, of course, its investments may earn attractive returns—an added benefit for a tool that helps capture ideas that may ultimately shape an organization’s destiny.

For decades, large companies have been wary of corporate venturing. Some have seen their venture initiatives fail outright, and many more have given up too quickly: The median life span of corporate venturing programs has traditionally hovered around one year. Even firms with successful funds have sometimes struggled to make use of the knowledge gained from start-up investments. To be sure, running successful corporate VC programs isn’t easy: Companies’ processes and rules can make them slow-footed and unfocused. But as disappointment with R&D results grows, there are indications that corporate venturing may be gaining ground—and respect.

Companies hoping to acquire knowledge and agility from corporate venturing can benefit from following six steps, including aligning goals, providing the right incentives, and creating systems to transfer knowledge. I’ll go through these steps one by one, showing how firms can establish venture funds that are as savvy and nimble as the best private VCs. But first, let’s consider the potential benefits of corporate venturing.

The Case for Venturing

In the past, corporate interest in creating venture funds tended to wax and wane in sync with the general VC climate. Waves of corporate venture activity—in the late 1960s, the mid-1980s, and the late 1990s—corresponded with booms in VC investments and venture-backed IPOs. But now we’re seeing a corporate-venturing surge even during lackluster days for traditional venture capital.

In the first half of 2011, when independent funds were struggling to raise capital in the wake of the global financial crisis, more than 11% of the VC dollars invested came from corporate venture funds, a level not seen since the dot-com bubble. This new activity may indicate that as research functions face severe pressure to rein in costs and produce results, companies are looking for alternative means to learn and innovate. Companies as diverse as Google, BMW, and General Mills are complementing traditional R&D by joining with other investors to put money into promising start-ups. The logic is indeed compelling.

A faster response.

By providing both an inside look at new technological fields and a path to possible ownership or use of new ideas, corporate venturing can allow a firm to respond quickly to market transformations. Lilly Ventures was just one of several corporate venture initiatives in the 1990s and 2000s that helped pharmaceutical companies catch up with the rapid advances in bioscience that were threatening to render their chemistry-based expertise irrelevant. In a study of 71 venture initiatives by biopharmaceutical firms from 1985 to 2005, Hyunsung Daniel Kang and Vikram K. Nanda of Georgia Tech found that companies that made financially successful investments also experienced greater success in drug development.

It’s likely that developing capabilities such as this on their own would have taken Lilly and other pharma companies far longer and been far more expensive. Given the time and resources needed to update research facilities and recruit scientists with the right expertise, the growth of knowledge in internal laboratories can be painfully slow.

A better view of threats.

A venture fund can serve as an intelligence-gathering initiative, helping a company protect itself from emerging competitive threats. During the 1980s, for example, when integrated-circuit makers were searching for alternatives to silicon (the basis of the dominant chip technology), the silicon-chip specialist Analog Devices created a venture program to invest in competing technologies. Its goal was to gather strategic information at relatively low cost.

Analog’s portfolio didn’t do very well. Just one of its 13 companies went public, and only after so many financing rounds that Analog’s stake was heavily diluted. But the reason for the lackluster performance was significant: Making chips out of anything other than silicon turned out to be stubbornly difficult and expensive. Once this reality hit the markets, makers of silicon chips saw their valuations spike; Analog’s increased sevenfold from 1979 to 1985. But the corporate venturing program had provided insurance: If the alternatives had been viable, Analog would have been covered.

Traditional R&D doesn’t do a good job of sniffing out competitive threats. More and more, corporate R&D units tend to focus on a narrow range of projects, thus potentially neglecting disruptive advances that occur outside the company. Plenty of executives in companies with robust R&D functions lie awake wondering whether their firms are about to be blindsided by technologies they’ve never heard of.

Easier disengagement.

Another benefit of venturing, one that’s closely related to accelerating the company’s response to change and threats, is that it gives executives a faster way to disengage from investments that seem to be going nowhere. As is well-known, many companies find it difficult to abandon the not-quite-good-enough innovations that sometimes come out of internal labs. These projects can linger in product development for years, resisting termination (despite much talk about R&D portfolio management). Nokia’s insistence on developing its phones using the Symbian operating system, even as its competitive position went into free fall, is a classic illustration.

The arm’s-length relationship between companies and their venture funds offers advantages in this regard: The best funds tend to be quicker on the trigger than their corporate parents. Even if a corporation is unwilling to terminate an unpromising initiative, the presence of co-investors may force the decision.

A bigger bang.

By combining its own capital with that of other VCs, a corporate venture can magnify the impact of its investments. This is particularly beneficial when technological uncertainty is high.

A dramatic example is the iFund, supported by Apple and launched in 2008 by the venerable VC firm Kleiner Perkins Caufield & Byers on the day when outside developers were first allowed to begin working on apps for the iPhone. The $100 million fund—which subsequently doubled in size—invested in companies developing games and tools. In this way, Apple rapidly built a critical mass of applications for its new phone while spending very little. (The contrast with Apple’s rival Nokia, which eschewed such an approach when promoting its Symbian system, is striking.) Given the success of the iFund, it is not surprising that similar efforts have been launched by, among others, Research in Motion (to encourage the development of third-party applications for the BlackBerry) and Facebook (which teamed with Kleiner, Amazon, Zynga, and other tech luminaries to establish the sFund, devoted to promoting companies that work with social media sites).

Increased demand.

The iFund also serves as an example of a different kind of leveraging: By encouraging the development of technologies that rely on the parent corporation’s platform, venture investments can help increase demand for the corporation’s own products. Intel Capital took this approach in late 1998, when it established a fund that would help speed the entry of Intel’s next-generation semiconductor chip into the market. Fund managers invested in many software and hardware makers (often Intel competitors) whose products capitalized on the new chip’s power. Those investments accelerated the chip’s adoption by several months, according to Intel.

Intel Capital also played a role in seeding companies developing wireless internet products around the 802.11 network standards, which had been championed by Intel: In the five months before the 2003 introduction of the wireless-enabled Centrino chip set, the fund revealed its intention to invest $150 million in Cometa Networks and other companies that were promoting the adoption of Wi-Fi networks. The rapid uptake in Intel’s wireless products in subsequent years reflects the company’s success in using corporate venturing to create an ecosystem of wireless players.

Higher returns.

Finally, there’s the purely financial aspect of venturing. For independent VCs, making money for the limited partners is the primary if not the sole object. For corporate venture funds, gaining strategic benefits is usually the main goal; profits from venturing typically aren’t significant enough to matter to the parent company’s bottom line. Still, profits are always nice to have.

Companies bring a lot of value to the start-ups they fund, in the form of reputation, skills, and, of course, resources—from research scientists to sophisticated laboratories to armies of salespeople. They also change the way outside investors view the young firms’ prospects. Private and public equity investors often anticipate that a corporation-backed start-up will ultimately be bought by the company that invested in it—and at an attractive valuation, reflecting the strategic benefits the start-up can offer its new owner.

Thus it’s perhaps not surprising, as Thomas J. Chemmanur, of Boston College, and Elena Loutskina, of the University of Virginia’s Darden School of Business, have shown, that start-ups backed by corporations are more likely than typical VC-backed firms to attract the attention of high-quality market players—from investment banks to equity analysts to institutional investors—when they go public. During their first three years as public companies, the researchers found, firms backed by corporate venture funds show better stock price performance, on average, than those backed by traditional venture groups.

Making It Work

Despite corporate venturing’s compelling logic, venture funds sometimes run into trouble. Billions of dollars have gone down the drain as corporations have struggled to deploy their venture capital groups effectively. Most of the problems are rooted in incompatibilities between two mind-sets: that of the risk-loving, sometimes ruthless venture capitalist, and that of the process-bound corporate executive. If companies aren’t careful, their venture capitalists can become ensnared in the agendas of myriad corporate stakeholders or demotivated by inadequate or poorly designed financial incentives. And the parent company can miss out on valuable knowledge. These six steps can help companies avoid the pitfalls.

Align goals with corporate objectives.

Alignment of goals across the venture fund, the start-ups, and the parent company enables a corporate venture group to draw on the parent’s expertise. Without that alignment, corporate venturers are less likely to make good investment decisions and attract high-caliber entrepreneurs—and useful knowledge is less likely to flow from the start-ups to the corporate parent.

In a study of financial returns from more than 30,000 investments in entrepreneurial firms, Paul A. Gompers, of Harvard Business School, and I found that corporate venture funds are more successful if the stated focus of the corporate parent and the business of the portfolio firm overlap. In comparison with start-ups that aren’t linked with the company’s goals, well-aligned start-ups are less likely to be terminated and more likely to go public, produce higher numbers of patents within four years of going public, and have better stock price performance.

Streamline approvals.

A venture fund’s goals should be not only aligned with the parent company’s but also few in number. A streamlined approval process can help. In many companies, various internal constituencies must approve these funds’ goals—a situation that can lead to absurd results. When IBM abandoned its Fireworks Partners after two years, the fund’s initial proposed investments were still tied up in internal review with numerous divisional vice presidents. Delays like this not only drive corporate venture professionals crazy but also signal to external investors and start-ups that the fund is ineffective.

A tortuous approval process inevitably burdens the fund with too many goals. To please R&D, the fund might aim to gain knowledge about emerging technologies. To please the business development group, it might look for start-ups that could become acquisition targets. To satisfy the CFO, it might aim for a certain threshold of financial returns. Managers’ energies are spread too thin, and the fund wanders from goal to goal with no clear objective.

This problem contributed to the spectacular failure of Exxon Enterprises’ venture-capital effort. The program began in 1964 with a mandate to exploit technologies in Exxon’s corporate laboratories. It then shifted to making minority investments in industries from advanced materials to air-pollution control to medical devices. It later changed course again, focusing on computing systems for office use. Before the initiative was abandoned, in 1985, the computing-systems investments alone had generated an estimated $2 billion in losses.

A complicated corporate decision process can also lead to ineffective investing patterns. If getting approval is arduous, investments are made only when top executives are fired up and motivated to act quickly—usually because the media are hyping a particular technology or market segment. But these are usually the worst times to invest, with valuations high and probable returns low. A streamlined approval process allows a venture fund to act quickly on promising but unheralded investments, thus enabling a contrarian approach that might lead to the identification of neglected opportunities.

Provide powerful incentives.

Corporate venture professionals often expect the level of compensation and the incentives that independent VCs enjoy. But corporate leaders are typically troubled by the disparity between what venture managers expect to earn and the compensation of executives with comparable seniority in other parts of the company. And they prefer to provide incentives that are tied to the performance of the company, not of particular investments. “We can’t have people in separate rowboats,” General Electric’s Jack Welch once said, in reference to a venture team’s incentives. “We don’t want anybody in our company going to a meeting with a different interest from everybody else.”

Start-ups that are aligned with the parent company’s goals are more likely to go public and have better stock price performance.

But treating venture investors like other managers can lead to a loss of talent and motivation on venture teams, and a lack of focus on long-term corporate goals. Corporations that fail to provide adequate incentives face a steady stream of defections once junior investors master the venture process. After too many board meetings for which the corporate investor parks his Fiesta next to the independent venture capitalist’s Ferrari, the temptation to go elsewhere becomes overwhelming. The corporation, having borne the cost of training the investor, doesn’t reap the benefit of his or her expertise. GE itself paid the price: In 1998 and 1999, GE Equity lost 18 investors, a number of whom went on to leading VC firms.

Eli Lilly’s venture initiative was at first an organic part of the company—its venture capitalists were corporate employees without any profit share. After a slew of defections, Lilly analyzed compensation levels and found that only the most junior staffers at Lilly Ventures were being rewarded at anything like a market level. Still, the company’s senior management and HR professionals resisted changing the pay scheme. It wasn’t until 2009 that Lilly’s management agreed to turn the venture group into a freestanding organization.

After a slew of defections, Lilly discovered that only the most junior staffers at Lilly Ventures were being compensated at anything like a market level.

For recruitment and retention, compensation levels in a corporate venture initiative should match those offered by independent venture groups. At the same time, pay should be linked to corporate goals as well as start-ups’ long-term performance.

In a study of corporate venture funds, Gary Dushnitsky, of London Business School, and Zur Shapira, of New York University, found that those that closely linked pay to demonstrated investment success (often, both financial and strategic returns to the corporate parent) were more likely than others to make successful investments and to invest in earlier-stage companies—evidence that they were nimbler and more aggressive.

Indeed, many of the programs with the greatest stability—in terms of both management team and mission—have been characterized by high-powered incentives. An example is GlaxoSmithKline’s SR One, which operated under a single head, Peter Sears, from 1985 to 1999. During most of that period, the corporate VCs received 15% of the profits they generated and bonuses, based on less tangible benefits to the corporation, that could represent as much as 5% of the fund’s capital gains. This approach kept venture investors sensitive to both their financial objectives and the parent company’s strategic needs.

Create an experimental, failure-tolerant mind-set.

Risk aversion can be a serious problem for a corporate venture-capital fund. Sometimes that attitude stems from the corporate parent’s culture. When a venturing team boasts that no firms in its portfolio have been shuttered, corporate executives may interpret the announcement as a sign of success. But given the nature of the entrepreneurial process, and the fact that a significant fraction of independent venture investors’ transactions end in failure, the perfect record may be a signal that the team is playing it too safe, investing in companies with an eye to avoiding failure.

Well-structured incentives can help: They can focus corporate venturers on maximizing investment success, whether strategic or financial, and minimize their worries about getting their knuckles rapped for shuttering investments or selling start-ups at a loss.

Stick to your commitments.

While it’s important to terminate moribund projects, it’s also important not to walk away from promising ones. A low level of corporate commitment to good projects can be highly damaging to a fund and its investments. Sometimes merely a change in top personnel can prompt a company to rethink its commitment to venturing in general and to various investments in particular. In some organizations, it’s a ritual for new executives to discard their predecessors’ projects.

But if a parent company is seen as a fickle investor, professionals will be wary of joining its venture unit, entrepreneurs will be reluctant to accept its funds, and independent VCs will be hesitant to join in, setting off a death spiral.

To attract high-caliber outside investors to their venturing efforts, companies should adopt the attitude of independent VCs: As long as a start-up is healthy, commitments are binding. If a limited partner contributes even a small amount of the total capital promised at the time of closing, there is an expectation that the total amount promised will be provided. Even during the depths of the financial crisis, it was rare for investors to walk away from those commitments.

Harvest valuable information.

Knowledge doesn’t automatically flow from start-ups to the large organizations that have invested in them—at least not in a timely manner. The barriers to knowledge transfer are many: The corporate venturing and business development groups may be located far from the firm’s central operations. Everyone is busy with day-to-day tasks. There’s a cultural gap between the young MBAs who dominate most venture teams and the firm’s senior executives. And, of course, the fledgling technologies being developed by portfolio companies may not seem applicable within the corporation. But a failure to give the corporate parent access to the knowledge generated in its investments defeats a large part of the intelligence-gathering logic of corporate venturing.

Companies cannot leave knowledge spillovers to chance. Nor can they simply put an operating manager on the board of each portfolio firm to be the parent company’s eyes and ears, as GE and others have done. A manager running a 2,000-person refrigerator assembly plant is unlikely to have much time to worry about a 10-person start-up that doesn’t seem to be working on problems of immediate relevance to the corporation.

One of the most successful methods I’ve seen for transferring knowledge from start-ups to corporate parents is the creation of linked units dedicated to this task. This was the approach taken by the U.S. Central Intelligence Agency’s venture-capital program, In-Q-Tel. Founded in 1999 to acquire novel technologies, the fund primarily made equity investments in young firms, many of which had developed products for the private sector—for instance, technologies for detecting card counters in casinos. It was difficult for people in these young companies to identify who in the intelligence community might be interested in their technologies, and it was hard for intelligence professionals to imagine how consumer-oriented technologies might be adapted to their needs—to see, for example, how software for identifying MIT students at the Caesars Palace blackjack tables could be used to identify Al Qaeda members. Moreover, communication between the start-ups’ executives and the Agency’s product developers was severely constrained by limits on sharing classified information.

To address this challenge, In-Q-Tel adopted a two-part structure: A Silicon Valley–based venture team closely mirrors a traditional group, in which general partners and associates scout deals, perform due diligence, prepare term sheets, and shepherd portfolio companies. A technology team in Arlington, Virginia, focuses on assessing new technologies, testing the appropriateness of portfolio firms’ offerings for the Agency, and interacting with intelligence officials. Unlike the venture team, which tends to be dominated by former entrepreneurs and new MBAs, the technology team consists largely of seasoned executives with experience in intelligence. The two units share information in a way that allows In-Q-Tel to learn what’s going on in Silicon Valley without divulging sensitive information to portfolio firms.

In-Q-Tel’s situation highlights an essential lesson: If corporate venturing programs are to succeed, corporations need to invest as much in learning from their start-ups as they do in making and overseeing deals.To people with little experience of company-backed investments in start-ups, it may seem contradictory to juxtapose the words “corporate” and “venture”—the one with its connotations of administrative complexity, the other with its aura of big ideas and big paydays. The apparent incongruity is probably one reason why corporate venture funds sometimes don’t get the respect they deserve within the VC community. Robert Ackerman, of Allegis Capital, once wrote disparagingly that when corporate fund managers arrive to make investment deals, “four guys get out of the car with their corporate tee shirts and singing the company song,” while the independent investors around the table see these naive fellows’ employers as “the dinosaurs we’re trying to kill, the market opportunity we’re trying to capture.”

But the data show that well-managed corporate venture funds can hold their own with independent VC firms, and even outperform them. For companies that have found traditional in-house research unequal to the task of generating valuable insights into next-generation technologies or the movements of the market, the creation of a venture fund might well prove to be what executives are always looking for—the breakthrough idea that changes everything.

This article was taken from HBR.org.  Click here to read the original version.

14 Leadership Trends That Will Shape Organizations In 2018

There’s no “right” way to be a leader. Everyone who steps into a management or executive role has a different style of motivating and guiding people, and effective leadership means finding the way that works best for both you and your team.

Good leaders also know when it’s time to adjust their approach, and are able to adapt to the ever-changing demands of the workforce. We asked 14 members of Forbes Coaches Council to share their insights on the biggest and most influential leadership and management trends of 2018.

1.Encouraging All Team Members To Be Brand Ambassadors

Leaders are starting to recognize that every employee is an opportunity to provide the market insights into the culture, quality and standards of the organization. By leveraging social media, particularly LinkedIn, every employee can become an ambassador. Those messages can be hugely amplified by the employees. It’s effectively free PR but more powerful, because it’s authentic and believable. –Tyron GiulianiSelling Made Social

2.Investing In Human Capital Development

Leaders and companies will recognize the long-term benefit of focusing on human capital development. Taking a vested interest in helping employees thrive in all areas of their lives (not just work), will create more engagement, productivity and overall happier employees. – MJ ImpastatoH2H Systems

3.Increasing Emphasis On Empathetic Leadership

Value-driven Gen Y and Gen Z talent will continue to leave command-and-control cultures for collaborative workplaces. The value of leadership empathy will be sky-high in 2018. The ability to understand, relate to and be sensitive to employees, colleagues and communities will be paramount. We will see an even greater emphasis on listening, relating and coaching to drive effective leadership. – Loren MargolisTraining & Leadership Success LLC

4.Focusing On Individual Growth

With so much focus on diversity and inclusion, we may have overlooked the value and power of separation. I say 2018 will be the year of individual growth. The steady stream of dramatic events in 2017 have forced us all to ask some tough questions about life, and I think many will turn to their employers for help and support in clarifying one’s purpose and how to actualize one’s full potential. – Derrick Bass, Jr.Clarity Provoked

5.Leading By Actions And Examples

Leaders have long gotten away with vocally supporting policies and procedures, but their actions say otherwise. That tide will turn. With so much light being shed on unacceptable behavior in all workplaces, leaders will begin to understand they need to not only hold their teams accountable for proper behavior, but hold themselves accountable as well. – Lesha ReeseLesha Reese, LLC

6.Turning Organizations Into A Truly Customer-Centric Business

While leaders have been discussing being “customer-centered” or “customer-focused” for a while, in 2018 it’s time to walk the talk. With robust customer feedback mechanisms and reporting, there is simply no excuse for not adapting to what customers really want today. Customers are no longer loyal to a brand, they’re loyal to experiences that work for them. Talking is not enough. It’s time to act. – Jeannie Walters360Connext

7.Embracing ‘Work-Life Blend’

Industry leaders, such as Apple and Amazon, are recognizing how working from home helps acquire and retain top talent. But this is just one part of the equation. In 2018, companies will recognize that work-life blend is key. They won’t just opt for bean bag chairs and ping pong tables, but create jobs and schedules that allow staff to better blend their work and lives to reduce burnout and increase output. – Kyle ElliottKyle Elliott Consulting

8.Paying Attention To Internal Factors That Are In Their Control

To make better decisions, we crave certainty. However, smart leaders I work with are recognizing nothing’s certain in the outside world. In 2018, the winners will be those who redirect their attention to what’s happening inside their organizations, getting clear on who they want to be and what success looks like. Focusing first on what’s in their control will help them make decisions that matter. – Darcy EikenbergRed Cape Revolution

9.Taking Workplace Sexual Harassment More Seriously

The end of 2017 saw a rise in the #MeToo movement. I believe that more employers will be less tolerant of sexual harassment in the workplace and will work to deal with claims more seriously to set the tone for their organization. – LaKesha WomackWomack Consulting Group

10.Taking A Stand On Social And Political Issues

Last year was a watershed year for leaders articulating a point of view on sociopolitical issues such as DACA, diversity and inclusion, immigration and refugees. Remaining quiet or staying out of the fray is no longer an option. In 2018, we will see a big emphasis on C-suite leaders developing their ability to be ambassadors for the values of their companies. New recruits will demand to know. – Shoma ChatterjeeghSMART

11.Proactively Elevating And Retaining Women Leaders

It may come as no surprise, but one of the major leadership/management issues for 2018 will likely involve proactive efforts to elevate or retain women leaders. Another likely trend will be developing new, creative strategies for retaining skilled staff. Low unemployment and a lack of skilled workers is expected to continue to be a challenge for businesses in 2018. – Rick GibbsInsperity

12.Implementing Agile Talent

With the rise in freelancers and remote work, companies will be moving more towards the implementation of policies and procedures to work with agile talent. Organizations will need to train their managers to effectively onboard and utilize the agile talent to complete projects more efficiently while maintaining a strong organizational culture. – Manpreet DhillonVeza

13.Having An Objective Outsider

Many companies are great at in-house training and coaching, and there is great value in working in the same environment as your coach or mentor. However, it’s oftentimes difficult to be objective when you are seeing the same people every day. Your perception gets clouded and it becomes hard to be impartial around team challenges or feedback. Having an independent outsider helps all gain clarity. – Frances McIntoshIntentional Coaching LLC

14.Promoting Continuous Education

As the business landscape persistently grows in competitive intensity, every organizational member must be smarter. Therefore, continuous learning will be at the forefront of management’s agenda to gain and sustain a competitive advantage. Learning will not be confined to formal training performed within the business. Learning will extend to a growing number of online micro-learning platforms. – Steven MaranvilleMaranville Enterprises–The Venture Creation Corporation

 

This article was taken from Forbes.com.  Click here to read the original version.

How The World’s Top Executives Are Approaching The Fourth Industrial Revolution

The Fourth Industrial Revolution—which is characterized by the marriage of physical and advanced digital technologies such as analytics, artificial intelligence and the internet of things—affects most aspects of life today. Economists are analyzing its impact on society, attempting to forecast whether it will bring about more income inequality or create more opportunities. Scientists are interested in pioneering new capabilities from the collaboration of humans and machines in this new environment. Visionaries describe a brave new world, while also warning of the risks associated with some new technologies. And government agencies are figuring out how best to regulate this new world.

Making that leap from familiar terrain to true innovation can prove challenging

Government and business leaders are at the forefront of influencing how Industry 4.0 impacts the world. They are ushering in the new era by introducing advanced technologies in their organizations, thus affecting how we work and live. What do they think will be the impact of Industry 4.0? How will it affect their organizations and workforces? What are the challenges, and what are the opportunities? These questions are explored in a new global research report from Deloitte and Forbes Insights, “The Fourth Industrial Revolution Is Here—Are You Ready?” The research draws on a survey of 1,600 business and public-sector leaders globally, as well as multiple one-on-one interviews.

Social Issues And The Corporate Agenda

The general consensus seems to be that the future is bright. When asked to choose the more likely scenario for the Industry 4.0 society—one bleak or one promising more stability and equality—87% chose the latter.

The executives surveyed believe public and private businesses will be the most influential entities in shaping Industry 4.0 societies. Seventy-four percent say public companies will play a big role. Private organizations come in second at 67%, followed by government agencies and regulators at 45%.

But at the same time, executives are less confident about the roles they or their organizations can play in influencing society in an Industry 4.0 era. Less than a quarter believe their organizations hold significant influence over key societal factors such as education, sustainability and social mobility.

Executives’ Outlook For The Industry 4.0 Society

Deloitte’s report reveals that executives are still grappling with many outstanding strategic issues with respect to Industry 4.0. Their mindset is one of hope mixed with ambiguity—they understand the need to think broadly about all stakeholders and the impact technology will have across organizations and society; but, at the same time, they feel constrained by financial and operational demands, as well as change-management challenges. Only one-third of the executives surveyed are highly confident they can act as stewards for their organizations during this time of change. Further, just 14% are highly confident their organizations are ready to fully harness the changes associated with Industry 4.0. Executives acknowledge they may not be ready for the new era, but this lack of confidence has not compelled them to alter their current strategies. Many executives continue to focus on traditional, near-term business operations (i.e., developing business products and increasing productivity) instead of focusing on longer-term opportunities in areas such as talent, mitigating cyber risk, and competitive disruption to spur innovation and create new value for their direct and indirect stakeholders.

The Workforce Of The Future

Given numerous business priorities, global executives appear to be focused on human capital the least. Despite the clear impact Industry 4.0 will have on workforces in every industry and geography, many executives do not express urgency when it comes to tackling the challenges of the future of the workforce. Talent and human resources are at the very bottom of their strategic discussions, and only 22% of respondents believe that the uncertain impact of Industry 4.0 on their workforces will have a significant effect on their organizations. Incongruously, the vast majority of executives still believe they are doing all they can to prepare their workforces for Industry 4.0. At the same time, only a quarter of the executives surveyed expressed high confidence that they have the right workforce composition and skill sets needed for the future. The fact is, many jobs and required skills will change dramatically, though it may be too early to indicate how or to what degree. That said, two fundamental drivers that executives need to consider when trying to anticipate the changes are technology (e.g., robotics and cognitive/AI) and the changing workforce (i.e., gig economy, crowdsourcing, etc.).

The Role Of Technology

The shift to Industry 4.0 entails the ability to adopt and integrate digital and physical technologies to improve operations, become more productive, grow and innovate. This can represent a profound change for any organization. Executives understand this and say their current technology investments are strongly driven by technologies that can support new business models—which, they say, will have one of the greatest impacts on their organizations over the next five years. However, very few executives say they have a strong business case for investing in advanced technology. When asked what the hindrances are, executives most often pointed to a lack of internal alignment, a lack of collaboration with external partners and a focus on the short term.

Original article from Forbes can be found here

7 Steps for Establishing the Right Business Model

Most technical entrepreneurs focus hard on building an innovative product, but forget that an elegant solution doesn’t automatically translate into a successful business. Businesses require an equally elegant business model, with the right price, messaging and delivery channel to the right target customers to keep the dream alive and growing.

Defining the right business model requires the same diligence as designing the right product, but the approach and skills required are different. That’s why investors acknowledge that two co-founders are often better than one — with one focusing on the technical solution, and the other focusing on defining and building the business model. These two jobs need to be done in parallel.

This dual-leadership approach would have avoided the frustration I felt in a startup a few years ago where beta customers loved our software solution as a free prototype, but we couldn’t sell one in the first few months for a price that seemed reasonable for all our work and innovation. The founder had simply not done the work to validate a price and customer segment.

In the investment community, this work is called proving the business model. It starts with validating a business opportunity (a large customer segment willing to pay money to solve a real problem), in much the same way as your proof of concept or prototype validates your technical solution. Here are seven steps I recommend for establishing the right business model:

1. Size the value of your solution in the target segment.

Customers often complain that existing approaches are not intuitive or integrated, but old solutions may be familiar and locked in. Estimate your costs, including a 50 percent gross margin, as a lower bound on a price. Products too expensive for the market won’t succeed, and prices too low will leave you exposed. Match with competitor prices and market demographics.

2. Confirm that your product or service solves the problem.

Once you have a prototype or alpha version, expose it to real customers to see if you get the same excitement and delight that you feel. Look for feedback on how to make it a better fit. If it doesn’t relieve the pain, or doesn’t work, no business model will save you.

3. Test your channel and support strategy.

Now is the time to pitch the entire business model to a group of customers or a specially selected focus group. This is not just a product pitch, but must include all elements of your pricing, marketing, distribution and maintenance. Here again is your chance to make pivots for almost no cost.

4. Talk to industry experts and investors.

A small advisory board of outside people with experience in your domain can give you the unbiased feedback you need, as well as connections for setting up distribution and sales channels. It’s also valuable to talk to potential investors for their views, even if you are bootstrapping the effort.

5. Plan and execute a pilot or local rollout.

Good traction on a limited rollout is great validation of a business model. It allows you to test costs, quality and pricing in a few stores or a single city, with minimum jeopardy and maximum speed for recovery and corrections. Save your viral campaign and major inventory buildup for later.

6. Focus on collecting customer references.

Give extra attention to those first few customers, and ask for publishable testimonials and word-of-mouth support in return. If you can’t get their support, even with your personal efforts, take it as a red flag that the business will probably not scale at the rate you projected.

7. Target national trade shows and industry association groups.

You need positive visibility, credibility and feedback from these organizations as a final validation of your business model, as well as your product model, in the context of major competitors. This may also be a great source for leads as a key part of that final rollout and scale-up effort.

Your business model can be a better sustainable competitive advantage than your product features, or it can be your biggest risk exposure. Too many of the business plans I see are heavy on competitive product features, but light on business model details and innovations.

If you or someone on your team hasn’t spent at least the same effort on the business model as on the product service, you are only half prepared for the real world of business today. It’s hard to win by doing half the job, especially if that is the easier half.

This article was taken from Entrepreneur.com.  Click here to read the original version.

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