Innovation


Article of the Day

AgTech Mid-Year Investing Report – 2016 – AgFunder

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Seed stage investment continues to drive agtech investment, representing 52% of deals recorded. The total size of seed stage investments grew with 159 seed stage deals raising $104 million in H1-2016 compared to 260 deals raising $130 million for all of 2015.
~ AgFunder

Student Ag Entrepreneur Business Concepts by Subsector

Visitors to the Agricultural Entrepreneurship Initiative ask me what businesses student ag entrepreneurs are most interested in.  One way to answer the question is to look at business concepts students create for the entrepreneurship course I teach at Iowa State University, Entrepreneurship in Agriculture.

Two week’s ago, students in the course pitched their favorite of the 2 or 3 new business ideas they’ve developed in the course.  I went through the list of business concepts and categorized them by subsector.  I use subsector definitions from the AgFunder report on AgTech investment activity.

Alternative Protein – These companies look to replace traditional sources of protein such as meat and eggs. Companies fall into three categories: cellular agriculture; ingredient innovation; and the production and discovery of alternate protein sources, such as crickets or algae.

Animal Health & Nutrition – Companies that identify agricultural livestock or farming of aquatic organisms as a key market.

Bioenergy – Companies producing energy made from materials derived from biological sources.

Biomaterials & Biochemicals – This includes companies using biological material to produce/farm: peptides, bioplastics, non-ag inputs, microorganisms, pharmaceuticals, microbes and algae, functional ingredients/nutrients/phytoceuticals.

Cannabis Technology – Companies developing technologies for the emerging legal cannabis and hemp markets.

Decision Support Tech – This is our primarily software-focused category. It includes but is not limited to precision agriculture technologies. It includes satellite data companies, big data, and ERP technologies. Excludes companies categorized under drones & robotics, and smart equipment & hardware, and irrigation & watertech.

Drones & Robotics – Companies that are building drones or robotic technologies which have self-identified food or agriculture as a key market.

Farm-2-Consumer – Companies that directly deliver food to consumers from farms, differing from food e-commerce, which involves e-grocers, meal kit delivery services, and specialist meal delivery.

Food E-Commerce – E-grocers, meal kit delivery, and specialist meal services which are attempting to disrupt the agriculture value chain. Excludes restaurant delivery.

Food Tech – A broad category including food processing, food enhancing technology (e.g. flavor or nutritional value), packaging, food analysis.

Food Safety & Traceability –  Includes all companies attempting to track food production, food sterilization or introducing technologies that reduce the risk of food safety concerns.

Indoor Agriculture – Includes all farming operations that occur indoors or in greenhouses, and the technologies that accompany them. It does not include Cannabis-related tech, which is spun out into its own category.

Irrigation & Watertech – Includes all technologies involving the management of water for agriculture. Some precision irrigation companies could technically fall into smart equipment or decision support tech, but we felt that this categorization would be more informative.

Smart Equipment & Hardware – Predominantly includes sensor technology, Internet of Things (IoT), and other non-robotic machinery in the food and agriculture value chain.

Soil & Crop Technology – Includes: biological inputs and treatments, chemical inputs, genetics–based tech, new crops, seed technology.

Waste tech –  Includes products made out of food waste, wastewater treatment for agriculture, and agriculture or food waste mitigation technologies.

 

Student Business Proposals By Category
Entrepreneurship in Agriculture Course
Fall 2016 Semester, 94 Students

Category                                                                        Percentage
Alternative Protein                                                             0%
Animal Health & Nutrition                                              11%
Bioenergy                                                                              0%
Biomaterials & Biochemicals                                            3%
Cannabis Technology                                                         1%
Decision Support Tech                                                      9%
Drones & Robotics                                                             5%
Farm-2-Consumer                                                            15%
Food E-Commerce                                                             0%
Food Tech                                                                            0%
Food Safety & Traceability                                               0%
Indoor Agriculture                                                             5%
Irrigation & Watertech                                                     0%
Smart Equipment & Hardware                                       5%
Soil & Crop Technology                                                    0%
Waste Tech                                                                          0%

Non-Technology Agriculture                                         20%
Non-Agriculture                                                                15%
Social Impact                                                                       8%

I work the students through various exercises to see if we can identify new business ideas that come from something unique to their experiences or observations.  In particular, many of their ideas come from:

  1. A problem they’ve noticed or experienced that others haven’t noticed.
  2. An experiment, accident of circumstance, or heritage activity from their past.
  3. A personal passion and interest.

57 percent of student ideas were related to agricultural technology, 77 percent in total related to agriculture.  Most, but not all, students are agriculture majors at ISU and/or have backgrounds in agricultural production, so probably not surprising as to their interests.

The top category in the AgFunder report linked to above for 2016 investments was Food Commerce, a category ignored by students.

What categories of student business plan or investment will be the most attractive when we look back ten or twenty years from now?  I suspect certain themes will run through winning businesses.  To suggest a several:

  • Time/labor saving technology – It’s an old story in agriculture, but technologies that save labor win in the long-run.  Robotics offers a myriad of potential applications to take labor out of various processes in agriculture.
  • Unique food ingredients and products – Consumer interest in food products with a story will continue to grow. Where was it grown?  How was it grown?  What makes it different?  What experiences are coupled with the food?
  • Data at the right time and place – We have a lot of data in agriculture today.  The question is what to do with it. Technologies, services, models, and algorithms that enable decision making at points in time where those decisions make a difference in outcomes will win.
  • Disruptive economic models – New technologies and accompanying business model innovations enable challenges to existing supply chains and logistics models.  Some may create significant changes in unit economics for production of certain agricultural products /commodities which will drive changes in place of production and logistics of product movement.

What are the most interesting categories of future business opportunities for you?  Why?

Article of the Day

In divisive election year, voters agree: Infrastructure needs fixing – Agri-Pulse

“Economic development provided the basis; Lincoln said much later, that would allow every American ‘an unfettered start, and a fair chance, in the race of life.” – From Team of Rivals, Deloris Kearns Goodwin’s book on President Abraham Lincoln and his cabinet.

Key Infrastructure for Disruptive Agricultural Technologies

Sara Wyant from Agri-Pulse asked me to participate in a forum this week on rural infrastructure.  Roads, railroads, locks, roads are each examples of infrastructure important to agriculture and rural economies.

The middle part of the U.S. produces a high proportion of U.S. ag output, much of it big and bulky, but efficiently ships those products to customers on the coasts and around the world.  In many ways it was the transportation ability of the Mississippi and associated rivers that enabled the economic development of the U.S. beyond the east coast. and the ability to ship products efficiently has remained part of the competitive advantage of the U.S. even as other modes of transport have developed.

As part of a panel asked to address disruptive innovation and agricultural infrastructure, I identified four key inputs for disruptive agricultural technologies.

  1. Electricity – Electricity is a key input to agricultural technologies involving microchips, controller, sensors, and a range of technologies that will form the basis of robotics and artificial intelligence taking root in agriculture.  Hydroponic and aquaponic technologies are now being used to grow vegetables and deliver them locally twelve months per year.   Use of software and drones is playing an increasing role in crop scouting.  Microchips are being placed in many traditional pieces of agricultural machinery, enabling them to connect to other devices and enabling better decision making based on new streams of data.  In Iowa and most of the Midwest, electricity infrastructure and cost levels are quite good.  Iowa, for example, has a strong group of rural electric cooperatives that are poised to play a key role in emergence of agricultural technologies.  Grade: A.
  2. Water – The FAO estimates that only 0.003% of earth’s water is available for human use.  Yet it takes a lot of water to produce agricultural products.  Water use and water quality are huge issues for agriculture and certainly a key input for disruptive agricultural technologies.  Indoor aquaculture systems are  a key emerging example of technologies that involve water.  Can we produce fish in a sustainable way and relieve pressure on wild catch and environmental issues related to sea and pond-based aquaculture production systems?  Can we use technology to improve water quality in agricultural production systems?  Water in the rural Midwest is largely available, but water quality in streams related to agricultural production is a challenge.  In addition, the water treatment infrastructure of many rural communities could be challenged by both emerging regulatory and consumer issues. Grade: B.
  3. Bandwidth – The Internet of Things has many possibilities for agricultural technologies, with devices, machines, and even crops and livestock connected to the cloud for sensing, monitoring, analysis and intervention.  The possibilities, however, are limited in broad swaths of rural America for lack of bandwidth/cell phone signal.  Given a geographic footprint that’s big and population that’s small, there are inherent constraints to investment in significant infrastructure for rural areas, but clearly there needs to be some sort of breakthrough in wireless technology for agricultural technologies that find value through connecting to the cloud in rural areas.  Grade: C.
  4. Human Talent – The core input for disruptive technologies in agriculture is people.  Whether entrepreneurs who invent and commercialize technologies, or the people that work with them, human talent is key.  The potential for technology is unlimited because it is linked to human imagination, which has no boundaries.  The Agricultural Entrepreneurship Initiative and Iowa State Univeristy has impact in this through the work our graduates do in rural communities, as well as other higher education institutions.  But that’s only part of the population.  I fear our public schools, especially at the high school level, are not preparing rural young men and women as well as they could for careers of impact in their communities.  Grade: ?.

What do you think are the key pieces of infrastructure for agriculture’s future?  Which parts of that infrastructure do you anticipate will be important for your career and entrepreneurial aspirations?

Article of the Day

Coffee with Startups – Steve Blank

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In an existing market directly compare your product against the incumbent and specifically describe the problems you solve and why Company x’s products do not.

~ Steve Blank

Tips for Customer Discovery

Getting customers involved in product development and innovation is at the core of customer discovery for startups.  We found the power in this model more through accident than insight at my first startup, E-Markets, back in the 1990s.  We had concepts for Internet-based electronic applications, even prototypes, but the actual products we launched were developed in concert with prospective customers.

The customer discovery process is simple, but hard work.

  • Form assertions or hypotheses around the problem that your product solves, the product, and various components of your anticipated business model
  • Test these assertions or hypotheses with prospective customers
  • Verify where you’re right, learn where you’re wrong, and adjust your assertions and hypotheses

The customer discovery process may or may not involve a prototype or minimum viable product, but the overall idea is to work to increase the richness of conversations and dialogue with prospective customers as you proceed.  If all goes well you not only refine your ideas about your startup business, you even build your early customer base.

Some tips for the customer discovery process include the following.

Don’t provide leading information – You are trying to learn from prospective customers in these early conversations, not necessarily sell them something (yet).  Therefore, you don’t need to start out pitching them as if they are investors or as if you have your product or service completed and ready for sale.  Reveal your story and that of your startup business in small bits and let the prospective customer lead the conversation in directions you may not have anticipated.

Start with the problem, not the solution – If you are at the stage of having developed a startup business concept, you no doubt have identified a solution to a problem.  You are also probably excited and energized with your solution.  Resist leading conversations with prospective customers about the solution, however, and work to lead conversations with the problem.  Your task is to understand the problem at a depth and detail beyond what anyone else does.  This understanding will help shape a successful solution more effectively than any technical expert.

Don’t stop with verifying what you know – You not only need to learn where  your wrong about some part of your idea, you also need to learn what you don’t know – you don’t know what you don’t know.  So use open-ended questions.  If answers to many of your questions are simply ‘yes’ or ‘no,’ you’re not asking questions the right way. You’re looking for information, feedback, and ideas that may surprise you in some way, the gold nuggets of insight that will help your form up a more solid startup business.

Ask for references – Don’t end any conversations with a new contact without asking for references.  Even if an interview of a potential customer doesn’t yield new insights, it can at least yield new contacts and an expansion of your network.  How do you make contact with 25 prospective customers and/or industry experts?  Start with four people you know.  If each of them gives you four additional contacts you’re up to twenty four after you contact them.  Only one more to go!

Customer discovery will be different for each business. The process of testing assertions and hypotheses and modifying detailed ideas about the business is a continuous process that takes a lot of hands-on/in-front-of-people work.  For many startup businesses it is the most critical step in discovering a sustainable business model.

What types of contacts will help you with your startup business?  How do you find them?  What are the most important issues for you to explore?  Do you have contacts that could help someone else?

Article of the Day

AgTech Investing Report – 2015 – AgFunder

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Your time is limited, so don’t waste it living someone else’s life. Don’t be trapped by dogma – which is living with the results of other people’s thinking. Don’t let the noise of other’s opinions drown out your own inner voice. And most important, have the courage to follow your heart and intuition. They somehow already know what you truly want to become. Everything else is secondary.
~ Steve Jobs, Co-founder, CEO, Chairman Apple Inc.

What Are Young Agricultural Entrepreneurs Working On?

I ask many friends to serve as panelists and speakers for the entrepreneurship course I teach at Iowa State University, Entrepreneurship in Agriculture.  These folks, and others, ask what students in the course are interested in and working on.  I suppose the curiosity arises from looking to young aspiring entrepreneurs for creative thinking on new opportunities.

This week students in the course will pitch their favorite of the 2 or 3 new business ideas they’ve developed in the course.  I went through the list of business concepts to be pitched and categorized them by subject.  Most are agricultural businesses, 83%, with non-agriculture businesses in the ‘Consumer Products & Services’ and ‘Social Impact categories the remaining 17%.

Student Business Proposals By Category
Entrepreneurship in Agriculture Course
Spring 2016 Semester, 92 Students

Category                                                                        Percentage
Consumer Products & Services                                      14%
Artisan/Speciality Food & Beverage                             12%
Farm Services                                                                    12%
Recreation/Hunting/Outdoors                                      12%
Plant & Animal Health/Genetics                                   12%
Agri-Tourism                                                                       8%
Precision Agriculture                                                         7%
Logistics, Risk Management, Marketing                       5%
Decision Support Technology                                          5%
Robotics/Farm & Livestock Equipment                        5%
Agricultural Processing                                                     4%
Social Impact                                                                       3%

I work the students through various exercises to see if we can identify new business ideas that come from something unique to their experiences or observations.  In particular, many of their ideas come from:

  1. A problem they’ve noticed or experienced that others haven’t noticed.
  2. An experiment, accident of circumstance, or heritage activity from their past.
  3. A personal passion and interest.

The top category in the AgFunder report linked to above for 2015 investments was Food Commerce, a category ignored by students.  Curious, but local grocery HyVee has started online ordering and delivery, so maybe this isn’t such an interesting spot for entrepreneurs living in Ames.

Other top categories of 2015 investment from the AgFunder report line up better with student interest; drones & robotics, decision support technology, and soil & crop technology for example.  The students’ interest in animal health and technology relative to 2015 funding certainly reflects Iowa agriculture relative to other areas, heavily concentrated in the animal protein supply chain.

What categories of student business plan or investment will be the most attractive when we look back ten or twenty years from now?  I suspect certain themes will run through winning businesses.  To suggest a several:

  • Time/labor saving technology – It’s an old story in agriculture, but technologies that save labor win in the long-run.  Robotics offers a myriad of potential applications to take labor out of various processes in agriculture.
  • Unique food ingredients and products – Consumer interest in food products with a story will continue to grow. Where was it grown?  How was it grown?  What makes it different?  What experiences are coupled with the food?
  • Data at the right time and place – We have a lot of data in agriculture today.  The question is what to do with it. Technologies, services, models, and algorithms that enable decision making at points in time where those decisions make a difference in outcomes will win.
  • Disruptive economic models – New technologies and accompanying business model innovations enable challenges to existing supply chains and logistics models.  Some may create significant changes in unit economics for production of certain agricultural products /commodities which will drive changes in place of production and logistics of product movement.

What are the most interesting categories of future business opportunities for you?  Why?

Article of the Day

Daily Routines of Famous Creative People – Podio

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Even in literature and art, no man who bothers about originality will ever be original: whereas if you simply try to tell the truth (without caring twopence how often it has been told before) you will, nine times out of ten, become original without ever having noticed it.
~ C.S. Lewis

Five Habits of Originality

Originality is a goal not only in literature and art, but also in business and certainly in the startup community.  We often use different terms such as ‘differentiation’ or ‘innovation’ for originality but the concept is the same, offering something to the world that is distinguished in small or large ways.

Just as innovative new products are usually the result of a combining old things in new ways, people with originality skills combine various habits in ways that result in more frequent creativity and impact.  We are a sum of our habits, so establishing and refining habits in ways that result in new ideas is important for those who wish to express creativity in their work.

I’ll draw on some examples from business to depict five habits of originality.  I take significant inspiration from Originals: How Non-Conformists Move the World by Adam Grant.

  1. Seek and speak truth – Bridgewater and its founder, Ray Dalio, are famous for being a successful investment fund and for having a focus on company culture based on an articulated set of principles.  Principle 1 is Trust in Truth.  Truth isn’t just about avoiding lies, its about being transparent and developing a capacity for constructive criticism.  Mistakes happen in business every day, even more often when working on something new.  Anything less than truth when dealing with mistakes leads to an inability to learn from mistakes, fatal for businesses but also for your capacity to get better and grow.
  2. Engage your mind by using your body – Something as simple as taking a walk can stimulate the mind better than sitting for hours on end staring at a computer screen.  Thomas Edison famously dismissed golf as exercise in saying that he got more exercise in walking through his lab from table to table and was able to keep his brain working well at the same time.  The brain is about 2 percent of body weight but consumes about 20 percent of a person’s total energy.  Shifting some energy requirement back to the rest of the body can help bring new mental energy.  I used to go on noon runs with an entrepreneur who loved to work through business issues while on the run.  It was an extremely challenging workout for me because he ran at a faster pace than I typically did, but also because he forced me to carry on a conversation the whole while!
  3. Engage people – Talking through ideas with others is a great habit for those working on challenges.  An entrepreneur I know tells the story of explaining his new business idea to a well-known and successful businessman.  After 4 meetings, the entrepreneur started to question the reputation and intellect of the businessman, as he asked very basic questions again and again and again about the entrepreneurs new business idea.  On the fifth meeting, the businessman again asked very basic questions about the entrepreneur’s new business idea.  Exasperated, the entrepreneur gave one more try to explain the business idea.  By the end of that day’s conversation the businessman smiled and told the entrepreneur that he had finally evolved the business idea to the point where it might be interesting.  His repeated questions weren’t from a lack of comprehension.  Rather they were pushing the entrepreneur to more fully think through important parts of the new business idea.  Socratic business development perhaps, but a powerful example of the mental iteration and evolution that can occur just buy talking to people.  Especially talking to people who ask good questions and challenge your assumptions.
  4. Learn about new domains – Originality often flows from specializing in a trade, task, or skill.  In the book Outliers, author Malcolm Gladwell writes that it takes roughly ten thousand hours of practice to achieve mastery in a field.  Though this is disputed by many, I certainly buy the idea that getting really good at something takes time and effort.  A counter idea to the concept of complete specialization, however, is that many creative originals take time away from their primary occupation and art to learn about new and unrelated things.  Meredith Perry of uBeam started out to create a wireless means of electricity transmission by being told by professors, physicists, and engineers that it was impossible.  While commercial success for uBeam may or may not come, Ms. Perry exhibited tremendous creative capacity in domains in which she had little or no expertise.  While learning new things is challenging, often un-learning things you think you know is the bigger hurdle.
  5. Respect the status quo but question it brutally – The core of creativity involves introducing new things to the world.  The default for originals is to question the status quo.  Just because it’s always been done that way doesn’t mean it always will.  The savvy original, however, will at least respect the status quo.  The world works that way it does today for a complex set of reasons.  You may not agree with those reasons, but you have to at least understand them.  For the new and creative to win, you must be able to navigate past barriers and resistance effectively.  My friend Kevin Maher started Global Vet Link with a goal of transitioning animal health certificates from being paper forms to electronic.  Easy right?  The challenge was that state veterinarians govern animal health certificates and had to approve this change in regulatory model.  The Iowa state veterinarian didn’t buy-in initially (Global Vet Link’s home state) so had to start with Florida as state number one.  Kevin’s great persistence got all 50 states onto the Global Vet Link platform, but it also took a great patience and understanding of the status quo in order to finally change it.

What habits of creative, effective people do you admire?  What is most important for you to work on and develop as  a habit?

Article of the Day

19 Best New Business Ideas for 2016 – Business News Daily

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“I can’t understand why people are frightened of new ideas. I’m frightened of the old ones.”
~ John Cage
 

Evaluating New Business Ideas

The beginning idea for a startup business is only part of what’s necessary to get to a viable business, but it certainly helps to start with a quality idea.  So how should aspiring entrepreneurs both come up with and evaluate the potential of new business ideas?

A tool I’ve developed to help students evaluate their own and other student startup ideas is the Startup Evaluation Matrix.  It also serves as the rubric by which I formally evaluate and grade new startup business concept papers.  In addition, I increasingly use it when speaking to aspiring entrepreneurs from outside the course who are looking for feedback on their ideas.

Startup Evaluation Matrix - Kevin Kimle - Iowa State University

Each of the elements of the Startup Evaluation Matrix reflects a yin and yang relationship; complementary, interconnected, and interdependent forces that shape its attractiveness. This balance in a startup business idea is difficult to shape, yet one that consistently comes through in the most attractive startup concepts.

Migraine Problem/Value to Customer – I use Diana Kander’s all in startup book’s notion of a problem that represents a significant opportunity, a migraine problem. A business needs to solve a problem so significant that customers will do whatever it takes to solve it, including paying someone else for a solution.  Envision the problem as a migraine headache.  The flip side of the problem is the value of the solution to the customer.  Does the solution have a clear and significant advantage?  Does it hit the ‘homerun’ of being better, faster, and cheaper?  Does the solution deliver value while making life simpler for customers?  So many technology startups miss this mark in that they may be able to solve a problem, but they are so complex or require such significant changes in behavior that they simply will never be considered viable by most prospective customers.

Niche Now/Big Market Potential – Peter Thiel in Zero to One writes that entrepreneurs need to look for ‘monopoly’ opportunities; markets where they can shield their businesses through various means from competition that will bid their profits to zero.  I think of attractive market opportunities for startups as being markets that are niches currently, but with the potential of big growth.  When we started E-Markets in 1996, there was not really a market for Internet-based electronic applications in the agribusiness space.  However, the Internet was new as a platform, and clearly had significant growth potential as a better, faster, cheaper platform for e-business.  Today I see agricultural entrepreneurs working on indoor aquaculture, robotics, diagnostic software, and other areas that have an undefinable market opportunity today, but huge potential in tomorrow’s market.

Doable Now/Unique Solution Long Term – Rarely is their something completely new, whether a technology, production system, product, service, or method.  Rather, entrepreneurs combine old things in new ways, and new places to create new solutions to new audiences.  Quality startup ideas balance the do-ability of a new solution near-term with its long-term uniqueness.  A startup that will truly scale can’t be a copycat, it must aim to solutions that are unique and represent the target for which copycats aim.

Contrarian/Surprise Element – An attractive startup idea has some element that is contrarian.  It is treading left while everything else is treading right.  Perhaps that arises from the independent-minded nature of entrepreneurs who chart their own course.  The contrarian nature of interesting new business ideas also lends an degree of surprise or unexpectedness.  The highest impact startups will be something that could not be predicted by most people.  The innovations that disrupt an established market will be initially dismissed by businesses that will eventually be put out of business.  In 1996, I was involved in a consulting project for Kodak.  The Senior VP we worked with dismissed the strategic threat of digital cameras.  Kodak was the first company to market a digital camera in the 1990s, but ignored the opportunity enough that its business was knocked from beneath it and filed for bankruptcy in 2012.

Deciding the quality of a startup business idea is more art than science.  Malcolm Gladwell’s Blink explains that choices that seem to be made in an instant-in the blink of an eye-actually aren’t as simple as they seem.  I know great investors and entrepreneurs that very quickly assess a startup idea, a business plan, or the viability of a new product or service.  I suspect that they have some kind of internal matrix-like structure that enables them to make snap judgements that are most often on-target.  Their mental matrix has been developed based on experience, but I’ve found that the Startup Evaluation Matrix is a means to embed a beginning way of thinking for less experienced entrepreneurs too.

How would you apply the Startup Evaluation Matrix to the following new agricultural businesses?  Which of these business concepts holds the most promise?  Why?

Cybernated Farm Systems – CFS has designed Off-Grid Smart Aquaponic Greenhouses that will benefit people from the first to the developing world.

Tiny Farms – Tiny Farms is building a platform for the production and distribution of insects as commodity agricultural products.

Vital Herd – Vital Herd has developed a solution that captures each animal’s vital sign data and transmits it to a cloud platform for analysis.

Barn2Door, Inc. – A discoverable marketplace where anyone can buy or sell clean, sustainable food.

Iron Goat – Iron Goat is an agricultural robotics company with an autonomous self-fueling hay harvester technology.

 

Article of the Day

Research: 10 Traits of Innovative Leaders – Harvard Business Review

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“Every new thing creates two new questions and two new opportunities.”  
~ Jeff Bezos

Innovation and Leadership

Last week I was asked to lead a discussion at an executive roundtable event on innovation.  The fun part of these sort of events is the discussion of specific problems and issues at the businesses represented around the table.

A simple search of books on Amazon is revealing about the interest in innovation as a topic.

  • ‘Innovation’ – 71,115
  • ‘Entrepreneurship’ – 51,286
  • ‘Business intelligence’ – 24,266
  • ‘Financial and managerial accounting – 4,629

Many books and countless articles about innovation exist, yet it remains a constant challenge for businesses.

Edison and Lightbulb

If there is a universal symbol or image for innovation it is probably the lightbulb.  While Thomas Edison did do the work to make the lightbulb a commercial reality using his considerable entrepreneurial genius, the fact is that he built on the work of others.  One of Edison’s first acts in the process of commercializing the lightbulb,  a very long process, was to license a patent from someone else.

Innovation is most often about using old things in new ways, places, and combinations.  Invention is often an arbitrage-like activity, taking technologies, processes, and methods from one place to another for a modified recipe that has new value to a new audience.

Edison combined many materials and bits of know-how in what became the first successful commercial lightbulb.  Apple assembled the original iPod in 2001 only having built the software interface itself; otherwise all the parts of the iPod came from other companies.

Sources of Innovation

So where does innovation arise? Inventors?  Startups? Skunkworks projects at large companies?

Regardless of where the innovating activity takes place, most innovation arises from individuals and small groups experimenting in some way.  Often those who are doing the innovating don’t even recognize it as such until later.  Rather they are simply working to solve a problem, save time, or making some kind of serendipitous discovery.

Phelps argues that innovations are not determinant from current knowledge, thus are not foreseeable (Mass Flourishing).  Innovation isn’t predictable.

Ridley’s earthy notion is that ideas have sex (Rational Optimist).  Ideas happen when people get together.  Past learnings combine in new and unique ways when the right people meet at the right place at the right time. Certainly this concept provides some justification of why certain places or organizations seem to exude innovation.

From an organizational perspective, innovation arises from a process of experimentation, failures, and learning that leads, often in winding paths, to success.  I call this entrepreneurial churn.  Businesses and organizations that continue to produce impactful innovation find ways to maintain an environment where experimentation flourishes through entrepreneurial churn.

Central to entrepreneurial churn is failure. Experimentation, iteration, and innovation success is by its nature littered with failures.  Innovative individuals and organizations have a great capacity for dealing with failures.  Their failures are not financially or emotionally devastating, but rather part of a winding pathway toward success.

Leadership’s Role in Innovation

What is leadership’s role in spurring innovation and what does it look like?  Different leadership models include the following.

  • ‘Tinkerer in Chief’ in the mold of Edison or Jobs
  • ‘See’er in Chief’ whose crystal ball and ability to make good choices is reliable
  • ‘Innovation manager’ who can identify and organize talent for results

No matter your leadership skills, I believe innovative organizations have leadership that understand the notion of entrepreneurial churn.  Leaders find ways to create an environment/culture where failure can occur without derailing the business or a high proportion of careers.

Leadership’s role in innovation also involves risk management.  While the perception is that innovation is all about risk, the more accurate description of successful, ongoing innovation is that leadership finds ways to mitigate risk.  The analogy I use for effective risk management with innovation is options.  Mitigating risk in innovation effectively involves finding opportunities where the business obtains the right, but not the obligation to participate.  Leadership is looking for opportunities with a limited downside and big upside.

An example.  At one of my past companies we secured an investment from a strategic partner.  The business had spent millions attempting to implement what my business did, but with no success.  For a $500,000 investment in my business, it was able to try one last means of working on an innovation.  While there was plenty of resistance to any more work on this innovation, their risk was more or less limited to the $500,000 investment.  Within one year of the investment, the program in which my business specialized had become a well-accepted and understood success at the investing company.  A senior executive had led the effort in getting the investment deal done, but more importantly had found a means of seeding innovation in his organization in a way that managed the risk of the project carefully.

Leadership’s most important role in innovation is culture.  You, your business, and your network are all impacted by culture. Culture matters from a societal perspective, but is vital for your business and its ability to innovate and adapt over the course of time.

What/how do you bestow and infuse an entrepreneurial/innovation culture in those around you? Why are some individuals and businesses more entrepreneurial?

My hypothesis is that there is an ethic that is the guiding star for high-impact, entrepreneurial people.  This ethic infuses companies and organizations that are entrepreneurial, innovative, and high impact over the course of time.  I refer to this as The Entrepreneur’s Ethic. I won’t elaborate on The Entrepreneur’s Ethic here (much more in coming months), but will point to one way that it sometimes expresses itself at businesses.

Culture expresses itself sometimes in an articulated value set.  It could be a mission statement, but often is captured in sayings, adages, and other forms of workplace communication.

An example from a friend, Fulton Breen of North Carolina.  Fulton worked to articulate a set of values of his company XS, Inc. based on the seven cardinal virtues.  They include the following.

  • Dream Big – Have the courage to take risks
  • Work Hard – Duty before fun
  • Have Fun – Celebrate wins
  • Play Fair – Integrity in all we do
  • Speak Out – Speak your mind with conviction, but respectfully
  • Stay Sharp – Always seek improvement

These values are on the office wall, but much more importantly are a part of the living and communicated culture of the company.  Fulton has now parlayed his experience at XS, Inc. to a new company that works with other businesses on articulating its own values, Novarete.

I recently heard an entrepreneur talk about his rule of three (or something like that).  After having been through a few startup company experiences his observation was that company culture changed or needed to change every time the number of employees tripled.  When the business went from 1 founder to 1 founder and two employees, everything had to change.  The same when employee numbers went from 3 to 10, 10 to 30, and 30 to 100.  As I heard him describe this I had to smile a bit thinking back about my own startups.

Something similar holds true for business innovation.  Successful innovation over the course of time reflects an ongoing leadership element that works to constantly reinforce and re-model aspects of culture and how it impacts how people imagine, create, and work.

My take-aways for the executive roundtable group:

  • There’s a disorganization element to innovation.  If your plan is to ‘manage innovation’ better, you may want to think again.
  • But leadership is key…
  • …And leadership’s biggest impact on innovation is by shaping culture.

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