Open Innovation, Ventures and Startups

Somark Innovations

Somark Innovations has developed a unique and robust RFID technology that can be "Printed" onto complex objects.  They are primarily focused on animal applications in which traditional tagging methodologies are expensive, damage prone and unreliable.  Their first product application assures proper tagging of lab rats used in medical testing applications. 

Learn More: www.somarkinnovations.com

Jeppesen Marine

Jeppesen Marine: Building on the success of Jeppesen's strength in the airplane navigation market, Jeppesen integrated its expertise into the marine navigation market through a combination of internal development and select acquisitions.  Jeppesen's offering provides charts & navigation, weather services & routing, operational optimization and services for national hydrographic services.   Jeppesen was able to deliver its exceptional integrity and reliability to a new market through careful application of open innovation principles in an appropriate market, developing market leadership as planned.

Procelerate Technologies

Procelerate Technologies is the leading provider of a new class of engineering productivity platforms called Engineering Process Management Systems. Procelerate Technologies’ Vdot Engineering Process Management System gives customers increased top-line revenue through compressed product development cycles while simultaneously lowering product development costs and improving management visibility. With the Vdot platform, Procelerate Technologies’ customers maximize the value of their engineering resources by ensuring that the right person uses the right data with the right tool in the right process at the right time.

PowerMeters: Attention Deficit Order in Real Time

Google, ATT, and several other IT oriented firms recently sent a letter to President Obama asking the Government to expand residential and business access to real time energy data.  The letter claims that the United States can see dramatic gains in innovation if consumers can access this data.  The letters authors go on to say "Studies and experience show that when people have access to direct feedback on their electricity use, they can achieve significant savings through simple behavioral changes." Studies and experience show? 

I love how these big firms in one letter settle the innovation game.  Or suggest more innovation would occur if only government would step in and choose their solution that is essentially we will save more if people have more energy usage data.  But what is the proof?  Can you imaging back in 1998 "Yahoo says, no value in additional search engines, asks Clinton to require all private consumer data be opened to Yahoo search spider"?

There are studies that suggest real time data helps reduce energy usage for a period of time.  There are studies that show people react to Time of Use information and price signals.  There are studies that show real time data results in no persitent energy savings.  Studies, studies, and more studies.  I can't find one single study that says more real time energy information results in more innovation in the residential energy market.  Even if someone can provide me the study, its irrelevant because innovation is about the successful application of technology to a market, resulting in growth and success.  Innovation results in a market.  It is unclear a market for "real time energy information to residential customers" really exists yet.  But Google etc. are ready to set the rules..... 

I do know a bit about saving energy.  Last year an OI Ventures company reduced energy use in more than 28K small businesses and 6,800 homes. In a previous business the Gridlogix team and its partners reduced energy usage 20% in 1,000 large buildings using real time data. Energy usage data put in the hands of experts helps select measures which will result in energy savings in a home, small business or large business. 

Really what the authors of this letter may be pushing for is access to consumer utility bill data.  Right now that means using 15 Min interval data (essentially state of the art).  But, 15min interval data (in residential) does not really help solve anything. If you really want to deterministically select measures to reduceenergy usage in a home you need to sample down at 15khz (yes that is 15,000 times a second). 15khz is a huge amount of data. Its unlikely people are going to pay to sample everyone's power at 15khz.  Its called disagregation and companies like EMME are delivering it for less than the cost of smart meters.

The letter says we need this data to save energy, but many new ventures save energy for customers without this data.  How can that be?  Their is no single solution to saving energy.  You can save energy at "peak", when a lot of people need energy.  You can reduce baseline load, which is sort of the nominal energy used all the time.  You can save energy by changing behavior, like eating less on a diet.  You can save energy by replacing your light bulbs and air conditioner.  Successful entrepreneurs are making money selling solutions that reduce baseline load by replacing inefficient equipment with quick payback solutions. 

It seems companies with strong lobbyists have somehow proven that the best path forward is real time data hitting you from all directions (Email, web, phone, etc) all marshalled to drive behavior change.  They are so convinced its such a great idea, they need government to step in and open data access to any third party the consumer chooses.  But what about the TED 5000 which can be installed by anyone.  Or what about Earth Aid, a great little start-up that deliverers you an integrated energy bill, for free, on top of your existing utility.  Don't these guys deserve a chance?

Innovation must precede regulation.  A market grows as entrepreneurs fight it out to offer a solution that works - technically and commericialy.  Once the market settles on a dominant design, then it is time to regulate to help further reduce cost and improve quality.  I don't think the market has chosen a dominimate design for metering information, behavior change, baseline load reduction etc.

Google et. al. suggest (as if it were true) that more data will drive behavior change.  Perhaps that is  true when a bunch of geeks get in a room and review an energy profile, but what about Grandma?  I know if I lose weight, I will be healthier.  I have bought a WiFi scale so that I can monitor my weight all the time and record it automatically on my iPhone.  I get daily coaching reports.  But, darn it, my weight is not going down.

The folks who signed this letter are the same folks who will sell and move the data. Where are the people who sell solutions that reduce energy usage? If a company thought an edict from the President would drive more business, wouldn't they be for it? But, this proposal as well as the Markey bill will cause a lot of people to spend a lot of money on real time data access with limited results. It disintermediates what the thoughtful utilities are trying to do, which may cause them to revert to doing nothing in energy efficiency, is that good?

TOU is just another game for high cost energy in markets with low reserve margin. The bulk of CO2 comes from base load. I don't need a meter to tell me to install a 19 seer air conditioner, CFLs, etc. And once these base load systems are in, I don't need to stare at Google Power meter to learn more. Normal people want to live their life, not stare at goats.

Before we go spend several billions more, maybe we should actually do some real scientific study on what drives people to adopt persistent energy efficiency measures. For example, pre-pay meters provide a simple status signal (Yellow/Red light) and drive 15% reduction in energy usage - no interval data required.

PS: FERC/federal government probably does not have the power to regulate consumer market access to this data and the related standards. They can't touch COOPs which is 33% of electric. Its unclear they can regulate IOUs. And, once again these meter strategies ignore Oil/Gas which represents 35% or more of the energy usage in a residential application.

Occams Razor, Toyota, NASA and Gremlins

I spent a good part of my career as an engineer involved in complex aerospace systems.  When I think of all the complexity that goes into aircraft design, I am impressed that our engineering process deliver such a high quality and safe solution.  I have always thought a great deal of Toyota and their talent.  The loss of life from unintended acceleration is a great tragedy.  Frankly its amazing there are not more automotive deaths given the range of drivers and capabilities.

It could be that Toyota has a fundamental problem with their design.  It could be they should have designed  more fail-safes, and they will. Maybe Toyota is culpable, god only knows.  I do know in aerospace we had driven reliability so deep in our systems we were at a point that a sequence of random failures, converging at a moment in time, was our safety challenge.  In a Six Sigma/Lean world, human error, manufacturing defect, etc are rare sources of failure.

In administration's effort to get to the bottom of the Toyota unintended Acceleration problem,NASA has been ordered to study the effect of solar flares on the Toyota acceleration system.  Solar flares?  Really?  Are they going to study the impact of solar flares on everything else?  Did we all of a sudden find a new unknown source of failure?  Not likely.

I guess its OK for the government to be through, but there is also a time as an engineer to be practical.  An old principle Occam's Razor says, "given all the possible explanations, the simplest is often correct."  Yes, Toyota could be evil.  Maybe they hid data.  Maybe little green men came down and just targeted Toyota systems instead of the hundreds of other automotive systems, power plant controls, and even triggers on nuclear bombs.  Maybe solar flares are the source of all unexplained failures.  This sort of reminds me of the goofy liberal arts major trying to say something technical to a gathering of geeks.  The geeks then look at the liberal arts guy and gasp for air because they think the comment is so nutty. Sort of Gilligan meets the Professor.

I laughed for several minutes after hearing the NASA story on the news. Then I heard a bunch of reports start describing how government officials think maybe someone could put a wire mesh around the system to eliminate the impact of these solar flares.  Really?  Yes, that's the ticket.  It took the media and some government official to teach engineers about the principles of shielding (Faraday Cage).  What a waste of brainpower and resources.  Society needs to appreciate that we can't fix all problems and we should not waste people's time with nutty theories.

I feel very sorry for those that lost their life and the tragedy for their family's.  Its a terrible situation.

Innovation Lessons: Partners Count

I have always believed in marquee accounts and great partnerships.  I have been suspect of most partnerships.  Right now I am president of one of my portfolio companies, which is giving me a really deep visceral perspective to what great partnerships mean.

Big companies are about sales and distribution, not innovation.  I believe in R&D, but it is not always best spent inside.  Small companies, like my current company, have a deep connection with innovation.  Great partnerships are about big companies that realize their strength is customer relationships, and small companies, realizing their strength is not customer relationships.  Reduced to its base, its that simple.

By example, you have a great product that solves a problem.  You go to a customer that has the problem.  You tell your story.  All along that customer is distracted thinking about the risk of a small company.  They never hear your story, no matter how well it is told.

In comparison, you team with your customers key infrastructure supplier, walk in with the account manager.  Deliver your value proposition, and your partner close the deal.  The customer knows he can ring the big partners neck if things go wrong.  The partner has built good will with the customer, because the partner has implied there is a better solution.  You have a reference-able account that can help you pay the developers that back pay you owe them.

• A good partner is focused on sales.  A bad partner is focused on reverse engineering your product.
• A good partner has a trust relationship with the customer.  A bad partner wants to limit customer options.

It may feel risky to do business with a partner who may have means to be your competitor.  Big partners move slow so the threat is small.  Though, don't let the partner lock you up in some complex agreement.   

In the end, partners count.

Angel Investment Software

In all my time investing, I have been perpetually frustrated keeping track of all the opportunities I see.  Often a deal that looks weak at one moment is great later aligned with a few other opportunities.  One of the angel groups I work with has selected Angel Soft to help integrate all of their deal flow.  A cool feature of angelsoft is the ability to share with other groups.  Its the group share function I like best because early stage investing is often about getting the right talent engaged with a good team to shape the deal.  With Angelsoft we can leverage a whole bunch more talent and perspective so that we can strengthen deals that are still getting their footing.  We will be implementing Angelsoft under OI ventures.

Questions to make you wonder

As I have looked at the corporate venturing world and thought about innovation, I have been trying to assemble a list of questions that help senior leaders understand the priorities of innovation. I am constantly rethinking these, but here are some of my initial thoughts.

1)      Who and how were your best products developed and brought to market?

2)      Why are a majority of the top quartile S&P performers all less than 10 years old?  Why do you think your firm can be different?

3)      Why are so many great companies started by past employees of large firms? What is wrong that these large companies can’t keep this talent to themselves?

Teaching Elephants to Dance

Back in Januray of 2004 I co-authored a short article in the MIT Technology Review that discussed corporate ventures: Teaching Elephants to Dance.

Where do great new businesses come from?

I had lunch yesterday with the director of a corporate venturing unit.  He is starting up the new organization and wanted my opinion on various aspects of his plan.  As he described his efforts I was reminded by the stark data that shows that most corporate venture groups, with few exceptions, start with a flair, last 3-4 years and then are exterminated by new management for failure to perform.

I remember more than ten years ago a new business idea that was floating around McDonnell Douglas.  The idea was to put a cheap GPS receiver on the tail of a dumb bomb.  The thought was you could do this all for about 1/20th of the cost of a cruise missile, but still have some similar capabilities.  The idea was attacked on many fronts - the market is too small, its low margin, we do more sophisticated things, etc.  The principle of the idea came either from a unconventional group at DoD or perhaps a McDonnell researcher focused on automated targeting systems.  Whomever the source they deserve credit, but for this story the relevant point is no one in strategic planning liked the idea!

So fast forward to the recent Iraq war.  This GPS/dumb bomb has come a long way.  Its now called JDAM.  It is a highly effective system because it is cheap and accurate.  I would bet these things are now so effective that you could use it to demolish a building in Las Vegas, right where it stands with no collatoral damage, just like those high priced demolition teams do on TV.  I think McDonnell Douglas, now Boeing, sells something like $800M JDAMs a year which is a nice business, but for a company the size of Boeing is still small (Boeing needs to bring in $100M by lunch every day to meet its total revenue for the year). 

So is this a good product for Boeing?  Its a very good product because it enables even more business.  The existence of the JDAM means that even old B52s can effectively operate today.  As pentagon planers dream up new stealthy systems for future wars using expensive specialized cruise missiles, congress is scratching their head wondering if the old airplanes with JDAMS might not be enough.  And if you look at who built and services these old planes its Boeing (B-52, B-1, AV-8B, F15, F/A-18, and part of B-2).  Boeing is making additional billions of revenues supporting these aircraft because JDAM has keeps them relevant even in today's conflicts.

So, imagine you created a corporate venturing group, you have been operating for 3-4 years, senior management had rotated, and you were faced with the challenge of proving you had a big success.  What would you do?  What could be a big enough deal to move the corporate needle?  $100M by lunch! Likely nothing!

People today probably look at the JDAM program and cite it as a phenomenal success.  A great example of ingenuity.  Why can't we have more new programs like JDAM?  If you quiz these folks and ask them how JDAM got started you will essentially get a blank stare.  A majority of the people in the business development group, strategic planning, or even the corner office probably have been around for at most 5 years.  They have little or no memory back 10 years, perhaps even in this case 15 years.  The real story of how this great new business came to pass is in the mythology of the organization, lost in people's memory.  The one certainty is it was not conceived in a strategic planning session and delivered to the annual report as success in 3-4 years.

As well characterized in the up coming book by David Thomson ( Blueprint to a Billion ) understanding the real value of a innovation driven business opportunity is not obvious up front.  David shows that many of the most successful companies wandered around for 1-20 years determining their real customer, properly positioning their product, and setting a foundation they credit as the source of their ultimate success (always closely managing cash flow).  From that point of departure these business grew steadily for 5-7 years to arrive at their noteworthy place on the front of Forbes - $1B.  What it takes to run a business in the discovery phase is wholly different from the growth phase.

Was Microsoft an obvious winner in the 80's?  Did you know that Infosys was started in 1981 when no one in the United States even knew where India was?  When I first ran into I2 in 1992 they were a 4 person consulting firm.  So if all the great $1B+ public companies took so long, and internal business like JDAM take so long, why do corporate leaders think great new businesses can be started and validated in 3-4 years?  What is the point of reference that corporate leaders can sight for holding internal venturing groups accountable for such quick returns?

In contrast a few firms have a consistent long term attitude about their venturing groups.  Companies like Intel Capital and Motorola Ventures have stuck with their strategies for many years (perhaps more than 10 even).  I have to imagine that mistakes have been made, markets have shifted, but the strategy has remained.  Underperforming managers were replaced, but the program was not killed.  Recent work by some smart professors Gary Dushnitsky at Wharton and Michael Lenox at Duke shows that firms with  a long term venture strategy have higher levels of innovation and growth from new products.

So back to lunch.  I believe that corporate venturing is a source of corporate renewal.  It is like getting a puppy when your best loved dog is reaching her later years.  The puppy invigorates the core business.  I think all companies need to have a persistent corporate venturing group to keep alive the entrepreneurial system so that effective high growth business are continuously created.  The reason companies don't do this is senior managers are not trained to understand long dynamics of growth as articulated in Dave Thomson's work.