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Showing posts with label entrepreneurs. Show all posts
Showing posts with label entrepreneurs. Show all posts

Friday, September 28, 2012

A Lean Greentech Approach

I am a greentech enthusiast and I have been closely following the greentech VC investment landscape. The VCs like Kleiner Perkins who have had a large greentech portfolio including companies such as Bloom Energy are scaling down on greentech investment. Their current investment is not likely to get any returns close to what a VC would expect. The fundamental challenge with such greentech (excluding software) investment is that they are open ended capital-intensive; you just don't know home much time it would take to build the technology/product, how much it would cost, and how much you would be able to sell it for. The market fluctuations make things even worse. This is not only true in the case of start-ups but also true for the large companies; Applied Materials' grand plan to revolutionize thin-film solar business ended up in a bust.  

There's a different way to approach this monumental challenge.

Just look at how open source has evolved. It started out as non-commercial academia projects where a few individuals challenged the way the existing systems behaved and created new systems. These open source projects found corporate sponsors who embraced them and helped them find a permanent home. This also resulted in a vibrant ecosystem around it to extend those projects. A few entrepreneurs looked at these open source projects and built companies to commercialize them with the help of VC funding. Time after time, this business model has worked. Technologists are great at building technology, companies are great at throwing money at people, entrepreneurs are great at extending and combining existing technology to create new products, and VCs are great at funding those companies to help entrepreneurs build businesses. What VCs are not good at is doling out very large sum of money to bet on technology that doesn't yet exist.

If we need to make it work, we need a three-way relationship. People in academia should work on capital-intensive greentech technology projects that are funded by corporations through traditional grants. These projects should become available in public domain with an open source like license or even a commercial license. The entrepreneurs can license these technology, open source or not, and raise venture money to build a profitable business. The companies that are constantly contributing their greentech initiatives to public domain should continue to do so. and Google continues to share their green data center design.

The important aspect is to differentiate technology from a product. The VCs are not that good at investing into (non-software) technology but are certainly good at investing into products. For many greentech companies, technology is a key piece such as a battery, a specific kind of a solar film, a fuel cell etc. Commercializing this technology is a completely different story. This requires setting up key partnerships such as and Israeli government committing to a nationwide all-electric car infrastructure with Better Place.

Many large companies have set up their incubators or "labs" to find something that is fundamentally disruptive that could help their business. Later, there have been a very few success stories of these incubators or labs because the start-up world is way more efficient to do what big companies want to do. These labs are also torn between technology and products. My suggestion to them would be to go back to what they were good at - hiring great scientists from academia and working with academia on the next-generation technology to create a business model by either using that technology in your products or to license it to others who want to build business. This shifts the investment from a few VCs to a relatively large number of corporations.

What we really need is a lean greentech approach.

Photo Courtesy: Kah Wai Lin

Monday, October 31, 2011

Bangalore Embodies The Silicon Valley

I spent a few days in Bangalore this month. This place amazes me every single time I visit it. Many people ask me whether I think Bangalore has potential to be the next Silicon Valley. I believe, it's a wrong question. There's some seriously awesome talent in India, especially in Bangalore. Don't copy the Silicon Valley. There are so many intangibles that Bangalore won't get it right. And there's no need to copy. Create a new Silicon Valley that is the best of both worlds.

If you want some good reading on what makes silicon valley the Silicon Valley, read the essay "How to be Silicon Valley" by Paul Graham. Bangalore does have some of these elements - diversity, clusters, a large number of expats etc. It's quickly becoming a true cosmopolitan city in India. You don't need to know the local language (Kannada) to live there. It does have a few good colleges such as IIM and IISC, but no IIT. The real  estate boom in Bangalore is a clear indicator of what's going on in the city with regards to the spending power of the middle class and the upper middle class. Most large IT multinationals have a campus in Bangalore. The companies such as Accenture have more people in Bangalore than in the US.

So, what's wrong?

Lack of entrepreneurial mentorship

If you go back to the roots of the early success of the Silicon Valley you will find that the venture capitalists community mentored the entrepreneurs to bring innovation to life. Steve Jobs had an idea, but no business plan. Some of the entrepreneurs became serial entrepreneurs and some became the investors who in turn mentored other entrepreneurs. This cycle continued. I don't see this in Bangalore. Not only the VC funding is not easily accessible (more on this below), but there are no early investors that I see are spotting the trends and mentoring the entrepreneurs.

I spoke to many entrepreneurs in Bangalore. Let me tell you - they do not lack the entrepreneurial spirit. They are hungry and they are foolish. And they are chomping at the bit to work on an exciting idea, but they do lack someone to mentor them and take them through the journey.

Where have all the designers gone?

A couple of years ago I was invited at the National Institute of the Design (NID), a premier design school in India, for a guest lecture. They told me that design is not a discipline that easily attracts good talent in India. They are competing with the engineering schools. India lacks designers. This is the age of experience start-ups. A very few engineers have the right design mindset. If they want to be successful, they absolutely need to work with the designers who are impossible to find and hire. This talent gap is hurting to manifest the vision of a founder into a product that the consumers would love to use. Flipkart and Red Bus are my favorite start-ups but they are few and far between.

Math and Science would only take you so far

It's not just Math and Science that has created the Silicon Valley. It's the right balance of creativity, business acumen, and engineering talent. The schools in India, even today, are not set up to let students be more creative. They are still fixated on Math and Science since they guarantee good jobs. The Silicon Valley entrepreneurs followed their dreams. In the US, it's about studying what you like and chase a career that you are happy with and not to pick a certain kind of education just because they provide good jobs. Unfortunately, creativity is hard to teach. It's ingrained into the culture, society, and the systems. If India has to get this right, this needs to start at the education and a support system that has a place for jobs other than Math and Science.

I have been following the education reforms in India and private sector investment into K-12 schools. They are encouraging. I don't believe Bangalore or India for that matter will have math or science issue anytime soon, but it will certainly have entrepreneurial issues to jump start new companies and manage their ever growing engineering workforce. I was invited to speak at IIM Ahmedabad, one of the best business schools in India. During my conversation with the faculties, I was told that the most pressing issue for the elite business schools in India is to scale their efforts to create the new class of mid-management that can manage the rapidly growing skilled workforce.

Obama keeps saying more and more people in the US should study math and science to be competitive. I don't believe that's the real competition. The real competition is what can you do if you did know math and science or if you had access to people who knew it.

Lack of streamlined access to capital

A lot has been written about this obvious issue and I don't want to beat this further. I just want to highlight that despite of all the money that the individuals and large corporations have earned in India, a very little is being invested into venture capital since the VC framework, processes, and the regulations aren't as streamlined. It's not a level playing field. In the Silicon Valley, the venture money is commodity. If you have a great idea, team, or a product, the investors will run after you to invest into your company. Bangalore is far from this situation. But it shouldn't have to be. What's missing is not the available money but a class of people who can run local funds by investing into the right start-ups. Most US VC firms have set up shops in India, but I don't think that's enough to foster innovation at the grassroots level. Bangalore needs Indian firms to recognize the need for a local VC community that can work with the system to make those funds available to the entrepreneurs.

The picture: I took this picture inside one of the SAP buildings in Bangalore during the week before Diwali.

Friday, May 6, 2011

Disruptive Cloud Start-Ups - Part 1: NimbusDB

Being at Under The Radar (UTR), watching disruptive companies present and network with entrepreneurs, thought leaders, and venture capitalists is an annual tradition that I don't miss. I have blogged about disruptive start-ups that I saw in the previous years. The biggest exit out of UTR, that I have witnessed so far, is Salesforce.com's $212 million acquisition of Heroku. This post is about one of the disruptive start-ups that I saw at UTR this year - NimbusDB.

I met with Barry Morris, the CEO and Founder of NimbusDB at a reception the night before. I had long conversation with him around the issues with legacy databases, NoSQL, and of course NimbusDB. I must say that, after long time, I have seen a company applying all the right design principles to solve a chronic problem - how can you make SQL databases scale so that they don't suck.

One of the main issues with the legacy relational databases is that they were never designed to scale out to begin with. A range of NoSQL solutions addressed the scale-out issue, but the biggest problem with a NoSQL is that NoSQL is not SQL. This is why I was excited when I saw what NimbusDB has to offer: it's a SQL database at the surface but has radically modern architecture underneath that leverages MapReduce to divide and conquer queries, BitTorrent for messaging, and Dynamo for persistence.

NimbusDB's architecture isolates transactions from storage and uses asynchronous messaging across nodes - a non-blocking atom commit protocol - to gain horizontal scalability. At the application layer, it supports the "most" of SQL 99 features and doesn't require the developers to re-learn or re-code. The architecture doesn't involve any kind of sharding and the nodes can scale on any commodity machine on a variety of operating systems. This eliminates an explicit need of a separate hot back-up since any and all nodes serve as a live database in any zone. This makes NimbusDB an always live system, which also solves a major problem with traditional relational databases - high availability. It's an insert only database and it versions every single atom/record. That's how it achieves MVCC as well. The data is compressed on a disk and is accessed from an in-memory node.

I asked Barry about using NimbusDB as an analytic database and he said that the database is currently not optimized for analytic queries, but he does not see why it can't be tuned and configured as an analytic database since the inherent architecture doesn't really have to change. Though, during his pitch, he did mention that NimbusDB may have challenges with heavy reads and heavy writes. I personally believe that solving a problem of analytic query on large volume of data is a much bigger challenge in the cloud due to the inherent distributed nature of the cloud. Similarly, building a heavy-insert system is equally difficult. However, most systems fit somewhere in between. This could be a great target market for NimbusDB.

I haven't played around with the database, but I do intend to do so. On a cursory look, it seems to defy the CAP theorem. Barry seems to disagree with me. The founders of NimbusDB have great backgrounds. Barry was the CEO of IONA and Streambase and has extensive experience in building and leading technology companies. If NimbusDB can execute based on the principles it is designed on, this will be a huge breakthrough.

As a general trend, I see a clear transition, where people finally agree that SQL is still a preferred interface, but the key is to rethink the underlying architecture.

Update: After I published the post, Benjamin Block raised concerns around NimbusDB not getting the CAP theorem. As I mentioned in the post, I also had the same concern, but I would give them benefit of doubt for now and watch the feedback as the product goes into beta.

Check out their slides and the presentation:



Thursday, March 31, 2011

It's 1999 Again: The Bubble 2.0 And Talent Wars Of The Silicon Valley

I have been living in the Silicon Valley for a while, and sure enough I haven't forgotten the dot com days. A few days back, on my way to the San Francisco airport, I saw a billboard by aol advertising that they are cool (again!). I also observed that parking lots alongside 101 weren't that empty. I told myself "man! this does feel like 1999".

The smart people - entrepreneurs, VCs, and analysts - that I talk to, tell me that we're in a bubble. They call it Bubble 2.0. Perhaps, they're right. The company valuations are through the roof. Facebook is valued around $75 billion and Color, on the launch day, had $40 million in the bank. The angel, super angel, and incubator investment deal flow is bringing all the talent to the Valley and all these young smart entrepreneurs are working on some of the coolest things that I have ever seen. But, there's a talent side that I am worried about. What this influx of easy venture capital has ensued is companies waging talent wars. For companies such as Google, attracting and retaining talent has become very difficult. Facebook and Twitter are new Google and Quora is new Facebook. The talent acquisitions that worked in the past, such as Facebook acquiring Friendfeed, have started to fall apart since the founders realized that serial entrepreneurship is a much better option that allows them to control their destiny against trusting someone else's innovation engine.

I like the creative ways in which the start-ups try to attract the talent. When Google launched a sting operation against bing, they took the honeypot keyword "hiybbprqag" used in the sting operation to register the domain http://www.hiybbprqag.com and redirected it to the Google Jobs page. They received a few thousand resumes that week. I am seeing more and more creative techniques that the companies use to attract talent. The value proposition for a killer designer or a super-geek programmer to work for you has to extend beyond the basics in the valley. This is especially true under current circumstances where there is a stunningly short supply of designers and developers in the Valley.

The talent war is for real. It's easy to get money and get started on an idea, but a real success requires a great team composition that is not easy to achieve. But, that's the reality of the start-up world and we should recognize that the people are even more important than ever before. If you think retaining talent was hard, gaining talent is much harder. I also foresee that these new millionaires will most likely angel invest their money into new start-ups. This floodgate will result into more start-ups competing for talent and possibly with the marketing budget of the incumbents. But, then, if we believe, it's a bubble, it gotta burst one day, and when that happens, it won't be pretty.

Friday, December 17, 2010

Salesforce.com's $212 Million Acquisition of Heorku - A Sparkling Gem In Radiant Future Of Cloud And PaaS

I met James Lindenbaum, a founder of Heroku, in early 2009, at the Under The Radar conference in Mountain View. We had a long conversation on cloud as a great platform for Ruby, why Ruby on Rails is a better framework than PHP, and viability of PaaS as a business model. He also explained to me why he chose to work on Heroku at Y Combinator. I was sold on their future, on that day, and kept in touch with them since then. The last week, Salesforce.com acquired Heroku for $212 million. That's one successful exit, which is good news in many different dimensions.

PaaS is a viable business model

PaaS is not easy. It takes time, laser sharp focus, and hard work to build something that the developers would use and pay for. A few companies have tried and many have failed. But, it is refreshing to see the platform and the ecosystem that Heroku has built since its inception. Heroku did not raise a lot of money, kept the cost low, and attracted customers early on. I was told (by Byron, I think) that an average cost for Heroku to run a free Ruby app for a month was $1. They considered it as marketing cost to get new customers and convert the free customers to paying ones, as they outgrew their needs. I cannot overpraise this brilliant execution model. I hope to see more and more entrepreneurs being inspired from - simplicity, elegance, and execution of Heroku's model - to help the developers deploy, run, and scale their applications on the cloud. In the last few years, we have seen a great deal of innovation in dynamic programming languages, access algorithms, and NoSQL persistence stores. They all require a PaaS that the developers can rely on - without worrying about the underlying nuts and bolts - and focus on what they are good at - building great applications. If anyone had the slightest doubt on viability of PaaS as a business model, this acquisition is a proof point that PaaS is indeed the future. Heroku is just the beginning and I am hoping for more and more horizontal as well as vertical PaaS that the entrepreneurs will aspire to build.

Superangels and incubators do work

There have been many debates on viability of the investing approach of the superangels and the incubators, where people are questioning, whether the approach of thin slicing the investment, by investing into tens and hundreds of companies, would yield similar returns, as compared to return on traditional venture capital investment. I also blogged about the imminent change in the VC climate, and decided to watch their returns. The numbers are in with Heroku. It's a first proof point that a superangel or an incubator approach, structurally, does not limit the return on the investment. I believe in investors investing in right people solving the right problems. If you ever meet James and hear him passionately talk about Ruby, the Heroku platform, and the developer community, you will quickly find out why they were successful. Hats off to YC on finding this "jewel". No such thing as too little investment, or too many companies.

Ruby goes enterprise

I know many large ISVs that have been experimenting with Ruby for a while, but typically these efforts are confined to a few small projects. It's good to see that Ruby, now, has a shot of getting much broader adoption. This would mean more developers learning Ruby, cranking out great enterprise gems, embracing Git, and hopefully open source some of their work. I have had many religious discussions, with a few cloud thought leaders and bloggers in the past few months, regarding the boundaries of PaaS. The boundaries have always been blurry - somewhere between SaaS and IaaS - but, I don't care. My heart is at delivering the applications off the cloud that scales, delivers compelling experiences, and leverages economies of scale and network effects. To me, PaaS is means to an end and not the end. I am hoping that an acquisition of a PaaS vendor by a successful SaaS vendor will make Ruby more attractive to enterprise ISVs and non-Ruby developers.

I have no specific insights into what Salesforce.com will do with Heroku, but I hope, they make a good home for Heroku, where they flourish and continue to do great work on Ruby and PaaS. This is what a cloud and Ruby enthusiast would wish for.

Tuesday, September 7, 2010

A Laundromat Entrepreneur

In my previous post “While Entrepreneurs Scale On The Cloud The Angels Get Supersized” I wrote about how cloud computing is disrupting the VC industry. Continuing on the thread of entrepreneurship I am seeing more and more entrepreneurs building applications who do not belong to any formal organization, start-up or otherwise. The definition of what used to be a start-up itself is changing, primarily because of two reasons - simple and easily accessible PaaS tools to design, run, and maintain applications on the cloud and access to a market place to sell the applications.

We have been witnessing this trend for the mobile applications for a while - Android as well as iPhone and now iPad. I see the same pattern for the cloud-based applications. I have seen many useful, productive, and successful applications that are designed by individual developers with no affiliation to any organization.

Google has done a great job in designing the tools for the developers to build applications that can run on their cloud and can be sold on their app store. This has democratized the application business to large extent that attempt to solve niche problems. At the same time the individual developers have started monetizing their work without going through an overhead of bootstrapping and running a company. While Google’s cloud platform is a generic one the application and stack specific PaaS providers such as Salesforce.com and Heroku are also attracting such developers. Intuit’s partner development platform is a great example of a channel platform that allows the entrepreneurs to market to an SMB segment, a very difficult segment to reach (a post on that later).

All these trends, collectively, have introduced a new category of an entrepreneur. A laundromat entrepreneur.

They are not full fledged start-ups but these individuals are also not developing just for fun. These businesses have steady revenue, positive cash flow, and require very little maintenance. The companies such as Help Me - located in Karachi, Pakistan - have created their business model to support such developers outsource customer support for their existing applications so that they can focus on building new applications. Some of these individual businesses could be worth a few million dollars.

This is a very different business model that combines the best-of-breed with long tail. I am quite excited about this new category since that puts in the developers directly in charge of the product and takes them closer to the end users. I am curious to see the life cycle of these laundromats and how they get bought and sold. Many people that I have had discussions with claim that we could expect to see plenty of individuals who will own such a laundromat portfolio worth five to six million dollars.

Attribution: I have shamelessly stolen the word “laundromat” from my friend Mike Ni after my discussion with him on cloud computing business models. I had told him that I would!

The picture credit to Michael Valli

Wednesday, August 25, 2010

While Entrepreneurs Scale On The Cloud The Angels Get Supersized

Cloud computing is disrupting the venture capital industry in a big way. One of the obvious changes we all have observed is the reduced up-front capital expenditure to start a new venture. Things that used to require an array of expensive servers and an army of people to maintain them have essentially been replaced by a bunch of EC2 instances and a few smart developers. The tools and the technology stack for today’s applications are designed for cheaper and faster experimentation allowing the entrepreneurs to follow the lean methodology and pivot as fast as they can. I agree that some investors underestimate the people cost and overestimate the capabilities of the cloud but regardless this has caused a major shift in how the companies are funded.

The rise of an emergent category of super angel is all about leveraging the cloud computing. Fred Wilson closed a $30 million fund and Aydin Senkut closed a $40 million fund. These funds will invest into dozens of companies that can be bootstrapped with low up-front cost. More and more entrepreneurs prefer to raise as little money as possible in the beginning. This phenomenon has a few effects:

Raise AS you scale and not raise TO scale:

Founders have been able to raise money at good valuation without giving up large equity. This has been an uneasy situation for many venture capitalists and has crated strange problems while raising money. When Foursquare raised money the founders sold part of their equity to the VCs so that the VCs can earn money on a successful exit. The founders also decided not to sell out to Yahoo. Raising money as the company scales follows the cloud motto of scale-as-you-need and pay-as-you-go.

Build a product that you want and not what a VC wants:

The super angels typically stay on the sidelines and definitely don’t serve on the board. This means a lot more freedom to entrepreneurs to define and shape their product. This also allows the companies to take up-front risk, venture into new areas, and experiment where conventional wisdom would otherwise have prevented them. Fail fast and fail cheap is now a reality from a venture as well as technology perspective.

Prominent network effects in the start-up community:

I strongly believe that the cloud is the best participatory platform to create network effects of all kinds. I have seen similar kind of network effects occur in the new angel industry, especially in an incubator such as Y Combinator. The Silicon Valley start-ups have enjoyed the network effects for long time. These effects are even more profound when some of these start-ups are in an incubator setting. Such environments have a natural advantage for the entrepreneurs to leverage cross-pollination. Cloudkick is such an example of a YC company that was started by three entrepreneurs to build a solution to manage the Amazon EC2 instances that all other YC companies used at that time.

Competition in the portfolio companies could be a good thing:

The VCs do not prefer to have competing start-ups in single portfolio to avoid conflict of interest. As rational as it sounds this is simply not feasible when an angel or a super angel funds tens and hundreds of companies. I believe that it’s a good thing. At macro level the angels can see the patterns and advise the companies and at the micro level the companies can hone in their competitive differentiation before raising more money. This might also change how the founders pick and choose the angels. If the founders pick an angel who has similar companies in their portfolio they can expect better connections and mentoring from the angels despite of having the competing companies funded by the same set of investors.

It’s not that the entire VC industry has changed. The series A and B investors are as important as angels and super angels but the way the VCs operate and the expectations that the limited partners have would certainly change. I also believe that the VCs who are not stage agnostic will revisit their seed-funding strategy. The performance of the traditional VC funds that were raised in the last ten years is far worse than what an investor would expect from an alternate class assets, which is what the VC investments are. Time will tell whether doing more deals with same money will yield better return on the portfolio but, at least for now, the VC climate change is imminent.

Thursday, April 22, 2010

Disruptive Cloud Computing Startups At Under The Radar - NoSQL - Aspirin, Vicodin, and Vitamin

It was great to be back at Under The Radar this year. I wrote about disruptive cloud computing start-ups that I saw at Under The Radar last year. Since then the cloud computing has gained significant momentum. This was evident from talking to the entrepreneurs who pitched their start-ups this year. At the conference there was no discussion on what is cloud computing and why anyone should use it. It was all about how and not why. We have crossed the chasm. The companies who presented want to solve the “cloud scale” problems as it relates to database, infrastructure, development, management etc. This year, I have decided to break down my impressions into more than one post.

NoSQL has seen staggering innovation in the last year. Here are the two companies in the NoSQL category that I liked at Under The Radar:

Northscale was in stealth mode for a while and officially launched four weeks back. Their product is essentially a commercial version of memcached that sits in front of an RDBMS to help customers deal with the scaling bottlenecks of a typical large RDBMS deployment. This is not a unique concept – the developers have been using memcached for a while for horizontal cloud-like scaling. However it is an interesting offering that attempts to productize an open source component. Cloudera has achieved a reasonable success with commercializing Hadoop. It is good to see more companies believing in open source business model. They have another product called membase, which is a replicated persistence store for memcached – yes, a persistence layer on top of a persistence layer. This is designed to provide eventual consistency with tunable blocking and non-blocking I/Os. Northscale has signed up Heroku and Zynga as customers and they are already making money.

As more and more deployments face the scaling issues, Northscale does have an interesting value proposition to help customers with their scaling pain by selling them an aspirin or vicodin. Northscale won the best in category award. Check out their pitch and the Q&A:

GenieDB is a UK-based start-up that offers a product, which allows the developers to use mySQL as a relational database as well as a key-value store. It has support for replication with immediate consistency. Few weeks back I wrote a post - NoSQL is not SQL and that’s a problem. GenieDB seems to solve that problem to some extent. Much of the transactional enterprise software still runs on an RDBMS and depends on the data being immediately consistent. The enterprise software can certainly leverage the key-value stores for certain features where RDBMS is simply an overhead. However using a key-value store that is not part of the same logical data source is an impediment in many different ways. The developers want to access data from single logical system. GenieDB allows table joins between SQL and NoSQL stores. I also like their vertical approach of targeting specific popular platforms on top of mySQL such as Wordpress and Drupal. They have plans to support Rails by supporting ActiveRecord natively on their platform. This is a vitamin, if sold well, has significant potential.

They didn’t win any prize at the conference. I believe it wasn't about not having a good product but they failed to convey the magnitude of the problem that they could help solve in their pitch. My advice to them would be to dial up their marketing, hone the value proposition, and set up the business development and operations in the US. On a side note the founder and the CEO Dr. Jack Kreindler is a “real” doctor. He is a physician who paid his way through the medical school by building healthcare IT systems. Way to go doc! Check out their pitch and the Q&A:

Tuesday, January 26, 2010

Silicon Valley Is An Innovation Dagger

It was a routine trip back home from work one of these days. As soon as I boarded the bus the driver asked me: "So, what do you think about Google's announcement regarding China? Will Yahoo follow the suit?". The same bus driver had asked me about my views on NexusOne on the day it was announced. He even has a strong point of view on net neutrality. The other day the librarian showed me a Firefox plug-in that hides your identity from Google. Everyday it's a constant reminder of the demographics that we live in the Silicon Valley. It's an innovation dagger. One edge keeps people to stay on top of cutting edge technology and the other keeps them away from the vast majority of the users that don't live in the valley.

I cannot overemphasize the importance of being surrounded by the smartest of the smart people in the valley. However for entrepreneurs it is equally important to stay grounded in the reality. As cool as iPod was and iPhone is and iPad/iSlate will be it takes years for the products to cross the chasm and many products simply vanish. If you are designing a product in the valley please do me a favor - find your users outside the valley. They are the real people, the mass, that you should be designing for. It took Facebook 5 years to go from 5M users to 350M users and Foursquare is just the beginning of what's more to come. If you are in the valley building the next big thing, be real. Hangout with all the cool kids on the block but don't forget that you will have to cross the chasm and it won't be easy.

Tomorrow Apple is going to announce the tablet. When I take the bus tomorrow I will face the question from the driver: "So, what do you think of the tablet?". While I prepare my answer, check out this hilarious "In The Valley" performance that resonates well with what we see and how we think.

Tuesday, December 15, 2009

India Needs Public Policy And Service Innovation And Not Web 2.0 Companies

The second most populous country with the fourth largest spending power, India, saw a surprising 7.9% YOY GDP growth well above the expectations of 6.3%. The Indian stock market recovered much quicker since the US financial meltdown. In fact one of my friends who oversees sales of a European earthmoving equipments company in India complained that the European manufacturers have not increased their production to meet the increased demand in India due to the faster economic recovery, especially in the infrastructure sector. When I switch on a news channel in India I hear all about incentivizing manufacturing companies to increase indigenous production that will fuel the growth of the industrial sector. I also see commercials ranging from baked potato chips to a service to transfer money using virtual currency on a mobile phone targeted to the fast growing middleclass. The marketers have no problem understanding the rich and the middle-class of India and designing the products for them.

What I don’t see is entrepreneurs catering to the people at the bottom of the pyramid. Vivek Wadhwa’s guest posts on TechCrunch stirred quite a controversy especially the one on the “reverse brain-drain” - the Indians returning to India from US. NYTimes recently carried a story on the innovation pace in India. There are more angel investors in India than even before. A few people from Infosys have started their own VC fund. This is all good but I don’t think that the entrepreneurs are pursuing the right opportunities. I have written before about the opportunities to cater to the people at the bottom of the pyramid and I will repeat again that it will be a huge mistake to equate India’s needs with those of the developed countries. India has a little over 300 million people that are below poverty line (450 million by international definition – who earns less than $1.25). What it simply means that at least the one-third population of India has no guarantee that there will be food at the table and access to affordable healthcare. India has significant challenges in getting the basic services right and educating its people and providing healthcare to them. These people will do just fine without Web 2.0 companies.

Here is an example and an opportunity for the kind of innovation that I am referring to:

Electronic voting machine

India has been trying for many years to improve its voting process where the votes are regularly rigged in many parts of the country – it’s called “booth capturing”. The ex. Chief Election Commissioner N. Gopalaswamy (also father of a close friend) helped revolutionize the voting process with the introduction of electronic voting machines with a tiny little feature called “12 second delay” that made all the difference. This delay prevented the votes to be “stuffed” even if the machine was physically compromised. The machine also has an algorithm to recognize a pattern to detect the votes being cast every 12 seconds and simply discard them if needed. This is a great example where technology is being used to fight the corrupt behavior during the elections.

Universal Healthcare Card

This is a huge opportunity. The Universal Healthcare Card is an attempt to insure 300 million people (below the poverty line) with the cost of $1B, which is a small fraction of overall healthcare spending of $45B, which in turn is only 4% of the GDP. This policy has administrative and operational challenges to fight corruption and to ensure that people below poverty line actually benefit out of this plan. I see this as a socioeconomic problem that technology can help solve to provide accessible healthcare to the people who really need them without any pilferage.

What India really needs the most is the entrepreneurs who can get involved in the public policy and create service innovation to remove the fundamental roadblocks that India has on its way to become a developed nation. We need more people like Nandan Nilekani who left Infosys to spearhead the efforts of the national Unique Identification Project. He is an ultra smart entrepreneur who understands the challenges associated with such a project, has deep passion for public policy, and is fully committed to make things happen.

Are you an entrepreneur up for such a challenge?

Thursday, September 17, 2009

True Entrepreneurial Spirit Is Believing In A BHAG

GigaOM has a post "How Start-ups can win big with VCs" that muddies their point of view of having a clear value proposition with not doing something because no one may want this or someone else has already done it. I added the following comments to that post:

I agree with the viewpoint about honing the pitch. However I have a different take on some of the start-ups. It’s one thing not to know what the value proposition is but it is other thing to believe in a BHAG. Many start-ups had huge success when people initially thought that they could live without that. Twitter is one of those examples. Also, there is nothing wrong in duplicating what someone else is doing. Presence of similar companies signal that there is a market. It is now up to the new entrant to beat the competition by solving the problem well. When Google announced Gmail it was one of the last (as of now) web-based email that was introduced. Google would not have released Gmail or even the search engine if they would have thought that other people are already solving this problem.

I welcome the entrepreneurial spirit of the Silicon Valley. This innovation engine is amazing. I was watching the panelists beat up http://anyclip.com at Techcrunch 50 suggesting that the content deals are hard to come by. I liked the answer: “No one thought that we would have a black president one day”. The company acknowledges that it is an astronomic task but the reward is very high if they can pull that one off. We all know the story about Steve Jobs, iTunes, and the music industry. Let’s not forget that we can repeat the history only if we believe into these start-ups and give them an opportunity to succeed.

Tuesday, July 28, 2009

Designing An Innovation Incubator To Prevail Over Innovator's Dilemma

The large scale software companies often deal with the tension between incremental and revolutionary innovation. They know that if they only keep listening to their customers' requests the very same customers will put them out of the business. Clayton Christensen has captured this phenomenon in The Innovator's Dilemma. Over a period of time these companies have managed to execute the incremental innovation really well to deliver the same software release after release and occasionally introduce new products. However most of these companies struggle to incubate revolutionary innovation inside the company since it is fundamentally a different beast. The executives are often torn between funding the revolutionary initiatives to ride the next big wave and funding the incremental innovation that the current customers and the market expects. It is absolutely imperative for the executive management to differentiate between these two equally important but very different types of innovation opportunities. Many companies have set up in-house incubators to bring revolutionary innovation to the market but in most cases the incubators are set up as yet another department inside the company that shares the same legacy and bureaucracy. Following are some suggestions on setting up and running an incubator to avoid the innovation disappear down the rat hole:

6x6 cubicle in Iowa won't cut it: There is nothing wrong with Iowa but I won't build an incubator there. Pick a location that emanates entrepreneurial spirit, attracts talent, and is surrounded by good colleges. Scout for a location that has good work-life characteristics where people feel the energy and have social outlets - pubs, hiking trails, good restaurants etc. San Francisco and Palo Alto in the Silicon Valley are a couple of examples of such locations.

I cannot overemphasize the impact of an inspirational physical space that fosters innovation and drives people with insane urge to be creative and build something disruptive. Ditch Steelcase and shop at IKEA. Have a loft-like set-up with open seating, project rooms instead of conference rooms, and have all the furniture on the wheels. Can you write on all the walls? Have alternate comfortable seating all over the places - bean bags, red couches, chairs and coffee tables with tall bar stools. Innovation does not happen in a cubicle. Have an entire team paint the loft with bright colors as a team-building exercise. Pay a mandatory visit to IDEO and d.school in Palo Alto if you haven't already been there.

No process is the new process: The incubator should not inherit your organization's legacy processes. You cannot expect your employees to behave differently to solve a problem if they are restricted by the same process overhead. Throw your application policing process out of the window and let people experiment with whatever works well for them. One of the main reasons why incubators fail because they rely on the organization's product roadmap and capabilities. Don't pick up any dependencies instead simply consider your organization's capabilities as one more source that you can evaluate for your needs. Use open source as much as you can, build your own partner relationships, and OEM whatever you can.

Pizza-size multidisciplinary teams: Can your entire product team be fed on two large pizzas? Smaller and tighter teams reduce the communication overhead, churn, and produce amazing results. Don't follow your corporate headcount calculations. Go for smaller teams. Hire I-shaped and T-shaped people to form a multidisciplinary team. Have a good mix of internal people who understand the business that you are into and the external people that are entrepreneurs or have worked in incubators. Get help from the external recruiters to find the right people since the internal recruiters may or may not have expertise to find and hire the kind of people that you are looking for.

Be agile and design think everything: Design thinking and agile methodology empower the teams to apply an ambidextrous and iterative approach to take on the revolutionary ideas in highly ambiguous environment. Encourage wild ideas, defer judgment, and be iterative. Be visual in storytelling, stay close to your customers and end-users, and have persuasive, catalysts, and performance design. Focus on useful over usable. Have a good-enough mindset and ship often to get continuous feedback to keep improving. Iterate as fast as you can and keep your sprint cycles small.

Seed, Round A, and Round B: This is where many organizations get hung up on an upfront $200M business case to qualify the business opportunity as incubation-worthy. If all the start-ups required to have a detailed upfront business model we would not have had Twitter, Facebook, Google, Craigslist etc. The same incremental business case mindset simply won't work for revolutionary innovation. The disruptive innovation has characteristics that many people haven't seen their in their lifetimes. The organization need to adopt the VC model and embrace the high risk high reward business environment. There will be plenty of failures before you hit a jackpot but that's the fundamental premise of VC funding. Have a separate budget and an investment decision process that provides autonomy to an incubator to make their own decisions without going through a long chain of command. Have multiple rounds of funding to ensure that you are tracking the potential of the innovation right from the seed to the maturity.

Explore all exit strategies: Don't expect to go-to-market with everything that comes out of an incubator. The mainstream product teams in your organization may or may not embrace and support the innovation citing the reasons "not invented here" or "too radical". Focus on your customers and success stories. If you are successful people will come to you instead of you selling the outcome to the organization. Be courageous and kill the products that are not working out and experiment with other exit strategies such as spin-offs, outright sale etc. Try to keep the product portfolio moving. High volume and turnover is a good thing for an incubator. Financial success is not the only success that counts; happy customers, re-invigorated organization, and global visibility as an innovation player are equally important KPI.

Reward high risk behavior: People work for uncertain and highly ambiguous projects for two reasons - higher reward for higher risk and passion to build something new. Design your compensation structure that is fundamentally different than your corporate title-driven compensation and includes a generous equity option. The titles don't mean much when it comes to an incubator. What really matters is the skills, attitude, and the knowledge that people bring to the table. The career path in an incubator is very different than a conventional corporate ladder. Make sure that all the people that are part of an incubator truly understand what they are signing up for and are passionate for the work rather than simply waiting to be a "Chief Innovation Officer".
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