First Serve Strategies

Archive for the ‘Entrepreneurship’ Category

I was recently contacted by a columnist asking me for examples of, and connections to, successful entrepreneurs under the age of 20.  As the executive director for the Laurence A. Baiada Center for Entrepreneurship at Drexel University, I frequently receive similar request, but this one got my dander up.

I embrace the idea of celebrating the entrepreneur.  One of the things I enjoy most in my role at the Center is celebrating the entrepreneur.  As a society, we need to celebrate the entrepreneur.  They are as important to the 21^st Century as John Rockefeller, Andrew Carnegie, Tom Watson, Sr., and J.P. Morgan were to the 20^th Century.  Today’s entrepreneurs will drive the change, growth and prosperity for years to come.

So, being asked for successful entrepreneurs didn’t bother me.  What bothers me is the relentless desire to write about the successful entrepreneur under the age of 20.  Such articles might increase readership, but they do little to encourage meaningful entrepreneurship.  Instead, they are perpetuating a myth, equivalent to positing that all young people should drop out of college so they can start a Dell Computer, or Microsoft.

Instead, we should be celebrating the entrepreneur who endures the typical experience of countless hours/days/years building and growing a successful business.  We need to herald the entrepreneur that exercises a strong internal locus of control, a need to achieve, ambiguity tolerance, discipline, and a singularity of purpose that increases his or her chances of success.  We need to lift up the entrepreneur who constantly exercises her skills of persuasion, connectedness and networking to build and maintain a fan base around her business.  Our heroes need to be those entrepreneurs with the endurance and perseverance to fail often and early, so they can fail forward.  We need to stop perpetuating the myth that it is easy and it is an over-night phenomenon.

Hopefully, there will always be the Michael Dell and Bill Gates of the world.  They also are heroes of the late 20^th Century. While they are the exception regarding scale, they are not the exception regarding internal locus of control, need to achieve, discipline, ambiguity tolerance, singularity of purpose, persuasion, connectedness and resilience.

© Mark Loschiavo

Gaining traction as a new company is much like attending a middle school dance.  Individuals have wildly disparate memories of the middle school experience.  While I would never attempt to understand what is goes on in the minds of hormone saturated teenagers, the scene at a middle school dance can have a striking resemblance to emerging markets.

First, there are the established leaders.  These are often the class officers, top athletes and/or popular kids that everyone recognizes the minute they walk in the door.  Heads turn and other kids observe their every move.  If they choose to dance, they have no problem finding a dance partner.  Peers and parents alike typically admire these students.

Next, there are the “dangerous” kids.  They too are often noticed, and often secretly admired by some of their peers, because of their natural appeal to the “wild side” in each of us.  While we aren’t willing to take the risk, we can experience it vicariously through them.  Some are only willing to observe from a distance, and others are drawn even closer.   Like a mountain ledge without a safety rail, it draws us close.  Have you ever wondered why the “good girls” are often attracted to the “bad boys”?

Then, there are the kids who are remarkable is some other way.  Whether it is the excellent musician, singer or dancer, they get noticed.

Finally, there are the unremarkable kids.  They may be incredibly, smart, caring and talented, but nobody seems to notice them.  They are invisible, not because of who they are or what they are capable of, but because they are not recognized.  They blend into the crowd and go unnoticed.  Even if they accomplish something far more compelling than the darlings, the darlings’ accomplishments will be recognized because everyone is already watching them.

As painful as middle school memories may be, the entrepreneur building his or her startup company must recognize he or she is facing the equivalent of being the new kid attending the school dance.  Unless you are stunningly beautiful you will be invisible.  Being beautiful will require the financial capital to advertise during the Super Bowl, which you do not have.

The only viable alternative is to be compelling.  Creating a solution that is as good as, or slightly better, than an existing solution is a sure path to becoming unremarkable.  To gain traction the entrepreneur can start by ask the following questions:

Are we offering something completely new and different?

Jay Tapper started an interactive candy division of Cap Toys Inc., where he introduces an interactive motorized lollipop called the Spin Pop.  In an industry replete with darlings, Tapper’s product got noticed because it was it was unique.  Rather than focusing on making a lollipop that tasted better than a Tootsie Roll Pop, he focused on a lollipop that was interactive.

Do you have a competency that will allow you to fill a gap in the market?

Rather than rest on his laurels, Tapper decided to leverage the competencies developed with the Spin Pop to attack a gap in a completely different market—oral hygiene.  At the time, there were two kinds of toothbrushes: manual and electric.  While most competitors in this market were either focused on developing a $2.99 manual toothbrush with a more comfortable handle, or developing a $200 electric toothbrush with multiple functions, Jay focused on the gap—the white space in the market.  Since he already had the competency to develop an inexpensive device that spins, why not develop and inexpensive “interactive” toothbrush, at a price that was orders of magnitude cheaper than $200?  Enter the Spin Brush, now known as the Crest Spin Brush, following an acquisition by Proctor and Gamble.

Ask yourself what, if any, core competency you have that will make your business successful?  Is it a delivery mechanism?  Is it the way you acquire content?  Is it the relationship you will have with the gatekeepers?  Is it the interactive nature of the tool or product you are offering?

What is it about the existing art or current solutions people don’t like?

Weight management continues to be the bane of many American’s existence.  For decades Americans have increasingly understood the need to avoid obesity.  Even though there have been countless solutions offered over that same period, obesity continues to rise.  Why don’t the current solutions work adequately?  Although some programs are scams, most weight management programs follow the sound principle of caloric intake minus caloric burn equals weight change.  Yet these current solutions often do not work for people.  Weight Watchers addressed this by focusing on three inhibitors to effective weight management—lack of support systems, accountability and complexity.  They attacked the support and accountability issues by including, as part of their program, weigh-ins and support groups.  They also introduced the point system, which made it easier to monitor caloric intake, reducing complexity.

While Weight Watchers has been successful, obesity continues to be a problem.   Let’s suppose we want to offer a new solution to improve Americans’ success in proper nutrition.  We might start by asking Nutritionists what keeps their clients from following their advice.  Is it because:

• The information is two hard to follow?  Then find a method for communicating it better.
• Clients fear failure?  Then find a way to eliminate the fear.
• Clients don’t have the proper support through the process?  Then develop effective support mechanisms.
• Clients need accountability?  Then develop a way to introduce accountability.
• Clients find it tedious or boring?  Then find ways to make it fun.

In this era of global competition, building a better mousetrap is not enough.  As a startup, you need to offer a compelling solution.  You need to make your product or service remarkable in some way.  As the new kid in school, it is the only way someone is going to ask you to dance.

©Mark P. Loschiavo

Throughout modern history influential members of developed countries have celebrated evaluative or convergent thinking, with success being pre-ordained

based on the mastery of standardized tests (PSAT, SAT, GMAT, LSAT, MCAT) that measure an individual’s aptitude for analytical, logical and linear thought. The ability to acquire and disseminate knowledge is valued.  After all, convergent thinking put a man on the moon and returned him safely in the 1960s, and launched us headlong into the high technology world of the knowledge era.   Knowledge is power.

In 1997 engineers and scientists from IBM developed a computer program powerful enough to beat world champion Garry Kasparov in the quintessential logic and strategy competition, chess.  In so doing, is it possible they marked the beginning of the end of the knowledge era?  If technology can beat a world champion chess master at his game, what’s to keep technology from rendering a world-class disease diagnostician—think Dr. Gregory House—obsolete?

Isn’t a diagnostician’s skill derived from a comprehensive knowledge of known diseases, and the possible combination of related symptoms:  knowledge that can be stored in databases, and retrieved and processed at speeds far greater than the capability of the human mind.

While computers have the ability to handle this type of activity with ease, they have difficulty with context.  Discerning joy, fear, anger or anxiety from the expression on someone’s face requires the ability to instantaneously see individual parts of the face in the context of the whole.  In order for innovators and entrepreneurs to develop solutions for today’s complex needs, they need to understand those needs within the context of people’s lives, and/or the whole of society.  This ability to understand context seems to come from the frontal lobe of the brain.

At this point, a caveat may be in order.   For years, the literature drew the distinction between the way humans’ process information in an either/or fashion, where logic and language activity took place in the left hemisphere and imagination, emotion and spatial awareness occupied the right side of the brain.   In other words a focus on convergent (ala left brain) and divergent (ala right brain) thinking, where focus had been on convergent thinking (evaluative).  Now, there is an enhanced recognition of the importance of divergent thinking (emphasis on generating ideas).   More importantly, we recognize that both sides of the brain work together.   Since this is not a forum on neuroscience, I will ask your forgiveness if I shorthand the discussion a bit by using the left-brain right-brain language.

In his book, A Whole New Mind, Daniel Pink suggests that we are moving from a knowledge economy to a creative economy, requiring a renaissance of divergent thinking.  Is it time to re-engage the often-maligned right-brain?  Are we in an era where competitive advantage will be determined as much or more by creativity, design and context than by knowledge, analytics and logic?

In an interview with Ted Koppel, Dave Kelley, founder and CEO of the Palo Alto, California product design firm, Ideo, said, “Look around.  The only thing that is not designed by someone is nature.”  While this has been true since the beginning of time, the importance of design for the products and services we consume has not always been paramount.

Prior to the 21^st Century the demand for one product over another was largely driven by utility and price.  Terms like “price performance” were coined to indicate the importance of the price/utility relationship.  Typically, the product with the most functionality at an affordable price carried the highest competitive advantage.  Recognizable slogans like, “the quicker picker-upper”, “the ultimate driving machine”, “we bring good things to life”, “like a rock”, and “don’t leave home without it”, speak to the importance consumers and advertising firms assigned to function and utility.

As developed countries become more affluent—particularly the U.S.—consumers are demanding more than just utility in the products they purchase.  They want beauty, elegance and significance.  In short, they want good design.

Daniel Pink goes on to say that, “While Harvard’s MBA program admits about 10 percent of its applicants, UCLA’s fine arts graduate school admits only 3 percent.  Why?  A master of fine arts, an MFA, is now one of the hottest credentials in the world, where even General Motors is in the art business.”  Pink argues that product design has become a vital ingredient for competitive advantage, creating the need for a whole new mind in business.  Business leaders, who have traditionally valued convergent thinking, need to embrace the importance of divergent thinking in building competitive advantage.

Think for a moment about the hottest new products of the last decade.  What were they, and what distinguished them from their competitors?  What role did design play in the product’s success, and what do we know about the companies that designed them?  They are usually viewed as innovative, but are they also viewed as entrepreneurial?  This begs the question.  As we move into the creative economy, will entrepreneurial firms have an advantage over established corporate giants and why?

©Mark P. Loschiavo

As part of the 2010 Conference of the Global Consortium of Entrepreneur Centers (GCEC) I was asked to participate in a stimulating panel discussion by summarizing the key points of discussion among the panelists and audience participants.  The purpose of the discussion was to explore best practices, regarding entrepreneurship center models.

The panel discussion was led by Sherry Hoskinson, Director, McGuire Center for Entrepreneurship; Co-director, Business / Law Exchange, The University of Arizona.  Panelists included:

• Tom O’Malia, Director Emeritus, Lloyd Greif Center for Entrepreneurial Studies, University of Southern California
• Michael Morris, Professor and N. Malone Mitchell Chair in Entrepreneurship Head, School of Entrepreneurship Spears School of Business Oklahoma State University
• Anthony Mendes, Director, Murphy Center for Entrepreneurship, University of North Texas
• Laura Hollis, Director, Gigot Center for Entrepreneurial Studies, University of  Notre Dame

The discussants ended up focusing on five specific topics:

1. Red Herrings regarding peer evaluation and best practices
2. Most pervasive obstacles to success, and ways to overcome them
3. How to balance/manage stakeholder support to achieving center goals
4. The value of the business plan as a tool
5. Ideal outcomes and measures of success

Red Herrings

Centers have many decisions to make about engagement opportunities and models, collaboration, and new initiatives.  There is a great deal of attention paid to “peer practice” regarding trends across the industry.  The problem comes when centers chase red herrings—activities/initiatives that seem to be “all the rage” but, in fact, provide little return on investment.  The two red herrings that emerged in the discussion were false gurus and rankings.

There is an old saying among jazz musicians.  “If you make a mistake while improvising, do it a second time and folks will think you did it on purpose.  If you play it a third time, others will try to copy it.  While this may work for a jazz improvisation, it does not translate well to entrepreneurship centers.  Unfortunately, the entrepreneurial community has its share of “gurus” making assertions based on opinion rather than results.  Ask for evidence or stay away from them.

Reminiscent of the Senior Superlatives back in high school, where students were voted everything from most likely to succeed to best dancer, the US has become obsessed with rankings.  If you don’t agree, consider the popularity of TV shows like American Idol and Dancing With the Stars, where everyone has the opportunity to vote for their favorite.  As such administrators in higher education have also become somewhat obsessed over rankings, mostly because of the potential impact on enrollment.  While the group saw center accountability based on results as a good thing, the expressed concern was with the credibility and accountability of the ranking processes and methodologies.  Results based accountability is one thing.  A popularity contest is quite another.

Obstacles

It was agreed that institutional inertia was the most formidable enemy of entrepreneurship centers, and that it usually manifests itself in the form of committees.  Once the enemy was identified, the discussion quickly turned to the most effective ways to overcome this obstacle.  The two key takeaways from this discussion were to first, know when to engage the institution and when to act independently, and secondly to follow the very advice we often give entrepreneurs—quickly build, test, and refine (or kill) each new product, solution or initiative.  Not all ideas, activities, initiatives are the same.  Some require institutional buy-in to be implemented; others do not.  As such, the ideation, decision-making and implementation should vary accordingly.  When in doubt, it is usually more effective to ask forgiveness than to ask permission.

Balancing Stakeholder Support to Drive Results

First it is important to identify the many stakeholders associated with a university entrepreneurship center.  Start by recognizing there are internal (academics, researchers and university administrators) and external (entrepreneurs and business professionals) stakeholders.  Each has different needs and expectations and must be dealt with differently.  One way of avoiding schizophrenia in the process is to find commonalities and translate accordingly.   For example, it makes sense to establish metrics that measure and communicate ROI for your external stakeholders, since that is the language they speak.  It also makes sense to communicate external stakeholder benefits to internal stakeholders in a language that translates well to their desired outcomes.

Two additional take-aways:

1. Regarding new programs and initiatives, it is best to take a bottoms-up approach to ideation, combined with a tops-down approach to implementation.  In other words, it is good to reach agreement on overarching goals and strategic direction with stakeholders up front, but during the implementation process, too many cooks can spoil the broth.
2. Create multiple mechanisms to communicate with stakeholders.  Far too often, if stakeholders do not know what you are doing, they assume you are doing nothing.

The Value of the Business Plan as a Tool

There is a growing sentiment among center directors that the business plan as a tool is obsolete, and that business plan competitions’ time may have passed.  The arguments surrounding this debate are often as divisive as those surrounding healthcare reform, but I will try to provide the essence.

The business plan exemplifies the best and the worst of the current state of entrepreneurship education.  At its best, the business plan provides aspiring entrepreneurs with a framework for, and an understanding of, all the elements necessary for starting and building a venture.  The building a business plan forces discipline and provides focus—characteristics often found in successful entrepreneurs.  At its worst, it provides a teaching model that implies the process of starting and building a new venture is a linear process that looks something like:

Idea=>Research=>Fund=>Develop =>Make=>Sell=>Grow=>Exit

Anyone involved in a new venture knows, only too well, that there is nothing linear about starting and growing the venture.

As such the business planning and education process should be an inquiry process focused on de-risking key assumptions.  As one panelist put it, “Don’t tell me what you think.  Tell me what you know, and how you intend to exploit it.”

Ideal Outcomes & Measures of Success

Generally speaking, an ideal outcome is to identify student needs, meet them where they are in their understanding, and build from there.  In order to do this effectively there must be a proper balance of both academic and experiential learning opportunities for them.   To accomplish these measures of success the following desired outcomes were identified.

1. Force accountability in rankings standards.
2. Focus on preparing aspiring entrepreneurs with both the toolset (best practices) and the mindset (interest/passion and appreciation) necessary for success.
3. Provide students with a multidisciplinary exposure to entrepreneurship by developing meaningful partnerships with other colleges and programs.
4. Develop/provide the necessary resources—both academic and clinical—for students and entrepreneur that will help them navigate the entrepreneurial ecosystem effectively.

©Mark P. Loschiavo

Recently, my sister Linda, who puts Indiana Jones to shame with her ability to dig up artifacts, sent me an electronic copy of the program from the 1963 Northern Kentucky Swim League Championship Meet.  In it was a photo of one of the many swim teams I was a part of as a child.  I immediately saw myself, in my eight-year-old splendor, seated in the front row among 53 teammates.

Since I thought my adult children would get a kick out of the photo, I immediately forward a copy to them.  My son, Brian, quickly responded with, “You’ve got some swagger there, pops.”  My first reaction was disbelief.  Although 1963 was a while ago, I still remember all the insecurities that came with being an eight-year-old boy.  At eight, my hands, feet and ears were clearly designed for a body much larger than mine, and my hair was curly, when curly wasn’t cool.  Clearly,  God either had a sense of humor, or was just having an off day when he designed me.

Then, I decided to have another look at the photo.  Sure enough, there was definitely a swagger.  If a picture tells a thousand words, the words coming from this young boy was, “welcome to my house and my team!”  Where was the insecure kid I knew myself to be?  How could this be?

Upon further reflection, a story started to form, providing context for the photo.  When I was eight, swimming was a big part of my life.  In addition to swimming in two summer leagues, I competed year-round on an AAU team, which involved interstate travel.

A typical summer day consisted of me waking at the crack of dawn, walking about ½ mile to the swim club where morning practices occurred.  Every morning, I would arrive about one hour before the rest of the team.  Upon my arrival, I would give the swim coach his wake up call, by knocking on the door of his apartment located at the club.  While the coach enjoyed breakfast, my job was to prepare the Olympic size pool for morning practice.  I would start by swimming behind a 2’ X 2’ window screen in order to skim the bugs off the water’s surface.  Usually, the coach and the rest of the team would show up just about the time I would have the lane dividers in place.

Following a two-hour practice, I would stay in the water to swim an extra mile.  I did this for endurance.  I didn’t know what endurance was.  I just knew that, if I wanted to be the best swimmer in the league, I needed it.   Following lunch, I would spend most of the day playing in the pool until late afternoon, when someone would pick me up to drive me to a nearby country club where I was on another team that practiced every evening.  As I got older, these daily routines were accompanied by weight training routines designed specifically for swimmers.  No, I didn’t do this because I had overbearing parents driving me to be an overachiever.  I did it because I was good at it, and I wanted to be the best.

That same “need-to-achieve” and “internal locus of control” is something I have experience time and again in successful entrepreneurs and business leaders.  It is a self-confidence that is rooted in hard work and dedication to a specific industry, customer set or domain.  It comes from working hard to be the best, not from an over-inflated view of self.  It is a swagger that says, “welcome to my house, and my field of expertise!”

©Mark P. Loschiavo

“From the outset, America had been a nation of entrepreneurs.”– A Patriot’s History of the United States by Larry Schweikart

I recently had the honor of hosting a delegation of entrepreneurs and economic development officials from Africa at Drexel University’s Baiada Center for Entrepreneurship.  During the dialogue one of our guests commented on the difficulty of obtaining financial support within the entrepreneurial ecosystem, be it private or public funds, for programs to incubate ideas, entrepreneurs and companies in Africa.  As she was explaining the situation in Nigeria, it brought to mind a similar conversation several years ago, while I was with a North American delegation to the United Kingdom to share best practices in entrepreneurship education and incubation.

When describing that the success of our programs at the Baiada Center are made possible through generous gifts from private individuals and companies, my colleagues from the UK informed me that private individuals/companies in the UK are not accustomed to contributing financially to endeavors like ours, rendering the government the only viable source of funding to operate their programs.  Said differently, the private sector in the UK looks to their government agencies to ensure growth of a healthy entrepreneurial ecosystem.

Recent events in China punctuate the impact of political systems on the state of the entrepreneurial ecosystem.  Baiada Center benefactor, Mel Baiada, recently visited a number of mega tech parks recently constructed in China.  With the full weight of central government behind it, entrepreneurship is becoming a booming industry in China.  Just a few short years ago, an educator visited me from China who was lamenting the difficulties of building momentum for entrepreneurship in China.  It is yet to be seen how government architected entrepreneurship will look.

Armed with a restless spirit and a longing to innovate, this country has prospered from its earliest days based on a strong belief in the power and ingenuity of private citizens over the wisdom of a central government.  That very spirit has propelled Drexel University’s Baiada Center to achieve top rankings in entrepreneurship.  I am grateful to the countless individuals and private companies for their contributions in helping us pursue our purpose of incubating ideas, entrepreneurs and companies.  It is a glowing example of the power and ingenuity of private citizens pursuing a common purpose over the wisdom of government.

In part 1 of this series I talked about how more and more startup and emerging growth entrepreneurs are disintegrating their companies by outsourcing one or more of their three core business processes (product innovation/infrastructure/customer relationship).  Even corporate giants are outsourcing subsets of one or more of these processes.  Companies, who in the past would never consider entrusting any portion of the company’s customer relationship process to outsiders, have entered into agreements with outsiders to handle many of their customer sales, support and service processes.

In my last blog, I also wrote about the conflicts inherent in vertically integrated companies that can be minimized through disintegration. I would like to offer two more arguments in support of company disintegration through alliance.

The first is expedience.  In a world where technology cycles are measured in weeks or months and competition is truly global, speed to market has become increasingly important.  As mature companies attempt to grow, by entering new markets or expanding product lines, it is often more expedient to do this through acquisition or partnering.  Large pharmaceutical companies, who in the past have differentiated themselves through R&D, now allocate a higher percentage of their R&D budgets to acquiring technologies rather than developing them in-house.  This usually comes in the form of company acquisition or technology licenses.

For start-ups entering an existing market, the most viable protection from being crushed by incumbents is to get to market, reach scale and build brand equity quickly. eBay acquired Half.com in 2000 not because they were unable to build the same product but because Half.com had already owned the brand in the eyes of the consumers.  In order for start-ups to enter markets and reach scale quickly it is often necessary to partner with others to handle one or more of the core business processes.  One entrepreneurial company I worked with developed, manufactured, and sold fashionable compression garments aimed at women suffering from lymphedema—a condition that often accompanies breast cancer patients and survivors. In order to build the company they created an alliance with the company that produces LYRCA® and Coolmax® to develop the product.  They also used a toll manufacturer to handle production.  In other words, they disintegrated their company to the point where significant parts of their product innovation and infrastructure were handled through alliances.  What they kept in-house was what they saw as their points of differentiation (POD), print design and customer relationships.

The second good reason for company disintegration through alliance is economics.  For mature companies the decision to outsource is typically driven by income statement considerations.  While a solid balance sheet is always important, most large successful companies have sufficient access to capital.  They also have a healthy appetite for profit.  With increased specialization and advancements in technology come two economic principles, absolute advantage and comparative advantage.  Absolute advantage refers to the ability of a firm to produce a particular good at a lower absolute cost than another.  In this case a company may outsource the manufacture of the product it sells to an alliance partner who can produce the product at a lower absolute price. Comparative advantage speaks to one firm’s ability to produce a particular good or service at a lower opportunity cost than another.  In this case a firm may outsource one or more of their business processes to an alliance partner in order to focus their finite attention on those processes in which they are most efficient.

For start-ups the economics of disintegration tend to be driven by the balance sheet.  Unlike established companies, access to capital is difficult for new ventures.  As such, a start-up venture may choose to ally with a partner in order to enter markets and grow the business while conserving cash.  This often comes at the detriment of profit margins, but high margins on zero revenue still equals zero profit.

While alliances can help you build and scale your company quickly, they frequently fail.  When they fail, the results can be fatal.  It is important to:

1. choose your partners wisely,
2. implement the alliance carefully and,
3. nurture the ongoing partnership diligently.{a

©Mark P. Loschiavo

Ever since the industrial revolution there has been an inherent problem for companies.  A problem stemming from the nature of being vertically integrated—where research, development, operations, sales and support were all managed under the same roof.  While vertical integration has its benefits—centralized control of information, complete ownership of the customer experience to name two—it creates motivational conflicts throughout the organization.

Most business ventures can be broken down into three core processes—product innovation, infrastructure and customer relationships.  The inherent problem comes from the conflicting objectives associated with these three processes.

Successful product innovation requires speed-to-market and differentiation.  By contrast, economies of scale and standardization are watchwords for companies trying to maximize infrastructure efficiencies.  In the words of Henry Ford, “Any customer can have a car painted in any color that he wants so long as it is black.”  It doesn’t take long for conflict to arise when product developers are striving to frequently and rapidly introduce completely redesigned products, which require variations in infrastructure like tooling, molds, presses, automation equipment and assembly line alterations.

If that doesn’t create enough conflict, those involved with the customer relationship process care mostly about scope, wanting to satisfy each and every customer’s needs.  “What do you mean it only comes in black?  My customer is a Kentucky Wildcat fan, and wants his in UK blue!”

Until recently, companies have learned to live with these conflicts in order to ensure effective information flow and quality control regarding customer solutions and interactions. Rapid changes in information technology over the past two decades, however, have allowed for the disintegration of companies, where companies are becoming less vertically integrated.

In Corporate America this shift is happening at glacial speed, but in the new and emerging venture space it is becoming more the rule than the exception.  Over the past five years I have reviewed hundreds of business plans.  Virtually all of them employ a business model that is disintegrated, where one or more of the three core business processes are outsourced to vendors or alliance partners.

In this hyper-competitive business environment, the astute entrepreneur understands the need to focus attention on the company’s points of differentiation (POD) rather than trying to build a vertically integrated company.  The dichotomy is that new venture creation is not a linear process.  Often, discerning a company’s POD is an iterative process, making it important early in the strategic planning process to protect core business activities that may be critical to maintaining competitive advantage.  After all, we don’t want to throw out the proverbial baby with the bath water.

©Mark P. Loschiavo

At the intersection of business and technology there is a cloud forming that represents a new paradigm for collaboration and decision-making, which will encourage invention and innovation to flourish.  This cloud will make it possible for entrepreneurial ventures to scale like never before.  We are soaring into world of Cloud Computing.

It is possible that The Cloud is talked about as much, and is as misunderstood, as the Internet in the early ‘90s.  Like any new venture it is often explained using analogy. “The Cloud is like a Utility Grid.”  The Cloud is like the early days of computing where organizations rented computing power from IT service bureau companies like IBM or University Computing Corporation.  Much like the Gold Rush of 1849 or the Dot Com boom of the 1990s, few know exactly what it is or what it can become, but many want to be a part of it.

A look at the following definitions might explain some of the confusion.

“Cloud computing is Internet- based development and use of computer technology (“computing”). In concept, it is a paradigm shift whereby details are abstracted from the users who no longer have need of, expertise in, or control over the technology infrastructure “in the cloud” that supports them. Cloud computing describes a new supplement, consumption and delivery model for IT services based on the Internet, and it typically involves the provision of dynamically scalable and often virtualized resources as a service over the Internet.” (Wikipedia)

Maybe a more technical definition would help.

“[Cloud computing] is “a computing capability that provides an abstraction between the computing resource and its underlying technical architecture (e.g., servers, storage, networks), enabling convenient, on-demand network access to a shared pool of configurable computing resources that can be rapidly provisioned and released with minimal management effort or service provider interaction.”  This definition states that clouds have five essential characteristics: on-demand self-service, broad network access, resource pooling, rapid elasticity, and measured service.” (Wikipedia)

In his book Dot.Cloud, Peter Finger offers this definition:

“For geeks, Cloud Computing means grid computing, utility computing, software as a service, virtualization, Internet-based applications, autonomic computing, peer-to-peer computing, on-demand and remote processing—and various combinations of these terms.  For non-geeks, Cloud Computing is simply a platform where individuals and companies us the Internet to access endless hardware, software and data resources for most of their computing needs, leaving the mess to their Cloud Service Providers.”

As with any disruptive technology the Cloud is seeing its share of controversy.   A CNET article published in October of 2008 had this to say.  “IBM argued that cloud computing is a way for businesses to draw more value from their existing IT infrastructures, since much of the work is offloaded onto remote servers, but the cloud-computing concept has received sharp criticism recently from the likes of Oracle CEO Larry Ellison and Free Software Foundation President Richard Stallman.

In an interview with The Guardian last week, free software pioneer Stallman said cloud computing is “worse than stupidity” because it leaves users vulnerable.  ”If you use a proprietary program or somebody else’s Web server, you’re defenseless. You’re putty in the hands of whoever developed that software,” he said.

During Oracle’s annual financial analyst meeting in September, Ellison also criticized the companies rushing to roll out cloud services, saying the trend is “fashion-driven.”  ”It’s complete gibberish. It’s insane. When is this idiocy going to stop?” Ellison said.

Microsoft Chief Executive Steve Ballmer, speaking to delegates at a Microsoft-sponsored developer conference in London last week, said the company will launch an operating system for the cloud in four weeks.  Tentatively titled “Windows Cloud,” although Ballmer suggested it would have a “snazzier name” at launch, the product is designed to make it possible to “just…write an application and…push it to the cloud, Ballmer said.”

In essence the Cloud means different things for different people.  For likely Cloud Service Providers like IBM, Amazon, Microsoft, Google and Yahoo it means opportunity to get IT hardware, software, data resources and services to a much broader audience.  To Venture Capitalist it may minimize the need for their investment dollars going toward data centers for their portfolio companies.  For entrepreneurs it eliminates barriers to entry into scalable business opportunities that previously required large capital investments in server farms and software applications.

Just a few questions to consider:

1. Is Cloud Computing mostly real or mostly hype?
2. Is Cloud Computing likely to be a game changer for entrepreneurs that will level the playing field and break down barriers to entry?
3. What, if any, issues should entrepreneurs be concerned with before launching their new ventures into the Cloud (eg. data security, over-dependence, scalability)?

©Mark P. Loschiavo

In an interview with Ted Koppel, Dave Kelley, founder and CEO of the Palo Alto, California product design firm, Ideo, said, “Look around.  The only thing that is not designed by someone is nature.”  While this has been true since the beginning of time, the importance of design for the products and services we consume has not always been paramount.

Prior to the 21^st Century the demand for one product over another was largely driven by utility and price.  Terms like “price performance” were coined to indicate the importance of the price/utility relationship.  Typically, the product with the most functionality at an affordable price carried the highest competitive advantage.  Recognizable slogans like, “the quicker picker-upper”, “the ultimate driving machine”, “we bring good things to life”, “like a rock”, and “don’t leave home without it”, speak to the importance consumers and advertising firms assigned to function and utility.

As developed countries become more affluent—particularly the U.S.—consumers are demanding more than just utility in the products they purchase.  They want beauty, elegance and significance.  In short, they want good design.

Author Daniel Pink, in his book A Whole New Mind, writes, “While Harvard’s MBA program admits about 10 percent of its applicants, UCLA’s fine arts graduate school admits only 3 percent.  Why?  A master of fine arts, an MFA, is now one of the hottest credentials in the world where even General Motors is in the art business.”  Pink argues that product design has become a vital ingredient for competitive advantage, creating the need for a whole new mind in business.  Business leaders, who have traditionally valued left-brain thinking, need to embrace the importance the right hemisphere of the brain plays in building competitive advantage.

Think for a moment about the hottest new products of the last decade.  What were they, and what distinguished them from their competitors?  What role did design play in the product’s success, and what do we know about the companies that designed them?  They are usually viewed as innovative, but are they also viewed as entrepreneurial?  This begs the question.  As we move into the creative economy, will entrepreneurial firms have an advantage over established corporate giants and why?

©Mark P. Loschiavo