Entrepreneurship as Core Competence

Google recently announced a massive investment of $1.5 Billion into a new venture - to build an offshore wind power farm powerline transmission project. Google has also invested $38.8 Million in two wind farms in Dakota. Google said it is making the investment because it thinks it will offer a solid financial return while being good for the environment. As Google's cash pile crosses $30 billion, the company is expanding beyond its traditional Internet business to diversify into other promising areas - such as green energy.

This is an interesting development that other cash rich companies should take note of.
In every business, once a company reaches a point of saturation - where the business starts to generate more cash than what the company can invest profitably, then the company must look at diversification or give out dividends to reward investors. Having a huge cash hoarding is a clear sign of management failure - both the management & the board has failed.

Companies such as Microsoft, GE, Intel and several other technology companies are guilty of such gross management failures. In my opinion, having a huge cash hoard which earns 1-2% interest is a crime. Such an action can only indicate that the management has run out entrepreneural spirit and have big insecurity that is forcing them to hoard cash. Instead it is best to invest the cash into new business ventures or give it out as dividends.

Looking at this problem from Indian point of view, I would like to point out at Indian entrepreneurs - Ratan Tata, Mukesh Ambani, Anil Agrawal, Kumaramangalam Birla, Azim Premji, Laxmi Mittal, Venugopal Dooth, Anand Mahindra and host of others.
These Indian entrepreneurs have built multiple businesses which are highly diversified, they have invested in multiple ventures and all these companies are not sitting on huge pile of cash.

Take Dhurubhai Ambani for example, he has invested the cash from Textiles business and invested in polyester plants. Later he invested the cash coming from textiles and polyester business into petrochemicals, and petroleum - oil/gas extraction & refining business. Mukesh Ambhani - who succeeded Dhurubhai Ambani continued to diversify into retail, telecom, power, real estate sectors. Similarly Anand Mahindra has diversified Mahindra & Mahindra Company - which was traditionally into automobiles into Software services, Banking and Financial services.
Indian business leaders have displayed higher levels of entrepreneurship and have invested the cash generated by their business into other ventures that has given investors a higher rate of return. The end result, the shareholders have been richly rewarded. Just look at the Indian stock market returns in last 10 years & you will see an average of 500% return on investments for these companies.

This is in sharp contrast to the returns earned by shareholders of Intel*(-62.5%), GE*(-51%), Cisco*(-63%), EMC* (-66%) & Microsoft* (-51%).

On the other hand US companies that have invested their cash and expanded their business have given a better return to the investors : Coca Cola* (27%), Oracle* (20%), HP** (90%), Amazon* (250%), Google* (310%), Berkshire Hathway (270%) & Apple* (1000%)

Entrepreneurship Failure

The cash hoard is a clear symbol of entrepreneurship failure of the leaders of these companies. The CEO & the board of Microsoft, Intel, GE & others have failed in terms of being entrepreneurial and have failed to invest & launch new businesses, instead they have become trustees. I must admit that they have done a very good job as trustees.

In the long run, the shareholders will force the company to give out its cash as dividends or as share buy backs. Once the cash hoard is emptied, and if the business environment changes, these companies become weak and steadily decline into irrelevance. (Take the case of GM or Chrysler or ICI or Polaroid)

The only thing that can keep a business organization in constant investments and expansion - which allows companies to reinvent itself and flourish. GE was once a great company which expanded from its core base of electric appliances and light bulbs to Finance, Aero engines, plastics & chemicals, entertainment. But in the last two decades GE has lost its entrepreneurial skills.

Intel & Microsoft can be seen as classic examples of being limited to their core business, semiconductors and software. Both the companies have never invested in other business areas beyond their narrowly defined areas of core competence.

Entrepreneurship is the key.

Entrepreneurship is a key skill that keeps the business organization growing and healthy. Any successful business organization has tremendous resources at its disposal in terms of capital, management skills, business processes and people. The top leadership should be able to channel these resources into new ventures - be it in chemicals or wind farm or solar energy or wherever there are business opportunities.

In comparison, Indian & Asian companies tend to be highly entrepreneurial. The Asian business giants have succeeded in business because of their entrepreneural spirit and their risk taking ability. Tata group, Samsung, Hyundai, Reliance group, Wipro, ITC, Videocon, Airtel and several other business houses in Asia are thriving today because of their entrepreneurship coupled with their investment capital & management skills.

Closing Thoughts

The concept of core competence has limited several businesses investment options and has effectively killed entrepreneurship in several companies. In such companies stewardship - i.e., ability to preserve the company's wealth is a highly valued skill. It is noble to protect the existing wealth, and manage the current business to generate huge amounts of free cash flows. The current management thought of leaving the decision of diversification to share holders - in form of investing in different types of businesses, may not be the right approach towards wealth creation. Instead it is more efficient to leverage the current capability & capital of a cash rich business and create new business ventures - i.e., grow by diversification.
Google is showing the way ahead by investing in Wind energy, while Reliance is investing in retail, and Tata's are investing in construction, communications, and consumer products. These companies have redefined their core competence - their core competence is entrepreneurship and management skills.
Note:
* These are 10 year stock market returns
** This is for a 5 year stock market return.

Creating Intellectual Property & Projects

Creating intellectual property (IP) is the key for success in technology industry. While this statement is taken as to the heart and is preached like a Bible, but not all companies follow it to the core. Even the greatest technology gaints - Cisco, Microsoft, Oracle, GE, EMC, Intel, have pockets of IP inefficiency - where several million dollars are spent on R&D projects which does not produce enough IP.

It is not that people in those projects did not work or were not creative. Engineers who work on R&D projects are inherently creative (though few would admit to be creative), but people in these projects are worried about operational issues such as deadlines, features, project costs, staffing, talent management etc and they ignore protection of intellectual property that they created or they have failed to create substantial IP.

Projects that have spent several million dollars and spread over an year must product substantial IP. If not there is an IP inefficiency in the project, and the project must have an IP audit to identify & protect IP.

Projects that have consumed so much resources must have solved a major problem and therefore the project team has created IP in form of solutions, and that IP must be protected. The other way to look at things is to review the IP created or used in the project and ensure that there has not been any inadvertent violation of other companies/peoples IP. Often times engineers search the Internet looking for similiar solutions and could have copied a patented design. If such a violation had taken place, the company is at risk for all legal liabilities emerging from the IP litigation.

Role of management

In a typical R&D project there will be several managers: engineering manager, project manager, product manager etc. I would recommend that the managers sit down with key stake holders at the very begining of the project and ask the questions:

• What major problem is this project solving?
• What competitive advantage we get with this project?
• What are the opportunities for IP creation exists in this project?
• Can we create white papers based on the solutions we are implementing?
• How do we protect the IP rights once the product/solution is released?

Asking these questions before the project starts ensures that all managers and stakeholders are made aware of the IP being created and the need to protect the IP. Once there is a general awareness of the IP involved in the project, it is a good practice to review the answers & questions periodically to see the progress and take steps to protect the IP.

Asking those questions & having answers to them will help in a big way to create & protect intellectual properties - which is vital to gain competitive advantage in the market and enhance shareholder value.

Entreprenurship - Always create customer references

My friend is an entrepreneur and he quit his day job at Accenture to start Purple Frame. As a startup, it is always an uphill climb to get customers in B2B world. With hard work, every startup gets a few customers in the initial days - many of these customers are also startups.

Being a startup is not easy when it comes to sales as customers do not want to risk with a new vendor. So one has to rely on contacts/friends to get that elusive first order. Once the initial orders get exhausted, the next ones are even tougher to get, and at this stage one needs to use different marketing techniques such as referrals, customer endorsements, white papers etc.

As a seller it is important to understand buyers psychology. All buyers want to feel safe & secure before placing the first order, feel comfortable during the subsequent orders, and lower costs in the long run. Once the buyer priorities are understood, buyers can take advantage of it. Buyers feel safe if they know the supplier is reliable. The importance of safety in the minds of the buyers was played upon by established players - "You wont get fired for buying IBM". Persons who make the purchase decision for the company are employees and for employees job security is important. As Robert T Kiosaki, author of Rich Dad, Poor Dad, puts it "employees feel safe when they have a good paying job with benefits."

Buyers are often very reluctant to buy from unknown or new vendors. This poses the first big challenge to any startup as buyers are reluctant to do business with a new player. So the first task of the seller is to make the buyer feel safe & secure while buying from a new vendor. For established companies, approaching a new client is relatively easy. As the seller has the brand name and company reputation behind him, and he only has to deal with educating the buyer about the new company and the buying process to make the buyer feel comfortable buying from a new firm.

For a startup, the problem is more acute - as he has to deal with the twin challenges of making the buyer feel safe, secure and comfortable in order to compete with an established players.

So what should entrepreneurs do?
Entrepreneurs have to overcome this challenge to succeed in business. There are two ways:
1. Sell to a niche market and avoid competition
2. Make customers feel comfortable buying from them.

Selling to a niche market or a Blue Ocean strategy is preferred route for most startups, unfortunately the market size is also small in the niche segment. So when the market grows larger, big players jump in to spoil the party. As Geoffrey A. Moore puts it in his book - "Crossing the chasm", entrepreneurs must concentrate on the early adapters first, and then comes the chasm between early adapters & majority markets where majority of startup fail to cross over.

Companies that cross over from the niche early adapter market to the majority market are the ones who have successfully addressed the buyer needs in the majority market - i.e., have learnt how to make customers feel comfortable while buying from them.

How to make customers feel comfortable?

First, understand buyers psychology. The first need of the customer is to feel safe while buying from a new vendor, and then feel comfortable while buying. So when a vendor approaches the buyer with solid credentials & referrals (from a known/trusted source) customer will feel safe to order from a new vendor.

Corporate buyers want to feel safe and secure before buying from new vendors. The best way to make the buyers feel safe & comfortable is to approach them through referrals from people whom they know and trust.

I have always noted that satisfied customers are often willing to give references to others.
Satisfied customers willing to serve as references for your new prospects. For a startup, getting successful referrals makes a big difference between winning & losing the sale. It is therefore very important to build a system in place to get referrals, follow up in referrals and maintain the referrals.

There are six steps involved in implementing a successful referral system as part of marketing process:

1. Ask for referrals
2. Set proper expectations
3. Appreciate customer referrals
4. Avoid overuse of referrals
5. Stay in touch with customers
6. Build a referral champion

Step-1: Ask for referrals

Satisfied customers are often willing to give referrals - only if you ask for it. So make it a point to ask for referrals during the final stages of the sales process. Ideally you must pander to the customer ego and let customer talk about his/her expertise & experience in using your product. If necessary help the customer with references - work with customer to setup a meeting with a referred party etc. Satisfied customers are often eager to refer other potential customers to you. So ask for references & ask your customer's permission before you contact the referrals.

Step-2: Set proper expectations

Once you have asked for reference, make it a point to set what you expect from him/her. Please inform the customer on how you plan to use the references. i.e., do you plan to use the references in your web site, or do you intend to use it in marketing campaign, how do yo plan to approach the referred prospects etc.

If you want your customer to talk to his referral or other prospects, let the customer know in advance & set his expectations accordingly.

Also learn & understand the customer company's policies on references. Some companies need explicit approvals for its employees to give referrals. If there is process in place at the customer site, then respect the process & set expectations accordingly.

Step-3: Appreciate customer references

As a startup (and in all businesses), it is very important to keep the customer happy even after the sale. When you are asking for references, then it is even more important to keep the customer happy after the sale. Customers who give references will feel better when you really appreciate their references. Appreciation can be as simple as calling him/her up and thanking for his/her references which helped you in your venture, or giving a simple gift (please follow the laws/rules on receiving gifts at your customer company) etc.

In one case, the customer was asked to come for an all expenses paid trip to Florida and attend a conference where your product was being showcased.

Step-4: Avoid customer burnout

It is good to ask for references but don't over do it. Set a limit on how many references you can ask from any customer. Ideally 2-6 is a good number, but asking for more than 6 references will surely burnout your customer that he may stop buying from you.

Step-5: Stay in touch with customers

Customers who have given you business are customers for life. So keep in touch with the customer on continual basis even if they do not respond or communicate back. For example, if there was a new product launch, invite all your old customers. Send any news item which is of relevance to your product & of customer benefit, keep customer posted on your progress - by sending them a summary of your annual financial statements etc.

Keeping in constant touch with customers will help in getting new orders or getting new referrals. In today's world, you can use social networking sites such as linkedin, facebook etc to keep in constant touch.

Step-6: Groom & Build customer champion

Customers who give you good references can be groomed into becoming your customer champion. For example, offering free samples of the new product before it is released in the market, offer training on use/benefits of new products, Invite customer to new product launches, or invite customer to speak in conferences, invite customers to co-author white papers etc. In this process ensure that the customer learns more about your products and your company.
Actively seek feedback & other inputs from your customer champions. Incorporate their ideas/suggestions in the next version of the product/services.

Having customer champions is the best approach to marketing. Your prospects are more receptive to the messages coming from your customer than the same message coming from your sales team. So make a plan to groom & build customer champions

Closing Thoughts

Customer references is the best way to lower the resistance to buying from a new vendor. It also helps to build a solid sales pipeline and lower your marketing costs. Having a formalized process to handle customer referrals is a must - else it will just slip between the cracks. Once you have acquired the customer, treat the customer with the total value of customer in mind. Having a customer champions will help you win big deals. If you do not have customer champions then treat it like a red flag - an early warning of things going wrong.
Startups often lack a formal marketing program, so the onus of developing the customer referrals falls on sales & company leadership. Use the referral program wisely & it will give you rich dividends.

Dealing with Customer Enhancement Requests

As a product manager, I often get my usual share of product enhancement request (ER) from customers - usually from the lead customers. In my company we have built an excellent process to document these enhancement requests & all ERs get duly documented and reviewed periodically to develop the Product Requirement Document (PRD).

Good thing about this process is that if we have missed a big functionality in the product, we have a feedback mechanism for customers to request those features and functionalites in the next release. So if it is major functionality - say for example Metro Ethernet or support for BGLP protocol etc, these ERs will get rolled into the PRD and customers will get those features they requested. However, the process has one flaw - minor enhancements which are "nice-to-have" gets dropped out almost every time we drawup the PRD, these Priority-3 requirements will never get built and customer will never get it.

These "nice-to-have" features may not mean much to the product functionality, but implementing this can have big impact on customer satisfaction & customer retention.

I call this as a problem as a hole in product management process. The impact of not doing such "nice-to-have" features is not much in terms of revenue, but it can have a substantial impact on customer satisfaction & customer retention.

Just imagine as a user you made certain requests for new features in MS Outlook and Microsoft delivered it - would be pleased about it? I bet you would be. And if someone from Microsoft calls you up personally and tells you that the feature that you had requested is now available in the latest release of MS Outlook, I bet you will go for the upgrade. Not only that, in such cases, you will remain a loyal customer of Microsoft and may become a evangelist for Outlook as well.

I heard a similar story about Mahindra Scorpio SUV, the owner had given several recommendation for improving the vehicle, and Mahindra implemented those features in the next years model. Now that person never gets tired of promoting Scorpio to all people he could meet.

I have done my inquiry & research with other product managers and found that this problem of "Nice-to-have" priority-3 features is almost universal in the software world. So I decided to find ways to solve it - and there are several ways to solve it. In this article, I have documented three practical methods to solve this problem.

1. Every product release must have 4-5 "Nice-to-have" features.
Since the problem in product development phase is that engineering tends to ignore the priority-3 requirements, make a few of those "Nice-to-have" features mandatory. Product management should classify all the "Nice-to-have" ERs based on customer/market segment importance and then make 4-5 "nice-to-have" & easy-to-do features mandatory in the PRD. This way, few of the requests will be fulfilled.

Do not implement these "nice-to-have" features if it takes substantial engineering efforts or costs.

2. Use the patch release to add small features.

All products will go through minor enhancements/upgrades every year/quarter/month. In the software world, these minor releases can be a monthly release. So every time there is minor release being planned, add 1-2 "nice-to-have" features in everyone of the minor releases.

3. Co-create with customers

This is the era of Open-Innovation, customers are often willing to join hands with the vendor to develop the product. Take advantage of this, and in the early stage of product development, involve the customer to invest engineering resources to develop the feature which the customer wants.

Co-Creation is not for all features or customers. One must exercise caution in choosing co-creation ventures. Ideally, choose your most loyal customer or the lead customer who is really committed to your product. Ask customer to commit time, money, & resources for the project, and once all the commitments are met, go ahead with execution.

Ideally choose features that are important to that customer and that require substantial investments for co-creation projects. In the process negotiate to implement the new feature in ways that helps all other customers as well - avoid getting into a "custom solution" trap where the new feature helps only one customer while it breaks other customers.

Product management should take the lead role of coordinating & negotiating with the customer for the co-development project.

In software world, there are several interesting options for implementing new features. One other way to co-develop the feature with the customer is to provide a product development kit - i.e, a set of tools to the customer so that customer can develop the feature they want themselves and then share that development with the product vendor.

Take the example of iPhone or Facebook. Facebook encourages its customers to develop Facebook apps. Facebook opened up the APIs and software interfaces for third party development and now customers can develop their own applications for Facebook.
When properly implemented, co-creating strategy is the surest way to keep your product relevant to customers & lower the cost of product development at the same time. A customer who has committed to the product by developing certain features in it will never abandon the product.

Closing Thoughts

Product management owes to respond to customer for every product enhancement request. Yet in most organization, many of these ERs which get classified as "Nice-to-have" features get routinely dumped, and product management loses face to answer the customer - this in the long run erodes customer loyalty and can even lead to customer loss. So the solution is to develop the product development process in such a way that these "nice-to-have" features get implemented without costing much. There will be few ERs that require big investments - so choose them carefully and ask the customer if they are interested in co-development of those features. Co-creating, co-invention, co-development are surefire techniques to increase customer loyalty. Co-creation, co-development also places additional burden in product management & project management and if a proper contract is not done, it can open invitation for legal problems. Co-development is not for everybody, it requires a solid legal agreements, customer commitments and solid project planning, project coordination for successful implementation. So chose your co-development projects carefully.

Also see:

Customer as Co-Innovator

How to be more creative?

"Innovation is the key to survival of any business"

The above statement holds an universal truth and must be treated on par with the 10 commandments, and almost all people with whom I discussed this agree with it. Yet when I ask the question to engineers "Are you a creative person?" Most of them answer negatively.

In today's world engineers will loose most of their creative abilities mainly due to the mundane nature of the tasks they do at work - essentially solve problems or build things. Their daily work does not require any creative thinking for 95% of the problems and it would be handled by routine procedures/plans. And when a new challenge emerges - there will be a major problem.

I have observed that for any new challenge that comes up, the answer to that problem will be first identified by a new college graduate or someone below the age of 25. However the idea coming from such an young person will not be fully baked to the taste of senior management - and is most likely to be dismissed. It will take someone in middle management or a senior engineer to polish the original idea, package it neatly and present it once again to senior management for "approval". But in all this process the organization will effectively try to kill any creative spirit of the young engineer.

So how does one retain their creativity while working for a big corporation?

Being creative in life is the key to being creative at work, so forget about all the crazy things that happen at work place and try to keep your creative skills alive. I offer few points/ideas on how one can remain creative always:

1. Meet & talk to one new person every week.
   
2. Avoid watching TV, instead find other forms of entertainment which requires active participation.
   
3. Learn to relax & do nothing for 30 min everyday. It is important to give your mind a break.
   
4. Read books on diverse subjects. The more diverse range of books you read the better. For example if you are an engineer, read books on physcology or history or economics or health.
   
5. Expose yourself to a wide variety of art - be it music, dance, paintings, sculpture etc. Go to watch plays, art exhibitions, art galleries etc., and just relax & enjoy.
   
6. Travel to different places. Travel may not necessarily be travel to exotic locales, even travel within the city to places where you have not been before will help. For example, I would travel to city market in the early morning to see the scale of wholesale trade, or go to pottery road & see how potters work, or go to the industrial area etc. If possible travel to historical places and learn the history of that place.
   
7. Try your hand in any creative arts - be it painting, music, photography, writing poetry/short stories etc.
   
8. Change your daily schedule. If you normally come to office at 9 AM, try coming in at 7 AM or 11 AM. Just commuting at a different time of the day will change your perspectives.