Every year I launch a start-up venture.  They often fail.  In fact, here are a couple of my favourite failures:

ArtPension would have given people a tax-efficient “cheque book” for buying things they love like fine art, wine and classic cars in their pension fund. It was great timing.  People had fallen out of love with equities generally and pensions specifically following a series of market crashes and mis-selling scandals.  I was launch-ready with regulatory approval, an operational platform and a marketing plan.  Then the UK government changed the regulations, making the business impossible.

365 Memory sold the cheapest digital memory anywhere in the UK.  We were the price leader for three reasons. Firstly, we had great supplier relationships in Taiwan.  Secondly we were ferociously tax efficient.  Being Jersey-based, the business didn’t need to charge VAT. Thirdly, we had very little money tied up in stock because of our drop-ship, factory direct model. Unfortunately we died because of failed Jersey-based logistics and dispersed management.

Failure goals and the “Dyson myth”

There’s a toxic myth about entrepreneurship.  You could call it the “Dyson mythology”.  It goes like this.

James Dyson, the inventor of the Dyson vacuum cleaner, gambled everything he had on his business.   In five years, he produced 5,126 failed prototypes, mortgaged everything and was on the verge of bankruptcy.  Salvation came with a chance contact from a small Japanese company.   The resulting  vacuum cleaner went on to sell more than £2 billion worldwide.

James Dyson is a hero.  He fought hard, broke the rules, never gave up, risked everything and succeeded hugely.   History is shaped by people like that.  But the great are the enemy of the good.  The problem is that people like James Dyson make it seem like all-or-nothing risk is what entrepreneurship is all about.

Learning to dream again… safely

I have a personal goal to lose 20% of what I earn every year until I fail to succeed at losing it.  Having a failure goal, takes away the fear of not succeeding.

Research on entrepreneurship says that on average one in ten start-ups succeeds.  So giving up on first failure isn’t a great way to do it.  Oddly, that’s often the mistake that corporate innovators make too.

That specific 20% is important too.  It means that I don’t bet the farm and can walk away from failures with my home, happiness and marriage intact.

Why every employee should be a spare-time entrepreneur

There are three reasons why every employee should be a spare-time entrepreneur.  What’s more, enlightened companies should encourage it.  Here’s why:

1. Learning to dream

Doing a start-up reminds you how to dream, imagine, create and invent.  There is no company in the world that doesn’t value those qualities.  But too often, process-centric corporate cultures don’t make it feel that way.  Quite simply, being an entrepreneur makes you a better employee.

2. Better than an MBA

Start-ups teach you priceless lessons about how to get things done and about how to manage risk, plan and deliver.  They give you the ultimate personal responsibility.

3. Better than a pension

Many people in employment are racing their first coronary to a subsistence retirement and a newspaper round at 80 years old.  The risk-return arithmetic on start-ups is a lot better than on pensions ; so long as you don’t bet everything on a single throw.

In the blood?

Some people say that being an entrepreneur is in the blood.  Possibly, I fall into that category since I set up my first (successful) organization when I was 19.  But actually, I think it’s more likely to be a question of choice.

So this week, I’m really excited to have set up a new company…more on that soon.

Related posts:

1. Old-school hip-hop and a pretty strange lesson in customer engagement
2. After Eureka: 7 questions to test innovation for big and unreasonable profit potential
3. Five ways that customer service fails… and what to do about it

“Irrational passion is the key change agent of our economy.” – Seth Godin

Right brain frameworks like this one aren’t the key to creating transformative innovation, but they help to polish and explain the idea.

Seven key innovation questions

There are the seven questions to ask about any new innovation:

1. Is the market attractive?
2. What customer needs does the innovation meet?
3. What’s the proposition?
4. How can we lock out competitors?
5. Is it do-able?
6. Can it be profitable?
7. Is it strategic?

Is the market attractive?

“I have determined that there is no market for talking pictures” – Thomas Edison, 1926.

The market is a set of external, immutable forces acting on your idea.  You need to think about:

• What’s the size and value of the market?
• What share is realistically available?
• Is the market changing, growing, shrinking or consolidating?
• Are there any unprecedented changes or discontinuities like new legislation, new entrants, disruptive technology or other tipping points that could transform the market in your favour?

What customer needs does the innovation meet?

“If I had asked people what they wanted, they would have said faster horses”, – Henry Ford.

But ultimately, what Henry Ford’s customers needed was to get places faster.  The Model-T met a strong, unvoiced customer need.  Ask yourself:

• Are my customer needs clearly defined, strong and unmet?
• Are there unvoiced customer needs?
• What’s it worth to the customer to meet those needs?

What’s the proposition?

A proposition describes the sum total of benefits that a customer gets from a product or service.  For me, one of the ultimate proposition statements of all time was Apple’s “one thousand songs in your pocket” tagline for the first iPod.  To develop a great proposition, ask:

• Is the proposition clearly defined?
• Does it meet strong customer needs?
• Is it different from what competitors offer?
• Is it interesting?

Can I lock out competitors?

It’s not enough to be a first mover if you have powerful competitors that can overtake you.  To lock-out competitors, ask:

• Is the innovation patentable?  Or is there any other intellectual property that can’t be substituted?
• Can I use or build a powerful brand?
• Are there any scale economies and can I get big fast enough to benefit from them?
• Do I have an insight, knowledge or skill that’s rare and significant to the innovation?
• Can I build exclusive partnerships?

Is it do-able?

Imagination often exceeds capability.  See my post on premature genius.  To avoid premature genius, think about:

• Who needs to be asked what to understand if it can be done?
• Are there precedents that suggest it’s feasible?
• Can it be done at reasonable cost?

Can it be profitable?

As Gary Hamel observed, “growth is the scoreboard, not the game”.  Profitability is the outcome of innovation.  But, when it comes to drawing up forecasts and valuations ask:

• What businesses are comparable?  How much do they make and what are they worth?
• How risky are the cost and revenue streams?
• How many revenue streams does the innovation generate?  Generally, the more revenue streams, the less risky is the idea.

Is it strategic?

If you’re working in a big company, you’ll need to answer this too.  Strategy is either brutally simple (if it makes money, it’s a fit) or inscrutably complex.   Many strategy academics, take a resource based view, which means answering:

• What core competency would the venture deploy?
• How does it fit or leverage brand or distribution strengths?
• Does it use proprietary processes, skills and know-how?

Be a storyteller, not an analyst

“Innovation is not the product of logical thought, although the result is tied to logical structure” -Einstein

Use this framework to shape and develop your thinking but not to constrain it.  When you communicate the idea, use the facts and analysis.  But don’t be limited by them.

Be a storyteller, not an analyst.

Related posts:

1. How service teams can inspire product innovation
2. How to have disruptive ideas
3. How to time product launches perfectly

People have dreamed of omniscience –of “knowing everything” – since the start of history.  Google brings it a big leap closer – free of charge – and gets eighty-million “Hate Google” search results for its trouble. “Hate Skype” gets an ungrateful 8.3 million and “Hate Facebook” a curmudgeonly 79 million results.

Existentially, customers may be hitting out at the utility’s reach and pervasiveness.  But there’s another profoundly controllable reason.  Customers are demanding a great service experience and that’s exactly what the new utilities struggle to provide when things go wrong.

Customer service asymmetry

The essence of the problem is the asymmetry between a massive customer base, low average revenue per user and therefore relatively tiny service resources.  For example, the generally accepted cost of taking a single call in a contact centre is about 5 times bigger than Skype’s average annual revenue per user.

This is compounded by customers’ high service expectations and the technologically-intense nature of online propositions.   The inherent risk in all of this is that a dark pool of customer angst, propagated across social networks, could undermine the sector, damaging its brands and putting a brake on monetising the user bases.  Visually, this is the calculus of the problem:

The customer service meltdown which Google experienced with the launch of its Nexus One phone is a vivid example of this problem.  See here.

The solution is to avoid customer problems, create elegant, effective self-service and then, intelligently, open up to customer contact.

Evading customer service?

Like tax, there’s a subtle but important difference between contact evasion and contact avoidance.  Evasion lands you in jail and avoidance makes you more money.  Utilities need to move away from strategies that evade customer service contact.

New utilities need to declare a zero-tolerance war on all forms of value-destroying customer problem.  If a process causes customer issues it gets redesigned; if text causes confusion it gets re-written and if technology doesn’t work it, gets replaced.

Self-service needs to be elegant, highly usable and integrated with all the other service channels so that customers have a choice.

With these approaches embedded, it should be possible to reduce like-for-like service demand by 50% a year on a repeating basis.

Achieving that begins to provide the headroom to open up to customers intelligently and without “drinking from the fire hydrant”.  Initially, this could be through premium service offerings, call back or intelligent click-to-chat utilities that match service demand to capacity.

Ultimately, the goal should be to make brilliant basic customer service available to everyone.

Related posts:

1. Five ways that customer service fails… and what to do about it
2. Contact evasion and how to avoid it
3. Bad customer service is dead

Premature genius and the art of timing

The change curve in product development

Premature genius is one of the most overlooked challenges of product development.  To visualise the problem, think of a change curve.  Launch too early and no amount of marketing and development spend will get you to take off.  Launch too late and you may not catch up with competitors.

There’s an important nuance in the story about the Apple Newton.  It may have seemed like a failure.  But, an ex-Apple staffer tells me that there’s a direct line of sight between the technical and human lessons which Apple learned on the Newton and the huge success of iPod and iPhone.  No Newton, no iPod, no iPhone.

Three key disciplines for perfect launch timing

New product development needs to be framed in the present and future.  There are three key disciplines for achieving that:

1. Trend analysis.  Create private foresight out of public knowledge by identifying precisely what trends affect your product idea and understanding exactly where you are on the change curve.
2. Invest in corporate memory of rejected ideas and failed products.  Put in place structured PRINCE2 style lessons learned documentation.  Put old concepts on ice and review them regularly.
3. Identify the modular“components” of innovation be it an insight into customer needs, a process or technology.  An entire concept may not have worked, but many of its building blocks could be entirely sound.

Related posts:

1. Design for experience, not features
2. How service teams can inspire product innovation
3. After Eureka: 7 questions to test innovation for big and unreasonable profit potential