Over the last few weeks I’ve spent a lot of time talking to about a dozen startups and quite a few VC investors. And top of mind for everyone is the real state of the economy and how it will affect startups and venture investment.

Startup founders are particularly interested in how a potential economic downturn it will effect their next funding round and whether the market will slow down.

It absolutely will slow down funding. In fact, no matter how the economy does, venture funding at all stages will be impacted.

In fact, it’s important for founders and startups leaders to understand that even the best case scenario for venture capital is a bad scenario for startups for at least the next 6-18 months. And early stage companies need to understand it. 

The reasons go beyond the problems with high valuations and over commitment to startups in the last few years. That is a separate set of problems that venture firms, especially series B and later investors, will have to deal with. And while those companies may be able to grow into their previous valuations, they should have a plan to get to default alive to keep their options open.

That means we will see more down rounds in the future than the currently, which is at around 5% of all rounds.

The reasons for it go beyond a bad economy. In fact, we need to keep in mind that while growth is slowing, we may not enter a recession and in fact, the US Federal Reserve may take action to get us to a soft landing…maybe.

Independent of this we there will be a tightening of investments by VC firms that means more difficult times for startups to fundraise. The reasons are simple.

First, even the best VCs that have capital to deploy and are not attending to an overpriced portfolio are dramatically slowing down their investment pace. There are several reasons why that’s the case.

For one, there is less competition from VCs that have deployed too much capital at high prices in the last few years and that are in trouble. So, they can take their time to look at deals, and they will. They will get back to their previous pace of investigating deals, issuing term sheets, and doing more due diligence.

In addition, they are in a wait and see mode. You see, while multiples have dropped and every VC sees valuations that are more attractive compared to where they were in the last three years, no one is sure that we’ve reached the bottom yet. And there is little downside to waiting.

Beyond that, there will also be pressure from VC limited partners to slow capital down draw downs (LPs giving money they’ve already committed to provide) by VCs to invest. Some of this comes from the lure of higher interest rates that incentivize LPs to invest in higher returns elsewhere. Those rates also mean that LPs are less likely to commit to new funds. But it also makes LPs hesitant to deploy committed capital being called down from existing funds so they can use those funds elsewhere.

Add to this that while there has been a big drop in public market stocks this year, private market portfolios have been slower to devalue. With public stocks down 60% or more limited partner portfolios have shrunk overall. But their private market VC investments haven’t.  In the words one limited partner, “my denominator got a lot smaller, but my venture numerator hasn’t.”  For these limited partners, especially institutions, they suddenly have a much higher allocation of their fund in alternative assets such as venture without any actual increase in investments.

These two factors are leading limited partners to tell their venture general partnerships to slow things down a bit. 

Other factors will weigh in on the slowdown as well. For example, many VCs will reserve more funds for the investments they’ve already made by limiting new investments. 

As a result we are seeing many notable VCs, including Sequoia, and Y Combinator issuing warnings to their portfolio companies to change their expectations and extend their runway.

So how do we get out of this? It doesn’t take much imagination to figure out how things will reverse themselves and startup funding evens out:

1. M&A markets will need to remain relatively strong. A robust M&A market will help, allowing VCs to return capital to their investors. The data from Q1 shows that deal count, total deal value, and valuations were down, but there are currently a lot of buyers in the market, especially PE funds who are sensing a bargain. This will help VCs to lighten up their portfolios, distribute capital to investors, and free up capital to draw down and LPs to invest in funds again.
2. Public market companies will play a role here. If corporate earnings stay strong, or at lease higher than expectations, more money will flow back into the public markets, raising multiples and boosting M&A outcomes.
3. Finally, a soft landing will be achieved if the Fed and others can successfully slow down inflation without having to continually hike interest rates. Slowing interest rate hikes will not only make venture more attractive again, it will free up borrowing for large companies as well which can buoy up growth.

There are a lot of “If’s” to bring things back again. And when they do they won’t go back to the normal of the last ten years, so companies need to change their approach away from growth at all costs and focus on building enduring businesses as Sequoia encourages. Until then, it’s important for startups to recognize that even if the outlook for the economy improves, it will be a tough fundraising environment for some time. 

William Kilmer is a venture capital investor, founder, and innovation strategist. He was formerly the CEO of two companies and was the managing director of Intel Capital Europe. He is the author of the upcoming book, Transformative: Build a Game-Changing Strategy, Retool Your Organization, and Innovate to Win which is available for pre-order in Summer 2022. For more information, visit Williamkilmer.com  

#startups #funding #venturecapital #VC #economy

What are the two or three most important things your organization is currently working on that will make your organization successful?

How would the rest of your company fare at answering that question?

This is the third article in a series I am writing on setting an effective strategy for your organization. I began the series with research showing that 95% of employees are unaware of, or do not understand, their company’s strategy. It’s a staggering number. And if your team doesn’t understand the strategy, you can be assured they aren’t focused on the right priorities to ensure its success.

In the first post I discussed the importance of creating a company worldview to establish the “Why now?” behind your company and strategy that brings your team along. In the second post I explained how to define strategic goals and where you will play. Refer to them first because in this post we’ll discuss how to work on the core of your strategy: defining the strategic initiatives you need to do to accomplish the strategic objectives you set.

I previously defined strategy as the way an organization aligns potentially unlimited aspirations with necessarily limited capabilities to create the best possible aspirational outcome. With your strategic goals in mind, you are going to work towards those creating a limited number of strategic initiatives that will become your “How we win” strategy.

I started using the “how we win” approach to strategy early in my career at Intel Corporation. Our focus on strategic planning at every level focused on distilling our actionable strategy down to a handful of things we needed to do very well to win. We called it “How we win.”

Though he had already retired during my time, our approach adhered to the philosophy of former CEO Andy Grove who once said, “The art of management lies in the capacity to select from the many activities of seemingly comparable significance the one or two or three that provide leverage well beyond the others and concentrate on them.”

It’s a simple concept, but the easiest way to develop a clear strategy is to decide what few things you need to focus on to get to achieve your defined strategic objectives.

While it may be more than two or three, it shouldn’t be more than five key strategic initiatives that you are going to emphasize to be effective. Remember, these initiatives are not a task list, they are what you will excel at doing in a way that creates a clear and distinct advantage for you, creates value, and provides you with the leverage you need to win with the resources you have. Their leverage makes them force multipliers that will increase your odds of success.

The great mathematician Archimedes asserted, “Give me a lever long enough and a fulcrum on which to place it, and I shall move the world.” The strategic initiatives you select need to create leverage beyond your aggregate capabilities, especially if you are a startup.

These strategic initiatives can come from a variety of areas. If you think about your organization as a collection of the following possible levers, those can include your:

• Assets and resources
• Capabilities
• Processes, workflows, and operations
• Collective expertise
• Team
• Customers
• Partnerships and networks
• Platforms and products
• Brand, positioning, marketing
• Sales and go-to-market motions

Can you improve on any of these to help you reach your strategic objectives? Your options may be to create a certain expertise, build a platform, hire a specific team, or start a unique sales motion.

In considering options for strategic initiatives you may benefit from referring to the seven strategy statics outlined in Hamilton Helmer’s book 7 Powers which explores ways organizations find enduring sources of value.

Getting to “How we win.” is a team resolution of what you need to focus on, from infinite options, to win. It also involves deciding what you are not going to do. Remember that strategy is about making choices, including those things you won’t do. From the small number of initiatives you create you will later develop the tactical actions you need to take that will drive your focus to reach your strategic goals.

But, staying with your initiatives, how to you get to consensus on what those strategic priorities are? And just as importantly, how do you stop putting so much effort into those things that aren’t helping you?

Assuming that you are not a large corporation with an office of strategy development, it’s incumbent on you to bring your team together to develop your strategic initiatives. And while it’s tempting to create a set of top-down initiatives, you will benefit most by creating process that is broad enough to examine all options and incorporates both bottoms-up input and executive decision making.

I have an exercise that will help you do just that.

Making Strategic Choices: MOPS

The single most effective tool that I have used to determine strategic choices is a MOPS analysis. It’s unlikely that you’ve heard of it because it’s my own creation which I’ve used with dozens of companies. MOPS is a mnemonic for a review exercise that will determine company actions and choices. It stands for:

More or Move faster: What are the things you are doing today that you should double down on (more) or move faster in doing?
Opportunities we are missing: What opportunities are you missing to improve your strategic position? This type of opportunity is different from the market opportunity derived from a SWOT (Strengths, Weaknesses, Opportunities, and Threats) analysis—it focuses on creating new initiatives and actions that you are not pursuing.
Problems to solve: Identifies what is holding your organization back. Where are you failing or what you should improve?
Stop doing: What are you doing today that you should stop or minimize?
Importantly, MOPS a proven technique that will enable you to build a set of strategic initiatives you can agree on as a team. It will also encourage your leadership team bring the best input from their team members and involve them in the process in a way that increases their engagement. Importantly, the output of MOPS is more extensive than just finding your strategic initiatives, and will discuss using the full extent of that output later in this post.

Team Exercise to Create Strategic Initiatives

A MOPS analysis exercise uses a similar progressive review, present, refine process that I recommended for creating your worldview. I find this a popular exercise because it encourages team input as well as group discussion to get to a final result. It also adds an element of deeper team interaction that engages a larger part of your team and seeks their input in a way that will improve the quality of options and get their buy-in.

Start by explaining the exercise to your leadership team and giving them an objective to report back with their own individual MOPS analysis that represents on presentation day. That analysis should include their own input into the four MOPS areas, as well as the feedback they receive from their team.

Each individual member of your leadership team should meet with their own team beforehand to cultivate input for the presentation. With the objective in mind of creating three to five strategic initiatives that support the strategic goals (which they would share), they should seek input on the following questions:

What is the company already doing that we should do more of or move faster?
What are opportunities we should be pursuing that we are not currently to improve our advantages or strategic advantage?
What problems or obstacles do we currently have that need to be resolved?
What are we currently doing that we should stop in order to better focus our efforts or improve our ability to achieve our strategic objectives?
After your team have had sufficient time to roll up and create their own individual MOPS analysis, plan a half day review session with an objective to bring together your leadership team to present their input.

Start the session by breaking your team up into two- or three- person teams. The teams should meet together and have each person to present and vet MOPS analysis within that team. As each team member should present their list to the other team members they should then discuss and consolidate their inputs into a single presentation that represents their best collective ideas as a team.

The second part of the session should involve bringing the teams together then present their team input to the larger group for discussion, focusing on taking away the highest priorities. Continue that process until you have combined all team presentations into one set of MOPS recommendations for the entire team. Similar ideas can often be aggregated into a broader categories as part of the process.

It’s worth emphasizing that this should not be a comprehensive list of every idea for each category. The process should focus on creating a refined list of the highest priorities for each of the MOPS categories, arriving at no more than eight to ten potential actions in each.

From this list the leadership team should identify the top three to five strategic initiatives that you will focus on to reach your strategic objectives. This is your set of “How we win” strategic initiatives. Most of your initiatives will come from the More, Opportunities, and Problems categories.

As you’ve certainly noted already, the MOPS analysis is more comprehensive than just a set of potential actions to take. Through the process you have also uncovered problems to solve and things to stop doing that won’t be strategic initiatives. Importantly, you have found them through a bottoms-up process that gives voice to your team about problems and non-priorities. You can use this to solve impediments and identify where to reduce your efforts or stop doing things that don’t matter.

With three to five strategic initiatives defined from your MOPS analysis, you have developed the high-level strategy for your organization. The next move is identifying the actions needed to complete them. This is the topic of the next post, which will focus on defining and creating actions.

The good news is that most of the actions you will take have likely already been uncovered in the details of your MOPS analysis. In the next post we’ll discuss how to identify those specific actions and put clear objectives and time to completion around them in a way that will engage your team. We will also cover how to increase the tempo of achieving those actions and how to improve your organizations overall execution clockspeed.

When done as an annual process, the MOPS analysis is a great way to identify your most important strategic initiatives and actions you need to take and, importantly, will create a sense of ownership and engagement across your organization.

Feel free to drop me a message if you have any questions or comments.

The key to developing an effective strategy lies in your ability to set a goal and then make logical choices which give you the best possibility of reaching your goal. Sounds easy, right?

 I’ve long advocated that we make strategy far more complicated than it needs to be. There is a simpler and far more effective path that this article will outline.

Strategy is about making choices. This article discusses two choices that are more critical than all others and that form the foundation of a good strategy. If you haven’t made them, your chances of making the right choices down the line are significantly reduced.

 Before moving on, this is the second of four articles I am posting on how to create an effective strategy. The first article focused on how to set your worldview which explains the “Why now?” behind your strategy and builds the context for making the decisions in this post. If you haven’t read it, I’d recommend you start there.

 Let’s start with an inconvenient truth: most organizations don’t actually have a strategy. What they often have is a proxy statement they use as strategy. Some examples might sound familiar, such as “Our strategy is to be:

1.   the best provider of X products or services.”

2.   the leader in X market.”

3.   the dominant provider of X.”

These are all aspirations. They may or may not be good, but they’re not strategies.

Unfortunately, companies that develop a strategy may not be much better off than those that don’t. The authors of the book Profit From the Core found that while 90% of large enterprises they studied had comprehensive and detailed strategies, seven out of eight actually failed to achieve profitable growth.

You might be wondering, “If large enterprises can’t create an effective strategy, why should I even attempt it?” I can guarantee you that the right strategy will propel your organization forward.

Let’s start first with a definition of strategy. Borrowing from military historian John Lewis Gaddis, strategy is the way an organization aligns “potentially unlimited aspirations with necessarily limited capabilities” to create the best outcome possible. That is the key to strategy—to make choices that focus your aspirations on something achievable (a goal) and then build and align the resources, capabilities, and actions to reach that goal.

In this article we focus on the two choices that will help you define your aspiration and that will lead you to making the right choices of how to use your resources, a topic for the next post.

Defining Your Strategic Objective

Defining one or more strategic objectives is the very foundation of an effective strategy. As the rabbit said in Alice in Wonderland, “If you don’t know where you’re going, any road will take you there.”

The simplest way to answer define it is to ask, “What does winning look like to us?”

This is the stage where leaders tend to lean into a product category, aspiring to be the dominant provider of one product or another. There are a few issues with that approach. First, it’s not inspiring to most people. Second, it also locks you into a product, not an opportunity. Third, it’s subjective. What does dominant mean?

The right strategic objectives should be:

1.   Aspirational. At this stage it should be a stretch and somewhat lofty.

2.   Centered on the customer. This is what inspires your team.

3.   Objective. Know with certainty that you’ve reached your objective. Revenue is my preferred quantitative objective—it’s simple. You can add others that indicate winning to your organization.

4.   Time bound. This defines your sense of urgency and tempo. An annual delimitation has advantages, but you can pick something further out.

 These objectives should flow naturally from your worldview (see previous post) which will define the context for your customer and help identify opportunities for your organization.

A strategic objective that defines winning can look as simple as something like this, taken and modified from a company I have worked with.

 Our strategic objective:

Our goal is to become a $20M revenue company in 2022 by meaningfully helping customers to identify, manage, and mitigate their digital risk. 

You might question why I include revenue as a strategic objective. You are defining what winning looks like; the point is to create objectivity: you should be able to state with certainty if you achieved it or not. I advocate revenue is a powerful and objective, especially for startups.

This strategic objective, your definition of winning, which naturally lead you to the question, “How will we do it?” But first, it’s important to define your unique position in the market—where you will choose to play.

Defining Where You Will Play

Next comes a critical decision: where you will play? It’s one of the most critical decisions to make, and one that few companies are willing to consider.

The considerations for where to play can include focusing on a specific market, customer, geography, channel, product position, product category, and even use case. Your decision of where you will play should come from your understanding of the market the best possible playing fields. The trends, shifts, and opportunities you defined from setting your worldview should guide you to the best plays available.

Where you will play matters because it can create open opportunities that you can consistently win. Redbox created a nearly $2 billion business for video rentals with a unique “where to play” strategy built on convenience of time and location. 

Defining where to play doesn’t limit your opportunity, instead it solidifies your opportunity by defining the playing field that you know you can win. Too often startups especially try to be all things to all customers. Their customers are spread across geographies, industries, and use cases, creating steep learning curves and dragging their ability to consistently win.

 Recently I met with the senior leadership who resisted this notion of where to play. To illustrate the importance of this concept we spent time talking through each of their competitors, their products, go-to-market, and what customers they were targeting. By the end of the exercise they realized that all their competitors had carved out a “where to play” position for themselves and concluded that they needed to do the same.

Where to play strategies do not lock you into a niche. They give you a playing field where you will build unique capabilities and strengths to win consistently and grow your business, expanding your playing field or moving to others.

Together, your choice of strategic objectives and definition of where you will play will lead you to the core, actionable decisions of your strategy: “How will we win?”

In the next post we will talk about how to lead your team to create actionable strategic plays that will focus your organization on key priorities you need to win. I’ll also introduce one of the best and most insightful exercises that will help your team agree on what to do, and importantly, what to stop doing, to be successful.

William Kilmer is a managing partner at C5 Capital, former CEO and managing director at Intel Capital. He is the author of the upcoming book, Transformative: Build a Game-Changing Strategy, Retool Your Organization, and Innovate to Win. For more information, visit Williamkilmer.com  

Research shows that 95% of employees are unaware of, or do not understand, their company’s strategy.

 No better, only 21% of board members say they understand the company’s strategy.

If you think this describes your organization, read on. I’ll show you the best way to engage your team in building an effective organizational strategy in four steps covered in four short articles.

Be assured that organizations that don’t know how to build and communicate an effective strategy eventually fail, losing to companies that are better able to evaluate their environment and make important choices.

An effective strategy is one that aligns the company behind one or more goals, focuses the team on a small number of things they must get right to win and motivates and engages all stakeholders to innovate to achieve it.

Many organizations feel like they have a strategy when they don’t. More on that later…

In this and the next three posts we’ll cover four key steps to get you there:

1.   Creating a worldview. Setting a contextual overview with your team that comprehends the company’s environment and brings the “why now?” forward, painting the canvas for the strategy and choices you make.

2.   Setting your strategic goal and playing field. Identifying your strategic objective and your field of play to clearly delineate where you play.

3.   Defining strategic plays. Strategy is about making choices of what to do and not do to win. A simple exercise will get your entire team involved in that process and develop organizational focus.

4.   Increasing your clockspeed. Because strategies are meant to be active, I’ll show you how to track and manage your strategy and performance and accelerate the clockspeed at which you accomplish your goals.

Step One: Create a Worldview

In the next article I describe what a strategy is, and what it isn’t. First, it’s important to lay the groundwork for creating a great strategy. That foundation starts with cultivating and codifying contextual awareness, something I call a worldview.

 A worldview is simply your organization’s unbiased description of the current operating environment and what you accept as observed truth that leads to why you are doing what you’re doing. It includes the factors that lead up to the problems faced by your customers, their needs and challenges, trends, and the opportunities they create. It leads you to define a “Why now?” that will motivate your team and open your organization to new innovation.

Great leaders start with a worldview because it grounds the entire organization on how you look at the world and provides a why to your story.

A worldview also gives your team the opportunity to contribute to it, overcomes biases, and provides the opportunity to challenge that view in the future as trends change.

Microsoft CEO Satya Nadella, who has presided over one of the most historic company transformations, has mastered the ability to set a worldview for Microsoft. Watch him absolutely nail the Microsoft worldview here in under five minutes. https://www.microsoft.com/en-us/Investor/events/FY-2018/Satya-Build-2017-our-evolving-worldview

Nadella advocates that his teams “know where the world is going”

He focused his turnaround at Microsoft by creating a profound sense of Microsoft’s ability to intersect the world around them to develop solutions that customers are looking for. In Nadella’s own words, “We must always ground our mission in both the world in which we live and the future we strive to create.” 

If you’re a startup, setting your worldview collaboratively with your team is essential, and documenting it is fundamental to aligning your organization with an understanding of customer problems, opportunities, and challenges. Without it, many organizations believe they are on the same page as to what is happening in the world around them when they are, in fact, working under different assumptions.

Start by challenging your leadership team to build a concise worldview for your organization. It can be as short as three to five bullet points or a full multi-page document.

The easiest way to build your worldview is to invite your team write it with you. Explain the exercise to your senior team and your objective is to create the canvas of the market.

Break the team into smaller groups of two or three people and ask them to work together to develop and present the views on the current state of the market and the trends you expect to impact it. They should include:

1.    What are our basic assumptions of the market in which we play?

2.    What are the trends most likely to impact us? How sizable is the impact?

3.    Where are new or emerging opportunities enabled by these trends?

4.    What are current threats we face?

An essential tool for identifying and analyzing trends is a PESTEL analysis. PESTEL is a mnemonic covering significant trends: Political, Economic, Social, Environmental, and Technological.

Give your teams time to write these out on their own and create an outline to present to the other teams. Debate what the team agrees with and they don’t to draw from the presentations a collective narrative that team agrees is your worldview.

You won’t agree on everything, so collect those trends and their potential for impact that are less certain—that’s your watchlist for your team to verify and the degree of impact in the future. 

Recognizing contextual changes drives the creation of great opportunities. The initial impetus for the creation of Netflix 1.0, the company’s DVD mail-order business, may have come from Reed Hasting’s displeasure over a $40 video late fee. However, the real foundation for the solution came when a friend told Hastings of the coming trend of movies moving to the digital video disk, or DVD. Understanding this trend, Hastings created and tested the hypothesis that this more durable media could be mailed without damage. Hastings purchased several music CDs and shipped them to himself to prove his hypothesis.

At the time DVDs sold for $20 while Blockbuster was buying VHS cassettes for $45. Hastings recognize these fundamental changes meant that he could purchase inexpensive and durable DVDs and mail them cheaply. This allowed Hastings to develop a competitive offering by using regional distribution centers to distribute the DVDs by mail. This new trend opened up a new opportunity and built the “Why now?” narrative.

Building a worldview may not present a billion-dollar opportunity like Netflix, but it is effective at getting your entire team on board and ready to design your strategy for the opportunity in front of you.

One CEO I worked with exemplifies an effective use of contextual awareness to identify what trends were impacting her organization, how they were affecting customers, the opportunities created, and what capabilities the company needed to build to take advantage of the opportunities. In every board meeting and company meeting, she would display that slide of assumptions which gave her team the “Why now?” and then explain the problems it created for the customer, and why her company was uniquely positioning themselves to fulfill their needs.

This short exercise will unify your team together to a common vision and allow you to communicate it to the entire organization.

With that in place you will be prepared to explore your own strategy including a definition of what winning means and how you will achieve it. We’ll cover that in the next post.

 Feel free to comment below or reach out if you have any thoughts.

This article features a discussion with me on the issues cybersecurity risks facing venture capital funds. The original article can be found on the Venture Capital Journal (paywall).

ITSP Magazine Podcast Interview with Marco Ciappelli and Sean Martin. To listen to the episide visit the ITSP episode web page.

Summary

Companies are putting more resources than ever into producing innovative solutions, yet nearly every executive expresses some level of dissatisfaction with their company's innovation performance. That's because while innovation is still critical, it's no longer enough.

Episode Notes
​Companies are putting more resources than ever into producing innovative solutions, yet nearly every executive expresses some level of dissatisfaction with their company's innovation performance. That's because while innovation is still critical, it's no longer enough.
Join us as we talk to a technological thought leader and investor, William Kilmer. Together, we explore why organizations need to step back and build a strategy that not only will produce great products, but that can transform the market.
What allows a company to transform is to understand societal and cultural changes that are or are about to take place. If they can foster their teams to develop a strategy beyond being first to the market or leader in the industry but to reach, serve, and create loyalty uniquely and innovatively to customers in that market segment.
All of this will likely require that the organization re-tool itself for innovation. This doesn't magically happen; teams don't just start producing something innovative. Instead, the individuals and the teams themselves become innovative. This is transformation.

“Transformative companies aren’t first movers who invent new products; they’re game-changers whose category-creating solutions deliver new and better customer outcomes, altering industry structure, and radically changing and reframing existing markets.”
About The Book
"I wrote Transformative as a framework that will help companies build the momentum and strategy to become a game-changing organization. Behind it is the principle that companies that accept the rules of the market are condemned to live by them and limit their ability to compete to a narrow set of product features and performance. Those that open themselves to a broader view of how to innovate to win have many more options for success."

Episode summary and notes are curtoesy of the ITSP Magazine Website. 

If you walked out the door of your organization and walked back in as “new management,” what would you change? If that’s not a question you are asking yourself, you should.

The greatest leadership challenge any organization faces is to develop the momentum and the strategy for change, even when the need for change isn’t immediately apparent. Those leaders that can conceptually walk out and come back through the door of their organization in varying conditions will thrive. Those that can’t, may not.

It starts with that question of what you should do differently. It was that question started the process for one of the most transformative companies in history.

Intel Corporation has been a highly successful company, reaching nearly $80 billion revenue company in 2021. But in 1984 market conditions forced the company to consider what they should do. Intel was in trouble. After nearly two decades of success, they found themselves in a battle in the market for memory Integrated Circuits (ICs). Japanese competitors, funded with low-cost debt, increased memory density and quality while building the manufacturing capacity to significantly drive down memory costs. As Andy Grove, the eventual CEO of Intel described it, he, then CEO Robert Noyce, and co-founder Gordon Moore were perplexed at what to do until they resolved to “Walk back through the door” and fix their problem as if they were the new management team.

That approach led to a series of difficult decisions that led them to leave one market and totally transform another, computer CPUs. They remade the rules for what it takes to be a microprocessor company, creating a better personal computer experience for hundreds of millions of customers and leading Intel to more than 30 years of unparalleled market growth.
As I have had the privilege of meeting with and working with management teams from hundreds of organizations, I have come to see that leadership teams almost universally struggle with three fundamental elements of their business. Specifically, how to:

1. Create a product or service that is uniquely differentiated and valuable to the customer.
2. Define and execute a strategy to reach a market leadership position, including the right goals and actions to achieve it.
3. Cultivate an agile organization that can maintain a long-term advantage through a constantly shifting business environment.

Despite the importance of these foundational elements, leaders don’t put in the effort to answer them. When they try, they often focus on product innovation as the primary source of differentiation and competitive advantage, essentially mistaking product innovation for strategy. Then, they bolt on everything else to that basic concept of technology innovation as strategy. 
This is understandable at the early stages of the company when an organization seeks product-market fit. However, it often leads to moving forward without a clear strategy. The result is a product that is different without being differentiated and a leadership failure to create real long-term advantage.

The type of transformative change that organizations need to create today isn’t accomplished with great innovative technology alone. While product or technical innovation is essential, focusing on it exclusively will not produce the type of change that shakes up market leadership and rebalances the odds in a company’s favor.

Unfortunately, most leaders don’t know where to start. So how can leaders walk out the door and come back through again with a fresh perspective on how to change? Here are three essential questions they should ask themselves that will take them down the right vectors of how to create more innovative outcomes:

1.    How would we deliver something truly game-changing for our customers? Research shows companies that focus on delivering different customer outcomes create better market opportunities, shift and expand markets, and create strategic asymmetries.
2.    How do we create a strategy for market leadership? Great companies create an innovate to win approach by seeking to identify and attract new customers, simplify to expand their market, creatively borrow from others, break industry rules, and create more profitable business models.
3.    How do we retool our organization to improve our ability to be successful today and in the future? Asking this question acknowledges that innovative organizations are founded in strong cultures, creating company-wide intent, and developing an ability to identify and overcome challenges faster than the competition.

These questions are relevant whether you are an incumbent, challenger, or new market start up. A survey of Fortune 500 CEOs found that 94% agreed that their company would need to change more in the next five years than it had in the last five.[1] My upcoming book, Transformative outlines how each organization can identify the answers to these questions and outline their path to game-changing success.
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Your market may not be changing as abruptly as Intel’s was in 1984, but if you’re not looking for how to create the momentum and strategy for change, someone else is.

William Kilmer is a venture capital investor at C5 Capital, former CEO and managing director at Intel Capital. He is the author of the upcoming book, Transformative: Build a Game-Changing Strategy, Retool Your Organization, and Innovate to Win. For more information, visit Williamkilmer.com  

[1] “A Marketplace Without Boundaries? Responding to Disruption,” 18th Annual PWC CEO Survey, 2015.
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#innovation #culture #Intel

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#Recently a podcaster asked me “Why would anyone want to write a book?” It was not a rhetorical question. But before I could answer he added, “It’s too hard.”
 
While he was questioning my choice of medium, it brought me to a similarly important question, “What is the ‘Why?’ behind Transformative?” Why did I want to write this book, and why now?
 
I can best answer by describing a company I met with recently who approached me with an investment pitch. I met with the team multiple times and really liked them: great managers going after a sizeable existing market with a very good product that appeared to have good points of differentiation. They had a drive to own a market that was languishing and showed success with some significant customers. Overall, any observer would believe this company has a lot of potential.
 
In the end, I turned down the investment because, in today’s competitive environment, those admirable attributes are no longer enough. Not enough to gain sizeable market share. Not enough to dominate a market. Not enough to win.
 
Why is it so hard to become a market leader? We’ve been taught to believe that the path to greatness by out innovating the competition and building a better product with more features or higher performance. Like the company mentioned above the key believe is that we just need to solve the customers’ problems better to be successful.
 
Companies are innovating more now than ever to do just that. More than three quarters of organizations now place innovation among their top three priorities. And a recent survey by Gartner found that 41% of CEOs believe their company is an innovation pioneer and 37% claimed to be right behind as fast followers.[1]
 
Yet, herein lies the paradox: organizations rely so much on product innovation that it no longer provides the differentiation they need to be a market leader. Despite best efforts and investment, 94% of CEOs are dissatisfied with their company’s innovation performance.[2] Perhaps more discouraging are the results of digital transformation initiatives which actually dilute company performance and result in sub-optimal results 75% of the time.[3]
 
Making matters more difficult is that leaders have subscribed to the idea of technology innovation as a strategy to achieving their goal and they are pursuing it all out by defaulting to the theme of just building something better. But better doesn’t win.
 
All this is happening under the context of massive shifts in industries as companies jump traditional swim lanes to create new opportunities. While more two-thirds of CEOs believe they are actively disrupting their own industry, more than half believe that their next significant competitor will come from outside their industry.[4]
 
In my own work as a founder, investor, startup mentor, and through five years of doctoral research I have continually asked the question of why some companies become a breakout success to the point of owning a market while others, who are innovating just as hard, fail to achieve expectations. My research into hundreds of companies, focusing on those that quickly rose to market leadership, looked for patterns of what made them so successful. The results of the research were a set of critical insights, of which two were most significant.
 
The first was that the research clearly showed that the most successful companies weren’t always first movers who create something entirely new and lead their market to the top. In fact, the most reliable and successful path companies take is to target existing markets with latent, unseen demand, and transform them into an entirely new market that they can own. The best companies were not first movers, they were market transformers, organizations that created something game-changing to win.
 
This is critical to understand because most new markets today are not new at all—more often they are formed from shifts, offshoots, or reformulations of existing markets going through the process of Schumpeterian creative destruction.  New market pioneers are those companies that can manage the transformation of those markets and reset the rules are invariably the most likely to win.
 
The second was more important in that my research uncovered that regardless of industry, product, or service, there is a clear and simple pattern to how these companies succeed in achieving their game-changing status. Critically, it starts when companies introduce category-creating solutions that fulfill existing customer needs in needs unique ways. What these companies deliver wasn’t just better, it was different, with a different customer outcome.
 
By creating new outcomes for the customer that also fulfill previous buyer needs, companies redefine customer buying criteria and become almost incomparable to the existing competitive solutions. This immediately creates an obstacle for incumbents who are fixated on optimizing their product for a specific purpose. Moreover, these new outcomes are most often appealing to new marginal customers in a way that shifts and expands the market until the new category takes it over completely.
 
Further, delivering a new outcome naturally leads these companies to be structural innovators, rethinking how to deliver the solution and the capabilities they need to do it. Doing so breaks down existing barriers to entry, changes the industry structure, and creates new advantages and defensive moats for the transformative company. These two types of innovation: customer outcome and structural innovation together create a transformative advantage that drives change and creates multiple competitive asymmetries.
 
These distinct actions along with the unique way these companies approach market entry and expansion form a pattern or framework for how these and other transformative innovators change and win markets. This framework, used by market-leading companies such as Dollar Shave Club, Amazon, Apple, Netflix, Starbucks, Walmart and dozens of other companies exhibits a pattern of what these companies do well, including:
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1.     They excel at creating new customer outcomes. Fundamental to game-changing success is developing solutions that deliver a fundamentally new and unique outcome to the customer. The solutions these companies develop change the very reason why the customer buys, initiates larger market opportunities, and changes the basis of market competition.

2.     They are masters at structural innovation. Structural innovation refers to changing the type of company capabilities and industry structure required to deliver a solution. When companies change industry structure and compete based on new capabilities it produces competitive asymmetries and leverages traditional incumbent strengths into disadvantages in a way that changes the competitive dynamics of the market.

3.     They actively transform the markets they enter. Transformative organizations recognize that the best markets to enter are those that are expanding and changing. They know how to take advantage of scale accelerators, capabilities approach that aid in growing and expanding markets by democratizing and simplifying solutions, targeting non-consumers and low consumers, creating more profitable business models, borrowing from other industries, and setting aside norms, rules, and conventions to win the markets they are creating.
For me, the research resulted in an astounding conclusion that there is greater opportunity in breaking out of traditional product and market definitions than there is in trying to follow them. Even more important: the learnings from these companies form a framework of actions for any company can increase their odds of success.
 
Despite this, companies often resign themselves to staying within the lines of their current product, market, and industry structure. Companies that accept the rules of the market are condemned to live by them and limit their ability to compete to a narrow set of product features and performance. Those that open themselves to a broader view of how to innovate to win have many more options for success.
 
But the real message of this book is this: any company can take advantage of this framework of actions to improve their ability to innovate, create better market opportunities, and improve their competitive position. My goal was to write Transformative with the objective of helping readers understand how to build the momentum and strategy to become a game-changing organization. To do that I have included time-tested and industry-proven actions that will help leaders understand how to improve their company through three main objectives:

• Build a game-changing innovation strategy that leads to solutions that generate new customer outcomes, shift and expand markets, and help you produce competitive asymmetries and capability-based advantages.

 

• Retool your organization for success by understanding how to create company-wide intent, build a culture that feeds innovation and understand how to build a cadence of identifying and overcoming challenges faster than the competition.

 

• Innovate to win by building a new approach to market entry that identifies and attracts new customers, expands markets, creatively borrows from others, breaks industry rules, and creates more profitable business models.

 
I believe that focusing on these three principles: creating a strategy for building and delivering game-changing solutions that produce new outcomes, innovating to win by expanding and changing markets, and enabling your organization with the tools to be innovative and successful today and in the future, are essential for every organization’s success in today’s hyper-competitive environment.
 
Organizational leaders recognize that change is necessary to adapt. A survey of Fortune 500 CEOs found that 94 percent agreed that “My company will change more in the next five years than it has in the last five years.”[5] However, many don’t know where to start in taking advantage of the opportunity to change by doing something truly transformative. So, the “Why?” behind this book is clear: the framework of principles in this book can help organizations to develop both the momentum and strategy that will help them innovate to win.
 
There is no single playbook for how companies can be successful. However, through Transformative I hope you’ll join me in understanding how your company can design and create your own transformative success. Over the coming months I’ll be sharing many of those concepts and welcome your feedback on the concepts and principles of this book.
 
[1] 2018 CEO Survey: CIOs Should Guide Business Leaders Toward Deep-Discipline Digital Business,” Gartner Research, April 6, 2018.

[2] Breaking Down the Barriers to Innovation, Harvard Business Review, November-December 2019

[3] Orchestrating a Successful Digital Transformation,” Bain Briefing, November 22, 2017
 
[4] Agile or Irrelevant, Redefining Resilience: 2019 Global CEO Outlook,” KPMG; “A Marketplace Without Boundaries? Responding to Disruption,” 18th Annual PWC CEO Survey, 2015.

[5] “A Marketplace Without Boundaries? Responding to Disruption,” 18th Annual PWC CEO Survey, 2015.

Last week, C5 Capital announced that it led the $20.5M growth acceleration round in Oomnitza, pioneering a new category of solutions for Enterprise Technology Management (ETM). As the lead on this investment, I’d like to explain why we believe this market, and Oomnitza, are going to be on every organization’s radar.
San Francisco-based Oomnitza was founded in 2013 to address the growing problem of Enterprise Technology Management. It is the cornerstone of effective technology investment and good cybersecurity. Oomnitza stands out in enabling enterprises to identify their technology assets and efficiently orchestrate lifecycle processes across all IT assets, from purchase to end-of-life, ensuring their technology is secure, compliant, and optimized, and empowering employee productivity.
The company has secured its position as the leading platform for managing enterprise technology assets, including endpoints and mobile devices, on-premises and cloud applications, cloud infrastructure, network devices, and accessories.
In an era when technology has become a strategic advantage, enterprises are increasingly looking for a way to manage their technology investments more effectively. Companies have long invested in a system of record to effectively manage critical sources of value and assets. Today they use such platforms to manage customer relations (Salesforce), finance assets (Oracle), enterprise resources (NetSuite), and human capital (Workday). They now need a better way manage their technology assets more efficiently to stay competitive.
The Oomnitza solution helps companies on the path to digital transformation because adopting a hybrid IT ecosystem requires a revolutionary way of thinking about security, compliance, and the experience of both the customer and employees. As the ultimate system of record for Enterprise Technology Management, Oomnitza enables organizations to optimize their technology investments and ensure security, auditability, and regulatory compliance. The company’s SaaS-based solution is much more than just a platform for delivering IT products and services to employees and customers; it is a strategic asset in the era of digital transformation.
The importance of Oomnitza’s solution is underscored by its customer base of more than 150 A-list customers, including digital disruptors in nearly every market sector. Collectively, Oomnitza’s customers represent over $3 trillion in market capitalization and nearly a dozen unicorn companies. We are impressed by the company’s ability to understand customer needs and build tailored solutions into a simple and easy-to-use platform.
We see three reasons why Oomnitza’s solution is absolutely critical for organizations:
·      The first is that Enterprise Technology Management is essential for sound cybersecurity. Gartner estimates that 6.5 billion endpoint devices are currently connected to enterprise networks. With many billions more connected sensors, IoT, and OT devices, as well as an expanding perimeter of cloud resources, organizations need a single source of truth to identify what they have before they can secure, update, and patch it regularly.
·      The second is that Enterprise Technology Management is becoming the basis for automation of IT services, enabling new levels of consistency, efficiency, and productivity. As organizations increasingly rely on digital technologies, they need to scale those platforms to grow and change them rapidly. Oomnitza stands out in its ability to create automated workflows to drive efficient initiation, management, security, and depreciation of assets, enabling organizations to deploy and change technology at scale.
·      The third is that Enterprise Technology Management is the basis of optimizing the cost of IT systems. Going beyond just hardware and software costs, Oomnitza’s Enterprise Technology Management platform enables organizations to eliminate hidden costs of performance, process inefficiencies, poor customer and employee experience, and scalability. Oomnitza users benefit from improved customer engagement and brand image, with increasing value delivered at scale.
Organizations are still at the beginning of an inflection point in digital transformation and the transition to a hybrid IT environment. In the post-Covid world, enterprises will be more digital, employees more frequently remote, and companies more reliant on technology to deliver better customer experiences and create advantage. We believe that Oomnitza will be at the center of helping organizations understand, manage, and secure their technology assets and will continue its path as a great enterprise software company.
We are pleased to work with such an outstanding team of co-founders and leaders at Oomnitza who bring vision, passion, and experience to the table. Just yesterday, Oomnitza co-founder and CEO, Arthur Lozinski was ranked one of the top 50 SaaS CEOs of 2021 by The Software Report.
We have been joined by new investors Gula Tech Adventures, Aspenwood Ventures (AKA Hummer Winblad), and previous investors Shasta Ventures and Riverside Acceleration Capital in this round. As part of the investment, I will be joining the board of directors and working directly with the management team and board on their continued path of accelerating growth.