 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.
0 Comments
 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).
It’s been 20 years since Apple released the iPod. Here’s what we can still learn from it.10/26/2021  It’s hard to believe that twenty years ago, Steve Jobs introduced the iPod to the world. Seated at the chronological beginning of Apple’s transformation, it now receives less fanfare than the later Apple innovations, but it has cemented its place as a historically significant product. Importantly, there is still much we can learn from it as a category-creating product and how transformative companies work.
You Don’t Need to Be the First Mover to Win The first lesson was that the iPod broke the myth that you must be a first mover to lead a market. In fact, I’d argue it reinforced the maxim that, whatever the market stage, it’s better to be a market transformer than a first mover. When Apple introduced the iPod in 2001, it was just one more entrant in a sea of existing Portable Media Players (PMP). Vendors such as RCA, Sony, Intel, and Diamond Multimedia with its popular Rio line had begun launching MP3 players four years before Apple and were well established in the growing market. As a late comer, it was not a revolutionary product to begin with. The first-generation iPod’s features, particularly its signature click wheel interface, improved on existing designs, and the device maintained a good balance between cost and song capacity. But it held limited market appeal as it was compatible only with Apple’s Mac OS computers. At $399 to $499, the iPod was not an overnight success, selling an estimated 25,000 units in its first year. Outcome Innovation is Key Lesson two is what actually propelled the iPod to success, and it’s because of core principle of market transformers: they create beachheads by changing customer outcomes. Changing customer outcomes involves helping the customer reach their intended goal, or solve their problem, with an accompanying set of new benefits. These new benefits flip the script for customers and the leading indicator that you’ve achieved it is that customers make their purchase decision based on a new and different set of purchase criteria. This creates a new basis of competition—the reason why a customer buys one solution over another. Apple achieved it with the launch of the iTunes Music store two years after releasing the iPod. They created a new category of personal music players by combining the iPod with the iTunes store, giving customers access to buy and download songs directly. This solved a significant problem of buying music and loading it on a portable device and unbundled music in a way that gave customers a new reason to buy. This produced a change of value by upleveling the outcome to achieve the customer goal to conveniently find and play the music they love. As a category creator, Apple quickly grew to dominate the market, and iPod sales rose fourfold the next year and fivefold in 2005. By 2006, five years after its release, the iPod accounted for 40 percent of Apple’s revenues. It also revealed a separate type of innovation that brings us to lesson three. Structural Innovation Is Self-Reinforcing Along with innovating a great customer outcome, Apple demonstrated the power of structural innovation. While outcome innovation opens the door for new entrants, structural innovation closes the door on incumbents by encouraging leaders to look at creatively changing the company’s capabilities, resources, relationships, assets, knowledge, and the industry structure required to deliver a better customer outcome. It involves actively changing how something is delivered to produce something entirely new. The power of structural innovation is in going after what incumbents do well. Apple’s convergence of media and devices started with the iPod. Using the iTunes Store, Apple created a seamless solution that allowed users to easily buy and down- load new music, creating the ideal user experience and disrupting the music player market with something that the incumbents were not prepared to provide. What Apple created was a product that was not only more valuable and differentiated, but one in which incumbents couldn’t recreate because it went against what they did well. Soon creating a platform for content became a significant differentiator for Apple that no one else could adequately replicate. It Starts with Intentionality The next lesson is that Apple created great products because Steve Jobs was a master at creating intentionality—the ability to define a product with enough vision to capture the customer feel, but open enough to enlist the organization to help define it. He was relentless and often ruthless in pursing that vision that creates something that is valuable and differentiated. Jobs had a history of using intentionality. He used it to drive Apple to develop a personal computer that would “change the world.” That was exhibited in its famous 1984 advertisement that symbolized Apple freeing the world from the oppression of the IBM Personal Computer. He used intentionality again when developing the first iPod, making it clear that the vision was to “Put 1,000 songs in your pocket.” When the iPhone was under development, the intentionality was to “Make the phone the killer app.” It’s Critical to Innovate for Market Leadership Next, Apple understood the importance of innovating for market leadership. This means not just innovating the product but innovating to win a new and larger market they helped create. It’s manifested in many ways, but here are two examples. The first is that organization has always found an advantage in focusing on the art of reduction. “Simplicity is the ultimate sophistication” was the headline of Apple’s first marketing brochure back in 1977. “It takes a lot of hard work,” CEO Steve Jobs once said, “to make something simple, to truly understand the underlying challenges and come up with elegant solutions.” When Apple launched the iPod, that philosophy of focusing on simplicity came through again. He assessed that competitors’ products were too complicated. “What made the Rio and other devices so brain dead was that they were complicated,” Jobs observed. “They had to do things like make playlists because they weren’t integrated with the jukebox software on your computer. So, by owning the iTunes software and the iPod device, that allowed us to make the computer and the device work together, and it allowed us to put the complexity in the right place.” Along with simplicity, business model innovation is a market accelerator and expander. In fact, great technology almost always comes with business model innovation. The launch of the iTunes Store was a turning point for iPod customers and Apple as a company. With iTunes, Apple provided a completely new outcome to customers that combined both devices and access to digital music. For the first time, users had a seamless way to search for, purchase, and download music directly onto their device. It also gave customers the freedom to buy individual songs instead of being forced to buy an entire album, giving customers the option to pick the music they wanted. The iTunes Store also provided Apple with an additional revenue stream beyond selling the original device, which its portable media player competitors lacked. That revenue stream, in tandem with iPod sales, was a powerful growth engine for Apple. Revenue from the iPod peaked at around $4 billion for Apple in the first quarter of 2008. Total sales from iPods reached $9.2 billion that same year, while the iTunes store brought approximately $3.3 billion in revenue. For every $3 in revenue from iPods, Apple made an additional $1 in music sales, a revenue stream that no other vendor of personal media players could achieve. In less than four years, Apple had successfully shifted a revenue stream from the music industry to add more than $3 billion to its own top line. While iTunes music sales have peaked, Apple has tapped additional sales in video, applications, and books. In 2020 Apple added an estimated $54 billion in revenue from sales of media, which has more than doubled since 2016. That is nearly six times the peak annual sales of iPods. Great Companies Kill Their Own Products Finally, we also learn from Apple that great companies know how to kill their own products. On June 29, 2007, Steve Jobs opened the iPhone launch event in San Francisco, announcing that Apple was launching three revolutionary products that day: a widescreen iPod with touch controls, a revolutionary mobile phone, and a breakthrough Internet communications device. A few minutes into the presentation, it became evident that those three products were actually just one device, the iPhone. Eventually the iPhone replaced the iPod’s functionality, as Apple Music has likely become the dominant revenue stream (Apple doesn’t break out their Apple Music revenue). Apple’s focus on the customer outcome rather than the product has enabled them to transition customers from one solution to the next by focusing on the best solution they can deliver with new customer outcomes instead of worrying about product cannibalization. The iPod set off a revolution inside of Apple, breaking them out of their reliance on the computer market and delivered multiple new products and revenue streams for the company. Importantly, it also gave us much to learn how to approach new and existing markets with game-changing innovation. 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  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:
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. 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. #innovation #culture #Intel 
#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: 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:
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.  Article originally published in TechCrunch. By some counts, there are as many as 1,600 “non-traditional” investors helping to fund venture capital deals in 2021. Non-traditional investors include anyone outside of traditional VC firms investing in venture capital deals.
The non-traditional investment field is booming. McKinsey found that the value of co-investment deals has more than doubled to $104 billion from 2012 to 2018. That upward trajectory is likely to continue. The primary motivator for non-traditional investors is seeking better returns and it’s proving successful. A recent Preqin study shows co-investing funds significantly outperform funds that don’t co-invest. Research shows that 80% found their co-investments outperforming private equity fund investments, with 46% outperforming by a margin of more than 5%. Investors also benefit from a generally lower expensive fee structure compared to traditional private equity or VC funds. Co-investors can also profit by sharing the investment risk, a win for all investors that builds loyalty and trust. Because co-investing requires a hands-on approach, investors get the chance to work closely with top sponsors—the general partners (GPs)—to foster deeper relationships and gain a better understanding of the GP’s investment strategies and deal review processes. For the co-investor, building these relationships is essential for strengthening their own investment skills in the long run. Why VCs love alternative investors Alternative investors aren’t the only ones who benefit. The trend toward co-investing is also a boon for the GPs. They gain a broader array of funding options by partnering with alternative investors, and they can leverage their own capital more effectively with prospective investments. There are other pluses for VCs. While co-investing LPs remain passive in the business, the VC can use that voting power to preserve investor rights and consolidate decision making. It also allows them to put more money to work in any company while staying within diversification limits. What are the benefits for companies? Companies can thrive with co-investment as well. An alternative investor infuses more funding, without bringing another VC to the table. That’s good news for founders who want to minimize the number of VCs and seats around the board table as well as time spent fundraising. Adding an additional VC inevitably often leads to too many cooks in the kitchen. And in the case of our fund, C5 Capital’s, we have brought in co-investors who have become customers. How to get co-investment right It’s clear there is significant interest in co-investing, but not everyone has the skills and resources required to successfully execute a co-investment program. At C5 Capital, we welcome co-investors and have opened up more than half our deals to outside firms. That has resulted in more than $80M in co-investments over the last three years alone. We’ve found that some co-investors are well-versed in co-investing arrangements; others are just starting to co-invest and need some guidance. It’s critical that co-investors understand both the dynamics of co-investing and the range of competencies required to be successful. In addition, co-investors need a solid understanding of the terms, upsides, and potential downsides. For those new to co-investing, here are three important considerations: 1. Know the deal terms The first step is to fully understand the investment terms. Almost 50% of sponsors did not charge any management fee on co-investments in 2015. However, as a result of increased demand, the majority of LPs today pay a management fee and carried interest to the fund manager. The fees typically depend on whether the co-investor makes a direct investment or invests via a special-purpose (sidecar) vehicle. 2. Choose deals wisely When evaluating deals, keep in mind that most are not going to be the next tech unicorn so set your own realistic view on exits. Most co-investors realize that they are not likely to be investing in the next Uber and are pursuing smaller deals. According to a study from ValueWalk, 77% of LPs preferred small to mid-market buyout strategies and $2 to $10 million per co-investment. It’s wise to ask for and review the venture team’s analysis as well as the investment data room. Co-investors can benefit from the VC’s view and extensive due diligence findings. Ask for valuation metrics, but don’t sweat the technology. Too often, investors get mired in trying to understand technology specifics, versus focusing on the fundamentals: customer demand, market size, evidence of product/market fit, business model, and sustainable differentiation. Talk to the management team directly. Get a feel for the company’s leadership, the certainty of their forecasts, and their ability to execute. Take a hard look at the team’s resilience and their ability to anticipate and adapt. People, not technology, are typically a company’s most important asset. 3. Kick the other investor’s tires Make sure to look at investor alignment. Co-investors come in as smaller players, so make sure not to get trampled, especially by earlier investors who may have different incentives and higher voting rights or board control. A final thought Given the attractive features of co-investing, it is understandable why many institutions are pursuing it. Performance continues to be strong and investment opportunities are growing in number. That said, investors who begin co-investing without having the requisite knowledge of what it takes to be successful are likely to be disappointed with the results. Developing a full understanding of the risks and rewards of co-investing is an essential first step. With the right deal structure, deal selection, and deal investigation, co-investors can significantly increase their returns. ### About William Kilmer William Kilmer is Managing Partner with C5 Capital, a venture capital fund investing in the secure data ecosystem. He currently sits on the board of five companies in the US and UK. He was formerly an Operating Partner at Mercato Growth Partners and has served as a CEO and CMO on three companies. He previously worked as the Managing Director for venture capital investor Intel Capital Europe, based in London. His new book, Transformative, will be published 2021.  Article originally published in TechCrunch. Just when we thought things couldn’t get worse in 2020, we received the news on the SolarWinds hack and its impact on more than 18,000 businesses and potentially dozens of US government agencies — including the departments of Commerce, Energy and Treasury. We’re just beginning to understand the extent of their infiltration, but this story brings to light what the cybersecurity industry has already known: solving the cybersecurity problem will take more time and resources than we are currently allocating.
Adding to the challenge, COVID-19 has created ground fertile ground for the acceleration of cyberattacks that are more sophisticated, dangerous, and prevalent. In this dire setting, cybersecurity has become even more of a competitive and a national security imperative and created higher demand for new solutions. This is something we all, enterprises, startups, government, and investors, need to work together to solve. So, from the venture capital perspective, where are cybersecurity investments being made, and where is the talent coming from to help stem the onslaught of hacks? California’s Silicon Valley has traditionally been the epicenter of cybersecurity innovation. It’s home to some of the largest cybersecurity companies including MacAfee, Palo Alto Networks, and FireEye, as well as more recent highflyers such as CrowdStrike and Okta, providing a robust talent base for many willing venture investors. However, that’s rapidly changing. Cybersecurity expertise is now budding in new regions where there is talent and a hands-on recognition of the need for innovative solutions. In particular we are seeing growth in areas such as the East Coast of the US and in Europe, led by the United Kingdom. Investment in Silicon Valley cybersecurity startups remained flat in 2020 as we are seeing record venture funding of cybersecurity companies in these emerging regions. And the reasons why may mean better solutions to solve current and future cyber needs. The Emergence of a New Cybersecurity Ecosystem A new generation of cyber-experienced practitioners coming from government and financial services are becoming the next generation of entrepreneurs. Fueling new innovation, this newest breed of cybersecurity startups in emerging in cities like New York, Washington DC, and London, and away from Silicon Valley. East Coast businesses like IronNet, founded by former NSA director General Keith Alexander, is one example of this growing trend of new leaders coming from federal government backgrounds. These new cybersecurity leaders with front-line experience are developing solutions that fix the problems they faced as customers and, thanks to COVID-19, are hiring the best talent to join them regardless of their location. The pandemic has accelerated remote working trends, increasing more flexible location working opportunities in the cybersecurity industry. These companies are creating advantages over their West Coast counterparts in the ability to recruit better talent, lower costs, and closer proximity to customers and prospects. As this expansion continues, it will inevitably dilute Silicon Valley’s domination of the cybersecurity sector. Now, new security companies flush with incredible talent and potential are attracting investors from around the world. To accurately understand this changing landscape, we scrutinized data on how the East Coast and Europe are currently shaping up against California, and the results clearly demonstrate a shifting landscape. US - East Coast vs West Coast Venture capital’s relentless search for alpha is shifting focus from California to other traditional venture-rich areas such as New York, Boston and the greater Baltimore - Washington DC area. However venture investment is also growing in new emerging tech areas such as Ohio and Illinois. Several large investments have driven East Coast funding to record levels in 2020, including a $150M fundraise by Snyk, a developer of security analysis tools located in Boston and a $83M fundraise from Dragos, a Maryland-based rising industrial cybersecurity company. In 2020 YTD, there was a total of $849M in venture capital investments across 53 companies on the East Coast, a 289% increase over 2019. The East Coast is closing the gap on California in the number of early-stage cybersecurity companies being funded, with $1.14B invested into the Series A venture rounds of 101 companies vs. $1.5B invested into 135 companies in California over the last five years. One reason is the region’s advantage in access to talent coming from the headquarters of multiple intelligence organizations and the most prestigious educational institutions providing cybersecurity education. UK/Europe Growing with Government Support Although smaller, the UK and Europe’s cybersecurity venture ecosystem is also rapidly growing as venture investors join government innovation programs across the continent initiatives, form startup hubs, and attract funding from investors. Cybersecurity venture funding has increased in recent years, and is showing even more potential for future growth with stronger growth in early-stage deals. With only a few US-based firms investing in Europe, growth has been largely driven by European-based venture capitalists or cross-regional funds like C5 Capital. Over the past five years, Europe has reported increasing numbers of Series A and Series B rounds, showing promise to be a new epicenter for cybersecurity innovation. Fueled by important financial hubs in Luxembourg and Switzerland, Europe received $391M in funding across 20 deals in 2020, an increase of nearly 20% over 2019. London has taken a significant lead in venture funding over other European cities, but other notable hubs include Berlin, Paris, Amsterdam, Barcelona, Madrid, and Stockholm. Delivering on the Next Generation of Cyber Innovation Silicon Valley has been successful in making the big bets in later venture rounds to help startups rapidly scale once they have locked in their product-market fit. In other regions, especially in the UK and continental Europe, startups have often exited or reached a plateau without taking additional growth funding. This may be due, in part, to a founder’s lack of commercialization experience, or the availability of capital. What has been missing in these regions is smart growth stage capital to drive further innovation and scale. Late-stage cybersecurity investments, such as Series C funding rounds, pay off for both companies and investors, with annualized returns nearly as high as riskier Series A rounds. With better access to capital and worldwide talent, there will be further opportunities outside Silicon Valley to scale and create a new wave of solutions to solve today’s cybersecurity problems. In 2021, expect to see an increase in cybersecurity funding for companies in these new regions that have strong, innovative and unique offering to help ensure a much-needed, secure digital future. About William Kilmer William Kilmer is managing partner with C5 Capital, a venture capital fund investing in the secure data ecosystem. He was formerly an Operating Partner at Mercato Growth Partners and served as CEO and Chairman of PublicEngines (Acquired by Motorola), and Avinti (merged with M86 Security) and serviced as Chief Marketing Officer / Chief Strategy Officer of M86 Security (Acquired by Trustwave). He previously worked as the Managing Director of Intel Capital Europe, based in London. |
AboutLeadership Matters is a blog and newsletter that provides insight and practical guidance to help readers leverage intentional leadership and organizational culture to create more innovative, engaging, and agile organizations. Archives
April 2024
Categories |
RSS Feed