Corporate Innovation starts with ideation – here are tools for success

Hand holding light bulb and cog inside. Idea and imagination. Creativity and inspiration. Gears icon with network connections on a metal textured background. Symbols of innovative technology in science, and industrial concepts, all meant to inspire

“We’ve been world-class at what we do for decades. But the world has changed and we need to adapt. How do we come up with ideas that are out-of-the-box and have high potential?”

-PixelEdge Client

Lots of people think the answer is: lock the senior leadership in conference rooms for months of meetings, creating vast piles of scenarios and slide decks. No! No! No!

The method below provides leaders at large organizations with a low-risk means to come up with quality ideas in just one day! Some ideas go on to have profound impacts on their financials.

  1. People:
    • Senior leadership 
    • Staff with fresh experience, sometimes painful, from the field.
  2. Tools:
    • Leverage the IdeaPAD to help you track everything you need on 1 page.
  3. Process: Set aside 1 day to…
    • Build a PAD to launch your ideas from:
      • (P)urpose: It’s hard to get somewhere if we haven’t communicated where it is! Senior leadership should clearly define the Objective of innovation and summarize the company’s current Strategic Priorities.
      • (A)ssets: Great innovations always leverage your strengths. Document your company’s superpower, competitive advantages, and other assets.
      • (D)emand: No market demand? Then you have a hobby, not a viable business idea. Evidence of demand comes from your current top offerings, items stakeholders keep begging for, and items your competitors offer. Demand can also arise from large external drivers – like when COVID radically changed the employment landscape.
    • Ideate
      • Give everyone 10 minutes to review these items and generate a list of ideas. We’re talking post-it note level descriptions here, no paragraphs or novels, please!
      • Have everyone put their top ideas up for all to see.
    • Score:
      • Rate all the ideas against the first criteria listed on the IdeaPAD. This is when you give the ideas author a chance to explain the ideas a bit. I recommend you have everyone do their own independent and private scoring. Repeat the process for all criteria & ideas. Average up everyone’s scores to provide each idea a final score.
    • Discuss & Decide:
      • Take some time to discuss the top-scoring ideas and why they scored as they did. Take a moment to review why some of the low-scorers did poorly. Once complete, senior leadership should decide which ideas are worth further exploration.

Results

  • Viability identified ways to take their most successful program and scale it up 10x – which they did!
  • Pathlight realized a curriculum they had always delivered as a bespoke, one-off solution could become an online training program that could reach a national audience.
  • ERM identified multiple ideas that could have an existential impact on their business. One idea protecting them from new low-cost competitors and high-tech disrupters alike. Another idea has put them in the running to be #1 at helping the world’s largest companies reduce their carbon footprints.

Contact me to talk about our team helping you get the most out of this process.

Gratitude

I’d like to give a huge thank you to Kelly Minton, co-founder of my last startup, who helped evolve this tool from its earlier MAD iteration to something much more powerful. Also a shout of thanks to Stephen Brand for his original work that inspired this tool in the first place.

Postmortem of Launch413

A central tenet of the Lean Startup is “pivot, persevere, or perish.” On June 1st, after five years of perseverance and pivoting, my partners and I wound down Launch413. With six months now past, it feels right to share what we’ve learned.

For those unfamiliar with it, Launch413 was a Post Accelerator that helped startup CEOs scale for sustained success by providing coaches with deep domain expertise. Our team consisted of angel investors, Fortune 500 executives, and exited CEOs from dozens of sectors. We developed a truly innovative model that we believe has tremendous potential. But after five years, we ran out of time. The purpose of this post is to open-source what we learned in the hopes that others can take the good bits and create something even better!

The Model

We provided each startup:

  • Board of Advisors that acted like a board of directors, holding the entrepreneurs to account. The board assisted entrepreneurs in developing strategic focus and then setting meaningful and ambitious goals.
  • Subject Matter Experts that were called in to help with targeted issues the entrepreneur and their board identified as key priorities.
  • A Venture Champion that met with the entrepreneurs weekly to help them stay on track with their plan, grow as leaders, and help recruit & coordinate support from other mentors.

Every month Mentors earned “points” for each role they played. We committed to work with the startups for years.

In return, startups agreed to provide us 5% of their growth in sales revenue until they’d paid us a total of $500k.  We distributed those funds to the mentors based on how many points they earned.

What Went Right

  • Results: Quotes from our entrepreneurs:
    • “We would not have survived COVID without Launch413.”
    • “You are the reason we were able to raise our funding rounds before we ran out of runway.”
    • “We knew marketing and sales were major weaknesses for us, but had no cost-effective way to address it. Your team taught us how to do it, and then helped us recruit the talent to take over once we were ready to scale.”
    • “The community of mentors and fellow entrepreneurs were constantly supportive, making introductions and providing advice I could not have accessed on my own.”
  • Incentive Alignment: The model aligned everyone’s incentives to help the entrepreneurs build profitable, scalable businesses. No fights over valuation. No arguments over when to have an exit. No concerns about bringing in another mentor to help. And because we were at least threatening to pay the mentors, it created a much stronger level of commitment from them and from the entrepreneurs.
  • Focus: I’ve yet to meet the entrepreneur who failed because they were lazy. All the failures I know, including my own, came from working very hard, but on the wrong things. And so you run out of time. We provided our entrepreneurs and mentors simple tools to help identify what to focus on and ensure we stayed focused! Our top tools were Village Capital’s Viral Pathway (here is our adaptation of it) and our own Management Dashboard (template, training video).
  • Coordination: Our system of Venture Champions and light central support allowed our team of dozens of mentors, many of whom have never met in person because of COVID, to coordinate wonderfully to get our entrepreneurs the right help at the right time. There were lots of opportunities for us to do this even better and at a larger scale, but I know of no other organization that has done as well without also having a budget of tens of millions of dollars. 
  • Network: The community of mentors and entrepreneurs formed was the best many of us have ever been a part of in terms of quality, collaboration, commitment, and just-plain-nice-people! 

What Went Wrong

Lack of Dealflow

For all five years of our life, lack of dealflow was our biggest risk. We looked at a lot of sources and conducted over 100 customer discovery interviews with angel group leaders, accelerators, VCs, and all manner of other groups. Accelerators, Angels, and VCs liked the idea of us helping their portfolio companies in a 100% success-based, non-dilutive way. However, we were not solving a hair-on-fire problem for them, so they never became robust sources of dealflow.

We realized that almost all entrepreneurs insist on getting $ along with their advice. As we only provided advice (and didn’t really believe that the $$ should come first), that was killing our ability to secure dealflow. We looked into starting our own fund, but limited partners look for two things above all else when investing in fund managers: #1 the managers have done it before and #2 they have fantastic dealflow. Our team didn’t have either.

Economics Didn’t Work

When we first started Launch413, we estimated how much mentor labor would be required to help each company based on our past experience mentoring at nonprofit startup entrepreneurship organizations. Unfortunately, our experience proved to be different.. When we took into account the labor involved in our model, and that the amount we could make from startups was capped at $500k, and that we didn’t have access to robust sources of kick-ass startups… our mentors would be lucky to make the equivalent of $100/hr. That isn’t fair-market value, let-alone a risk-adjusted premium for getting paid “maybe possibly someday.” We were off by a factor of 10. 

If it had been a factor of 2, we could have made it work. But a factor of 10 requires radical changes. The one thing that could most help would be to switch to an equity-based model as that might give enough upside to really help the math. But then we’d look like a venture fund that doesn’t write checks… so pretty hard to compete with VCs that do write checks.

And to be transparent: I ran out of time because I had to pay the bills! If I was independently wealthy, I could have worked purely on spec for the bright potential future of Launch413’s model. But I’m not, so it was time to find a reliable source of income. 

Gratitude

In the six months since Launch413 closed, our community continues to help each other, our entrepreneurs continue to grow, and we all find ourselves better off for the journey. 

I am filled with gratitude for what Launch413 created. It was a bold, beautiful idea absolutely worth trying. I am proud as hell of the impact we had on our entrepreneurs. I am humbled by the kindness and capabilities of the mentor community we built. I am enriched by the learning and connections we have all made together on this adventure.

I have special gratitude for:

  • Rick Plaut, my co-founder who’s calm presence and worldly wisdom was by my side for every rip and rise of the rollercoaster ride.
  • Jim Stanczak, who invested his incredible mind into every one of our experiments to make Launch413 scalable.  
  • Our board of advisors: Ali Usman, Randy Krotowski, and Eddie Binder.
  • And the entrepreneurs and mentors that make up our community.

New England and New York angels unite to fund startups

The angel groups of New England and New York joined forces to help startups get funded. Initial results: 2x as many startups are being seen by 2x as many investors, in 1/10th the time.

Entrepreneur Pain Points

You would think that the marginal effort to raise money from a second angel group is much lower. Won’t the second group take all the hard work you did from the first group and only need to ask a few more questions?

Sadly, no.

Instead, each angel group has their own subtly different questions and process. This makes the entrepreneur answer the same questions over and over. They have to create hours creating slightly different versions of documents. This costs the entrepreneurs precious time they need to run their ventures. This is bad for everyone!

Angel Investor Pain Points

All this back-and-forth isn’t valuable for angels either! The longer it takes us to assess a startup, the fewer quality investments we can make each year.

This problem crops up when we lead deals too. If a deal needs more money than we can put in, then there is a lot of work we have to do to help our entrepreneurs close the round. Knowing how hard that is discourages some groups from leading deals. Fewer people leading deals means few great deals getting done. That’s bad for investors, founders, and the economy.

Our Solution

The new Northeast Deal Sharing process addresses many of these issues.

  • Saves deal leads time by making it easy to share a deal with their peers in seconds.
  • Increases dealflow by providing angel leaders a curated list of vetted deals.
  • Save investors time by sharing only deals with a lead investor ready to share & coordinate due diligence.
  • Saves entrepreneurs time by accelerating connection to more investors via the curated list. We speed funding by setting new norms around sharing diligence.

We run it on simple tech (Google Sheets!) we built ourselves for no money.

Is it perfect? Hell no. There is a lot left to improve.

Is it a leap forward from what we had? Yes.

Results

Since switching to this system more deals are raising money from more investors and in less time.

Since New England and New York agreed to merge our processes and share dealflow, 2x as many startups are being seen by 2x as many investors, in 1/10th the time.

What’s Next

Right now we’re shaking out the merger of the New York and New England systems. A few months from now will add more deal sharing groups. Those groups can focus on geography, diversity, sector, etc. We also need to strengthen norms around being respectful of the entrepreneurs’ time.

Want in?

If your angel group is interested in participating, let me know.

Gratitude

My thanks to all the angel leaders, and the Angel Capital Association, for their hard work! A non-exhaustive list includes:

Thank you everyone!

A canvas to help Business Services teams innovate

If you work in a business services company (consulting, accounting, legal, etc.) and are in charge of evaluating ideas for innovation, most of the tools you’ve heard of don’t work. The same is true if you are trying to quickly show junior staff value each of your service lines offers to your clients and to your firm. So I created the KISS (Keep It Super Simple) Canvas for Business Services.

Template (click to view Google Sheet version)

All of the key information you need to do a basic assessment of an idea’s potential, or to communicate your business model quickly, fits in about 500 words (one page). Some highlights:

  • For the Client (in Green)
    • What clients you’ll sell this to and if they represent an economically interesting opportunity.
    • How committed the initial clients are to embracing the innovation.
    • The value proposition for each key stakeholder at your Clients’ organizations.
  • For your company (in blue)
    • The value proposition to the key stakeholders in the business units (BUs)
    • The level of commitment from that business unit to champion this innovation.

Example (click to view Google Sheet version)

The Story It Tells

For the client: A set of current clients who build and run renewable energy facilities have a problem. If we can solve that problem, there are a much broader range of clients with similar problems, so there looks to be a sizable market opportunity. Clients’ senior managers spend too much time and capital when screening sites, hurting project IRR (internal rate of return). The innovation addresses this challenge by eliminating poor sites quickly and cheaply, increasing the IRR for each site. While there are lots of alternate ways to solve this problem, the proposed software+consultant solution gives clients the best of both worlds. They get better data quickly, and when there is a question that software can’t answer comes up, consultants with deep expertise are a click away.

For the consulting firm: One business unit is already committing staff to test this idea out, and if it works there are a lot of other business units that could benefit from it. Partners in the firm are losing work to competitors that can do it faster and cheaper. A software site screening tool tied to the firm’s consultants would get them in the door earlier on projects, increases margins at the early stages, and streamline and win more the intensive work on the projects later. The firm could use some of the existing software solution on the market, but doing so would not increase the productivity of their workforce and drive their margins.

What this Canvas Does Not Cover

This tool does not worry about 10,000 other things that matter, but are not critically important at the start. Marketing, sales, revenue models, and partnerships aren’t covered because most business services companies only want innovations that leverage their existing systems and partnerships.

This tool has proven to be effective at allowing junior staff to run initial screens of idea submissions. This saves senior people time to work on the most high-potential ideas.

Get your own copy of the KISS (Keep It Super Simple) Canvas for Business Services.

How to Accelerate Valuation Growth in Services Businesses

Private Equity firms that own professional services businesses have a challenge with growing valuations. In a services-based business it is hard to increase revenue without increasing headcount. Margins shrink as hiring, training, and retaining talent becomes progressively more difficult. Meanwhile, all of the company’s intellectual property is locked in the heads of employees, meaning that when the employees leave the building, so do the company’s assets. These factors keep exit multiples for service businesses low, often ten times lower than comparably-sized software companies.

Digital Transformation allows you to increase exit multiples.

  • Launch customer-facing products that grow revenue and margins
    • Create a premium product that increases the value of core services
    • Offer new value to remain competitive or even leap ahead of competitors
    • Generate high-margin revenue with exit multiples ten times higher than service revenue
  • Digitally enable employees to increase productivity and performance 
    • Embed the employees’ expertise in applications to ensure continuity
    • Make repetitive tasks faster and more accurate
    • Standardize and facilitate processes

But how? Some companies create innovation divisions… only to discover that the high-risk approach needed there is incompatible with the company’s failure-averse culture. Other companies buy into an enterprise platform just to learn they are costly, take years to generate results, and disrupt the core business.

The right answer for most services businesses is targeted digital solutions that solve pressing problems now. This approach lets you get wins on the board quickly, building momentum to effect larger and larger culture change to facilitate ever greater innovation & impact.

If you or someone you know is struggling with these issues, PixelEdge can help. Learn more.

Operationalize Your Startup

About The Workshop

Startups don’t die from laziness. They die from working really hard… on the wrong things.

You’ve launched your venture… now what? The financial lives of your team depends on you. When do you raise money? From who? On what terms? Is it time to hire or keep your burn low? Should you pivot to a new market or stay the course? The pressure to make the right decisions is intense. But you don’t have to do it alone. In this workshop you’ll learn and use practical tools that will give you confidence and guide you to better decisions as you build your company. This workshop is great for entrepreneurs who have generated revenue and are ready to expand their operations!

Prework (Due Before The Session)

  1. Read this article to learn about the VIRAL framework.
  2. Create a free entrepreneur account on the Abaca website.
  3. Do an initial VIRAL assessment of your company using Abaca’s tool. When you do it, pretend you are a cynical investor who demands extensive proof before they consider any milestone complete.
  4. Write down what the lowest-scoring, incomplete milestones are for your venture. If you are willing and time allows, we’ll talk about those milestones and what it will take for you to achieve them during the workshop.
Paul G. Silva Profile Picture (headshot) 2021.JPG

Your Instructor

Originally a computational physicist who spent many long nights at a particle accelerator, since 2000 Paul inspired thousands of people to innovate, help hundreds of startups launch, overseen investments in 50+ startups and held leadership positions in the national angel investor community.

Co-Founding Corporate Innovation Division

I am delighted to announce that I have joined forces with Ali Usman and the incredible team at PixelEdge. Ali and I have been friends for over a decade, mentoring countless entrepreneurs together. I’ve personally watched PixelEdge launch incredible products for startups and big companies alike. They launch on time, build right, and achieve product-market fit! 

My role is co-founder of the new Corporate Innovation division where we help mature, services-based businesses increase their valuations and impact by 5x through digital innovation. Our recent client is a billion-dollar sustainability consultancy where, in six months, we’ve launched four products to save lives, fight modern slavery, and mitigate global climate change. 

I mean… wow. This is the kind of impact you can have when you have a product studio like PixelEdge and a large company client with the resources and commitment to innovate to solve problems that matter. I am excited and honored by the opportunity to build out this new division of PixelEdge and help more companies embrace the power of innovation.

If you’d like to know more about our new corporate innovation offerings and this sounds at all interesting to you or someone you know, drop me a line and we’ll catch up.

A KPI for Corporate Innovation: The Valuation Index

Leaders of larger companies are under intense pressure to grow their valuation by hitting aggressive revenue, margin, and EBITDA targets. Acquirers pay a valuation premium on recurring, high-margin, and high-growth product revenue. However, the metrics most companies use (ROI) fail to capture the impact on valuation, causing leaders to make choices that slow their valuation growth. That’s where the Valuation Index can help.

A Quick Primer On Valuation

Valuation in this context is the dollar value an acquirer would pay to purchase a company. A simple approximation of valuation is a Multiple (M) of either Revenue (R) or EBITDA (E). M is a market-driven number determined by the “flavor” of the company’s income. Run-of-the-mill consultancies in stagnant sectors tend to get low multiples. Rapidly growing Software-as-a-Service (SaaS) startups have high multiples.

Valuation = R*M OR R*E

A better approximation of Valuation appreciates that a larger companies have many different Revenue (R) streams. For instance, a modern consultancy might have: SaaS (S), one-time fees for use of a software Tool (T), and Consulting (C). Each of these has their own Multiple (M).

Valuation = (RS*MS) + (RT*MT) + (RC*MC)

The Limitations of Standard ROI

Math formula: return/investment

Most Return On Investment (ROI) metrics are excellent for measuring an initiative’s impact on a company’s operations. Example: if a salesperson is expected to generate $1 million/year in sales and cost $100k in salary & benefits, the ROI would look to be about $1 million/$100k or 10x.

The challenge is this doesn’t take into account the desirability of that particular flavor of revenue to acquirers. If they sold $1 million of…

  • Widgets with a 10% profit margin, that would mean the salesperson was basically just paying for themselves. An acquirer would likely not value this at all.
  • Widgets with a high profit margin, but low revenue growth would have some value.
  • Widgets with high margin and rapid growth in sales would be of medium interest.
  • Subscriptions to a rapidly-growing software platform would be valued very highly indeed because they are high-margin and relatively predictable.

The Valuation Index

growth in valuation/cost to develop

The Valuation Index measures the impact on a company’s valuation for every dollar of investment. The formula applies market-driven Multiples (M) by the different types of Revenue (R).

  • SaaS (S): Recurring subscriptions for access to an application that are high-margin, require minimal labor, and generate predictable future income. Multiples tend to be high.
  • Tool Use (T): One-time payments for access to software during a project. This is also high-margin and requires low-labor. Multiples tend to be moderate.
  • Consulting (C): This is a catch-all for labor-intensive service revenue. Such revenue is low-margin and can only scale with increased headcount. This is hard, expensive, and offers diminishing returns. Multiples tend to be low.

Once you start applying this metric to competing initiatives, it can make decisions clearer.

  • Growing consulting/services, while often the thing a consultancy is most comfortable doing, generates the lowest score because it requires scaling up expensive, hard-to-recruit & retain talent.
  • Adding one-time payments for use of software during projects scores moderately well because the software requires little labor.
  • Creating subscription offerings that clients use before, during, and after a consulting engagement scores by far the highest because the company keeps on making money 24/7/365, usually for years with relatively little cost of sales or support.

Credits

The concepts outlined here were co-developed with Jeremie Spitzer.