A generalizable framework for evaluating new business opportunities

Whether an idea for a startup or new product or service offering at an existing company, the following is a framework I use to evaluate new business opportunities.

Usually, the truth is that we aren’t deciding between pursuing one opportunity or not; rather there are multiple opportunities available to us and we must prioritize which opportunities are best to pursue. To do this, our goal ultimately is to stack rank the new opportunities by quantifiably answering the following two questions: 1) the business value we could expect to gain and 2) our ability to execute on these opportunities. If there is only one opportunity available to evaluate, the process is simplified such that only opportunities with positive net business value and reasonable ability to execute are pursued. The challenge with this framework will be establishing the acceptable level of ability-to-execute beyond which you will choose to execute on the opportunity.

Does it make sense for OEMs to be investing in AVs and urban mobility products?

TLDR: AVs and robot taxi services are not a near-term (3-7 year) threat to existing OEM business lines, but they are a longer-term (7+ year) threat to OEMs; and this is why they are investing so heavily in AV technology.


Investments being made by large car manufacturer (OEMs) in self-driving autonomous vehicles (AVs) and urban mobility solutions are receiving a lot of attention these days, and for good reason. AVs promise significant societal benefits and economic opportunity, but I want to contemplate and deconstruct why OEMs are making these investments.  What is the business rationalle.

The going sentiment or explanation seems to be A) that AVs and these urban mobility solutions threaten the OEMs existing business and/or B) that the OEMs’ ability to design, manufacture, and distribute vehicles makes them a natural necessity in the future value chain of AVs. While I agree with the latter explanation, I think there is room to elaborate  on the former.

 

Vehicle sales will not decline significantly over near-term (3-7 years) because of robot taxi services.

First, the majority of cars and trucks are sold to consumers and businesses located outside dense urban city centers. Second, as I’ve explained in a previous post, robot taxi fleets will be economically constrained–over the near-term–to being deployed within dense urban city centers. As a result, over the near-term, if anywhere, robot taxi services will reduce car ownership rates within dense urban centers, but car ownership rates in urban centers are already low, therefore little impact will be made on the number of vehicles sold by OEMs. Simply put, car ownership is already low in the areas/populations wherein AV-based robot taxi services will be launched over the next 3-7 years. It won’t be until robot taxi services slowly make their way out to lower density suburban areas that car ownership there starts to be impacted.

I would suggest that vehicle sales by volume are declining not because of ride-hailing services, but rather vehicle build quality is improving. Cars are being built better and are lasting longer, and hence need to be replaced less frequently. Again, for most people living in the suburban US, ride-hailing is not a substitute for car ownership. And for most people living in urban environment, car-sharing (eg. GetAround) and short-term rental (eg. ZipCar) services are more likely to be a substitute* for car ownership than ride-hailing service is. Sure, hailing a ride is better than renting a car for two hours in most situations (that’s why ZipCar’s business is declining significantly), so ride-hailing services might be substitute for some urban market segments but I would argue that most car owners in urban areas own their car because they have consistent weekly inter-city transportation needs. Most people decide to buy/lease a vehicle because they have consistent transportation needs that cannot be solved with a better alternative. Getting to/from work or shuttling the kids to/from five days a week, for example.

The same holds true for suburban car owners. If you live outside dense urban areas and decide to buy/lease a vehicle, it is because you have consistent transportation needs that cannot be solved with a better alternative. Getting to/from work or shuttling the kids to/from five days a week, for example. For most people, car ownership is a better alternative for these consistent trips than Uber and Lyft.

As a result, I would argue that car ownership has not been impacted significantly by ride-hailing services–in neither urban nor suburban population.

Ride-hailing platforms have become a complementary transportation solution; not a substitute. They have become a substitute only for traditional taxi services. For urban dwellers, it complements mass-transit utilization. For suburban dwellers, it complements car ownership, as a solution for infrequent trip needs such as getting to/from the airport or nights on the town to avoid drinking and driving.

Although I don’t think robot taxi fares will come down to the level of mass-transit fares, the already low car ownership rates in urban populations means that I see robot taxi trips being used by consumers as a substitute for an occasional mass-transit trip; not permanent car ownership.

It’s a long-term play for OEMs.

Robot taxi services are not a near-term threat to OEMs, but I do think they are a long-term threat (7+ years). For the reasons stated above and in this post, robot taxi ride fares over the near-term will remain prohibitively high for suburban populations, where car ownership is highest. Eventually, in the longer-term (7+ years), the technology and economic constraints will change such that serving more sparsely populated areas can be done profitably, and robot taxi platforms will start serving these areas.

This is why I think hundred-year-old OEMs are investing in urban mobility and AV tech. OEMs don’t and shouldn’t care about being relevant over the next decade; they’re aiming to be relevant over the next 100 years.

 

*According to Jeffrey Rifkin, “Some 800,000 individuals in the U.S. are now using car-sharing services. Each car-share vehicle eliminates 15 personally owned cars.”   

Quick guide to great mobile strategy design

Create mobile optimized site(s).  Whether responsive or adaptive design, make sure users have a good mobile web experience. If you can’t make your entire site mobile optimized or responsive, then focus on those pages to which users will be directed while on a mobile device. For example, the URL in an email that will be opened on user’s phone should put the user on a mobile optimized site.

Take advantage of mobile tools to create unique services.  Three factors make the mobile device a game-changer in terms of understanding user’s context. These are: 1) sensors (e.g. GPS, microphone, accelerometer, clock, etc.) onboard the device, 2) data flowing from wearable tech and other devices and systems into the mobile device, and 3) the fact that mobile device is always on the person.  My advice is to think outside the box, and create an experience that takes advantage of mobile platforms and tech, and that is unique to other channels. Your mobile web and apps do not have to offer the same functionality that is available in all your other channels.  Decide what existing and new services make most sense to be on mobile.

Think local, but don’t not strictly!  (mobile—especially with the GPS sensor and internet connection—is a tool we use on the go and to find things physically near us) but don’t forget that mobile is not just on-the-go experiences anymore, as our mobile devices are powerful, light-weight computers with bigger screens and more sensors that are increasingly being used at home and in the office to consume long-form content as well!

Think time sensitive tasks and job/task-focused users.  The natural ubiquitios nature of mobile means that it often is the first thing we reach for to solve urgent problems. Hence, content should be organized and reshaped so that it is to find and digest via mobile.   For example, organize content by jobs, use search instead of lots of navigation bars, shrink content into smaller file sizes, make content lower resolution, etc.

Include mobile in your marketing plan.  Whether advertising, customer referrals, customer feedback, customer support, etc.

Enable integration of third party data/channels in omnichannel execution.  Mobile sits at the center of an omnichannel experience that includes sensors and a range of digital and physical touchpoints, from store clerks to geo fences.  Don’t forget about integrating data from third-party channels, as this can be an opportunity to create value-add experiences for users!

Constantly analyze how users are using your mobile assets.  Are people not using certain assets?  How long are people using assets? Where are they using them? When are people using them?  On what devices are people using them?    Work towards putting IT infrastructure and organizational processes that enable you to track users as they move through and across channels.  This is by no means easy to do but it is very to doable today and it is where the world is moving very quickly.

The firm as a great listener… Do businesses underutilize reverse channels?

In marketing, we frequently discuss distribution channels (how a manufacturer gets something to a customer to buy) but I rarely hear conversations about  reverse channels, which we can think of as the way a customer gets something to the manufacturer.

As marketers and business leaders, I think we are missing out on a large opportunity to: engage with customers, build brand equity, hear the customer voice, get ahead of trends, and create more sales opportunities through greater number of customer touch points.

One straightforward way of using a reverse channel is to recycle products when the customer decides they want to replace it.  DELL does this with their computer/electronics recycling program, and I think it is great.  Not only does it encourage environmentally conscious customers to buy new DELL products, but it creates brand equity with these customers who are rightly led to believe that DELL cares about the environment.  But this isn’t the only way in which a reverse channel be used.

Reverse Channels Facilitate Dialogue

In this information age that we are living in, channels also serve as the means for information gathering and sharing.  In the same way a manufacturer’s forward channels serve as a means for educating customers about product information, a reverse channel can serve as the means for customers sharing feedback about the products with the manufacturers, for example.  Customer service/support is an example of a reverse channel that almost every company has, but I still think marketers are under utilizing reverse channels.

Consumers use Twitter, Facebook, and other social media tools to have a dialogue with each other, and brands use these these tools to talk to consumers, but I feel like the digital-marketing conversations I hear these days are focused on how brands can effectively communicate a message to their target audience.   I propose that marketers would be wise to also focus on the reverse channel, both physical and digital, so as to facilitate a two-way conversation.

Reverse Channels Add Value Pre and Post -sale

Reverse channels can serve as the means for sharing product feedback with the manufacturer after they have purchased and used the product, but couldn’t customers use a reverse channel to share ideas for new products that they want but that are not currently offered for sale?   In a sense, a reverse channel could be used to augment product development functions.

The Firm As a Great Listener; Not Just Great Speaker

To me, what this all suggests that smart firms will try to be great listeners as well as great story tellers; and we should think about how we can create reverse channels that provide the means for us to efficiently hear the customer voice.

Facilitating Customer-to-Customer Dialogue

Lastly, eBay goes a step further by enabling its customers to speak with one another.  eBay does not serve as an intermediary between these conversations, which act as free advertising and promotion.  To extract further value from this kind of customer-to-customer communication channel, I think it makes sense for the brand to strategically design the communication channel so that it can efficiently harness and mine this information.  The brand could perhaps monitor customer sentiment and get ahead of market trends.

Great co-branding

Burton and Mountain Dew recently announced partnership to produce a clothing product made from recycled Mountain Dew bottles.

Why is this such a smart marketing? Because it connects the thrill-seeking psychographic profile and image of both brands customer base, while also recognizing the target youth market segment is now also environmentally-conscious.

Although a win-win for both brands, I think the Burton brand benefits most from this product effort.

McKinsey Quarterly interview with Pixar award-winning Director, Brad Bird

In the McKinsey Quarterly interview of Brad Bird, the award-winning Pixar film Director shared very interesting insights relevant to anyone leading highly-creative innovation work.   Below are some quotes from the interview and takeaways that are worth sharing.

Before I got the chance to make films myself, I worked on a number of badly run productions and learned how not to make a film. I saw directors systematically restricting people’s input and ignoring any effort to bring up problems. As a result, people didn’t feel invested in their work, and their productivity went down. As their productivity fell, the number of hours of overtime would increase, and the film became a money pit.

In my experience, the thing that has the most significant impact on a movie’s budget—but never shows up in a budget—is morale. If you have low morale, for every $1 you spend, you get about 25 cents of value. If you have high morale, for every $1 you spend, you get about $3 of value. Companies should pay much more attention to morale.

Takeaway:  It is how people feel that determines their productivity!

Our goal is different because if you say you’re making a movie for “them,” that automatically puts you on an unsteady footing. The implication is, you’re making it for a group that you are not a member of—and there is something very insincere in that.  If you’re dealing with a storytelling medium, which is a mechanized means of producing and presenting a dream that you’re inviting people to share, you’d better believe your dream or else it’s going to come off as patronizing.

So my goal is to make a movie I want to see. If I do it sincerely enough and well enough—if I’m hard on myself and not completely off base, not completely different from the rest of humanity—other people will also get engaged and find the film entertaining.

Takeaway:  It is critical to believe in what you are trying to create.  It therefore makes a lot of sense to make something that you yourself find valuable, and then trust your own judgment to represent preferences of a larger group.

[At Pixar] Steve [Jobs] put the mailboxes, the meetings rooms, the cafeteria, and, most insidiously and brilliantly, the bathrooms in the center—which initially drove us crazy—so that you run into everybody during the course of a day. He realized that when people run into each other, when they make eye contact, things happen.  So he made it impossible for you not to run into the rest of the company.

Takeaway:  In this information age, with more sophisticated new ideas and technologies swarming around us than ever before, small simple things are still elemental to success.  People making eye contact for example is necessary above and beyond simply being physically near one another.  Communication, engagement, sharing of information, and connecting with colleagues are fundamental elements that lead to effective collaboration and timely execution.

I don’t want him to tell me, “Whatever you want, Brad,” and then we run out of resources. I want him to tell me, “If you do X, we’re not going to be able to do Y.” I’ll fight, but I’ll have to make the choice. I love working with John because he’ll give me the bad news straight to my face. Ultimately, we both win. If you ask within Pixar, we are known as being efficient. Our movies aren’t cheap, but the money gets on the screen because we’re open in our conflict.  Nothing is hidden.

Takeaway:  Don’t waste time with interpersonal conflict.  Seek to identify points of conflict within the team and discuss it right away.   It sounds like, at Pixar, they don’t waste a lot of time and resources building movie parts that don’t ever make it onscreen; rather a large proportion of the work produced ends up in the final product; and this is because the team addresses conflict immediately, without letting it live subsurface, which is distracting and energy-consuming.

What are insights and what role do they play in leading innovative changes in business?

I just finished reading a well-written and insightful paper about insights and the role they play in innovation consulting.  The author, Mark Payne, Fahrenheit 212 co-founder and President, seems to practice what he preaches.  The fundamental role of “commercial insights” he explains to be necessary for successful innovation consulting, for example, seem to have greatly influenced the design of his firm, the kinds of people they employ, and how they solve problems for clients.

Below are some of my favorite quotes and takeaways from this paper.

Quote:
“To innovators, great insights are springboards with tensile value.  Throw weight of your imagination upon them and they will forcefully propel you in new directions.”

Quote:
“…an energizing truth because yes, our reaction does matter.  Insight needs to inspire and ignite ideas and action among the people it touches.  Forget the lonely inventor in the garage.  Innovation is a team sport and great insights will electrify and galvanize teams around a sense of new possibility.”

Quote:
“Consume insight is absolutely critical and instrumental, but it isn’t enough to ensure an idea represents as big a step forward for the business as it does for the consumer.”

Takeaway:
I am an Introspector type of insight generator.
It was a tough call, because I think I generate insights in all three ways (Detective, Empathizer, Introspector), but if I had to pick just one, I think most of my insights come from personal experiences that I then seek to understand and validate with other people.

Quote:
“Outside-In means looking inward at company assets from the standpoint of the consumer’s tensions and emerging needs.  Inside-Out means looking out at the consumer from the perspective of the under leveraged assets and tensions embedded in the company.”

Quote:
“…it’s far easier to excite a consumer with creative, new transformational possibility than it is to get a company to embrace something it’s never done before.  Commercial insights hold the keys to winning over the company.”

Takeaway:
I would partially define insight to be about seeing what is already there, but that others have not seen.  Nature already is already providing all the information we need, but we have to connect the dots, analyze the information, look for patterns, and look for the explanatory variables.

What It Takes To Innovate: Wrong-Thinking, Tinkering & Intuiting

I just read an article that explains the 7 things a good inventor/innovator does, and found I do 5 out of the 7:

2. Employ “wrong-thinking.”

I love wrong-thinking.

4. Sketch out their ideas.

I’ve got notes and drawings everywhere.

5. Trust their intuition.

It’s amazing to me that Einstein was more visual and trusting of his intuition than he was inclined to use formulas and logic for new ideas.

6. Love tinkering.

I love building stuff with my hands.

7. Possess a boundless curiosity.

I sometimes feel a slave to my curiosity.

Large American Corporations Recruiting MBA Students of Entrepreneurship

I just read a BusinessWeek article (see quote from article below) that mentioned Microsoft’s increased level of interest in recruiting MBA students of entrepreneurship, and I think it this is smart.    Ever since my introduction to corporate entrepreneurship at RPI, I started thinking that corporations could really benefit from hiring true entrepreneurial personalities to evaluate company/brand/product/marketing strategy and to look for new opportunities.   The fact that Microsoft is one of the first large corporations to publicly state their interest in us entrepreneurs proves the company believes in being an industry leader.

Overall, I think this initiative to recruit entrepreneurial minded and skilled employees reflects a smart realization that innovation and creative evaluation of new market opportunities are the skills that are needed in the most developed economies of the world.  No longer is information enough; it is what we do with the information that we are so fortunate to have.

 MICROSOFT ACQUIRING ENTREPRENEURS

Microsoft (MSFT), too,  tailors its recruitment pitch to entrepreneurial MBAs. Half the candidates the company targets for openings say they hadn’t previously considered applying to the software giant, say company recruiters. Microsoft’s corporate development area, which was responsible for the company’s $8.5 billion acquisition of Skype in May, often competes with startups and venture capital firms for talent.

“Even if they are only here for three-to-five years, that is actually a huge amount of work and return we are getting out of them,” says Stacey Stovall, Microsoft’s university staffing manager.”

One day, we will look forward to commercial breaks!

As data collection methods grow, advertisers will be able to better predict what information/ads would be relevant to each of us individual consumers.   And as more relevant ads are served to the consumer/individual, higher click-through rates will result, and advertisers will be able to afford an advertising model that has fewer numbers of ads shown to the user.  For example, today, say–on-average–click-through rates on ads are 10%, then this means that an advertiser–on average–has to show the consumer 10 ads before one click-through is generated; but in the future, say click-through rates on ads improve to 50%, now only two ads need to be shown to the consumer before a click-through is generated.  So this would lead us to believe consumers will have to sit through fewer ads; but in all likelihood, advertisers will not be satisfied with the same number of click-throughs per pair of eyes.

That is, say today, 10 commercials are shown to a pair eyes for a given 30-minute television episode, and one click-through is generated per pair of eyes.    Then, I am saying, that advertisers, in the future, when click-through rates improve to 50%, each pair of consumer eyes will likely be shown more than two ads per 30-minute episode.   Advertisers, content creators, and distribution channels will do this because they will know they can.  They will know that we consumers are happy to sit through 4 ads because 4 ads is still a 60% reduction in ads; not to mention these ads are more relevant to the individual.  So what will happen is total number of click-throughs generated per pair of eyes per 30-minute episode will increase from 1 to 2; and advertisers, content creators, and distribution channels will all be making more money off the same 30-minute long piece of content.

In this future state of the world of media and ad consumption, both advertisers and consumers are happier.

Data is what’s needed.

As I understand the state of the art, the artificial intelligence algorithums needed to make the accurate predictions not only already exist, but are considered quite basic now.   What is missing is the data needed by these algorithms to make predictions!

One day, an individual consumer watching TV any day of the week will be like watching the Super Bowl, when we look forward to the commercials; but it will actually be better.   Right now, many people hate ads; but ads actually serve a very useful function of informing us about things we should know about.   The problem with the current advertising system today is that ads annoy us more often then they inform us.   In the future, ads will do a better job of informing us, and will hence be less annoying.