Seasoned venture capitalists during a keynote session this morning at the 2014 NACD Board Leadership Conference discussed future trends in marketplace disruption.
Scott Kupor, director of the National Venture Capital Association and managing partner at the venture capital firm Andreessen Horowitz, said that from an entrepreneurial standpoint, the so-called next big thing is whatever a business is doing to be innovative in their field. What many entrepreneurs are doing is streamlining the chain by which products or business ideas make it to market. They’re getting rid of the middle man.
John Backus, managing partner of venture capital firm New Atlantic Ventures, highlighted the importance of companies being aware, and staying ahead, of upcoming trends. As an example, Backus recalled a past employer, a home phone company in the 1990s that was so focused on its way of doing business that it totally missed the technological innovation of the Internet. Companies can essentially be wearing blinders, seeing only what they and their three or four nearest competitors are doing, ignoring the potential for disruptive innovation.
Kupor said his firm missed out on becoming an early investor in Airbnb.com–a San Francisco-based startup founded in 2008 that allows people to list rooms in their homes as being available for temporary rental instead of a hotel. Airbnb is now connecting people to available rooms–or couches to sleep on, in some cases–in 190 countries and more than 34,000 cities. Kupor said that the mistake that he and his team of investors made was in limiting their thinking to whether they would use the service. Their group wouldn’t, so they decided not to invest in the business; however, they later realized that many other people would use the service, so Kupor’s team later decided to invest in Airbnb.
“Big businesses have a really hard time changing the way they do business,” Backus said. “If you don’t innovate, somebody’s going to do it for you.”
Bill Reichert, managing director of Garage Technology Ventures, said that when a company finds out about a new innovative idea, corporate directors can’t just sit in the boardroom at the strategic level and say: “We’ve got to watch that, monitor that.” A company must react.
That reaction can play out in a variety of ways, depending upon the innovation and the industry.
Backus said that in some cases, companies react with merger and acquisitions. They purchase a company whose innovation might be disruptive and competitive to their company’s strategy. Then, they can either foster that innovation and bring it to market, or–in some cases–shutter the innovation to get rid of the threat of competition.
Other companies decide to invest in research and development hubs overseas, outsourcing their innovation to less expensive and more highly concentrated development teams in other countries.
Still other companies spin off their own team of venture capitalists to travel and seek innovative technologies in which to invest.
All the panelists agreed that the key to staying ahead of marketplace trends, after becoming aware of potential innovative ideas, was to take action. In other words, innovation ignored is a bad business practice.
Carlos Watson is coming off a good week. Last Monday, it was announced that Ozy, Watson’s news and culture website, received a $20 million investment from German media company Axel Springer. Ozy–which just turned one-year old–previously had raised a few million dollars.
Named after Percy Bysshe Shelly’s sonnet “Ozymandias,” Ozy is attempting to take the world of digital media by storm. With the hope of bridging the gap between seemingly disparate pieces of information, Watson has created an online news source aimed at the millennial generation. According to Watson, the goal was to “be the daily digital brief that could catch people up and vault them ahead.” During his keynote address to NACD’s 2014 Board Leadership Conference, Watson shared his views on this year’s theme–conducting business “beyond borders”–and his “lessons learned” from his start up, or as he put it: “The good, the bad, the ugly, and the really ugly.” These lessons include:
Design. Watson believes in the aesthetic hypothesis set by Apple, Nest Thermostats, Vogue magazine, and others: Design matters. According to Watson, good design is more than a “nice to have,” it is essential in the value proposition and is exemplified on Ozy’s site.
Importance of good partners. A game-changer for Ozy was when “old media” companies realized that change was happening, and needed to partner with “new media.”
How global the opportunity is. At its inception, Watson’s goal for Ozy was to have one million viewers at the end of its first year. Today, Ozy has five million viewers in one month–from around the world. “The interest from non-U.S. players is significant and exciting.”
Not good, but great people. Watson interviewed 400 people to hire Ozy’s first 50 employees across all the continents. Hiring and retaining the very best employees is a challenge for both mature companies and young start ups.
What it means to work hard. Watson’s mother told him: “I never want to hear that someone outworked my kids.” According to Watson: “In a world of Uber and Lyft, Square and Dropbox, start ups have become sexy. People miss how hard you have to work in order to make those companies come alive.” In fact, one of Watson’s greatest struggles is communicating to people that Ozy will not become Facebook overnight– it will take time.
The Importance of Being Relentlessly Well-Organized. Mountain View, California–the location of Ozy’s headquarters–is the new capital of Silicon Valley. Surrounded by companies such as Google, LinkedIn, and Whatsapp, Watson is able to observe what creates success in start ups. For founders of young start ups it may not come easily, but being well-organized is a great differentiator in those who are successful.
Supersize your dreams. Watson believes “every month, you have to think about how you are going to put yourself out of business.” By doing so at Ozy, it ensures that the editorial work gets stronger every day, that the product gets better, that marketing improves.
Importance of good “vibes” and chemistry. You hear so much about hard skills and talent, but “would I actually enjoy being here with this person 5-6 days straight?” Watson encouraged companies to look for not just talent and skills, but also “good vibes.”
Have the “Luck of the Irish.” Neither Watson nor his partner are of Irish descent. While they have worked incredibly hard, Watson recognizes and appreciates that he has benefitted from luck, good fortune, and serendipity.
Have the right concept. With Ozy, Watson believed he had the right idea, even if news was struggling. When pitching his idea to investors, evening news programs were failing, and native digital media properties were not attractive to Silicon Valley investors. With conviction in his concept, Watson was able to attract initial investors.
Hire a (great) CFO and head of human resources (HR) earlier. The biggest thing Watson would have done differently is hire a terrific CFO and HR director earlier in Ozy’s lifecycle. Ozy grew so quickly that they needed the support. “I think HR is sexy again,” said Watson.
Throughout Monday’s plenary sessions, a key message from panelists was the need for directors to blend quantitative—harder—data with qualitative—softer—complements. For example, a focus on shareholder return but with a stakeholder view, the intersection of situational awareness and the ability to use intuition, or the need to harness qualitative data with application of context. In an interview with Jeffrey M. Cunningham, managing director and senior advisor of the National Association of Corporate Directors, RichRelevance Co-founder and CEO David Selinger shared how directors can bring big data into the boardroom.
To a room full of attendees admittedly dissatisfied with the level of technological literacy on their boards, Selinger relied on his expertise in the field of e-commerce data analytics and groundbreaking work leading the research and development arm of Amazon’s data mining and personalization team.
The Creation of Data
The amount of data created today, and available for mining, is outstanding. As of 2012, 2.5 exobytes of data are created in one day. In 2004, the Internet traffic per month was 1 exobyte. According to Selinger, this figure both exemplifies the risk and the opportunity big data presents. For example, the current iPhone has the ability to tell Apple Computer where its user is at all times. Businesses can use this data to pinpoint the best offers and products that consumers may be interested in.
“All the different data around a consumer is the same as 100 years ago,” said Selinger, “but our ability to harness it has fundamentally changed.” Even broader, big data has significantly altered the rules of business competition, especially in Silicon Valley. Governance, however, has not yet adapted to this shift and technological pace. “Boardrooms are not designed to handle situations in which the tenets of the organization are subject to fundamental restructuring in just five years.”
Lessons for Directors
So what can directors do to tackle the unavoidable big data trend? From his experience as an executive and a director, Selinger observed that “the best thing my boards have done is force themselves to ask themselves the hard questions.” In many cases, the hard questions are the simple ones. How does this new product or technology impact our business? “It is the willing to be somewhat pedantic, somewhat provocative.”