Perspiration Not Inspiration Delivers Innovation

Innovation. It’s a word that crops up everywhere these days and plays its part in the formation of  the most toe curling of corporate slogans - BOC’s `Delivering Innovative Solutions` plastered across the side of their trucks being one of my favourite examples of pseudo-marketing nonsense.

There is so much guff talked about innovation.  So often it is presumed to be the preserve of the maverick obsessed with something that others fail to see. That may make for a good story but the reality is that it’s cultures that innovate – not individuals. To paraphrase Thomas Edison, innovation is one per cent inspiration and ninety-nine per cent perspiration.

Innovation is a team game and consistent innovation results, after all but the earliest of start-up phases, in companies where it’s embedded in their DNA - day-in, day-out. But in the digital age as the awareness of the ability of new firms to quickly disrupt existing economic ecosystems increases, the idea of being innovative has come to the fore as a business school mantra and something to which boards have to genuflect publicly.

All mouth and no trousers

Such is the need to conform that 6 out of 10 CEOs recently stated in a PwC survey that innovation is their primary focus or - at least, `one of their priorities`. As it’s cultures that also slow and stop innovation, you might be right in suspecting that in many organisations such pronouncements are just window dressing designed to protect leadership’s careers and prop up share value. No wonder, then, that struggling UK High Street chain Marks and Spencer's new brand values are , `in touch`, `integrity` and, you guessed it, `inspiration` and  `innovation`.

For instance, a 2013 study of US corporate employees revealed a huge gap between leaders and those they were charged with leading. Staff appeared eager to be entrepreneurial - more than half of those surveyed (52 per cent) claimed to have actually pursued an entrepreneurial idea within their company. But what they lacked was support from their all-mouth-and-no trousers management who talk a good game but are found wanting when it comes to innovative action.

Thus a culture gap was revealed. Nearly half the employees said management support is very important to the generation of entrepreneurial ideas, but only one in five believed their company delivered it. Whilst although 42 per cent consider tolerance of failure from management is very important, only one in every eight employees think their company actually delivers on the promise.

So on the one hand innovation and entrepreneurial leadership is touted as a top priority and on the other hand only one in five employees feel supported by their management to be entrepreneurial, and, crucially, many less trusted their company’s response to risk-taking.

This is a big frustration for most innovative employees, particularly when innovation is imported - as M&A becomes the new R&D - in an effort to stay competitive. The associated risk of this strategy is that employees become disruptive within the company, move employers to find a more entrepreneurial organisation or leave to found a start-up. Any one of these is a loss to a business.

Protecting the status quo

If leaders are reluctant to support innovation often it is result of wanting to protect the status quo and their power base or from a fear of being seen to fail. The problem, of course, is that if you are the first leader to knowingly risk failure it could kill your career or ultimately cost you your job. This is why large corporates slowly die – eventually reaching their Kodak moment - as the pace of development in the market is faster that the pace of corporate cultural change.

Start to embrace failure and you start to innovate is routinely trotted out as the answer.  This homily is supported in the UK, at least, with apocryphal stories about business disasters being treated as a valuable experience in the US whereas it is believed to be the death knell to reputation and investment here in Blighty.

A whole lot of learning or a mountain of waste

The fact remains that some large UK companies continue to be highly innovative – one only has to think of Rolls Royce aero engines and the re-born car manufacturing industry in the UK. Yet research shows that currently only one out of seven official innovation projects successfully reach the market. What really amazes me is that a lot of managers and researchers seem to think that a one out of seven effectiveness rate is somehow good. That’s a whole lot of learning or a mountain of waste, depending on your perspective.

Perhaps we are simply looking down the wrong end of the telescope.  Rather than embracing failure as a way of moving forward, we should consider how often we are effective at innovating – how often we make the big breakthroughs or even how many small innovations eventually result in a step change.

After all, Darwin did not say it is not the strongest of the species that survives, nor the most intelligent. It is the one that is the most adaptable to change.

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Sorting the Entrepreneurial Wheat from the Egomaniacal Chaff

Some of you may have read my recent blog about applying the fine art of emotional intelligence in business.  If you haven’t, you can find it here - http://tinyurl.com/q8nju62 

Anyway, as a reference point I thought it’d be worth contrasting it as a desired approach to management and relationships directly with the behaviour of two extreme entrepreneurial and management personality types which may be particularly familiar to those working in fast moving industries. I’m talking about the psychopath and the narcissist.

A surprising number of successful people in business and other walks of life exhibit one or both traits.  Successful, that is, until the explosive cocktail of ego-driven behaviours that helped them bully and/or connive their way to the top in the first place finally blows up in their – and potentially your - face.  So how might you know if you are dealing with one, the other, or even both? Here are a few of the clues.

Psychopaths vs. narcissists

Psychopaths fundamentally lack conscience.  They seem not to worry about the usual minutiae that occupy others.  They never appear to be nervous, stressed or in danger of losing their bottle.  Competitive, risk taking and thrill seeking, they take command and are the noisy, heroic win-at-all-costs merchants.  They are also capricious, unreliable, manipulative, abrasive and ignore the lessons of experience. They are often huge cheats, big fat liars and think stealing is part of the job. They are angry. They are looking for a fight. Yet despite the gung ho carapace they can be sensitive souls, vulnerable to criticism from others, but once they get over it typically seek revenge.

Narcissists too have an astounding and mostly misplaced belief in their own talent, desperately wanting others to acknowledge their gifts as `players`. But in reality being fundamental needy and self-centred they tend to have shallow, unsupportive relationships.  Convinced they are essential to everything, they feel slighted as a result of others’ failure to appreciate this situation.  But as they have Olympic-standard passive-aggressive capabilities they tend not express hostility and resentment openly but create buckets of back-stabbing sullen negativity, playing the blame card at every opportunity until things go their way again.

Entrepreneurial wheat and egomaniac chaff

Given both the psychopath and narcissist’s tenuous grip on normality, the heady atmosphere of boom times appears to be the oxygen of their duplicity.  This should start alarm bells ringing for investors and M&A outfits trying to sort the entrepreneurial wheat from the egomaniac chaff.

As George Santayana, the polymath poet and philosopher, noted `those who cannot remember the past are condemned to repeat it`. So as the new upturn gathers pace, I wish I’d recorded as a warning more of the Kafkaesque meetings I had with overwrought and over-invested who thought they were going to be the next digital squillionaires of the dot.com bubble but subsequently disappeared without trace. 

The inevitable hubris aside, once you recognise the signs of fundamentally psychopathic or narcissistic behaviour it’s easy to assume smugly that you are devoid of such traits.  But the reality is when frustrated or in full flow all of us can exhibit various forms of unpleasant and destructive arrogance, scepticism, avoidance and brittle emotions. They key, as ever, is self-knowledge and caring to do something about it. Happily that’s where the emotional intelligence comes in.

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Entrepreneurial Leadership Means Managing a State of Continuous Turnaround

Being an entrepreneurial business leader is a big challenge. It takes a combination of skill, personality and sheer endurance to do a tough job day-in, day- out. It’s always been the case, but in the 21^st century there is unprecedented rate of change to be dealt with and that makes the job a whole lot more challenging.

Markets are now continually being disrupted by combinations of regulation, consolidation, globalisation and technology. For the past five years these four horsemen of the economic apocalypse have galloped roughshod over businesses, against a backdrop of severe recession in some parts of the world and unprecedented growth in other regions.  But if recent valuations of companies such as Uber,  Airbnb, Dropbox and Xiaomi are to be believed  boom - or even bubble – in the West is back

The entrepreneurship demonstrated in these firms and their resulting stratospheric valuations is so often based on exploiting or causing change in the marketplace. But once the disruptive breakthrough has been made, and the IPO achieved minting a fresh pack of billionaires, it can be downhill fast to eventual oblivion. 

Complacency creates Detroit

That’s because the same things that create opportunity create threat as soon as a business model is established. And with complacency over this fact you get Detroit. No wonder that Albert Einstein defined insanity as doing the same thing over and over again, expecting a different result.

Of course, we all publically subscribe to the mantra of embracing change, yet most of us would admit privately that it can be scary and hard to get to grips with. Yet as leaders we are required to ensure our organisations stay ahead of the pack.

One typical traditional response to a threat is to retreat to safety.  In pre-history that meant running back to your cave as fast as your legs could carry you. In a modern company it manifests itself as a search for `truth` and consensus through analysis and data gathering.

But as the German military strategist Helmuth von Moltke once remarked `No battle plan survives contact with the enemy`.  So if chaos is the order of day how are we supposed to lead our enterprises out of the early stage and avoid subsequent decline?

I’d argue that this search for the `right answer` only slows the decision making process and makes the organisation even more vulnerable. Speed is of the essence and, in truth, more often than not good enough is good enough because we have to attack continually - to disrupt or be disrupted. The only safety lies with always being ahead of the game.  And to do that requires being in a state of continuous turnaround.

Culture of innovation

The challenge for entrepreneurial leaders, then, if they are to build sustainable value in their businesses is to create a culture of innovation that is both top-down and bottom-up.  This means encouraging and using talent wherever it is found - from a company’s own staff, its partners, universities and business schools and so on.

Successful modern leadership too is predicated on authenticity - `walking the talk`.  To nurture innovation requires making change the norm and demonstrably allowing staff to try new things without fear of failure. This necessitates understanding the difference between control and guidance.

Like parenting, this requires the right balance between providing a clear governance framework and giving staff free reign otherwise culturally corrosive disappointment will soon result. This is vitally important because, as a company grows, it is likely that a new management of lawyers, accountants and generalist MBAs brought into the organisation will have a more conservative approach to implementing major change than a founder.  They may quickly become consumed with maintaining the present or replicating culture of the company from whence they came, rather than looking to the future in the context of the organisation that now employs them.

Shortfall in skills

This may be compounded by a shortfall in skills in technology amongst these professionals, particularly compared to their less-experienced-in-other-respects colleagues in different parts of the organisation. Clearly understanding the technology platforms that are the basis of innovation let alone the core of most highly successful entrepreneurial companies is now a pre-requisite. But it’d be my observation that too few are building technology skills into succession planning at higher levels or making it a requirement for leadership recruitment.

Too often this results in founder having to re-take the reins. Witness Bill Gates, back at Microsoft.  He's guiding new CEO Satya Nadella as the former CEO Steve Ballmer admitted that, as Gates’ attention was consumed by his Foundation, he wasted decade as mobility changed the company’s world and more agile competitors appeared in the majority of its business segments.

Still, Ballmer’s now got a nice new playing field in the shape of the Los Angeles Clippers NBA team on which to focus his bluster and blow his own billions.  I suspect Gates will be steering well clear on this occasion.

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Want To Be The Next Uber? What VCs Need to Know About You and Your Team

The media is currently awash with claims that if Uber's $17-billion valuation becomes reality, it will make Uber the most currently `valuable` tech startup, ahead of Airbnb, Dropbox, and Xiaomi and their mere $10bn valuations.

Of course, this ranking game that reflects a media obsessed with lists and number envy doesn’t necessarily make one company more important than another - or better assure their future. But for founding teams and key investors, the actual numbers represent an important notch on the scoreboard - a step in the direction of a profitable exit.

For those dreamy of the heady heights of such valuations sooner or later with every young business, the issue of funding rears its ugly head. Some entrepreneurs succeed in bootstrapping their firms and achieve growth without resort to banks (that's when they could be bothered to lend to SMEs, of course) or to other forms of external finance.

For most, however, is if you want to get big - and get big quickly - you will most likely need to call on someone else's money, and walking into an early investor meeting can be a brutal confrontation with reality.

You have to realise you are only one of hundreds or thousands of business the typical VC sees in a year. Be assured too they aren't just going to go ga-ga and start writing cheques on the evidence of your big vision or market success, that consists of having picked off all the low hanging fruit in the potential customer base.

Even if you really have come up with Europe's first potentially multi-billion dollar entrepreneurial idea, you are going to get a barrage of penetrating questions thrown your way. Whether you think the questions put to you are relevant, wide-of-the-mark, a bit unfair or down right insulting, it doesn't matter.

For those faced with the task of delivering a decent return on what is actually someone else's moolah, the overriding issue for VCs is what sort of shape are you in for the entrepreneurial journey ahead? So you'd better be prepared to answer convincingly questions about the potential four horsemen of the funding apocalypse – the market, your strategy, your financials and the team.

When sizing an opportunity, VCs often ask why there isn't a major company in the space already. Whilst your inner voice is screaming 'D'uh! That's why we are here - to be that big company you f***wit!', think about it from the VCs point of view. They are trying to put the content of your proposition into context and to get an idea of the market size and timing of your product or service in terms of other developments in the marketplace.

Crucially, they are judging whether you might really be a game changer, merely an important part of an emerging ecosystem or at least 'on the wave' with a fighting chance. So, avoiding crashing and burning at this stage means being able to provide detailed, specific and objective insights about the world you inhabit. Understanding not just technology but societal or economic trends can make or break you as the right company in the right place at the right time.

As part of reality checking, VC firms love to number-crunch. In fact, most have a backroom of eager, freshly-minted MBAs, graduates and interns from the better universities who do nothing else but research markets and populate spread sheets. Because of this, you can be sure the VC will build their own model to predict your company's financial performance and use it to negotiate with you if there are substantial discrepancies between your view of the world and theirs.

Further questions about sales cycles, retention rates and business expansion opportunities are all about your ability to scale steadily and profitably, and to identify the potential funding gaps that will appear as you grow. Whether you can answer these effectively will tell the VC a lot about your business sense too. Investment is ultimately an act of faith they are backing you and your management team as much as the idea itself.

And it's not just about what each member has achieved. Most importantly it's about your relationships as a team: Are you complementary personalities and what skills or attitudes do you think you currently lack? Are these available in the marketplace and in what quantity? Does talent find you or do you have to hunt for it? Other more subtle things may be looked for such as any over-reliance on, or dominance of one individual and the corrosive influence of any over-weaning egos.

Of course no one in their right mind would invest in anything that could be copied or substituted in the marketplace, at least for the time in which substantial returns could be gained. So, be prepared for questions that are going to establish whether someone could move in and quickly eat your lunch via faster innovation, superior market reach or some other competitive advantage.

If the VCs decide to invest you might be stuck together for a long time, so consider too that every time you are tempted to exaggerate or paper over something that you know is weak in your pitch. Due diligence may pick it up, but if it doesn't you'll have plenty of time to reflect on its impact.

Lastly, given the quasi-marital nature of the relationship, you should consider whether the VC is the right fit for you. If you have doubts the best thing to do is to walk away.  If you want to be the next Uber you need to sure you've made the right choice.

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Judgement Daze? The Secret of Good Decision Making

I’ve mentioned in this blog before that I think that judgement is the most important yet often most underrated of business skills.  I suspect that’s because it’s difficult to quantify and that fits uncomfortably in a data-obsessed `if it can’t be measured it can’t be managed` world and the format of case study models force fed to MBA students. Yet it is particularly important to develop it in order to deal successfully with the daily realities and hurly-burly of entrepreneurialism.

Everybody makes poor decisions occasionally and that may be down to lack of time but more often it’s down to lack of judgement. But unlike native intelligence, judgement is not innate - it can be acquired and improved upon.  Of course, the base of good judgement is plenty of experience, but it’s how you interpret the lessons learned in life that’ll make your judgement more or less effective.

So how might you ensure you are not unwittingly stymying your chances of developing good judgement?

The Undisputed Truth?

The first thing to do is to consider the way you think about things. Much as you might like to pretend otherwise, like everyone else, your unique world view is shaped by your own ego, irrationality, prejudice, delusion and instinct for self-preservation.  It may be very far from being objective or even truthful.

To get a grip on how far you may be from reality questions you might want to ask yourself include: Are your decisions really all about your needs or about the needs of others? Are you more driven by fear of failure or desire for success? Do you sweat the small stuff or enjoy exploring the big picture? Are you more likely to plan strategically for the future or do you prioritise tactically for the short term? Are you an optimist or a pessimist? Are you risk averse or do you enjoy change? Do you tend to worry and vacillate or are you more prone to making quick, impulsive decisions? Do you stick to what you know and the familiar or do you seek new knowledge and experiences? Do you need to be recognised or hate it if the limelight shines on you?  Do you keep problems and challenges to yourself or do you socialise them?
 
Like so much of our behaviour, the characteristics that these sorts of questions reveal have been formed by a complex mixture of nature and nurture. Changing our most basic instincts handed down through generations and formed over decades is hard going, but the mere fact of being aware of their existence is the first step to overcoming the bias inherent in every one that can be exposed by such self-examination.   Every step you take in that direction will help you minimise their adverse effects on your decision-making, which will cumulatively improve your judgement.

Once you’ve started to engage with your own, subjective weltanschauung, the second thing that helps make for increasingly better judgement over time is to learn to prioritise all the demands that as an entrepreneur are placed on you every day.

A Certain Ratio
We’re all familiar with the Pareto Principle – the split of 80/20 that’s traditionally been applied to many things in life and business.  But, increasingly in a digitally-enabled world, I’m becoming more of the opinion that it’s the 90/10 rule that applies.  In this case, that means trying to devote 10 per cent of your time to 90 per cent of the decisions, and 90 per cent of your time to 10 per cent of the decisions.

The reason is simple: the vast majority of the decisions you are required to make are about unimportant and undemanding ephemeral `stuff`.  These can be automated or delegated.  The more effectively you do this, the more focus you can put on applying your brainpower to vitally important matters: business planning ; big investment and partnering opportunities; meetings with key customers; succession planning; ethical quandaries and other complex problems that need time and energy to think through and are important to get right.

This approach can be used in conjunction with a clear `magic square` approach to prioritisation using  the axes `urgent` and `important`.  Ask yourself to what extent tasks are urgent and important; urgent and not important; not urgent but important or not urgent and not important?  Take what’s on your plate and place each in a position in the square.  The further to the top right the tasks appear will dictate the order in which they should be tackled and the top ten per cent on which you should focus.

Tricky
But the tricky thing about good judgement is that it’s about more than just your initial satisfaction with your own decisions.  Judgement is not a process that is completed in isolation.  Once a decision is made, you have to prove both to yourself and others that it is the correct choice in the circumstances.  If you don’t truly believe it you can bet you’ll fail to convince others. And that’s a problem because in order for good judgement to be effective you need to bring others with you.  It’s a social skill.  In fact, if others don’t think you have good judgement then you can be pretty sure you don’t. 

Lastly, it’s important to realise the problems that we face in life and business rarely have an absolute resolution.  Whether we have made the right or wrong decision depends on whether we achieve or come close to the outcome we intended and our colleagues bought into. You need to have a common sense of what success looks like. And more than dash of common sense too.

Whatever the outcome, learn from the process. Whether you were exercising judgement or were affected by decisions it influenced.  But be sure in doing that if you don’t learn to fail you’ll fail to learn because, as I said earlier, good judgement comes from lots of experience.  But the best teacher is the consequences of bad judgement.

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