disruptive innovation

Is crowdfunding the new tech bubble? Or just a good old-fashioned junk bond?

Originally published on April 10, 2015 as a Guest Column in The Globe and Mail: http://www.theglobeandmail.com/report-on-business/small-business/sb-digital/innovation/is-crowdfunding-the-new-tech-bubble-or-just-a-good-old-fashioned-junk-bond/article23823686/

Despite the headline, I’m a proponent of crowdfunding and believe it can bring innovative ideas to market. Fundamentally, I feel that new forms of financing provide additional access to much-needed capital and bring healthy competition to the lender market, benefits that all entrepreneurs and inventors can appreciate.

So why the negative headline? It’s not meant to be sensational. I have real worries about the mania that seems to strike the markets with every shiny new opportunity. Some would call it systemic greed. Others may be more forgiving, and call it the cost of innovation. Whichever camp you choose, it’ impossible to deny that there’s extreme pressure on everyone in business to return continuous, increasing profits to shareholders – whether the shareholders are ourselves, our families or the public markets.

Crowdfunding, of course, is the rapidly growing practice of funding creative projects or startup ventures by raising small amounts of money from a large number of people, usually via specialty websites like Kickstarter and Indiegogo. Maybe the early days of crowdfunding were the best, when early adopters and other hipsters invested in new projects to receive finished products, T-shirts and other promotional, non-financial “perks.” But that’s the past, not the future.

My fears started to heighten at a recent panel discussion I attended on the emergence of equity crowdfunding – the practice of “mass” funding of opportunities in return for equity. One panelist urged the quick adoption of this new financing frontier because he didn’t want Canadian businesses and investors to fall behind or lose out on this incredible opportunity.

While the parallels are not exact, this rhetoric struck me as reminiscent of the rise of junk bonds, the 1999 Tech Bubble, and yes, the subprime mortgage scandals that drove us into the Great Recession, the economic slough from which many individuals, companies and countries are still just emerging.

I want to remind would-be investors that, on average, about 80 per cent of business startups fail. Even successful companies have a success rate of about 15 per cent on new product ideas. More often than not, new business initiatives just don’t work out the way that we want them to.

If you’re taking fun money from your cookie jar to support a cause you believe in or a new product you love, then crowdfunding provides you a new way to back your convictions that has never existed before. But you should understand the odds.

As securities regulators approve equity crowdfunding – probably by restricting how much investors can invest per year, and how much companies can raise – it seems likely that today’s low-stakes “pin money” culture is going to change. Investors, by definition, want a return on their money. If crowdfunding truly expands beyond the hobbyist market, it will only be because a consistent percentage of issuers actually create incredible value for their shareholders. But how likely is that to happen?

You can say this for “old-school” backers. The professionals, whether they’re banks, venture capitalists or experienced angel investors, push you to truly understand and articulate your project and its potential market. They pressure you to justify the risk and return involved. Without that initial and ongoing demand for due diligence, crowdfunding will likely create a less disciplined marketplace in which success becomes even harder to attain, and failures increase in number.

On the other side of the deal, if you are successful in seeking capital, understand that you will now have to report to “the many.” You’re the custodian of the hopes and dreams and expectations of people whose motivations you don’t know. You have an obligation to keep them in the loop – and can only hope to keep them happy.

Never underestimate the impact of the mob, the Web or social media on your company and its reputation if something goes wrong. Face-to-face funding may have been harder to get, but that was not necessarily a bad thing – for you or the markets.

Bottom-line: Crowdfunding is an exciting new wrinkle in innovation funding. But it won’t change the rules of the marketplace: investors expect value for their money. Nothing comes free. The more expectations you create, the more your crowds will expect you to deliver.

I am a huge proponent of new financing mechanisms, including crowdfunding. I simply don’t believe in the tooth fairy.

I do believe in the notion of ‘buyer beware, seller take care.’ With a little more common sense, and less frenzy, I believe crowdfunding will help to bring a lot of remarkable innovation to market. Without that discipline, I fear we’ll see a speedy series of failures, losses and resentment that will burst crowdfunding’s balloon faster than you can say “count me in”.

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Clydesdales and Customers


How do you cause a disturbance? Shake up the marketplace?

It begins by tapping into the emotions and psyche of the consumer. Take the Budweiser Superbowl TV spot about the man that raised and trained a Budweiser Clydesdale horse and gave him up to be a part of the Budweiser team. The horse never forgot his trainer, and sought him out by cantering down the street to find him after a parade. They share a ‘hug’, and the consumer feels heart-warmed by their happy reunion. Just about everyone felt touched by this commercial, and thereby touched by the brand as well. Everyone who saw the commercial in real-time talked about it, and many who didn’t see it live, looked it up later on YouTube. This is the essence of causing a disturbance.

While the phrase is often (over) used, it’s hard for people to think outside of the box. I tell them to start very simply.  Turn off of your computer, your iPhone or your iPad because the answers aren’t in your screensavers or mobile devices. Tilt your head up slightly and observe the world around you. Inspiration and ideas start with observation. Attend events, business groups and round tables. Most of all, talk to and be inspired by new people.

The ideas don’t have to be earth shattering. They just have to delight the senses or sensibilities of your market. After all, the cakepop is just a really little piece of cake dipped in chocolate coating and held up by the timeless popsicle stick. Just like that, you have take-out cake, a very small tweak to a favourite treat that puts big smiles on people’s faces.

How can you further delight your customer and keep them engaged? What else can you sell to them? It could be a product, a process or a service. So, don’t be afraid to shake it up. Today, more than ever, you have to be engaging and re-engaging your customers with things that are new and interesting.

That’s innovation. It’s as simple as that. Have an idea and bring it to market in a way that delights customers and keeps them coming back to you!

How will you shake up your bowl of oats?

Listen to the radio interview that this article is based on below.

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How far can Apple fall from the tree?


The recent tumble of Apple’s stock raises an interesting question: How far can the price of the stock fall relative to the value of Apple’s most inherent strength, its ability to innovate?

No one knows exactly how much value investors attribute to a company’s innovative capacity and how much of that is reflected in the stock. Apple’s precipitous decline to $457.19 a share (January 29, 2013), compared to a 52 week high of $705, is more about ‘expectations’ for revenues and profits than the intangible of innovation. In January, expectations remained high despite the fact that Apple executives tried to downplay them. On November 26, 2012, John Dobosz of Forbes cited Marc Gerstein who had Apple as “Sell” and he said, “Apple stocks could slip further.” Now, after a quarterly report in which the numbers were good, just not good enough, the questions have started. Has Apple lost its edge? Will the competition make inroads? Why aren’t new products creating the same buzz? Has the bloom worn off the iPhone?

In the smartphone market, Samsung, who serves more of the lower-end market, has long been in Apple’s rearview mirror even though their phones outsold Apple in 2012, 233 million to 133 million. And Samsung’s fourth-quarter results exceeded expectations with an 89% increase in operating profit and 76% in net profit. Who’s hunting whom?

When it comes to innovation, Samsung’s approach is different than Apple’s. Simone Foxman, business writer for Atlantic Media’s Quartz, reports, “Samsung sees itself as less inventor than innovator. It builds on technologies already in the marketplace and remains open to others.”  That’s what I call ‘simple-adaptive’ innovation in that they develop products incrementally based on what they know rather than focusing on ‘disrupting’ the marketplace with transformational products. That’s Apple’s game.

Both simple-adaptive and focused-disruptive strategies work, and ideally companies want to be good at both. Now, for these two giants, it may be a question of whether Apple can become more incremental while maintaining its Steve Job’s transformational capability and whether Samsung can move beyond incremental and leapfrog into higher-end markets. It will depend a lot on their capacity to innovate. Time will tell. In the meantime, some expectation of their innovative capability will be evident in the stock price.

Innovation is in the DNA of a company and its people, and that doesn’t change with quarterly results. In Apple’s case, it may well intensify their innovative quest for the next game-changer. And when it comes to expectations, I wouldn’t bet on the apple falling too far from the tree that Steve planted.

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