Executing Ideas brilyuhntly

What's the formula for moving from a great idea to actual implementation?

"You'd think we'd have a really complex answer for this one. "But for me, it's really simple and can even be captured in one phrase: 'Inventions with impact.' As in impact on people, our clients' businesses, and the world. In whatever forms it takes."

Compared to big companies, startups have the advantage of no "legacy," which means you don't have to worry about disrupting your own business model or changing skillsets. So when big companies can--and some do--create the space for new opportunities that challenge the legacy, they can do incredible things!
Furthermore, there's a place in the innovation landscape for big companies and startups and others, such as government and universities. While big companies tend to focus on core innovations and startups can pivot rapidly, all of us need to work together when the problems are too big or complex for any one entity to solve alone.
How do you create a culture of innovation?
From both the bottom up and top down. Most organizations tend to focus on one or the other. One of the things we did, is to create a portfolio management framework--and associated review processes--that balance localized autonomy for our researchers with a comprehensive, proactive approach to managing our innovation investments. 

Creating a true culture of innovation is very difficult. So we often recommend you start by trying to shift mindsets first. For example, mindsets such as embracing failure (not just fail fast but fail in order to learn), real options for metering and growing innovation investments (as opposed to net present value), and much, much more.
Shifting gears a little here, but we want to know how you found your last great idea.
So this is an interesting question, because it seems to put the focus on ideas--and I think there's a tendency for all of us to glorify the ideation process when in fact it's the reduction to practice that's perhaps more important. And what we've found is that the best way to move from ideation to implementation is to focus on the intersection of these three things: 


1. Technology expertise and trends beyond trendspotting
2. New models for business
3. Human-centered context, as in ethnography, to discover what people actually do and want and need, not just what they say they do.

One of these alone may give you good ideas and incremental innovations, but you need all three for innovation with impact.

From UI to UX

Whenever we have a successful implementation, we like to hear from customers what went well and what didn’t, so we can keep learning and getting better.

This notion has been the subject of some debate in the software community. There are those who say the best we can hope for is to equip workers to do their jobs. Software will never be able to help people feel more satisfied and engaged.
We disagree.
The reason? Software is an essential tool that many people spend their day working with. The opportunity is to provide software that inspires users, software that is easy and fun to use, software that is actually proactive and helps the user get their job done with more impactful outcomes.
Yes, fundamentally we’re equipping workers with the tools they need to do their jobs, but today we’re looking beyond the user interface (UI), which is simply how you interact with the software and how it maps to a process.
For the past several years, we’ve been focusing on the user experience (UX) — the feeling you get accomplishing a task using this tool. It’s not necessarily the process or the feature set that’s important. It’s how well the software lets you access the information you need, whatever path you choose to get there.
When it comes time to evaluate business software and think about an upgrade, companies would be wise to ask themselves if employees are spending their day concentrating on the software and its processes — or looking beyond the interface and concentrating on results.
This is the difference between employees who are engaged with your business information and solving a challenge, and those who are sitting back in their chairs, thinking about which step in the process comes next or which feature to click on.

brilyuhnt entrepreneurs

After a couple of brilyuhnt entrepreneurs dropped out of Harvard, they both went on to launch companies that employed thousands of people, created billions of dollars of economic value, and generated whole technological ecosystems around them. It's that dropout part that has kept a lot of people from thinking of Harvard in the same way they think of Silicon Valley--as the center of technological innovation and venture capital.
But perceptions may be changing. (Even famously pro-dropout Peter Thiel has gone back to school.) There's a growing respect for what young entrepreneurs can create very early in their lives and a renewed thinking about how to give them the resources needed to stay in school, help them build their businesses, and retain the connection to them once they've graduated.
Take the Experiment Fund (also known as the Xfund), a seed venture fund launched by 28-year-old Hugo Van Vuuren (who just completed graduate work at Harvard), with the backing of one of the world's top venture funds, NEA. Two NEA partners, Patrick Chung and Harry Weller, are cofounders of the Xfund. Both Chung and Weller have personal connections to Harvard--Chung holds a JD/MBA from Harvard Law and was an editor of the Harvard Law Review, as well as getting his undergraduate degree from Harvard; Weller holds a Harvard MBA.
As a senior at Harvard, Van Vuuren raised money for an online photo editor startup and in that capacity participated in Y Combinator. More recently, during graduate studies at Harvard, Van Vuuren worked on several products and startup projects with his professor David Edwards, who is now an advisor to the Xfund. Seeing the potential for both the venture community and the growing ecosystem of startups at Harvard to come together, the idea for the Xfund was hatched. "We're positioning ourselves between great research universities like Harvard and storied venture funds like NEA," Van Vuuren says. "These are two communities that should talk more ... right now they don't."
The Experiment Fund launched in January and is designed to make seed stage investments in potentially transformational companies started by students at Harvard and other colleges. "Whether through the scientific method, artistic discovery, or lean optimization, we help tomorrow's technology leaders build and realize their visions today," the Xfund's team declared in announcing itself. The Xfund is focused on companies with big ideas. Van Vuuren adds, "Harvard, like many schools, has people who want to change the world, but recently, I think more people are realizing that starting a company can be a real vehicle for change." Although a lofty and seemingly ambitious mission, that very mission embodies the thinking of many college startup founders.

Harvard, like many schools has people who want to change the world, but recently, I think more people are realizing that starting a company can be a real vehicle for change.

While many campuses have venture funds directly associated with the university, the Xfund is among the first independent, professional funds to be headquartered on a university campus. The initiative also gives NEA exposure to great startup ideas and entrepreneurs coming out of Harvard, MIT, and other schools in the area, and all over the country. "The design of the fund is to improve the local innovation ecosystem. To become a top innovation hub, you need to have a robust venture component," Van Vuuren says. "That's where we come in as trusted community members who can help the Harvard community take their technologies to the next level and impact the world."
The Xfund plans to make 4-6 investments a year (typically between $100,000 and $250,000 for each company), and they have already made three: Rock Health and Omada (both of which are health care ventures), and Tivli, which seeks to "reinvent television." All three have founders who are recent Harvard graduates.
Hugo Van Vuuren knows that the next Mark Zuckerberg will have opportunities for funding from many sources. But the Xfund can offer student entrepreneurs funding from NEA--one of the most successful venture capital firms in history--as well as support, advice, and a hyperlocal community.
At Harvard, the Xfund team works closely with faculty throughout the university. The Xfund has been able to create connections between entrepreneurial students and advisors from Harvard programs and schools including: the Harvard Business School, the Harvard Innovation Lab (i-Lab), and the Harvard School of Engineering and Applied Sciences (SEAS), whose Dean chairs the Xfund's Advisory Board. Faculty members have even allowed the Xfund team to visit classes and talk with students. In a somewhat poetic nod to Bill Gates, the Experiment Fund is headquartered in the Maxwell Dworkin building, which houses the computer science program and was a gift of Gates and his Harvard-era buddy and longtime Microsoft CEO, Steve Ballmer. The building is named for their mothers, Mary Maxwell Gates and Beatrice Dworkin Ballmer.
While physically anchored at Harvard, the Xfund is just three miles from MIT's front door, and is within an easy commute of all of the Boston area's startup-prone colleges. But Van Vuuren notes that talent can come from anywhere in the country and ultimately companies may move their physical locations. "We don't want to make companies stay at Harvard, if they need to be in New York or San Francisco that's fine. We recognize that Boston, Cambridge, and the East Coast in general have been an underserved market. Some of the larger venture funds have left Boston entirely," says Van Vuuren. "That's bizarre. Boston and New York are both young cities and a lot of great companies are born here." Referring to the zip codes for Cambridge, Mass., Van Vuuren says, "We think that 02138 and 02139 are the zipcodes where new industries will be birthed."

We learn by doing

My parents never rewarded me for getting an A in high school. Why? Because that was expected. Similarly, showing up to hockey practice on time never evoked a round of applause from my hockey coach. That was my obligation as a member of the team. Preparing and ultimately delivering on that promise formed the baseline. It set the stage for my individual success. Leadership works the same way. It requires developing yourself and then others. It requires more than just an example.
Gandhi taught that we must be the change we wish to see in the world. Said another way, you must offer that which you seek. If you want to build an All-Star team then you must become an All-Star. The first step in leadership is to develop yourself. How can you assist another if your house is not in order? Learn your job and do it well. Set the example.
But most people do not learn by observation. I know not to touch the stove because I was once burned, and I know how to correct a mistake only after it was made. We learn by doing. The real work begins when it's time to translate losses into wins; challenges into opportunities; enemies into friends. We are only as good as the sum of our parts, and the key is to invest in the development of the whole.
This proves difficult, however, when your example must translate 101 ways. Observation may be enough for some, but certain runners may need you to walk them through the course while others will need you to run the race with them. Leadership requires flexibility. The one constant is the willingness to direct your feats so that they align with the pursuits of the team.
There’s a reason why relay racers look back before grabbing the baton. They anticipate the handoff: the moment before one runner completes what the next is set to do. It’s an acknowledgement of will and a commitment to carry it home. It’s the send-off before victory. In life we will be on the receiving end, but more often than not, we will be the ones barreling down the track pushing the others forward.

Brainstorming

Turns out that brainstorming--that go-to approach to generating new ideas since the 1940s--isn’t the golden ticket to innovation after all. Both Jonah Lehrer, in a recent article in The New Yorker has asserted as much. Science shows that brainstorms can activate a neurological fear of rejection and that groups are not necessarily more creative than individuals. Brainstorming can actually be detrimental to good ideas. But the idea behind brainstorming is right. To innovate, we need environments that support imaginative thinking, where we can go through many crazy, tangential, and even bad ideas to come up with good ones. We need to work both collaboratively and individually. We also need a healthy amount of heated discussion, even arguing. We need places where someone can throw out a thought, have it critiqued, and not feel so judged that they become defensive and shut down. Yet this creative process is not necessarily supported by the traditional tenets of brainstorming: group collaboration, all ideas held equal, nothing judged.
So if not from brainstorming, where do good ideas come from?

The creative process isn’t supported by the traditional tenets of brainstorming.

At Continuum, we use deliberative discourse--or what we fondly call “Argue. Discuss. Argue. Discuss.” Deliberative discourse was originally articulated in Aristotle’s Rhetoric. It refers to participative and collaborative (but not critique-free) communication. Multiple positions and views are expressed with a shared understanding that everyone is focused on a common goal. There is no hierarchy. It’s not debate because there are no opposing sides trying to “win.” Rather, it’s about working together to solve a problem and create new ideas.
So we argue. And discuss. And argue. A lot. But our process is far from freeform yelling. Here are five key rules of engagement that we’ve found to yield fruitful sessions and ultimately lead to meaningful ideas.

1. NO HIERARCHY

Breaking down hierarchy is critical for deliberative discourse. It’s essential to creating a space where everyone can truly contribute. My first week at Continuum, I joined a three-person team with one senior and one principal strategist. A recent graduate, I was one of the youngest members of the company. During our first session, the principal looked me in the eye and said, “You should know that you’re not doing your job if you don’t disagree with me at least once a day.” He gave me permission to voice my opinion openly, regardless of my seniority. This breakdown of hierarchy creates a space where ideas can be invented-- and challenged--without fear.

2. SAY “NO, BECAUSE”

It’s widely evangelized that successful brainstorms rely on acceptance of all ideas and judgment of none. Many refer to the cardinal rule of improv saying “Yes, AND”--for building on others’ ideas. As a former actor, I’m a major proponent of “Yes AND.”
But I’m also a fan of “no, BECAUSE.” No is a critical part of our process, but if you’re going to say no, you better be able to say why. Backing up an argument is integral in any deliberative discourse. And that “because” should be grounded in real people other than ourselves.
We conduct ethnographic research to inform our intuition, so we can understand people’s needs, problems, and values. We go out dancing with a group of women in a small Chinese village; we work in a fry shack in the deep South; we sit in living rooms and listen to caregivers discuss looking after a parent with Alzheimer’s. This research informs our intuitive “guts”--giving us both inspiration for ideas and rationale to defend or critique them.
During ideation, we constantly refer back to people, asking one another if our ideas are solving a real need that people expressed or that we witnessed. This keeps us accountable to something other than our own opinions, and it means we can push back on colleagues’ ideas without getting personal.

3. DIVERSE PERSPECTIVES

We’ve all heard of T-shaped people and of multidisciplinary teams. This model works for us because deliberative discourse requires a multiplicity of perspectives to shape ideas. We curate teams to create diversity: Walk into a project room and you may find an artist-turned-strategist, a biologist-turned-product designer, and an English professor-turned-innovation guru hashing it out together. True to form, my background is in theater and anthropology.
On a recent project, I realized the best way to tackle a particular problem was to apply a text analysis tool that actors use with new scripts. I taught this framework to the team, and we used it to generate ideas. Another time, a team member with a background in Wall Street banking wrote an equation on the whiteboard. It was exactly the framework we needed to jumpstart our next session.
When we enter deliberative discourse, arguing and discussing and arguing and discussing, we each bring different ways of looking at the world and solving problems to the table.

4. FOCUS ON A COMMON GOAL

Deliberative discourse is not just arguing for argument’s sake. Argument is productive for us because everyone knows that we’re working toward a shared goal. We develop a statement of purpose at the outset of each project and post it on the door of our project room. Every day when we walk into the room, we’re entering into a liminal play space--call it a playing field. The statement of purpose establishes the rules: It reminds us that we are working together to move the ball down the field. As much as we may argue and disagree, anything that happens in the room counts toward our shared goal. This enables us to argue and discuss without hurting one another.

5. KEEP IT FUN

We work on projects ranging from global banking for the poor to the future of pizza and life-saving medical devices. Our work requires intensity, thoughtfulness, and rigor. But no matter the nature of the project, we keep it fun. It’s rare for an hour to pass without laughter erupting from a project room. Deliberative discourse is a form of play, and for play to yield great ideas, we have to take it seriously.
But we don’t brainstorm. We deliberate.

Web Importance to Americans

How important is the Internet to us, really? That’s what Boston Consulting Group asked in their recently released study which weighed the Internet’s importance on everything from the global economy (which will account for 5.2% of GDP for G20 countries by 2016) to individual lives (polls found that 21% of Americans would give up sex for Internet access, but only 10% would give up their cars).
The results offer us an endless array of discussion points, and thanks to a collection of simple infographics, we can peruse the data quickly.

For one, despite the innovations from American companies like Microsoft, Google, and Apple, America isn’t the proportionate leader in Internet commerce. By 2016, we’re the 6th-placed country, and we fall below the average of developed markets. It sounds hard to believe until you examine the numbers. In the U.K., 12.4% of the entire GDP will be represented through online spending. In the U.S., it’ll be just 5.4%. We’re behind, and nothing is bucking the trend.

Things get really interesting though when you start asking people what they would give up to keep the Internet in their lives. 73% of Americans say they’d give up alcohol. 43% would give up exercise. And 21% would give up sex. (Is that high or low? Depends, I guess, on your own answer.)

However, the more interesting point (to me) is that our perceived value of the Internet is highly inflated. Americans see the services worth about $3,000 a year. (As a telecommuter for half a decade, I’d go even higher with that figure.) But what’s the Internet really worth, in terms of its cost? $472/year. So mentally, we’re all paying a 650% markup.

This mental markup is a strange phenomenon. In a world where most of us expect everything to plummet in price, and many of us lament companies like Apple’s high margins (50-100%) as generating “overpriced” products, we’re completely out of sync with the value of digital services and online products. It’s like the dot com boom still lives and breathes in all of us, and we still see the images and videos streaming to our computer screens as a bit too wonderful to be true.
Given that we live in a world full of skepticism, where most of us take the ingenuity around us for granted (in part by necessity, since we can’t spend all day oohing and ahhing at flat displays and planes floating in the sky), the fact that we overvalue the Internet--that we intrinsically hold it sacred--is actually a somewhat beautiful idea, no?

"Mobile Mobile Mobile Yeahhh"

A new study finds that mobile devices, more than social networks, are driving the revolution in digital news consumption. The newspaper isn’t dead, it’s just gone mobile.
Not only are more Americans getting their news on mobile devices than ever before, but these mobile users may also have a stronger bond to news brands than their laptop/desktop-using counterparts. According to the Pew Research Center’s annual State of the News Media study, 27% of Americans get their news on mobile devices like smartphones and tablets. And 44% of the country now owns a smartphone; 18% owns a tablet.

What’s more significant, though, is that these mobile users are more likely to turn to news brands directly, through apps and home pages, as opposed to Google search results or recommendations on Twitter or Facebook. In addition to suggesting a deeper connection with the news organization’s brand, the findings reflect a deeper connection to the news itself, with three in 10 users reporting that they read more news since purchasing a tablet than ever before.
Researchers also found that mobile use is adding to, not replacing, more traditional web-based news consumption, increasing traffic to major news websites by 9%. This spike may be courtesy of digital newcomers in rural areas where broadband access is limited, and for whom a smartphone or tablet is their first digital device.
In addition to its findings on mobile consumption, Pew looked at the effectiveness of social news discovery and found that a mere 10% of digital news consumers use social networks “very often” to get their news, which may come as a surprise to those of us glued to Twitter and Facebook for breaking news updates. Meanwhile, television news viewership is actually on the upswing at both local stations and cable networks. Local morning and evening broadcast audiences grew by 4.5%, the first signs of growth in 10 years, while CNN and MSNBC also experienced higher viewership in 2011 than the previous year. (Fox News was on the decline for the second year in a row, but still leads the pack with a bigger audience than the two other major networks combined.)
Finally, Pew researchers expect the number of digital news subscriptions on the market to nearly double this year, thanks to the relative success of paywalls like the one implemented by the New York Times, as well as the need to make up for lost ad revenue.

Siri gaining ground on the search players

According to the Wall Street Journal, Google is poised to make some of the biggest changes ever to its search page behavior. That's Google's core business, and it's garnering a lot of attention because Google essentially is Internet search (and advertising, of course, more on that soon). This is a little like NASA saying it's going to rethink how it uses rockets. The move is all about bringing semantic technology to the search experience, making Google smarter at answering questions. Except, when you get down to it, it's really not at all about this.
What Google's going to do is basically trying to interpret a user's query as a fact-seeking question, and then surfacing context-sensitive answers to the top of the results page rather than a mere list of links. The semantic aspect is about using smart algorithms to try to divine a user's meaning, rather than simply a hunt for words that match the query text. Apparently Google's been busy for a couple of years putting together a database that'll power this system--a list of facts about people, places, and so on that is "hundreds of millions" entries in size. The idea is to deliver better content to a user early in the search, meaning they don't have to trawl through the search pages using the natural semantics-powered filter between their ears to spot the answer they need among the longer list of blue links Google serves up.
For example, the Wall Street Journal suggests that if a user searches for something like "what are the 10 largest lakes in California" Google's search results page may actually give you the answer rather than linking to sites that contain data that may be relevant (very hopefully relevent, you'd think, as Google's been honing its algorithm for years so that this is how it all works). If it can't find the data in its vast new database, then it'll use its clever semantic tech to find the answers in the billions of websites in the world.
It's all about keeping people on the homepage for longer, you may think (and Google has hinted as much to the Wall Street Journal), because there's more likely to be interesting stuff presented to you after the click on "search." That translates directly to eyeballs spending more time on digital ads on the page. And this, not search, is really Google's core business.
But let's pause to question all of this. Google's been trying to do this sort of thing for quite some time--most obviously because Google now searches for synonyms of what you type in as well as trying to directly match your query. Google Instant was a less language-driven but more recent attempt to surface meaningful content as you typed--even before you finished typing your full query (because you may find the relevant answer sooner this way). So in several ways Google's already doing this context-awareness, and though it's about to promote it to the top of the page, and probably marry it to a new engine to give it more power, it's nothing amazingly new.
Also, you may query if this new system will, on the whole, keep users' eyes on the homepage for longer. Surely getting an instant list of the 10 biggest lakes in California will satisfy your needs at a quick glance--perhaps eating up much less of your time than scouring down the current list of search results and, heaven forfend, actually scrolling down the page to see more links (for which read: "more adverts").
Speculatively, we may also wonder if this better understanding of context is gleaned from that big privacy-threatening, lawsuit-beriddled move Google made recently to consolidate all its data about each user in one place. Surely a compound database containing everything Google understands about your likes, historic searches, preferences, and habits will help it better understand the context of each search.
Then there's Bing, Google's ever-more interesting Microsoft competitor. Bing made a big play ear
 on to say it was going to surface answers and facts sooner in the search results--things users may need, based on the context of their search, like the phone number or address of a company name they're looking up.
And ultimately all this PR bluster is about a different Google search rival. It's really about Apple's Siri. The voice-powered system gets some hard press attention because it promises much, but seemingly fails to deliver what you may expect it would just yet. Some of this is deserved, and Apple's done little to expand the international availability of Siri's powers for local business search and so on. But some of it is most definitely not deserved, as Siri is probably the most reliable voice-powered search system the average user has ever encountered. Statistics also show Siri now make
 up over 25% of queries to Wolfram Alpha, the semantic-powered, context-aware intelligent answer engine. This is because Siri's a filter on your voice searches, and it's aware that some facts are best served by looking at a weather database, others will be solved by WA, and others by a websearch on Google.
That positions Siri as a gateway for search that is definitely shuttling traffic away from Google and its ad-sporting answers. And sure, Siri's only on iPhones for now. But Apple's expected to sell tens of millions more iPhones this year, and it's completely plausible it'll expand Siri to the new iPad and perhaps OS X soon enough. That's an ever-growing threat to Google's lifeblood--traffic. And it's not just from Apple, as Siri's so clever it's spawned clones like Evi. As Netizens, particuarly when mobile, get used to this idea of new search tech, they may choose Google less. And the company would find that idea, well, evil.
Unless it keeps up. Aha!

The epitome of disrupting technology. "Just brilyuhnt"

Last year at GeeknRolla a little known startup appeared in the demo pit, but went on to win the admiration of judges in the startup competition. It’s the only time The Currency Cloud has made a public appearance, but today the startup has a inked a $4 million Series-A funding, led by Atlas Venture with follow-on participation from Anthemis Group. Maybe you don’t need to launch at SXSW to make noise? The company previously raised $2 million from Anthemis and others. The money will be used to ramp up product and commercial activity.
Now, there’s something typically London about this company, which suggests it probably couldn’t have come from anywhere else.
The Currency Cloud has developed a Foreign Exchange (FX) payments automation platform which supercharges the tired old world of cross-border business payments, aiming to reduce costs for business and make multi-currency payments more frictionless.
Why is this interesting? Well, we’re talking about a team from the City of London that built the UBS online FX platform bringing their skills and experience to the combined revolutionary powers of the Cloud and SaaS. Since FX is one of the last great ripoffs in finance, this might actually be a pretty big deal.
Obviously Foreign Exchange is a big market to attack. According to the Bank for International Settlements, the average daily turnover in global foreign exchange markets is estimated at over $4 trillion.
The startup now has over 100 corporate customers using the company’s SaaS offering and 20+ platform partners using its API. Think Stripe (a developer-friendly way to accept payments) but geared toward Foreign Exchange and you are close to what The Currency Cloud is.
Mike Laven, CEO and veteran of the West Coast tech scene, says “Businesses everywhere need to deal in multi-currencies in every working day. Yet the methods being used are antiquated and expensive to all but the largest corporates and the banks. Our re-design of the industry business model delivers price transparency, risk management and ease of use.”
Fred Destin, Partner, Atlas Ventures, says FX remains error-prone, low tech and expensive and think the startup can “take costs out and bring transparency and automation in.” Sean Park, co-founder, Anthemis Group, added: “Selling one currency to buy another should not be that hard. Yet for the millions of companies and individuals doing so today is too often a painful and expensive experience.”
It looks like The Currency Cloud is on to something.

It's brilyuhnt to have a SaaSy IPO

IPOs are hot again. Naturally, the press is focused on high-profile offerings like Facebook’s. But, I think there is a more important group of companies going public: Smaller, less sexy Software-as-a-Service (SaaS) startups. Think of it as the Sexy IPOs versus the SaaS-y IPOs.
They aren’t household names, but the most recent SaaS IPOs (Cornerstone, Jive, Brightcove and Bazaarvoice) are doing better in the public markets, on average, than the Sexy IPOs of LinkedIn, Groupon and Zynga.
But it isn’t just their performance that matters — the recent IPOs of those cloud-based software companies (plus earlier ones from Successfactors, Netsuite, and Concur) are harbingers of several important trends:

Healthy Valuations with sub-$100M in Revenue

The SaaS companies have gone public with annual revenue in the range of $50-$100M and are valued at anywhere from $500M to $1B at IPO. Several are now trading well above $1B. VCs have been waiting for 10 years for the public markets to consistently accept new issues with less than $100M in revenue. This is an important development as it means VCs can exit companies sooner in the investment cycle.

Strong Trading Performance since IPO

As a group, Cornerstone, Jive, Brightcove and Bazaarvoice are up 64% since their IPOs. Earlier SaaS IPOs like Concur and Netsuite are up 375% and 88%, respectively, since their debuts. Finally, don’t forget that Successfactors went public at $10/share and was recently acquired by SAP at $40/share!
Implications: The SaaS IPOs are training public market investors that they can generate strong returns when they invest in the IPOs of VC-backed companies with sub-$100M in revenue. And, these companies are being valued highly enough so that VCs who invested early can make excellent returns. In many cases, these IPOs are “fund-makers” for the early stage VCs. And when they trade up in the aftermarket, it is a win-win for both VC and public market investors.
Of course, Linkedin, Groupon, and Zynga are absolutely phenomenal for the VCs involved. I wish I had been an early stage investor in any or all of these. And, they have proved to LPs that VCs can, once again, generate serious returns for them. But, just like Google didn’t ignite a rush of IPOs starting after 2004, I don’t think the sexy IPOs will launch a huge wave of IPOs. Why not? First, there just aren’t enough companies at that scale to expect VCs to have a consistent inventory of them. Second, several of these companies have gone public too late in their growth cycles to generate good long-term returns for public investors (my opinion). So, public investors may not be clamoring for more of them.
So, why are SaaS companies so attractive to public market investors and trading up in the aftermarket? I asked that question of a friend at a hedge fund that invests in IPOs. Here is his response (I bolded what I believe are his key points):

• SaaS companies are driven less by media hype and more by the investor appetite for attractive recurring revenue business models offered by the SaaS platform.
• These companies are growing rapidly as a result of customers shifting functions away from in-house solutions to more flexible and enhanced platforms that help increase revenues, improve productivity and reduce costs.
• Investors are not concerned by the lack of GAAP earnings, because there is a comfort driven by the 90-95% customer retention rates and an understanding that investing capital back in the business makes sense during the early phase of adoption.
• These factors lead to more defensible businesses that make for attractive takeout candidates.

In a nutshell, he is reiterating what Bill Gurley noted in his excellent post about what constitutes high quality revenue. In this case, SaaS companies solve critical problems for enterprises and generate sustainable and predictable recurring revenue with rapid growth.
The good news for the VC industry is that we have significant inventory of companies that fit this profile ($50-100M revenue and rapid growth). For example, companies like Demandware, Box.net, Workday, Yammer, Badgeville, GetSatisfaction and Marketo should all reach critical mass in the next 12-24 months. And, there are many others.
I know from experience because my firm, InterWest, is an early investor in several companies in this category including Marketo, GetSatisfaction, Spredfast, Varolii, Cloud9, Aria Systems and Cubetree (acquired by Successfactors). These businesses take time to build and require experienced leaders to grow them. Not incidentally, we believe they also require patient VCs that are laser focused on this business model.

Developing a brilyuhnt comeback for America

I'd like to believe it's Half Time in America and the U.S. is starting to make a comeback in the game of global competition. Unfortunately, I think the reality is it's more like sudden-death overtime. Unless we develop a game plan to score soon the contest will end and not in our favor.

To move forward there are nine plays America can call, some of which would pay off immediately and others which would make a big impact over the long term:

1) Streamline the tax structure. When Japan lowers their corporate tax rate in April 2012, the U.S. will have the highest corporate tax rate in the world. Yet, with loopholes, companies can make billions and pay no taxes. This is because the government tries to direct industry investment by offering loopholes as incentives. Unfortunately, this actually leads to money being invested inefficiently and retarding economic growth. Lowering tax rates and eliminating loopholes could be done in a way that would allow dollars to flow to the best investments while being revenue neutral. It would also incent companies to bring back the billions they have overseas (since the repatriation of money would be taxed at a lower rate), helping create innovation and jobs in the U.S. The same must be done with personal income taxes; reducing rates while eliminating loopholes, with the goal of being revenue neutral. This may have to be done over a longer period, as eliminating deductions such as that for mortgage interest would hit the housing industry at a time it is very weak. However, streamlining personal taxes would also make our economy more efficient and have the added benefit of making our personal lives simpler.

2) Rethink regulations to encourage proper behavior. The Federal Register, which contains all the U.S. government regulations, has roughly 36,000 pages and weighs over 100 pounds. While it's obvious businesses need regulation, over-regulation is not the answer. Instead, regulations need to be rethought, moving away from directing businesses specifically what to do to incenting them to do the right thing. For example, rather than giving bankers thousands of regulations, instead make them personally responsible for their bank's losses due to highly-speculative investments. Incenting proper behavior would be less bureaucratic and more effective than government micromanagement.

3) Rebuild our infrastructure with targeted investments. The cost of inadequate ground infrastructure (not including ports and airports) is estimated to cost the U.S. up to $3 trillion between now and 2040. The 2008 stimulus was supposed to spend billions on "shovel-ready projects," yet the rush to spend money found too few that fit the bill. Rather than funneling money to any available project, we need to create a targeted, long-term spending plan for roads, rail networks, ports, bridges and airports to reduce transportation costs. Focusing on major traffic bottlenecks and laying out investments year-by-year is the key here.

4) Unleash U.S. energy resources. The U.S. has been blessed recently as new energy reserves have been found in states such as North Dakota and Pennsylvania. For example, new sources of natural gas have reduced natural gas prices 85% in the U.S. since 2005. While it's important to develop the new oil and gas finds safely, the potential to reduce dependence on foreign energy sources, increase well-paying jobs in the U.S., and lower energy costs for companies and consumers is huge. While pursuing renewable energy is important, according to the Department of Energy, renewables will comprise only 16% of our energy by 2035. Wind and solar will likely be less than half that renewables number. And unfortunately, neither are as efficient or dependable as fossil fuels nor big job creators in the near term. While the drive for renewable energy must continue, allowing the development of the newfound and reliable oil and gas assets is key to economic growth.

5) Rebuild our human capital. In 1955, Time magazine ran an article titled "Why Johnny Can't Read," which focused on the low performance of U.S. students in public schools. Over half-a-century later, U.S. students still perform uncompetitively compared to other developed countries. This despite spending as much or more per student. Reading is not the only problem area; science and math skills that are crucial to innovation are issues as well. Per the Harvard Business Review, of the high school seniors who took the National Assessment of Education Progress test in 2009, 74% scored below proficient in math, 62% in reading and 79% in science. Introducing technology in the classroom is one answer; there is no reason best-in-class education could not be piped into every school via the Internet. Allowing charter schools and providing student vouchers is another, as is opening up the teaching profession to qualified adults. Beyond improving K-12 education, we need to revamp our immigration policy to allow highly-educated foreign students who have studied in the U.S. to stay here and add their intellectual capital in our companies. We need every smart person we can get; changing our immigration policy can help us win the global war for talent.

6) Invest in government research and development. While the government is not good at picking industry and company winners (and creates the potential for crony capitalism when it tries), it is good at creating new innovations and technology platforms through R&D. These can in turn be exploited by private industry, as exemplified by Google, Apple, and Facebook. Increased company competitiveness and worker productivity is only possible through innovation and both federal and state government support for R&D can play a role here.

7) Put social programs on a sustainable path. Social Security, Medicare, and Medicaid together comprise almost 60% of federal spending yet are on a path of insolvency in the near future. In Social Security's case, this is simple demographics. Back in 1940 there were 159 workers for every retiree, life expectancy was 63 and Social Security kicked in at 65. Today there are 3 workers for every

 reretiree, life expectancy is 77 and a person can start receiving (reduced) benefits at 62. The math is unavoidable. It's crucial to put these programs on a path to sustainability by increasing the retirement age, reducing benefits for those who have more and allowing choice and premium support for health care.

8) Rationalize executive pay. While I believe market forces are a better path forward for economic efficiency and growth than government intervention, it's clear that executive pay and perks in some firms have risen beyond what makes sense and may not be well tied to performance. The reason the compensation ratio has grown over time is simple; executives sit on boards that set the pay for the CEO, who in turn is plays a role in selecting them to serve on said board. Furthermore, consultants who perform other services with the CEO's firm also provide consulting on executive pay. Both situations are conflicts of interest. The solution is not government-mandated pay limits but investor empowerment. Compensation rates should be subject to stockholder approval, not just the company board.

9) Fix the political system. Gerrymandering by politicians has created "safe" districts that are highly partisan and can be relied upon to re-elect incumbent Democrats or Republicans. This polarizes our politics as these representatives tend to reflect the strongly-held beliefs of their constituents. This problem is exacerbated by the lack of term limits in the House and Senate, allowing Senators and Representatives to serve more than twice as long as they have in the past. Given that control of both gerrymandering and term limits are in the hands of career politicians, I don't have much confidence either of these will be addressed soon but they are crucial to enabling bipartisan solutions that reflect a popular consensus.

These nine steps are my game plan for America to win the competition for global economic success.

Digital Ad Revenue

I just finished reading the Pew Project for Excellence in Journalism's study on the survival of newspapers. My conclusion: if online publishers don't start to understand digital advertising and advertising technology more fully, they deserve to go out of business. According to the study, its "research reveals an industry that has not yet moved very far down the road toward a business model to replace the once-thriving legacy model--even though overall newspaper ad revenue has fallen by more than half in just a few years. The industry has pushed back against those losses by increasing the price of subscriptions. Even with that, overall newspaper revenue is down by more than 40% in the last decade."

And it's not because good new models don't exist. It's because newspaper culture is exceedingly slow to adopt them. For every dollar it gains in digital advertising, the newspaper industry loses about $7 in print. And that's because newspapers still don't understand how to explain or sell digital advertising, even 15 years in.

Advertising technology is still a highly specialized subject, and many newspaper ad reps don't truly understand the new formats available to help them monetize assets that they hadn't focused on before. They are still stuck on display ads above the fold, even though Google has begun to downgrade sites that place too much advertising at the top of the page between the consumer and content.

"The majority of papers studied focus most of their digital sales efforts on the two categories of digital advertising that are the largest but are not growing--conventional display (such as banner ads) and digital classified. Those categories account on average for 76% of digital revenue at the papers studied. These are the same two categories that have provided most of their revenue in print. And 92% of the papers studied said display was a major focus of their digital sales effort."

But these are not necessarily the categories that work best for consumers. The response rate for display advertising has gone down over the years, while new forms of advertising (mobile, in-page video) are increasing. I've been lucky enough to work with an ad tech company that partners with publishers, and I have learned from them. They've been developing new formats in conjunction with Comscore which has developed new measurement methods for ad campaigns.

These formats are called "InView," and they only appear when a reader is there to see them. Thus, on a long page like the home page of Huffington Post, the ad will slide into view only when the reader scrolls down the page. Comscore's new "Validated Campaign Essentials" tools measure campaigns not on whether ads have been served, but on whether they have been seen.

Knowing more about these new metrics and formats would give newspapers an opportunity to charge more for their digital advertising. Truthfully, ad agencies are not any better educated on this than publishers, and neither are brands. What appears to be needed in much more education.

In the technology community, where many of the new digital methodologies were invented, entrepreneurs know there are metrics to prove value, and they strive to master those metrics. Why have newspapers and ad agencies been so resistant?

I suspect 2012 will be a watershed year, partly because of the shift to mobile, which is happening faster than anyone would have predicted, borne along by the tremendous success of the iPad. ZEDO, the ad tech company I work with, can show you that news consumption on mobile devices soars on weekends, as people sit in the living room on the couch with their iPads, reading the news and watching the game.

You can advertise to these consumers, because they're still reading the news--but first, you have to know how.

Patents & being first 2 file

The most widely discussed feature of the [AIA] America Invents Act is the impending replacement of the longstanding “first-to-invent” system with what is commonly--and somewhat inaccurately--called a “first-to-file” system. The first-to-file provision will apply to patent applications with an effective filing date of March 16, 2013, or later. In the fast-moving world of technology companies, that might seem like a lifetime in the future.

But there at least three very good reasons to start planning for this change now.

First, the new first-to-file system will fundamentally alter the role of public “disclosures” in preserving the patentability of an invention. Disclosures can include presentations and demonstrations at trade shows, official postings on company websites, and even unauthorized postings by company employees on social networking sites. For all but the smallest companies, it will take significant time to ensure that everyone who communicates with the outside world about company technology--including executives, managers, marketers, developers, and salespeople--is fully aware of the new landscape regarding disclosures.

Second, a company can use the time between now and March 16, 2013, to file patent applications that will be pending during the transition from first-to-invent to first-to-file. As I’ll discuss in a later post, that presents the opportunity to create some very interesting and potentially valuable options with respect to downstream patent applications.

Third, the first-to-file system will create some new exposures with respect to intellectual property (IP) security. In a future post, I’ll discuss the nature of these exposures and some steps that companies can take to help reduce the risk of becoming victims of IP theft.

But first, an explanation of “first-to-file”:

The term “first-to-file” can evoke images of a race to the patent office, and there are indeed scenarios in which the patent will go to the winner of just such a race. However, that is far from the whole story.

Consider, for example, the case of an employee at Company A, who conceives an invention in May, works diligently to reduce it to practice, and files the corresponding patent application in August. Suppose, further, that an employee at Company B independently conceives the same invention in June and files for a patent in July.

Who gets the patent? Under the pre-AIA first-to-invent rules, Company A can gets the patent because its employee invented first. However, under the new first-to-file system, things will be more complicated.

If Company A does not make any public disclosures regarding the invention before the August filing, Company B can get the patent by virtue of its earlier filing date. This is exactly what would be expected given the term “first-to-file.”

On the other hand, suppose that Company A describes the invention in detail (or in more formal terms, provides a disclosure) at a trade show, before a disclosure or a filing by the second company. In this case, Company A can get the patent even though it filed after Company B. This isn’t at all what you’d expect in a system termed “first-to-file.”

Why does this happen? The pre-filing disclosure by the first company starts the clock ticking on a one-year “grace period” that, under the AIA’s first-to-file rules, is not only protective with respect to Company A's U.S. rights to the invention, but also removes the ability of anyone else, including Company B, to obtain such rights. Thus, an early disclosure can be beneficial with respect to U.S. patent rights.

However, there is a hitch: The same disclosure that can help capture U.S. rights to an invention under the grace period in the AIA’s first-to-file provision can eliminate those rights in the many international jurisdictions that do not recognize a grace period.

So what should companies do? Here are some recommendations:

• One strategy that can preserve both U.S. and international rights, under both the current first-to-invent rules and the new first-to-file rules, is to ensure that every public disclosure of a potentially patentable invention is preceded by a patent application or a sufficiently detailed provisional application filed with the U.S. Patent and Trademark Office (PTO). But it isn’t always practical or financially feasible to do this for every single company invention.
• American companies should perform an early analysis of company inventions to determine if they should be patented in the U.S and internationally, in the U.S. alone, or held as trade secrets. The first-to-file provision of the AIA increases the incentives to perform this analysis in a timely manner, and then to take action accordingly. (Non-American companies should also perform an early analysis of their inventions, but in many instances they may elect to initially pursue patent protection in their home countries, and then to expand that protection “internationally” to include the U.S. and other countries.)
• For those inventions that a company wishes to patent only in the U.S., inaction can be costly under the AIA’s first-to-file provision. To the extent that a company remains quiet about an invention while contemplating whether or not to file for patent protection, it stands exposed to the possibility of losing the right to obtain a patent if a competitor files--or discloses--first.
• Some companies may find themselves targeted by competitors’ disclosures designed specifically to foreclose patent opportunities. To reduce their vulnerability to such attacks, companies can engage in preemptive “defensive” disclosures, but must be mindful of the impacts of these disclosures on their own patent filing deadlines and international rights.
• If a company intends to use a disclosure at an event such as a trade show to establish U.S. patent rights under the grace period in the AIA, the information presented should be sufficiently complete and detailed. And, once a company has started the clock ticking on the grace period, to avoid losing patent rights it must make a suitable filing with the PTO within one year of the first disclosure of the invention.

An additional challenge is that the AIA does not specifically define what constitutes “disclosure” sufficient to preserve patentability under the new first-to-file rules. While it is clear that a detailed presentation at a trade show would typically be a disclosure, suppose that the same information is instead posted in a difficult-to-find section of a company web site and then taken down after two weeks? Or two hours? Suppose that a disclosure is only partial? Is the commercial release of a product containing an invention a disclosure? The definitive answers to these questions will need to wait for the inevitable court tests.

So where does all of this leave things? The short answer is: it’s complicated. However, despite this complexity, there are plenty of concrete steps that companies can take to successfully navigate the AIA’s first-to-file rules. As noted above, those rules will apply to patent applications with an effective filing date of March 16, 2013 or later. In addition, between now and March 2013 there are some unique opportunities for companies to boost the value of their IP portfolios by taking advantage of the impending transition from first-to-invent to first-to-file.