Fresco Capital Corporate Innovation 2017 Playbook

By Fusion by Fresco Capital,

The days of a single management guru having a neat and tidy model of corporate innovation are long gone. For 2017, any company serious about innovation must constantly be scanning the landscape from diverse sources. To help you get a head start on your 2017 corporate innovation plans, we’ve compiled the best ideas all in one playbook covering the following topics:

  1. Corporate Innovation Strategy
  2. Engaging the Ecosystem
  3. Innovation as DNA

 

1. Corporate Innovation Strategy

 

How should companies approach innovation in an unstable world?

“Every contemporary company has to be a balanced mix of established products and new products that are searching for profitable business models.” — Tendayi Viki

Tendayi introduces a useful five part framework for how established companies can manage the inherent tension of managing both established products and new innovation. Read more…

How to set up a corporate innovation outpost?

“Successful Innovation Outposts typically develop over a period of time through three stages. In the first stage the Outpost focusses on networking and partnering in the Innovation Cluster in which it is based (i.e. Silicon Valley, Boston). In the second stage, it moves into Investing, Inventing, Incubating and Acquiring technologies and companies, and in the third stage building product(s).” —Steve Blank

Steve shares the details of the three stages of setting up a corporate innovation outpost, including key questions and milestones. Read more…

Is your innovation outpost working?

“You have no dedicated system for keeping track of startup ecosystem interactions and information.” — Tytus Michalski

Tytus reviews this and four more warning signs about innovation strategy and outposts along with the solutions for how to fix these problems. Read more…

 

2. Engaging the Ecosystem

 

Why should large companies work with startups?

“The most innovative companies are also the most valuable.” — Kite

Both the data and the anecdotal stories combine for compelling evidence that the most innovative companies are engaging proactively with startups in many ways to create more value for all stakeholders. Read more…

How to build a successful innovation ecosystem?

“Just as momentum is the product of mass and velocity, the ecosystem with the most participants and fastest turnover of ideas will be the most successful.” — Martin Curley

Martin provides case studies, context and 12 principles for successful ecosystem innovation across companies, customers and other partners. Read more…

Where are the opportunities in the global ecosystem?

 “We love small businesses, we love young people, and we love women.” — Jack Ma

Jack Ma shares his views on global ecosystem opportunities and more during an interview with Stanford GSB. Read more…

 

3. Innovation as DNA

 

How to innovate like Google?

“To better understand how Google innovates, I took a close look at what it’s doing in one area: Deep Learning.” — Greg Satell

Writing for the Harvard Business Review, Greg uses Deep Learning at Google as a specific case study to learn about how the company has put innovation at the core of its DNA. Read more…

How to get started with intrapreneurship?

“Never before has there been such a push for employees to take ownership of their own corner of a company.” — Alyson Krueger

Alyson provides examples of intrapreneurship, overall context about why more employees are interested in this option and the benefits for companies. Read more…

What will change most in the next 10 years?

“That’s a good question. But a better question is: What’s not going to change in the next 10–20 years?” — Jeff Bezos

Peter Diamandis highlights this important point by Jeff Bezos about focusing resources on high conviction trends, and expands with his own ideas about what won’t change even in an unstable world. Read more…

What other content do you highly recommend about corporate innovation?

  Category: Ecosystem, Thematic
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Unique Insights from Silicon Valley Bank for Successfully Entering China

By Fusion by Fresco Capital,

Can you list the names of Silicon Valley companies that have succeeded in China? Can you list the names of foreign banks that have succeeded in China? There is only one name on both lists: Silicon Valley Bank (SVB).

SVB operates in China through a joint venture with Shanghai Pudong Development Bank (SPDB), and one of the senior leaders is Oscar Jazdowski, formally with the title of Deputy Head of Corporate Banking. I first met Oscar in 2013 while we were speaking on VC and startup ecosystem panel together and quickly realized that he wasn’t your typical banking executive. Seeing the success of the JV over the years, I recently had a chance to speak with Oscar and ask him to share some of the unique insights from the SVB experience in China.


Can you tell us some of the things that Silicon Valley Bank did before entering China as part of the preparation and how that preparation made an an impact on what happened after entering the market?

In 2005 we brought a delegation of about 10 top VCs from Sand Hill Road to China (Shanghai and Beijing). Folks like John Doerr from Kleiner Perkins, Don Valentine from Sequoia Capital, Dick Kramlich of NEA and other leaders of the VC community. For most of them, this was their first time in China. They all knew that China was growing and the likely future of technology. SVB set up a week of meetings with entrepreneurs and government officials and other related parties. Our goal was to get these US VCs to set up shop in China so that they would start investing in China and thereby build the ecosystem for us, into which we could lend to startups. It worked.

SVB also rented impressive office space in Xintandi, right in the center of Shanghai. We rented more space than we needed and built out a number of ‘guest’ offices which we offered to our US VC friends to use. That made their exploration and ultimate transition to China much, much easier because they did not have to go and look for office space in a foreign non-English (more so then) city. We made it easy for them to work out of our office, and that allowed us to stay close to them and see what they were beginning to do and explore in China. It helped us develop even closer relationships with them.

Silicon Valley Bank has been using a JV structure in China. What are the key factors that can make or break the results of a JV in China based on your direct experience and what you’ve observed in the market?

Always staff your JV with the most senior person you can from the parent company. In our case the first President of the JV Bank was SVB’s retiring CEO and Chairman, Ken Wilcox. By sending such a high level executive to China, you demonstrate (by action) to your joint venture partner, the regulators and to the government that you are 100% serious about China and that you are prepared to devote your absolute highest, most senior talent to make this JV successful. You also want those senior sponsors to stick around. This is very often the un-doing of JVs because the executive sponsors either get promoted to another part of the company or leave, thereby leaving the new JV bereft of a loving parent. The two key executives who brought our JV together are still around and even sit on our Board.

You need to have senior level backing, but that’s a given. The success of a JV is not determined at the executive suite, but in the trenches. You have to have a strong determined working group that gets things done. But the real success of a JV is defined at the working level. At the beginning of our JV, we would have monthly working committee meetings with our counterparts at SPDB in order to work on specific deals and issues.

Be aware that the two parties in a JV will have very different motivations. Understand what each party wants and then work to achieve that for them and have them do the same for you…even though each parties motivations might be polar opposites. As example, China and the JV bank is extremely important to Silicon Valley Bank from a long term perspective. If we are to remain the main bank globally to the technology/innovation/life science/ clean tech/ VC and PE industries, then we have to be in China. What is important to SPDB is that they can show the government that they formed a JV with this quirky bank from California and were able to stimulate and invigorate lending and financial backing of the Chinese innovation ecosystem. Two very different goals but both achievable so long as both parties understand what is important to the other and work towards these goals.

How did you find your JV partner in the first place, and what sort of due diligence process should foreign companies use when evaluating potential JV partners in China?

I wasn’t involved in the search for the JV partner myself but I spoke to many of my colleagues about the process at length. The story there is that we spoke to a number of Chinese banks, and we were looking for a partner who would be responsive, creative, risk taking, innovative, etc., and we found those qualities in SPDB. It was also chemistry, which is key in any JV. Our CFO connected very well with their CFO, who is now the President of SPDB, so that was very helpful in terms of building the relationship.

We also realized that when we entered a JV with a Chinese bank, we’re really entering it with the government because the government has to approve it and support it. So it was understanding that we needed to work with both the government and SPDB.

What about you personally? You didn’t live in China before and many foreigners who come to China don’t stay very long. What helped you make the transition?

When I first came to China, I was flattered, excited, and also a little bit apprehensive. I came over in late 2012 to meet the JV bank in Shanghai. When I went around the bank and met these individuals who were now all my colleagues, I asked them all the same question, “what brought you to SPD Silicon Valley Bank and why do you like working here?”

They basically all answered the same way, “we like the culture of the bank”. Culture in SVB is very important, and they answered in a way that an employee in our Seattle or Israel or Denver or San Francisco office would have answered. So as soon as they answered that way, I said to myself ‘wow, I know who you are’ because they answered exactly the same way that my other colleagues would from anywhere else in the world. That made me much more comfortable that I was coming into a culture that was very familiar to me because it was an SVB culture.

The other thing to succeed in any overseas environment, especially one as unique as China, is as an individual you have to be curious, like to get out of your comfort zone, like to take risk and that is my individual personal profile. Having said that, I knew by the answers from colleagues that I knew who I would be working with, so that reduced the risk factor dramatically.

On the topic of culture, one of the challenges that foreign companies have in China is finding, recruiting and retaining top talent. Can you talk about these issues?

On the corporate banking side, it’s relationship management and analysts, with an average age of late 20s to early 30s, bi-lingual, with many who finished universities in the US or UK, and then have worked with other international companies. We’ve got a big advantage with them because we are an innovation bank. That is clearly the drum beat in China today. We also have the words ‘Silicon Valley’ in our name, and those two words are very powerful and attract a lot of people.

We actually find that we attract a high calibre of talent because they’re intrigued by our bank. Our retention rate has been very good. In the case of losing people, we’ve lost people to people starting their own business or to join a VC firm. So we don’t lose people to other banks because they like the culture and the sector, but we can lose them to the lure of entrepreneurship or venture capital.

On the operation side, we are about to open our Beijing branch very soon subject to the final regulatory approval, and we had to hire more operations staff. We’ve hired more mature people who have been successful in their careers and see our bank as very intriguing and different. So there’s an appeal there for these more mature people who have worked in traditional banks for 15 years or more, and they’re saying that this is an interesting bank.

One of the things we’re criticized for is we put people through too many interviews. We also have written tests as well. We don’t do psycho-metrics type testing, it’s really based on understanding each individual as a person.

How do you think about the balance between the global culture of a company and the unique specifics of the local China market?

We put a lot of focus on culture. We focus on people who are creative and can enjoy an environment where everyone has a voice. So it’s a very similar culture to what is seen in our other locations. A lot of our employees in China like working for us and so our unique culture helps to differentiate. Of course, we’re very careful not to be arrogant about this and we recognize that we have to localize. We know many foreign companies have failed because they brought in their culture and they haven’t adapted and localized enough. It’s a balance, and that’s why the joint venture works well, because each side brings its DNA together. One thing I look back at now — had we had a local co-head, that may have been helpful to deal with local specifics. So even for us, it’s certainly possible we could have listened more to our local colleagues to understand the local marketplace.

Looking at localization in China, slogans are very popular. You have a new product, you give it a catchy name. You start a new year, and you have a slogan, like the ‘Golden Year’. Those sorts of slogans are important to employees for inspiration. It’s a very simple example but it’s important. We try and do things like sports days, hairy crab dinners, the regular Chinese New Year parties, and all the obvious things. We have social committees made up of Chinese employees who come up with ideas for building the culture.

In our early days, we would also ask the employees to put together skits, mini-plays, to our employees regarding things like ethics and customer relations. These would be funny skits but the underlying theme would be serious. The employees very much liked it. As we’ve scaled, there’s unfortunately not enough time to do it anymore, but it worked well.

Looking at the macro trends, are there specific themes that are particularly exciting?

The hot themes today are artificial intelligence, big data and virtual reality — those are hot everywhere, including China and Silicon Valley. People are noticing that China may be adopting virtual reality faster than other markets. Not just for entertainment and gaming, but also for enterprise applications.

The demographic shift in China is also driving a lot of themes as well. One venture firm is investing in amusement parks in shopping malls. Something we wouldn’t normally see but these are top tier VCs because families are going to shopping malls for entertainment.

In terms of business model, it’s now less about scale and more showing profitability over time. Not necessarily now, but at least the path to a profitable business model.

For the joint venture bank, what kind of company is interesting for you?

The same things that VC investors look for — a great team focusing on a large market with a defensible business, whether through intellectual property or some other unique edge, that can scale quickly. It doesn’t have to be deep technology.

For us, it’s also the quality of the investors and most importantly it’s management, management, management. You can have a great company and it can still fail with poor management. Our old CEO used to say to us that “cashflow doesn’t pay back the loan, people do”.

Most traditional banks are still focused on collateral, not people. What do you do differently?

It’s our focus on building relationships. We spend our time and energy deepening personal relationships.


Building a successful China JV starts with getting the people right. Oscar’s answers highlight that it is possible to have a strong and unique global company culture that also respectfully adapts to the local China market. While the specifics of each company are different, the lessons about finding the right partner and managing local talent are very relevant to all companies entering the China market.

Photo credit: Li Yang

  Category: Innovation
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Top 5 Signs Your Silicon Valley Innovation Outpost Is Just Innovation Theatre

By Tytus Michalski,

It’s no secret that global companies have been building Silicon Valley Innovation Outposts, but as Steve Blank cautions, many companies will find that they will simply get entertainment value in the form of Innovation Theatre instead of tangible benefits.

So for everyone involved in or thinking about global corporate innovation and Silicon Valley Innovation Outposts, below are the top 5 signs of Innovation Theatre with a suggested solution to fix each problem.

5. There is no fast track decision making and/or budgeting process for experiments.

A typical scenario is a large company speaking with a startup and saying all the right things. Then, once it comes time to actually close a pilot deal, the big guns from global headquarters (GHQ) are brought in with the 53 page due diligence questionnaire and the external legal counsel identifies 1,000 and 1 risks which need to be negotiated. Rightfully, the startup is thinking WTF. Big guns make sense when scaling up across your entire company but they are weapons of startup destruction at the pilot stage.

Solution
Create a fast track for pilot deals with startups. You have to go through the corporate process to create the fast track once, either using a pure internal approach or with an external partner. But once you go through this process, then when you engage with startups you can move at something resembling startup speed because the fast track is already in place.

4. You have no dedicated system for keeping track of startup ecosystem interactions and information.

Corporate and startup introductions are frequently made over reply all email chains with random unrelated subject lines like “Re: Running 5 Min Late”. In addition, companies commonly have various employees in different departments writing internal research reports at regular internals that nobody has time to read. That’s not a system, that’s Innovation Theatre.

Solution
You need a dedicated system, and hacking Salesforce for the purpose would most likely make a bad situation worse. There are now dedicated systems just for this, such as Kite, which focus on the needs of corporate innovation. If that feels like too much as a first step, keep it simple with a lightweight funnel tool like Pipedrive which can get you started for the cost of one meeting per month at a trendy coffee shop in SF (disclosure, we are investors in both Kite and Pipedrive because these are real tools solving real problems for real people like you).

3. Your front office team consists of people from a single ethnic group and gender.

Let’s say your front office team consists entirely of white men. This lack of diversity will leave you with a competitive disadvantage when it comes to finding true innovation. Put simply, it’s a dumb business decision. But lack of diversity is not limited to teams of white men. Many companies from other countries also have very homogeneous teams. A team of all Chinese or all Indian or all Japanese men is similarly challenged when it comes to diversity.

Solution
Diverse perspectives give you a competitive business edge. The obvious step is to hire from a more diverse talent pool. But if corporate hiring, budget or cultural hurdles are delaying the process to infinity, then at the very least find some external partners who have a diverse team to fill your gaps.

2. You manage tours of famous places and companies in Silicon Valley.

Even CEOs of global multinationals love selfies at famous places, famous events and especially with famous people. But if top leadership is spending time at tours of Facebook, Google and Apple campuses, unfortunately that’s simply startup tourism. Which came first at Google, world leading innovation or free food? Better not to confuse correlation with causation.

Solution
Spend more time in the trenches talking to actual startups. The reality is that you won’t have enough time to do everything directly yourself because there are simply too many options, so the most effective strategy is to find partners who can help guide you to the relevant startups for your specific needs. Your selfies won’t be famous now, but if you meet the right startups those selfies will be much more valuable in the future. And, more importantly, you’ll be much closer to the edge of innovation.

1. Getting distracted by the surface level Silicon Valley lingo.

The people in Silicon Valley have their own lingo. It starts with their speaking speed: faster than fast. They also randomly sprinkle in words like big data, machine learning and blockchain, which all started with some meaning originally but have become overused buzzwords with the passage of time. Finally, everyone picks up the habit of name dropping and can figure out a pathway of connections to at least someone from the PayPal Mafia. It’s all too easy to get distracted by this lingo and miss out what’s going on underneath the surface. Coffee shop lingo talk without any outcome is an all too common form of Innovation Theatre.

Solution
You need someone either on your team or an external partner who knows how to cut through the bullshit and find the brilliance because Silicon Valley has plenty of both. Someone who can connect you to the right people at the right time and, most importantly, people you can trust.

Beyond Entertainment

When building your Silicon Valley Innovation Outpost, make sure to avoid Innovation Theatre so that you can get tangible benefits. If you want entertainment value, go watch Silicon Valley, the show. It’s cheaper, and funnier.

  Category: Innovation
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Stop Trying to Imitate Silicon Valley

By Stephen Forte,
HBO's Silicon Valley

 

Planners from all over the world try to replicate the success of Silicon Valley with varying levels of success. Everyone from New York City (Silicon Alley) to London (Silicon Roundabout) to Hong Kong (Silicon Harbour) to Moscow (Skolkovo) has mimicked Silicon Valley in an attempt to build their own version of the lucrative startup hub.

The problem is that Silicon Valley has unique features that have allowed the region to become the world’s center of gravity for innovation. Simply copying the things that allowed Silicon Valley to become such a success won’t work, as some regions have already discovered. The tech hubs need to play to their strengths and evolve in their own unique ways.

Silicon Valley’s Recipe for Success

It’s easy to see why governments want to create their own version of Silicon Valley when looking at the valuations the California region is blessed with. There are now at least 74 startups there valued at more $1 billion each. The total value of these so-called “unicorns” is $273 billion.

The reasons for Silicon Valley’s success are many and most of them can’t be easily copied. Geographically, the region is perfectly located near San Jose, San Francisco, and Oakland. Historically, Silicon Valley has experienced decades of success with well-established companies like Google, Facebook, Apple, Fairchild Semiconductors, Intel, Tesla, and other esteemed companies.

In Silicon Valley, everyone knows somebody who has gotten rich off of stock options they think they’re smarter than…which in turn propels them to take a risk at a startup. Perhaps most important for the region’s growth is this competitive and creative culture that continues to allow so many companies to thrive. Not to mention, an endless supply of elite students from Stanford and Berkeley graduate (and dropout) each year to create the next crop of potential tech giants right in the Valley.

But this formula can’t be bottled upon and shoehorned in anywhere. The wealthy people in San Francisco might work at Google and the likes, yet in Hong Kong and New York, the upper class tend to come from finance, and in Los Angeles it’s Hollywoodhopefully you get the idea. This still doesn’t stop governments and business people from trying to replicate Silicon Valley without taking culture and demographics into account.

Being Unique: Playing to Your Region’s Strengths

Every would-be tech hub has its own unique characteristics and features that need to be taken advantage of. If you go to a Starbucks in Los Angeles, you’re likely to bump into a celebrity or similar entertainment personas. For Hong Kong or New York City, odds are high that you’ll fall into a conversation around recent market performance and SEC developments.

Playing to a specific region’s strengths helps lead to success. Modeling a hub exactly from Silicon Valley in areas that don’t carry the same characteristics becomes a major disadvantage. New York, Hong Kong, and London are better suited to be fintech startup hub than Silicon Valley. Los Angeles is better suited to be an entertainment startup hub than Silicon Valley. Playing to those unique strengths make more sense than trying to replicate Silicon Valley.

Fostering Growth

Government benefits are a welcome way to help foster startups, yet they’re only the baseline and not the endgame. All those helpful benefits (friendly tax policies, real estate deals, subsidies, incubators, etc) only go so far. The barriers of entry to create a tech innovation center in the vein of Silicon Valley are so high that these benefits are simply the table stakes. A bigger, greater hook is needed for regions to succeed.

Regions need to embrace what makes them unique and build off of that. With everyone trying to copy Silicon Valley, there’s plenty of room for new players with their own strengths. Any place that simply tries to do exactly what Silicon Valley is doing will pale in comparison to the original.

Corporate Innovation: Beyond Predicting the Future

By Tytus Michalski,

“Prediction is very difficult, especially if it’s about the future.” – Niels Bohr

The Decision

Imagine that you are a key decision maker at the dominant communication network in the world, having successfully grown through astute acquisitions and network effects. The company’s market value has increased by more than 100x in a short period of time and you are now clearly the market leader.

Along comes a new startup with a proposal, actually a founder and his angel investors who are short of money and are looking for a face saving exit. They are asking for US$100,000 in exchange for their business. Of course, their business has no revenue and their new technology looks like a toy. Your internal team is far superior and has concluded that there is nothing interesting. The chances of this new toy market taking off are extremely small. Finally, even if you needed to compete with them, you could move quickly. Therefore, you dismiss them.

This is no imaginary case. The dominant communication network is the telegraph, owned and operated by the Telegraphy Company. The investors are Gardiner Hubbard and Thomas Sanders. The founder is Alexander Graham Bell and the toy is the telephone.

Of course, it turned out that the incumbent underestimated the founder and his investors, the toy market was not a toy after all and even when the Telegraph Company entered the telephone market it could not win, finally transforming entirely to become a money transfer business.

Problems and Solutions

Why is story from history particularly relevant today? All around the world, incumbents are vulnerable like the Telegraph Company. A downward spiral can begin anytime as the number of startups continues to grow. What are the key problems and, more importantly, solutions for improving corporate innovation?

Problem #1

The smartest people are always and without exception outside of your company.

Solution #1

Build a diverse network outside of your company. This means more than simply going to conferences and collecting business cards. It means building strategic relationships with key players who have diverse networks themselves. The focus should especially be on people connected with early stage startups because that is the most diverse ecosystem and large companies are poorly equipped to try and engage directly with early stage startups.

Problem #2

The structure of power laws results in impact being more important than probability.

Solution #2

Focus on imagination, not knowledge. Knowledge deals with what has happened in the past. It anchors our reality, which is generally helpful for day to day living, but is relatively poor at dealing with power laws and high impact but low probability events. Imagination empowers us to think about the future without the constraints of knowledge. The best way to start building something like imagination is through habits, starting small at first.

Problem #3

The world is path dependent and small inflection points have significant consequences.

Solution #3

Experiment early despite limited information. It is tempting to rely on being a fast follower but, as the Telegraph Company found out, even reversing a decision quickly may already be too late. Instead, it is more helpful to have a portfolio of experiments. That way, you can be involved in potential breakthroughs before it is too late. In addition, even the unsuccessful experiments will result in some learning, building the foundation for better decision making.

Beyond Predictions

Rather than being discrete problems and solutions, all of these issues are related and can be integrated. The common theme is that large companies should to find ways to engage with the diverse startup ecosystems globally.

Of course, the actual mechanics of engagement are not trivial. Holding contests and events is helpful for marketing but does not really address the issue of deeper engagement. On the other extreme, starting a corporate venture capital fund is not simple. For most companies, the most practical route is to partner with early stage venture funds who can act as a bridge with startups.

Regardless of the implementation, all companies need to find a way to make better decisions about the future and their corporate innovation strategy in order to avoid being replaced by toys which transform into platforms.

  Category: Innovation
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