The Formula"You're not solving the problem. You're not even looking at the problem."
VCT³ = FEI [Acc(9.5x) x Ac(30x)] …..
VCT = Venture Conception Transformed
The meaning of:
- FEI stands for front end of innovation
- Acc stands for accuracy
- Ac stands for acceleration
- . . . . . stands for what’s-to-come, meaning future innovations to the process
Speed and Accuracy
|Speed of Concept Ideation||Weeks to Months||1-3 Days|
|Speed of Assessment||Weeks to Months||Just Hours|
|Accuracy of Decisions Go / No Go Investment Decisions||2 out of 10 correct||9.5 out of 10 correct|
Venture Conception Process Laws – 90/10 Process Law
Transforming the front end (“FEI”) of the venture process means increasing the acceleration of the venture conception process and increasing the accuracy of decision making during the venture conception process. Here are the 2 laws that confirm “where” in the venture process one should look to for solutions, like ours.
The 90/10 Process Law Process pros, since the days of Dr. Edwards Deming, have long recognized that 90% of the success or failure of any process hinges on how the first 10% of the process is managed. And since chaotic systems, such as business and most of its disciplines can be highly sensitive to initial starting conditions, a tiny difference at the outset may lead to an entirely different outcome than expected. Listen to Jim Sims, CEO of Cambridge Technology Partners, describe this 90/10 law: “The first thing to understand is that 90 percent of the problem in software development happens before you write the first line of code.” Naturally, the corollary of Mr. Sims’ observation would read like this:
Ninety percent of the solution in software happens before you write the first line of code.
Figure 2 depicts an application of this 90/10 process law. Do you see something odd here? Why are companies allocating their resources inverse to the 90/10 process law? For starters, everyone believes the concept design stage is a process devoid of predictive power. This mind-set sets everyone heading in the wrong direction real fast. They try to mitigate the long odds by marshaling the best creative talent in the world for concept design, and most of it is outsourced talent. As tidy as this sounds, the reality is neither time, talent, nor cash are deployed at the concept design stage in amounts that correlate with the 90/10 law. On top of this, many experts believe the concept design stage shouldn’t be outsourced at all.
Figure 2. New-Venture Life Cycle Stages
The “90% Right Often = 0%” Law
Project management experts have long recognized the principle that all the elements of a project have to be in place (the right external circumstances, the right value proposition, the right customer set and so on) or the project can fail—completely. This little-recognized reality about project risk can be described by the simple formula “90% Right Often = 0.” Proof that the 90/10 Process Law and the 90% Right Often = 0 Law are alive and well is provided by research undertaken at the Product Development Management Association. Here is an excerpt from their research:
For new-to-the world products cycle time was reduced from 41.7 months in 1995 to 24 months in 2004. The dramatic decrease in cycle time shows the impact of scientific method-based product development processes, practices and technologies–but it is interesting to note that reducing cycle time in product development time did not improve the profitability of products.”
Obviously, scientific-method-based product development technologies and processes have made those in the middle (development) of the new-venture life cycle look good. But as the above PDMA study points out, profits on new products have not increased. New-venture innovation decreasing returns persist, as our first three laws would predict.
Venture Conception Process
Figure 1. Seven Phases of Applied Research and Venture Conception
A New Category
The ultimate significance of our work will be revealed only over time. We have high hopes for our longevity and impact because our work falls very neatly into a well-established pattern for the transformation of tacit, intuitive knowledge (art), into codified, well-understood, explicit rules (science). We believe we are playing a leading role in a growing field (new venture predictive analytics), which is transforming the management of new venture innovation from an art to a science. We also believe our version of new venture predictive analytics, will become the standard platform for the full lifecycle of a mid or long term new venture initiative.
What a Waste
Today, only skilled experts or lucky entrepreneurs with impeccable timing are able to cobble together successful new ventures. Their work proceeds through intuitive trial and error experimentation at customer levels. The significance of the evolution of competitors’ motivations/means, and the evolution of technology systems/subsystems is rarely factored. Today’s creation/design processes are incomplete, costly, time consuming, and ultimately unreliable 80 percent of the time; unfortunately there is little alternative when reliable theories are not in place. New venture innovation and investment still looks very much like this today. Investment decisions and tactics are typically based on intuition; learning, if it happens at all, is only at the products/customer level. The now popular lean start-up and open innovation methods are simply new forms of trial and error experimentation at the customer level. Here is how Wim Soens, director of R&D and Innovation at CogniStreamer, Inc. describes conditions today:
Shaping radical ideas – in order to turn them into concepts is quite “fuzzy” and not fully understood by process designers. The current state-of-the-art in this domain is still at an experimental stage, and no real standards or best practices have been defined yet.
Context – State of the Art
Entrepreneurs, corporations, corporate venture capital (CVC) and venture capital (VC) alike live a perpetual contradiction, convinced on a case-by-case basis that the new venture they have just launched or financed will succeed even as they cannot escape the fact that 80 percent of all new ventures – including theirs – ultimately fail. Incumbents’ practices are built primarily on management team experience. This narrow model has made it very hard to learn how to succeed at new venture innovation. Clayton Christensen, the Harvard professor proclaimed by Forbes as the most important strategic thinker in the past 50 years and author and creator of the Disruptive Innovation Theory has this to say about conventional new venture investment practices:
In the face of [new venture] uncertainty, some widely accepted rules of thumb have emerged. For example, a mantra for most venture capitalists is that it is folly to make investment decisions based upon the start-up’s technology or business model. The VCs have concluded from their trials and errors that even they – the best in the world – cannot predict in advance whether the plans described in a start-up’s business plan will actually work. As a result, they typically assess – intuitively – whether the management team has the intuition to succeed. If members of the team are experienced and perceptive, the VCs reason, they can develop the right technology and business model- because they and only they will have the instinct to change direction when needed. As far as affecting outcomes in a meaningful and predictable way, however, this approach ranks up there with “feed a cold, starve a fever.” It is little more than an aphorism based on selective memory, the force of repetition, and the hope that at least it does no harm.
Christensen’s work is one of the inspirations and insights responsible for our success.
Medicine’s Evolution Analogy
The field of medicine offers a great analogy for our work. Here, Clayton Christensen weighs in again:
When we cannot properly diagnose the underlying disease effective care generally can be provided only through the intuition and experience of highly trained (and expensive) caregivers – medicine’s equivalent of Warren Buffett.
At the other end of the spectrum, we define precision medicine as the provision of care for diseases that can be precisely diagnosed and for which the underlying causes are understood. This makes it possible to develop a predictable effective therapy. Most infectious diseases live here: we have dispositive tests for their presence and well-understood and highly effective treatments for their cure. We can all but guarantee an outcome for an individual; exceptions are rare and noteworthy.
Not all of medicine falls into the “intuitive” and “precision” category, however. There is a broad domain in the middle called empirical medicine. The diagnosis and treatment of a pathology falls into this third category when a field has an incomplete but still very valuable set of causal models and validated patterns. The connections between actions and outcomes are consistent enough that results can be usefully, if imperfectly, predicted. We are in the realm of empirical medicine. Empirical medicine enables caregivers to follow the odds. They can generally guarantee the probabilistic outcome only for a population.
The Methods are there but not the Mind-Sets
The methods of empirical-based front-end invention have been with us for the last 5 years. Strangely, most executives remain intoxicated with their fuzzy, front-end mind-sets and methods. This intoxication has proven lethal. Here’s why. It excuses everyone. It provides a screen for incompetence. After all, how does any invention process that is perceived as inherently “fuzzy” and “artsy” repeatedly produce output that needs to be “precise” and “predictable” within the time frames demanded today? And so, this negative, fuzzy, front-end thinking actualizes negative results. Ironically, along the way it has actually emboldened the lives of consultants, CEOs, managers, and venture/private equity capitalists (think the “thousand men guarding the past”). Their raisin d’etre has hinged on their clients or stakeholders accepting the fact that shaping ideas for high-growth ventures is at worst a slot machine process and at best a process that can only succeed on the intuition and experience embedded in the black-box of senior executives’ minds. Gary Loveman, Chairman of the Board and CEO of Harrah’s entertainment, describes this conventional wisdom associated with people in powerful positions:
Decision making, especially at high levels, not only fails to demand rigor and dispassionate analysis, but often champions the opposite as the scarce talent that identifies CEO’s and visionaries from otherwise smart but less inspired people.
Conventional mind-sets and methods continue to waste resources, and they are always justified as “the cost of doing business” or the “cost of being innovative.” But this is a key point: businesses cannot afford to waste resources.
MONEYBALL FOR VENTURE
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We are a technology and investment firm that increases above industry standards the accuracy (9.5x) and acceleration (30x) of venture conception by using a proven scientific-based proprietary predictive analytic system.
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