Tag Archives: Innovation

Preparing to Pitch your Idea

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(This blog was co-authored with Thomas Ulbrich)

We have watched many business presentations over the past year. Some of the ideas are relevant to the existing business climate and could result in a sustainable business. We will call those ideas viable businesses.  Some of the ideas are not viable because they are too late, too early or too immature. They are just impractical in the current business context. We will call those business models impractical.

There is sometimes a mismatch between receiving funding and the viability of the idea. Some of the impractical ideas receive funding and some of the viable ideas do not receive any funding.

There are a variety of reasons that impractical ideas get the attention and the money. Impractical models sometimes have founders with a track record and they also have connections. Sometimes it is related to the nature of the idea. For example, complex science and trendy technology-based models always draw attention because of the cool factor.

Communication is the key to obtaining funding regardless of whether the idea is viable or impractical. If you have a viable idea that is being ignored; you are not communicating your idea effectively. We have prepared some slides that will help you craft an interesting and unique presentation.

The pitching slides on Prepping and Delivery can be found here. The slides are adapted from Garr Reynolds, David Rose, Seth Godin, Mary Ann Rogers and others. Photos are from Flickr and are Creative Commons-licensed content and from NASA. It is a large file.

In the near future, we will present a set of slides that will focus on the business model content of the presentation.

Using Thought Experiments to Develop Innovative Products and Business Models

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The most intriguing aspect of Walter Isaacson’s biography on Einstein was his numerous discussions of thought experiments. Einstein conducted many, many thought experiments. Thought experiments helped Einstein to understand and disentangled complex concepts and to develop theories.

“He made imaginative leaps and discerned great principles through thought experiments rather than by methodical inductions based on experimental data. The theories that resulted were at times astonishing, mysterious, and counterintuitive, yet they contained notions that could capture the popular imagination: the relativity of space and time, E=mc2, the bending of light beams, and the warping of space. [2007, W. Isaacson, p. 6]”

“Over the years, he would picture in his mind such things as lightning strikes and moving trains accelerating elevators and falling painters, two-dimensional blind beetles crawling on curved branches, as well as a variety of contraptions designed to pinpoint, at least in theory, the location and velocity of speeding electrons. [2007, W. Isaacson, p. 27]”

Thought experiments need to be rhetorical in a good way.  A good thought experiment should be artful, eloquent, effective and persuasive in conveying the ideas, but not too pretentious or bombastic There is a downside to rhetoric in that the innovator, the scientist or the storyteller may be too good in developing  a colorful and vivid description at the expense of gathering facts and testing the veracity of the theory.  Sometimes thought experiments can actually confuse more than illuminate. The thought experiment may not work because of differences in the eyes of the beholder, because it needs more refinement or because it is invalid. Here are some guidelines for developing your own though experiment in order to tell a clear and cogent story.

  1. You need to be able to explain your concept in 3 or 4 sentences.
  2. You should eventually write your ideas in a paragraph.
  3. You need to use pencil and paper to illustrate your innovation. (Tablets are also Ok, but the interface should not get in the way of your creativity.)
  4. You should try to present your thought experiment on 1 page. It should be self-explanatory.
  5. You should present your thought experiment to many people.
  6. You should refine your thought experiment over and over after you receive feedback.
  7. You should sometimes return to your original iterations and ignore some of the feedback.
  8. You should let your ideas incubate. Layoff the idea for several days and do this often.
  9. You should be obsessed with the project and the compulsive about the details.
  10. Go back to 1, 2, 3, 4, 5, 6, 7, 8 or 9. Remember this is a nonlinear iterative process

I believe that thought experiments are the genesis of all innovations and creative process. This includes new products and new business models. Sometimes scientific thought experiments are verified by real-world experiments, data collection, and mathematical proofs.  The innovator progressively validates a thought experiment with the pitch and the business plan. The plan and the pitch are the refinement and incarnation of the entrepreneur’s thought experiment. The ultimate validation is when the business or the innovation goes live.

Figures 1 and 2 illustrates the migration of a thought experiment involving tracking individuals, pets and expensive assets. The initial drawing and narrative was started on Sunday evening and 3.2 was completed by 7am on Tuesday. Feedback from several individuals helped to refine the drawing.  Most of the time was spent futzing around with the interfaces of the two apps and locating symbols and graphics. The idea was derived from several student projects and from watching my son crack our Wi-Fi password in less than an hour using Backtrack. I think similar cracking code could be implemented in a very small unobtrusive device.  CPU, memory, Wi-Fi, cellular and GPS chipsets are shrinking in size and price. This technology has undoubtedly been developed in some form. But, there is always room for improvement and a thought experiment can be used to drive that process.

Here are some additional references on thought experiments:

  • Walter Isaacson’s 2007 biography entitled Einstein: His Life and Universe, Simon Schuster is one of my favorite books. It does a good job of describing how thought experiments influenced Einstein’s ideas.
  • As expected Wired Magazine has an interesting twist on thought experiments by Greta Lorge
  • Great animations of thought experiments can be found at Brain Pickings. BTW some of these animations don’t really help me to understand the ideas.
  • Very nice overview of thought experiments can be found at the Stanford Encyclopedia of Philosophy
  • Horowitz and Massey present a detailed discussion of how thought experiments have influenced scientific reasoning and philosophy.
  • Here is an interesting discussion of Einstein’s chasing a beam of light thought experiment by John Norton and go here for more of his philosophy of science work.
  • Another good philosophy book on the what, how and whys of thought experiments was written by Roy Sorenson.
  • Here is an illustration of a brute force method for cracking WiFi access points. This type of tool is available on a number of free digital forensics and penetration testing tools such as Backtrack. No, we are not safe from intrusions.

Figure 1: Thought Experiment 1.0

Kidnapping 1.0

Figure 2: Thought Experiment 3.2

Kidnapping 3.2

Design is an Attitude and a Behavior

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Design is the most important activity for the development of products, services, theories, algorithms, recipes, business plans, pizza and homework reports.

In the past 9 months I have read 2 books and watched a video that have forever changed the way I view the design process.

I read and listened to Walter Isaacson’s 2011 biography of Steve Jobs and his 2009 biography entitled Einstein: His Life and Universe.  I also watched the 2009 video Objectified by Gary Hustwit at least five times.

Objectified is an incredible view into the inner workings of contemporary designers. There are many insights to be gleaned from Objectified, but the interview with Joanathan Ive, the Senior VP of Industrial Design and the head of the Human Interface development at Apple is remarkable. I obtained more insight into the Apple Design Lab during that five minute interview than reading all of the magazine stories about the lab. Sir Jonathan Paul Ive is unabashedly obsessed with design and compulsive about details. (BTW Objectified is free to view if you have Amazon Prime.)

Then there are the two biographies by Isaacson. Einstein was obsessed with the physics of matter and energy and compulsive about the details  related to proving his theories. Jobs was obsessed with developing new products and compulsive about  design details. An on/off switch in the wrong place could unleash Job’s Kraken.

The take-away from these books and the video is that we need to be sort-of-obsessed with our projects and sort-of-compulsive about details. Extreme obsessions and compulsions are not good as psychologists will tell you and it appears that Jobs and Einstein had these traits in spades. So let us just scale it back a bit and be sort-of-obsessed and sort-of-compulsive.

There are two other activities that are essential for innovation to occur. Innovative people read and search for solutions and they learn-by-doing. They prototype with paper, objects and even conduct thought experiments, as Einstein did. This is essential. As noted in the last post, the designer uses the prototype to create a virtual product, a virtual service or virtual world.

Designers have to constantly attend to solving two equations when seeking innovation (see Figure 1). They are easy to write, but hard to achieve.

Figure 1: Solve for Innovation

Product Differentiation Dashboard

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It makes economic sense to have more than one product version because of increased revenue generation[1].  There are additional reasons for versioning in addition to revenue generation. By having multiple versions of a product you can experiment and watch economic behavior as consumers will focus on the features and products that are most desirable. This sort of experimentation is the basis of monopolistic competition and the mechanism that allows the entrepreneur to successfully compete.  Product versions can be generated in a variety of ways including, distinct product features, product design, product promotions, product availability, warranties, and through customer service.

We have developed a product differentiation dashboard to assist with understanding the concepts and to help in determining how differentiation can improve revenues. The spreadsheet is currently in Beta development, but it is available for your perusal. The spreadsheet can be used with 3 products at this time. For now, it assumes that there is only one demand curve for the differentiated products. You can use the results from the Demand Dashboard discussed in the last post to identify the slope of the demand curve and the price where demand is close to zero.

Here is what you will enter in the Differentiation Dashboard.

  • The slope of the demand curve and the price level where demand is close to zero.
  • The variable and the fixed costs for a single product.
  • The variable and fixed costs for the high-end, mass appeal and low-end products.

Here is a link to the spreadsheet: https://skydrive.live.com/redir.aspx?cid=a3660eed58d91ed9&resid=A3660EED58D91ED9!107&parid=root

Special thanks are extended to students in the Technology Management Course for their suggestions for improving the spreadsheet. As is always the case; simplicity should be the goal and they helped to achieve that goal.

[1] Goldilocks pricing is a rule of thumb that suggests that you should start out with three price levels and offer additional versions of products to attract additional revenue (Varian and Shapiro, Information Rules, Harvard Business School Press 1998). The idea behind Goldilocks pricing is that one product is too few, ten products too many and three is just the right amount. Thus one arrives at Hermes, Mass Appeal, and Midas.

Demand Dashboard

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When large organizations develop demand curves for existing products they turn to a variety of quantitative and qualitative approaches. Historical data plays an important role in developing and constructing demand curves for existing products. The historical data can also be used to forecast future demand using time series analysis and statistical approaches such as regression analysis and moving average approaches. Organizations can also draw on qualitative approaches such as market surveys, focus groups and the Delphi technique to gain additional insight into market demand.

Many entrepreneurs do not have the time, money and interest to engage in these approaches.  They are probably on the right track because it is often difficult to determine the demand for new products. This is particularly true for products and services that have been radically redesigned and in so-called Blue Ocean markets. The historical data is either not available or it is not appropriate for the context. Very few economic and marketing textbooks have actual data that can be used to construct a demand curve. Most of the data sets are generated by taking a demand curve (such as p = 80 -.2q or q = -5p + 400) and then generating the prices and quantities.

We have developed a Demand Dashboard to assist with identifying demand curves. The spreadsheet is currently in early Beta development, but it is available for your perusal.  You can get the spreadheet from my SkyDrive at https://skydrive.live.com/?cid=a3660eed58d91ed9&id=A3660EED58D91ED9%21107.

Here is what you can do in the demand Dashboard:

  • You can just enter the slope and the price where demand is close to zero and just play around with the curve.
  • If you want to use a statistical calculation to determine the demand, you will need at least 2 demand points to plot. If you want confidence intervals for the slope estimate you will need 3 points. Each point will represent the price and the demand quantity. One point can be the price level where demand is close to zero. You can also use the statistical estimates to manipulate the slope and the price level where the demand quantity is close to zero.

If you have access to IBISWorld  you can obtain some demand and market research information that can be used to assist in developing demand curves (this data is available to University of Buffalo faculty and students). The Economic Research Service for the US Department of agriculture also has some data that might be of interest, but it is of course mostly related to agriculture.

In the next  post we will present the  Product Differentiation Dashboard. It is part of the same spreadsheet that you can now dowlnoad from my SkyDrive. It will assist in making decisions related to developing different versions of a product.

What Would Midas, Atlas and Hermes do?

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Figure 1: Midas, Atlas and Hermes

In their book on developing creative approaches for solving problems Barry Nalebuff and Ian Ayers describe the “What Would Croesus Do?” approach [1]. The gist of the approach is to consider how a consumer would solve a problem when she has unlimited resources.  Need tech support, have the tech sit outside your office and enter when called.  Bored, become a cosmonaut. This approach can help to identify products and services for the high-end where the consumer is not price-sensitive and is interested in many different features (see Figure 1). We have renamed Croesus to Midas products because it is easier to remember and because it imparts a very colorful and explicit image of high-end features. Midas products and service are designed for consumers that are not price-sensitive and demand high-end features. Products that are designed with high-end features for individual’s that are affluent or for individuals that are simply interested in high-end products are designed using extravagant engineering. Extravagant engineering is less concerned with costs and more concerned with using new technology and concepts to develop innovative and perhaps even radical products and services.  In general, products and services that are extravagantly engineered contain advanced features and attributes.

There is another part of the demand curve where the consumers are price-sensitive.  This could include students, seniors, and in general individuals with low levels of discretionary income or individuals that are value conscious [2]. In designing products and services for this group you can use the “What would Hermes Do?” approach. Hermes was the god of the traveler, the shepherd, the athlete, the merchants, the cunning, and was linked to invention and commerce. We are now designating Hermes as the patron for the part of the demand curve that does not have a patron. Hermes products and service are designed for consumers that are price-sensitive and demand features that are functional for the task at hand. Hermes products and services are still functional, but they have reduced and scaled-back features. There are a variety of very interesting products and services that have been developed for Hermes customers occupying the price-sensitive end of the demand curve. An important reason for offering Hermes products and services is to acquire customers that might eventually become Midas consumers. For example, students become less-price sensitive as they enter the work force and generate more discretionary income. Consumer’s tastes can also change as they become more familiar with a product line or because they get caught up in the hype around fashionable product. Designing Hermes products requires skills in frugal engineering.

Midas and Hermes product have an important role in developing new ideas for product and services for the middle of the demand curve. Midas gives product developers the license to create ideas that are unique and perhaps superfluous.  Hermes products and services establish a minimal baseline for a product or service with the additional prompting of being inexpensive to produce. Hermes products should be less expensive to produce because they are used to attract price-sensitive customers.

From the producer’s perspective, the idea is to get the creative juices flowing and use the top and bottom of the demand curve to generate new ideas for products and services by drawing on both extravagant and frugal engineering approaches to develop Atlas products.  The mass appeal or mainstream products in the middle are called Atlas products. Atlas was a Greek mythological figure that supported the weight of the heavens on his shoulders. Atlas products support the broad-based customer segment in the middle that requires products that have standard features and also have slightly differentiated features to meet the demand of monopolistic competition.The result of this dynamic tension between frugal and extravagant engineering is the development of Atlas products and services[1]. Atlas products and services have attractive features and an attractive contribution margin. The result of this dynamic tension is a robust process for continually inventing and reinventing products and services to stave off the competition and establish a strong foundation for survival.

Here are some interesting “What Would Hermes Do” ideas:

[1]Barry Nalebuff and Ian Ayers, Why Not?: How to Use Everyday Ingenuity to Solve Problems Big And Small, Harvard Business Press; 1 edition (December 1, 2006), http://www.whynot.net/main/about_book.php. Also visit Wikipedia for a discussion of Croesus http://en.wikipedia.org/wiki/Croesus

[2]I realize that there are many patrons for this large segment of humanity. The goal is to have a question for the bottom of the pyramid. Please see C.K. Prahalad, Fortune at the Bottom of the Pyramid: Eradicating Poverty Through Profits, Wharton School Publishing, 2005 and many others that have been committed to this group.

[3] Dynamic tension was an exercise approach developed by Charles Atlas, but it also works here.

Product Differentiation: Nokia versus Apple iPhone

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Product Differentiation and Cell Phones

The most important activity in the history of human kind has been in the area of communications (see Figure 1). The desire to communicate has been the driving force behind many advances in modern technology; driving a variety of  substitute and complimentary products and services.  The wireless phone is the current battle ground for the universal communication device that will be used for talking, texting and tagging friends and colleagues, scheduling, listening to music, reading eBooks, and in location assistance. Nokia sells nearly 40% of all phones and Apple sells less than 1%[1]. Apple and Nokia’s strategies are distinctly different. Apple has gone after the cream and focused on the high-end and competes primarily in the Smartphone arena and is also beginning to compete with the $300 to $500 net-book laptops. Smartphone’s have applications such as scheduling, location assistance, email, and internet access.

Nokia is interested in the high-end Smartphone market, but they are also selling to the price-sensitive demographic and have an even bigger target in their sight. They want to become the biggest entertainment media network in the world[2]. They are going to accomplish this through R&D with 10 labs throughout the world and by pursuing a comprehensive differentiation strategy with phone prices ranging from $10 to $700 (see Figure 2). Nokia offers devices to satisfy every budget and they are trying to make their products and services indispensable. They currently roll-out around one million cell phones per day and have 1.1 billion users. They sell mobile devices to the hundreds of millions of price-sensitive cell phone users in India that cannot afford a data plan. For $1.30 per month rural users in India can receive information on weather, agriculture, education, and Bollywood.  But they are also going after the high-end market high bandwidth market and have developed Ovi, an iTunes type platform with a variety of downloadable Smartphone applications.

Apple has been making steady gains in the smartphone business. They have about 8% of the market and Nokia has about 43% of the market. Apple has been willing to offer a down-scaled version of the Ipod to the price sensitive masses with the Nano and Shuffle. I suspect that iPhone technology will also be adapted to the price-sensitive tail of the demand curve.

[1] Jill Greenberg,  “iPhone Envy? You must be jÖking”, Fast Company, September 2009. http://www.fastcompany.com/magazine/138/iphone-envy-you-must-be-joumlking.html

[2] ibid