Building Into the Future

A couple of years ago I was asked to help the Conference board of Canada with its commercialization strategy that it was preparing for the Canadian government. The Conference Board assembled a Leader’s Roundtable on commercialization with the intent of improving commerce in Canada. Although I was honoured to help, I have to admit that from a “leader’s” perspective, I didn’t know how my ideas would come accross. There were some brilliant people helping with the report.

For the purpose of the report, commercialization was defined as “a process through which economic value is extracted from knowledge through the production and sale of new or significantly improved goods or services”. Another way of looking at it is “how does Canada foster innovation and capitalize on the success of that innovation?”

At one of the larger meetings, I was asked to be a panelist. The other panelists included the National Science Advisor to the Prime Minister and the Dean of the University of Ontario. I remember feeling uncertain about how my thoughts on innovation would compare to these well-respected people.

I’ll never forget listening to the others and thinking, “this sounds interesting but It is not how innovation happens!” What my colleagues were talking about might have made sense for a educational course on innovation and commercialization, but it made very little practical sense. It was difficult for me to imagine. What next?

So when it was my turn to speak, I said exactly that.

I went on to say that from an entrepreneurs perspective, innovation is like “a long walk through a dark forest”.

Innovation is the light bulb idea when an entrepreneur has dream about a future opportunity and then takes the steps to ensure that the dream becomes a success. The key here is that it is a future opportunity. It has never been done before and the market doesn’t exist yet. It takes courage, conviction, and unwavering dedication to make a dream like this a reality. The opportunity may be incredible. But likely the bigger the opportunity, the greater the risks in achieving it. This is why I call what happens after the light bulb goes on the long walk through the dark forest.

“The Great Idea”

Many people have had that great idea where they see an opportunity to create something new. The great idea stage is an exciting time. Endless opportunity and virtually no risk. This is the place most great ideas die. The ideas stay just that - ideas! There is no risk in having an idea. The risk only starts after fully committing to it. When people start to think of the enormous risks in taking the idea from conception to commercial success, the passion for the idea fades.

For the few who choose to pursue their dreams and try to move them to a reality, the hard work begins. This is what I call the “long walk” and it involves convincing one person at a time that a specific view of the future state of the market is the right one, and all competing views are wrong. It involves raising the right money, hiring the right people, and building towards the dream one step at a time. In itself, this does not sound that difficult, but remember - the market does not exist yet. There are many competing theories for how the market will look. There are a million roadblocks to success, some internal, some external. The successful entrepreneur needs to learn how to navigate all of these while pursuing their vision of what the market will look like.

“The Long Walk”

One of the challenges of building to a market that does not yet exist is that it implies that most people will not understand the opportunity. This is the reason I call it the long walk through the dark forest. It is a lonely soul-searching time as the entrepreneur comes up against walls that they must overcome or face failure. As the business attracts more people the walk becomes easier as the forest opens up a bit. It is easier and easier to see the opening ahead. There may still be challenges, but at the very least there is now a team to tackle the challenges together.

The irony of this long walk is that once the company breaks through the “forest” and the market recognizes the win, most outside the company forget that there was ever another paradigm. They believe that the market was always ready for the innovation and discount the leadership it took to get through the forest.

Here is an example. In 1997, Michael Dell, CEO of Dell computers had this to say when asked how he would fix Apple computers. “What would I do? I’d shut it down and give the money back to the shareholders,”

Now don’t get me wrong…..I am not criticizing Michael Dell. There were many really smart people saying the same thing in 1997. Most people thought Apple was broken. What I look at is the leadership it took to go against the grain and create a market for iTunes, the iPod and the iPhone?

Next week I’ll talk about the risks of innovation from the investors perspective.

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The quake was centered in an area 58 miles North/West of Chengdu, in the South Western province of Sichuan, but was even felt in Shanghai.  I talked to one of my employees in China this morning and he said people were running from the buildings in Shanghai which is over 1400 miles away.

The quake struck at 2:28 local time ( 11:28 pm PST) and measured 7.8 on the Richter scale. The death toll already stands at between 3000 and 5000 and is expected to rise as contact is made with regions cut off by the disaster. More at China Earthquake. 

On a personal note, I have spent some time in Chengdu and the area. The culture and the people are great and my hopes are that help arrives quickly for the injured.

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About a month ago, one of my board members and I had a lively debate with respect to a bailout of the housing market. His take was:

There was no way that the US administration would allow a rescue package. It would create a moral hazard by bailing out institutions and people that chose risky bets. For a free market economy to work properly, the market needed to correct itself. Sure, there would be significant losers, but how could you trust a system where you could win but never lose?

While I mostly agree with his assessment, my take was the opposite: That the US would be forced to provide a bailout of some sort to stop housing prices from falling. That while I agreed that it creates a moral hazard, I thought the risk to the financial system and economy were far greater if home prices continued to fall. See thoughts from one of my previous posts HERE.

It is interesting to see then, the news yesterday with respect to the rescue package that the house just passed and If the president will veto it. Click HERE for the article on Market Watch.

This story and debate is not over yet!

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I spent the last couple of days in Seattle attending a workshop called “Mastering the Rockefeller habits” by Verne Harnish. I took my entire management team along and it I can easily say that it was the best leadership development course that we have ever attended.  Click HERE for more on Gazelles workshops. 

One of the challenges with growing a company as fast as our company has grown over the last 5 years is that people get so busy doing their jobs, clear communication and alignment around common priorities becomes harder to achieve. I don’t want to spend a bunch of time complaining about growth….it is a good thing, but it does bring significant challenges as well.  I, for one, probably got caught up in too much busy work where I was not as effective a leader. 

I recognize that, because a small part of me didn’t think we could afford the time for the entire management team to attend the retreat.  There was so much to do to take two days away from the business.  After spending the time, I cannot believe we did not do it sooner.

Special thanks my good friends Pascal Spothelfer, president of BCTIA and Roger Hardy, CEO of Coastal Contacts for giving me the “gentle” nudging to attend. You have made a difference.

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Interesting site that indexes the web.  Shown below is BuildDirect.com  typed into the search box.  Link at www.Addictomatic.com

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The “gold rush” in housing created unprecedented demand. From a products perspective, it created demand for building materials from flooring to decking to everything in between as new suppliers entered the market to fill the needs. It was not just manufacturers, suppliers, and home builders that wanted in. Everyone wanted a piece of the action. Decorating shows went prime time. It seemed like every time I turned on the TV, there was a new show like “flip this house” which explained how easy it was to make money in housing.

Early on….. people did make money….. and so more and more people followed driving real estate to bubble like valuations that far exceeded the long term trend line. On the way up…. there was every reason to believe this would go on forever. Few people questioned it.It reminds me of another “bubble” not that long ago in technology stocks. Do you remember people leaving their jobs to “work” as day traders because there was so much money to be made in stocks. As more and more people jumped into this “gold rush” the NASDAQ stock index climbed to a bubbly peak of over 5,100 in March of 2000 before crashing down to under 1,200 in September of 2002. What amazes me is…. how people forget.

I remember many in the days prior to the collapse of this bubble suggesting that the market was not overvalued at all. After the collapse…..everyone knew it was too high. Was 5100 too high at the time for the NASDAQ….. Hindsight says yes…… Was 1200 too low for the NASDAQ….. again hindsight says yes. Today the NASDAQ index is 2456.My point here is that caught up in these bubbles and their collapses, there are fantastic opportunities. There were many casualties of the Internet collapse that were not viable businesses. They were only jumping into the “gold rush”.There were others businesses, like Amazon.com, who were building long term value. They were discounted because the technology party was over. Their share price fell from $210.00 per share in April of 1999 to $5.97 in September of 2001. Today it trades at over $78.00.In other words, people typically overreact to good news and to bad news.

Apply this lesson to the businesses that are caught up in the housing collapse. Many businesses that jumped into the “housing gold rush”, will be swept away.How many others though are being discounted because the “building party is over”? Some of them will see this as the best opportunity in decades to create real long term value.As for home prices:Will home prices in the United States fall further? Probably.Will some people make a lot of money…… Definitely!!!!

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I have always been fascinated by entrepreneurs who invent their own future by going against the wisdom of the crowds and creating something special from an idea. Special thanks to Techcrunch.com  for finding this beauty. It shows what Amazon.com founder Jeff Bezos was thinking years before his “actual” success. More on this in another post!!!

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Forget the headline number of 0.6% growth in GDP for the 1st quarter, the details show that the US is already in a recession. 

Investment in residential construction projects fell at an annual rate of 27 percent, the most since 1981.

Final sales of domestic product fell 0.2%, while final domestic sales dropped 0.4%, the first decline since the recession of 1991

Business investment fell 2.5% annualized.

Business investment fell 2.5% annualized after a 6.0% increase in the fourth quarter. Investments in structures dropped 6.2%. Investments in equipment and software dropped 0.7%

So where is the growth in GDP coming from?

There was still 1% growth in services consumption and inventories increased by $1.8 billion in the quarter after falling $18.3 billion last quarter.  The change in inventories alone added 0.8 percentage points to growth in the headline number.

Follow the conversation at http://www.rgemonitor.com/blog/roubini/252541/

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News round-up  

The number of homes facing foreclosure in the United States more than doubled from the first quarter of 2007 and increased 23% from the 4th quarter of 2007.  Click HERE for the article from the AP. 

Speaking to the decline in housing prices……Chairman of the index committee at Standard and Poor’s,  says “there is no sign of a bottom in the numbers”.  More at Standard & Poor’s. 

According to Countrywide Mortgage, prime first mortgages or conventional mortgages have seen delinquencies rise to 6.48% during March.  This shows that it is not just the sub-prime loans that have been affected.  Hat tip to housing wire.  More at Housing Wire. 

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Great research by Morgan Stanley on Internet trends and the fastest growing companies.

One thing that stays constant with the Internet and technology is the rate of change. There are endless opportunities to create valuable businesses. Some of the largest companies did not exist 5 years ago. What will the industry look like 10 or 20 years from now?

 Click on the images above or HERE for more information. 

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