Innovators, innovation teams and the innovation process 2 – identifying, developing and supporting the individual innovator 1

This is my second installment in a series on innovators and the process of innovation (see Part 1: an organizational and functional story.) I began this series with a basic orienting discussion as to how the issues I will discuss here connect with and follow from other postings and series that I have been adding to this blog. And in that regard I particularly note the series: Keeping Innovation Fresh (see Business Strategy and Operations – 2, postings 241 and loosely following for Parts 1-16.)

My primary goal in that series was to discuss and analyze how innovation can be built into an organization as a source of sustaining value for it, in return for investments made and with a focus on the organization itself. My goal here is to focus on innovation as a process and hands-on innovators themselves, rather than on the organizations that they work for.

• I stated at the end of Part 1 that I would focus on the issues of identifying innovative potential and fostering and developing it here, and with an emphasis on working with the individual innovator, and
• I begin that by noting that all innovation ultimately comes from the creative insights and efforts of individuals who are able and willing to look and to work outside of the standard and conventional.
• And all of what I would write in this posting and in installments to follow, stems from that basic fact. Some businesses see innovation as a cookie-cutter process and as a pattern that can simply be pursued by standardized procedures and on a set timetable, and with little if any risk of failure from any “legitimate” innovative effort. None of that is valid.
• Many if not most organizations downplay the value of creativity and foresight, and of innovative potential in favor of a rigid adherence to here and now standards, visions, understandings and above all – procedure.
• Innovation breaks new ground and supporting innovation and efforts to creatively break new ground always carries risks. And it always carries with it a measure of disruption and of challenge to the status quo.
• Even the most successful innovation development efforts can and do run into and have to overcome unexpected challenges that can skew timetables and bring delays and cost increases. The operational and strategic goal of the innovative organization should be to find and pursue a working balance between tried and true and business as usual, and new and experimental and yes, even disruptively so.
• And in that, and addressing the venture towards innovation and change that takes place within a business that seeks to stay competitive, their goal there should be to skew the risk and benefits balance in their favor so prospective risk overall, is less than potential benefits as developable overall from the ongoing innovation effort – while supporting this effort and the innovators who create it, in the face of possible setbacks.
• In keeping with that, I note that Thomas Alva Edison is commonly thought of as being among the most prolific and profitable inventors in history and his invention of a practical light bulb is often cited as being among his best known, most influential and most important innovations. Yet he had to test out some 700 or more possible light bulb filaments before he found one that would produce light of a sufficient quality and intensity and with sufficiently low power requirements and that would last long enough for these new devices to be useful and marketable – and they had to be producible and marketable at a good, competitive price on top of all of that. (The number of tries here is arbitrary as you can readily find numbers quoted from the 700 that I cite here, well up well into the thousands. I decided to cite the most modest end of the scale offered, which is still more than enough to prove my point.)

So innovation and invention are important as their fruits create the competitive business’ future. The innovative process can be messy, and certainly as it can and does violate simple rote organizational planning and processes. And the innovative business has to find ways to be agile and lean and to keep things simple and focused while allowing for and supporting this.

This sounds simple and straightforward in the abstract and as a matter of general principle, but can become more complicated in practice and when dealing with individual employees in the context of actual day to day work flows and work priorities. And I add that even the most creatively valuable and innovative employees that a business has, start out as unknowns – and the more standard revenue generating here and now business practices and processes still have to go on, and with everyone contributing to the business and its ongoing competitive strength.

I am going to continue this discussion in a next series installment where I will discuss talent searching for innovative potential and excellence, and both from outside of the organization and from inside it and from among its current employees. Meanwhile, you can find this and related postings at HR and Personnel and also at Business Strategy and Operations and at its continuation page: Business Strategy and Operations – 2.

Acquisitions and divestitures 7: divestitures in a troubled selling-business and change management context

This is my seventh installment in a series in which I look at acquisitions and divestitures and related processes, and examine businesses from a very modular prospective as to how value is created and sustained (see Business Strategy and Operations – 2, postings 358 and following for Parts 1-6.)

I focused in Part 6: exit strategies and the sale and acquisition of complete businesses 3 on the serial entrepreneur and on building startups with a goal of marketing and selling them as complete business entities for the unique value propositions that they offer. Think of this posting as representing the exact opposite of that situation, with a matching discussion of right-sizing and streamlining a business in trouble with a goal of regaining business viability and strength.

In a startup as commodity scenario, with the business built to be sold as a profitably marketable offering:

• The business itself is built lean and agile around a clearly conceived source of business value,
• Extraneous organizational structure and business facilities are kept to a minimum in developing this, and
• Essentially everything and everyone in place are there for a reason.
• And the exit strategy goal is to build primarily if not exclusively to sell that defining source of marketable value.

In the change management scenario outlined here,

• The business itself is in most cases disorganized and sclerotic, and replete with waste, duplication and inefficiency, and it is likely to be organizationally disconnected and lacking any real strategic or operational center – and certainly for its day to day decisions and actions.
• The overall goal is not to sell the business, but rather to save it and even if that means saving it in effect from itself.
• The areas to be divested would be sold off both to bring in cash and to reduce non-productive and disconnected expenditures that have been bleeding the company out.
• So divestiture resources are more likely to be out of date or even obsolete than cutting edge, and organizational and operational systems that connect them together as a working part of a business are likely to be lacking.
• This means the selling business is not approaching divestiture as a company offering resources of compelling competitive value for an acquisitions marketplace, as much as it is a business selling from a condition of distress where it cannot afford to hold off for best bids. They are more likely to be seen as having blood in the water than as holding a marketing commanding position as they sell.

This all creates very interesting, and I add time-sensitive challenges for the divesting business, and even if it seeks out and secures organizational protection from creditors and through mechanisms such as Chapter 11 bankruptcy filing under the United States Bankruptcy Code.

• First of all its leaders and owners have to determine and articulate what this business actually stands for and does that can serve as an ongoing source of marketable value moving forward. It is likely that at least part of what it has seen as its source of defining value has fallen away from having such value for the markets it now faces, and that it can anticipate facing moving forward.
• Then its leaders and owners and any third party strategists brought in to help with this, have to determine and priorities what is there, and what of that would add value moving forward in support of the re-envisioned mission of the business.
• And they have to coordinately identify sources of ongoing expense and risk that are also being carried by the business that no longer support its mission or its newly forming strategic and operational vision. This is where resources might simply be written off as losses, or if packageable into marketable form be divested as saleable resources. What is more dead weight than anything else for one organization might be of real value to another.
• For the selling business that is undergoing reorganization and refocusing, identifying potentially monetizable, attractively marketable resources that do not fit into its new plans can be an important part of its recovery.
• And organizing and packaging what is to be sold off so as to meet the realistic needs of a potential buyer – and cost-effectively for the seller is an important part of making that work.

Taking this out of the abstract, consider a business that has been maintaining warehouse and production facilities that are out of date and disconnected from current or anticipated business needs for their size, location and technology in place. But they are located in a prime industrial location in a country with a growing market and with real competition for securing good production facility locations. The buildings and perhaps even more so the land they sit upon are going to be the real draw for any prospective buyer. The fact that electrical systems, water and waste disposal piping and other infrastructure are already in place offers real value too. You might very well have to sell off the old and out of date production equipment for scrap, and some resources in place will be discarded essentially entirely as a business loss (with that entered into tax filings as such.) The goal would be to sell quickly while bringing in as much working capital as possible that can go into helping finance the switch over and fulfillment of the change management updates that are being pursued by the selling business. And any tax write-offs and reductions in taxes due, as spread out over an agreed to period of years would offer supportive value for the selling business’ recovery too.

• Know what your business would divest and how and why.
• Know what types of buyers and prospective buyers would find value in what you would divest your business of and why, and what they might offer for it.
• Then sell competitively against alternative sources of the same types of resources that you would offer so as to get a good competitive price and on as good terms as possible.
• Here, terms of payment and timeframes for that can be as important or even more so, than the overall total that would be tendered in payment over the course of the sale and its aftermath.

I am going to turn back in my next series installment to Part 1: right-sizing and orienting for business strength and growth where I first cited businesses that acquire and divest other businesses and their business resources as their business model. And in anticipation of that and repeating from Part 1, I note that:

• There are two very different but important acquisitions and divestitures business models that merit explicit discussion here, where divestiture product development and commerce flow based upon it can become a major source of ongoing revenue and even the primary source of incoming revenue for a business.
• One of these models, starting with the negative side of this overall phenomenon, is what I call the chop shop model (after businesses that “acquire” cars to dismantle them and sell them for parts).
• The other basic model focuses on creating overall systematic value, and generally that means creating unique new sources of value for the acquiring companies they sell to as a means of creating value for themselves. This, I call the value added model.

Meanwhile, you can find this and related postings at Business Strategy and Operations and at its continuation page: Business Strategy and Operations – 2. I have also included this series installment in Startups and Early Stage Businesses.

Commoditizing the standardized, commoditizing the individually customized 2: some initial thoughts on a post-assembly line and mass produced world

This is my second installment in a series on the changing nature of production and commoditization (see Part 1: a brief historical sketch as background for discussion.)

I wrote Part 1 as an admittedly cartoon simplification of the history of manufacturing, from small scale and individual production of one-off items to mass production of standardized products that would be marketed and sold. And I finished that posting at least thinking of a famous if perhaps apocryphal dictum attributed to Henry Ford as he built and sold his Model T automobiles: “you can buy one in any color you want so long at that is black.”

This is often cited in the context of consumer choice, or rather consumer lack of choice. And the alternative that is usually cited by way of comparison is the product and consumer choice variability and flexibility of more artisanal design and manufacturing. Consumer choice is very important here, but I would at least begin this discussion by considering the implications of what Ford said, from a different perspective: design and production, and the drive to carry through upon them as cost-effectively as possible so as to keep consumer prices down and still generate significant profits – while offering employees premium wages so as to maintain highest possible production and product quality.

Consider the impact of paint color in building and assembling a production line of cars, and to keep this simple consider the consequences that offering a car in just two colors: black or white would bring. In this scenario essentially everything under the hood and inside the car would remain the same and be standardized to a single SKU option per part that would have to be inventoried and shipped to the production line, as was the case for producing those single option Model T’s – except for the pre-painted body parts. When every one of them is black, any part A that has to be connected to a part B would work together with any part B. When these parts might be painted differently, only some parts A and B combinations would work and inventory flow would have to be adjusted to allow for this extra complexity. One obvious approach would be to warehouse assemble what amounts to two separate car body kits, one with a complete per-car painted assembly for black cars and the other with a complete painted parts set for building out a white car.

These two car colors would be expected to sell at different rates, and quite possibly with seasonal and regional differences so it would be necessary to track production and distribution requirements and both for the painted car body parts and kits, and for the completed cars as they leave the factory and are shipped to market. This adds organizational complexity and it in all likelihood means a larger headcount of employees will be required to support this extra work flow complexity. And that would in both cases increase overall production costs and costs to the consumer – if only by some small increment.

Now consider a situation where that first production model Ford automobile is produced in eight different body paint options, and with five different interiors with different upholstery colors and materials, and differences in the dashboard. Now parts acquisition and manufacturing, inventory warehousing and distribution, and shop floor parts management and work flow are all going to be a lot more complex and I add expensive and particularly when the operational details of running an assembly line system per se, are still under development. Depending on the variations on this basic car design supported, specialized tools may be needed for some car builds but not for others. And as more and more product variability is added, the basic assembly line concept of moving a car in production from one worker who completes one standardized step or at most a short series of them, and as rote processes begins to break down.

Think of these variables introduced here as stressors to the mass production, assembly line system and the most important of them are in end user options and the proliferation of end-product variability. Variability in what ultimately comes off of the assembly line, after all, is the one form of variability here that cannot be eliminated or even significantly reduced by operational process standardization and optimization.

I noted how pre-assembly kits of, in the above case, pre-painted body parts can be bundled for greater ease of assembly and with the right balanced numbers of all kit parts in the right place at the right time. Pre-assembly of subsystems can help and so does running same-build production in batches, where one basic build it done today because it is Friday, but a different one will be assembled this coming Tuesday. This is important when an assembly line has to be at least somewhat reconfigured for a different build. Though optimization can also mean setting up separate assembly lines that are tasked for different models or differently designed builds of a single model. I am not offering any suggestions here that Henry Ford would not recognize and in fact have used, and certainly as his company expanded to be able to effectively afford to run parallel assembly lines.

The overall goal in all of this is simplicity and the cost-effective efficiency that this can bring. That means consistent standardization. This, I add is where people like Frederick Taylor and his time and motion studies enter this picture too, as businesses sought to both develop and improve upon assembly line and collaterally supportive functionalities to create greater business efficiencies and increased marketplace competitiveness.

And with that I am going to fast-forward to the modern car and its production and distribution complexities – stemming in large part from the market driving demand for consumer options and choice and for much more than just paint colors. And I will turn in my next series installment to consider what might be considered an extreme case, case study with the Scion: a Toyota Motor Corporation brand manufactured primarily for their North American market. Meanwhile, you can find this and related postings at Business Strategy and Operations and its Part 2 continuation page.

Leadership as a source of calm and stability at the center

Every business, and certainly every business that operates in a fast-paced and competitive industry and marketplace faces an ongoing onslaught of change, challenge and uncertainty. And this is can be experienced first-hand and with immediate impact by essentially any of the members of the organization, from owners and executive managers on down to hands-on employees with no direct managerial responsibilities.

I have written a number of times in the course of developing this blog, about leadership and about what goes into being an effective and even inspiring leader (see, for example, any of my postings with the word “leadership” in their titles at Business Strategy and Operations or its Part 2 continuation page, or at my HR and Personnel directory.) I turn back to this basic, fundamental side of business organization and management here too, where I specifically address the challenges of leadership in the face of stress and challenge.

• You are the owner, the chief executive officer or both of a business with a headcount of employees who report to you, directly, indirectly or both and you run a very fast-paced business in a very dynamic industry and volatile marketplace. If you want to understand the role that stress and uncertainty play in your business:
• Start by addressing uncertainty and stress from the perspective of others in your overall organization as they see and understand it and as they are challenged by it.
• Start by asking about and thinking about the challenges that they face in this, which might be very different and both in priority and detail from what you see and face. And understand that these challenges can at times be greatest for lower level employees on the table of organization as they deal directly with customers and suppliers and with fellow employees and they see and experience first-hand all of the friction points that can arise, but without any managerial voice that would empower then to change anything.

Your employees, and here I include everyone who works under you on your table of organization, have to perform and even excel in achieving their work goals and priorities:

• In the face of workload and schedule demands and the pressures they create, and even when they have to meet their goals in the face of resource availability challenges and bottlenecks,
• In the face of conflict and disagreement in the workplace and the stress that can engender,
• In the face of change, both internal and external to the organization and the challenges that brings.
• Bottom line, the work of the business still has to get done if it is to remain viable and competitive.

One of the core requirements of effective leadership can be found in its capacity to create a sense of calmness in the center, in the face of challenges that would disturb and create tension and discord. Effective leaders cannot necessarily make instabilities and uncertainties and their causes go away, but they can and do help the people who they work with, to more effectively work and work together in the face of all of this.

• Things tried, and particularly new ones do not always work; taking the risk to innovatively succeed means allowing for failure as well as success.
• Mistakes can happen in what should be standard operating procedures too and both for reasons internal to the organization and as a result of external, outside problems and complications that can intervene in what should be business as usual success.
• People often have to make decisions absent all of the information that they would want and the results of those decisions might be very good, or they might be much less so.
• Needs and priorities and required goals can change and late in a business process or during a time-sensitive customer fulfillment, and all of this can all lead to concern, anxiety and a loss of perceived stability too.
• Effective leaders bring their employees together in the face of all of these events as they arise, and effective leaders bring their people together to find and create the best possible outcomes out of all of this challenge.
• They are calm and show stability from their words and actions, and they strive to share this resource in others as well.
• Then when the dust settles from a problem or dislocation they work with their teams to develop lessons learned and new practices and processes for moving forward.

I have noted a fairly extensive list of traits, qualities and actions in this blog that an effective leader displays and promotes, but bottom line, leadership becomes most critically important when the organization being led is under challenge and its employees and the members of its community are too. When it is business as usual is not enough and real leadership has to step forward. This posting is about building an environment where that is possible, and where little disruptions cannot simply grow.

You can find this and related postings at Business Strategy and Operations and its Part 2 continuation page.

Innovators, innovation teams and the innovation process 1 – an organizational and functional story

I have been writing in this blog about innovation and capturing its value to the business for virtually as long as I have been writing to this blog at all. And in that regard, and with an organizational focus I cite, by way of particularly pertinent example, my series: Keeping Innovation Fresh (see Business Strategy and Operations – 2, postings 241 and loosely following for Parts 1-16.)

I developed and presented that series with a simple and immediately significant goal – helping organizations with innovative potential to both develop this font of value and to create sustaining value and wealth out of it. So I wrote about building systems that would support the innovative and inventors, and help them to navigate the processes and challenges of moving their ideas and prototypes into the more mainstream productive side of their business. But I did not write about the innovation process or hands-on innovators or inventors per se, except as needed in passing for purposes of discussing organizational systems.

My goal here is to flip that discussion around, and for the most part simply assume an existing innovation-supportive organizational system – and mechanisms and organizational structure for transferring new innovations from the lab bench to production. My goal here is to discuss innovators and the innovation process per se. And as a basic orientation to that discussion to follow, I begin by noting that innovators and sources of innovation do not readily fit into any single simple cookie-cutter pattern. And their diversity, and the way that innovation as a process and innovators who bring it to the organization disrupt standard and tried and true systems and processes, often leads to real resistance to creative change and to those who would bring it.

As a starting point for this, I focus on the innovators themselves, and by loosely organizing them as fitting into three basic categories:

• Individual and even idiosyncratic innovators with their creative and often iconoclastic spirits and approaches,
• Collective efforts at developing and refining ingenuity through organized research and development teams, and
• Crowd sourcing innovation, and opening up the creative potential of the more openly sourced community.

All three have their roles to play in the cutting edge, creative organization and all can effectively contribute to the overall organization and its ongoing success, while being supported for and rewarded for their creative and even disruptively creative contributions.

This is the first installment to a new series that I offer in a fundamental sense as if a direct continuation of my Keeping Innovation Fresh series, as cited above. And I will focus in my next series installment on individual innovators, and on identifying and talent scouting for them in new hires and within the organization. I will also discuss supporting and guiding the innovative effort in this context, and doing so without disrupting everyone else in the process or stultifying the creative endeavor – and while keeping the teams that those innovators are in working effectively and meeting their overall more standard goals and priorities too. That mix, I add, it not easy and that is why creative effort can all too often be blunted and its value potential lost.

You can find this and related postings at HR and Personnel and also at Business Strategy and Operations and at its continuation page: Business Strategy and Operations – 2.

Opening up the online business model for new and emerging opportunity 1: outlining some of the basic issues and challenges

Last November, 2012 I finished a series on best practices for using YouTube and related rich-media marketing approaches (see YouTube marketing 9 – developing viral marketing reach from a business model and strategic planning foundation) in which I noted that:

• A business that goes viral in its marketing reach is in a very similar position to a business that offers a highly innovative and novel product or service – a true blue ocean innovation to the marketplace.
• In both cases, the actual target demographics that would want to purchase may be quite different than initially anticipated.
• In both cases, market analysis and two-way sharing of information and insight are essential to making meaningful connections that will systematically lead to sales, to business stability and strength and to competitive advantage.

And I have also written about Web 2.0 oriented businesses (see for example Moving past early stage and the challenge of scalability 8: web 2.0 business models.)

Up to here, however, I have barely scratched the surface as to what a Web 2.0 oriented business model actually entails, as organizations that pursue that strategic and operational approach go online and seek to develop and expand an online reach. My goal here is to at least begin to more fully address the issues and factors that go into that. And I begin by repeating a fundamental reality of online marketing and business that I have already noted several times in this blog:

• The closest parallel to physical distance in cyberspace is a mathematical inverse of bandwidth, where slower speeds of connection online equate to being further away for bricks and mortar businesses.
• But with increasing proliferation of high speed and wide broadband connectivity and with the ever-increasing expansion of what wide broadband connectivity means as a minimal requirement, any business that goes online can realistically hope to reach geographically widely distributed audiences and with effective immediacy.

That has some immediately significant consequences. Among them, and to further build a foundation for this discussion, it should be noted that:

• When physical distance per se ceases to be a pertinent market-defining factor, the closest approximation to a local market becomes a needs and interests oriented target demographic. (I will hold off on elaborating on this point for now and simply note here that I am going to post an installment on online demographics oriented marketing in this series.)

One of the points that comes directly out of the above six points as developed up to here is that any business that goes online faces at least the potential of building a truly global audience and marketplace – and certainly if it really understands the dynamics and qualities of its prospective marketing and sales audience and what qualities its members hold in common, that by trait correlations define the group. And that is where this narrative begins to get more complicated and nuanced in the real world – and in real cyberspace.

• You have a product or service that you would want to sell, and when you do so online you potentially face and reach a truly global marketing and sales audience.
• So at least in principle, even a very narrow niche market-oriented offering that could not reach a sufficiently large interested target audience in any physically localized marketplace, might succeed online. After all, online you can at least in principle, tap into the buying potential of many, most or even all of the physically dispersed online members of a marketing demographic who would constitute an interested customer base.
• In cyberspace and for purposes of product design and development, online marketing and sales, the closest approximation of a local market is that target demographic. That understanding drives the Web 2.0 oriented business.

But let’s consider some of the potential complications to this story that can and do arise.

• Buyers always have finite and limited resources that they would have to tap into in making a purchasing decision, with limits to their time and energy that they can devote to a product or service search, and limits to what they can and will spend monetarily when they find what looks to be a good offering.
• When a potential buyer is making purchasing decisions that involve more standard and even mainstreamed products and services, businesses compete for their consumer dollars against businesses and providers who are largely coming from within their own industries and even their own niches within their industry. And consumers might start their search by going to a favored and familiar business to buy from, but they often make their purchasing decisions on the basis of search engine queries where they look for both products and sources simultaneously and by using basically standard search terms.
• But when a product or service offering is truly novel and disruptively new, chances are higher that businesses offering them are competing against businesses that offer different and even very different types of products and services when competing for those consumer dollars. And it is likely that there is no standardized set of search terms that would automatically lead to a selling business for a truly disruptively new offering.
• Disruptively new and novel offerings tend to be much more attractive, at least at first and when still new and disruptive, to pioneer and early stage adaptors who value novelty per se. And they only become attractive purchase options to middle stage and late adaptors later and as those consumers see others buying in. But even there and within the pioneer and early adaptor market cohorts, and even where members of those groups are looking to acquire new and cutting edge per se, they would be looking in many cases more widely than just to your specific types of products or services. So your offerings would be competing for these consumers’ limited resources against new and novel in general, plus standard and generic as these consumers meet their basic and ongoing needs.
• So knowing your true competition becomes more complex as you offer distinctively new and novel, than would be the case for more mainstreamed offerings that would cater more specifically to mainstream, established markets.
• But at the same time, and returning to the points raised and noted at the top of this posting, new and disruptively novel is also quite specifically where blue ocean strategies and larger emerging market opportunities would be found.
• So in the mind of a startup owner, and at the heart of any Web 2.0 and explicitly online-oriented business model that they might deploy, and certainly as that uses more cutting edge and early adaptor-oriented communications and connectivity channels and approaches – you will often find a desire if not an explicitly stated and planned intent to achieve blue ocean success. When is that realistic and how might a new business’ chances be improved for succeeding there? What should be its perhaps more conservative Plan B, and when should breakout success and blue ocean strategy development that would lead to it be the Plan B?

This is the first installment to a new series, and as noted above, I plan on discussing online demographics marketing as part of it. I also plan on discussing the open questions raised in my last bullet point immediately above, and more. Meanwhile, you can find this and other related postings at Startups and Early Stage Businesses. You can also find related material at Business Strategy and Operations and at its continuation page: Business Strategy and Operations – 2.

Commoditizing the standardized, commoditizing the individually customized 1: a brief historical sketch as background for discussion

We as a species make and use things – tools and products made with them including other tools. Our species’ scientific classification name is Homo sapiens, where “sapiens” is used to designate us in terms of capacity for thought and perhaps wisdom. But a name such as Homo faber, highlighting our propensity for creative building and fabricating would be at least as appropriate. We devise and design and build, and we build the tools needed to build other more derivative tools, in order to build what we as an end result goal seek to produce.

For most of our history, and I add our tool making prehistory too, that meant building from the materials at hand and with any standardized and developed manufacturing skills employed, required to work in the face of any variations in the raw materials at hand that might be encountered. And we built for our own use or for the use of members of our own immediate family or community. The history, and I add prehistory of our building and creating efforts, insofar as our prehistory can be discerned from the record of tools and artifacts that remain from then, was local and customized and in a fundamental sense essentially purely artisanal – and handcrafted – until relatively recently.

Settled communities and a move from a more nomadic hunter gatherer existence meant our ancestors could realistically accumulate more things than they could carry at any one time and on an immediately ongoing basis. From the perspective of the things we build, use, and keep or discard, the development of agriculture and settled communities meant we began to build more to last and for longer ongoing reuse, and we began to accumulate – and to build a progressively wider range of tools and end-use products. And specialist builders – specialist artisans began to proliferate.

Specialists, particularly expert in the manufacture of specific types of tools and the products made from them appear to have first appeared well before any written record, and certainly when you consider some of the highly elaborate devices made from flint and other persistent materials that archeologists and paleontologists have found. We can only guess, baring discovery of a wider range of artifacts preserved in glacial ice or by other means but it is likely that at least some objects manufactured from wood, grasses, animal hides and other non-persistent materials were also produced by specialists with particular skills too. But either way on that, evidence I have read of and seen in museums and other repositories and common sense would suggest that at least some specialist artisans lived and worked at least as far back as the early Neolithic era and even back into the Paleolithic.

The settled community led immediately, it seems, to an explosion in the numbers of types of tools and artifacts produced, used and kept, and of the numbers and diversity of artisans who made them. And production became more standardized with time and according to settled basic designs and motifs within culturally distinct groups and so did the basic raw materials that would go into the manufacture of any given end-use product. Wider ranges of materials were used and this led to further, exponential growth in the diversity of items producible and of items actually, consistently produced. And communities grew in scale and connected through increasingly widespread trade and commerce, and through shared culture and governance and law. I, of course, present this in what is essentially cartoon form as my focus here is on the artifacts and objects made and their diversity, and on the emergence of specialist producers who would sell what they make, and increasingly for the products of other specialist manufacturers.

And I cut ahead from that to the first mass production, still primarily following an artisanal approach but as a larger organized effort, and to the earliest assembly lines. And with that manufacturing innovation, I come to what could be seen from the perspective of this rough timeline to a point that is still, at least historically, very close to our immediate past.

This “history” up to here really is more cartoon than anything else and offered here more for discussion of what comes next as Henry Ford’s real invention – the assembly line took off and became mainstreamed in production and manufacturing everywhere. Suddenly more standardized copies of essentially anything that could be mass produced in repetitive step stages, could be produced and more quickly and more cost-effectively and more inexpensively to the buyer and consumer than ever before while still bringing a significant profit to the manufacturer. Henry Ford did not invent the automobile; he built cars that the average citizen could afford, starting with his own employees and people like them in their communities. Businesses that mass produced, and with assembly line and similar manufacturing effectiveness multipliers, came to dominate their markets and their industries and manufacturing production as a whole.

• And what began as artisanal production of essentially one-off products, standardized to basic design perhaps, but manufactured from varying raw materials, shifted to larger scale and even mass production of more identically uniform end products, with standardized methods and starting from more uniformly consistent starting materials – that in many cases were themselves the products of manufacturing processes.
• And as a basic progression and as a result of a series of paradigm shifts, handcrafted and artisanal as the basic pattern of production gave way to mass produced and I add machine produced, as finished consumer oriented products were manufactured from components and materials that were themselves manufactured, and generally from still further removed manufactured products – with the products ultimately used, one step further removed from true raw materials with every step of this progression.
• And this is where automation enters this narrative, as basic rote performance, repetitive production steps are increasingly removed from direct human hands-on production and carried out by machines – self-directing tools.
• And mass produced standardization became the norm and certainly going into and in the 20th century and for the West and increasingly everywhere else too. And this is the starting point that I had in mind when first thinking through this posting – this state of manufacturing as a current baseline for comparison.

I am going to continue this discussion in a next series installment where I will delve into some of the defining issues as to what artisanal production is, in a mass produced and assembly line driven world. And I will proceed from there to examine the new and still actively emerging re-individualization of production as we approach the options and capabilities of a post-assembly line design and manufacturing world. Meanwhile, you can find this and related postings at Business Strategy and Operations and its Part 2 continuation page.

Acquisitions and divestitures 6: exit strategies and the sale and acquisition of complete businesses 3

This is my sixth installment in a series in which I look at acquisitions and divestitures and related processes, and examine businesses from a very modular prospective as to how value is created and sustained (see Business Strategy and Operations – 2, postings 358-362 for Parts 1-5.)

I began a discussion of exit strategy-based complete business divestitures in Part 4 where I introduced three test case scenarios that collectively illustrate some of the core issues involved here. To briefly recap and orient from there and for purpose of clarifying this posting, I repeat that:

• Scenario 1 represented sale of an established business by an owner who seeks to step away from it to retire.
• Scenario 2 represented sale by a serial entrepreneur who builds out new businesses to sell them and with that exit strategy built in as their default, essentially from the beginning.
• Scenario 3 arises when a business owner gets that offer that they cannot refuse and decides to sell because of it.

I briefly addressed the issues of evaluating and selling a business according to Scenarios 1 and 3 in Part 5 and specifically recommend reviewing Parts 4 and 5 of this series as foundation material for what is to follow here. My goal for this posting is to at least briefly analyze and discuss Scenario 2 with its types of divestitures and acquisitions. And I begin there from an operationally and strategically lean and agile business development perspective. (See my two series: Virtualizing and Outsourcing Infrastructure at Business Strategy and Operations, postings 127 and loosely following for its Parts 1-10, and Moving Towards Dynamic Performance Based Business Models as can be found at Startups and Early Stage Businesses as postings 123 and loosely following for its Parts 1-8 for background materials and discussion on lean and agile business planning and execution per se.)

• An entrepreneur who moves in on a prospective unique value proposition with a goal of building a marketable business venture around it, plans and builds with one goal – to reliably and at minimal risk and upfront-cost, set up and build a business resource that can be sold off on a short timeframe when ready, and at a substantial profit.
• Operationally, the goal in that is to build well enough so that the offering put on the market would be an attractive buy that could be cost-effectively brought to market.
• And that means building this commodity enterprise to be stable and sound enough to develop and realize its unique value proposition, but with a very pronounced focus on developing and presenting just that.
• That means limiting to a minimum anything extraneous when planning and building, and with third party outsourcing or virtualization or other approaches applied as appropriate. The goal there is to limit both extraneous fixed operating expenses and the development of non-essential in-house supported resource base.

From the buyer’s and acquisitions side of this:

• Their goal in this is to limit the level of extraneous resource duplication and other cost expanders that they would have to buy, that they do not specifically need,
• In order to acquire and bring in the specific unique value proposition capability that this offering would bring to their own business in meetings its ongoing and long-term strategic needs.

What I am outlining here is a very business sales and divestiture, and acquisitions-oriented lean and agile approach. And here is where this type of exit strategy takes on a very specific meaning for newly forming business ventures as divestiture and acquisition objects:

• A whole range of business infrastructure systems and functionalities can reliably be expected to become essential that would in most cases be held in-house as a business expands and scales up,
• And the overall value and cost of all of this supporting structure can come to outweigh all but the most compelling unique value propositions for a potential acquiring business, making development from scratch and other options more viable alternatives to acquisition for gaining that specific source of unique value.
• And when businesses develop directly matching or at least directly competing alternatives to a unique value proposition that a potential acquisition holds, it ceases to be a unique value proposition and loses potential marketable value from that.
• But in many and even most cases supporting functional requirements are simpler and more easily handled on the side rather than by dedicated specialists when the headcount is still very small and business processes have not begun to expand in detailed complexity.
• So startup and early stage are the business stages where it is easiest to develop and offer a marketable business venture that is closest to being pure unique value proposition than at any other stage or time – before all of those supporting structures and systems have elaborated. So for reduced extraneous expenses, a unique value proposition can hold greater acquisition value at that stage.
• This, collectively, can make the build to sell serial entrepreneur model very successful and profitable and certainly for entrepreneurs deeply experienced in building and managing, and marketing and selling startups.

I am going to turn in my next series installment to consider resource divestiture as a fundamental component of change management, and of course correction when a business is in or at least rapidly approaching crisis. And as a foretaste to this, I note here that a big part of making that work is to strategically prepare and carry through this type of divestiture so as not to be caught in an entirely buyer’s market – and with a goal of realizing fair value for what is sold off. Meanwhile, you can find this and related postings at Business Strategy and Operations and at its continuation page: Business Strategy and Operations – 2. I have also included this series installment in Startups and Early Stage Businesses.

Acquisitions and divestitures 5: exit strategies and the sale and acquisition of complete businesses 2

This is my fifth installment in a series in which I look at acquisitions and divestitures and related processes, and examine businesses from a very modular prospective as to how value is created and sustained (see Business Strategy and Operations – 2, postings 358-361 for Parts 1-4.)

My goal for this posting is to flesh out something of the How of selling, and from real awareness of the perspective of the other side of the table and acquiring a business that is being offered on the market as an end point of an explicit exit strategy. I began this in Part 4 where I laid out a set of three orienting scenarios that display differing circumstances and contexts through which this decision to divest can arise. And as noted at the end of that posting, my goal here is to discuss this process from the perspective of a very balance sheet oriented approach as to costs, returns and valuations.

I want to begin that and set the stage for this discussion by way of an analogous example – the sale of a home that the sellers: Bob and Mary, and their family have lived in.

1. Bob and Mary do some homework and find out what comparable houses in their neighborhood are being offered for when put up for sale, how long they stay on the market before being successfully sold, and what they tend to actually sell for.
2. They assess their own needs – they want to purchase a somewhat larger house in their case, but for the purpose of this example the precise details are not as important as is the simple fact of their having specific goals and strategic objectives. They assess their resources – they are going to have to sign a new mortgage as well as all of the rest of the paperwork and want to make sure that the sum total of their mortgage payments plus any other expenses related to their purchase stay within their own budget planning parameters. This means assessing what they would need to receive in payment for their old house and it also means coordinately considering what they will have to pay for any new home too, up-front repairs and so on included, so the numbers on both ends of this process work for them.
3. Their old house shows the wear of use and they find themselves asking both each other and their real estate broker they are listed with, what if anything they should do to fix up their house to make it more saleable. And their bathrooms are out of date as is their kitchen, and some of their rooms show paint scuffs and similar problems – and one of the bedrooms is painted in what some might consider an off-putting pink color. Strategically, they find that it would not be cost-effective to update the bathrooms or kitchen as those are the types of detail work that new home owners like to personalize to their own taste in making their new home their own. The expense to the seller would not be recouped for their doing this from increased realized sales price. But going through and painting interior rooms, and certainly that pink bedroom in a neutral white would both increase sales price received and shorten the time their old house stays on the market. So this would be a cost-effective step for them.

I am going to end this analogous example there with those details in place and turn to apply some of the same reasoning to the three scenarios of Part 4.

1. In all three scenarios, both potential sellers and potential buyers should assess what a divestiture-offering business has as assets and liabilities so they know what its likely overall net worth would be. And in keeping with the logic of the first bullet point of the home sale analogy, they should get a sense of what the market would bear for this. Here, depending on both the overall economy and on marketplace and other pressures in their industry, a business offering might be expected to be overvalued, undervalued, or more or less accurately valued in comparison to what would be expected in a neutral, stable market. This would, for either the homeowner or business owner, help them to determine wither to proceed with plans to sell or not and it would inform any prospective buyer whether it would make more sense to buy this business or to find alternative approaches for meeting their ongoing operational and strategic needs.
2. Point 1 above addressed issues of what is possible. Point 2 addresses the issues of what is needed, and within what time frame.
3. And Point 3 specifically addresses the key points of difference between the three scenarios of Part 4 of this series, and how any proposed business divestiture would be planned for and prepared for so as to maximize profits to the seller, by maximizing attractiveness and perceivable value to any buyer.

Briefly recapping those scenarios here for orientation in this discussion, Scenario 1 represents sale of an established business by an owner who seeks to step away from it to retire. Scenario 2 represents sale by a serial entrepreneur who builds out new businesses to sell them and with that exit strategy built in as their default, essentially from the beginning. Scenario 3 arises when a business owner gets that offer that they cannot refuse and decides to sell because of it.

Starting with the simplest case for Point 3 issues, with the third Scenario – it would be foolish for the seller to change or update anything as their prospective buyer clearly wants to acquire this offering exactly as it is, operational and fixed-resource asset equivalents of scuffed wall paint and all.

A Scenario 1 seller would quite possibly want to selectively update and improve at least some operational process and physical resource-based assets to make their business a more competitively attractive offering. Here, they need to know what a prospective buyer would look for as sources of value in their business, and where they might see due diligence or up-front cost disincentives that would at the very least prompt them to limit what they would pay in a final offer. This would in many cases be based on meeting industry standards, or exceeding them where unique sources of competitive value are in place in the business for sale. But exactly as is the case with the house seller, their goal would be to limit any improvements made to those that would bring in a positive return on investment in the form of increased sales price, faster and more reliable sale or both. There and just looking at building the sales attractiveness of their offering, if they could bring their business to a point where potentially acquiring businesses would offer more in order to preclude competitive buyers, that would be best. But they would not, for example, want to upgrade their employee cafeteria if that would cost them but not influence any realizable sales price. And to follow through on that, if repainting their cafeteria would not improve their value or saleability, de-duplicating, updating and data cleansing their customer database might, and particularly if their customer loyalty and reach constitutes one of their defining sources of competitive value. What would be done here and how, and how this would be marketed should be considered significant strategic decision points in this business process.

The reasoning of Point 3 of the home sale analogy becomes more interesting and I add more complex when you consider it in the context of a Scenario 2 divestiture, and for businesses that are in effect built primarily to be sold off for profit. I am going to delve into some of the issues that would arise there in my next series installment. Meanwhile, you can find this and related postings at Business Strategy and Operations and at its continuation page: Business Strategy and Operations – 2.

Acquisitions and divestitures 4: exit strategies and the sale and acquisition of complete businesses 1

This is my fourth installment in a series in which I look at acquisitions and divestitures and related processes, and examine businesses from a very modular prospective as to how value is created and sustained (see Business Strategy and Operations – 2, postings 358-360 for Parts 1-3.)

So far I have focused in this series on businesses that acquire or sell off select functional parts of their infrastructure, according to an analytical understanding as to how they can both maximize realizable value in the here and now, and reduce ongoing expenses and risk that is disconnected or at least inefficiently connected from their sources of ongoing monetizable value and profitability. I turn in this installment to consider sale of the complete business, and in that context cite a brief but select set of working case study scenarios:

1. The owner of a business builds their enterprise from scratch, and to a point where it is an effectively profitable ongoing concern with a steady, reliable customer base and market-appreciated products that are generally viewed as being of high quality at a good price. But as time passes, this owner starts thinking about retirement. They want to move on in their life and to spend more time with their family and they want to travel more and to pursue some interests they have never had time for while building and running their business. So they begin thinking in terms of an exit strategy in which they would sell off and increase their retirement funds, as well as building a more substantial inheritance for their children.
2. An entrepreneur sets out to build a business around a new product idea that he sees as holding real value. But his goal is not to become a long-term owner and manager of this new enterprise. His goal is to build an attractive offering that another, larger business would want to acquire in order to fill a strategic gap in their systems – a gap that his business’ existence highlights specific awareness of. So he seeks to build to explicitly offer a saleable set of resources as a complete and ideally competitively attractive offering. Serial entrepreneurs who live, at least professionally for the startup and early stage processes and challenges and who are much less interested in the follow-through of running a business long-term tend to gravitate towards this approach, and they frequently invest significantly from what they bring in from the sale of one startup, in building their next venture.
3. An entrepreneur builds a business, taking it through the uncertain startup and early stage business steps. This is his baby and he is in it for the long haul. He invests what he can in it in personal funds and much more so in time and energy and emotional capital, and he builds solidly, creating a well-respected brand and real customer loyalty. Some of his product offerings are very cutting edge and some are more mainstream to what he does and he successfully scales this business up to a respectable level of annual business and profitability. He did not build this to sell it, and he is not thinking in terms of doing so – until he gets an eye popping offer from a large multinational corporation that really wants to capture the value of his company’s brand and products for their business, and access to his customer base. So suddenly he finds himself asking the question, and talking about his with his wife at home, as well as with his senior executive team and others at work. I have seen this type of scenario play out in a couple of variations depending on what is offered on the table – a straight cash and stock buyout, or a cash and stock plus continued involvement offer where the acquiring company would own outright, but the selling CEO owner would stay in-house for at least a transition period and then be on retainer as a consultant for some further period of time.

I have intentionally left out anything like hostile takeovers of publically traded companies here and am planning on addressing that and similar scenarios in a future installment. The scenarios that I would address here are all willing on everyone’s part even if not necessarily planned for, long-term by any of them. And they all revolve around sale of a complete business as a value creating acquisition and as the end point of an explicit exit strategy, even if it is one not always long planned for.

I am going to continue this discussion in my next series installment with an explicit balance sheet oriented discussion of costs, returns and valuations. As a foretaste of that I note here that any such analysis has to consider both immediate and short-term costs and returns created and received, and also longer term factors and consequences as this acquisition would impact upon ongoing strategic positioning and competitive strength. Meanwhile, you can find this and related postings at Business Strategy and Operations and at its continuation page: Business Strategy and Operations – 2.