On the last episode of Season 2, we do another Q&A episode – focusing on specific questions you the audience have for me.
The questions fell into four categories:
- There were a lot of questions about this unprecedented time we’re living in, and especially how it relates to the overall economy, companies commitment to innovation, and to education.
- I also got a few questions on one of the CSL, the Corporate Startup Lab tools, the Option-Gate.
- Next, not surprising, given the focus on corporate venture this season, I did have some questions around that as a strategy and how companies should think about CVC.
- And then the last topic was actually a personal one, but a number of you asked, about my professional plans between now and the start of season 3. I’ll talk about some of my plans at the end of this episode, if that’s interesting to you.
Sean Ammirati (00:08):
Welcome to Agile Giants: Lessons from Corporate Innovators. I’m Sean Ammirati, your host, co-founder and director of the Carnegie Mellon Corporate Startup Lab, and partner at the early stage venture capital fund Birchmere Ventures. Each week I’m going to talk to guests who are experts at creating startups inside large corporations. I believe fundamentally a startup within a company is the same as one inside the proverbial garage, a group of entrepreneurs, trying to make the world a better place using new ideas and inventions. However, I also believe some of the techniques and processes are just inherently different. This podcast is going to explore those similarities and differences.
Sean Ammirati (00:56):
All right, welcome to the last episode of season two of Agile Giants, 37 episodes in. When I started Agile Giants, I had no idea how much fun I’d enjoy having these conversations, and even more the community that has formed up around this content. But I wanted to end season two with another Q and A episode because ultimately, you the audience, are the customer here. And this is a chance for me to answer your specific questions that you want to know, which is really what this is all about. I want this platform to not just be conversations that I find interesting, but conversations that you, the audience, finds interesting. And so I thought it would be good to start by talking about the buckets of questions that I’m going to address, and then go back and answer each of them individually.
Sean Ammirati (01:43):
I would say the questions fell into four categories. First, there were a lot of questions about this unprecedented time we’re living in, and especially how it relates to the overall economy, companies commitment to innovation, and to education. So how is the pandemic going to change the economy, innovation programs and education? I’ll walk through each of those in a moment. I also got a few questions on one of the CSL, the Corporate Startup Lab tools, the Option-Gate specifically, I’ll give you both a quick overview and reminder on the tool, and then answer a few specific questions that came up around it. Next, not surprising, given the focus on corporate venture this season, I did have some questions around that as a strategy and how companies should think about CVC. And then the fourth topic was actually a personal one, but a number of you asked, because I’d mentioned between season two and three, I was going to work on some other projects over the next couple of months, people were curious what those were. I’ll talk about some of my plans at the end of this episode, if that’s interesting to you.
Sean Ammirati (02:47):
Okay, so let’s step back and drill into this first topic. We are definitely living in a unique time. There have been plenty of recessions that you can go back and you can look and see, “Okay, what happened to the economy overall? What happened to individual companies?” Part of what makes this unique obviously though, is that this recession is also coupled with a financial pandemic, which makes it admittedly more complicated. That said, I do think some of the research on how companies have come out of recessions in the past are interesting, probably the one that is the most interesting to me was published in the Harvard Business Review in 2010, called Roaring Out of the Recession, I’ll include a link to that in the show notes.
Sean Ammirati (03:38):
But what they did is they actually, a number of Harvard researchers, mounted a year long project looking at corporate performance during the past three recessions, the 1980 crisis, the slowdown in ’90 and ’91, and then the 2001 cycle where you went through a boom bust around both the internet bubble popping and then 9/11. And what they did is they bucketed the companies into what they did right before the recession, the three years after, and then during the recession years themselves. What’s interesting is across all three of those, you end up seeing companies bucket into a number of different categories. Some of the companies ultimately obviously don’t make it, some of the companies bump along and come out of it, but still on a much slower growth rate than they entered it, but what’s interesting is that there’s a group of companies, of what they call the progressives, that ended up actually coming out of the recession much stronger than they went into it. And they call these the progressives.
Sean Ammirati (04:49):
And what you see is they end up outperforming these companies by quite a bit, it’s about 9% of these companies that do this, and what’s interesting is those companies basically follow the same playbook. They end up looking and actually developing new business opportunities, they actually overinvest in R&D relative to their rivals, and also over invest in marketing relative to their rivals, they still are cutting costs, but it’s mostly in the area of operational efficiency. And one quote from the article that I thought I would just mention, is they said, “The progressive companies also stay closer to their customers. It’s a powerful filter through which they make the investment decisions.” And as I think about the things we’ve been talking about over the last couple years here at the Corporate Startup Lab, that really is one of the primary filters also, which a lot of these innovation projects have been filtered through.
Sean Ammirati (05:47):
And so when we think about what’s going to happen to the overall economy, I’m not an economist, there’s a lot of great economists at Carnegie Mellon that I have the privilege of calling colleagues, I think it’s very interesting to think about, “Okay, are we going to enter a U-shaped recovery, a V-shaped recovery? Is it going to be more linear? How long is it going to last?” All of that. But what I think is interesting is you need to remember that the economy is made up of all of these individual companies, and there is a playbook to actually coming out of these challenging times stronger than you entered it. Now what’s fascinating is in the past, that’s really been relegated to a 10th of the market overall. However, I think, more than ever before, thanks to the investments companies have made in digital transformation, and the thought leadership that you’re seeing come out of a lot of the enterprise software companies today, my hope is that 10% could actually be much higher. Maybe we could get 30 or 40% of the companies to actually make those investments.
Sean Ammirati (06:51):
And one of those investments, which leads to the second piece of this is the commitment to innovation. One of the investments certainly needs to be continuing to invest in R&D, continuing to invest in the right customer focused interaction. And what I would say is ultimately continuing to make the investments such that you don’t just assess, “Okay, how is my current business model in terms of efficacy?” But say, “How do I reimagine my business model?” Or what I’ve said on a number of guests placements that I’ve had over the last couple of months on different podcasts, the goal is really not just for these businesses to figure out how to reopen, but for those companies that come roaring out of the recession, the goal is really to reimagine those businesses. And I think innovation is going to be a key part of that.
Sean Ammirati (07:41):
Now, there certainly are some companies, as we transition to thinking about what I can expect from companies commitment to innovation, there certainly are some companies that I think have been doing basically innovation theater for the last few years and you’re going to see them be much less committed to these projects going forward. However, I do believe that a number of these companies are going to remain at least as committed or even double down on it, as they realize that the only hope they have for the future is to reimagine their businesses and realize the things that made their business relevant, aren’t going to keep them relevant. And we’ve been saying that for the last few years that the Corporate Startup Lab and here on this podcast, but certainly COVID has become an incredible accelerant on that trend.
Sean Ammirati (08:25):
And so I think that’s only more true today that the things that made your company relevant will not keep it relevant, and you must continue to invest in R&D and corporate innovation and this business model transformation projects, corporate startups, all of those things. Going back to season one, you need to do buy, build, and partner around these transformative innovation projects because the future is only coming faster. As far as what percentage will do that, it’s hard to say, I will say we have some research that will be coming out probably shortly after this episode airs on the Corporate Startup lab site, which is that we surveyed a number of Fortune 500 and other large companies CVC groups. I think companies commitment to their CVC groups is, while not a perfect proxy, a pretty good proxy to companies commitment to these types of initiatives.
Sean Ammirati (09:21):
And right now I would say, I remain cautiously optimistic that a decent percentage of these companies will remain committed. And that some, right now it looks like roughly 10%, will actually double down and try to accelerate into these challenging times to come out of the recession stronger than any of their peers.
Sean Ammirati (09:40):
The last part of this living in unprecedented times, is how’s this going to impact education? And I think specifically what people were driving at there is higher education. Because I wear a lot of hats, but certainly one of them is that I’m a professor at Carnegie Mellon, and my class had to, over the course of a few days, make a transition from in person classes to online classes. And that was, that was fine. I think we did it well.
Sean Ammirati (10:07):
The nice thing about the Tepper School at Carnegie Mellon is that we’ve had an online hybrid program for more than five years now. And so many of our faculty have been teaching online. But I think as we turn the page to the fall semester here, what you’re going to see is that educational institutions in general are going to really have to reinvent themselves. Everything I just said about other companies, they need to reimagine their businesses, not figure out how to reopen their businesses, absolutely true for Higher Ed. We cannot simply put Zoom meetings online and expect our students to feel like that was a good value for the content and for the experience that they were doing. We’re going to need to figure out ways to make the programs better in this new medium, than they were when you were in person.
Sean Ammirati (11:02):
And still to be determined how much classes go back to in person versus online, there’s been announcements at CMU that I believe are internal so I won’t share the details, but that make me optimistic that we’ll be able to do some things in person. But I think it doesn’t really change the fact that certainly our international students, given some crazy policy decisions from the White House are not going to be able to come back, sorry I tried to keep politics out of that, but I don’t know how you describe that as anything but crazy. And I think just in general, there are students who won’t be able to be there, maybe their immune compromised, whatever, we have faculty who may not be comfortable being on campus. So the playing is going to be different. And what we need to do as educators, it’s the same thing that I just said all the companies need to do, we need to reimagine how we do education in this post COVID world that we’re all going to be living in.
Sean Ammirati (11:57):
And I’m personally very excited about that. I think back to the time when I was one of the early professors teaching in the online hybrid MBA program at CMU, it was incredibly fun to think about how to do that and make that a magical experience, and now we’re going to figure out how to do that across the entire university, so should be fun, but Higher Ed is absolutely going to look very, very different, I think, this academic year, and next academic year, and frankly probably forever into the future, because this is going to be quite a catalyst for change within Higher Ed. The second bucket of questions that I wanted to get to now was a few of you had questions on the Option-Gate Model. As a reminder, the Option-Gate Model is a tool that the Corporate Startup Lab has developed, you can go to corporatestartuplab.com and click on the tools link and you can download it. It’s just an Excel worksheet.
Sean Ammirati (12:51):
And I would say, first they were some questions more on, why doesn’t it do this? Why doesn’t it do that feature? And I’ll talk about a few things that it could do, but I think maybe the context that’s relevant here is, the Option-Gate Model was an attempt by myself and the other co-founder of the Corporate Startup Lab, Matt Crespi, to begin a conversation with executives about a different way to value their transformational innovation. And I think the key here is that just like we would encourage corporate and traditional startups to do, which is get a product out there early, get feedback from the market and iterate. This is absolutely just a first version of it. Now, I always say it’s important for these MVPs to be minimally awesome, not just viable. And I do think companies have gotten value out of it and that it does an awesome job starting that conversation, but there’s a ton that could still be done with the Option-Gate Model, and frankly, there’s a ton that could be done with all of the Corporate Startup Lab tools and even some new tools that may be in development.
Sean Ammirati (13:59):
But as it relates to the Option-Gate Model, there’s a bunch of stuff that I do think makes sense, we just haven’t gotten to it yet. So some examples of that, just so that people don’t feel like we’re ignoring this is, yes, it would absolutely make sense to evaluate these ideas, not just an individual basis, but on a portfolio basis. I’m going to be running an Exec Ed program this fall at Tepper around taking a portfolio approach to innovation. I think that this is an incredibly important topic, and I do think the Option-Gate Model should incorporate some of that stuff. I also believe that we should think about the residual value of some of these experiments.
Sean Ammirati (14:39):
That’s one of the areas we got inspiration for the Option-Gate Model frankly, was in the pharmaceutical industry where they already think about option value versus just IRR and NPV when they’re thinking about drugs and drug discovery. And so I do think that makes sense, we absolutely will think about that in the future, we just, frankly, haven’t gotten to it yet. And we’re still getting feedback on the version one. But I do think there’s a lot of opportunity there and look forward to continuing to iterate on that. The next is some questions around corporate venture and specifically how people should think about it as a strategy. So here’s what I’d say, I think having now had a number of conversations, both on the podcast and offline about CVC, I think corporate venture is absolutely one of the higher leverage activities that companies can do as it relates to transformational innovation.
Sean Ammirati (15:40):
And I think that came through with all the conversations we had this season, both on the academic thought leader side, like professor Josh Lerner from Harvard, as well as on the actual on the ground CVCs. I think that as venture has evolved, corporate venture needs to also evolve. So even if I just think about 20 years ago when I was an entrepreneur to today, things like the accelerator movement that Yael Hochberg and I talked about last week, things like the emergence of pre-seed and seed funds, and the more transparency that’s been brought to the traditional venture world. I think all of that, some of that just directly benefits in CVC as well. But I think there are unique opportunities to do similar things in the CVC space and also come up with, not just a copy of accelerators in a corporate setting, which plenty of people have tried to do today. Tech startups themselves have tons of these corporate accelerators.
Sean Ammirati (16:37):
But actually look at unique new financing business models that work specifically in the corporate space. And I just think that, if companies are already doing getting a couple of dollars return on their investment in CVC, I think coming up and iterating on the actual CVC model a little bit, maybe able to actually apply more leverage where you could get to four or five, six, seven times leverage on those investments. Because I do believe that in terms of outside innovation, which is obviously one of the two critical approaches to this, CVC is just an incredibly smart strategy. So I think, as the seasons go on and as we continue to have these conversations, both on the podcast and in general, we’re going to continue to try to come out with more and more playbooks, recommendations, thought pieces around this.
Sean Ammirati (17:31):
As I mentioned earlier, we did just survey a number of CVCs and we’re aggregating those results and we’re going to be publishing a report soon. My hope is that, that could begin to form an actual community of corporate venture capitalists that we could have these conversations both publicly and privately under friendDA across. So there’s a lot more coming here, but the short answer is, I already think even if you just carbon copy the CVC strategy onto your existing organization, that makes a ton of sense. And frankly, a lot of companies are not doing that. Only 52% of the Fortune 100 have CVCs right now. So that’s 48 other companies, just in the Fortune 100, that could take advantage of it. And I think you should do that because I think just rolling out a standard program, when done thoughtfully, already will add a lot of value, but I think we can make the model even better. And I look forward to continuing to push and think about that with my colleagues in the CVC space, as well as my colleagues in the academic space.
Sean Ammirati (18:35):
And then again, the last topic I wanted to talk about quickly, a number of you just asked, “Well, what are you going to be working on over this break between the seasons?” Because I did mention I had some projects I was working on. Some of those projects, to be honest, I’m still tweaking enough that I don’t want to say something that I can’t take back, but I will say, I’ve got some thought pieces coming out that I’m really excited about that I think are going to really help move the conversation forward. And then the big project actually comes back to this education thing. I believe entrepreneurial education in Higher Ed is incredibly important, and is only more important, in this challenging economic time.
Sean Ammirati (19:23):
And so I want to make sure that as we reimagine Higher Ed, there’s really great content out there around entrepreneurship and innovation. And so one of the things that I am committing to doing, and I’m intentionally putting this on the podcast to hold myself accountable for getting it out there, is I am going to be reshooting and editing and trying to really make it easy to have great little short videos that I can use in my classes, in interactive exercises and all of that, that I can use with my students at Carnegie Mellon, but also try to make that content available in a way where if other professors are looking to pull some of that into the stuff they’re teaching this fall and beyond that those become resources that they can use as well if helpful to them.
Sean Ammirati (20:14):
To me, if they have their own stuff, that’s amazing, but I don’t want, as we have this crazy period of transition and lots of trickiness, I don’t want the entrepreneurial education quality to suffer. Because if we want these businesses to be reimagined and come out even stronger than they went into this challenging economic time, the only way to do that is to have people on these companies teams who are really familiar with these techniques. And so I’m going to work on how I can package that up in a way that other business schools and other colleges and universities can take advantage, as not the entire course, but as part of what their content is. And that would be delightful if that could be helpful. And then I also may think about ways that I can open that up to some of you, if you want to consume little snippets of content here and there.
Sean Ammirati (21:11):
So I don’t know exactly how all this is going to play out, but I am now at least on the record and this should hold me accountable and get me even more committed to getting this content out there, to getting more of the stuff that I’ve been doing in the classroom into a way that would work both for my students, in terms of this more hybrid style of learning, but also hopefully help other educators who want to leverage some of those same pieces of content material for their students, their classes, just because the world needs more entrepreneurs right now. And I do feel like having now taught at CMU for 10 years and putting a lot of this stuff out there, if I can support the greater good of that, that would be wonderful.
Sean Ammirati (21:56):
So that is one of the projects I’m going to be working on over this break. And now I have to do it, which is a wonderful thing. As I always say, a deadline is a wonderful thing in business, and this is a great way to force myself to have a deadline, to get some of this content out there. I hope each of you guys have a great summer. I hope you guys stay safe. It’s a challenging time out there. I hope your businesses don’t just reopen, but are looking for opportunities and to reimagine itself and ultimately come out of this thriving even more. And I look forward to coming back with season three, probably late August or early September. Thanks so much.
Sean Ammirati (22:41):
I hope you enjoyed this episode of Agile Giants. If so, consider sharing it with a friend, and if you think it’s worth five stars, which I hope you do, please go to iTunes and rate it so that others can find this content as well.