2018: The Year Wall Street Became Socially Active

A call to articulate your long-term view

We have this story we tell in business: a vicious loop of misaligned expectations and unrealized dreams.

  • Investors, we tell ourselves, want short-term quarterly results.
  • Visionaries have no place in large public companies because all decisions are optimized for the short term win.
  • Unicorns, companies valued at a billion dollars or more, shy away from their IPO and public spotlight.
  • Startup founders aim to take advantage of this weakness and disrupt.
  • VCs tell startup founders to aim for an exit – the moment when they are subsumed back into the hamster wheel of public company performance and short-term investor expectations.

But what if investors were to shift their time horizon to the long term, and to society?

On January 6, 2018, activist hedge fund JANA Partners and CalSTRS (California State Teacher’s Retirement System) sent a letter to Apple asking them to take responsibility for children’s cellphone use. Citing expert research the company pointed out that overuse of iPhones results in declining mental health among children and teenagers, and is linked to poor attention in the classroom, difficulty empathizing with others, depression, sleep deprivation, and a higher risk of suicide. Together JANA and CalSTRS own $2 billion in Apple stock.

Yesterday, Laurence Fink, the founder, Chairman and CEO of BlackRock, demanded that public companies must make a positive contribution to society in addition to making profits, or risk losing support from his firm. As BlackRock has over $6.3 trillion assets under management and holds the world’s largest position in companies, his annual letter is taken seriously.

We’ve seen this language before from academia, scientists, the medical community, sustainability experts, social justice advocates. Now it’s coming from an activist hedge fund, the world’s largest asset manager, and one of the largest pension funds in the US.

What’s changed?

On one side of the economy, we have the stock market reaching all-time highs and massive tax breaks creating huge cash flows for global corporations. On the other side, we have low wage growth, inadequate retirement systems, and job insecurity among the majority of people.

Fink calls it the paradox of high returns and high anxiety.

Add the failure of government to adapt and respond to issues of infrastructure, AI and automation, and continuous worker retraining. Acknowledge the sudden awareness that our addiction to technology innovation may have pernicious social and economic side effects.

Who can address these systemic challenges? Companies.

“…the public expectations of your company have never been greater. Society is demanding that companies both public and private, serve a social purpose. To prosper over time, every company must not only deliver financial performance, but also show how it makes a positive contribution to society. Companies must benefit all of their stakeholders, including shareholders, employees, customers, and the communities in which they operate.”

-Laurence Fink, Chairman and CEO of BlackRock, in his annual letter to CEOS.

To be sure, the reign of the Friedman Doctrine is not over.

“There is one and only one social responsibility of business – to use its resources and engage in activities designed to increase its profits so long as it stays within the rules of the game, which is to say, engages in open and free competition without deception or fraud.” – Milton Friedman, 1970

Friedman was arguing a point of view, not describing the natural order of the universe, but it was a position widely adopted by investors and regulators over the last 48 years.

Is BlackRock being hypocritical?

It seems that the Wall Street establishment likes the passivity of the ETFs. Matt Levine at Bloomberg called Fink’s threat hollow, “..contribute to society or you’ll lose BlackRock’s support — rings a bit hollow since BlackRock’s index funds can’t sell.” ETFs are just indexes of funds with no active money management, so how, exactly will Blackrock tell company management to do better? Sam Zell, an investor, calls Fink a hypocrite for making what amounts to a public policy statement when BlackRock is a rubber stamping passive investor (who should stay that way, in Zell’s opinion).

Most investors still subscribe to these beliefs, and most company executives and boards fear the arrival of activist investors. Last year Nelson Peltz went after P&G, Bill Ackman went after ADP, and Ed Garen after GE. Acronyms are under attack.

What’s interesting is that BlackRock, typically known as a passive investor as the largest provider of ETFs or Exchange Traded Funds, changed their stance and began siding with Peltz and Ackman in the proxy fights with P&G and ADP. BlackRock also took an active stance against Exxon last year, supporting a shareholder proposal to enhance disclosures on climate impact and long-term strategy.

While the biggest asset manager in the world may be changing the rules of the game, it’s not like short-term activist investors are going away.

Lawrence Fink has advice for executives and company boards:

“Tax changes will embolden … activists with a short-term focus to demand answers on the use of increased cash flows, and companies who have not already developed and explained their plans will find it difficult to defend against their campaigns.”

Companies are at fault for not explaining their long-term strategy so that the context of short-term decisions can be better understood by investors.

While Fink’s letter is worth the entire read, I’ll highlight his words for your next strategy meeting:

“Your company’s strategy must articulate a path to achieve financial performance. To sustain that performance, however, you must also understand the societal impact of your business as well as the ways that broad, structural trends – from slow wage growth to rising automation and climate change – affect your potential for growth.

“These strategy statements are not meant to be set in stone – rather, they should continue to evolve along with the business environment and explicitly recognize possible areas of investor dissatisfaction. Of course, we recognize that the market is far more comfortable with 10Qs and colored proxy cards than complex strategy discussions. But a central reason for the rise of activism – and wasteful proxy fights – is that companies have not been explicit enough about their long-term strategies.

… But when a company waits until a proxy proposal to engage or fails to express its long-term strategy in a compelling manner, we believe the opportunity for meaningful dialogue has already been missed.”

What does this mean for your company? The hidden killer of innovative ideas and bold visions is the fear of the activist investor. CEOs remain torn between staying the course of predictable performance and taking longer-term bets that increase risks. They believe that investors are wary of this kind of change. But investors are more open to risk than CEOs believe. The principle idea that drives the hedge fund industry is that well-managed risk (and greater risk well leveraged) yields a greater return.

In your next board meeting, innovation offsite, or budget planning session, review whether your company has publicly articulated your vision, your moonshot, and your path to get there. Investors are more likely to want more investment in potentially disruptive business models if it’s part of a long-term play.

Investors are now becoming more active in understanding how you’ll achieve not just shareholder returns, but the needs of society, community, and the environment will If your strategy is not visible, adaptive to the changing environment, and open for discussion, it’s time to act.

Jen van der Meer is the Founder of Reason Street and is an Assistant Professor at Parsons School of Design Strategies. Jen is on a mission to measure the value of everything. She believes that business models can be designed to build the future we want to see.

You can explore the Business Model Library, read about The Business Model Growth MapWhich One Page Strategy Tool Works BestDo You Suffer from Value Proposition ConfusionThe Customer Pain ScaleIf You Have Innovation in Your Job Title, The Non-Linear Growth Competency Gap, and Models that We Live By

Will Your Health Business Model Survive?

Stress-testing your business for a new policy agenda

Since the election, US stocks are mostly up. Except hospital stocks. Public hospitals like HCA are worth looking at the stock charts to see how wrong we were about the election – rising high the day before, tanking the day after.

HCA Post Election Ticker

Then there are the health insurance companies like Aetna and Cigna are on the rise. United Healthcare is the best-performing stock of the year.

United Healthcare Ticker

The promised repeal of the Affordable Care Act (ACA, a.k.a. Obamacare) is expected to impact hospitals more negatively than insurers. A recent Barrons survey of C-Suite executives in healthcare found that “MCO (Managed Care Organization) executives are more optimistic than acute-care hospital executives about the outlook for the respective fundamentals in their industries.”

But as of today, we only know which way the winds are blowing. We do not know exactly how the ACA will change, or when, or what it specifically means for any given company strategy.

Do the same trends play out if you are a startup? Were your pre-election business model assumptions correct? Does the recent shift in political stance change your trajectory?

In short, yes. No matter what your political views, it’s time to stress test your assumptions, and determine how dependent you are on policy-driven shifts in your future plan.

First, Re-Locate that North Star

Look up from your to-do list, your weekly calendar, your scrum, sprint, or annual operating plan. Why did you get into healthcare in the first place? Answer that question on a personal level. Convene a futuring session with your team.

Has the ACA been positive for your business or are you still struggling to implement technology and systems to manage and measure care? How should healthcare happen? What are your ideas for a better future?

For inspiration, The Institute for the Future published a Health Futures Map to help navigate the post-ACA decade. The Institute for Health Improvement recently partnered with five foundations to produce the Better Care Playbook to help accelerate system transformation. What questions do these future statements and best practices generate for your team?

IFTF Post ACA Care Models

Ask big questions to frame and reframe your company’s direction. What role do you have to play in healthcare transformation driven not by federal policy shifts, but through connections and partnerships with other companies in the healthcare industry, not-for-profit organizations, advocacy groups, and your local community?

Second, Check Your Customer Target Assumptions

Who are your core customer segments? Were you selling to hospitals? Insurance companies? Pharma? Should your priorities shift in preparation for what comes next?

Even if you’re up and running and executing against your defined plan, it’s worth re-engaging in customer discovery. Pick a selection of health systems leaders, clinicians, administrators, and ask everyone how they envision the shift. You may find that your question is the first time they have stopped to pause and think about what is to come.

Third, Re-Validate Your Core Business Model Hypotheses

It’s time to go back to your original business model assumptions. If you haven’t been tracking changes to your assumptions using a Business Model Canvas tool, now is a good time.

Value Proposition Design

List your target customer segments, in order, and based on your customer discovery findings, consider how your core value proposition may need to shift.

Take a hard look at your core resources, activities, and partners – do you need to think about what you do differently?

Lastly, your biggest and boldest question is to re-consider your costs and revenues and stress-test where you fall in the shift to value-based reimbursement.

Fourth: Take a Stand on Value-Based Reimbursement

The hardest element to predict is how and when we start to shift to value-based care, payment based on outcome, rather than traditional fee-for-service.

The shift to value-based payment and care will cause health providers and everyone delivering to the healthcare system to change the way they bill for care. Instead of being paid by the number of visits and tests they order, devices used, and pharmaceuticals prescribed (fee-for service), providers’ payments will start to be based on the value of care they deliver (value-based care).

This shift is happening, but not everywhere. A number of health systems, not-for-profits and health companies and startups have each chosen where to play; with a number of stakeholders claiming bold stakes and risks, and others avoiding the change for as long as they can.

A rollback of key elements of the ACA will affect the contours of this shift, but the “train has left the station” according to many health leaders. Payers are demanding value-based payment models, integrated hospital systems are taking on population risk, and startups are experimenting with pay-for-outcomes and pay-for-performance models. Will you be a leader? Or a follower?

Finally: Rinse, Repeat and Lead

To be sure, those that work inside of healthcare complain that the pace of change is slow and incremental, particularly in front line health delivery systems. Startups have had to play at the edges, selling solutions consumers who can afford to pay, to workplace wellness efforts where ROI can be proven, or are living off of a derivative data-selling business model. Incumbent technology and service vendors are deeply locked in and want to protect their market share and flows of revenue and profit.

But one thing is certain – there is no comfortable status quo in healthcare. Even in the heart of the most cynical, money-minded hospital administrator, there is an acknowledgment that patients matter. The US is an outlier in health, and “not in a good way:”

US Healthcare System

 

If you believe your initiative or technology innovation can bend this curve away from more cost/worse outcome, then it’s time to double down. Change will come from government, but progress will come from leaders in the patient communities, advocates, caregivers, healthcare systems, and innovative companies that can move beyond our current trend. We only have our health and our lives to improve.

Personas, TAM/SAM/TM

Business 101.1 for ITP, Gallatin, Journalism, School of Professional Studies.

You’ll find the current team formation topics and people as of today 9/19/2016.

Contact Jen or Josh with any team changes – or reflect your changes next week.

6 core teams and recent changes in direction:

Fragrances Uber for Yoga

Prisons Social Community for Designers

Ergonomic Furniture

Assistive Tech – Colostomy Bag Assistive Tech, also Mental Health Provider Finder for LGBTQ

Fashion Social Enterprise

Social Listening Metrics Tattoo Artist Match

See you all next Monday

 

Business Models and Entrepreneurial Strategy at Parsons The New School for Design

Excited to teach a revised and redesigned version of Lean at Parsons The New School for Design’s BBA program.

Parsons

Here’s the syllabus:

BUSINESS MODELS AND ENTREPRENEURIAL STRATEGY

Course Code: PUDM4322 CRN: 7370 | Section: A

Instructor: Jen van der Meer

 

Fall / 2016

Monday / 9:00 AM

Location: 6 East 16th Street, Room 1108

Course Description

This course prepares students with a hypothesis-driven approach to company formation. Students will work in teams to generate a business concept, and then validate business model risks in direct collaboration with customers. This course is offered in conjunction with the Senior Project studios and allows the students to compare and analyze different business models and strategies for their Senior Project concepts. Students develop storytelling and financial skills to lead early stage companies from concept through launch.

Open To: Open to: BBA in Strategic Design and Management students; Seniors only; others by permission of BBA in Strategic Design and Management program.

Pre-requisites: Co-requisite(s): PUDM 4120 Senior Project 1. Pre-requisite(s): PUDM 3409 Financial Management

Learning Outcomes

By the successful completion of this course, students will be able, at an introductory level, to:

  1. DEMONSTRATE FAMILIARITY WITH hypothesis-driven innovation methodologies practiced in “real world” startup environments (Lean Startup, Business Model Canvas development, Minimum Viable Product/Proposition).

  2. DEMONSTRATE FAMILIARITY WITH presentation and storytelling skills necessary for early stage startup strategy, team formation, and capital raising.

  3. DEMONSTRATE FAMILIARITY WITH financial literacy, learning the basic building blocks of innovation accounting, generating financial assumptions and forecasts, marketing sizing, term sheets, and capitalization tables.

  4. DEMONSTRATE COMPETENCE IN developing realistic business model evolution scenarios, and ability to create, analyze, combine business model archetypes.

  5. DEMONSTRATE COMPETENCE IN business model validation: the practical strategy of identifying unique customer segment(s) and an early stage value proposition through real world customer discovery interviews and early stage prototype tests.

Course Outline

Business Models and Entrepreneurial Strategy

Week
Date
Class Theme and Activities
Assignment Due
Week 1
Aug 29
Class intro / concept formation
(None)
Week 2
Sep 12
Team formation, intro to the Business Model Canvas (BMC) and customer discovery
Early stage company concepts
Week 3
Sep 19
Customer discovery, customer validation, Market Size Analysis (Total Addressable Market, Served Addressable Market, Target Market or TAM, SAM, TM)
Company BMC analysis results
1 Business model archetype analysis
Week 4
Sep 26
Value, value propositions, and the purpose of business, team forms initial BMC hypothesis v 1.0, team develops customer interview plan
Team BMC 1.0, TAM, SAM,TM
1 Business model archetype analysis
Oct 3
No Classes – Rosh Hashanah
Week 5
Oct 10
Personal value, motivation, vision, and team, team continues to plan customer interviews
Customer discovery interview results, BMC 2.0
2nd Business model archetype analysis
Week 6
Oct 17
Customer relationships, channels, initial value proposition test
Competition, disruptive innovation theory. Innovation accounting
Customer discovery interview results, BMC 3.0 + Lessons learned
3rd Business model archetype analysis
Week 7
Oct 24
How to analyze
Customer discovery interview results, BMC 4.0
4th Business model archetype analysis
Week 8
Oct 31
Midterm: validated “front stage” of the business model, competitive analysis, initial value proposition
Midterm presentations, including BMC 5.0
Week 9
Nov 7
“Back stage” of the business model: Resources, Activities, Partners
Customer discovery interview results, BMC 6.0
5th Business model archetype analysis
Week 10
Nov 14
The money: revenues, costs, how to create financial scenarios 3 years out
Business model scenarios
Unit economics
3 year financial assumptions
7th Business model archetype analysis
Week 11
Nov 21
Investment strategy, cap tables, term sheets
Validated unit economics
8th Business model archetype analysis
Week 12
Nov 28
Turning customer discovery insights into a Minimum Viable Product
Draft cap table, term sheet, investment plan
9th Business model archetype analysis
Week 13
Dec 5
Storytelling and pitch clinic, how to create a “teaser” presentation and a longer form presentation for investors, employees, partners
MVP sketch
Week 14
Dec 12
Pitch practice
Short form presentation
Week 15
Dec 19
Lessons Learned – Final
Long form presentation

 

Assessable Tasks

 

The students will work in self-formed teams to simulate the experience of developing a startup from scratch.

Key tasks, all as group work:

 

  • Presentations: weekly presentation of lessons learned, updated Business Model Canvas versions based on customer interview findings, formulation of new hypotheses to test (over 10 weeks).
  • Field research: customer discovery interviews (at least 30 interviews per team or until key business model hypotheses are sufficiently validated).
  • Financial analysis and industry analysis: market sizing (total addressable market, served addressable market, target market estimations.
  • Value proposition test and test results for midterm
  • Financial scenario development, calculating and validating unit economics, investment strategy, cap table, term sheet
  • Pitch development and delivery.
  • Final lessons learned presentation.

Final Grade Calculation

10% participation in class, giving constructive feedback to your peers

30% progress in customer validation, customer interviews

20% midterm validation test and presentation

20% financial analysis, scenarios, and projections

20% final pitch and lessons learned

Extra Credit Policy

No extra credit

Required Reading

Textbooks may be purchased (new or used), rented, or downloaded through standard sources such as Amazon, Barnes & Noble, or Chegg. Be sure to use the ISBN number in order to ensure that you are ordering the correct edition.

Book available on directly from the publisher:

Lean Analytics, Alistair Croll and Ben Yoskovitz, 2013

Articles, Papers:

The End of Competitive Advantage, by Rita Gunther McGrath, HBR, 8, 2013.

What is Disruptive Innovation? By Clayton Christensen, Michael E. Raynor, and Rory McDonald, HBR, December 2015

A Friedman Doctrine–; The Social Responsibility of Business is to Increase Its Profits, by Milton Friedman, The New York Times, 9, 1970. (paywall)

The Founder’s Dilemma by Noam Wasserman, HBR, 2008

The Role of the Business Model in Capturing Value from Innovation: Evidence from Xerox Corporation’s Technology Spinoff Companies Henry Chesbrough and Richard S. Rosenbloom, Oxford University Press, 2002

Why the Lean-Startup Changes Everything, by Steve Blank, HBR, 2013

Recommended Reading

The following two books are recommended for your reference and for help in writing and conducting research:

Business Model Generation, Alexander Osterwalder and Yves Pigneur

Talking to Humans, Giff Constsable and Frank Rimalovski (fre download)

Interviewing Users: How to Uncover Compelling Insights, Steve Portigal, 2013

Traction: How Any Startup Can Achieve Explosive Customer Growth, Gabriel Weinberg, 2015

The Founder’s Dilemma, Noam Wasserman, 2013

Value Proposition Design, by Alexander Osterwalder

Resources

Lean LaunchPad videos on Udacity by Steve Blank

Lean Startup video by Eric Reis

 

Life Hack Tips to Reduce Decision Bias

One of us is not like the other

We know that unconscious bias happens in all of us. We categorize, we find patterns, and we like to group people. We decide who is in our “in group” — and then we favor our group. This ability to tell who is a friend, and who is a foe, helped early humans survive.

We like to think we are all reasonable open-minded humans who do not pre-judge other others, but much of bias happens hidden away from our conscious decisions. We all have bias. Our unconscious mind is wrong, often, especially on matters that truly would benefit from thinking rationally.

Daniel Kahneman, the creator of behavioral economics, pointed out in his bookThinking Fast and Slow: our unconscious mind is fast, and our deliberate mind is slow. Human reason left to its own devices is likely to engage in systematic errors. In order to make better decisions, we need to be aware of these biases and seek workarounds.

The RSA recently published an animated video and position briefing covering much of the scientific consensus adapted by Professor Uta Frith on why we suffer from unconscious bias, and what we can do about it.

The most impressive aspect of this analysis what the RSA then prescribes for itself. The RSA stands for The Royal Society, a Fellowship of the world’s “most eminent scientists” and has substantial influence over which scientists gets recognized, and determines whose science is more valid and worthy of acclaim. In order to achieve more fairness and improve the quality of decision making on panels, members are encouraged to do the following:

  • Deliberately slow down decision making
  • Reconsider reasons for decisions
  • Question cultural stereotypes
  • Monitor for unconscious bias

In sum — slow down, learn from others, reconsider, and question your stereotypes. What stands out is the rare advice in our busy life hacking get-things-done world to actually take a moment to slow down and think.

We know we need to slow down. Through the collective sharing of life hacking tips we recommend taking time for ourselves, journaling, meditating, doing yoga. But when do we move from the benefits of individual self-care to the moments in our life that have massive impact beyond our individual sanity: the decisions we make as individuals, in groups, in organizations. We can overcome some of our limitations through learning and through enlightenment.

Let’s adopt this great life hacking tip for all of us that have unconscious bias. The next time you make a big decision about a person you are about to hire, or invest in, or back, take a moment, deliberate, reconsider, reflect, and question your assumptions.

Jen van der Meer is the Founder of Reason Street. Jen is on a mission to decode business jargon and the hidden assumptions that keep us trapped in old ways of thinking, and explain business potential in human terms.

Why Your HealthTech Market Analysis is Probably Wrong

Broken Eyeglasses on White Background

Have you had an eye exam at Warby Parker? If you’re in health tech, or just healthcare, and you wear glasses, I recommend you make your way to a Warby Retail location soon just for the experience. Go to the website – you can make an appointment Apple-Genius-bar-style. (Sorry Bay Area folks – their first eye exam locations are East Coast and Midwest).

Why? Because how we look at trying to predict the future, current market dynamics, and competitive threats is wrong if we’re only looking at incumbent competition.

The optician was brisk, thorough, and sophisticated about my questions. When I asked about her experience working at Warby Parker, she took extra time to tell me the best part. She was able to spend time to help people, without having to worry about insurance codes and billing and revenue lifecycle management.

She told me a story about a man who walked around with masking tape on his 20 year old glasses – not just on the bridge – but holding together the lenses and obstructing his vision. He was finally able to afford the exam ($75 flat fee), and the replacement glasses ($95), verses his previous pair from 20 years ago that cost him $400. Thanks to Warby Parker.

If you’re an incumbent in the healthcare field, or a startup aiming to disrupt, there are lessons in this story for both sides.

1/ Look beyond competitors

Are you conducting a competitive analysis for your hospital, pharmaceutical product launch, or medical device? Is Warby Parker’s $75 flat fee eye exam on your map?

“The strategy playbook today needs to be based on the idea of transient competitive advantage- that is, where you compete, how you compete, and how you win is very different when competitive advantage is no longer sustainable” – Rita McGrath, The End of Competitive Advantage.

McGrath recommends a new level of analysis at a granular level – connecting the market segment, offer and geographic location. She calls this looking at an Arena – not focused on “near substitutes” seen in competitive analysis – but down to the level of customer needs, and connections with customer solutions.

I’d recommend also creating space in your analysis for emerging successful business models versus cool tech. Sure we can all imagine drone-based emergency services and virtual reality doctor visits. What insights can you extract from Airbnb’s marketplace model, Netflix’s subscription model, or Amazon Web Services’ pay-per-use model?

2/ Practice radical customer centricity

In the healthcare field, customer centricity is NOT a given. In fact in many conferences and panel discussions in health tech, leading luminaries predict that we will not have a consumer-focused healthcare system for many more years to come.

What’s in the way? Healthcare is a massive $3 Trillion that is 17.5% of our GDP, and is based fundamentally on delivering services, paid through third parties, and doctors and healthcare administrators who are more resistant to change.

While the Centers for Medicare and Medicaid Services (CMS), private insurers and self-insured employers aim to shift a bulk of those payments to value based care, a type of pay for performance measured in health care outcomes, everyone expects a hybrid system for the foreseeable future. Value-based programs (payment deals tied to health outcomes) will exist on top of a dominant logic business model that is still based on services (payment tied to the quantity of hospital stays, MRIs, or hip replacement surgeries).

Sure, you can aim to disrupt with your consumer tech solution or wearable by working outside the system – but even the $3.2 Billion Fitbit market cap (down from a high of $10.7 Billion) is but a rounding error on in that $3 Trillion. You’re not going to move the mountain.

Yet the fact that something like Warby Parker absolutely disrupted my customer experience of eyecare is a sign that maybe it could be possible to be radically customer centric, now. The lower cost, brisk efficient service was 10x better than the hassle of visiting an eye doctor, dealing with the billing codes, and paying for my last pair of $800 glasses from the Luxottica Corporation. Let’s compare that experience to the not-yet-awesome retail clinics and you can begin to see how a new front line health services offering could emerge.

3/ Compete to win on business model, not product or experience

To be sure, charging for eye exams in a retail location is not radical nor breakthrough innovation. Luxottica, which owns LensCrafters and Pearle Vision, have been offering this service from the start, competing with local optometrist offices. Luxottica is the world leader in frames, lenses, and eyewear, with over 80% of the market.

What is radical? Warby Parker recognized the weaknesses in Luxottica’s business model – high margins for frames and lenses – and built their own vertically integrated system to reduce costs, reduce prices, and still afford a buy-one give-one model.

The social impact story is no mere marketing gimmick; the company is a certified benefit corporation and strongly advocates a stakeholder management model, emphasizing its treatment of workers, the environment, and helping provide eyeglasses to the developing world. Social impact is built into their business model and powers Warby Parker to take on a true giant in their field.

What does this mean for an emerging or incumbent health tech player? It’s worth looking at the current incumbent models in health and thinking through the shifting business models. But make sure you’re tracking companies and sectors outside of health for ideas and experiences – what may be an inspiration today may be a competitor tomorrow. Finally while incumbents dance slowly towards a pay for performance business model, imagine how your organization can leapfrog ahead and actually deliver superior quality and experience, demonstrated in actual end customer value.

So You Want to Control Your Own Destiny, Do You?

Founder motivations and control for impact entrepreneurs

Lean Startup  is great for finding scale opportunities, quickly, You make assumptions, discover your customer needs, run some tests, and you can quickly get feedback that you’re either on the right track, or need to start again.

Yet one thing that tends to stop founders from even asking the right questions in the first place is the reason why they are starting a business.

Why are you doing what you are doing? What’s your motivation?

I like to ask this question of very new founders. I got to ask this question twice last week:  at NYC Media Lab’s kickoff of their intensive customer discovery program, The Combine, and at in my two week Lean class at NYU ITP.

There are two basic patterns in the answers – and often the two answers coming from the same founders:

1] I want autonomy. I don’t want anyone looking over my shoulder. I want to control my own destiny.

2]  I want to see my technology/product/service reach as many people as possible (only a few publicly admit to seeking wealth but will acknowledge this in private).

Yet these two motivations set up a dilemma, The Founder’s Dilemma, to be precise, as researched by Noam Wasserman. A Harvard Business School professor, Wasserman studied tens of thousands of companies to understand founder motivations and the high rates of entrepreneurial failure.

He found that entrepreneurs often make choices that do not maximize their wealth.Founders are often torn between wanting to control their company, and wanting to grow their company.

“The need to negotiate a trade-off between wealth and control, between building financial value and maintaining a grip on the steering wheel… founders’ early choices can have delayed and unexpected but significant effects, sometimes because natural inclinations such as passion, optimism and conflict avoidance lead to shortsighted decisions.”   – Noam Wasserman

In Wasserman’s analysis, you can aim to be “King” – seeking complete control over your company, self-funding and maximizing your ownership stake. Or you can aim to be “Rich”  – seeking external investment, and sharing equity to attract and motivate cofounders and employees. Control-oriented companies tend to achieve well below their potential because they fail to attract capital, and also fail to attract strong co-founders and world-class employees.

Meanwhile, founders seeking to build for financial value have a higher hit rate for reaching their potential.

I’ve loved Wasserman’s work ever since I read the findings of his early research. I’m a recovering control freak and have learned how my own desire for control has limited my upside.

But I’ve been struggling with Wasserman’s Rich Verses King concept when working with a the new crop of impact entrepreneurs. These are founders who want to grow and scale their businesses, but they have defined a core purpose beyond financial outcomes. They want to help people. They want to restore the planet.

Rich v. King

 

When we talk about the Rich vs. King dilemma, they want to consciously choose King. The path of Rich means making decisions oriented towards maximizing wealth. Yet these founders find this goal tantamount to greed, which they define as the root cause of much of the capital industrial system they aim to disrupt and unwind.

More critically, they fear the motives of investors who may not share their same values, or who may want them to simply maximize shareholder value, and not seek a social impact goal. They are researching B-Corp status, LC3, and even considering not-for-profit structures in order to protect their mission, and vision from the likes of misaligned investors.

When we break it down further, these impact entrepreneurs do not follow the classic control pattern. They are open and willing to attract strong equity-sharing co-founders, and want to give decision rights and control to employees. Specifically it’s the fear of investors who want a different outcome that limits their growth. They tend to self-fund and bootstrap, and aim for a corner of their market, rather than go for the biggest possible impact.

The double dilemma of the impact entrepreneur

The desire to control the destiny of the company leads to avoiding external funding, which limits the company’s potential. Impact entrepreneurs settle for a smaller corner of a market, a known problem, and may even compete with non profits in the space. More critically, they fail to make the big, disruptive shifts that would manifest the world they want to see.

“The best problems to work on are often the ones nobody else tries to solve.” – Peter Thiel, Zero to One.

What’s the way out of this? My cynical, Wall Street self says, “That’s the way business works. The spoils go to those who seize the power, and maximize for their personal wealth. The markets are geared to find the most efficient financial returns.” But my meditation-and-yoga-practice-self sees a new possibility.

We are witnessing a grassroots movement of entrepreneurs, globally, seeking to contribute to a  better world, by creating a business. They are motivated by the act of creation, they want to be connected to their community, and to the world.

There will always be enough money to chase wealth maximizing business ideas. But my bet is that we’ll see a new form of capital, with more evolved expectations.

We we can hope for: We can encourage impact entrepreneurs to aim big. To go after those problems we can’t figure out how to solve. To back these high potential, high impact companies to private investors with aligned values. We can see a future where high impact companies get the backing and support they need to grow and attract the best talent. To trust that giving up control will lead to the greatest outcome. We may then become clear about what it truly means to flourish and prosper.

Biofabricate

Looking forward to the multiple disciplines being convened at the Biofabricate conference – and the chance to thread environment impact assessment, health impact, startup ethics, and the precautionary principle.

‘BIOFABRICATE’ is the world’s first summit dedicated to biofabrication for future industrial and consumer products. Biofabrication comprises highly disruptive technologies enabling design and manufacturing to intersect with the building blocks of life. Computers can now read and write with DNA. This is a world where bacteria, yeast, fungi, algae and mammalian cells grow and shape sustainable new materials.

My slides are here:

 

AIGA GAIN: Redesigning Commerce / Funding to the Pitch

Is your idea best suited for seed and angel funding, or should you launch on Indiegogo first?

What about the values of bootstrapping?

What’s a social venture, and if you think you have one, are you better structured as a for-profit, or not-for-profit, or B-Corp?

Or, perhaps your freelance design practice is ready to scale—what kind of structure works best, and when is fundraising appropriate?

How you choose to launch will determine your destiny.

And if you’re founding an organization, you’ll spend much of your time fundraising—and fundraising can be fun. 

Thanks all that attended the professional development workshop at AIGA’s GAIN conference – Redesigning Commerce – Fundraising.

 

 

Bodies and Buildings Class 1: Intro to Systems Thinking

Have we reached the limits of growth:

[slideshare id=38840063&doc=bodiesandbuildings1nyuitp982014-140908144525-phpapp01]

 

Bodies are in trouble right now – despite reaching the peak of productivity the US now leads the world in the rampant growth of chronic diseases that lower life expectancy, and reduce life quality.

“People are living longer than projected in 1990 — on average, 10.7 more years for men, and 12.6 more years for women. But for many of them, the quality of life during those years is not good. On average, people are plagued by illness or pain during the last 14 years of life.”

Buildings account for the largest source of both electricity consumption (68% of global use) and greenhouse gas emissions (48% of global emissions) in the world. –UNEP.

Purpose of this course:

You are better equipped than MBAs to envision and build our way out of this trap, but often lack an understanding of the mega forces of business, regulation, and bad cultural habits that keep us from saving ourselves.

What we will cover in this course:

  • Meta view
  • Focus on points of intervention
  • Conceptual scaffolding

“Folks who do systems analysis have a great belief in ‘leverage points.’ These are places within a complex system (a corporation, an economy, a living body, a city, an ecosystem) where a small shift in one thing can produce big change in everything .”

Introduction to Donella Meadows, and learning about stocks, flows, and hands on the faucets.