Citigroup: Will the Gender Pay Gap Correction Spread to the U.S. Tech Sector?

The gender wage gap is the most hotly debated of all the gender gaps. So when a large U.S. bank commits to correct it, will  U.S. Tech companies bow soon? [1]

In mountaineering, there’s a technique known as crack climbing — a method which uses gaps or cracks in the geology to ascend. Citigroup, known to most consumers for its banking and credit card services, has just announced its first step toward gap mastery.

Two weeks ago, Citigroup [2] announced it would publicly report the pay gap (and goals for closing them) for women and minorities in three major geographical markets — the U.S., United Kingdom and Germany.

With 209,000 employees, half of which are women, Citigroup is the first major US bank acceding to fix its gender pay gap. Is this a  harbinger of change in the Tech sector soon as well.

It’s worth looking at how this story unfolded to see how it might occur in the Tech sector.

Citigroup’s Climbing Partners

The lead climbing partner, is  Arjuna Capital. This investor advisor group delivered the triggering event for Citigroup’s announcement with their shareholder resolution proposal, calling for the company to disclose its gender pay gap statistics. (This is a document well worth reading for it one-page compression of facts and why the request is important business-wise).

The Decision Environment

market diagram
Components underlying Citigroup’s decision to commit to gender and diversity-based wage equality

Source: Innovatini 2018

There are other climbing teams gathering to pressure financial, tech and a broad swath of U.S. public companies: In 2017, the California State Treasurer invoked CalPERS and CalSTRS ( the two largest pension funds in the US) to increase diversity to 30% women and 30% other minorities on the boards of its portfolio of companies. And if you read Pensions & Investments magazine online, there appear to be an avalanche of insurers and activist investors calling into their portfolio companies to move up the diversity bar. To understand the rock-hard resistance here, Fast Company notes that, to date, Facebook has not yet been particularly cooperative on gender reporting statistics, even with a CFO who is the icon of the Lean In movement.

Like  Facebook, Citigroup has a substantial investment in gender economics, as well as history with inter-governmental panels on world-wide women’s issues.  And a giant universe of studies — from industry reports, management consulting reports to socio-econometric research – reach consensus: The presence of women in decision-making positions leads to superior corporate performance.

Women have contributed vastly to the economy: One well-regarded calculation [3] estimates that female participation in the U.S. workforce since 1970 accounts for one-quarter of the current GDP.

So what company educated on the gender-economy would not act when seeing women leave?

And Citigroup did see them leave.

Women Managers Falling off the Ropes

As a woman with roots in the Tech sector, it’s startling to see a dark mirror reflecting back at you: Just like in Tech, women in the finance sector are (20–30%) more likely to leave mid-career [4].

Inline with that trend, Citigroup’s workforce data (shown below as published by Bloomberg ) reveals women in first and middle-level manager positions fell from 48% in 2007 down to 41% in 2016. So there go the future executive and C-levels —down into the snowy ravine.

 

This loss of talent increases recruiting and retraining costs. And this is happening while there is an ever-tightening US labor market. 

European-engineered climbing ropes

Perhaps the most influential factor influencing the Citigroup wage policy is regulatory compliance. After all, there is the upcoming Paycheck Fairness Act going before the US Congress. Today there are gender pay gap reporting regulations in Germany as there will be in the UK in April 2018. (U.S. women should be particularly grateful for these EU climbing ropes, as there is some evidence of recent tampering with US-made ropes [5]).

So how can these statistics possibly be released publicly on the internet and social media without women in other geographies demanding similar treatment?

Is it Time for Women Activists to Cheer?

On the one hand, the situation is gloomy: Immense gender and racial gaps persist in not only wages but in equity compensation, promotions and board representation[6].  And to the horror of many women activists and gender parity advocates, the global gender gap, is widening.

On the other hand, there are at least three reasons women activists may want to let out a loud, 200 Hz squee of delight here. (Then please be so kind as to resume your impatience. ;-))

First, there’s a secret win. In addressing the wage equality gap as a priority, Citigroup and Arjuna Capital better ensure that tens of thousands of Millenial age Citigroup employees will be less vulnerable to the financial compromises which +50 age women often suffer in retirement.[7]

Second, it seems the European Union regulators have thrown a rope to other women worldwide to climb up. Many multinational companies will conform to the new reporting rules, extending them to different geographies where economically feasible.  Amazon, Facebook, Twitter, and Google all qualify.

Third, our story unveils a roiling backdrop in the U.S., one which benefits women, particularly those working in large multinational corporations.  The changing labor market coupled with women leaving mid-career may spur other companies to pull pay equity into the present.  Add in the regulatory requirements working in a global economy, and we’re likely to see more Citigroup-like announcements from the tech economy and other sectors.

It’s a little cloudy in Davos now, but let’s see how many new climbing parties gather at the base of the Matterhorn to give gender pay equality a try. Oh, there goes Bank of America starting up the ridge.  Whose’s next?

Notes

[1] Be forewarned: My profile describes me as a former market analyst gone rogue. By “rogue” I mean I do quite a bit of research but it is unplugged from any institution.

[2]Citi is First U.S. Bank to Respond to Shareholder Pressure to Close Gender Pay Gap. PR Newswire, Jan 15, 2018.

[3] “Unlocking the full potential of women in the U.S. economy” McKinsey & Company, 2011.

[4] “Women in Financial Services: Time to address the cost-benefit conflict”. Oliver Wyman Group, Sept 29, 2016

[5] “The Trump administration just halted this Obama-era rule to shrink the gender wage gap” Washington Post, August 8, 2017.

[6] These will be discussed in later posts.

[7 ]According to the Joint Economic Committee, a $10,470 dollar pay disparity can add up to nearly half a million dollars over a career. Source: #Real News: Women Still Earn Less Than Men” US Congress, Joint Economic Committee, April 3, 2017.

 

 

How Many Bossless Companies Exist Today?

 In April 2014, this post was updated to reflect the then-current employee counts for these bossless companies. LGT

My last post covered Valve Software and the more general topic of “bossless work environments”.  Tac Anderson kindly pointed out to me that I didn’t mention the well-known case of the Morning Star Company.

This started me thinking: Were Valve, Semco and Morning Star outliers? What was the  “Googleable” count of companies who are known to be “bossless”?

So I set out to do a first-order count based on the loose Google query “bossless company”. Sorting through results, I counted only those where I could verify through their websites and/or trusted news sources that had some degree of “bossless” culture.  By this somewhat hybrid  Googlish- public relations definition, I found the following.

The Answer: There are Some 18 Well Publicized Bossless Companies

The table below shows, in alphabetic order, the company names, headquarters location, number of employees, industry and/or vertical market and reference describing a  “bossless workplace”. Now as much as I don’t like messing with small numbers for statistics, still, I note that  there are some surprises.

 Update 4/4/2014: Based on reader comments in 2014 as well as significant hyper-growth in some of the companies discussed (eg. Github,Shopify and Stripe) estimates of the number of employees per company have been updated where noted.

 

Company nameNo. EmployeesIndustryWorkplace Culture Reference
AngelList [San Francisco]12Software platform for startups to meet investors, talent & incubatorsNaval Ravikant' April 2012
Atlassian [Sydney]400Enterprise software for software developers Forbes May 2012
Ciplex [West Hollywood]45Digital marketing and creative agency Inc June 2012
Favi [France]600Automotive component manufacturer Fast Company Sept 2012
GE Aviation [Evandale, OH]]26000Aviation manufacturingWSJ June 2012
Github [San Francisco]238 (updated 4/2014)Web-based hosting platform for software development WSJ June 2012
W. L. Gore & Associates [Delaware]10000Diversified verticals centered on the polymer PTFEWSJ June 2012
Mondragon Corporation [Basque, Spain]85000Diversified: Comsumer Goods to business servicesThe Guardian UK June 2012
Netflix [Los Gatos,CA]2348On-demand video streaming provider Netflix Company Culture Slidedeck
Odd-e {Singapore]N/AAgile software development and training Company website
Semco [Sao Paolo]3000Brazilian manufacturing company Semler article- New Unionism
Shopify [Ottawa]100E-commerce platform for building online stores iDoneThisBlogMay 2012
Skillshare [NYC]15Online community for classes iDoneThisBlog Oct 2012
Stripe [San Francisco]12 (2013) 98 (2014)Online payments processor Alex McCaw Aug 2012
The Morning Star Company [Woodland, CA]400Tomato processorHBR Dec 2011
Valve Software [Seattle]300Web platform for multiplayer video games Varoufakis blog Aug 2012
Whole Foods [Austin]58000Food supermarket chain focusing on natural and organic products Wikipedia- Whole Foods Culture
Wistia [Summerville, MA]23 Internet video hosting Company website

 

Beyond the United States

While many 12 out of  18 are in the U.S., particularly West Coast tech spots (eg. Austin, Los Angeles, San Francisco, Seattle), 6 out of 18 were based  internationally, including Australia, Brazil,Canada,France, Singapore and Spain.

These are Not Just Small Companies

Of these, six were less than 100-person companies. Some 12 out of 18 companies were less than 1000-employee companies. One third of the companies had organizations over  1000 employees, with the largest being the Basque province’s Mondragno with 85,000 worker-members. (Update: One year after the date of this post, Github, Shopify and Stripe have undergone tremendous growth – supporting the view that bossless org structures are not  incompatible with growth.)

Not Just High Tech

While the majority (11/18) are in tech-related areas, over one-third were not, representing  industries as diverse as s automotive, aviation manufacturing, tomato processing to  a natural foods supermarket chain.

Not Just Young Startups

Some of these organizations have a long history. Mondragon has been around since 1956. France’s Favi is over 50 years old and has operated without a personnel department for over 30 years. GE Aviation’s self-managed teams began over 20 years ago.

Caveats

So some of you are thinking, “Oh no, dweep blonde. You are off by orders of magnitude.”

After all, some might argue I should count all open software companies, those where there is the thinnest of dividing lines between producers and consumers, where the software can be modified and redistributed by recipients. Wikipedia today counts over 50 free open software companies alone. Are those not self-managed collectives?

hackNY1Some might argue that hackathons should be considered. One list of hackathons compiled in the first quarter of 2012, counted 160 hackathons taking place worldwide. If we extrapolate that, it’s likely some 640 hackathons, groups of self-organizing code teams, take place each year.

Still others might argue to include the spontaneously organizing crowd challenges where teams of “Solvers” cooperate to address business, social and technical challenges for a large prize reward. As an example, Innocentive has enlisted over 285,000 Solvers across 200+ countries, addressing over 1600 challenges.

Whatever definition of “organization” you are willing to accept and the period of time over which they operate (one day as in a “hackathon” to decades for corporations such as Favi, Mondragon or Semco ), it’s clear that bossless workplaces are much more prevalent than one might first suspect.

Did I miss any obvious candidates? Who would you include? Or exclude?

Valve and The Emerging Knowledge Worker Manifesto

On December 30, 1853 a dinner party was held in London that took place inside a life sized model of an Iguanodon created by Benjamin Waterhoue Hawkins and Sir Richard Owens. Today, if many corporate executives and managers were aware of the sea change afoot, they might realize that they too were sitting similarly, encapsulated inside the skeleton Continue reading “Valve and The Emerging Knowledge Worker Manifesto”

Three Massive Funding Opportunities for Everybody Outside Silicon Valley

Back in June I gave a presentation at downtown Orlando as, well, frankly, the warm-up act for Urban Rethink’s panel discussion on Wired for Venture Capital. As a former Silicon Valleyite and startup marketeer in Seattle’s  Internet 1.0 (aka 1994-1996) tech scene,  it was awesome to meet  and hear some of the folks behind Orlando’s emerging startup scene, people like Kyle Steele of DocCaster, Derek Gallo of Avectra,  Greg Pollack of Envy Labs and Orren Davis who organized  Startup Weekend Orlando.

Let’s be real: It’s not easy doing tech in Central Florida. Unlike Mountain View, San Francisco or Seattle, Orlando is not one of the bastions of venture funding.

My own personal theory is that  when the crux of the regional economy is built around the 40 M people that don’t live here (aka tourists for the Central Florida theme parks), there’s a diminished sense of the value of  the 2.7 M people who actually live here.( Until October 2011, Florida’s Department of Economic Opportunity was known as the Governor’s Office of Tourism,  Trade and Economic Development  — as though tourism and economic development were inextricable linked.)

So it’s all the more awesome that the tech community here darts around from small cafe meetings, creative hubs like Urban Rethink and Central Florida Tech meetups, moving between the giant tour buses heading to cruise ships, Disney resorts and mega-malls.

Luckily, when it comes to getting funding, geographic location is getting increasingly irrelevant.

For unless you’ve been vacationing in  Kazachstan for the past four years, it’s no secret that funding  – whether to reward singular talents, subsidize a group creative project or seed a startup has changed enormously. And for the better.

Particularly for those of us who live outside the bastions of venture funding, far from the Sandhill Road crowd, it’s comforting to know the democratizing access to capital is in full swing. Whether you’re looking for $5000, $50,000, $500,000 or $5 million,  there’s no better time than now.

Mypresentation  below covers the relatively new opportunities outside the hallowed realm of venture capital funding, namely open challenge prizes, reward-based crowdfunding and equity based crowdfunding. A mash-up of market overview and practical advice,  I hope you’ll find at least one of these new funding venues intriguing. For as I describe in Slide 26, there’s a form of funding to match different analytical and organizational styles, whether you are indie or part of a fully fledged LLC or S Corporation.

Readers can access the bookmarks within my Crowdfunding Stack on Delicious to see the sources for the research summarized in the presentation.

 

5 Reasons Kickstarter is Not Just for Nonprofits into the Arts

logo for Project Repat on Kickstarter crowdfunding site

logo for Project Repat on Kickstarter crowdfunding siteKickstarter, the online crowdfunding site for creative projects, continues to be much in the news. And with the upcoming and highly anticipated U.S. House passage of the Entrepreneur Access to Capital Act it only  promises to get more so.

Having successfully funded over 11,836 projects in 2011  – from innovative mobile apps, video documentaries , to uber cool tech gadgets- the crowdfunding platform  is fast becoming one of the de facto sources of raising capital from the public.  Individuals as  well as small nonprofits, particularly those focused on the arts, have done well: In a  late February interview with Talking Points Memo, Kickstarter said that it was on track to provide $150 million dollars to artists in 2012. This is more than the entire fiscal year 2012 budget for the National Endowment of the Arts.

But if your nonprofit is not focused on the artistic and creative community, does it have a place  on Kickstarter?

Interestingly, if you look at the Kickstarter guidelines, it would seem the answer is a rather clear “No”.

kickstarter guidelines including caveat for nonprofits

But wait! Not so fast. Some nonprofits whose central mission is clearly non-arts related  have successfully used Kickstarter.

Project RePat

Take the case of Sean Hewers and Ross Lehr, two Bostonians each running nonprofits.  (BTW – my summary of the RePat story is more lushly described in a Boston.com piece. Good read.)

Both organizations were focused on vitalizing the African economy. But like many nonprofits, the two organizers got tired of asking for donations the straight and narrow way. Part of the problem of course was connecting donors minds into a very remote, geographically distant problem. How to make the connection?

In their trips to Kenya, Sean and Ross made a keen observation: Most Kenyans were wearing used American t-shirts — from Hooters restaurant shirts, college football jersies to those “one-day-use” type shirts, “I danced my ass off at Ira’s Bar Mitzvah”. It turns out this was not some isolated, point observation: 95% of the clothing donated to Goodwill goes to developing countries. Particularly for Kenya,  the second-hand clothing market is a key part of their economy.

A key turning point in Sean and Ross’ story was their realization: Why not resell the used former American t-shirts back to Americans? Well aware of the anti-consumerist movement underway in the U.S., especially among the urban hip, the two launched Project RePat to do just that. And, true to their nonprofits ‘ causes, they employed Kenyan artisan seamstresses to modify the shirts “Kenyan-style”, retrofitting Hooter shirt sleeves to football jersies and other mix-n-match fashion badges of anti-consumerism.

How did they publicize this somewhat bizarre project? Enter Kickstarter. With a goal to raise $6000, they used Kickstarter’s showcase facilities, from  funding buttons, promotional guidelines,  video display , all-or-none funding mechanism to backer comment areas. For their contribution, backers received (depending on amount) a Kenyan-designed t-shirt, tote bag or scarf. And the organizers met their goal, getting 176 backers and raising awareness of their cause. (Note this was actually Project Repat’s second successful Kickstarter campaign: Earlier they had launched a project to fund a documentary, describing their teeshirt  idea. In five days, they attracted 113 backers to raise $7,138.

How did Project RePat Qualify as a Kickstarter Project?

Well, on first blush, this is somewhat confusing. Indeed I’ve found small online forums of nonprofits discussing Kickstarter as though it were off-grounds to them. Well, it is and it isn’t.

In Kickstarter campaigns, you must have a goal and a specific project. The secret here was Project RePats’ funds contributed were  specifically tagged to creating a documentary and, then later, to buying Kenyan t-shirts, allowing them to fit uunder the “Fashion” category. The not-so-secret realisation here is that, yes, a nonprofit cannot appeal for funding for their general cause nor direct funds into the associated nonprofit’s general operations budget.  It’s a subtlety…but an important one. Most nonprofits appreciate they have the right to engage in earned income and that is what is going on here. It’s really no different than the Hadassah gift store, reselling used furniture and clothing.

The message is: If you have a creative message that fits into one of Kickstarter’s categories, that has a larger social purpose and hopefully is  wildly entertaining– you will pass through their selection panel’s criteria.  For many nonprofits, the greatest hurdle to Kickstarter participation is their own conventional view of  “nonprofit fundraising as usual”.

What is it about Kickstarter that made Project RePat work?

There are six key elements that made Kickstarter kickup this campaign:

1. Kickstarter is a Highly Trafficked Social Channel

It’s true there are a wealth of new crowdfunding platforms for nonprofits to choose from, some catering exclusively to nonprofits and social good causes: To name just a few, Causes.com, Crowdrise, Network for Good, First Giving, Power2Give, StartsomeGood, and ChangingthePresent.org. So why appear intermixed with for-profits? Here’s why…

2. Kickstarter Supports A Large Bazaar of Innovative Products, often Linked to a Social Cause

On Kickstarter, one is likely to find a wide array of highly unlikely and diverse imaginative projects. Take the  Matthew Riese’ project to create a hovercraft out of used Delorean car parts. Or  take the Cornell Univeristy student’s KickSat project where you could purchase a small micro-satellite broadcasting a message to your girlfriend, part of an array of satellites launched into low-earth orbit in 2013. Or take the biology researchers whose  project allowed bird lovers to fund scientific study of a rare species of quail.

True, nonprofits have a wide array of different crowdfunding platforms to choose from. An excellent one is provided by the Jolkona Foundation. The featured projects shown on their home page are shown below.

Notice how, in this case, projects are all of similar ilk and, most importantly, tend to attract  a  self-identified group of givers. (In other words, web visitors tend to be the same people that have traditionally given to nonprofit causes offline.)  How different it is on Kickstarter, where your nonprofit project might appear amidst technology or arts projects — attracting a much broader group.   It turns out there is no genius in homogeneous.

In fact, I’d argue there’s an even bigger reason for nonprofits to blend in with the for-profits featured on the crowdfunding platforms: It’s happening anyway!  For the market context is under rapid shapeshifting, the line between for-profits and nonprofits is blurring. Perhaps following from the Corporate Social Responsibility movement of the 90’s, we’re seeing for-profits take on social causes, one of the best examples being Sir Richard Branson’s book, Screw Business as Usual. We’re seeing hybrid business models from social entrepreneurs like eyeglass designer, Warby-Parker where for every pair of eyeglasses purchased, another pair is donated to a needy individual. Or consider Justin Beiber-backed Sojo Studios, whose WeTopia online game teaches kids the merits of giving — donating money for game credits to worthy charities instead. And perhaps the most obvious case of the blurring, the emergence of the new B (Benefits) corporation where social good is baked directly into the mission.

For nonprofits that can see their place in this hybridized world, that can muster the creative insight, provide inspiration, connecting their message into the new generation of online donors like Project RePat did, the rewards can be immense, particularly in finding a completely new group of funders that might never would have found you in the offline world of giving.

3. High Probability of Serendipitous Encounters

The diversity of Kickstarter projects, some technology-oriented, some research, others arts or fashion related, attracts a much broader demographic and psychographic. Because people come out to Kickstarter for a wide realm of different reasons, not just “to give to a good cause”, it is more likely for a nonprofit to be discovered, stumbled-upon by seekers. (Much thanks to partner  Diane Court  for pointing this one out to me.) Aiding the search, The Hype Machine has recently built a toolbar app, Kickstumbler  that helps people find cool projects.

4. The Compelling Psychology of All-or-None Funding

The All-or-None funding mechanism is the real secret sauce behind Kickstarter working so well.  Projects only receive their funding should they meet their goal amount.  If the project falls short? All monies are returned to backers.

There’s a psychological drama and tension operating, both fund seekers and backers awaiting to see whether the project will meet the goal.  There’s a sword of Damocles hanging there, one which motivates fund seekers to work hard in promoting and, sometimes, even driving funders back,  curious to see how far along the project is in meeting its goals.  And – seeing it’s a bit behind, that may give rise to repeat funding by a contributor.

That tension is real and palpable: In 2011, 46% of projects were funded, up from 43% in 2010. Some projects, such as the film Mosquita y Mari, achieved over half their funding goal within the last two days of the campaign.

In reviewing their own Kickstarter campaign, a blog post by localwiki.org did much to illuminate the all-or-none funding mechanism from a nonprofit’s viewpoint:

It functions as a sort of “matching donation” multiplier. In traditional fundraising, matching donations — where an individual or organization pledges to donation $X but only if $X is raised independently — are a common and successful way to drum up contributions. With Kickstarter, a donation of $50 with a $10K goal can be thought of as being “matched” by 199 other $50 contributions!

The all-or-nothing characteristic is a way to create a big “matching donation” pool and helps drive pledges even for projects that could make do with less than their goal amount.

5. Tools for Engaging with Backers

Gone are the days of someone writing a donation check and going away. The new generation of donors wants to track the project, know the fund seekers, be active participants.  Kickstarter does much to encourage interaction of fund seekers and their backers.

Their  “Leave a Comment” section does just that. Not surprisingly, successful projects are often characterised by rapid volleys of conversation between project organizers and their backers, including questions, requests for further information and suggestions for extending the campaign into new markets or new spin-offs of the products.

And, as this comment from one Kickstarter fund seeker posted on (backer) Fred Wilson’s blog shows, there can be something very magically personal and intimate in this backer-to-seeker interaction.

Brian August's invitation to Kickstarter backers

The best mechanism for backer interaction and participation is provided by Kickstarter’s Reward system.  Per the Kickstarter Guidelines,

Rewards are typically items produced by the project itself — a copy of the CD, a print from the show, a limited edition of the comic. Most projects also offer creative experiences: a visit to the set, naming a character after a backer, a personal phone call. Anything that brings backers into the creative process is a great approach.

Project RePat’s rewards follow the Kickstarter guidelines well. At higher levels of pledges, the rewards were quite close-up and personal. Pledge $1000 or more and a backer could participate in co-designing a new clothing item which would be named after the backer. Pledge $5000 or more and a backer could travel with the team to East Africa.

Choosing Your Nonprofit’s Crowdfunding Platform

Here I focus on one platform, Kickstarter. But that’s not to say it’s preferred so much as to point out that Kickstarter has many of the best-practice marketing features and creative guidelines that a nonprofit should be looking for. So before selecting your platform, ask yourself:

  • How highly trafficked is the site to aattract a wide range of potential donors, some perhaps outside your usual audience?
  • Related, will your nonprofit appear as just one of many nonprofit causes to donate to?
  • Is the underlying funding mechanism inviting people to come back, check in on your progress, engage?
  • Are you providing online social proof, from inception to completion, of the fundraising project, of your progress in meeting the backer’s and your shared goal?
  • Does the platform provide excellent guidelines on how to promote your project?
  • Above all, does your story emotionally connect with your potential funders?

That last one’s important and is perhaps the most elusive. The automagical mechanics of even the best crowdfunding software cannot compensate for an uninspired idea. For Project Repat, the repatriated Kenyan t-shirts were a form of offbeat fashion statement with a cause message. That spark of an imaginative idea, and critically, one connecting into the Kenyan used clothing market economy, made this whole campaign take-off.

So – no, Kickstarter is not just for nonprofits involved with the arts.  But it is for fund seekers who can artfully engage with their backers. When it comes to getting funding from the crowd, we’re increasingly learning the truth behind the astute observation made by Simon Sinek, author of the book Start with Why  and what all creatives know:  It’s not what you do, it’s why you do it.  If your small nonprofit has the talent to reveal that “Why?” in an inspiring manner, the question of whether to adopt a crowdfunding approach is “Why not?”

Update:  Have a thirst for more? Sitting out here in March 2013, check out this fabulously brilliant infographic from Fast Company on Kickstarter statistics.

 

 

Kickstarter: Poised to Go Supernova in the CrowdInvesting Age?

You can feel the ground trembling.

Is Kickstarter, the crowdfunding site where projects as diverse as artistic efforts, venture and nonprofit causes raise money, about to go Supernova?

Consumer-Innovators (Part 2) & The End of Social Media 1.0

 

SoMeOnOldWayIn Part 1 of this series, I described how Social Media campaigns and programs may be unwittingly compromised by a villain residing below: The Industrial Age relic of a one-way product design flow.

I also reviewed Eric Von Hippel’s recent work on the surprisingly immense number of consumer-innovators  in the population, suggesting social media programs which target this group are more likely to demonstrate ROI.

In this post, I continue my discussion of how these Open Innovation concepts perhaps offer social media marketers an understanding of social media’s next phase.

The End of Social Media 1.0?

It seems the core problem with Social Media 1.0, as principally a communications strategy, is that it does not on its own anticipate any change in the traditional product design or service creation processes.

Think about the way social media campaigns typically connect a company to customers. In most cases teams of social media people chiefly work on programs to amplify the voice of customers, broadcasting it out to a wider realm of customers and would-be customers . The emphasis here is on increasing the total network size. We continue the mistaken viewpoint that increasing influence  is about finding more people to influence, instead of deepening the ties to those we have already influenced.

My thesis is that much of this is perpetuated by the fundamental one-way product design model below.

Car-pictures-2011-buggati-super-sport-tire-most-expensive-sports-carsIn some ways, building a sophisticated social media strategy on top of this old model is akin to putting high performance Michelin Bugatti Veyron tires on a V4 engine design: You just can’t get their full performance. To get full performance, companies have got to get under the hood, revise the fundamental engine and chassis design. Reading the struggles within the Open Innovation community itself, this is of course no mean feat and certainly far beyond marketing’s control alone.

But here’s what marketers do have control of: If we take Von Hippel’s thesis seriously as a latent opportunity, namely, the opportunity to leverage the  massive number of consumer-innovators out there, companies ought to have an equal size team of social media folks working on getting the customer messages back deep inside the company.

 

What Can Social Media Marketing People Do to Aid the Transition?

 As long as we point to “best examples” in social media as broadcasty, high buzz Old Spice-style campaigns, we’re still in a corporate media mode, casting broader nets, rather than tightening our relationships with customers for “what matters most”, namely, giving them products they want. 

Von Hippel suggests three steps companies can take to leverage consumer innovation. Here I’ve recast his points, adapting them to emphasise marketing’s role.

1. Marketing Needs to Provide a Bridge Bringing Consumer-Innovators into the Product Life-Cycle

DIGIPIXMarketing people need to step outside the traditional serial timeline of internal product innovation where their principal role is to educate consumers on why they need a product design by the company. Instead, they need to focus on reversing the process, bringing lead consumer innovations  into the company, educating the company on what its consumers want. A good start is to review the balance of social media team participants focused on outbound vs. inbound communications. Ask yourself: Are you over-weighted on purely outbound communications?

2. Creating Consumer Incentives to Contribute to Product Design

share_share_alike_smallMarketers need to not only identify and bring those lead innovators into the company design process, but include those lead consumers as part of the company reward system, whether that be by revenue sharing, IP sharing or other. Threadless does it by revenue-sharing and bonuses to designer-users, Quirky does it by sharing a percentage of profit with innovators. As trial programs, companies can experiment with Open Innovation challenges and innovation platforms, allowing lower-risk experimentation without wholesale rearchitecting of fundamental business processes and current operations.

 

3. Building the Consumer-Innovator Incentives into the Company Revenue Model

Ultimately, given that  incentives to your lead consumers are offered, these costs need to built into the cost of sales for product or services introduction. 

 

Is Social Media 2.0 = Social Innovation?

The much sought-after ROI of social media will come to a greater wealth of companies once we realise that “the people formerly known as customers” are far more than brand ambassadors to spread word of mouth,, more than influencers of  product buying decision, but as users of our products have a great deal of tacit knowledge of our product and services to aid  the product design process itself.

Some may question:  Aren’t you simply stating that crowdsourcing is the next evolutionary stage of social media?

And as much as my answer is “Yes”,  my point is that companies can’t achieve this without deep change in  their product design process, a construct which is usually treated as outside the realm of social media discussion. Von Hippel’s research, showing the huge opportunity in tapping consumer innovation, makes it clear that crowdsourcing – with a specific focus on these consumer-innovators – should be the focus of our social media strategies. This keeps us centered on our product and service missions and not just emitting the “clever campaigns and rudimentary conversations” of which Foremski and Solis rightly despair.

Social media marketers wonder “What’s wrong with my social media strategy?”, “Why have my efforts plateaued?” and “Where’s the Social Media ROI?”.  But taking a hint from the Open Innovation camp, we realise the problem may not be with social media per se, so much as that the strategy rests on top of a strictly internal one-way design process. What the Open Innovation experts know is this:

You can’t build an effective 2-way customer communications strategy on top of an outdated one-way product design model.

In the end, I hope both groups step outside their separate rooms to begin a long-lasting conversation. It seems adopting the best of both paradigms  promises to unleash a tremendous force of consumer and company co-creation, aka social innovation.

SocialMedia2.0

 

What do you think? As a social media marketer, do you regard crowdsourcing consumer-innovators as an optional strategy? Or is it part of the endgame?

 

Bridge photo source (NY Daily News)

 

Postscript. For the sake of clarity, I have simplified real company situations in two respects. First, most companies do not have a strictly one-way flow of design – that’s an extreme.  Second and obviously, the use of the term “two-way” in here is more realistically replaced with “multi-way”, meaning interaction includes not only other groups beyond end-consumers,  but group collaboration.

 

 

 

Of Skateboards, Consumer-Innovators & The End of Social Media 1.0 – Part 1

Who should read this post: If you regard crowdsourcing customer ideas as a separate and optional evolutionary branch of social media.

Who should not read this post: If you’re already exploring or planning to crowdsource customers ideas.

vintage-skateboardEver notice how we  tend to stay safely inside our chosen paradigms? As Frank Beach, the biological psychologist, and a professor of mine at Berkeley once said, “We entertain the hypothesis because the hypothesis entertains us.” But a school of thought, a particular approach, even in so much as it provides a framework for thinking, can also trap us inside its frame.

Take for instance two paradigms that have radically shifted the way we do business over the past seven years or so: Social Media and Open Innovation. The first, principally a marketing paradigm, tells businesses that it’s time to start listening, engaging and adapting to customers. The second, more strongly affiliated with management consultants, and speaking to a somewhat deeper level of business practice, brings to light that we need to involve business partners, suppliers, potential licensees as well as customers at earlier stages of the product design (or service creation) process, The first focuses on getting closer to customers, the second focuses on leveraging external innovations and spinning out our own “pre-products” (if you will)  to lower costs, increase time to market and find new market opportunities.

But something’s been bothering me lately.

Rarely, do experts from the two schools of thought reference each other. (As I’ve lamented in the past, it seems the Open Innovation school rarely discusses marketing at all.) It’s as though the two groups are meeting in separate rooms with corporate management.  And that’s a shame. This post explores how current restrictions in the social media paradigm may stem not from within itself, but rather from the foundation of a business structure existing far below the usual level of discussion. I argue that it’s in the cross-fertilization of ideas from the Open Innovation camp that the next evolution in social media may occur.

oi-closed-vs-open
Source: Henry Chesbrough 2005

Much as  command-and-control style management style presented resistance to company employees using social media to  directly interact  with customers, this serial process timeline too, perpetuates an operating model of one-way broadcasting. For in this timeline, marketing and PR functions, the champions of social media, are at the tail-end of the process, whose primary objective is to educate customers  on an already internally created-manufactured-delivered product or service.  (Note these diagrams from the Open Innovation community do not even depict marketing and PR as part of the company process!)

 

Yet even at this tail-end of a one-way process, social media and its tools have contributed greatly to companies understanding that they alone do not control their brand or their reputation . Customer service has benefited as well: Rather than using 1 on 1 customer service calls, problems are solved (even while PR takes place) with company representatives tweeting solutions publicly over the web, providing social proof of a company’s accessibility and responsiveness. Indeed, in its best incarnation, a great humanization of brand has occurred. 

But for all that social media has accomplished over its fairly brief lifespan,, an e-Marketer report suggested that we were beginning to see a slow-down in social media innovation. Some even  despaired (to some outcries of rage) that we were seeing a plateauing of growth.

Social Media is Not Corporate Media

Ever on the zeitgeist of the social media movement, Brian Solis elaborated on these trends in his excellent post The Demise of Social Media 1.0. writing,

 

quote

From Social Network Fatigue to Deals Fatigue to Follow Fatigue, businesses are facing a crossroads at the intersection of social and media. Following the path of media continues a long tradition of what Tom Foremski refers to as “Social Media as Corporate Media. …

As Foremski states, “Social media is not corporate media….if corporations try to turn social media into a corporate sales or marketing channel then they risk losing the naked conversations, and the insight into customer behaviors.”

His point is that there’s more to social media than clever campaigns and rudimentary conversations. Talking isn’t the only thing that makes social media social. Just like adding Facebook, Twitter and other sharing buttons will not magically transform static content into sharable experiences. Listening, learning and adapting is where the real value of social media will show its true colors.”

But have we really adapted?  

I’d say, in most cases, no. For there’s another ever-present vexation within the social media camp: Social media ROI continues to remain elusive   It seems so few show social media ROI  that some have concluded we are attempting to “measure the immeasurable”.

I believe some hint to getting to social media’s next evolutionary stage, how to adapt, close the last mile to the customer, is afforded by looking outside the social media paradigm, venturing into that room where the Open Innovation consultants are talking.  Even as much as companies marshal their social media campaign efforts, attempting to widen their influence, ride a large-scale ‘network effect’, amassing “shares” and “likes” and Google plus ratings, there’s a quite independent consumer movement in play. And it has less to do with what consumers are saying, but rather what they are actually doing.

Enter: The New Customer-Innovator Paradigm

A recent paper by MIT’s Eric von Hippel, The Age of the Consumer-Innovator, alerted me to the fact that the serial product design process, as the still dominant business process of most companies, may be the key deterrent to exercising the true value of social media. An extension of Von Hippel’s earlier work  and book, Democratizing Innovation, the paper explores how, users, much assisted by improvements in computer and communications technology, increasingly can develop their own products and services. 

We’ve always known that consumers can be a hot-bed of product ideas and, yeah, new markets. Legendary examples include the skateboard, created by kids by hammering a wheels onto a board. Or take the dish washing machine, devised by socialite Josephine Cochrane  to solve the problem that her servants, in washing, often chipped her fine china. Von Hippel’s examples are wide-ranging, including high performance sports equipment, library systems, PC-CAD systems, the Open Software movement and hospital surgical procedures. Even in financial services,  Hippel describes horw sweep accounts, long before they became profitable banking services, were used by retail and corporate banking clients to increase returns from interest payments.across their accounts.

The Millions of Consumer-Innovators

It turns out that consumer innovators are by no means outliers, but rather they number in the millions. Marshalling data from three recent consumer research studies conducted in  Japan, the UK and the US,  Von Hippel’s data shows that across these three countries alone, consumer-innovators are estimated to spend some $31.2 Bn on consumer-based product innovations per year and they number 18.5 million strong. Most remarkable is the finding that in the U.K., these consumer-innovators spend 144% more annually than what all commercial enterprises as a group spend on consumer product R&D.

Hippel-Consumer-Innovation-Market-Size (12)

Data from The Age of Consumer-Innovator, MIT Sloan Management Review, Sept 21, 2011. Eric vin Hippel, Susumu Ogawa & Jeroen P.J. de Jong

What I find ironic here is that even while companies are building social media strategy, growing large social media teams to outreach to consumers, a significant group of consumers independently are creating, modifying and testing novel functionality of products and services.

To me, it’s no coincidence whatsoever and Von Hippel’s realisation explains why some of the best-known examples of social media success are  companies which have built customer-bridging platforms, if not wholly, at least in part, into their design process. It’s initiatives like Dell’s IdeaStorm, MyStarbucksidea.com and and the company Threadless that are fully leveraging social media’s value. There are other splendid examples: The Fiskars scrapbooking community and the many Forrester Groundswell Award winners, such as Godiva and the Intercontinental Hotel Group & Chase Card Services who developed  a new credit card with the help of and for loyal Priority Club members .

Why did it work in these instances? Because beyond listening, learning and engaging (Social Media 1.0), these companies actually adapted their product design process to incorporate the customer. In other words, they are no longer working off the simple, one-way  product process line.

True enough, only a small minority today, some 3.7- 7% of the total consumer base, are full-fledged, self-initiating consumer-innovators or “lead consumers”. But as von Hippel points out, there’s every reason to think that this base of independent innovators is expanding: Not only does the cost of computer-aided design tools continue to drop, but new web-based businesses exist to turn CAD design files into actual product prototypes. 

There are  other signs of a broader consumer-innovator and business problem-solver movement afoot: In recent years, we’ve seen the rise of design challenges (Innocentive, Spigit), third-party innovation platforms (Napkins Labs, IdeaScale) , independent entrepreneur idea platforms (Quirky, Edison Nation) as well as the rise of  Maker Fairs.

All this should be a wake-up call to social media marketers. You think customers are talking about your brand? What about those that are reinventing your products? Even as much as social media marketers continue to vex in search of  larger and larger group of influencers, its seems we’ve been ignoring those who have already been deeply influenced to become inventors and creators. You can listen, engage — but if you don’t really connect with these true influencees, you may well find yourself competing with them.

This speaks to a key flaw in most social media strategies, what Foremski and Solis are referring to in the (misguided) equation of social media with corporate media: We tend to overemphasise total reach, instead of focusing on the depth of conversation. (As I’ve written earlier, this fallacy of large networks as a basis of influence underlies many social marketers misguided obsession with the Klout score.)

 

Why Consumer-Innovator Communities are the Next Stage of Social Media

Companies and social media marketers need to stop treating social media as the tail-end of product process as well as an extension of their corporate media. Those that take the bold step to go beyond  listening and talking but to tap into the consumer-innovator communities stand to benefit immensely. The following benefits stem from Von Hippel but really echo what’s also been noted independently by crowdsourcing advocates:

  • Decrease R&D & Risk.Since lead consumers are already producing and vetting novel functionality product ideas on web communities, companies stand to benefit in reducing their R&D costs and risk in investing in those same/similar products.
  • Decrease Market Research Costs. As lead consumer-innovators are conducting market research for their innovations, companies stand to benefit in reducing expensive market research costs in detiming what product/service ideas would be in demand.
  • Decrease Inventory Excess. Where a consumer-innovator product/service idea has traction, companies may benefit in taking a high potential product concept to market, leaving them to focus on producing it at low manufacturing cost and with lower inventory as the product has already proven to be in demand.

Looking for social media ROI? Once the gap is jumped, moving beyond social media as a pure communication platform but , taken one step further, implemented as a design platform where co-created products or products created solely by users, herein ROI lies.

Is what I’m saying self-evident? Could it be, in many cases when we measure social media ROI, it’s because we’re tapping into these consumer-innovators? Could it be where we see a plateauing of social media’s effect it’s due to an outdated one-way product design process, residing far below our campaigns?


In Part 2 of this post, I’ll explore why this means the end of Social Media 1.0 and what marketers can do to aid the transition to true social innovation, a place where ROI becomes less elusive. To do that requires looking a level deeper than the usual social media discourse.

 

Related Posts:

Consumer-Innovators (Part 2) & The End of Social Media 1.0

Four Roles for Marketing in Kickstarting Open Innovation

Open Gov’s Prize-Palooza or How We All Became Creatives for The White House

Crowdsourcing and Open Innovation Fuel a Prize-Driven Economy

Start Innovating Already: A Punk View of 13 Poisons to Open Innovation & Building Engaged Communities (Slideshare)

Six Marketing Lessons of the Netflix Crowdsourcing Experiment

 

Open Innovation & Impatience: Start Innovating Already

A few months ago I was asked to do a keynote address on Open Innovation and Branding. So this post is basically about that keynote titled:” Start Innovating Already: A Punk View of 13 Poisons to Open Innovation”. It’s intended for new-comers to the field.

There are several mounting market reasons why Open Innovation is a high priority.

Hyper Innovation is Growing

Frighteningly, shorter and shorter product cycles threaten early commodization

much more so than can be anticipated even in the best laid product lifecycle plans.

Luckily, those just learning about Open Innovation have a bevy of online resources at their fingertips: Henry Chesbrough’s Forbes column, Twitter chat groups, discussion groups on LinkedIn, web resources like Braden Kelly’s Blogging Innovation the Open Innovators , The Open Innovation Community and Sweden’s Innovation Management websites, as well as numerous scholarly books on this important subject. A great start, of course, is the trilogy by Henry Chesbrough, the godfather of Open Innovation.

But what’s missing from these abundant resources is a more dark, edgey voice or tone, one which might galavanize a new, younger generation to heed the new strategic business imperative of adopting Open Innovation practices.

And that’s why my slidedeck is slanted slightly to the dark side – bringing in lesser discussed company stories (like that of National Public Radio (NPR) and the LA guerilla restaurant, LudoBites). These stories are each quite purposefully outside the usual OI consultant’s fare. Through the Netflix example I attempt to show how the topics of crowdsourcing, gamification, IP management and Open Challenges interweave to create a rich Open Innovation story.

In the end, the most important reason behind both my somewhat off-color title as well as the choice of case studies presented here is this: Be impatient. Be very impatient. Realise that for most companies “Innovation as a Try-on”is not an option. The companies I describe in this slidececk were highly stressed into a position of near commoditization, facing replacement by competing newer technologies and myriads of competitors and /or unable to abide by the usual market rules due to the 2008 Econolapse. (This is in fact my own experience in startup modes: You do because you must.)

So if I appear to have introduced OI in too discomforting, snarky a manner, understand that it reflects my belief that the impatience factor is under-represented in most discussions. Given the vast army of consultants in OI, (there are more scouts or planners than do’ers according to The Open Innovation Map) perhaps we just need a bit more impatience and the energy which it creates.

Perhaps we need fewer calmly stated, neutral gray business statements (eg. using words like imperative, mandate and exigency) and more frontal statements – yea, expletives- which encourage impassioned and speedy acts of Open Innovation execution.

And with that, here’s the presentation…

Start Innovating Already: 13 Poisons to Open Innovation
View more presentations from Lisa Thorell

Four Roles for Marketing in Open Innovation

(This post is mostly directed to small companies. Larger companies may well find my observations self-evident and part of their best practices. That’s all the more reason why small companies partnering with large firms should take heed.)

Whether driven by the new “hyperinnovation economy”, shrinking product lifecycles, increasing competitive pressure from developing nations, it’s clear business is showing  massive interest  in Open Innovation (OI).  As Henry Chesbrough, the godfather of Open Innovation, points out in his latest book, Open Services Innovation: Rethinking Your Business to Grow and Compete in a New Era,

Innovating in today’s environment requires being open. Open innovation can reduce the cost of innovation, help share the risks and rewards of innovation, and accelerate the time required to deliver innovations to the market. This is true for services business as it is for product business. Being more open can also help turn a business into a platform for others to build on.”

In this post I refer to  Chesbrough’s fully nuanced definition of open innovation, namely, “the use of purposive inflows and outflows of knowledge to accelerate internal innovation, and expand the markets for external use of innovation, respectively.”  Distinct from the software industry’s open source movement, supply-chain management and user innovation movements, Chesbrough points out Open Innovation focuses on the business model of a company.

The figures below capture his views on shifting from the old vertically integrated model where companies were their own source of ideas and technology (shown at top)  to a new open model (shown below) fostering inflow and outflows of knowledge, crossing company lines. For anyone who worries about their company’s business model, Chesbrough’s trilogy of books on open innovation is just a cerebrally thrilling read.)

Source: Henry Chesbrough

Clearly, as an open innovation initiative is such a core strategic decision profoundly impacting company processes and culture, it makes sense that discussions mostly stem from and are directed to the sanctum sanctorum of corporate leadership: The majority of published discussions seem to focus on the roles of executive leadership, early stage R&D and the inherent complexities of managing intellectual property throughout the process.  For the most part, the role of marketing seems diminutized.

Is marketing really in the back seat?   As sure as communication is marketing’s mantra, OI consultant,  Stefan Lindegaard  has pointed out that communication is one of the  top three core skills in OI leadership. Certainly, as I’ve discussed earlier with respect to Open Challenge contests (close siblings of Open Innovation) such as the NetFlix $1 Million Challenge, marketing devices and methodologies can interweave with R&D to produce effective, contest design. Still most of the marketing discussions seem to revolve around marketing’s role after The Big Bang occurs – namely, after the OI initiative is set in place.

What if any, is marketing’s role in initial OI partner negotiations? In terms of public-facing marketing, it makes sense that marketing’s role is under emphasized: After all, to make a purposefully absurd example, there’s no place for broadcasting an open innovation strategy real-time,  as that would both taint in-confidence negotiations among parties as well as reveal core strategic moves to competitors. However, in here, I am speaking of the broader role of marketing executives, particularly their internal company and partner communication functions.

This post explores four key roles for the marketing function in for small companies initiating Open Innovation efforts.  As I’ll argue, several actors within the marketing department, from market research, corporate communications, channel marketing, to marketing programs, may all play key parts at the very outset of partner negotiations to decrease time to market and reduce of business risk.

By the way – some may challenge: Shouldn’t I qualify my discussion to small companies where the technology is on a short commercialization path or where marketing is an explicit portion of the partner exchange? Surely, these marketing considerations don’t apply to university ventures? Actually  I believe pure technology deals are getting increasingly more rare: If one acknowledges the global trend of  shortening product lifecycles, where a product is soon to be replaced by a still  better and newer “shiny object” (or service), even nominal technology-only licensing deals  may have to acknowledge and use marketing’s long muscular tentacles, pulling R&D projects out faster into commercial reality.  Sitting out here in the 21st century where knowledge-sharing has been democratized – this simply is not your father’s 80’s technology licensing game any longer.

Four Roles for Marketing in Open Innovation’s Big Bang

 

1. Early Round Partner Communications

One of the core assumptions of the OI model, vs. the traditional vertically integrated business model, is that rather than a company building out its products (or its services) itself, one pulls in partners to supply early stage  R&D components and, conversely, share components for other companies to build upon. Partnerships abound.

At the outset, one of the fundamental stumbling blocks to partners agreeing is understanding (and trusting) each other’s business model, core assets and target markets.  To the degree that these are not understood, there is suspicion of possible conflict and no joint technology ventures or licensing agreement can be struck.

As marketing professionals are taxed with precise verbal and graphic depictions of the company business model and strategy, they can serve key roles in early negotiations with OI partners, making sure that the crisp, concise description is provided to partners.   To the extent that the marketing communications (whether provided as white papers, powerpoints, etc.) are effective, they can contribute to accelerating negotiation.  (Think my reference here  is to somewhat poofie marketing veneer? Try fitting on one slide a company’s market sectors, sizes, products, problems solved and key competitive feature. When skillfully wrought – such “executive snapshots” are essential decision tools, providing a playbook for both sides of the negotiating table.

It’s important to say here that one of the best things a marketing exec can do is to anticipate early on the points in the partnership which will require tight integration of the two parties marketing teams.  So as much as it is important to convey your own company’s business model, it is equally important to actively listen and learn the partner’s company’s business model and marketing plan. Both sides of the marketing table must cooperate for a successful end result.

Key marketing actors: Marketing Strategy, Corporate Communications, Marketing Communications, Partner Marketing

2. Research of New Market Opportunities Enabled by OI

One of the key benefits Chesbrough describes is that OI facilitates new market opportunities for a company, ones which in the old closed model were unprofitable.

Chesbrough gives a splendid example in his description of the OI efforts of the biotechnology company, Amyris.   The company originally focused on developing a reliable source for artemisinan , an anti-malarial therapeutic, funded by The Gates Foundation.   However, Amyris granted a license to this technology to Sanofi-Aventis to  commercialize the malarial drug, then taking their industrial synthetic biology platform into the biofuels sector, a much larger market opportunity.

Such market movese depend on market research – a corporate function which falls within the domain of the executive marketing function.  Even before initial partner discussion ensue, market research is called upon to define and estimate total market size, competitors, geographical opportunities, as well as projected growth rates of the potential new market opportunities.  In this sense, marketing is not just sitting at the negotiation table; it is setting the table for the negotiation.

Clearly, most OI prospective partners conduct (and hopefully update) their market research well ahead of sitting at the negotiation table.  Coupled with each company’s core business model and intent of market pursuits, the research in fact implicitly guides many of the key parameters on the table, items like IP rights assigned by industry sector as well as the geographical scope of those rights.

In many cases, market estimates may even guide the proffered marketing obligation of the OI partners specified in the final agreement. For instance, consider two companies, Company A and Company B, engaged in a cross-licensing agreement where each company will incorporate the other’s technology into a product. If Company A has an existing presence in a market (say, healthcare) they may specify the number of accounts for channel access by Company B (ultimately translatable to a dollar value estimate). In turn, Company B, while it may have the rights to  another market (e.g. Automotive) which it currently has no presence in, it  may  specifiy in the final agreement a dollar value of marketing investment  it will contirubute to development of that channel. (I discuss these marketing obligations in greater depth in the fourth role.)

Key Marketing Actors: Market Research, Business Development, Channel Marketing, Marketing Programs

3. Synchronizing the Close-to-the-Vest Marketing Plan to the OI Initiative

Most companies are operating not only with a business plan but its closely related offspring, the marketing plan. In that document, all the details of product release dates, partners, events, promotions, new service announcements, etc.  are described over a 1-3 year timeline.  One of the marketing corollaries of an open innovation initiative is that these planned activities, and costs associated, will highly likely be subject to change.

In part, successful companies smoothly operate because this internally published marketing plan is shared with employees:  It’s the road map, signaling upcoming activities, priorities, employee responsibilities, headcount requirements over the period. But I am not talking about this company-published plan.

For in early partner discussions, it’s obvious there’s another close-to- the-vest marketing plan under creation, one which assumes the participation of the partner.  As much as this ghost plan is neither relevant nor shared with the company at large during early stage partner discussions, this doesn’t diminish its importance as a draft of future  marketing roadmap. As I discuss at greater length under Role 4, early identification of partner marketing resources leverages open innovation for the marketing department ‘s budget:  Specifically, it can identify cost savings and additional marketing opportunities your company can  put on the table as part and parcel of the final agreement. For in the end, there are fixed costs within a marketing budget that may well become variable or partner-borne costs.  For example, consider whether you will really need to increase your marketing staff load with the partnership?  Or can your partner assist you through one of their existing marketing programs?

Key Marketing Actors: Marketing Executives

4. Marketing  Responsibilities in the Final Partner Agreement

It never ceases to surprise me how this particular point is lost on many. Most companies fully appreciate that the final contract agreement, even in so much as it may be initially be broached as a technology licensing agreement, must clearly outline the specific technologies under discussion, specific R&D efforts, milestone dates for engineering collaboration, documents to be transferred, IP rights of both parties, even identify specific markets for which each party is permitted or excluded .

Much less appreciated is the immense value of including specific marketing obligations (separate and mutual) of the partners directly into the final agreement. 

I learned this lesson in early Internet 1.0 days from one of the marketing powerhouses of times yore, namely, Microsoft. Working as a VP of Marketing at a small internet startup in Seattle, I participated in several technology agreements with the 800 lb gorilla. As is protocol, our mite-sized company was obliged to use a Microsoft contract as the initial draft template agreement. In all cases – no matter how deep-down R&D related our technology agreement (e.g. a license to use a component of a TCP/IP stack), I noted that Microsoft included marketing obligations in the contract. And I mean nitty-gritty details of  specific web promotions, co-participation in joint marketing opportunities, brand and style guides, press release approvals and more — the whole nine marketing yards. I could have been a complete marketing dunce and reaped many benefits — as long as I stayed within their boundaries.
.
Why is it  beneficial, perhaps imperative, to  include marketing components in a technology agreement even with small company partners?

  • First, it forces you to think ahead to who has what role in promoting the joint or licensed technology.
  • Second, it identifies marketing resources one partner may hold that may be available to the other partner. This is especially important for small companies.
  • Third, there’s the defensive benefit of protection of brand. As an example, consider  if both companies intend to market separate products using each other’s technology at the same industry conference. How will this play out – without confused messages? (In reality, large company partners are never going to omit  marketing obligation. So CYA.)
  • Fourth and most important,  it supports the entire agreement with contract-enforceable marketing activities – not leaving important marketing details on the table, to fall to chance, perhaps never to occur. (Translation: You just left money on the table).


Too many companies walk away from the table, high-fiving over a great tech agreement, only to waste the leverage of specifying the required marketing efforts which would aid in brining the final product  to market more quickly, with less risk and to a wider audience.

Key Marketing Actors:  Marketing executives in collaboration with IP counsel.

Extending the Open Innovation Funnel

It strikes me that marketing not only deserves  a seat at the starting rounds of an Open Innovation partnership, it can facilitate the critical communication process.  In the best case, clear enunciation of marketing obligations as part of the negotiation process allows both parties to extend the savings benefits of Open Innovation beyond R&D, into marketing itself.

By explicitly embedding downstream marketing responsibilities into the  OI partner agreement, you better guarantee more cost savings benefits of Open Innovation are realised. So I say cautiously, while I’m not one to unduly complicate the classic OI funnel diagram, and as much as I understand Chesbrough always included marketing’s involvement in OI – still I think small companies may find it useful to visualize the the classic funnel diagram extended explicitly into downstream marketing. (I have done this in the diagram below.)

 

 

Supplying the missing “marketing/sales” stage of the product cycle reminds smaller companies to pull forward future marketing costs into the initial negotiation. The bottom figure shows a  detailed view, showing just a few example inbound and outbound open marketing activities. (This deserves another post.)

Are marketing considerations left out of the “courting stage” of your open innovation projects?

Or am I swinging at windmills here – focusing on a best practice that is already adopted by even small companies in open innovation partnerships?

Image 2 credits: photo, illustration