Beware of Expert Blindness

More and more companies are looking to big data to help them market their products or improve their services. Of course that means more companies are seeking out data scientists and statisticians. But to truly take advantage of big data means the firm must commit to the principles of data science. That is often easier said than done.

Enter the Subject Matter Expert and the common trap of “Subject Expert Blindness”.

Yes. The Subject Matter Expert; the person who has spent a career building knowledge of their business. These are the people who drive a company’s offering; or whose stamp of approval is necessary on any significant project. They believe their experience and learning has given them special insight that others simply do not have.

If you are a specialist in data science, then it is unlikely that you have spent years earning experience in any particular industry. Automotive. Healthcare. Insurance. Finance. It doesn’t matter because your expertise is data. Data is data. And you tell your story with the data.

The expert does not rely on data. Or only needs it to confirm their preconceived insight. The expert, then, becomes blind to alternatives hidden in the data.

Take the case of a recent project of mine. I was approached by a firm looking to find groups of people who were likely to be the most expensive customers to service. The expert provided a list of twenty such groups and asked that we demonstrate that these are statistically more likely to consume services than an ”average” customer.

But the notion of pre-determined groups is silly in the world of data science. Why not run have the data tell us what the highest risk groups are? If the results match the expert’s groups then great, her hunches are confirmed. But the expert will never find the hidden gems that the data often exposes. The expert is simply blind to the alternatives.

The bottom-line: let the data tell the story. Don’t force the story onto the data. Resist the temptation to rely on personal experience to shape the story before the data is even crunched.

Great anecdote from "Users, not Customers"

I just started the book "Users, not Customers: Who Really Determines the Success of Your Business." It starts with a great short anecdote about comparison shopping in our brave new world. If the rest of the book stays as intriguing, this will be a great read.

"My wife loves seltzer water. I can’t stand it, but she will hardly drink water if bubbles aren’t in it. So I thought it’d be great to buy her a soda maker. One afternoon, I passed by a Williams-Sonoma store and decided to stop in. Lo and behold, they had one sitting on the shelf: a SodaStream Genesis drinks maker for $150. But it seemed expensive. I could buy her a pantry full of 150 bottles of premade seltzer for that price. So I decided to shop around. 

I opened the RedLaser app on my iPhone and used it to scan the machine’s bar code to find out what other retailers charged. Bed Bath & Beyond carried the same thing for a hundred dollars. Success! Fifty dollars in savings. I waved down a sales clerk and showed her my findings. But she declined to match the price. 

So right there, in the middle of a beautiful Williams-Sonoma store in a high-rent location on the Upper East Side of Manhattan, I bought the SodaStream Genesis drinks maker—from Bed Bath & Beyond by using my mobile browser."

Why Digital Talent Doesn’t Want To Work At Your Company | Fast Company

I like this blog post so much that I am re-posting it in it's entirety.


Why Digital Talent Doesn’t Want To Work At Your Company | Fast Company:

Why doesn't digital talent want to work at your company? It’s not because you’re a consumer packaged goods company, rather than Google. It’s not because you’re in Ohio instead of Silicon Valley. It’s not because your salaries are too low, or because you don’t offer free food and laundry services.

It’s because you’re not providing them the right opportunity. The talent you want would be happy to work in an un-air-conditioned garage in New Mexico if it meant the chance to change the world.

This, the opportunity to do great things, to make a real difference, is what drives most digital talent--whether they’re developers, designers, producers, marketers or business folks. 

Most companies don’t offer this, so they skip your company and work somewhere that’s more innovative and exciting. End of story. But the good news is that you can offer them something exciting and great. The promise of changing a giant, behind-the-times organization into an Internet-savvy business is an incredibly exciting challenge and a big way for ambitious people to make an impact.  

But it takes more than lip service to make the sale. Job candidates and new hires with digital chops must truly believe in the company’s dedication to digital transformation and they must see that they are empowered to make this change. Trouble is, many big businesses aren’t structured to deliver on this type of opportunity. The attributes of a soul-crushing, Sisyphean, anti-digital workplace run deep.  

Digital talent won’t want to work at your company if:  

• Every element of their work will be pored over by multiple layers of bureaucracy. Even if that’s how the rest of the company operates, it can’t spill into the digital department. In a technology environment, new products and businesses spring up daily and a new endeavor can go from conception to launch in a matter of months. Reining in the momentum will be read as inaction and a clear signal the company isn’t willing to grasp the new way of the world.  
• Mediocre is good enough. While clocking out at 5 p.m. is attractive to some, it will discourage digital talent. They want to be expected to do something great. They want to be pushed. They care about their work. Their leadership, and those they rely on to get things done, must match their appetite for success.   
• Trial and error is condemned. The freedom to try out new ideas allows employees to take initiative, make decisions, and learn from their mistakes. It also demonstrates an attractive and inspiring entrepreneurial spirit.
• Your company is structured so it takes a lifetime to get to the top, and as such there are no digital experts in company-wide leadership positions.Digital talent--often in their 20s and 30s--need to see a clear path for uninhibited career development that’s based on merit, not years spent, and that’s beyond the confines of the digital department. If they don’t, they won’t see a reason to stay with the company in the long term.  
• Your offices are cold, impersonal and downright stodgy. It may sound like it conflicts with the “you don’t need to be in Silicon Valley point,” but appreciate the nuance. A traditional office layout is designed to communicate power among certain individuals and barriers between departments. This does not support the collaborative ethos which is intrinsic to the web. Companies should do everything possible to provide the digital team friendlier, open office space. A location in a hip, young neighborhood (which surely exists in every mid- to large-sized city) is also a big plus.  

When all of these digital-talent deterring points are addressed, company leadership has effectively and proactively demonstrated the company’s dedication to a digital transformation. It is at this time that their words, a broadly communicated firm stance on the significance of the company’s digital goals, will make the most impact. Without this conspicuous top-down support, politics in the organization or simply one influential disbeliever can hinder the effort, limit the extent of digital integration possible, and discourage valuable employees.  

You need them more than they need you. Demand for their services is so high, they can afford to be finicky. If they don’t like where they’re working, another firm with a more attractive culture and more grand opportunity will quickly swipe them up. That could be your company. But it could just as easily be someone else.

Adapted from Users Not Customers: Who Really Determines the Success of Your Business(Portfolio), by Aaron Shapiro, CEO of HUGE, a digital agency that helps companies including PespiCo, Comcast, Target, HBO, and Unilever reimagine how they interact with their customers and manage their business in the online economy. Visit aaronshapiro.com.

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Opinion - Image - NYTimes.com

Opinion - Image - NYTimes.com:

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Engaging the entrepreneurial power of employees with a venture capital model

The entrepreneur in us sees opportunities everywhere we look, but many people see only problems everywhere they look. The entrepreneur in us is more concerned with discriminating between opportunities than he or she is with failing to see the opportunities - Michael Gerber, author, entrepreneur

This year I participated, in an innovative project as we prepared for review by an internal leadership team. As of this writing, the project is not approved, but the financials are very strong and the technology is very low risk. By the time the project is reviewed by the board later this year, my firm will have spent nearly 18 months, hundreds of man-hours, and tens of thousands of dollars. Yet the work product produced is merely a document and an idea. There is no code and no proof of concept.

The procedure is at best a difficult process; at its’ worst an impossible process. There should be little doubt that the net effect of the process is to inhibit growth through innovation. It is, in fact, a barrier to entry for teams with go-to-market ideas.

Industry is full of companies with high profile examples of innovation. Firms like Google, Pixar, GE, and Apple show that a culture of innovation can bring success. This paper describes how any firm can evolve into a venture driven company that empowers employees with an entrepreneurial spirit.

The goal is plain and simple: achieve explosive growth through a culture of innovation.

To foster this culture, I suggest a model based on capital markets for startup companies. There are three aspects to this proposal:

• The corporation acts as a Hedge Fund by allocating funds for investment and measuring  aggregate results;
• Senior executives function as Venture Capitalists by soliciting ideas and managing a portfolio of investments; and
• Employees become the Entrepreneurs championing their ideas and finding resources to execute a project.

 

The critical ingredient is getting off your butt and doing something. It's as simple as that. A lot of people have ideas, but there are few who decide to do something about them now. Not tomorrow. Not next week. But today. The true entrepreneur is a doer, not a dreamer - Nolan Bushnell, founder of Atari and Chuck E. Cheese's

The Hedge Fund

A hedge fund is a private investment fund whose managers can make speculative investment and participate in profits from money invested. The company can function much like a hedge fund by structuring projects as a portfolio of investments. The managers of the “hedge fund” are the executives who normally vet within for the company.

The corporation, then, decides how much to invest in the fund. Each year these funds are set aside for innovation and it becomes the responsibility of the hedge fund managers to assure the funds are invested, and that the portfolio achieves an appropriate return.

As the Hedge Fund, the company would:

• Invest in the fund by allocating monies for innovation. An investment to the innovation fund each year;
• Appoint  executives to function as the Venture Capitalists;
• Set an ROI threshold for the fund

Taking Risk

I have not failed. I've just found 10,000 ways that won't work - Thomas Edison, inventor and scientist

A great percentage of start-ups fail. Hedge funds that specialize in innovation spread their investments over a wide range of projects with the understanding that a small number of winners will earn a return for the entire portfolio. Risky projects will be an integral part of the firm’s portfolio.

Like true VC hedge funds, the firm can mitigate risk by funding projects that already have some track record of success. This track record could be a successful competitor, a custom built technology, or a joint venture with a client.

Exit Strategies

Unlike the holdings in venture capital hedge funds, the company’s investments generally do not end with a liquidity event (sale of the company or IPO).Instead successful investments will result in product lines or business that generate revenue and profit. Less successful projects are absorbed into existing businesses or closed outright.

It should be noted that there is the possibility of a liquidity event. Although these may be rare, some projects could be spun off as independent companies. In such cases the firm would act as a private equity fund, holding a stake in the company until an appropriate liquidity event occurs.

Venture Capitalists

Since one fails often, address markets that make it worthwhile when one does succeed. Vinod Khosla, co-founder of Sun Microsystems

Executives that normally vet for capital investment will serve as the venture capitalists in this model. As VC, each executive is expected to oversee a portfolio of projects and to assure that their funds are invested. Each VC would have a specialty where they would focus their investments. It would be expected, though, that they would invest outside their area on occasion.

The VC has four primary roles:

• Invest a share of the fund in projects of their choosing;
• Provide oversight of the projects in their portfolio;
• Mentor the entrepreneurs assigned to the projects in their portfolio; and
• Arrange exit strategies for their projects.

Key to the success of the hedge fund is the oversight and mentoring role of the VC. Unlike an “approve-and-forget” capital investment model, VCs of the hedge fund share responsibility for the success of their portfolio. This oversight keeps entrepreneurs accountable to accomplish milestones and meet their financial goals.

VCs solicit, review, and select projects based on the business plan from the entrepreneur. The VCs is empowered and required to invest his share of the fund.  VCs will be expected to accomplish the appropriate due diligence, but being empowered will make the decision process move quickly. With empowerment comes accountability, and the VC will be expected to make rational decisions based on standard venture criteria such as, experience of management, amount of existing business, size of the market, first-in status, and the competitive landscape.

Like true VCs, the managers in the firm’s hedge fund will collaborate on some projects. Some of the VCs will assume an “angle investor” role by making small investments in a large set of projects in their early stages. As angle projects progress, the VC may decide to invest additional rounds of financing. Also, several VCs may invest together in a project, thereby sharing the risk, or implementing a large scale innovation.

VCs shall participate is the financial success of their portfolio. A bonus would be paid based on the success of the projects in the portfolio.

I never perfected an invention that I did not think about in terms of the service it might give others... I find out what the world needs, then I proceed to invent -Thomas Edison, inventor and scientist

Intrapreneurs

Some people dream of great accomplishments, while others stay awake and do them – Anonymous

Entrepreneur : one who organizes, manages, and assumes the risks of a business or enterprise.

Intrapreneur : one who organizes, manages, and assumes the risks of an idea within a business or enterprise.

The entrepreneurs are the employees that champion an idea (intrapreneur is a term made up for this white paper). Entrepreneurs are passionate about an idea, and work to see it through to its completion. This includes building prototypes, writing business plans, seeking funding from VCs, and managing the project day-to-day.

Much of the motivation and reward of these employees is intrinsic and non-financial. This includes the excitement of working on a new and innovative idea. In addition, once funding is approved, the employee will have effectively transferred into a new position with the company. Like the VC, however, the entrepreneur will be rewarded based on the financial success of the project or its exit strategy.

The entrepreneur has the following roles:

• Develop a business plan;
• Seek and obtain funding from the company VCs;
• Build prototypes and proof-of-concepts for the project;
• Obtain resources needed to complete the project;
• Manage the project, day-to-day; and
• Report progress and financial results to the VC

 

It should be expected that projects are present by a team of employees. In these cases, one member of the team shall be designated as the entrepreneur. It is likely that the entrepreneurs are employees that already hold management or leadership positions (but that are not a requirement).

Mitigating Personal Risk

Entrepreneurs assume a great deal of personal risk with regard to the security of their career. Although positions cannot be held open for the entrepreneur pending completion of their project, the corporation should guarantee that a position will be made available regardless of the success or failure of the project. Truly motivated entrepreneurs, however, do not consider failure, and will pursue the idea under the assumption of success.

The Business Plan

Entrepreneurs must submit a business plan to obtain funding for their projects. Business plans should follow common standards for start-up plans. At a minimum, a business plan shall include:

• Description of the Idea;
• Marketing Plan;
• List of existing customers
• List of target customers
• Size of the market
• Pricing
• Competitive Analysis
• List of competitors
• Advantages and Disadvantages
• Operational Plan
• Management Team
• Personnel
• Technology
• Financial Plan
• Start-up Expenses
• 3 Year Pro-Forma

 

Advantages of the Hedge Fund Model

This approach to funding invention, and building a culture of innovation has distinct advantages over my company’s current model.

• The current procedure in of itself is an expensive and labor intense process. It requires multiple stages of presentation and approval. The current process is self-regulating, scaring away employees that are intimidated by the process regardless of the quality of their idea.
• An innovation provides a method of easily submitting an idea, but except for quick rejections, it routes ideas through the same burdensome approval process.
• The hedge fund model is simple; write a business plan and present it to a VC.
• Our current procedure is slow.  It will be very difficult to have first-in status if seeking funding through the current process. Real-time Fraud and Abuse, for example, has been in-process for months.
• The hedge fund model is fast.
• Where our current procedure is focused on preparation and planning during the approval process, hedge fund is focused on execution of the idea.
• Hedge fund rewards entrepreneurs and VCs for taking risk and accomplishing goals.
• Hedge fund provides a tangible portfolio of innovation and R&D.
• Hedge fund is based on tried and true practices of bring an idea to market.

 

Twenty years from now you will be more disappointed by the things that you didn't do than by the ones you did do. So throw off the bowlines. Sail away from the safe harbor. Catch the trade winds in your sails. Explore. Dream. Discover -Mark Twain, author

Thoughts on Innovation

It is not easy to foster a culture of innovation in a corporation. Ironically, I have not always felt this way. I have spent the great majority of my career at start-ups, entrepreneurial charged companies, and software makers. Each of these environments relied on the creativity of their people to remain competitive.

When I joined my current firm, we were a small and hungry software supplier in the HealthCare industry. We served a particular niche market and our growth was dependent upon finding new and inventive ways to sell more products into this niche. In my first year with the firm we doubled our number of offerings.

Something happened to that culture of invention when we were swallowed by a bigger fish. It's hard to put a finger on it, but maybe it's our build vs. buy strategy that favors buy over build. Maybe it's our market dominance and entrenched legacy customer base. Maybe it's a culture that meticulously tracks where each hour of engineering time is spent.

You can start with the existing method of starting a project around a new idea. A rigid and exhaustive procedure was established to analyze projects for funding. The firm sets aside money especially for these projects. But the process is long, bureaucratic, and daunting. Only those employees with the greatest perseverance can weather the multiple stages, detailed requirements, and long delays of this process. The process itself, then, serves to prevent innovation.

It's not that the company is not interested in innovation. This year the firm initiated a council of thinkers who are charged with encouraging the submission of creative ideas. On the surface you might think the initiative could be very successful, but I see some fundamental flaws that could stall our efforts.

First and foremost of the flaws is the establishment of yet another process. And what happens when an idea passes through the process established by the idea team? The idea is handed off to the same process as before, but possibly skipping the first stage. In affect we have put a new process in front of the old process. If the old process was a deterrent to innovation, then the new one is doubly so.

Add to the mess of procedures, a subtle lack of focus. This lack of focus was exposed by our firm's COO who made it apparent her goal is innovation in operations. The Japanese auto industry of the 1980s was cited as an example. This is fine enough, except the council had established criteria around the analysis of new product ideas. In other words, we were looking externally for innovation, when the COO expected us to look internally. The criteria to judge projects of these two types are dramatically different.

So far, the results of our council are disappointing. No idea has successfully come to fruition. And the promotion of an innovative culture is stalled.

Of course everyone holds up Google as the standard. Even among my staff, I've tried to encourage the idea of spending 20% of our time on new ideas. The key to the Google concept, though, isn't necessarily the allocation of time. Instead it's the thinking that with a new idea, many people "won't get it", at least not at first. The idea has to go through some element of trial and error before it can be tabled or killed. This is in direct contrast to our approach, which puts rigorous paperwork between the idea and a prototype.

If we really want innovation to take hold at our company, we'll need to change the model. We'll need to empower people to spend time building working versions of their idea, instead of filing a form. We'll need a little of the "just do it" attitude, instead of waiting for approvals. I guess we'll need to regain a some of our entrepreneurial mojo.

Cash is King

There is a common notion that most start-ups fail for one of two reasons; either they are under capitalized or do not sell aggressively. In both these cases, the firm fails to raise the appropriate amount of cash needed to sustain operations. Of course all failed businesses run out of money, but some never give themselves a chance.

A firm that never gave itself was chance is Elite Technology Partners. The company was born from the technical brain trust of Blackwood Trading, and quickly conceived a product and business model based on their experience from the other firm. Their product was greatly inspired by Blackwood, but targeted a specific strategy and different distribution channel.

Elite's founders had learned from their experience at Blackwood. Certainly, they put to use the intellectual capital gained at Blackwood. They also learned from Blackwood's failed effort to market themselves successfully. In addition, the founders recognized that Blackwood's operational model was very expensive.

However, Elite underestimated the effort required to develop a product and bring it to market. Very quickly the firm fell into a chicken and egg situation. In Elite's case, they couldn't sell product because they did not have the capital to complete it. And they could not raise cash through sales because their product was not finished. Add to their situation the economic environment during 2002, where investment capital had effectively dried up. Venture capitalists were only looking at firms generating cash through sales.

In Elite's case, the lack of cash led to a series of strategies changes that sealed the fate of the company. First, a shortage of cash caused many of their best engineers to secure positions at other employers. Elite sought an investment arrangement through key prospects that would enable them to bring their product to market. But partnerships with a large investment come with restrictions. Demands of exclusive use and ownership of intellectual property made partnership deals impractical.

To raise cash, Elite sold its' talent in consulting arrangements. The consulting business was profitable and brought in enough cash to keep the operating. Unfortunately the opportunity cost of consulting was a halt to further development of Elite's product. In the end, Elite failed to complete its' product; Elite failed to complete its' product because it failed to raise the capital necessary to build the necessary technology.

I am working with an entrepreneur who is in a similar position. He is following a conscious strategy of delaying raising despite having an established relationship with investment bankers. The entrepreneur is betting that signed contracts will make the firm more attractive to investors. This may be true, but having no cash in his firm, he will have a difficult time meeting any operational commitments.

My observations of Elite Technology Partners leads me to believe that my friend has a risky strategy. Because he refuses to seek capital, he will not have a fully functional team in place when he signs his first contract. When the contract is signed he will need to complete his technology, hire staff, and seek capital within a very short timeframe. In the three to six months needed to receive private equity cash his venture could fail.

Elite Technology Partners failed because they did not raise cash for their operations. Successful entrepreneurs beg, borrow, or steal (Ok, maybe not steal) enough to give their companies inertia. A firm with inertia will attract further investment, or generate cash organically.

Small Company Blues

At dinner with a friend yesterday, he lamented about problems rolling out technology in a firm he is managing. Apparently his team misses their delivery dates; by a large amount. As he described his situation I felt like I was experiencing deja-vu.

His story in brief; he has four people maintaining his technology. These people are responsible for bringing clients online, handling technical problems, and building new capabilities. Projects are frequently months late. A core component of the system is constructed on an antiquated platform (Paradox) and only one individual has working knowledge of the code. And on and on.

This is a very common situation in technology firms managed by "non-technical" people. It is caused by the number one oversight of CEOs who have never worked with sourcecode. I even see it here, at my current firm. The problem is that there is little accounting for maintaining the product. The assumption being, when the product is delivered to the customer, its' developers are free to work on the next thing.This is a dangerous trap and I have seen many very intelligent executives fall in it. Inevitably, the development team becomes forced into choosing between support of the current product and construction of the next. That decision is a no-brainer, and construction of the next thing gets continually put on hold.The solution is fairly simple, but it is a bitter pill for developers. The team must be split, with one group providing support and the other working on the next thing. Of course no one want to be trapped providing full-time support. In my role, I have tempered this morale issue through job rotation. In the end it is necessary to prevent the continuous interruption of new development.

Leadership and Self-Deception

I received the book Leadership and Self-Deception as a gift from a close friend of mine recently. The book is written as a parable much like another leadership book, The Goal given to me as a gift (but not from a friend). I have to admit, I do not like the parable format. The stories told in this way seem contrived; no wait, they don't seem contrived, they are contrived.

The book also has no author. Well, OK, no single author. Instead, credit for the book is given to the Arbinger Institute. There is no research behind the story, and no academic references other than to an obscure doctor Ignaz Semmelweis. The book felt like a white paper for a leadership consulting firm. Maybe that is Arbinger's intent, or maybe that's my self-betrayal.

That's not to say that there aren't helpful tips in the book. Like all material of this ilk, there is plenty we can apply to ourselves. In Leadership, the authors make the case that spend our time in boxes, where we rationalize our behavior and blame others. Coming out of these boxes must be like a self-actualizing experience.

I wouldn't be honest if I recommended the book. Certainly the lessons, taken with a grain of salt, could be very helpful. Myself, I will take away some of the concepts and I will be more conscious of delusions. In the end, maybe it will make me a better leader and person after all.

What is a CTO?

Recently someone asked me "What is a CTO?" I answered with nonsense about software engineering and network infrastructure. Thinking back on the conversation I realized how badly I described the role. What's more surprising is that I've held the role, albeit under different titles, at three firms.

First and foremost, the Chief Technology Officer is the technical visionary for the company. In this role he must be the evangelist for technology; keeping products and services competitive. He must set a clear path to achieve the goals for the vision. And he must assure that everyone knows the vision.

A great CTO will be a passionate advocate for best practices of engineering, quality assurance, and technology operations. Of course, to advocate best practices, he has to know the best practices. These practices will include agile development methods, test driven engineering, and thorough securing of infrastructure.

The CTO have intimate knowledge of the technologies required of his vision. He must be passionate about the platform, when the platform is specific; and agnostic of the platform, when the vision is independent of it. The best CTOs are not concerned about Microsoft vs Linux or Java vs .Net. Instead he pushes the platform needed to accomplish the goals for the company.

The best CTO are excellent managers and leaders. They recruit talented staff and have great retention rates. He understands the value of knowledge capital and continuously encourages learning. And he keeps his own knowledge sharp too.

Through vision and planning the CTO will instill confidence from other senior managers. He will keep his products and services best-in-breed. And he will give customers confidence that their solution will get better and better.

These are the points I should have made when asked..."What is a CTO"?