The Snowball Effect

A couple days ago I saw Ted Schlein speak at Wharton. He focused on the importance of Green Tech and KPCB’s investments in thst area, but he did take some time to speak more generally about the risks that face a new business and therefore any venture investment. According to Ted, there are four types of risk that all start-ups face:

1. Market Risk
2. Technical Risk
3. People (management) Risk
4. Financial (Funding) Risk

He also pointed out that these risks are cumulative and add up to a total level of risk that is or is not palatable to venture capital investors and angels. In the current environment, reducing risk without limiting innovation should be a top priority for entrepreneurs.

Based on my experience with Yourself!Fitness I think technical risk can be lowered though a specific approach to innovation that leverages new applications of existing technology to solve a consumer need rather than investing in significant technical R&D. While working on Yourself!Fitness, consumers told me that they loved home fitness video for its convenience and price, but that it was boring, did not help them track their goals and did not feel personalized to meet their needs. Based on this, I decided a successful product would deliver a personalized, interactive and goal-oriented fitness experience to the consumer’s living room. We could have tried to advance the DVD experience or create On-Demand video or web-based workouts delivered to the television. In the end, each of these would have required us to develop new technology and integrate with existing infrastructure in new ways. Instead of taking on these technical challenges, we decided to utilize the gaming platform in a new way (for 2003) and deliver a fitness game for women. In doing so, we mitigated our technology risk and focused all of our attention on market risk. As it turned out I should have focused on people and legal risk, but I digress.

Wikipedia defines creativity as “a mental and social process involving the generation of new ideas or concepts, or new associations of the creative mind between existing ideas or concepts.” In today’s market, entrepreneurs who are able to focus on “new associations” rather than “new ideas” will build businesses with competitive upside potential for value creation and much more appealing risk profiles. By taking processes and technologies that work in one area and applying them in a new way or to a new consumer problem, old becomes new, the proven technology becomes the foundation for a creative solution that delights the consumer.

the artist Andy Goldsworthy provides a great example of this type of lateral thinking and illustrates this point.

Think about a snowball and answer these 5 questions:

1. Where is it?

[caption id=”attachment_49" align=”alignright” width=”406" caption=”Context is everything”]

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2. What time of year is it?
3. How big is it?
4. What is it used for?
5. What’s left when it’s gone?

How could a snowball become art?
1. Put it in the middle of a busy city sidewalk.
2. Put it there in the middle of summer.
3. Make it 5–10 feet tall.
4. Make people confront it, stop and look at it, touch it, talk about it.
5. Fill it with natural elements so that when the snow melts, there is a reminder of the magic that took place.

The snow is just snow, but its application, impact and value are completely different. Entrepreneurs who can feel summer coming and start creating mid-summer snowballs while the rest of the world is still focused on surviving the winter will be the ones who build the great companies that emerge out of these difficult times.