How do some entrepreneurs, corporate innovators, and investors turn adverse conditions to competitive advantage? Chakravorti, of McKinsey and Harvard Business School, has identified four areas that the most successful of these people consistently explore: (1) Entrepreneurs reroute resources that become redundant to meet new needs, as Jonathan Bush did at athenahealth. The company is now a leader in internet-based revenue-cycle management tools, (2) They round up unusual suspects and break industry orthodoxy, as Iqbal Quadir did with Grameenphone in Bangladesh, (3) They find small solutions to big problems, as Trey Moore and Cameron Powell did with their AirStrip OB smartphone app for mobile physicians who needed a major advance in wireless health care, (4) They focus on platform, not just product. That's how Fred Khosravi and Amar Sawhney broadened the field of surgical applications for Incept's hydrogel technology. The entrepreneurs who survive in the "new normal" will be those who find counterintuitive solutions to the bottlenecks, constraints, and other difficulties that adversity engenders. Call them the "new abnormals."
This note provides an overview of the rationale and the challenges associated with building new businesses within established companies. It provides a framework for understanding why corporations pursue entrepreneurial ventures and the various levers that they employ. The note offers a comparison of the various approaches, with examples, and their pros and cons.
When Jonathan Bush and his partner, Todd Park, realized that their revolutionary approach to delivering clinical care was being stymied by the inefficiencies in the healthcare system and insurance red tape, they turned their proprietary technology, athenaNet, to a new business, athenaHealth, that would help physicians manage their practice, billing and revenue cycles and maintain electronic patient records more efficiently and cost effectively using the service delivered via the Internet. Despite the success of his innovative venture, Bush faced several challenges: the company's brand awareness among physicians was still low; the company had launched a new product, athenaClinicals, while its core flagship product, athenaCollector, was still growing -- and was planning a pricing innovation, athenaCommunity, over and above that. The HITECH Act passed by the Obama administration was giving a boost to the entire industry, including athenaHealth's much larger competitors, which heightened Bush's strategic dilemma: should he focus on the core and capture greater share and enhance brand awareness or should he branch out into new innovative directions?
Dr. Cameron Powell and his partner, Trey Moore, co-founders of the innovative company, AirStrip Technologies, have developed a series of apps for the iPhone and other smartphones that can help doctors monitor the vital signs of their patients anytime, anywhere. They have presented their technology at one of the highest profile tech conferences and now face a choice of focusing on the first -- and only FDA approved -- product targeted at obstetricians and driving its penetration or following through on the promise of their presentation and spreading their resources to build out the entire platform aimed at multiple specialties. As one of the early pioneers in delivering medical applications over the iPhone, AirStrip Technologies must contend with a major dilemma: the fast-cycle tech world's expectations must inevitably collide with the more deliberate and slower pace of product development and approval that is typical in healthcare.
In 2008, Blue Man Group's three co-founders are facing the prospect of losing not just a business but a way of life they have built together. The case follows the story of Chris Wink, Matt Goldman and Phil Stanton as they pursue their creative passion, and build the Blue Man Group from street performers to a performance arts empire with a global brand. The story has a personal as well as professional dimension to it, including the launch of the Blue School, to provide their and other people's children with the kind of education they wish they'd had. The immediate challenge is to find a way to survive a major economic downturn. The case is complemented by a video (HBS. No. 810-704) with co-founder commentary, and extensive live footage of Blue Man performances and the Blue School.
Iqbal Quadir, a former New York investment banker, set about to bring universal telecommunications to his native Bangladesh. He was convinced that, GSM, the same advanced wireless technology that penetrated developed countries in Europe was also the right solution for Bangladesh. He assembled a critical group of partners in a venture, GrameenPhone, that included Scandinavian telecom operators, Grameen Bank, the microfinance pioneer, Bangladesh Railways as well as a Japanese investment firm. Each partner brought a different capability to the venture, but the coalition was fundamentally unstable. Quadir was facing roadblocks no matter which way he turned in his quest to assemble the venture. He came to a point where the rational decision seemed to be to abandon the venture and return to his secure investment banking job. This case highlights the role of bottlenecks and constraints in sparking innovations in business models by the creative entrepreneur.
Ford Pearson has recently taken over as CEO of HLB, a Chicago-based product design and development firm (and once one of the largest in the business), to help turn it around after a series of crises that had seriously threatened its survival. Pearson has personally invested in the firm, re-organized many aspects of its operations and has hired a younger executive and turnaround expert, Andrew Macey, as COO to help him in the effort. Pearson and Macey have several options to consider: Should HLB raise $1 million in debt financing and focus on a turnaround or should it approach a private equity investor and raise an additional $4 million and pursue a more aggressive productivity improvement plus growth strategy? While they consider these options in September 2008, the credit markets are about to clamp shut as a global financial crisis is around the corner.
A venture capitalist must decide whether to invest in a medical technology company that licenses intellectual property from a privately held IP holding company based on a platform technology. Entrepreneurs Amar Sawhney and Fred Khosravi founded Incept LLC to commercialize their multi-use hydrogel technology. The pair then spun off Confluent Surgical to develop some, but not all, of Incept's IP. The specifics of which IP Confluent would develop were described by a licensing agreement between Incept and Confluent. Venture capitalist Charles Warden of Schroder Ventures Life Sciences was deciding whether to invest in a Series A financing round in Confluent. Initially very excited about the deal, Warden becomes concerned about Confluent's valuation and its ability to succeed as a business when he learns about restrictions placed upon Confluent by the licensing agreement. The case describes Incept's business model and its approach to managing risk in early stage ventures. The case also addresses issues such as diversification and options preservation as well as the importance of trust and long-term relationships in decision-making in entrepreneurial arenas.
It's tough to get consumers to adopt innovations--and it's getting tougher all the time. That's because more and more markets are taking on the characteristics of networks. The interconnections among today's companies are so plentiful that often a new product's adoption by one player depends on its systematic adoption by other players. The traditional levers executives use to launch products--such as targeting unique customer segments or developing compelling value propositions--don't work as well in this new environment. Instead, innovators must orchestrate a change of behaviors across the market so that a large number of players adopts their offerings and believes they are better off for having done so. In this article, Monitor Group's Bhaskar Chakravorti outlines a four-part framework for doing just that: Reason back from a target endgame, implementing only those strategies that maximize the chances of getting to goal; complement power players, positioning the innovation as an enhancement to products or services; offer coordinated switching incentives to three core groups: the players that add to the innovation's benefits, the players that act as channels to adopters, and the adopters themselves; and preserve flexibility in case the initial strategy fails.