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  • Designing Better Supply Chains

    I sat in on an interesting presentation at a recent Stanford Global Supply Chain Management Forum.  Peter Coughlan, Transformation Practice Leader at IDEO, spoke about Extreme Product Development and Innovation.  Most of his presentation was about how IDEO developed exciting new products for the world’s leading companies.  Interesting enough, but then he challenged the audience to "develop an extreme supply chain".  Most of the attendees, supply chain guys and gals from hi-tech companies were silent, and I thought Peter’s challenge would go unanswered.  But enough people made interesting comments that I thought I would share them with you, plus a few of my own.

    We all know the "old" process for designing supply chains–determining customer needs, assessing current supply chain capabilities, developing some alternative options, testing them with optimization models, and presenting the results to management for decision.  The result is often a supply chain by committee, with everyone’s favorite part of the old supply chain included in the new one.  Not much innovation or cost savings results.

    Peter suggested using the basic processes IDEO uses to design innovative products to break the mold in supply chain design.  Here are his ideas on how the process should work:

    1. Allow Divergence  Don’t stick to all the old ideas.  Deliberately disrupt existing supply chains to see what happens and then design improvements based on the experiments.  Operate multiple supply chains that collectively better meet diverse customer needs than the traditional "one size fits all" environment.
    2. Growing antennas  Visit other companies to learn about how their supply chain operates. UPS give tours to any company, including competitors.  They have one of the best supply chains in the world, but never make the Top Ten supply chains among the analysts. Go figure. Another fascinating tour is Disney World.  You think you know distribution–when was the last time you saw a truck delivering stuff to the Mouse?  Try never.  It’s all underground.
    3. Being Promiscuous  Feel free to steal good ideas wherever you find them.  The Internet is a great source of inspiration, with loads of interesting stuff published on supply chain innovation, primarily by the analysts.
    4. Encourage Cohabitation  I bet the last time you redesigned your supply chain that 95% of the work was done by your supply chain team plus a few consultants.  What if customers, customer service, manufacturing, product design were involved in the entire process and perhaps accounted for 50% of the work?  I’ll bet you would end up with a much better supply chain.
    5. Behaving Like a Market  What if you ran your supply chain like the stock market?  Your people were traders, buying and using transportation, warehousing and technology capacity as needed, instead of owning all those fixed assets.  Transforming the way your people think about supply chain management is not a new idea–H-P has done it for years in procurement. Companies like FutureFreight are emerging in this space that will allow companies to forward buy their freight needs, introducing price hedging into the transportation markets.

    These are only a few of the things you can do to design a better supply chain.  What other ideas do you have?

  • Living Supply Chains

    I have a confession to make.  Most of the supply chain strategy books I have read in the last 30 years or so are not very good.  Many times I thought that I should write the definitive book on supply chain strategy, but never thought that I understood the complexities well enough to do it. John Gattorna, a retied Andersen Consulting/Accenture supply chain partner from Australia and a good friend, has produced a very definitive book on supply chain strategy, Living Supply Chains: How to Mobilize the Enterprise Around Delivering What Your Customers Want.  And, yes, I am jealous because John has got it mostly right.

    One reviewer, Paul Lim, Founder of Supply Chain Asia, has done a good job of summarizing John’s research and findings:

    "Sainsbury recently lost share in the market by failing with their supply chain. Wal-mart and Dell won in the market by getting theirs right. Smart supply chains can be decisive. In the J Sainsbury debacle, there was nothing wrong with the strategy, except no one thought to check if the personnel in the company were capable of delivering such complex and sophisticated plan within such a short time frame, and they are paying the price now. Unfortunately, this is not an isolated example – it is happening every day. Living Supply Chains is unique in looking beyond the systems and technology of your company, to developing the role of people and behavior in placing customer-focused supply chains at the heart of their enterprise. Based on John Gattorna’s empirical research, Living Supply Chains shows you how to drive the design and management of your supply chains by starting with your customers and understanding their ‘dominant buying behaviors’. In most cases, only 3 or 4 of these will be ‘dominant’ and should then be ‘hardwired’ into the organization’s selling approaches, performance indicators and logistics operations.  With ‘quick’ diagnostics and guidelines executives can use to rapidly identify and close performance gaps, logistics and supply chain management can finally move from the hands of the functional specialists, to the executives. Analysts and shareholders alike have recognized that taking back control of this vital area of business will have the most fundamental impact on future share price performance."

    And finally, I am grateful John acknowledged that I also have some good ideas around supply chain strategy.  He cites my paper on Quick Change Supply Chains (available on my web site) as being an important contributor to his thinking on how supply chains need to evolve and innovate in the 21st century.  Thanks, John, for the plug.

  • “I’m Just a Guy with a Slide Deck”

    Al Gore purportedly said this to his fellow Congressional colleagues recently after they congratulated him for winning the Best Documentary Academy Award for An Inconvenient Truth.  Whether you believe his message or not, the guy is sure persistent in his quest, one he has been pursuing for almost two decades.

    In many ways, he reminds me of a lot of entrepreneurs I have run across lately–just guys with slide decks.  They may have a decent story, but their pursuit of funds has blinded them to some of the basic niceties of life.  Perhaps I am old fashioned, but I like to spend a some time getting to know people a bit better before they hit me with their pitch.  Or at least have them know a bit about me, what I do, and what I expect from a potential investment. 

    Even though I do weekly posts on my Blog that clearly outline what types of companies I invest in, what types of people I like to invest in and where I think the market is going, I am amazed at the number of supplicants who do not take the time to read anything about me or what I believe. They show up and immediately WebEx or project their power point presentation, rushing right into THEIR pitch.  They do not really want to hear much about me or my background,  I am clearly VC number 15 out of 30 they plan to approach to many of these entrepreneurs.  Well, guys & gals, I like a little foreplay before we climb into bed….

    It’s not that I think I am always right. No way.  I am always willing to be convinced that I am not seeing a market or it’s customer in the correct light.  But I like to do it in the context of rational arguments.  For example, I am not a great believer in enterprise software as the only solution platform for the supply chain market.  I believe that we will see significant new efficiencies arising out of the "network effects" of SaaS related software in this space. Telling me that SaaS is not a platform you want to consider will require some detailed discussion as to why you are making this choice. I may be convinced you are right in the end, but I do like to have the discussion.

    So, try not to be just a guy with a slide deck.  Do your homework on the person you are meeting.  Read their Blogs and articles if they have published any.  It is really easy to find out lots about someone on Google, so there is no excuse to show up uneducated.  Any finally, show up with an open mind.  Don’t argue with the VC’s when they ask a legitimate question–try and answer the question in the context of a broader range of options, rather than reiterating your fixed roll out plan on page 8 of your deck.

    Above all, be polite. I am amazed at the number of would-be entrepreneurs who dismiss any thoughts I might have about ways to approach the market. I just tune them out at that point and look for a polite way to end the session.  Remember who write the checks to fund your dreams.

  • Supply Chain Innovators: SpaceNet

    Boy, the guys at MIT really do think in different dimensions than the rest of us supply chain geeks.  Olivier de Weck, associate professor of aeronautics and astronomics and engineering systems (these genius’s also have longer titles than the rest of us) and David Simchi-Levi, professor of engineering systems and civil and environmental engineering, have created SpaceNet.  SpaceNet is a software application that models supply chains to deliver oxygen, food, fuel, exploration equipment and construction/repair parts into space.  Version 1.3 was just announced in late March.

    David Simchi-Levi, perhaps better known recently for the $15million he and his wife made selling LogicTools to ILOG, along with de Weck, led a team comprised of MIT students and research staff from California Institute of Technology’s Jet Propulsion Lab.  NASA funded the project.

    The software determines the ability of the delivery vehicles to carry various types of cargo, simulates traffic flows of vehicles and supplies around delivery schedules and calculates fuel and time required to deliver the cargo.

    The cool part of the software is that it is not just about deliveries to the International Space Station, but also to the moon and other planets, Mars in particular. Having said that, the software uses many of the same principles used by manufacturers, distributors and retailers in modeling earth-bound supply chains, except that lead times are a bit longer–up to nine months, and conventional modes of transport are not used (think Saturn rockets).

    Perhaps Yossi Sheffi, the entrepreneurial MIT professor of engineering, supply chain and making big bucks selling supply chain start ups (sorry, Yossi, I couldn’t resist) will be the first to offer a degree in Space Logistics & Supply Chain.  It is not as far fetched a degree as one might think and I suspect it may exist sometime in the next decade.  Until then, us earthly supply chain types will just have to be content shuffling products around bound by the laws of gravity.

  • Passion & Stress in Start Ups

    Fred Wilson has an interesting Blog on Looking for the Passion.  Fred’s point was that seeing the passion in an entrepreneur’s eyes was an important factor in deciding whether to invest in the business plan. Without a doubt, it is something I look for in any business relationship.  Who wants to buy something from someone who is not passionate about what they are selling? (OK, leave aside car dealers…)

    I was having a conversation about passion with one of my entrepreneurs recently.  She was worried about all the things she needed to do to be successful and was getting overly stressed and not sleeping at night.  Sounds typical, right? As an entrepreneur, you are responsible for every little detail and sometimes feel that any mistake, however small, can take you down.  It’s not true, of course, but it does haunt many an entrepreneur.

    So, what to you do when you are down in the dumps?  The best entrepreneurs I know use their passion for what they are doing to offset the stress of doing it. You have to draw on your passion for your idea you have built up over the years to convince yourself that all will work out–assuming, of course, that you have the money, the correct business plan and are carefully executing the plan.

    In the dark of night, think about all the good things that will happen if you execute your plans and don’t focus on those things you cannot do anything about at 4am.  You will conserve your energy and get a little sleep so that you can attack those problems during the day. Stress can rob you of the creative energies you need to be successful.  Use your passion to push stress into the background, where it can help drive you forward, but not dominate your life.

  • The Best Thing about Early Stage Investing

    Fred Wilson, venture capital’s consummate Blogger had an interesting post on Why Early Investing is Less Risky than Later Stage Investing.  Great post as far as you went, Fred, but in my book you missed the best part of early stage investing. 

    To me, it’s the FUN of working with an early stage company–where failure hasn’t yet singed the edges of success, where the staff is all dedicated to making it happen 24X7, and where the founders are actually interested in having input. To be fair, Fred does mention that one can have more influence over early stage companies, but he does it in such a dispassionate way in his post as to make me wonder if Fred is still having fun in venture capital.  I guess after a couple of decades in the business all this stuff gets old hat, but it shouldn’t show up in your public pronouncements.

    My philosophy is that I will not make an investment in a company that does not provide me with an opportunity to be involved–not just as an investor, but also as a partner helping them achieve success.  This could include introductions to other capital sources, potential customer networking, advise on product development and roll out, assistance in developing business strategies and most important, development of intelligent capital structures (more on that one in another Blog).  I like to speak with members of the leadership team on a weekly basis–not all the time, but when they need help in a space that I can provide assistance.  It adds up to a full time job for me, but one I am having lots of fun doing.

    And there are those times when it is not fun.  Disagreements on Boards about direction, need for new investment, fair valuations and sales prices, among other choice issues are omnipresent in the start up space.  I have to keep reminding my fellow investors and board members that fairness in the start up world consists always of making decisions that collectively do the right thing for investors, employees and customers.  This is not always the easiest thing to accomplish but when you do, you keep the start up world fun and profitable for all participants.

    So, Fred, let me see some enthusiasm in your investing philosophy, instead of looking at it as just some job.  If investing became a job for me, I’d find a new profession.

  • The Triple C Farm Entrepreneurs

    Last weekend was Maine Maple Sunday–a time to visit maple tree sugar bushes and their boiler houses to taste the latest incarnation of one of Maine’s tastiest products, maple syrup.  You need to get an early start in the morning, as many of the farms serve a great breakfast–pancakes, maple syrup, homemade butter and sausage. You also want to choose one where they are running the boiler house, preferably fired with wood, as I think it produces the finest syrup.

    This year, we visited Triple C Farm in Lyman, Maine, about 20 minutes from where we live.  It had snowed overnight and the drive out was beautiful, with the sun rising on glistening snow on the pine trees.  We arrived to a muddy madhouse (it is mud season in Maine) at 9am.  It seems everyone else in Southern Maine wanted to have an all-you-can eat five dollar breakfast in a farm kitchen cooked by the farmer’s wife and family.  The boiler house was operating a full blast (it takes 40 gallons of sap and about 3 hours at hard boil to create a gallon of maple syrup). The smell was sweet and steamy in the high humidity of the overheated boiler house. Samples right out of the finisher were available for a quick taste. The visit is somewhat like touring a winery in Napa, except you do not have chickens wandering around the wine cellar. After one of the sons gave us a full tour of the production process (quite complex), we feasted on fresh cooked pancakes on picnic tables in the barn. These days are one of the reasons we love to live in Maine.

    So, what does all this have to do with entrepreneurship?  To survive in Maine, most locals (those who are not, like us, "from away"–even though my wife’s family has owned land in Maine since the early 1900’s) have multiple jobs and professions.  One day you are cutting Christmas trees and the next assembling M-16’s for the Army.  The Triple C Farm not only makes and sells maple syrup in the spring, but also serves breakfast and lunch for hundreds of people all Maine Maple weekend. They sell eggs and chickens year around, pumpkins(along with hayrides and mazes) around Halloween, turkeys in the fall and early winter, and have a full complement of farm animals–cows, ducks, rabbits, chickens, horses that require substantial daily care. And oh, did I mention the family all have day jobs as well? I tend to think Maine does not really have many entrepreneurs–at least ones that approach me and ask for an investment  in their software start-up. But these farmers are certainly entrepreneurs–working long hours seven days a week to live their dream–in this case, preservation of multi generational family farms. And to do it all, they have to constantly develop all these value-creating products and services that allow them to support their chosen lifestyle in an tough Maine economy.

    By now, you are wondering what lesson Dave is contemplating for other entrepreneurs from this experience. What struck me was the ability of the farm and its occupants to keep evolving their operations to fit the changing economic environment.  I often counsel start-ups to focus on their key, market changing products and services and not to be overly distracted about running after new markets and solutions. In general, this is good advice, as limited resources require focus on the initial offerings to acquire satisfied clients.  But longer term survival means expanding and evolving those initial products and services to serve the ever-changing market place.

    One of the most difficult challenges I have with later stage start-ups is to get them to forget the earlier, stick to your knitting advice and to begin to develop the new products and services that will attract new customers as well as more revenue from existing customers. They can get in a comfort zone, able to sell existing offerings to lots of new clients, generating good revenue growth.  Why can’t we just continue doing this, they argue? Why do we have to explore new frontiers?  Why can’t we relax a bit after having worked so hard to get in our current "sweet" (get it?) spot?

    The answer is simple: unless you continue to innovate in your market niche, you will not achieve your dreams.  That’s what the Maine farmers have learned–they add strategic offerings to take advantage of Maine’s natural resources and make them readily available to their marketplace. Other entrepreneurs need to heed the same advice.  Your investors will not tolerate mediocre performance, poorly defined business strategies and resistance to evolution and change. New investors and potential acquirors want to buy a growth story, bolstered by a clear vision of where the market is going and how new offerings will create value in the evolving environment.

    So, take a lesson from Maine’s long-time farmer entrepreneurs and make sure you protect your dreams by developing new, value creating offerings. It’s all about economic survival in Maine, just like in start ups. Just like the Triple C Farm entrepreneurs, you need to have a diversified offering portfolio to help survive the challenges of a fast-changing and highly competitive marketplace.

  • Supply Chain Innovators: Dust Networks

    As my original post said a few months ago, LARTE’s are not a new Double Expresso drink at Starbucks, but rather Location Aware Real Time Enterprises.

    They are getting a lot of play in the VC Blogs of late, powered no doubt by the growing availability of GPSS/sensor/RFID and related data that can help companies run their product design, plants, supply chains and customer relations much more efficiently.

    Conceptually, I like the idea.  In practice, however, most companies are having so many problems getting the simplest use of real time data into decision making that I doubt we will see many existing companies become real time data junkies any time soon. And there are a fair amount of misconceptions about what is real time data in supply chains.

    So, repeat after me–RFID and other related data is not "real time" data.  It only tells you when a product went through a reader, not where it is at the moment. It could be hours or days before it goes through a scanner again.  So what’s a company to do if it wants real time tracking of products in the supply chain? 

    Perhaps Dust Networks can provide part of the answer. By constantly reading the location of all products within reach via its motes network of tiny sensors, one could develop an RFID network that could locate tagged items without the aid of readers.  Dust Networks is based on a new location estimation innovation in sensor networks–RF Time of Flight. In a conventional RFID installation, one would need RFID readers everywhere to pick up data from the tagged product, unless one invested in powerful sensors (read: expensive).

    RF Time of Flight has its roots in Smart Dust. Smart Dust is defined as motes attached to products who search out and find other motes, connect with them, form a broader network and communicate information across the network. One would set up a mesh network (in, for example, a warehouse) in a similar manner to a traditional RFID or wireless network, but using only a small number of readers (less than 10%) than in current installations. Assuming the thousands of products in the facility are tagged with motes, the motes begin communicating, set up their own mesh network and begin reporting their position.  Measuring the distance from one mote to another allows calculation of item location, even if the product is in motion.

    At the moment, the motes are the size of a nickel, but the plan is to make them the size of a grain of sand.  Like traditional RFID chips, the motes have sensors, computing circuits, bi-directional wireless technology, with an antenna and power supply external to the chip. The motes can be set to record and transmit vibrations, temperature and light.

    The big issues in designing motes are reducing the size and power consumption of the motes, no easy tasks.  There are a number of competitors also working the space–Crossbow, Millennial and Ember.

    There have been some early adopters of the technology, including the well-known supply chain innovator, Emerson Electric. Asset tracking is one of the principal applications of the technology among early adopters.

    Look for RF Time of Flight applications to become a primary component of "real-time" supply chains in the next few years

  • The Analysts are your Best Friends

    Many start ups are afraid that industry analysts at AMR, Gartner, ARC, among others will not interested in their ideas or technology.  On the contrary.  These analysts thrive on the new, new thing. They are eager to introduce their clients to the latest and greatest software and solutions, provided, of course, you have a few success stories at your early customers to share with them.  And they are also very interested in having you subscribe to their services. 

    But the big news is that analysts can be an inexpensive sales channel for new companies who are developing solutions to increase supply chain efficiency and effectiveness.  For the cost of a modest subscription, often less than $50,000 per year, you can:

    • access knowledgeable supply chain analysts (and their research) in your space,
    • keep abreast of competitor product development plans,
    • ask the analysts to recommend your solutions to their clients,
    • get the latest industry gossip and competitor dope quickly,
    • be up-to-date on possible M&A activity, often before it happens,
    • have them write flattering analyst articles and notes about your solutions,
    • have them sponsor research showing how your solutions can reduce supply chain costs/whatever,
    • have them keynote your webinars and conferences, and
    • serve as a reference when you need one at a potential client. 

    Where else can you get that kind of combination of PR, marketing, product and sales assistance for such a small amount of money? The answer is nowhere. You will have to invest a goodly amount of time and energy in developing and maintaining these relationships.  Often, analysts require a significant amount of "education", especially around new and innovative solutions.  Patience is important in dealing with analysts as they may not understand right away how your solutions are superior to those of competitors.  Although analysts tend to jump ship fairly often and move to competitors, that is generally good news as you will have a friend at the new firm, while the existing firm usually goes out of their way to make sure existing clients have a comparable analyst taking over your space.

    Here are a few thoughts on maximizing the collective value of your relationships with the analysts:

    1. They can be your best Brand Managers.  They can help you position your product in the right space and help develop your sales strategy to correspond to key industry trends. They will review your marketing plans and give you insights into how best postion your product for the sweet spots in your space.

    2. Make it their idea.  It’s not that you just call them up and tell them you are the best thing since Kim-chi, however. You have to let them come to that conclusion.  Analysts always like to discover  new things themselves.  Why else would they call themselves analysts?

    3. Get them to be your best advocate. Analysts can attract a lot of the right professionals to your webinars, seminars and conferences.  They generally participate at minimal cost if you subscribe to their services. They are flattered to be invited to participate in your client-related activities because they can learn what’s going on inside of these companies and also hit them up for a subscription.

  • No Free Lunch: Partnering for Start Ups

    Many start ups think that "partnering with the Big Boys", whether large channel partners, consultants or complementary software providers, is a great way to make their business grow.  This is true for some, but not for all start ups.  Any such partnering requires significant effort and resources to generate sufficient leads to justify the investment. 

    Here are a few success factors I have found useful in advising start ups hankering to get in bed with the Big Boys:

    1.Choose carefully-partner only with successful players who have penetrated key buyers in your target verticals. Many start ups do not do sufficient research to uncover potential partners who both understand their technology but also have the access to the right people who are possible users of their technology.  If you have picked your Board carefully, you should have a few members who have industry contacts that can be helpful in this process.  In addition, do not hesitate to tap your network for ideas and suggestions.

    2.Resource the effort–put a top person with experience in making partnering happen in charge. Former managers with IT consultancies make a good choice here as many of them have a lot of experience with software vendors and know the ropes when it comes to setting up successful partnerships. Make sure that you establish strong relationships at the executive level with key channel partners to both ease problem resolution and generate strong lead streams.

    3.Bring a lot to the party–if you do not bring good, qualified leads to your partners, then you will be ignored. Many start ups erroneously believe that partners will work to drive business to you.  Sometimes, but not very often, this is true. The best way to get good leads is to give good leads. Use permission-based marketing management technologies, such as Vtrenz or Eloqua to attract and forward new opportunities from joint webinars and other marketing campaigns.  Every company values partners who deliver business.

    There may be no free lunch in the partnering world, but, done right, it can sure pay for a lot of dinners.

    For those interested in a detailed discussion of partnering with one of the Big Boys, see my presentation on Partnering with Accenture in the Resources section of my web site Supply Chain Ventures.