A VC in Vacationland

Seeking the next gen supply chain technology breakthroughs

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  • Open Source Business Models in Supply Chain

    An emerging challenge in the supply chain technology space is figuring out how open source software solutions will provide new opportunities to enhance supply chain management.  But I get ahead of myself.  I would first like to examine whether one can develop a business model people are willing to invest in around open source software in the supply chain space.

    Open source software platforms require a different business model for a start up.  If you are going to give away some or all of the basic code, then you need to control your future by being an innovator, releasing new drivers and applications faster than your competitors and bundling service, maintenance, testing, outsourcing and consulting services into revenue generating solutions.  In essence, you need to shift your mindset from defending your "legacy", as in traditional software business models to defending your "future", making sure that your offerings keep up with world-class technology and business management standards.

    Let’s look at the two aspects of an open source business model in a bit more detail.  First, you have to adjust your resourcing to add the best drivers from customers, free users and your team.  This will involve having a detailed product road map with a good understanding of value creation at all points in the process.  You will have to say goodbye to license fees supporting applications development and testing, rely on others to build many of the drivers, provide for industrial strength testing before adding the driver to the open source community and be much more of an innovator in the feature/functionality world to make sure that your software does not lag competitors, given the relative ease of switching vendors in the open source environment. 

    To make money, you will have to be more creative in developing service models.  One way is to "freeze" a version of the code to sell as an enterprise edition to customers who wanted a more robust and stable code set.  You could keep the community code free, updating it less frequently than the enterprise edition. Keep in mind that the community edition would have no warranty, no support or maintenance and have minimal processors. 

    A better model would be to think of the code as a platform for other services, especially outsourcing of business processes.  The real money would be in the long term contract to outsource procurement or transportation execution processes, with the open source code being free to any contract user.

    Another model is using the open source code for the basic, commoditized modules in supply chain management,such as data aggregation, cleansing and visibility, then charging for value added planning or forecasting applications, such as technologies that tie together information from various databases.

    A third model, one used by ComPiere, involves offering services to a worldwide network of consulting partners, who pay a fee to ComPiere in exchange for sales and marketing support, technical support and training. These partners provide implementation and integration services, sell complementary products to ComPiere solutions, and are the primary open source development community  for additional drivers and bug fixes, which they send to ComPiere for inclusion in their products.

    What are some of the concerns regarding open source as a platform for supply chain applications?

    1. Your developer community "forks" your software–one or a group of developers could use your source code to set up your own version, unless you pull a mysequel and require that all code changes become the property of the company.  This kind of defeats the open source concept. It often happens when developers believe that their open source partner is not fixing bugs fast enough, not releasing new versions on time, etc. etc.
    2. Using open source software will likely alter your exit strategy–since development times are extended in an open source environment, lengthening time to exit and making it harder to value your intellectual property.  If you have an outsourcing model tied to the open source technology, you will likely have a higher valuation and a faster potential for exit.
    3. The more complex the application, the more difficult an open source solution–Moving up the application "food chain" from basic to complex solutions restricts the developer pool to those capable of solving complex supply chain problems.  A smaller pool means fewer potential partners willing to install/maintain the software, less bug fixing, and fewer driver development. 

    A supply chain start up considering open source should carefully consider the size of the potential developer community before committing to the platform.  A smaller developer community could mean that your roll out will be slow, in spite of having excellent software, if enough partners are not able to help you install and maintain the software.  And don’t look for Accenture or IBM to help you here, unless integration fees are in the millions of dollars–highly unlikely in most open source applications. You may find yourself as much in the business of training a partner network as in developing the software, not a viable business model unless well crafted and staged around available funding.

  • A Quickee Loan for Startups?

    Charles River Ventures, a pioneer fund in the software and supply chain space ( read: Yantra) has come up with a neat program that is the rage of VC discussion groups and Blogs today.  Called the Quick Start Seed Funding Program, the program offers companies a loan of up to $250,000 to fund the initial stages of a new idea.  Presumably the CRV partners will decide what are good ideas.

    My initial reaction is that they are moving into the angel space, funding "good ideas" rather than assets like software and customers, but, hey, the more the merrier.

    For all you start up wannabes out there, check it out when you have a few minutes, but call me first if you want to do something in supply chain.  I can give you the money and a lot of serious advice, networking and other value creating help.

  • Supply Chain Innovators: New Vine Logistics & MooBella

    A few weeks ago, I posted a note asking where are the supply chain entrepreneurs? In this post, I would like to introduce two innovative supply chain companies–  New Vine Logistics and MooBella.  They indulge two of my passions–fine wine and fine ice cream.  Both have brought significant innovation to industry supply chains.  Unfortunately, I only have shares in New Vine Logistics.

    New Vine Logistics is our latest investment in Supply Chain Ventures Fund II.  Anyone who has tried to source fine wines from California or Oregon when living outside those states knows what a hassle it is to obtain Kistler, Pahlmeyer, Peter Michael, Silver Oak, Ridge, Screaming Eagle, etc., etc. direct from the vineyard.  For years, the powerful distributor lobbies held the small consumer in their grip, releasing fine wines only to their best customers and friends.  If you lived in Maine as I do, forget getting any fine wines in any store.  Then along came last year’s Supreme Court ruling which struck down some laws prohibiting direct from winery to consumer shipments (read: get the distributors out of fine wine sales and shipping) and consumers in most states (but not Maine as yet, but that’s another story) can now have fine wines shipped directly to their homes or businesses.

    New Vine Logistics is riding the crest of this innovative supply chain wave, having over 150 California premium wine producers as customers.  Mailing list sales to consumers are the fastest growing and most profitable (the wineries sell to you at retail and keep the distributor’s portion) part of high end winery business.  New Vine Logistics stores the product in their warehouse, fulfills orders from the mailing list, pays all relevant state taxes and does all the legal paperwork for the states.  A small, high end California winery would have a very difficult and expensive time establishing shipping deals with the 44 or so states that currently allow direct shipments to consumers.  New Vine does all the work for them via an outsourcing contract.  They are also looking to begin direct shipping of premium wines to high end restaurants across the U.S.  Restaurants typically have large wine inventories foisted on them by the distributors.  Premium wines are sold on a first-come, first-serve basis so that buying cases at a time is required.  New Vine is exploring  overnight replenishment of fine wines to top restaurants, reducing inventory costs and improving overall selections.

    MooBella is trying to change the way premium ice cream is manufactured and delivered to consumers.  The current supply chain is as follows:  Ben & Jerry slave over making their ice cream in Vermont.  The ice cream is then shipped to distributors all over the U.S.  Most is then directly shipped to big supermarket chains. The remainder is shipped to secondary distributors who deliver to smaller convenience stores, etc.  Overall, it is not a very efficient or cheap cold chain delivery operation.  The bottom line is that we have to go searching for our favorite ice cream in a local store.  Well, what if you brought the ice cream plant to the consumer?

    That is exactly the innovative supply chain model that MooBella is trying to implement–a vending machine that manufactures the ice cream on-site, in 96 varieties from 12 different flavors, with three mix-ins (yum) in about 45 seconds.  And you can either have premium or low-carb ice cream.  Sounds like a winner to Dave, but then again, I do like my ice cream. For the moment, the only two places one can get what some have called the "world’s best engineered ice cream" is the Union Court dining area at Boston University and at Children’s Hospital in Boston.  Does it compare well with Ben & Jerry’s?  I cannot tell you yet, because I have not tasted it.  But a number of my ice cream loving friends pronounce it very good. I also like the "on demand" aspect of the delivery process, perhaps they should have a flavor called SaaS, soft serve as a service?

    The vending machine has as much technology as your average laptop, including an AMD 1.2 GHz processor.  The processing power is needed to run the food product database–key manager of the mixing process. The machine and computer must also manage multiple ingredient temperatures from ambient to freezing.  The basic ice cream mix does not require temperature controlled delivery, meaning that FedEx or UPS can drop it off at the machine site days in advance, further reducing supply chain costs. The "assembly" process is also simplified: The base mix is pumped in, aerated, flavored, flash frozen, scraped off a freezing surface, turned into a scoop, popped into a container and delivered in under 45 seconds.  Oh, they have 14 patents on the technology, so don’t bother to buy one and disassemble it for the IP.

    It’s nice to see supply chain innovators taking old, inefficient supply chains and reinventing them for the 21st century.  If you know of similar innovators, send me a note.  I’m always interested in the new, new thing.  Now if we could find a better way of having gourmet meals delivered to the coast of Maine….

  • The Easy Way Versus The Right Way

    Since the renewed interest in airport security post the recent London incident, I have been traveling more than usual.  Almost every time I go through airport security in recent weeks, I have been "chosen" for a more detailed search.  Like most of you, I accept this as a necessary evil in today’s travel world.  But it did get me thinking about why I was being chosen so much. 

    The cynic in me says they choose me because I look easy to search and will not hassle them.  Which is true. All my stuff is in order.  I do not have any liquids, etc. in my luggage.  After thirty years of global travel and 4 million miles in various airline seats, I am invariably polite to security, immigration and customs people.  Why?  They hold your fate in their hands.  Give them any trouble and they can easily arrange for you to miss your flights. They may be treating me as a potential terrorist, which irritates me, but I need to do things the right way to escape their clutches, not do the easy thing which would be to lose my temper.

    So what does this all have to do with managing startups?  I often see employees take the "easy" way to solve problems.  While OK in some situations, the behavior can be deadly in startups.  You often have only one chance for success and if the employees do just OK, you may lose the crucial deal to a competitor, miss the critical product release deadline, or irritate the helpful partner by not fully cooperating in a sales process.

    Establishing a culture that focuses on doing the right, rather than the easy thing is a necessary condition for success. I recently attended the Procuri Empower user conference in Atlanta.  Procuri employees do things the right way, not the easy way. They have a set of very satisfied partners and customers as a result.  The conference was one of the best I have ever attended, primarily because all the Procuri people involved were working very hard to make everything "right" to maximize the value of the customer and partner experiences.

    So, how do you make sure your employees are doing things the right way and not the easy way?

    First, set the standards. Be sure that your team and its leaders know what is expected and that they have the resources to perform to those standards.

    Second, under promise and over deliver.  Exceeding expectations of clients, partners and employees is an excellent way to make sure that things are done the right way and that everyone will be happy. Well, most of the time, anyway…

    Finally, reward right way behavior. Make sure you single out those employees that consistently do things the right way, reward them with short and long term compensation and make sure the rest of the employees know why these people are being rewarded.

    Now if we can only get the TSA to do things the right way and not the easy way….

  • Microcredit wins the Nobel Peace Prize

    This year’s winner of the Nobel Peace prize, The Grameen Foundation, and it’s founder, Professor Muhammad Yunus, should finally give microcredit the spotlight it has long deserved.

    Microcredit has helped countless women and men create a life for themselves and their children who were living below the poverty level in all countries of the world.

    The recognition that a key aspect of world peace is that people need to have some level of economic security is a powerful message.  Otherwise, we are condemned to repeat the failed give away programs of the last century.

    I guess we should rewrite the old saying: "give a person some food and they will eat for a day; help make a person an entrepreneur and they can feed and educate their family for a lifetime".

    Let’s hope microcredit continues to grow and flourish.

  • Prepping the Players

    You cannot just be a CEO, focused on executing your business plan and keeping your investors happy.  You must also be a coach for your team.

    Think about it.  Coaches motivate their teams before, during and after games.  You are now the coach of your team and you need to be sure your team is correctly motivated through both the good and bad times.  To do this, you, like any other coach will need a game plan–most likely your business plan, plus a well thought out plan to deal with contingencies as they arise–and you will need to execute against your plans, not keep changing details at the last minute, which will only serve to frustrate and confuse your team.

    Sports teams lose games for numerous reasons, with poor game and/or contingency plans high on the list.  Companies fail for many reasons, but the inability of a CEO to rally a team around executing a well-designed business plan is high on the list of factors.

    Did you watch the US play the Czech soccer team in the 2006 World Cup?  The US players lost interest after about five minutes and a few Czech goals.  They knew that they were getting a bad beating , and the coach had no contingency plan to help them get beyond their short term adversities.

    Don’t let this happen to your players.  Her are a few suggestions on how to prep your players:

    Frequent team meetings–people want to know what is going on. They work better when they feel part of the team.  Have more all-team meetings where you discuss the key aspects of the business–what’s working and what’s not.  Do some collective brainstorming at the meetings to work on the problem areas. Solicit input from your people in between meetings via informal lunch sessions.

    Mini-teams–Startups are usually short of people and tend to assign one person to one area, like sales. Wrong.  With sales in particular, all senior professionals should have a hand in selling. Similarly, don’t let the new product guys go off on their own to define product road maps. Set up cross-functional mini teams for your most important priorities, such as getting customer support involved with the upcoming product release to make sure you meet or exceed client expectations. Such teams dramatically improve the likelihood of successful outcomes in a resource constrained environment.

    One-on One Coaching–CEO’s often treat the startup world as a collective "sink or swim" environment.  They do not make the time (or have the desire) to coach a fellow founder or senior employee who may not be performing.  Either coach them , or part ways.  Letting them hang around and reduce team moral is a lot worse then working out an amicable settlement.

    So, be a CEO and a coach. You will find that your people will be more productive and successful if they are "on the team".

  • Where are the Supply Chain Entrepreneurs??

    Don’t get me wrong, I speak to at least one new supply chain entrepreneur per day.  They have interesting ideas in general–for example, everyone at the moment is into some variation on RFID technology.  But I started to think about what ideas I am NOT seeing and why they are not coming forward. Note: I am sure I will defame a bunch of entrepreneurs who have such solutions with this post, but contact me for cripes sakes and let me know about your innovative idea!

    Here are a few ideas from my list of great supply chain entrepreneurial ideas that I have not seen as yet:

    1. Business networks–Hey, social networks came out of nowhere and are now commanding valuations reaching into the billions. Where are the supply chain business networks start ups that would let logistics, procurement, manufacturing, product design guys collaborate around all sorts of critical topics, such as supplier performance, where to outsource, neat new strategies,etc., etc. I know that there are some Blogs and message boards in these spaces, but no one portal for the supply chain geek to share/obtain information on the supply chain universe.
    2. Alternative energy–every VC worth his paycheck is investing in bio energy this or that at the moment.  Great–we will need new fuels sooner rather than later, and it may help solve our current Mideast crisis faster.  But how about developing advanced performance management systems for vehicles to better control fuel usage through on-board/corporate technologies?  Huge amounts of vehicle data is now being generated and transmitted from the vehicles to their companies.  How is this data being used to maximize fuel usage and efficiency? Are there innovative software solutions that leasing companies, private fleets and carriers can begin to use to spot issues before they happen and better control driver behavior?  Bring them on.
    3. Knowledge Management–Providing reliable sources of data, information and insights on supply chains operations by industry may be a unachievable goal.  But I sure would like to see someone come up with a plan to try it.  For example, so much good knowledge is locked in the heads of thousands of supply chain managers.  It would be great to be able to begin to tap that knowledge, perhaps using a rewards system to compensate for the contributions. See business networks above for a potential platform for this space.
    4. Convergence of CRM and SCM–My good friend Jonathan Colehower, CEO of Optiant, speaks about this idea all the time.  The traditional, and perhaps illogical, separation of managing customers and manging supply chains creates huge inefficiencies in supply chain networks. Where are the solutions that better integrate these spaces, using more up stream customer data to better manage supply chain operations. Optiant and TrueDemand (yea, I’m hyping my investments again) are pioneers in this space, but they approach it from the supply chain perspective.  I’d like to see an entrepreneur attack this issue from the CRM perspective as I believe it will yield additional insights and more robust solutions to supply chain inventory management problems.
    5. Reverse Logistics–I know, shades of the dot com bubble. A number of reverse logistics start ups were funded, most failed and some are doing just fine.  But the market is huge and most players are in niche markets serving a few customers.  Very soon, states like California, for example, will begin to try and eat their young by passing mandatory recycling laws for electronic devices, batteries, whatever.  Just try and recycle anything like this today without major hassle.  What if someone came to your door and hauled this stuff away for free? Unlike the Got Junk guys–who get money from you to remove your trash and then make more money on recycled material sales. Supply chain management is a huge issue in this space.  Someone is going to figure out a better way to do this–why not you?

    Dave has a lot more on his list, but he is tired and wants a beer.  Additional  supply chain innovation ideas will appear over the next few months.  Or send me your innovative ideas at Dave@supplychainventure.com .

    Oh, on my second musing as to why more innovative supply chain ideas have not been forthcoming in recent years?  I wish I had a good answer to that one.  There is no lack of funding today for the right new, new things in this space. 

  • Stanford Technology Venture Program

    A lot of people have Blogged this site recently. With good reason, as it is one the best information sources for entrepreneurs on the web .

    And the neat part?  It’s FREE!

    The site contains valuable information for first time or any time entrepreneurs.

    http://edcorner.stanford.edu/

    Take a minute to check it out, or forward it to some budding entrepreneurs you know and encourage them to take advantage of the excellent assets around getting a business off to the right start.

  • RFID: Bits & Pieces

    For those of us who read the RFID publicity on a daily basis, there is one recurring theme–RFID implementation is proceeding in baby steps towards becoming a pervasive technology to allow anyone to track anything anywhere in the world at any time. But you would think from reading the PR blurbs that widespread RFID adoptions is about to happen tomorrow.

    The recent announcement that Honda would begin using RFID to track reusable container movements between suppliers and one of it’s UK plants is a good example.  If you just read the headline "Honda the latest car manufacturer to adopt RFID", you would think that Honda had adopted a widespread program for using RFID.  Instead we find that they are using RFID for asset tracking 350,000 containers and potentially saving $8 million per year.  Unfortunately, that $8 million in savings includes a lot of lean manufacturing process savings, so the true RFID benefit is not apparent.

    Lest I be labeled an RFID curmudgeon, which I am not, let me make clear that my issue is with the PR spin and not with the technology application.  It is great that Honda is beginning to use RFID for asset tracking, one of the best early uses of this technology.  What is not good for RFID is the over hyping of the wins.  Why not just say Honda has adopted RFID for asset tracking with suppliers at one of it’s UK plants?  I am not sure that Honda has an overall RFID plan.  I am actually pretty sure they and most other companies do not as yet.

    RFID is increasingly getting bad press because the vendors have been over promising and under delivering on the benefits.  If you do not believe me, ask any consultant who has tried to establish a practice in this space. Few widespread RFID program adoptions are underway.  Most are specific solutions focused on applications where hard benefits can be realized without significant costs.

    I personally am betting big on the RFID space as a great source of real time data to help better manage supply chains, via investments in companies such as TrueDemand.  However, very, very few pervasive or clean RFID data sets are available to supply chain analysts for forecasting or other planning activities at present.

    Why don’t we all take a deep breath and adopt a realistic view of this technology?  One reason is that there is a lot of venture money behind the hundreds of RFID chip, sensor, middleware, applications, etc. etc. startups and the venture guys expect to get nice payoffs in the next few years. On one hand, you cannot blame the RFID companies trying to accelerate the marketplace.  On the other hand, why over hype the technology to the point where fewer and fewer potential users believe the benefits story?

    I guess I’ll stop ranting on this for the moment.  Meanwhile, I hope the PR specialists in RFID realize that truth sells a lot better than fiction in the real world.

  • Life and Death Experiences

    I have had a few life or death moments in the past, none quite a scary as being with my entire family–kids, grandkids, brothers and sisters, and about 150 other people, many of them friends,off the New England coast last weekend in a small ferry headed for a vacation on an island in a bad storm.  I really thought we were all going to die, as the ferry encountered fifteen foot swells, was experiencing thirty degree rolls, and green ocean water was crashing over the windows.  The very stupid captain finally turned around after a passenger was almost swept overboard and ended up badly breaking his leg.

    It got me thinking about a lot of things, like being glad our wills are up to date (they are, and if, god forbid, my entire family dies on a ferry or private jet, our money goes to charity), but also about life or death experiences at startups.  I see the phenomena frequently–the frantic call from the CEO whose company is about to go under, the inventor who has run out his or her credit cards and home equity loans.  They are facing the life or death experience for their dreams and it is hard to say no and let a dream die.  Sometimes I manage to get the intellectual property or a part of the company sold to another entrepreneur.  Often the people do not go with the products.  I continue to hear from these people for a few months, with new ideas or seeking help getting a job. Then they melt into the past.

    I should have acted sooner with that stupid ferry captain to prevent my latest life or death experience.  I have extensive blue water sailing experience off the Northern Atlantic coast as well as in the Caribbean.  I knew the trip was a mistake as soon as we left the harbor.  I should have demanded a return as soon as we hit the big swells, instead of waiting 45 minutes to finally go up to the pilot house and tell him to return to get medical help for the passenger and to avoid a disaster at sea.

    Entrepreneurs also need to act sooner to avoid life or death experiences.  In my post of last week, I’m Having an Out-of-Money Experience, I detailed a number of ways in which entrepreneurs could avoid running out of cash.  I also learned a few more during my recent life or death experience.

    There are also a number of additional things entrepreneurs need to do to avoid life or death experiences:

    • Act Quickly: Perhaps your staff and advisor’s really do not know what they are doing.  You are the leader and you must do what you think is right. Not later, now. 
    • Deny Your Emotions: Do not assume anything. Everyone and everything around you may be telling you that all your people know what they are doing.  These signals may be wrong. Very wrong. Go with your gut feelings.  If is does not feel right, it probably is not.
    • Focus on the Present: Many may be telling you to not worry, or in the case of the captain, saying that we were only ten minutes from our destination.  Well, the seas were getting increasingly worse and the guy with the broken leg was turning gray. There are very limited medical services on the island, except for a small clinic, and the Coast Guard could not have choppered in under the storm conditions. Do what you think is right now.  A start up cannot focus on the longer term until the short term is stable.
    • Have a Succession Plan: Most entrepreneurs do not have the legal structures in place if something happens to them.  A good friend of mine was a lawyer who didn’t think he needed to partner with anyone.  When he died unexpectedly, so did his practice.  His widow could not sell the business and ended up spending years in financial extremis.  Key man insurance is also important so that if one of the founders dies, then the others do not have to sell the business to play off the heirs.  Finally, file a written plan with your attorney about how the business will be handled if you should depart this world.