Reflections on non-dilutive investment

I have many friends who build companies. Most of them need money. I haven't entirely mapped out the spectrum, but there are clearly multiple combinations of entrepreneur type and investment type that define a winning or losing business model. 

For example, I know people who grew up wealthy, have innate access to informal and professional investors, and have direct access to good guidance. A holiday meal might include sage advice from a seasoned business executive or an offer to make introductions. 

I never had this. Rather, for many years I lived on the other side, with no access to information or individuals beyond whatever I might find and create myself. I read dozens of books on the topic. I attempted to create companies with no input beyond whatever I found in those books. And through trial and error, I built a particular understanding about how you build a vision, then translate that vision into a physical business with a great team that makes great things.  I frequently meet with and try to help other aspiring entrepreneurs who are also starting from zero.

Along the way I've met many people somewhere in the middle. Frequently these individuals have a strong technical skill. They get really good at creating software or designing products, and through hard work, eventually get access to opportunities. Maybe their product line get's deep investment from the parent company then spun out. Maybe they meet a combination of other investors and engineers and just happen to stumble into a new position. This has happened to me too, where I had network of talent and a body of IP, when someone else had the capital and a need.

More recently, though, I've begun to think about building investment capital without giving too much away. Kickstarter, for example, has helped many people launch a business. IndieGoGo has done the same. Now with the rise of platforms such as Shopify and tools like Hubspot, I wonder to what extent do those platforms remain necessary? Are there other ways to assemble non-dilutive capital to launch a company? I suspect there are, but what is offered in exchange? What is the threshold of this model? And how exactly would you do it? I'm not sure, but no doubt, the answers are out there.

Engage the world, have a vision, build a city, now go die in it.

Building a company isn't for everyone, and for those who love it, it is an act of sadism. The impetus to build a company is rooted in deep feelings, deep primitive reactions to the world. It is founded on anger, from not fitting in, and from a desire to own your own destiny. It is not a lifestyle or a privilege or an achievement, it is an act of vengeance upon everything that is wrong with society.

Building a company is not the same as making a product. When you make a project, you take an action and you get a response. You put paint on the canvas and it just remains there. It doesn't change. It doesn't talk back. It just sits there until you push it again. As a leader, your job is to create systems for other people to succeed. You must invent systems to hire people, to give them direction, and to help them flourish. You must create systems to help people communicate, to manage each others feelings, and to make progress toward your goal. You must create systems to make them feel considered, to recognize their own visions, and to passionately work toward yours.

But then what happens? You found and inspired people with a codified approach to realize your dream. What does that become? Where does it go? After you build the ship, can you still steer it forward? If there is a challenge ahead, that might keep you grounded, it will make or break you. But what if there is no immediate threat? Where do you go? 

With or without the challenge, you will find a moment of decision, when it is most difficult to remain clear headed and you must persevere. You will find a moment where your previous methods didn't work. You won't working right. You landed the spaceship on the alien landscape and there is no oxygen in place. You try to stick to your gut, or you open you mind, either way you double-down on the direction to see it through. And then you die. There is no air. There was no lifeboat. You were alone and you died alone. 

If along the way you found others who really understand what it is like to drown and resuscitate, then maybe they can give you the right coaching. They can't make oxygen from ether, but maybe they could have told you to prepare and you listened. Maybe they were wrong and you prepared the wrong way. Maybe it all came together and you made it out alive.

Can you make it out alive? All the anger in the world is not enough to save you, and so at some point, the piss and vinegar that gave you fuel to create will ruin you. You must change. What do trap rappers rap about when they become millionaires? Many of them still rap about dealing drugs and fighting gangs. They never cross this chasm. What do great comedians tell jokes about once they told all their personal stories and stories about travel? They need a new act. Many never find one. 

Heidegger said that moments of revelation are when the scrim is pulled back, and you can see the tower on the hill. It was always there, but you could never see it. Heidegger was wrong. The tower is only there if you want it to be, and you don't pull back the scrim, you build the tower. You incentivize others to build it with you and it becomes a city.

Engage the world.

Craft a vision. 

Build a city.

Now go die in it.

Hire the Right Innovation Executive (CXO, CIO, CTO, CINO).

Executive recruitment is not easy. Hiring great people is always a challenge, but leadership recruitment is a high risk, and potentially costly endeavor.  If you bring on the wrong person for the job,  it can cost the company millions of dollars.

In recent years, corporations have sought to in inject innovation into their operations. Around 2012, companies like Target invested millions of dollars into creating model stores to test ideas, gas spectrometers to streamline produce supply chains, and hired a slew of people trained in design thinking. It also spun up "Project Goldfish," a secret effort to create the store of the future. By 2017 Target shut down many of these projects, as the abstract futuristic research conflicted with the reality poor revenue.

Today,  innovation is at the heart of growth for Target, but not the same 'version' of innovation that was pursued in 2013. The approach today is about solving real problems and making real impact on the bottom line. Today, target utilizes near term and long term methods, and has grown it's data science capabilities to coordinate with design-driven methods.

We can learn many things from this example, but the central narrative is that "research," is not the driver for corporate innovation. "Development" is the engine.  While all the development should be supported by a culture and sound methods in experimentation, exploration, and at the end of the day - you gotta make the thing, keep making the thing, and get results.

The most critical marker to identify the best hire is simple: How does this person drive results in the real world by introducing radical insights with effective action?

By and large, innovation executives focus on the things of technology, data, or the customer experience, or they focus on the how, agile development, user research, and experimentation methods. A good innovation executive will succeed in building these things and processes - yet a better one is far more focused on the what and the why, what will these things do in the world and why does it matter?

Innovation leadership demands the ability to create compelling visions of the future that are connected to existing evidence, but about 3 deviations removed into the realm of possibility. Leadership is the translation of that vision into processes and artifacts through others, to make that vision tangible. If this leader is truly great, then unexpected and unknown obstacles will become assets and new discoveries will further realize the vision, not undermine it. Sometimes this means the first steps are "less innovative," because a particular company weakness needs to be resolved, or because the workforce isn't mobilized.  Yet every every step of the way, this person can translate the profound into the ordinary.

True Innovation Makes No Sense Yet Changes Everything

Over the decades I have spent countless hours with executives who seek to bring innovation to their IT systems or their businesses. They say they want dramatic changes. They are 110% convinced that certain technologies can make it possible.  But what they really want is to increase profits, increase efficiency, improve communications, and have greater control over their company.  Those are all good things and quite often, they want proven conventional methods to satisfy many of those needs. Innovation, however, consists of introducing an unknown variable into the mix, so that one cannot entirely predict the outcome. At first, no one likes that idea. 

In the photo above I am soaking pieces of an apple tree and a lemon in a sanitized bucket of distilled water. After a few days I will boil this water and add sugar. I will then filter out the items, cool it down, and bottle it with a chosen yeast to make a hard seltzer, approximately 4.5% ABV and 100 calories. Everything about this process is standard... except the infusion of apple wood and lemon.  I have only a vague idea what this might taste like, based on my experience of smoking meat with apple wood, the smell of the wood, and my familiarity with lemons. Perhaps this infusion won't work at all, it will make zero perceivable difference, or perhaps it will yield a disgusting result.  

To manage the risks, I am only creating one gallon of alcohol. Furthermore, everything I am doing is based on previous experiences and data, with the exception of the wood and fruit. If the outcome is terrible the cost was low. If it is only "a little" terrible, then I can try another version. Maybe apple wood and no lemon? Maybe pieces of oak under pressure - like this Cleveland-based company that uses a similar approach to age bourbon in merely one week?

The process I just described is not innovation. Soaking some wood in the water is somewhat novel, but thats about it. The overall process is more akin to the scientific method as a structured approach to incremental learning. This is one way, the most common way, to manage innovation. The innovation part is leveraging absurdity. Apple wood is a high risk, untested,  and by all means reckless ingredient that is likely to sabotage my brewed product. Have you ever seen an apple wood flavored beer on the shelf? Is this because it is a proven bad concept,  or did no one ever make the leap to try it, then try enough to succeed?  The only insight to hedge the risk, again, is my personal subjective experience with the wood which I used in a smoker, and that isn't very reliable. 

The risk to take a nonsensical action, and to persist in the nonsense, is at the heart of innovation, art, and insanity. The incredible opportunity is the small, yet viable probability that my reckless action will generate massive returns if all goes well. If it doesn't - well, then we could. have trouble. Creating a process to manage innovation is essential to keeping your company afloat by keeping the risks small.  But this still isn't innovation.

Yet what if, somehow, maybe this apple wood seltzer introduces a new idea about beverages. What if it surges in popularity, so much that it will generate an entirely new market of organic wood infused beverages, demanding an increase in new forestry growth and sustainable forestry practices. Maybe this demand will be high enough that it leads to new kinds of job creation,  and inspires other markets that enhance taking care of the earth. Just maybe, I soak some wood in a bucket, and with constant dedication and determination, transform the entire way beverage ingredients are sourced to stimulate new growth in the rain forests and stimulate new economic models.

This is all possible. Before Uber or Lyft, most people would never have jumped into a stranger's car. Before Starbucks, no one in their right mind would have spent seven dollars on a coffee. And before I started brewing beer in my basement, I never thought about the taste of a tree.

When irrational action meets profound vision to inspire a chain of consequences that forever change the lives of people, businesses, and communities – then you truly innovated.  If you are good at it, you don't need a 10 million dollar team of technicians to start, you just need a 5 gallon bucket and a few small logs.