Why Innovation Will Bite Back: An Interview with Andrew Razeghi
It’s been nine years since we started LaunchSquad and I’m still amazed at how excited I am by the innovation we see everyday. To use a popular phrase from the 1999 boom, I feel like we’re in the early innings of the Internet revolution. But when the bottom fell out of the market, when Silicon Valley VCs grabbed their bullhorns and told everyone to cut their spending, double their runways and batten down the hatches for a dire future, my faith in innovation was a bit shaken. I started to wonder: “Is it over? Is the dream of entrepreneurship and technology in Silicon Valley coming to a crashing halt?” “What future do we have?”
Back in 2000, it was an Internet thing and we knew we’d eventually come out of it. But this time it’s a global thing, a heartland thing, a recession of proportions we’ve obviously never seen. I began to reach out for perspective. I talked with people, read some articles and dug into the topic of innovation in a downturn. My goal was to find hope, to calm my fears.
It turns out that many of the most important, coolest products, companies and innovations were born in the teeth of recessions⎯companies like Apple and Microsoft and products like the iPod and the Clif Bar. And so were several of our own companies, including 3VR, NetBase and SuccessFactors⎯all thriving!
While we know the road ahead will have bumps and we’ll have to make some tough calls and exercise prudence, we also know that the spirit of entrepreneurship and innovation is getting a huge shot in the arm. NOW is the time for great talent to come together, for great ideas to emerge and for the hunger created by less than great times to drive a whole new generation of companies, products and stories. I could not be more fired up about where we are today.
In my research, I happened upon a paper on innovation by Kellogg innovation professor Andrew Razeghi that helped calm my fears and inspire me to get back on the innovation horse. I reached out to Professor Razeghi and he was gracious enough to take the time to answer some questions I had around innovation. Here’s the interview. Enjoy.
Jesse Odell: What areas of innovation are you most excited about these days?
Andrew Razeghi: I’m very excited about what is happening in a number of areas. For those with the courage to invest, 2009 has the makings of what could be a great leap forward for private label manufacturers as they get creative and introduce new products and programs for their retail partners. Lord knows retailers need creative solutions and private label is well-positioned to help grow retailer margins (if not keep them afloat). This of course, assumes that the private label crowd have the innovation knowledge and skills to conjure up profitable programs. Innovation is not historically the strong suit of the private label guys, but those that get it right could really reinvent the entire notion of “store brands.”
I’m also excited about the power and promise of Web 2.0 in helping entrepreneurs connect with their intended audiences in ways previously unimaginable. We’re still at that awkward dating stage with social networking, which – to me – lends itself to an enormous opportunity for services companies to help people navigate the complexity of connectivity. Nothing beats a good deep recession to help the education industry!
JO: What thoughts do you have about American innovation. What sustains it, and what does its future hold in the context of a new highly innovative global economy?
AR: America 2.0 is currently in the design stage moving quickly towards development. I believe in the next 10 years we will see the greatest surge in entrepreneurial activity in this country. This will be driven by a number of factors including baby boomers reinventing themselves for “Life 2.0,” barriers to entry receding across categories, technology enabling new entrants, and so on. What America has that is truly unique in the world is our spirit. That may sound hokey, but it’s true. As one who works in the area of innovation, I can tell you with certainty that the world’s would-be innovators and entrepreneurs – in Europe, Asia, Latin America – continue to admire the American spirit. I think many of us in this country perhaps take this for granted. But it’s really an amazing asset we have. Any entrepreneur worth his or her salt will tell you that – in the pursuit of a big idea – cash may be king, but hope is its queen. We’re good at hope. We give it, take it, and teach people – through our actions – what it means in very practical terms.
To that end, I believe our calling card in this newly-designed world order is education. What I mean by that is that we continue to attract the best and brightest minds in the world who come here to learn, to research, and to teach. Is it any wonder that more Nobel Prizes have been awarded to Americans and to those who won their awards for the work they completed while living and working in America than any other country on earth? Our universities need to reinvent themselves to take advantage of the fact that the world is at our doorstep to learn, yet most universities (and, in turn, state governments) do not participate in the new wealth created through the work of the world’s most creative minds. Sure, a building is erected now and then with a patron’s name carved in stone or an endowment gets a fat and unsolicited donation, but I’m talking about the business model of education becoming the incubator to the world’s innovation factory. To put in bluntly, this country should “get paid” for its spirit; for its ingenuity; and for the opportunity we give people not only to learn, but to become famously wealthy.
JO: If you are the CEO of an early stage, highly innovative technology start-up, what shifts in strategy or focus should you make given the economic downturn?
AR: Right now, it’s all about cash flow and keeping the dream alive. Those are two highly-divergent concepts. Dreams like to spend money. If I were the CEO of a start-up in this economy right now, I’d be hell-bent on taking advantage of this market to acquire new customers. Start-ups often give themselves away to early customers anyway to prove concept, gain scale, and so on. But in a recession, they have the opportunity not only to prove themselves, but to possibly replace a previous vendor or supplier who is no longer cost competitive or is unable – because of their overhead – to compete with more nimble and flexible organizations.
JO: Silicon Valley has always been an incubator of innovation? Do you see this continuing? Are there other places in the US and world that you think might emerge as hotbeds for innovation?
The Valley taught the world something very important: creativity is about psychology, but innovation is about sociology. Anyone can learn to be more creative, but it’s not as easy to create the culture, infrastructure, education system, intellectual property rights/protection, business formation processes, and so on that make innovation thrive.
That said, other countries have quickly figured out that innovation is as much about sociology as it is about psychology. Japan is certainly no slouch. New products are adopted more quickly there than anywhere on earth (5.4 years). The same can be said of Sweden, Denmark, and my friends in Switzerland. The Swiss are acutely innovative. But while other regions have emulated the Valley’s social structure, there is one thing that the Valley has (and Northern California) that I have not seen replicated anywhere else in the world and that is the ability to fail, get back up, walk down the street, and start all over again. Other countries can change laws, offer government hand-outs, subsidize industries, hire innovation consultants, and so on, but the one thing they can’t replicate easily is the “fall down and get up” attitude of the Valley. It’s what I love most about the spirit of Silicon Valley. If you can bottle that, I’ll be your first investor.
JO: What is your favorite innovation of the last 20 years?
AR: Artisanal bread finally making the jump across the pond from Europe. Old idea, new market.
JO: What is your favorite innovation in the last two years?
AR: Paradise4Paws (www.paradise4paws.com). It’s a company founded by a student of mine (I’m also an angel investor). We are the nation’s premier resort for cats and dogs (25,000 square feet of luxurious doggie daycare). We do it all. Overnight stays. Grooming. Spa. Massage. Training. Vet visits. Pet portraits. Our signature: “yappy hours” and slumber parties. We even have flat screen TVs (Animal Planet is a favorite) and the largest indoor swimming pool in the country. Don’t laugh. It’s a $40 billion industry. That’s more than Americans spent on toys and jewelry combined.
JO: What are your thoughts on companies that are shutting down all marketing and PR during this economic crisis?
AR: Bad idea. For more, see www.andrewrazeghi.com/blog. I wrote a piece “Innovating through Recession” that makes the case for measured spending in marketing (and particularly in PR) during a recession.
JO: How should companies adjust their thinking when times are tough? How do they keep people inspired?
AR: First, you’ve got to watch cash flow like a hawk. That said: not every decision has to be a “spend/don’t spend” decision. You may find that suppliers and key vendors will be willing to work with you to keep the relationship working if you are willing to work with them (e.g., extend better terms, and so on). Second, know that there is a great irony to recessions. Many firms cut back on marketing spending just when the market is the least crowded and then ramp it up when the clutter returns. Not unlike buy low/sell high, now is the time to grab market share. Invest wisely in products and programs that will grow share.