One of Alacrity’s key roles is to connect entrepreneurs, investors, and those in industries with important problems to solve. We often encourage entrepreneurs to look at industries that have traditionally been considered challenging because of their massive potential for change, and the opportunity for innovative solutions to traditional problems.
Connecting Entrepreneurs with Industry Drives Innovation
To effectively change how the traditional sectors operate, these industries need to collaborate with external entrepreneurs. The best solutions usually come from interacting with those who do not think the same way you do, who challenge your assumptions, and who have a different perspective and knowledge of your industry.
The Entrepreneurial Road Less Travelled
As we have discussed in other posts, there are interesting opportunities available to entrepreneurs and investors in less commonly targeted areas such as government technology (GovTech) and the natural resource sector. The subject always raises some questions as to why we encourage entrepreneurs to consider solving problems for customers that have traditionally been challenging to reach. While most recognise the large potential markets in these sectors, many argue small innovators should steer clear of them, and focus on smaller, simpler, and easier to solve problems instead.
Governments have huge contracts that small business normally cannot support, bureaucratic procurement processes, and slow paces of development that do not match up well with startups. The natural resource sector’s capital intensity and dependence on unpredictable commodity prices make it averse to innovation compared to most other sectors, and this aversion creates barriers for disruptive solutions to enter the market.
We believe sectors such as GovTech, CleanTech, and natural resources make attractive customers because the forces that shape their industries are motivating them to change the way they approach innovation. In these sectors, the innovation gap is big and only getting bigger. This gap is not only in the technology used, but also in how their tech teams develop projects. While the market trends are towards smaller, more open, modular technology, these represent a trend many in these sectors believe they are ill-prepared for. Recent stories on the challenges faced by the federal government’s Shared Services Canada support this.
These should also make attractive sectors because they represent what can be described as a blue ocean strategy where entrepreneurs and investors can build solutions few others are working on. This is in part because these sectors have previously had large barriers to entry for small innovators. More importantly, they are less crowded because the average tech-savvy person does not have much exposure to these sectors.
Helping people gain this sort of exposure by connecting those who would ordinarily never cross paths is one Alacrity’s core functions. Most of what we do revolves around connecting entrepreneurs, investors, and people with interesting business problems.
The Best Ideas Do Not Come from Talking to Your Best Friends
It is incredibly valuable for innovative entrepreneurs to talk to people in fields they are not familiar with. My favourite way to illustrate this is an episode arc from the sitcom “Parks and Recreation”. In this show Tom, the consummate entrepreneur, has an investor, but no business idea, so he approaches Ben, the straight-edge city audit officer, for help. Ben is not much of an entrepreneur but has exposure to a broad range of businesses through his job.
”I have six sexy words for you: manufactured stone tiles resourcing and allocation.” – Ben Wyatt, Parks and Recreation.
Ben comes up with a series of unconventional ideas, eventually convincing Tom to pitch a “Dry Cleaning Chemical Transactional Holding Company”. Tom later backs out because the idea is too boring and instead pitches a restaurant. Tom’s restaurant flops while Ben finds his own investor and the dry cleaning idea turns out to be a huge money-maker.
Tom still made the right decision. It is a really bad idea to start a business that you are in no way passionate about, but if you can align one of your passions with an under-served sector your chances of success are a lot higher than if you enter a really crowded space such as the restaurant industry.
Closing the Innovation Gap Requires a Step Back
The pitches delivered during my entrepreneurship class back in business school provide my most vivid memories of entrepreneurial tunnel-vision. I was at a business school in Germany which has a very strong entrepreneurial focus, so the passion was certainly there from the students. However, almost every idea had something to do with travel, rental accommodation, or the sharing economy. Student ideas reflected their life experience.
One idea that had great potential was an online service platform for gardeners and their clients, with a focus on maintaining cemetery plots. The idea came about because a student had recently lost a family member. Because they were away at university, they could not help maintain the garden plot for the departed. Germans have a beautiful tradition of maintaining a small garden plot at the graves of close family members, yet they increasingly move around the country or around Europe, making this a difficult tradition to maintain. Value can be created by providing a way for the bereaved to help design and contract the maintenance of the garden plot online. Value can also be created for the gardeners by providing them with a simple portal through which to sell their services. The idea was also scalable as it could serve as a launching point to all gardening/landscaping services.
Very few people with the business and technical know-how to develop such a platform are going to think of gardening, and even fewer will consider targeting cemetery plots. Yet, if you talked to a handful of German gardeners, the need would be evident, but they just would not know what to do about it. This means that the gardeners have an innovation gap.
Connecting talented entrepreneurs and technology experts to these innovation gaps is at the core of what Alacrity does in its Entrepreneurship program. It is a model that has been very successful.
“Through the Entrepreneurship program, we typically work with people to create businesses that are based on some known and quantifiable customer demand that has been clearly identified in the marketplace. We work with our larger portfolio companies to understand what is happening in the market worldwide, and we focus on developing solutions to meet those identified market pain opportunities. We are very practical in this approach, and this is a major reason why we have such a great success rate.” – Owen Matthews, Alacrity Co-Founder
That is why we encourage entrepreneurs and investors to consider less traditional target markets for innovation. There is a lot of value hidden in your blind spot because you do not know what you do not know.
The Customer’s Role in Innovation
A characteristic of many of the most challenging sectors for innovation in is the perception that the incumbent organisations are protected from disruption. The government has a monopoly over many services, while the natural resource industry has huge barriers to entry in terms of specialised knowledge, capital intensity, and land claims. But even customers in apparently protected sectors ignore innovation at their own peril. For example, government’s role is already being tested around the world by cryptocurrency, alternate modes of health care delivery, and much more. In addition, Uber and AirBnB have openly challenged government’s role to regulate and tax the taxi and hotel industries.
The classic 1995 article from Harvard Business Review, Disruptive Technologies: Catching the Wave is still remarkably applicable 21 years later. Bower and Christensen presented a study of the hard disk industry’s constant replacement of the sector’s top dog and came to the following conclusion.
“…beware of ignoring new technologies that don’t initially meet the needs of [your] mainstream customers.”
We would add: beware of ignoring new technologies because they do not fit your current business models and processes.
We strongly believe the customer (in this case the government or natural resource industries) is best served by engaging with external entrepreneurs. It is tempting to put together a crack team of experts from within your organisation to innovate, but you will never find the value hidden in your blind spot if you do not work with external people as well.
While making this cultural shift might be challenging, it is not impossible. The natural resource sector and governments must open up and navigate strict procurement rules. Trust in investors who have historically been shy to invest in these industries must be built. Entrepreneurs also need to be convinced of the customer’s commitment to trying something new. Above all, all parties need to focus on making and building connections that can help them further their goals while closing the innovation gap.
