An application of Outcome Driven Innovation

The unique 7-week class schedule of the Kelley School of Business has meant that this week has been chalk full of final exams, projects, and presentations.  From among that intensity has emerged a project applying a particularly helpful tool for corporate innovation: Outcome Driven Innovation (ODI).  ODI has its roots in the "jobs" methodology I wrote about a few months ago, as it involves identifying outcomes that customers are trying to achieve with a particular product type.  The tool specifies five steps in the research process:

1. Plan outcome-based interviews
2. Capture desired outcomes
3. Organize the outcomes
4. Rate outcomes for importance and satisfaction
5. Use the outcomes to jump-start innovation

For the subject of our research, the four of us team members selected Oncourse, an intranet tool used within Indiana University for the purposes of facilitating classroom document sharing, calendaring, and communication, among other uses.  We found the ODI methodology to be especially helpful in breaking through the feature requests for and complaints about Oncourse that were flung at us as we interviewed users, allowing us to see the truly greatest areas of opportunity for innovation of the product.  Our summary memo is below.

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Executive Summary

After conducting primary research and applying the opportunity algorithm of the Outcome Driven Innovation (ODI) model, we concluded that the outcome with the most opportunity for improvement is one that maximizes student preparation level for class.

Background

Oncourse was selected for several reasons - it is a well-known product among students at Indiana University, playing a central role in the students’ academic experience.  However, since each student uses Oncourse in a unique way, we thought there was opportunity for innovation since a commonly agreed-upon usage method does not exist.  We explored various outcomes students are trying to accomplish using Oncourse, helping us understand specific stress points with the product and also innovations that would enhance the product in the most meaningful ways.

Application of the Outcome Driven Innovation Methodology

The ODI methodology identifies a qualitative as well as quantitative way of fine-tuning outcomes that customers are trying to accomplish, solving one of the problems with qualitative research: customers can rarely tell you what they want. For instance, when asked about a time of frustration using Oncourse, one student responded “professors upload files in different ways, there is no standard method.”  While this comment referred to a feature, specifically file structure, we had to probe him for a deeper understanding behind his response.  Therefore, we asked him what feelings he wanted to experience or avoid using Oncourse, to which he responded, “I don’t want to become impatient.  I want to feel calm and the process should not require too much of a thought process.”  By understanding the emotional context of the high level feature comments and suggestions, we were able to analyze and aggregate the student experience with Oncourse.  To replicate a representative sample population, we selected males, females, Kelley students, non-Kelley students, domestic students, and international students.

Upon analysis of all the responses, we discovered six distinct outcomes that students were trying to achieve with the product. These outcomes addressed specific issues with the product that are important to students, including preparation for exams, access to supplementary course material, and making up for a missed class. Next, we followed up with the respondents by having them rate the outcomes on importance and the level to which they were currently satisfied by the product. We then utilized the opportunity algorithm to identify the areas of greatest opportunity, finding that the three greatest opportunity areas were maximization of preparation for class, minimization of stress related to exams and assignments, and minimization of time necessary to see everything related to the school experience. Finally, we brainstormed possible directions for innovation based on the outcomes with the greatest opportunities.

Conclusions

We learned that Oncourse has several benefits but also several areas of improvement. The respondents use Oncourse to satisfy the basic jobs that the software was designed to perform: obtain the material needed for classes, exams, homework, and even updates on social events.  However, emotions behind the responses indicated that Oncourse could perform these jobs either in more efficient, innovative, or personable methods. 

The opportunity matrix revealed that maximization of students’ preparation level for class is the outcome with the widest gap in the current version of the product. In order to address this, we identified ways to better organize class information to make it easier to consume and more relevant for the student. Sample ideas include: a uniform interface across classes, a list of required vs. recommended actions for class preparation, and outlook calendar sync with class schedules and deliverable dates.

At the same time, we identified challenges with the ODI data gathering process: it is difficult to steer interviewees away from merely suggesting features or logging complaints, and equally difficult to draw out clearly distinct outcomes.

A Bubble, or Just Frothiness?

This past Friday, I made the trek to Windy City to attend the TechVision2011 conference.  Put on by the University of Chicago's Booth School of Business, the conference featured panels on (among other topics) mobile devices, venture capital, and electronic content, and keynotes from tech success stories, such as Dan Rosenweig, CEO of Chegg.com.  The topic that created the most buzz, though, was the timely panel on the "Bubble Myth."

The question of whether or not we're seeing the start of another tech bubble has been troubling me lately.  Comb TechCrunch on any weekday and you're liable to come across several "We got funded!" announcements.  (On a side note, a member of one of the panels revealed that his startup had just secured funding, but told us, "You better not be tweeting this, cause I want my TechCrunch article.")  More concerning is the prevalence of media attention brought to companies garnering ridiculously high valuations.  Is Facebook really a $70 billion company considering it commands a mere $2 billion in revenues?  A 20x EBITDA multiple is above average in software, but this is 35x revenues.  Of course, Goldman Sachs and other Facebook investors forecasted the present value of the future cash flows based on growth in user base and aggressive growth in monetization of that base.  But I'm not sure they did.  One VC on the venture capital panel logged the opinion that many investors are pushing up valuations because they know later investors will push up their valuations, ultimately culminating in an explosive IPO.  Undoubtedly, if Facebook IPO'ed next year, Goldman would stand to make a solid return.  That sounds very much dotcom-bubble-ish.

But when the moderator of the Bubble Myth panel posed the bubble question, each panelist gave a definitive "No."  Same with the venture capital panel.  However, when they actually discussed it further, they described quite a bit of frothiness going on.

• High valuations: Yes.  But this time around they are based on something, like existing revenues.  Or at least a product launched.  Or at least a prototype.  But no business plan, that's a waste of my time.  Just send me a PowerPoint deck.
• Bubble-ish activity: Yes, but not here in Chicago.  Those crazy people in Silicon Valley aren't basing their investments on anything, but we are here.  Groupon has real potential.

In other words, there is a principal-agent problem here: Of course VCs and startup founders are going to say that there is no bubble, because their quality of life is greatly increased in the midst of a bubble and is decreased when a bubble a burst.  Admission of a bubble means that it may be burst sooner.

So, the jury is still out on the presence of a new tech bubble, and the head juror is time.  I trust that it will tell us the result in a few years.

Avoiding VC Funding

This week I felt enlightened by a class discussion about not obtaining financing from venture capitalists.  Prior to this week, I assumed that the majority of startups followed a process of 1) building a prototype, 2) developing a business case for the product, 3) obtaining financing through angels and/or VCs, then 4) growing fast and failing/succeeding.  From the tech blogosphere I heard the message, “If you don’t get funded right away, you fade into obscurity.”

But that process was tossed out the window when Dr. K put up a chart showing the number of VC deals done each year.  The number of deals is two orders of magnitude smaller than the number of startups: Though 600,000 startups are founded each year in the US, only about 3,000 businesses get funded by VCs.  That means that either 99 percent of startups fail right away, or most forge ahead with no VC funding.  As is well established by research, the percentage of failures is more like 25 in the first year and 50 after five years, so it must be the case that the latter is true.

It’s useful to think through the logic of a startup obtaining financing:  Why would a startup need financing?  The primary reasons would be to get over a big hurdle (e.g. build a $30M manufacturing plant), to grow as quickly as possible (e.g. hire 60 software engineers to build out the app in six months instead of twelve), or to pay the rent next month.  A startup probably needs funding to get over a big hurdle like constructing a plant, but few need to overcome any such hurdle.  Growing quickly can be good, but it is also very risky in terms of product quality, not to mention the fact that if a startup has 60 more engineers at launch than it would have had without funding, then it somehow has to manage and pay 60 more engineers on the back of the same product.  In other words, pouring gas on the flames might get you noticed quickly, but the fire will die quickly unless you keep adding more gas.  But then, what about the risk of losing first-mover advantage?  In most cases, first-mover advantage doesn’t exist, as it is subsumed by market timing and product quality (note that iPod came three years after the first MP3 player, and Groupon came a year after LivingSocial).  Finally, not having to worry about paying the rent is nice for the owner of a startup, but rent pales in comparison to his wasting additional years finding out that his product won’t take off.

That point is another one that I hadn’t considered, but a great talk by David Heinemeier Hansson (best known as the inventor of Ruby on Rails) hints at it: If you don’t have the next Facebook of an idea, then VC funding will make you waste many years as opposed to the short amount of time you would waste on your own before you ran out of money.  What’s more, assuming your VCs included a liquidation preference in your terms, you will end up with at best nothing and at worst losing your possessions or anything else you tied to the business.

All of this leads to the conclusion that starting a business is a process that can take many paths.  The path including VC funding is incredibly risky and should only be used if necessary, so chasing after it is usually a waste.

The Brainstorm Project

It took only a few days: Less than a week after traveling to Indiana to start the next chapter of my education last Fall, I felt the urge to Brainstorm.  I had discovered a glaring inefficiency in the way students had to keep schedules at the Kelley School: Class schedules, which varied week by week for first-year students, were posted to an internal web site with no export capability.  That meant 211 students had to manually enter the same 14 class sessions into their Outlook calendars each and every week.  My workaround solution was quite simple - I gathered an email list of everyone in my class and sent Outlook invites to them - but many class members did not want to participate and others wanted to build off of my solution.  Without a forum to talk about the problem or the solution, we defaulted to giant email threads that clogged everyone's inboxes.  What's more, school administration was left in the dark.

Brainstorming would have made this problem and solution much more manageable and clean.  And by the verb "Brainstorming," I mean utilizing Intuit Brainstorm, an idea-sharing social network developed by my professional alma mater.  The tool allows employees to post ideas for new products, new services, ways to streamline operations, and anything else to improve the business.  Everyone in the organization can comment on ideas, post documents and demo videos, and form teams to push ideas forward.  I took the tool for granted while at Intuit, where I worked on ideas ranging from efficient use of office space to a mobile app that we ended up launching in the Android Market.

On top of needing a place to discuss ideas for improving classes, organization, career searches, etc., I also see a huge need at Kelley for a place for entrepreneurially-minded students to discuss venture ideas.  While we have the weekly Napkin Club meetings, there is no forum for continuing to move ideas beyond the napkins, not to mention no forum for communicating promising ideas outside of the group that attends club meetings.  While the Kelley School is truly a leader in the academic side of innovation and entrepreneurship, there is a lot of opportunity in moving the needle on practical applications.  Thus I have decided to bring Intuit Brainstorm to Kelley.

The Brainstorm Project, spearheaded by the Graduate Entrepreneur Club and supported by faculty all the way to the Dean's office, will kick off at the IDEA Competition, an annual campus-wide business plan competition.  It may usher in a new age of creativity at the nation's premier public university in entrepreneurship & corporate innovation, or at the very least, it will give student ideas a tangible home.