Story: Until 2008, Hewlett-Packard Company (HP) Labs ran hundreds of research projects. Then new HP Labs’ director Prith Banerjee reduced the total number of projects and organized research into eight cross-cutting themes: Analytics, Cloud, Content transformation, Digital commercial print, Immersive interaction, Information management, Intelligent infrastructure and Sustainability. They then invited universities to submit research proposals within these core themes. In 2008, HP selected 45 projects at 35 institutions to receive HP Labs Innovation Awards. Winners in 2009 will be announced on March 16.

Similarly, Boulder venture capital firm Foundry Group invests in five themes: Human Computer Interaction, Implicit Web, Email, Glue, and Digital Life. The commonality among these five themes, besides the tie to software/internet/IT, is that the themes are horizontal rather than vertical. The themes cut across industries, just as HP’s the areas do. The Foundry Group’s goal is to identify underlying technology protocols and standards that have the potential to win big. When evaluating whether to invest in a new company, “our first question is, does it fit our investment themes?” said managing director Brad Feld. “We focus on broad horizontal themes where we can create market-leading companies.” For example, the Foundry Group invests in Lijit Networks, Inc. because Lijit’s search infrastructure services apply to any online publisher and because the search methodology uses people, their content, and their network connections to produce search results with unprecedented relevance.

Both HP and Foundry Group seek and invest in “big ideas” that have the potential to transform the marketplace. Investing horizontally means looking at transformational ideas that can lead to opportunities in many industries. For high-risk research and venture investments, choosing horizontal areas is a better risk management strategy for three reasons. First, it makes success less dependent on adoption of the idea within a given industry. Second, you avoid running into a major stumbling block, such as regulation or a big competitor, that could derail your success in a single industry. Third, it helps create agility by creating core innovations that can be adapted to a range of verticals, as needed. A horizontal approach lets you have more “irons in the fire” without being scattered. The grouping gives you a diversity of opportunity without the burden of a scattered approach.

Action:
* Aggregate and focus your R&D or project investment efforts into horizontal thematic areas
* Become an expert in those themes to seek out and nurture the big ideas
* Look for opportunities that cut across industries
* Avoid the temptation to be pulled in different directions that would dilute expertise or investment

For more information: HP Labs reports on its restructuring and open initiatives by Dean Takahashi

HP Labs’ eight theme areas

Foundry Group Theme Investing by Brad Feld

Silicon Flatirons Interview Series

Story: McKinsey & Co. partnered with the World Economic Forum to evaluate what makes a given region an “innovation hub.” McKinsey analyzed 700 variables and summarized the results in “Building an Innovation Nation.” Despite the report’s title, the principles apply to business and city regions as well.

The single common factor that drives innovation across all sectors is the availability of a well-qualified talent pool. Talent attracts talent, creating a reinforcing success cycle.

Let’s look at Boulder, Colorado to see these principles in action. Boulder is #1 in the nation for software engineers per capita. The tech community thrives largely due to the efforts of volunteers who organize regular meetings that let technologists find & talk with each other. Here are five examples. First, Rob Reich’s Boulder Denver New Tech monthly meet-ups are among the largest, attracting upwards of 350 technologists and entrepreneurs. The meetings feature presentations by new and emerging tech companies, who describe their business models and demo their software/products. Brian Tsuchiya’s Startup Entrepreneurs is another monthly meet-up, giving very early-stage entrepreneurs a chance to practice their pitch to a smaller audience and get feedback on their pitch & plan. Andrew Hyde’s Ignite Boulder events bring the community together in lighthearted events that are then livestreamed and archived. His Startup Weekend began in Boulder and is now in dozens of cities. Jeremy Tanner organizes unconferences like PodCamp Boulder. TechStars provides seed funding, office space to mingle and mentors from whom to learn. Local venture capitalists like The Foundry Group are active in sharing their insights through Boulder Open Coffees, presentations at Silicon Flatirons and mixers like StartUp Drinks. Local businesses like PR firm Metzger Associates are regular sponsors of many events. At all of these events, companies looking to hire and candidates looking for jobs can announce their presence.

Action: Help specialists in your community find each other through mixers and events. Create public calendars (such as Andrew Hyde’s Boulder.Me) to let everyone know about upcoming events. Share highlights of past events to give newcomers a flavor of them (see Rocky Radar and w3w3 Talk Radio). Participate in these events to find potential new hires and new business opportunities. Emphasize the resource-matching and idea cross-pollination opportunities of these events.

Ignite Boulder Feb 2009 by Stepan Mazurov

Story: As a small young company, ViaWest had only $34 million in funding. But it faced massive competitors with $300 million and $800 million in war chests, respectively. These big competitors used their deeper pockets to “get big fast” — acquiring other companies, buying big office buildings, and investing in lots of shiny new large datacenters. But sales didn’t materialize and the big companies went bankrupt. In many ways, the money distracted these companies — they were looking for ways to spend it rather than focusing on their core innovation and business fundamentals.
In contrast, ViaWest used its money carefully and made positive cashflow a major goal. ViaWest focused on low-cost, efficient web-based tools to help it out-innovate — not out-spend — its bigger rivals. ViaWest also watched its asset investments carefully, only adding new capacity as needed when demand appeared. After the big competitors cratered, ViaWest bought some of the competitors’ lightly-used datacenter assets for pennies on the dollar.

Action: Use Web-based tools that let you innovate much faster at less cost. Create positive cashflow sooner rather than later. Create business forecasts for investment performance and stick to them — don’t invest more if the first investments aren’t meeting targets.

Story: Jason Mendelson, Managing Director of the Foundry Group, gave the following advice last night to entrepreneurs seeking funding:

1. Send an executive summary, not a business plan – VCs are short on time. Grab their attention quickly. They don’t want to wade through a 90-page business plan at the get-go.
2. Know your business better than anyone.
3. Don’t ask for an NDA – that’s a rookie mistake. VCs look at so many business plans a year that if they signed an NDA, they’d almost certainly get sued.
4. Have a 3-sentence elevator pitch about your business ready if you meet the VC informally.
5. Be smart, but don’t be arrogant. Saying your product “has no competitors” is not believable.

Action: Do your homework before you approach the VC. VCs like Jason enjoy talking with entrepreneurs informally, such as at Boulder Open Coffees, but don’t have the fundraising conversation before you’re ready. When you are ready, be crisp and concise in your communication.

For more about Jason Mendelson, read his blog: http://www.jasonmendelson.com/wp/
Learn more about the Foundry Group: http://www.foundrygroup.com/
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