A lot of interesting new ideas are floating around the market now that I think fall under the radar. Best practices, if you will, that just don’t rise to the level of national interest. But if they were adopted, they would make companies more successful. Even if people find out about them, though, no one seems to want to emulate because that’s just not the way they do things. It is kind of like when I discovered a few months back that I’ve been eating bananas all wrong; rather than peeling from the top, which rarely works well, we should pinch the bottom and peel from there. It just seems very strange to me. One example is how Dell does acquisitions. It first identifies the key assets (human, product, and process) and then protects those assets aggressively during the process, putting speed and executive convenience far lower on the list of priorities.
One practice that just emerged is kind of like a skunk works internal VC effort. You see, when corporations do investments in other firms, they often must weave through a nasty jungle that pretty much assures that the investment will never bear fruit.
Cisco just demonstrated what I think is a better way to peel that banana and it is called Decibel.
Typical Internal VC
VCs have a bad reputation in general, thanks to books like Brotopia, which highlight behavior, particularly against women. As a result, they underperform their potential and do a massive amount of avoidable damage. However, independent VCs don’t have the drag that corporate VCs typically have. Corporate VCs tend to be wrapped with corporate policies that assure against misogyny and abuse but they have to live in a political corporate environment where the best technology doesn’t win; the technology that has the most political backing wins and there is no way a small company that is external to the corporate investor will ever be able to match the political clout of an entrenched product, service or technology group.
That tends to result in a situation where the corporate investment becomes a waste of time and money. It may provide a return on investment, but the benefit to the company never materializes. One of the worst examples of this was Yahoo’s early investment in Google. Instead of translating the result, which became a massive capital gain for the firm, it caused Yahoo to divest so it could chase Google’s business, and Yahoo effectively failed as a company. That’s the exact opposite of synergy in that it appears the investment in Google killed the investor.
So, what you want is the corporate governance and maturity of a large firm but the independence and flexibility of an independent, while never losing track of the bigger goal, a sustaining business advantage to the investing firm.
Cisco is one of the most experienced companies, and I’d argue one of the most successful, in a growth by acquisition strategy. It ran up against an initially much larger and stronger 3Com and rolled over the company so badly that 3Com has largely disappeared. It also has a social responsibility effort that has a massive focus on getting unemployed people trained so they can address the huge and growing labor shortage in tech, and it has had an impressive world-wide impact on helping people who need help to help themselves.
The latest effort is a skunk works-like VC organization named Decibel that appears to strike a near perfect balance by using a model that has been successful in driving innovation. The skunk works model was created years ago to drive innovation outside of the confines of a company structure and some of the most amazing products I’ve ever seen came from efforts like this. The Xbox, iPod, Outlook and Ford GT were essentially skunk works projects.
Picking qualified people, wrapping them with solid corporate governance and control, but leaving them free to operate outside of the Cisco bureaucracy, should all result in a higher percentage of long-term synergistic investments. This should allow the unit to assure the success of the firms it invests in and husband them into a position of supplying a critical competitive advantage for Cisco long term, without adding significant risk to the firm.
As always, the proof will take a few years as these investments mature, but based on my experience looking at investment organizations, this model has the potential to set the standard for how things are done.
Wrapping Up: Setting the Future Bar
External VCs have issues with abuse of power. Internal VCs, those that are part of a corporation, have issues with execution due to the bureaucracy they must struggle through. The ideal model appears to be a skunk works model, which is what Decibel, the Cisco VC, appears to emulate. I think we’ll find that this will be the new best practice but, just like it was with Dell’s acquisition model, I also think few if any will emulate it. That just seems so incredibly stupid to me.