As resources become constrained and the venture industry continues to face headwinds, Bessemer is taking a strategic step to infuse its software portfolio with genius design to make great software ideas intuitive and elegantly simple to users. This capability – to make complex systems simple and intuitive – has come to the forefront of business as design thinking proves its value beyond a physical product department and into software, organizational architecture, and strategic decision making.

VentureWire – Bessemer hires designer in residence

Enjoy an Oprah moment with Vinod Khosla, perennial venture developer and powerhouse venture capitalist. While he wants the environmentally sustainable outcomes alternative energy and transportation systems are offering, he is very disappointed with the current status of business cases and the direction cleantech hype is currently pointing.

The first element of sustainability is always financial sustainability. If you can provide new offerings for power generation, transmission, storage, and consumption with a LOWER final cost to your users, you’ve got a winning strategy. The world’s most successful solar companies aren’t the ones that draw the most power out of sunlight (i.e. highest conversation efficiency ratio) but those that provide stable power at the most competitive cost per kilowatt. Those firms that provide project financing in order to sell power services to customers have further enabled the technology adoption by eliminating capital expenses from solar utility customers.

As in most cases, those that create and capture real value will be the ones to transform the world.

Are you ready to acquire ahead of economic recovery?

Billion dollar mergers have laced the headlines recently, giving hope for a revitalized M&A market and indicating corporate growth expectations have indicated now is an opportune time to empty company treasuries while prices are low and growth is imminent.  Some of the largest acquisitions announced or publicly acknowledged include:

Dell desires Perot Systems for $3.9B

Xerox to buy Affiliated Computer Services (ACS) for $6.4B

Cisco buying Tandberg for $3B

These mega-deals are a boon to the economy, providing motivation for corporate activity and jobs for skilled practitioners in acquisition strategy and integration.  Deals of this size can certainly transform a company, but many mega-deals represent the purchase of an adjacency growth sector – not a growth of a core business.  Because of the specific difficulties of integrating a massive adjacency, these types of acquisitions are enormously challenging and fraught with failure.  Purchases of this type are likely to take two to ten years to fully integrate and reap the growth prospects of the combined firm, all while drawing key resources away from growth investments specific to each party’s core business.

If you’re in the market for acquisitions, consider maximizing your opportunity for transformation by making a set of small acquisitions that can be rapidly integrated, add growth power to your core business, and – for a bit of downside protection – be spun out or written off if unsuccessful.

Consider the good fortunes of Best Buy who, coming out of the dot-com recession, purchased the teensy-tiny residential business of Geek Squad.  At the time, Geek Squad had about 35 “agents” in just three cities – hardly the scale to drive business growth at a national retailer.  But Best Buy saw the “story” asset of Geek Squad with the instant availability of potential “agents” all over the country – people who knew computers and technology, and could learn to be part of a “story” of outstanding customer service.

Best Buy knew its core business was driven by customer loyalty, and in-store services was a core competency they needed more of to attract and retain the best customers.  Geek Squad was rapidly integrated and rolled out incredibly effectively, delivering high-margin results quickly and positioning Best Buy as the trusted vendor and installer of home theaters – a core revenue and margin driver for the firm, which also owns high end Magnolia Home Theater.

The impetus for innovation at OpenTable has never been larger now; their revenue potential in servicing restaurant reservations is not the making of a billion dollar company.  As the company develops trusted relationships with restaurants however, look for OpenTable to extend online and mobile marketing services for its clients.  If management sees its core capabilities in the online reservation space, look for it to expand to golf courses, boutique hotels and villas, and private events to consolidate market share in those niches as well.

If other pre-IPO companies (and their VC investors) like what they see, there could be a sizable increase in IPO registrations as companies compete with new secondary offerings for investment dollars still sitting on the sidelines.

OpenTable IPO lifts hopes on stock exchange – San Francisco Chronicle

OpenTable IPO rises 59%; Critics sneer – Wall Street Journal

Advertising bargain discounts, not prices, should drive holiday sales

Most people aren’t hoping to give worse presents to their loved ones this year – they want to give the same high quality, aspirational items they’d give in a good economy.  Shoppers accustomed to shopping at mid-range and high-end retailers may not know the location of the nearest Marshall’s, Filene’s Basement, HomeGoods, Sierra Trading Post, or other quality discount retailer.  Here are some examples of premier retailers using holiday discounts to attract holiday spending.

Some retailers use discounting as a regular part of their pricing strategy.  Jos. A. Bank is notorious for strategic pricing; you can’t find any of their private label merchandise at “Regular” prices EVER.  The menswear retailer consistently runs short-term “sales” to incite sales traffic that fears missing a great deal; these sales always reference the “Regular” price of an item even though that price is never offered.  This allows them to show, for example, a wool suit on sale for $199 against a “Regular” price of $550, apparently offering a 64% discount.  What isn’t shown is the historic pricing of the garment, which typically fluctuates between $299 and $349.  The suit is still strongly discounted (33-43% depending on the average sales price used), but the store gives shoppers the psychological benefit of saving “over 60%” if they buy today.

Macy’s holiday pricing offers another glimpse into a retailer’s strategic use (or misuse?) of pricing.  Most area newspapers carry Macy’s 10-15% “shopping pass” coupons every week, which may be limited to morning shopping hours, this-weekend-only, or other time constraint designed to draw shoppers in to spend quickly.  The constant availability of discount coupons is akin to Bed Bath & Beyond, which mails 20% off single item coupons every week.

While this constant couponing effectively lowers the everyday pricing of goods in store, these retailers can claim discounts off of regularly posted prices.  So when Macy’s runs a 20% off sale as they did in the first December 2008 weekend, the effective discount may only be an additional 5%.

The retailing secret here is that shoppers aren’t likely to comparison shop their holiday gifts for weeks on end as they would when buying a new car, for example.  This means consumers will generally be less educated about regular everyday pricing on most goods and their desire for a bargain – never stronger than in an economic downturn – may drive their purchasing behavior.  Thus a sign advertising “60% Off!” will draw retail traffic better than something that reads “20% off last week’s price!” even though both may carry the same price tag.

Retailers that cling to their MSRP, listing price, “Regular” price, or other anchoring price point will have  greater ability to emphasize the magnitude of their discounts this holiday season than shops like Pottery Barn, which post only the purchase price for regularly priced items and discount infrequently.  This pricing tactic bolsters the luxury appeal of an item by discouraging comparison shopping and limiting the availability of discounts.

However, when pricing becomes the key driver of sales as in this year’s holiday market environment, these stores can find themselves bound by their own pricing strategies.  Abercrombie & Fitch, for example, recently made headlines for its decision not to discount in early December – a pricing decision designed to retain the luxury appeal of its brand but which seems to have backfired as even luxury goods have taken it on the chin this holiday season.

These premier retailers are all striving to prevent sales traffic from walking out their doors or off their websites and into the warehouse discounters like Costco and Wal-Mart.  While sales numbers seem to be depressed this year (but perhaps above expectations), branded retailers are finding success by pairing their brand name to a high discount advertisement.

So I’ve diagrammed out this little sketch of how the money flows – and where it stopped.  Hopefully this is a simple way to wow your friends at this week’s happy hour.

Capital is needed to purchase large assets and finance regular business operations

To put a size on the increased demand for housing, I’ve heard that during the past five to eight years, the number of Americans owning their home (or at least owning the mortgage liability for it) grew from the long run average 50% to 60% of households – an increase of over 10 million families.

The constriction of lending isn’t just a Wall Street problem.  Businesses are going to have trouble when accounts receivable don’t get paid, inventory can’t get financed, and employees can’t get paid.  Main Street people are going to get shocked by rising unemployment, tighter credit standards, and no available cash to help make ends meet at the end of a month.  Folks will have greater difficulty financing car or home purchases and students (as well as those newly-unemployed seeking to advance their education in the downturn) may have trouble finding lenders to finance their tuition bills.  Drops in income – or even fear of future unemployment – will constrict charitable giving, putting essential non-profit services at risk as well.

This isn’t a problem just for Wall Street, and they’re certainly not the only ones who shared in the gains of home ownership.  I lament the transaction profits predatious mortgage brokers earned in the heat of the housing market and I hope for a better system (and better educated and protected buyers).  But let’s fix the liquidity problem that will affect everyone and not spend our breath pitting Americans against each other.

Source: BusinessWeek

This is in line with research from innovation consultancy Doblin, which finds a bit of an 80-20 rule about innovation: ~80% of innovation is in products that account 20% of the value growth, while ~20% of innovation is in business models and other more lucrative areas that generate 80% of the growth.  Doblin’s reasoning: product innovation is often needed just to keep up, while business models can revolutionize value creation.

Business model innovation has led to a host of recent developments, including software-as-a-service (SaaS), fractional ownership, pay per use/rental/subscription services in music and movies, and even advertising (witness Microsoft’s cashback Search).

Private Equity HUB – Energy Markets Confront the Post-Petroleum Era

In another article, technology and environmental journalist Todd Woody rolls up his perspectives on the solar power startup world following Nanosolar’s recent $300 million private placement that scored a long-term agreement to supply power cells to AES Solar, whose parent company was a primary investor.  There’s a lot of growth expectations in this sector, and valuations are resembling sky-high options speculating on a few winners of an unconsolidated market.  Importantly, these growth expectations are not just for the traditional industrials or even the semiconductor stalwarts; these growth expectations are being plowed into startups and growth-stage venture firms.  Read all about it at Todd’s Fortune.com blog, The Green Wombat:

Thin-film solar startup scores a fat $300 million

Rather, I suggest a universal PREVENTIVE CARE plan that guarantees every citizen will be afforded a personal regimen of preventive care treatment. Preventive care has a whole host of benefits, not least of which is reducing the ultimate cost of health care by eliminating high-cost failures before they happen. Preventive care is essential to providing individuals with the regular health guidance they need to make more accountable health choices and achieve early identification of potentially dangerous conditions. A national preventive care program could also push individuals to augment the national preventive care program with private emergency care insurance that could more accurately reflect the costs of riskier health choices – further encouraging individuals to recognize the high cost of smoking, overeating, and other dangerous health habits.

One doctor from the University of Virginia’s hospital recently briefed MBA students at the Darden Graduate School of Business about her concept for starting a preventive clinic for women. She struggled to put together a financial model that supported ongoing operations due to the expensive nature of the medical professionals required to staff such a clinic and the unreliability of patients making and keeping appointments. As she pointed out, it is often the individuals at the highest risk that are least likely to seek preventive care. But she spoke convincingly about the need for addressing obesity-related illnesses like diabetes and heart conditions and providing care in an environment targeted at the needs of a specific group – in this case, women. In order to make her dream come true and support the development of a nationally-guaranteed preventive care program, I recommend the federal government specify programs of preventive care at guaranteed rates that can be financed through the existing employee insurance benefit channels and individual insurance plans with federal incentives to spur the creation of a preventive medicine industry.

My national preventive care plan calls for funding a new vocation of PMDs – preventive medicine doctors – that are trained more heavily than nurses but less so than surgeons and other MD specialists. Such preventive care specialists would function much more like counselors or, as I prefer, “health coaches” than surgeons, providing individual care and guidance through a regular pattern of interaction and accountability. Earning potential could likely mirror the moderate educational requirements – more than nurses, less than emergency room MDs, further enabling a lower cost of health care in this country.

This would spur the creation of new jobs, new educational positions, and innovative new business models as preventive health clinics begin operations. States would be empowered (as they are currently) to license practitioners and regulate the industry. The United States would continue its position of leadership in medicine as it explores the most effective means of preventive care, offering an example to other nations of how to care for the individual without commandeering services by the state.

Since this is not a nationalization of all health care risks but only the transfer of use-it-or-lose-it basic preventive care, this should amount to a financial risk sharing instrument between the federal government, which would indicate essential standards for qualified preventive care, and private health insurance which would continue to underwrite the risk for additional emergency care. The private insurance companies would gain regular checkup information through preventive care visits, allowing the insurance companies to more accurately price the risk of a patient’s future care.

I’m no expert in health care but I’ve come to believe in the sensibility of federal guidelines for preventive care and financing to create the industry of practitioners, so I’d be curious to hear your thoughts on this idea of universal preventive care guaranteed for citizens.

Jeanne and her co-authors, including Sean Carr, director of corporate innovation programs at Darden’s Batten Institute, recently produced an article in the Sloan Management Review detailing some of their findings on growth leaders as well.  Follow the link for the article:

In Search of Growth Leaders