Energy Thought Summit 2014

Well, it’s over, but it won’t be soon forgotten.

The first (annual) Energy Thought Summit (ETS) concluded its initial run last night. Hosted by Compass Management Group (full disclosure: I’m a team member), the two-day first-of-its-kind event brought together many of the world’s top thought leaders on the state and future of the energy industry.

Instead of “death by PowerPoint” ETS featured numerous panel discussions on diverse topics and issues impacting a rapidly changing 150-year-old industry:

  • smart grid,
  • electric vehicles,
  • renewables,
  • big data,
  • cybersecurity>
  • disruptive technologies,
  • and a shortage of experienced workers.

Panel members and speakers featured luminaries in the field, and I am fortunate to know or have met many of them. One keynote session featured Steve Wozniak, co-founder of Apple and now with Fusion-io, who proved to be quite down-to-earth and personable. The other was delivered by Jon Wellinghof, former chairman of FERC, who likely knows more about the industry than the rest of us will ever discover.

It was a treat to meet and make new friends of outstanding leaders at organizations such as GE Energy Management, NIST, Sprint, and esri, as well as smaller groups. Meeting and listening to the thoughts of Dr. Massoud Amin, Chairman of IEEE Smart Grid and a professor at the University of Minnesota, was a very special treat.

Erfan Ibrahim is a widely recognized expert on smart grids, as well as a fellow member of Compass Management Group. His Smart Grid webinar series has a huge following. Hanging out with Erfan for two days was priceless. For example, listening to his discussion with John Scott of NASA on plasma physics was a treat for one who was a would-be rocket scientist at age 12.

Thanks to my charismatic friend and pioneering Smart Grid thought leader, Andres Carvallo, for conceiving and hosting the event. His leadership and broad impact was evident at an event attended by 800 of his closest friends.

And finally, kudos to the team at market research firm Zpryme. They did an amazing job of pulling an excellent event together on very short notice. I don’t know who had the idea to feature live local Austin musicians between sessions, but it was an inspired move that gave a unique flavor to this “not-just-another” conference.

Looking forward to ETS 2015!

Register Early for RISE Week Austin!

Registration is now open for RISE Week Austin to be held May 13-17. Named a “Must-Attend 2013 Conferences for Entrepreneurs” by John Hall at Forbes, the event “offers a variety of events, including fast pitch competitions, funding forums, and talks from well-known keynote speakers.”

In a session called “Self-Fueling Partnerships” on Friday, May 17, we’ll discuss how to grow revenue and profits by leveraging the marketing clout, technology, and customer base of larger companies.

To ensure quality interactions, only 25 people are can attend each session, and savvy attenders sign up early.

See you there!

Defining Product versus Services Businesses

The genesis of this post is a comment I made about product companies at a large networking event earlier this week in Houston:

“If you think you’re a product company and you haven’t developed a repeatable sales model, then you’re a services company.”

In other words, if every deal closed is in a different vertical market and/or solves a different problem, then the transition from a services company to a product company is incomplete. What is the effect on the value of your company?

How to grow a company’s value is a topic I spend a great deal of time thinking about, and the 20/20 Outlook process focuses on aligning a company with others in the industry to grow a private company’s valuation. While that’s a vital driver of any corporate strategy, let’s consider how the form of a company’s offerings (specifically, products versus services) impacts its market value.

One attraction of starting a product company is the relatively rapid growth in valuation possible in comparison to that of a pure services company. To see why this is a critical issue, go to Yahoo Finance and compare the ratio of revenue to enterprise value for half a dozen public companies that derive most of their revenue from either products or services. For example, the well-run government services company Raytheon’s trailing twelve months’ revenue is $25 billion yet their enterprise value is only $18 billion, a ratio of 0.7. Compare that with your favorite products companies and you’ll find much higher ratios for well-run products companies.

Of course, customers demand varying amounts of service to accompany product purchases, thus few so-called product companies are successful without offering services as well. The percentage mix of product and services revenue can determine profitability and valuation, so it’s important to characterize the difference between products and services.  Products and services both solve problems, but in their purest form, they do it differently. The chart below depicts these differences.

Cost – Any problem can be solved with enough services, but the cost may not attract any customers. Creating a product to solve the problem is an alternative, and the gap for customers who want more customization than the product offers can be filled with services.

Fit – Services by their nature enable delivery of customized solutions. Products exist because enough problems of a certain class can be solved well enough to satisfy most needs with a generalized solution.

EBITDA – Earnings vary widely, yet as a general rule, the EBITDA of a well-run product company can easily double that of a well-run services company of similar size.

In the software industry, for example, it’s fairly common for a services company to evolve into a product company over time. Consider the continuum below that depicts such an evolution, starting on the left with totally service-based solutions (“Custom Services”) and incorporating product-like characteristics as we move to the right and end with Product/Service solutions.

To the right of Custom Services is “Packaged Services.” Once you’ve solved the same problem several times, you can package a partial solution (60%? 80%?) that can be customized for each customer. Basing the price of the solution on value rather than level of effort (hours), profitability increases.

Continuing to the right, next to Packaged Services is “Product-Related Services.” If your staff becomes expert at designing, implementing, integrating, and managing solutions using highly desirable but complex products, the result is a scarce resource that can be sold at a premium and that raises your margins. The classic historical example is a services company that became a leading expert at implementing SAP systems.

If yours is a well-run product business or is evolving into one, the benefits include higher EBITDA and a higher valuation than those of a similarly-sized services business (“product only”). And finally, the highest valued companies are often those that have desirable products with an abundance of product-related services available, whether supplied internally or by partners.

As the line between products and services blurs with the introduction of new types of products delivered in new ways, it’s important to understand how value is derived. Does the statement about claiming to be a product company without developing a repeatable sales process ring true?

I ask forgiveness for some sweeping generalizations. Certainly, exceptions to this high-level look at valuation abound. Feel free to point them out and elaborate or disagree.

What’s New for 2011

The move to share the 20/20 Outlook process is accelerating in 2011!

First, we were asked to develop a sidebar article for the cover feature of the Jan/Feb issue of TexasCEO magazine. Watch for a notification here when it’s available, plus a tweet and a LinkedIn update. (By the way, the twitter name is @2020outlook, and buttons for email, LinkedIn, Skype, RSS, and twitter can be found in the upper right corner of the 20/20 Outlook web site.)

Secondly, chapters of a book in process will soon start showing up on a new blog site that’s under development. Each chapter will feature a dialog between a new CEO and their mentor, with each conversation based on a principle contributed by a different serial CEO friend.

After leading companies to success for years, serial CEOs develop valuable principles that don’t often make it into business school classes. Having repeatedly seen the same situations and outcomes, he/she develops “intuition” in the form of simple rules of thumb for how to handle specific business circumstances.

This new site will help aspiring business leaders manage and grow their businesses by absorbing simple yet profound lessons from successful serial CEOs.  It offers these CEOs a chance to give back by sharing these precious principles  with new and aspiring business leaders. Written in the form of a dialog between a new CEO and their mentor, some are amusing and some are painful, yet each offers a  valuable lesson about managing a business to new levels of success.

Just drop an email to bob@2020outlook.com if you’d like to see new chapters as they emerge every few weeks. If you choose to, you’ll be able to interact with the CEOs and others who will comment on and discuss the chapters.

We ‘ll be sure and let you know when the new blog site is ready.

Happy New Year!

Reason for Optimism

The 2010 Global MootCorp Competition will finish up this evening on the campus of the University of Texas at Austin. Started in 1984, it’s the oldest of a number of business plan competitions held each year at U.S. universities. In addition to providing a richer educational experience for many MBA students, it has helped launch many businesses that went on to become successful enterprises. The UT program’s pioneering work pointed the way to a number of other competitions including related programs at Arkansas, Louisville, Manitoba, Oregon, and Rice.

This year was my first time to participate since moving back to Austin a few years ago, and I felt fortunate to be invited. As a beginner, I was a “judge” in the warm-up round where panels of industry veterans help the teams hone their presentations before the real judging begins. We were indeed able to offer helpful suggestions, but each team my panel heard was already quite accomplished at presenting their plans before we met them.

It’s a cliché that we only hear the worst news in the media and good news rarely gets reported. In the case of these competitions, however, the mainstream business press does pay attention. Expect a story soon in the New York Times on this competition.

My panel viewed plans from U.S., Hong Kong, and Brazilian teams for new businesses in the domains of agriculture, healthcare, and transportation.  The experience was refreshing and reinforced my sense of optimism about the ability of free enterprise to create new ways to solve problems.

Congratulations to Rob Adams and team at UT for a stellar job!