Innovation doesn't stop with products. It must now be evident in how tech companies conduct business and communicate. Steve Barrett was in Palo Alto, CA, for this Airfoil PR-sponsored roundtable discussion.
Click here to hear participants talk about the emergence of a new tech bubble.
Click here to hear participants discuss the importance of innovation in technology and communications.
PR pros gathered in tech and startup hotbed Palo Alto, CA, to discuss the communications challenges and opportunities for tech companies. Margit Wennmachers, a partner at the famed VC firm Andreessen Horowitz and cofounder of The OutCast Agency, kicked off the event with a Q&A with PRWeek editor-in-chief Steve Barrett. She spoke about the communications differences between the dot-com boom and bust 10 years ago and now, the makeup of the startups in which her firm looks to invest, the fervor to identify the next Facebook, and the kind of communications startups must employ to shine above the rest.
The current environment
Steve Barrett (PRWeek): Are we in the middle of a new tech bubble? If so, how does that affect the way you do business and communicate?
Ellen Roeckl (Juniper Networks): It feels like the decade of infrastructure. There's a lot of spending on IT. This next wave of mobile Internet and cloud computing requires big spend, big transition. It doesn't necessarily feel like a bubble, but it does have some of the scary bits of it, where there's an awful lot happening very quickly. The conversation is changing very quickly and we are being very conservative because of bubble fear.
Barrett (PRWeek): How does that affect your communications in the market?
Roeckl (Juniper): We are being pretty conservative and provocative about issues, as opposed to about our competitors. There was a lot of mudslinging and grand proclamations made in the bubble that just made everyone look foolish.
Tracey Parry (Airfoil): The recession in the Valley has forced a humility that has led to greatness from a communications perspective in forging authenticity and fact orientation. That has always been core to communications, but somehow the economic landscape made it more possible than it had been previously. In other markets where we exist, there is more of a fear factor.
Ray DeRenzo (MobiTV): I was with a venture-backed startup in 2000 and I am with one in 2011. The nature of the business and the narrative are completely different. In 2000, there was a lack of realism in terms of valuation and expectation of multiples on forward-looking revenues. We are introducing new technology and creating IP (Internet protocol). We are looking to innovate, but innovate in a defensible manner. We are doing all the things mature businesses do in mature markets, not irresponsible companies in overly exuberant markets, which may have been the case 10 years ago.
Barrett (PRWeek): Is that learned from that period or is there a new generation that doesn't even remember that?
DeRenzo (MobiTV): The people advising that new generations are all too familiar with what occurred in the late '90s and early 2000. You are not just acquiring audiences for the sake of it, but understanding how you can begin to monetize that audience. There is much more focus on product, proposition, revenue, and just sounder business practices.
Barrett (PRWeek): Who are the key advisors from whom you are taking counsel?
Jon Sobel (Calera): Our company is in the CO2 capture area and I am intentionally seeking advice from people who are in different realms. It's quite easy in Silicon Valley to find the necessary and useful advice from people who have seen what happened before. However, certainly for companies like ours, understanding how to communicate and collaborate with governments, other industries, and a host of regulatory regimes such as privacy are moving to the fore.
Jacob Mullins (Microsoft BizSpark): We align ourselves with community influencers and people in organizations who work with startups themselves and whom a startup trusts as a confidant. It's softened that relationship between us and has warmed introductions for when there is a great idea or someone wants to work with us. Whether it's on a product group or different customer interaction, we can connect the dots much more easily. The biggest opportunities we've been able to make for startups have been PR opportunities.
Luca Penati (Ogilvy PR Worldwide): You don't know if you are in a bubble until it bursts and there is no bubble without a boom. What we are seeing now is a great boom for Silicon Valley and the technology industry. If you go back 10 or 11 years, from that bubble, companies such as Amazon and Google came through and really revolutionized the industry. We won't know until it happens, but we know it is driving a lot of innovation. In 1998-1999, it was impossible to retain people because everybody wanted to become the next millionaire. And they could because all the companies had an exit strategy that was clear. They were not there to build the next great company; they were there to build the next great IPO.
Now, a lot of VCs are putting in a lot of money because they are looking for the next Facebook. The media loves to talk about the next Silicon Valley bubble because it affected them so much. But we should really focus on what this boom is driving. Whether it's a bubble or not doesn't matter right now.
Rodrigo Prudencio (Nth Power): The term “bubble” starts to come up when people are catching up to investment bets that were made four or five years ago. You never know when things are going to hit. That's the job of venture capitalists: to back entrepreneurs who are looking around the corner. And the real difference between a decade ago and today is that IT investors have gotten to know very intimately what the monetization strategies need to be around these companies.
Brian Curry (YouSendIt): Sitting inside a company that is still private and looking at the environment around capital today, it's very different than in 2000. There was this notion of building the next great IPO, but today there are a lot of questions around the IPO. Facebook is obviously a phenomenon and it's done it without becoming a public company. Some of us are old enough to remember when commercials didn't say “Find us on Facebook.” I see much more thoughtful use of capital now. I see many companies in this middle ground that are about scaling more than proving some initial basis for business. They are trying to think about the cost of that capital beyond just liquidity and dilution. There is absolutely no shortage of capital out there seeking investments today.
Prudencio (Nth Power): It takes a lot less capital to get that initial idea launched. So the next time you get into talking about capital for expansion, you can spark that with less than a couple of million bucks.
Curry (YouSendIt): I just don't see that same kind of frothiness because the first couple of steps don't require that big ceding of control to an outside investor.
Barrett (PRWeek): It's a much more mature business environment, isn't it? It's much more positive for everybody.
Penati (Ogilvy): I remember startups with three people that were spending a huge amount on PR because it was their only way to get visibility or get acquired. Now they look at PR as a really strategic partner at the table to build their business, not just to get visibility. That's a huge difference from 10 years ago.
Megan Lamb (Cutline Communications): From a communications perspective, there's more focus on fundamentals. How are you raising revenue? What value are you providing? How are you spending the capital your investors have given you? That is also a difference this time around.
PR's role in business growth
Barrett (PRWeek): How important is PR and communications in growing your business?
Catherine Afarian (23andMe): It's core. The pace of innovation and the rate things are changing in genomics, genetics, and making information available to everyday people is mind numbing. Our CEO has a vision for personalized medicine and we are out there long before the consumer market is ready for it.
Prudencio (Nth Power): For a startup, you've tackled mature company issues pretty early: personal security and ethics around who possesses information about genomes and the genetic makeup of individuals.
Afarian (23andMe): I love the fact it's an organization that isn't afraid to have an opinion and say, “We believe individuals have a fundamental right to access their genetic information.” If you are going into this space, you can't be wishy-washy about it.
Sobel (Calera): We try to think about communications in ways that go beyond telling a story about our company and into telling a story about the challenge. It's a very sophisticated exercise. It's not easy to do and it takes you back to how clear your thinking is, what you stand for, and what you are really doing here.
Afarian (23andMe): We have to communicate that this is still emerging science. We can provide our customers with insights today and we will be telling you more stuff tomorrow as our understanding of the human genome improves. Our service is a long-term value. We are trying to have conversations where we establish authority, but we have to be clear and set the expectation that what we tell you today will absolutely be different to what we tell you tomorrow because our understanding of genetics will be better tomorrow. It's a lot of education around genetics, taking that conversation into the consumer market, the legal and regulatory environment, to business partners – and the context is slightly different for each audience.
Barrett (PRWeek): It's an incredibly complex communications challenge isn't it?
Afarian (23andMe): We talk about innovation and – this term is a little overused as well, but I am going to say it – the disruptive innovator. When companies come in that change the way the game is played, the bubble becomes irrelevant. It doesn't matter what the economic cycle is if you are fundamentally changing an industry. Then, the opportunity for staying power is there and it really comes down to whether or not you manage the business well, communicate effectively about what you have to offer, and take advantage of that opportunity to build staying power?
Roeckl (Juniper): Ever since everybody stopped spending on infrastructure, everyone stopped evolving business models as capital markets dried up. There's this shift that needs to be caught up with in terms of how people are interfacing and how they are using it. There's a pent-up need for innovation.
DeRenzo (MobiTV): It's a funny dilemma we find ourselves in. I attended a workshop with a bunch of marketing officers about radical innovation, which is defined as bigger and more defensible ideas. The whole thesis centered on the notion of needing to think about moving into radical innovation.
Breakthrough innovation is perfectly appropriate when you are talking about the human genome or huge pieces of network infrastructure where there is an R&D investment. But when you are working with a software-based application and are able to do things more quickly and have that proposition refined by direct consumer insight, that is the path that needs to be followed. I was somewhat taken aback with the new buzzword “radical innovation.”
Parry (Airfoil): Last year, Google and others had this visceral reaction to the word “innovation.” They were like, “That's so yesterday; that's so tired. Why is innovation something we need so much? It's such a dirty word.” But the question now is the type of innovation: sustainable versus disruptive. You need both. True proven long-term technologies need a culture and DNA towards both.
Roeckl (Juniper): It's not necessarily radical product innovation or radical technology innovation. Sometimes a step function enables a radical business model transformation. Or the way people are building data centers for cloud. That's going to drive radical business model innovation that may need radical technology, and it may need a whole pile of incremental technology to keep up with it.
Sobel (Calera): Another form of innovation to add to that wonderful list is management innovation. Going really deep and thinking about how companies work, how things get done, how people relate to each other.
The different faces of innovation
Barrett (PRWeek): Is management innovation more important in the tech space?
Sobel (Calera): Absolutely. At some point, whether it's the size of an organization or simply the understandable forces that grow up from traditional ways of doing business, it's very hard to innovate. We are all around it a lot, we talk about it, there are many more examples of failure than success, and you have to free people to really think creatively and take risks. Everybody says go ahead, but many people are understandably afraid of doing it.
Barrett (PRWeek): Give me an example of radical innovation? What is meant by that?
DeRenzo (MobiTV): Radical innovation implies bigger and fewer ideas. So as an organization you are focusing on bigger bets. And these are big bets that can be defensible. So you are creating IP, a unique position in the market, a unique process, or a unique business relationship in delivering the innovation. I can prototype a user experience around video on a mobile phone for a couple hundred bucks, so why wouldn't I exercise that ability to get direct consumer insight and feedback into the products I am building. Whereas building router technology is a very big bet.
Barrett (PRWeek): How does it differ for a startup compared to an established company?
Penati (Ogilvy): It's easier for a startup to be truly innovative because it doesn't have the bureaucracy and conflicts within the company. They don't have the resources either. But big, established companies tend to be slower. They usually look at acquisitions to innovate. It's not a bad thing to do, especially when you become so big that you tend to look more at your competitors in terms of market share.
Roeckl (Juniper): The concept of radical innovation is often premised on the basis of a clean- sheet approach. And when you get to be an established organization you usually have something to protect, a market you are in that a clean-sheet approach cannibalizes. Protecting existing business is probably the biggest detriment to innovation inside an organization.
Prudencio (Nth Power): This goes to communications. Isn't one of the major differences between small and large companies is that radical innovation in large companies actually goes on well outside of public view, but actually has massive transformative affects? The fact that Apple now generates more revenue through digital sales of information than it does through hardware is one example. A boardroom discussion had to have happened saying, “We are going to invest in massive storage and compression technology and online delivery.” All of these things happened outside of public view, but were massive innovation drivers.
Because private companies or startups are trying to exist on the edge, the discussion is much more public. There is a fundamental difference in PR. In some ways you are trying to hide the bacon in a large company.
Afarian (23andMe): At some point every company is a startup. As their market gets established and matures, they grow their ability to innovate; the type of innovation that's going to feed that business is going to evolve with it.
That can be painful. Sometimes you have half a company that is really committed to staying a startup and the other half saying, “Look guys, it's time for us to be grownups now.” You get internal conflict.
Lamb (Cutline): A lot of times in larger companies there are startups within. There is innovation happening in different pockets within a company. It's just not always seen until that becomes a success or big enough to be public.
Curry (YouSendIt): There is an argument that innovation really doesn't exist until you can communicate it to someone on the other side of the equation. You can come up with a better mousetrap, but until it's connected to a value in the mind of an audience or a user, it doesn't really exist.
Penati (Ogilvy): Without market adoption it's an invention, not innovation.
Crowdsourcing will really lead the best innovation in the next five, 10, 15 years. It would be very interesting, talking about management innovation, how established companies are going to embrace that and how they are going to use the cloud to lead innovation.
Established companies don't really understand how to embrace and leverage that because they are scared. If they don't embrace it, they are going to have 50 people on R&D versus, say, 2 billion.
Sobel (Calera): We are working with several firms trying to bring open source, open innovation techniques to the challenge of innovation. Communication is critical to this because you have to be a credible, interesting person to work with, and you have to be able to communicate effectively about what's going on so you can work on these problems with other people.
Roeckl (Juniper): The people organizing platforms to allow that to happen are the ones who are going to win in that conversation. Communicating innovation
Barrett (PRWeek): So if innovation doesn't exist until it's communicated, what is the best practice for communicating it?
Curry (YouSendIt): Consumerization. If you are expressing innovation, you are going to this notion of adoption and uptake. If you look across a consumer model you see it with adoption. I am fascinated with where it crosses the line into, for instance, corporate use. Evidence in the mind of the user is expressed through adoption.
Prudencio (Nth Power): In the many segments of energy technology or cleantech, one of the most important departure points from innovation to whatever is credibility. The credibility gap on energy may be distinct or may have some parallel to some more mature areas of IT. If you are going to introduce a company that's going to innovate something in energy, chemistry, fuels or even in solar, you better be damn sure what you are proposing to do is possible and relevant.
The relevance question has remained relatively unanswered around innovation. There has been a ton of talk behind cellulosic bio fuels. But when you really look at the ability of these refineries to actually make fuel, they are limited by the amount of raw material they can bring in, process, and transform into something else.
Roeckl (Juniper): There is the hackneyed chart most of us communications people have seen about the influencers on the inside. It still holds true for innovation, that there is a group of commenters who can either kill an idea or breathe life into it. You have to pay attention to those commenters because if you don't win them over they become more credible than the company itself.
With social media, influencers are now users. They merge together. There used to be this set of paid consultants and journalists. Now there are people who just put up a blog, and they are users and very well connected to the information.
Curry (YouSendIt): Sometimes the trick is just to see past your own hand and realize you have to speak. It becomes second nature to a lot of you, but it's not second nature to people designing products and building things on the engineering side. You have to speak to some kind of personal empowerment. Crossing that chasm is not the most intuitive thing in a tech-based company.
Lamb (Cutline): Some companies get so caught up on the label they forget the user.
Penati (Ogilvy): Communicating innovation is going back to telling a really good story and about being storytellers. You need to be a social storyteller in the digital age to understand how to leverage. If you need to tell a good story narrative, it's also because for the first time in history companies are publishers and media companies. It's a huge opportunity that companies can really drive and tell their story to any stakeholders. But the interesting thing is that it also changes the way companies are structured, because who owns content?
Besides crowdsourcing leading innovation, all marketing departments will change into publishing operations. Marketers need to become publishers who know how to tell their story and drive content. We will even see companies start to have chief content officers.
Barrett (PRWeek): Chief communications officer becomes chief content officer?
Afarian (23andMe): A key part of that whole equation is demonstrating innovation and value through the experience and stories of your customers in your community, and empowering them to tell their own stories to others – building the tools that fuel that network effect, so they can share and send things.
Telling the cleantech story
Barrett (PRWeek): Do you have to call it “green” cement to tell those stories? Is that one of the challenges, especially with cleantech: reducing it to those levels?
Sobel (Calera): You must develop and maintain credibility. You must make what is a decades-long journey accessible. In the case of energy and carbon capturing cement for us, you have to be acutely aware of the many audiences you have to work with. Very large amounts of money are at stake. I am a fan of the constrained move. When you realize everything you say to every audience has to match up, it makes you very thoughtful and clear in how you talk to people.
DeRenzo (MobiTV): When you are talking about a trusted relationship versus a product relationship, you don't talk about the product; you have to talk about the element of trust. That's what the message is. People then look at you not only as an authority in a particular area, but someone that is acting responsibly and with their best interest in mind.
Parry (Airfoil): There is a natural tension that exists in that, particularly in the Valley. The DNA of this market is “What's next? What's more? What's happening? How are our competitors kicking our butts? Why are we not them?” As we've worked with professionals within cleantech, it's an amazing tension point. We had to talk a company out of issuing a chocolate bar because it was a distraction, completely anti its brand, and it could have done significant damage to the education this cleantech company was trying to provide.
Barrett (PRWeek): How much does it frustrate you that some people argue cleantech hasn't reached its potential?
Prudencio (Nth Power): The term “cleantech” has been a double-edged sword. On one hand, it's become an organizing principle for lots of folks to take a look at what's going on. It has also diminished the fact that it covers a number of segments that are very large and have a mature set of economics and incumbents, all of which are places where you've got to maneuver and figure out your way as a startup. We are coming into the third wave of cleantech. This will be characterized by a much better understanding of the different segments of cleantech, capitalization needs and exit expectations.
Afarian (23andMe): One of the fundamental elements in this is when you talk about consumer adoption and bringing these grandiose solutions that are going to be a problem-solver and game-changer for everyone and becoming a commodity. You are talking about changing people's behavior. That takes time. In some cases, it's generational. There are still people out there who say global warming isn't happening and scientists are making this up. I don't have any data behind this, but I am going to guess some of those folks tend to be of a certain generation.
You have to recognize in many markets it isn't realistic for consumer adoption to happen in the millions and billions overnight. You have to look at what it's realistically going to take to actually change behavior, what that timeframe looks like, and if there generational influences required to turn that ship. That has to fundamentally inform how you communicate.
Barrett (PRWeek): Isn't this a classic example of where PR and communications pros go beyond marketing and need to be right next to the CEOs, legal counsel, and strategists trying to overcome these communications challenges?
Parry (Airfoil): What media or political type is going to be the one to say, “You have to differentiate consumer tech and cleantech?” You cannot apply the same benchmarks or adoption rates now.
Media beats are getting so diversified and there is a need for education. PR plays a role in the education piece because it's so required in cleantech. Communications needs to be right there.
Curry (YouSendIt): When you talk about PR and communication around this overly generalized industry, what moves these markets? In the news these days, I see more of a government or municipality mandate to have a percentage of the energy load moved over. Are you speaking to people to move to the ballot box to drive that metric or are you communicating to people to get them to directly adopt technologies such as the hybrid car? Which way does it really tilt today?
Barrett (PRWeek): What will we be discussing in 12 months' time?
Lamb (Cutline): Financial uncertainty is going to shape a lot of communications over the next year. We are coming out of that, but there's still going to be a lot of focus on fundamentals. There will certainly be much more focus on users, as there has been over the last year.
Roeckl (Juniper): As communications professionals, we have traded in words as a primary currency. We need to figure out the visual part pretty quickly and become broadcast reporters, instead of news release and Twitter writers.