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Look at the Orchard as Well as the Tree for Low-Hanging Fruit to Harvest

By Donald Mitchell

Republish: EasyPublish™ Published: 09Nov2008 Word count: 618 Viewed: 136 time(s) Get Free Content For Your Site

During recessions, companies focus on getting costs down and reducing debt. During boom times, hiring people, new products, and increased marketing require lots of attention. If companies could focus on all of the above at all times, they would surely be more effective. But how to accomplish that?

Looking at the potential to expand business models will often help companies to keep more balance in their thinking and actions that will create or increase competitive advantages. The key limitation to developing and improving business models is to treat each innovation as an end, rather than as a beginning.

In frozen fruits and vegetables, most people thought about how to innovate with products and did not consider other ways that the business model could be improved. Otherwise, the potential Mexican sourcing advantage (harvesting three crops a year with lower cost labor) could have been seized decades earlier.

Acacia Research was taking this concept seriously in 2000-2001. The company had begun as a private early-stage venture capital firm.

When the public markets developed a taste for venture capital investing in 1996, the firm went public as a way to access more and lower-cost capital. The company's management began to look for business models that were faster, better, and cheaper than what had existed before and would appeal to a natural set of public market investors.

Initially, most of these investments were made in Internet-related businesses. One of Acacia Research's last investments with its public round of capital was in an unconventional technology for producing low-cost, quickly available biochips for testing new pharmaceuticals, diagnostics, and agricultural products.

When the potential of CombiMatrix (the biochip business) came to be perceived as greater than its other portfolio investments in 2000, Acacia Research began selling and liquidating everything else in order to focus on this one venture and business model. While CombiMatrix focused on making the technology work in life sciences, Acacia Research and CombiMatrix will also have a joint venture to exploit the CombiMatrix technology platform into material sciences applications (such as for fuel cells with an extended battery life), thus extending the business model substantially while the original base is still being developed.

CombiMatrix can focus on the tree of life sciences while the new joint-venture management can focus on the tree of material sciences. Acacia Research top management can monitor and direct starting-up other business model extensions as they are warranted with similar joint ventures. In the meantime, Acacia Research intended to seek independent public financing for each operation to help them along their separate paths.

If this technology is broad enough and Acacia Research is nimble enough, the result will be an ever-expanding orchard filled with vibrant cross-bred business models.

When asked about his thought process for making these changes, Paul Ryan, chairman and CEO, observed that:

(1) You first have to think as a shareholder. As yourself, what would I want my CEO to be doing? Often this means having to do things you find distasteful, like letting businesses and people go. This shareholder focus helps overcome procrastination.

(2) Then, ask your management people what they would want the CEO to be doing.

(3) Continually ask yourself if you are acting as a good custodian of investors' capital. A good test of how well prepared you are is to assume that everything will go wrong. Are you prepared? Are you taking action quickly enough in light of the results you are experiencing?

(4) Your search for a better path should start back at square one every day, building on what you learned yesterday.

Are you ready to apply those perspectives?

Copyright 2008 Donald W. Mitchell, All Rights Reserved

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