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IoT Field Notes: The Seed Fund

Summary: A practical process to carve out some of your budget to seed innovation projects for the product development folks, looking to experiment with the Internet of Things.

As we have moved through these last few months, connecting with business units (BUs) and developing ideas around Smart, Connected Products, we’ve experimented with different ways to generate interest, explain concepts, introduce new ideas, and make real progress. One idea, put into practice late last year, has turned out to be a strong driving force; the establishment of a Seed Fund for early-phase Internet of Things (IoT) projects.

Our Seed Fund operates like an early-stage incubator, funding multiple small scale projects that illuminate new ideas, target roadblocks, and pose succinct questions to customers and channel partners. Inertia is a powerful thing; BUs and product lines that have never thought about “information as a new, differentiating feature” are curious – but with little practical experience, are unsure where to begin. The Seed Fund, coupled with our high-energy, somewhat aggressive go faster mentality, helps get the ball moving – and quickly shifts the focus to Big Questions that need Fast Answers.

You can generate the same kind of energy in your business by establishing something similar – maybe call it a skunkworks, or an internal innovation fund. By proactively carving out resources, and investing the time & energy to get the communication right, this resource pool can pay large dividends in many ways.

Please Note: This applies to IT, Engineering, Marketing – anyone who wants to take the initiative and drive the conversation towards creating value in revolutionary new ways!

Source of Funds

Getting started takes planning – especially if your organization is focused on tight budgets and prioritized work efforts. Over the past few years, our team has been managing costs and prioritizing projects, slowly building a surplus in the departmental operating budget. Of course, we give some back, in the form of spend reductions in select areas. But why give it all back? We took the initiative to claw back some of the savings into a line item for “special projects” – something to really enhance the business.

Note this critical first step; don’t rely on the “powers that be” to suddenly, magically become enamored with new technology and come to you with a few million in “fun money”. It’s just like budgeting and saving at home – put some aside for a rainy day. For your business, the put-aside will go to blue sky, green field, opportunistic projects.

It’s what the rest of the company has always asked for – “do something innovative“. In this case, we carved out resources (namely, cash) from our own budget to make it happen.

Use of Funds

Now, don’t expect that you’ll get 20-30% of your total budget shifted to this “seed fund” – in the first year or two, it will probably be relatively small. In our organization, it was only 1-2% of the department’s operating budget. This actually worked out well; you don’t want to blow the entire amount on a single project, so we were always thinking about small-scale, proof-of-concept, experimental efforts, focused on creating small deliverables with simple outcomes, demonstrating the value (or the folly) of our early ideas.

Through the first six months of the program, there had been no formal application or approval process for using the funds – it’s been enough work finding product line teams that were willing to think differently, and give some new ideas a chance. Over time, news of our growing successes spread, and we started to see teams coming to us – looking to take advantage of our cash, and our growing levels of applied expertise in this new world of sensors and cloud databases.

Measures of Success

Don’t expect overnight success that translates into new, organic revenue growth next month. Remember, we’re only working on proof-of-concept projects – we’re still talking about product concepts that are extremely new to these industries. Success is not measured by top-line contribution – yet. But success can be measured in different ways …

  • Are product line managers using Seed Fund projects to get new, valuable insights from customers? Validation is great, but if you are finding out you were wrong on your ideas – that’s a beautiful thing as well (better to find out in the early stages, before the big capital investments kick in).
  • Are mechanical engineers starting to play with Arduinos and SIM cards? Opening up these brilliant minds, that really understand the specific problems of the customers, to new ways of addressing those problems, presages a bright future in NPD and innovation.
  • Are business leaders mentioning these new, experimental projects in high-level status reports? The farther up the management chain you go, things get distilled and summarized – but when you see bullet points appear that started as Seed Fund projects, it’s a sublime affirmation of the power of these ideas.

Our projects have moved the needle and created a lot of visibility for these new product ideas; how could a Seed Fund help your organization make the pivot?

# 26 October, 2015

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James MacLennan

... is the Managing Partner at Maker Turtle LLC, a digital consultancy focused on creating value in ways that align with your strategy and drive engagement with employees, customers, and stakeholders. He is an active creator, providing thought leadership through on-line & print publications, and public speaking / keynotes.