March 27, 2020

How to Build an Advisory Board

In recent meetings with startup founders, I was asked to provide advice on how to build an advisory board. Much of my advice is similar to the information Jake Mendel, Vice President of Silicon Valley Bank's Startup Practice in New York City, provides in his article, "How To Build a Startup Advisory Board." "Building an active startup advisory board can help startup founders fill expertise and experience gaps," says Mr. Mendel, "but ... there are pitfalls to be avoided."

In explaining the difference between an advisor, a mentor and a consultant, he notes: "The term 'advisory board' is somewhat of a misnomer as advisors generally do not meet as a group regularly and have don't have the legal and fiduciary responsibilities of a board of directors."

  • Tend to consult one-on-one with founders and executives as needed;
  • Sign agreements with startups specifying their roles; and
  • Typically get compensated with equity (more on that later).

In contrast:
  • Mentors are unpaid and act in an informal capacity; and
  • Consultants can play a similar role as advisors but most often are hired to perform one or more specific tasks or projects and are paid in cash.

With respect to when to begin recruiting advisors, Mr. Mendel suggests that "startups may want to bring advisors on board to tackle distinct challenges. For instance, an electric scooter company that's trying to break into a new city may need an expert who knows how to navigate around regulatory roadblocks in its target market. Or a medical device maker could benefit from an advisor with connections to top academic institutions and government regulators."

What is more, "Advisors can also help startups understand the ins and outs of legacy industries, like insurance. Kelly Fryer, program director for the Barclays Accelerator, powered by Techstars, remembers a portfolio company that was successfully paired with an industry veteran. 'The advisor filled the gaps in their knowledge of the industry and gave them credibility,' she says. 'They were effective by taking a Socratic approach, helping them unpack the issues, asking questions, playing devil's advocate, but ultimately giving the founders the space to make their own decisions.'

"Finally, for startups in sectors that require deep subject-matter expertise, the right advisor can be invaluable. 'For a biotech company, bringing on board someone who is a physician or a researcher with deep knowledge for one hour a month could really change a company,' says Ash Rust, managing partner at Sterling Road, a Bay Area venture capital firm that invests in and advises seed-stage startups."

As for where to find advisors, Mr. Mendel advises founders to "start with your network. Sometimes mentors can morph into formal advisors if they have proven particularly valuable and you have formed a trusted relationship with them." My relationship with a company where I serve on the advisory board often started with me mentoring to one of the founders.

But the article also mentions the importance of screening your prospective advisors carefully and avoiding "a common mistake: the temptation to give away equity for the sake of adding high-profile names to an advisory board to impress potential investors and customers."

Not having the right team is one of many reasons why startups fail, which I note in this post. The team includes founders, managers, support staff, advisors and board directors. Therefore, I agree with Mr. Mendel that it is important to perform due diligence on prospective advisors including conducting "interviews, reference checks and ensuring a prospective advisor does not have conflicts of interest because they're advising another startup in the same industry."

Based on my experience as a founder as well as an advisor, I concur that a "[s]tartups' needs can change quickly, so you shouldn't hesitate to replace advisors as priorities shift." Founders may want to consider auditing their advisory board every 12 months, as opposed to Mr. Mendel's recommendation of every six months, "to identify whether any member is no longer needed."

As mentioned previously, advisors often receive equity compensation for their service. Terms of the compensation should be formalized through an advisory board agreement. "Whether your attorney drafts that agreement or you use a template, the document should include":
  • Confidentiality and non-disclosure provisions for intellectual property and other proprietary information provided to the advisor;
  • Duties and responsibilities of the advisor;
  • Length of agreement; and
  • Advisor compensation.

"One of the most important parts of any advisory agreement — and one that will affect the future of your company — is the compensation component," Mr. Mendel explains. "It can be tricky, as you're essentially awarding a piece of your startup to an advisor who has yet to prove his or her value.

Moreover, "Founders should be especially cautious about awarding equity to advisors in a startup’s early days as over time they could end up owning a significant share of the company."

Regarding vesting schedules and cliffs, the article helpfully explains: "An advisor may receive between 0.25% and 1% of shares, depending on the stage of the startup and the nature of the advice provided. There are ways to structure such compensation to ensure that founders get value for those shares while retaining the flexibility to replace advisors without losing equity.

"One option is a two-year vesting schedule with a six-month cliff, meaning that if the relationship doesn’t work out during the first six months and the advisor leaves, the company retains the equity."

Founders should understand there may be "times when an advisor proves so valuable to a startup that founders will want them on staff." Keeping in mind that an advisor is expected to allocate a limited number of hours per month, a company may want to consider retaining the advisor's services as a consultant or employee if it sees value in the expanded engagement.

Lastly, I support Mr. Mendel's assertion that "[a]dvisors are a valuable resource that can provide the right business, technical or policy help at the right time for your startup. But remember this: an advisory board is not about bragging rights. It's about finding dedicated allies, with specific skills who can help you accomplish a well-defined task."

Do you have any recommendations for building an advisory board?

Aaron Rose is a board member, corporate advisor, and co-founder of great companies. He also serves as the editor of GT Perspectives, an online forum focused on turning perspective into opportunity.

March 25, 2020

Opportunities in Digitizing Payments in Agricultural Value Chains

In 2004, I had the opportunity to collaborate with the Government of Uganda in making improvements to the country's agriculture sector, which is the sector where most Ugandans make their living. During our assessment, my colleagues and I witnessed a variety of inefficiencies including the low yield per hectare as a result of poor utilization of technology that farmers in developed countries had long utilized, lack of dry or cold storage facilities (and the lack of reliable electricity to power the latter) that led to a high rate of produce spoilage, and the glacial transfer of payment process within the typical agricultural value chain.

While much has improved over the past 16 years, I continue to see inefficiencies during my more recent trips to Africa, Asia, and Latin America. Therefore, I read with great interest a report, Digitizing payments in agricultural value chains: The revenue opportunity to 2025, published by the GSMA, a UK-based trade organization.

Focusing on countries with an agricultural value-add (percentage of GDP) greater than 10 percent in 2017 as determined by The World Bank (with Mexico, Peru and Sri Lanka being exceptions and have been included to show the potential of digitizing payments in the agricultural value chain), the report explains that it "is aimed at mobile money providers, which have the opportunity to drive growth in rural areas in developing countries by digitizing agricultural payments. Two types of payments are ripe for digitization: procurement payments from agribusinesses to smallholder farmers in formal value chains and subsidies paid out by governments to smallholder farmers. Both offer mobile money providers an entry point to digitize agricultural payments and enhance financial inclusion for smallholder farmers."

Furthermore, "Using proprietary methodology, this report looks at the growing opportunity to digitize business-to-person (B2P) payments (typically between agribusinesses and farmers) and government-to-person (G2P) payments (typically between governments and farmers) in agriculture in 72 developing countries. The revenue opportunity for mobile money providers from digital B2P payments is expected to increase from $2.4 billion in 2021 to $3.2 billion in 2025, while the revenue opportunity for digitizing G2P payments is expected to rise from $152 million in 2021 to $210 million in 2025."

Importantly, "Digitization can reduce transactional costs and make agricultural value chains more efficient, safe and transparent. This report examines the opportunity to digitize agricultural payments and lays out the foundational elements that must be in place for mobile money providers to realize this opportunity. Prerequisites for digitization include an enabling regulatory environment, the availability of active and liquid agents in rural areas and the presence of agribusinesses and government bodies willing and able to deploy digital tools. While initiatives to digitize B2P payments are beginning to emerge, there are much fewer examples of digital G2P schemes. This report highlights the challenges that have constrained the growth of digital G2P payments."

Below are the report's key findings and recommendations regarding B2P payments:
  • The revenue opportunity for mobile money providers in digitizing agricultural B2P payments is expected to reach $3.2 billion by 2025.
  • Asia offers almost 80 percent of the global opportunity to digitize agricultural B2P payments due to the large volume of formal agricultural B2P cash payments available. Sub-Saharan Africa has a smaller revenue opportunity, but strong mobile money uptake, especially in East Africa, means that the region is ripe for digitization.
  • To digitize B2P payments to smallholder farmers, mobile money providers should work with agribusinesses in formal value chains.
  • If operating in an enabling regulatory environment, mobile money providers should ensure they have active rural agents with sufficient liquidity for cash-outs when farmers receive agricultural payments.
  • Mobile money providers should also allow agritechs to integrate real-time payments solutions to create holistic digital agricultural tools that can add value for both farmers and agribusinesses, such as digital farmer records and advisory services.

The report also presents the following key findings and recommendations with respect to G2P payments:
  • The revenue opportunity for mobile money providers in digitizing G2P payments in agriculture is expected to grow to $210 million by 2025.
  • With established traditional subsidy schemes, most notably in India and Pakistan, East Asia and South Asia together offer the highest revenue opportunity in G2P digitization. However, there is a significant opportunity in digitizing G2P payments in Sub-Saharan Africa too, particularly in larger markets, such as Ethiopia and Nigeria – with the former having implemented a nationwide scheme to digitize fertilizer and seed subsidies to farmers in 2012.
  • Assuming the presence of an enabling regulatory environment, digitizing G2P payments in agriculture offers mobile money providers a significant revenue opportunity, especially in countries with large, established, cash-based subsidy schemes.
  • However, digitizing G2P payments presents a different set of challenges than B2P payments, primarily dealing with complex governmental procurement processes and the risk of shifting government priorities.

In addition to my work in Sub-Saharan Africa, I had the privilege advising government agencies and agribusinesses in Afghanistan, Iraq, and Uzbekistan. These experiences provided me with the opportunity to understand the challenge of getting "payments to farmers in the last mile of agriculture value chains, as well as government subsidy payments to farmers." According to the report, "In agricultural value chains, the 'last mile' is the web of relationships and transactions between buyers of crops, such as agribusinesses, cooperatives and middlemen, and the farmers who produce and sell them." A digital payment system could provide a remedy.

As the report encouragingly explains, "With 290 live mobile money services in 95 countries (as of December 2019), there is an opportunity for mobile money providers to digitize payments to farmers in the last mile of agricultural value chains, as well as government subsidy payments to farmers. The benefits for mobile money providers and mobile network operators (MNOs) can be both direct and indirect":

Direct benefits of digitization
  • Revenue from payment transaction fees
  • New mobile money customers in rural areas
  • New mobile network service users
  • Increased loyalty or stickiness of existing users
  • Licences for payment platforms and management systems

Indirect benefits of digitization
  • Higher use among existing mobile money users
  • Mobile money ecosystem use by new customers
  • Increased network use (SMS, calls, data)
  • Increased agent activity – ecosystem development
  • Uptake of adjacent products (loans and insurance)

What solutions do you think will help improve efficiencies in the agricultural value chain?
Aaron Rose is a board member, corporate advisor, and co-founder of great companies. He also serves as the editor of GT Perspectives, an online forum focused on turning perspective into opportunity.

March 23, 2020

Compensating Your Board Directors in 2020

Shortly after publishing the previous post on this blog, people have asked about the amount of compensation a company should pay its board directors. Given its limited resources, it may not be feasible for a startup to compensate its directors. Besides, most directors serving on a startup's board are not expecting compensation as they are often investors in the company and agreed to serve on the board to help the founders navigate the never ending challenges that comes with taking a company from concept to profitability. More mature private companies, however, should be providing financial compensation to their directors. This question is: how much?

In his article, "How Much Should I Pay The Directors On My Board In 2020?" Bernie Tenebaum, Managing Partner of Lodestone Global, a strategy consulting firm based in New Jersey, provides some guidance on the level of compensation. Taking information from his firm's 2020 Private Company Board Compensation Survey, Mr. Tenebaum presents the following highlights:
  • "Median total compensation was $43,500, ~4.8% higher than the $41,500 reported last year. The 4.8% increase (+4.5% in 2018) is the result of a 5.5% increase domestically and a 3.6% increase internationally. Technology firms saw the most growth this year, paying their directors +10% more than in 2018.
  • "Median revenue of the survey was $100m and the median number of employees was 250.
  • "Boards continue to have a strong impact on company performance. 94% of companies reported increased revenues and 92% reported increased EBITDA. Since the respondent joined the board, companies reported an average revenue increase of ~50%. 53% of the participants categorized their boards as 'Indispensable' or 'Very Effective' at driving corporate strategy. These results support the notion that a board, particularly with the right directors, can be essential to achieving corporate goals and improving profitability.
  • "Similar to last year, 21% (22% in 2018) of respondents reported using equity as part of their compensation schemes. These schemes tended to target a specific value of the company or shares outstanding. For the fourth year in a row, total compensation for these schemes were paid roughly half cash and half equity."

Source: Lodestone Global

As reflected in the historical compensation data chart above, Mr. Tenebaum explains that "directors earned a $31k retainer, $2,750 per meeting and $750 per formal teleconference. We have seen a steady increase in director pay since 2013. For the second year in a row, the growth in total compensation was primarily driven by U.S. companies, particularly $50-$500m. Domestic compensation grew another 6% year on year, after growing 10% last year. The U.S./International compensation spread has widened to $10,600 (US directors now earn 29% more than their international counterparts). This may reflect the strength of the U.S. markets, both in terms of employment and equity market valuations."

Year on Year Growth in Total Compensation By Industry: Lodestone Global

The article further notes: "After a strong 2018, Financial Services and Utilities/Energy/Industrials firms slowed their growth in 2019. Technology firms rebounded to the top spot driving compensation growth after a weaker 2018. We saw broad based strength across many industries/sub-industries likely commensurate with where we are in the current economic cycle. The decline in manufacturing and retail also seems correlated to the economic weakness in those segments."

What sources do you use to determine how much a company should pay its board directors?

Aaron Rose is a board member, corporate advisor, and co-founder of great companies. He also serves as the editor of Solutions for a Sustainable World.

March 22, 2020

How a Board Member Can Add Value to a Startup

Through a post that I published on this blog, I share information about when to form a board of directors, how much to pay your board members, and how to work with your board outside of board meetings. With respect to the third point, Mike Volpi, general partner of Index Ventures, international venture capital firm with dual headquarters in San Francisco and London, authored an article that says "a board member can create value in a way that transcends the specifics of each company and its leaders" and a director's role "is to help the company create greater shareholder value." Importantly, directors "are not the CEO's boss. The role of the collective board is to be an advisor to the CEO and the management team, which, in some corner cases, is called upon to encourage changes in that management team."

Unless requested by the top executives, a director should not become involved in the company's operations. "CEOs, founders and management teams are far more versed in the business that they are operating than any investor," Mr. Volpi explains. "They know the internal details, the nuances of the business, the products, the market and the competitive dynamics. By and large, they are far better equipped to run the business than any board member could be."

Based on my experience serving on a board, I support the view "that the healthiest relationship between a board director and the CEO is one that is peer-like. The board member's function in that context is one where, as a good friend would, they are supportive but candid and transparent about their view on the state of the company, its challenges and its opportunities. In doing so, the dialog that occurs will be one which is genuine in nurturing the company rather than a cat-and-mouse game or a love-fest."

What is more:
Command of the context is one of the most important values boards can provide. While entrepreneurs have the deepest knowledge of their own business, they do not have the benefit of having seen many other companies that are like them. Especially in the startup universe where there are so many common patterns that recur regularly, the ability to provide the comparative context is very valuable. These recurring patterns exist in almost every aspect of a business. Whether it's in strategy, go-to-market, executive hiring and firing, market adoption versus monetization, and many other attributes, there are lessons that a new business can learn, both positively or negatively, from others who have walked in their shoes earlier on. Not all of those lessons apply. Each business is a snowflake — unique in its own way. But, for the leadership of a company, being able to compare and contrast the situations with those that have come before can be of enormous value in shaping the right business decisions.
Being available to the company's leaders is an impactful role the director may play in helping the business. According to Mr. Volpi:
Startups are real time. Issues surface every day and every moment. Leaders seek "micro-advice" in the moment, all the time. A board member should have the availability to respond to entrepreneurs when needed. Sometimes that means calls at 10 pm. At other times, that means five or 10 text messages in a day. Sometimes these "micro-advice" moments are extremely impactful: how to deal with a particular customer, how to close a candidate, whether or not to fire someone. At other times, they are not pivotal. However, they often provide the CEO with the ammunition to make a tough decision, or simply the ability to offer a moment of empathy. A director's ability to be available in those key moments is incredibly valuable and irreplaceable. Providing that level of availability can sometimes be a challenge for board members — after all, we all have action-filled busy days. But, the board member who is able to find the time earns the right to become the proverbial "first call" for the entrepreneur. Such "micro-advice" also provides the board members with the ability to be relevant at all times to the leadership team of a company. The moments when CEOs need another perspective don't show up neatly five times per year at pre-scheduled times.
In discussions with startup founders, too many have confided their disappointment about directors not being engaged with their company. Therefore, I agree that "board members should not view board membership as a list of icons on their LinkedIn profile, but as a subtle yet massively impactful role they play in the creation of great businesses. When these relationships function properly, the two parties become true partners in the entrepreneurial journey."

What recommendations do you have for how a board member can add value to a startup?

Aaron Rose is a board member, corporate advisor, and co-founder of great companies. He also serves as the editor of GT Perspectives, an online forum focused on turning perspective into opportunity.

March 19, 2020

GSMA: '5G Has Arrived – but 4G Is Still King'

According to a report authored by GSMA Intelligence, the research and consulting arm of the GSMA, a UK-based trade organization, "5G will drive future innovation and economic growth, delivering greater societal benefit than any previous mobile generation and allowing new digital services and business models to thrive."

The Mobile Economy 2020 further explains: "Many countries have already launched 5G, but widespread commercial 5G services are expected in the post-2020 period, which will mark the start of the 5G era. 5G is developing in parallel with rapid advancements in both AI [artificial intelligence] and IoT [Internet of Things]; the combination of these technologies will have a large positive impact, spawning innovations for consumers and enterprises defined by highly contextualized, on-demand and personalized experiences."

As highlighted in this press release, GSMA Intelligence's report reveals that:

"5G has arrived – but 4G is still king: 4G was the world's dominant mobile technology last year, supporting more than half (52 percent) of global connections. Despite the emergence of 5G, 4G will continue to grow over the coming years, increasing to account for 56 percent of connections by 2025.

"The industry is investing heavily in 5G: Mobile operators are expected to spend $1.1 trillion worldwide between 2020 and 2025 in mobile CAPEX, roughly 80 percent of which will be on 5G networks.

"The smartphone is becoming ubiquitous: Smartphones are forecast to account for four of every five connections by 2025, up from 65 percent in 2019.

"IoT will be an integral part of the 5G era: Between 2019 and 2025, the number of global IoT connections will more than double to almost 25 billion, while global IoT revenue will more than triple to $1.1 trillion.

"Subscriber growth is slowing, but the industry still has people to connect: The number of unique mobile subscribers at the end of last year stood at 5.2 billion (67 percent of the population) and is forecast to grow to 5.8 billion by 2025 (70 percent).

"Half the planet connected to the mobile internet: Almost half of the global population (3.8 billion people) are now mobile internet users, forecast to reach 61 percent (5 billion) by 2025."

Regarding connected devices, "The business case for IoT is shifting from just connecting devices to addressing specific problems or needs with solutions to collect, process and integrate data from multiple sources, which can then be analyzed to create value and provide actionable insight." Furthermore, "Enterprise IoT connections will overtake consumer in 2024, and will almost triple between 2019 and 2025 to reach 13.3 billion. This will account for just over half of all IoT connections in 2025.

"Consumer IoT connections will almost double to 11.4 billion in the same time frame. More and more devices include connectivity built in by default and interoperability within the ecosystem is increasing."

The report also explains that smart manufacturing and autonomous cars are important verticals for 5G and presents the following use cases for the former:

Robots and robotics
  • 5G increasingly complements Wi‑Fi in factories
  • Real-time AI-powered robot collaboration and integration
  • Cloud-based wireless robotics

Labor augmentation
  • 5G and AI-powered industrial AR, enabling workforce training and augmenting human skills
  • High precision simulations of human-machine interactions in various manufacturing situations

Remote real-time manufacturing
  • Live remote monitoring and reconfiguration of robots and processes
  • Remote quality inspection

Connected operational intelligence and analytics
  • 5G coupled with AI enables real‑time data gathering to inform immediate manufacturing decisions
  • AI-based analytics for processes, inefficiencies and predictive maintenance for robots

On the topic of mobile delivering social impact, the report says: "With more than 5 billion unique subscribers worldwide, and more than 7 billion people covered by a mobile network, mobile is increasingly being used to access an array of life-enhancing services that contribute to and catalyze the achievement of the UN SDGs."

"Despite the global reach of mobile," however, "much more can be done to leverage its power and support the delivery of the SDG 2030 targets. Crucial to this will be helping people realize the full benefits of using mobile and mobile internet services in terms of accessing health information, public services and digital payments, both in developed and developing countries. New technologies that are supported by IoT also need to achieve scale if mobile operators are to maximize their impact on the SDGs – for example, solutions in smart cities that can reduce pollution, and smart buildings and homes that can increase energy efficiency."

Infographic: GSMA Intelligence

While 4G remains the world's dominant mobile technology, "5G is gaining pace." Companies of all sizes are increasing their research and development budgets to build products and services to utilize the fifth generation wireless technology that is expected to deliver speeds 100x faster than 4G. However, for these investments to produce positive results, the report correctly notes that "Governments and regulators must play their part to help propel 5G into commercial use by implementing policies that encourage advanced technologies (e.g. AI and IoT) to be applied across all economic sectors."

What do you think of the report's findings?

Aaron Rose is a board member, corporate advisor, and co-founder of great companies. He also serves as the editor of GT Perspectives, an online forum focused on turning perspective into opportunity.

March 18, 2020

BlackRock's CEO to Corporate Executives: 'Every Government, Company, and Shareholder Must Confront Climate Change'

Whether or not you are a shareholder of Blackrock, Inc. or own shares of exchange traded funds provided by the global investment firm, I recommend reading Larry Fink's, chairman and chief executive officer of BlackRock, annual letter to corporate chief executives. This year's letter generated a great amount of attention in the media and became a topic of discussion among my peers.

Investment firms and their clients have a reputation for ignoring the vast amounts of studies produced by the world's smartest scientists that suggest human activity since the Industrial Revolution, mainly extracting and burning fossil fuels, has increased the amount of greenhouse gases in the atmosphere, thus warming the planet and changing its climate. Therefore, many readers of Mr. Fink's letter were surprised to read: "Climate change has become a defining factor in companies' long-term prospects. Last September, when millions of people took to the streets to demand action on climate change, many of them emphasized the significant and lasting impact that it will have on economic growth and prosperity – a risk that markets to date have been slower to reflect. But awareness is rapidly changing, and I believe we are on the edge of a fundamental reshaping of finance."

Crucially, he adds that "[t]he evidence on climate risk is compelling investors to reassess core assumptions about modern finance. Research from a wide range of organizations – including the UN's Intergovernmental Panel on Climate Change, the BlackRock Investment Institute, and many others, including new studies from McKinsey on the socioeconomic implications of physical climate risk – is deepening our understanding of how climate risk will impact both our physical world and the global system that finances economic growth."

Under the heading of "Climate Risk Is Investment Risk," Mr. Fink notes: "Over the next few years, one of the most important questions we will face is the scale and scope of government action on climate change, which will generally define the speed with which we move to a low-carbon economy. This challenge cannot be solved without a coordinated, international response from governments, aligned with the goals of the Paris Agreement.

"Under any scenario, the energy transition will still take decades. Despite recent rapid advances, the technology does not yet exist to cost-effectively replace many of today's essential uses of hydrocarbons. We need to be mindful of the economic, scientific, social and political realities of the energy transition. Governments and the private sector must work together to pursue a transition that is both fair and just – we cannot leave behind parts of society, or entire countries in developing markets, as we pursue the path to a low-carbon world."

What is more, "We don't yet know which predictions about the climate will be most accurate, nor what effects we have failed to consider. But there is no denying the direction we are heading. Every government, company, and shareholder must confront climate change."

With respect to "Improved Disclosure for Shareholders," I concur "that all investors, along with regulators, insurers, and the public, need a clearer picture of how companies are managing sustainability-related questions. This data should extend beyond climate to questions around how each company serves its full set of stakeholders, such as the diversity of its workforce, the sustainability of its supply chain, or how well it protects its customers' data. Each company's prospects for growth are inextricable from its ability to operate sustainably and serve its full set of stakeholders."

Moreover, "Over time, companies and countries that do not respond to stakeholders and address sustainability risks will encounter growing skepticism from the markets, and in turn, a higher cost of capital. Companies and countries that champion transparency and demonstrate their responsiveness to stakeholders, by contrast, will attract investment more effectively, including higher-quality, more patient capital."

As for "Accountable and Transparent Capitalism," Mr. Fink correctly concludes his letter by saying:
As we approach a period of significant capital reallocation, companies have a responsibility – and an economic imperative – to give shareholders a clear picture of their preparedness. And in the future, greater transparency on questions of sustainability will be a persistently important component of every company's ability to attract capital. It will help investors assess which companies are serving their stakeholders effectively, reshaping the flow of capital accordingly. But the goal cannot be transparency for transparency's sake. Disclosure should be a means to achieving a more sustainable and inclusive capitalism. Companies must be deliberate and committed to embracing purpose and serving all stakeholders – your shareholders, customers, employees, and the communities where you operate. In doing so, your company will enjoy greater long-term prosperity, as will investors, workers, and society as a whole.
Businesses should include climate risk among a variety of risk factors when evaluating the strength of its business plan or long-term strategy. Larry Fink's letter thoughtfully expands this consideration by suggesting different agencies improve their ability to manage sustainability-related questions. Once an agency accepts their responsibility to confront climate change, the next challenge is creating and implementing a sustainable solution.

What recommendations do you have on how governments, companies, and shareholders confront climate change?

Aaron Rose is a board member, corporate advisor, and co-founder of great companies. He also serves as the editor of Solutions for a Sustainable World.

March 17, 2020

Report Finds Mobile Phone Access and Use Remain Unequal Among Women and Men in Low- and Middle-Income Countries

According a GSMA study, "Growth in internet access has been remarkable in low- and middle-income countries (LMICs), where 2.9 billion people now access the internet on their mobile phones. Across developing countries, mobile is the primary way most people access the internet, with mobile broadband connections comprising 87 percent of total broadband connections."

However, the report, which is produced as part of the GSMA's Connected Women Commitment Initiative, explains: Despite its importance, mobile access and use remain unequal across LMICs; women are still less likely than men to own a mobile phone, and less likely to use the internet on a mobile.

Below are the key findings of The Mobile Gender Gap Report 2020, which are based on the results of over 16,000 face-to-face surveys commissioned by GSMA Intelligence across 15 LMICs, and subsequent modeling and analysis of this survey data:

  • 54 percent of women in low- and middle-income countries now use mobile internet and the gender gap is narrowing. Women are 20 percent less likely to use mobile internet than men, down from 27 percent in 2017. This reduction was driven primarily by an improvement in South Asia where the gap narrowed by 16 percentage points.
  • Despite this progress, the gender gap in mobile internet use in low- and middle-income countries remains substantial, with over 300 million fewer women than men accessing the internet on a mobile. The gender gap is still widest in South Asia at 51 percent, and remains fairly consistent in other regions such as Sub-Saharan Africa, which has the second largest gender gap at 37 percent.
  • The underlying gender gap in mobile ownership remains largely unchanged, with the remaining unconnected proving difficult to reach. Women across low- and middle-income countries are eight percent less likely than men to own a mobile phone, which translates into 165 million fewer women than men owning a mobile.
  • The relative importance of the factors preventing access to mobile internet are changing rapidly across low- and middle-income countries. For both men and women, awareness of mobile internet is growing quickly, although it remains unequal, and women and men are increasingly seeing the internet as relevant to their lives.
  • Handset affordability remains the primary barrier to mobile phone ownership for men and women. Among mobile users who are aware of mobile internet, a lack of literacy and digital skills continues to be the main barrier to use, followed by affordability. Safety concerns are also a key barrier to mobile internet access, particularly in Latin America. Although relevance has declined in importance as a barrier, it remains a critical factor in several countries.
  • Smartphones drive substantially higher mobile internet use, but there is a significant gender gap in smartphone ownership, with women in low-and middle-income countries 20 percent less likely than men to own one. Women are much less likely than men to purchase their own smartphone, and have less autonomy and agency in smartphone acquisition. However, many women express a strong intention to acquire a smartphone.
  • Among mobile owners, women on average use a smaller range of services in all 15 countries surveyed — a gap that remains even among smartphone owners. Bringing women's mobile use in line with men's represents an important commercial opportunity for the mobile industry to drive ARPU growth and extend more of the benefits of mobile ownership to women.
  • Consumption of video content on mobile is growing remarkably quickly for both men and women, increasing by over 50 percent in two years in half of surveyed countries. This reflects the growing popularity of applications that facilitate sharing of user-generated video content in low- and middle-income countries, such as YouTube and TikTok.
  • Both men and women across surveyed markets report that mobile provides important benefits. In all 15 markets surveyed, the majority of male and female mobile owners state that mobile ownership makes them feel safer and provides access to important information that not only assists them in their daily lives, but that they would not have received otherwise. Benefits are considerably greater for those who use mobile internet, reinforcing the importance of equalizing internet access.

The report presents the following recommendations for all stakeholders to close the mobile gender gap:
  • Work to understand women's needs and barriers to mobile ownership and use in your market, and design targeted interventions to address these barriers. Consider the effect of social norms on women in the design and implementation of policies, products and services.
  • Improve the quality and availability of gender-disaggregated data to set targets, create strategies and track progress.
  • Ensure considerations of women and gender equality are integrated in strategies and plans, including setting specific gender-equity targets for reaching women and tracking their progress.
  • Consult and involve women users in product, service and policy design and implementation, including testing and piloting with women, and proactively tailoring marketing and distribution approaches to women.

The report importantly notes: "As mobile is the primary way most people in LMICs access the internet, closing the mobile gender gap is becoming increasingly urgent as the importance of the internet grows. Promising progress is being made, but continued, concerted action is critical."

What is more, "Mobile ownership makes women feel safer, more informed and supports them in their work, education and other tasks. These benefits are much more pronounced for mobile internet users."

Do you agree with the report's recommendations on how to close of the mobile gender gap? What recommendations would you add?

Aaron Rose is a board member, corporate advisor, and co-founder of great companies. He also serves as the editor of GT Perspectives, an online forum focused on turning perspective into opportunity.

March 16, 2020

Report Looks at How Digital Health Technologies Are Impacting Healthcare in the US

According to a report by The Economist Intelligence Unit (The EIU), "A fundamental question surrounding the US healthcare system is 'How do we improve overall health while reducing costs?' Health care spending in the US greatly exceeds that in other wealthy countries, but does not achieve better health outcomes. By 2030, an estimated 171m people in the US will suffer from a chronic disease. This fact, coupled with an aging population in need of greater health services signals the need for change."

Digital Health: Transformation and Innovation within the USA explains that "[a] promising response to this question has come in the form of the digital health transformation. The internet of things, artificial intelligence (AI), and wearable technology are a few examples of digital transformations that have great opportunities in healthcare, and they have already begun to disrupt the healthcare landscape."

The report encouragingly notes: "Digital innovation, though an overwhelming space and daunting to adopt, has the potential to drive significant positive changes through streamlined workflows, optimized systems, improved patient outcomes, reduced human error, increased transparency, and, of course, lowered costs." What is more, "Medical technology (medtech) companies should be prepared with the knowledge of how digital transformation may impact their business environment and the understanding of how to successfully bring new innovations to the market."

Under the title of "Modes of digital disruption: The technologies reshaping healthcare," the report "looks at how trending digital health technologies are impacting healthcare, and the outlook on the adoption of these technologies."

Medical Internet of Things (mIOT) applications to watch:

  • Medical facility infrastructure and security
  • Workflow tracking and optimization
  • Medication compliance tracking
  • Data recording (EHRs)
  • Chronic condition management

"Impacted populations: Healthcare facilities and device manufacturers are already benefiting from the medical internet of things. Organizations can analyze processes at scale with mIoT to determine trends and improve efficiencies. Doctors are increasingly using mIoT to monitor patients with chronic diseases."

AI applications to watch:
  • Patient diagnosis based on pattern recognition from large databases (genomic and symptom information)
  • Early prediction of conditions likely to develop
  • Assistance in image analysis for scans and slides (e.g. X-ray interpretation for radiologists, slide interpretation for pathologists)

"Impacted populations: AI stands to improve on how well physicians can predict health risk, come to diagnoses, and draw insights from large sets of data. Workflow optimization centered around AI is already being used to reduce inefficiencies, and the technology's predictive power may be able to speed up R&D for medtech manufacturers. AI will be a key way to analyse the massive amounts of clinical data generated by increasing use of wearable sensors. This analysis will enable deeper understanding of patients' disease states, and support physician's decision-making process when providing care. Improved outcomes for patients and reduced costs for providers will be among the largest benefits of this technology."

Wearable technology/Remote patient monitoring applications to watch:
  • Activity monitors for sports and fitness
  • Heart rate and diabetes monitoring
  • Neurological disease monitoring to conduct large studies and track disease progression
  • Post-discharge patient monitoring for treatment response
  • Chronic condition management
  • Patient health risk assessment from activity and biometrics monitoring
  • Ingestible sensors for biomarker tracking and smart drug delivery

"Impacted populations: A component of the mIoT, wearable devices are capable of collecting and transmitting health data about the individuals wearing them. The growing elderly population will benefit heavily from this technology's adoption because physicians will be able to draw health insights from larger amounts of data than previously possible, and without the need for constant in-person visits. The same is true for people with chronic diseases. Their symptoms can vary immensely from day to day, making it difficult for doctors to make treatment decisions based off infrequent visits."

Telemedicine applications to watch:
  • Medical specialties well-suited for telemedicine, e.g. radiology, psychiatry, dermatology, ophthalmology
  • Follow-up doctor's visits
  • Healthcare access for rural populations
  • Remote chronic disease management
  • Assisted living center support
  • Preventative care support

"Impacted populations: Widespread adoption of telemedicine will be especially impactful for those unable to easily access a medical center. Major groups affected are those living in rural areas with a shortage of doctors, and the elderly who may be unable to travel for a clinician visit. The ease of visiting with a doctor via a phone or tablet may also lead to fewer appointments cancelled at the last minute."

Augmented reality (AR), virtual reality (VR) and mixed reality (MR) applications to watch:
  • Medical practitioner training
  • Remote surgery
  • Diagnosis support
  • Mental health support tools for patients
  • 3D patient rendering for improved surgery planning

"Impacted populations: VR and AR technologies will have the greatest impact on clinicians in the coming years. VR is already being used in some settings to train doctors by allowing them to practice operations in a realistic environment. AR gives doctors faster access to real-time information, aiding in diagnosis and treatment decisions. The technology can also be used to visualize patient organs and systems in 3D, a feature that will significantly improve the quality of surgery planning."

However, "challenges lie ahead for digital technology driven medtech innovation" including security, communication, regulation, and funding.

Based on my experiences of supporting and advising medtech companies, I concur that "[a]lthough we are in the midst of a transformative time for healthcare, it remains a challenge for emerging and established medtech players to keep up with increased competition and innovation from big tech organizations. The overlap amongst the different modes of digital disruption signals the importance of integration-friendly solutions. As the industry shifts into a more patient-centric and patient-owned environment it will be increasingly important for suppliers, providers, payers, and patients to embrace an end-to-end digital mindset. Key questions to consider along the way are:

  • As digital healthcare evolves, what innovations give medtech a lasting edge?
  • Is your company focused on the core areas for value creation?
  • How scalable is your innovation?
  • What organizations should you partner with to access the technologies and talent required for business model transformation?"

Moreover, "It is important to mention this transformation extends to well beyond the US – not just in developed markets, but also emerging ones. This raises key questions for medtech MNCs, such as:
  • Are your company's innovations aligned with the needs of emerging markets?
  • How much adaptation of your product to address the pockets and preferences of emerging markets is needed to successfully enter and capture the market?
  • What are the key drivers and barriers of adoption of innovations in emerging markets?
  • What does competition from innovative local players look like?"

Which digital health technologies do you think will provide the greatest impact on the healthcare ecosystem?

Aaron Rose is a board member, corporate advisor, and co-founder of great companies. He also serves as the editor of Solutions for a Sustainable World.

March 13, 2020

No Market Need, Didn't Use Network, Poor Marketing and 17 Other Reasons Startups Fail

As stated in the previous post, a comprehensive business plan is essential to providing investors, advisors, and employees with the opportunity to comprehend the company's mission, vision, goals and financial targets as well as its product, sales and marketing strategy, management team, risk factors, key performance indicators and financial data. A business plan that looks good on paper, however, does not mean the founders have a guarantee to build a successful (profitable) business. There are a myriad of reasons why a startup fails despite the best-laid plans.

CB Insights, a New York-based firm that develops software predicting new technology trends, breaks down the top 20 reasons for startup failure by analyzing 101 startup failure post-mortems. "After we compiled our list of startup failure post-mortems, one of the most frequent requests we got was to use these posts to figure out the main reasons why startups failed."

Here are the top 20 reasons startups fail:

20. Failure to pivot
19. Burnout
18. Didn't use network
17. Legal challenges
16. No financing / investor interest
15. Failed geographical expansion
14. Lack passion
13. Pivot gone bad
12. Disharmony among team / investors
11. Lose focus
10. Product mistimed
9. Ignore customers
8. Poor marketing
7. Product without a business model
6. User un-friendly product
5. Pricing / cost issues
4. Get outcompeted
3. Not the right team
2. Ran out of cash
1. No market needed

Ideas have little value without having the ability to create an execution plan. Building the right team is essential to effective execution. Not doing so will cause the startup to fail quickly. The article correctly notes: "A diverse team with different skill sets was often cited as being critical to the success of a company. Failure post-mortems often lamented that 'I wish we had a CTO from the start,' or wished that the startup had 'a founder that loved the business aspect of things.'"

Every business should have at least three goals: (1) build a product and service of the highest quality, (2) understand their customer and provide an exceptional service to each and every customer with a brand that represents integrity, quality, and innovation, and (3) build shareholder value. While founders, particularly those of whom are starting tech companies, tend to focus on developing their product or service, many businesses fail because they either built a solution without understanding the problem their customer is experiencing (no market need) or ignored their customer. I concur that "Ignoring users is a tried and true way to fail. Tunnel vision and not gathering user feedback are fatal flaws for most tech startups."

With respect to building a product without a business model, CB Insights says "Most failed founders agree that a business model is important – staying wedded to a single channel or failing to find ways to make money at scale left investors hesitant and founders unable to capitalize on any traction gained." And regarding pricing or cost issues, "Pricing is a dark art when it comes to startup success, and startup post-mortems highlight the difficulty in pricing a product high enough to eventually cover costs but low enough to bring in customers."

Despite building an amazing product, I have witnessed many startups fail because of poor marketing. Founders, particular of tech companies, mistakenly believe customers will naturally pay for their product without putting much effort into a marketing strategy. Taking a line from the movie Field of Dreams, "If you build it, he will come," too many founders place their misguided belief that "if they build it (the product), they (customers) will come." CB Insights correctly explains that "Knowing your target audience and knowing how to get their attention and convert them to leads and ultimately customers is one of the most important skills of a successful business. But an inability to market was a common failure especially among founders who liked to code or build product but who didn't relish the idea of promoting the product."

A comprehensive marketing plan should incorporate two elements, strategic marketing and operational marketing. The former is determining how your company competes against its competitors in a market place. In particular, it generates a competitive advantage relative to its customers. Operating Marketing is executing marketing functions to attract and keep customers to maximize the value derived for them as well as to satisfy the customer with prompt services and meeting the customer expectations. The marketing mix should include product, pricing, promotion, and placement.

A business also needs to understand the risks and rewards of pivoting. "Not pivoting away or quickly enough from a bad product, a bad hire, or a bad decision was cited as a reason for failure in 7% of the post mortems. Dwelling or being married to a bad idea can sap resources and money as well as leave employees frustrated by a lack of progress." However, founders should pivot without losing focus: "Getting sidetracked by distracting projects, personal issues, and/or general loss of focus was mentioned in 13% of stories as a contributor to failure." I often warn entrepreneurs the risks of being "opportunistic"  just because you can does not mean you should.

Among the 20 reasons listed above, "didn't use network" is one of the easiest to avoid. Most locations host a number of opportunities to meet new connections. And building (trusted) relationships requires time and effort. As a mentor said to me early in my career, "Surround yourself with people smarter than you." Utilizing this network may be the most effective way to avoid or mitigate many of reasons why startups fail.

Lastly, as an entrepreneur myself, I occasionally experience moments of burnout. While entrepreneurs thrive on working long hours dealing with the stresses of business management and relishing in the rewards these efforts will yield, it is important to maintain a healthy mind and body. Taking a 30-45 minute walk (even in bad weather), running the stairs in my office building or going to the gym on a regular basis provides me with the opportunity to decompress from the stresses of leading a business.

Which of the 20 reasons of why startups fail resonate with you?

Aaron Rose is a board member, corporate advisor, and co-founder of great companies. He also serves as the editor of GT Perspectives, an online forum focused on turning perspective into opportunity.

March 12, 2020

Your Business Plan Is Your Business's Roadmap

Whether it is based on my experience of launching my own ventures or serving as an advisor to my clients, I strongly agree with the U.S. Small Business Administration (SBA) that "A good business plan guides you through each stage of starting and managing your business. You'll use your business plan as a roadmap for how to structure, run, and grow your new business. It's a way to think through the key elements of your business."

What is more, according to the SBA, "Business plans can help you get funding or bring on new business partners. Investors want to feel confident they'll see a return on their investment. Your business plan is the tool you'll use to convince people that working with you — or investing in your company — is a smart choice."

Some entrepreneurs feel a business plan is unnecessary. "It's too hard" is what I hear most often when I ask why a plan has not been prepared. Launching a new venture and following its "Path to Success" (transitioning from idea/concept to demo to revenue to profitability to sustainable profitability) is stressful with little room for error. In other words, business is hard.

And as discussed in previous posts on this blog, most new businesses will fail within the first few years of existence. If preparing a business plan is too hard, then how will you handle the difficulties most founders encounter almost daily in trying to grow their business?

Although some investors wrongly advise founders not to prepare the formal business plan, I refuse to consider financially supporting any enterprise that does not have one. A comprehensive business plan is essential to providing investors, advisors, and employees with the opportunity to comprehend the company's mission, vision, goals and financial targets as well as its product, sales and marketing strategy, management team, risk factors, key performance indicators and financial data.

I recognize, however, that creating a roadmap for your business can be an intimidating process. While there are thousands of books, webinars, and websites that provide information about drafting a business plan, I find the SBA to be a useful resource for entrepreneurs.

The quotation above comes from a website the SBA created to help entrepreneurs through the process of launching their business. The four sections of the business guide are listed below with links to other pages containing additional information that is essential to building a successful (profitable) business:

Plan your business ("You've got a great idea. Now, make a plan to turn it into a great business.")

Launch your business ("Turn your business into a reality. Register, file, and start doing business.")
Manage your business ("Run your business like a boss. Master day-to-day operations and prepare for success.")
Grow your business ("When business is good, it's time to expand. Find new funding, locations, and customers.")

The SBA also provides a website presenting "10 steps to start your business":
  1. Conduct market research: "Market research will tell you if there's an opportunity to turn your idea into a successful business. It's a way to gather information about potential customers and businesses already operating in your area. Use that information to find a competitive advantage for your business."
  2. Write your business plan: "Your business plan is the foundation of your business. It's a roadmap for how to structure, run, and grow your new business. You'll use it to convince people that working with you — or investing in your company — is a smart choice."
  3. Fund your business: "Your business plan will help you figure out how much money you'll need to start your business. If you don't have that amount on hand, you'll need to either raise or borrow the capital. Fortunately, there are more ways than ever to find the capital you need."
  4. Pick your business location: "Your business location is one of the most important decisions you'll make. Whether you're setting up a brick-and-mortar business or launching an online store, the choices you make could affect your taxes, legal requirements, and revenue."
  5. Choose a business structure: "The legal structure you choose for your business will impact your business registration requirements, how much you pay in taxes, and your personal liability."
  6. Choose your business name: "It's not easy to pick the perfect name. You'll want one that reflects your brand and captures your spirit. You'll also want to make sure your business name isn't already being used by someone else."
  7. Register your business: "Once you've picked the perfect business name, it's time to make it legal and protect your brand. If you're doing business under a name different than your own, you'll need to register with the federal government, and maybe your state government, too."
  8. Get federal and state tax IDs: "You'll use your employer identification number (EIN) for important steps to start and grow your business, like opening a bank account and paying taxes. It's like a social security number for your business. Some — but not all — states require you to get a tax ID as well."
  9. Apply for licenses and permits: "Keep your business running smoothly by staying legally compliant. The licenses and permits you need for your business will vary by industry, state, location, and other factors."
  10. Open a business bank account: "A small business checking account can help you handle legal, tax, and day-to-day issues. The good news is it's easy to set one up if you have the right registrations and paperwork ready."

While I recommend retaining the services of a professional accountant who has experience working with small businesses, there is value to becoming familiar with the tax regulations of the Internal Revenue Service (IRS). Through its Small Business and Self-Employed Tax Center, the IRS provides a comprehensive list of helpful publications for small businesses.

If you are planning to launch your business in the state of Washington, the "Small Business Guidance" website provides a plethora of information including "8 Steps to forming a business in Washington State" and the Small Business Guide.

Similar to hiring an experienced accountant and becoming familiar with the rules and regulations of the IRS, you should retain the services of an attorney who is familiar with the specific state and local laws of where you plan to launch your business.

And if you anticipate launching your business in Washington State, I recommend becoming familiar with the state's statutes as they apply to corporations or limited liability companies through the Washington business corporation act or Washington limited liability company act, respectively.

Lastly, I created a document that presents questions on a variety of topics founders should consider when drafting their business plan.

What are your recommendations for preparing a business plan?

Aaron Rose is a board member, corporate advisor, and co-founder of great companies. He also serves as the editor of GT Perspectives, an online forum focused on turning perspective into opportunity.