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AI Strategy IS Business Strategy

A New Innovation Model: Amazon Evolved from Books to Cloud and Groceries & Meal Delivery

Data, AI, Automation, Quantum Computing and the Post-PC Revolution

IDC projects that total worldwide data will be 163ZB (that is a trillion gigabytes) in five years. The power to transform our world is locked up, unused and unstructured, in this data. Fully a third of business leaders say they cannot access their own data in meaningful ways, let alone discover all new insights from it.

Michael Zammuto Technology Ecoystem Diagram

Cloud Commerce Consulting Strategic Technology Ecoystem

A strategic cluster of technologies will take a fast-growing flame of human knowledge and accelerate it into a chain reaction, immeasurably larger and hotter than anything imagined today.

Innovation in cloud, data and analytics have lit a fuse. EDM and machine learning added fuel and commercial AI and Quantum Computing will launch self-fueling chain reaction.

Cloud accelerated data, data accelerated analytics, analytics accelerated automation, EDM accelerated analytics, AI accelerates automation. Quantum computing will supercharge the whole ecosystem. 

AI Growth Accelerating Past 300% a Year

Forrester says businesses investment in machine learning and artificial intelligence (AI) will increase 300% in 2017 than in 2016. Current generations of Machine Learning technologies allow us to analyze data at scale and will ’drive faster business decisions in marketing, e-commerce, product management, and other areas of the business by helping close the gap from insights to action.’ AI will be used to automate discovery, experimentation and even coding and further AI. It is a self-fueling technology with no practical limit in scale.

Rose’s Law of Quantum Computing is Moore’s Law on Steroids

Rose’s famed predictions for Quantum Computing tell us that we are about to break Moore’s Law forever. For all our technology improvements, we compute much like we did decades ago. We don’t know when we will get commercial devices that use quantum states in place of binary values. But we know when we do it will change everything. Quantum devices will allow AI to solve problems and innovate, manage data and develop insights at orders of magnitude greater than imagined today.

The End of Tools

Computers, data, cloud services, analytics tools and so on are tools. Better, more powerful, easier to use tools. AI fuels automation and, when hyper-charged with quantum computing power, takes the tools out of our hands. The chain reaction of all this means innovation at speed and scale that will require new terms for measurement.

The Amazon Innovation Model

This means that humans will primarily contribute principles, strategies and vision to the next revolution. Those who don’t focus on building strategy and capabilities now will be left behind. Companies of all sizes and in every industry need to develop a strategic road map. Innovation will come to every industry and from unexpected directions. The model that took Amazon from books to challenge cloud computing and retail food and meal services is the future of innovation. Their strategic competitive driver is data and computing power. They didn’t expand or pivot into new businesses, these businesses were exposed to disruption by anyone who could innovate using this new model.

Contact us today. CCC helps business and technical leaders to develop these strategies and capabilities to ensure more than their survival.


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Michael Zammuto Growth Round Fundraising Getting Tougher

More Startups Competing for ‘B’ Venture Rounds

Citing data from Dow Jones VentureSource, Cloud Commerce CEO Michael Zammuto published a warning for startups. Raising your next round will be tougher than the last round. Zammuto wrote that several trends including the economy, some successful startup exits and seed and venture platforms combined to increase rates of startups. From 2010 to 2015 the rates of seed and ‘A’ round investments more than doubled but “B” and later rounds did not increase. At the same time, startup failure rates dropped to historically low rates. All this supports the premise more startups are launching but failing to get growth funding to scale.

AWS Has Helped More Startups Get Funded

Studies Show a Correlation Between AWS Use and Successful Fundraising

The Cloud is Pushing Down Startup Costs

Research has shown that cloud services, particularly Amazon Web Services (AWS) have led to an increase in seed and early venture funding. This is because cloud providers succeeded in lowering the costs t founder of launching and operating a startup. Shared work spaces, freelancer networks and faster and cheaper development tools and technologies are also lowering costs. The implications of this are that it has become cheaper for a founder and investors to test an idea so we saw a corresponding increase in startup rates.

We have not seen a corresponding increase in the success rates of startups. Venture staffing did not increase substantially so startups got less guidance and VCs are less connected to many of their investments. We have already seen a large drop off in later round funding or successful exits. But we also have not seen an increase startups ceasing operations. This is because this same reduction in startup costs also means lower operating costs.

Scraping By – Not Winning But Not Losing

Seed and A Rounds Spiked 2010 to 2015

Seed and “A’ Rounds Spiked and Dropped Off at Rates Much Higher than Later Rounds

There has been a dramatic increase in the number of under-capitalized startups where the founders struggle to raise funds. Early stage staff have become great at keeping these companies limping along but many are not really progressing. Cloud Commerce Consulting helps firms avoid this trap. First, we can help firms to gain the momentum and validation they need to stand out and succeed in ‘B’ round investments. Second, we can help with  workable, organizational scaling program that transitions the firm from startup to growth mode.

 

Startups are not just competing within their industry against entrenched players and other innovators. They are competing against startups of every kind for increasingly dear venture dollars. You developed a development plan for your product and a marketing and sales plan for your growth, do the same for your fundraising today.

 


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CEO Michael Zammuto on Trends That Are Increasing Startup Failure Rates

Cloud Commerce CEO, Michael Zammuto on a Challenging Environment for ‘B’ Rounds

The gap between initial funding and firms shutting down has increased and with overall funding dropping Michael Zammuto says

The Wall Street Journal Reports the rapid rise and now retreat of venture funding and the gap this is creating for ‘A’ round funded companies to access more capital.

to expect a massive increase in failures in 2017 and 2018. From 2010 to 2015 the number of companies receiving early stage angel and ‘A’ round investments climbed dramatically. Market forces, tech trends contributed but so too did some concerted efforts to make it easier to form a tech fund. Everything from Amazon Web Services (AWS) to shared workspaces, to better smart phones to better development tools all contributed to lowering the barrier to entry for startups.

As published online today, Michael Zammuto explains the the unintended consequence of this is that those startups did not get access to more VC governance or talent (or luck). Overall funding has started to drop and the gap for later stage, ‘B’ round investments has gotten large to a concerning degree. This creates a special challenge for startups to stand out and demonstrate why they deserve more capital.

To offset this increased challenge, Cloud Commerce suggests reviewing your strategy well before you need to raise money, to start raising money earlier and ask for more. Critical to ‘B’ round funding it to ‘prove’ that the core assumption about how the business will scale is demonstrated, even on a small scale. If you depend upon network effect, or cheap content or clients upselling then focus on optimizing for that metric. Don’t spend unnecessary capital on product enhancements, focus instead on proving you have the model right and just need capital to hit your multi-year projections. You should expect that your ‘B’ round will be more difficult to complete and you have a business to run so get help and stay focused on proving your story.


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The Series A Crunch Hits 2017 Fundraising

As mentioned in this LinkedIn post, ‘B’ round fundraising is getting more difficult in 2017 and may stay that way for some time. Starting several years ago, a number of innovations came together to make startups cheaper faster and easier to get off the ground. There are actually a lot of contributing elements. the Journal of Financial Economics report focuses on AWS and certainly cloud services and cloud infrastructure have helped a lot of startups get from concept to beta very quickly. I would add a lot of other things to the list including shared work spaces, freelancer networks, angel investing and kick starter funding platforms and even improved mobile communications and productivity apps.

All these things did cause an increase in Angel funding and that also led to more ‘A’ round candidates and funding. More ‘A’ round funding has not led to more success. Venture firms are not increasing staff along with the increase in early stage funding so their early stage investments are getting less governance and attention. So, at least so far, this has led to more failures and harder ‘B’ round fundraising. Cloud Commerce Consulting is here to help in this process and can position early stage companies to demonstrate the progress and market traction needed to warrant closing that critical ‘B’ round.

 

 

About the author

Michael Zammuto is CEO of Cloud Commerce Consulting

Michael Zammuto heads the company advisory services

Michael Zammuto is the founder and CEO of Cloud Commerce Consulting. He has helped 6 startups achieve profitability, been involved in six exits and major fundraising rounds. He is an adviser to several companies. He also currently servers as Chief Executive of Completed.com. Zammuto was the CEO of Brand.com and Sapago and was President of Chaikin Analytics and Chacha.com. Zammuto also served as COO of Ontario Systems and was a senior executive with Ecometry Corp. before the acquisition by Golden Gate Capital. Mike’s full profile can be read here.


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Michael Zammuto in the news

I have been dividing time lately supporting Completed.com and developing a new selling program for a client in the digital marketing space. That client has a valuable offering and has found an eager market for it but needs a scalable sales architecture to reach their potential.

At Completed.com we have been heads down on a new development cycle. We had a investor commit another $250k and have put most of that towards enhancements to our UX. The team is doing an outstanding job and we have brought some very gifted new people to the team so that project is going very well. I have been doing as much media as possible during this time. This includes a podcast interview with Neil Hughes and an accompanying article he did on The Next Web. We also have gotten great coverage from Cheddar TV, Fast Company, TechCrunch and others so I am very happy with this. It is amazing how full and fulfilling the days can be and the time is just flying by. I am really looking forward to the next release in late June.


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5000 Boomer-Owned Software Businesses to Shut Down By 2021

As a generation of Baby Boomer business owners plan their estates, some in the software industry say that thousands of firms providing the highly-specialized software running many businesses will cease operations or be absorbed by competitors by 2021. This will lead to the largest ever consolidation of business software: the elimination of as many as 100,000 tech jobs and the evaporation of billions of dollars in value from Boomer estates.

Michael Zammuto, CEO of Cloud Commerce Consulting specializing in advising mid-sized software companies, claims “These firms are at a crossroad and, while a few will sell for big dollars, I expect 5,000 will be gone by 2021. Many companies, employees and their customers simply are not prepared.”

Boomers Automate Every Business

Baby boomers are the generation born between WWII and 1964.

Baby boomers are the generation born between WWII and 1964.

Throughout the late 1970s and into the 1980s, the personal computer revolution and access to inexpensive and simpler software programming tools allowed enterprising Baby Boomers to found independent, usually niche or vertical business software and service companies providing the first software to thousands of types of businesses including storage units, produce wholesalers, furniture manufacturers, liquor distributors, call centers, collection agencies, insurance companies, restaurants, and thousands more. These businesses required highly specialized solutions to replace their paper-based processes for every aspect of the business including purchasing, manufacturing, service delivery, customer service and account management. Businesses of all sizes bought their first computers and built their first computer networks, launching a revolution in business productivity.

Young software firms often customized the software for each new customer and structured software licensing deals where large licensing fees are captured up front followed by smaller annual maintenance fees of 10% to 20% of the original licensing costs. Over time, software for even small businesses could grow to include thousands of options and configuration settings, ensuring the sales and setup of the software was a costly and lengthy process. As a result, software companies producing vertical software solutions developed fewer economies of scale than more horizontal software providers such as IBM, Salesforce.com or SAP.

Rapid Growth but Little Consolidation

New industries often experience rapid growth in the number of startups followed by similarly rapid consolidation. For example, hundreds of automobile manufacturers were started in a short time span. But, in the 20 years following 1909 more than 200 of them went out of business. This trend eventually left a few huge Detroit behemoths with access to top talent, technology and cash. The software industry grew rapidly throughout the 1980s and 1990s. For reasons that are unique to vertical business software this segment often bucked the traditional patterns.

A similar trend of consolidation did occur in many segments of the tech industry. Computer hardware companies, providers of operating systems and ‘horizontal’ business software like accounting poured hundreds of billions of dollars of sales into IBM, HP, Microsoft, Dell, Cisco, Salesforce.com and others providing the platforms for personal computer and internet revolutions. In the 1990s, search engines exploded in number and then consolidated to Google and Bing whose combined market share is reportedly over 95%. Unlike computer hardware, search engines and horizontal software companies, many vertical business software segments didn’t consolidate in the same way.

For many boomer-founders, selling their business is the key to retirement and providing for their families.

For many founders, selling their business is the key to retirement and providing for their families.

The founders of many of these vertical business software companies discovered that it was more difficult to raise growth capital or find strategic buyers. The high degree of customization, often relatively small vertical market sizes and usually aging technology limited their appeal as acquisition targets and their access to the capital markets. Some leaders in the space, often backed by private equity, acquired competitors but their success varied due to the same factors that prevented natural consolidation.

Many firms stayed founder-led (or at least family dominated) to varying degrees of success. Most founders discovered their kids couldn’t or wouldn’t take over the business. Much needed outside management expertise and investment capital went to faster growing horizontal software and internet businesses.

Retirement Delayed

Annual Baby Boomer Retirement Numbers in millions

Annual Baby Boomer Retirement Numbers in millions

Now the one obstacle the founders haven’t been able to avoid is at the door. These founders, with immeasurably valuable experience, are getting old. The oldest boomers are already over 70 with millions more crossing that line every year. Many have stayed vibrant much later than their parents did and are working long after they expected to retire. Their businesses stayed successful enough to keep them engaged but many are still dependent upon their founders’ involvement. Like other Boomers, many are not as financially prepared as they expected due to the 2008 financial crisis and high, long-term health costs eating into their retirement and estate plans.

Large numbers of these firms will not find buyers.  Many will simply cease operations, either de-facto closed or sold at bargain basement prices and absorbed into larger software firms. This will lead to a huge opportunity for those few survivors who can gain market share faster than before and an opening for the horizontal platforms and startups looking to take their places. “The ones who survive are preparing today,” Zammuto says, “Cloud Commerce Consulting has a 90-day transformation process to improve these businesses to make them more attractive to acquirers or improve profits and cash positions so they can survive and thrive.”

Contact Cloud Commerce Consulting For a Free Assessment of your software company