CMOs: Take a VC approach to Evaluating Emerging Technologies

CMOs are increasingly being asked to evaluate new technologies as a way to gain competitive advantage or at least not fall behind current industry thinking and practices. When selecting an emerging technology to adopt as part of the marketing function, CMOs are making investment decisions, not just in terms of dollars, but time and human resources. With all technologies, there is a learning curve and time is limited. There is an implicit return on effort that needs to be measured. Making decisions to adopt one technology means not adopting another. So there is a need to not just break even or get a positive ROI, but to make decisions that will provide the highest return. In this respect, CMOs could learn from their VC counterparts, who have learned to evaluate, and make investment decisions in emerging technologies.  Over time, they have developed a set of best practices that could be applied to making marketing innovation investments.

Investment Criteria

Every VC firm has a set of investment criteria, which industries do they invest in, which stages e.g. seed, angle, mezzanine, investment type e.g. debt, equity, type of technology, e.g. point solution versus platform, functional area, level of product maturity, e.g. alpha, beta, key, time horizon, capital requirement,  management team, etc. Who else is investing in this company, e.g. Google Ventures, Kleiner Perkins, or someone less well known? What clients has the client signed up? Does this fit an “investment theme” we see emerging? CMOs should have a similar set of criteria when evaluating emerging technologies for marketing, that fits with their marketing innovation strategy. The more mature technologies can be evaluated using techniques similar to standard vendor selection methodologies developed by IT.  The idea is to have set criteria to quickly and easily screen out technologies and or vendors that do not meet the criteria that best supports your marketing innovation strategy.

Investment Process

Most VCs will tell you they look at thousands of business plans in order to find the few they decide to invest. What does your investment process look like? Do you have a disciplined investment process with stages that clearly identifies what should happen at each stage, the criteria used to evaluate and what happens when a potential technology does or does not meet the criteria? How long does the process take, is it a committee decision and if so, who is on the committee? Are any members of the committee from outside of the company such as subject matter experts? Having a standardized process will also help make the evaluation and decision process more efficient.

Dynamic Evaluation

IT makes vendor selection decisions all of the time. What’s different in this case is you cannot just install it and forget it. When we select a technology, how do we know we have selected the marketplace winner? Lycos versus Yahoo versus Google for search, Myspace, Friendster and Facebook for social communities, Siebel versus Salfesforce.com, etc. At the early stage, there may only be one vendor with a unique solution, but if the pioneering firm gains traction, you can bet there will be new entrants pretty quickly. Dynamic evaluation is necessary because the firm that is the clear winner today will not necessarily be the winner tomorrow. There is a clear need to monitor how the firm is performing relative to common success patterns for that type of technology. The evaluation needs to be dynamic and revisited because of the rapidly changing dynamics of the market place.

What’s the Upside? 

How big could this be in terms of impact? Will it be a game changer or just help us do what we already do better? Is this a problem worth solving, is it unique to us, our industry or a common problem all marketers have? For instance, the ability to checkout without having to wait in line by using your mobile phone, is that a big deal or a small one? Is that a big deal because we can process more people faster at peak periods such as Christmas, with less labor and a lower investment in shelf-checkout registers?  Is it a big deal because it provides us an opportunity to sell to them in a new way? But outside of retail, how important is this?  The more disruptive, the harder it will be to envision.

The Need to Mitigate Risk

What are the risks we are trying to mitigate, technological, timing, substitutes, social, etc? What’s the product road map look like and how do you evaluate speculative features? What has been the market response? What’s the feedback from early adopters and or lead users? Can we stage our investment? Are we being asked to co-develop the technology, since we are an early adopter? Can we get an exclusive for our industry? Can we use it on a trial or demo basis? How critical is the technology to the success of our marketing goals? Is this a high, medium or low risk in terms of technology, what size bet is it in terms of dollars and where does it fit in our overall portfolio? The idea is to manage the risk of adopting emerging technology in terms of dollars and human capital.

Timing and Market Shifts 

If we sense there is a shift taking place, say going from Web 1.0 to 2.0, how do we know we are not too soon? Adopting a good idea too soon can still lead to bad results. Technology forecasting is difficult at best. On the other hand, with the level of network externalities enabled by the Internet, technology adoption is moving faster than ever. The prime example is how little time it took Facebook to be adopted by one billion people. With technology adoption being so fast, how do we prevent being too late?

Conclusion

This of course is a cursory look at the types of due diligence VCs perform. In reality it is a lot more through. The idea is to glean insights that can be transferred to the types of investments CMOs will need to make and have a framework to be able to speak to the CFO, CTO, CIO, head of R&D, that everyone can understand. Similar to VCs, CMOs can win big by making the right investments in emerging technology, but they will need a strategy and process that supports this import strategic activity.