Friday, March 18, 2011

Financial Landscape vs. Authority - Getting the money right for innovation investment

Have you ever worked with an external partner who has something great for your organization but asks for too much money to do the initial project together?  At this moment in an innovator's cycle you have three choices; you can take the price and try to get it funded, you can think their screwing you and reject the partnership or you can get strategic on the issue.  Most innovators have a never say die attitude in moments like this, but as with most efforts as a change agent, I believe you need a simple principle to handle every situation.  In this special case, I call it thinking about FINANCIAL LANDSCAPE VERSUS AUTHORITY.

What is financial landscape versus authority?

If your partner asks for some amount of money for a project, in most organizations there is a distinct financial authority someone has before they must ask their superior.  And if they have to ask their superior there is a chance that the "landscape" they can spend that money on widens.  As the landscape widens the odds of getting your idea funded diminish greatly.  So if your partner asks for say $250,000 to do a project, in most cases this level of funding will be taken on by a Vice President and when you get to this level stop and think about the number of choices that person could spend that money on.  Odds are their are so many you could be dead in the water, because most innovations are riskier investments than standard ones and unless that leader is special or you have major credibility it can be hard to get to yes.

How do you deal with this?

What is most important is to know what your internal partner's financial authority for spending is.  You want the amount you are asking for be within their authority AND to be something they want to do.  If you get the level of investment within those two parameters you will find a strong internal partner for doing the innovation experiment that can help your company win on the marketplace.

How do you deal with your external partner?

It is imperative that you deal openly and honestly about this issue as you negotiate pricing.  Do it collaboratively, don't do it positionally.  The greatest successes in innovation come from collaborative and trusting partnerships, not ones that are steeped in questions.  There is always time for tough questions, but it can often be less valuable than using trust and clarity.  In the case of financial landscape versus authority, simply telling your partner it won't get funded and exactly why is the best course to make it happen.  If they believe in you they will work with you, if they are merely interested in short term gains, they might walk away.  Better to find that early than after you start and learn the price of doing business is too high to move forward.

Should you never go big? 

Of course not...going big is in the innovator's DNA, but for you "infection" of the corporate body, you want to get started small and cheap with a focus on developing data and a partner champion that will allow you to go bigger next time.  If you get a business partner who is championing your effort, then you sound less like an heroic evangelist and more like a savvy innovator who is "connected to the business".

Financial Landscape versus authority in action...

One of greatest successes involved getting my company to fund an experiment in social media.  When I first discussed the price with my partner, they asked for $250,000 for a 16 week partner.  And while I believe the project would give more that $250,000 in value, I realized quite quickly that I needed to go the that dreaded VP level to get the funding.  I had a good director level partner who was eager to do the work because of the situation he was in.  So rather than try to get him to fund it and end up in front of the VP who probably would look out on the horizon and choose not to, I told my external partner it wouldn't work.  Instead, I figured that my internal partner could fund the project for about $100,000 and told my external partner that the chances of funding at this level were faster and easier.  It worked, the internal partner funded it and we did the project.

What happened afterwards?

After the initial $100,000 project, the external partner has enjoyed a 5 year relationship with my company.  This partnership yielded over $1,000,000 dollars over that four year period with the second deal totaling $275,000 dollars about 4 months later (funded by a vice president).  In addition, I left the company two years into the partnership and the relationship has survived in some financial form even today.

When can you go big right away?

There are many principles that make an innovator successful.  And this is something I will talk about in a later post....

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