So I though it would be fun to post an “oldie but goodie” and reintroduce the concept of the “internal franchise” business model and ask the question: does this still make sense in 2009?

An internal franchise is a business model based on the concept that if you look at your employees as entrepreneurs who can dramatically improve the performance of your business. And it works. I have  seen this business model act as a key catalyst in generating over $50M in shareholder value across several businesses. So here is a basic description of how an internal franchise can act as a business strategy.

The Internal Franchise

 An internal franchise consists of three components:

• A business formula
• Empowered employees who act like owners
•  An ownership culture

 A franchise is a method for marketing and distributing products and services. The franchiser licenses a business system – a complete way of doing business–to a franchisee. The franchisee agrees to operate the business according to specific guidelines. The franchiser/franchisee relationship is governed by a franchise agreement–a binding, legal agreement.

The franchise business model is one of the fastest growing segments of the economy. Franchising provides the opportunity to run your own business, with less risk than starting from scratch on your own. One of the hardest areas in starting a business is to design the business model. In franchising, that is already done for you. You simply have to learn to run the business. You have a serious head start on competitors who start from ground zero.

An internal franchise is similar to a traditional franchise operation. In an internal franchise the company makes its business system explicit and then “franchises” the business system to its employees. The employees are then coached, mentored, and trained to operate the business at the highest level of proficiency. In an internal franchise, the franchise agreement is not a legal binding contract, it’s the company’s culture–an ownership culture.

It turns out that an internal franchise can be an untapped distribution channel for your products and services. When you can turn to your own employees, teach them your business model, and empower them to run the business, you have established a new distribution channel. And it is an effective framework for dealing with the challenges of running a business in today’s competitive, rapidly changing environment.

So what do you think? Does an internal franchise make sense in your business given the ongoing economic, social, and generational shifts?

Over 50 executive summaries were submitted to the Baltimore Angels for the first meeting where 3 companies were selected to present. I reviewed many of the executive summaries myself, and there were several very interesting ideas in the mix. And there were more than a few that don’t really have a chance. I think the biggest challenge I see is that there are alot of smart people trying to create “lifestyle” businesses. These are businesses that are interesting, fulfilling, and potentially very  profitable, that will provide the founding entrepreneurs with a very good living and a great lifestyle. The challenge is devising an investment model that makes sense for the lifestyle business. Both entreprenuerus and investors need to profit from a lifestyle business, or the movement won’t continue to grow in my view. There is also alot of opportunity to help entreprenurs think about their markets in greater detail: going beyond – there a 14,000 customers in this market and we expect to get 5% of them in the next 3 years. After all intelligence and passion are essential, but every business still needs to solve a pervasive and urgent market problem in order to succeed.

But Baltimore is off to a great start in 2009. This is an important movement that will pay deep dividends in the future if it grows and prospers. Find a way to get involved and track the progress at twitter.com/baltimoreangels.

A key theme of the book is that the general hospital is not a viable business model because it is focused on trying to do everything for everybody. As a result, general hospitals really are trying to simultaneously support  three different business models: solution shops (which diagnose problems and recommend solutions), value-adding process businesses (which fix or repair definitively daignosed problems e.g. a knee replacement), and facilitated networks (membership based networks that deal effectively with chronic disease maintenance). And the resulting overhead structures, high costs, and inefficiencies are the source of the health care problems in this country. The answer is that focused specialists need to disrupt the general hospitals, and this trend is already beginning in health care.

If you are in the IT services or software industries, does this ring a bell? The lack of focus in IT has been a pet peeve of mine for a long time and I have seen it bring down several fine organizations. In effect many IT and software companies act like a general hospital in the health care industry: they try to do everything for everybody.

A couple of recent blog post talks about this growing  and pervasive  problem (Rocket Watcher), and the recent product management survey conducted by Pragmatic Marketing really drives home the lack of focus and the problems it causes.

In essence many IT and software companies are acting like general hospitals:  they try to do anything for everybody. And as such they are trying to manage multiple business models just like the general hospitals: solution shops (which diagnose problems and recommend solutions), value-adding process businesses (which implement the systems and technology that address business needs), and facilitated networks (ongoing management and support).  The result is the same high overhead and increased costs that the market is no longer willing to pay for.

In health care we are starting to see disruptive business models displace the general hospitals. Specialist hospitals are starting to pop up everywhere. Neighborhood clincs are dealing with the simple illnesses that we used to go the physicians office for. And online networks are helping people manage their chronic diseases far better than their primary care physician can (due primarily to the fee-for-service profit formula in use today). To survive, general hospitals are going to have to be dissected into the three businss models.

In IT we are starting to see the same thing. Fueled by simple new tools and technologies (WordPress, Facebook, Twitter, Google Docs, etc.), disruptive innovators are starting to steal market share from the industry leaders. Specialists and focused competitors are the wave of the future, just like in health care.  If you are still caught in the general hospital business modl, you had better act fast. Once disruption hits it stride, creative destruction will quickly push aside those organizations that are unable to adapt.

If you are in the IT or software industries, pick up Christensen’s book and kill two birds with one stone. Become an informed citizen as the health care debate picks up in this country, and develop some keen insights on how to move your IT or software business forward in the new era of disruption.

As I read this book, which is about applying the principles of disruptive innovation to health care, it struck me that the IT industry  is dealing with many of the same types of  issues.

Here is a succinct summary of disruptive innovation and the book:   Disruption is about the need to transform expensive, complicated products and services into ones that are higher in quality, lower in cost, and more conveniently accessible to larger numbers of people.  And disruptive technologies and business models  have been the mechanisms that brought  affordability, consistent quality, and convenient  accessibility to most facets of our society and to most industries (including technology). 

Every disruption is comprised of three  components: a technology that transforms the  fundamental technical problem in an industry  from a complicated one into a simple one; a  business model that can take that simplified  solution to the market at low cost; and a  supporting cast of suppliers and distributors  whose business models are consistent with one  another, which is called a value network.

So the premise of the book is that disruption is the best way to make health care more affordable and accessible to everyone. The authors urge America’s political leaders to foster disruption as the vehicle to solve our health care problems and to avoid further government control (Amen!). And the central discussion is about disrupting the business models that currently drive the health care industry and that are the source of  its inefficiencies and high costs.

If you are at all concerned about the state of the health care system in the US, and are feareful of what might happen as the politicians in Washington DC begin to address this problem later this year, read this book and pass it along to everyone you know. It is that important.

Due to the growing length of this post, I will get to the  to the connection to the IT industry in my next post.

Disruptive technologies deliver relatively simple, convenient, and low cost innovations to a set of customers who are ignored by industry leaders. Tools like WordPress, YouTube, Facebook are all examples of disruptive technologies. Many Associations are experimenting with these technologies and that is a good thing. Combining the jobs to be done process I described in my last Post with experimentation with disruptive technologies is a powerful way to deliver products and services that resonate with members and other constituencies.

The challenge is matching the availability and use of disruptive technologies with the typical way that Associations budget for and manage technology initiatives. The nature of Associations often dictactes that major technology initiatives get the approval of not only senior leadership but also the Board of Directors (BOD). The result is that most Associations are forced to follow a very deliberate strategy, where they define requirements and goals, define  a set of steps to reach that goal, and then methodically act on each step. It is the only way for the leadership team to answer the Board’s questions around how much, when, and why.

This approach is evident in the dozens of RFPs I have seen over the last 4 years for CMS, AMS, and Website implementations that are all virtually identical. They consist of a large wish list of features or requirements, demand a fixed price and schedule, and want to know the total cost of ownership. And the result of this approach is that  4 years later, Associations are still saying that most of their energy is taken up fixing and replacing systems.

It seems that a different approach modeled after the Google approach that Chris Sacca spoke about on Day 2 of the ASAE conference might be worth considering:

• stay focused on the user and their unmet needs (jobs to be done)
• experiment and iterate with simple, low cost technologies.

By following an emergent strategy that is based on gathering feedback from the marketplace and retaining flexibility, Associations can experiment with new technology and change their strategies on the fly to adapt to new information that emerges from members. So when a member  survey says “you need to have a blog”, you can quickly go out and set-up a WordPress blog for under a couple of hundred dollars, for example, and test whether the members will really value the blog before developing a major initiative around blogging (or video, or Twitter …).

Maybe the time  has come for Associations to create small R&D organizations that are charged with innovation: understanding the jobs that members need to get done, and following an emergent strategy that incorporates learning and rapid adjustment to create products and services that resonate.

It seems to me that this is the best way for Associations to break out of the technology inertia that keeps them focused internally on their existing systems and to get back to delivering killer applications that make it easier for members to do something they were already trying to accomplish.

And then maybe next year ASAE can host the first Innovation Conference for Associations too.

What do you think?

Sacca talked alot about Google’s passion for solving user problems and creating compelling user experiences. In my view, this is the essence of innovation, which is fundamentally about identifying important problems to be solved. And innovation is the pathway for Associations to get beyond the technology inertia that is still focused on the AMS/CMS/Website triumvirate.

Most Associations conduct at least an annual member survey to try and understand member needs. Unfortunately, asking members what they want and need can be dangerous   because the type of information members typically provide include things like solutions, benefits, needs, and specifications — none of which will help you to devise breakthrough products and services or make the innovation process more predictable (http://twurl.cc/esw).

So the first step on the innovation pathway is to change the unit of analysis from member needs  and to instead focus on the jobs that members need to get done (http://twurl.cc/esy).

The philosophy is simple: members have jobs that arise regularly and need to get done. So they seek out products, services, and indeed, organizations to help them get the job done. These jobs can be functional, personal, and social. So when joininig or participating in an Association a member may want to have access to specific information or services (functional),  but she may also want to enhance her career (personal) and feel more connected to her peers (social).

By deeply understanding  jobs to be done, associations will really understand their members and be in a better position to leverage technology in creating products and services that resonate with them.

So the next step is to understand the power of disruptive technology, which will be the subject of my next post.

I found that not much has changed. Since about 2004 I have done a fair amount of work with associations. Mostly in the areas of Internet and Web Strategy, Product Strategy, and Web redesign/CMS implementations. So I was a bit surprised that the AMS/CMS/Website Redesign triumvirate is still dominating the agenda.

There was some chatter around new issues like the bad economy and implementing the PCI standard, and of course the whole Social Media/Networking thing was a hot topic. But in general, it seemed that most Associations are still dealing mostly with  fixing problems with existing technology infrastructure,  managing major system changes/implementations (AMS/CMS/Website), or just struggling to deal with complex technologies given limited budgets, skills, and time.

 I expected to detect a sense of urgency around the need to change the status quo, given all the ongoing change in how people connect, associate, and interact today. But I sure didn’t get that feeling. I wonder why?

But after listening to Chris Sacca (http://twurl.cc/ei9) General Session talk on innovation and Goggle,  it occurred to me that the way forward for Associations is to begin to shift their focus from technology to innovation. Sacca talked about Google’s laser focus on user problems and user experience, and he demonstrated how disruptive innovation can be incredibly powerful. I think Associations can transform themselves by embracing these concepts.

Because this post is already getting long, I will continue this conversation over the next several days to expand on this idea. Stay tuned for more on disruptive innovation for Associations, moving from surveying member needs to understanding member “jobs to be done”, and the power of a discovery driven approach to technology implementation for Associations.

There are a large number of Oracle developers who strive to constantly learn new technologies and keep up with the latest trends. This is good. But there are even more developers who are “just PL/SQL developers” and who are overwhelmed by the need to learn a half-dozen new technologies just to deliver a richer user experience to their enterprise customers. 

These developers are very valuable to the enteprise and represent a significant market opportunity because they will consider new products that will help them get the important job  of “delivering rich web apps to my users” done, as long as they can leverage what they already know. In fact a recent survey I ran indicated that 90% of PL/SQL developers believe they would benefit if they could develop rich web applications on their own in a way that increased the value of their existing Oracle and PL/SQL skills.

These developers would be viewed as non-consumers of the latest middle-tier technology, application framework, or language. But with non-consumption comes incredible market opportunities if you can provide them with a good enough product that is more convenient, less costly, or easier to use.

And that’s why products such as TURBOEnterprise, that I mentioned last time, have such potential.

One way to to define a disruptive innovation is that it enables a new set of customers to perform a job that only specialists could previously perform. In the case of TurboEnterprise, the new set of customers is PL/SQL developers within the enterprise who have been frustrated by their inability to deliver rich, web applications to business users because of the cost and complexity associated with implementing n-tier web applications.

The TurboEnterprise strategy fits this disruptive model in several key ways:

• It removes the barrier that has prevented PL/SQL developers from delivering rich web apps themselves and has relegated many DBAs and PL/SQL developers to the role of database server babysitter — the need to learn complex new technologies that are immature and rapidly changing.
• It removes a barrier constraining the adoption of rich web apps in the enterprise — access to skills.
• It targets a market in which factors such as product cost (middleware), complexity (web technologies), or inconvenience constrain consuption — enterprise rich web apps.

Essentially, TurboEnterprise is an AJAX framework for PL/SQL Developers. It allows PL/SQL developers to “do it themselves” and deliver enterprise-class, rich web applications to enterprise users, using only their existing PL/SQL and ORACLE skills.

The sharp engineers at TurboEnterprise have leveraged their distinctive competence with the ORACLE platform and with “thick database” concepts, as well as with n-tier application architectures and AJAX programming, to virtualize an AJAX framework and a n-tier application architecture inside of an ORACLE database.

In plain English this means: Turbo-Enterprise allows PL/SQL developers to build rich web apps using just PL/SQL code. There is no need to learn HTML, Java, CSS, Javascript, AJAX or a new programming framework/language.

As more and more business users are exposed to rich web applications outside of the enterprise, from companies such as Google and many others, they are demanding better user experiences within the enterprise. IT organizations have been hard-pressed to deliver these kinds of apps because of the need to have access to highly skilled people, and the need for these people to learn yet another set of rapidly changing, complex technologies. Now with Turbo-Enterprise, IT managers can get more out of their existing staff of PL/SQL developers while delivering new capabilities to business users.

The trade-off is that you may not be building rich web apps in Java utilizing the latest, very expensive, ORACLE Fusion middleware platform, but you are able to quickly deliver enterprise-class (secure, scalable, reliable, etc.) rich application experiences to the business user for a fraction of the cost. IT managers get more out of their existing investments in technology and people, while providing their PL/SQL developers with new challenges that extends and enhances their skills.

So in summary, TurboEnterprise,

• targets non-consumption of rich web apps in the Enterprise
• addresses important jobs to be done — allowing PL/SQL developers to enhance their skills and careers and allowing IT shops to better meet the needs of the business user
• eliminates cost and complexity by enhancing an existing, mature technology.

All the hallmarks of a disruptive innovation.

(Editor’s Note: In the spirit of full disclosure I am acting as the Product Manager for this product)