Podcast #109: Industrial-Grade Investing

Good day and welcome to episode 109 of our digital industry leadership podcast, produced by, for, and about digital industry leaders.

Today I’m pleased to host a true industry investment veteran Michael Redding, the former Managing Director of Accenture Ventures. Mike Co-founded Accenture Ventures in 2015 and was responsible for growing a global portfolio of strategic partnerships and equity investments in emerging technology startups to support Accenture and their clients business transformations. He oversaw 38 venture investments and the creation of a global open innovation network spanning 50 countries, all focused on artificial intelligence, cybersecurity, augmented/virtual reality, blockchain and cloud.

In 2019, Mike was recognized by Global Corporate Venturing as No. 9 on their Powerlist of Top 100 Corporate Venture Leads, out of 2,200 Corporate Venture capitals units globally. Previously Mike led Accenture Technology labs that dedicated technology R&D organization of Accenture, he received a bachelor’s degree in electrical engineering, computer science, at Princeton University in 1988, and a Masters in Bio Medical Engineering from Northwestern University in 1999.

Mike, welcome to our podcast, it’s a great pleasure to have you.

Well, Ken thanks for having me today.

Absolutely. Man, going back 2019 No. 9 out of 2,200, that’s just amazing to have that kind of credibility, so I’m greatly looking forward to the conversation. Let’s start with your professional journey which I’ve outlined a little bit already but tell us a bit about your background and how it has informed your views of the digital industry.

Sure. So, engineer by training, and electrical engineering and then biomedical engineering, but what came out of that was a passion for software. When I joined what was then Anderson Consulting and eventually became Accenture, fresh out of grad school, I had skills in such advanced technologies as UNICS, and C in Graphical User Interfaces at a time when the business world was still in Cobalt land, and we were just entering client server. I was advanced technology, and that kind of set my career trajectory to always be at that front edge of emerging tech, that when the rubber finally hits the road we go from academic theory, to enterprise deployment, and the first mover, the first of its kind deployments. You can think of my career in three phases.

The first phase was classic technology consulting, when I had and did everything from programming to project management, to program management, technical and enterprise architecture. So, really getting my chops around from small projects to ultimately large enterprise transformation, carrying the beeper, getting the text support calls, all that kind of fundamentals but always in the realm of solving a problem. My engineering roots were always solve a problem, and there wasn’t always something broken, a lot of times it was let’s create something that’s never existed, let’s build a bridge that’s never been built, metaphorically.

That was the first tranche of my career, ended up transitioning from client server into early internet, into things like email management when email for corporates was new; think about that, into call center automation, into digital marketing, as digital technologies went and evolved, was there every step of the way. So, that was the first era.

The second era was the Labs, which you mentioned, which is they took some consulting guys like me, mashed it up with some researchers to create an R&D function inside a global services firm, but not to make product because Accenture’s not a product company, but to apply technology, and again to figure out how to take what was coming out of startups and large technology companies like an IBM, or a Microsoft, or an SAP, but to always be at that front edge. The labs were always trying to say, “Can we ever do what we used to call pioneering defining?” the first ever, and so in factor that second wave I did the first ever corporate workloads from Accenture and our clients, on Amazon webservices. It was the launch of what is now a multi-billion-dollar cloud business.

And my team, I signed an agreement despite the lawyers telling me not to do it, I signed the first ever agreement to do development on the iPhone. We wrote the first ever application running on iPhone that accessed SAP for enterprise use, which launched then a multi-billion-dollar, overtime, mobility practice. Under things like cybersecurity, early quantum, so the Labs era was all about that first of its kind technology, but again in the service of real-world client implementations. This is not academic, this is school of hard knocks, they’re at the coalface trying to make it real and get business value from it, and there we can definitely talk about the skeletons in the closet of tech that sounded good but proved not to be.

The third era, the most recent one when you recapped, was working without Chief Technology Innovation Officer, Paul Daugherty, he asked me to step out of the labs and to do this new thing, which was to say, let’s really put structured emphasis on the next generation of technology partners, the start-ups, and really create a formal program to partner with them, and put our money where our mouth is in some cases by making investments, but always with the goal of not that I say rich quick at the IPO Casino, but actually to accelerate market adoption and to get them into the market faster. I think that’s what global corporate venturing recognized was a corporate strategic program that was strategic, and that’s why I think they gave me that honor last year.

I had the opportunity to visit in Chicago, I don’t know if it was the advanced R&D Labs, but certainly with regard to retail features it was in essence a kind of retail feature at the store, back in 2000 timeframe. Very impressed at the time in terms of the building and the layout, and the teams and a lot of the activities they undertook. So, looking at this phase 2 of the Labs, I think at the time that you were there you led a team of about 200 across five global locations, direct investment of about 25 million; so, these aren’t a couple of WeWork-style cubicles and some interesting blinking lights!

Not at all!

I think you’ve mentioned a bit, but tell me about the purpose of the Labs, and how it really supported Accenture’s broader mission, especially because you said not a product company, right?

Right-on, and by the way, that was probably Smart Store 2000 that you visited, which then morphed into what we call ACIN, which was Accenture Customer Innovation Network, because as you can imagine, retailers, yeah there’s back office which is super-critical, but it’s always that interface between the retailer and its customer that defines retail, because it is B2C straight up. That’s continued to evolve, but that’s critical because context is king, it’s always putting the technology in the context of the industry of the end-user, whether that’s the corporate end-user, or the corporate’s customer whether B2B or B2C, it’s always through the lens of context, because that is where you find actual success in innovation.

The Labs, you’re right it wasn’t three people in a closet doing something, it was 200 people around the world, and the key was always to envision… we talked about the intersection of business and technology, and others, maybe some of our strategy colleagues, some of our industry colleagues, would look at innovation from the lens of new business models, or new markets opening up, or new regulatory framework changes that would change business conditions. In the Labs, our job was to say, when is technology a catalyst for industry change, for enterprise change? And when is the technology different enough that it will change the rules, it will change the economics, it will change the operating environment and will create advantage or threat that must be responded to?

So, the Labs is constantly on this focus of pragmatic visionaries, it’s looking down a road and seeing what’s going to be true in three years, therefore you can take action on it today? So, starting right around that time 2000, annually the Labs have published a technology vision which is a three to five-year vision out, that says, ‘What’s going to be mainstream? What’s everyone going to be doing in three years? Therefore, as an enterprise what can you take action on today?’ So, it’s not, “Oh, flying cars”, so wait for that magic day to come, it’s more like, cloud, and here’s how you start on a cloud journey, and therefore in three years when it’s going mainstream you’ve got the muscles, you’ve built-up the capabilities, you’ve done the training, you’ve got the architectural standards, you do everything that an enterprise needs to do to actually scale it out and do it, because Accenture’s clients are at the global 2000, so you’ve got to make sure it’s going to be legit and real, and not just a hobby experiment.

They always say in hockey, you skate to where the puck is going, the labs defines where the puck is going, and then lays out the path to get there, and then does the experiments, the proofs of value to show its legit, it’s real, it’s ready for primetime. So, describe that shining city on the hill and then make it true.

Well said. Interesting, because I looked at your investments as an augmentation if you will, of the internal Labs, and the way you presented it earlier when you said Phase 1, 2, and 3, is going and looking at the next generation of external innovators, and right around that time of course outside in innovation was the rage and such; was the creation of the Ventures program meant to be a kind of movement forward of innovation, augmenting internal with external? Or was it meant simply as an investment device?

100 percent the entire rationale for it was to drive market adoption, really transformational change, digital transformational change in the enterprise. But obviously if Accenture is the catalyst of that change then it leads to services revenue, A+, and because we’re not a product company, it pulls through ARR for our technology partners, (Annual Recurring Revenue), acronyms run in my blood, so if I ever throw one out there, say “Michael, what do you mean by that?” My brain works in acronyms! So, Annual Recurring Revenue for our partner, because the key is, in the labs we’d say quantum, but in Ventures we’d say, “Okay yeah, so quantum. Which quantum?” and then we’d go, “Oh, One Cubit out of Vancouver”, they’ve got the library of 150 quantum-based algorithms that will allow people to do things like molecular comparisons for drug discovery, or supply chain optimization, or other analytical functions, that’s that function which to the next person knows exactly what that means.

So your question is, okay the Labs would chart out the direction, but then the question was supply-side, and of course since Accenture partnered with the biggest of the bigs, the Microsoft, the SAPs, the Salesforces that you name any of the biggest technology partners, and they all have their own technology innovation program, got that covered. But as we know there’s tens, if not hundreds of billions of dollars a year going into the next wave of technology, we wanted to make sure that our clients had access to both ends of the spectrum, because any scaled digital transformation is going to start with a foundation of a public cloud, or a SaaS player, like a sales force – a SAP, that’s going to be the backbone, that’s the foundation, the skeleton and the foundation of everything you need to do. But then the differentiation, how is industrial equipment company number one, different from number two? They both run SAP S/4HANA, how does one of them juice-up their analytics? Oh, well they bring in some quantum and they optimize their materials handling by bringing in quantum algorithms from One Cubit.

So, it’s the and, and therefore the goal of this was to say, how do we make sure that Accenture is the innovation partner of choice for our clients, and that’s always by having the most complete box of LEGOs from which to build digital transformations.

Let’s talk about some of those Legos, because you did pretty well picking these Legos. I see solid exits including Mighty AI to Uber, a small deal there. Vlocity, to Salesforce, small deal, right? Paxata to DataRobot, and of course investments in Mana, Upscale and ForgeRock. So, you picked your LEGOs pretty well, to what do you attribute this ability to consistently back such winners?

And don’t forget nCino one of our best, which just IPO’d. Well what it comes down to is, really taking a hard look at market demand, what do our clients need? Understanding industry, understanding the enterprise, understanding the value levers, and then saying, okay what’s missing, who’s got it? That is the first part, and then making that bridge, so not only is it I can just matchmake, but bridge make which is actually connect the dots, actually get it.

With nCino they had worked with a lot of small banks, we partnered with them on their first tier 1 bank, SunTrust up in Canada who also became an investor, and then proceeded to roll them out across most of the tier 1 banks in North America, jumped the pond into Europe, jumped the big pond over to Australia, but as a result it was because there was a clear need, there hadn’t been a modern architecture or solution in commercial lending since the nineties. Then we invest it in Finxact and Zafin to go after core banking; same idea there, they were bracketing the market because there’s 30-years of demand waiting to be fulfilled, so what helps us pick the winners are strong players, and have a nice way to judge quality portfolio is what happens to them, do they go onto bigger things either independently or as part of a larger tech firm, like Mighty AI becoming part of Uber, it’s that matching and that bridge making, and of course the quality of the leadership team inside it that says, wow, they’ve got some real talent.

So, knowing the market, knowing what the Global 2000 needs and wants, find it, and then find the right crew that’s got the right people and the right product, that’s what we strive for in every investment decision that’s made.

And you guys obviously did well. I love it, “The connect the dots investment thesis” if you will. Given the broad visibility that Accenture has, I could foresee the level of insight that they could collectively pull together was quite phenomenal. So, I really could see “demand side” if you will, need out there. Now, I know you worked closely with the innovation and investment teams at some of the larger global corporations, what were some of the trends that you saw during that time of how corporations manage external innovation, and what models do you actually see working out there?

Unfortunately, you just backed me into the classic corner, that I have to give you the default consulting answer, which is, it depends.

It depends! (Laughter)

You did it to me, you pushed me. No, because the reality is, I’ve seen it all, and I’ve tried it all, I’ve been at this for 30 years, so I’ve done all the mistakes myself. But the key is, where success comes is that rigorous and ambitious tie between the innovation agenda or ambition, and the business mission. Not just the business plan, not just the business calls, but the actual business mission, when you can tie it into what the company – the enterprise is all about, you find success, and then after that, its style. But I’ve seen too many people, enterprises, do it as a, “Oh, we need to check a box, so we need to have an innovation program or an investment program”, therefore we’ll dabble, but then it’s all fair weather.

Going back to my own career and our Lab function; our Lab function, the roots of it were laid down in the 80’s, the modern version of it was formed in the 90’s, it survived depending on what COVID does, between four and five recessions. It’s never been treated as a luxury item, it’s always been treated as a necessity because of the relentless focus on how does it serve, and how is it integrated into the mission? It could be a special profile, it can even involve – like again when we’re working with all these startups, we’re not making the product, we’re working with hundreds of startups around the world, so that’s definitely an externalized capability.

I’ve seen clients that they can really tie it into the way they work, how they go about their business, and then it’s just a question of is it an inhouse accelerator, do they partner up with an external accelerator, do they do their own investing? Do they go to one of the organizations that can do investing as a service, they basically become an LP? There’s no right or wrong, but it’s when its arm’s length and box checking, and, “Oh, by the way yeah, we should do one of those because we’re supposed to”, that’s when it falls short, and that’s when the next time things get rough it’s chucked. That’s actually the bad rap that corporate venture capital… because venture capital, VC’s Sand Hill Road types, they don’t have another job, it invests or be unemployed. With corporate it’s like, “Yeah, we’re still making the widgets, we’re still making loans, we’re still generating electricity, so yeah we stop investing. So what?” And therein lies the trap.

And so, it’s when it’s not part of who you are, it’s not integral, then its superfluous and the first time there’s trouble you’re going to kick it overboard, and then you’re going to miss out. All the studies have shown every past recession, those that innovate during the recession get a 20 to 30 percent advantage coming out of the recession, compared to their direct peers who cut. So, when times are tough, that’s the time not to jump overboard, but if it’s a luxury item or you see there’s a luxury item then no matter what style you take, you’re going to find failure.

Good general observations there. Now, we’re kind of drilling down, because we really represent digital industry, and when I think of the digitization of energy, manufacturing, smart spaces, supply chain, what we’ve seen is there are few VCs or venture capitalists that really favor the space, mainly because it’s a combination of industry and infrastructures, we like to say; and its relatively unicorn free in that regard, the lot of base hits if you will. I guess from your perspective does that mean that this space will always be dominated by corporate venture capital.  Or, do you think VCs will begin to understand the real deep fundamentals of this space, and start to invest more in it, like Soft Bank has as a good example, although again, technically CVC’s so…

Well here’s the thing, it’s a pretty interesting question you’re asking. As I look at it, the issue is… issue maybe is not the right word, but the dynamic, that’s a better word, is that with a VC, generally speaking, broad brushing – I know you’re going to ask me specifics, but I’m going to start broadening there quick; they’re thinking what is something that goes superscalar? If its consumer how do I get to a billion human beings using it? If its technology it’s, how do I do it so that every company needs it? Like carpets, every company needs carpets, I’ll invest in carpet because I don’t have to think too hard about it, everybody needs it right. Desks, everybody needs desks. So, when it comes to industry vertical then you’ve got to have the expertise.

Going back to your point about Accenture what also is my hidden strength was we had 500,000 people, we had, and Accenture continues to have, an expert in literally everything, I just have to know how to find them. Well, if you’re a VC shop with 20 employees, or 70 employees, or the biggest ones 200 employees, you’re about 499,800 short compared to Accenture, so you can’t cover all the bases. But the CVCs, if they’re coming from energy, so Saudi Aramco, or Shell, or Chevron, they know energy, they know the dynamics, they know the economics, they know the problems, they know the opportunities, and as a result they can really get into it, Or, if you’re in hardcore… when you say “manufacturing”, manufacturing cars, and manufacturing wheat, and manufacturing ceramic mugs, are not all the same manufacturing.

So, the specialization and the sub-specialization to really come up with something that moves the needle on the economics, such that it may scale, but it’s going to scale in the context of if its energy, upstream, it’s going to scale for the ten super majors. So, if you’re Sand Hill Road VC you’re thinking, “I need 125 logos on a slide”, but if you’re in energy, if you get 10 logos, you’ve got 90 percent market share. I think that’s why you may see a bit of that dynamic as unicorns are seen more in terms of mass market, versus deep, but yet some of those deep ones are the most profitable companies on the planet. If you really get into a niche and you’ve got market dominance, you’re printing money, you’re at the 80 percent margin, but you may never do $10 billion in revenue, but you’re doing a billion at 80 percent margin, it’s still going to generate a nice return.

You mentioned earlier how the Labs had kind of survived a number of downturns in the economy over time, or challenges shall we say, and obviously we’re facing the most relevant in terms of COVID-19 pandemic. I think the World Economic Forum calls it ‘The Great Reset’, we actually are thinking of it in terms of a Great Digital Accelerator, because we’re seeing all of our portfolio companies benefit from it, in terms of the work that they’re doing. What do you see as the long-term impact of this, and especially on digital industry?

Well, as a child of the nineties I’ve lived through re-engineering, remember business process re-engineering, right? My hammer, “If it’s not broken, break it”, or “Don’t pay the cow path”, and all those slogans of the nineties, well I think COVID-19 is that gut check on re-engineering and asking assumptions; why do millions of people get in a car and drive to a building and go to their cube and sit there all day? It’s like wait, how does that make sense? Or cloud collaboration, we’re doing this over Teams, collaboration technology has been around 20-years but all of us have distained it because it’s not as good as human beings. Yeah, human beings love to be with other humans, and there’s a lot of context, there’s a lot of empathy, and a lot of other high bandwidth non-verbal communications, yet there’s still plenty we could have been doing, but status quo said why take on the hassle of the learning curve, when we can get by without it.

I think COVID is like you said, it’s a grand reboot on the assumptions, and the why do we do the things the way we do them, and if you’re ambitious to say why not exploit the technology, cloud, mobility, IoT, that is there and proven, but has been sitting almost collecting dust, because people have been slow to adopt it, because it’s like, “Yeah, status quo is cool”. Well status quo isn’t cool right now and you may not have a choice, and especially if you’re in certain industries you don’t reinvent yourself depending on how long this COVID thing, and others that follow kick around, you won’t be around.

I look at this and say this should be every innovators dream which is, there’s so much turmoil yet it’s not like we’re waiting for someone on the back scene side, we’re waiting for someone to invent the technology, but on the digital technologies we’ve got quite the toolbox, but it depends on the latest stance. I haven’t looked at them recently, but even as late as last year people were talking about 20 percent of penetration of cloud into enterprise workflows. That means we’ve 80 percent to go, but yet the technology is perfectly fine for it, it’s not a lack of capacity or a lack of tech, it’s a lack of application.

So, I think COVID’s the grand stimulus in that it’s a forcing function, nobody gets a choice to sit on the sidelines and just ignore it, and those the winners will be there to embrace, which you talked about, which is that digital acceleration that says shoot the rulebooks out of the window, all bets are off, go for it, make it happen, now’s the time. Those that do that are going to come out and really see a transformation.

Again, and I’ll leave names out of it, I was driving down the street and I saw a building that had the name of a national insurance company on it, it’s a local agency. I’m like, “Why in God’s green earth do they still have that building? What is that costing on operational costs versus, when is the next time anybody actually physically needs to go into an insurance agency branch, versus just work with your insurance agent, work with them digitally, lower the cost – increase the customer engagement, do better than you’ve ever done, but why have physical real estate other than it’s a billboard? I think that’s where those that grab a hold of it, versus those that just go, “Whoosh, it blew over, go back to the way we were”, anyone who has that mentality I think is going to miss the boat.

The last probably 60 seconds of answer there have been a great setup for what I’m sure everybody’s thinking now. Given this perfect storm of opportunity if you will, given the level of observation you have, the insights you have, the digital experience you have, and everything else, what’s next for you Michael?

Well that’s a great question, and like everyone else I’m using this COVID era as a bit of a chance to… I had a great run with one of the world’s best companies, but we’d always been working towards succession, and actually brought onboard a fantastic woman leader, Catherine Ross out of Chicago to grab the torch and take it forward, I’m super-excited for her and where Ventures goes next. But for me it was time… well youthful, not maybe not young, but youthful enough to say let’s go do the new adventure, take what I’ve learned, so I’m maybe leaving the team but I’m not leaving the game, but it’s time to challenge myself to take my own advice, it’s the old sometimes people don’t do that but I’m trying to take my own advice and say, use this as a chance to get outside the box you’ve been in, get out of your foxhole and get into the broader world. But for me it’s always going to be that intersection point of the enterprise and technology, and bringing startup and new technology to world-class companies, that’s where it’s going to be.

So, I think it’s going to be working with startups, keep investing because of course make sure I’m putting my money and/or investment dollars where your mouth is, it’s easy to see it but harder to do, but then also because I’m going back to my engineering roots it’s not just sitting on the sidelines and guessing, it’s doing, its making the change, being part of the change and seeing it, seeing the problems get solved or seeing the solution deployed in the wild, that’s what gets me so fired-up every day. For me it’s going to be keep on doing that, but with some new friends and new collaborators, probably still with my friends from Accenture but with a broader palette to work from, and that’s what’s both daunting and exciting at the same moment, which I think is true for everybody at this moment of COVID, and this moment of digital industry acceleration.

Yes, very much so, and Momenta would like to count itself amongst those friends!

100 percent.

Yes. In closing can you provide any recommendations of books or resources that inspire you?

That’s a great question, and maybe it’s because right now I’m in the groove, but for me just keeping my finger on the pulse, folks like CrunchBase and CB Insights, and PitchBook, because they’re very happy to share with you on a daily basis a lot of what’s going on in the world, not just Silicon Valley, but the world of startups. Global Corporate Venturing has a newsletter, but just anybody, even if you’re not investing just look at their constantly sharing what’s happening so you can see the trends, you can start to see the patterns, you can get the vibe, and it can spark a little spark of inspiration in you, in whatever your job is, but a spark of, “Whoa, there’s something else going on”, and maybe once every two weeks there’s a thread you decide to pull, but they fill your inbox every day with just pretty curated content, I think at 90 percent, 95 percent maybe, not for you but the individual reader, and for me I find that reminds me where innovation is never-ending, but it’s not overwhelming, but you can find some threads to pull and some inspiration, and something to take action on.

I think that’s the habit, everyone who really aspires to innovate needs to do, is get in the habit of saying, “It’s not won and done. It’s evergreen, and getting that daily habit just like daily exercise, it’s daily exercise of your innovation muscle, and they’re all waiting for you to subscribe and spend some of your daily reading time.

I always see it as constant pattern matching, especially across domain, across geography, across discipline etc. Michael thank you so much for this insightful interview, and for really sharing and keeping us all in the groove with you, I’ve really appreciated this.

Well, thank you for the opportunity, and I really appreciate the chance of sharing.

Absolutely. So, this has been Michael Redding, the former Managing Director of Accenture Ventures, and a true digital industry investment veteran.

Thank you for listening and please join us next week for the next episode of our digital industry leadership podcast series, produced for, by and about digital industry leaders.

[End]