Operational capabilities to scale. Sometimes, I am contacted by founders with great technology but have companies that lack core operational capabilities. For example, if you are a software company, you need to have capabilities on developing and iterating your software with customers, sales capabilities, and customer success capabilities to make customers that are using your products successful. As a large corporation, we can help startups with some capabilities, like global access to large customers, however, the startups still need to have the core capabilities to drive growth.
As part of our series about “5 Things I Need To See Before Making A VC Investment” I had the pleasure of interviewing Chris Sowa.
Chris Sowa has over 20 years of experience in driving innovation, strategy execution, and new ventures leveraging advanced technologies. He has a global track record of success in Europe, Asia, Australia, and the United States. As a global Vice President, Energy Management Software at Schneider Electric, Chris is developing a new billion-dollar cloud-based software business through strategic partnerships and acquisitions.
Chris also has experience working with new digital technology and startups from his work as the founder of his own startup, which uses AI and cloud technology, and work as a member of MIT Enterprise Forum’s Innovation Committee.https://content.thriveglobal.com/media/7ba96d037a7a7ab219c0730de20cf510
Thank you so much for joining us in this interview series! Before we dig in, our readers would like to get to know you a bit. Can you please share with us the “backstory” behind what brought you to this specific career path?
I worked in commercial lending at a bank for a few years, but many banking products (like checking accounts and credit cards) can remain mostly the same for decades. Further, getting creative with regulatory products like loans can land someone in jail or quickly lead to financial insolvency. After suffering creatively in this environment for a few years, I found myself thinking about and experimenting with new business ideas in my spare time. It was not long before the internet, along with the disruption it would unleash and the opportunities it was creating, led me to work as a consultant to help companies build new divisions and start entirely new businesses. First, I did this as a consultant at IBM in Silicon Valley; later as a part of SAP and Oracle, I worked with larger customers to reinvent their businesses. I also founded an artificial intelligence startup myself and lived the pain of “boot strapping” an artificial intelligence company.
In my current role at Schneider Electric, I look for companies to partner with and invest in that can help our customers reinvent the construction industry from designing / building new energy efficient buildings to operating them leveraging smart human centric solutions that improve livability while lowering costs.
In summary, it is my inability to be satisfied with the slow-moving status quo that leads me to want to work with market bending companies that find new ways to satisfy customer needs and reinvent the way we work.
Is there a particular book that made a significant impact on you? Can you share a story or explain why it resonated with you so much?
For me, Clayton Christian’s Innovator’s Dilemma was a huge eye opener about how many market leading companies that saw disruptive trends still could lose their markets due to inertia inside the company. The book made me realize that large companies that owned their markets like Sears in retail could be totally disrupted by new competitors like Walmart and Amazon. Now, Walmart and Amazon are the market leaders always needing to look over their shoulder at potential upstarts with new capabilities and business model that could eventually cause them problems.
Do you have a favorite “Life Lesson Quote”? Do you have a story about how that was relevant in your life or your work?
When I started my career at the bank I mentioned, we went through a reorganization in which 50% of the staff were eliminated. I saw a number of employees who were at least as smart as me get laid off. I believe that the reason that many of these employees were laid off and had difficulty finding new jobs was because they had become too comfortable with the “as is” process and skills they knew. I became determined to never allow myself to be too comfortable with the way things work today and to instead seek to reinvent myself and to be on the side of disruption. This is one of the reasons why I enjoy working with entrepreneurs that are creating new business models, building new markets, and finding new ways to delight customers.
How do you define “Leadership”? Can you explain what you mean or give an example?
Leaders are willing to take risks to do the right thing for their customers, employees, and shareholders. They do not punish employees for trying to do the right thing and failing. Instead, they celebrate fast failure that brings learnings that strengthen the business. They also shine a light on the contributions of others that innovate to foster this behavior across their organization, instead of taking all the credit for success themselves.
How have you used your success to bring goodness to the world?
My current mission to help leverage startup innovation to tackle major problems like climate change. At Schneider Electric, the executive team and I have our bonuses impacted by how well we meet our carbon reduction and efficiency targets. I am also working with startups and mature companies to Design, Build and Operate the next generation of energy efficiency buildings, something that can have a major impact on climate change. In this process, I am also looking to mentor the next generation of leaders because massive change on the scale of something like climate change will require many new leaders both inside and outside the startup investment community.
Ok, thank you for that. Let’s now jump to the main part of our discussion. The United States is currently facing a very important self-reckoning about race, diversity, equality and inclusion. This is of course a huge topic. But briefly, can you share a few things that need to be done on a broader societal level to expand VC opportunities for women, minorities, and people of color?
I think that as it relates to increased diversity and fairness in VC opportunities, we need to make some major changes. First, we need to look beyond the personal connections of investors to a broader group of business owners. I once had a successful VC Fund founder owner tell a group of young entrepreneurs that he only invested in companies with people he had known for at least three years. In some cases, he could reduce that time if someone he knew well recommended them. In other words, if you were not someone that had connections to him and his mostly white moneyed, white male colleagues your likelihood of getting funding from his fund was zero. We within the investment community need to change this this thinking. This means finding innovators in new places and focusing more on the business rather than on who people know. Another key aspect of increasing diversity is in mentoring the next generation of woman and minority leaders. Not only will this increase diversity but profits because these new leaders will find the ignored innovators that will help broaden their portfolio with even more market-creating startups.
Can you share a story with us about your most successful Angel or VC investment? What was its lesson?
The successful investments and partnerships that I have driven have come due to increased understanding of the business model, getting into the technical detail that differentiates a company, and actually talking to customers and potential customers of that company. I have also seen former investment bankers focus only financial multiples have success in the short term, but fail spectacularly in the long term because they did not understand the technology or the operational capabilities of the business. My most successful investments have come from taking the time to ensure that we fully understand the technology and whether business capabilities of the organization are up to the challenge to enable increasing profits.
Can you share a story of an Angel or VC funding failure of yours? What was its lesson?
I have learned the hard way that even a great business idea or technology that customers are not ready for is a recipe for years of cash burn and heartache for investors.
Can you share a story with us about a problem that one of your portfolio companies encountered and how you helped to correct the problem? We’d love to hear the details and what its lesson was.
One of the companies I worked with was trying to enter too many markets for their software at once. Rather than continuing to encourage them to be all things to all markets, we tightened the cash we provided and forced them to build solutions that were deep enough to meet customer needs.
Is there a company that you turned down, but now regret? Can you share the story? What lesson did you learn from that story?
One thing I have kept from my early days in banking is my focus on financials and estimating future cash flows. In a few cases, this has made me miss some investments in companies that did not seem to have a path to profitability but were later able to leverage their market position to create one that eventually generated profitability. The lesson is not to be bound by the way the market works today, but to try to imagine scenarios where the market could be completely different.
Super. Here is the main question of this interview. What are your “5 things I need to see before making a VC investment” and why. Please share a story or example for each.
In my current role as Global Vice President of Software at Schneider Electric, I am always looking for potential investments and partnerships that can strengthen our software business. In new investments, the five things I look to see are:
1) Customer evangelists. A startup customer needs to have customer evangelists that sing the praises of its value proposition. I will often introduce a promising startup to Schneider Electric customers to see if they find the value proposition compelling. This helps me see the potential for a market even before it fully develops. It also helps the startups in some cases that need to pivot to generate a meaningful value proposition. We use this same strategy with our large acquisitions. As a part of our acquisition process of Rib Software, we worked closely with our customers to help understand how Rib Software could help them reinvent and digitize their construction build process.
2) Powerful and relevant team skills. For example, if I am looking at a generative design startup, I am interested in knowing the level of depth of this startups’ AI expertise, so having a top-notch data scientist is key. Also, if you are looking to do business in the construction industry, having a team member that has been successful in this industry and has the knowledge can make all the difference.
3) Technology differentiator that drives repeatable business. How is a startup using its technology in a unique repeatable way? Many software startups are using open-source technology and a lot of customer services to meet customer needs. If startups don’t have a path that shows they have a repeatable, ideally SaaS based solution, it becomes difficult to build a business case.
4) Large potential market and revenue growth. We are looking for startups that can help to develop at least a one billion market and can capture a large share of this market. I was once working with a startup that had some big name customers, but was able to charge very little for their software solution. The customers of this company saw their solutions as “nice to have” rather than “need to have” and were not willing to spend much to obtain them. In this case, the market just did not exist without that compelling reason for customers to invest.
5) Operational capabilities to scale. Sometimes, I am contacted by founders with great technology but have companies that lack core operational capabilities. For example, if you are a software company, you need to have capabilities on developing and iterating your software with customers, sales capabilities, and customer success capabilities to make customers that are using your products successful. As a large corporation, we can help startups with some capabilities, like global access to large customers, however, the startups still need to have the core capabilities to drive growth.
You are a person of enormous influence. If you could inspire a movement that would bring the most amount of good to the most amount of people, what would that be? You never know what your idea can trigger. 🙂
I would love to inspire start-up innovators to find new ways to design build and operate highly efficient, low carbon buildings leveraging digital solutions. I would also like to see this same construction digital re-invention in making existing buildings more efficient and digitally smart. By reducing carbon from buildings, we can have a major impact on climate change and make a better planet for everyone.
We are very blessed that some of the biggest names in Business, VC funding, Sports, and Entertainment read this column. Is there a person in the world, or in the US whom you would love to have a private breakfast or lunch with, and why? He or she might see this. 🙂
I would love to have breakfast or lunch with Bill Gates because of the success he was able to build by taking risks in business and the great innovations he is now driving through his charitable organization “The Bill and Melinda Gates Foundation.” I believe that it would be great to understand his vision for the next breakthrough technologies and how they can be leveraged to build a better world.
This was really meaningful! Thank you so much for your time.