November 7, 2019
PUBLISHED BY Bryan Stolle
The signals and signs of trapped value are everywhere. Analysts estimate the spend for digital transformation (DX) will account for ≥10% of revenues for almost 1/3rd of the Global 2000 by 2020, and reach $2T by 2022. “Technology is disrupting almost every industry in every country. And, these changes herald the transformation of entire systems of governance, management, production,” notes Klaus Schwab, Founder & Chairman, World Economic Forum.
This unprecedented IT spend is happening because corporations are fully aware that they have a plethora of aging business models, with 10x the current DX spend sitting in trapped value waiting to be freed. More importantly, failing to transform their businesses is an existential threat to their very existence. Says Toby Redshaw SVP of Innovation at Verizon, “It’s a time of massive change for businesses. If you aren’t “all in” on AI, you will be deader than disco.”
Enter Digital Oil (which I introduced in part 1 of this series) and Trapped Value. Digital Oil is the data that companies and entrepreneurs extract and refine to release the Trapped Value hiding in outdated business processes and underutilized data and assets. When released, Trapped Value can represent tens or even hundreds of millions of recouped dollars and resources, or significantly increased revenue streams.
There are obvious well-known examples. Uber and AirBnB both went after huge pools of idle assets – unoccupied often-parked vehicles, and unused or vacant rooms and homes. The “gig economy” was part of it, but the value creation was possible only by releasing the trapped value in these under-utilized and idle assets. In fact, even the gig economy is in part about utilizing idle labor.
Here are some less well-known examples of Trapped Value that companies in our portfolio are seeking to release, and in the process hope to transform industries.
- LeaseLock – More than $12B is collected annually in home and apartment rental security deposits, to ensure landlords that renters won’t skip out on the rent or damage property. Ironically, these security deposits don’t come close to covering actual losses – industry-wide more than $2B annually. Adding insult to injury, 55% of lease applications break over security deposits, creating tremendous friction in the lease conversion process and reducing rental income.
LeaseLock is re-inventing the leasing process, allowing property management companies and building owners to completely eliminate and replace security deposits with sophisticated insurance, operating automatically within native leasing workflow apps, underwritten through machine-learning powered by unique proprietary loss data from millions of rentals. The result is a much faster, simpler process with higher conversion rates at far lower cost.
- GreenFig – Over $253B is spent annually in the U.S. – to get a job as a barista? Seriously! That’s the college tuition for nearly 50% of graduates who remain unemployed or under employed for a year plus. And 50% of those who start out underemployed will remain underemployed 10 years later.GreenFig is a market-driven education company providing students with specific business science skills (sales operations, marketing operations, customer success, etc.) they need to be job-ready in today’s digital economy. They connect higher education institutions and their students to leading enterprise technology providers and employers through a one semester experiential learning program including hands-on expertise and real-world job experience with popular business apps such as Marketo, SalesForce and Zendesk.
Armed with in-demand technology certifications, more than 80% of students land a full-time job within six months of completion and are 64% less likely to be underemployed.
- Tuition.io – U.S. companies spend an estimated $250B+ annually on employee recruitment, with more than half of that targeted at Millennials (now the largest working adult cohort) and experience an estimated $31B annually in direct turnover costs amongst the same group.Tuition.io’s solution is student loan reimbursement assistance (SLRA) as an employee benefit. With student loans exceeding $1.6T, now larger than credit card and mortgage debt, SLRA is a much more meaningful benefit to Millennials than 401ks. It has also proven to be a very effective benefit for attracting, engaging and retaining Millennials, making a real dent in the trapped value inherent in employee turnover, recruitment costs and lost productivity.
- Carrum Health – Over 80% of U.S. employers with 200+ employees are self-insuring their health benefits. That represents well-over 100M working Americans. Common planned medical procedures such as ACL tears, knee and hip replacements, child delivery, cancer treatments, etc. cost self-insured employers more than $240B per year, yet as much as 40% of that cost ($100B in trapped value) is eaten up by wildly inefficient and byzantine administrative costs.Carrum offers self-insured employers a single bundled payment platform for the most common medical procedures, delivered by top-quality local healthcare providers. Carrum dramatically reduces employer health benefit expenses, significantly reduces billing costs and accelerates payment for healthcare providers, while delivering a much less frustrating healthcare experience (and no bills) to employees.
- Obo – According to Harvard Business School professor Clayton Christensen, each year 30,000 new consumer products are launched and 80% of them fail, costing the industry $130B a year, or roughly 10% of U.S. GDP! Trapped value indeed! Similar figures occur across many other sectors from Tech to Fashion.Obo provides a data-driven product management app that aligns the product process with core business objectives using concrete data from the market, customers, and internal stakeholders to inform and orchestrate product decision-making at every step. The result? The right products, on time and on budget. Products that have a much higher chance of market success.
- Zebit – Retailers miss $35B annually because they don’t have online access to the underbanked/un-banked U.S. population. The Federal Reserve estimates there are 55 million unbanked or underbanked adult Americans, accounting for 22% of U.S. households. FINRA reports that 55% of Americans are living paycheck-to-paycheck. In the margin-tight retail world, that is a tremendous amount of trapped value.Zebit’s solution provides no-cost, no-interest, “buy now and pay over time” credit to hard working Americans. Zebit counters deceptive and brutally expensive sub-prime financing alternatives and saves members thousands of dollars in fees by offering interest-free financing via a competitively-priced online marketplace containing tens of thousands of products.
Trapped value comes in many forms – from untapped revenue streams, markets, and customer retention opportunities, to very inefficient outdated and arcane business processes wasting time, money and resources. It can be unlocked using big data to generate insights never available before, to completely re-think business processes, or eliminate them all together. The multi-trillion $, multi-decade Digital Transformation (DX) process underway across the globe, powered by AI and Digital Oil, is all about releasing Trapped Value, ultimately to drive higher stakeholder value and improve market share and competitive position.
Read the original post on Forbes here.