As we continued our conversation (Part I is here), Hopkins talks about Citi Ventures investment approach, overcoming institutional gravity, and why a willingness to be wrong is crucial in an innovation practice.
Can you give me an investment that you’ve made that you’re excited about?
One that I get quite excited about is Ayasdi, because it was the idea of using topological technology to create a picture of patterns. We are all being inundated by massive amounts of data. How do we use technology to see things that we wouldn’t have thought of looking for? Ayasdi does that, and it’s quite fascinating.
When you made that investment, did you then do a proof of concept inside Citi?
We definitely have.
You have a lot of data.
We have a lot of data. They’ve been deeply involved with different core parts of our business, some very important critical decisions making parts of our business. It’s been a fantastic partnership. We are just delighted with it.
You see the purchasing habits of consumers worldwide and of course the movement of capital worldwide in every kind of possible market. How are you thinking about standing up proofs of concept when it comes to AI — is that a focus of yours?
It is, and we are spending more and more time there. We are forming growth boards as part of this new startup environment. One of the topics (we focus on) is how do we approach this whole world of data, because there is a significant amount of regulations around it all, as there should be. How do we create a sandbox that can allow us to really go after some of these ideas in a safe way?
I think that many, many larger organizations are trying to tackle that, and it means really working across legal, bank reg, and risk. You really have to bring all those people to the table.
It doesn’t strike me as a normal corporate behavior to have time to truly pay attention to the weird stuff coming out of the Silicon Valley. How did you get the organization to have the time of day to listen to, “Hey, here’s an interesting new idea,” as opposed to what you mentioned before, which is, “We’ve already figured everything out. We don’t need new ideas”?
I think on the regulatory side or the risk legal side it was a handful of people, and we worked with their leaders, who were supportive of us demonstrating why this was worthwhile, and that has panned out.
But when it comes to thinking about “how do I rethink my business,” that’s taking a lot of energy and continually trying different ways to present concepts that are relevant, that you can create that spark. When you see it in the senior person’s eyes, they go, “Oh, wait a minute…”
You were at Citi in 2008 and 2009, which was a very difficult time for the financial services industry. Both from the public bruising, and the fundamental business impact of that financial downturn. How is Citi different before and after that historic shift?
That’s a very interesting question. Obviously a long dialogue — (We had) four different CEOs over that time period — each brings a different focus to the table. I think understanding and getting deeper into risk has been inherent in all of that, being clear about one of the things (Citi CEO) Mike Corbat has done is getting very, very focused on what businesses do we want to be in, and what businesses should we not.
He ran Citi Holdings, so he sat at the table really bringing down those types of businesses, and has taken that into how we think about the company today — where we have the strength, the know how, and where we really want to spend our energy. It is a smaller footprint.
It strikes me that the financial crisis of ’08 to ’09 might be a company-redefining event. For Citi, was the lesson of the financial crises “I’m glad we got through that, it’s over”? or was it, “This helped define what we want to be moving forward”?
I think it’s a critical component of the business going forward, it is. With my team I use a phrase that I think really helps us: “What are the unintended consequences of what we are about to do?” I love this idea.
We are in a risk business. There’s cyber (security) and risk, and then you add anti-money laundering. The challenges they represent to a large enterprise or a bank like Citi are massive, but they have to be your core competencies.
When you look the startups, one of their mottos is, “Ask not for permission. Ask for forgiveness.” That strikes me as a pretty difficult thing to do in a highly regulated environment. How do you manage the two poles between not taking too much risk but taking enough risk that you can foster innovation?
I think innovation risk is a very, very different type of risk. Once a CFO, always a CFO. Everybody knows I have these little antenna that come up and go, “Beep, beep, beep. We’re not going there.”
But investing in smaller companies is not as risky?
The unintended consequences are not huge. The volume of experimentation is fundamental to us supporting the company’s growth agenda.
You take a lot of smaller bets?
Yes. It’s really positioned capital. How do we validate concepts? Maybe not necessarily start to build these out as new products, but we’ve had customer validation of concepts. Then, creating a portfolio of those.
This idea of customer validation strikes me as one of the things that is really changing in large companies. If you are in a very successful business, and you are addicted to being right, you don’t necessarily run a very Lean Startup approach to the world. How did you bring the Lean Startup movement inside of Citi?
I got the idea from Beth Comstock. We were chatting, actually, at a barbecue at Ben Horowitz’s house, which is another whole story.
We were going into our first Silicon Valley summit, and I said, “I’m pretty sure we’ve got the what down, that we really need to morph how we enable growth, but I don’t have the how down. I’m really struggling with that.” She said, “You should meet David Kidder.”
I met him a few months later. After we destroyed a tablecloth at a restaurant writing all over it, I said, “I’m in.” He is a serial entrepreneur, super passionate guy. He has this little gangster attitude, the addiction to being right, but he has really figured out how do you take the whole concept of Lean Startup but create a way for large enterprise to step into it, and that’s hard. This has been probably one of the most exciting things I’ve ever done.
Is the feedback from inside Citi always great, or do you have any lessons learned?
Nope. [laughs] Everybody, after six months, starts saying, “Where are the new introductions into market?” It doesn’t go that fast. There’s a belief that start-ups immediately pop out of nothing and come forward.
Since our last Silicon Valley summit, which ironically was in New York this year, we’ve gone from a push to a pull. Our team is oversold. I think the big thing that David did that helped us get going is you gave people a way to experience it. They are running their own growth board. We’re in the room.
Tell me more about growth boards, and how they work.
The concept is really about creating a mechanism like a venture capital firm would do, of really hearing (internal) ideas and investing in them using a stage-gated model. You don’t get a lot of capital. It’s hugely capital efficient, as it turns out. You have to demonstrate validation very early on in the concept. Bigger money won’t come until you’re getting closer to launch.
Who is the “you” in this?
That’s what is the breakthrough, the businesses. We have six growth broads operating at Citi. One (CitiGroup CEO) Mike Corbat owns, and the other five are owned by some of our most senior leaders.
They’re in different functional groups?
One’s in payments, one’s in market. It’s across the business of Citi. Members of their team are on their growth board. What we’re doing is effectively coaching. What you’re doing is giving an environment for seniors to learn this new world by doing it.
Unilever — another very large company — recently bought Dollar Shave. If your growth boards are successful, instead of Dollar Shave coming out of nowhere and Unilever saying “We should have probably done that,” would it come out of the growth board process that’s internal start-ups?
Precisely. We’ve been at this really intently for over a year. The other thing that’s extremely exciting across the organization is it’s like Shark Tank for (people inside Citi). “I want to pitch my idea.” We say, “OK. You have to get your leadership to agree.”
Do they turn to Citi Ventures and say, “OK, now I need help.”
Absolutely. We work together to get them ready, and they get to pitch. The passion coming out of people, across generations by the way, of being able to be part of this is huge. It’s really creating a mindset shift. It’s super exciting to watch.
Do you find other companies doing similar things? Are you way out there ahead of the curve?
I don’t ever think we’re way out ahead of anything. I feel very happy we started when we did, and I’m very grateful to Beth for the work she had done and really giving me the inspiration to look at it. Beth and I talk about this a lot.
When you’re trying to do this kind of work, which is, at the end of the day, trying to transform how a company thinks about its business and creates real growth, you have to make something that fits the culture of that company. One idea does not translate everywhere.
There’s a community of us. Like I said, Beth, and Hannah Jones, and I were all sitting there talking. Three very, very different businesses, one being Nike, GE and turbines, and Citi. There’s so much to learn together, and we stay very tight. We spent a lot of time talking about that.
You’ve had such a long career in Fortune 50, Fortune 500 companies. What’s your prognosis for the health of corporate America? Do you feel like it’s on the decline, on the way back up, or still trying to figure out where it’s going?
I think the thing that becomes most important here, and it’s interesting to watch as you’re talking about some of the new leaders that are taking over companies, is they have to be aggressively on the offense, and intensely curious.
These business models are morphing. What is Amazon? I don’t know. How would we have ever thought of all the different places (Jeff Bezos) has morphed that business? The lines are blurring.
You mentioned Amazon. You may as well bring up Walmart.
Exactly.
That’s a very existential concern if you’re at Walmart, which is wait a minute, we’ve created our defense around these very large stores and control of our supply chain and the lever of price, and now we’ve got an online competitor who is at scale, taking share. What do you do?
With no infrastructure.
With very little infrastructure, and apparently a pass from Wall Street to not make money in the pursuit of this model.
I think Bezos is amazing, and I enjoy watching it. When the first drone thing came out, I thought, “This is a gimmick.” I thought it was a joke.
So many things that first seem like gimmicks turn out to be…The Internet itself was a joke.
Right, ask Al Gore. Therein lies exactly what you’re talking about, the future of companies. Your job and the job of your team at Citi Ventures is to find those things that may feel like gimmicks, but end up changing Citi’s markets. How do you tune that instrument to know the difference?
You just said the key word, feel. It’s a sensing thing. In my experience, it’s an intuition experience versus knowing. Coming to the Valley, you could feel it was different. It wasn’t clear yet why, but so happy we came when we did. It’s a sensing thing. All of us have that capability. We just have to hone it.
I have a feeling there’s a lot of people who will be watching this who may be in your shoes at large companies with innovation networks. What advice do you have for people who are in large corporate roles who are trying to understand innovation? They get a space. They fill it with people. Then what?
We get involved in the community very quickly and reach out. We have always had a practice of sharing almost everything we’ve got with others, and I think that’s part of this whole infrastructure of innovation teams or venturing teams in the Valley.
You have to be passionate about the potential of what you’re trying to achieve, because you will get kicked down the hill so many times.
Be clear about your remit. You have to be passionate about the potential of what you’re trying to achieve, because you will get kicked down the hill so many times. I couldn’t even begin to tell you.
When you say kicked down the hill, who’s doing the kicking here?
Your own company.
Your own company.
You’re really bringing provocative ideas forward. When you’re in the middle of running a business, and that’s a hard thing to do, it’s not surprising. It’s like, “Oh, please, go away.” I think that’s why you have to work every single day about how are you relevant to them. We believe we are here for the Citi businesses. How do we make it relevant to them? How do we help them step into this and embrace it? When they do, frankly, it’s kind of magic.
Do you have another example for us of that magic?
Yes, I do. Paco Ybarra runs one of the most complicated businesses at Citi, so he’s got markets, trading. Very complicated business. He has stepped into this idea of Discover 10X, and many people thought that we would never get that part of our business involved.
He got really intrigued early on. He’s a phenomenal thinker. When he was hearing about the addiction to being right and customer validation, he thought, “Wow, our customers are going to love that. I definitely want to move that forward.”
We went forward (with an idea) in a whole stage-gated process, and it was time to go to validation. Then, in our next session, it turns out the customer said, “No, we don’t need that at all.” That was a huge awakening for him.
You’re not telling me the idea’s name.
No, I can’t.
It wasn’t an outside investment?
No. This was an idea for a new growth concept. He thought it was going to blow their socks off.
Then when it turned out not to be…
He said, “OK, this really works.”
The process worked?
The process works, and we need to know our customers far more deeply. Guess what? They’re going through the same dislocation. One of the other things why I have so much respect for this man…I think he’s a phenomenal leader, because he demonstrates this humility and this incredible intellect.
And a willingness to be wrong.
Yes. It’s just been amazing to watch. He said, “I’ve got to do this forever. I love this. We’re going to run our business this way, really getting into what is the commercial truth. How do we know? Is it because we assume we know? That doesn’t work anymore.”
When you see that happening with somebody so incredibly intelligent and been hugely successful…
A willingness not only to get excited about an idea, back it through a process, but then acknowledge that he was wrong and move on?
Embrace it. I want more of my team involved in that.
In other words, I want to try the next 10 or 15 ideas, and also possibly those will be wrong and that’s OK.
It’s particularly interesting, because obviously he’s dealing in very large institutions. There’s a little bit of a belief of, “Can I take something we may never build to a customer? Maybe they get all excited and would be upset if we’re not building it. Am I entering an interesting territory?” Same thing. Guess what? Customers were delighted that we’re having this kind of conversation.
If companies at Citi get really good at this — If you have leaders like that who say, “This is how I want to go to market. This is part of my entire remit, not just this innovation outpost over there in Silicon Valley,” wouldn’t it possibly mean there’s less opportunity for start-ups because big companies are figuring it out?
I just don’t see that happening. I think there’s so much work to be done, there’s so many new challenges for us to collectively tackle as a human race. We could go on and on. In this world of business, the opportunity for this partnership and collaboration is huge.