Paul Wallbank – Brilliant Communications

Author: Paul Wallbank

  • Startup economics

    Startup economics

    Business advisor Ivan Plenty’s in-depth study of the viability of failed photo sharing startup Everpix with some useful lessons for business owners in any industry.

    Everpix shut down last November having run out of money despite getting favourable reviews from the tech press and in an unusual move, the founders put the company’s financials up on GitHub.

    As Plenty points out in his analysis of Everpix’s finances, the company was unlikely to ever break even and it’s a lesson to every business owner on the importance of keeping an eye on cashflow and understanding where the venture’s break eve points are.

    One of the key take-aways from Plenty’s analysis was that the base costs of the business were too high and even in the best circumstances it was unlikely that venture would have succeeded.

    A good business plan would have helped the founders understand this problem and it illustrates why rigorously developed cashflow forecast is a great tool for a manager or proprietor.

    The Silicon Valley investment model

    The ultimate objectives of a company’s management are always important when considering the success or failure of a business; what objective is the business working towards?

    In Everpix’s case, it may well have been the Silicon Valley Greater Fool model was a likely end, with good software and a growing customer base the company could have been attractive to a buyer.

    Were that the objective of Everpix’s founders, the company was under-capitalised as management couldn’t afford either the burn out or the PR and marketing team essential for raising the venture’s profile with key investors.

    Under-capitalisation is one of the greatest problems for any new business and its clear that Everpix didn’t have the equity to scale the way it needed.

    Capital on its own though isn’t a panacea, from Ivan Plenty’s analysis the indications are that Everpix’s fate would have been the same, but more drawn out.

    Everpix’s failure and the numbers behind it are a good lesson for anybody thinking about starting a business — numbers matter and businesses live and die by them.

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  • Reinventing Moore’s Law

    Reinventing Moore’s Law

    Google attracted the headlines yesterday with their prototype smart contact lens that helps diabetes sufferers.

    The concept is an example of what’s possible with the next generation of tiny, low powered computers and illustrates how microchips can be slimmed down for a relatively dumb device.

    Liz Gannes at Re/Code received a briefing from Google on the details of the device and quotes project lead Brian Otis as saying that the lens is “the flip side of Moore’s Law.”

    Moore’s law

    For most of the microchip era the focus has been on increasing the number of transistors we could fit in a square inch of silicon, this was the basis of Moore’s law — that the number of transistors on integrated circuits will double every year.

    Co-founder of Intel, Gordon Moore, proposed this rule in 1965 and it has held fairly constant every since.

    Now we may be seeing the trend heading the other way as developers focus on what can be achieved with the bare minimum of computing power.

    Google’s smart contact lens shows how simplifying devices for specific tasks makes them more affordable and suitable for low power devices.

    While the internet of things won’t kill Moore’s Law, it does change the basis of how we think about advances in microchip technology.

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  • Network neutrality and the internet of things

    Network neutrality and the internet of things

    Yesterday’s US Supreme Court decision ruling against the Federal Communication Commission’s regulations on network neutrality is a mixed bag for the Internet of Things industry.

    Network neutrality is the principle that all internet traffic is treated the same, regardless of its nature or destination.

    The FCC rules meant US based Internet Service Providers weren’t allowed to discriminate between different types of services, for instance blocking Netflicks or allowing faster downloads from Amazon.

    In the United States network neutrality has been a bone of contention between consumer groups, government regulators and ISPs for over a decade, although it hasn’t been much of an issue outside North America.

    For Machine to Machine (M2M) or Internet of Things (IoT) vendors and services there is some attraction in Telcos being able to offer prioritised traffic for mission critical systems.

    In applications like supply chain management and public safety, reliability of the connection is essential and something the ‘best effort’ services offered by ISPs are not well suited to.

    When networks are overcapacity, say at sporting events or during disasters, being able to shed non critical traffic may be important for emergency services and the devices they may depend upon.

    So for IoT and M2M services, network neutrality is not necessarily a good thing.

    However there is a downside should network neutrality be overturned, the risk of vendor lock in is high and it’s quite possible to see as situation where, for instance, AT&T enter into an agreement with Google to provide the public network capabilities for Nest home automation devices.

    This could see Nest customers suffering a substandard service if they choose another provider.

    Internationally the attitude towards network neutrality has been that competition will sort things out, however the IT and telco industries do have a habit of trying to enforce their own monopolies on customers – something we’re currently seeing in the Apple-Google battles over smartphones and connected vehicles.

    So it isn’t clear whether network neutrality isn’t a good thing for the M2M sector, however it’s something that’s going to play out as these technologies become more ubiquitous across the economy.

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  • What do startup founders really earn?

    What do startup founders really earn?

    One of the myths of the current cult of the entrepreneur is that everyone will be a winner as their startup gets bought out by Google for a billion dollars. The reality is life for a startup founder is a grind.

    Startup Compass looked at 11,000 startups across the world to discover what founders really earn and the results show the reality of life when you’re starting up a business is that the wages are pretty poor.

    In San Francisco, London and New York, the wages are piddling compared to the cost of living in those cities.

    Low pay and business success

    This is good news for investors though, as there’s a clear correlation between the success of a startup business and the salaries its key staff members draw – successful businesses are built on the back of founders ploughing everything into the venture.

    It’s also high risk as a failed business can leave the founder with nothing to show for several years of hard work, something that’s overlooked by the ‘liberate yourself from your cubicle’ gurus advocating everyone starts up their own venture.

    Australia’s high cost economy

    Notable in the stats is the high rates demanded by Australian founders, more than 25% higher than their Silicon Valley counterparts and a gob-smacking 60% more than London or Canadian equivalents.

    Australia’s high cost of doing business was emphasised last year where a comparison by Staff.com found Sydney was the second to Zurich as a place to base a tech startup. Worryingly, that survey didn’t consider owners’ drawings.

    Part of Australia’s high wage requirements are no doubt due to the country’s lousy tax treatment of options and share plans but a bigger problem is property ownership – an Australian who hasn’t bought a home by 35 is destined to be one of the nation’s underclass.

    So an Aussie entrepreneur has to earn enough to qualify for or service a mortgage, it also discourages Australians from starting even moderate risk ventures.

    The consequence of the need to draw a high salary is that the proportion of investor funds that goes into founders’ wages is almost three times higher in Australia than it is in Silicon Valley. That’s a big disincentive for foreign investors to put money into Aussie startups.

    If you wanted an example of how uncompetitive the Australian economy has become, this is a good start.

    Regardless of where a startup is based though, the message remains that the road to a billion dollar buyout from Google or Facebook is not paved with gold.

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  • The Roadrunner Effect

    The Roadrunner Effect

    Fans of the roadrunner cartoon will remember how in almost every episode one of the characters, usually the coyote, would run over a cliff.

    A few seconds after running off the cliff they’d keep going and then, just as they realise their mistake, they’d plummet into the deep canyon.

    It’s similar for businesses – you can be a long way over the cliff’s edge before you realise you’re about to take a big fall.

    Yesterday’s post about Sensis and the squandering of ten billion dollars is a good example of the Roadrunner Effect in business.

    Sensis annual revenue and profit 1999-2013
    Sensis annual revenue and profit 1999-2013 (millions of dollars)

    While it was obvious from the early 2000s onwards that the Yellow Pages model of expensive small business advertising listing was doomed, Sensis boss Bruce Akhurst did an admirable job of keeping revenue flowing.

    Even more impressive is that the division managed to book close to a 50% gross profit most years during that period even when the revenues started to decline.

    A large part of Sensis’ success was in screwing more money out of its client base with enhanced ads, new categories and a better digital offering that tied into Google’s Adwords program.

    Unfortunately for Akhurst and his management team, economic gravity eventually claims even the luckiest or best run enterprise and Sensis was no different as small business started realising Yellow Pages advertising had become largely ineffective.

    In many respects Sensis is a good example of a once profitable business that fails in the face of technological change – the new technologies help it become more profitable at first, but eventually a changed marketplace kill the business.

    The question for those enterprises and industries is how long can the owners, managers and employees keep running before they realise the ground has dropped out from beneath them?

    It could even be entire countries that suffer from the Roadrunner Effect, it certainly appears that the game was up for the European PIIGS long before it became obvious to the governments and citizens. This may prove true for Australia as well.

    Either way, it’s worthwhile for business owners and managers to consider whether there’s a cliff face ahead even when revenues are accelerating.

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