Paul Wallbank – Brilliant Communications

Author: Paul Wallbank

When Venture Capital meets its own disruption
Tech industry veteran Paul Graham always offers challenging thoughts about the Silicon Valley business environment on his Y Combinator blog.

Last month’s post looks at investment trends and how the venture capital industry itself is being disrupted as startups become cheaper to fund. He also touches on a profound change in the modern business environment.

Graham’s point is Venture Capital firms are finding their equity stakes eroding as it becomes easier and cheaper for founders to fund their business, as a result VC terms are steadily becoming less demanding.

An interesting observation from Graham is how the attitude of graduates towards starting up businesses has changed.

When I graduated from college in 1986, there were essentially two options: get a job or go to grad school. Now there’s a third: start your own company. That’s a big change. In principle it was possible to start your own company in 1986 too, but it didn’t seem like a real possibility. It seemed possible to start a consulting company, or a niche product company, but it didn’t seem possible to start a company that would become big.

That isn’t true – people like Michael Dell, Bill Gates and Steve Jobs were creating companies that were already successes by 1986 – the difference was that startup companies in the 1980s were founded by college dropouts, not graduates of Cornell or Harvard.

In the current dot com mania, it’s now acceptable for graduates of mainstream universities to look at starting up business. For this we can probably thank Sergey Brin and Larry Page for showing how graduates can create a massive success with Google.

One wonders though how long this will last, for many of the twenty and early thirty somethings taking a punt on some start ups the option of going back to work for a consulting firm is always there. Get in your late 30s or early 40s and suddenly options start running out if you haven’t hit that big home run and found a greater fool.

There’s also the risk that the current startup mania will run out of steam, right now it’s sexy but stories like 25 million dollar investments in businesses that are barely past their concept phase do indicate the current dot com boom is approaching its peak, if it isn’t there already.

Where Graham is spot on though is that the 19th and 20th Century methods of industrial organisation are evolving into something else as technology breaks down silos and conglomerates. This is something that current executives, and those at university hoping to be the next generation of managers, should keep in mind.

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July 2, 2013
Australia’s small business crisis
The 2013 MGI Australian Family and Private Business Survey is a disturbing document describing a sector that’s aging, pessimistic and struggling with change. It bodes poorly for what should be the powerhouse of the nation’s economy.

Having been conducted over nineteen years, the MGI survey is a very good snapshot of how the sector has evolved over the last two decades and it’s notable how owners are older and not optimistic about their prospects of selling their businesses.

Another key aspect is the changed focus of Australian family businesses; in 2003 forty percent were in manufacturing, this year its half that which probably tracks the decline of the nation’s manufacturing industries.

Most striking though is the aging of the small business community with one in three proprietors being in the 60 to 69 year old bracket, up from one in five just 3 years ago.

That the average age of Australian small business owners is increasing shouldn’t be surprising given the nation’s increasing obsession with property. As home prices become more expensive, it becomes more difficult for younger people to pay off their mortgages or risk their equity on building a business.

Probably the most heart breaking comment from the report is that over half of Australia’s small business owners don’t see an immediate prospect of retiring and nearly two thirds don’t see any chance of an early exit.

58% of family business owner-managers see themselves working in the business beyond 65 years of age, with 65% indicating that their businesses are NOT exit or succession ready.

Part of the reason most Australian family businesses aren’t succession ready is that Generation X and Y buyers crippled by big mortgages simply can’t afford to pay what the older Baby Boomer and Lucky Generation proprietors need to retire upon.

It’s hard not to think that the grand 1980s corporatist vision of Bob Hawke and Paul Keating – that most Australians will work for one of two big corporations while being members of one of two big trade unions – has largely come true.

For Australia though this is not a good thing as the wealth of those corporations, along with that of the nation’s households, is largely tied into the domestic property market.

A discussion on the Macrobusiness website about New Zealand’s property obsession has a graph which illustrates both the Kiwi and Australian economies’ dependence upon house prices.

Those financial assets in the second graph include the value of businesses, and that statistic staying largely flat while housing wealth has gone up fifty percent over the last fifteen years illustrates how dependent the Aussie economy has become upon property speculation.

Property speculation can be fun, particularly when you’re watching people bash down walls on the latest reality TV home improvement show, but it isn’t the basis for a strong economy.

That Australia’s small business sector is aging and increasingly shifting to low value adding service industries is something that should be discussed more as the nation considers what its global role will be in the 21st Century.

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July 1, 2013
Can mobile networks build Myanmar’s economy?
Fifty years ago Myanmar, or Burma, was one of Asia’s most affluent nations, but a succession of poor governments have seen the country become one of the world’s poorest. Can mobile phone networks be part of Myanmar’s econmic recovery?

The potential economic impact of mobile communications in Myanmar is a report prepared by Deloitte Consulting for network equipment vendor Ericsson claiming that rolling out cellphone networks across the nation will create 90,000 jobs in the emerging economy.

Myanmar is starting from a low base with only 2% mobile penetration rates, compared to over 40% in Timor-Leste and Laos while the average across South-East Asia is over 100%.

To address this the Myanmar Post and Telecommunications Department is looking a splitting the existing phone monopoly into three or possibly four licenses.

Ericsson’s report looks at the economic effects of rolling out these networks and some of the opportunities for local entrepreneurs and communities.

The biggest employment effect identified in the Ericsson/Deloitte report is through the reseller networks with 50,000 of the 90,000 jobs created by new mobile services being in the sales channel.

What’s striking about that prediction is how it doesn’t look at the broader effects of modernising the country’s phone network. The report’s authors do mention they believe the overall benefits could boost the Burmese economy by over 9% in a best case scenario but don’t fully delve into where they believe that growth will come from.

It can be expected there’ll be many more indirect benefits as Myanmar’s communications networks jump into the 21st Century, the report itself has a chapter citing various benefits mobile networks have delivered to countries as diverse as Kenya, Chile and Bhutan.

Particularly interesting with Myanmar’s development will be the Chinese influence in rolling out these networks – the PRC is already the biggest foreign investor in the country having largely ignored western sanctions on the military regime and it can be expected players like Huawei and China Mobile will be well positioned in bidding for licenses and contracts.

For local entrepreneurs the complex Burmese language is a natural opportunity for app developers and programmers to develop localised versions of successful applications, the lack of English and Chinese language skills among the population – another terrible neglect by successive governments – will hamstring Myanmar’s digital media export opportunities.

Probably the biggest risk to Myanmar’s success though is the role of the military who are expected to get one of those mobile licenses.

Burma’s terrible economic performance over the last fifty years has been largely due to the incompetence, greed and corruption of various military rulers and, while their continued influence in the nation’s economy may be necessary to placate them and their cronies, the legacy of these people may act as a break on a really open economy or fair markets.

For Myanmar, the opening of cell phone networks is great opportunity. Hopefully the vested interests that have held this nation back for so long will resist the temptation to further damage the country’s prospects.

Burmese landscape image by ZaNuDa through sxc.hu.

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June 30, 2013
Staging a sales blitzkreig to win the market battle
Part of the Silicon Valley greater fool model requires ramping whatever metrics are necessary — page views, unique visitors, revenue or profit to attract prospective buyers to acquire the business.

Elizabeth Knight in the Sydney Morning Herald looks at the cracks appearing in online retailer The Iconic where revenues of thirty million dollars were subsidised by forty-four million in losses in the e-commerce operator’s first year of trading.

The Iconic has all the hallmarks of a classic ‘buy me’ Silicon Valley operation — big marketing spend, high customer acquisition costs and fat operating losses in an effort to build market share.

Getting market share is one of the key aspects of the greater fool model, being the leader in a segment almost guarantees a buyer, usually the one of the shellshocked incumbents.

Knight quotes emails from one of The Iconic’s founders, Oliver Samwar, on the importance of being number one in their sector.

‘‘The only thing is that the time of the Blitzkrieg must be chosen wisely so that each country tells me with blood when it is time. I am ready – anytime!’’ one said.

‘‘We must be number one latest in the last month of next season. Full month, not a discount sales month

‘‘Why? Because only number one can raise unbelievable money at unbelievable valuations. I cannot raise money for number 2 etc and I have seen it how easy (sic) it is for me in Brazil and how difficult in Russia because our team f….d up.’’

As we’ve seen with companies like Groupon, being number one can impress gullible corporations but when that market position has been bought by investor’s money subsidising operations, the business is rarely sustainable.

Whether investors are prepared to continue subsidising The Iconic’s losses or if the business can attract a buyer will depend upon the business maintaining momentum on its key metrics.

Probably the most important thing for companies like The Iconic though is the availability of easy credit and accessible funds.

As we saw in the original dot com boom, when that easy money evaporates so to do most of the businesses.

For the incumbent businesses threatened by well funded upstarts, some might find the best hope for survival is to hope challengers run out of money.

In the meantime though, they may have to survive a market blitzkrieg.

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June 29, 2013
Expat workers and their fragile, guilded cage
I was sitting on the back of a motorbike grimly clutching a briefcase full of 100 baht bills when the realities of working in Thailand really dawned on me.

One of the downsides of being the contracts administrator in an Engineering company is that one gets stuck with the jobs that doesn’t fit anybody’s official duties.

This time it was going to rescue Ken – not his real name – a Kiwi Project Manager who instead of enjoying Friday afternoon in a Soi Cowboy beer bar was under siege in his site hut in suburban Bangkok.

Because of a glitch in the insanely bureaucratic payroll system our Singaporean employers used, Ken’s labourers hadn’t been paid and now they were threatening to burn down the site hut with Ken and his office staff in it.

So the story of Chip Starnes, the US businessman freed yesterday after being held hostage by former employees in his Beijing office for six days, is very familiar. It’s a story that expat workers should understand about their status and position when they take an overseas assignment.

While Chip seems to have come out of the ordeal unscathed apart from being in need of a good night’s sleep and a shower, it could have been much worse; shortly after I left Thailand an Australian accountant was gunned down over a business dispute involving a sugar mill outside Bangkok.

In Dubai, two Australian property developers find themselves mired in a legal dispute that could see them facing a decade in gaol.

The risks involved in being an expat worker are easily to overlook, particularly in places like Dubai, Hong Kong and Singapore where the life is good for western expatriate workers – the reality for Filipino maids or Pakistani labourers is another matter of course.

When things go wrong though, they go wrong badly and the reality of life in a foreign country can be a rude shock for expats who thought they were living a privileged existence.

The guilded cage for expats is a nice, comfortable place to live in but it is a lot more fragile than many think.

For Ken, he escaped being burned out of his site hut by an angry mob as we arrived before the torches were lit. Some frantic dishing out of notes to the crowd – I’m still sure many of those we gave money to didn’t actually work for us – defused the situation.

Ken still got his Friday night beers at Soi Cowboy and took the whole saga as being part of a day’s work in Thailand, but then Ken was an old Asia construction hand who had no illusions of what could befall an innocent expat. Others might not have been so relaxed.

Dubai image from SG777 through SXC.HU

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June 28, 2013