Category: Australia

The pay day

How does a local news agent exit their business?

Last Sunday Mark Fletcher celebrated his 10,000th post at the Australian Newsagency Blog. In seven years of posting that’s an impressive achievement for someone running both a retail store and a software company.

In his landmark post, Mark looked at the major issues he’s covered on his blog over the last few year and one stands out as the biggest – the payoff for newsagency owners when they sell their businesses.

The failure of many newsagents to manage their businesses for day to day profit. Too many newsagents expect their pay day when they sell and do not realise that their pay day is today, tomorrow and next week … and that this determines what they will receive when they sell.

For Australian newsagencies the news is bad; their established industry is struggling in the face of technological change and regulatory changes – both of which are other points Mark raises – but more importantly the buying and selling businesses in all sectors is undergoing a fundamental economic shift.

Lifestyle Businesses

The underlying idea is that these businesses are what Steve Blank calls “lifestyle businesses”; proprietors buy them to provide an income for their families.

For these “lifestyle businesses” to have a resale value another family is has to raise the funds to purchase the enterprise.

Therein lies the problem, most purchases of businesses are financed by bank loans secured against property.

Late baby boomers and Generation Xers – those born between 1955 and 1970 – are the obvious buyers of these businesses and they don’t have access to the same equity as their parents.

The situation is even worse for those generations following whose high education debts mean an even later entry into the property market and even less equity available should they want to buy these businesses.

For sellers, this means is buyers can’t pay the prices retiring business owners need as their nest egg to support them through twenty or thirty years of bowling or travelling in their later years.

This inter generational mismatch isn’t just restricted to Australian newsagents; it’s a problem around the Western world for business owners whose exit strategy involves selling the business as a going concern for a substantial amount.

Cash poor buyers

As we reach the end of the late 20th Century credit boom, the money isn’t there for people to pay the sort of sums required by existing local business owners to retire in comfort. Even if the banks were prepared to lend the sum required, the buyer’s underlying assets can’t secure the loans and, most importantly, the cashflows aren’t there.

In an Australian newsagent context much of the cashflow has changed because of deregulation and new competition but on the bigger scale changing consumption patterns at the end of the 20th Century debt binge coupled with aging populations and restricted credit are changing the economics of family owned, small local businesses.

For the current owners of these small businesses, it means the pay day has to be today as it won’t be there tomorrow.

The danger is how many will follow the example of the large corporations who find themselves in a similar situation and respond by excessively cutting costs or chronically under-investing which is what has crippled big store retailing across the US, Australia and the UK.

Mark’s constantly pointed out that Australian newsagents have to reinvent themselves, as he celebrates seven years of blogging and 10,000th blog post it’s probably worthwhile considering how many, like the rest of us, will be working in our businesses far longer than we originally expected.

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Booking a disruption

The ticket agency business is undergoing disruption. Have the incumbents noticed?

Last night, US based booking service Eventbrite launched their Australian service, which promises to disrupt some cozy local incumbents.

The Australian ticket booking industry – like most of the nation’s business sectors – is dominated by two large players; Ticketmaster and Ticketek, with the latter dominating most ticket sales for big events.

Like most Australian duopolies, both Ticketmaster and Ticketek have a comfortable existence. With almost every ticket for major sporting, entertainment and cultural fixtures sold through their services, they’ve been allowed to neglect investing in new platforms while reaping monopoly profits from both attendees and organisers.

The development of online ticketing platforms like Eventbrite and Australian equivalents like Sticky Tickets are part of the disruption coming to this sector.

All of a sudden, event organisers don’t have to rely upon the grace and favours of major incumbents and ticket buyers aren’t getting slugged with outrageous “administrative fees” by the agencies.

The ticketing sector is one of these areas where decades of business practices have allowed middle men to develop, now a whole breed of new intermediaries are using technology to challenge the incumbents.

Integrating other technologies like reporting services, mailing lists and social media platforms along with hardware like iPad, iPhone and Android based management platforms for those on the door makes these services even more compelling to event organisers.

Right now the big incumbents probably aren’t taking these services too seriously as their cashflows, and management bonuses, seem safe and unassailable. Like all challenged industries, it might take them some time to figure out there is a real threat to their positions.

It will be interesting when a big events organiser or sports venue decides to move across to one of the newer ticketing companies, then we’ll see how the big incumbents deal with the threat to their businesses.

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Australia’s one trick economy

Businesses need fall back plans, particular when the nation doesn’t have one.

Earlier this week, Reserve Bank of Australia Governor Glen Stevens gave a speech to the Australian Industry Group on the world’s changing economic currents.

That presentation has a number of pointers for Australian businesses on how we use technology, our investments and, most importantly, where the Canberra sees our economy going.

Much of the Governor’s speech discussed how those of us who at the beginning of the century believed Australia’s economy had to diversify into new industry sectors — such as the IT sector — were proved wrong by the Dot Com Bust and the subsequent boom in the resources sector.

“Australia would probably do best, in its production structure, to stick to its comparative advantages in minerals or agriculture or various services.” Mr Stevens quoted from ten years ago, “but it was hard going trying to make sensible points against the barrage of market and media commentary.”

Perfect hindsight

It’s impressive the Governor had this perfect hindsight which can overlook the role of ramping the housing markets by the Rudd and Howard governments to avoid the 2001 and 2008 US recessions along with the sheer good luck of having a resources boom through the last half of the decade.

During his speech the governor referred to an RBA research paper, Structural Change in the Australian Economy which casts an interesting light on the comparative advantages in those “various services”.

That paper shows that service sector employment has risen to nearly 85% while its share of GDP has stayed around the same for the last twenty years, which to this non-economist’s mind implies the portion of national wealth is declining for service based workers and businesses.

Sleepwalking into the dutch disease

Of course those of us in the service sector could make it up by exporting but here again, service sector exports haven’t done much over the last decade which won’t be helped by the current high Aussie dollar — another aspect of the Dutch Disease we seem to have sleep walked into over the Howard and Rudd years.

Those same statistics show mining employment has declined over that period as well and if you’re considering sending your kids down the pit, or even packing in your own city job to drive a mining truck, you might want to read the interesting work being done by the University of Sydney’s school of robotics.

Generously, Governor Stevens didn’t completely write off the role of technology observing that, “in the old versus new economy stakes, it was probably in the use of information technology, rather than in the production of IT goods, that the gains would be greatest.”

Invest in, but don’t develop, technology

The Governor’s messages are clear to business people; our businesses have to invest in technology to be more efficient and we need to understand that government policy will be geared around the mining sector.

Most importantly, we need to understand that on a national level there is no Plan B.

In the last election it was clear both sides of politics based their policies, such as they were, on the assumption the China boom will last for the foreseeable future. Yesterday’s speech shows Glenn Stevens and the Reserve Bank share that outlook and no other alternative is being planned for.

That’s fine for Glenn, Julia, Tony and their colleagues as they have safe, indexed pensions when they deign to cease giving us the benefit of their visionary leadership.

In the business community we don’t have that luxury; a plan B is required just in case things don’t quite work out the way we hope. As the Governor says:

Succeeding in the future won’t ultimately be a result of forecasting. It will be a result of adapting to the way the world is changing and giving constant attention to the fundamentals of improving productivity. That adaptability is as important as ever, in the uncertain times that we face.

That’s excellent advice. How adaptable is your business in these uncertain times?

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