Feb 092016

What happens when your Managing Director of five years standing announces he’s decided to move on?

This was something Xero’s senior management had to deal with when Chris Ridd, the company’s Managing Director for Australia, announced that after five years he had decided to move on.

In interviewing Chris and his successor, Trent Innes, last week for The Australian it was striking just how well the succession process had gone for Xero in dealing with the management change, “It has worked out well, it was our preference to go with an internal candidate,” the outgoing GM told me. “From my perspective it’s always good when you can do that but it doesn’t always work out that way.”

Much of this comes down to Chris putting together a cohesive management team, something he’s quite proud of, “Xero has a huge bench, we have a really talented leadership team. I feel really good about leaving now given that the business has gone from six staff to 295 people, three and a half thousand customers to 265,000.”

“I achieved way more than what I thought I’d be able to do in that role and after five years it seemed like the right time frame to go into something else,” he continued.

Part of his confidence in moving on was his confidence in his successor, “Trent and I go back twelve years at Microsoft,” he told me.

The other part of his confidence was that the company has a clearly defined strategy and business plan that neither he or Trent see changing.

Many companies struggle with changing their senior management and much of that is because the board and executives are in denial that people – even those at the top – will move on to new ventures.

A stable management team, a solid business plan and a realistic view about leadership succession are the keys to successfully managing a change at the top, so far it looks like Xero have managed to pull off a change that many other struggle with.

Feb 072016

For listed tech companies 2016 has been a bloodbath to date however design company Autodesk seems to have bucked the trend.

The key to keeping investors happy seems to lie in announcing major layoffs, in Autodesk’s case ten percent of its workforce which equates to 950 workers.

Autodesk’s management are painting those layoffs as being due to the company’s transition to cloud services with online subscriptions making up over half the business’ revenue.

Regardless of how valid that reasoning is, the message to the tech workers is clear; more tough times are coming.

With investors ruthlessly expecting better profits, focused leadership and leaner workforces many managers are going to have to face some tough decisions in what’s looking like a difficult year.

Feb 042016

Criticise Tesla’s launch parties and your car order may be cancelled, reports The Guardian.

Stewart Alsop, an Californian venture capitalist, wrote an open letter to Tesla’s founder Elon Musk claiming the launch of the Tesla X was ‘a disgrace’.

Musk responded by cancelling Alsop’s Tesla order.

There’s a range of arguments about the customer always being correct, the customer’s right to criticise a product or the risks of making online comments but what it definitively shows is the power of being the seller of something people want.

I suspect Stewart Alsop will get his Tesla eventually, but the boss will make him squirm.

Feb 032016
social media is about connecting with friends

It’s nice and comfortable living in an echo chamber and we’re all guilty of it one way or another. An example of how insular echo chambers can be are two surveys done by UK company Apollo Research on who UK and US tech writers follow on social media.

The answer was each other, with most tech writers following a common core of twenty in the UK and thirty in the US. Basically the groups are talking to each other which explains how technology stories tend to gain momentum as variations on the same stories feed through the network.

While technology journalists are bad for this, it could be argued their political colleagues are far more guilty of this group think as their working in close quarters makes them even more insular and inward looking. That explains much of the political reporting we see today which often seems divorced from the real world concerns of voters or challenges facing governments.

For all of us, not just journalists, it’s easy to become trapped in our own little echo chambers and find it harder to think outside the pack as the web and platforms like Facebook deliver us the information we and our friends find confirms our own biases.

Clearly, thinking with the pack creates a  lot of risks and for businesses also raises opportunities. At a time of fast moving technology and falling barriers to entry, thinking outside the prevailing group could even be a good survival strategy.

A good example of industry group think is the US motor industry of the 1970s where they dismissed Japanese competitors as being cheap and substandard – similar to how many think about China today – yet by the end of the decade Japan’s automakers had captured most of the world’s market.

On a national level, Australia is a good example of dangerous groupthink as up until three years ago the consensus among governments, public servants, economists and business leaders was the China resources boom would last indefinitely.

Today that consensus looks foolish, not that those within the echo chamber are admitting they made the wrong call, and now governments are struggling to find new revenue streams as the expected rivers of iron ore and coal royalties fail to arrive.

For Australian businesses, governments looking to raise revenues are another factor to plan for and getting one’s tax return and company paperwork in on time might be a good idea to avoid fines from overzealous public servants.

The bigger lesson for us all however is not to think like the group. While it may feel safe in the herd, we could well be galloping over a cliff.

One simple way to avoid groupthink, and that cliff, is not to copy the tech writers or the Australian economic experts who mis-called the China Boom. With the web and social media we can listen to what other voices are saying, most importantly those of our markets and customers.

A varied information diet is something we all need t0 understand what our markets, economies and communities are doing. It might be comfortable huddling down with the herd, but you’ll never stand out from the pack.

Feb 022016

Late last year Google announced it was restructuring and creating a new holding company called Alphabet, at the time I hoped it would bring more accountability into a business that’s becoming notable for easily distracted management and sprawling bureaucracy.

Yesterday the company released its latest quarterly reports and it appears far from improving transparency, the restructure has resulted in the operation of ‘moonshots’ – termed ‘Other Bets’ in the reports – becoming even more shrouded in mystery.

Other Bets, which includes Google Fiber, Ventures and Google X,  made a stonking $3.1 billion loss while 90% of revenues still comes from the advertising business.

Even within the advertising arm there’s little transparency as the division includes Apps, Android and YouTube along with the lucrative Search and Ads business. There’s little information of how these divisions are travelling on their own.

As Dennis Howlett at Diginomica points out, there will come a time when shareholders demand some accountability as the losses in the Other Bets are not trivial but it seems that time is some way off.

For Google, the biggest risk is being disrupted themselves. Their ‘river of gold’ is not dissimilar to that the newspaper industry floated along prior to the web – and Google – arriving.

Another aspect is that of culture where most parts of the business are free of accountability as the lucrative Ad division’s revenues allow disinterested management and needless bureaucracy to thrive.

While Alphabet’s revenues are impressive, this is a company dangerously reliant on one line of business. History has not treated such ventures well.

Jan 282016
e-commerce giant eBay head office

Just how mismatched PayPal and eBay were is now becoming apparent since the two companies separated last year.

Yesterday, PayPal beat the street with 23 percent growth in its payment figures along with an additional six million new users. The company’s stocks rose 17% following the news.

For eBay’s investors the news wasn’t so good with the company reporting no increase in US sales over the key Christmas buying quarter despite the National Retail Federation reporting a nine percent gain for the entire industry.

One of the main criticisms of eBay being part of PayPal was that there were no reasons for the two companies to be joined and so it is proving now they have gone back to separate entities.

For eBay, it’s hard not think that the opportunity has passed with the market moving on from the days of households selling their unwanted items to e-commerce now being a major industry dominated by traditional chains and, most menacingly, Amazon.

While PayPal is travelling better its business is still under great threat from other payment platforms, particularly while much of its revenue is still locked into desktop software. Shifting to more API and mobile based streams is going to be essential for the company wanting to compete in a very changed marketplace.

The failed PayPal-eBay venture will go down as one of the great missed opportunities of the first Dot Com wave as both companies were distracted from growing while the industry evolved over the last decade. No doubt some of today’s unicorns will suffer the same fate as they respond to a changing marketplace.

Jan 102016
A small business closing due to rent increase

One of the sad facts of business is that ventures go broke, and when they do there’s a trail of former customers, suppliers and employees that end up out of pocket.

The recent appointment of administrators to the recently listed Australian electronics retailer Dick Smith Holdings leaving thousands of gift card holder – including the writer of this blog – out of pocket is a good example of this.

Over twelve years of running a service business having customers go bust was a regular thing. Luckily this wasn’t frequent as once the assets had been liquidated and divided among creditors one was lucky to get five cents for every dollar owed.

Early warning signs

When a customer did go broke it was rarely unexpected. With long standing clients the payment times would blow out and often a business going bust showed the signs of poor maintenance, declining stock levels and distracted management long before the money ran out.

The other notable thing was the failing company’s staff were often on your side. At one company, a whisky broker that went under owing millions to creditors who’d effectively bought ‘time share’ in liquor, the receptionist insisted in paying for some of the work we’d done out of the petty cash.

Five years later the remaining outstanding invoices were settled and, as expected, we received almost nothing apart from the entertainment of reading the administrator’s reports detailing the struggles of angry creditors trying to get their drinking money back in the face of what had almost certainly been a scam.

Ethical proprietors

Most business owners that go broke aren’t crooks however, most are honest people who made bad decisions or were just plain unlucky. Often these people suffer far more than the creditors.

One pleasant experience we had with a failed customer was a dance studio on Sydney’s Lower North Shore. The business went broke, the proprietor fled to her native New Zealand and I resigned myself to never seeing the outstanding thousand dollars.

Two years later the formal liquidation proceedings had finished and unsurprisingly we received none of the monies owing. A few months after a cheque from the business owner arrived for the entire outstanding amount with a note apologising.

A tough life

While the former dance studio owner probably broke the rules in paying back the debts outside the official channels, she illustrated most failed business people are good people who were caught out by their own mistakes or being on the wrong side of lady luck.

Business failure for those running startups or smaller enterprises often comes at a high personal financial, mental and relationship cost so it’s not surprising those sinking trying to hold on later than they should and then take personal responsibilty for the damages they cause.

Sadly the same doesn’t hold true at the corporate level and in the case of Dick Smith Holdings the executives, the institutional shareholders frittering aways investors’ money, the private equity swashbucklers and the staid corporate managers responsible for the firm’s failure probably won’t see a hiccup to their stellar careers.

The moral for anyone in business remains never to be too exposed to any one creditor. Regardless of how well a client’s management means, when things go bad it’s unlikely you’ll see most of the money you’re owed.