Category: business advice

Solving a global capital crisis

Kiva and crowdfunding challenge the global small business funding crisis.

“We face a global capital crisis,” states Julia Hanna, the chair of crowdfunding platform Kiva.

In a story written with Kiva board member and LinkedIn founder Reid Hoffman, Hanna discusses how crowdfunding platforms are replacing banks as the source for businesses around the world.

Throughout world  banks have effectively stepped out of the small business market, despite the world being flooded with cash to keep the global economy afloat over the last five years. Hanna writes about the US experience;

big banks currently reject more than 8 out of 10 loan applicants, and small banks reject 5 out of 10. Some estimates suggest that investment in small businesses has dropped as much as 44 percent since the Great Recession in 2008.

While the Great Recession had a lot to do with the collapse in small business lending in the US and Europe, the decline in bank support for main street dates back to the first Basel Accords established in 1988.

Basel judged banks’ risks on the classification on their assets – government bonds were the safest and domestic property was the preferred private sector asset with small business lending being a long way down the risk.

Following the cues from regulators, banks favoured mortgages which they could them securitize and onsell to investors; this gave rise to the sub-prime lending markets, Collateral Debt Obligations and eventually the Great Recession itself.

Six years after the great recession started and despite massive amounts of capital being injected into the banking system, the small business sector is still being capital starved.

As Hanna and Hoffmann state in their article, crowdfunding sites like Kiva and community initiatives are changing the banking system and it could well be that today’s trading banks.

Having neglected their core purpose of funding business and industry, are now as vulnerable to disruption as other industries as small businesses, entrepreneurs and communities look elsewhere for their capital needs.

Too far in front of the curve

Even the best technologies can fail if they are too far ahead of the marketplace

Today Telstra’s CEO David Thodey launched the company’s new public Wi-Fi network that the telco hopes to roll out to two million locations across Australia.

In using Telefonica’s Fon service, the idea is to equip customers on landline connections – ADSL, cable TV or Fibre – with a public wireless hotspot. The telco can then offer public Wi-Fi as a service.

With well over half the country’s Internet market, Telstra can deliver reasonably good coverage with such a network in the same way BT does with their Wi-Fi that’s already providing this service in the UK with the same technology.

Today’s announcement isn’t the first time Telstra has launched a municipal Wi-Fi service, five years ago they launched a product that quietly slipped into obscurity.

At today’s launch, David Thodey mentioned that previous service and put it down to the immaturity of the technology.

Several generations of Wi-Fi technology later, it may be the new product is more reliable and stable than the last failed attempt and sees far better take up rates.

Which leads us to a truism in the technology industry – everything old is new again.

In fact, most of the technology we talk about today such as cloud computing, social media and citywide Wi-Fi has been around for years under different names.

What makes say cloud computing today more successful than software as a service a decade a go is that the current technology makes the products more reliable and accessible.

That’s another affect of the Gartner hype cycle, that as one technology recovers from the trough of disillusionment it gets renamed and spawns the adoption of a bunch of other neglected concepts or ideas.

As with much in businesses, the adoption of technology is as much a matter of timing as it is expertise.

Three business lessons from the New York Times

The New York Times Innovation study has important lessons for all business owners and managers.

“The New York Times is winning in journalism,” starts the newspaper’s much discussed internal Innovation Report. Then in great detail it goes on to describe how the audience is being lost to upstarts like the Huffington Post and Buzzfeed.

Given the number of digital forests that have been felled discussing the report in the last week, it’s not worthwhile giving an in depth analysis of the study – particularly given Nieman Labs’ comprehensive dissection of the document.

What does stand out though are a number of over-riding themes that apply to almost any business, not just struggling traditional media outlets.

Being digital first

A constant mantra in the NY Times report is about being ‘digital first’ – if you’re thinking about that today, then you’re probably too late in your industry.

Every industry is now digital: If you’re designing widgets, you’re doing it on CAD system; if you’re selling real estate, you’re listing online (one of the great killers of the old metropolitan newspaper model) and if you’re selling doughnuts, you’re placing your suppliers’ order electronically and maybe 3D printing your icing patterns in the near future.

There isn’t one industry that isn’t being radically changed by digital technology.

Breaking down silos

One of the areas that’s been most resistant to digital change, and yet is the most threatened, is management.

Silos within organisations are a triumph of management power and make it difficult for a business to be dynamic when it’s necessary to negotiate with different fiefdoms just to change the colour of paperclips.

Those silos are fine when industries are cosy and there’s little competition but when disruptors enter the market those management empires become a dangerous, and expensive, weakness.

The New York Times study spends a great deal of its pages discussing how to break down silos within its own organisation and this is something every business owner or manager should be exploring.

With modern communication, information management and workplace collaboration tools many management roles are no longer needed.

For smaller businesses, this is the greatest strength when competing against larger corporations as Huffington Post, Buzzfeed and Business Insider  have shown in stealing the market from the New York Times.

You need to be found

One of the toughest conclusions from the NY Times study is that the quality of content actually doesn’t matter in the marketplace; The Huffington Post and Buzzfeed do an excellent job of taking the NYT’s work, repackaging it and redistributing it in a way readers prefer.

That might be a transition effect – it’s hard not to think that should original content creators like the NY Times be driven out of business then Buzzfeed will have to start employing more journalists and Arianna paying her writers – however right now gloss beats quality.

Buzzfeed and the Huffington Post are attracting audiences because their stories are easy to find online and their headlines almost beg you to read them.

For non-media businesses, the lesson is you need to be found; you may be the best restaurant, electrician or accountant in town but if you’re on the fifteenth page of Google in search results for your industry and suburb then you’re doomed.

The New York Times faces its own unique set of challenges, as do the publishing and media industries, many of the lessons though from the NYT  Innovation paper though can be applied to many businesses.

If you need government money, do you really have a business?

A business that relies on government funds isn’t really a business.

Australia’s new Federal government handed down its first budget yesterday with savage cuts to scientific research, training and business support.

I dissected the implications of the budget for businesses in a piece for Technology Spectator with the conclusion that modern Australia is turning its back on technology, the young and the entrepreneurial.

None of which will come as a surprise to this site’s regular readers.

Some of the critics of my Tech Spec piece made the point that if your business relies on government grants then you aren’t really an entrepreneur.

I’d tend to agree with that, having spent a few months working for a state agency responsible for business development programs I realised that for most businesses the time cost of applying for and administering a government grant was often greater than the value they received from the programs.

So government grants aren’t the entrepreneurial manna that many people believe.

What’s worse, governments can axe these programs at short notice which leaves the businesses short handed. Which is exactly what happened last night.

Indeed that’s the problem for Australian businesses, each time a government changes the new administration axes the previous one’s programs and this lack of certainty and continuity is one of my concerns about the viability of Australia’s startup scene.

The truth is though, if your business does need government funds to survive then you’re at the mercy of bureaucrat’s whim rather than the rigours of the market.

If you’re comfortable with owing your existence to a bureaucrat then you probably don’t really have a business and you certainly aren’t an entrepreneur.

Amazon’s death grip

Booksellers, and readers, are learning the consequences of Amazon’s domination of online book retailing

Hachette Book Group is the latest victim of Amazon throwing its weight around the bookselling industry reports the New York Times.

While it’s not the first time this has happened, Amazon’s willingness to bully suppliers – and disappoint customers – is a taste of what happens when one company controls a choke point in the distribution network.

In the early days of the internet we believed the web would eliminate the middleman, instead the net put the existing intermediatries out of business and gave us a new, global breed of gatekeepers.

The galling thing about Amazon is the company has barely made a profit in its 20 years of operation, one wonders how profitable it will be once should the operation manage to wrest control the entire bookselling industry.

In many ways, Amazon is a cautionary tale for everyone trading online; beware of allowing any one platform too much power over your business.

Business as a commodity

Becoming a commodity business is not part of the Silicon Valley business model, but it’s the best most startups can hope to become.

What happens when your hot startup turns out to be in a commodity market?

According to Danny Crichton at TechCrunch two of the hottest startups of the last five years, Box and Square may be finding out.

You can make good profits out of a commodity operation – supermarkets around the world have shown you can earn good money from 2c profit on every can of baked beans you sell – but it’s hard work and it’s definitely not glamorous.

It’s also not particularly attractive for investors looking for the next big thing and commodity businesses struggle to justify the massive burn rates

The truth for most startup businesses is this is as good as it gets; no billion dollar buyout, no adulation from the tech press and no buying a yacht to rival Larry Ellison’s. Just a decent return from hard work.

While many of us blinded by the billion dollar success stories of Facebook, Google and Amazon, it’s worthwhile considering that most successful businesses are far more modest ventures.

When should a founder step down from their business?

Letting go of your business can be a wrenching task for a business founder as Viocorp’s founder Ian Gardiner describes.

Earlier this month, Sydney video streaming company Viocorp changed leadership with founder Ian Gardiner stepping down as CEO.

For Gardiner, the decision was tough and in a blog post he described how the company was founded and grew and why it was time to step away. That decision though was not without some pain.

I have nurtured and loved this little startup as it has grown up like one of my children.

And like my children it can occasionally be frustrating, difficult and highly erratic and unpredictable. But most of the time it is fantastic and hugely rewarding. And I love it with a passion that is hard to describe.”

However children one day grow up and leave home. Viocorp is not a start-up any more. It is a serious business with massive potential. And I feel that my skills as a product innovator and fire-starter are not the ones that Viocorp needs for this next stage of our journey.

I spoke to Ian Gardiner in a noisy Sydney Cafe in February for the Decoding The New Economy YouTube channel shortly after he’d made the decision to step down as CEO where he elaborated on the reasons for the change.

“I ended up getting further and further away from the stuff I’m actually good at,” he said. “You end up as the founder and entrepreneur in a place that is not good for anyone.”

“As a result of that the business doesn’t go in the direction you want.”

The right manager for the job

Gardiner’s decision illustrates an important truth about business; different management skills are needed at different stages of development.

A good example of this was with the corporate slashers of the 1980s – CEOs like GE’s Jack Welsh and ‘Chainsaw Jack’ Dunlap here in Australia were the right men to shake moribund organisations. A decade later both were out of favour as the needs of the business world and their companies had moved on.

Similarly the skills that are needed to found and grow a startup are very different to those required to steer a more mature business. This is why Facebook’s experiment with retaining founder Mark Zuckerberg as CEO of a hundred billion dollar company is so fascinating.

With Viocorp, Ian Gardiner and his investors have made a very mature decision about where they see the future of the business, as the now retired CEO told me earlier this week: “The punchline is that I’m happy about it, and very excited about the future of Viocorp.

Playing the startup lottery

Building a startup is not for everyone as Reuters’ Felix Salmon reminds us

Silicon Valley is in the grip of a mass delusion says Reuters’ Felix Salmon in a blog post that dissects the reality of life as a startup founder.

The Most Expensive Lottery Ticket in the World starts with nod to Gideon Lewis-Kraus’ No Exit: Struggling to survive a modern gold rush that examines the harsh truths and brutal realities of building a new business.

Salmon though goes further in skewering some of the myths around startups; pointing out that with 90% failure rates not everyone can be ‘killing it’, yet few startup founders will admit their venture are doing anything else but crushing the market, despite the mantra of ‘celebrating failure.’

Possibly the most telling point Salmon makes is on the myth of the engineering entrepreneur, the truth is most coders value stability over the uncertain life in startup.

There is no reason whatsoever to believe that computer engineers make particularly good entrepreneurs. Quite the opposite, in fact: engineers tend to do quite well in structured environments, where there are clear problems to solve, and relatively badly in the chaos of a startup, where the most important skills are non-engineering ones, like being able to attract talent and investors. No Exit makes it very clear that the life of a startup founder is a miserable one, and that engineers are invariably happier when they’re working for a big company.

Life in a startup, or any small business, can be miserable if you don’t have the skills – and most importantly the risk appetite – for doing your own thing. This is a point often missed by those hyping the start up world.

Salmon’s piece is a good read and it illustrates that founding a business or taking the risk of working in a startup is not for everyone. It’s a timely reminder for anyone looking at liberating themselves from their cubicle and making the jump into self employment.

No country for small business

Online advertising for small business is wide open again as the Internet empires focus on big business.

Facebook’s latest changes to its layout creates more problems for small business using social media as the real estate available on its site for eyeballs gets smaller.

The social media giant has been catching criticism recently for changes to its algorithm that make it harder for businesses to be seen online.

In the hospitality industry, discontent was articulated by the Eat 24 website which closed its Facebook Page down after finding the problems too hard.

With the changes to the online advertising feed, it makes it even harder for small business to be seen on the platform as reduced space means higher prices for the space that remains available.

It’s hard to see small businesses getting much traction with the changes when they’re up against big brands with large budgets.

On the other hand for the big brands, the importance of proper targeting becomes even greater as wasting

A challenge for small business

The big problem now for small business is where do you advertise where the customers are?

A decade or so ago, this was a no-brainer – the local service or retail business advertised in the local newspaper or Yellow Pages. Customers went there and, despite their chronic inefficiencies, they worked.

Now with Facebook’s changes, it’s harder for customers to follow small business and this is a particular problem for hospitality where updates are hard.

The failure of Google

Google should have owned this market with Google Places however the service has been neglected as the company folded the business listing service into the Plus social media platform.

Today it’s hard to see where small business is going to achieve organic reach – unpaid appearances in social media and search – or paid reach as the competition with deep pocketed big brands is fierce.

Services like Yelp! were for a while a possible alternative but increasingly the deals they are stitching up deals with companies like Yahoo! and Australia’s Sensis are marginalising small business.

So the online world is getting harder for small business to get their message out onto online channels.

For the moment that’s a problem although it’s an interesting opportunity for an entrepreneur – possibly even a media company – to exploit.

Counting the cost of investors

Israeli startup Waze illustrates some harsh truths for business owners who lose control of their company.

Israeli tech startup Waze was always an interesting business; the idea of combining crowdsourcing and social media to provide traffic reports was fascinating concept that seemed to work well.

When Google bought the company two years ago, it was seen as one of the success stories for Israel’s vibrant tech startup scene, but a LinkedIn post by Waze’s founder Noam Bardin suggests the acquisition was not what the founders wanted.

One of Waze’s mistakes was the valuation of its A round which significantly diluted the founders. Perhaps, had we held control of the company, as the Founders of Facebook, Google, Oracle or Microsoft had, Waze might still be an independent company today.

Not being an independent company is also a weakness for Waze, as Google have shown in the past they are ruthless in shutting down businesses they’ve acquired and there’s no guarantee that Bardin’s creation won’t meet the same fate.

Google though are not alone in this, Yahoo! is notorious for neglecting companies they’ve acquired and today Microsoft announced it’s closing the Farecast travel price prediction service it bought for $115 million six years ago.

Oren Etzioni who founded Farecast in 2004 isn’t happy about this according to Geekwire, however that’s the downside of selling your baby to another business – its destiny is now in the buyer’s hands and their vision may not be the same as the founders’.

A good example of a company controlling its destiny is Atlassian, the Australian founded collaboration tool service, which the Wall Street Journal describes as being “one of the world’s most valuable venture-backed companies.”

In many respects Atlassian is the opposite of the Silicon Valley business model with an emphasis on engineering and product development over sales and marketing. Atlassian’s founders aren’t focused on hyping the business with the aim of selling to a deep pocketed greater fool.

For founders, the tricky balance in raising enough money to achieve their objectives while not giving away a controlling interest. Get it wrong and a founder ends up being forced into a course of action they didn’t want to do, as Noam Bardin found.

Bardin’s post on the Israeli business community and startup scene is an interesting perspective into the strengths and weaknesses of the country’s entrepreneurial culture, much of which would be familiar to many outside of Silicon Valley.

One big lesson though for founders, Israeli or otherwise, is don’t give away too much equity too early, or the investors make take you to places you didn’t want to got to.

Context and the digital divide

Paul Mabray, founder of US online monitoring service Vintek, sees a digital divide developing as businesses struggle with social media big data and Facebook.

“This is the most difficult time in history to be a wine maker, declares Paul Mabray, Chief Strategy Office and founder of Vintank.

“Never has the wine industry been as competitive as it is today.”

Update: The Wine Communicators of Australia, who sponsored Mabray’s visit, have posted Paul’s presentation that covers this post’s theme in more detail.

Mabray’s business monitors social media for wineries and collects information on wine enthusiasts. Since Vintank’s founding in 2008 the service has collected information on over thirteen million people and their tastes in wine.

Rewriting the rule book

Social media, or social Customer Relationship Management (sCRM), is what Mabray sees as being part of the future of the wine industry that’s evolving from a model developed in the 1970s which started to break down with the financial crisis of 2009.

“In the old days there was a playbook originating with Robert Mondavi in the 1970s which is create amazing wine, you get amazing reviews and you go find wholesalers who bring this wine to the market.”

“As a result of the global proliferation of brands the increase of awareness and consumption patterns where people like wine more, those playbooks didn’t work in 2009 when the crisis started.”

With the old marketing playbook not working, wineries had to find other methods to connect to their markets and social media has become one of the key channels.

Now the challenge in the wine industry, like all sectors, is dealing with the massive amount of data coming in though social media and other channels.

The cacophony of data

“If you rewind to when social media came out, everyone had these stream based things and the noise factor was so heavy,” says Mabray.

“For small businesses this creates an ‘analysis to paralysis’ where they’d rather not do anything.”

Mabray sees paralysis as a problem for all organisations, particularly for big brands who are being overwhelmed by data.

“The cacophony of data at a brand level is just too much,” he says.

“It’s as noisy as all get go and I think the transition is to break Big Data down into small bite size pieces for businesses to digest is the future, it shouldn’t be the businesses problem, it should be the software companies’.”

A growing digital divide

Mabray sees a divide developing between the producers who are embracing technology and those who aren’t, “the efficiencies attributed to technology are obvious whether they’re using CRM, business intelligence or other components.”

“The people who are doing this are recognising the growth and saying ‘hey, this stuff actually works! If I feed the horse it runs.”

While Mabray is focused on digital media and the wine industry, similar factors are work in other industries and technology sectors; whether it’s data collected by farm sensors to posts on Instagram or Facebook.

Facebook blues

Mabray is less than impressed with Facebook and sees businesses concentrating on the social media service as making a mistake.

“I think that every social media platform that’s been developed had such a strong emphasis on consumer to consumer interaction that they’ve left the business behind, despite thinking that business will pay the bills.”

“As a result almost every single business application that’s come from these social media companies has met with hiccups. That’s because it wasn’t part of the original plan.”

Facebook in particular is problematic in his view, “it’s like setting up a kiosk in the supermall of the world.”

The business anger towards Facebook’s recent changes is due to the effort companies have put into the platform, Mabray believes; “everyone’s angry about Facebook because we put so much into getting the data there.”

“We said ‘go meet us on Facebook’, we spent money collecting the items and manufacturing the content to attract people and now we have to spend money to get the attention of the people we attracted to the service in the first place.”

Despite the downsides of social media Mabray sees customer support as one of the key areas the services. “It’s easy to do in 140 characters.”

Context is king

“Everything come back to context. There’s this phrase that ‘content is king’,” Mabray says. “Context is king.”

“Anyone can produce content. It’s a bull market for free content. We have content pollution – there’s so much junk to wade through.

Mabray’s advice to business is to listen to the market: “Customers are in control more than they have ever been in human history: Google flattens the world and social media amplifies it.”

For wineries, like most other industries, the opportunity is to deal with that flat, amplified world.

Furthering the startup conceit

Lachlan Murdoch declares News Limited to have the energy of a startup

I’ve ranted before about the romantic views corporate executives have about the lives of startup founders.

“News Corp today has the energy and sensibility of a start-up,” Lachlan is quoted in the company’s media announcement.

Let’s see how that goes.