Category: business advice

Is small business too pessimistic?

The small business sector doesn’t seem to be too confident about the future.

The MYOB March 2012 Business Monitor report is a disturbing document; not only does it show how low confidence is among Australian business owners, it also portrays a group that are making sacrifices for an uncertain future. Is this what small business has come to?

One of the most disturbing aspects of the survey is how long company founders go without a break. With one third reporting they had not taken holidays since starting their business, this statistic is constant regardless of how long the operation has been going.

As somebody who went a decade without taking a holiday, I have a lot of sympathy for business owners in that situation.

What really jumps out is the pessimism of business owners – a quarter don’t expect the economy to improve for at least two years and only 39% expect their revenues to rise.

That business owners would be so negative about the future is disturbing; they should be the most optimistic.

It’s also interesting that more than half are disappointed with levels of support from the government, does anyone expect different?

Quite frankly, if you want money or support from the government then get a job with the public service. I tried that for a few months and there’s plenty of pessimistic people there.

That small business owners are becoming as disillusioned as public servants is a concern for our economy and society. Hopefully it’s not a permanent condition.

Hubris and risk

Technology brings benefits and risks, we need to understand both

Today is the centenary of the Titanic’s tragic sinking. In many ways, the RMS Titanic described the 20th Century conundrum; a blind faith in technology coupled with a struggle to deal with the consequences of those innovations.

It’s worthwhile reflecting on the hubris of those who believed their technology made a ship unsinkable, or those who believed their shipyards would never close and – probably most relevant today – those who believe the sun never sets on their empire.

Technology can liberate our lives which is shown by the fact the average American, European or Australian lives far longer and better than even kings did two centuries ago. But we should never assume these improvements don’t come at a real cost to ourselves, the environment or the ways of life we take for granted today.

Passion and pain

Being passionate about work can bring on its own problems

“Don’t buy the hype about following your passions”, is the advice from business writer and entrepreneur Penelope Trunk in her blog post The career passion myth and how it derails you.

Sonja Lyubomirsky talks about workplace engagement as a result of having control over one’s time and being able to make people feel good. Janitors, she finds, are happiest at work because they can control their workday and they can see immediately how they are helping people. Lawyers, by contrast, are the most universally unhappy, because they have little control over their hours and they are generally dealing with people who hate that they have to hire a lawyer, whatever the lawyer is doing.

Penelope has a good point and it’s something I encountered in my business with passionate staff – the most committed and dedicated are also those most prone to burn out and depression.

In the computer business, good technicians have a combination of two character types; the geek and the concierge.

The concierge attribute like to help people; this the key character trait for successful hospitality and customer service staff.

Geeks are the garage tinkerers; they enjoy being confronted with a technical issue and fixing it. Nothing makes them happier than being confronted with a tough problem and a successful resolution.

What I realised in watching computer techs over time is that both personality traits were driven down by the nature of the industry.

As Penelope points out in her article, lawyers aren’t happy because people don’t want to deal with them; this is common in the repair industries. Customers aren’t happy to see the tech and are suspicious that bills may be being padded out.

This was particularly true during the spyware epidemic of the early 2000s; often an effective fix involved backing up data, reformatting the system and then rebuilding it. Often the technician’s bill was more than the cost of buying a new computer.

Making matters worse was often the spyware infection was due to a family member or trusted employee visiting inappropriate websites. Having to explain to a staid matron that her husband was downloading megabytes of hard core pornography is a diplomatic skill in itself.

Naturally horny husband or frustrated staff member would be on those sites again shortly after the technician’s visit so the freshly cleaned computer would often be infected again and the customer would, understandably, be cranky at the tech for having another expensive call shortly after the first one.

Along with spyware, it’s common that technology products from big vendors don’t deliver on the flash marketing promises or aren’t as reliable as a customer has a right to expect.

This would become the technician’s problem again.

Many of these problems would be outside of the tech’s control which is devastating for one’s inner geek that takes pride in fixing problems.

All of these factors would eventually grind both the geeks and the concierges down and they would become demoralised over time.

For the most passionate this would manifest itself in burn out and often depression. In fact, I started feeling this myself and was one of the reasons I had to step away from the PC Rescue business.

Being passionate about your work is great; but passion and depression are often close together if you feel your love is not being requited.

As an employer, it’s important to watch those passionate staff members as the risk of burn out is real.

Rivers of gold

Can there be a downside to Google’s massive profits?

Google’s announcement that their revenues have increased by 24% over the last year shows the search engine juggernaut keeps rolling on.

It’s tempting to think that Google is untouchable and that’s certainly how it appears when you’re on track to earn forty billion dollars a year and book close to 40% of that income as profits.

On the same day, Sony announced a massive restructure including with 10,000 redundancies and the company’s CEO, Kazuo Hirai, spoke of a sense of urgency to address the once dominant corporation’s drift into irrelevance.

Twenty years the thought of Sony – one of the world’s innovators in consumer electronics – would be wallowing in the wake of companies like Apple and unknown upstarts like Google was unthinkable.

Fortunes are won and quickly lost in a time of great change and this is something we should keep in mind about Google when we look at their rivers of gold.

“Rivers Of Gold” was a term coined to describe the advertising riches of the newspaper industry in the 1980’s. Google’s online advertising is partly responsible for destroying that business.

Today Google is a search engine business that makes its money from the advertising that deserted print media and went online.

It may be that manufacturing mobile phones, running “identity services” disguised as social media platforms or augmented reality spectacles are the future of Google but right now they it’s search and advertising that pays the bills and books the massive profits.

The challenge for Google is not to lose sight of its current core business while building the future rivers of gold.

If Google’s leaders can’t manage this, then they risk following the newspaper industry that they themselves disrupted.

Hyping start ups for pleasure and profit

The Silicon Valley VC model is not sustainable for most businesses and industries.

Monday’s announcement that Facebook would buy photo sharing website Instagram shows the power of Silicon Valley investor networks and how they operate, we should be careful about trying to emulate that model too closely.

Intagram has been operating for 18 months, has 13 employees, has no prospects of making a profit and is worth a billion dollars to the social media giant. Pretty impressive.

A look at the employees and investors in Instagram shows the pedigree of the founders and their connections; all the regular Silicon Valley names appear – people connected with Google, Sequoia Capital, Twitter, Andreessen Horowitz.

The network is the key to the sale, just as groups of entrepreneurs, investors, workers and innovators came together to build manufacturing hubs like the English Midlands in the 18th Century, the US midwest in the 19th Century and the Pearl River Delta at the end of the 20th Century, so too have they come together in Silicon Valley for the internet economy.

It’s tempting for governments to try to ape the perceived successes of Silicon Valley through subsidies and industry support programs but real success is to build networks around the strengths of the local economy, this is what drove those manufacturing hubs and today’s successful technology centres.

What’s dangerous in the current dot com mania in Silicon Valley is the rest of the world is learning the wrong lessons; we’re glamourising a specific, narrow business model that’s built around a small group of insiders.

The Greater Fool business model is only applicable to a tiny sub set of well connected entrepreneurs in a very narrow ecosystem.

For most businesses the Greater Fool business model isn’t valid.

Even in Silicon Valley the great, successful business like Apple, Google and Facebook – and those not in Silicon Valley like Microsoft and Amazon – built real revenues and profits and didn’t grow by selling out to the dominant corporations of the day.

The Instagrams and other high profile startup buy outs are the exception, not the rule.

If we define “success” by finding someone willing to spend shareholders’ equity on a business without profits then these businesses are insanely successful.

Should we define business success by creating profits, jobs or shareholder value then the Silicon Valley VC model isn’t the one we want to follow.

We need to also keep in mind that Silicon Valley is a historical accident that owes as much to government spending on military technology as it does to entrepreneurs and well connected venture capital funds.

It’s unlikely any country – even the United States – could today replicate the Cold War defense spending that drove Silicon Valley’s development and much of California’s post World War II growth.

One thing the United States government has done is pump the world economy full of money to avoid a global depression after the crisis of 2008.

Some of that money has bubbled up in Silicon Valley and that’s where the money comes to buy companies like Instagram.

Rather than try to replicate the historical good fortune of others, we need to make our own luck by building the structures that work for our strengths and advantages.

702 Sydney Weekend computers: April 2012

Join Paul and Simon Marnie to discuss the tech that affects your home and office

On ABC 702 Sydney Weekend computers this Sunday, April 8 from 10.15am Paul Wallbank and Simon Marnie will be looking at the end of innocence for Apple Mac users, the DNS Changer Virus and how political campaigning is coming to a Facebook site near you.

Some of the topics we’ll discuss include;

If you’d like to learn how to protect your Mac or Windows computers from malware, visit our Netsmarts article on the Flashback virus that explains the security settings and suggests some free anti-viruses.

Listeners’ Questions

While we had a great range of calls from listeners, there was only one we promised to get back to. Kay clearly has a virus infection on her Windows computers and we recommend the free MalwareBytes program to clean it up.

Our IT Queries site has more instructions on cleaning up a virus infection if you’re worried about a sick computer.

We love to hear from listeners so feel free call in with your questions or comments on 1300 222 702 or text on 19922702.

If you’re on Twitter you can tweet 702 Sydney on @702sydney and Paul at @paulwallbank.

Should you not be in the Sydney area, you can stream the broadcast through the 702 Sydney website and call in anyway.

Risks and opportunities in crowdsourcing

There are real benefits and dangers for business in the globally connected marketplace

Crowdsourcing and offshoring are changing bringing to small business the same changes we’ve seen in manufacturing and low level office jobs over the last forty years.

Those trends are going to affect local businesses – particularly the home based service providers – in a serious way as the local web designer and bookkeeper find themselves undercut by freelancers in countries where an Australian day rate is a month’s pay.

With those thoughts in mind I went along to a round table discussion with crowdsourcing advocate Ross Dawson, Freelancer CEO Matt Barrie and Design Crowd founder Alec Lynch to hear them discuss some of the issues around the concept ahead of their half day workshops in Sydney later this months.

Having read Ross’ recent book, Getting Results From Crowds, many of the concepts and arguments are familiar but its worthwhile considering how the trend of a globalised workforce is changing.

The benefits of crowdsourcing services

Crowdsourcing services like Design Crowd and Freelancer have benefits traditional outsourcing services don’t have.

Alec Lynch describes these as reduced expense, speed and risk. A broad range of cheap, accessible suppliers mean businesses aren’t locked into costly contracts with the attendant risks while they can bring projects to fruition in days.

Until recently, globalisation only bought benefits for major corporations with manufacturers contracting work out to China, back office functions to India and software development to Eastern Europe.

The rise of web based services where smaller, one off projects could be paid for by credit card has bought global outsourcing into the small and medium sized business markets.

Now local businesses are affected by business practices that, until recently, were the concern of those working for large organisations.

This is bad news for local service businesses; the suburban web designer or bookkeeper is now finding themselves competing with individuals who, as Matt Barrie points out, have a very good weeks’ income for the equivalent of a day’s pay in Australia.

Basically the same forces that drove most low value manufacturing offshore are now driving services and white collar jobs the same way.

Responding to the threat

There are major downsides for clients using these project based outsourcing services; for instance designing a logo is only part of a much bigger branding exercise which in turn has to be considered against the orgainisation’s longer term objectives.

Often, most of us don’t know what we don’t know and that’s the real reason why we hire an expert to explain why a logo should look a certain way, an expense should be allocated to one specific cost centre and not another or why we should one software package over another.

When we outsource our services, particularly to a low cost provider, we lose that expert insight and end up with someone just carrying out a task; it is up to us to supervise something we probably don’t understand ourselves.

Part of that supervisory role is project management, in the design field managing creatives can be like herding cats. This is why experienced project managers are worth their weight in gold.

Like many essential skills, project management is one of those which most of us don’t have and is chronically undervalued but when a business is outsourcing to a freelancer in Estonia or Eritrea then this service is essential.

Providing those skilled supervisor and management roles is where the opportunities lie in a crowdsourced market place.

In many ways, we’re seeing the end result of the post-industrial society. Just as we offshored the manufacturing industries through the 1970s and 80s then the low skilled office work in the 1990s and 2000s, we’re now outsourcing local services to low cost countries.

Whether ultimately this is a good thing or not is a big question but for local businesses, the trend is clear and much of the basic work is going offshore. Those who choose to whinge rather than adapt will be left behind.

Why VCs hate Amazon

How cloud computing is changing investment and entire industries

“Venture capital investors hate us” said Dr Werner Vogels, CTO of Amazon.com at the April Sydney FED, “once you needed five million dollars to launch a new technology business, today you need $50,000 and a big box of ramen.”

Dr Vogels was talking about the Amazon Web Services (AWS) platform that underpins many of the cloud computing and social media sites which are redefining how we use computers and the web.

What’s really interesting with the doctor’s comment is it’s only part of the story; for businesses outside the tech sectors –say retailers or service companies – they get cheap or even free access to the cloud computing services running on AWS or its cloud competitors like Windows Azure.

For those businesses, it’s possible to start an idea for nothing but the founder’s time; rather than putting fliers up at the local bus stop or shopping mall an entrepreneur starting an online store or neighbourhood computer repair business now can create a website and all the local search profiles without spending a cent.

Being able to start up a business with little, if any, capital means we’re seeing a new breed of innovators and entrepreneurs entering markets.

At the corporate level, or in the $50 million dollar VC investment field, the opportunities for exploring Big Data without buying big supercomputers is another benefit of the cloud computing services.

Services like ClimateCorp which insures farmers against extreme weather couldn’t have existed a few years ago as the processing power to analyse historical rain and drought data was only available to those with insanely expensive super computers.

Today, the combined power of millions of low powered cheap computers – the definition of cloud computing – delivers the processing grunt of a supercomputer at a fraction of the cost.

Access to cheap computing power means innovations can be bought to market quickly and at a fraction of the cost that was normal a decade ago.

We’re in early days with what the effects of super cheap computing means to most industries, but it is changing industries as diverse as agriculture, banking, logistics and retail quickly.

Cloud computing is giving big business the tools to understand their markets better and small business the ability to grab customers from bigger competitors who are too slow or don’t want to face what their clients really think.

These are the forces that are changing the way business is being done; if you’re in business it’s time to start paying attention.

In reality, Dr Vogels is pulling our legs – the smart VCs aren’t hating Amazon, they are rubbing their hands at the profits that are going to be made in disrupting cosy industries.

Common interests

A successful business partnership relies upon respecting each party

KFC is booming in the world’s emerging markets. From Shanghai, China to Accra, Ghana, crowds are lining up to eat and the fast food chain is opening new outlets across the world.

Yet in KFC’s home market, the United States, the chain is shutting outlets and infuriating franchisees.

A Bloomberg BusinessWeek profile looks at the success of Yum! foods, KFC’s parent company, and the contradiction of overseas success while their domestic business fades.

One thing is absolutely clear, Yum Food’s vainglorious Chief Executive David Novak and his board have made a clear decision to focus on expanding the core business of deep fried chicken in emerging markets while making little effort to adapt to changes in their domestic operations.

At least Yum are keeping their US based KFC operations, many of their other brands are being sold off as the company responds to changes US tastes and economic circumstances.

For the US KFC franchisees, this is a difficult process as their interests are not the same as those of Yum’s management.

At the heart of every business agreement are people acting in their own interests. The most successful partnerships are those where everybody’s interests are recognised and respected.

In their US operations, the big question is how long Yum can neglect their US franchisees and markets without affecting their international operations.

For Yum’s international operations it’s going to be fascinating to see how the partnerships and joint ventures underpinning their expansion in emerging market evolve.

Yum will probably find in some of these markets that their local partners don’t share their interests. Then they may find themselves in the same position of their US franchisees.

Consumer surplus?

Inventing euphemisms for your dead business model

Last week I came across the term “consumer surplus”, the Boston Consulting Group claimed the gap between the cost of producing media content and what customers are prepared to pay creates a “consumer surplus”.

That consumers of media want it but aren’t prepared to pay for it is a basic truth; the 20th Century media model is based upon advertising subsiding journalism and entertainment.

For all forms of media this was true; from TV and radio stations being fully funded by advertising to newspapers and magazines’ cover prices barely covering distribution costs.

Take out advertising and all these models are dead. The only alternative is government funding.

Losing the advertising rivers of gold to web services is what’s killing the established business model. It appears that TV and radio will hang on, for now, but newspapers and magazines are in serious difficulties.

Simply put, there has rarely been a market for journalism; readers and viewers aren’t prepared to pay. Journalism’s golden years of the 20th Century were based upon having a relatively captive market for advertisers; now advertisers can go elsewhere, they have.

Putting a sophisticated  label on a basic concept is something consulting companies are very good at and Boston Consulting Group has done an excellent job with this report.

The fundamental truth is that it doesn’t matter how good your product is, if you can’t find a way to make someone pay you for it then you don’t have a market or a business.

Which is what the real challenge is for online content creators, finding the model that pays. The first person to do that becomes the 21st Century’s Randolph Hearst.

I don’t get it

“Getting it” doesn’t guarantee business success

“I don’t get Twitter or Facebook” says the talkback radio caller, “why would you want to tell the world what you’re having for dinner?”

Once upon a time people didn’t get the motor car. There were many good reasons not to – compared to a horse a steam or petrol driven vehicle was expensive, unreliable and restricted in where it could go.

The motor car ended up defining the 20th Century.

Those who didn’t get it – like the stage coach lines and later the railway companies – eventually faded into irrelevance.

Something we should remember though is that many of the entrepreneurs in the early days of the motor car who did “get it” went broke. As did those in earlier times building railways and canals.

“Getting it” is one thing, but it doesn’t guarantee it will make you rich or guarantee your business’ survival.

Playing with Dragons

We should be careful how we treat our customers.

Chinese manufacturing has been in the news recently with various exposes of factory conditions by the New York Times, the now discredited Mike Daisey and a fascinating look at US store chain Wal-Mart’s supply chain by Mother Jones’ Andy Kroll.

In his examination of Wal-Mart’s Chinese suppliers Andy Kroll interviews factory owners and managers with a common theme, they are all loath to be identified for fear of incurring Wal-Mart’s wrath.

This is wall of silence is familiar in Australia; the reluctance of local suppliers to speak about the conduct of the Coles’ and Woolworths’ policies has hobbled enquiries into the domestic retail market.

Another aspect Chinese and Australian have in common is how the retailers drive down costs with big buyers insist upon regular price reductions from their suppliers.

This is what happens when your business is a price taker that relies on one or two suppliers; you accept what you’re offered or lose a large chunk of your business.

With many of Australia’s industry sectors now dominated by one or two incumbents, this way of doing business is now the norm rather than the exception.

As a nation Australia’s finding itself in that position as well. Now our governments and business leaders have decided Australia will only dig stuff up with a few favoured, uncompetitive industries like car manufacturing being being protected, the entire country is in a position not dissimilar to a Foshan coat hanger manufacturer.

Having that dependency on one or two major customers is a risk and when the commodities boom turns to bust – commodities booms always do – our relationships with these customers will be tested.

When that test comes, the clumsy way the Federal government has banned Chinese companies from tendering to the National Broadband Network or blocked investment in mining projects may turn out to be mistakes.

This is the problem with being a price taker selling a commodity product, you become hostage to fortune and when the market turns against you there isn’t a great deal you can do.

In the early 2000s computer manufacturers like Dell and HP decided to sell commodity products then watched with despair as Apple captured the premium, high margin end of the market. Neither business has truly recovered.

Being trapped at the commodity end of a market is not a comfortable place to be, particularly if you don’t have a plan to move up the value chain.

If your business is currently selling low margin, commodity goods then it’s worthwhile considering what Plan B is should the market turn against you. You might also remember to be nice to your customers

At least you’ll show you have more forethought than our leaders in Canberra who seem to like to play with dragons without thinking through the consequences.