Category: business advice

The five year business plan

How does a business idea grow?

Recently I was talking to an old business partner about why our venture failed, we agreed we’d spent too long on trying to keep an idea alive way past the date it was clear it didn’t work.

This formed the idea of the Five Year Business Plan. It’s not a detailed plan, just the broad cycle that the typical start business follows.

Years one and two: The formative years
The first two years are the most exciting, exhilarating, toughest and frustrating periods of running a business. This is when you test your assumptions, discover what works and ditch what doesn’t. You make mistakes, learn and build upon the lessons

Not only is this the time your business develops, it’s also the time you learn about yourself and your business partners. Some of the lessons you’ll learn about debtors, staff, suppliers and customers will break your heart and make you tougher. You’ll also probably require cash reserves to see your way through much of the first two years as well.

In many cases the assumptions are too wrong and cash demands too great. If the cashflow isn’t standing up, sales are too short of projections or the development is too slow, it’s often best to draw a line in the sand and move on before you invest too much of your life on an idea that doesn’t work.

Consolidation: Years three and four
Once through the formative stage, the third and fourth years are about consolidation. Having got your business running well, now is the time to be proving the model and making money.

This period is where you start booking real profits, build goodwill and start laying the groundwork for your exit strategy.

Year Five: The next steps
In the fifth year, you’re looking at where the business will go next. Some entrepreneurs will look at cashing out to a buyer while others want to franchise out their systems or build the business into a world beater.

With a four year track record and solid profits you’re in the position to seek buyers, investors, franchisees or lenders to execute the next stage of your business, and personal, growth.

This five year plan is nominal as not every business will follow it. For instance a franchisee will probably short circuit the first two years as they are buying many of the systems and products a start up entrepreneur has to develop and that’s why a good franchise costs money.

Also, the phases may vary depending on the industry, the state of the economy and just plain dumb luck but by understanding where the business is in the cycle, you can time the right moves for your business from when to grow and when to close it down.

In many ways, starting a business is like being an early explorer like Christopher Columbus, Marco Polo or James Cook. You have a rough map with some ideas and assumptions on it but no real idea of what you’ll discover. That’s part of the challenge of being entrepreneur.

Is Groupon the small business saviour?

Does the deal of the day change the way we do business?

Since Google’s rejected offer of $6 billion dollars to buy deal of the day website Groupon, there’s been a lot of discussion of just what Groupon and the hundreds of similar services mean to online commerce and small business.

Groupon’s CEO, Andrew Mason, even went as far as to declare his organisation the “saviour of small business” on the Charlie Rose show.

John Battelle, founder of The Industry Standard and co-founding editor of Wired, examines Groupon’s business model on his Searchblog and concludes it will be the small business platform for the mobile Internet just as Google are to the web and Yellow Pages were to the telephone.

The problem with these ideas is scale. If every small business had the capacity and wanted to be on Groupon, the service simply couldn’t cope and the model breaks down.

In my area there are, according to the Yellow Pages, 115 hairdressers in my district. Even if Groupon were able to geographically target me to my neighbourhood, they’d need a third of the year just to cover hair stylists which is tough luck for the lawn mowing services, plumbers, patisseries and other small businesses that may also want to advertise on Groupon.

Which takes us to customer motivation, when I’m looking for a haircut, hedge clipping, cleared drain or chocolate gateaux I’m not particular driven by finding a bargain – if I do that’s great – but it’s not my motivation to buy.

Groupon, and the other deal of the day sites, are driven by customers looking for discounts, and the key to business survival – particularly in retail – is not to depend on discounts to drive your business. So business models that rely on discount hungry customers, or cashflow desperate merchants, are always going to be limited.

Groupon is a great business and it may well turn out to be worth $6 billion or even $36 billion. The barriers to entry are not so low as anyone who thinks executing an idea like this is “easy” doesn’t understand the work involved in building a local sales team like those of Groupon or Yellow Pages.

It could well be that Google wanted to buy Groupon simply for that sales team. The failure of Google to properly execute on their terrific local search product has baffled me for some time and the only explanation I can put down to it is what Silicon Alley Insider’s Ron Burk attributes to Cash Cow Disease, where companies like Google and Microsoft find themselves paralysed by the rivers of cash flowing into their businesses.

Deal of the day sites have an important role to play for businesses looking at demand management or clearing inventory and Groupon is a good business just like Clipper Magazine or Shop-A-Dockets, but to claim they are going to be the next great revolution for small business is giving too much importance to these channels.

There’s no doubt though that small businesses will be the big winner when we get local search on the web right. When we get it right we’ll probably see the hyperlocalisation model for the media start to take off as well. So it could save two industries.

Groupon though is not the small business messiah we’re looking for.

Deskilling a society

Is outsourcing destroying our supply of skilled workers?

The Economist looks at outsourcing in the legal profession and how various services are now being offered claiming to cut lawyers’ bills by up to 80%.

All of this is valid as legal costs have escalated to the point that governments and businesses are baulking at the sheer expense of lawyers’ services.

There is though another aspect to this issue; is this another step in de-skilling our society?

A key point in the article is “…plenty of legal jobs are routine. American law firms typically get fresh law graduates to do such grunt work…”. While that grunt was profitable – as The Economist points out law firms would “bill clients for it at steep rates” – it is also how young lawyers are trained.

The article observes that Thompson Reuters recently bought Pangea3, a legal outsourcing firm with most of its lawyers in Mumbai, while announcing it is looking to sell BarBri, a company that prepares US graduates for bar examinations, which leads to the conclusion that training young American lawyers is not a good business proposition as selling the services of cheaper Indian lawyers.

Neglecting the training of young workers has been a notable point of Western economies in the last 30 years and while we can argue that fewer lawyers may not be a bad thing for these societies, the problems of not training nurses, electricians, builders, computer programmers, call centre staff and Engineering workers is now becoming a problem as we’ve find the global competition for skilled workers is intensifying.

There’s no easy answer to this deskilling process as outsourcing and globalisation are a fact of life in the connected economy. But we need to be aware of this process so we can trim our national economic and education policies to suit the times.

It’s certainly clear that pumping out thousands of law students who’ve been promised lucrative careers checking commas in contracts for big corporations is a losing proposition, but what should we be training these folk for?

So you want to be an entrepreneur?

Do you really want to start your own business?

There’s a school of thought that starting your own business is the passport to independence from the rat race or liberation from the servitude of employment.

A lot of blogs, books and writers encourage this idea and there’s no shortage of multi level marketers telling you self employment is the pathway to wealth and status.

On his Planning Business Stories blog, Tim Berry looked at one of the other sides of self-employment, that you’ll become unemployable.

Tim’s observations are right, but there’s a few other downsides to consider before trashing your cubicle, cashing out your savings and establishing that radical startup or buying a doughnut franchise.

I don’t want to work for a boss anymore
If you think your boss is an unreasonable swine wait until you deal with customers, particularly those who don’t pay their bills. Then there’s shareholders, business partners, suppliers and the taxman.

You’re leaving the rat race
No you aren’t. As a business owner you’ll find there’s a lot more rats than you thought when you worked for The Man, as the man employs lawyers, debt collectors and HR staff to deal with the rats.

The sad thing is you’ll probably end up being even more in the rat race, it’s just that you may not realise you’re racing the other rats as you aren’t stuck in traffic with them anymore.

I want to be the boss
That’s a noble and fair aspiration. Just be aware that in your own business, you take the risks and responsibilities too.

The boss at BigCorp can often mess up and move onto bigger and better things as the organisation is usually big enough to hide the mistakes and it’s often in senior management’s interest to hide their subordinates’ mistakes from the shareholders or taxpayers. In your own enterprise, it’s your own assets at stake.

I’ll get a better share of my rate
A common gripe with skilled workers, like plumbers and lawyers, is they get ripped off by their employer who pockets 3/4 of their hourly rate.

When you start your own operation, you’ll learn the existence of overheads and soon realise why you were only paid a quarter of what you were charged out for.

The only way to get rich is to work for yourself
Kind of sort of true, except there’s a big survivor bias in that saying. The people who do really well out of building a business receive accolades and boasting rights, those who don’t get quietly on with their lives if they are lucky.

In a capitalist society we reward risk, and the biggest risk you can take is setting up your own business. If you’re successful you’ll be rewarded, but the risk of comparative failure is high which is why successful entrepreneurs get more money and accolades than successful managers or politicians.

You’ll work fewer hours
This is probably the greatest myth of all, usually perpetuated by someone selling a multi level marketing scheme. In truth, you’ll work longer hours and many of those will be unpaid as you chase up debts and fill in government paperwork.

On the rare occasions you do get to sit down and catch up on the news, you’ll learn to dread reports that the government is going to “simplify” or “reform” something. This will almost certainly mean more paperwork for you.

Keep in mind that no politician – be they Republican, Democrat, Conservative, Liberal, New Labor or Labor – is “business friendly”. At best they are sympathetic in the way a non-lethal host parasite is to a warm mammal.

You’ll never work in this town again
Tim’s article makes this point well, that if you spend any considerable time working in your own business – be it a startup, consultancy or small business – you’ll find it difficult to get a job in the corporate sector.

I personally found this after 12 years of running a moderately successful business, basically I was told all of that experience was irrelevant to a corporate management position. In big business terms, I’d have made a better career move if I had been driving a bus for those dozen years.

All of this isn’t to say you shouldn’t strike out and build your own business, for many of us it’s the course in life that suits us and what we work best at. But it isn’t the lifestyle for everyone.

We certainly shouldn’t be saying those who aren’t suited to this lifestyle are bad or inferior people; most folk simply don’t want to take the risks and demands on family, finances and nerves that running your own business entails and this is fair, sane attitude to take particularly in a time of uncertainty.

Successful entrepreneurs have certain skill sets and a focus which can be tough on families, friends and children. For many there’s an element timing and luck as well.

For the success of a capitalist society, we need to celebrate and reward the entrepreneurs and risk takers, but before anyone dives into a start up or small business it’s best to understand the risks and costs involved.

Good luck.

What businesses should learn from Wikileaks

Cablegate forces us to question computer security and the stability of the Internet

The Wikileaks Cablegate affair has been entertaining us now for two weeks as we see diplomats and politicians around the world squirming with embarrassment as we learn what US diplomats really think about the foreign powers they deal with.

Both the leak of the cables and the treatment of Wikileaks and its founder, Julian Assange, by various Internet companies raises some important questions about the Internet, cloud computing and office security in the digital era.

Security

It’s believed the source of the leaked cables is Private First Class Bradley Manning, who is alleged to be responsible for leaking the Iraq tapes released by Wikileaks earlier this year.

The lesson is don’t give junior staff unrestricted access to your data, access to important information such as bank account details, staff salaries and other matters best kept confidential needs to be protected.

You can stop data leaving the building by locking USB ports, CDs and DVDs through either software or hardware settings on your computers and you should ask your IT support about this, keep in mind that locking down systems may affect some of your staff’s productivity.

Locking the physical means though doesn’t stop the possibility of data being sent across the Internet and access logs may only tell you this has happened after the fact. So it’s important to review your organisation’s acceptable use policy. Check with your lawyers and HR specialists that your staff are aware of the consequences of accessing company data without permission.

Incidentally, the idea that Pfc Manning was just one US Army staffer of thousands who were able to access these cables raises the suspicion that the information Wikileaks is now releasing was long ago delivered to the desks of interested parties in London, Moscow, Tel Aviv, Beijing and cave hideouts in remote mountain ranges.

Don’t rely on one platform

Wikileaks found itself hounded from various web hosting and payment providers. As we’ve discussed previously, relying on other people’s services to deliver your product raises a number of risks. Make sure you have alternatives should one of your service providers fail and never allow an external supplier to become your single point of failure.

Concerns about the cloud

This column has been an unabashed fan of cloud computing, but the Wikileaks saga shows the cloud is not necessarily secure or trustworthy. Not only is there the risk of a PFC Manning working at the data center compromising your passwords or data, but the arbitrary shutdown of Wikileaks’ services is a stark lesson of relying on another company’s Terms of Service.

Within most terms of service are clauses that allow the provider to shut down your service if you are accused of breaking the law or straying outside of the providers’ definition of acceptable use. As we saw with Amazon’s treatment of Wikileaks, you can be cut off at any time and without notice.

Amazon’s shutting down of Wikileaks is a pivotal point in the development of cloud services. Trust is essential to moving your operations to the cloud, and Amazon’s actions shown much of that trust may be misplaced.

Should you be considering moving to the cloud, you’ll need to ensure your data and services are being backed up locally and not held hostage to the arbitrary actions of your business partner.

Don’t put your misgivings in writing

So your business partner is a control freak? Great but don’t put it in writing.

Be careful of gossip and big noting

One interesting aspect of Wikileaks to date is how senior politicians like gossip and showing how worldly they are to US diplomats.

That’s great, but it probably isn’t a good idea to tell your best friend they should consider beating up your most important customer. As mentioned earlier, this little gem was probably on polished desks of the Chinese Politburo long before the cables found their way to Wikileaks.

Resist the temptation to gossip, remember your grandmother’s line about not saying anything if you can’t say something nice.

Ultimately what Wikileaks shows us is all digital communications are capable of being copied and endlessly distributed. In a digital economy, the assumption has to be that everything you do is likely to become public and you should carry out your business conduct as if you will be exposed on Wikileaks or the six o’clock news.

Wikileaks is a lesson on transparency, we are entering an era of accountability and the easiest way to deal with this is to be more honest and open. That’s the big lesson for us in our business and home lives.

Holiday computer checklist

A few ideas on making your holiday more enjoyable

With the Christmas holidays almost here, a lot of business and home computers will spend a good part of the next month turned off. Even though they are shut down, bad things can still happen. There’s a number of things you should do before heading off for a break.

Before you go

Backup
Before shutting down for the holidays backup all your important data. Your backup should include favourites, mail, address books and documents. Some programs, such as accounting systems, have their own backup routines.

Store the backups away from the computer, preferably offsite. We recommend making two copies, leave one onsite for easy access and store one elsewhere. If something terrible happens to your home or office while you are away, your data is at least safe.

For working and essential documents, setting up a free Dropbox service and copying them to it is a great idea. Dropbox is also good for saving documents you foolishly intend to work on while you’re away as well as essential documents.

Turn everything off
Printers, modems, routers, should all be turned off and disconnected from power and communications lines. Most modern computer equipment still has power running through it even though it is turned off. Power surges from storms are common, so don’t take chances.

If your computer is connected to a network, telephone line or cable connection then these should all be disconnected as well. Power surges are common on communications cables. Everything that connects your computer to the outside world should be turned off and unplugged.

Hide your equipment
Give thieves as little temptation as possible. Don’t leave computers in full view. Lock away anything portable and draw the curtains or blinds in the room where your computer is kept.

What to pack

As technology becomes an essential part of our lives, we tend to take it with us. This is particularly true with devices like iPads and DVD equipped laptops which are as much entertainment devices as they are for work.

To get the most from them, there’s a few things to consider when packing.

Update your systems
Run the update routines for your operating system, essential software and security programs before you leave so there will be no major updates clogging up your downloads while you try to work or play.

Power
The most irritating thing when on the road with a computer is running out of power. Do you have all your chargers packed away? If you have space it’s also a good idea to carry a powerboard so you can share scarce power outlets with other users.

Connectors
Don’t forget your USB cables to connect phones and cameras so you can download photos, update music and, for some devices, recharge them.

Packing
If you are flying anywhere, it’s best to take electronics with you as carry on baggage. Carry them in a bag where they are easily accessible so you can take them out without fuss at security checkpoints.

When you return

Your computer is the very last thing you should turn on. Make sure modems, printers, external drives and networks are all running before turning your computer on. If you have a cable Internet connection, give it a few minutes to connect before trying to log on.

Update your system.
Before checking emails or surfing the net, update your anti-virus and check for any system updates. Run Windows Update and your anti-virus program’s update program. New nasties will have come out while you are away and there’s a good chance some of them may be waiting in your inbox.

Christmas and New Year are a time to relax, by taking a few easy steps with your technology you can ensure your phones and computers are part of an enjoyable break.

Have a merry Christmas and a great New Year.

Other peoples’ platforms

The risks in the privately owned web range from obscure terms of service to arbitrary payment problems. This is why you need to control as much of your business’ online presence as possible.

“We have successfully established an online business, but we have run into problems with Ebay (indefinite suspension – unfairly I might add)” wrote Ralph*, an old client.

“We are pretty desperate, as this is now our sole business and we are now without an income.”

The Privately Owned Web

Ralph’s problem is typical of thousands of businesses that rely on one Internet service. Some months back we looked at “Nipplegate”, the story of a Sydney jeweller who had her Facebook page closed down because of her anatomically correct dolls.

All of these services are privately owned with their own terms and conditions along with their own corporate objectives. If you choose to use their product, you have to follow their rules – just like a shopping mall management can order you off their premises because they don’t like the colour of your socks.

The most glaring example of this is Wikileaks where Amazon, Paypal, Mastercard and Visa all threw the whistleblower site off their services for allegedly breaching their terms of services in various obscure ways.

The Terms of Service Trap

A business’ Terms of Service usually feature clauses wide enough to catch even the most honest and diligent business, this is by design as it gives management the excuse to throw anyone who makes their lives difficult, which is exactly what has happened with Wikileaks.

While Ralph’s problem is nothing like the scale of Julian Assange’s, all of these stories illustrate the dangers of relying on one service for your livelihood. Should that service change the way it operates, then any business that relies on that could be broke in hours, as many businesses that rely on Google search results have found.

Most of the Internet is not a public space, almost all of it is privately run along similar lines to that shopping mall or a walled estate.

Ralph and Julian Assange have shown us the limitations and risks of the privately operated web. As citizens and business owners we have to understand these corporations’ objectives are not always the same as ours and make judgements on how we live with the risk of finding ourselves in breach of a Term of Service in our business or personal lives.

We’re still in relatively early days of the net and all of us are still learning. One lesson is clear though, we can’t allow our livelihoods to be held hostage by a small number of big technology companies. Make sure you have alternatives to your online channels.

*Ralph is not his real name

Online ethics

how should we conduct ourselves online?

We have an established set of ethical rules for our professional and business conduct, but how applicable are these guidelines in the online world?

Thinking online communications aren’t serious, unlike what we say in written correspondence or at meetings, is a common fallacy. While it’s true most online chatter is often more informal and relaxed, we are still being held to professional standards whichever forum we use.

Many people treat what they put online as something similar to what you’d say over a coffee or after work drink, the problem is that most of what you do online can be endlessly copied and forwarded to others, as we see in the Wikileaks controversy. This makes it a very different medium to the spoken, informal social networks we have outside of the Internet.

We should also remember this isn’t just about social media tools like LinkedIn, Twitter or Facebook; it’s about any communication you carry out online such as using email, Internet chat, making comments on blogs or posting on public and private web forums.

In many ways the online rules are similar to the standards we expect in the offline business world, but because of the nature of the web, the emphasis is often different.

Private stays private
A private conversation has to stay private. What someone says to you in a private message or posts to a private forum – such as a locked Facebook page, an email or a direct massage – should never be repeated on the public Internet without the express permission of the person who sent it and those it was addressed to.

Don’t misquote
The remarkable thing about the Internet is how many people misquote others despite the fact most of what happens on the Internet is a written, or recorded, medium. If you’re going to quote someone, make sure you’re accurate.

Never plagiarise
Equally, you shouldn’t be too accurate. If you are going to extensively quote someone else, either link to their website or get permission to use their work. As the Cook’s Source scandal showed, we cannot assume that just because something is on the net we can just copy it.

Give credit where possible
Be generous in crediting other people for their work – linking to other people’s websites is not just a courtesy, it helps the web work better and adds value for all of us. It also improves your credibility.

Be open about affliations
Should you be commenting on issues you have a professional or financial interest in them then disclose them. On the web, people tend to be suspicious of those who may have vested interests so being open will enhance credibility.

Resist anonymity
There are good reasons to post anonymously however you should only do that when it’s necessary. Being open about who you are improves your reputation and credibility. We’ve looked at the risks and benefits of online anonymity previously

Be polite
There is a school of thought that claims manners aren’t necessary online. This isn’t true. You will quickly shred your credibility by being aggressive, attacking people and using foul language.

Don’t go overboard
If you get angry, take a deep breath and relax. Think about what you’re saying and if you have to post something angry, do it the following day when you’ve had time to think about it.

The idea that the online world is somehow separated from the rest of our lives is false. How we behave online has real consequences in the physical world as we can ruin our careers, be sued or even go to jail for things we say online.

Our online ethical behaviour should follow that of the physical world. If we wouldn’t do it on the street, in our meeting rooms or in front of our mothers then we shouldn’t do it online.

Rescuing retail

A Sydney butcher shows how the retail industry answers the challenge of industry change

The retail news is bad – consumer spending is dropping and the remaining customers are going online, eBay is taunting the big retailers who in turn are threatening to set up Chinese based online stores.

Are things really that bad for the bricks and mortar retailer? Are the suburban malls and high street stores doomed?

Maybe not.

In New York on the weekend Vic’s Meats, a butcher in Sydney’s Eastern Suburbs, won the retail prize at the Interior Design magazine’s Best Of Year awards for their Victor Churchill retail outlet.

Vic’s Meats show how retailers can succeed in a sector going through fundamental changes.

The last forty years have been tough for butchers as many of the traditional operators went to the wall as the sector struggled with supermarkets selling cheaper pre-packaged cuts and changing hygiene standards.

Butchers who moved up the value chain and focused on delivering high quality product survived. That same process is now happening in a similar way in other retail sectors as more efficient, convenient and cheaper providers change their markets.

At the moment we’re seeing two contradictory trends, a move to commoditised, global markets driven mainly on price and niche markets based around convenience, locality and service. The struggle right now is for established players like Myer, Harvey Norman and local retailers to understand where they fit in this system.

Vic’s Meats have figured out where they sit in their market and their lessons are valuable for other business owners figuring where their place is in this new retail world.

You have to be online

Even if you have no intention to sell online or overseas, your customers are still looking for you online.

It’s absolutely essential, regardless of what you do, to have a basic web presence. Even existing customers are looking up your details on the web when they forget your phone number and if you aren’t there, they may find your competitor’s.

We’ve covered previously what the basics of an online presence are. Make sure you have a Google Places account, Facebook page and a basic web site so people can find you.

You have to be telling your story

Whether you have the best meat, the freshest doughnuts or the fastest lawn mowing service in town then you need to be loud and you need to proud ­– let the world know about it.

Your website needs to say why customers should trust you and why it’s worth spending more with you than with the cheaper guy in the next suburb or continent.

One particular bugbear are bland and anonymous “about us” pages on many business websites which tell nothing about the business or the people behind it.

Your About Us page should tell the journey of why you were driven to become the best butcher, doughnut seller or lawn mower in your district. Leave the robotic mission statements to the big corporations and celebrate your competitive strengths.

You won’t win on price

The online channels don’t have the cost structures of bricks and mortar stores and that’s nothing new as small retailers have had to compete with the big chains’ economies of scale for years.

So don’t bother. Sell your story, your quality, your passion and your knowledge.

Be a resource

Engage with your local market. If there are changes, issues or events that affect your neighbourhood or market, update your site to reflect this and use social media like Twitter updates and Facebook pages to put the message out.

Vic’s Meats does that well with an informative website, recipes, cooking classes and an iPhone application. All of this builds the story that they are the experts and the people you should go to if you want the right cut of meat.

This is where Harvey Norman and Myers are failing. Many have of us have stood for half an hour waiting in Myer store to get service from an overworked assistant or have been given poor advice by a badly trained, commission driven teenager in a Harvey Norman store.

Gerry Harvey and Bernie Brookes have blown the advantages that Harvey Norman and Myer had over the online players and instead cruised on their respective models of offering interest free purchase plans or perpetual discounting.

Those tactics gave them nearly ten years breathing space while the online retail industry learned their lessons from the dot com bust. That both businesses are now reduced to making empty threats in the hope of scaring the government into wasting millions on a pointless change to customs regulations is an instructive lesson in itself.

An irony in all of this is that major chains such as Harvey Norman and Myer were part of earlier waves of change which put established retailers out of business. We should give particular thought about those butchers who fell under the market might of Bernie Brookes’ old employer, Woolworths.

Those businesses died because they couldn’t see, or deal with, the rise of the big category killers like Harvey Norman, Officeworks and Bunnings or with the longer term trends like that of shoppers moving from high streets to suburban shopping malls.

The jury is out on how many local retailers ­– both big and small– will go to the wall as online shopping gains acceptance, though it’s probably not a good idea to put a bet on those who sit on the sidelines and whinge that the “gummint orta do summint”.

Do you want to be one of the successes? If so, learn from Vic’s Meats and the other Best of Year award winners and sharpen up what you’re doing both online and in your store.

When all publicity isn’t good publicity

A reputation is more than just a high search engine ranking

Last weekend’s New York Times ran a remarkable expose of US based online entrepreneur Tony Russo’s business methods and how he’s built a business on bad online reviews.

Mr Russo’s model is basically to upset customers, they then complain in online forums which creates more links to his website, something we’re careful not to do here, those links in turn give his sites higher Google rankings.

Crazy stuff, particularly when you read the allegations of his  behaviour in the NY Times article which claims he stalks unhappy customers, calls their mobile phones and even masquerades as the complaining client to reverse credit card disputes.

This is an interesting side effect of gaming search engine rankings and how consumers use sites like Google and Bing. In recent times being in the first dozen listings on these sites has been the holy grail of online marketing with the reasonable assumption that a first page result will win customers.

Up until recently that assumption has been correct as most consumers have grabbed the first sites they have found when searching for a service or product, but now that’s changing as customers are increasingly checking comments, reviews and social media sites like Facebook before deciding to buy a product.

So this news isn’t as good as it looks for the shonky merchant as the market gets savvier. Today’s customers are finding ways to dig a little deeper than just the superficial initial search, and when the purchase is going to cost a few hundred dollars most cost conscious buyers are going to spend the extra ten minutes checking out the seller’s reputation.

As online markets develop, we’re moving away from the high visibility marketing methods of the mass media era to something similar to the word of mouth driven marketplaces of the 18th Century village or town square.

This is particularly true in the hospitality industries where the review sites like Eatability and location based services like Foursquare and Facebook Places are become venues for happy, and unhappy, customers to share their experiences.

Our names as reputable businesspeople are mattering more than ever and not just with customers, but suppliers, staff and creditors as well. We’re returning to the days were a businesses person is only as good as their word and our words will bite us if we can’t be trusted.

We have to get over the idea that all news is good news and that a thousand online friends or mentions are a measure of success, we and our business are now being judged on our quality and value that we deliver. It’s something we need to keep in mind every time a customer contacts us.

Why competition is great for Google

The SEO industry threatened to devalue search. Now things are changing.

We often talk about competition being good for consumers and, ultimately, businesses. The technology industry is a good case study.

Microsoft shows how competition forces a business to raise their game; when they won the browser wars by dispatching Netscape early in the Internet era, they let Internet Explorer stagnate until the Mozilla Firefox, Opera and Apple Safari web browsers came along.

Similarly, they allowed their flagship product Microsoft Office drift once they dominated the productivity software market. The arrival of Google Docs and some other new players forced them to refresh and redesign the Office package.

Today Google find themselves in the same position – Facebook, Microsoft’s Bing and various other search engines are reminding the leader that their position is not safe.

The Business Insider website recently took a critical look at Demand Media’s business model, a service that publishes low quality articles that tend to rank high with the aid of clever Search Engine Optimisation (SEO). As a result of Demand’s high rankings on Google searches these articles tend to attract advertisers.

In a search engine market where Google is the only noteworthy game in town, this situation would suit Google and Demand Media as both would have a nice predictable stream of advertising and neither party would have any great incentive to change things and for a while it appeared that might be the case.

With the arrival of real competition to Google such as Microsoft Bing and Facebook, all things change as now search engine results matter – the whole reason Google beat out competitors was because their search results were better than anyone else’s – if Google’s results aren’t as good then users will switch.

So Google’s been changing their algorithm, the formula they use for searches, in order to improve the results of queries on their system. So much so that my fellow Smartcompany blogger, Chris Thomas, accuses them of Attention Deficit Disorder.

This is good news for Google’s users who now get better quality search results and great news for Google’s advertisers who get better quality pages where potential buyers are likely to stay longer and click more.

Google though is the biggest winner as the better results they deliver, the more profitable and long lasting their core advertising business will be.

For Demand Media, things aren’t so good as there’s no shortage of poorly written tripe on the Internet and if they can’t get Google ranking goodness then their business model dies.

Which may show that in the new economy, bad soap doesn’t necessarily replace good soap.

Anniversary reflections

Windows turns 25 and the web turns 20. Where do we go next?

Last weekend Microsoft Windows turned 25 and the World Wide Web turns 20 next month. It’s worthwhile reflecting on how both have changed our industries and where the future is taking us.

When Windows came along, the vast majority of computer users where not connected to networks, in fact Windows’ few networking features were horrible until the arrival of Windows for Workgroups 3.11 in late 1993.

Even then it didn’t support the Internet, requiring an additional TCP/IP “stack”, the collection of software to make a Windows computer work with the net. The most popular TCP/IP stack was Trumpet Winsock, developed by Tasmanian Peter Tattam.

Microsoft’s disdain for the Internet lasted five years until shortly after the release of Windows 95 where Bill Gates realised bundling the private Microsoft Network (MSN) along with competitors such as Compuserve and America On Line was a strategic mistake.

That realisation and the rapid change executed by Bill Gates will go down as one of the biggest strategic turnarounds in corporate history. It certainly saved Microsoft’s neck although the integration of Internet Explorer into Windows created the massive malware problem that exploded in 2002 and persists to this day.

In turn the net has changed the way we connect with our staff, suppliers and customers. Email alone probably increased the speed of business by a factor of five and now smartphones, tablet computers and mobile broadband are each doing the same.

Looking back at that situation, we can ask ourselves where these technologies are going in the future. A recent presentation by Wall Street investment analyst Mary Meeker points to some of the direction we’ll see this heading.

Her presentation is excellent reading with her predictions of when smartphones will overtake desktop computers and some scary postscripts of the fiscal corner the US has painted itself into. The points can be summarised thus;

  • Globality
  • Mobility
  • Social ecosystems
  • Advertising
  • Commerce
  • Media
  • Company leadership
  • Steve Jobs
  • The ferocious pace of tech change

The last point is the most pertinent. At the time of the launch of Windows and the web innovation was largely a top down, management driven process. Today consumers and employees drive change, leaving corporate managers to catch up.

While Mary Meeker aimed the presentation at Internet executives, the lessons in it are clear for all businesses – our industries are going to be connected, mobile, global and far more responsive to the needs and ideas of our customers, staff and suppliers.

The change and disruption we’ve seen in our supply chains, markets and recruitment is going to become even faster that it’s been in the last twenty years.

It’s worthwhile reading Mary Meekers’ report while reflecting on how Windows and the Internet have changed our workplaces. It shows we’re only at the beginning of this era of massive change.