Paul Wallbank – Brilliant Communications

Category: business advice

  • Why VCs hate Amazon

    Why VCs hate Amazon

    “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.

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  • Common interests

    Common interests

    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.

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  • Consumer surplus?

    Consumer surplus?

    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.

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  • I don’t get it

    I don’t get it

    “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.

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  • Playing with Dragons

    Playing with Dragons

    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.

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