Paul Wallbank – Brilliant Communications

Category: economy

  • Tell ’em they’re dreaming!

    Tell ’em they’re dreaming!

    Yahoo!7’s purchase of Australian group buying service Spreets last week is great news for the Sydney startup’s founders and investors, but these deals aren’t so great for our economy, businesses and innovation.

    The mark of the late 1990s tech bubble was the “renovation rescue” model of building start up businesses. Just like keen property speculators, this model involves an angel or venture capital investor putting in enough money for the founders to do enough – either by growing the business or embarking on a PR campaign – to attract the attention of potential buyers.

    For the business founders that can be a lucrative result, but it often distorts the priorities of a new endeavour as the investors are focused on a quick exit instead of building a durable, long term enterprise.

    This has a bigger effect on markets as incumbents buy out young, smart and innovative new entrants. Good examples of this were the buyouts of successful online shopping services by the major retailers in the early 2000s.

    Once purchased, the large corporations let innovation and fresh thinking in the start up business wither and die as the larger business’ bureaucracy and management hubris subsumes the acquisition. Few acquired businesses avoid this fate.

    Which brings us to the buyer in the Spreets transaction. At the press conference announcing the deal Yahoo!7’s CEO Rohan Lund said “we’re seeing social, mobility e-commerce completely changing the way we use the web at the moment.”

    Rohan’s absolutely right on this – location based services are changing advertising and retail – the problem is Yahoo!7 has no local business capacity and relies on News Limited’s True Local directories.

    Perversely if Yahoo!7 are successful in building up their mobile, location based services it’s actually News Limited that will get most of the benefit.

    A similar situation exists with Cudo, the competing joint venture between PBL and Microsoft, which relies on Sensis’ Yellow Pages.

    That Rupert Murdoch and Telstra stand to gain as much, if not more, from the efforts of Yahoo!7, Microsoft and PBL is an indicator of just how fuzzy the thinking is behind many big business acquisitions.

    A bigger threat to these ventures is Google who last week announced their intention to start up their own group buying service. Given Google already have a local business platform that supports coupons, it’s going to make them a tough competitor.

    Assuming big corporations will dominate this space may be flawed as the group buying business relies on hands on, aggressive sales people feeding a pipeline of interesting and compelling offers to the subscribers. Short the daily deals start becoming boring or perceived poor value, subscribers will ignore the emails and take their shopping elsewhere.

    Strangely of all the Australian big businesses in this space Sensis, with their Yellow Pages sales network, and News Limited, through their media selling and classifieds networks, should have the capacity to launch successful competitors.

    Despite Sensis launching their own group buying service it’s hard to think that either Yellow Pages or True Local can succeed in this space. Similarly with Google, the “hands-off” web 2.0 way of doing business simply won’t work in a market that requires a motivated sales team to drive the product.

    Recognising that lack of selling expertise probably drove Google to offer 6 billion dollars to buy the group buying innovator Groupon last year. An offer which Groupon rejected.

    Google’s track record on successfully integrating acquisitions outside of online advertising has been poor and is probably one of the reasons Groupon CEO and founder Andrew Mason rejected the offer.

    Andrew Mason, like Mark Zuckerberg at Facebook and Geoff Bezos at Amazon, rejected the VC ‘renovation rescue’ model and while it’s early days yet for Groupon, there’s many indications they’ll be able to build a game changing, innovative business just like Amazon and Facebook.

    While we should congratulate those like Spreets who do manage a big buyout, we should keep in mind those stories are the exceptions and don’t represent the experience of most business founders.

    New businesses really change our society is when they challenge the incumbents and build new industries. We should keep that in mind.

    Similar posts:

    • No Related Posts
  • The Rumsfeldian business plan

    The Rumsfeldian business plan

    There are known knowns; there are things we know we know.
    We also know there are known unknowns; that is to say we know there are some things we do not know.
    But there are also unknown unknowns – the ones we don’t know we don’t know.

    – Former US Defense Secretary Donald Rumsfeld

    For business owners, the “unknown unknown” is always lurking – the risk of being caught by something we couldn’t see coming is one of the reasons investors and business owners accept higher returns than putting their money on deposit with a bank or taking a safe clerical job at the same financial institution.

    Being able to respond quickly to the unexpected is an important factor in a business’ survival and that flexibility is what gives the small, lean enterprise the advantage over big corporations that can’t move rapidly in the face of change.

    One of those “unknown unknowns” are changes to the market, the story Groupon is a great example where the owners of an older failing business decided the “group buying” model was a market worth trying.

    This is what we should understand when writing a business plan, that there are “known knowns” such as rent, “known unknowns” such as customer demand and “unknown unknowns” such as market changes, recessions and natural disasters.

    “Known unknowns” are always an interesting group as we tend to assume when doing the sums on a new business idea that there is a level of demand and all costs are immediately identified. Often, once we’ve set the business up we find that we’ve miscalculated our costs and sales, sometimes happily and often not.

    This is why it’s not worth spending too much time diving into detail on a business plan as all of us almost certainly will get the numbers wrong due to the “unknowns” in the equation.

    Those “unkowns” often bite us in other ways as well in that what we think we know turns out to be an “unknown”, often we overestimate our own abilities which turns what should be a manageable “known unknown” into a high risk “unknown unknown”.

    When choosing a business partner, it’s worthwhile noting what they know about themselves – if your future business partner doesn’t know they are knucklehead at marketing or accounting while being a star salesman or programmer, then all your trying to convince them that you should hire in a marketer or accountant and let them focus on their strengths will fall on deaf ears and your partnership is probably doomed unless your strength is being a diplomat.

    Having an idea of what is unknown is a great strength in business, it allows you to properly evaluate risk and be flexible in face of the unexpected. Of course, knowing the “unknown unknowns” such as sports results and share movements is the whole reason match fixing and insider trading is so lucrative.

    Risk, and the reward for taking it, is the basis on which a capitalist economy is built. We shouldn’t be afraid of the unknown but acknowledge the unknowns are out there, identify those unknowns we can see and have the skills, flexibility and financial reserve to deal with those we can’t.

    Dealing with the unknowns is what really marks the successful business.

    Similar posts:

    • No Related Posts
  • The global online sales battle

    The global online sales battle

    Gerry Harvey’s and Bernie Brooke’s Fair Go for Retailers campaign drawing attention to the GST treatment of online overseas purchases is part of broader battle being fought around the world between multinational corporations, governments and small business. How it is resolved is going to affect all of us.

    Last week, while Australians were focused on their major retailers campaigning for changes to GST rules, Internet retailer Amazon wrote to its Illinois affiliates warning that should the state legislature pass a law imposing sales tax on Internet purchases, the company would cut off their partners in that state, just as they already have in Colorado.

    The actions of the Colorado state government, the Illinois proposal and Amazon’s ruthless response are just the latest phase in a longer term struggle between borderless online retailers and those governments, and businesses, limited by their physical locations.

    What’s making this particularly acute in the United States is state governments are struggling to balance their budgets and sales tax is the one of the few avenues they have to raise revenues in an economy where incomes and property markets continue to stagnate, if not fall outright.

    That balancing act isn’t just confined to the US, the UK government has increased VAT rates from the beginning of the year for the same reason and is facing discontent over increasing tax burdens, particularly on fuel prices.

    For the moment the UK government and customs authorities seem to be fairly relaxed about the leakage of VAT income that has seen some British supermarket chains shipping online orders from their Channel Islands branches to avoid local taxes in the way Gerry Harvey and Bernie Brookes proposed last December when the floated the proposal to move their online stores offshore.

    The British public hasn’t shared their government’s sanguine response with organisations like UK Uncut blockading stores accused of dodging taxes or owned by alleged tax avoiders.

    Governments aren’t the only ones affected, while in Australian it’s the retailers who are publicly worried about their loss of sales at present, other sectors, particularly those providing business to business services, are even more at risk.

    Last month The Economist described how US law firms are seeing high margin but relatively low skilled work moving offshore to India and it’s likely those contractors are offering similar services to Australian law firms and corporate clients.

    Online bidding sites such as Freelancer.com, O-desk and 99 Designs are offering almost every business support service imaginable, from virtual offices to logo design. Anyone competing locally against foreign contractors on those sites starts from exactly the same GST disadvantage as Harvey Norman, Myer and the local shoeshop.

    The power of international retailers and service providers like Google and Amazon to avoid taxes and deliver lowest cost products to customers are challenges to both businesses and governments.

    Julia Gillard’s and Bill Shorten’s almost condescending responses to the retailers shows the politicians are somewhat more in tune with the public mood than the retailers. But we can be sure that should the porridge in Australia’s Goldilocks economy start going cold, then Treasury will start looking for those lost GST dollars.

    While we can criticise Gerry Harvey, Bernie Brookes and the others behind the “Fair Go for Retailers” campaign for being out of touch and failing to respond to obvious threats to their markets, most businesspeople – and politicians – shouldn’t think for a moment they are immune from the same forces the retailers are complaining about.

    Few of us, whether we run businesses or not, will be untouched by these forces realigning the global economy. We all need to understand what these changes mean to our livelihoods and investments, lest we get caught out like Australia’s big retailers.

    Similar posts:

    • No Related Posts
  • Business tech 2010

    Business tech 2010

    2010 was always going to be an interesting year as the tech and business worlds came to grips with the economic shocks of 2008 and 2009 and the big tech companies like Apple, Google and Microsoft made their moves to meet various challenges and changes in their marketplaces.

    Microsoft’s release of Windows 7 late in 2009 and the release of the new Windows Phone operating system made us think 2010 would be the year of Windows, but if anything 2010 will be most remembered as the year of the iPad.

    The iPad
    At the end of 2010 it’s difficult to think that the iPad isn’t even ten months old such has been the way Apple has captured the tablet computer market. For a decade, the corporate market had been gagging for a decent tablet system but had been continually let down by poorly designed Windows based models. The iPad delivered what the market wanted and the second version, expected in March 2011, will probably cement Apple as the leader in this segment.

    Cloud computing

    The iPad’s success was partly due to the plethora of cloud based applications available for the device. Being able to store your data or run your software on a remote server that can be accessed from anywhere made portable devices like the iPad and smartphone killer business tools. While the underlying principles under cloud computing are nothing new in the IT world, cloud products really started to take off in the business and consumer world.

    Wikileaks
    The fundamental flaws in the cloud and how the Internet works were exposed by the visceral reaction to Wikileaks’ release of the US State Department Cables. Wikileaks’ release of the Climategate emails, Iraq war tapes and finally the State Department Cables forced us to look at security, the ease of setting up websites and how dependent we are on the arbitrary whims of the privately owned corporations who own great chunks of the Internet.

    Investment mania
    As Helicopter Ben and his counterparts in Europe and China printed money to avoid deflation and to save big to fail banks from failing, hot money started to slosh out of the bank vaults and into the venture capital market with a mini dot com 2.0 boom beginning to appear. This was illustrated best by the group buying mania, best illustrated by Amazon’s $175 million investment in Living Social and Google’s rejected offer to buy Groupon for $6 billion.

    Plagiarism
    An entertaining side issue was the Cook’s Source plagiarism scandal which showed how much content is being stolen on the net, the attitude of many who do copy and paste other people’s work and how the Internet can quickly mobilise angry mobs.

    Crowdsourcing
    Probably the biggest buzzword of 2010 was crowdsourcing, the technique of getting those Internet mobs onto solving your business problems. While there’s still some confusion on the difference between outsourcing, crowdsourcing and running dodgy pitch competitions – which raise even more interesting questions about plagiarism, IP protection and business ethics –we’re seeing the hype die down and the real business models start to evolve.

    The march of Facebook
    With the passing of the 500 million user mark, Facebook showed it was a market force to be reckoned with. The launch of Facebook Places in August seeks to extend their network strengths into the local search business, making them an even greater threat to Google and smaller startups like Foursquare.

    Politics meets technology
    Something no-one would have expected is how the National Broadband Network became the defining issue of the 2010 Federal election. The fact it did probably speaks more for the policy vacuum on every other issue the two parties presented to the electorate. In many ways it’s a shame the discussion of how we should build such important infrastructure became bogged down in cheap partisan politics on both sides and it illustrates the hollow “Restaurant At The End Of The Universe” mentality that is the feature of modern Australian politics.

    As 2010 draws to a close, a reflection on the year would see it’s been the year of connectivity. Businesses, particularly those in the retail and media sectors are beginning to figure out what drives the online economy and how it can be profitable for them.

    2011 will be the year we start to see more businesses experimenting with iPads, Groupon, Facebook and other devices or services that help them connect with their markets and communities. it’s going to be an exciting year and we’ll have a look at what’s in store for January’s first column.

    Similar posts:

    • No Related Posts
  • Deskilling a society

    Deskilling a society

    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?

    Similar posts:

    • No Related Posts