Paul Wallbank – Brilliant Communications

Category: future

  • Is small business too pessimistic?

    Is small business too pessimistic?

    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.

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  • Hubris and risk

    Hubris and risk

    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.

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  • Bubble economics

    Bubble economics

    You know you’re in an investment bubble when the pundits declare “we’re not in a bubble”.

    A good example of this is Andy Baio’s defence of Facebook’s billion dollar purchase of Instagram.

    Justifying the price, Andy compares the Facebook purchase with a number of notorious Silicon Valley buyouts using two metrics; cost per employee and cost per user.

    Which proves the old saw of “lies, damn lies and statistics”.

    The use of esoteric and barely relevant statistics is one of the characteristics of a bubble; all of a sudden the old metrics don’t apply and, because of the never ending blue sky ahead, valuations can only go up.

    Andy’s statistics are good example of this and ignore the three things that really matter when a business is bought.

    Current earnings

    The simplest test of a business’ viability is how much money is it making? For the vast majority of businesses bought and sold in the world economy, this is the measure.

    Whether you’re buying a local newsagency outright or shares in a multinational manufacturer, this is the simplest and most effective measure of a sensible investment.

    Future earnings

    More complex, but more important, are the prospects of future earnings. That local newsagency or multinational manufacturer might look like a good investment on today’s figures, but it may be in a declining market.

    Similarly a business incurring losses at the moment may be profitable under better management. This was the basis of the buyout boom of the 1980s and much of the 1990s.

    Most profitable of all is buying into a high growth business, if you can find the next Google or Apple you can retire to the coast. The hope of finding these is what drives much of the current venture capital gold rush.

    Strategic reasons

    For corporations, there may be good strategic reasons for buying out a business that on paper doesn’t appear to be a good investment.

    There’s a whole host of reasons why an organisation would do that, one variation of the Silicon Valley business model is to buy in talented developers who are running their own startups. Google and Facebook have made many acquisitions of small software development companies for that reason.

    Fear Of Missing Out

    In the Silicon Valley model, the biggest strategic reason for paying over the odds for a business is FOMO – Fear Of Missing Out.

    To be fair to the valley, this is true in any bubble – whether it’s for Dutch tulips in the 17th Century or Florida property in the 20th. If you don’t buy now, you’ll miss out on big profits.

    When we look at Andy Baio’s charts in Wired, this is what leaps out. Most of the purchases were driven by managements’ fear they were going to miss The Next Big Thing.

    The most notorious of all in Andy’s chart is News Corp’s 580 million dollar purchase of MySpace, although there were good strategic reasons for the transaction which Rupert Murdoch’s management team were unable to realise.

    eBay’s $2.6 billion acquisition of Skype is probably the best example of Fear Of Missing Out, particularly given they sold it back to the original founders who promptly flicked it to Microsoft. eBay redeems itself though with the strategic purchase of PayPal.

    Probably the worst track record goes to Yahoo! who have six of the thirty purchases listed on Andy’s list and not one of them has delivered for Yahoo!’s long suffering shareholders.

    The term “greater fools” probably doesn’t come close to describe Yahoo!’s management over the last decade or so.

    While Andy Baio’s article seeks to disprove the idea of a Silicon Valley bubble, what he shows is the bubble is alive, big and growing.

    One of the exciting things about bubbles is they have a habit of growing bigger than most rational outsiders expect before they burst spectacularly.

    We live in exciting times.

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  • Risks and opportunities in crowdsourcing

    Risks and opportunities in crowdsourcing

    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.

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  • We come here to work

    We come here to work

    “We come here to work and not to play” is the quote from a Chinese production line worker in Reuter’s article on Foxconn factory workers.

    That quote could have come from a hundred years ago in Western societies as young workers fled agricultural communities to make better money and find greater opportunities in the factories and cities of North America, Europe and Australia.

    In their report on Chinese labour conditions commissioned by Apple and its supplier Foxconn, the US Fair Labor Association confirmed the quotes from the Reuters article.

    48% thought that their working hours were reasonable, and another 33.8% stated that they would like to work more hours and make more money.

    These workers have an average 56 hour working week and over a third are putting in 70 hours each week.

    Like our great grandparents they are focused on bettering themselves and deeply conservative; they know their immediate livelihoods and future prospects depend upon the work they can get.

    They also understand the government owes them nothing and their expectations on what the authorities will do for them are low.

    It often said the Communist Party of China is the most effective capitalistic organisation on the planet today. In reality it’s the workers on the assembly lines who personify what we know as the free market.

    As the leaders of Western nations continue to indulge in corporate and middle class welfare while believing in magic pudding economics where massive mis allocations of resources have no cost and tax cuts pay for themselves, it might be worthwhile thinking of the businesses those 23 year old factory workers in Shenzhen or Chengdu might be running in thirty years.

    Just as our great-grandparents built modern economies and industrial empires out of their hard work, which most of us still reap the benefit from, those young Chinese workers are doing the same thing.

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