I was asked last week to join Stilgherrian and Jeff Waugh on ZDNet’s Patch Monday reviewing the year that was in technology. One of the things that came out of the session was much of what happened in the tech world over the last year was really a continuation of 2010′s trends.

That’s certainly true and the biggest buzzword in business tech for the last two years has been “the cloud”.

Over the last year we’ve seen a lot more providers getting on the cloud bandwagon with Microsoft responding to the Google Docs threat with their Office 365 product, MYOB launching Live Accounts, to respond to threats like Xero Accounting Software and Saasu and a whole range of vendors proclaiming they are ditching the desktop and moving onto the web.

Despite the hype businesses are slow to respond as they evaluate the various risks with moving to web-based services. Partly this is due to suspicion of the more outrageous claims such as “saving 80% of your costs by going onto the cloud” that have been peddled by some vendors.

A lot of that suspicion is fair enough, too. Many business owners – along with CEOs and government ministers – have been burned over the years by IT salespeople claiming big savings available if the gadget or software of the day is purchased.

Unlike corporate leaders and government minsters, the managers and owners of smaller businesses tend to learn from their mistakes and so they are waiting to see if the cloud services really deliver.

Eventually businesses will move a lot of their computing applications to the cloud as the cost-benefit equation is better for most services than running it in your own office as it eliminates the overheads of buying computer hardware and hiring some geeks to look after the things.

Given the real advantages of cloud services – not just in terms of cost savings but also in business flexibility, productivity, security and reliability – it’s worthwhile using the quiet January period to have a look at where your organisation can benefit from moving online.

Some of the other buzzwords like social media, collaboration and site optimisation are worth having a look at too. The holidays are an opportunity to see where these can be used better in your business.

One thing is for sure – next year you’ll be hearing more about cloud computing as vendors are gearing up for some big marketing campaigns next year. So knowing what you want for your business may well pay dividends.

In light of recent corporate security breaches such as Sony’s and Telstra’s this is understandable which creates a real barrier for the adoption of cloud computing services.

For cloud computing to be taken seriously, customers have to be certain their data and applications will be respected and protected.

The corporate sector’s failure to hold senior management responsible these problems shows how big businesses largely aren’t taking user privacy or security seriously.

This is a great opportunity for new businesses, we’ve already seen Amazon become the biggest host for cloud services over storage and Internet incumbents who five years ago would have dismissed Jeff Bezo’s company as a glorified book stand.

For newer companies offering cloud services it’s a chance to build a culture where customer service, privacy and respect comes before management bonuses and perks. Where delivering what you promise is more than waving a vague Service Level Agreement (SLA) document under customer’s noses.

As customers, big and small businesses have much to gain from cloud computing‘s productivity, collaboration and cost saving aspects but trust that data will be protected and the service will be available is essential.

Before choosing a cloud service have a search of the web and popular forums to check what people are saying about the product.

Don’t rely on fancy marketing, or assume that a big company will be better at protecting your data. The evidence is clear that smaller, newer companies are doing a better job at protecting data and ensuring business continuity than many of their bigger competitors.

Over time, customers are going to get used to trusting cloud service providers and the businesses who’ll succeed in the online applications world are those who’ve been shown to be trustworthy.

This is one way the web is changing the way we do business.

One of the problems the project has is the inability of NBNCo, the company established to build and run the network, to articulate the benefits and scope of the project.

Last Friday night “John from Condobolin” grilled the Gadget Guy, Peter Blasina, about the project. John’s questions, and Pete’s answers, which can be found at 35 minutes into his program, illustrates the confusion the surrounds NBN and the failure of the project’s supporters to explain the benefits.

So how should proponents of the National Broadband Network – people like me who believe that high speed broadband are the freeways and railways of the 21^st Century – respond to questions. Let’s answer John’s questions from last Friday.

Lightning might affect fibre networks

John’s first question was about lightning affecting the NBN, commenting when Pete confirmed electrical storms would affect the network that “it’s no better than the existing service.”

Sadly all infrastructure is affected by weather – a freeway is just as affected by fog as a dirt road, perhaps even more so, but it doesn’t mean you don’t build a highway because of that. The same applies for the NBN.

Interestingly the wireless and satellite alternatives proposed to fibre optic cable are even more susceptible to electrical storms, which perversely makes a better argument for running a fibre optic network.

I don’t need any NBN

“I have got quite good reception in Condobolin and I don’t need any NBN, I can assure you” was John’s next big statement.

That’s nice for John that he’s happy with what he has – the rest of us should be so lucky.

For many of his neighbours and those in the surrounding district, particularly those dealing with remote suppliers and overseas markets, reliable and fast communications are essential.

Now is good enough

A farmer doesn’t need broadband for selling into America, he’s able to do that today, was the crux of John’s next comment after he and Pete had an exchange about rolling broadband out to remote locations.

It’s true that farmers can do a lot with today’s satellite and ADSL connections, then again they were able to ship exports in the days of bullock carts and sailing ships. We could extend that argument against railway lines, roads, containers and bulk carriers.

Once upon a time some guy argued against the wheel. Today’s technology has been good enough has always been the argument of those who don’t see the benefits of new tools; we’re talking about tomorrow’s markets and society, not today’s.

Broadband is all about fibre

“You’re talking about satellite dishes and things like that, not NBN.”

The National Broadband Network isn’t just about fibre; fibre optic cables makes up the network’s core and bulk of connections, but wireless and satellite are essential in order to make sure the entire nation has access to the network.

Unfortunately the nonsense argument that technology improvements in wireless will render fibre optics redundant has been allowed to take hold by self-interested politicians and sections of the media pushing a narrow agenda.

Wireless, satellite, fibre optic and other cable technologies are all part of the mix, the real argument is on the proportions of that combination and the consequences to the government’s budget.

Spotting the clueless

As an aside, the cable versus wireless argument is a good yardstick for measuring the knowledge of anyone joining the NBN debate.

Someone clueless arguing against the project says investment in fibre optic cable is unnecessary as it’s speed and data capacities will be one day superseded by those of Wireless networks.

This betrays a failure to grasp the inherent advantage of having a dedicated cable connection to your property as opposed to sharing a wireless base station with hundreds, if not thousands, of others.

Equally anyone pro-NBN who says that fibre is faster because it travels at the speed of light is equally clueless as wireless, copper wire and even smoke signals also travel at – or close to – the speed of light.

Games and videos

“Is this only to watch videos and DVDs?” was John’s last question.

Well, does Condobolin have a video store? A quick Google search shows it does, along with local and satellite TV stations. So the residents of Condobolin are just keen as the rest of us to watch the tube.

Increasingly our viewing habits are moving online and fast broadband is necessary to deliver that. John may be happy to exclude his town from being able to do that, but my guess is plenty of his neighbours would like to have that option.

What’s more, many of those farmers, processors, trucking companies and other service providers in the Condobolin region will need those video facilities for tele-conferencing with suppliers, customers and training companies.

Building for the future

Video conferencing isn’t the only application for what we consider today to be high speed networks, these are going to change society and business in the same way the motor car changed us in the 20^th Century and railways and telegraph in the 19^th.

Australia made a mess of the railways and the roads, in both areas we’re still playing catch up. The National Broadband Network is an opportunity to avoid the mistakes of the last hundred years and get the 21^st Century right.

Unfortunately, the objectives of building a better nation are being lost in a fog of disinformation, political opportunism and corporate incompetence. We can do better than this.

Free money from the government sounds good and, as we’ve seen in the various Quantative Erasings and bank bail outs around the world, it sometimes is free.

Rarely though is cash really “free”, usually there’s strings attached and government money is no different.

First we should understand why governments make grants, subsidies and loans available to businesses.

Governments have various objectives with their programs; they could be to get unemployed workers back in the workforce, to improve skill levels or to encourage exports. Whatever the motives are, they have clear criteria for giving money away.

One area they don’t give funds for is to “Get an advantage over your competitors” as that website. That’s clearly not the role for governments and they’d be rightly criticised for doing so.

Contrary to what some media outlets portray, most public servants take their responsibilities seriously and don’t give out taxpayers’ money unless the application clearly meets their programs’ objectives.

Meeting the objectives is important, because the public servants – and their political masters – are held accountable so they will make sure the business receiving the grant or subsidy has actually done what they have promised to do.

This is where things get tricky for business owners and managers who have received government money. Completing the paperwork to prove you’ve met the objectives will be time consuming.

Often it would have been more cost effective to drive a cab rather than spend hours filling in government paperwork.

There really is no such thing as free money, there’s always a cost. While sometimes there are good reasons for applying for a government program, free money should never be your objective.

It’s also worth keeping in mind that services offering to find government money for you will usually take a cut of the grant as commission. Also, they won’t help you do the follow up paperwork, that’s your expensive problem.

Right now the Personal Computer market can be roughly split into two camps; those happily running Windows XP who have no need to upgrade and those who are delighted with Windows 7 who have no need to upgrade.

Short of their computers breaking down, neither group have any good reasons to change to the new operating system as, unlike Windows 3.1, 95 or XP, there is no new technology breakthrough or advance to warrant making the jump.

To make things worse for the PC manufacturers the rise of cloud computing services extends the life of older Windows XP systems and eliminates the biggest driver of new computer purchases in businesses – the software upgrade.

During the PC era one of the banes of business owners were enforced software upgrades where vendors would release a new version of a program every year or two and withdraw support for the older editions.

Frequently the newer software would require the latest hardware, forcing the business into an expensive and disruptive upgrade of all their IT systems.

Today, software companies following the forced upgrade model are finding customers have viable cloud alternatives which destroys the revenue stream behind those frequent releases.

When a customer moves to a cloud service, they also delay buying new desktop or server hardware which is partly driving the steady increase in the age of business computers.

For computer manufacturers the release of Windows 8 could actually be bad news as customers will probably postpone system upgrades until the first service pack of the new operating system is released.

Even if Windows 8 does deliver increased sales as JT Wang hopes, the trend of steadily falling PC prices as smartphones and tablet computers take market share is inevitable.

The PC industry in both laptops and desktops has been a commodity industry for some years and any hope of establishing premium pricing from tablet computers has been dashed by the iPad’s competitive price points.

Regardless of the hopes of the IT industry’s leaders, both the hardware and software sectors are under a lot of stress. It will be interesting to see who adapts to today’s market.

The real question though is “how much capital do you need?” Being undercapitalised will often stunt a venture’s growth and is probably the reason why many otherwise excellent business ideas fail to achieve their potential.

How much money do you need?

While business plans are often disparaged, one of the great advantages of doing one is the budding entrepreneur gets an idea of the capital required along with the cash flow required to service any debts. Even if the business plan itself is filed away and never looked at again, understanding the upfront cash requirements can help avoid some nasty mistakes.

The other key factor is the business itself, if you’re buying a fast food franchise, setting up a store or fitting out a restaurant then there’s going to be some big upfront capital costs involved before you start trading but there is more to it than just the immediate cash needs.

What is the type of business?

A business’ capital needs are going to vary with the type of business and the objectives of the owners, not just in size but also in type. As business writer and educator Steve Blank says, there are six types of startups and for certain types an equity investment from say an angle investor or venture capital company will be more appropriate than a bank loan.

For small businesses, the type that Steve Blank describes as “work to feed the family” businesses, a bank loan that can be paid back out of cashflow is going to be the most obvious way to fund an enterprise while it would be rare a venture capital investor would even answer a phone call from such a business.

On the other hand, a family member or friend might be interested in taking equity in such a business, the old “families, friends and fools” is a time honoured way of setting up a venture.

Government grants

In these times of rampant corporate welfare for big banks and major corporations, it’s tempting to think the government may be able to help the small businessperson. Sadly most of the grants available are small sums for specific purposes like export programs or hiring trainees, they aren’t designed or intended to provide entrepreneurial capital.

Bootstrapping and “sweat capital”

Most businesses though are best served by “bootstrapping” and “sweat capital” for most, particularly in the service sectors, funding your business out of cashflow and the hard work of the founders is the way to grow a viable enterprise.

The term “sweat capital” refers to the founders working hard and capitalising their businesses from the sweat of their brows while  scrimping and saving every penny. Most founders of successful businesses have stories of spending years expending that “sweat capital” while living on cheap pizzas or packet noodles.

Bootstrapping, funding your business through sales, is the other great capital source. In many ways, this is the best form of capital in that it proves a business is viable and doesn’t involve signing over assets to banks or giving equity away to investment partners. Again a well thought out business plan quickly shows whether this is feasible.

So the question of capital is complex, but having enough is always the biggest struggle for those starting a business.

Of course it is possible to have too much capital and we might talk about that in another blog post.

AirBnB, an online home share service, is one of the darlings of the booming Silicon Valley start up sector, having recently being valued at $1.2 billion after a successful capital raising.

Like most Web 2.0 and social media businesses, AirBnB’s advantage is in the low operating costs where customer support is left to the service’s peer review and social media communities while AirBnB pockets a commission for simply making the connection between the landlord and tenant.

The flaws in this “all care, no responsibility” model became apparent last month when a lady posted a description of her house being ransacked by an errant housesitter she found through AirBnB.

AirBnB’s management responded to the article with assurances they were helping and working with their affected customer, claims which were promptly contradicted by the original victim.

To make matters worse, certain prominent members of the Silicon Valley investment and blogging communities alluded she was lying or was “batshit crazy.” Now that other stories of bad AirBnB tenants are appearing, the view this is simply the untrustworthy word of a deranged customer affected by their first such incident is looking hollow.

Failing to deal with customer problems is not unique to AirBnB, jiding behind impenetrable layers of “support” backed up by user hostile terms and conditions is familiar to anyone who has had to deal with an online service gone wrong.

Last month Thomas Monopoly found he was locked out of his Google account and had it not been for the intervention of a senior Google employee, Thomas’ problem would probably still be stuck in an endless feedback loop.

Exactly the same problem has been encountered thousands of times by other users of web mail, social media, online auction and matchmaking sites.

Many of the people running these services retort their products are free so users get the support the support they pay for – an argument conveniently overlooking that most “free” web services are based around selling customer data – but even this does not justify delivering the basic services users have been lead to expect, regardless of what a 5,000 word user agreement states.

Today’s tech startups, and many of their big established cousins in the IT industry, have the idea that customer support is an optional extra and an expense to minimised or outsourced.

In this respect they are not too far removed from dinosaur car manufacturers or some of today’s less dynamic retailers offering little in the way of customer service or after sales support.

That way of working has died as consumers have been able to go online to vent their dissatisfaction, strangely today’s hot tech start ups seem to have missed this aspect of the revolution they have helped start.

Ignoring consumer problems is exactly what’s bringing traditional businesses unstuck in the online world. The funny thing is it might bring many of the online business undone as well.

Eventually though the newer technology takes over and the older one falls away quickly, leaving slow to change incumbents with an irrelevant business model.

Illustrating this, two fascinating posts by Michael DeGusta on his blog The Understatement tracks two major trends in the US newspaper and record industries, noting how the sectors are now at 1960 and below 1973 levels respectively.

The record industry

Michael’s tracking of per capita recording sales is striking both for how technology, trends and musical tastes have shaped the record industry along with the predicament it now finds itself in.

The 1970s show how the recording industry adapted, we see sales start the decade in decline until a sharp uptick in vinyl sales happens in the late 1970s, probably driven by the heavily hyped “rock opera” and concept albums foisted on us by the likes of Pink Floyd and the Electric Light Orchestra.

It’s interesting that during this period cassette sales largely flat lined, as digital revenues have today. As a child of that late 1970s era, we used cassette recorders – mine won in competition at a jeans shop in outer suburban Melbourne – to tape stuff off the radio and jerryrig with record players so we could create mashups of Alice Cooper and Skyhooks.

Cassette revenues eventually grew, but the the Compact Disk quickly took the growth off the cassette tape and drove the record industry to new highs, probably as people replaced their vinyl collections with CDs that weren’t easily copied through the 1980s and much of the 90s.

The peak of CD sales was hit in the late 1990s, which is almost certainly due to the arrival of personal computers equipped with recordable CD units. All of a sudden, we could go back to copying the music we’d already bought.

To make things worse, the rise of the World Wide Web meant we suddenly didn’t have to go through the gatekeepers – the record stores, radio stations and magazines – to find the music we wanted.

For a while the record industry fought back, even seeing a minor resurgence in 1999 and 2000, but then the rot sets in. The tipping point was clearly in 2001 and can probably be traced to the online streaming services, including YouTube, and the rapidly maturing peer-to-peer services.

The only solace the record industry in its current form can hope for is to see a surge in digital sales like they saw with cassettes in the mid-1980s. It’s difficult to see how that can happen unless they can quickly strike some very favourable deals with Apple and other online distributors.

Newspaper advertising

Print media’s performance over the last fifty years has been one of success until 5 years ago. Despite most of us turning from newspapers to broadcast television for our news through the 1960s and 70s, revenues stood up.

From the 1980′s there was a slow decline and in a few years early in the new millennium it even looked like the Internet wasn’t affecting revenues and the new streams from online advertising were actually increasing overall income.

Then in 2005, the tipping point was reached as classified advertisers, particularly employment and real estate, fled to online competitors with the display buyers not far behind.

For newspaper publishers, that their online revenues have barely grown in the last five years most be the most worrying aspect of the collapse in their income. Their online strategies simply aren’t working.

What this means for other industries

This “tipping point” pattern is typical when we see technological shifts. For various reasons – customer inertia, government regulations, uneven distribution of the new tools – a game changing technology usually takes time to be adopted and usually goes through a process best described by the Gartner Hype Cycle.

New technologies and ideas rarely change industries or societies overnight, but once a technology reaches maturity and mass acceptance, the barrier eventually gives gives and people quickly move across to the new way of doing things.

We see this in the record industry – particularly in the switch to cassettes, CDs and then collapse as the net takes over – then again in the newspaper industry.

These two industries though are just examples, the same process is happening to many others. One good example is the phone directory business where the tipping point is happening right now as consumers and businesses move online and away from printed directories.

That many businesses still haven’t figured out this change in consumer behaviour indicates they too are being blind sided by tipping points that could leave their ventures stranded by history.

All of us have to understand how these changes will affect our livelihoods and trades. Are you looking at how your business is affected by the rise of the net and the end of the cheap credit?

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.

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.