business | Paul Wallbank - Communications Professional

Crowdfunding future businesses

The SECs rules on crowdfunding are welcome, but more needs to be done to spark investment in the businesses of the future.

Three years after the Jobs Act was signed into law by President Obama, the US Securities and Investment commission has proposed the rules for crowdfunding business capital.

Behind the Jobs Act was the idea that new ways of funding businesses are needed in an era when banks, thanks to the flawed Basel Accords, have stepped away from what could be argued is one of the key functions of a financial systems – funding the wheels of commerce.

So the new regulations are needed and the idea that funding can be raised quickly from crowds of supporters is one that ties well with the current ideas of crowdfunding products.

Crowdfunding a business, particularly where equity is involved, is a very different matter than asking supporters for a few hundred dollars to manufacture a smartwatch, produce a music album or write a book. Modern securities law is based upon three centuries of charlatans defrauding investors.

The SEC’s caution is clear in the guidelines that restrict crowdfunding to a small group of businesses seeking funding through Federally approved services and drastically limit the amounts that can be raised.

A company can raise a total of $1 million through crowdfunding in a 12-month period
In any 12-month period, individual cannot stake more than $100,000.
Individuals earning less than $100,00o per year can invest either $2,000 or 5% of their annual income.
People with greater than $100,0000 can stake 10 percent of the lesser of their annual income or net worth

For companies the eligibility for crowdfunding even tighter with the following prohibited;

non-U.S. companies
securities trading companies registered under the Exchange Act
certain investment companies
companies the SEC has disqualified
companies that have failed to comply submit annual reporting requirements
companies that have no specific business plan
Companies that have indicated that their business plan is to engage in a merger or acquisition with an unidentified company or companies.

That latter provision presents a problem for the tech startup based upon the current Silicon Valley ‘greater fool’ business plan however luckily for them, crowdfunding equity won’t be countered for companies worth under $25 million for other securities reporting requirements.

What will be interesting is how savvy startup founders can use these rules – perhaps use this system to create a company structure and then use product specific crowdfunding projects to raise working capital.

Just like project based crowdfunding, it’s likely these schemes will be used as a market test to measure community interest in a business. This may well also be a way to attract investors hungry for hot new startups to invest it.

What is likely though is the current insider driven model of startup funding will remain. While there’ll be many worthy businesses seeking capital through crowdfunding, we can be sure the bulk of startup money will come through the insular world of VCs and tech investors.

The main criticism though of these proposals are the low limits. This will make crowdfunding unworkable for all but the earliest and smallest of new ventures. The money will be handy for those who qualify, but more needs to be done to spark investment in the businesses of the future.

Killing the business of complexity

A simpler business environment means lower margins. If you profit from complexity you have a problem

“The cardinal sin of the computing industry is the creation of complexity,” is quote attributed to Oracle founder Larry Ellison and often repeated at the company’s Open World forum which I’m attending at the moment in San Francisco.

For the computer industry that complexity has been a very profitable profitable business with everything from the local computer shop through to the big technology vendors and integrators.

One of the biggest beneficiaries of that complexity were the salespeople, big complex enterprise deals meant big commissions.

With the shift to cloud services and apps, those fat margins and commissions have evaporated, leaving the lucrative old models of business stranded. IBM are probably the greatest victim of this while Microsoft are, once again, showing the company’s ability to evolve in the face of a fundamental market change.

For the salespeople the days of fat commissions are over, with thinner margins it’s not possible to pay big lump sums for winning contracts.

The simplification of the computer industry is changing the fortunes of many IT businesses, but that change isn’t limited to the tech sector or their salespeople as those fundamental changes are rippling into other sectors.

A constant claim by Internet of Things evangelists is that the IoT will squeeze inefficiencies out of businesses and this is exactly what we’re seeing with cloud and mobile based services like Uber and AirBnB.

If you’re in a business that profits from market inefficiencies then it might be time to figure out how to survive in a low margin environment. The challenge facing companies like Oracle is one whole industries are now having to face.

Rethinking business IT

How is business being reinvented in a world of cloud computing.

Last week at the AWS:Reinvent conference in Las Vegas, I had the opportunity to interview the company’s Global Head of Enterprise Strategy, Stephen Orban about where he and Amazon see the direction of the cloud computing market and how business practices are being reinvented.

Among the things we discussed was Orban’s seven best practices for a company’s journey to the cloud, gleaned from his own experiences in his AWS role of advising clients on adopting and his previous experiences as a technology officer at Dow Jones and Bloomberg.

Orban laid out what he thinks are the keys to success in a company heading to the cloud in his own blog post and during our conversation he expanded on his ideas which also very much reflect the changing role of the CIO or IT manager.

Supporting the C-suite

The first point is the IT department has to understand the business and align technology with the organisation’s objectives.

“Somebody who understands technology who can merge technology with the business needs” will be better able to win the confidence of management says Orban.

Doing that is the key to winning support from the executive suite Orban believes. Once CIOs have that trust from senior management it gives their teams the space to experiment with new ways of delivering value to their companies.

Education

“The second thing is to provide training and education,” Orban says. “People tend to get a bit anxious of what they don’t know, particularly when it affects their jobs.”

In Orban’s experience, having informed staff makes them more open to change within the business, “with the transformation I went through at Dow Jones, most of what we accomplished was because of the people who’d been there a long term. They had the institutional memory but they were very open minded.”

Foster a Culture of Experimentation

One of the great benefits of cloud computing is how it lowers the costs of experimentation and development, “gone are the days when it cost hundreds of thousands of dollars, even millions, to try something.” Orban says.

Learning what works and fails is essential, he believes. But as long as there is executive support then a tolerance towards unsuccessful experiments will develop in the organisation.

Working with partners

Outside parties are essential to most organisation’s IT systems and Orban believes partner ecosystems have changed with the advent of cloud computing. “There’s a whole new breed of partners that have been going through this,” he says in citing ‘born in the cloud’ software developers and systems integrators who are changing how projects are being delivered.

Build a Center of Excellence

“Creating a center of excellence is, I think, one of the key practices any organisation should invest in. You want a body of people who can institutionalise best practice within an organisation,” observes Orban.

As cloud services take away the complexity of computer systems it becomes an opportunity for organizations to rethink boundaries between the IT department and business operations.

Move to the cloud

Given Orban’s employer it’s not surprising he sees cloud computing as key to a company’s transformation however he admits that few organisations will make the jump straight into cloud services.

“Hybrid will be a part of every enterprise’s journey. Any company who’s been doing IT for any period of time will have existing investments,” he says. “Our view is that we will make it as easy as possible to create that bridge.”

“We do believe in the long run that enterprises will find they become so much more effective over here (in the cloud) they will move in that direction.

A Cloud-First Policy

Once an organisation has its cloud strategy and experimentation culture in place then having a ‘cloud first’ policy, “it reverses the burden of proof away from ‘why would you use the cloud?’ to ‘why wouldn’t you?'”

While Orban is emphasising the Amazon Web Services view of the world where ultimately all business computing will be done on the cloud – preferably their cloud – his views illustrates the change facing businesses as they implement online technologies.

For most, the availability of easily accessible cloud computing services is an opportunity to rethink their business processes and how organisations can deliver the best products quickly to their customers.

Rethinking customer service in the connected age

Businesses would be wise to stop telling people what they should want and let customers tell them what want says Shel Israel in his book Lethal Generosity.

Businesses would be wise to stop telling people what they should want and let customers tell them what want says Shel Israel in his latest book, Lethal Generosity.

In this book, Israel’s previous works include Naked Conversations and Age of Context which were both written in collaboration with Robert Scoble, he looks at the technological and social changes affecting business and how they can adapt to a rapidly evolving marketplace.

Key to that evolving marketplace is the explosion of data offering businesses deep insight into their customers. as Scoble describes in Lethal Generosity’s introduction in talking about social analytics service Vintank;

VinTank was acquired by a big PR agency that wants VinTank to do for all sorts of industries what it has done for the wine industry. Are you a restaurant or a winery ignoring that data? Go ahead and keep doing that for a decade. Your competition won’t.

Israel illustrates the need to watch the marketplace in citing a campaign where Canadian brewer Molsons completely wrong footed an oblivious competitor, something similar to how one bank discovered a rival’s successful marketing campaign through real time bank deposits data described at the recent Splunk conference.

Focusing on the customers

A customer centric outlook, not looking at competitors but focusing on what consumers want is key to success in the new economy, Israel believes. This is enhanced by technologies that allow both products and marketing to be personalised as shown in the chapter detailing how retailers and airports are using beacons and data analytics in their operations.

One good example is AirBnB, while Israel trots out the ‘biggest hotel chain’ in the world fallacy that’s pervasive among commentators, its effects on the established industry has been profound and have forced hospitality operators around the world to re-evaluate their business models.

Israel suggests the best response for businesses affected by the ‘Uberization’ of their industries is to adopt the social and analytic tools and strategies being used the upstart businesses and he provides a wealth of examples.

Seamless sales

Tapingo, the food ordering service for US college students, illustrates the seamless experience that consumers are increasingly demanding in their shopping, business and leisure activities. Israel cites how Tapingo’s merchant partners are seeing an in-store traffic boost of 7 percent and a gross profit rise of 11 percent as a result of using the service.

Shel also illustrates some of the failures in deploying new technologies, specifically London’s Regent Street Alliance that failed due to poor execution and a failure to engage the marketplace.

One of the weakness in the book – which Israel acknowledges – is its focus on US, and specifically Bay Area, case studies. While there are some non-North American examples such as Australia’s Telstra and China’s Alipay, most of the examples cited are of companies based in or around San Francisco and Silicon Valley.

Focus on Millennials

Another weakness of the book is the over-focus on Millennials or Digital Natives. While this group is important that obsession risks Israel’s message being pigeonholed amongst the noise of poorly thought out pop demographics and poor analysis that marks much of the discussion around changing tastes and habits between generations.

Israel’s point that the post 1982 generation will soon outnumber older cohorts in both the workforce and the marketplace in the near future though is an important aspect for businesses to keep in mind with the safe certainties and predictable customer behaviour of the baby boom era being long gone.

However the shift in consumer and workplace behaviour is just as pronounced among all the post World War II generations as technology and the economy evolves in the early 21st Century. Focusing on the younger groups risks missing similar shifts among older members of the community.

The value of customer service

Ultimately though, Israel’s message is about customer service. Shel himself flags this is not new, in describing the competition between hiking goods suppliers The North Face and Sierra Designs in 1970s Berkeley.

What is different between today’s businesses and those of forty years ago is technology now allows companies to deeply understand their customers and provide customised marketing, products and experiences to the connected consumer.

For the business owner, manager or entrepreneur, Lethal Generosity is a good starting point to understand the forces changing today’s marketplace. The case studies alone are worth considering for how an organisation can adapt to a rapidly evolving world with radically shifting customer behaviour.

Opportunities in broken systems

Uber shows how opportunities arise when systems are broken

“Taxi drivers are good people, they are just treated badly”, Uber founder Travis Kalanick told Salesforce CEO Marc Benioff at Dreamforce last week.

Kalanick flagged how in most cities around the world the taxi industry is broken. Nowhere is that more true than in Australia and a piece I wrote for Business Spectator about the disruption to the nation’s taxi industry illustrates that well.

The success of Uber in disrupting those markets – although it should be noted the company is far from becoming profitable – shows the real opportunities lie where existing markets are broken or distorted.

If you’re benefiting from a broken market then this is a risk to your business. For outsiders, it’s an opportunity.

How design will change the world of business

Changes to the world of design are going to have an effect on all businesses

“I always believe small companies usually illustrate big shifts faster than larger companies. In many ways big companies are responding to the shifts being driven by smaller businesses,” says Andrew Anagnost, the Senior Vice President of Industry Strategy and Marketing at Autodesk.

Anagnost was talking the Dreamforce media contingent after a tour of his company’s San Francisco Gallery where possibilities of today’s design and manufacturing tools are displayed.

Those possibilities are changing business, not just in design but across most industries as the means of financing and building new projects changes along with consumer demand as production methods change.

Anagnost breaks these changes into four major trends – the way things are designed, how they are produced, the nature of demand in a world where things can personalised and the very notion of what a product is.

“What people expect in from products today is very different.”

A supercomputer at your fingertips

“Every generation brings something new to design,” says Anagnost. “Imagine the generation that grew up with social media, online gaming, all the things that previous generations did not grow up with.”

This generation will be more collaborative and the idea of working in fluid, unstructured groups where many of the members will never physically meet anywhere.

Cloud computing is the other factor Anagnost sees as changing design as “it puts a supercomputer behind every screen”, which brings to the desktop great power in testing designs. “The designer gets a chance to explore options they couldn’t access before.”

That supercomputer at your fingertips changes all businesses, giving them processing power to carry out complex analytical tasks and modelling in all industries.

Financing the change

Another change to the production process is how people are financing their products. Increasingly platforms like Kickstarter are creating new ways for entrepreneurs to raise funds and also to test the market for a product before investing money and time.

“Before people would have to pitch their ideas to a larger manufacturer, an investor or a VC but now they can pitch it to anyone,” says Anagnost. “The means of financing products is now changing.”

The new means of production

‘Fabless manufacturing’ promises to change manufacturing by reducing the need for massive factories as micr0-factories start to change the economics of making products. These miniaturised robot factories are easily configurable and can be located locally rather than across the country of oceans.

Coupled with 3D printing, again it becomes cheaper and quicker to bring products to market and changes the dynamics of getting goods to market. “When it gets cheaper to deliver a complex product, the field gets levelled and more people can deliver innovative products to market,” says Anagnost.

The other trend within manufacturing is prefabricated assembly. While nothing new, improved design tools and manufacturing methods are making it easier and more efficient to assemble things like buildings onsite, coupled with 3D printing this is going to see massive changes in sectors like the construction industry.

Generational changes

Changing manufacturing and designs creates changed consumer expectations, as design becomes more accessible and personalisations easier customers are increasingly going to want products that meet their specific tastes and needs.

Another aspect to this is generational change, where younger consumers expect personalised products and don’t identify the same way with major brands as their grandparents and parents did.

“We’re going to see a move from rampant consumerism to a more selective consumerism,” says Anagnost.

This means markets are going to be far more volatile as the brand loyalty erodes in the face of a demanding customer. You’re only as good as the last conversation you had with your customer and if they aren’t happy they’ll go elsewhere.

Connected devices

The final factor Anagnost sees is the world of connected devices, increasingly consumers will demand products that have online functionality built in.

Increasingly we’re seeing this with motor cars and in the near future we’ll be seeing devices as diverse as motorcycle helmets and light bulbs being shipped with networked capabilities.

“Everything in your home is going to be connected in some way and people are going to have that expectation they will be,” says Anagnost. “Sensors are getting cheaper and cheaper and cheaper. There’s an assumption of connectivity.”

What Anagnost and Autodesk are flagging is business is changing, barriers we thought were unsurmountable are increasingly falling. For every industry, easily accessible computing and manufacturing power is changing the competitive landscape.

Paul travelled to San Francisco as guest of Salesforce.

Pricing the friendly skies

The dynamic pricing of GoGo’s inflight Wi-Fi is a marker for the future of many industries.

Possibly the holy grail of business is to find a product that your customers will pay almost anything for.

In flight Wi-Fi service provider GoGo may be close to achieving that with a product that business customers depend upon. The New York Times describes how the company has found it can use dynamic pricing to customise its prices for each flight.

One of the limitations GoGo faces is the connections between the aircraft and the ground stations is narrow so a plane full of bandwidth hungry travellers will quickly bring everyone’s service to a crawl.

To overcome this – and to make more money – the service has developed algorithms to anticipate the demand on each flight and then customise the charges to suit.

In many respects what we’re seeing with GoGo is similar to services like Uber where fast, intelligent systems can analyse traffic patterns and use the predicted demand to set prices. It’s the ultimate demand driven economy.

Over time, this model is going to flow out across many industries – the airline industry leads the way in pricing around demand management – and consumers need to get used to the idea of a fixed price tag being a quaint memory.

Learning the tools of online business

Accountants are faced with a great opportunity, but they have to learn the tools of online business

The accounting and professional services industries are uniquely positioned as the economy goes digital, while their own sectors are undergoing radical change so too are their clients.

Given the changes facing the accounting industry, the invitation to host last week’s CPA Australia Technology Accounting Forum‘s second day in Sydney was a good opportunity to see how the profession and its clients are dealing with major shifts in their industry.

The accounting profession has been one of the big winners of the Twentieth Century’s shift to a services economy. Last week’s story on how the workforce has been changing illustrates this with a chart showing how the occupation has grown over the past 140 years.

In many respects accountants should be well placed to benefit in a data driven economy given the training and skills they posses. The big challenge for existing practitioners is to shift with the times.

The transition from what’s been lucrative work in the past will be a challenge for some in the profession. Many of the manual tasks accountants previously did are now being automated with direct data links increasingly seeing operations like reconciliations and filing financial returns being done in real time without the need for any human intervention.

In private practice, the shift to cloud computing and direct APIs has stripped out more revenues with useful earners like selling boxed software petering away as services like Xero and Saasu arrived and established players like Intuit, Sage and MYOB moved to online models.

Shifting to the cloud

That shift has already happened with the presenter in one breakout session asking the audience how many practitioners used exclusively desktop software, purely cloud service or a hybrid of the two. Of the twenty in the room, the vast majority were using a combination with three being purely online and one sole operator still stuck with a desktop system.

For accountants the message from all of the sessions was clear; the future is online and businesses based around paper based models are doomed. The question though for them is how will they make the transition to being professional advisers.

Strangely, the big challenge for accountants in private practice may be their clients. A number of panel participants pointed out small business owners are slow to adopt new technologies and this holds both them and their service providers back. Divorcing tardy customers may be one of the more difficult tasks facing professional advisors.

The Technology, Accounting and Finance Forum showed the potential for accountants and professional services providers to be the trusted advisors in an online world, the task now is for practitioners and their clients to learn and understand those tools.

A handy guide to a company’s performance

Venture capital firm Andreessen Horowitz’s sixteen point guide to evaluating a tech startup’s performance is useful for all businesses.

Venture capital firm Andreessen Horowitz has a nifty sixteen point guide to evaluating a tech startup’s performance.

This is a handy checklist when looking at the claims of any business – big or small, tech startup or something more conventional.

Pre-booking of contract revenues in particular is one of my favourites and it’s something we’re going to see more of as the subscription economy becomes more widespread.

Saying goodbye to the boxes of gold

Intuit’s plan to sell Quickbook is part of the shift to cloud computing that’s leaving old business models dead.

“No-one is making money from cloud software, in the early days everyone made money from software,” bemoaned one of the panellists at last week’s CPA Technology, Accounting and Finance Forum.

A good example of this is the US accounting software giant Intuit putting the 32 year old Quickbooks on to the market.

Intuit was built on the back of Quickbooks but today the product today makes less than 6% of the company’s revenues and under 2% of the profits. Making matters worse is the old code base is clunky, proprietary and expensive to maintain.

Apart from getting a captive – and almost certainly dwindling – client base, there doesn’t seem to be a lot to attract buyers for Quickbooks as a desktop based product in a market shifting to the cloud.

The shifting business model hurts more than Intuit; the accountants, resellers and other service providers who were making a decent income from selling or supporting the box products have seen their margins evaporate.

For users, both Intuit and the services providers moving away from the product risks leaving them and their data stranded, something every business should understand about the risks of proprietary formats.

The shift though by Intuit should be a warning to small businesses that the days of box and inhouse software are numbered and running packages on servers and desktops will soon be for large organisations or niche applications.

Almost every business is going to have to plan its move to the cloud, those who don’t are increasingly going to be left behind in a shifting market.

Business and the workforce in an app driven world

As the workforce shifts to being mobile, so too must businesses

One of the things we know about the future is the workplace will be very different. Just as the Personal Computer changed offices in the 1990s, the smartphone and tablet computer are changing today’s.

Part of that change though is being driven by the change in generations. While this blog tries to avoid falling into the trap of generalising about different age cohorts – and contends the entire concept of baby boomers as an economic group is flawed – there are undoubtedly differences between the world of the PC generation of workers and that of the new mobile breed.

The key difference is the idea that work devices are different to those at home. Those of us bought up with the idea that the office computers would be tightly locked workstations – in the 1990s we also had the quaint idea corporate desktops were generally more powerful than what we had at home – are now seeing that way of working being abandoned.

For the next generation of office workers, accessing corporate resources through an app connected to a cloud service will be as normal as opening Windows NT to access the shared corporate drive was 15 years ago.

Along with the technology and generational change driving businesses into the cloud-app computing world there’s also the needs of a much more fluid and mobile workforce. The shift to casualisation began well before PCs arrived on desktops but the process is accelerating as we see crowdsourcing and the ‘uberization’ of industries.

Older workers will adapt as well, many came through the evolution of business computing from ‘green screen’ displays – if their businesses had any at all – through to the server based systems of recent years. For them the shift to smartphones might be troublesome for those with fading eyesight, but it won’t be the first change.

For businesses this shift means they have to start planning for the mobile services that will change workforces and industries. The shift is already well underway – accounting software company Intuit estimates small businesses already use an average of 18 apps to run their business.

We all have to start thinking about how these apps can be used to manage our staff and workforces.

Subscribing to disruption – Zuora founder Tien Tzuo

The shift to a subscription economy promises to change many businesses says Zuora’s Tien Tzuo

“This is a customer driven revolution,” says Zuora co-founder and CEO, Tien Tzuo, of the business shift to a subscription payment model.

While the cloud computing business has been one of the leaders in the shift to the subscription model, the move is happening in industries as diverse as jet engines, agricultural machinery and music.

Zuora is one of the businesses providing the tools to manage customer subscriptions and Tien Tzuo shares with Decoding the New Economy how he sees the subscription economy changing industries.

Tien, who was an early Salesforce employee, describes some of the forces he sees driving this shift and where the opportunities lie for business owners, managers and entrepreneurs.

“We looked at companies like Netflix which at the time it was DVD rental service and Zipcar and saw the same payment challenges we had at Salesforce,” says Tien. “The leap for us was looking at the transformation of companies like Zipcar into a subscription model.”

There are few industries that won’t be affected to the shift to a subscription model, Tien believes, and he sees this radically changing many sectors with Internet of Things providing a huge push towards pay-as-you-go services.