Tag: business

Taking care of our own

Our governments can’t fix every problem or address our every need. We need to take matters into our own hands.

“The council ought to do something” growled a friend who’d been stuck in a peak hour traffic jam.

That innocuous comment illustrates the fundamental challenge facing the developed world’s politicians – that we expect our governments to fix every problem we encounter.

In the case of the local traffic jam, the cars creating gridlock are parents driving their children to two nearby large private schools.

Despite the problem being caused by the choices of individuals – those decisions to send their kids to those schools and to drive them there – our modern mindset is “the government aught to do something” rather than suggesting people should be making other choices.

Socialising the costs of our private decisions is one of the core beliefs of the 1980s mindset.

Eventually though the money had to run out as we started to expect governments to solve every problem.

We’re seeing the effects of this in the United States where local governments are now having pull up black top roads, close schools and renege on retirement funds as those costs become too great.

As a society we have to accept there are limits to what governments can do for us.

Increasingly as the world economy deleverages, tax revenues fall and the truth that a benign government can’t fulfill our every need starts to dawn on the populace, we’ll realise that expecting politicians and public servants to save us is a vain hope as they simply don’t have the resources.

Bruce Springsteen puts this well in his song “We Take Care Of Our Own.”

The truth today is the cargo cult mentality of waiting for governments or cashed up foreigners to come and save us is over.

We’re going to have to rely more on our own businesses, families and communities to support us in times of need.

The existing institutions of the corporate welfare state are beginning to collapse under the weight of their own contradictions.

Joe Hockey knows this, but as a paid-up agent of the establishment he doesn’t dare nominate the massive cuts to middle class welfare and big business subsidies that are necessary to reform those institutions.

Waiting for the council to fix the local roundabout is nice but it doesn’t address the bigger problems.

It’s up to us to build the new institutions around our local communities and families. This is not a bad thing.

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It’s all in the timing

Being first is no guarantee of success if your timing is wrong.

This morning I sat in on a corporate breakfast and heard a well known presenter talk about social media for business owners and managers.

The advice was terrible and what was valid could have come from a 2008 book on business social media marketing.

But the room loved it and obviously the client – a major bank – thinks the speaker’s work is worthwhile. He has a market while many of us who’ve been covering this field for a decade don’t.

Timing is everything in business. Earlier this week stories went around the Internet about how Microsoft could have invented the first smart phone.

Microsoft could well have done it, they tried hard enough with Windows CE devices through the late 1990s and there was also the Apple Newton and the Palm Pilot.

While all these companies could have developed the smartphone in the 1990s it wouldn’t have mattered as neither the infrastructure or the market were ready for it.

Had Microsoft released the smartphone in the mid 199os it would have been useless on the analogue and first generation GSM cellphone networks of the time.

Customers were barely using the web on their personal computers, let alone on their mobile phones, so the smartphone would have been useless and unwanted.

Ten years later things had changed with 3G networks and real consumer demand so Apple seized the gap in the marketplace left by Motorola, Nokia and the other phone manufacturers with the iPhone and now own the market.

Apple weren’t the first to market with a smartphone, just as Microsoft weren’t the first with a Windows-style operating system and Facebook weren’t the first social media platform.

Those who were first to the market stood by while upstarts stole the market they built.

Plenty of people have gone broke when their perfectly correct investment strategies have been mistimed – “the market can stay irrational longer than you can stay solvent” is often proved true.

That’s the same with the speaker this morning; he’s not the first to discover social media’s business benefits but his timing is impeccable.

Being first is no guarantee of success if your timing is wrong.

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Is small business too pessimistic?

The small business sector doesn’t seem to be too confident about the future.

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

Technology brings benefits and risks, we need to understand both

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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Hyping start ups for pleasure and profit

The Silicon Valley VC model is not sustainable for most businesses and industries.

Monday’s announcement that Facebook would buy photo sharing website Instagram shows the power of Silicon Valley investor networks and how they operate, we should be careful about trying to emulate that model too closely.

Intagram has been operating for 18 months, has 13 employees, has no prospects of making a profit and is worth a billion dollars to the social media giant. Pretty impressive.

A look at the employees and investors in Instagram shows the pedigree of the founders and their connections; all the regular Silicon Valley names appear – people connected with Google, Sequoia Capital, Twitter, Andreessen Horowitz.

The network is the key to the sale, just as groups of entrepreneurs, investors, workers and innovators came together to build manufacturing hubs like the English Midlands in the 18th Century, the US midwest in the 19th Century and the Pearl River Delta at the end of the 20th Century, so too have they come together in Silicon Valley for the internet economy.

It’s tempting for governments to try to ape the perceived successes of Silicon Valley through subsidies and industry support programs but real success is to build networks around the strengths of the local economy, this is what drove those manufacturing hubs and today’s successful technology centres.

What’s dangerous in the current dot com mania in Silicon Valley is the rest of the world is learning the wrong lessons; we’re glamourising a specific, narrow business model that’s built around a small group of insiders.

The Greater Fool business model is only applicable to a tiny sub set of well connected entrepreneurs in a very narrow ecosystem.

For most businesses the Greater Fool business model isn’t valid.

Even in Silicon Valley the great, successful business like Apple, Google and Facebook – and those not in Silicon Valley like Microsoft and Amazon – built real revenues and profits and didn’t grow by selling out to the dominant corporations of the day.

The Instagrams and other high profile startup buy outs are the exception, not the rule.

If we define “success” by finding someone willing to spend shareholders’ equity on a business without profits then these businesses are insanely successful.

Should we define business success by creating profits, jobs or shareholder value then the Silicon Valley VC model isn’t the one we want to follow.

We need to also keep in mind that Silicon Valley is a historical accident that owes as much to government spending on military technology as it does to entrepreneurs and well connected venture capital funds.

It’s unlikely any country – even the United States – could today replicate the Cold War defense spending that drove Silicon Valley’s development and much of California’s post World War II growth.

One thing the United States government has done is pump the world economy full of money to avoid a global depression after the crisis of 2008.

Some of that money has bubbled up in Silicon Valley and that’s where the money comes to buy companies like Instagram.

Rather than try to replicate the historical good fortune of others, we need to make our own luck by building the structures that work for our strengths and advantages.

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What if Bill Gates had been born in Australia?

Can a society that puts property speculation before innovation succeed in the 21st Century?

Microsoft founder Bill Gates is today one of the world’s biggest philanthropists having built his business from an obscure traffic management software company to what was at one stage the world’s biggest technology corporation.

But what if he’d been born in Sutherland, New South Wales rather than Seattle, Washington? How different would things have been for an Australian Bill Gates?

The first thing is he would have been encouraged to study law; just like his dad. In the 1970s lawyers had far more status and career prospects than software developers in Australia.

Causing more concern for his parents and career counselor would have been his determination to run his own business. It’s far safer to get a safe job, buy a house then start buying investment properties to fund your retirement.

The Funding Drought

If Bill still persisted with his ideas, he’d have hit a funding problem. No bank wouldn’t be interested in lending and his other alternatives would restricted.

In the Australia of the 1970s and 80s they’d be few alternatives for a business like Micro Soft. Even today, getting funding from angel groups and venture capital funds depend upon luck and connections rather than viable business ideas.

Bill Gates’ big break came when IBM knocked on his door to solve their problem of finding a personal computer operating system; the likelihood of any Australian company seeking help from a small operator – let alone one run by a a couple of twenty somethings – is so unlikely even today it’s difficult to comprehend that happening.

Eventually an antipodean Bill Gates would have probably admitted defeat, wound up his business and gone to work for dad’s law firm.

Invest in property, young man

Over time a smart, hard working young lawyer like Bill would have done well and today he’d be the partner of a big law firm with a dozen investment properties – although some of the coastal holiday properties wouldn’t be going well.

While some things have changed in the last thirty years – funding is a little easier to find in the current angel and venture capital mania – most Australians couldn’t think about following in Bill Gates’ path.

Part of the reason is conservatism but a much more important reason are our taxation and social security systems.

Favoring property speculators over entrepreneurs

Under our government policies an inventor, innovator or entrepreneur is penalised for taking risks. The ATO starts with the assumption all small or new businesses are tax dodges while ASIC is a thinly disguised small business tax agency and assets tests punish anyone with the temerity to consider building an business rather than buying investment properties.

At the same time a wage earner is allowed to offset losses made in property or shares against their income taxes, something that those building the businesses or inventing the tools of the future are expressly forbidden from doing.

Coupled with exemptions on taxing the capital gains on homes, Australian households – and society – is vastly over invested in property.

Making matters worse, the ramping up of property prices over the last thirty years has allowed generations of Australians to believe that property is risk free and doubles in value every decade.

That perception is reinforced by banks reluctant to lend to anyone who doesn’t have real estate equity to secure their loans.

So we have a society that favours property speculation over invention and innovation.

Every year in the run up to Federal budget time tax reform becomes an issue, the real effects of negative gearing and other subsidies for housing speculation – the distortion of our economy and societies investment attitudes – are never discussed.

In Australia there are thousands of smart young kids today who could be the Bill Gates’ of the 21st Century.

The question is do we want to encourage them to lead their generation or steer them towards a safe job and an investment property just like grandpa?

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Building aroung the blockages

Waiting for older generations is a waste of time.

“We have to wait for the baby boomers to get out of the way,” said the Gen Y girl after unsuccessfully trying to change a business culture.

The problem is the boomers aren’t going to get out the way; they are fit, healthy and able to work for at least another decade.

For most boomers, the promised golden age of retirement simply isn’t affordable as property prices stagnate and investment underperform.

The smart ones also know governments can’t deliver the promises of ever increasing aged care services and middle class welfare.

Waiting the boomers to get out of the way also assumes their younger replacements will be any better; the sad reality is many have the same views and 1960s or 80s ideologies of their mentors. Old heads on young shoulders.

For those waiting for older generations to get out of the way so they can start changing institutions or business, it might be time to start building ones to replace stale and increasingly irrelevant incumbents.

There’s been few times in history when circumstances have favored challenging incumbents as technology, economic conditions and social change give us the tools and opportunities to build new businesses and political parties.

It’s hard work, but it’s a lot less frustrating than waiting for the boomers to die off.

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