Paul Wallbank – Brilliant Communications

Tag: business

  • 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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  • Hyping start ups for pleasure and profit

    Hyping start ups for pleasure and profit

    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?

    What if Bill Gates had been born in Australia?

    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

    Building aroung the blockages

    “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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  • Why VCs hate Amazon

    Why VCs hate Amazon

    “Venture capital investors hate us” said Dr Werner Vogels, CTO of Amazon.com at the April Sydney FED, “once you needed five million dollars to launch a new technology business, today you need $50,000 and a big box of ramen.”

    Dr Vogels was talking about the Amazon Web Services (AWS) platform that underpins many of the cloud computing and social media sites which are redefining how we use computers and the web.

    What’s really interesting with the doctor’s comment is it’s only part of the story; for businesses outside the tech sectors –say retailers or service companies – they get cheap or even free access to the cloud computing services running on AWS or its cloud competitors like Windows Azure.

    For those businesses, it’s possible to start an idea for nothing but the founder’s time; rather than putting fliers up at the local bus stop or shopping mall an entrepreneur starting an online store or neighbourhood computer repair business now can create a website and all the local search profiles without spending a cent.

    Being able to start up a business with little, if any, capital means we’re seeing a new breed of innovators and entrepreneurs entering markets.

    At the corporate level, or in the $50 million dollar VC investment field, the opportunities for exploring Big Data without buying big supercomputers is another benefit of the cloud computing services.

    Services like ClimateCorp which insures farmers against extreme weather couldn’t have existed a few years ago as the processing power to analyse historical rain and drought data was only available to those with insanely expensive super computers.

    Today, the combined power of millions of low powered cheap computers – the definition of cloud computing – delivers the processing grunt of a supercomputer at a fraction of the cost.

    Access to cheap computing power means innovations can be bought to market quickly and at a fraction of the cost that was normal a decade ago.

    We’re in early days with what the effects of super cheap computing means to most industries, but it is changing industries as diverse as agriculture, banking, logistics and retail quickly.

    Cloud computing is giving big business the tools to understand their markets better and small business the ability to grab customers from bigger competitors who are too slow or don’t want to face what their clients really think.

    These are the forces that are changing the way business is being done; if you’re in business it’s time to start paying attention.

    In reality, Dr Vogels is pulling our legs – the smart VCs aren’t hating Amazon, they are rubbing their hands at the profits that are going to be made in disrupting cosy industries.

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