business | Paul Wallbank - Communications Professional

Thinking beyond the group

Varied sources of information are essential to avoid stale, group thinking

It’s nice and comfortable living in an echo chamber and we’re all guilty of it one way or another. An example of how insular echo chambers can be are two surveys done by UK company Apollo Research on who UK and US tech writers follow on social media.

The answer was each other, with most tech writers following a common core of twenty in the UK and thirty in the US. Basically the groups are talking to each other which explains how technology stories tend to gain momentum as variations on the same stories feed through the network.

While technology journalists are bad for this, it could be argued their political colleagues are far more guilty of this group think as their working in close quarters makes them even more insular and inward looking. That explains much of the political reporting we see today which often seems divorced from the real world concerns of voters or challenges facing governments.

For all of us, not just journalists, it’s easy to become trapped in our own little echo chambers and find it harder to think outside the pack as the web and platforms like Facebook deliver us the information we and our friends find confirms our own biases.

Clearly, thinking with the pack creates a lot of risks and for businesses also raises opportunities. At a time of fast moving technology and falling barriers to entry, thinking outside the prevailing group could even be a good survival strategy.

A good example of industry group think is the US motor industry of the 1970s where they dismissed Japanese competitors as being cheap and substandard – similar to how many think about China today – yet by the end of the decade Japan’s automakers had captured most of the world’s market.

On a national level, Australia is a good example of dangerous groupthink as up until three years ago the consensus among governments, public servants, economists and business leaders was the China resources boom would last indefinitely.

Today that consensus looks foolish, not that those within the echo chamber are admitting they made the wrong call, and now governments are struggling to find new revenue streams as the expected rivers of iron ore and coal royalties fail to arrive.

For Australian businesses, governments looking to raise revenues are another factor to plan for and getting one’s tax return and company paperwork in on time might be a good idea to avoid fines from overzealous public servants.

The bigger lesson for us all however is not to think like the group. While it may feel safe in the herd, we could well be galloping over a cliff.

One simple way to avoid groupthink, and that cliff, is not to copy the tech writers or the Australian economic experts who mis-called the China Boom. With the web and social media we can listen to what other voices are saying, most importantly those of our markets and customers.

A varied information diet is something we all need t0 understand what our markets, economies and communities are doing. It might be comfortable huddling down with the herd, but you’ll never stand out from the pack.

The opaque Alphabet

Alphabet’s results are impressive but the lack of detail remains troubling

Late last year Google announced it was restructuring and creating a new holding company called Alphabet, at the time I hoped it would bring more accountability into a business that’s becoming notable for easily distracted management and sprawling bureaucracy.

Yesterday the company released its latest quarterly reports and it appears far from improving transparency, the restructure has resulted in the operation of ‘moonshots’ – termed ‘Other Bets’ in the reports – becoming even more shrouded in mystery.

Other Bets, which includes Google Fiber, Ventures and Google X, made a stonking $3.1 billion loss while 90% of revenues still comes from the advertising business.

Even within the advertising arm there’s little transparency as the division includes Apps, Android and YouTube along with the lucrative Search and Ads business. There’s little information of how these divisions are travelling on their own.

As Dennis Howlett at Diginomica points out, there will come a time when shareholders demand some accountability as the losses in the Other Bets are not trivial but it seems that time is some way off.

For Google, the biggest risk is being disrupted themselves. Their ‘river of gold’ is not dissimilar to that the newspaper industry floated along prior to the web – and Google – arriving.

Another aspect is that of culture where most parts of the business are free of accountability as the lucrative Ad division’s revenues allow disinterested management and needless bureaucracy to thrive.

While Alphabet’s revenues are impressive, this is a company dangerously reliant on one line of business. History has not treated such ventures well.

Reinvigorating Australia’s research sector

How an outward focus might reinvigorate Australia’s besieged research sector

Could Australia’s poor track record in commercialising research be turned into an advantage? Data 61’s CEO Adrian Turner believes so.

Australian research agency Data61 was formed last year following the science hostile Abbott government’s slashing of research budgets coupled with a merger of the National ICT Australia organisation (NICTA) with the long established CSIRO.

The intention behind Data61 was to create a world leading data research agency. At the time of the announcement then communications minister and now Prime Minister, Malcolm Turnbull said, “Having a single national organisation will enable Data61 to produce focussed research that will deliver strong economic returns and ensure that Australia remains at the forefront of digital innovation.”

Having been in the role for six month and now, in his words, having his feet finally under the desk, Data61’s CEO Adrian Turner met with the media last week to discuss the directions he intends to take the organisation.

Business in a data rich world

Coming from a corporate Research & Development background and having spent over a decade in Silicon Valley tech businesses, Turner is conscious how industries are being changed in a data rich world.

For corporate R&D model shifting as industries are changing he says, “their challenge is they can’t hire the digital and data talent that they really need.” Turner sees one of the opportunities for Data61 in providing access to the high level expertise large companies are struggling to find.

Giving Data61 is global focus is Turner’s main objective with an aim of capturing a tenth of one percent of the world’s private sector R&D budget, describing how he will sell the organisation’s scientific expertise to global corporations, “we can plug them into the Boeing and GMs of the world and introduce them to the people to short circuit the sales process.”

“We’re going to go around the world where corporate R&D dollars get allocated and convince these companies that Australia is a place where primary R&D can take place,” Turner continued, “we’ve got the talent and we’ve got the capabilities to do the research.”

Good at the basics

Turner highligthts an ongoing problem in Australian science and industry. The nation historically has been good at basic research but poor at getting those developments to the marketplace, something the World Intellectual Property Organisation’s Global Innovation Report has regularly flagged.

While Australia ranks at 17 overall in the 2015 WIPO report, the nation’s business community flounders at 38th in the world for its collaboration with researchers and 39th for knowledge and technology output. Put bluntly, Australian businesspeople are not very sophisticated or research orientated.

Adrian Turner puts that down partly to the nation’s being weak at product management, “I think it’s a function of global companies seeing Australia as a sales and marketing outpost so we don’t have the product development expertise.”

Inward looking locals

The nation’s inward looking local corporations are also part of the problem, “for us to succeed as a country we have to have a global mindset. We can’t have the zero-sum mindset that I win if you lose in the domestic market,” Turner continued. “In that sense what we’re doing is creating a product marketing function.”

So to meet Data61’s objectives of meeting its own financial performance targets, developing an R&D ecosystem and having an impact on the nation economy, Turner sees the organisation having to go overseas for most of its partnering with private sector researchers.

Sparking the startups

All is not lost though for Australia with Turner believing Data61 has a role in helping the local startup community develop. “We don’t have the infrastructure in place to support the entrepreneurs to go out and build new business,” he says.

“In Silicon Valley over decades you have this infrastructure, you have this workforce, you’ve got the legal infrastructure, you’ve got capital, all of these things that have built up organically over decades and they stack the odds in favour of the entrepreneurs.”

Data61 was born out of an unfortunate period of Australian politics where for the first time the nation was lead by a government that was genuinely hostile to science. Now the political winds have changed and the organisation has a global focus, it may be possible to reverse the long-term neglect of Australian research and build a new business culture.

Redefining sports media

The Australian Open tennis tournament illustrates how the world of sports broadcasting is changing

Over the last 50 years the relationship between professional sport and television broadcasters has been defined by broadcasting rights. Like most other media business models that relationship is now under threat.

Touring the Australian Open tennis tournament this week, it was striking how the relationship between sports organisations and broadcasters has changed as the internet changes distribution models and data starts to become a valuable asset in itself.

A tour of the data infrastructure behind the tournament as a guest of sponsor and service provider IBM showed how sporting organisations are hoping to use data to improve their fans’ experience and add value for sponsors and competitors.

Last year the Australian Open collected 23 Terabytes of data, a 136 percent increase on 2014, which the organisers distribute on their MatchCenter web platform along with analysis through their Slamtracker system.

Using IBMs Bluemix development platform and the company’s Watson artificial intelligence service, the Australian Open website analyses factors ranging from the audience’s social media sentiment through to predicting competitors’ performance based on historical data.

This wealth of data gives the event organisers a great platform to engage with statistics hungry fans and it was notable when talking to the Australian Open staffers how they now see the television broadcasters as much as their competitors as their partners.

When coupled with the changes to broadcasting rights – like most sports organisations the Australian Open has moved to the model pioneered by Major League Baseball of providing their own video feeds rather than engaging a host broadcaster to record the events and distribute the video – this has put the television and pay-TV networks in a far less powerful position.

For the sports organisations those broadcast rights deals are still by far the most lucrative income stream they have but the days of the host broadcasters holding power over the events are slipping away.

One telling statistic was the shift to mobile platforms. Kim Trengrove, the digital manager for Tennis Australia, pointed out how in 2015 online traffic was split equally between desktop and mobile use while in 2016 it was appearing to be 60% mobile. That change in itself has major ramifications for the market.

In the future as the data becomes more valuable and the video feeds can be distributed across web browsers and even artificial reality headsets, the late Twentieth Century broadcast model becomes even more tenuous.

For the television networks it means their power and income is reduced while those collecting, processing and distributing data become more important. However it may be the software companies managing the information aren’t able to pay the immense sums the broadcasters have been able to offer for the last fifty years.

One thing a tour of the Australian Open did show was how business model of professional sports is dramatically changing. A data driven world is going to be very different to that of the last fifty years.

Confessions of a serial creditor

When a business goes bust both the creditors and the proprietors are often the victims

One of the sad facts of business is that ventures go broke, and when they do there’s a trail of former customers, suppliers and employees that end up out of pocket.

The recent appointment of administrators to the recently listed Australian electronics retailer Dick Smith Holdings leaving thousands of gift card holder – including the writer of this blog – out of pocket is a good example of this.

Over twelve years of running a service business having customers go bust was a regular thing. Luckily this wasn’t frequent as once the assets had been liquidated and divided among creditors one was lucky to get five cents for every dollar owed.

Early warning signs

When a customer did go broke it was rarely unexpected. With long standing clients the payment times would blow out and often a business going bust showed the signs of poor maintenance, declining stock levels and distracted management long before the money ran out.

The other notable thing was the failing company’s staff were often on your side. At one company, a whisky broker that went under owing millions to creditors who’d effectively bought ‘time share’ in liquor, the receptionist insisted in paying for some of the work we’d done out of the petty cash.

Five years later the remaining outstanding invoices were settled and, as expected, we received almost nothing apart from the entertainment of reading the administrator’s reports detailing the struggles of angry creditors trying to get their drinking money back in the face of what had almost certainly been a scam.

Ethical proprietors

Most business owners that go broke aren’t crooks however, most are honest people who made bad decisions or were just plain unlucky. Often these people suffer far more than the creditors.

One pleasant experience we had with a failed customer was a dance studio on Sydney’s Lower North Shore. The business went broke, the proprietor fled to her native New Zealand and I resigned myself to never seeing the outstanding thousand dollars.

Two years later the formal liquidation proceedings had finished and unsurprisingly we received none of the monies owing. A few months after a cheque from the business owner arrived for the entire outstanding amount with a note apologising.

A tough life

While the former dance studio owner probably broke the rules in paying back the debts outside the official channels, she illustrated most failed business people are good people who were caught out by their own mistakes or being on the wrong side of lady luck.

Business failure for those running startups or smaller enterprises often comes at a high personal financial, mental and relationship cost so it’s not surprising those sinking trying to hold on later than they should and then take personal responsibilty for the damages they cause.

Sadly the same doesn’t hold true at the corporate level and in the case of Dick Smith Holdings the executives, the institutional shareholders frittering aways investors’ money, the private equity swashbucklers and the staid corporate managers responsible for the firm’s failure probably won’t see a hiccup to their stellar careers.

The moral for anyone in business remains never to be too exposed to any one creditor. Regardless of how well a client’s management means, when things go bad it’s unlikely you’ll see most of the money you’re owed.

How the taxi industry lost its advantages

The struggles of the taxi industry show regulatory barriers won’t keep out competitors

In San Francisco, the Yellow Cab Company is filing for bankruptcy in the face of mounting insurance costs and competition from services like Uber and Lyft.

For most of the Twentieth Century, having a government controlled market was good for cab companies and those owning the rights to own taxis. In most places though it wasn’t good for drivers and passengers however as wages fell along with the quality the service.

In most cities, the taxi operators didn’t care as their industry was protected and customers didn’t have much choice. The problem was compounded by supine regulators who saw protecting the interests of industry incumbents as taking precedence over making sure operators provided a safe, reliable service.

With the arrival of Uber, this changed and passengers started voting with their wallets. Interestingly, despite Uber X and Uber Pool being illegal in most place, regulators and their political masters found public opinion was firmly against the taxi companies and owners who’d exploited them for so long.

To the horror of the taxi operators, they found the community and the market had shifted against them leaving them exposed to changes they had never expected. Now operators like San Francisco’s Yellow Cabs are paying the price for not focusing on providing a decent service.

For other industries, particularly those which have some sort of barrier to entry through government regulation, the taxi industry’s woes are an important lesson – focusing on service is the key to staying in business, not relying on keeping competitors out.

Value versus valuation

The story of Skift illustrates how businesses can add value without courting venture capital investors

“There are people who build media companies for valuation, then there are others who build media brands for value,” writes Skift c0-founder Rafat Ali in his account of how the business stopped worrying about raising venture capital and focused on bootstrapping the travel industry website.

Ali’s story of how Skift’s founders gave up on finding investors, refocused their business and found revenues to bootstrap the organisation is worth a read for anybody starting a venture, not just a tech or media startup.

Notable is Ali’s distancing Skift from the startup label, claiming it’s “a meaningless word that comes with too much baggage”.

The story of Skift is an interesting perspective on growing a business outside the current focus on external investors, instead focusing on the value it adds for customers, users and readers. Just as Skift went back to basics, many of us should also focus on how we and our businesses add value.

An entrepreneurial paradox

Having a nation of entrepreneurs may not indicate a vibrant economy

Being an entrepreneur has become fashionable in western countries, but according to the Global Entrepreneurship Monitor it’s not the developed nations which are the most enterprising.

UK purchasing platform Approved Index took the GEM’s 2014 report and looked at which countries have the most entrepreneurs, defined as being “the percentage of an adult population who own (or co-own) a new business and has paid salaries or wages for at least 3 months.”

Surprisingly Uganda came out on top with 28.1% of the population meeting the GEM’s criteria for being entrepreneurs with Thailand and Brazil in second and third place. Of the developed nations, Australians were the most entrepreneurial at position number 26.

This raises the questions of what is the definition of an entrepreneurs and what drives people to become one?

What drives entrepreneurs?

Part of the answer to the second question is necessity. In Nigeria, a part time business is known as the “5 to 9 job” and, as the BBC reports, those evening enterprises are the way most Nigerians see as being a pathway to the middle classes which wouldn’t be possible for most wage earners.

That becoming an entrepreneur is often a result of necessity is borne out by Uganda’s profile in the GEM report where the authors note are scathing about the government’s support of business.

The biggest enabler of entrepreneurship in Uganda is its internal market dynamics. The most significant constraints are the unsupportive government policies, in terms of bureaucracy and taxes, and a lack of financing.

Indeed, the GEM itself noted in its 2014 report on global entrepreneurship that “there tends to be more entrepreneurial activity in less competitive economies” and Uganda ranked 122nd of 144 economies in the World Economic Forum’s 2014/15 Global Competitiveness Index.

Comparing the indexes

Looking at the Countries listed in the GEM’s top ten and listing the countries by the World Economic Forums competitiveness index ranking and the World Bank’s ease of doing business index starkly illustrates the correlation between business strangling bureaucracy and people setting up their enterprises outside the regulatory strictures.

GEM rank	Country	WEF rank	World Bank rank
1	Uganda	122	122
2	Thailand	31	49
3	Brazil	57	116
4	Cameroon	116	172
5	Vietnam	68	90
6	Angola	140	181
7	Jamaica	86	64
8	Botswana	74	72
9	Chile	33	48
10	Philippines	52	103

Of the top ten countries by their entrepreneur ranking, only Chile and Thailand make the top 50 of either the World Bank’s Ease of Business index or the World Economic Forum’s Global Competitiveness Index. To summarise, the urge to be entrepreneurial is a reaction to a poor business climate.

Defining entrepreneurs

What we could be seeing is a poor definition of an entrepreneur although it’s hard to draw the line between a Ugandan housewife who sets up a market food store and an Australian family that buys a fast food franchise. Is one more entrepreneurial because they have more access to capital?

Perhaps the Silicon Valley definition of an entrepreneur – the founder of a technology startup – is a more appropriate however that excludes vast tracts of western economies and almost all the developing world.

On many levels the Global Entrepreneurship Monitor’s definition is probably the fairest as it indicates how many people are starting their own ventures regardless of their capital position or the nature of their business.

If the GEM’s definition is fair then the leader board indicates that maybe having a nation of entrepreneurs is actually the symptom of a constrained business community rather than that of a vibrant economy.

Maybe political and business leaders need to be careful what they wish for when they call for a more entrepreneurial nation.

The victims of unicorns

A highly valued business is not good news for all shareholders, particularly employees who’ve taken equity.

It’s not all good news when a tech company becomes a unicorn reports the New York Times as it often means employees and other ordinary stockholders may be diluted out by later investors holding preferential shares to secure their big bets.

The danger with these high private valuations is the later investors whose big cheques created the unicorn mythology insist upon preferential shares to protect their stake. Should the company go public or be sold for less than the valuation then it’s the common stock holders who take the greatest hit.

Good Technology’s sale to BlackBerry is the example cited in the New York Times’ story. The company’s last round of funding valued the business at $1.1 billion but it’s eventual exit was less than half of that.

As a consequence, the common stockholders lost 90% of their wealth in the company while executives and late stage investors came out with only a slight dip in the preferred shares valuation. The CEO walked away with nearly six million dollars.

With the last two years investment mania and the clear topping of the market, situations like Good’s are now becoming common. The New York Times points this out in the story.

The odds that the unicorns will all reap riches if they are sold or go public are slim. Over the past five years, at least 22 companies backed by venture capital sold for the same amount as or less than what they had raised from investors

For employees in these highly valued startups, those valuations and the risk of losing most of your own equity is a serious concern. Analyst firm CB Insights flagged earlier this week an exodus of talent from overvalued firms with dubious prospects is a great opportunity for the top tier companies.

While the headline numbers for unicorns are impressive, the reality for employees, founders and early stage investors is an overvaluation is a dangerous place to be.

When startup growth pains prove fatal

The startup investment model can work against building a sustainable business

One of the most dangerous things for a startup business is trying to grow too quickly. In his blog, Jun Loayza describes how RewardMe, one of the startups he was involved in, failed after it tried to scale to fast.

In his list of factors that led to RewardMe’s demise Loayza cites an undue focus on customer acquisition, however this is a fundamental part of the current Silicon Valley greater fool model.

As the exit strategy is to sell the business, whether it’s to a trade buyer or through an IPO, the aim is to maximise the value of the operation ahead of that sale. Boosting the numbers of users is a key task for management.

Loayza says in retrospect he would have liked to focus on product development rather than user acquisition, but that’s a luxury not available when you’ve taken venture capital funding.

Building a European Silicon Valley

Europe’s development of an equivalent to Silicon Valley faces many hurdles

The World Economic Forum asks can Europe build its own Silicon Valley?

It seems the answer lies in money, investors’ money to be precise, with a lack of VC funds to finance emerging businesses and a lack of acquisition hungry corporates providing high profile experts argues the WEF piece’s author, Keith Breene.

That appears to be a strong argument although there’s still some strong contenders for European tech hubs with the WEF identifying Munich, Paris and London as being major centres.

London’s claims are reinforced by the city’s strength in financial technology with KPMG nominating 18 of the world’s top 50 fintech startups being based in the British capital.

Interestingly, the Belgium town of Leuven which has styled itself as a centre for 3D printing and beer features on the WEF list of European startup hubs as well.

While it’s unlikely Europe can create a ‘Silicon Valley’ – even the post Cold War US would struggle to do so today – the presence of major centres like London and specialist hubs like Leuven indicates another important aspect of creating a global centre, that of having an existing base of businesses and skills.

That skillbase isn’t built up overnight, it’s a decades long process of commitment from industry, investors and governments and often as much the result of a series of happy accidents rather than deliberate planning.

It may well be the question of Europe creating a Silicon Valley isn’t really relevant with the bigger issue being how the continent’s cities and nations put in the conditions to develop long term industrial hubs. Trying to ape today’s successes for a project that will take decades to come to fruition could be a big mistake.

How banks will survive the fintech onslaught

Fintech startups threaten to disrupt the banking system but the banks are well placed to survive and prosper

Earlier this week the Financial Times reported how the eleven biggest North American and European banks had shed 100,000 jobs this year, so it when I was asked to do a segment on the future of banking for radio station ABC666 in Canberra I was more than delighted.

The ABC producer’s interest had been piqued by an Ovum research paper detailing the IT spending of banks and their increasing focus on security.

Rethinking payments

In Ovum’s view much of the banking industry’s security comes from the diverse range of payment options coming onto the marketplace. Another factor in the increased spend are the US credit cards moving to contactless payments.

Certainly the increased focus on payments security is being driven by the range of new devices with smartphones, wearable technologies and the Internet of Things opening up a whole new range of commercial channels. This is something driving the development of services like Apple’s and Google’s payment system and part of a wider battle over who controls those channels.

Underpinning much of the security focus is the interest in blockchain technologies which move the authentication records off central ledgers – historically one of the core functions of banking – onto a distributed network of databases.

Core challenges

That shift in record keeping is just one of changes affected the banking industry’s core functions, crowd funding and peer to peer lending threaten to displace banks from being the main providers of business capital, one of the fundamental reasons for the banking sectors existence.

It should be noted though the banks have largely stepped away from being the providers of small business capital over recent decades as the ill conceived ‘reforms’ of the 1980s and 90s saw the finance sector being more focused on housing lending and doing mega M&A deals with the big end of town.

The Financial Times report notes a decline in M&A deals is one of the drivers for the staff lay offs at the major banks, it’s notable that technology is changing that business function as much of the due diligence can be better done by artificial intelligence and algorithms rather than highly paid corporate lawyers and bankers.

Where have the bankers gone?

As the banks lay off senior staff, it’s notable many are finding their way to fintech companies. The Wall Street Journal however describes the relationship between incumbent banks and their would be disrupters as far more complex than it seems.

Increasingly banks are buying or taking stakes in promising startups along with establishing their own investment arms and running hackathons to identify potential disruptors. Many in the banking industry are quite aware of the changes happening.

That the banks are adopting the new technologies and identifying the threats shouldn’t be surprising, over the past fifty years the sector has been adept at applying technology from batch processing on mainframe computers through to deploying Automatic Teller Machines and rolling out credit cards to improve their business operations. Banking is one sector that’s proved itself fast to identify and adopt technological changes.

Are the banks going away?

So with fintech startups snapping at their heels, is it likely today’s banks are heading for extinction? Probably not suggests the CEO of fintech startup Currency Cloud, Mike Laven who describes such talk as being part of the “Level 39 bubble”, referring to the financial services startup hub based in London’s Canary Wharf.

Laven’s view is some banks will evolve while others won’t do so well and historically that’s what we’ve seen with other technological shifts – some of the incumbents adapt and reinvent themselves while others are not so adept and wither away.

Some of the bigger threats to banking may be social and economic change. Today’s rising of interest rates by the US Federal Reserve may mark the end of the last decade’s ‘free money’ mentality that’s been so profitable for them in recent times. The end of the consumerist era also challenges those financial institutions basing their business models on a never ending growth of consumer spending and household debt.

Almost certainly the banking industry is not going to vanish, however it is going to be a very different – most definitely a much leaner – beast in a few years time. What is certain though is the days of banks as we’ve known them in the second half of the Twentieth Century are undergoing dramatic change in the face of technological and social change.