Category: Australia

Milking the dead cow

How Sensis killed itself and the lessons for Australian business

Many big Australian businesses seem untouchable as they dominate their markets to degree almost unknown in most other developed countries. As the story of Sensis shows, Australia’s big duopolies may not be as strong as they appear.

The last few months have been tough for Sensis; revenues last year fell nearly 25%, the once strong business was folded into the latest incarnation of Telstra Digital Media and now the CEO Bruce Akhurst has departed after seven years.

What could have been a dynamic business is now shriveling away, what went wrong?

Milking the revenue cow

Bruce did a good job of keeping revenue coming in during a period that the then owners, the Federal government, wanted to maximise the book value of Telstra before its sale.

Year upon year Sensis could be relied upon to squeeze more money out of the businesses advertising in it.

Management were focused on extracting revenue from the existing client base rather than responding to the obvious threat from online search.

Expensive distractions

When senior management decided to respond to the online world, they were sucked into unnecessary and expensive distractions; the most notable being the 2005 launch of Sensis Search where the then Telstra CEO – the disastrous Sol Trujillo – famously sneered “Google Schmoogle”.

Three years and hundreds of millions of dollars later, Sensis admitted defeat. By then the small business advertisers who were the life blood of the directory market had woken up to the reality their customers weren’t using the Yellow Pages anymore. Sensis had missed the boat.

Clunky processes

Whenever I spoke to small businesses about Sensis through the 2000s there was the same complaint, “I don’t have time to deal with their sales people, just let me tick a box on a web page or send a fax!”

Purchasing space was difficult for customers, their 1950s Willy Loman sales model should have been automated in the 1990s and never was.

Instead Sensis was locked into a high cost sales model and added friction for advertisers which they shouldn’t need, not only were they expensive but they actually made it difficult for their customers to place orders.

Should Sensis have been sold?

At its peak in 2005, Sensis was valued at between 8 and 10 billion dollars as a stand alone company.

Many, including myself, believe that breaking Sensis away would have been the best result given Telstra were at the time focused on protecting their fixed line copper wire monopoly and the directories business was not getting the management attention or capital investment it needed.

History shows though that we might be wrong.

Commander Communications was spun off from Telstra in 2000 and like Sensis had inherited an almost monopoly position in the small business communications market.

By 2007 Commander was out of business thanks to a combination of incompetence, management greed and an inability to recognise the changing communications marketplace.

The Australian disease

Commander’s biggest problem was it saw its customers as cash cows, just as Sensis did. This exposes a much deeper problem in Australian industry and management culture.

Over the last thirty years Australian government policies have seen duopolies develop in almost every key sector of the economy.

All of these duopolies share the same “customer as a milk cow” philosophy which, along with the rampaging Australian dollar, has dragged Australia into being a high cost economy.

The banking industry, while not a duopoly for the moment, is an even more debilitating example of the cash cow syndrome where small business has been crippled by excessive interest rates and fees – particularly since the 2008 crisis.

Sensis’ demise is systemic of a culture that fixates on extracting maximum revenue from customers; concepts like innovation, R&D or adapting to market trends don’t have a role in this mentality.

Milking cows is a fine business, but sometimes you have to think about the health of the herd.

Similar posts:

Building a digital economy

How does a state build new industries?

Yesterday the NSW Government hosted the Sydney leg of their Digital Economy Industry Action Plan forum meetings.

The aim of the action plan, one of a series for targeted industries, is to develop “a vision and strategy for the Digital Economy over the next decade in NSW.”

So how do we build a “digital economy industry” in a country that seems to be hell bent on staking everything on China’s continuing demand for coal and iron ore?

Picking winners

One of the things implicit in forums and plans like this is that the government has identified the ‘digital economy’ as a priority for economic development.

To help identify the opportunities the New South Wales plan breaks the sector into various industries;

  • Digital content and applications
  • Information services and analytics
  • Smart networks and intelligent technologies
  • Autonomous systems
  • E-research
  • ICT service innovation
  • ICT biomedical innovation
  • ICT safety and security innovation
  • Locally developed technologies and applications

The underlying assumption is the state has some sort of natural advantage in these areas or the potential to develop into a leader.

If these are the foundations of a region’s digital industries then we have to understand how they were identified as it’s difficult to build an industry if we don’t know what we can do.

The role of government

An important question is the role of government, an unfortunate thing with bureaucrats and politicians is they sometimes over estimate the influence they have on industry and the economy in general.

In NSW the state government’s role is going to be at best marginal, they can establish policies and offer financial incentives but business needs access to essential skills, finance and infrastructure.

Walking the talk

It’s all very well for governments to proclaim they support local businesses but if they prefer to buy from multinationals – even if the big boys are more expensive and have a less than stellar delivery record – then the domestic industry cannot thrive.

To be fair to governments, this reluctance to buy from local suppliers is shared by Australian corporations and on its own is probably one of the biggest obstacles for innovative companies and entrepreneurs to thrive in Australia.

Until this attitude changes among governments and corporations, it’s  difficult to see how local businesses can develop and survive.

Open data

For the digital industries, open data is probably the most important aspects. Unfortunately the current generation of Australian public servants, managers and politicians share an almost Stalinist view about access to taxpayer owned information.

Without making public data accessible so entrepreneurs can develop new applications and existing industries can improve productivity, governments are only giving lip service to building a digital economy.

A good example of this is the expressed desire of successive state and Federal governments to build Sydney as a global financial centre.

To do this, free and open investment information is essential yet company and stock exchange data that is assumed to be public information in the United States and much of Europe or Asia is propitiatory and locked away behind paywalls.

Government and corporate obsessions with controlling information makes it unlikely any Australian state or city can be global centre in the digital economy or the banking sector which the NSW government sees as an other priority sector.

Consistent standards

Another area governments can improve is by having open standards across government agencies so, for instance, land information can be properly matched with health data or public transport details.

Right now policies on data and things like social media or content platforms is fragmented making the cost of government and doing business more expensive and convoluted than it should be.

Promote advantages

One of the weaknesses in Australia’s overseas marketing is the nation is portrayed as a bunch of alcohol swilling beach bums cuddling koalas.

Google Maps founder Lars Rasmussen once said Google’s head office reaction when he suggested establishing a development office in Sydney was “what are you doing to do? Sit on Bondi Beach and drink Fosters?”

A missed opportunity in Australia’s disjointed tourism and investment campaigns is ignoring the nation’s diverse ethnic and skills base. We need more emphasis on the multilingual skills of the state’s workers and less on bikini babes.

Capital Problems

Whenever a group like the forums gather, there’s always complaints about Australian business’ access to capital.

Australia’s taxation, finance and social security system favours speculation on the share and property markets rather than long term investments or taking risks on new business ideas.

Three generations of these policies have a created a population who, understandably, see owning property as the safest way to provide for retirement. The banking system has responded to this and is reluctant to lend for anything not secured by real estate assets.

At the same time we’ve allowed the compulsory superannuation system to be dominated by flaccid ticket clippers who are content to charge working Australians outrageous fees for hugging the stock indexes.

Sadly what should have been a source of capital for innovative businesses largely spends its time lobbying governments for more protection and a bigger cut of workers’ incomes.

The access to capital is a serious problem for Australian business and one that can’t be kicked up the road for ever by Liberal or Labor Federal governments but it isn’t something the states can fix.

Not only do the distorted investment priorities of Australian society damage developing industries, it almost certainly guarantees the dream of making Sydney a global financial centre unattainable.

Education

One of the canards that always pops up at industry development forums is that educators aren’t in touch with employers’ needs.

There’s a certain type of business manager or owner who believes the roles of schools, technical colleges and universities is a sausage machine popping out perfectly formed young workers who can pick up a spanner, hair clippers or a copy of Photoshop and start productive work straight after being shown where the tea room is.

Those business owners are deluded.

None of that’s to say educators shouldn’t be adapting to their times as well as being open and transparent but the idea that the role of schools is to equip kids with the skills we need today would see them unprepared for next decade’s economy.

Equally however, Australia’s universities and training colleges have been encouraged to offer third rate courses to overseas students attracted by the prospect of getting permanent residence in the country. That bums on seats model had hurt the quality of the nation’s education sector and the skill levels of graduates.

Attitudes

The most essential part of building any nation’s industry is the attitude of people – if the prevailing view is it’s too hard, or threatens established interests then it won’t happen.

Probably the best advantage New South Wales, and all of Australia have, is a comparatively young, diverse and outward looking population.

The best thing the government can do in trying to build new sectors, be they in the digital economy or anywhere else, is to fix what they can such as procurement, open data or taxation and get out of the way.

A constant dreams of governments is to build the next Silicon Valley, just as it once was to build the next Detroit or Birmingham.

The era of the big engineering works passed, at least in the Western world, and the age of venture capital driven social media platforms will probably be over soon as well.

Aping someone else’s success – while ignoring the historical factors and accidents that created it  – seems a guaranteed way to disappointment.

The best part to build a digital economy, or any thriving society, is to encourage the risk takers and the inventors. Bring them together, let them loose and you build the next economic powerhouse.

Similar posts:

Investing in the future

Investment is not a cost

UK supermarket chain Tesco announced it intends to create 20,ooo new job over the next two years through “significant investment in customer service, refreshing existing stores and opening new ones”.

That word – investment – is the key to business growth. Not whining about the internet stealing jobs or begging the government to bail out failed industries and their managements.

Investment is more than just buying a shiny new machine, it’s also research, development, training and educating a business’ management, staff, suppliers and customers.

Too many businesses and governments are locked into the the 1980s mindset that investments, along with things like customer service, are a cost that that has to be driven down.

Driving down costs was profitable for many managers through the 1990s and early 2000s, in fact we could argue this was one of the big drivers of corporate profits and productivity through that period.

While some of those costs were undoubtedly unnecessary and deserved, it’s now clear that many governments and businesses ran down investment as well.

Today we’re seeing the results of that; crumbling infrastructure, skills shortages and businesses that can’t compete in a changing global economy.

What we invest in our businesses – be it time or money is essential to its long term success. Only the biggest companies in the most protected industries can survive for a while without investment.

Similar posts:

  • No Related Posts

Why we should give Gerry Harvey a break

Big retail’s problems could be ours as well

Gerry Harvey’s been having a bad year. This time last year he was moaning about the Internet stealing his business and now his profits are down.

In Mark Fletcher’s Newsagency Blog, Gerry gets a serve for dragging the entire retail channel down.

Mark quite rightly points out that Gerry’s problems are of his own making and his chain’s difficulties aren’t necessarily those of the rest of the industry or even shared by individual franchises within the Harvey Norman group.

While I’ve been as critical of Gerry as anybody else, maybe it’s time to give him a break.

It’s worth considering how Gerry made his billions. When he started in business in the late 1950s, it was tough for the average person to get credit. At best working families could get something put aside at the local store or enter into an Encyclopedia Britannica style subscription plan.

Gerry and his generation of retailers changed that. They made credit available to the masses who could suddenly afford to buy household appliances and electrical goods without years of savings.

I remember my parents buying things from Norman Ross, Waltons or the ACTU’s Burke Street store (Bob Hawke once stepped on my mum’s foot while she was shopping for a sofe) because working class people could get credit there.

Gerry was at the beginning of the consumer revolution that defined the second half of the Twentieth Century.

In the late 1980s financial deregulation changed the game again and Gerry’s business took off as credit became even easier to get with new providers entering the market. First we saw three month interest free offers and by the mid-2000s six year interest free deals were available.

These deals were so good that Harvey Norman franchisees often made more money selling the credit deals than on the actually product that the ‘no interest’ loan had been taken out to buy.

For Gerry, this was insanely lucrative as his business was able to clip the ticket at almost every level of the retail and distribution chain while moving much of the risk and capital cost onto franchisees and landlords hungry for high traffic anchor tenants.

In 2008 this entire model changed as the credit boom came to a crashing halt and consumer spending with it.

Business models based on cheap credit now have to find something else that works and this is what Gerry Harvey is now struggling with.

To complicate matters, the Internet has changed the distribution model that worked for Harvey Norman and other bricks and mortar retailers. All of them are now having to make a major shift in the sales cultures.

Adapting to this new world is tough for everybody and we should have some sympathy for Gerry Harvey as our businesses and jobs are being affected by exactly the same forces.

How Gerry adapts, or doesn’t, could be a bellwether for our own industries.

Similar posts:

Competing in a high cost world

Business can compete when costs are high and currencies are strong

It’s often said that Australian businesses can’t compete and the nation can no longer can support manufacturing or high tech industries.

With the high Australian dollar, many economists, business leaders and politicians have said industries have to adapt to being an expensive economy. Interestingly, few of these experts explain how businesses should, or can, adapt.

At the recent Kickstart forum I had the opportunity to meet two Australian companies succeeding with high tech products and using the high dollar to their advantage.

David Jackman of Pronto Software, a thirty year old business intelligence company, is proud of the fact the business he leads does most of its development in Australia. As business owned by it’s employees – Pronto had  an employee buy out in the late 1990s – he sees his role as building the business to last centuries like some European businesses.

Linus Chang developed his Melbourne based business, Backup Assist, when he discovered the data backup tools built into Microsoft Windows weren’t very good. Taking the basic Microsoft products, he added the features that made these tools usuable at a fraction of the cost of bigger companies’ data backup software.

Today Backup Assist is sold in 124 countries with the US as the biggest market.

Both Backup Assist and Pronto find keeping the bulk of the software development in house in Australia makes sure they are producing high quality, effective products.

Software development isn’t the only sector dealing with the high cost evironment, David Jackman says Pronto has many customers in the Australian manufacturing industry who have adapted to a high cost environment with niche and high value added products.

Identifying these opportunities is where the challenge lies; what do our businesses do well that customers in international markets are prepared to pay for?

We also have an advantage in being a relatively open economy with first world standards. This is another reason why investment in new infrastructure like the National Broadband Network is important.

One thing is for sure, selling low priced commodity products with small margins is not where the future lies, even if the Aussie dollar collapses.

We have success stories and businesses adapting to being a high cost economy, it’s a matter of understanding how our industries can add value while  do this.

Similar posts:

Why Dick Smith is wrong about overseas buyers

Foreign investors are desperately needed in Australian retail

Last week’s announcement that Woolworths will sell their Dick Smith chain of electronics stores wasn’t surprising and neither was the reaction of the chain’s founder to the idea of the business being sold to a foreign buyer.

For all his legitimate concerns about Woolworth’s growth model, Dick Smith is wrong about the sale of the stores. It’s almost essential for Australian consumers and business that the chain is sold to a foreign retailer.

When Dick sold his business to Woolworths in the early 1980s it was the beginning of a long consolidation process across Australian industry that now sees most business sectors dominated by duopolies or – at best – three or four incumbents.

In retail, the Coles and Woolworths duopoly dominates groceries, liquor and petrol. The power of these companies was illustrated yesterday with Coles’ announcement of price cuts to various greengrocery lines.

Having a new player enter the market is always an improvement; in neighbourhoods where foreign retailers like Costco and Aldi operate or where a keen, smaller operator decides to compete with the big boys the response is always better prices and service.

More importantly bringing in overseas owners will bring in fresh thinking and new ideas. New blood in the retail sector may even stem the brain drain where many young, innovative future business leaders are forced overseas because of the limited opportunities in the incumbent duopolies.

Where Dick is right is that the electronics retail business is dying as fat profits in the sector are a distant memory in what is now a tight margin, fast moving consumer goods industry. To make things worse, consumer electronics aren’t even fast moving in the post GFC economy.

Adding to the retailer’s pain the collapse in margins has happened at the same time commercial rents have risen dramatically with Sydney now being cited alongside Hong Kong, London and New York as the world’s costliest shopping strips.

While suburban shopping centres don’t have the same rents as the Pitt or Bourke Street Malls, they still have risen dramatically in the last decade, catching all retailers in a vice between rising costs and falling margins.

In order to maintain profits, training and staff development have been slashed. Once up a time, a customer would go to a Dick Smith or Harvey Norman store to get informed advice on the best gadget, those days are also long gone as poorly trained staff fight to sell the products with the best commissions.

Owners of the stores have made it harder to recruit and train motivated staff when employer consider hospitality and retail jobs to be temporary, low esteem positions with few prospects.

This deskilling isn’t just an issue for the retail industry – it’s something we’ve seen across the Australian economy in the last thirty years. As training and skills development has been seen as an unnecessary business cost.

Tourism Australia chairman Geoff Dixon’s recent comments about the Australian tourist industry having to accept being a high cost destination is a symptom of this disconnect. The local tourism industry has no chance of moving up the value chain when there is no service culture among staff and no long term management vision to develop one.

It would be unfair to just pick on any one individual or business for these problems. We have a structural problem in the Australian economy that’s fuelled by entrenched beliefs and habits of a stagnant senior managerial class.

We desperately need new people and ideas in Australian management to shake up the staid duopolies and oligopolies we’ve allowed to develop in the last three decades, that’s why Dick Smith is wrong to say a foreign owner for the electronics chain he founded would be bad for the country.

Image courtesy of Icelandit on SXC.hu

Similar posts:

Scam 2.0

We’re about to see a new wave of business scams

Invoice scams are as old as business itself, no doubt opportunistic cavemen tried to scam other hunters over made up debts and Phoenician traders had to deal with suppliers claiming they’d delivered an extra few hundred Shekels of chickpeas.

Today we see these scams in all forms – imaginary invoices for web registrations, directory inclusions and local listings are just a few we’ve seen. As the web evolves, we’re seeing a new breed of tricks developing.

Online scams can range from things like letters from deposed African presidents promising riches through to aggressive sales folk promising services they can’t deliver. The latter are part of the new breed.

In 2009 Oakland’s East Bay Express alleged the review site Yelp’s sales teams were threatening business with bad reviews if they didn’t pay an advertiser fee. Four years later businesses are claiming this is still happening.

Regardless of the truth of these allegations with Yelp these distatesful sales tactics from online companies are becoming more widespread.

As social media services investors start demanding revenue to back their businesses and group buying sites reach the limits of their growth the sales teams of these organisations are desperately try to find new ways to meet higher targets.

Small and local businesses are the obvious targets of the sales teams, as the web 2.0 business model has trained consumers into expecting not to pay for online services.

Recently a fitness trainer told me how she was hounded into placing a group buying deal with one of the bigger sites; they convinced her that she should offer an 85% discount with the service taking the remaining 15%.

She provided the service for free.

Naturally the 85% off deal was successful, she was rushed off her feet and found herself working for nothing over the next month. Even had the cheap offer resulted in all the customers coming back, it would have taken her a year to recover her losses.

Clearly she should have known better and investigated how group buying sites work and the strategies for using them effectively, but she was subject to high pressure sales techniques that took advantage of her ignorance.

Many online businesses have been giving services away for free as they try to exploit the Silicon Valley greater fool business model. When the venture capital funds dry up they have to find to new ways of paying for their trendy offices with foosball tables and free organic staff meals.

This means more cold calls to business owners promising “marketing opportunities”, “getting to the top of Google” and “getting positive online reviews”.

Over time these sales calls will morph into fake negative reviews and bills for imaginary services rendered as these businesses attract desperate and unscrupulous operators.

For businesses, this means it’s a time to be on guard by making sure any invoices received are properly checked before they are paid and any sales person’s claims are thoroughly checked out before you agree to go ahead with a service.

If you hear of dodgy dealing like what Yelp has been accused of, then try to get the promises in writing and complain to your state’s fair trading department or complain to business agencies. In Australia, the ACCC is the first point of call.

Similar posts: