entrepreneurs | Paul Wallbank - Communications Professional

Jumping the queue

Reservation Hop illustrates all that is wrong with the current startup culture

Reservation Hop is a good example of many of the current breed of parasitic startups that want to create a new class of middleman.

The hospitality industry is tough work and something guaranteed to irritate restauranteurs are reservations that don’t show up.

One startup that seems almost certain to attract the ire of the restaurant industry is Reservation Hop – “We make reservations at the hottest restaurants in advance so you don’t have to.”

Reservation Hop makes table reservations at popular restaurants and then sells them through their website.

We book up restaurant reservations in advance. We only book prime-time restaurant reservations at the hottest local establishments, and we mostly list high-demand restaurants that are booked up on other platforms.

This is probably one of the worst examples of the middleman culture that dominates much of the current startup thinking.

Almost certainly there’s a market need for proxy queue jumpers – although one wonders how profitable it is when the transaction fees are under $10 – but this service will deeply irritate restaurant owners and diners who are crowded out by these ‘parasite’ services.

In many ways, Reservation Hop illustrates the problems with this phase of our current startup mania; the rise opportunistic businesses that are more akin to parasites than services that add value.

The Reservation Hop website assures patrons that there’s a 99% chance their booking will be honored by the restaurant on the night, we can expect establishments to start messing with that statistic as they wise up to the business.

Many in the startup sector speak about how new technology improves the world, services like Reservation hop illustrate that not every idea is a step forward.

Solving a global capital crisis

Kiva and crowdfunding challenge the global small business funding crisis.

“We face a global capital crisis,” states Julia Hanna, the chair of crowdfunding platform Kiva.

In a story written with Kiva board member and LinkedIn founder Reid Hoffman, Hanna discusses how crowdfunding platforms are replacing banks as the source for businesses around the world.

Throughout world banks have effectively stepped out of the small business market, despite the world being flooded with cash to keep the global economy afloat over the last five years. Hanna writes about the US experience;

big banks currently reject more than 8 out of 10 loan applicants, and small banks reject 5 out of 10. Some estimates suggest that investment in small businesses has dropped as much as 44 percent since the Great Recession in 2008.

While the Great Recession had a lot to do with the collapse in small business lending in the US and Europe, the decline in bank support for main street dates back to the first Basel Accords established in 1988.

Basel judged banks’ risks on the classification on their assets – government bonds were the safest and domestic property was the preferred private sector asset with small business lending being a long way down the risk.

Following the cues from regulators, banks favoured mortgages which they could them securitize and onsell to investors; this gave rise to the sub-prime lending markets, Collateral Debt Obligations and eventually the Great Recession itself.

Six years after the great recession started and despite massive amounts of capital being injected into the banking system, the small business sector is still being capital starved.

As Hanna and Hoffmann state in their article, crowdfunding sites like Kiva and community initiatives are changing the banking system and it could well be that today’s trading banks.

Having neglected their core purpose of funding business and industry, are now as vulnerable to disruption as other industries as small businesses, entrepreneurs and communities look elsewhere for their capital needs.

Tell me something I didn’t know

Co-founder and CTO of Sugar CRM, Clint Oram, sees software changing in the way it delivers value to users and customers.

“Tell me something I didn’t know about my customer;” is what Clint Oram demands of his software.

“If you think about legacy of Customer Relationship Management tools it’s really been about entering something I already knew about by customer so my manager can keep track of me.”

Oram sees that changing with Sugar CRM, the open source Customer Relationship Management software company he co-founded in 2004 at a time when the software industry was coming out of the post dot com bust depression.

“There was a huge backlash by customers to the enterprise software market,” Oram remembers. “There were a lot of hopes and promises made of all this fantastic software that would change the world. The reality was a lot of it didn’t do anything.”

Foundations for the cloud

In Oram’s view, that disillusionment formed the basis of today’s cloud based software businesses with the market’s demand that software be delivered as a service, reducing up front commitments to any one product, commercial open source that gave customers a stake in development and annual subscription licensing.

That last factor – a radical change to the traditional software model that saw small businesses buy boxed programs and larger enterprises negotiate complex agreements with expensive implementation projects – is the biggest change to the modern software industry.

Oram sees that as challenging those established giants like SAP, Oracle and Microsoft; “in the past it was ‘here’s my software, goodbye and good luck. Maybe we’ll see you next year.”

“If you look at those names, the competitors we see on a day-to-day basis, several of them are very much challenged in making the shift from perpetual software licensing. It’s been a challenge that I don’t think all of them will work their way through, their business models are too entrenched.”

“Software companies really have to stay focused on continuous innovation to their customers.”

Freemium challenges

From his ten years in business, Oram learned the freemium model is a difficult way to run a business, “we learned that the freemium model is challenging and you gotta really focus on differentiation across your software editions and deliver clear value to each customer segment.”

While the Freemium business model remains a challenge, Oram sees mobile and the cloud as driving the CRM industry with the sector focusing on delivering more customer insights as software increasingly goes mobile and gets better at predicting behaviour.

“We’re taking these cloud, mobile based platforms that can be delivered anywhere and anytime,” says Clint “and now work on collecting that data about your customers and telling you what you should do next.”

“How do you help your customer to get the fullest value out of working with you.”

Delivering value to customers is a challenge not just for the software industry; in an era where business is far more competitive, it’s a question facing all industries.

Customer service is no longer a department

Customer service needs to pervasive through modern organisations says Salesforce’s Alex Bard

When it comes to customer service businesses, Alex Bard calls himself a ‘career entrepreneur’, having founded four startups in the field since the mid 1990s.

In 2011 he sold his most recent business, Assist.ly, to Salesforce and became the company’s Vice President for Service Cloud and the Desk.com customer service offerings.

Bard tolds Decoding the New Economy last week how social media and Big Data are radically changing how organisations respond to the needs of their clients.

“I’ve been in the industry for twenty years and I’ve never been excited as I am now,” Bard says. “The real transformational things that’s happening now are these revolutions – the social revolution, the mobile revolution, the connected revolution.”

The philosophy of customer service

“What they’re really driving is this idea that customer service is no longer a department, it’s a philosophy.”

“It’s a philosophy that has to permeate throughout the organisation. Everybody in the company has a role in support. It’s not just about a call centre or a contact centre or even an engagement center which is what these things are called today.”

“I really don’t like the word ‘centre’ because I really fundamentally believe that everbody in that company has to interact with customers, has to engage and has to the information – no matter they are – about that customer to provide context.”

Abolishing the service visit

With the Internet of Things, Bard sees GE’s social media connected jet engine as illustrating the future of customer service where smart machines improve customer service.

“They’re going to capture more data in one year than in their entire 96 year history prior,” says Bard. “With that data they’ll be able to analyse and do things on behalf of that product or service that’ll reduce the number of issues.”

“Because the best service of all is one that doesn’t have to happen.”

In this respect, Bard is endorsing the views of his college Peter Coffee who told Decoding the New Economy last year that the internet of machines may well abolish the service visit.

“Connecting devices is an extraordinary thing,” says Coffee. “It takes things that we used to think we understood and turns them inside out.”

“If you are working with connected products you can identify behaviours across the entire population of those products long before they become gross enough to bother the customer.”

For Alex Bard, the customer service evolution has followed his own entrepreneurial career having evolved from being personal computer based in the 1990s to today’s industry that relies on cloud computing, big data and social media technologies.

As these technologies roll out across industry, businesses who adopt the customer service philosophy Bard describes are much more likely to adapt to the disruptions we’re seeing across the economy. Changing corporate cultures is one of the great tasks ahead for modern executives.

What do startup founders really earn?

A global survey of salaries drawn by startup founders illustrates some truths about being a business enterpreneur

One of the myths of the current cult of the entrepreneur is that everyone will be a winner as their startup gets bought out by Google for a billion dollars. The reality is life for a startup founder is a grind.

Startup Compass looked at 11,000 startups across the world to discover what founders really earn and the results show the reality of life when you’re starting up a business is that the wages are pretty poor.

In San Francisco, London and New York, the wages are piddling compared to the cost of living in those cities.

Low pay and business success

This is good news for investors though, as there’s a clear correlation between the success of a startup business and the salaries its key staff members draw – successful businesses are built on the back of founders ploughing everything into the venture.

It’s also high risk as a failed business can leave the founder with nothing to show for several years of hard work, something that’s overlooked by the ‘liberate yourself from your cubicle’ gurus advocating everyone starts up their own venture.

Australia’s high cost economy

Notable in the stats is the high rates demanded by Australian founders, more than 25% higher than their Silicon Valley counterparts and a gob-smacking 60% more than London or Canadian equivalents.

Australia’s high cost of doing business was emphasised last year where a comparison by Staff.com found Sydney was the second to Zurich as a place to base a tech startup. Worryingly, that survey didn’t consider owners’ drawings.

Part of Australia’s high wage requirements are no doubt due to the country’s lousy tax treatment of options and share plans but a bigger problem is property ownership – an Australian who hasn’t bought a home by 35 is destined to be one of the nation’s underclass.

So an Aussie entrepreneur has to earn enough to qualify for or service a mortgage, it also discourages Australians from starting even moderate risk ventures.

The consequence of the need to draw a high salary is that the proportion of investor funds that goes into founders’ wages is almost three times higher in Australia than it is in Silicon Valley. That’s a big disincentive for foreign investors to put money into Aussie startups.

If you wanted an example of how uncompetitive the Australian economy has become, this is a good start.

Regardless of where a startup is based though, the message remains that the road to a billion dollar buyout from Google or Facebook is not paved with gold.

Uber and the evolving business model

Where does the future lie for car hire service Uber?

Last year we looked at Uber and speculated the software that runs the business positions the company to be more than just a hire car booking service with applications in logistics and other sectors.

This week Uber’s CEO Travis Kalanick is getting plenty of coverage in the media with extensive profiles in both the Wall Street Journal and Wired.

Wired’s profile of Kalanick and Google raises Uber’s potential in logistics, funded by a $258 million fund raising led by Google Ventures last August.

“We feel like we’re still realizing what the potential is,” he says. “We don’t know yet where that stops.”

While Wired speculates about how Uber would perform against Amazon and Walmart, the car service is different in being more of a big data play than its established, possible competitors.

The three businesses would be very different creatures in the way they would address consumer markets, it may even be that Uber is more suited to being a B2B or wholesale operation rather than a retailer like Walmart.

Interestingly Kalanick looks at a target of 2,000 staff by the end of this year reports in his Wall Street Journal interview.

Mr. Kalanick: We have 550 employees. That’s approximate. We’re definitely going to be well over 1,000, maybe in the 1,500 to 2,000 range [by the end of 2014].

Having a staff target so high is interesting, it certainly indicates Kalanick sees plenty of growth ahead in the business.

When entrepreneurship gets old

As the baby boomers retire, the cruel reality of demographics is forcing them back into business

As part of their series on America’s aging population, Bloomberg looks at the story of 61 year old Lee Manchester who lives in a friend’s basement.

While the Bloomberg story focuses on the contrast between Lee and her father who benefitted from the post World War II economic boom, the real story is Lee’s work history.

Key to her work history is her setting up a business in 1986, that business failed in the late 1980s recession and Lee ponders what might have been had she not made that investment.

Lee sometimes can’t help dreaming about the trips she’d be planning if she’d invested the $150,000 she spent to start a construction company.

This is the downside setting up your own business that those currently peddling the cult of the entrepreneur don’t mention. If the business fails, and many do, then the costs can be high in lost savings and damaged career opportunities. Being an entrepreneur is high risk, hard work.

We may well find though that more people find themselves launching businesses in their older years as the economic realities of the post baby boom era start to be felt by communities.

In many respects though Lee is ahead of the curve, the generation behind her have no expectations of a long and affluent retirement, “the government will abolish the pension about two years before I retire” is the common theme among Gen Xer and Ys.

For GenYs and Xers this attitude is realistic, the demographic sums that worked for Lee’s father are now working against them while the post war economic system that guaranteed Lew Manchester a safe job and company pension ceased to exist in the 1980s.

Had boomers like Lee been thriftier, they would have still been hurt by a shift to 401(k) accounts from pensions in the 1980s. Thirty-seven percent of the elderly in the U.S. collect pensions, which provide some guaranteed income until they die. Fewer than 10 percent of boomers collect pensions, and that number is quickly shrinking.

Lew’s generation were the lucky ones, while the boomers – particularly the early boomers born between 1945 and 55 – believe they are entitled to similar benefits as their parents, their reality is going to be a much harder and precarious existence into old age.

While Lee is paying the price for interrupting her career with a stab at running her own business, in many ways she’s better prepared for a future that is going to require people of all ages to be more entrepreneurial.

In fact, many of those baby boomers forced to become entrepreneurs may well enjoy it, “launching the business was the most fun I ever had and my way to fight a frightening medical diagnosis” says Lee.

As the reality of their financial situation dawns upon them, many of Lee’s contemporaries are going to find themselves launching businesses long after the age they thought they were going to settle into a sedate retirement – lets hope they have fun too.

Finding the mythical pot of gold at the end of the crowdfunding rainbow

Raising capital through crowdfunding sites like Kickstarter is only the beginning for most businesses.

Raising capital is tough, while the Silicon Valley legend of a smart group of geeks finding wealth through fairy godfathers – aka VCs – throwing money at them may be true for a small number of outliers it isn’t the reality for most businesses.

For most businesses, even if they are lucky to find a VC or angel investor, raising that money is usually the start of the next phase of building a venture which can be even tougher.

With the recent rise of crowdfunding sites like Kickstarter, Indiegogo and Pozible which are a lot easier to raise capital through than finding VC or angel investors, there’s been a lot more commentary on how these services are a pot of gold for artists and entrepreneurs.

Mark Pesce discussed some the challenges of Kickstarter campaigns in an interview on the Decoding the New Economy YouTube channel about funding Moore’s Cloud.

Backing Mark’s views is a post on Fast Company’s design blog discussing what happens after a successful campaign.

In Life after Kickstarter, Jon Fawcett describes what happened after raising over $200,000 for his project Une Bobine.

Having more than met his targets, Fawcett found raising the money was only the start of the business challenges with logistics, taxes and fulfilment being hurdles his team had to overcome.

Fawcett actually had an advantage in had tied manufacturers up before launching the funding campaign; for those who haven’t, the process would be even more fraught.

As the Fast Company story concludes, the successful fund raising was only a small, albeit critical, part of getting the products to market.

Fawcett’s story is a reminder that a product’s journey doesn’t end with funding. While Kickstarter has democratized and decentralized the process of raising capital, concerns of manufacturing, shipping, and storage still retain the unglamorous grit of the real world. There’s no flashy website for setting up your supply chain. Perhaps that’s the next part of this grand process prime for disruption.

While raising capital is tough, it’s only part of the story of a successful business. Jon Fawcett story is a reminder of that.

Passion and LinkedIn – how Connect2field went global

Connect2field founder Steve Oronstein tells how a combination of passion, smart investors and LinkedIn helped his business grow.

Passion is the key to building a successful startup business believes Connect2Field‘s Steve Oronstein.

Running an IT support service is a tough game and it was the lessons Steve learned in running a PC service business during his teens gave him the passion to solve some of the industry’s problems and the idea to launch what’s become part of a global business.

“My very first business when I was nineteen was an IT support business,” Steve says. “During that business I saw it was an absolute nightmare being able to manage all those field workers, managing job sheets and invoicing customers.

“I did that for four or five years and then decided I didn’t want to do that all,” remembers Steve. “I started seeing some opportunities to do some work in job management. From the knowledge I had from the problems in the previous business, I could see there was an opportunity for a product.”

Finding international investors

Steve quickly realised there was an international market for that business and Connect To Field quickly caught the attention of global investors, “I would constantly receive emails from VCs about investing the business.”

One day Steve received a LinkedIn connection and the path to being acquired by a larger company started.

“At the time Fleetmatics came along there were two businesses that were looking to acquire the business. That happened through a LinkedIn connection.”

“A request one morning from someone from Fleetmatics wanting to connect with me and wanting to talk about a partnership. That happened very quickly and we were acquired.”

The importance of smart investors

Steve thinks investors have been a critical part of the business’ growth and not just for the capital they bring in, but also for their expertise.

“The key thing in the very beginning was to raise investment from people who could also be mentors,” says Steve.

“I formed a board with five of people with skills in different parts of the business – legal, marketing, sales, technology”

“When we went through the acquisition space it was invaluable having a board we could bounce ideas off and strategise with.”

For Steve, his advice to other entrepreneurs is to be find a problem and be passionate about solving it.

“I was very passionate about being able to provide a solution for my customers and I knew that what we were delivering would add real value to those business.”

“Finding something that you’re passionate is the number one thing and the rest of it will follow,” says Steve.

London’s quest to be the next Silicon Valley

How London is building its place among the global technology centres

In November 2010 British Prime Minister David Cameron set out his vision for London becoming the centre of Europe’s digital economy.

“We’re not just going to back the big businesses of today, we’re going to back the businesses of tomorrow.” Cameron said. “We are firmly on the side of the high-growth, highly innovative companies of the future.

Three years later London’s tech scene is booming with more than fifty incubators across the city and over three thousand digitally connected businesses in the Shoreditch district.

Building London’s resurgence

Gordon Innes, the CEO of the city’s economic development agency London and Partners, puts this down to a combination of factors including a young and diverse population coupled with being a global media and finance centre.

At the time of Cameron’s speech the cluster of tech startups around Shoreditch’s Silicon Roundabout area was already firmly established and the British government was acknowledging the industry’s successes.

“What we did, what the mayor did, what the government did,” Innes said, was to make sure that we removed as many barriers as possible to let the sector grow as rapidly as possible.”

The value of teamwork

Part of that effort involved business leaders, London & Partners, the mayor’s and Prime Minister’s advisers meeting on a regular basis to thrash out what the tech sector needed for the UK’s tech sector to thrive.

“There were changes to the tax credits for R&D and an important one was the Enterprise Incentive Scheme,” says Innes.

“Linked to that was a recognition of the need to link angels and high net worth individuals to be educated about the sector. It’s not just enough to balance the risk through the tax code.”

Another success for the UK startup sector was the British government introducing an entrepreneur’s visa that makes the country more attractive to foreign founders of startups.

Having built an community of tech startups, the city is now looking at how to grow the sector. “The big priority over the next few years is growing your business in London.” Innes says.

“Making sure you’ve not only have access to angel finance but also to stage one and stage two venture fund capital, you’ve got access to capital markets through new groups on the stock exchange and the AIM market.”

One of London’s big challenges is linking the city’s strong financial sector to the tech industry with a range of organisations like London Angels and City Meets Tech.

Sharing the vision

A notable point about the successes of London & Partners and Tech City UK is the co-operation between the levels of government along with having a shared vision of where the city should sit in the global economy.

Having a unified, strong and consistent vision is probably the best thing governments can offer a growing entrepreneurial or industry hub.

“Government can’t create that but government can certainly support it or, if it’s not careful, can destroy it,” says Innes.

London is showing how to support a growing sector of their business community, other cities need to be taking note how they can compete in a tough global market.

A swarm of electronic dragonflies

A Spanish startup shows how the internet of machines is changing the business world having installed their sensors into everything from space ships to koala bears.

“Libelium comes from Libelula which means dragonfly,” says Alicia Asin, of the sensor company she co-founded with David Gascón. “The company was named after a swarming insect.”

“We try to solve the problem of dealing with a lot of different sensors and a lot of different protocols and different information systems so we created a hardware platform that sends any information using any communication protocol to any computer system.”

Bootstrapping a global business

Particularly impressive about Libelium is the business has grown to a global brand employing 40 people since 2007 when Alicia and David founded their business on their meagre savings.

“We started with literally wïth nothing, just 3,000 euros which is all you have when you are twenty-four” says Alicia.

After raising funds through some grants and investors, the company got on with selling their products.

“We never wanted to be a company where it’s comfortable for three years without making money so we shipped a product in seven months.”

“We realise now how smart that was.”

Agriculture and smart cities

Connected cites and agriculture are the sectors Alicia sees as being the greatest opportunities for the company.

“I think that cities are very interesting, not because of the technology but what it really means,” says Alicia. “If you are able to have a dashboard of the city’s performance and governments are willing to apply open data then you are really promoting transparency.

“That’s the best legacy of the Internet of Things.”

In Agriculture Alicia sees opportunities in high value crops like vineyards, “we can reduce the amount of fertilisers, we can prevent illnesses in vines and you can even design the type of wine as you can control the amount of sugar in the grapes.”

For Spain, companies like Libelium represent the future of the nation’s industry. “We really need to re-invent the country,” says Alicia.

“I’m always saying that Spain is becoming the Silicon Valley of Europe when it comes to smart cities. Not only in Barcelona but you also have Santander, you have Malaga, Madrid and Zarazoga.”

So it may be that along with a swarm of Libelium sensors, Spain also has a swarm of smart cities. It may be enough to re-invent the country along with the agriculture industry and local governments.

With more bootstrapped startups like Libelium, Spain may even build its own version of Silicon Valley.

Finding the smart money

Can events like Sydney’s AngelEd and London’s City Meets Tech help those cities become global startup centres?

Around the world startup communities are working to connect with local investors, in Sydney and London two groups are showing how it is done.

“We’re looking at turning idle money into start money,” is the aim of Sydney AngelEd says one of its founders, Ian Gardner.

Fitting startup companies’ capital needs into the established criteria of investment managers is an ongoing problem that AngelEd’s founders want to resolve. “We see startups becoming an asset class,” says Gardiner.

AngelEd, to be held on November 7, aims to educate high wealth investors and asset managers on understand the risk, benefits and hype around angel investment, particularly in tech companies.

The global search for funds

Startups around the world are struggling to engage with investors – in London, the local tech community has set up City Meets Tech to introduce British investors to high growth companies.

London should have an advantage in this field given its leading role in the global finance industry, however the challenge for the tech community is to find financiers who are prepared to accept higher levels of risk than mainstream investments.

“The City is generally risk adverse and doesn’t understand tech and tech start-ups,” says the City Meets Tech website, “though really it’s about understanding the business and managing risk though unfortunately innovation requires at least some risk.”

Australia’s trillion dollar superannuation system should similarly give Sydney an opportunity that to become a global centre however it suffers from a similar, if not worse, conservative investment culture to London’s.

Turning Sydney into a global finance centre has been an objective successive state and Federal governments for twenty years but the sleepy, comfortable and risk averse culture of Australian fund managers offers little to attract foreign investors or companies.

Much of Australia’s is problem is the insular nature of local fund managers with all but a tiny part of the nation’s retirement savings being put into the top local stocks, listed property funds or domestic infrastructure projects that are notable for their lousy returns and extortionate management fees.

Breaking that mentality is going to be the key to both AngelEd and the Sydney’s success as a financial centre.’

Competing with the world

While London and Sydney are struggling with the challenges of encouraging investors into the high growth sectors, cities like Singapore and New York are developing investor communities that are attracting entrepreneurs to their cities.

Many governments dream of being the next Silicon Valley and while it isn’t likely anyone can recreate the circumstances that led to Northern California becoming the computer industry’s world centre , a vibrant and accessible capital market will be necessary for any place hoping to be a global cnetre.

For Sydney and London, the success of initiatives like AngelEd and City Meets Tech may be critical for both centres’ future in the global digital economy.