Category: Innovation

A Capital Question

How do we raise money for a new business?

How do you raise funding for new venture? Business coach Lindy Asimus asked over the weekend. It’s a question that perplexes many people starting out a new enterprise or trying to grow an existing one.

The real question though is “how much capital do you need?” Being undercapitalised will often stunt a venture’s growth and is probably the reason why many otherwise excellent business ideas fail to achieve their potential.

How much money do you need?

While business plans are often disparaged, one of the great advantages of doing one is the budding entrepreneur gets an idea of the capital required along with the cash flow required to service any debts. Even if the business plan itself is filed away and never looked at again, understanding the upfront cash requirements can help avoid some nasty mistakes.

The other key factor is the business itself, if you’re buying a fast food franchise, setting up a store or fitting out a restaurant then there’s going to be some big upfront capital costs involved before you start trading but there is more to it than just the immediate cash needs.

What is the type of business?

A business’ capital needs are going to vary with the type of business and the objectives of the owners, not just in size but also in type. As business writer and educator Steve Blank says, there are six types of startups and for certain types an equity investment from say an angle investor or venture capital company will be more appropriate than a bank loan.

For small businesses, the type that Steve Blank describes as “work to feed the family” businesses, a bank loan that can be paid back out of cashflow is going to be the most obvious way to fund an enterprise while it would be rare a venture capital investor would even answer a phone call from such a business.

On the other hand, a family member or friend might be interested in taking equity in such a business, the old “families, friends and fools” is a time honoured way of setting up a venture.

Government grants

In these times of rampant corporate welfare for big banks and major corporations, it’s tempting to think the government may be able to help the small businessperson. Sadly most of the grants available are small sums for specific purposes like export programs or hiring trainees, they aren’t designed or intended to provide entrepreneurial capital.

Bootstrapping and “sweat capital”

Most businesses though are best served by “bootstrapping” and “sweat capital” for most, particularly in the service sectors, funding your business out of cashflow and the hard work of the founders is the way to grow a viable enterprise.

The term “sweat capital” refers to the founders working hard and capitalising their businesses from the sweat of their brows while  scrimping and saving every penny. Most founders of successful businesses have stories of spending years expending that “sweat capital” while living on cheap pizzas or packet noodles.

Bootstrapping, funding your business through sales, is the other great capital source. In many ways, this is the best form of capital in that it proves a business is viable and doesn’t involve signing over assets to banks or giving equity away to investment partners. Again a well thought out business plan quickly shows whether this is feasible.

So the question of capital is complex, but having enough is always the biggest struggle for those starting a business.

Of course it is possible to have too much capital and we might talk about that in another blog post.

Choices

In a time of change, hiding from the choices is not the best option.

“It’s too hard to keep up with all the choices. I can’t decide whether to use Facebook or Twitter, Microsoft or Google, Dell or Apple? Doing business today is just too complex…”

Maybe it’s true we have too many choices but yesterday’s business people had plenty of hard decisions to make.

Business people a hundred years ago had to choose between steam, gas or electrical power. If  they chose the latter, there was another decision between AC and DC electricity.

There was a further choice between keeping your horse drawn cart or buying one of those new fangled motor vehicles, which could either run on kerosine or steam.

So our great great grandparent’s weren’t easier and, unlike the relatively small investments we can make in technology today, their choices could easily bankrupt them if they made the wrong decision.

When we’re fretting over choices at least those on offer aren’t the simple alternative of whether we send our children down the mine or to the mill at the earliest possible age.

Instead of worrying about the choices, it’s time to get informed and understand what the alternatives mean. The time to worry is when our competitors, or the market, is leaving us behind because we didn’t care enough to find out what was happening around us.

The web’s big weakness

How a hands-off customer model may doom many of today’s social media and web services

There’s a fundamental flaw in the way the tech industry does business, that weakness could be what ultimately kills many of today’s new media, web and social media services.

AirBnB, an online home share service, is one of the darlings of the booming Silicon Valley start up sector, having recently being valued at $1.2 billion after a successful capital raising.

Like most Web 2.0 and social media businesses, AirBnB’s advantage is in the low operating costs where customer support is left to the service’s peer review and social media communities while AirBnB pockets a commission for simply making the connection between the landlord and tenant.

The flaws in this “all care, no responsibility” model became apparent last month when a lady posted a description of her house being ransacked by an errant housesitter she found through AirBnB.

AirBnB’s management responded to the article with assurances they were helping and working with their affected customer, claims which were promptly contradicted by the original victim.

To make matters worse, certain prominent members of the Silicon Valley investment and blogging communities alluded she was lying or was “batshit crazy.” Now that other stories of bad AirBnB tenants are appearing, the view this is simply the untrustworthy word of a deranged customer affected by their first such incident is looking hollow.

Failing to deal with customer problems is not unique to AirBnB, hiding behind impenetrable layers of “support” backed up by user hostile terms and conditions is familiar to anyone who has had to deal with an online service gone wrong.

Last month Thomas Monopoly found he was locked out of his Google account and had it not been for the intervention of a senior Google employee, Thomas’ problem would probably still be stuck in an endless feedback loop.

Exactly the same problem has been encountered thousands of times by other users of web mail, social media, online auction and matchmaking sites.

Many of the people running these services retort their products are free so users get the support the support they pay for – an argument conveniently overlooking that most “free” web services are based around selling customer data – but even this does not justify delivering the basic services users have been lead to expect, regardless of what a 5,000 word user agreement states.

Today’s tech startups, and many of their big established cousins in the IT industry, have the idea that customer support is an optional extra and an expense to minimised or outsourced.

In this respect they are not too far removed from dinosaur car manufacturers or some of today’s less dynamic retailers offering little in the way of customer service or after sales support.

That way of working has died as consumers have been able to go online to vent their dissatisfaction, strangely today’s hot tech start ups seem to have missed this aspect of the revolution they have helped start.

Ignoring consumer problems is exactly what’s bringing traditional businesses unstuck in the online world. The funny thing is it might bring many of the online business undone as well.

Building Innovative Cities

How do we create the communities of the future?

The New Lunatick’s Newcastle as a Smart and Innovative City forum raised an interesting question; “how do you build an innovative city?”

In putting together the Digital Sydney project, this was something we closely looked at – how does a city become a global hub of innovation in the creative, digital, financial industries?

What leaps out when studying successful industry hubs is that all have developed without government intervention; most have been an accident of history where resources have come together and have driven by a small group of like minded entrepreneurs.

Those entrepreneurs have been attracted to various regions by the area’s proximity to the natural resources, transport links and available land suited to their industry. While those requirements vary between industries, access to a skilled workforce is the common factor between all of them.

In many respects this is how the current mining boom has worked for Newcastle. Unlike the rest of Australia’s mineral fields, the Hunter Valley has a major city with a skilled workforce that understands mining and engineering.

The challenge for Newcastle – and indeed for Australia as a nation – is diversifying the economy from depending upon resource exports and domestic consumption into creating wealth from the newer, knowledge based industries.

For hubs to develop in these industries, regions need the factors identified by Richard Florida in his Rise of the Creative Classes where he found these cities offered the “three T’s” – Talent, tolerance and technology.

Australian cities like Newcastle score well on these measures but to create hubs you need a motivated group of entrepreneurs and while these exist there may not be the numbers to create a critical mass.

The main reason for this is the domestic investment structure; most Australians invest in housing and aren’t particularly inclined to invest in comparatively risky businesses, particularly those in industries they don’t understand.

Governments can help by opening their data and making procurement friendly to new and smaller businesses – on both scores Australian governments at both levels do poorly with data often being unnecessarily guarded and tendering processes tend to be skewed towards large, usually multinational, corporations.

Assistance programs can also help on the fringes however it’s important not to repeat the mistakes of the film industry where several decades of government grants and funding has resulted in a generation of film makers more skilled at navigating bureaucracies and filling in application forms than telling stories.

Where government assistance can do a good job is in bringing together the various industry groups which was the intention of Digital Sydney. Well targeted, low paperwork schemes like the Australian Technology Showcase and various trade programs can also help growing businesses.

Overall though, the development of innovative cities lies in the hands of the residents, it’s up to the inhabitants of the city, town or region to bring build the hub.

This is exactly what happened with the original Lunaticks society in 18th Century England that created the region that became known as Birmingham which was the heartland of the English economic powerhouse for over a hundred years.

While we can wait for governments or investors, building industries is about innovators, entrepreneurs and workers. It’s time to get to work.

A tale of two conferences

How two very different events put their ideas across

Two conferences about ideas took place in Sydney last Saturday, TEDx Sydney and Social Innovation BarCamp. While both involved exploring concepts and thoughts they could not have been more different.

One was about exclusivity and elitism while the other was about a genuine exchange of ideas. Both the events tell us much about the new and old models of communication and learning.

Welcome sign to SIBSyd
The entrance to SIBSyd. Exit through the gift shop?

At the Paddington College Of Fine Arts, Social Innovation Bar Camp ­– SIBSyd – was open to anyone with an idea or who just wanted to show up a throw some thoughts around. Across town at the Everleigh Carriageworks, the TEDx Sydney offshoot of the prestigious US TED event featured high profile speakers before an invitation only audience.

Welcome sign to TEDx Sydney
Welcome to TEDx Sydney. May I see your invitation, sir?

Most TED events are exclusive and restricted you have to be qualified to attend, let alone speak and this showed in the way the audience were ushered into the auditorium and then asked to turn off their mobile phones unless they wanted to sit in the back two rows.

The speakers at TED were slick, rehearsed and had their presentations timed exactly to the minute – as you’d expect at an event where the content is carefully chosen – while at SIBSyd any of the audience could choose to speak.

Even with a speaker everybody at a SIBSyd is able to participate, with all the audience of giving their views. In the reforming education session I sat in on a quiet lady at the back of the room told her experiences of working with villagers in Chiapas, Mexico.

It’s unlikely that lady would get an invite to TEDx, let alone have the opportunity to tell her story and that illustrates the fundamental difference between the two conferences.

One is the formal, traditional one-to-many lecture from an expert imparting wisdom on an audience awed by the speaker’s knowledge while the other sees the speaker – who may be an expert – drawing out the collective wisdom of the room.

TEDx Sydney stage setup
TEDx stage ready for action

The “unconference” structure of meetings like SIBSyd probably does a better job of developing new ideas as the traditional conference TED is based upon that assumes the expert on the stage already has the answers.

Of the two types of conferences, it’s probably safe to say the collaborative “unconference” model works better in driving innovative solutions to problems. To work effectively though it needs the participants to be motivated by common issues.

The traditional TED style conferences do a better job of getting big ideas across to a broader audience and that’s probably one of the reasons why the event’s videos have been such an Internet success.

Some of the differences reminded me of British writer Paul Carr’s comments about the South By South West Conference in 2009 when he said “I really hope that next year one or two of those early adopters will organise – and I mean that in the loosest sense – a user-generated unofficial fringe conference to sit alongside the main event.” In many ways SIBSyd was the fringe festival to TEDx’s “establishment” status.

SIB Syd session in progress
SIB Syd session underway

Both have their role and probably the most worrying thing at the two events was the lack of Australia’s corporate and political leadership, with the exception of Penny Sharpe, MLC who appeared to be the sole member of Parliament attending TEDx, there was little representation from either group.

In a time of massive climate, technology and economic change that is challenging the assumptions and business models of previous generations, it’s a shame our business and political leaders aren’t engaging and listening to those outside their narrow circles.

But ideas are one thing and action is another. As journalist and enfant terrible Stilgherrian said during the day, “completely over events about ‘ideas’. We have plenty of ideas. What we need is a bit of effort put into execution.”

Hopefully out of both events we’ll see some of the ideas discussed turned into action

Happy birthday, iPad

Last week’s anniversary of the iPad has some useful lessons all disruptive businesses

Last week the iPad’s first birthday quietly passed, lost among the hoopla of the release of the tablet computing leader’s second version. It’s a difficult to think of another product that’s changed an industry so radically and so quickly.

All of Apple’s successes in the last decade have been in areas with many already established players; the iMac entered a crowded PC market, the iPod was just another MP3 player and the iPhone plunged into a sector sated with hundreds of mobile devices.

With each product Apple redefined their segment of the market place and established a secure, and profitable, niche.

The iPad was somewhat different to the other products; with it Apple redefined the entire market and now leads the tablet computing sector. Yesterday industry analysts Gartner put out figures claiming Apple has over two-thirds of today’s market and will still hold half in 2015 despite the rise of the cheaper Google Android devices.

Notable in Gartner’s predictions is the absence of Microsoft Windows based systems and that’s the clue for the iPad’s success as industries like healthcare, retail and logistics had been begging for affordable and usable tablet computers for a decade which the clunky Windows based systems had consistently failed to deliver.

Another factor in Apple’s favour has been the rise of cloud computing, which has freed devices from relying on heavy and power hungry internal hard drives and made them more flexible. One of the most popular business iPad applications has been Evernote, a note taking program which has proved indispensable for business executives.

Most of those executives work for corporations where the IT departments had blocked the introduction of cloud services and Apple products on compatibility and security grounds.

Senior management’s adoption of Apple products and cloud services has broken down that enterprise barrier, which is one of the reasons why competing companies that made their fortunes selling desktop and server products are now desperately trying to find other selling points.

In many ways, the adoption of Apple and the cloud is similar to how personal computers entered business. In the 1980’s computing departments resisted the introduction of PCs for almost the same reasons as IT managers today object to social media, cloud computing and Mac desktops in the office.

The difference is the PC revolution was initially driven by the office accountants, sales teams and secretaries who found desktop applications like Lotus 1-2-3 and WordPerfect made their jobs more effective. This time, being different, it’s their managers driving the change.

For smaller businesses and entrepreneurs Apple’s successes open a whole range of opportunities in the applications and services markets to support these devices.

Those applications also help upstarts disrupt existing industries; the lower cost of entry is reducing barriers and speeding up lead times making slower incumbents more vulnerable to change.

Disruption is probably the greatest lesson that Apple and Steve Jobs have taught us with the iPad, you can enter an already crowded market with a product different from the existing players and own a substantial part of it.

All businesses, regardless of the sectors we work in, can learn from the iPad whether it’s how we can use tablets and the cloud in our operations or how we can apply Apple’s disruptive business model to secure a profitable industry niche. It’s a good time to be being open to new ideas.

Is there an entrepreneurial elite?

Confuse wealth with building enterprises could be a mistake

In a recent Atlantic Magazine article Chrystia Freeland charted the rise of the New Global Elite and suggesting “our light-speed, globally connected economy has led to the rise of a new super-elite that consists, to a notable degree, of first- and second-generation wealth. Its members are hardworking, highly educated, jet-setting meritocrats who feel they are the deserving winners of a tough, worldwide economic competition”.

A few days later The Economist followed up this theme with a discussion on whether we should worry about the rising wealth of the entrepreneurial elite.

While there’s no doubt there is a global elite, enjoying fine wines at the World Economic Forum at Davos while congratulating themselves on their successes, wisdom and hard work. The question really should be are these people really entrepreneurs?

Some of the self appointed global elite are highly paid executives. One of the notable aspects of the corporate sector is the majority of managers are not risk takers – in most organisations, public or private, taking risks is going to jeopardise one’s career – instead it’s the risk adverse who are rewarded with the senior management positions.

However even the managerial classes are outnumbered by the financial wizards. The biggest stimulus to the global elite’s riches was the financial market deregulations of the 1980s and 199os. As our society’s forgot the lessons of previous generations and released the regulatory restraints on banks, a whole new wave of opportunities appeared to make huge fortunes. The loose credit of the early 21st Century leveraged and amplified those fortunes.

Financial Innovation became the key to wealth, although as former Federal Reserve chief Paul Volker observed “I wish someone would give me one shred of neutral evidence that financial innovation has led to economic growth—one shred of evidence.”

The killer to the idea is that financial innovation is entrepreneurial are the consequences of the two decades where the financial markets reigned supreme – trillions of dollars in bailouts.

That the bulk of the global elite relied up bailouts and government stimulus packages gives lie to the concept that most of these people are entrepreneurs; genuine entrepreneurs take real risks and accept the consequences if their venture doesn’t work out.

While it’s true that some of the “global elite” include individuals who have built up enterprises and taken risks with their personal fortunes and reputations, it would be a mistake to describe this group as being entrepreneurial. The bulk of this global elite are speculators and managers who’ve been richly rewarded by a system setup to guarantee their wealth.

You’ll find more entrepreneurs running stores in your local mall than you will walking the privileged halls of Davos or any of the other expensive haunts of the global elite.

Tell ’em they’re dreaming!

How the quick trade sale model for startup businesses distorts markets and kills innovation.

Yahoo!7’s purchase of Australian group buying service Spreets last week is great news for the Sydney startup’s founders and investors, but these deals aren’t so great for our economy, businesses and innovation.

The mark of the late 1990s tech bubble was the “renovation rescue” model of building start up businesses. Just like keen property speculators, this model involves an angel or venture capital investor putting in enough money for the founders to do enough – either by growing the business or embarking on a PR campaign – to attract the attention of potential buyers.

For the business founders that can be a lucrative result, but it often distorts the priorities of a new endeavour as the investors are focused on a quick exit instead of building a durable, long term enterprise.

This has a bigger effect on markets as incumbents buy out young, smart and innovative new entrants. Good examples of this were the buyouts of successful online shopping services by the major retailers in the early 2000s.

Once purchased, the large corporations let innovation and fresh thinking in the start up business wither and die as the larger business’ bureaucracy and management hubris subsumes the acquisition. Few acquired businesses avoid this fate.

Which brings us to the buyer in the Spreets transaction. At the press conference announcing the deal Yahoo!7’s CEO Rohan Lund said “we’re seeing social, mobility e-commerce completely changing the way we use the web at the moment.”

Rohan’s absolutely right on this – location based services are changing advertising and retail – the problem is Yahoo!7 has no local business capacity and relies on News Limited’s True Local directories.

Perversely if Yahoo!7 are successful in building up their mobile, location based services it’s actually News Limited that will get most of the benefit.

A similar situation exists with Cudo, the competing joint venture between PBL and Microsoft, which relies on Sensis’ Yellow Pages.

That Rupert Murdoch and Telstra stand to gain as much, if not more, from the efforts of Yahoo!7, Microsoft and PBL is an indicator of just how fuzzy the thinking is behind many big business acquisitions.

A bigger threat to these ventures is Google who last week announced their intention to start up their own group buying service. Given Google already have a local business platform that supports coupons, it’s going to make them a tough competitor.

Assuming big corporations will dominate this space may be flawed as the group buying business relies on hands on, aggressive sales people feeding a pipeline of interesting and compelling offers to the subscribers. Short the daily deals start becoming boring or perceived poor value, subscribers will ignore the emails and take their shopping elsewhere.

Strangely of all the Australian big businesses in this space Sensis, with their Yellow Pages sales network, and News Limited, through their media selling and classifieds networks, should have the capacity to launch successful competitors.

Despite Sensis launching their own group buying service it’s hard to think that either Yellow Pages or True Local can succeed in this space. Similarly with Google, the “hands-off” web 2.0 way of doing business simply won’t work in a market that requires a motivated sales team to drive the product.

Recognising that lack of selling expertise probably drove Google to offer 6 billion dollars to buy the group buying innovator Groupon last year. An offer which Groupon rejected.

Google’s track record on successfully integrating acquisitions outside of online advertising has been poor and is probably one of the reasons Groupon CEO and founder Andrew Mason rejected the offer.

Andrew Mason, like Mark Zuckerberg at Facebook and Geoff Bezos at Amazon, rejected the VC ‘renovation rescue’ model and while it’s early days yet for Groupon, there’s many indications they’ll be able to build a game changing, innovative business just like Amazon and Facebook.

While we should congratulate those like Spreets who do manage a big buyout, we should keep in mind those stories are the exceptions and don’t represent the experience of most business founders.

New businesses really change our society is when they challenge the incumbents and build new industries. We should keep that in mind.

The entrepreneur’s biological clock

At what age do you stop being an entrepreneur?

In backpacker circles, when you turn thirty people ask “what’s wrong this guy? What you can get away with in your twenties, you can’t get away once you’ve passed the big “three-oh”. It’s not dissimilar to the “biological clock” many women in their thirties confront as they perceive their days of easily having children are coming to an end.

A similar phenomenon exists in the business world, both for employees and business owners, that there are age limits on what someone can easily do. Like the backpackers, it’s more a perception than a reality.

Once upon a time you were past it at fifty years old. Through the 1980s, 90s and the early part of this century that “past it” age contracted, along with the deskilling of the workforce, to 45, then 40 then 35.

In the eyes of many in the corporate world today should you not have an established corporate career path by your mid-thirties then you are well “past it” and destined for a middling career and income.

With entrepreneurs a similar quandary exists, once over forty there’s a feeling that the aspiring business owner should just stick to buying the local doughnut or lawn mowing franchise. Startup land is no country for old men.

The underlying cause of  this view is the belief every successful business founder is rich beyond their dreams by thirty – Bill Gates and Mark Zuckerberg come to mind – that’s clearly silly given most businesses never come close to the successes of Microsoft or Facebook  but it’s a persistent one nevertheless.

When the entrepreneur turns thirty, things begin to get tricky; sleeping on a friends sofa, working eighteen hour days and living on instant noodles isn’t an option when you have kids, partners and mortgages. At the same time, family, friends and potential employers start to ask “if this guy’s so good, how come he isn’t a millionaire?”

To make things more difficult, risk adverse peers start bragging about how their safe, well paid job is allowing them to buy second homes or go on holidays most business owners can’t contemplate.

Probably the hardest thing though is that the doors of the corporate world start slamming shut; for a 40 year old entrepreneur who has been running their own businesses for 15 years, it’s difficult to get a job in the business world and any position available won’t recognise the skills developed in running your own enterprise.

Similarly, the warning to anyone with a decent corporate career who chooses to leave their safe office job to run their own business is usually “how can you risk throwing all of this away?”

Risk is the difference between the ages; once you’re over 40 with there being little prospect of a plan B involving returning to a nice corporate position, then the cost of failure is a lot higher.

In some ways this can be better; an individual staring down the prospect of a long, poverty stricken retirement has a very good incentive to get their business right and doesn’t have time to waste on speculative or “me-too” projects.

The idea there’s an age limit to launching new, innovative businesses and products is silly, but it’s a persistent one nevertheless. The great thing though with being your own boss is you don’t have to pay attention to other people’s dumb ideas and this one is a dumb as it gets.

The innovation myth

Is innovation really the lifeblood of an organisation?

Innovation is the buzz world of the moment, along with the belief is that all organisations have to innovate to survive. Recently the Massachusetts Institute of Technology’s Sloan Review looked at what they believe are the five myths of innovation.

All five have good reasoning behind them, particularly the rebuttal of the idea that every innovation requires a “Eureka” moment as most good business ideas are steadily developed over time.

One of the writers’ ideas that can be taken issue with is that today’s innovations are now about business processes. This overlooks that  innovation and the resulting competitive advantage throughout the industrial revolution – such as Henry Ford’s mass production, Josiah Wedgewood’s sales stategies and Alfred Sloan’s building of General Motors – were about applying innovative business processes to new production technologies.

While dispelling some myths, The article perpetrates one of its own by concluded “innovation is the lifeblood of any large organization” as not all organisation are innovative, or need to be innovative.

The innovative drive might actually be the wrong thing for many institutions. For instance, we certainly don’t want doctors and nurses trying out innovative treatments without first going through various ethical and safety tests.

For public service departments, being innovative is usually outside their mandate as they are legally required to carry out a function, such as registering a motor vehicle or collecting statistics. While innovation may help them carry out their mission it isn’t necessary or the lifeblood of the organisation.

In the private and public organisations innovation can be anathema to many managers who didn’t get to where they are by taking risks. In many larger organisations, successful managers are a group selected by survivor bias, they are there because they didn’t take risks and their innovative colleagues long ago dropped away when their ideas “failed”.

Many of those big corporations operate in markets where two companies dominate the market, so there’s little incentive to be innovative, just do enough to differentiate yourself from the competition through some expensive marketing. Telecommunications providers, television stations and cable TV companies are good examples here.

Some of these businesses, to be fair, are highly regulated so managers and staff are cautious to be innovative as they are wary that implementing new ideas or business processes may find them in breach of various laws or regulations. This particularly true in industries like insurance and the legal professions.

We can also see how innovation doesn’t matter even in companies that appear to be innovative; the tech sector provides some case studies where businesses like Microsoft and Google have steady cash cows so the innovative sides of their businesses don’t matter. They just need to do enough to protect their critical cash cows and all other innovation, while fun and stimulating, is largely irrelevant.

Innovation is the lifeblood for high growth and start up businesses. If you are challenging existing players, as Google did with Yahoo!, then you need to be innovative and if an organisation wants to grow fast, it needs to be innovative in what it offers to its customers.

While innovation is important it isn’t the lifeblood of many organisations, particularly bigger ones. That’s where the opportunity lies for new businesses.

Business tech 2010

What did the year bring for the connected enterprise?

2010 was always going to be an interesting year as the tech and business worlds came to grips with the economic shocks of 2008 and 2009 and the big tech companies like Apple, Google and Microsoft made their moves to meet various challenges and changes in their marketplaces.

Microsoft’s release of Windows 7 late in 2009 and the release of the new Windows Phone operating system made us think 2010 would be the year of Windows, but if anything 2010 will be most remembered as the year of the iPad.

The iPad
At the end of 2010 it’s difficult to think that the iPad isn’t even ten months old such has been the way Apple has captured the tablet computer market. For a decade, the corporate market had been gagging for a decent tablet system but had been continually let down by poorly designed Windows based models. The iPad delivered what the market wanted and the second version, expected in March 2011, will probably cement Apple as the leader in this segment.

Cloud computing

The iPad’s success was partly due to the plethora of cloud based applications available for the device. Being able to store your data or run your software on a remote server that can be accessed from anywhere made portable devices like the iPad and smartphone killer business tools. While the underlying principles under cloud computing are nothing new in the IT world, cloud products really started to take off in the business and consumer world.

Wikileaks
The fundamental flaws in the cloud and how the Internet works were exposed by the visceral reaction to Wikileaks’ release of the US State Department Cables. Wikileaks’ release of the Climategate emails, Iraq war tapes and finally the State Department Cables forced us to look at security, the ease of setting up websites and how dependent we are on the arbitrary whims of the privately owned corporations who own great chunks of the Internet.

Investment mania
As Helicopter Ben and his counterparts in Europe and China printed money to avoid deflation and to save big to fail banks from failing, hot money started to slosh out of the bank vaults and into the venture capital market with a mini dot com 2.0 boom beginning to appear. This was illustrated best by the group buying mania, best illustrated by Amazon’s $175 million investment in Living Social and Google’s rejected offer to buy Groupon for $6 billion.

Plagiarism
An entertaining side issue was the Cook’s Source plagiarism scandal which showed how much content is being stolen on the net, the attitude of many who do copy and paste other people’s work and how the Internet can quickly mobilise angry mobs.

Crowdsourcing
Probably the biggest buzzword of 2010 was crowdsourcing, the technique of getting those Internet mobs onto solving your business problems. While there’s still some confusion on the difference between outsourcing, crowdsourcing and running dodgy pitch competitions – which raise even more interesting questions about plagiarism, IP protection and business ethics –we’re seeing the hype die down and the real business models start to evolve.

The march of Facebook
With the passing of the 500 million user mark, Facebook showed it was a market force to be reckoned with. The launch of Facebook Places in August seeks to extend their network strengths into the local search business, making them an even greater threat to Google and smaller startups like Foursquare.

Politics meets technology
Something no-one would have expected is how the National Broadband Network became the defining issue of the 2010 Federal election. The fact it did probably speaks more for the policy vacuum on every other issue the two parties presented to the electorate. In many ways it’s a shame the discussion of how we should build such important infrastructure became bogged down in cheap partisan politics on both sides and it illustrates the hollow “Restaurant At The End Of The Universe” mentality that is the feature of modern Australian politics.

As 2010 draws to a close, a reflection on the year would see it’s been the year of connectivity. Businesses, particularly those in the retail and media sectors are beginning to figure out what drives the online economy and how it can be profitable for them.

2011 will be the year we start to see more businesses experimenting with iPads, Groupon, Facebook and other devices or services that help them connect with their markets and communities. it’s going to be an exciting year and we’ll have a look at what’s in store for January’s first column.

Rescuing retail

A Sydney butcher shows how the retail industry answers the challenge of industry change

The retail news is bad – consumer spending is dropping and the remaining customers are going online, eBay is taunting the big retailers who in turn are threatening to set up Chinese based online stores.

Are things really that bad for the bricks and mortar retailer? Are the suburban malls and high street stores doomed?

Maybe not.

In New York on the weekend Vic’s Meats, a butcher in Sydney’s Eastern Suburbs, won the retail prize at the Interior Design magazine’s Best Of Year awards for their Victor Churchill retail outlet.

Vic’s Meats show how retailers can succeed in a sector going through fundamental changes.

The last forty years have been tough for butchers as many of the traditional operators went to the wall as the sector struggled with supermarkets selling cheaper pre-packaged cuts and changing hygiene standards.

Butchers who moved up the value chain and focused on delivering high quality product survived. That same process is now happening in a similar way in other retail sectors as more efficient, convenient and cheaper providers change their markets.

At the moment we’re seeing two contradictory trends, a move to commoditised, global markets driven mainly on price and niche markets based around convenience, locality and service. The struggle right now is for established players like Myer, Harvey Norman and local retailers to understand where they fit in this system.

Vic’s Meats have figured out where they sit in their market and their lessons are valuable for other business owners figuring where their place is in this new retail world.

You have to be online

Even if you have no intention to sell online or overseas, your customers are still looking for you online.

It’s absolutely essential, regardless of what you do, to have a basic web presence. Even existing customers are looking up your details on the web when they forget your phone number and if you aren’t there, they may find your competitor’s.

We’ve covered previously what the basics of an online presence are. Make sure you have a Google Places account, Facebook page and a basic web site so people can find you.

You have to be telling your story

Whether you have the best meat, the freshest doughnuts or the fastest lawn mowing service in town then you need to be loud and you need to proud ­– let the world know about it.

Your website needs to say why customers should trust you and why it’s worth spending more with you than with the cheaper guy in the next suburb or continent.

One particular bugbear are bland and anonymous “about us” pages on many business websites which tell nothing about the business or the people behind it.

Your About Us page should tell the journey of why you were driven to become the best butcher, doughnut seller or lawn mower in your district. Leave the robotic mission statements to the big corporations and celebrate your competitive strengths.

You won’t win on price

The online channels don’t have the cost structures of bricks and mortar stores and that’s nothing new as small retailers have had to compete with the big chains’ economies of scale for years.

So don’t bother. Sell your story, your quality, your passion and your knowledge.

Be a resource

Engage with your local market. If there are changes, issues or events that affect your neighbourhood or market, update your site to reflect this and use social media like Twitter updates and Facebook pages to put the message out.

Vic’s Meats does that well with an informative website, recipes, cooking classes and an iPhone application. All of this builds the story that they are the experts and the people you should go to if you want the right cut of meat.

This is where Harvey Norman and Myers are failing. Many have of us have stood for half an hour waiting in Myer store to get service from an overworked assistant or have been given poor advice by a badly trained, commission driven teenager in a Harvey Norman store.

Gerry Harvey and Bernie Brookes have blown the advantages that Harvey Norman and Myer had over the online players and instead cruised on their respective models of offering interest free purchase plans or perpetual discounting.

Those tactics gave them nearly ten years breathing space while the online retail industry learned their lessons from the dot com bust. That both businesses are now reduced to making empty threats in the hope of scaring the government into wasting millions on a pointless change to customs regulations is an instructive lesson in itself.

An irony in all of this is that major chains such as Harvey Norman and Myer were part of earlier waves of change which put established retailers out of business. We should give particular thought about those butchers who fell under the market might of Bernie Brookes’ old employer, Woolworths.

Those businesses died because they couldn’t see, or deal with, the rise of the big category killers like Harvey Norman, Officeworks and Bunnings or with the longer term trends like that of shoppers moving from high streets to suburban shopping malls.

The jury is out on how many local retailers ­– both big and small– will go to the wall as online shopping gains acceptance, though it’s probably not a good idea to put a bet on those who sit on the sidelines and whinge that the “gummint orta do summint”.

Do you want to be one of the successes? If so, learn from Vic’s Meats and the other Best of Year award winners and sharpen up what you’re doing both online and in your store.