finance | Paul Wallbank - Communications Professional

When startups should think like designers

Design, funding and research are critical parts of getting a product successfully to market says Design + Industry’s Murray Hunter

Thinking about design and getting to market should be a priority for startup businesses says Murray Hunter, founder of Sydney’s Design + Industry.

Having won over 160 design awards during 30 years of running Design + Industry and employing 50 specialist designers and engineers in his Sydney and Melbourne offices, Murray has many insights in what makes a successful product.

“Some of those companies have gone on to become world leaders, it’s a hell of ride and it’s a fabulous relationship where 15 or 20 years later you have a client relationship that’s dominating the world.” he recalls.

Thinking like designers

The current startup scene in Australia provides an opportunity for the country, Murray believes.

“We’re losing manufacturing industry but there’s a whole new wave of businesses and startups based around new technologies, particularly around IoT”

“The world wants to think like designers and lead by innovation, which is a really interesting line. You have the American government that wants to design think and you have all these large accounting firms that want to be design thinkers as well.”

“But everyone wants to be innovative and provide a better experience to the customer and we have all these new technologies that are giving us the ability to have a lot more information, be more informative.”

“It started with Apple with the iPod and then the iPhone and it’s led right through so we now have high expectations of what we want for products and services.”

Finding funding

His advice to startups is blunt, “the first thing you need is funding, If you don’t, start the process of development sufficient to develop collateral which enables you to gain investors.”

The development process itself starts with knowing the market.

“Products should be designed to suit the market, not on a hunch,” he says. “So you start with what the market wants and you go backwards. You don’t get dressed and say ‘where are we going’, you find out where you’re going and then get dressed.”

“The intelligent and qualified entrepreneur will have a lot of the problems solved, they’ll have done research, they’ll have knowledge of the market, they’ll know the segments it’s aimed at and quite often they’ll have route to market realised.”

“Crowdfunding makes a big difference as entrepreneurs can run a crowdfunding campaign, get initial sales and worldwide recognition for it. If it isn’t successful, that could be the end of it. Others know people who can fund it.”

“They may not have funding or they may, we have quite a few suppliers around us who will help with the funding process. We also know private individuals with deep pockets who are interested in investing.”

Changing the design industry

Over the past few years, the design industry has changed dramatically with the rise of Computer Aided Design, 3D printing along with new materials and manufacturing methods. Medical devices are one area that’s seen a rapid change.

“Thirty years ago medical products were low volume,” Murray recalls. “In Australia typically we’d make them out of sheet metal. Now the volumes have increased because the world is more easily accessed so we’re designing for higher volumes.”

***CliniCloud non contact thermometer***

“We’ve also got low cost manufacturing sources to provide solutions so we can develop a more sophisticated product that will be better received worldwide.

“The biggest change I think has been CAD (Computer Aided Design), the Internet and 3D printing.”

“CAD because we went from 2D drawing to 3D models, the internet because we no longer send DVDs or CAD files to our manufacturing partners and it means we can access manufacturers all over the world.”

“We’re working on a 3D printer that can make biomatter, in other words skin, there’s talk of doing teeth with the rigid externals and soft nerves. So where we go I can only think of organs, prosthetics, replacing cartilage which is a big thing for the elderly.”

Deeper in data and debt

Data tools are getting more powerful as the information collected about us grows. It presents us with some important choices

Data collection agency Experian’s deal with Finicity to collect and process borrower information is an example of the how Big Data is being used by the financial services sector.

Recently I wrote a piece for Fairfax Media on the Science of Money which included some quotes from Experian’s Australian managers. They were quite explicit about their use of data.

That a company like Experian is adopting more advanced analytics isn’t surprising given the power of the tools available. What’s also driving the adoption is the proliferation of devices available to track people.

Notable among those devices are personal assistants, as David Pogue writes in Scientific American, household technologies like Amazon Alexa, Google Home and Apple Siri are vacuuming up huge amounts of data on our behaviour, likes and dislikes.

Increasingly all of this is being fed into machines that determine our suitability for marketing campaigns, credit and financial services.

For companies like Experian this is a massive opportunity although the focus on credit suitability betrays a mindset more suited to the 1980s finance boom than the more complex times of the early 21st century.

It’s hard though not to think that given a choice the finance sector will happily use these tools to take us into another subprime lending crisis which would be a shame as these technologies’ potential for allowing us to make better decisions is immense.

How we use these tools will define our businesses, economies and communities over the next thirty years. We need to be careful about some of the choices we make.

Entering an era of surpluses

Negative interest rates are part of a period of surplus resources that will test many businesses

With the global Zero Interest Rate Policy experiment failing, we’re now entering the era of negative interest rates with a quarter of the world’s central banks charging savers.

The world is flooded with money, but we also have surpluses in manufacturing, a surplus in most commodities, of energy and an increasing surplus of labor.

From Shanghai to Barcelona, the surplus of labor is beginning to be felt as industries become increasingly mechanised and the consequences of short sighted economic policies over the last thirty years begins to be felt.

That labor surplus is also driving the political shifts in Europe and North America as workforces are finding their living standards being pressured and their economic prospects dwindling. As a consequence, voters are looking for scapegoats – immigrants in Europe, the EU in Britain and Mexicans in the US.

Regardless of which scapegoat you choose to blame for the global economy’s uncertainty, the fact remains we are in a time where scarcity can’t be assumed.

This means business models that are based upon restricted supply are, in most sectors, under threat. The whole economics of scarcity becomes irrelevant when there are no shortage of suppliers around the globe.

In some fields, such as energy, technological change is seeing the dominant positions of oil companies, electricity generators and distributors being challenged in ways that wouldn’t have been thought possible a few years ago.

Even regulated industries where government licenses artificially controlled supply – like taxis, broadcasting and telecommunications – increasingly new distribution methods are changing the economics of those industries. No longer is buying a government license a sure fire way to big profits.

Right now, the imperative for businesses to find the areas where there is scarcity and supply constraints. For many industries that may be too difficult a transition.

Negative interest rates though take us into uncharted territory. How the global economy responds to virtually free and unlimited money is going to be an interesting experiment.

Collapsing unicorns and business basics

The first tech unicorn to collapse, Britain’s Powa technologies, reinforces business basics for tech startups

UK e-commerce service Powa Technologies, once valued at £1.8 billion went into receivership after the lead US investor called in the £200 million loans it had made to the business.

It turns out most of 1200 corporate clients the company had claimed as clients were actually expressions of interest in the service rather than firm orders.

Powa now has the distinction of being the first of the tech unicorns to go broke – although it’s almost certain 2016 will see many of the companies with private billion dollar valuations join them.

While the focus on Powa’s demise will be the deceased unicorn aspect, the company’s story illustrates some business basics.

The key one is that sales only count when the money is banked, all too often cashflows, profits and valuations are inflated by booking income long before it’s received – if ever.

Another aspect is valuations are not cash in the bank, Powa may have been valued at £1.8 billion but it only had raised £250 million in capital along with a similar amount in loans. This was not enough to keep the business going at what must have been a spectacular burn rate.

While tech startups have unique aspects, the basics of business remain constant; Cashflow is king and adequate capital is essential. These are aspects managers, investors and employees need to watch closely.

Confessions of a serial creditor

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

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

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

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

Early warning signs

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

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

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

Ethical proprietors

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

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

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

A tough life

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

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

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

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

How banks will survive the fintech onslaught

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

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

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

Rethinking payments

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

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

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

Core challenges

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

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

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

Where have the bankers gone?

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

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

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

Are the banks going away?

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

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

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

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

The engineer’s return – GE heads back to its roots

GE group’s aim to see engineering products make up almost all its earnings by 2018 shows a shift in the economy and business

In his mission to refocus GE on its engineering roots, CEO Jeff Immelt last week announced a restructuring plan that will see the company divest most of its real estate portfolio and shrink its finance arm faster than expected.

Bloomberg News reports the stock market took the announcement very well with the shares jumping 8.7% on the news.

GE now expects “high-value industrials” such as jet engines, oilfield equipment and diesel locomotives to generate more than 90 percent of earnings by 2018, up from just over half in 2014.

That the company’s announcement has been taken so well by the market shows how the US economy is slowly shifting from financial engineering and debt driven spending to building real products.

For the rest of the world there’s a clear message – the 1980s era of Gordon Gekko is coming to a close. It’s time to start figuring out where the real growth is going to come from rather than just goosing household spending with easy credit.

Where companies like GE are going today is where governments will be looking in five to ten years time. Some will find they are further behind than others when the shift becomes apparent.

Daily links: The IoT goes to sea, building the innovation state and Boko Haram

The IoT goes to sea, building the innovation state and Boko Haram’s murderous rampage

The scale of the carnage Boko Haram has inflicted on remote parts of Nigeria is becoming more apparent every day and satellite imagery shows just how much damage the insurgent group is doing to communities in its territories.

Closer to home, Google’s Project ARA gets another outing, we look at how economies can deal with the jobless future, what a terrible aunt Ayn Rand was and how the IoT is going to sea.

The IoT goes to sea

At the CES show two weeks ago Ericsson launched their new maritime cloud service that promises to connect ocean going ships to the same services available on land

Google unveils more about Project Ara

Project Ara is Google’s attempt to reinvent the smartphone, the project came a little closer to completion with the company showing off some of its progress

Creating the innovation state

What do we do in a world where most people’s jobs have gone? Create an innovation state rather than a welfare state could be an answer suggests one economist.

The extent of Boko Haram’s massacres

Words fail to describe the horrors being visited on the people of Nigeria.

Ayn Rand was a terrible Aunty

What happened when one of Ayn Rand’s nieces asked aunty for a $25 loan?

A need for cultural change

Creating a more resilient economy will take a culture shift and a change in the way all of us think.

On Sunday the Murray Report into the Australian Financial System was handed down with a range of recommendations on ensuring the stability and future of the nation’s banking and finance institutions.

Choosing David Murray, the former CEO of the nation’s biggest bank, was controversial but it turns out he and his team have delivered a sensible overview of the opportunities, risks and challenges facing Australia’s financial sector and economy. Many of the recommendations though require a change in both the culture of banks and that of the country’s population towards investment and savings.

A key part of the review is identifying the lessons learned from the Global Financial Crisis of 2008 in an attempt to reduce the country’s vulnerability to external economic shocks and limit the taxpayers’ exposure to any consequential bank failures.

In proposing ways of strengthening the nation’s banks against similar future shocks The report identifies a cultural problem in the finance industry.

Culture of financial firms

Since the GFC, a persistent theme of international political and regulatory discourse has been the breakdown in financial firms’ behaviour in failing to balance risk and reward appropriately and in treating their customers unfairly. Without a culture supporting appropriate risk-taking and the fair treatment of consumers, financial firms will continue to fall short of community expectations. This may lead to ongoing political pressure for additional financial system regulation and the undermining of confidence and trust in the financial system.

Interestingly, exactly this sentiment is echoed by last week’s World Of Business on BBC Four where host Peter Day reported from the recent Drucker Forum spoke to various economists, bankers and market commentators.

Breaking the debt culture

A key point raised in Day’s story was best expressed by Gary Hamel, Management expert and professor at The London Business School who said; “I think what the global financial crisis revealed — in addition to a lot of mendacious bankers who had lost touch with their social role — was the fact we’d been sustaining living standards through debt. I think that overhang is still there.”

The Global Financial Crisis was a warning the late Twentieth century model of using debt to sustain living standards was coming to an end, of all the western countries Australians had been one of the most enthusiastic nations about using debt to underpin consumption and that debt obsession had allowed the nation to skirt the worst of the GFCs effects.

With personal debt still at astronomically high levels it’s unlikely Australia will be able to avoid the next global financial shock and part of Murray’s recommendations are aimed at making both the economy and the banking sector more resilient to those shocks.

A fall in income

For the bankers this means lending less money and stricter financial controls; it almost certainly will mean their incomes will fall and it will be harder for millions of Australians to borrow money for easy speculation in the property market.

Creating a more resilient economy will take a culture shift in more than just highly paid bank staff, it will require a change in the way all of us think.

Finding a role for Hong Kong in the China story

Hong Kong’s role in the China story as Shanghai rises is discussed by Brian Wong of Seacliff Partners.

The Chinese government’s declaration of a Shanghai Free Trade Zone recently made headlines with speculation the region might be exempt from the nation’s internet blocks.

For Hong Kong, the Chinese government’s move is another blow to the territory’s already declining position as the main gateway to the People’s Republic.

As part of the Decoding The New Economy series of interviews, I spoke to Brian Wong of Hong Kong’s Seacliffe Partners about the challenges facing the territory and the role the former British colony will play over the next few decades.

“Hong Kong, I think, is the perfect bridge between East and West, ” says Brian. “But I think Hong Kong has been in search since the change over in 1997 as to where it really wants to focus itself.

The territory is squeezed between Singapore that has established itself Asia’s leading financial hub and now is positioning itself as a creative centre and Shanghai which has become the new ‘Gateway to China’ with its domestic financial centre and deep water port.

Despite the challenges facing the Territory, Brian sees opportunities in the city’s cultural and business environments.

“One of the great things about Hong Kong still is its international community and its accessibility for creative types,” Brian says. “I think Hong Kong is starting to recognise this advantage.”

“You have a large base of Chinese based manufacturers looking to beyond just low cost OEM manufacturing, what they need is creative design and innovation. If Hong Kong can be one of the big suppliers of that then they have a really good opportunity.”

One area Brian sees Hong Kong has an advantage is in its developing a hardware hackers culture that fits in with the massive manufacturing hubs surrounding the territory along the southern Chinese coast.

“I went to a talk where there was a fellow from Mountain View, California who does a lot of product invention,” Brian tells. “He’s set up a lab in Hong Kong to do product innovation because although he recognises China has a low cost manufacturing base, he doesn’t want to live in Shenzhen.”

The challenge for Hong Kong is to encourage a more entrepreneurial mindset, Brian believes. He also sees Hong Kong having an opportunity in being a conduit for the Chinese diaspora looking at investing into the PRC.

Probably the biggest advantage Brian sees Hong Kong having are in its mature legal and capital markets that Shanghai and other Chinese centres lack – “these are world class,” he asserts.

Ultimately though it may be that Shanghai, Beijing, Taipei or Singapore aren’t threats to Hong Kong at all as each city becomes the centre of certain aspects of a diverse Chinese and East Asian economy.

“I think much like in the United States there is not just one financial centre – you’ve got Chicago, New York and you’ve got different roles for different cities, LA for media and San Francisco as the gateway into the United States.”

“There’s room for more than just one. The question is what does Hong Kong want to be and how does it want to be most valuable to the China story.”

A business lesson from the Catholic Church

The election of Pope Francis shows why the Catholic church is such a successful business. Many of us could learn from them.

The Catholic church may be a two thousand year old institution with medieval beliefs and beset with scandal, but the clerics know how to handle business succession well.

Pope Benedict’s resignation was not only unexpected but also almost unprecedented with it being six hundred years since a pontiff quit before dying on the job.

In many organisations such an unexpected and rare event – dare one use the ‘black swan’ line – would create havoc, or at least paralysis. Instead the clerics handled the process smoothly.

This contrasts with the succession planning in many companies. In larger business even when the CEOs handover is planned, there’s a period of write downs and blood letting as the new leader stamps their authority.

Sometimes it gets very ugly indeed, particularly if the former CEO has been kicked upstairs onto the board.

In smaller businesses, there’s no succession planning at all. Many businesses die when the owner retires if there’s no buyer for the operation.

That shortage of buyers is a major problem for smaller business owners. Many baby boomers have planned their retirements around getting a good sale price for their businesses.

If they can’t get the sale price, the boomer small business owners work until they drop.

Which is what popes usually do.

It’s often said the Catholic Church is the biggest corporation on the planet. Given how smoothly their bureaucracy deals with succession planning, that’s not surprising.

Newly normal in the English Midlands

The new normal will be different to the old normal – is the English Midlands a vision of the future?

On their metal, a story from BBC Radio’s In Business program looked at how the English Midlands is dealing with the toughest economic conditions the beleaguered region has suffered for decades.

Once the centre of the industrial revolution, The Midlands have had a tough time of the last fifty years as the region caught the brunt of Britain’s de-industrialisation and the loss of thousands of engineering jobs.

Today, the surviving engineering companies are struggling to find new markets as orders from Europe dry up and many Midlands workers find they are confronting the ‘New Normal’.

The ‘New Normal’ for British industry is described by Mark Smith, Regional Chairman, Price Waterhouse Coopers Birmingham who points out that UK industries have to sell to the fast growing economies.

Interestingly this is similar, but very different in practice, to the Australian belief – where the Asian Century report sees Australia continuing being a price-taking quarry for Asia rather than selling much of real value – the Brits see some virtue in adding value to what they sell to Asia’s growing economies.

The British experience though shows the realities of the ‘New Normal’ for Western economies – the cafe owner featured in story now offers no dish over £3 and the idea of overpriced five quid tapas are long gone. The customers can’t afford it.

Part of this is because of the casualisation of the workforce as people find salaried jobs are no longer available and become freelancers or self-employed. One could argue this is the prime reason why unemployment hasn’t soared in the UK and US since the global financial crisis.

That ‘new normal’ features the precariat – the modern army of informal white and blue collar workers who have more in common with their grandparents who worked for day wages at the docks and factories in the 1930s than their parents who had safe, stable jobs through the 1950s and 60s.

For the precariat, the idea of sick leave, paid holidays or a stable career started to vanish after the 1970s oil shock and accelerated in the 1990s. The new normal is the old normal for them, there just happens to be more of them after the 2008 crash.

With a workforce increasingly working for casual wages without security of income, the 1980s consumerist business model built around ever increasing consumption starts to look damaged.

The same too applies to the banking industry which grew fat on providing the credit that unpinned the late 20th Century consumer binge.

When the 2008 financial crisis signalled the end of the 20th Century credit binge, the banks were caught out. Which is why governments had to step in to help the financial system rebuild its reserves.

The effects of that reserve building also affected businesses as bank credit dried up. Early in the BBC program Stuart Fell, the Chairman of Birmingham’s Metal Assemblies Ltd described how his bank decided to cut his line of credit from £800,000 to £300,000 which forced the management to find half a million pounds in a hurry.

That experience has been repeated across the world as banks have used their government support and easy money policies to recapitalise their damaged accounts rather than lend money to entrepreneurial customers to build businesses.

Businesses are now looking at other sources to find capital from organisations like the Black Country Reinvestment Society which is profiled in the story that raises money from local investors to provide small businesses with working capital.

Communities helping themselves and each other is the real ‘New Normal’ – waiting for the banks to lend money or hoping that surplus obsessed governments will save businesses or provide adequate safety will only end in disappointment as the real austerity of our era starts to be felt.

The New Normal is declining income for most people in the Western world and we need to think of how we can help our neighbours as most of us can be sure we’re going to need their help.

Just as the English Midlands lead the world into the industrial revolution, it may be that the region is giving us a view of what much of the Western world will be like for the next fifty years.