Tag: investment

Creating a digital spaghetti divide

A business digital divide could be fatal for those caught on the wrong side of it.

Are we seeing a new digital divide develop between big and small businesses, particularly in areas like retail and hospitality?

This thought occurred to me during a radio spot earlier today where we were talking about Apple Pay’s Australian launch. Many small businesses don’t have the capital or expertise to implement many of these new technologies.

A number of factors contribute to this including the legacy systems installed in small businesses, the proprietors having a poor understanding of technology and, most importantly, the lack of either capital for reinvestment or cashflow to fund the monthly charges that are standard for cloud computing services.

The expensive cloud

One unstated factor with cloud computing services is how the cost of services add up. For example a Premium 10 Xero customer with Receiptbank attached is looking at a $100 a month in charges. It’s not hard to see how adding cloud based Point of Sale, rostering and customer service software could see a small business incurring $400 a month in fees, throw in Salesforce and you could be looking at a very expensive exercise.

No doubt for those companies that can afford these services this is money well spent but for many margin or low turnover businesses, the charges could be a deal breaker.

Spaghetti Junction

Another aspect to the cloud services is the myriad of different platforms that need to be stitched together in most businesses, one cloud service founder calls it “digital spaghetti.”

Managing this bowl of complexity isn’t easy and raises a number of business risks as different services apply varying policies and practices to the data they collect and store. A breach or service failure at one could cause a ripple effect through all business operations.

For many small business owners, particularly older proprietors, managing this complexity is intimidating if not downright scary.

It may well be there’s a number of opportunities for a canny service provider to offer an out of the box small business solution, but for many older small operators with limited capital and restricted cashflow affording such a product might also be difficult.

The risk though for those businesses is they will find themselves falling further behind as markets, consumer demands and the workforce’s expectations evolve. A business digital divide could be fatal for those caught on the wrong side of it.

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Israel and the long term tech view

A unique combination of factors coupled with a long term view is what’s driven Israel’s tech successes. Other places could learn from the taking that longer perspective.

 

Things are going crazy in the Israeli startup scene as investors and multinationals and startup pile into the country’s tech sector.

In order to understand what’s happening I spent the morning at The Bridge, an Israel Australia Investment Summit staged by the Israeli Trade Commission and Invest in Israel.

Of the morning sessions, the two panel segments gave the most insight into what’s driving the Israeli tech sector with Nimrod Kolovski of Jerusalem Venture Partners emphasising the industry-g0vernment-academia collaboration, military spending and tight personal networks.

“In Israel we can make two phone calls – to someone who was with them in the army and to someone who they worked with at the last company. You don’t get a chance to repair your reputation in Israel,” says Kolovski of those tight personal networks.

Kolovski also highlighted an important part of venture capital culture – just as much in the US as Israel  – is the willingness to admit failure, “if you don’t then you’ll lose credibility”.

 

The broad message from the morning’s sessions is that the Israeli tech sector happens to have the combination of factors that aligns with the Silicon Valley and US corporate view of the world coupled with a strong underpinning of high level, defense led research and personal networks forged to a large degree during National Service.

For a long time I’ve been skeptical of the Israeli and Silicon Valley model being replicable in other countries, particularly Australia, and the morning’s sessions only confirm that view. There is more to this which I intend to explore in some future blog posts.

The lesson for other countries though is that personal networks, research and access to capital matter in creating new industry hubs. The challenge for each country or region is to find the combination that plays to their society’s and industry’s strength.

For Israel, it’s hard to see how their tech sector isn’t going to continue to thrive in the current climate however it’s the result of long term focused investments, research and policies. Taking the long view is probably the most important lesson of all.

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Living Social and the group buying unicorpses

The tale of Living Social is one many of today’s tech unicorns will become familiar with

Four years ago group buying sites were the hottest businesses in startup land with the market leader, Groupon, being lauded as the fastest growing company in history and competitor Living Social following close behind it with a $4.5 billion investor valuation at its 2011 peak.

This week the New York Times has a feature on the dire straits Living Social now finds itself in as the company slowly fades away, now only employing 800 people after boasting 4,500 staff at its peak.

Living Social’s big lesson is the risk in chasing customers at all costs. Unfortunately for most of today’s ‘unicorns’ that’s a key part of their growth strategy as an important metric is how many new users are coming on board – the fact a company is making anything from them is largely irrelevant.

While Living Social, and Groupon, are two of the early ‘unicorpses’ – fading or failed billion dollar unicorns – undoubtedly there’s more to come as market realities hit many of today’s chronically overvalued tech startups.

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Testing the limits of Silicon Valley equity

The mega valuations of startups could be bad for the companies’ early employees, as ride sharing service Lyft shows.

Ride sharing Lyft is beginning to show all the weaknesses in the current Silicon Valley startup equity model as the company sees ‘ratchet clauses’ invoked by investors seeking their returns dilute the stakeholdings of earlier supporters.

One thing a lot of people will be the effects on early employees as the equity they took in lieu of a market wage is eroded by the increased stake of later venture capital investors.

What we’re seeing with Lyft are the limits of the 5-4-1 model of the current tech boom where for every ten dollars invested; one dollar goes into product development, four into customer acquisition and five into marketing.

The idea in the marketing is to attract more investors and ultimately to seduce a trade buyer or impress the stock market ahead of an Initial Public Offering.

In Lyft’s case the company is spending $96 million a year on marketing, twice its income. The company has raised a total of $800 million since it was founded giving the company a valuation of $2.5 billion.

As we’ve discussed before, these billion dollar valuations are as much a curse for a startup as a mark of success. Now the realities of a being unicorn are dawning on the employees who are often the oldest shareholders.

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Who is investing in the Internet of Things?

Who is making the big investment bets on the IoT?

Investment in Internet of Things companies has doubled in the past five years reports CB Insights from from $768 million in 2010 to over $1.9 billion in 2014.

But who is doing the investing? CB Insights research finds Intel Capital is the biggest player in the space with Qualcomm coming in second.

That two hardware vendors are the biggest investors in the field tells us much about how the tech industry is seeing the IoT as being a key part of the sector’s future.

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Maintaining an organisation’s values

Creating real wealth and value while staying true to a company’s founding principles are what Zendesk founder Mikkel Svanes finds important in business

“I always compare it to moving out of your family’s basement,” says Zendesk founder Mikkel Svane about his company’s going public last year.

Svane was talking to Decoding The New Economy after 18 eventful months that have seen the company go public and his publishing of a book on the journey of taking a startup to the market.

“There’s a lot of things you have to do different,” says Svane on becoming a listed company. “You’re on your own in many ways and you have to explain how things make sense. I think we’ve really embraced it and we enjoy it.”

Relaxed about the unicorns

While Zendesk was never classified as ‘unicorn’, having never been valued a billion dollars while private,  Svane is relaxed about the stratospheric valuations of the current group of tech unicorns.

“Most of these unicorn companies are amazing, they are changing the world and the lives of people,” he says. “Even if there is a correction most of these companies will do fine.”

“The thing about the private market is you don’t have pessimism build in, you only have optimism,” Svane explains. “But in the public markets there are people shorting your stock because they have a different view, you don’t have that when you’re private. That’s why valuations can get a little out of control.”

Taming the enterprise

For Svane, his optimistic view comes partly from Zendesk’s entry into the enterprise market, “in the last couple of years we’ve had some incredible momentum. We’ve done that while we’ve stayed true to our roots, to the small businesses and the startups.”

“Enterprises have a different set of needs and issues, the bigger you get as a company the harder it is to be agile and nimble.”

“Companies have hundreds of thousands of customers, they have millions of interactions and have all these data points. Managing these data points is hard. They also have to deal with compliance and have to figure out all these different things.”

Understanding one’s values

Figuring out many different things is one of the themes touched on Svane’s book Startup Land which he sees as being important in helping both he and the company understand their values, “I thought it was important to be honest about our roots and where we come from.”

“We haven’t sorted everything out,” he says. “Things are still complicated for us and we’re still in the early stages of building the company we want to build.”

“I think it’s important when you’re a fast growing company, doubling in size every year, having an anchor point about what you are is important. If you have a good clear idea of where you come from and why you do what you do it’s easier.”

Creating business value

“The process of writing this book helped me understand a lot better why we’re doing this. Not that I found the answers but now I have a much better understanding.”

For Svane one of the things he’s proudest of over the past two years is how many people that Zendesk’s success has helped, “it’s important to create wealth for every one. One of the things I’m proud of is how we’ve created wealth for regular employees, we complete changed their lives.”

“As long as you’re creating real wealth, not just for shareholder and investors, then that’s something to be proud of.”

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Beating a funding crisis

A downturn in investment might be a good thing for the tech startup sector

HR startup Zenefits is the latest tech unicorn to feel the wrath of an investor downgrade.

It’s becoming clear that even if the current Silicon Valley boom isn’t over then at least the mania is draining from the market.

For businesses looking for investor funds, this is bad news as money is going to be increasingly hard to come by. Making matters worse, a funding shortage will cause some of the companies with high burn rates to go broke which will increase investor caution.

We may be about to see a lot of the tech startups looking closely at how they are spending their money and that may not be a bad thing.

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