small business | Paul Wallbank - Communications Professional

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.

No country for small business

Online advertising for small business is wide open again as the Internet empires focus on big business.

Facebook’s latest changes to its layout creates more problems for small business using social media as the real estate available on its site for eyeballs gets smaller.

The social media giant has been catching criticism recently for changes to its algorithm that make it harder for businesses to be seen online.

In the hospitality industry, discontent was articulated by the Eat 24 website which closed its Facebook Page down after finding the problems too hard.

With the changes to the online advertising feed, it makes it even harder for small business to be seen on the platform as reduced space means higher prices for the space that remains available.

It’s hard to see small businesses getting much traction with the changes when they’re up against big brands with large budgets.

On the other hand for the big brands, the importance of proper targeting becomes even greater as wasting

A challenge for small business

The big problem now for small business is where do you advertise where the customers are?

A decade or so ago, this was a no-brainer – the local service or retail business advertised in the local newspaper or Yellow Pages. Customers went there and, despite their chronic inefficiencies, they worked.

Now with Facebook’s changes, it’s harder for customers to follow small business and this is a particular problem for hospitality where updates are hard.

The failure of Google

Google should have owned this market with Google Places however the service has been neglected as the company folded the business listing service into the Plus social media platform.

Today it’s hard to see where small business is going to achieve organic reach – unpaid appearances in social media and search – or paid reach as the competition with deep pocketed big brands is fierce.

Services like Yelp! were for a while a possible alternative but increasingly the deals they are stitching up deals with companies like Yahoo! and Australia’s Sensis are marginalising small business.

So the online world is getting harder for small business to get their message out onto online channels.

For the moment that’s a problem although it’s an interesting opportunity for an entrepreneur – possibly even a media company – to exploit.

Neglecting the small business sector

The IT industry continues to neglect the small business sector

I’ve previously flagged how the IT industry fixates on the consumer sector, the Kickstart forum on Australia’s Gold Coast emphasised this with vendors, particularly those in the Internet of Things market, focusing on home users.

This is mindset is understandable given the huge numbers being cited for consumer applications, but the sneaking suspicion is that home users simply aren’t going to pay for these technologies and that the real money will be made in helping the retail sector deliver services to customers.

On Networked Globe today we discuss that quandary, it’s something that both vendors, consumers and small businesses should be thinking about given the way it’s going to change supply chains and entire industries.

Revisiting the Lipstick effect

How real is the lipstick effect? The Irish experience says it’s complex.

During the recession much was made about the ‘lipstick effect’ – the idea some businesses and products would survive because they’re little luxuries that cash strapped consumers will spend on while scrimping and saving in other areas.

Some of those areas are ladies’ cosmetics (lipstick), chocolate, movies and coffee shops. All of them offering small pleasures for a few dollars.

It’s a theory I’ve always been sceptical of and an episode of the BBC’s World Of Business where Peter Day travels to Cork to see how Ireland’s second city is recovering from the great recession illustrates the reality is a lot more complex than the theory suggests.

“We really struggled to keep alive,” Claire Nash of Nash 19 restaurant says in her interview with Day on her business experience during the recession.

“My turnover just absolutely took a spiralling tumble and it wasn’t that the customer weren’t coming in – those that had lost their jobs weren’t coming in – but those that hadn’t lost their jobs were really hurting and they were very careful with their spend.

“So they started using us as a treat, which was a model I never wanted to enter into but we weathered the storm.”

It can be argued that Claire survived because of the lipstick effect – she kept enough customers to survive – but it was tough and had she taken out the loans offered to her during the boom it’s unlikely her restaurant would have survived.

The key point though is the lipstick effect turned out to be a very different, and much less lucrative business, for Claire and other businesses in Cork.

So assuming a business will remained unscathed because of the assumption the lipstick effect is a big risk, if that’s the plan then Sequoia Capital’s infamous Powerpoint of Doom comes to mind.

While the presentation was aimed at tech companies and investors, it’s a good overview of how the Global Financial Crisis happened and Slide 49 – Survival of the Quickest – is probably the best lesson for any business: Act fast to adapt.

The lipstick theory is a nice way to justify unsustainable business models, particularly those that rely on consumer spending, in the face of a recession but the assumption spending will remain the same as customers will seek little luxuries is deeply flawed.

A business that doesn’t respond quickly to changed circumstances and reduced spending is one that might not survive a downturn.

Peter Day’s Cork story is a good listen on how Ireland and Cork have weathered the global financial crisis, the main question from the piece is how much have the Irish and the rest of the world learned from the mistakes of the boom years at the start of the 21st Century.

Does small business really want high speed broadband?

Is big business getting all the benefits of high speed broadband?

One of the mantras of the digital economy is new technologies, such as the web and cloud computing, level the playing field for small businesses competing against large corporations. Could it be that belief is wrong?

The Australian Centre for Broadband Innovation last week released its Broadband Impacts report where it examined how high speed internet is changing communities. The results weren’t good for small businesses.

One of the key metrics the ACBI used was business use of websites, it’s shocking enough that only 70% of Australian corporations have an online presence but less than half of small businesses being on the web is disgraceful.

An interesting quirk in the above table indicates that there’s quite a few microbusiness using online sales services and one wonders if the question being asked by the Australian Bureau of Statistics is too limiting in its definition of websites.

The ABS defines businesses with a web presence as those with a website, home page or other web presence but excludes those listed solely as part of an online listing. A web presence was reported by 45% of Australian businesses as at 30 June 2012.

With this definition excluding social media and listing services, it probably does understate the number of Microbusinesses that have an online presence but not a website as defined by the ABS.

The relevance of broadband

In the context of broadband it’s worth noting that websites and online commerce don’t need high speed internet connections, so it’s hard to conclude that giving these businesses faster access is going to make a difference to the way they work.

Where high speed broadband and ubiquitous internet really make a difference is in business operations. As workers become more mobile and the internet of things rolls out, having access to reliable connections is going to become critical to most organisations. Again though, small business tracks poorly on this measure.

Overall the use of cloud services – which is what the bulk of these “new operational processes” will be – is pretty poor across the board although one suspects in the larger organisations various groups have changed their business practiced around services like Dropbox and Documents To Go without senior management being aware of it.

What’s particularly disappointing about this statistic is small businesses are the group most suited to using cloud services and those not adopting these technologies are missing a competitive advantage.

So who needs broadband internet?

These results beg the question – does small business really need high speed broadband access? If they aren’t doing things that could be done on a dial up modem, like registering domains or setting up websites, it’s hard justifying the investment of connecting SMBs to fibre networks.

While there’s no doubt high speed internet is essential to the economic future of communities and nations, we have to keep in mind that not all groups will take advantage of the new technologies. Some will be left behind and in Australia’s case, it may well be small business.

Shops of doom

Some locations are the kiss of death of businesses.

“Location, location, location” is the mantra for real estate investors and property speculators, that rule is just as true for those setting up a shop or cafe.

When you pay attention to the retail strips or malls in your suburbs you’ll notice how some locations are doomed to fail.

The featured picture in this post is what should be a good location in the centre of a dining strip in an affluent Sydney suburb. Just fifty metres either side of the premises are successful and long running cafes.

However this spot has had five different business fail in the last three years and in the past decade hasn’t had a single stable tenant.

The question is what causes this? Is it because the landlord’s are greedy?

In some cases it is, the featured premises had a stable tenant in a very nice and well priced fish restaurant for many years. When the landlord jacked up the rent, the seafood cafe moved out and the place has struggled ever since.

Something many people have mentioned to me over the years is how difficult they find it to negotiate on price with landlords over commercial space with the owners very reluctant to budge on rents.

Often, the letting agents are prepared to throw in sweeteners like fitout costs, rental holidays or paying utilities but it’s very rare that the headline rent will be negotiated down.

Part of this could be due to the properties being valued as a multiple of their monthly rents; so if the leasing rate falls, so too does the property value which is bad news for the landlord and their bank.

When landlords get too greedy properties lie vacant for a long time. A good example is nearby to the featured property.

The bike shop that occupied this unit for about 12 months moved out over two years ago and before that it had been vacant for a long time. Despite being on a busy commuter strip in an affluent suburb, it’s a lousy location with poor visibility, truly awful parking and lousy amenities.

In a genuine free market the rent should fall until a business that can operate in such a low turnover location can afford it, that no entrepreneur can make the numbers work indicates the asking price is too high.

Although even the cheapest rents won’t help a truly blighted location which is why it might be a good idea to ask around the local shops and residents to see how a location has performed before signing that lease.

It would be a shame to doom your business because of a lousy choice of location.

Facebook’s advertising struggle

The next few years promise to be interesting for everyone in the social media industry, particularly Facebook’s shareholders and advertisers.

Facebook is further restricting the reach of brands on their social media platform reports industry news site Ad Age.

It’s not surprising that Facebook is doing this seeing their stock is currently trading at 120 times current earnings and sixty times estimated revenue. The income has to come from somewhere to justify those prices.

The social media service is quite blunt about it’s objectives in making brands pay more to get their message out on Facebook as Ad Age reports;

“We expect organic distribution of an individual page’s posts to gradually decline over time as we continually work to make sure people have a meaningful experience on the site.”

Facebook’s idea of a meaningful experience though might be very different from its users, who are showing their irritation with the service messing around with their news feed. It remains to be seen just how interested those posting on the site are in clicking on sponsored or promoted posts as opposed to finding updates from those they care about.

For smaller businesses, Facebook’s moves make it harder to use the service as an effective marketing or engagement platform as it means stumping up substantial amounts of money to get your messages in front of your customers and friends.

It’s going to be interesting to see how this pans out for Facebook and the social media marketing community. It may mean that social advertising is monopolised by big brands while small and local business finds other channels to get their message out.

One thing is for sure though, the idea that social media would replace the news media is beginning to look shaky as people’s feeds start to be dominated by messages they don’t want.

The next few years promise to be interesting for everyone in the social media industry, particularly Facebook’s shareholders and advertisers.

For smaller businesses, it’s clear that Facebook is no longer a cheap marketing platform.

For God’s sake get a website

Setting up a website is one of the easiest, and most important, things a new business should do.

The annual MYOB Business Monitor was released earlier this week with the depressing news that half of the Australian businesses surveyed didn’t have a basic website.

MYOB’s survey reinforced the finding of PayPal’s Digital Literacy Report a week earlier that found only 34% of Australian small businesses list their contact details online.

This is madness – over a decade ago consumers moved online and now with the mobile internet any business without a website is almost invisible in the marketplace.

What is really dispiriting about these reports is that listing with the various online services and setting up a website is not hard, at worst it should take half a day for a simple site and to complete Google Places, Facebook and Yellow Pages listings.

The easiest way to create a website is to setup a free Blogger page, it takes about twenty minutes and is more than adequate if you just need a site that lists your services, location, contact details and phone number.

While Blogger is good for the basics, it does run the risk of locking a growing business into Google’s walled garden which is why WordPress is the better alternative for more advanced companies or proprietors.

Most readers of this site already know how important an online presence is for any organisation, but it’s almost certain that everyone knows a business owner who doesn’t have a website.

If one of those business owners is someone close to you, then the best thing you can do for them is to sit down with them and setup their basic online presence.

Unless you think it’s time they went out of business. In which case you won’t have to wait long.

Surviving in business by executing a pivot

One of the key skills in running a business is knowing when to change direction.

One of the key skills in running a business is knowing when to change direction, to ‘pivot’ in the language of Silicon Valley.

Yesterday I had the privilege of interviewing Jonathan Barouch, founder of social analysis company Local Measure about the service’s pivot from Roamz.

I’ll be writing that interview up in more detail in a few days, but Jonathon’s observations about pivoting businesses reflected my own business experiences.

PC Rescue was born out of a pivot and its ultimate demise was due to the failure of the company’s management, and my own, to move decisively when it was clear the business wasn’t working as planned.

The founding of PC Rescue happened out of a virtual assistant service my wife an I set up in 1995. We’d been victims of the curiously insular attitude of Australian managers towards employing expats and starting our own business seemed to be the right option.

So Office Magic was born.

Office Magic was a good business, but in talking to clients it became quickly apparent there was a bigger need for computer training and repairs. Most small businesses were struggling to find reliable techs to help them out with their IT services.

So Office Magic pivoted into PC Rescue.

For the next ten years PC Rescue was a profitable business, the problem I had was the classic small business proprietor’s dilemma – I couldn’t get the right people.

The staff and contractors I had were good computer techs but I couldn’t find one with the skills or motivation to take over the day to day supervisor role so I could work on growing the business. I was stuck in the trap described by Michael Gerber in his book the e-myth.

Originally, PC Rescue’s business plan had been a five year strategy — two years validating, two years executing and one year exiting. The exit I particularly liked was creating a computer support franchise operation.

This didn’t happen because the company lacked the human capital required; my wife and I lacked the management resources to move PC Rescue to the next stage.

When this became apparent we should have pivoted the business. We didn’t because I was too busy with the day to day stresses of keeping customers and staff happy.

Eventually we achieved an exit of sorts, ten years later than intended and not in a satisfactory way. The business remained under capitalised and the new partners turned out not to have the expertise or drive required to grow the operation.

Which make Jonathan’s pivot of Roamz so much more interesting. He listened to customers, looked at the direction of the industry and realised where the company’s strengths lay.

Rather that doubling down on a model which was struggling, he took the business in a new direction.

Having that flexibility is probably one of the greatest assets for small and startup businesses as larger corporations struggle with executing massive changes.

As markets evolve and the rate of economic change accelerates, having the skills and mindset to execute successful pivots could be the difference between survival and failure for many big and small businesses.

Little shots at the moon

Everyday there’s thousands of people risking all on their own little moonshots.

Today I wrote a story for Business Spectator on the Google Loon project, a pilot program to see if high altitude balloons can provide affordable internet access for the developing world.

What really fascinates me about Loon and the projects in the Google X program is the concept of the ‘moonshot’. Google explain it on their solve for [x] website.

Moonshots live in the gray area between audacious projects and pure science fiction; instead of mere 10% gains, they aim for 10x improvements. The combination of a huge problem, a radical solution, and the breakthrough technology that might just make that solution possible is the essence of a Moonshot.

Great Moonshot discussions require an innovative mindset–including a healthy disregard for the impossible–while still maintaining a level of practicality.

Missing in that definition is the concept of risk – it’s easy to propose a radical, audacious solution to a problem when it’s not your money or career on the line.

On the other hand, most organisations that have the resources to experiment with breakthrough technologies stifle any thought of true innovation or radical solutions.

The advantage Google has is that parts of the organisation encourage those moonshots, although there are divisions of Google which are just as bureaucratic and staid as a chartered accountant’s or quantity surveyor’s office.

Interestingly Apple were the reverse with only one guy allowed to do moonshots and everyone below him followed him either to the moon or hell, as this wonderful story tells.

Which brings me to the little folk – the startups, small businesses and backyard inventors who don’t have the resources of Google, Apple or the US space program.

For that matter there’s also the writers, painters, musicians and other artists who are risking everything for their vision.

Everyday these people are risking everything for their little ideas as their homes, livelihoods and sometimes their relationships are on the line for their one big idea or audacious vision.

These are the real risk takers and every day they are taking little shots at the moon.

Is Small Business Whingeing its way to irrelevance

Are small businesses worrying about the wrong issues?

“Is small business whingeing its way to irrelevance?” first appeared in Smart Company on August 16, 2012.

Last week, TripAdvisor announced the results of a worldwide hospitality survey. One of the things that leapt out of the survey was how large hotel chains are using social media while smaller Australian establishments are languishing.

Following on TripAdvisor’s survey was the release of accounting software company MYOB’s regular index that showed businesses are retreating from the online world with reduced usage rates of social media, eCommerce and online payments.

At an Australian Israel Chamber of Commerce lunch in Sydney on Tuesday, MYOB’s CEO Tim Reed and Google Australia’s Tim Leeder discussed small business and the web with their Getting Australian Business Online program missing its target of 50,000 sign ups since its launch in March last year.

The fact more than half of Australian businesses don’t have a website despite free services from Google, WordPress, Weebly and a host of others indicates a deeper apathy among small businesses towards a whole range of issues.

Earlier this year the New South Wales state government abolished the popular Small Business September program with barely a squeak from the SME sector, with some small business groups actually welcoming what was a dramatic cut to support programs.

Compare this to the Olympic athletes, not only do we see the AOC coming out swinging with demands for more funding but the yachting team are staging an effective campaign to reinstate NSW government programs to support their sport: The total opposite to the small business community.

Small business, on the other hand, rolls over and accepts cuts to programs, poorly thought out regulations and government procurement policies that favour multinationals over local companies which are capable of the job.

When small business is given a chance to have a voice, the community blows it with whingeing. At the NSW Small Business Commissioner’s roadshows earlier this year it was notable how much time was spent whingeing about group buying services, traffic clearways and council permits for coffee tables rather than sensible and achievable wins for the SME sector.

So it wasn’t a surprise that the result of that roadshow was the cutting of useful programs and little effective change.

The best example of this whingeing rather than action is the current campaign to increase the GST threshold and abolish penalty rates.

Instead of focusing on the real problems facing businesses such as high rents, profit gouging from distributors and poorly thought out state and federal regulations imposed by both sides of politics – the small business and retail sectors manage to demonise their staff and customers and increase the suspicions of consumers and workers that they’re being ripped off by big, bad employers.

In reality, the shopkeepers and other small businesses are struggling to adapt to a rapidly changing economy. They are feeling those changes earlier than the rest of the economy because they don’t have the cushions of fat margins, political connections or guaranteed incomes of the corporate, public or political sectors.

Those struggles will give the small business sector an advantage over the bigger and slower groups – having adapted to the changed economy, those smaller businesses will be stronger and fitter than their bigger competitors.

Chris Ridd, of cloud computing accounting service Xero, one of MYOB’s biggest competitors, puts this best.

“Technology is an enabler and can actually help small businesses gain efficiencies, reach new customers and generate new revenue streams. Why turn your back on the one thing that can turn your business around.”

It’s the proactive business people adopting new technologies who are going to thrive over the next decade. Whingeing about TripAdvisor, the GST or dumb government policies isn’t going to save an enterprise that’s become irrelevant.

So make sure your website’s up to date, check what customers are saying about you on social media or review sites and have a look at those cloud computing services that can improve your business’ profitability and efficiency.

The time to do it is now, before your business becomes irrelevant.

Does small business need government support?

Can governments provide business assistance?

The New South Wales State Government’s decision to axe their long standing small business programs raises the question of whether small businesses need government support at all.

Last week’s announcement the NSW Government are abandoning their business education programs and replacing them with a previously announced network of local business advisors shows where small business lies in the state’s list of priorities.

Taken at face value, the changes appear to be moving back to the face-to-face business advice model of a decade or so ago that was common before the winding back of small business programs and local enterprise centres by then Federal Liberal and state Labor governments under John Howard and Bob Carr.

On closer examination, it’s a cut to business support and an effective withdrawal of NSW government assistance to small business. The remaining services will be outsourced to the same local business centres that have been starved of funds for over a decade.

A concern with the individual advisors will be how many businesses they can reach, according to the NSW Trade & Investment annual report 2010-11 the axed events had an audience numbering over 5,000. It’s difficult to see how the advisor network will match that and makes one wonder how the more important events couldn’t have been streamed or podcast across the Internet.

Putting aside the pros and cons of this restructure, the bigger question is should small business expect any government support at all?

The record of Australian government support for industry is not good. We only have to look at repeated visits to the trough by what remains of the Australian car making industry, the bipartisan debacle of assistance to the renewal energy sector or the support given by the Keating Labor government to Kodak to see how well schemes have worked out.

Most of Australia’s economic success stories have happened despite, not because of, government’s pouring money into industries. For example, the first five years of the current mining boom was completely missed by the political classes along with the Canberra press gallery and the media economic commentators.

This is where small business steps in – rather than relying on access to the ministerial suite to protect their industries, the little guys and the startups compete on price, service and innovation. Aspects that organisations in protected industries or those dependent on taxpayer largess struggle with.

Indeed many small business owners and entrepreneurs struck out on their own because they felt stifled by bureaucracy. So offering them programs wrapped up in paperwork is counter intuitive.

Where the government can help is with keeping busy business owners up to date with new developments in business, markets and technology which was exactly what the events programs like Small Business September and Micro Business Week did.

It’s difficult to see how the individual business advisors employed by local Business Enterprise Centres will keep up with their clients up with changes regardless of how skilled or well intentioned they are.

All of the changes are justified by the report from the Small Business Commissioner’s listening tour. Apparently she was told businesses didn’t want events like Small Business Septtember

I certainly didn’t hear any complaints at the breakfast fourm I attended at the Northern Beaches, most of the concerns seemed to be from cafe owners arguing about council outdoor seating permits. If the commish wants to get involved with that nest of vipers, I wish her the best of luck.

Overall, small business can’t expect much from government; particularly in the modern corporatist society where Big Government does Big Deal with Big Unions and Big Business while Big Media selectively reports what suits it.

Probably the best thing for small business is stay nimble and avoid being stepped on the Big Dinosaurs as they dance obliviously to the major changes that are happening in the world around us.

Big dinosaurs look after their own, don’t expect them to give you anything except a big shower of dung.

Disclaimer: I’ve been hired by Trade & Investment to host various events on the now axed programs and worked for 19 months at what was then the Department of State and Regional Development. I wish all of those former colleagues who now find their positions abolished the best of luck in finding another role.