startups | Paul Wallbank - Communications Professional

Staging a sales blitzkreig to win the market battle

Retailer The Iconic is a good example of the Silicon Valley greater fool model

Part of the Silicon Valley greater fool model requires ramping whatever metrics are necessary — page views, unique visitors, revenue or profit to attract prospective buyers to acquire the business.

Elizabeth Knight in the Sydney Morning Herald looks at the cracks appearing in online retailer The Iconic where revenues of thirty million dollars were subsidised by forty-four million in losses in the e-commerce operator’s first year of trading.

The Iconic has all the hallmarks of a classic ‘buy me’ Silicon Valley operation — big marketing spend, high customer acquisition costs and fat operating losses in an effort to build market share.

Getting market share is one of the key aspects of the greater fool model, being the leader in a segment almost guarantees a buyer, usually the one of the shellshocked incumbents.

Knight quotes emails from one of The Iconic’s founders, Oliver Samwar, on the importance of being number one in their sector.

‘‘The only thing is that the time of the Blitzkrieg must be chosen wisely so that each country tells me with blood when it is time. I am ready – anytime!’’ one said.

‘‘We must be number one latest in the last month of next season. Full month, not a discount sales month

‘‘Why? Because only number one can raise unbelievable money at unbelievable valuations. I cannot raise money for number 2 etc and I have seen it how easy (sic) it is for me in Brazil and how difficult in Russia because our team f….d up.’’

As we’ve seen with companies like Groupon, being number one can impress gullible corporations but when that market position has been bought by investor’s money subsidising operations, the business is rarely sustainable.

Whether investors are prepared to continue subsidising The Iconic’s losses or if the business can attract a buyer will depend upon the business maintaining momentum on its key metrics.

Probably the most important thing for companies like The Iconic though is the availability of easy credit and accessible funds.

As we saw in the original dot com boom, when that easy money evaporates so to do most of the businesses.

For the incumbent businesses threatened by well funded upstarts, some might find the best hope for survival is to hope challengers run out of money.

In the meantime though, they may have to survive a market blitzkrieg.

Startups and stress

Stress is an overlooked aspect of building a new business.

An article in Business Insider describes how staff morale has collapsed at recommendation service Foursqure as the company struggles to maintain its relevance and solvency.

Something that’s missed in the current startup mania is that building a business from scratch is hard work for everyone from the founders to the staff – not to mention the investors.

While many people working in safe jobs for big organisation wax lyrical about the romance of startups, the reality is most corporate employees would be found under their desks weeping after a couple of weeks at a new business.

That stress should be something anyone considering starting or joining a start up should give deep thought about, along with all the other factors.

Airtasker’s crazy idea

Can Airtasker’s crazy idea redefine local businesses?

“Anyone who says something is crazy these days is crazy themselves,” says Jonathan Lui, the founder of Sydney based startup Airtasker.

The crazy idea Jonathan shares with co-founder Tim Fung is to create a global marketplace for small tasks.

If you need someone to walk your dog, do some gardening or be an extra in elaborate marriage proposal then Airtasker is a site to find the right person.

Since launching last year Airtasker has advertised more than 54,000 tasks with users looking for everything from dog walkers to computer repairers and actors.

Tim and Jonathan came upon the idea of a site for small tasks when moving house with the various hassles of cleaning, moving and packing. Instead of relying on friends and relatives to help out, they saw the opportunity for connecting willing workers with small tasks.

The site turns around how traditional classified advertisements work by paying on results rather than advertising. Lui sees it as “de-centralised social commerce.”

It’s not just small household tasks either, Jonathan sees Airtasker helping out larger companies with tasks like market research, mystery shopping or even local council inspections of street signs.

Unlike many of the crowdsourcing sites, the Airtasker team want to keep away from commoditising labour, instead seeing their ‘runners’ providing valuable local services.

One of the interesting aspects about the internet is how two opposite forces are working against each other – while the internet creates globalised marketplaces it also gives people new channels to discover local services.

Jonathan sees Airtasker as being at the forefront of hyperlocal marketplaces, with a global website enabling small traders and microbusinesses to deliver services locally.

That may be a crazy idea – but we live in crazy times.

Australia’s entrepreneurial opportunity

Can Australia make the most of it’s entrepreneurial desires?

The recent PwC report Startup Economy – How to support tech startups and support Australian innovation focused, naturally enough, on the barriers to developing a Silicon Valley like business community in Australia.

Unlike most coverage of the report, The Economist raised an interesting point from the findings, that entrepreneurial Australians are far more likely to start up businesses than many other nations.

On one level this isn’t suprising as starting a business in Australia is easy compared to many other countries with the World Bank’s Doing Business survey rating the country second after New Zealand for the ease of setting up an enterprise.

Interestingly though, the number of Australians setting up their own businesses is falling reports Smart Company, citing the Productivity Commission’s Forms of Work in Australia report.

The Productivity Commission speculates this might be because the mining boom is encouraging workers to take resource contracts rather than set up their own businesses.

No doubt there’s some truth there, as much of the nation’s investment has been directed into the mines and associated infrastructure in recent years however there’s probably some more mundane reasons.

Top of the list would be the nation’s property obsession; it’s difficult to service a massive mortgage while running your own business.

Fifty years of mainly increasing property prices has groomed Australians into believing that having a steady job and a brace of investment properties is a much easier path to success than taking a risk with your own business.

Added to that is the increasing hostility towards businesses. As the nanny state grows, regulations that make it harder for business multiply, the latest example being a Sydney council that wants to charge professional dog walkers for using parks.

Overwhelmingly these petty regulations hurt those starting new businesses rather than bigger corporations.

The good news though is that people still want to start their own businesses. In an economy that’s increasingly concentrated in fewer hands, diversification is critical.

In a world that’s becoming increasing automated, we need smart startups finding ways to use the new tools and create the jobs to run them. If Australia can get its policy mix right, kick the property and nanny state addictions then it might open some great opportunities.

Are Australians too risk adverse for startups?

Does a culture of property speculation hinder new businesses and startups?

Last week I had coffee with Clive Mayhew who chairs the board of Sky Software, a Geelong based student management cloud service.

Clive covered a lot of interesting aspects about Sky’s business; including the opportunities for regional startups, government support and his experiences in Silicon Valley during the dot com boom. All of which I’ll write up in more detail soon.

One notable point Clive raised was how he struggles to get Australian staff to take equity in the business – people want cash, not shares.

The question Clive raises is why and that question is worth exploring in more depth.

My feeling is that it’s a cultural thing related to property – four generations of Australians have been bought up believing housing is the safest way and surest way to build wealth.

As a consequence young Australians are steered into getting a ‘safe’ job and plunging as much money into accumulating property equity as early as possible. Just as mum and granddad did.

Even those who don’t want to play the property game are affected as property speculation pushes up prices and rents; the landlord or bank won’t accept startup stock to pay the bills so employees need cold, hard cash to keep a roof over their heads.

The other angle is tax and social security policies, through the 1970s and 80s various business figures used share option schemes to minimise their taxes and successive Australian governments have passed laws making it harder for businesses to offer these incentives.

Interestingly this not only affects the Silicon Valley tech startup business model but also hurts the aspirations of Australia’s political classes to establish the country, or at least Sydney, as a global financial centre.

Putting aside the fantasies of Australia’s suburban apparatchiks – which if successful would see the country being more like Iceland or Cyprus than Wall Street or the City Of London – it’s clear that the existing government and community attitudes toward risk are reducing the diversity of the nation’s economy.

That the bulk of the nation’s mining and agricultural investment, let along startup funds, comes from offshore despite the trillion dollars in compulsory domestic superannuation savings is a stark example of risk aversion at all levels of Aussie society, government and business.

For those Australian entrepreneurs prepared to take risks, the risk adverse nature of most people becomes an opportunity as it means there’s local markets which aren’t being filled.

The problem for those local entrepreneurs is accessing capital and that remains the biggest barrier for all small Australian businesses.

How this works out in the next few decades will be interesting, it’s hard not to think though that Australians are going to have to be weaned off their property addiction – whether this takes a harsh recession, retired baby boomers selling down their holdings or government action remains to be seen.

In the meantime, don’t base your business plan on staff taking equity as part of their employment package.

Social media’s irrational exuberance comes to an end

With the tech industry’s irrational exuberance ending, the focus is now on building good businesses rather than worrying about hype, spin and fools with more money than sense.

Last week saw the annual Y Combinator demo day where the startups funded by the incubator get to strut their stuff and it appears the age of social media hype is over.

In the Wall Street Journal’s Digits blog, Amir Efrati reports Social is Out, Revenue is In as the companies showed off their income streams rather than the number of users which has been the measure for free social media apps.

That social media is out shouldn’t be surprising as the services have been tracking a standard Gartner Hype Cycle with a boom in services, coverage and investments that’s now turning into the inevitable bust and a fall into the trough of disillusionment.

Coupled with that fall for social media services are the disappointing stockmarket floats of Facebook and Groupon which have cruelled the enthusiasm for investing in tech startups with lots of user but not much revenue.

Last week’s headlines featuring Yahoo!’s purchase of Summly for $30 million and Amazon’s acquisition of Goodreads for an estimated $150 million show how the days of greater fools writing billion dollar cheques is over as more sensible valuations take hold.

Amazon’s purchase of Goodreads is more interesting than Yahoo! buying a teenage wunderkind’s venture in that Amazon is cementing its position at the centre of the global book publishing industry.

Goodreads has been one of the quiet social media success of recent years having built its subscriber base to over 16 million members sharing book reviews and reading lists.

The book review site is a natural fit for Amazon although the head of the US Authors’ Guild rightly worries the company is becoming a monopoly.

Of course the obvious retort to this is that someone else could have bought the site and Forrester’s James McQuivey speculates on why an established publisher didn’t do so much earlier.

This year’s Y Combinator Demo Day and the acquisitions of Goodreads and Summly show the era of irrational tech exuberance is over.

For good businesses operators and investors this is not a bad thing as everyone can now focus on building good businesses rather than worrying about hype, spin and fools with more money than sense.

Photo of Ashton Kutcher speaking at Y Combinator by Robert Scoble through Wikimedia commons

Does Google have corporate Attention Deficit Disorder?

Are Google paying the price of not paying attention to their core business?

The news that Google were releasing a service called Keep designed to store things you find on the web for future reference received a hostile response yesterday.

It seems the company’s dropping Google Reader into the deadpool proved the final straw for many of the tech early adopters who’d invested too much time building their feeds and other digital assets only to find services taken away from them.

This isn’t just Google Reader, various other services are suffering; Google Alerts has become functionally useless while the Frommers guide book franchise is slowly dying after the company bought it from John Wileys.

Corporate Attention Deficit Disorder

Google are suffering corporate Attention Deficit Disorder (ADD) where management find a bright shiny thing, play with it for a while then get bored and wander off.

This is trait particularly common amongst cashed up tech companies. In the past Microsoft and Yahoo! were the best examples, but today Google is the clear leader in the Corporate ADD stakes.

Corporate ADD requires a number of factors – the main thing is a big cash flow to fund acquisitions.

In companies with this luxury, bored managers find themselves looking for things to do with all the money flowing through the door and when a hot new product or market sector appears those executives want to be part of it.

So a company gets acquired or a project is set up and the advocate drives it relentlessesly within the corporation, usually with lots of PR and write ups in the industry press.

Then something happens.

Usually the advocate – the manager or founder who drives the project – gets bored, promoted or sacked and the project loses its driving force within the organisation.

Without that driving force the service stagnates as we saw with Google Alerts or Reader and eventually company closes it down.

This has unfortunate effects on the marketplace, users invest a lot of time in the company’s service while innovators in the affected market struggle to get funding as the investors say “we can’t compete with Google’.

A changed perspective

What’s interesting now though is the sea-change in the attitude towards Google’s Keep announcement – rather than dozens of articles describing how competing services like Evernote are doomed in the face of the search engine giant entering their market, most are saying this validates the existing startups’ investment and vision.

More importantly, most commentators are saying they are going to stick with the services they already use because they no longer trust Google to maintain the product.

This is what happens when you lose the trust and confidence of the market place.

One of the mantras of the startup community is “focus” – focus on your product and the problem you want it to fix. That large businesses lack that focus shows how far from being a lean startup they have become.

Google’s real challenge is to regain that focus. Right now they have rivers of cash flowing through their doors but in an age of disruption, it may well be that they could dry up if no-one pays attention.

Ritalin image courtesy of Adam on Wiki Images

Firing your customers

Getting bad clients out of your life can be very therapeutic, it’s something all business owners should do on a regular basis

Running your own business can be tough, but one of the therapeutic advantages of dealing with the stresses of self-employment is the ability to fire stroppy customers.

Steve Cody, the proprietor of marketing agency Peppercom, gives a list of five types of clients worth sacking in Inc Magazine.

It’s a good list although it misses the general “pain in the ass” client who demands a solid gold level of service for a pittance. These are particularly common if you pitch to the lowest end of the market.

Lists like Steve’s are good reminder of Pareto’s Law, or the 80/20 rule which is usually put in terms of 80% of business revenues come from 20% of customers.

The converse is also true, 80% of business hassles come from just 20% of customers and they are almost certainly not the most profitable ones.

Pandering too much to the bad customers can hurt your health as well – running your own business is stressful enough without dealing with troublesome clients.

So sacking bad clients is good, not only is it therapeutic but it also helps the bank account. It’s worthwhile doing whenever a customer drives you too far.

Go on, you know you want to.

Free content’s shaky foundations

The free content model of many Internet startups is inevitably flawed.

Musician’s rights advocate David Lowrie has a takedown on his Trichordist of Pandora’s campaign to change the US music royalty payment system through the Internet Radio Fairness Act.

Pandora and other online streaming services claim the current arrangement is unfair and puts them at a disadvantage to terrestrial AM and FM radio stations. Artists and record labels claim this is just a way to cut rights payments.

David suggests that Pandora’s founders either lied about the sustainability of their business at the time of their IPO last year or are just being plain greedy.

Regardless of what is true, or whether David is overstating the case against the IRFA, a truth remains that many Internet business models are unsustainable and Pandora’s may be one of them.

Most unsustainable of all are those who rely on free content.

Eventually the market works to filter out those who won’t pay for content – the good writers and artists move onto something more profitable, like driving buses or serving hamburgers, or they figure out they may as well control their own works rather than let some Internet company profit from their talents and labor.

The website or service offering nothing in return for the contributor’s hard work eventually ends up distributing garbage – Demand Media or Ask are examples of this.

In a marketplace where crap is everywhere, just pumping out more crap is not a way to make money.

Those looking at investing in businesses which rely on free content need to remember this, if no-one values the product then you have no business.

Sadly too many internet entrepreneurs, and corporate managers, believe the road to their wealth is through not paying artists, musicians or writers. They are the modern robber barons.

Google for entrepreneurs

A global research for entrepreneurs and business people from Google

This is an interesting project – Google have pulled together all their entrepreneurial resources into one page at Google For Entrepreneurs.

As well as being a handy resource for anyone building a business, it’s a great overview of the various programs Google and their partners are running around the world.

If you are looking at setting up a business or have a fast growing enterprise it might be worthwhile having a look at the resources Google have pulled together.

Your customers are smarter than you

Steve Blank and Mark Suster talk about start ups and customer service

“I’m a serial entrepreneur which means I failed with one company at a time” says Steve Blank in a terrific interview with Mark Suster.

Both Steve and Mark are experienced entrepreneurs conversation is one of these raps between two experienced and intelligent individuals where the questions are as smart as the answers.

One of the key take aways from the interview is that our customers are smarter than us. If they aren’t buying from us, they know something we don’t.

Whether we’re talking about startups or big business, listening to the customer is the core thing we have to be doing and everything else is noise.

Billion Dollar Babes

Is every successful startup worth a ten figure sum?

“It changed everything. It changed the game for a lot of us and you know it made a lot of people feel very anxious and sort of compare their own success.”

Lisa Bettany, the founder of Camera Plus lamented how Facebook’s billion dollar purchase of photo app Instagram purchase changed the start up community on Australian current affairs program Foreign Correspondent.

In the program Foreign Correspondent also spoke to Australian and Italian startup founders looking to make it in Silicon Valley. On being asked what they hoped their business was worth they all had the same answer – a billion dollars.

There’s no doubt Jindou Lee’s Happy Inspector home inspection app or the Timbuktu kids’ story website are great products and should be successful business. But is business success only measured by a billion dollar exit?

In Garrison Keillor’s Lake Wobegon every child is above average, it seems in Silicon Valley every successful business is worth a billion dollars.

Every founder in the current app or web 2.0 craze says “it’s not about the money, it’s about changing the world” yet scratch them and they are all on the lookout for the greater fool buying them out for an improbable sum.

One could say that a billion dollar cheque does change the world of the person cashing the thing although exactly how a iPhone photo app changes the world may escape some of us.

At the same time the Foreign Correspondent story was being aired the founder of Y Combinator – Silicon Valley’s most successful accelerator ‘s founder – warned the heat is now out of the market after Facebook’s market flop.

Paul Graham was elaborating on a letter he wrote three months earlier where he said, “If you haven’t raised money yet, lower your expectations for fundraising.”

If the billion dollar valuations are going out of the startup mentality then it might be better for all of us. It might mean our youngest, best and brightest really are focused more on building things that will change the world rather than buying mega-yachts for themselves and their VC investors.