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Dynamic content on all matters to do with growing businesses from Keith Willey

New Economy Hides a Radical Change

It seems there’s gathering momentum that a New Economy will emerge in the UK post the financial sector meltdown and it will be based on manufacturing – that was the message I took from a Policy Exchange meeting at the Royal Institution today.  Well, that’s a load of twaddle of course because what people really mean is some re-balancing between the sectors, whilst we must mention ‘services’ too because actually that’s where we all work more or less isn’t it?  It is a serious point though and we really do need to stimulate manufacturing because we quite simply look a bit underweight against certain peers plus we need more output that is as readily exportable as manufactured goods.  Otherwise what’s the point of being a trading nation/ an open economy? Clark demonstrated great mastery of his brief and offered thoughts on what might be done about things if the Tories get in next year.  For a start, he doesn’t like the idea of supporting national champions and he feels government needs to really understand the value chain before it offers support.  Regarding the latter he cites a previous government’s mistake in championing chip manufacture as a way to profit from the computer boom (“fortunately they went bust before we could waste any more money”).  He also showed a good grasp of the dynamics in the entrepreneurial sphere – the need to create and support the fast growth companies and the problems facing the VC industry in playing its part in that.  He was at pains to say that the Tories’ policies are known only to George Osborne so we can but hope that Osborne is listening to his elders – for now though it was mission-accomplished for KC as we all felt soothed.  Meanwhile on the Labour side there was a lot of endorsement for some things that have been brought in – not least the Technology Strategy Board which many people felt was the right configuration at last – even if it’s underfunded and hasn’t quite got all its ideas up and running.  If we do indeed change government will they be big enough to keep the good things that have been achieved?

Meanwhile I can’t help feeling that debating the nuances of capital allowances, R&D tax breaks et al might just be a case of ‘fiddling whilst Rome burns’.  Aren’t we in the middle of a massive economic crisis – one that has yet to properly impact most of us?  Another fairly recent report highlights the role of Defence and related industries in the UK economy… written in an effort to stave off cuts to the sector.  Those cuts (as surely there must be some) could have a huge impact on manufacturing in the UK – directly and indirectly.  Right now the focus seems to be on reducing the wage bill for government bureaucrats working in Defence and some talk about all our troops getting the equipment they need.  I cannot help wondering though whether that equipment is in fact going to be needed.  Whilst trying to steer clear of party politics, it strikes me that the warning bells from all points about the Tories’ ‘Little Englander’ stance are well founded.  Norway, yes Norway is being mentioned as the model towards which the Tories would like to work.

It’s all so complicated and beyond simple measures how on earth can the politicians sort this all out?  I really would like to see a high-tech manufacturing-led recovery but I wouldn’t bet on it would you?  I’ll stop on that sobering thought.

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Business as Theatre

Last week I spent two evenings at rather different spectator events – the first listening to Robin Klein at London Business School and the second watching David Hare’s new play about the economic crisis The Power of Yes at the National Theatre.  I have to say that I much preferred the former to the latter, not just because of the difference in ticket price I assure you! The play wasn’t the best I’ve seen – more of a Panorama-style documentary to explain to the man in the street what’s been going on.  Amusing to see actors portray Ronald Cohen, John Moulton, Adair Turner and others.  In fact the latter was sitting two rows in front of me and wore an expression of smiling relief having come out of it without criticism.  To my eye the audience was full of retired folk who probably came to see why they’d lost their pensions.  Wise then to steer clear of the stories about Madoff and Stanford and focus instead on what was wrong with the mainstream financial sector  – apparently awful people like Adam Applegarth and Fred Goodwin.  “Ronald Cohen” told us that on a scale between ‘interested in people’ and ‘interested in business’ Fred scored 100% at the latter end.

The stand-out lesson was about human nature – we are mainly influenced by our own recent past.  A long bull run and nobody remembers what went before indeed nobody remembers to even question what’s going on.  Is it enough for the banks to say ‘we had to do it because everyone else was’.  George Soros was quoted relating his own emigrant past to his personal expectation of discontinuous change.

Robin’s talk described his journey from buying into a tiny engineering business, relocating to the UK, a tense brush with a leveraged buyout, elevation to Corporate Executive and finally to a position where he was able to capitalise on the rise of the internet in consumer-facing businesses.  Now of course an investor in many early stage startups.  Some parallels with Soros’s formative years.  For me one section of the Q&A served to underline that setting up a venture capital fund staffed by analysts and deal-doers who lack mainstream commercial experience is more or less hopeless.  I am sure that’s one reason why performance in this asset class has been so poor.   Robin presented many learning points; David Hare sadly too few.


Review now available:



The Stage

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Where Instinct and Objectivity meet: Retailing

Reflecting on Google UK’s Retail Conference earlier this week it was striking that retail seems to be balanced right on the edge between ‘we have shops and a web division’ and ‘we have clicks and mortar integrated’.  The cultural and organisational barriers are ever more obvious in this transition.   Star turn was Richard Last from J.C.Penney in the US who revealed that some colleagues regard the store network as billboards for the website.  After an hilarious run of asides from Ian Jindal I ran a panel with the unpromising title of ‘KPIs’ but fortunately Michael Ross of ecommera, Tony Stockil of Javelin Group, Richard Lowe of Barclays Bank, Neil Saunders of Verdict Research and Pete Bitsakis of ValueClick Europe had plenty to say.  The focus on website data is relentless and it would appear this will yield plenty more prizes and threats.  As Michael pointed out, if you cannot spend time walking around the store you can only rely on your web data to interpret performance – obvious, but not to a retail executive who spent 20 years walking the shop floor.  Threats abound too – if price was your point of difference before you’d better think again.  It’s becoming apparent that for many the battle to live or die will be fought on the web and your strategy has to be based in the hard facts reflected in your web data.  Tony pointed out that he used to be able to compare retail chains on three key measures – now the question is which measure to choose on the web where data on shopping behaviour is abundant but more complex.  So objectivity is needed but we also need to apply our instincts…. cue great quote from Mintzberg “The conception of strategy is an exercise in synthesis, which is best carried out in a single informed brain. That is why the entrepreneurial mode is at the center of the most glorious corporate successes.”

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Will business owners get better banking soon?

Whilst everyone waits anxiously to see whether we can navigate out of the current mess in banking there has so far been precious little that indicates things are really going to be different ‘afterwards’, whenever that is.  The most obvious example is that banking bonuses clearly will stay the same unless legislation is attempted.  We’re witnessing how practically difficult that might be.  What of the business banking that matters to the entrepreneur though?  That too has complications.  The big bank likely to take radical action is RBS.  Formerly run by Britain’s most admired banker Sir Fred Goodwin it is now ‘controversially’ run by Stephen Hester.  I say controversially because apart from his shocking compensation package (after all he won’t be hanging around to end of contract will he and could do it for nothing and reap glory couldn’t he?) he also has to find a ‘Plan B’.  His Plan A was to cut back to the UK core banking position but that doesn’t seem to anticipate the strength of feeling at large towards banks.  That feeling is driving a political agenda that surely will demand a restructuring of their UK business.  Oops!  Need a new vision chaps.  His career shows definite flair for leadership but if the plan lacks substance don’t we just get another personality cult?  The Telegraph might have anticipated this

“If there is a possible weakness in Mr Hester’s business approach it could be with his political skills. Taking over a partly – possibly fully – nationalised bank will require immense diplomacy in dealing with civil servants and ministers.  Although he is known for his support of transparency and openness, Mr Hester is also famed for the way he dominates meetings, imposing his will as much by force of personality as intellect.  Having politicians and civil servants, some of whom may be on his new board, as paymasters rather than private shareholders will present an altogether different challenge.”

Meanwhile we are getting snippets of what might emerge in the gaps left by rudderless big banks.   Sandy Chen is looking to set up a new bank, albeit with small capital to start with.  There could be great chunks of commercial banking oprations to pick up or prey on, not least RBS.  Naturally, Richard Branson is also said to be thinking of having a go but then again he would wouldn’t he?

So far it is hard to see a logic whereby entrepreneurs can really expect banking to improve – at some level of course modern credit-scoring plus market segmentation lead to rational ‘abandonment’ of smaller and medium sized clients.  At another though, given the disruption afoot, now is the time for business owners to make their needs clear:  get your bankers to pitch for business and regularly consider switiching around until and unless you see real added value beyond the commodity service.  No more Mr Nice Guy!

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Profits or Scale?

Let’s say you understand and accept that your business will not grow fast right from the start, that you know you have to start small and hone many aspects of the business before customers really start buying.  So how do you know whether it’s all going to be worth it in the end, that one day you’ll have a big profitable business?  Well the chances are greatly improved if you can make it a profitable small business to begin with.  That’s the thinking supported by some recent research .  If you manage to get sales to grow without figuring out how to make a healthy profit on those sales then it seems you are much more likely to fizzle out.  Last week someone told me about an IT business where growth has stalled and which doesn’t make money either.  Allegedly ‘you don’t make money in this business’ or so I was told, you just grow and then sell or I suppose just grow forever.  Well isn’t that a great illustration of what the stats tell us?  It pays to put growth on hold whilst you figure out how to make a big margin.  That way your chances of huge eventual success are greatly increased.  Conversely chasing sales in the hope that profits will follow can be a fool’s game.

This idea fits naturally with the concept of having some special advantage or differentiation over competitors – something which typically takes time or resources or both to develop.  The founders of Pret A Manger still only had two shops after five years of effort (and building advantage) so sometimes you might be in for a long haul.  If you are in those difficult early stages take a close look at whether there’s real profit – the difference between having it and not has a big impact on whether your dreams will come true!

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Entrepreneurship UK: 2009

Spent the morning with Craig Kemsley and Mark McKenna of Deloitte and Phil Davis, business writer looking at this year’s survey results. Conclusions embargoed for now of course so here’s a link to last year’s report. We are picking up some interesting issues in this year’s results to explore…. the effects of current economic conditions of course and how they drive behaviour amongst entrepreneurial businesses.

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Tech entrepreneurs in the UK

The rampant success of the tech venture scene in the US – though especially in Silicon Valley – must give entrepreneurs around the world an inferiority complex.  It’s not just the individuals of course but the whole interconnected mass of experienced technologists, execs, financiers, bankers et al.  I won’t try to unpick that but the point is that a lot the essential context that helps you succeed is missing elsewhere.  All the more gratifying then to see people making smart moves over here.  UK-based Omnifone just launched in Barcelona and they are not playing around with their venture – they’re taking on iTunes and manouevring telcos in parallel around the world.  One of the founders Phil Sant is a neighbour and I can vouch for the stealth strategy they have adopted until now (four years in incubation).  I have the UK product manager for iPod in my current LBS class and only last week we were debating DRM in the music space.  Of course she didn’t like me encouraging people to look at allofmp3.com (sorry Georgina).  Either way the omnifone strategy is to get you to pay for music downloads (as of course do iTunes) and I wonder how long this is going to last?  I reckon I’ve got 80% of my lifetime music needs in mp3 format already.  How long can the music downloads market go on for, especially at current steep prices (except allofmp3 of course)?  People say that after music comes video….  in fact Phil showed me a video clip on a mobile long before they said they were aiming at music.  Maybe I’m just getting old but I can see Omnifone selling out early whilst the potential remains unfulfilled.  So who can buy a business which is a set of technology designed to work on every handset and endowed with all those telco deals?  It’s a tough industry with many players using high strategy and brutal tactics to retain their share of the value.  Omnifone need big friends to let them play in this space.  Will a telco, handset maker or platform developer dare buy Omnifone?  Maybe the media players?  The phone companies are certainly busy working on the functionality of handsets as a quick look at http://mobilementalism.com/ shows.  More later…

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