What a Business Financial Statement Can Tell You About the Health of Your Business

When you run your own small business, it can be difficult to keep an objective distance from what you do.

Bills come in, sales go out, you have your day-to-day goals and you watch the curvy line of profit and loss make its inexorable progress throughout the financial year. You have your big one-year and five-year plans, and it takes a serious upheaval for you to reconsider them.

Even if things take a surprising turn – a rough patch or an unexpected boom period – it is human nature to swallow these changes and rationalize the impossibility of them changing the business plan on which you worked so hard. Maybe you assure yourself that things will work out anyway, or that this is no time to take a risk by deviating from your roadmap.

If you alone are responsible for this business plan and for keeping your company afloat, there might not be anyone else around to challenge your views. This is just one reason why maintaining your company’s financial statement is wise business practice. It also means you have a document ready to present to potential investors or collaborators, and that you’ll only need to give it a tune up when the time comes to approach your bank for a loan to take your business to the next level.

But while it’s always pleasant to look at a sheet of healthy, blossoming figures, even when business is booming the actual process of putting your financial statement together can be intimidating. If you started your company because there was a service you were keen to provide, or an idea for a product you were excited to build and sell, then sitting in front of Excel trying to make the numbers add up probably seems difficult – and definitely not a lot of fun.

When you break the document down into its three component parts, however, it starts to seem more straightforward. And once you’ve created your first one, you’ve done most of the hard work – and all that remains is to update it every quarter, or when you are faced with an investment opportunity.

So what are those three components all about?

The first section is your balance sheet, which gives a birds-eye view of your company’s position. The left hand side of this sheet should show your assets – the cash value of the stock and property owned by the company. This is broken down into ‘current’ assets, meaning those that are likely to be converted to cash within the next twelve months, and ‘non-current’ assets, indicating those you’ll hang on to for longer, such as office furniture or vehicles. The right hand side of the balance sheet is your liabilities – the debts you need to pay. Again these are divided into current liabilities (such as a small loan that you will repay within a year) and non-current ones (your mortgage, for example.)

The balance of this section (your assets minus your liabilities) is represented as the ‘shareholder’s equity’ – what you would be left with if you sold off your assets and settled your debts right now.

The remaining two sections provide different ways to look at the current profitability of your business. Section two, your Income Statement, pits your revenues and gains (including sales, service charges, and any interest you might be earning on your business account) against all expenses and losses (equipment, salaries, rent etc.) for a given period, most commonly the past quarter. This gives an indication of the general health and profitability of your business as it stands.

The final section, your cash-flow statement, is a more specific version of the same thing. Here, your profits and losses should only refer to the cash that’s come in or gone out over the same period. It is a more tangible picture of the current state of your business, not taking into account non-cash elements such as depreciation.

To give you a clearer look of just how it functions, you may be interested to take a look at this handy new visual guide – a kind of dissection of the business financial statement. Get your first statement out of the way, and you’ll find you have a much clearer perspective on the current health of your business – and what you need to do to make the next great leap.

G. John Cole is a digital nomad and freelance writer. Specialising in leadership, digital media and personal growth, his passions include world cinema and biscuits. A native Englishman, he is always on the move, but can most commonly be spotted in Norway, the UK and the Balkans.

Image: Pexels

Uncooperative

In economics, perfect competition is hailed as an ideal. It is a situation where a large number of firms each produce a similar product, and so consumers can get what they want at the lowest possible cost.

The cult of competition starts early. At certain elite high schools in Sydney, student exam scores are publicly displayed so that every student can see where they rank against each other. This information is then used to stream students into classes. Top ranked students study with other top ranked students, and bottom ranked students study with other bottom ranked students.

If the true goal were education, then it would seem reasonable for each class to contain a mix of strong and weak students so that the strong students could gain even higher mastery by teaching the weaker students. Instead, the streaming process places all of the weakest students together. Exams are less about erudition than about classification.

While elite high schools may not be providing an optimal learning environment, they are teaching their students a crucial life lesson. We are social animals, and your relative position often matters greatly. The schools will of course defend their system by pointing out, quite rightly, that ranking students encourages them to compete, and competition pushes students to achieve higher levels of performance.

Whether ranking students makes them perform better is an open question, but it certainly serves the interests of schools. Firstly, it allows schools to hothouse the best students, thereby increasing the chance that they will get into the best universities. This always forms a key pillar of an elite school’s marketing campaign to prospective parents. Secondly, it puts the students into a competitive mindset, which is just what they will need to fight for and secure the highest paying jobs. High incomes are of course necessary so that graduates can afford the school’s astronomical school fees and provide the school with generous donations in future.

“Competition” is a notion beloved by headmasters, economists, and government policy makers. In other words, by the very people who themselves do not face competitive market forces.

Would a rose by any other name smell as sweet?

Another word for “competitive” is “uncooperative”. The brutal ranking system used in our education systems pits one student against another, and makes it dangerous to help a friend gain a greater understanding of the material. Unless of course you are so gifted as to be well above your friend in the competitive ladder, or so foolish as to not be able to perceive the cutthroat game into which you have been placed. Only geniuses and fools can afford to be benevolent in a school system designed to pit child against child.

This may all be true, but these are just issues for teachers and elite high schools. How is this relevant to issues in the business world like profit, market share, and market dominance?

Well, it is common for people from all spheres of life to believe that the ends can justify the means. Certain elite high schools believe this, which leads them to hot-house students in order to get them into the most prestigious universities. Uber, the global ride-hailing firm, also believes this, which has led the firm to engage in some very questionable behaviour over the past 8 years.

Founded in 2009, Uber has followed an aggressive growth strategy which might best be described as “ask for forgiveness not permission“. The firm has expanded quickly, entering new markets in many cases before regulations were in place. This has attracted protests from taxi drivers. However, Uber’s approach has been applauded by many economists who have argued that existing laws are often unfair since they protect complacent rent-seeking taxi monopolies that profit at the expense of consumers. Unrestrained competition, after all, is the temple where economists worship.

Uber’s belief that the end justifies the means appears to be an ingrained part of its culture, and not limited to its aggressive growth strategy. In the past, Uber employees have reportedly ordered and cancelled thousands of rides with Lyft, a rival ride-hailing firm. An executive publicly suggested digging up dirt on journalists who criticised the company. Uber implemented surge pricing during various emergencies including Hurricane Sandy in 2012, the Sydney hostage crisis in 2014, and the London Bridge attack in 2017. Uber also started using a tool called Greyball in 2014 to allow its drivers to avoid giving lifts to regulators and law enforcement officers in areas where Uber is illegal.

While “success at any cost” may sound like a start-up mantra to live by, a key problem with this type of culture is that it encourages self-serving behaviour which is both reckless and irresponsible. In 2014, U.S. Senator Al Franken, Chairman of the United States Senate Judiciary Subcommittee on Privacy, Technology and the Law, stated that Uber has a “troubling disregard for customer privacy“. The following year, Uber acknowledged that driver names and license plate information of roughly 50,000 drivers had been exposed.

Waymo, the self-driving car subsidiary of Alphabet, is currently suing Uber for the alleged theft of trade secrets and patent infringement. Court documents filed this week have revealed that Kalanick was aware that Anthony Levandowski, founder of self-driving truck company Otto, was in possession of data from Google before Uber purchased Otto for $680 million.

As if all of this weren’t enough, in February Susan J. Fowler, an ex-Uber engineer, publicly claimed that she was sexually harassed while working at the company. Uber hired former Attorney General Eric Holder to look into the claims, and in June more than 20 people were fired. Last week, CEO Travis Kalanick was finally ensnared in the continuous series of scandals and resigned following demands from investors.

The problem with a culture that supports warlike competition and uncooperative behaviour is that there is no easy solution. Where people are causing harm to others through extremely self-serving behaviour, the punishment may need to be severe. In extreme cases, even the Roman Catholic Church will resort to excommunication rather than communication and forgiveness. Benjamin Edelman, Associate Professor at Harvard Business School, appears to agree with this line of thinking, and this week argued that Uber has been operating beyond the law from day one, and needs to be closed down.

Will it come to that?

While Uber lost almost $1 billion in 2016 it has raised around $15 billion from investors. As a result, it most likely still has a huge war chest. However, combine Uber’s lack of profitability with its seriously problematic corporate culture, which may take many years to change, and it seems that Uber’s troubles look set to continue for a long time to come.

In the near term, it is a promising sign that Uber has decided to adopt all of the recommendations from former Attorney General Eric Holder’s investigation. The key recommendations are extensive including a reallocation of responsibilities of the CEO, use of performance reviews for senior management, an increase in the number of independent board members, an improved human resources system, creation of a robust and effective complaint process, and redrafting the company’s cultural values.

Uber’s bold always be hustlin’ culture has produced rapid growth, but has also attracted scandals, enemies, protests, and disgust. Now would be a good time for it to adopt a more cooperative, friendly (and law abiding) approach.

One Cow Describes Eight Business Models

Business models have diversified and evolved in unpredictable ways over the past couple of decades. Those businesses that have thrived have been the ones who were best able to not only take advantage of the new possibilities offered by the world wide web, but to predict the ways that the internet would change the way that consumers think and behave – both online and offline.

Online business economics do not exist in a vacuum: they have grown out of and exploited previously proven ways of doing things. It is quite simple to get a basic understanding of the names for new and existing business models by analogizing them to one of the oldest trades of all: the milk market!

Let’s take a look at eight of today’s most common business models:

Direct Sales Model. If you have one cow and you sell the milk it produces directly from door to door, then congratulations – you have a direct sales model. The classic modern example of this is Avon, who until recently dispatched their salespeople with suitcases full of make-up supplies to knock on doors and try to make a deal. Today, online direct sales marketing is more likely to take the shape of a bit of online networking and organizing, followed by a ‘shopping party’ hosted by the salesperson in their home. Think Origami Owl, Mary Kay etc.

The Freemium Model. You have one cow, and you give away the milk for free – but customers have to pay for a carton to hold the milk. Emerging from the more utopian ideals of ‘shareware’ in the programming community of the 1980s, Freemium is a combination of free stuff (a service such as Dropbox) with added services for which you pay a premium (added storage, for example). LinkedIn and even The New York Times (with its soft paywall) are contemporary online examples.

The Subscription Model. You sell your cow’s milk for $3 per carton – and offer your customers 20 cartons per month for $40. The idea with the subscription model is to keep your customers in a long-term contract and thus ensure recurring revenue. Netflix and eHarmony are among the subscription websites that have made a success of this model.

The Franchise Model. You buy a license from a farm to use its equipment to package your cow’s milk. The farm’s brand name goes on the packaging. It works because you already have a ‘sure thing’ in the good reputation of the franchise’s brand. You don’t have so much freedom as you would with your own business, but you have a bit more security behind you. McDonalds do this in the meatspace; Digital Altitude do it online.

The Loss Leader Model. You sell your cow’s milk for 50 cents, making a slight loss on each carton – but the low price attracts customers to your dairy, where you also sell fancy yoghurts and cheeses. Supermarkets undercut each other all the time with the loss leader model. Just think of Google – they give away a ton of services for free, but turn the multitude of clicks into dollars by selling advertising space.

The On-demand Model. You have one cow. You build an app so that customers can order milk whenever they need it, and charge for quick delivery. It works very well if you offer some form of convenience that customers can turn to when they’re in a tricky position – whether you’re downloading a film to answer that craving, or ordering an Uber to get you to the airport on time.

The Ziferblat Model. People don’t pay for your milk. They pay for the time they spend sitting in your café, drinking your milk. Ziferblat is a Russian ‘pay as you go’ café service that is opening eyes across the business (and coffee-drinking) world.

The Crowdsourcing Model. You don’t yet have a cow. But you suggest to people that they contribute to your campaign to buy a cow – and in return, you offer them their first 10 homemade cartons of organic milk for free. Independent business people are starting this way on Kickstarter and Indiegogo every day.

So which model best fits your big business idea? For an at-a-glance reminder of what that prize cow has to say about each model, check out this new infographic from The Business Backer. It’s inspiring stuff!

G. John Cole is a digital nomad and freelance writer. Specialising in leadership, digital media and personal growth, his passions include world cinema and biscuits. A native Englishman, he is always on the move, but can most commonly be spotted in Norway, the UK and the Balkans.

Image: Pexels

It’s time to spring clean your social media customer care strategy

Most young entrepreneurs have a pretty good handle on social media. The same business people most likely have a healthy understanding of customer care. However, put the two together, and the results are not always intuitive. Dealing with complaints and enquiries via social media is a game with its own rules – neither as informal as your personal Facebook presence, nor as mannered as an IRL customer service department. In fact, social media customer care may be more closely affiliated with your marketing strategy than any other part of your business.

So how much thought and research have you put into this fundamental element of your 21st century business? If you’re up and running already, it’s worth returning to the basics so as not to make any daft mistakes. If you’re new to dealing with angry Tweets and snarky Facebook comments, it’s time to take a deep breath. Make sure you approach them calmly and with one eye on the crowd.

In the first place, the most important principle is to not ignore such complaints. When somebody makes a rude or hot-headed comment, it can seem sensible to think you shouldn’t rise to it. Well, indeed you should not be provoked – but if this is a customer rather than an out-and-out troll, you need to take control of the situation. Even if you don’t have time to address the issue fully right away, it is important that you acknowledge the complaint and give some indication of when you will be able to deal with it. Otherwise, the customer is likely to become further frustrated, Tweeting and commenting more bad publicity in your direction.

When you do respond, keep it friendly but informal. Use first names (both yours and theirs) if possible, but don’t forget that this isn’t your Facebook friend – it’s a paying customer, and others are watching. Use humor with caution.

Try to take the discussion out of the public eye as soon as possible, but don’t be too pushy. Suggest you switch to private messaging, or see if they have a number you can call. A human voice can be more sympathetic than the glowing black text of the tweet. If you’ve ever read the comments on a YouTube video, you’ll know that people soon forget that they’re talking to another human while online.

But it’s not all doom and gloom. Social media actually gives you lots of opportunities to turn bad feelings into good publicity. Resolve a complaint politely and with humility, and others will see yours is a well-meaning business and you are able to own your mistakes. Be sure to share positive outcomes to tricky situations with your followers.

Another advantage of social media is that you can stay ahead of the issue. These days, when customers gossip among themselves, you can tune in by searching your business name and finding where people are tweeting about you. If you stumble on a problem, address it. If you find praise for your service, consider sharing it.

This new infographic provides a complete rundown on how to spring-clean your customer service approach online. Keep it handy, and make tending to your social media presence a part of the daily routine of your business, for a better shot at keeping your customers happy.

John Cole is a digital nomad and freelance writer. Specialising in leadership, digital media and personal growth, his passions include world cinema and biscuits. A native Englishman, he is always on the move, but can most commonly be spotted in Norway, the UK and the Balkans.

2010s or 1920s – In the World of Work, the Only Constant is Change

How are you dealing with the 21st century? Those who’ve been in the work market for a couple of decades or more have witnessed a hastening evolution of how things are done and what you need to do just to get by – let alone to excel.

Even millennials can find themselves somewhat adrift when new skills become outdated and employers experiment with workplace environments that are wildly different to what you were prepared for in school.

However, we’re lucky enough to live in an age of apparently infinite resources for self-improvement, career development and entrepreneurship. The online world is full of advice, training courses (many for free), and forums filled with like-minded individuals and more experienced professionals who are eager to share their knowledge.

Look back ninety years or more and the picture is quite different. The forerunner of that same communication network, the phone system, was made to function not by codes and algorithms but by real live “Hello Girls” whose job was to connect caller to call-taker by plugging and unplugging jacks and cables at the telephone exchange. Imagine if the same process happened every time you typed a different URL into your browser!

Even getting up to go to work in the morning was a more difficult process. Today, aside from the few lucky people who can reliably depend on their ‘internal clock’ to wake them in the morning, even the most ambitious among us need our iPhone or old school alarm clock to stir us from slumber. In those days, you might make more money as one of the few professional ‘knocker uppers’ – human alarm clocks – than the factory workers who relied on them. Which would you have been: the knocker upper, banging on windows before the sun rose, or the factory worker with a job for life but no real sense of self-determination?

But professionals in the 1920s had to deal with changing times and technological progress just like the rest of us. For example, in 1927, movies started to be released with synchronised sound, which meant that many of the legendary stars who’d been admired in the silents were now heard speaking for the first time. If an actor’s voice was not as luscious as his or her looks, or they just couldn’t act to the standards now required, they would soon become yesterday’s news – and end up joining the rest of us in the queue to become a salesman, a laborer or a telephone operator. Those knocker-uppers were replaced by radio alarms and smart phones, and robots are still in the process of taking over the factories.

To see where you might have ended up in the 1920s, and what your financial prospects might have been, have a look at this new infographic from OnStride Financial. It might make your feel a little more empowered over your 21st century career!

John Cole is a digital nomad and freelance writer. Specialising in leadership, digital media and personal growth, his passions include world cinema and biscuits. A native Englishman, he is always on the move, but can most commonly be spotted in Norway, the UK and the Balkans.

(Image Source: OnStride Financial)

How to turn down work without compromising your position

When was the last time you said ‘no’ at work? There’s no shame in being the guy who says ‘yes’: taking on work indiscriminately is the sign of a healthy work ethic – but whether it’s a productive work ethic or not is another matter. And, unfortunately, the willingness to take on every task you’re assigned can sometimes be caught up in other, less positive attributes: fear of losing out, pride in handling everything that’s thrown at you, or simply the inability to assess and manage your own schedule.

If you take on tasks that you don’t have time to complete, or that will impact negatively on the rest of your workload, you are not just letting yourself in for a hard time – you are compromising the level of what you can achieve for your business, your boss and/or your client. If you decide to turn a project down, saying ‘no’ can be the most difficult part. If you fear the wrath of the person to whom you’re declining, try to remain confident in the knowledge that ultimately it’s the best solution for everyone.

Therefore, transparency is the best way to proceed. Take some time to clarify for yourself the reasons that you can’t take the work on, and potential solutions. Be bold and honest, and you will retain their understanding and respect. This isn’t the moment for excuses, but for reason. Meet them in person (rather than sending an email) – you can ensure you’ve been understood properly and it will be easier to make your point.

If you’re working as part of a team or community, you may know someone who is better suited to take the work on. Again, this may be what throws you in a quandary about whether to turn the work down: perhaps you’re concerned that redirecting work on one occasion may see you overlooked next time around. It’s a legitimate fear, but ask yourself: is it better to suck it up and submit inferior work, or to offer a better solution that keeps everyone happy? Pass along a tasty assignment, and you should be remembered positively by client and colleague alike: you will position yourself as a helpful and resourceful part of the ecosystem. It all comes back around eventually.

On the other hand, if you’re passing on a less savory task and you’re concerned your boss will think you’re shirking, face up to the music and ask for help. Arrange a meeting to discuss your schedule. Use the opportunity to discuss the implications of overwork and to try to solve the issue together: maybe you need more overtime, more workable deadlines, or perhaps some help prioritizing and scheduling. Approached with honesty and maturity, hopefully your boss should see sense.

If transparency is the foundation of this approach, gratitude is an element not to overlook. Whether you’re saying no to an appealing bit of business, or asserting yourself regarding your employer’s unrealistic expectations, these are the people that pay your salary. Expressing thanks at having been considered for the task is a valuable way of maintaining relations even as you’re forced to turn it down. A client should be thanked for the potential business and asked to remember you next time; a boss can be thanked for considering your talents to be suitable to the job at hand – and for having confidence in you to complete such a heavy workload! So finally, when you’ve met with the person, explained your position and offered alternatives, remember to say thank you. After all, having too much work can be a privilege that others would love to have.

These ideas and more are collected in a new infographic from The Business Backer. Be sure to read and digest them next time you’re unsure how to deal with a request too far.

This is a guest post from John Cole. John is a digital nomad and freelance writer. Specialising in leadership, digital media and personal growth, his passions include world cinema and biscuits. A native Englishman, he is always on the move, but can most commonly be spotted in Norway, the UK and the Balkans.

(Image Source: The Business Backer)

The Spirit of Giving

Merry Christmas!

Joyeux Noël!

Sheng Dan Kuai Le! (圣诞快乐!)

Wishing you an enjoyable day, and a happy holiday season spent with good people, surplus amounts of food and drinks, and a large number of gifts!

One idea that is firmly associated with Christmas is gift giving. This is a central part of the Christian tradition, and also has an important place in broader Western culture, which retailers are obviously happy to encourage and embrace.

The festive season’s spirit of giving provides us with a nice opportunity to revisit basic notions of “value”, “price” and “cost”.

the-spirit-of-giving-2

We can think of “value” as the benefit provided by a good or service to the end user.

Economists typically interpret this as the consumer’s “willingness of pay“. That is, the maximum amount that a consumer would be willing and able to pay for a good or service. This allows them to introduce the idea of “consumer surplus“, which is the difference between willingness to pay and the actual price level. And the notion of consumer surplus leads to the idea of “gains from trade“; the idea that both consumers and producers can be made better off if they are allowed to trade freely.

Christmas gives us a chance to re-examine this mainstream interpretation of “value”.

It is evident at this time of year that a gift’s value is often totally disconnected with how much the recipient would have been willing or able to pay for it.

Factors that might affect the value of a gift include:

  1. The strength of the relationship between the giver and receiver of the gift;
  2. Whether or not the gift is a surprise;
  3. How well the gift matches the recipient’s needs and interests;
  4. The message on the card;
  5. The decorations surrounding the gift (Xmas tree, stockings, reindeer, Nativity scene);
  6. The colourfulness of the packaging;
  7. How fun or difficult the packaging is to rip open; and
  8. The atmosphere, experience and ritual of opening gifts together with family and friends.

Christmas is a time of year when people go to great lengths to maximise the value of what they give to others, so much so that it shatters mainstream Economists’ interpretation of “value” as “willingness to pay”.

Next we can consider “price” (what a firm receives from a customer (who may or may not be the end user) in exchange for a good or service) and “cost” (what the firm needs to pay for inputs that are used to produce it).

When I studied Economics as an undergraduate at Sydney University (under such luminaries as Kunal Sengupta, Tiho Ancev, and Don Wright) it was explained to me that firms aim to maximise profits. They can do this by adjusting price and quantity in order to increase the distance between total revenue and total cost. At a minimum, I was told, they will never set a price which is lower than the average cost of producing one extra unit (that is, price will never be lower than variable cost).

At Christmas, people spend significant resources (time, money, effort, imagination) to purchase or create gifts which they then give away for free. People tend to hunt for the best “value” gift that they can find within a given budget. That is, they seek to maximise the gap between “value” and “cost”, not “price” and “cost”.  Christmas shoppers will often hunt for a bargain, but if they stumble upon a remarkable gift which exceeds their budget they will often buy it anway.

“This is far too expensive! Meh, it’s Christmas! I’ll put it on my credit card!”

Your response might be that a firm is not a family, and so this Christmas analogy is invalid.

But is it?

What would the world be like if firms thought of consumers like family members?

And, more to the point, how did many of today’s most valuable technology firms become billion dollar companies? Think of Whatsapp, Twitter, WeChat, and Facebook. They did it by trying to provide value for as many end users as possible, and only afterwards did they find a business model to sustain and grow the firm.

Merry Christmas!

Joyeux Noël!

Sheng Dan Kuai Le! (圣诞快乐!)

Image: Tom Spencer

Do You Know What You Need?

Do you know

It’s what you know.

It’s not what you know, it’s who you know.

It’s not who you know, it’s who knows you.

Knowledge, networks, and branding.

You have to start somewhere, and the logical starting point is to acquire knowledge. Society understands the importance of this, which is why primary and high school education can be obtained for free in pretty much all developed countries. And in many countries, university is also heavily subsidized.

But hold on a minute, you might be thinking, many high schools are not free. In fact, they can be very expensive. Think of schools like Eton, public schools in the UK, or private schools in Australia.

It’s true that many schools are expensive, but there is a good reason for this. The parents at these schools are buying something in addition to mere knowledge. They understand the importance of surrounding their fortunate child with other fortunate children. And they are willing to pay big money for the privilege. Friendship networks are a valuable resource that can open doors to a more prosperous and enjoyable life.

However, in a world where knowledge is increasingly commoditised and friendship networks can provide counsel and support but not definite opportunities, the truly important factor is to become distinctive.

The best schools understand and educate their students in the importance of finding an interest and standing out. In Australia, I was fortunate to attend St Aloysius’ College. It was a school run by the Jesuits where students were encouraged to partake is sports, music, cadets, drama, the Duke of Edinburgh program, and all manner of other extra-curricular activities. These activities were fun but they also gave the students a unique experience and story that we could tell about themselves. A brand that the boys could continue to build at university and beyond.

I am currently teaching at a university in China, and the students also seem to have an intuitive sense that branding is crucial. While extra-curricular activities may not be quite as important as they are in Australia, the students will do almost anything to obtain an ‘A’.

Nothing could be more devastating than a ‘B+’.

Of course, after the dust has settled and the exams are finished, the student who earns the ‘A’ doesn’t necessarily know or remember more than the student with the ‘B+’. But in a country with 1.3+ billion people, the costs of failing to distinguish oneself can be high – less chance to study abroad, fewer career opportunities and, perhaps worst of all, diminished prospects for a favorable marriage.

Knowledge is mandatory and networks are helpful, but branding is key.

[Side note: Congratulations to my alma mater, Oxford University, which was ranked #1 in the latest Times Higher Education World University Rankings, which judges the performance of 980 universities across 79 countries.]

(Image Source: Flickr)

How Empowered Are You?

Empowered

What does it mean to say that someone is “empowered”?

The Oxford dictionary defines the term as “stronger and more confident in controlling ones life”.

Key to this definition is the idea of control; that is, the ability to influence the course of events.

Roles in the community that we might think of as empowered include priests, professors, public figures, as well as sportspeople, artists and entertainers who have gained a following. People in these roles are in the business of creating and sharing different kinds of ideas: wisdom, knowledge, public announcements, entertainment, perspective and spectacle.

Each of these roles is different, but if we agree that all of them to a greater or lesser extent are “empowered”, then what can we say they have in common?

Well, for one thing, all of the people who hold these roles have a voice. That is, they have an audience who is willing to engage with their ideas.

In simple terms, then, being empowered means having a voice within the community; an audience who is willing to engage with your ideas.

How empowered are you in your life right now?

If you are not creating ideas and sharing them with people who care, then I can guess your answer.

You can start to empower yourself today by developing your ideas and putting them out into the world. You can choose whatever form you like: public speaking, music, writing, painting, poetry, physical achievement, or feats of daring. You can also choose whatever kinds of ideas best help to shine a light on your interests and aptitudes: law, finance, science, philosophy or pure entertainment and spectacle.

By empowering yourself you can gain more control over your life. And in doing so, you will then be in a better position to empower other people within your community, organisation, family or group of friends.

(Image Source: Tech Insider)

Sanitised vs Sanitary

Are you trying to build a work environment that is more sanitised or more sanitary?

There is a difference.

A sanitised work environment is generally inoffensive, and is designed to satisfy the strict (and habitually self-serving) requirements of the HR checklist.

sanitary work environment, on the other hand, is one that’s designed to be favourable for the health and proper functioning of the organisation.

Do employees have enough free time and appropriate physical space where they can meet and mingle? This is likely to be important for relaxation, stress relief and the serendipitous generation of new ideas.

Are the key working areas of the business fit for purpose?

Too often the answer is no.

Take for example a professional services firm; it could be a consulting firm, law firm or accounting firm.  The existing mantra at many professional services firms is the “open plan” office, a form of madness which takes the much needed physical space that staff need, and plonks it right in the heart of productive work areas. The result is noisy chatter, annoyance for anyone who needs to concentrate for more than 30 minutes at a stretch, increased stress levels and reduced productivity. The workspaces at your typical professional services firm will satisfy the HR checklist, but they are often not fit for purpose.

Sanitized is not the same thing as sanitary.

 

Destiny vs Destination

When things go badly, the optimist is likely to respond with a reference to forces outside her control, “our competitors got lucky this time!”

When things go well, the pessimist is likely to respond in a similar way, “I got lucky this time!”

In both situations the person is making a call to destiny.

The optimist believes that things will go well as a matter of course, and so any setbacks are explained away as temporary bad luck.

The pessimist seems to believe the opposite; every situation presents the realistic possibility of failure and defeat. And when things go well, the pessimist is just thankful for the good fortune she enjoyed this time around.

The literature on positive psychology is totally in favour of the optimist, and with good reason. By explaining away defeat, the research has shown that a person will be much more resilient, which means they will be more likely to try again next time.

Resilience is important because it can help people to achieve their goals, and to avoid depression.

The problem with this blind support for the optimist though is that it ignores the value of intellectual honesty.

Sometimes you will have bad luck, and it is obviously fine to say so.

However, sometimes you will catch a lucky break, and in these instances claiming that your success is caused by your god-given brilliance may simply be dishonest, distasteful or downright obnoxious.

The winds can change.

Seneca, the Roman Stoic philosopher, is quoted as saying that “if one does not know to which port one is sailing, no wind is favorable.”

Good luck will feel wonderful and bad luck will feel horrible, but both can be equally unfavourable if you have no ultimate destination in mind.

You might have heard Behavioural Economists talk about “outcome bias”, which means judging a decision based on the outcome (good or bad?) rather than the quality of the decision at the time it was made.

In life, as in business, we should assess the quality of our decisions by whether they stand a reasonable chance of bringing us closer to our goals.

Which port are you sailing to?

3 Ways to Distinguish Yourself

We live in an increasingly digital and technology enabled world, which is increasing the level of competition between organisations.

Why is this the case?

There are three key reasons.

Firstly, technology is helping to lower barriers to entry. It has never been easier to create new goods and services, and get them noticed by your target audience.  Whether it be a website, a blog or an iPhone app, the initial startup costs for launching a new project have never been lower. This is especially true for organisations that have software development skills and who are able to produce new digital products by drawing on their own capabilities.

Secondly, the Internet is the greatest communication device ever invented, and allows customers to find out about products quickly and easily. This means that customers have more information than ever before, and are able to switch from one organisation to another based on the benefits on offer and the asking price. Customers have more power, and so organisations need to stay on their toes.

Thirdly, the large number of startups which are being launched each year means that there are lots of failures but also lots of breakout success stories. This increases the intensity of competitive rivalry for everyone, and makes it more important for organisations to innovate where they can before someone else innovates for them.

In this world of increased competition, here are three (3) ways to distinguish yourself:

1. Brand building – tell a compelling story and build relationships with the people who care. Your story won’t resonate with everyone, but it will resonate with some people. And so the goal is to find your people, to feed them and to delight them.

2. Making old things new – iPhone apps and websites can be used to add additional value to offline products and services. One example of a company that seems to have done this quite nicely is Bluesmart. Travel bags are old news, but by redesigning the travel bag and connecting it with a user friendly iPhone app, the company has created the world’s first smart luggage and is re-imagining the travel experience.

3. Mix things up – I am currently staying in a hotel in Beijing. The reception staff have been very nice to me, but they don’t seem to be too friendly to the locals who come to stay here. The staff appear to have the mentality that they are selling beds, and so the need to smile and be friendly to customers is not part of what they are providing. This, of course, misses the point entirely. Everything you say or do is part of the experience, and part of the value that you provide to others. And so while smiling may not be a core part of your business, it doesn’t hurt to mix things up a little.

5 Reasons It’s Okay To Say “No”

  1. If you are using your talents in a way that interests you for the benefit of other people, then that’s a good thing. Charities, non-profits and religions may come to you for aid, but it’s valid to refuse if your gifts to them would detract from the good work you are already doing
  2. Giving more than you can manage can create an imbalance in your relationships with other people, which can damage or destroy those relationships when you discover that they do not reciprocate to the same extent
  3. Saying “no” marks a boundary beyond which you are not willing or able to go right now, which helps to demonstrate your independence and enhance your identity
  4. It makes sense to put your own Oxygen mask on first. Helping other people when your own affairs are not in order can cause harm to you or harm to other people who may need to step in and rescue you
  5. One of the three necessary ingredients of a have strong personal, professional or corporate strategy is “focus”. Steve Jobs once said that “[p]eople think focus means saying yes to the thing you’ve got to focus on. But that’s not what it means at all. It means saying no to the hundred other good ideas that there are. You have to pick carefully. I’m actually as proud of the things we haven’t done as the things I have done. Innovation is saying no to 1,000 things.”

False Dilemma

Harvard Business School Professor Michael Porter argued back in 1985 that there are three generic strategies that an organisation can follow to achieve above average performance.

You can operate at low cost, provide distinct value to customers, or focus on doing one of these things while targeting a specific niche in the market.

The unfortunate fallacy that Porter introduced is that he made us think of these three choices, “low cost”, “differentiation” and “focus”, as three separate strategy alternatives.

In reality, they might more accurately be thought of as three necessary ingredients of any strategy that stands a chance of thriving in the long run.

Two companies that appear to have adopted the strategy trifecta are Aldi and Ikea.

Both firms have focused on a particular market niche. Ikea provides nicely designed furniture, and Aldi provides good quality groceries.

Both firms have designed their organisations to enable them to operate at low cost and they have passed these savings on to the customer.

The additional beauty of pursuing this strategy is that delighted customers can’t help but talk about the value for money that they receive, and so the firms make further savings by being able to reduce their marketing costs.

The choice of pursuing low cost or high value is a false dilemma.

While it is true that it might be difficult to achieve both on any given day if the resources and systems are not in place, it is also true that organisations don’t exist merely at a point in time.

Most organisations exist for many years and a sound strategy is one that will make this enduring existence more certain, sustained and successful.

Fixed Thinking

Many people are afraid to fail.

Terrified of flunking a test, getting fired, having their heart broken, or being laughed at.

Loss is painful, yes, it truly can be.

The problem with this way of experiencing life, though, is that it represents fixed thinking. A belief that things can stay the same and a desire to preserve the way things were.

There is an alternative.

You can look up at the stars and appreciate the abundance of space.

You can reflect on the passing of the seasons and accept that change is constant.

You can be curious about life and cultivate a openness to new ideas and experiences.

You can have heroes and role models who remind you that, if you dare to dream big, success is possible.

You can bear with life’s changing tides and be open to new opportunities to learn, contribute and grow.

Pen vs Sword

Pen vs Sword

(Source: Flickr)

Most people are familiar with the expression “the pen is mightier than the sword”, but where does it come from?

According to the BBC, the expression first appeared in Edward Bulwer-Lytton’s 1839 play Cardinal Richelieu.

This may have been the first usage in English, but Bulwer-Lytton appears to have borrowed from a longer tradition.

Napoleon Bonaparte, known more for his military conquests than his thinking, is known to have remarked that “four hostile newspapers are more to be feared than a thousand bayonets.”

The Prophet Muhammad has been quoted as saying “the ink of the scholar is holier than the blood of the martyr”.

And Greek playwright Euripides is thought to have written “the tongue is mightier than the blade” in circa 406 BC.

A long history indeed, but what does the expression actually mean?

To get at the meaning behind the expression, it may help to go back to basics.

A pen is a tool which can be used to write, and writing is a creative act that can be used to inform, entertain, and solve problems. The writer creates something that didn’t exist before and in doing so, assuming the writing has some merit, gives something to the reader which makes her better off as a result.

In contrast, a sword is a tool which can be used to fight, conquer, and acquire by force.

Writers share information and create intellectual property, and writing is the work of the educator, the scientist, and the author.

In contrast, fighters defend or acquire existing resources like land, property and oil reserves, and fighting is the province of the military, common thugs, and investment bankers.

For many of the world’s largest corporations, such as McDonald’s, Virgin and Apple, intellectual property is their most valuable asset.

The golden arches are one of the most recognisable trademarks in the world and have helped McDonald’s sell millions of BigMacs. Apple’s brand strength has consistently allowed it to enter new markets while its rivals have routinely struggled. And the power of Virgin’s reputation has allowed the company to enter a diverse range of unrelated markets including trains, planes, space travel, and hotels.

“The pen is mightier than the sword” is not just a pithy expression. If properly understood, it has real relevance for business leaders and the strategies that they choose to employ to sustain and grow their organisations.

Restoring Derelict Spaces to Lease-Ready Condition

Restoring Derelict Spaces to Lease-Ready Condition

This is a guest post from Sarah Smith.

Savvy investors know that there is a lot of potential in converting abandoned or derelict spaces into lease-ready properties. Below are five (5) tips on converting a vacant spot into a high-revenue lease property.

1. Pop-Ups

This refers to taking a small vacant space and converting it into a restaurant or shop. These are great for:

  • Trial marketing a new brand, product, or testing out a new region
  • Selling seasonable items (e.g. Christmas, Halloween, etc)
  • Adding a bricks-and-mortar location to an existing online business
  • Showroom space
  • Establishing a permanent location for items previously sold at crafts fairs or festivals

2. Advertising and Marketing

It only takes a little imagination to realize that an empty shop window makes for a great spot to place advertising and marketing.

Likewise, blank walls on the side of a building can be a tremendously good location to place large ads or marketing messages. Blank walls and large open spaces are also wonderful locations for projection advertising and mixed media marketing messages.

3. Build a Pod

Vacant and underused office space is now becoming extremely popular as part of the “pod” or collaborative working space concept. Many small businesses refer to the acronym POD, Phone, Office, & Desk, being the minimal space necessary in order to work. Short-term leases and flexible arrangements can take a vacant office space and turn it into a cash cow.

4. Virtual Shop-Fronts

One of the most exciting new technologies to re-use spaces creatively is the idea of a 3-D virtual shop front. When applied to a vacant lot or empty space, a detailed 3-D image can be rendered, perfect for prospective clients who may be imagining how their business can make use of the location.

Besides just being appealing to prospective clients, virtual shop fronts are also useful in making abandoned or derelict properties look occupied, adding aesthetic appeal to the neighborhood and helping to minimize visual deterrents to leasing the property.

5. Re-Purposing Venues

Many of today’s largest companies are looking for ways to stealthily guerilla market to certain demographics. You can take advantage of this by working with these companies to re-purpose abandoned properties as pop-up venues for their latest marketing idea or branded activity.

Another way to create revenue from blighted areas is to work in conjunction with local authorities to host festivals, fairs, and other celebrations. By adding pop-up attractions to your property, you can increase foot traffic to the area, benefiting local businesses and attracting potential long-term clients.

Successful event planners are always looking for new and exciting venues to stage their activities. Whether repurposed for a fashion show, art exhibition, festival, or music concert, your previously low-value property may be able to command a high price.

Sarah is a small business owner, and is currently learning about marketing, using the internet. Aside from working on her own business, she likes to use social media, and read travel books.

How You Can Use Signage To Brand Your Business

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This is a guest post from Sarah Smith.

Business owners know that they can’t attract customers if those customers don’t know that they exist. That is why they rent buildings in high traffic areas and pay large sums to place ads where people are likely to see them.

There are many ways that companies can get the word out, and with all the hype around online and social media marketing it would be easy for companies to overlook how important proper signage can be to the success of a company’s marketing strategy.

Let’s look at the link between branding and signage and list some reasons why clever signage can be an effective way to advertise your business.

Signage Can Be Simple, Affordable and Memorable

Even if someone doesn’t know what your company sells or what service it provides, he or she will recognize your brand if your signage is memorable enough. In many cases, people who see an attractive sign will want to learn more about the business behind it and what it does. Social media users may be willing to share your sign just because it looks cool and they want as many people to see it as possible. Ultimately, you are going to increase awareness for your brand, which will help to increase sales and revenue for your company.

Signage Can Be Simple, Affordable and Memorable

Signs Can Be Placed Anywhere

The best part about a sign is that you can put it almost anywhere. You could put a sign in your car window, on local bulletin boards or on a fence outside your property. If you want to reach a wider audience, you could even consider putting a sign on a public building or another area that is open to the public and which receives a large volume of foot traffic. For instance, you could put a sign on a light pole at a busy intersection.

Signs Can Be Placed Anywhere

Attract Customers From Miles Around

A brightly colored sign that is placed several hundred feet in the air can attract customers from miles around. To make it even more attractive, you could use neon lights or have it light up at night or at times that it may be harder to see. Depending on where the sign is located, you could include on it the closest highway exit to your location and the company’s web address and phone number. Doing this can allow potential customers to find your store, connect with you online or contact you by phone.

Attract Customers From Miles Around

Fence Signage Could Be Part of Your Marketing Plan

Large farms or public parks may have advertising space available on fences that surround the property or gated fences that people have to walk through to gain entry. The sign doesn’t need to be anything fancy, and a handmade sign can often be just as effective as a fence sign crafted by SiteSmart or something created using design software. If you are a startup founder looking to connect with your target audience, a handmade sign might also be seen as more authentic and fun.

Taking the time to create an effective sign can increase brand awareness, which can ultimately boost sales volume and revenues. The best part about signage is that you can be as creative as you want to be, and anyone in your company can help with the project. Signage can be an effective way to promote your business, and it is worth keeping this in mind when developing your branding and marketing strategy.

Sarah is a small business owner, and is currently learning about marketing, using the internet. Aside from working on her own business, she likes to use social media, and read travel books. Follow Sarah on Twitter.

When, Where and How Do you Sell Your Own Business

When, Where and How Do you Sell Your Own Business

One of the great things about starting your own company is that you may be able to sell it in the future for a massive profit. Depending on how much you sell it for, you may never have to work again to secure your financial future. This could allow you to spend more time with your family or invest in other businesses that you believe in. However, if you are going to sell your business, you need to do it properly.

When to Sell Your Business

The most important part of selling your business is knowing when to get out. You may decide that you are going to wait until the company is worth a certain amount of money, when you feel like the industry has peaked or when you simply don’t feel up to the task of running the business anymore. Regardless of when you sell your company, make sure that you have a succession plan in place.

Your succession plan will determine who is going to take over for you after you sell assuming that you sell to your other partners. If you decide to sell to an outside entity, that entity or shareholders of that entity may decide who takes over for you. Having such a plan allows for a smooth transition of power and assures employees and customers that the company they know and love is still going to be around to deliver a quality product or service.

How to Sell Your Business

How do you sell your business? Ultimately, the answer to that question is up to you. You may determine that the best idea is to sell your business yourself to save on fees and other costs that a broker may charge to complete the deal. However, if you run a public company or have multiple shareholders, then it may be necessary to hire a third-party adviser to ensure that shareholders get maximum value. Legal considerations need to be taken into account. You also don’t want to burn bridges because your reputation is valuable and the business world is only becoming a smaller place in the digital age.

A deal will also be more complex if there are disagreements about valuation or if the purchase needs to be structured in a tax-friendly manner. For instance, a buyer may not agree to take on all of the company’s debts or may want a discount on the company’s share price to complete the purchase. If the organisation operates in multiple countries, tax laws in more than one country may need to be taken into account before a deal can be completed.

Whoever’s buying your business is going to want to know the business is actually making money, so make sure you understand your financial position and update your financial statements before putting it on the market.

Where to Sell Your Business

Where you sell your own business is also up to you. If you own an Internet property, you may decide that it is best to sell it on an auction site that specialises in buying and selling domains. You may also decide to sell your site to an established company that will use the domain to further its own brand.

Just like selling anything else, you could put a notice in the paper or an online classified site that your company is up for sale. Ideally, you would put a notice in a publication that caters to business owners or is otherwise well read by those in your industry. If you don’t know of any publications where you could sell your company or have any contacts who may know of an interested buyer, this may be another case where you want to hire a third-party to facilitate the deal.

If you run a public company, you may decide to simply alert the media that the company may be for sale soon. This should generate enough interest in your company to get a suitable offer. Assuming that you run a publicly traded business, an interested party may decide to take your company over by buying a majority stake. Such a takeover would be considered hostile if you didn’t want it and friendly if you were interested in the deal.

Selling your organisation for a profit could be the best decision that you ever make for yourself and your family. In fact, some people start companies with the sole intention of selling them once the valuation increases to a suitable level. Although it may take months or years of effort to build a brand and then find a buyer for it, it could be worth it if the price is right.

Pie or Cake?

Strategy involves defending your slice of pie, or growing it bigger.

Innovation involves saying, “hey, we have some pie, why don’t we bake a cake or some cookies to go with it.”

Some companies spend so much time trying to get more pie, that they never get a chance to enjoy a second dish.

Business (like life) should be enjoyed.

What’s on your menu this month?

Olswang – The name says it all

I recently had the dubious honour of meeting with two partners from London based law firm Olswang.

Olswang is a firm which holds itself out to the market as being an expert in technology, media and telecommunications, and so I was quite looking forward to meeting them.

Unfortunately, I was sadly disappointed.

It was interesting to learn that, despite being apparent technology experts, the firm’s partners still use an old version of the Blackberry.

And in a world where technology startups is a growth industry, I was edified to learn from Partner Charles Kerrigan that he has no growth strategy for his practice, no desire to develop one, and moreover the firm as a whole appears to have limited interest in using its legal skills in the technology arena for the benefit of genuine technology startups.

As Paul Keating might have put it, “Olswang – all tip, no iceberg.”

Culture vs Strategy

Strategy involves understanding your current position, deciding on a destination, and charting a course from here to there.

Culture is about who you are, and why you do things.

Culture is arguably more important than strategy because, if you look at it over the lifetime of a product or an organisation, the culture is the only thing that will really matter. The strategy and the products are today’s strategy and today’s products, but over time the strategies and the products will change while the culture will remain.

Creating a successful culture won’t happen accidentally, but the key to creating a winning culture is to understand that culture matters.

And in the long run, it may be the only thing that matters.

Love vs Lock In

Economists love to talk about “scarcity” and the fact that we live in a world of limited resources.

However, in the digital world this need not necessarily be the case.

Phil Libin of Evernote is of the view that if you’re in a traditional industry like minerals extraction or transportation, then customers will either go for your stuff or your competitors stuff, but almost certainly not both. And so it’s more or less a zero sum game.

However, Libin believes that in the world of technology it’s really not zero sum. There is room for people to use multiple products. It’s not a scarcity based economy. If anything, it’s a love based economy. It’s an economy where the affinity that people have towards your products and towards your brand controls how much money you make. If you’re in the technology industry it’s a mistake to think about the world in terms of scarcity.

Libin believes that while the tech world does lend itself towards having one business dominate in a particular segment (for example, Google in search), this is only because the tech world is becoming more of a meritocracy than it’s ever been. Libin asks, quite reasonably, why would you use the second best product when you can use the best?

The problem with Libin’s view about meritocracy (apart from the fact that it seemingly contradicts his view that there is room for everyone in Silicon Valley’s love based economy) is that it’s only a half truth. One of the strongest forces that enable (or inhibit) many technology companies are network effects. Companies that have lots of users can be extremely valuable because users benefit from each other rather than from anything that the company itself provides.

A case in point is Facebook. There is not a month that goes by that I don’t consider leaving the network, or don’t talk to a friend who is thinking about doing the same. But people typically return when they realise that, despite Facebook being a horrible and pointless waste of time, everybody else they know is on there too.

Network effects can protect incumbents long after their time has passed and this explains not only the persistence of Facebook but also that of other technology products including Microsoft Office and Whatsapp.

The technology industry may not be a zero sum game, but nor is it quite the meritocracy that Libin would have us believe.

Maintaining Market Power Online

In an age of rapid digital disruption, how can you retain market power and continue to prosper online?

There is a lot of misinformation and confusion about how to compete in the digital landscape, and one of the points of confusion is about the power and value of content.

There is a new company called The Grid, which you may have seen advertised on Facebook, which is planning to sell AI websites that design themselves. The company’s tagline is “content is power, power your content on The Grid.”

The company argues that if we each had our own unique personal corner of the web, then the Internet would be a better place. This is a compelling sales pitch but it also conveniently ignores the way that market dynamics work online.

As I highlighted yesterday, the Internet creates winner take all dynamics whereby companies that can establish brand recognition, sufficient scale and strong network effects will often be able to dominate their market segment online.

Consider also the fact that companies like Narrative Science have managed to produced natural language algorithms that can create high quality pieces of writing. This technology has the potential to put most journalists out of work and, perhaps a little bit further down the line, lawyers and technical writers too.

Content is not power, but if it can be used to connect with people and bring them together in a scaleable way then that would be powerful indeed.

Monopolies on the Internet

Monopolies on the Internet

(Source: Flickr)

When the Internet was still a toy a decade or so ago, many business leaders and strategists didn’t believe that it would be possible to create a profitable business online.

The reasons given to support this belief were many and various.

Some argued that business on the Internet would never work because it is impossible to establish trust online. However, businesses like eBay, Amazon, Paypal, and LinkedIn have all proven this argument wrong.

Others argued more persuasively that business on the Internet would never work because, since anyone can have a website, the large number of websites would lead to a kind of hyper-competition resulting in the destruction of profits online; a boon for consumers but not so great for Internet-based businesses.

As it happens, this second argument also turned out to be wrong. But why?

If everyone can have a website why is it possible for some Internet-based businesses to compete successfully?

The answer is an ancient one, and appears to have been discovered in the early days of civilisation by the priests and then later by the universities.

In short, it is possible to establish a monopoly online with the help of three simple concepts: brand, scale, and network effects.

Brand is your level of social recognition, or share of mind. Since websites are typically free (in whole or in part) they are uniquely well suited for brand building.

Scale is how many people you can reach, and since websites can be accessed anywhere in the world, instantly and free of charge, the Internet is the most effective tool ever devised for reaching people at scale.

Network effects is when you bring people together around a common interest or shared purpose. Amazon and eBay connect buyers and sellers, Facebook connects friends, LinkedIn connects colleagues, and so on. The Internet enables online businesses to build monopolies by connecting enough people in a particular market segment to establish strong network effects.

Brand, scale, and network effects are three powerful barriers to entry that every Internet-based business needs to be aware of, and which can be used to build monopolies online.

Do you have assets?

Do You Have Assets

(Source: Flickr)

When can you consider something that you have to be an asset?

This may sound like a funny question, but it is particularly important for the success of organisations and your success as an individual.

The answer turns out to be largely a matter of perspective.

If you are an accountant, then your goal is to categorise resources into groups: assets, liabilities, and equity.

From this perspective, assets will be resources that are owned or controlled by an organisation, and which can be used to better operate the business. These might include things like cash, inventory, property, plant and equipment.

If you are a financier, however, then your goal is a little bit different.  You are not trying to categorise resources into groups but rather to maximise your return on investment.

Looking at it this way, assets will be resources that increase in value or generate cash flow. This would include things like stocks (preferably dividend paying), interest bearing loans, bonds, and rental property. However, this perspective will tend to undervalue assets that don’t produce returns sufficiently quickly, and will basically ignore any value produced more than five years in the future.

If you are a strategist, then your goal is different again. You may have one eye on cash flows, but you are basically trying to ensure your organisation’s long term survival and prosperity.

With this in mind, assets will include resources that help the organisation maintain and strengthen its position over the longer term. This will include things like brand recognition, scale of operations and proprietary technology.

If you take the perspective of the financier, then you would rightly conclude that the paid subscriber base of media companies like The Australian, The New York Times and The New Yorker are assets since they undoubtedly generate a healthy stream of short term cash flows.

If you take the perspective of the strategist, however, then you may start to feel slightly uneasy.  In the world of digital media scale of operations is a critical strategic asset, and so steps that artificially limit subscriber numbers (by, for example, charging a subscription fee) are likely to inflict damage on the value of these organisations over time.

An asset may be an asset, but from whose perspective?

It may be a good time to take stock.

Emulate vs Imitate

Emulate vs Imitate

(Source: Flickr)

When we imitate someone the goal is to copy what we see; to replicate; to produce more of the same. Think Rocket Internet or cheap Japanese electronics from the 70’s.

When we emulate, on the other hand, we take inspiration from a role model, a hero. And with effort we might one day hope to acquire their qualities, and to equal or surpass their level of skill and recognition.

We can learn from the successes and failures of our role models, and use these lessons to guide us on our personal journey.

In time we might create something worthy of recognition, and become a role model for the people who are seeking to emulate the success of the people who have gone before them.

Say Something

Often we can be scared to open our mouths and say something.

Expressions like “empty vessels make the most noise” and a pervasive social fear of rejection can make it difficult to open up.

Why is this the case?

Schools, universities and families typically work best when there is an open flow of communication. But on a day to day basis, and in the workplace, it can often seem best to say as little as possible.

The issue is that, as social animals, and whether we like it or not, we are constantly engaged in relationships with other people and the power dynamics that inevitably ensue.

If you are a junior employee with views on what your company should be doing, then calling the CEO to tell them may certainly get the CEO’s attention but it may also mark you as a trouble maker and hasten your exit from the firm.

There is always a power dynamic in play (and people who tell you differently are probably playing power games with you).

Speaking without thinking or sending an email which doesn’t convey a clear story backed by supporting data means that your communication is probably “criticism or noise” rather than being a meaningful contribution to the conversation.

The challenge then is not the speaking up part; the challenge is to first do the necessary research and thinking which can be used to foster a constructive dialogue.

You need to say something, but what?

Have you done your research?

Masters of University Adminsitration

I had coffee in early June with Chris McKenna, Associate Professor at Oxford’s Said Business School.

When I say we “had coffee”, we didn’t actually drink coffee, but I had offered to buy Chris one as I thought it might give him a reason to meet with me.

Chris’s area of expertise is strategy and business history, and he is also Director of the Centre for Professional Service Firms.

Needless to say, I was interested to hear his views on strategy, the professional services industry, and the state of the academic job market.

During the course of some light-hearted banter about his academic career, I decided to tell Chris that I was toying with the idea of doing a PhD, and all of a sudden he turned serious.

Don’t do it. He told me pointedly. Lots of people fancy the idea of teaching and research as a job, but the reality is that the odds of getting tenure are extremely remote and the odds of getting tenure somewhere nice like Oxford are slimmer still. Moreover, the opportunity cost of pursuing a PhD is extremely high because you not only miss out on a higher salary which you could have earned pretty much anywhere else, but you may also make yourself less employable in the process.

He conceded that if I still wanted to do a PhD despite his warnings and the lack of job opportunities, then there were a few things to bear in mind:

  1. Only do it if the university is willing to pay. His reasoning on this point was that a PhD is very time consuming and since it doesn’t offer a good return on investment anyway, you can’t afford to get into debt while doing it. He also suggested that the willingness of a university to provide funding is a proxy for how much they want you to come and join them, and so it is a kind of “leading indicator” for whether there will be follow on opportunities like post-doctoral work, consulting, and lecturing opportunities.
  2. Look for the spider in the web. Read lots of academic papers, and then talk to the academics whose research really resonates with you. You may find that the academic’s ideas are not as interesting as the research articles had led you to believe, and the reason that this can happen is that the research ideas may have come from the academic’s supervisor. If this is the case, then try talking to the supervisor or to some of the supervisor’s other hatchlings.
  3. In deciding which faculty to apply to, think about which subjects you would like to teach. If you would like to teach supply and demand, then apply to economics faculties. If you would like to teach strategy, then apply to business schools. Chris’s reasoning on this point was twofold (1) most PhD’s require you to do a year or so of course work which brings you up to speed on the core courses offered by the faculty, and (2) a PhD like any other degree has a certain “signalling effect”. If you do your PhD in a business school then your ability to find work in a business school following the PhD will be enhanced.

After Chris had finished advising me on how to avoid imminent demise and how to successfully navigate the academic job market, he then mentioned something in passing which was even more interesting.

He said, if you really want earn money in a university, then you should become an administrator. With the rise of online courses, the teaching function is likely to become more and more automated.

If you wanted to become a farmer, he told me, then the best job prospects for that industry came and went several hundred years ago. And if you want to become an academic, then the window of opportunity for that market is similarly closing. Universities need administrators, but they need fewer and fewer academics.

I wonder how long it will be before universities start offering a Masters of University Administration? And where will all the creative minds go once universities no longer need them?

Trump Nation?

Donald Trump

(Source: Flickr)

The Donald has announced his intention to run for the White House in 2016 on a ticket to “Make America Great Again!”.

At this stage it’s unclear whether he will run for office or not because he has flirted with running in the past and then not done so.

Whatever happens though, the take away lesson at this stage is that Donald Trump is a master at manipulating media attention and getting people to talk about him (in articles like this one).

Trump is a shrewd businessman who never misses an opportunity to build the Trump brand.

Are you being similarly diligent with your own brand building efforts?

Ownership vs Control

The recent news of succession planning at 21st Century Fox brings an interesting issue to light.

On Thursday, the Guardian reported that James Murdoch will succeed Rupert Murdoch as CEO at 21st Century Fox.  At the same time, Rupert and Lachlan will become executive co-chairmen.

The interesting thing about the Murdoch family’s control of Fox is that it relies on a dual-voting structure in which the family has nearly 40% of the voting power but only owns about 12% of the shares.

This may infuriate some people, but the interesting lesson here for all of us is that “control is more important than ownership”.

This is an incredibly powerful insight that can be used by business owners who are looking to grow their business.

Giving up equity in a company or a subsidiary in order to gain key talent or much needed financial backing is worthwhile so long as it doesn’t result in loss of control.

This concept is used by Richard Branson to expand into new markets.

Virgin will, as I understand it, typically provide its brand name and a small fraction of the financial capital required for an investment, but at the same time gain most of the shares in the new venture, thereby retaining control.

Ownership versus control; it’s a valuable distinction for all of us to be aware of.

To Those Who Have

John Paulson, the American hedge fund manager and billionaire, donated $400 million to Harvard University this week.

The donation will go to Harvard’s School of Engineering and Applied Sciences which, strangely enough, will be renamed the “Harvard John A. Paulson School of Engineering and Applied Sciences”.

Donating money to an educational institution can never be a bad thing, can it?

Well, it depends on who you ask.

Malcolm Gladwell was pretty incensed about the donation, and spent an hour on Wednesday ranting about it.

Gladwell appears to have been annoyed about the donation because Harvard just doesn’t need the money.

And while Gladwell’s outrage may be justified, and certainly Harvard (like Oxford) is not short of funds, the more interesting question is: what enables Harvard to attract such a large donation?

This is not a bible class but it does happen to say in Matthew 13:12 “For whoever has, to him more shall be given, and he will have an abundance.”

That’s all well and good, but what exactly is it that Harvard has that allows it to attract even more?

Here are three (3) ideas:

  1. Brand: Harvard is one of the world’s most prestigious and truly global brand names, up there with Oxford. By donating to Harvard, Paulson gains recognition by associating himself with an elite institution.
  2. Network: Harvard may provide education, but it is of an extremely elite variety.  One of my friends from Sydney studied his MBA at Harvard, and one of the questions in the application form asked him to state his father’s occupation and salary. He refused to answer the question, and was accepted anyway, but the nature of the question shows you the kind of game that Harvard is playing. Harvard is a powerful network that empowers itself still further by bringing together people who are already very powerful, wealthy and connected.
  3. Scale: In addition to having a powerful brand and network, Harvard also has scale, teaching around 21,000 students at any one time. This is important because, the larger the scale, the bigger the impact that Paulson can claim that he is making. It also means that more high achieving and ambitious young people will be reminded each year of the true greatness of the ego of John Alfred Paulson.

Art vs Business

Art vs Business

(Source: Flickr)

I attended a talk last week at the Oxford Union given by Alexandra Shulman, editor-in-chief of British Vogue.

Shulman is the longest serving editor in British Vogue history. She took the helm in 2002, and has presided over a circulation increase to 220,000 copies.

Needless to say, I was interested to hear what she had to say about the media and publishing industry.

Shulman is an interesting character, and a master of the British art of understatement.

She entered journalism in the 1980’s and claims to have had no particular inclination towards fashion. Although, after gaining some exposure to the fashion runways working with the British edition of GQ, she says that she ultimately found herself as the editor of Vogue. She also claims not really to be a business person, but has engineered not only a successful career for herself as the editor-in-chief of British Vogue but has also helped to build the profile and circulation of the publication. This is no small feat given that the media industry in general is struggling.

The most interesting takeaway from Shulman’s talk was the distinction she made between art and business.

People who think fashion is all about art and pretty pictures, she said, are not going to do very well in the fashion business.

Pretty pictures and fanciful notions are not worth much, unless you can deliver on time and on budget.

To drive home just how much of a business pragmatist Shulman actually is, it was interesting to hear how she selects which model to use on the cover of British Vogue.

One of the students in the front row asked whether there were plans to feature more black and Asian models on a regular basis rather than merely bringing them in as part of special feature issues.

Shulman acknowledged that things are evolving on this issue albeit very slowly. The reality, she told the audience, is that a blonde will sell even more issues than a brunette, and (as we understand her) a black or Asian model will sell fewer copies still.

British Vogue may be a magazine about fashion, but its editor-in-chief remains a pragmatic business woman. If her readers prefer blondes, then she will be only too happy to provide them.

Australia Is An Innovation Laggard (Nigel Lake, Part 10 of 10)

Australia, The Innovation Laggards

(Source: Flickr)

This is the tenth instalment of my conversation with Nigel Lake, CEO of Pottinger, a global corporate advisory firm based in Sydney, Australia. Nigel is the author of The Long Term Starts Tomorrow, a must have book “for any manager, leader or Minister.” The Hon Mike Baird MP, Premier of NSW

Tom: There has been a lot of support given to entrepreneurs in the UK in the last few years which seems very promising. Do you think that Australia is perhaps falling behind in that area?

Nigel LakeNigel Lake: Australia is 11 hours ahead of GMT, and about 10 years behind at least.

It is not a question of “is Australia falling behind?” Australia is massively behind.

I moved [to Australia] in 2003 and was amazed by the almost complete lack of online anything. Wind the clock forward and the online businesses of the big companies are still terrible. So there has been an amazing lack of innovation.

[Pottinger is] quite plugged into the entrepreneurial universe here through the universities, through some of the people who have invested in those companies, and through the incubators and so forth. We have put a fair amount of time into trying to support the evolution of that whole ecosystem because we think it’s amazingly important.

[Australia has] a political environment where there is a significant disaffection with science in general. There is a real love of things which are steeped in the past. There is a great unwillingness on the part of business here to embrace things which are new.

The poster child for success is Atlassian, the tech company, which sold its product in 10 or 15 countries to dozens of large companies before an Australian company would buy any of its products.

They are based in Sydney and had a fantastic platform for making your own wiki. They had a similar platform for managing agile software development programs, which is now used in many large companies around the world. Australian companies were at the end of the queue, despite the fact that the company is actually based in Australia.

Tom: So it sounds like there may be a cultural issue that Australia needs to overcome. I know that after finishing university a lot of the smartest people either leave Australia or take plum jobs in the established order of things. There appears to be a missing segment of the economy which exists in the UK and the U.S. And that is, young people trying to change things and create new businesses.

Nigel Lake: You just need to look at the university world. In most countries around the world, university students are pretty radical and protest about everything all the time. I have never heard an Australian student protest about anything apart from whether the temperature of their cappuccino is quite right.

There is an endemic acceptance of the status quo as being nice and comfortable and really quite reasonable, which to a significant degree it is. But you don’t have a change the world mentality, and people who want to change the world, as you said, they just get on a plane and they go somewhere else where they feel more welcome.

The only way you can change Australia is by changing its leaders. And that is about political leadership and business leadership. It’s an absolutely massive endeavour to attempt to do that. The challenge is that the political leadership comes out of the party system, which is breaking down in Australia as it is in the UK, but it is hard to see where that inspirational change the world leader will come from in Australia.

Ongoing Innovation in Digital Media (Nigel Lake, Part 9 of 10)

Innovation in Digital Media

(Source: Flickr)

This is the ninth instalment of my conversation with Nigel Lake, CEO of Pottinger, a global corporate advisory firm based in Sydney, Australia. Nigel is the author of The Long Term Starts Tomorrow, a must have book “for any manager, leader or Minister.” The Hon Mike Baird MP, Premier of NSW

Tom: One of my friends used to work at a large management consultancy in Sydney and was involved with providing advice to The Australian on the implementation of its subscription model.

In my view the subscription model is a crazy model because on the Internet the things which are scarce are attention and the ability to connect with people. Content is very cheap and increasingly free.

How can it be a good strategy for large newspapers, which are in the business of content creation and distribution, to be restricting access to that content? Meanwhile Google, LinkedIn and others are producing huge amounts of content and giving it away for free. What are your thoughts on that?

Nigel LakeNigel Lake: I couldn’t agree more.

What many of these organisations have done is say, “look, we are a newspaper”, and the world is going digital so we need to place the newspaper online.

So they take the physical newspaper and then they put it into an Internet version which is still the exact same thing as the physical newspaper. All lined up around the masthead of whatever the title is, and it has sections which are the sections that they used to have before.

After about 20 years they realised that if you’re online you can actually have video in a newspaper, which is a very modern phenomenon. Papers like the New York Times still don’t have much in the way of video content which is kind of bizarre because it works really well on a 4G network.

They have just not in any way reinvented themselves for the digital world.

The challenge is that to do that properly and to be able to figure out what you should actually do, you need to understand the media industry and what it is that people actually want to go and read. Secondly, you have to understand what makes a profit and what makes a return on capital. And thirdly, you need to understand what is really going on in the evolution of technology and where will it take us.

This goes back to why we set up Pottinger in the first place. If you have a strategic consulting set of skills but you don’t have financial or transaction skills then you only have part of the equation. And if you’re an investment banker who likes doing deals then you only have part of the equation. So we brought together the whole strategic thinking mindset with very robust financial analysis and over time we have added the big data analytics piece so that we have a much more holistic view of what you need to do.

In the world of media the technology part is incredibly important.

The lack of understanding about what is really going on in technology in some of these large media companies around the world is mind blowing. It’s almost impossible to put into words how little they know.

Tom: I couldn’t agree more.

Nigel Lake: Just on newspapers, the one that is very interesting to watch is The Guardian.

The thing that The Guardian has done which is very interesting, beyond the fact that they don’t have quite as many amazing typos as they used to, is that they are the world’s first global newspaper.

They have the full editorial staff in the UK, they have a pretty decent editorial staff in the U.S., and they now have quite a strong editorial staff in Australia having picked up some of the better journos who got kicked out of other things. They have a model which is free in terms of ability to access the content, and they have still retained a level of focus on the quality of the writing.

This is the other part of the media journey that newspapers have been down, which is they’ve said, we have got to get online, everything is so cheap online, we’ll just make the content as cheaply as possible. And the underlying business is really profitable because people come there and click on all the ads. But the thing is people don’t go to a newspaper website to read the ads. And so, if the content is not what people want they will just go somewhere else. Particularly if they have to pay for it, then they will definitely go somewhere else.

The Guardian has followed a different model which is about saying we’ll try to keep the quality of the journalism up, we’ll provide a much broader view of the world, and it’s not a subscription model at this point in time. Well, it’s a subscription model for things like the crosswords which is kind of interesting.

For me that feels like intuitively a model which is much more likely to be successful. Now I have never worked with The Guardian and I’d love to get under the hood of their profitability and metrics on usage and so forth. But they are an example of a paper which is going the other way, and I’d be interested to see whether it is working for them.

Where Should the CEO Focus His or Her Attention (Nigel Lake, Part 8 of 10)

CEO Focus

(Source: Flickr)

This is the eighth instalment of my conversation with Nigel Lake, CEO of Pottinger, a global corporate advisory firm based in Sydney, Australia. Nigel is the author of The Long Term Starts Tomorrow, a must have book “for any manager, leader or Minister.” The Hon Mike Baird MP, Premier of NSW

Tom: In my mind one of the problems with innovation is that it can require a kind of schizophrenic approach. Focusing on the present business model and current needs can be all consuming, and thinking about the future can similarly be all consuming. Do you think that it may be helpful for companies to divide those roles? Or, do companies just need a business leader who has the foresight to see the future as it’s unfolding?

Nigel LakeNigel Lake: I think that’s a very interesting observation.

The advice that everyone gives entrepreneurs is that make sure that you don’t spend all of your time working in the business, you actually have to work on the business. And the same very much applies to large companies.

The CEO should not be spending much of his or her time running the business day to day. They absolutely should be looking much further out into the future and making sure the business is well positioned by taking the long term and difficult decisions now that will ensure that the business does well over the longer term. That isn’t always the case, but that for me is very clearly what the CEO role is all about.

In terms of how do you deal with this, in many organisations you end up with most of the management infrastructure focused on running the business, and that’s fine, and you have a preferably very small team of people who are focused on the longer term strategy of the business.

An interesting example is Tata Consulting, the big Indian IT services business, one of the world’s largest IT businesses. They have a workforce of hundreds of thousands of people around the world, and what they do is all about reliable delivery of technology which is very driven by process and reliability.

In that kind of entity how on earth are you going to embrace radical innovation and change? And so, what they have is a whole separate ecosystem internally called the Co-Innovation Network, which has quite a significant headcount in it and which is entirely focused on radical innovation and new technologies. And so, they have part of their business which is not constrained by today and is entirely engaged with what is happening that will change the world in all sorts of ways. That part of the business reports in directly to the Global Chief Technology Officer, who is one of the key guys in the group.

Tom: I guess, at the end of the day, change needs to come from the top.

Nigel Lake: You can’t make change happen from anywhere other than the top. If the top isn’t interested you’re wasting your time.

How to Anticipate The Future (Nigel Lake, Part 7 of 10)

Anticipating The Future

(Source: Flickr)

This is the seventh instalment of my conversation with Nigel Lake, CEO of Pottinger, a global corporate advisory firm based in Sydney, Australia. Nigel is the author of The Long Term Starts Tomorrow, a must have book “for any manager, leader or Minister.” The Hon Mike Baird MP, Premier of NSW

Tom: If you were the CEO of a bank, say National Australia Bank, and you see [innovation in the payments industry] coming, but you don’t have the capital to invest, and you don’t have the technology people. How do you respond to that?

Nigel LakeNigel Lake: You have to get in a darkened room where you feel very safe, and you have to say “what does the world look like when these people have taken over one of the most profitable parts of my business? What are we going to do? How are we going to compete?”

The payments part [of the banking industry] is somewhat invisible from the outside but it is a very high margin business. And so you have to say, “if we lose all of that, what are we going to do? How do we organise ourselves? How do we continue to be relevant in a very different world?” And you need to make all your decisions working back from that.

That’s an archetypal example of why thinking about the long term first is incredibly helpful because trying to work out what you might do incrementally starting from today is quite hard when you’re saying look it’s all too difficult. But if you say, okay, well, whatever is going to happen is going to happen let’s think about the world after that, then you can start making decisions where everything you do along the way lines up with making sure that you’re well positioned over the longer term. And you can then get out and start to tell some of that story publicly.

Tom: So in a certain sense it’s having the foresight to see what’s coming, accepting that, and then working accordingly.

Nigel Lake: Absolutely.

I spoke at a strategy conference a month or two ago, and I got there just a bit before I was due to speak and the last session was still going. It was a guy from the management consulting world talking about how companies couldn’t really deal with a strategy that looked out two or three years any more. It was all too hard; the world was moving too rapidly; they could only really deal with things for the next three months. And I just thought to myself, wow, how can I find companies like that which are only thinking three months at a time? I just need a client on the other side and we’ll go take their business because they have no idea where they are going.

People like to reassure themselves that understanding the future is just too difficult, so you had better focus on the near term. But there are all sorts of areas where actually the future is very very predictable over vastly long time horizons.

Anything to do with demographics you can predict quite reliably decades and decades ahead. If you want to know what the population of some country is going to be in the year 2050 we have already a pretty good idea now because most of the people have already been born who will be alive in 2050 in that country. Things like that are predictable.

The TVs that will be on sale in the year 2020, we know what they are now and what the specifications are now because you can’t invent new technology and bring it to market in four and a half years.

The things that will go on sale in 2020 have already been in the product development pipeline for some time and they are part of a longer term evolution of products. So in the world of technology you can predict five or ten years in the future as to what things will be like. Many of them are on relatively predictable Moore’s law price curves.

What is energy going to cost in ten or twenty years time? Well, we have fifty or sixty years history of the evolution of solar PV prices, and they will continue to decline on more or less the same basis for a period of time. Before long they will come to drive the cost of power, and so predicting the cost of power in the future becomes rather easier than it has been in the past where it was all dependent on oil and commodities cycles.

There is lots of data you can use to understand the future but businesses are not necessarily brilliant at doing that.

The Challenges of Pursuing Organisational Change (Nigel Lake, Part 6 of 10)

Challenges of Organisational Change

(Source: Flickr)

This is the sixth instalment of my conversation with Nigel Lake, CEO of Pottinger, a global corporate advisory firm based in Sydney, Australia. Nigel is the author of The Long Term Starts Tomorrow, a must have book “for any manager, leader or Minister.” The Hon Mike Baird MP, Premier of NSW

Nigel LakeNigel Lake: Major incumbents have historically struggled to reinvent themselves.

The people that made and sold horses and carts didn’t do very well when cars came along, and the people who make cars are not going to do terribly well when electric vehicles come along.

Tom: That’s interesting. Do you think that the problem is that they’re framing what they do in the wrong way, for example they say “I’m a horse and cart company”? Or do you think it’s a lack of capabilities, and companies want to evolve but they are unable to evolve?

Nigel Lake: I think it’s a mixture of things.

I think absolutely it is how they frame what they do. They think they are a horse and cart company, not a person transport company.

If you have a large organisation, the challenge is that you have to switch from investing nearly all of your capital expenditure on things that you’ve done in the past, to invest much more of it on things you don’t yet do. The people who currently run the major bit of the business are suddenly going to be deprived of expenditure and it’s going to go to someone else who’s running something which doesn’t really exist yet. And making that change at an organisational level is incredibly difficult.

We’ve done a variety of pieces of work in the last couple of years with companies where it is abundantly clear that their main prize lies outside their core business. Their core business is great and fantastic, but that’s 1% of their future and 99% of their future is in things they’re not doing.

The other part of it is what my colleague Cassandra Kelly calls the supremacy gene, which is that big companies become very inbred and strongly enamoured with their own wonderfulness, and they can’t see that they have significant inherent weaknesses.

Look at the banking sector and what the likes of Google and Apple and others will do to the payments industry. They will just quietly take over and own payments. And the banks will spend a long time thinking it’s never going to happen, and they won’t stop to think that if you’re Google you can throw 5 or 10 billion dollars at having some fun in payments. There isn’t a bank in the world that can spend 10 billion dollars on payments. None of them have 10 billion dollars of spare capital that they can just burn.

We see this with the Australian banks which are obviously very small in broad terms, but by market value they’re large so that all four of them are in the world’s top 25 banks. I think [the Commonwealth Bank of Australia] understands that you really need to innovate or you will die. As for the other three, sometimes I think that having a fourth weekbix for breakfast is an innovation that they would find hard to stomach.

They really are very very slow moving, but they have tremendously profitable businesses and they will continue to do really well for quite a decent period of time.

The Need for Continual Innovation (Nigel Lake, Part 5 of 10)

Continual Innovation

(Source: Flickr)

This is the fifth instalment of my conversation with Nigel Lake, CEO of Pottinger, a global corporate advisory firm based in Sydney, Australia. Nigel is the author of The Long Term Starts Tomorrow, a must have book “for any manager, leader or Minister.” The Hon Mike Baird MP, Premier of NSW

Nigel LakeNigel Lake: If you watch what happened with the iPhone. Jobs had very particular views about the size and shape of phones. The iPhone had evolved quite significantly over time but it was still basically a very similarly shaped device.

When Jobs died the whole organisation sort of thought, we’ve just to keep on making the phone the same way because that’s what Steve Jobs would have done. But that wasn’t really who he was because he was someone who was continually reinventing all these things.

Apple got into a really pretty dark place with the iPhone 5, which just looked so kind of yesterday, and then impressively re-discovered its mojo and ability to say, look that was yesterday and we have to reinvent ourselves. They then created the iPhone 6, which is a tremendously good product and has sold incredibly well.

Tom: So they weren’t responsive to the needs of customers and what people were telling them.

Nigel Lake: That’s right.

People in senior roles got sort of hung up on “there was this guy, and he told us to do everything, and that’s what he would have told us to do” without realising that the world had moved on.

[Steve Jobs] was someone who could do something one day very very passionately, and then have the kind of whatever it takes to say, “that was then and this is now and the world has changed, and maybe we should think differently”.

When he died it left quite a shadow over the organisation but it has somehow reinvented itself. If you think about what happened the first time around when Jobs was booted out, it was a complete disaster. This time around they have managed to continue, reinvent themselves, reinvent the phone product, and bring the watch to market to what seem like quite strong reviews so far.

Tom: I guess it’s yet to be seen how things will play out. One question mark over Apple is that Tim Cook is an operations guy whereas the whole company’s magic is based around innovation, being nimble and being willing to change.

Nigel Lake: It’s going to be an amazing story to watch for the next five years or more to see what happens to that business.

It’s a fascinating thing, because on the one hand it’s hard to think of organisations which have really dominated some particular segment that have survived radical innovation in their segment. And yet on the other hand, you look at the world’s largest companies from a few decades ago and there haven’t necessarily been huge changes in those names. But that’s partly because things like oil and gas are still very big industries.

It’s starting to change quite rapidly now.

The Importance of Having A Strategic End Goal (Nigel Lake, Part 4 of 10)

Strategic End Goal

(Source: Flickr)

This is the fourth instalment of my conversation with Nigel Lake, CEO of Pottinger, a global corporate advisory firm based in Sydney, Australia. Nigel is the author of The Long Term Starts Tomorrow, a must have book “for any manager, leader or Minister.” The Hon Mike Baird MP, Premier of NSW

Tom: Do you think that public companies are disadvantaged in being able to take a longer term view because they’re driven by the quarterly earnings cycle?

Nigel LakeNigel Lake: I’ve spent most of my career in and around public companies advising them on various things. I don’t think that the earnings cycle itself is a problem at all. I think the problem is in how leaders have responded to that earnings cycle.

When analysts and other commentators come begging for some short term faddish response, too many CEOs and management teams have tried to deliver up something which looks a bit like the latest fad with no sense of where they are actually trying to end up as a business.

An example of this is lots of companies which talk about strategy and strategic direction, but the whole notion of a strategy or a direction is completely meaningless unless you actually know where you are trying to end up.

Think about the analogy of getting on a boat or a yacht, and you sail out into the harbour and ask the captain where you are going. The captain will give you the name of the port you’re trying to end up at. She’s not going to tell you that you’re sailing North-North-East because that doesn’t really matter very much right now.

Many companies have got what they would call a strategy, which is some sort of vague sense of direction but with no enunciation whatsoever as to where they are trying to end up in five or ten years time.

Tom: I suppose in some sense it’s very difficult. From the interviews I’ve read, it seems like Steve Jobs didn’t always know exactly what the next thing would be. He had a strong emphasis on fast cycle times, paring the initial products back as much as possible to be as simple as possible, and then seeing what worked and what didn’t work and being very responsive to customers. And yet, he was probably quite a good strategist?

Nigel Lake: It’s fascinating, I think the whole Apple/Jobs story is an absolutely fascinating story, and there is a very interesting tension between exactly what you say.

There is at the same time this deeper guiding purpose or obsession [that Apple has] which is to deliver a product which completely revolutionises an entire industry, globally, by creating a product that is essentially perfect.

It’s not that it’s better than what someone else has got; it’s just the perfect thing.

The major things that Apple has done: the reinvention of the Sony Walkman effectively as a portable music player, the iPhone and then tablets are all things which have – and now query the watch, I have not yet formed views on the watch, but I’m not going to criticise it given the company’s amazing track record – they have completely revolutionised complete industries by delivering products that are essentially perfect.

That is an amazingly high ambition, and it’s difficult to think of other companies that have really set about to do something that dramatically transformational on a world scale.

Finding The Courage to Overcome Vested Interests (Nigel Lake, Part 3 of 10)

Courage to Overcome Vested Interests

(Source: Flickr)

This is the third instalment of my conversation with Nigel Lake, CEO of Pottinger, a global corporate advisory firm based in Sydney, Australia. Nigel is the author of The Long Term Starts Tomorrow, a must have book “for any manager, leader or Minister.” The Hon Mike Baird MP, Premier of NSW

Tom: The problem for decision making is partly about short term thinking, but it seems like the problem might also partly be a result of the principle-agent problem. For example, Steve Jobs was a founder who could make tough calls and bet the company based on his vision of the future; whereas if you are a CEO taking a bonus then you might be very incentivised to ride the current business model and underinvest in new innovations.

Nigel LakeNigel Lake: That’s absolutely spot on.

So, one of the other broad areas that I deal with in my book is the whole concept that we might all believe that the free market is a wonderful thing, but of course there are all sorts of structures in place in the world in which we live which set up all sorts of vested interests in various different ways which then inhibit sensible decision making.

And I absolutely agree with the point that you make about CEOs being in a world where they are probably only going to last three years.

They’re trying to maximise their pay over that period of time because most CEOs of listed companies never get another job. And as a result, the people in those sorts of roles get lured into the belief that taking a short term approach will work really well for them.

Now the irony of course is that that doesn’t necessarily prove to be the case, and that the most successful CEOs are often those that have thought rather long term and have not been the people that have chased the quarterly reporting figures.

But that requires a very different sort of individual, who has the courage to say, look we actually need to go and do this big picture thing which will completely transform our company over the next five years. We’re going to go from a business where none of our value is, in Apple’s case, phones to where a huge part of the value is in the design of phones. And Apple doesn’t even make mobile phones, Foxconn does that.

Looking Beyond Short Term Financial Metrics (Nigel Lake, Part 2 of 10)

Looking Beyond Short Term Financial Metrics

(Source: Flickr)

This is the second instalment of my conversation with Nigel Lake, CEO of Pottinger, a global corporate advisory firm based in Sydney, Australia. Nigel is the author of The Long Term Starts Tomorrow, a must have book “for any manager, leader or Minister.” The Hon Mike Baird MP, Premier of NSW

Tom: Do you think that short term financial metrics are part of the problem in developing long term strategy?

Nigel LakeNigel Lake: Absolutely, I think they are a very fundamental part of why very large organisations don’t make good decisions on an amazingly frequent basis.

A simple analogy is that if you’re driving down a motorway you actually need to look further ahead, and if you stare just in front of yourself you will crash and probably die.

Very large organisations do this.

Nokia is a very good example of a company [that was dominated by this kind of myopia].

One of my colleagues at Pottinger held an iPhone in his hand in about 2003, which was four years before Apple had the iPhone, except that the iPhone said Nokia on the bottom of it.

But everyone at Nokia knew that people liked candy bar phones and that that would never change, and so they never launched the iPhone.

Tom: Oh really? So Nokia had the technology to develop and produce an iPhone several years before Apple released it?

Nigel Lake: A phone which for all intents and purposes was very much an iPhone like device.

Now the even deeper point is that people who worked in technology knew that something like the iPhone would come about roughly when it came about in at least the early 90’s.

The iPhone was essentially a proper computer which was small enough to be a phone, and to get there was a journey of miniaturisation of processes, improving battery technology to be able to store the power to run the phone for long enough that people would think it was useful, and the improvement of the screen technology.

All of those things have been on Moore’s law progressions for an amazingly long period of time, and those things all crossed over to be a computer like phone some time in the middle of the first decade of the naughties.

People knew that was going to happen ages ahead but large organisations did nothing about it. HP is an example. I know there were people working at HP in the early 90’s in the UK who said “these things are coming”, but no one was interested.

It’s ten years away, why would you bother? And for Nokia it was five years away, and it’s like, why would you bother? And then Apple comes along, and Nokia goes from being the biggest phone company in the world to not being a phone company.

Tom: That’s very interesting. One of the ideas that I’ve been thinking about recently is that financial metrics are basically designed to evaluate how much you are getting out of a company, your cash flow take from the company. But the goal of a company is actually to give value to customers and to the community. And so, there appears to be a disparity between what companies do and what the metrics are measuring. What are your thoughts on that?

Nigel Lake: That is absolutely right, and I’ve spent quite a lot of time thinking about precisely that set of issues.

Where my own thoughts have gone is that if you take a very short term approach then there is a massive conflict between what’s in the interests of shareholders and what’s in the interests of customers. The shareholders just want to sell as much product for the highest possible price, never mind the quality or impact on any other stakeholder in the entire ecosystem, and then pocket the profits and run.

If you take a longer term view then the financial metrics will tell a different story, which is that if you abuse your suppliers and you abuse your customers then they will go away and you won’t have a business left. The high profits in year one may turn into no market capitalisation by year five.

A lot of people have worked through this saying, okay short term financial metrics don’t work, let’s look at different forms of triple bottom line reporting or measures of broader impact.

One of my friends runs a US business called HIP Investor (for Human Impact + Profit) which is a sustainable investment type business where they have created a set of metrics which measure the sustainability and non-financial impact of an organisation. They apply those metrics to all the companies in an index, re-weight the index along this new sustainable basis, and an investment in their portfolio (which is a re-weighted index portfolio) outperforms the index and has lower risk.

So you can go down that path, but where I’ve gone down is a different route to the same answer, which says that if you take a longer term view you will make different decisions about how you should treat all the stakeholders in the ecosystem. And you will then start to realise that thinking more broadly about how you create value is very much in the interests of your company.

One of my current areas of focus is this broader area of sustainability. I think that there are amazing opportunities in that. The Royal Mail in the UK is one example of an organisation that really drove this kind of mindset over a fair period of time, and from what I understand achieved quite significant results in making the whole thing more efficient, and having better environmental outcomes as a result.

Thinking About the Long Term First (Nigel Lake, Part 1 of 10)

Thinking About The Long Term First

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This is the first instalment of my conversation with Nigel Lake, CEO of Pottinger, a global corporate advisory firm based in Sydney, Australia. Nigel is the author of The Long Term Starts Tomorrow, a must have book “for any manager, leader or Minister.” The Hon Mike Baird MP, Premier of NSW

Tom: Nigel, I had intended to ask you questions about Pottinger and your recruitment process but I was reading up on what you’ve been doing and I’d be interested to instead talk to you about your book, “The Long Term Starts Tomorrow”.

Nigel LakeNigel Lake: Those two things are somewhat related, but I’m very happy to do that. Just fire away with anything you wanted to ask. Let’s get into it.

Tom: A lot of tech companies were invented by college students in dorm rooms and the Internet poses a continuing threat to the business models of many established companies. From what I understand your book is really about innovation and the ability to make short term decisions that are going to stand the test of time. Is that an accurate characterisation?

Nigel Lake: Yeah, it’s an interesting thing, it kind of goes deeper than that, and I’ll give you a bit of context and then you’ll understand why I’ve written it the way I’ve written it.

There is lots of evidence that the way that people make decisions in the business world doesn’t work especially well, and a simple example is all these crazy young kids who created trillions of dollars of value, and the old guys surrounded by lots of advisors didn’t.

If you peel it back, what are the things that are going wrong fundamentally with decision making?

One of the deep problems is that the whole architecture that we live in for decision making focuses people’s minds on the short term.

You see that in a qualitative sense in terms of the reporting cycle and in terms of what analysts want to see and what CEOs then go and do. But you also see it in a very quantitative sense in the world of discounted cash flow models and the whole economic architecture which I describe as a kind of cult of economic rationalism.

People have picked up that way of doing things which came out of the 1950’s and early 1960’s, and in fact some of it goes back to the 19th century.

No one has really done anything different since.

Nobody has stopped to think about the fact that the pure mathematics of those models drives you to focus on the first five to ten years and encourages you to ignore everything after that.

Many of the great successes and great failures over that period came about because people precisely ignored what would happen a little bit further down the road.

At Pottinger we do a whole bunch of work around infrastructure, for example, and one of the fundamental problems most major economies have is that they need to rebuild crumbling infrastructure and build new infrastructure.

They struggle to justify the costs and returns that they are going to get, and part of the reason is that people are trying to build 100 or 200 year assets on the basis that it should pay for itself in 30 or 40 years.

It’s just not going to work.

Time and Money

Time and Money

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If you had all the time in the world but not much money, then your capacity to create new ideas and connect with people would be great, but your capacity to consume would be limited.

On the other hand, if you didn’t have much time but had a lot of money, then your capacity to create new ideas and connect with people would be limited, but your ability to consume would be considerable.

Time and money, where should we be placing value?

This is not just a question for individuals but also for organisations.

Universities appear to value time over money (at least this was traditionally the case), and so tend to be geared towards sharing ideas and enabling people to connect with one another.

Many corporations today take the opposite approach and value money over time, and so tend to be geared towards maximising short term earnings. Employees are required to be in the office regardless of whether this improves productivity, initiatives that provide value to consumers but don’t generate revenue get discontinued, and the mantra “time is money” might on occasion be heard echoing through the hallways.

Companies will of course need to keep an eye on cash flows, but important strategic decisions should not be held hostage by the quarterly earnings report.

A resilient company will be one that has freedom to maneuver and sufficient time to anticipate new opportunities and respond to impending threats in a thoughtful and considered way.

Design is about Function

Apple Watch

(Source: Techradar)

Design is about function.

Every product has a job to do, as Professor Clay Christensen enjoys telling his marketing students at Harvard Business School.

If a product is designed properly, then the job will get done well.

Apple’s new debut wearable technology, the Apple Watch, has a sleek yet distinctively square shaped design.

This seems like a strange design choice because they could have made the watch a circle, which would have been even sleeker.

And while this may be true, one of the core jobs that the Apple Watch needs to perform is to display lists, text and data.

A circle shaped watch just wouldn’t be able to get the job done quite as well.

Newspapers Don’t Get The Internet

Newspapers Don't Get The Internet

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Yesterday we read an article in The Australian Newspaper entitled “The career advice I wish I had at 25“.

It was an insightful article in which The Australian’s Queensland Editor Shane Rodgers provided thirteen pieces of advice that he wishes he had had back when he was 25 years old.

We were going to link to the article in The Australian, but discovered that although the article can be read when accessed via Facebook it can’t be read if accessed via links on other websites (ironically a version of Shane’s article can be read freely on LinkedIn).

LinkedIn doesn’t charge a subscription fee for its content, but The Australian and many other newspapers do.

This is not only slightly ironic, but clearly demonstrates that newspapers (including mastheads like the New York Times) don’t understand the Internet and are currently in the process of fighting a losing battle online.

If businesses that make their bread and butter by creating and distributing news content are determined to charge for that content while more successful online players like LinkedIn, Facebook and Google are giving content away for free, then it begs an obvious question. How long can we expect traditional news content providers to survive?

As we argued last week, the Internet has fundamentally changed the strategic landscape. We are now living in a connection economy in which content is ubiquitous and cheap (typically free) but connection and attention are valuable and scarce.

By charging a subscription fee for content, The New York Times and The Australian may be ensuring their short term financial survival but they are doing so at a significant long term cost.

Putting a price on content limits subscriber numbers and ensures that these content providers will be unable to participate in the new online business model which revolves are connecting with more readers than ever before, and allowing those readers to connect with each other.

Just A Game?

Using gamelike elements to engage customers can produce real business value

We are currently taking an online course on Gamification with Wharton’s Professor Kevin Werbach, which provides a fascinating insight into the world of games and how gamelike elements can be incorporated into the customer experience.

The basic concept is that games provide a structure within which people can achieve outcomes and have fun in the process.  By incorporating gamelike elements into the customer experience, businesses can engage customers and produce real value for customers.

Many successful multi-billion dollar companies use gamelike elements to engage customers. Here are just three (3) examples:

  1. Game Concept: Badges. Business Application: American Express Platinum Card.
  2. Game Concept: Rewards. Business Application: Starbucks coffee card.
  3. Game Concept: Teams. Business Application: Weight Watchers Groups.

Are you using gamelike elements to engage customers or employees? Or have you seen companies that are doing this successfully?  Share your experience in the consulting forum. The person who provides the best example of gamification in the next 48 hours will win a free book.

Finance vs Strategy

The financier cares about the next 3 months or less.

The strategist cares about the next 3 years or more.

The financier wants the deal to close as soon as possible so that he can earn his bonus.

The strategist is open to taking action if it will strengthen the firm’s position over time, and a better outcome can’t be achieved in some other way.

Pushed to his limits, the financier will find ways to package debt in more creative ways. While the strategist will carefully assess the situation and consider various ways to respond or adapt the approach.

A successful firm will need to pursue sound strategy and, at the same time, stay on top of its finances. However, the outcome that results when the leader focuses primarily on one or the other could not be more different.

Leaders who have exhibited a strong “financier” mindset include Jeff Skilling, Ken Lay and Bernie Madoff.

Leaders who have played the role of the “strategist” with gusto include Steve Jobs, Warren Buffet and Richard Branson.

The conflict between the financier and the strategist is a very real one, and must be fought by each of us.

The tension between short term needs and the long and more difficult road towards building a sustainable position from which you can consistently solve problems and delight people.

Excuses or Solutions

We each face obstacles at times that prevent us from achieving our goals as quickly and effortlessly as we would like.

In your professional life, difficulties may result from factors outside your control: fierce competition, lack of customer demand, or a new well-heeled company entering your industry.

Hurdles can also result from factors a little closer to home: outdated skills, insufficient experience, or a weak reputation.

Obstacles may be unavoidable, but we do have a choice about how we respond to them.

One option is to search for excuses, stories that make us feel safe by allowing us to avoid the difficulty by giving up on the dream. “Success is impossible, I’m too old, I’m too young, I’m too busy, I’m too tired, I’m too inexperienced.”

If you are in the habit of searching for them then excuses will always be easy to find, but they come at a cost.

By adopting excuses you are making a choice to live in a more constrained world, to accept defeat in advance, and to rule out the most favorable versions of the future that are open to you.

There is another option.

By clinging to the possibility of success, however unlikely it may seem, you give yourself the chance to learn and grow from the experience.

What are you trying to achieve? What is standing in your way? And what steps can you take to bolster your position or move in the right direction?

A relentless search for solutions will keep you on the front foot and allow you to discover openings that may have remained hidden had you not taken the trouble to look.