Africa gets in your blood they used to say. I have been infected for more than a quarter of a century. So this is a bit of an emotional column for me. 6th March 2017 is the tenth anniversary of the launch of M Pesa. The original mobile money system improves the lives of millions every day. And has been the catalyst for the leading innovation ecosystem in Africa.
You may notice that this year is also the tenth anniversary of the launch of the iPhone. Over that decade, smartphones have been the defining technology in the developing world. Yet mobile money is more innovative and helps tackle a much bigger, tougher problem. We seem to have lost sight of this idea in the tech industry. UBI (universal basic income), taxing robots and so on are the ideas du jour. Many of our leaders seem to believe the priority should be advising Governments on how to solve the problems they expect the technology industry to create in the future. Where did that come from?
How did renaming and retreading the failed social and economic planning experiments of the 20th Century become a thing?
Why do we want to risk the consequences if (sorry when) these plans fail? The pain and suffering that will be inflicted on billions of the world’s poorest. How have otherwise smart people convinced themselves that the future can be foreseen, designed and planned for on a grand scale? Today’s sages will be in the position of Kipling’s dead statesman:
“Now all my lies are proved untrue
And I must face the men I slew.”
Let’s take a step back. AI, robots and the rest will transform the way many jobs are performed. Its hard to predict what will emerge from such a transformation. One things is certain.
The outcome will be to unleash a huge wave of human potential.
Over the next 20 years technology will be automating manual work, replacing routine clerical tasks and maybe rendering lawyers and tax accountants obsolete. No-one should shed any tears. Least of all the those who live by innovation and entrepreneurship.
Nor should we indulge in scaremongering and exaggeration. The machines are not about to take over the world. The brilliant philosopher Daniel Dennett summed it up in this week's Lunch with the FT.
"All we are going to see in our lifetimes are intelligent tools. Superintelligence is logically possible but it is a pernicious fantasy that is distracting us from far more pressing technological problems."
Tech has an opportunity and a responsibility.
Technology does not solve real world problems on its own. Coupled with innovation, it can. And we need to get on with it.
Nothing illustrates this better than the PR storm which surrounded the relaunch of Nokia’s iconic 3310 handset at MWC last week. This is retro chic in the West. Meanwhile in Africa, M Pesa and its imitators are still creating new value from the original technology. We are on the verge of a further revolution in information technology. There will be losers. People and communities will suffer when such a fundamental shift takes place. Governments should focus on dealing with that transition. The Chairman's View
The tech industry needs to remember how Vodafone, the UK Department for International Development (DFID), Safaricom CEOMichael Joseph and his team started out. They sought out the most disadvantaged and excluded in Kenya. And used the technology they had available to create a product that would make a real difference. They worked as a team. They observed how their customers used the initial product. And they were not afraid to think big when the opportunity emerged.
Yes, the leverage provided by M Pesa helped Safaricom build and maintain a dominant position in the mobile market. But the openness of the platform and the sheer utility and simplicity of the concept were the inspiration for so much more. A decade on, lets draw inspiration from that example. To learn more about M Pesa and the mobile money story:
Watch this brilliant 6 minute video featuring Michael Joseph The M Pesa Story
Be a scholar for an hour and read The Long Run Poverty and Gender Impacts of Mobile Money Keep learning and being inspired by the story at GSMA Mobile for Development Or get out to Africa and see for yourself....
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This post is a bit late because I am a big NFL fan. I spent Sunday night/ Monday morning enthralled by Super Bowl LI. The Patriots snatching the prize from the Falcons in one of the great comebacks in sporting history.
In business we love a sporting analogy. So no doubt the latest NFL Championship will offer rich pickings. The trouble with these comparisons is that they forget one thing. On Sunday the Patriots won and the Falcons lost. One up, one down, a classic zero sum sporting contest. Business is competitive but it is never a zero sum game. Looking at the faces and body language of the Falcons and their fans brought back bad memories. One special tough experience came to mind. Around 10 years ago [2006] my old firm was pitching for a huge opportunity with my most important client. At the same time I was struggling to get along with a new leader in my business unit. The whole situation was filled with stress, lack of trust and politics. Nasty for everyone. Perhaps no surprise then that we lost the pitch to one of our major rivals. The situation within the firm became critical. Each individual saw this as a zero sum game in which we were the loser. Blame, recriminations and attempts to get one over abounded. All in a poisonous atmosphere of broken personal and professional trust. I found this all pretty hard to take. So I ran away and hid in the only place available - with my client contacts. The pitch involved an audience of 22 senior people only 3 of whom we had met before. I followed up with most of the rest. Over the next two years, 5 people in that group provided business for my firm. Two of those because close friends. They remain amongst my strongest business relationships today. In my experience, this experience is representative of the business world. Much more typical than the simple sporting narrative of winners and losers. There are no zero sum games for three main reasons: Always adding value
Everyone and every business is trying to create value. This is not some new idea developed for startups. Others may be stumbling, fumbling and even failing. But that does not change the basic aim. On both sides of every deal, and among all those who miss out, there is a common motive. We call this the economy.
Dynamic but no equilibrium
This economy thing is great but it is a complex, dynamic system. It never stops, has no pauses and cannot be in equilibrium. Business sits within this environment and so cannot be stable either. Thus an even balance (or summing to zero) just can’t happen. On the rare occasions where things are not being added, they are being subtracted. Cancelling each other out is not possible.
Its the people stupid
Its all about people. People are built to look to the future. Time is the one thing we cannot control or change or relive. Couple this with an unstable system and an overwhelming desire to add value. There can only be one outcome. We go forward and we grow as we do it.
The Chairman's View
Business is not a zero sum game. The whole concept appeals to me. Its a simple way of conveying the right attitude of mind. The passion to generate value in everything your SaaS does. And the resilience to find the positive in every experience.
It cuts against a lot of insidious behaviour. Cut-throat sales tactics. Excessive pricing and aggressive terms. Exploitation of people and resources. Nothing built on the misfortune or weakness of others works with the no zero mindset. I don’t believe anyone starts a SaaS business without aiming to create value. Keep that positive purpose in the front of your mind and you will not go far wrong.
Am I alone in finding something a bit weird about the rise of equity markets since Brexit/ the election of Trump? Its true there are financial dynamics at work. Increased spending on infrastructure and the fall in the pound have some immediate benefits for some large companies.
But this window dressing obscures a fundamental underlying message. A big part of the populism that is driving today’s political agenda is rage against multi nationals. In the US the talk is of trade barriers that will disrupt low cost global supply chains. In the UK and Europe Governments and citizens demand “fairer” tax contributions. Extracted from the profits generated by global companies. Used to prop up public spending. In every country and all sides of the political debate, inequality is seen as the defining economic and social challenge. And nothing represents that inequality more vividly than the pay of Fortune 500 CEOs and their ilk. 2017 will be the year when some of this anger translates into real challenges. Corporate giants are right in the cross hairs. The US President’s remarks about the pharmaceutical industry are a straw in the wind. The actions of the new US administration and the fallout from the UK leaving the EU will have consequences for big companies. Hitting the enterprise where it hurts
In a sense these are symptoms of a wider trend. Anger and frustration at the profits of global corporations is widespread. Business practices and networks are also in the spotlight. This is an issue which appeals to all politicians. One of the few areas of common ground between left and right, populist and technocrat, democrat and dictator.
Expect meaningful action in areas like:
The SaaS opportunity
Your view on the politics and economics of this is not important. Enterprises large and small are entering a period of unprecedented disruption. At a time when there is also severe pressure on profits. For a B2B SaaS company this is a once in a generation opportunity. Global corporations need to change. Improved adoption of digital technology must be part of that change. This broad theme was reinforced by McKinsey this month in Measuring B2B’s Digital Gap.
The enterprise software landscape is also shifting on the ground. I was fascinated by Tom Tunguz’s $100m ARR Deal. The headline number is eye catching. His analysis of the implications for Workday is interesting in its own right. But for me the big message is that this was a straight fight between the SaaS alternative ERP company and SAP. No better sign that SaaS will be a big part of the solution for enterprise companies. The Chairman's view
These trends are important for setting the scene. Yet the big picture offers no direct link to revenue growth. Generalisation can help you identify targets. Winning deals depends on specifics. Enterprise sales depend on three things:
Success with enterprise customers is not about a high volume of leads and conversion rates. Nor is a brilliant sales team the key factor. Focus on qualifying which opportunities to go for. Analysis and insight followed by patient pursuit is the winning formula for enterprise SaaS.
I am not a big fan of setting goals or targets at the best of times. They create two fundamental problems:
The New Year disease
So what to do at this time of resolutions and annual budgets? You could join the crowd and make a full blown plan. If you must, this short article from Fred Wilson on Planning for Next Year is a good guide to the principles.
And as Fred points out, if you want to develop a proper annual plan you would start in September. In other words planning is a complex process not just a way of capturing your post holiday guilt trip. The great military leaders have always understood this:
"No plan survives contact with the enemy."
Helmuth von Moltke the Elder "In preparing for battle, I have always found that plans are useless but planning is indispensable.” Dwight Eisenhower.
In other words, if you want to make plan establish a process. Set aside proper time for thinking, analysis and discussion. Develop a set of goals that are support by data and argument as well as passion.
This is not something that can be accomplished over a couple of days New Year holiday. So don't start 2017 with a blast of goal setting. I would like to offer a different approach. Think about this one question: What would you like to change?
Its not an original question. I first started thinking about back in 2007. That year the firm I worked for used it as the centrepiece of a marketing campaign. The beautiful challenge lay in the infinite variety of responses. Take two simple examples from that campaign:
At the time, we commissioned a series of essays in the FT on the topic. Then Deputy Editor Martin Dickson wrote a piece. In it he expressed a wish for the press to behave better and to be better regarded. He headed it with this quote:
“You cannot hope to bribe or twist, Thanks God! The British journalist. But seeing what the man will do unbribed, there’s ’s no occasion to.”
Humbert Wolfe
By contrast, each of us had to stick a poster on our office door stating our own answer to the simple question. Mine read:
“I would like the people of Scotland to go out into the world with confidence and ambition once again.”
Either of these responses would stand up well as an aspiration today. Yet both are also personal and just a little bit odd. Answering this question is a good time for your inner geek to show.
So these answers may not fit your circumstances or way of thinking about the world. No matter. The question is designed just to make you think. How could your business or life be different? And also how could you make a difference to others? Your answer may already be the guiding light for your life. Or a small change that requires only a bit of active willpower to deliver. Or a way of capturing the vision for your business and the difference it can make in the world. The Chairman's view
The purpose of this post is simple. Instead of setting goals or making resolutions, start the year with a little reflection. Think about hope, ambition and direction. That could lead to changes and plans. Or just help you draw you new energy and focus for the challenge ahead.
We all have it in our hands to make a difference in 2017. How will you use that power?
The value of the biggest B2B SaaS companies has been growing. But not at the epic rates experienced by B2C software. At the same time, the number of B2B SaaS startups also keeps rising. Is there enough potential revenue in the market to justify the level of SaaS investment?
Jason Lemkin wrote a fascinating piece on SaaStr a couple of weeks ago about the SaaS Decacorns we need by 2021. His conclusions were optimistic. He believes both that the market as a whole is big enough. And that there are companies there with the potential to become the mega leaders of the future. I am not going to comment on the latter. But I share his optimism about the overall market. We are only scratching the surface of the opportunity for B2B SaaS. Reaching this potential demands great products which solve real business problems. SaaS companies must also help customers execute change to realise the benefits. All in the face of strong resistance from multiple vested interests. It will not be enough just to wait for the market to come to you. B2B SaaS companies need to take the lead in finding strategies to overcome these challenges. The scale of the opportunity
The simple fact is that traditional on premise, licence based revenues still account for the bulk of the enterprise software market. You can fill your boots with various projections and analyses of this topic. For starters check out this Forbes collection.
However you look at the numbers this makes no sense. SaaS is an ideal platform for innovation and increases the speed of change. It offers much greater flexibility and agility. Integration allows for rapid adoption of best in class. And its cheaper. The question is not whether the market opportunity exists. What bugs me is why progress is so slow. Executing change
The one word answer is change.
SaaS does not bring any of the benefits listed above to business. It provides a tool or a platform to improve a business. To realise the gains, the business must change. Businesses of any size find it hard to execute change. An established business is different from a startup in two major ways:
Organised resistance
Your customers internal opponents are not the only losers. Growing SaaS by a factor more than 20x will do damage to the traditional software business.
The big enterprise vendors are the tip of a large iceberg. They are the visible part of an ecosystem that includes consultants, systems integrators, lawyers, training providers, independent software vendors, project managers, change leaders, corporate IT careerists and a raft of other specialists who have carved out a niche that is built on SAP, Oracle and the rest. The strident voices of direct competitors are easy to deal with. Corridor whispers by trusted advisors and “independent” experts are much more insidious. So be careful. Resistance is everywhere. The Chairman's View
I share Jason’s optimism about the scale of the SaaS opportunity. That’s one of the reasons I love working with B2B SaaS companies. The winners will have great products and fantastic teams led by brilliant leaders. They will also have an effective strategy to overcome the barriers to change.
Each market opportunity and in some cases each deal will need different specifics. The outlines of any successful approach will include:
And do it all with confidence. The market is moving toward B2B SaaS. Let's help it along.
I am going to continue my current theme of selling to the enterprise. (See my posts on SaaS Sales and SaaS for the Enterprise). By definition this is a subject for B2B SaaS companies. And this makes it important because SaaS has the potential to disrupt big business for the better.
This disruption comes in two forms. Replacing the traditional business software model with a cheaper, better and more flexible approach. Or driving change by enabling more efficient and effective business. In both cases, many B2B SaaS companies offer a proposition based on cost reduction. It is straightforward to make the business case for such cost reduction. Yet the proposition suffers from a simple structural disadvantage. Cost reduction is a tough sell. Always. There are two reasons for this. Cost reduction is an uncomfortable and challenging subject for any business leader. And radical cost reduction strategies carry genuine risks. Your chances B2B SaaS success will be better if you are aware of this backdrop. And address these concerns by designing a patient and more subtle sales culture. The elephant in the room
At various times in my career I have found myself sitting opposite a leader from a business in genuine trouble. Perhaps in a struggle for survival. Or enmeshed in the legal process of administration or insolvency. In these circumstances, eliminating costs is an absolute imperative. Yet there is still resistance.
There is some obvious psychology at work here. Costs are not a fun or sexy subject. Growth and making money have far more appeal. Remember this in any sales conversation. You may be excited about the opportunity. But you are talking to someone who is facing a bill. Not the same mindset. That mindset runs a bit deeper. Suppose you present clear evidence that your SaaS will save money at a rate 10X the purchase price. (Please don't with the “no brainer’ cliche.) In the mind of your customer you are laying down three other challenges. Sending these messages to your potential customer:
Beyond psychology, the real business risk
Any buyer is likely to be in defensive mode. Framed by the list above, their arguments may seem unreasonable. And a good sales pitch will set out to counter. Presenting rational analysis of real benefits.
You need this in your armoury. But don’t allow the emotional to disguise the true business risk your customer faces. Adopting any B2B SaaS requires business change. When the objectives involve cost reduction, there will be losers from business change. It could be your competitor products. Or it might be people of power and influence within the customer organisation. At the lower end of the scale, an innovative SaaS might eliminate information barriers. The type that protect silos within large businesses. Scale up the impact and budgets, departments and jobs come under threat. The result is that change is harder for business to implement. And it brings downside risks of negative disruption or reputation damage. A responsible customer will want to weigh these risks before buying your SaaS. You need to respect that view and help. Not just challenge it hard. The Chairman's view
None of this means cost reduction is not a great value proposition. An essential function of innovation is to improve the efficiency of existing businesses. And the Fortune 500 is full of stagnating companies. Struggling to make good returns in a world of flat revenues. Entrepreneurs will build some great B2B SaaS businesses on the back of this opportunity.
But you need to understand that this is a difficult and sensitive sales process. At the extreme end you will be offering your customer a live grenade to blow up their existing business processes. This requires more subtle culture and content for your sales proposition:
Enterprise sales are a long process. When the main customer benefit is cost reduction, the path is both longer and tougher. You can fight this. Or you can understand the psychology and the business risk. And build a sales process that leads to long term success.
I love to talk to people about their businesses. Thinking through strategy. Tackling challenges and opportunities. Helping leaders take tough decisions. That has been my working life and there is nothing I would rather do.
Every so often, I facilitate a group of SaaS entrepreneurs based here in Scotland. This means I get to talk business with a dozen or more startups at the same time. Heaven. The focus of the group is to share common challenges in SaaS. When we met on 4 October the discussion topic was selling to enterprise customers. This is a great sign. A number of companies in the group are now mature enough to be targeting deals with larger customers. (We also had some new joiners so the community is growing nicely.) Our discussion picked up some great ideas that would help anyone dealing with large companies. The main things in my mind are: Team/ hiring; target markets; patience and process; land and expand. Build the right team
Enterprise revenues are like every other aspect of your business. The biggest determinant of success if the quality of your team.
You need to find a way to sell your product to large and complex customers. A good SaaS pricing page and clever inbound marketing are not going to cut it. You will need to build a team. That means some combination of hiring and developing/ promoting your existing talent. People are the biggest decisions you make as CEO. So think through the type of person you want. Get a second pair of eyes and ears involved in the interview process. For example, an advisor, mentor or NED might be able to help. Design the right package for the best talent. And remember, at the end of a recruitment interview, maybe means No. Target the right customer
Making a sale to an enterprise customer is often a long process. Growing that initial deal into substantial revenue requires even more time. And there is no guarantee of success when you start. How can a startup or scale up with limited resources handle the demands?
Focus on the right target. It can be tempting to respond to every corporate enquiry. When a household name approaches your little SaaS it is flattering and exciting. There is nothing wrong with having an initial discussion. Use that time a bit of research to find out if this company is a genuine opportunity for your product.
Patience, Patience, Patience
Completing an enterprise sale takes a long time because the process is complex and slow moving. Large companies have whole departments just to buy stuff. Called procurement, purchasing, supply chain or whatever. These teams have systems, processes and standards that take time and effort to navigate. Often it feels like you are up against the deal prevention team.
And procurement is not the only challenge. You must convince and reconvince the business of the value in your product. You may also have to prove you are better than the competition. No wonder one of the companies in the SaaS group had planned for 9 months to complete its first enterprise sale. And is running behind schedule! Tactics and specifics for managing these matters is a big subject. The biggest risk is impatience. Push too hard. Appear desperate for a deal. Or just let your frustration show. And the prize will slip through your fingers. Hunt for thrills, farm to live
Winning deals with enterprise customers is worthless. The goal is revenues. Actual cash in the bank. Sustainable and underpinned by rapid growth.
For a SaaS company that means the long and painful sales effort is only the tip of the iceberg. The value is only delivered after the contract is signed. Persuading and supporting individuals, departments and divisions to adopt and use your product. All the moving parts inside your new minted enterprise customer. A bit of new language has grown up around this. Customer success, upsell, negative churn etc. These are all terms for an old fashioned business fundamental. Account relationship management. You should plan for your SaaS to have account management people, systems and resources. Think about the organisation you want after you win the deal. Develop budgets to reflect a realistic view of the way enterprise customer revenues develop. The Chairman's view
Moving from an SMB focus toward enterprises is not an easy road. From a board/ investor point of view I want to help the leaders of SaaS companies focus on the key decisions. Give entrepreneurs the best chance to realise the opportunity and manage the main risks. You should for an experienced head to help you with:
All are interdependent. Nothing happens in a neat sequence. You never have all the information you want. Welcome to leadership!
The most exciting news for me in the last couple of weeks was the announcement of a new partnership between Appointedd and ABCN. For any reader that does not know I am an investor in Appointedd and I also sit on the board. I am incredibly proud of CEO Leah Hutcheon and the whole team for pulling this deal off. They have built a great product and are growing a fantastic business. This is a huge step forward.
You can read full details about the way the deal works here. It offers a useful spotlight on a big picture trend that is important in B2B SaaS. Distribution has been seen as a choice been online signups and direct sales. A different model built on networks and partnerships is emerging. This should be good for growing B2B SaaS startups. And for their customers and investors. The seductive illusion of online sales
The online only model is one of the great attractions of SaaS for any entrepreneur. If you have the technology skills you can build a business with little or no sales and marketing cost. Google and Facebook ads plus various forms of inbound marketing will bring in potential customers. The software will do the rest.
With gross margins in the 80-90% range this looks like a great business model. No expensive sales force. Limited customer service and support. Get the conversion metrics and the cost of acquisition under control and watch the money roll in. The real world doesn’t quite work like this. Online only sales are fine for SMBs. But these customers offer low revenues and short(ish) customer lives. And the cost of acquisition in the big bad world of online ads is hard to control. Then the conversion rates are never quite good enough. Moving your SaaS upmarket
Before long the numbers start to look tough. Yet there is a still a route to success. Move up the scale and look for those enterprise sales. Bigger initial revenues. Lots of opportunity for upsell. More customer loyalty reduces churn. With a bit of traction this is the route to success.
The solution is to build up a sales team. Hire proven professionals and design the right incentives to drive revenue growth. These sales are complex and the upsell is vital. So you add a customer success team. Careful organisation structure and well managed revenue and retention metrics drive everything. And provide the basis for strong management. Sales ops are the final piece of this jigsaw. Creating this structure is expensive. Yet with a good founding team, a sound product and some traction you can raise investment. All those metrics build into a convincing business plan. Enough volume and the right performance from your extended team will get you there. The long road to B2B SaaS success
In truth both these approaches work. Study any of the flagship success stories of the SaaS world and you will see elements of one or both. Tom Tunguz wrote an excellent pair of articles explaining the strengths and weaknesses. The Innovator’s Dilemma and The Innovator’s Solution.
But it is a long road. Another thought leader in the SaaS world Jason Lemkin explains why in It Takes at Least Seven Years in SaaS. Jason and Tom have done as much anyone to create the SaaS explosion of recent years. And both are realistic. Success is a long hard road. There are lots of reasons for this. Two stand out for me:
A better model for B2B saaS
I am not sure what percentage of startup investment dollars not goes on sales and marketing. I would bet it is close to 80%. This is not efficient. Being honest, it is not even real investment. Money circulates without generating any asset of substance.
B2B SaaS needs a better distribution model. By which I just mean a more efficient and effective way of reaching customers. And new improved distribution channels are starting to appear. One category is the marketplaces operated by leading SaaS players. Salesforce.com and Xero have both established networks. Through the Salesforce AppExchange or the Xero App Marketplace smaller SaaS players can reach out to the customer base of these giants. The Appointedd/ ABCN deal represents a different type of distribution. ABCN is a successful company with a loyal B2B customer base. Like any great business they want to keep offering better value to those customers. Appointedd’s business scheduling software and unique time zone function are just right. The advantages of better distribution work both ways:
Linking together in this way also allows both companies to focus on what they are good at. As a result, customer enjoy better software, better service and achieve greater benefits. No shortcut to SaaS success
There is no silver bullet here. Great B2B SaaS companies will still take time to build and Jason’s 7 years may well prove to be accurate. He has far more experience than I have.
Yet I think entrepreneurs, investors and customers will benefit from a better distribution model. The market will be more efficient. Probably in two ways. Better return for investment dollars and faster exposure of failure. The best companies will be more integrated and more focused. And as a buyer, less consumer style marketing of B2B products will be welcome! ABCN and Appointedd have a great deal that will work well for both parties. The launch is an exciting time. And the hard work starts now.
There has been a little to and fro in the startup blog world this past week about heroes. A tweet from Joe Fernandez criticised those who suggested that VCs wrote large cheques with a Homeric flourish. Fred Wilson responded that entrepreneurs were the true inheritors of the mantle of Achilles. Then Howard Lindzon weighed in. The more modest contributions of first up angel investors deserve the accolade. Or maybe the code itself is the hero?
Are heroes a helpful startup metaphor?
In spirit, I am inclined to Mr Wilson on this question. But I wonder if the language and the image are helpful. Conjuring up the bravest of warriors or the most noble of martyrs feels out of place. I am not sure the mantle sits well with the greatest icons of the entrepreneurial world. My guess is that Bill Gates, Mark Zuckerberg or Richard Branson would reject the description.
And these are rare individuals. Talents and characters that appear only a handful of times in each generation. They provide an inspiring example for the few. For the majority of founders and leaders, a more practical aspiration would be appropriate. Success takes more than a few unicorns
There will always be a place for the next big thing. Whatever follows Microsoft, Apple and Google to the summit will be a business that changes and enhances the lives of billions. But broad based economic prosperity, better health and education, bringing an end to global conflict and poverty will take much more than a few unicorns.
Aim for sustainable not superstar
The aim for almost every entrepreneur should be to build a sustainable business. First, something that will support that individual and his or her family for a lifetime. From time to time more successful companies go on to employ more people. They can provide those teams with a decent living. Some, but not all, such businesses will also offer a return to external investors. These will attract capital from a variety of sources.
A small number of these will outlast their founders. Gaining a longer life through external or by means of an inherited family business. A word of caution though. The overwhelming majority of businesses, have a lifespan less than half that of a human being. Around 40 years on average. This includes all but a handful of the most successful names. The only large technology companies today that existed when I was born are IBM and HP. Of course HP is in the process of being broken into its constituent parts. The traditional role model doesn't fit
Think about the tradition image of a hero. Someone who does extraordinary things in extraordinary circumstances. Building a good quality business today is neither of these things.
Digital technologies, the lowest trade barriers in human history and unprecedented access to investment capital mean the environment for starting up is the best we have ever experienced. Yet exceptional talent is not required for most endeavours. Good quality products, designed for users and supported by excellent service will do the job. A more modest aspiration
So let’s forget about being a hero and put aside the imagery of battle and sacrifice. Set out on the entrepreneurial journey with a different role model in mind. Some aspirations which sound more modest. Yet provide a real basis for sustainable, achievable value:
Being an entrepreneur can be tough. Then again, life is tough. Don’t worry about being special. Just focus on doing the right thing.
A serial mega entrepreneur who overcame a tough start in life to become one of the world’s richest men bought a world leader in the highest of technology last week. You may have missed this story because it was painted in the red, white and blue of Brexit. Or cloaked in the fog and fudge of a nationalist industrial strategy.
Multi billion dollar deals for unique companies are like America’s Cup yachts. SoftBank's bid for ARM is a great example. It is a one off. A product of its time and circumstances for sure. But at the cutting edge. An example to learn from and a template for the future. Not a symbol of the present. The mindset of a startup not a global corporation
Masayoshi Son is a second generation Korean immigrant to Japan. He grew up dirt poor in the distant South West of Japan. A background that is the definition of social and economic exclusion. And the antithesis of the conservative, corporate Samurai we typically associate with Japanese business. He built Softbank through his own entrepreneurial talent. If Son San was American or Chinese he would be one of the heroes of the startup world.
He has made his name and his fortune through a series of high profile investments in the internet and mobile sectors. His hallmark is a combination of Warren Buffet long termism, Steve Jobs vision and venture capital willingness to make big bets for great returns. SoftBank is an investment vehicle not a trading multi-national. The loose technology theme links together holdings in Sprint and Alibaba with Yahoo and Vodafone in Japan. How does ARM enrich and invigorate this empire?
ARM is the leading designer and developer of microchips for smartphones and mobile devices. This is huge global business. The Cambridge group’s leads in both intellectual property and market position. These advantages will ensure strong revenues for many years. Attractive for sure. But the era of explosive growth in mobile device markets is over. Is the annuity enough to satisfy a risk taker and 30 year thinker like Mr Son?
This deal only adds up if we think about the future. IOT, virtual and augmented reality and artificial intelligence will all drive demand for microprocessors and storage chips. Buying ARM is a bet that the company can be a leader in these new markets. Entrepreneurial logic not industrial strategy
And that means a wager on brain power. ARM does not make semiconductors. All its past, present and future value is wrapped up in research and development talent. Like any creative or service based firm, ARM’s assets walk out of the door at the end of every working day.
Seen in this light, SoftBank’s strategy to double the number of UK jobs becomes clearer. ARM can only maintain its lead by continuing investment in the best people carrying out the best research. Smart people are sensitive to the culture and support environment in which they operate. So doubling down on Cambridge as a science base makes complete sense. This is my kind of protectionism. An overseas investor with a compelling strategic motive. Committed to keeping the UK at the bleeding edge of a vital technology. If you want to reference a recent deal, the Tata acquisition of Jaguar Land Rover is much more relevant than HP’s ill fated purchase of Autonomy. With the bonus that the ARM deal also gives a bunch of investment funds a big exit. And the opportunity to recycle some of that cash into exciting future opportunities. An example for startups and entrepreneurs
That money will make no difference to the UK economy or the global technology industry. Unless the recipients raise their game in response to the ARM acquisition. One final unusual aspect of this transaction. Both parties offer inspirational lessons for entrepreneurs.
Rather than striving to fit the deal to today’s agenda, learn from these examples to build a better business for the future. |
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AuthorKenny Fraser is the Director of Sunstone Communication and a personal investor in startups. Archives
September 2020
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