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The Hutch Report

What Is The New Economy?

By | Business, Cryptocurrency, Economics, Startups, Technology

We often talk about the “new economy” but it is a bit of a misnomer as it can be argued that the economy is always new. It is dynamic and always changing. In spite of that, the name has become a buzzword describing new, high-growth industries that are on the cutting edge of technology and are the driving force of economic growth.

One of the main features of the new economy is the extraordinary rate of productivity improvement. It is not just that computers and software are getting better or that communications are becoming more rapid. They are improving at sustained rates that have never been seen in the recorded economic statistics.

A large part of the new economy – particularly software – is characterized by a cost structure that is peculiar to information: it is expensive to produce but inexpensive to reproduce. Combined with the communications power of the Internet, this means that any digitized information can be reproduced and transmitted around to world in virtually limitless numbers at virtually the speed of light. These are the most powerful economies of scale known to date.

Another aspect identified with the new economy is its strong network characteristics. Networks can have powerful economic impacts in several dimensions. They have strong rates of adoption and a strong tendency toward market dominance or even monopoly.

In order to survive in the new economy it is necessary to understand the changes that are happening and embrace them. Those that resist will be left behind. We have seen it before. When the personal computer was first introduced on the market there were many that refused to adopt it. Their resistance quickly found them segregated from the rest of the market in terms of opportunities and skills.  Now we find ourselves in a world where not a day goes by where we have some kind of interaction with a computer. In fact you can’t avoid it.

To help understand some of the changes and disruptions that are happening in this new economy we look at a few below that are making the biggest impact.

The Sharing Economy

The sharing economy is thought of as an umbrella term which encapsulates a wide variety of ideas. However, there has been a lot of criticism around the idea. Critics have said that it’s not really “sharing” if people have to pay for a service. It might seem like semantics, but the implication is more communal than corporate, and in that sense, misleading. It is also known as the On-Demand Economy, or the Gig Economy. Gig Economy is a fitting term for people interested in supplementing their income by taking small, temporary side jobs. But for workers that do this full-time or even beyond, their work should certainly be considered more than a gig. Especially when companies like Lyft offer incentives to work 50 hours a week, this service has become their livelihood. Calling their work a “gig” is almost reductive.

For argument sake we define the sharing economy as a socio-economic ecosystem built around the sharing of human, physical and intellectual resources. It includes the shared creation, production, distribution, trade and consumption of goods and services by different people and organisations.

To include this in the new economy seems slightly banal considering the fact that sharing is nothing new. Giving someone a ride, having a guest in your spare room, running errands for someone, participating in a supper club—these are not revolutionary concepts. The revolutionary part is the fact that it has become part of the economic structure and for that to happen money has to change hands.

The best current examples of the “sharing economy” include the following:

Airbnb

Airbnb is an online marketplace and hospitality service, enabling people to lease or rent short-term lodging including vacation rentals, apartment rentals, homestays, hostel beds, or hotel rooms. The company does not own any lodging; it is merely a broker and receives percentage service fees (commissions) from both guests and hosts in conjunction with every booking. It has over 3,000,000 lodging listings in 65,000 cities and 191 countries, and the cost of lodging is set by the host. In short, anyone can rent a room out in their house or apartment for a fee. The impact it has had on the hotel/hospitality industry is not to be trivialised in the New economy.

Uber/Lyft/BlaBlaCar

These companies all do essentially the same thing. For consumers looking for a ride somewhere, they are a convenient, inexpensive taxi service. You can hire a private driver to pick you up and take you to your destination by means of an application installed on your smart phone. The nearest driver is often at your pickup location within minutes. Not only is this an on-demand car service, but you can even watch as your driver is en-route to come pick you up. For drivers, these companies provide allow you to be your own boss/set your own hours. Take on fares whenever you wish (work as much or as little as you desire).

Etsy

Etsy is an online buyer and seller community similar to eBay, except it focuses on hand-crafted or vintage goods. Most products sold fall into the category of arts, crafts, jewelry, paper-goods, housewares, and artisan candies or baked goods. Vintage items must be at least 20-years old to qualify and can range from costumes, clothing, jewelry, photos and housewares. In the past, most crafters and artisans sold their goods at fairs, open markets, and on consignment. While the Internet opened doors to reaching consumers beyond their local area, many craftsman didn’t want the hassle of setting up their own website, credit card processor or ecommerce platform in order to sell their goods online.  While eBay and other e-commerce DIY sites helped, Etsy provided a marketplace specifically for crafters. Etsy currently has well over 54 million users registered as members.

TaskRabbit

TaskRabbit is a marketplace that connects people who need help with something, with a network of pre-approved and background checked individuals, who have the time and skills needed to complete the listed task. The company allows people to outsource small jobs and tasks to others in their neighbourhood. Since the inception of TaskRabbit there have been numerous startups following the same model.

Where the Sharing Economy leads only time will tell. Will we live in a world of empowered entrepreneurs who enjoy professional flexibility and independence? Or will we become disenfranchised digital labourers jumping between platforms in search of the next short term gig?

Cryptocurrency

What is cryptocurrency? A Cryptocurrency is simply an online version of money, a digital asset to be precise. The name is derived from the Cryptography, which is used to encrypt transactions and control the production of the currency. It is a strictly monitored process, as it uses the Blockchain Technology.

Blockchain technology is a distributed database that is used to used to manage & maintain a growing list of data blocks, using a peer to peer network collectively. These data blocks may be situated in different locations and not connected to the same Processor. A database is a collection of records. A distributed database is one which may be located in different locations and not be attached to a common Processor – but it may be located in the same or different physical locations and dispersed over a computer network. In a Blockchain, once a piece of data is recorded, it cannot be edited or changed.

There are predictions that the underlying technology of the blockchain is going to impact our world more than the internet has. This is seen as the technology that could democratize the global financial system so everybody has equal access. The peer to peer concept allows online payments to be sent directly from one party to another without going through a financial institution, and cryptocurrencies are considered by their supporters to be a faster, cheaper and a more convenient alternative to other payment mechanisms such as sending payments via banks, transferring money via money transfer operators or buying goods and services over the internet, using a credit card. For this reason, the payments industry players are closely watching these developments, because of the ability that cryptocurrencies have to potentially disrupt and transform the existing global financial infrastructure.

As of June 25, 2017 there were approximately 900 currencies currently available with the most popular being Bitcoin and Ethereum. Yet while world economies, business and consumers have been caught up in the whirlwind of activity surrounding cryptocurrencies, the benefits and risks are still unclear and the future of any one particular cryptocurrency is not yet secured. In addition, there are a number of legal and political interpretations still developing.

Virtual Reality / Augmented Reality

This is by no means the first appearance of virtual reality. It has actually been around since the 1950’s. As technology has become more sophisticated over the years, every so often the dream of experiencing a virtual world is revisited. We are now back here again.

Virtual reality immerses a user in an imagined or replicated world (such as video games, movies, or flight simulators) or simulates presence in the real world. Examples of hardware players in virtual reality include the highly mediatised Oculus, now owned by Facebook, Sony PlayStation VR, HTC Vive, and Samsung Gear VR.

Augmented reality overlays digital imagery onto the real world. Examples of hardware players in augmented reality include Microsoft HoloLens and Google Glass.

The difference between the two is where VR uses an opaque headset (which you cannot see through) to completely immerse the user in a virutal world as opposed to AR which uses a clear headset so the users can see the real world and overlay information and imagery on to it. We recently saw an excellent example of AR with the success of the game Pokeman Go, although for various reasons its user base is in decline.

The promises of Virtual Reality to revolutionize the fields of medicine, marketing or entertainment are many yet there are also a long list of challenges before we see significant adoption. We already know that spending too much time staring at a screen can harm our vision over the long term. VR headsets are essentially a digital display mounted directly in a user’s face, raising real questions about the effects over time. Some people are also prone to nausea, dizziness and vertigo after just a little time spent in VR. For the industry, that motion sickness issue remains a largely unsolved problem.

Virtual Reality has come and gone a few times over the years and has yet to really solidify its mark on society.

Big Data

A large part of the new economy is about information. This is not only about information that we have access to but also our means of acquiring information. Organizations collect data from a variety of sources, including business transactions, social media and information from sensor or machine-to-machine data. These multiple sources makes it difficult to link, match, cleanse and transform data across systems. Data also comes in all types of formats – from structured, numeric data in traditional databases to unstructured text documents, email, video, audio, stock ticker data and financial transactions.

Big data is a term we use in the New economy that describes the large volume of data – both structured and unstructured – that inundates a business on a day-to-day basis. While the term “big data” is relatively new, the act of gathering and storing large amounts of information for eventual analysis is ages old.

The amount of data that is now being created and stored on a global level is almost inconceivable, and it just keeps growing. However, it’s not the amount of data that’s important. It’s what organizations do with the data that matters. At the moment only a small percentage of data is actually analyzed. The promise of big data in the New economy is precisely that, to gain key insights from all kinds of information in the hopes of making key discoveries.

Hyperloop

Existing conventional modes of transportation of people consists of four unique types: rail, road, water, and air. These modes of transport tend to be either relatively slow (i.e., road and water), expensive (i.e., air), or a combination of relatively slow and expensive (i.e., rail).

Enter the Hyperloop. Hyperloop is a new mode of transport that seeks to change this situation by being both fast and inexpensive for people and goods. It is unique in that it is considered an open source transportation concept. The authors encourage all members of the community to contribute to the Hyperloop design process. Iteration of the design by various individuals and groups can help bring Hyperloop from an idea to a reality.

Hyperloop consists of a low pressure tube with capsules that are transported at both low and high speeds throughout the length of the tube. The capsules are supported on a cushion of air, featuring pressurized air and aerodynamic lift. The capsules are accelerated via a magnetic linear accelerator affixed at various stations on the low pressure tube with rotors contained in each capsule. Passengers may enter and exit Hyperloop at stations located either at the ends of the tube, or branches along the tube length.

The goal is to get people from LA to SF (for example) in just about 30 minutes, which is almost three times faster than flying, while producing its own electricity from solar power, with round-trip tickets projected to cost between $40-$60.

Hyperloop One on July 12,  announced that it had conducted a successful first test of a specially designed vehicle to travel in a vacuum environment. In the test, which took place earlier this year, the company achieved controlled propulsion and levitation of a Hyperloop One vehicle at 70 mph on a 315-foot test track in the Nevada desert. The test vehicle reached nearly 2Gs of acceleration during its brief 5.3 second test run on the specially built track.

There are still a number of technical challenges to address with the Hyperloop but it is advancing. Should this project be fully realised it would revolutionise transportation in the new economy.

Artificial Intelligence

Of all the areas of the new economy artificial intelligence (AI) is, without a doubt, the most hyped and the least understood. According to technopedia the definition of AI is “a branch of computer science that aims to create intelligent machines.” More precisely, the term “artificial intelligence” is applied when a machine mimics “cognitive” functions that humans associate with other human minds, such as “learning” and “problem solving.” Otherwise said, machines that can think for themselves and make autonomous decisions and in turn learn from their decisions. All this leads to questioning to what point will machines control humans?

The machines haven’t taken over yet, however, they are seeping their way into our lives, affecting how we live, work and entertain ourselves. From voice-powered personal assistants like Siri and Alexa, to more underlying and fundamental technologies such as behavioural algorithms, suggestive searches and autonomously-powered self-driving vehicles boasting powerful predictive capabilities, there are several examples and applications of artificial intelligence in use today.

What many companies are calling AI are not truely AI. Software outputs due to an algorithm that responds based on pre-defined multi-faceted input or user behaviour can’t be considered AI.

A true artificially-intelligent system is one that can learn on its own, such as neural networks from the likes of Google’s DeepMind, which can make connections and reach meanings without relying on pre-defined behavioral algorithms. True AI can improve on past iterations, getting smarter and more aware, allowing it to enhance its capabilities and its knowledge. That will lead us to give them more responsibility, even as the risk of unintended consequences rises. We know that “to err is human,” so it is likely impossible for us to create a truly safe system.

The Hutch Report

Startups and Raising money: What is a company with no revenues worth?

By | Business, Money, Startups

Raising seed capital and figuring out company valuation is always a challenging and critical milestone in the early life of a start-up. Startups are awesome (if you are in with the right team)

You may have noticed from some of our previous posts on The Hutch Report, that we like start-ups. We have had experience in large, multi-national blue-chip companies as well as failed and even more fun, successful start-ups.

Raising money: What is a company with no revenues worth?

I am currently embarking on a new start-up in the fintech space and am confronted with having to answer this question. We are currently in the stage of seeking seed funding as well as first pilot customers and trying to do both things at the same time.

There are several challenges you can imagine for putting a value on the company. The major one being that with no revenues and no similar companies on the market, how do you value a company at this stage? Some call it art. Others try to make it a science, but if you are honest with yourself and with others you cannot claim it is a science. You can always try to justify the business value through the business plan, the potential addressable market size, and with sales + opex forecasts. Of course, you do need to calculate and prepare all of that. At the end of the day though, with just an idea, a few slide decks, some excel, and no customers and no revenues you really can’t justify anything other than whether or not your plan looks reasonable and potentially feasible. So, what does one do?

Thankfully, there are some commonly accepted principles for this stage of the game. One of the common principles is that the total of all actual seed money raised should represent 20% to 25% of the value of a company at post seed valuation. (I have actually seen amounts as low as 15% and as high as 30%).

The way we are approaching our seed raising round at the moment is as follows. We have calculated it will cost about US$ 1mm over a twelve-month period to get to our first commercial launch. We have a plan that details and maps out the specific costs. This includes development, admin fees, legal fees, as well as a shoestring budget for sales and business development. The business plan does show how quickly we can recoup this US$ 1mm in costs once we get to commercial launch and revenues. Therefore, we can clearly present where the money goes, how it will be used, the timing of when it is needed, and have reasonable calculation of the results the investment may yield. We are targeting a US$ 4mm post-money valuation with a US$ 1mm seed investment in exchange for giving up 25% of the company post-money.

Pre-money and Post-money: Valuation and Dilution

An important concept is the valuation of the company pre-money and post-money. After an investment round is completed the value of the company goes up by the size of the investment round, hence it is called the post-money valuation. So, in the example above, our company will be worth US$ 4mm once we complete our seed round. In our case, at the moment we think we may not need any additional investment after that initial round. However, let’s say that we find out that we are wrong and do need more money – perhaps to invest more in sales, marketing or additional product development. Let’s say we need US$ 2mm more to do that. Assuming we succeed in the subsequent funding round, and assuming no revenues yet, the company would then already be valued at US$ 6mm post-money valuation after this second round is completed. Dilution would occur and the initial seed investor share percent would go from 25% to 16.67%. The founder share percent would also be reduced and diluted. At the end of the day, even if I started out with 75% of one million and end up with 2% of US$ 10bn, I would be very happy. So, while dilution is, well dilution, a smaller percentage of something big can be better than a large percentage of something small.

Option Pools and Advisors

In calculating the share capital of your start-up, it is always a good idea to leave room in for option pools as well as for advisors. In order to attract top talent, you will want to be able to give them shares in the company. As many start-ups operate on a shoe string budget and are not able to pay massive salaries or benefits, offering key talent an upside in your company can go a long way to helping unleash their passion to help make the company and whole team successful. In addition to option pools for employees you will also want to keep some reserved for key folks, well connected individuals, industry thought leaders, that you may want to bring on as your board of advisors (BOA) or non-executive directors (NEDs). Typical amounts for a board of advisor role would be 0.5% to 1%. As with the initial founders and seed investors, these amounts also get diluted with each additional funding round.

If you just google “equity model calculator” you will find a lot of results on the web along with sites that generate fancy charts. However, save yourself a ton of time. Most of these sites are not so clear and kind of clunky to customize the model if you want. We have done the work and found one that answered all of our questions. In addition, it even provided a template we could customize to our specific situation. This link is shared below. Attention – just one slight thing was missing, the model does not contain entries for BOA or NED amounts, or at least it did not when we used it, however, you can easily add those in yourself just as we did.

Tool for calculating your equity cap table and post money dilution effects:

http://thedrawingboard.me/2013/11/10/model-cap-table/

Link to the Model Cap Table: http://bit.ly/1ayKk8p

If you find this helpful please share or share with anyone you think may find it useful. Thank you for reading!

The Hutch Report

Startups – 11 Reasons Why We Prefer Them

By | Business, Startups

If you are going to work for yourself or any company the first thing necessary to understand is why you have made that choice.  This reason why will dictate how satisfied you are with your choice.

There was a Gallup survey in 2013 showing that 70% of workers are “not engaged” or “actively disengaged” from their work. Employees simply don’t care! Of over 150,000 people surveyed only 30 percent admitted they honestly enjoy their job and their bosses. Those who show up but are less than thrilled about it — or “disengaged”— made up the biggest category at 52% of workers. The remaining 18% are people who actively disengaged – those who vocally express their discontent in the workplace.

According to a more recent survey by the Conference Board Research Group, job satisfaction hit a 10-year high, showing improvements but still below 50%.

“Your work is going to fill a large part of your life, and the only way to be truly satisfied is to do what you believe is great work. And the only way to do great work is to love what you do” — Steve Jobs

Having had the experience of working in a job that I hated, I needed to understand why it was the case. Was it me or was I just forcing myself to do something against my will? I conclude that if I was in this position that I must have been going against the foundation of my character, but not even realising it. Money is a strong motivator in the short term but can be a very deceptive motivator for the long term. My unhappiness in spite of a very lucrative package was evidence that the money was not a principle motivation. I had to step back and analyse where the roots of my satisfaction really lie.

“Your work is going to fill a large part of your life, and the only way to be truly satisfied is to do what you believe is great work. And the only way to do great work is to love what you do” — Steve Jobs

Having had the experience of working in a job that I hated, I needed to understand why it was the case. Was it me or was I just forcing myself to do something against my will? I conclude that if I was in this position that I must have been going against the foundation of my character, but not even realising it. Money is a strong motivator in the short term but can be a very deceptive motivator for the long term. My unhappiness in spite of a very lucrative package was evidence that the money was not a principle motivation. I had to step back and analyse where the roots of my satisfaction really lie.

One obvious conclusion I made was that it was better for me to earn less and do what I loved doing rather than earn more and be unhappy.  In spite of the healthy paycheck I felt like I was wasting my time on a human level, not enjoying everyday. I felt like I was chipping away at the one constantly diminishing commodity that we all have as humans, which is time, and nothing more to show for it than a few bucks more in the bank.

I began searching for companies and/or projects that fit the criteria that would get me excited about getting up and going to work.  I found it in small dynamic startups. Even the worst days were incredibly better than anyone of my best days at the large multinationals that I worked in. Ironically I began to earn even more in these startups than I was earning at the larger companies.

I should note that this in not a slight against larger companies. It should be all based on your character. Some people thrive in those situations. I am speaking more about knowing who you are as a person and finding the proper fit for your character.

While I was making this change I knew I was much happier and although I did change my criteria regarding where to work, at the time I was not completely sure what was making the difference so I started to think about the reasons why I found working with startups a much more rewarding experience.  This is what I came up with.

1. Dynamic / High Energy

I found that anytime I walked into a startup, working for one or doing business with one, you could always feel the energy.  There is a dynamism and buzz that you find in these environments that you rarely find elsewhere.  This energy can only come from the people working there and shows the level and motivation that they have, all working towards a common goal.

2. Innovative

It is mind-boggling the number of innovations that are coming out of the startup world.  No stone is being left unturned.  Their disruptive powers are being felt in many industries around the world.

In less than one year, we’ve seen the astonishing effects of what a clever app could do to the NY taxi cartel. Not only has the price of taxi medallions fallen dramatically from a peak of $1 million, it’s not even clear that there is a market remaining at all for these permits. What economists, politicians, lobbyists, writers, and agitators failed to accomplish for many decades, a clever innovation has achieved in just a few years of pushing. No one on the planet could have predicted this collapse just five years ago.

This provides just another bit of proof and power to many or these small companies with innovative ideas that they can make a difference and change the world.

3. Values

Large companies often speak about their core values but it is clear to see that they often contradict themselves. After all how can you solidify a core value if many of your employees are disengaged from their work? I found that startups tended to take these values more seriously.

There seems to be a set of core values that are common to many startups.  They dare to be different, innovative and want a change for the better. They value good communication and transparency at the work place. They value collaboration among their employees that in turn makes the employees feel like they are contributing which in turn inspires them to produce.

We all have personal values also which may clash with any company values. It is not a perfect world, however the fact that somebody wants to be in this environment as opposed to working at a Proctor and Gamble does help to align these like-minded individuals into a more cohesive team.

4. Your input is valued

Startups are great for identifying a great idea regardless of who it is coming from in the company.  To have your input valued as an employee is a very motivating factor yet so often not present in large companies.  I can also appreciate the fact that there are those that don’t want to think or provide any input. They want to get up, go to work and collect their paycheck.  If you find yourself in this position and are completely happy in this environment then there is no discussion.

In a company where you want to provide input yet your suggestions fall on deaf ears, no matter how brilliant and innovative they may be, can be a very demotivating experience.   Statistics have shown that those who are properly allowed to grow in the workplace often stay with their companies longer.

5. Team spirit

Startups are usually a manageable size to where you can know just about everybody by their first name.  I enjoyed this aspect in a company. It does create a team spirit among the workers.  I listened to a CEO speak about team spirit in a company of 15,000 employees he was managing. However, when you looked at his actions they were far from providing a good example of what kind of team spirit he expected of others.  I believe that there is a point where the company gets so large that expecting everybody to be acting as a team becomes extremely difficult and probably shouldn’t even be expected.

Startups are often built on the foundation of this kind of spirit and it is often that spirit that helps to catapult them to the next level.

6. No crazy hierarchies

The hierarchy in startups is often very flat and I love that aspect. As a developer or designer, you can explain to the founders why you think things should be changed. How often in any other business structure can you walk into the office of the CEO and propose an idea that they might actually consider implementing?

A hierarchy is necessary because everybody has their responsibility and it keeps the structure manageable.  This is fine, as long as everyone involved feels like they’re an important and valued part of the team.

7. You have your pulse on the market

I have seen that because startups are often on the cutting edge and constantly looking for areas to innovate, that they have the pulse of the market in their chosen industry.  They are forging a direction forward.  I felt like in every startup I was involved in that I was watching the events unfold from the first row.  This was incredibly exciting to me.  I would talk to other friends in other businesses and areas away from the startup scene and always got the impression that there was all this change happening but they were completely oblivious to it.

8. Variety, constantly changing

Startups exist to make change happen. They change routines, ideas, systems, established products and processes. In my mind startups = change! If you are someone who requires things to stay the same then this can be an unsettling experience.  The truth is the world changes everyday and eventually, like it or not, it will disrupt your way of thinking and doing things as an individual.  Just take the smartphone revolution for example.  If you don’t embrace these changes you will find yourself quickly isolated from the rest of the world. If you enjoy change and embrace it then the startup environment is where to find it.

9. Goal oriented

Startups are extremely focused.  They know what they want to achieve and they go for it.  There is a great joy working with others all working towards a common goal. The founders are the ones with the initial vision but they are nothing without a dynamic team set to attempt to reach that goal.

Not all startups will manage the challenges necessary to reach these goals and quickly find themselves in dissolution.  However, that is the nature of the beast.  At least you have satisfaction in giving it your best try, which leads me to the next reason I prefer startups.

10. Scary

Let’s face it the startup world is a scary one when it comes to job security.  Many more startups go under in comparison to those that experience great success.  At the same time I found that startups thrive off of that.  It makes them want to work harder.  It keeps them on their toes.

I believe that there is a great false sense of security that employees feel from working with a large long established company.  Like it or not should the economy dictate a change in consumption patterns, these large companies often go through massive layoffs.

If you understand the risks you put yourself going into any situation then you are much better prepared to deal with any changes. The positive side is that there are more and more startups being created all around the world and just as many investors who are willing to support them.  These companies are always looking for talent.

11. They are a great network builder

Last but not least, the startup world is incredibly friendly. The people in it thrive through networking and spreading their influence through whatever channels they have. It attracts young, ambitious, entrepreneurial people who want to share their work with others. It also attracts experienced, knowledgeable people with years of previous startup successes and failures to learn from. It’s a community of people who want to share with each other.

(The founders of The Hutch Report have collectively years of experience working with startups as Senior Director of Strategic Partnerships Carrier Partnerships, VP of Services, Project managers, Marketing Managers, Marketing Directors and as a founders).

The Hutch Report

Life With a Startup – 22 Lessons Learned

By | Business, Education, Startups

Working at startups is a rewarding experience. At least it was for me. You are working with a small group of people motivated to create something different. Something new. Something exciting that is going to change the way people live.

It feels like the old models of doing business are thrown out the window and you are free to discover a new path. Old protocols are done away with and offices become a place where you are excited to get to in the morning. Your boss is actually listening to what you have to say.

However, in order to achieve those goals, a company needs support in more than a few areas. It needs financial, moral and economic support. The funding is required in order to work and move forward without the stress of having to cover the bills at the end of the month. It needs moral support from those who have greater experience and can help guide a company through the rough patches. Most importantly it needs economic support in the way of a market. If nobody sees the value in what you are doing, they won’t purchase from you. You can yell and curse and scream at the market for being blind to what you are trying to present but it won’t change one thing. The world just doesn’t work like that.

As a company grows in size its character changes in many ways. The more employees you have the more organization is required.  It is no longer that small dynamic group that you knew at the beginning.

It is great to have a dream and a target but in the end it is a business. It is there to create value for the economy and turn a profit for those who were bold enough to believe and risk their capital.

In today’s world this happens so fast. Companies come and go in a matter of months. Some continue, some morph into something new and many just turn the lights out when the money dries up.

Having the opportunity to ride one of these experiences right through to 4th round funding is invaluable. At the time I was aware of the changes in the economic environment around us and the trials and tribulations that fellow startups were experiencing on a daily basis. For this reason I paid attention and wrote notes. In addition, I had the benefit of hindsight after a few years to look back and identify what worked and what created difficulties.  Here is my list of insights and observations:

1) No amount of financial support guarantees success

I worked for a few companies with financing of close to $20 million and one thing I learned was that when you have employees and expenses with no revenues, that money doesn’t last long. If the market perceives no value in a company’s product or service and the company is not able to convince it otherwise, no amount of funding will save this company from eventual demise.

2) Understand who your target market is

In one company, I remember the first couple of meetings we had with some major potential clients regarding our product. We were in the digital copyright management space and we were meeting with some large copyright management companies. We thought that what we had developed was going to launch these guys into the digital era.  Then I remember the President of one of these companies saying, “you can’t launch that, this is our space and we have a government mandate, (Otherwise a monopoly).” This was the beginning of what became a very long and frustrating experience trying to convince our target clients that we were not trying to steal their business but wanted to work with them.

If we had spoken with these companies before we may have gathered a better understanding of how they were approaching the digital era before we invested heavily in what we thought they needed. Instead of creating partners we created adversaries and became, in their minds, disruptors.

3) 100-page business plans with pie in the sky financial projections are a waste of time.

I remember being proud of all the work that went into our business plan. It required a lot of time and effort of many.  It was filled with impressive financial projections, colorful charts and tables. Unfortunately the plan had more to do with wowing the investors rather than really understanding what was happening in the market and where we were really positioned.  Actually if we looked carefully we would have seen by our own research how we were poorly positioned.

This is not to say that business plans are not worthwhile. They force you into a thinking process that increases your understanding about the market and where best to position yourself among competitors.  This is assuming you are being brutally honest with yourself, however, It doesn’t require a 100 page business plan to clearly outline the company’s product’s opportunities and strengths. It is a plan after all and in time plans need to be adjusted and changed to the rapidly changing business environment.

4) Investors who only give financial support will be more of a burden than anything else.

I was involved in many presentations to current and potential investors and what I found was that the ones who only had cash to offer became the biggest burdens to the company.  They didn’t have much patience, often didn’t understand our technology and were more concerned with getting their return as quick as possible. For that reason, none of their questions were really concerned with how the company was building its reach but mostly with “how long will this take.”

I noticed that other successful startups around me were involved with investors that provided much more than just financial support. They used their connections to help management in any way they could to develop the business and expand into the market.

5) A board of directors that have nothing to offer will offer nothing

The same is true for the board of directors.  The board should be very carefully chosen, as they are there to provide guidance and support to the management as it confronts many challenges. A lack of cohesion in a board can produce lots of friction and make matters worst, especially when it comes to disagreements between the founders and CEO.

I used to keep a journal and notes of all my experiences in these fast paced companies from growth to demise.  Here is one of my entries:

“Investors are fighting between themselves, the board is not supporting the management in any way, and everyone is looking for their own way out.”

At that point who is willing to find a solution? You could see the writing on the wall.

6) All the marketing in the world will not create demand for a product or service where there is no demand (believing is not enough). 

I used to hear it often, “you have to believe.” Positive thinking has its strengths and can put you in a more powerful state of mind but it won’t help produce a market that isn’t there.  This is especially true in marketing.  If your market has not been clearly researched to where there is strong evidence of potential demand for your product or service then no amount of marketing support will help that.  I have seen this many times.

Here is a great list of recent startup casualties and their reasons for going out of business. There are lots of great insights.

https://www.cbinsights.com/blog/startup-failure-post-mortem/

7) Just because you get financing does not mean that you should be spending it foolishly

I remember walking into the office a few days after we received another tranche of $6 million in financing. There were boxes everywhere and new desks for everybody.  I had no problem with the old desks. After all it was just a desk.  When I asked the CEO what all the new furniture was all about he said “We got the money, so now we have to spend it.” I am not sure what his message was but I just remember thinking that if this was how the finances were being managed then this company was in real trouble. I later found myself in charge of liquidating those very desks!

8) It is not necessary to send people to conferences all over the world. Do the math in order to get the best ROI. (See our article on trade shows, The Biggest Winners at Trade Shows are the Organisers! )

In addition to the new furniture we were scheduled to be present at a large tradeshow in San Jose. Most of our team was based in Europe. The CEO wanted everybody present.  The stand did not require the presence of so many participants.  In addition, it wasn’t cheap to send everybody over on a long haul flight, put them up in a hotel and all the other expenses associated with it.  Not even Microsoft had as many people as us at their stand.

9) If you can’t quantify what you are getting back from your marketing investments then you shouldn’t do them.

We had received a lot of money and suddenly the marketing budget went up considerably. We were spending large amounts on events, advertising, PR etc. We had the belief that we had to be there, we had to be visible but this is not enough.  I can now see clearly how so many startups waste marketing dollars on useless events, advertising, and promotions etc. This is because they don’t quantify what they expect to get in return for the marketing efforts.  Large companies like P&G are masters at this. They know exactly how much they are spending in comparison to how much those investments will generate in sales.

In today’s startup market though I don’t see the same excesses that I used to see.  Companies are coming up with some very clever marketing strategies and tactics that require very small investments yet produce very impressive returns. Maybe they are getting wiser.

10) Developers usually think they are right and the customers are stupid. 

The developers actually building the products often have a vision of what is cool and useful to them, in comparison to what the customer needs. When these disagreements show up the developers often push back.  The big problem is that if the target market is not another developer, they may not see things the same way.

I found by visiting a client and taking a developer along, they were better able to understand how the customer viewed things and what they found most useful. The developers then discovered that the clients didn’t care about the cool technology behind the products but what they really wanted were features that would benefit them in an obvious way.

While trying to pitch a cool technology, an investor once told me, “the graveyard is littered with great ideas and cool technologies that never produced a market.

11) It is not wise to wait till you have 6 months of money left before you react. 

I don’t know why but 6 months always seems to be the panic tipping point.  I lived this a few times and each time we got to 6 months of money left the atmosphere in the company suddenly changed. Those that believed they were creating something of value to the market a week before, suddenly lost all incentive. When you have a considerable cash burn and 6 months left your options dwindle very quickly.  It is best to react well before you get to this stage.

12) Give the money back to investors or move fast to reinvent yourself.

We saw that the market for our products and services were just not there however we kept moving forward, believing that the market would come around to see they needed our product. It would have been wise to give the money back or quickly change course towards better opportunities.

Twitter began as a podcasting platform called Odeo. When that didn’t gain traction they had the idea of an SMS communications tool they called “Twttr”, (with the vowels dropped on purpose). They gave back the investors money except those who decided to stay on with the new projects. I am sure they are glad they did.

13) If you have to micro manage then either you have a problem or you have the wrong people on your team.

I saw a lot of instances where managers had no faith in their teams and would micromanage everything they did (Founders were often the worst for this). Sometimes this was warranted because the hired employee was just not right for the position.  Sometimes it was not and the problem lay with the manager who had a problem giving up responsibility.  Either way is not a productive scenario and needs to be alleviated quickly.

14) If you haven’t executed on your current plan then you shouldn’t be spending a lot of time on your growth plan

If you calculate the money spent on time in meetings and documents preparing our growth strategies in various companies, the amount is ridiculous.  This was done because there was an assumption that the market was going to show up in great numbers. This was before we saw one cent of revenue. Planning is important and has its place but you can’t let it dominate all your time and resources. You can’t continue building a house if you have a very shaky foundation.

15) If the founder and CEO constantly disagree and keep moving apart then you have big problems.

A founder has a particular character and skill set.  CEOs are brought in because the founders do not often have the business skill set required to take a company to the next level. When each one constantly encroaches on the others turf you get problems.  When these problems arise with the two forces leading the company then you have real problems.  This is not an isolated incident and happens quite frequently in startups. If a mediator is not able to calm the situation then one has to go.  Power struggles are very disruptive for a company of any size.

16) If you are on your third CEO then there is a good chance the founder is creating the problems. 

Without a founder’s courage to start and develop a company we would have never known the likes of Apple or Google, not to mention thousands of others. However, founders can also be their worst enemy.

It can be shown statistically that the most common reason for failure among startups is because of the founders.  They often lack the business skill set necessary to grow the company and they have a nasty habit of needing to micro manage everything.  This is a great cause of friction, especially amongst CEOs brought in to lead the company and often ends up being the force that pushes many a startup into dissolution.

17) Cafeterias and common rooms are valuable space.

The most surprising thing I saw in startups I was with was the value of the cafeteria or common rooms. There were more discussions, innovations and ideas taking place during coffee breaks than any meeting I had ever been apart of. Something about these informal areas seemed to bring out the best in people.  Where most large companies look down on employees milling around the coffee machine and consider this non-productive time, smart startups have integrated this practice into daily work life and it has paid off handsomely.

18) Try and get a few clients before you think about taking over the world

It always seems to be common practice among startups to go big or go home. This is why they all seem present themselves as the “Leaders of their space” in their presentations before they have generated a single customer.

It is not a bad thing to strive to be the best but I have found that the companies that were fixated on getting their first few clients and not on the millions they were going to get usually rose above everyone else, one client at a time. I remember hearing about a small company called The Facebook that was used among Harvard University students. It didn’t seem to be anything special at the time, just another Friendster type company.  Then they became popular in other Universities and of course you know the rest.

19) If a potential customer is taking too long to decide then they don’t see clear value for themselves. 

I took part in many client meetings where these potential customers had solid businesses.  They would often want a follow up meeting in a few weeks or months and this cycle would continue.  We needed the clients so we jumped at any opportunity continue the conversation.  The big problem was we had limited resources and traveling to visit customers can get very expensive when there is no payoff.  Many times these customers were curious but not that interested or didn’t clearly see the value we could offer them.

When this happens the startup should reevaluate their value proposition and clarify if the customer is truly interested.  However, sometimes the customer says one thing but reacts another way. Sometimes it is better to move on and stop spending time on these targets and start building stronger relationships elsewhere.  There is often great value in the ability to say No.

20) Don’t hire new people just because you have financing. There should be a clear reason and requirement to hire new staff. 

Each time I was in a situation where we received additional funding it seemed to indicate the need to get bigger.  So, a whole bunch of employees where hired.  Many times their titles became so ambiguous I could not keep track of what they were hired for.

Companies with money tend to create positions for people that are not necessary. This may look like the company is growing in size (head count, not revenues!) yet when cash crunch time comes and your burn rate has increased considerably the weight tends to bring these companies down in flames.  I was part of a few of these kinds of situations were the company’s expenses grew at a much faster clip than the revenues.  You may know of a few of those floating around today!

21) Meetings should have clear goals and only include those necessary or have something to add otherwise it is a waste of time. 

I would say that about 80% of meetings are actually a waste of time and unproductive.  They often lose site of the goal they are trying to accomplish and drag on much longer than necessary. Knowing how to manage a meeting and get the most value possible from the participants is a skill in itself.

I was often called to meetings where I had no real input to share and I knew it. My presence was obviously not necessary.  I was often part of meetings where my presence was necessary yet 50% of the participants were not.

In addition, I used to see developers, for example, tapping away furiously at their keyboards getting a lot done and who were obviously in the zone of peak productivity yet were called away to be apart of a meeting that didn’t absolutely require them to be there. That interruption broke their concentration.

Paying attention to these kinds of details in meetings and elsewhere can considerably increase productivity and focus towards greater achievements in a company.

22) Competitive advantage and sustainability matter

I worked with products and services that had a large number of competitors entering the market on a daily basis.  It was not hard for us to develop these products, so therefore it was not hard for others.  This is when the “Freemium” model started to develop.  It was thought that if you could show large numbers of users or even potential users you could then attract a greater amount of financing, buy yourself some time, develop newer services and products to introduce to your audience and create sustainability in that way.

I found that this model failed most of the time. Companies that go viral for whatever reason don’t come along too often. I don’t believe that the quick shot method of generating as many “eyeballs” as possible is a road to success. I am also very skeptical about the numbers generated by many of these companies.  I have subscribed to many different websites, only to use them once, if that, never to return again. Yet I know that I remain a statistic as a current customer, which is the farthest thing from the truth.

I still feel the best way to develop a business is to create real value for your customers and build that business one customer at a time.

This is the list that I came up with from my experiences. However, if you have other insights from your experiences we would love to hear about them.

The Hutch Report

10 Business Ideas to Start in Vietnam

By | Business, Startups

The Hutch Report took a fascinating trip to Hanoi, located in North Vietnam. The country has been identified by the civil war that lasted from 1955 to 1975 and also the fact that the country is governed by a communist regime. For these reasons we really had no idea what to expect. Hanoi was an eye opener in many ways.

The city of Hanoi has a population of about 7 million people, and of those 7 million about 5 million own motorbikes. That’s a lot of motorbikes and with so many on the road, it creates a large amount of commotion, confusion and turmoil. Crossing a road in Hanoi is a unique experience, however, it is not without a large number of fatalities each year.

Our initial intention was to research and discover the technology startup scene while we were there and find out if there were any trends that could be interesting to follow leading to potential investments. We made a few contacts, some meetings and had some interesting discussions. Many of the ideas we heard about were mostly generic ideas that have been used elsewhere and could be catered to Vietnam in particular. For example, Vietnam’s travel and tourism industry is developing at a rapid pace so it was not surprising to learn about many apps being developed to help support that development and help tourists discover everything Hanoi and Vietnam have to offer.

While discovering different parts of the city and country it became clear that with the rapidly developing economy, fuelled in large part by the growing tourism sector, it was clear that roads, and traffic policing have not kept up with the increasing number of vehicles on the road. The high traffic congestion in Vietnam is not without its pittfalls and has become a hazardous issue that results from the excessive number of motorbikes and limited infrastructure capacity.

The road system has fallen behind population growth and the rising number of vehicles and motorbikes on the streets jockying for position, result in gridlock and traffic jams, even during non-peak hours. We had a first hand experience driving around the Old Quarter of Hanoi where it seemed like everybody had the “I am just going to keep pushing forward no matter what is in front of me” attitude in order to get where they were going. In a way we could understand this mentality as to take any other option would mean being stuck in place for quite a while.

Watching all of this from a spectator point of view was actually quite fascinating albeit at times quite stressful.  The energy in the city was electrifying. You could feel that something was happening to this city before our eyes. It refocused our attention from technology startups to basic needs and improvements that could benefit the city and population.

While travelling through different quarters of the city I spotted a Harley Davidson dealership/showroom and quite a large one. It got me thinking about Harley Davidson’s business strategy for attempting to crack this market. What was their motivation for being there? Did they think that a city with 5 million motorbike owners would automatically tradeup to a Harley Davidson? Hardly the best choice of transportation once you have had the experience of driving around the city.

The truth is that the heavy motorbike density is directly related to how expensive car ownership can be. Car owners have to pay roughly 300 million Vietnam Dong(VND), the equivilant of about$13,250. Yet Harley Davidson prices range from VND 336 million (US$15,900) for Sportsters to VND1.17 billion (US$55,400) for Touring models. I couldn’t imagine that a large portion of the population was ready to trade up to a Harley just yet. Therefore almost 95 percent of registered vehicles are motorbikes or scooters, and as many as 9,000 new motorcycles join the roads each day.

It is not surprising that with the large number of vehicles and motorbikes on the road, there are a very large number of traffic accidents and fatalities. For this reason, a law was introduced in 2001 where wearing a helmet became mandatory for all motorcycle drivers on specific roadways such as national highways. However most of the helmets that are available in Vietnam are made of cheap and low quality plastic, which doesn’t offer sufficient protection. According to the World Health Organization (WHO), 80 percent of the helmets currently being used fail to meet national quality standards.

Being focused on this display of motorbiking madness led us to make quite a few observations and brainstorm basic business ideas for those wanting to take Hanoi head-on.

  1. Replacement Parts – There are parts shops that exist and are usually all located together in one street in the city. The market is wide open for someone able to provide a network of shops throughout the city providing replacement parts.
  2. Self Service Motorbike Washing locations – We saw many people washing their bikes on the sides of the roads or in shop doorways with an old hose and brush but no real designated areas. This is a service ripe for development. A chain of automated or self service motorbike washing locations.
  3. Motorbike Personalization Service – With so many motorbikes it is easy to get yours confused with somebody else’s, therefore a service that personalizes a motorbike could take off.
  4. Motorbike modifications – We saw many motorbikes and scooters with a variety of things strapped to them. A company that provides baskets and bespoke solutions for specific customer needs could fill a void.
  5. More affordable helmets providing the proper protection – We mentioned the fact that not everyone was wearing a helmet, although mandatory and those that were, were not being provided sufficient protection.
  6. Education – One big thing lacking is driver education. Many drivers have not been provided the necessary amount of education in order to protect themselves and others from road accidents. The government would benefit greatly by this and support it yet no one has set anything up to improve the level of education on a large scale.
  7. Accessories – We saw hundreds if not thousands of bikes lacking simple accessories such as mirrors. It is surpising but a large number of the population use smartphones so you could also imagine accessories such as a holder on the bike in order to use the GPS services thereby avoiding the possibility of an accident should the phone be in your hand.
  8. Motorbike Rentals – For those not able to yet afford a motorbike, an inexpensive rental could be the solution.
  9. Parking Stands – Most bikes are just placed off to the side of the street. It would be wise and more organized for the city to provide designated bike stalls where motorbikes could be chained up and protected from theft.
  10. AAA Service – A membership business providing on call repair service to its members who have broken down somewhere in the city.
The Hutch Report

The Startup – What is behind the name?

By | Business, Startups

What does the word Startup even mean? I bet if you ask yourself this question you will probably quickly realize that you don’t have a straight answer. Yet the term is used daily in thousands of articles.  It headlines hundreds of events. Ask the question to 10 people and I am certain you will get a variety of answers.

Here are a few examples of the definition of a startup from various sources, including founders themselves:

A company that is in the first stage of its operations. These companies are often initially bank rolled by their entrepreneurial founders as they attempt to capitalize on developing a product or service for which they believe there is a demand. Due to limited revenue or high costs, most of these small-scale operations are not sustainable in the long term without additional funding from venture capitalists. – Investopedia

A small business that has just been started – Cambridge English Dictionary

An “organisation formed to search for a repeatable and scalable business model.” – Steve Blank and Bob Dorf

“A startup is a company designed to grow fast. – Paul Graham

“A startup is a state of mind,” – Adora Cheung, cofounder and CEO of Homejoy

“A startup is a group of people working towards a common goal, generally with limited time.” – Iqram Magdon-Ismail, cofounder of Venmo

“I think the first measure for a startup is: is it something new – a process, a product, a category, a business model, an ecosystem. No matter what it is, it has to have not existed before. – Ayah Bdeir, founder of littleBits

“A startup is a company working to solve a problem where the solution is not obvious and success is not guaranteed,” – Neil Blumenthal, cofounders of Warby Parker

“It stops being a startup when people don’t feel as though what they are doing has impact.” – Russell D’Souza, co-founder of ticket search engine SeatGeek.

“You know you are a startup when you are a small, high-growth company, based on a big idea.” – Ariel Garten, cofounder and CEO of InteraXon

“A startup is a business idea that has minimal traction.” – Daniel Roubichaud, Founder of PasswordBox

“I think bootstrapping is pretty important to what makes a company a startup; “I think once you continue with a startup type methodology and culture, no matter how big you grow you’ll still be a startup at your core.” – Pat Phelan, cofounder of Trustev

“I think being a startup is more of a mentality than anything else. In the 1990s, during the first Internet boom, the term startup was new. “ – Matthew Salzberg, cofounder of Blue Apron

“Something that is a new product or a new market, with less than 50 people, with the intention of growing quickly to scale.” – Rob May, CEO and cofounder of Backupify

“A startup is defined by hope.” – Edward Saatchi, cofounder National Field

Well, if a startup were really defined by hope, then I would sure hope that your startup has a lot of cash in the bank! As you can see by the examples, the definitions are ambiguous and lacking consensus among many.

The truth is, the term has been overused and bastardized to the point where it has no meaning anymore.  It is kind of like the term Kleenex, a term that has become synonymous with a general class of product or service. The term startup has become a general term for a company with no real distinctions of where they may be in their lifecycle. In some cases the term becomes a philosophical reference.

The term startup actually came into vogue in the 1990s, during the bust of the first real Internet boom.  At the time we were calling most startups dot coms, until of course most of them came crashing down.  The term startup suddenly came into fashion, as we left the term dot com behind. At the time I remember being in a few discussions about Startups, however it seemed to be accepted knowledge that a Startup was a company in operation but had yet to generate any revenues.

As an example, I was working with one such company. We were financed by a variety of venture firms with, what totaled to be $17 million.  In the end, we did a few deals, or at least enough to enter into further agreements with our backers and reached 4 rounds of financing that kept us alive for about 3 years. We never managed to generate any revenues as a company.  We, along with many, ended up blowing up during the bust.

Revenues, at the time, were not important.  It was all about the user base, or eyeballs as they used to call it. This is why most of these companies remained startups and died as startups.  They had no revenue to speak of.

You can call it what you want and philosophize all you like but these are businesses. As a business you require customers and revenues to cover your costs.  If not you are quickly out of business; no matter how much money someone gives you. Therefore, it can still be argued that a true startup is one that has not generated any revenues and is still being held a float by venture backers.  Once it generates revenues, it ceases to become a startup, but a viable business concern.

When I began doing some research on this question about the term startup and wanting to understand what was considered a startup today, I came across an article in Forbes titled, “The Hottest Startups of 2014.” Here are a few examples at the top of their list.

Zenefits – At the end of 2014, the company released growth numbers that showed they generated $20 million in revenues. They had signed up 10,000 companies to use their service.

Thumbtack – Thumbtack does not release any revenue figures, however the company said that it was currently sending $2 billion worth of business to its professionals annually.

Uber – A leaked document showed that Uber generated $18 million in revenue in December 2013 in San Francisco alone. In total it is estimated that they may soon generate $10 Billion worldwide.

Cloudera – Cloudera’s official documents from February 2015 stated revenue for 2014 that surpassed $100 million.

Lyft – Stated estimated revenue of $130 million for 2014.

Pure Storage – Their IPO filing showed revenues of $42.7 million.

There are mature companies that have been in business for 20 years that don’t come close to any of these revenue figures. So is it fair to call them startups? It could be that by underestimating the challenge required to build a sustainable business, by getting too philosophical about what a startup represents in ephemeral terms, you are putting yourself at a disadvantage by losing sight of the fact that it is all about generating revenues, covering your costs and walking away with a profit at the end of each year.