Brilliance of the Bootstrap Enterprise

I borrowed and read the final part of Lian Hearn’s Otori trilogy the Brilliance of the Moon. It is as good as her other two books and well worth a read. Whilst not heavy reading, it shows that books can be easy to read and well written – something that people seem to think is an oxymoron with the rise of the DeVinci Code.

Moving on to new media has an interesting article about the changing roles of VCs on the west coast. In an interesting profile with Walden VC, Tom Foremski came up with some interesting points:

Valuations of startups in the online marketing/advertising sectors are going through the ceiling. Usually, private-company valuations tend to be 40 per cent below comparable public valuations, depending on the sector. Now, valuations of private companies are at a premium over the public valuations. [Ouch.]

Some startups in the online sector already have very healthy revenues and so they don’t need investment capital. But the founders are taking money off the table by selling stakes to VCs. [Interesting to see such liquidity events because no IPO or sale of company was involved]

Many young startup companies are seeing fantastic revenues – but they can’t collect what they are owed fast enough, so they are burning precious reserves between the time they invoice and when they get paid. The VCs can provide a float. For example, with a $5m monthly revenue it’s typical to take 60 days to collect payment from large companies, so it needs a float of $10m, which VCs can provide.

Foremski in his posting does not queston the supply-side factors in VCs that are driving these very different roles including the VC money glut.

The relative ease of bootstrapping a lot of the pieces together:

  • Online auction sites like eBay providing an easy way to get hold of IT equipment that would do the job. There is still a lot of old but servicable Cisco and Sun kit out there to be bought at knockdown prices
  • Virtual offices and teams through the Internet and broadband
  • The move away from capitial intensive product development to media creation

Surprise Retreat

Wal Mart the retail leviathan who makes shop owners quake at the mention of its name has backed out of the online DVD rental marketplace. The company has entered into a relationship with Netflix whereby it will instead direct its customers to the pure-play DVD rental business.

Wal Mart has kept on keeping on with a number of under-performing businesses over the years such as its German retail arm, so the Netflix deal and withdrawl from the marketplace is a bit of an uncharacteristic turn. It makes you wonder what’s next for the chop, its online music business?Netflix are best known in the UK for their aborted market entry which stopped before they started. The company recruited a marketing team, touted for PR agencies and then promptly shut up shop.

Reuters have the full skinny on the Wal Mart deal here.

Corporate Citizenship & Edge Networks

Business Ethics magazine in the US has launched its top-100 businesses of 2005. What I found interesting was the amount of smoke stack industries appearing high in the list from semiconductor manufacturers like Intel to diesel engine company Cummins. More here, kudos to’s Kibble & Bytes newsletter.

Over at Bob Cringely talks about how BitTorrent is currently costing ISPs a fortune in fees to pay for the bandwidth they used over the Internet. He also talks about how wireless networks using WiMAX will drive BitTorrent sharing networks to the edge, and facilate the ISPs launching their own video-on-demand services.

Expect the traditional telephone exhange facilities that have lots of empty space with the move to IP networks turning into neighbourhood Internet hotels for content hosting servers.

Brand Disassociation

Associating a brand with a celebrity or TV show through product placement or sponsorship is tricky to get right. Celebrity gossip newsletter Holy Moly had a story that highlighted how Cisco’s attempt to do an Apple with TV show 24 has all gone a bit Pete Tong:

The phones featured through every series of 24 are Cisco featurenet phones. The ringtone was made up by Fox and unique (clever use of Intellectual Property) to the series.

Cisco customers complained when they ordered millions of dollars worth of the phones and they DIDN’T sound like CTU. They now do.

Executives at SKY use it as their mobile ringtone

Silicon Valley Resurrection

Peter Cochrane in his column for Valley Lessons visits the new shoots of innovation that are starting to bud in Silicon Valley. Cochrane proposes that the traditional way of working in the valley and traditional IT innovation has been lost, unwittingly exported as immigrant engineers went back home away from the last bust with valley knowhow and networking skills. This may be true and there are challenges to the valley from India, China and Taiwan.

Peter’s argument has some merits, with the exception of RFID and wireless-orientated applications the enterprise software market is not the ever expanding pie it once was. Slow growth and long buying cycles will mean that growth is likely to come from consolidation rather than innovation. Unless someone comes up with an application that has as much an impact on business life as the mobile phone, the market for enterprise applications is going to be very slow in penetrating small and medium-sized enterprises.

Many successful wireless applications such as RIM Blackberry devices are likely to have their wings crimped by compliance related issues requiring tracebility of emails and back-up.

Web services have the potential to be a bright spot, the biggest issue is that outside of the United States you cannot patent a business process like Amazon’s ‘One-Click’, so the idea can be copied in the high-growth markets of Asia.

However, I think that the picture is brighter than Peter suspects.

Peter thinks that VCs are and will be too cautious, and that they will not have so much money to invest. OK consider this, the Western world’s population are getting older, pension funds and investors are having to turn to devices like hedge funds and exotic markets to invest all their money. This was one of the factors that inflated the technology investment boom in the first place. At the present time VCs in Silicon Valley are sitting on some 25 billion USD in uninvested funds due to be handed back by venture capitalists to their investors in the next year to 18 months. If the funds are handed back the VCs have to also refund their two per cent annual management fee, that equates to some three billion USD in lost fees. VCs have a powerful reason to bank on the valley again.

Secondly, although the Silicon Valley engine is run by an army of programmers and engineers, what makes it special is the dreamers like Trip Hawkins and Steve Jobs. In the same way that China, Korea and Japan have become hot beds for mobile services due to the nature of their ideogram-based languages being much more expressive in a small screen area, so Western culture offers opportunities with its more individual-based approach and world view.

Thirdly, much as I hate to agree Bill Gates, there is a lot of challenges out there that will provide opportunities for businesses. In the same way that a rapidly expanding Internet in the 1990s, created a need for Yahoo! directory and search, so the mass of, still images, audio, multimedia content, video, IP television and languages create new challenges to be met.