The English Disease

In the 1970’s through to the present day the English Disease referred to the reputation of a small minority of football supporters from England with a penchant for violent behaviour, the likes of which has not been seen in the US since the Rodney King riots.Within the technology sector there is another English Disease, this has been touched upon by Mike King, managing director of Johnson King in this op-ed which ran in Tuesday’s FT Creative Business. I would argue that it merits as much if not more attention as the organised violence of English football hooligans as is gnaws away at the future prosperity of the UK.

This disease is a chronic lack of ambition and vision and manifests itself in different ways:

  • Mike complains that British start-ups are reluctant to invest in marketing and PR to enhance their reputation and grow their business. They often do not recognise the value of it and even where they do, the pathetically low budget put into marketing is below the critical mass required to deliver results. There is a similar attitude whether the management team are novices or drawing down a serious package as an ‘experienced entrepreneur’. Yet the most respected businessman for these people would be Richard Branson; a modern-day Barnum who built his empire with large doses of shameless self-promotion. Mike owning a PR agency was particularly interested in this aspect of the equation! However this is only a small part of the picture.
  • Funding is not forthcoming; venture capital in the technology sector is based on trying to achieve a ten-fold return on the money. UK start-ups have lower expectations of themselves, they do not share their American colleagues dreams of being the next Oracle, Apple, Microsoft or IBM. Consequently the technology business is trapped in a self reinforcing prophetic circle, a black hole with an expanding event horizon sucking away the vision and dreams. This in turn encourages the fund managers to husband their limited cash as much as they can by cutting back on ‘unnecessary expenditure’ on things like marketing and looking for an early exit strategy through acquisition or technology licencing agreements. It is not because the UK does not have the expertise and the smarts:
  1. US chip pioneer LSI Logic was founded by Wilf Corrigan, a Liverpool docker’s son made good
  2. Apple Computer’s sizzle is in large part to a product design team headed by Geordie designer Jonathan Ives who has designed every successful product from the original bondi blue iMac to the latest iPods
  3. Cambridge boffin Alan Turing was arguably the inventor of first programmable computer and laid down the defining test for true artificial intelligence
  4. LCDs: liquid crystals were invented in the UK, but made Japanese companies rich

The problem is that the disease is pervasive, it affects the value of houses, how much your future pension is going to be worth and what jobs the UK citizens of tomorrow are likely to have. The FTSE has underperformed US rivals for the past decade because it does not have its share of high-growth technology companies. Vodafone and mmO2 is just a seller of wireless services, just as much a merchant as supermarket chain Tesco, Lastminute.com is an e-tailer echoing the Napoleonic-era cliche of Britain as a nation of shopkeepers. ARM Holdings, the UK’s leading chip company, is a chip designer that can barely be described as a medium-sized enterprise. Software company Autonomy is noticable only for its lack of peers. Cambridge’s Silicon Fen is actually a laughable Silicon Sahara with precious few oasises.

With such a poor technology sector, money for investment sloshes around in management buyouts (with the intention of trying to squeeze more value out of mature businesses), a cash bloated property market and overseas where entrepreneurs generally have more vision. Thus setting the UK up for economic underachievement ad infinitum. Instead the UK will be an economy based on the export of a small amount of golf sweaters, rainwear, antiques and pre-prepared curry cooking sauces. It would be side splittingly funny if it wasn’t so tragic.

Liars Poker Personal Edition

RTE programme Primetime carried a great introduction to a scandal in the UK and Ireland that mirrors the Savings and Loans scandal that gripped the US in the 1980’s. During the 1980’s, Savings and Loans companies (kind of equivalent to building societies in the UK and Ireland) bought complex financial products that they did not understand. Many of these blew up in their faces taking down their institutions, while the large banks such as Solomon Smith Barney and Goldman Sachs made fortunes of trading commissions, advice fees and various revenue opportunities from assembling these financial timebombs. Michael Lewis documented is process in his book Liars Poker.The same thing that happened to big money happened to individual homeowners in the UK and Ireland. People seeking a home loan were sold an interest only loan and a life policy that would pay off the principal and leave them allegedly with a bonus at the end. Much of the projections were over optimistic, the financial institutions got fat off transaction fees, commission, setting up charges and fund management fees. The first years endowment premiums on a 25-year loan went in fees, often the cost of the transactions were masked from the consumer.

Now financial institutions have had to write to consumers telling them how much of a shortfall they will owe at the end of their policy. In many casese it is alleged that the companies willingly missold the financial products to customers with data that ther actuaries knew to be false. This situation has also encouraged a breed of jackals who buy early surrender policies from distressed home owners and fund them through to completion in expectation of a more realistic return. The home owners have already taken a hit upfront on all fees associated with the endowment policy.

For those of you who have got a bit hot under the collar over all the swindling we have gone on about, I would recommend having a look at Akiyoshi Kitaoka’s photographs of Japan. They are absolutely stunning.

Sucker Punch From a Dot.Bomb

I went to my friend Jo’s wedding the other month and later wrote on this blog about The Gift Registry: a wedding present service that seemed like a good idea at the time. The high concept was that the site kept the wedding list online which could be compiled from items stocked by a number of good quality department stores. Guests bought the bride and groom gifts they wanted, the company delivered and the wedding was less hassle from a gift wrapping and carting the present to and from the venue point of view.

Today I received an email from the bride and groom that the business had gone bankrupt together with advice to get a refund from my credit card company.

In my phone call with Jo what surprised her was that a dot.com with a sensible business proposition could go under, we are so used to dot.com being part of the mainstream shopping experience now that many people tend to forget that in the late 1990s Amazon was making a five dollar loss on each shipment. A similarly good prospect was CD retailer Boxman.com, who purchased CDs from the cheapest legitimate suppliers across Europe, and distributed centrally from a warehouse in the Netherlands, they then passed on some of the savings to the customer. Boxman was let down in the operational department by poorly implemented software from IBM. Travel site and gift e-tailer lastminute.com improved dramatically with the appointment of retail management guru Alan Leighton as chairman. The moral is that even with a winning business idea, operations expertise and processes are critical.

Here is a link to an article on the demise of The Gift Registry from Accountancy Age.

Growth Crusader

Andy Kessler has been a banker, analyst and fund manager. Through all this experience has a growth investor, that is someone who invests in what might be rather than a value investor. A value investor is someone who invests in companies that work hard to husband what they have already and try not to rock the boat too much.

Andy is a smart guy, smart enough to admit that he is fallable, he also writes a mean bit of copy. I am working through his book Running Money and will post a review when I have finished. In the meantime I’ll give you a link to Andy’s blog so you can see for yourself.

Deep Thinking

Summer must have been quiet in the analyst community, as I recently covered Forrester’s efforts on taking a consultative approach to the innovation organisation and am currently working through a 53-page white paper from McKinsey. CurrentAnalysis, an up and coming analyst shop last month issued a whitepaper called Competitive Response: A New Lens for Evaluating Company Performance. No link I am afraid as the paper arrived as an email attachment.

CurrentAnalysis have obviously put a lot of the thought into the document with a view to having their competitive response quadrant quoted as widely as the BCG matrix is at present.
Very simply:

High business performance/ low competitive responsiveness: vulnerable coasters

High business performance and competitive responsiveness: responsive performers

Low business performance and competitive responsiveness: laggards

Low business performance / high competitive responsiveness: under acheivers

What is competitive responsiveness?Competitive responsiveness is the measure of a company’s capability to respond to changes in external conditions and events. (So it sounds like the agile business concept that many companies such as Microsoft try to hang their hat on.)

What the key attributes influencing creative responsiveness?

We have identified three recurring dimensions that companies should use to measure competitive responsiveness: speed, consistency and effectiveness.

The model is an externally driven view of the business

They view the competitive response model as consisting of six stages that occur in iterative cycles:

  • Sense & capture
  • Interpret & create awareness
  • Analyse & inform
  • Deliberate & decide
  • Respond & engage
  • Measure & correct

In summary, CurrentAnalysis’ paper is interesting but presupposes a value based approach to running a business rather than a growth approach. Amazon for instance would would be ranked unduly low in the quadrant because they pursued a rigorous policy of growing the business to critical mass.