Thursday 30 September 2010

For an entrepreneur starting out - some tips with hindsight

In September 2000 I was just setting out on my first entrepreneurial venture.  I was working as an investment banker at JP Morgan at the time, but on a skydiving trip Perris Valley I had hatched some plans with Matt Cooper.  We returned to the UK and set to work on evenings and weekends. 

10 years on we have sold the business we created then.  Older and a little wiser, I'm writing a note to my 2000 self and sharing the benefits of hindsight.  If you're an entrepreneur getting ready to jump, I hope you'll find it useful.  And if you've already jumped please share your comments below.

Balance enthusiasm to jump with readiness to "cut away"

Entrepreneurship is like skydiving - you have to be willing to leave the safety of employment and leap into the unknown.  That takes enthusiasm and courage, but personally and professionally it is very rewarding.  Determination and confidence when dealing with uncertainty are vital - as a friend recently explained to me "you have to be ready to make 100% of the decision with only 50% of the information".  The unpredictable movements of markets, competitor activity and the breathless rate of technological and regulatory change all keep you fit and on your toes.  Cut through this complexity and uncertainty by sticking to your aim and avoiding distraction.

But sometimes a skydiver has to be prepared to cut away a malfunctioning parachute and rely on his reserve.  Focusing on your aim is very important, but if the environment changes, your aim may need to too.

Hindsight:  Our environment changed when our major competitor secured additional funding in 2003.  While we were very happy to take on larger and richer rivals, their access to a $100m fortune made a difference that even the most determined and focused challenger should think carefully about!  At that point we lost the opportunity to dominate the market, but we still achieved excellent growth and profitability.  But when a second major rival (with even bigger reserves) began to prepare to enter the market we knew it was time to prepare our exit.

Capitalise - and choose a big market

A simple rule of thumb is that VCs won't invest in businesses in a market worth less than $1bn per year.  So unless you can finance your growth by other means, avoid markets that don't have massive potential.  Capital is vital to ensure that you can develop your business with a longer term vision, rather than basing every investment on immediate cash-flow constraints.  You wouldn't jump out of a plane without investing in a decent parachute.

As well as providing funds, raising capital can also introduce additional talent - and passion - into the team.  There is nothing like having "skin in the game" to make people share your aim and work to realise it.  You can apply the same rationale to your advisors and suppliers - try to structure your deals with them so that they share in your success - it's a great indicator of their commitment. 

Hindsight:  The total projected value of our market in the UK was £50m - well below the threshold to interest most larger investors.  We designed our business so we could quickly run from operating cashflow.  Before 2003 our better capitalised rivals were losing money fast and many of their first-round investors wrote off their investments, so raising finance would have been difficult for us.  After 2003 the market appeared over-priced and any returns on new capital were likely to be negative or low.  We were able to eke out good returns on our original investment because we continued to deliver excellent growth and margins, and developed an exceptionally lean operating model.  But we were unable to attract new money.  Talking to potential investors was a constant source of stimulating and challenging ideas, energy and enthusiasm though.

Innovate and benefit from the innovations of others

Keep new ideas coming, and stay abreast of the latest trends and technology.  Moore's Law determining the falling cost of computing power, and the constant innovation of others ensure that what is impossible or prohibitively expensive now can quickly become cost-effective.  Anticipate this and be ready to integrate the innovations of others.

If a high proportion of your costs are technology-related, be ready to be bold with your strategy.  When cost structures change this can create opportunities for bold new entrants with disruptive models.  Be ready with branding and pricing policies that take advantage of these changes.  Above all, continue to invest in research and development so that you stay at the cutting edge of your market.

Hindsight:  We generated plenty of new initiatives in our battle to outmanoeuvre our rivals - service extensions, affiliate networks, disruptive pricing and an array of exit options.  Meanwhile, we stayed at the cutting edge of technical innovation and stripped out cost at every opportunity.  With free or nearly-free tools from Google, Skype, Facebook, Twitter and LinkedIn and with the reducing costs (and increasing reliability) of cloud hosting, we reduced our operating costs even as our business volumes grew at a compound annual rate greater than 50% for several years.  We stood on the shoulders of giants whenever we were able to do so.

Network, network, network

One of the best things about starting a business is that you get to meet great people.  Your first customers will be, by definition, "early adopters" and you get to meet people who specialise in a wide variety of areas.  Their willingness to explore new possibilities is a great source of encouragement and a real learning opportunity.  Time spent talking (and especially listening) to people is very rarely wasted, and if someone has interesting things to say that don't directly relate to your current plans it's still worth developing a dialogue if you can.

Competitors deserve a special mention here - of course you are rivals, but in fact you have more in common with each other than with anyone else.  It's well worth keeping a dialogue going with your competitors - one which is respectful, and maybe even playful.

Hindsight:  I've met some amazing people in the last 10 years.  But I wish I had devoted even more of my time to getting to know people.  It's tempting to focus on service design and delivery - especially when you are understaffed - but every business is really about people.  And it's the most fun bit too!  I've recently qualified to skydive in formation, so I can now build networks in the sky.  I've been very lucky to be a member of some great teams in the Royal Marines, at JP Morgan and with Bmycharity, and now I'm looking forward to joining my next team...

Looking forward to 2020 vision

Writing with hindsight is easy - but I wonder what I'll write to current self 10 years from now - with the benefit of 2020 vision.  I could use some tips on swimming technique and my cooking has a long way to go - but I'm sure there are plenty of business lessons still to learn too.  I'm confident that networking in particular will remain central - after all it's in dealing with other people that we are able to create lasting value.  So I hope to deal with many more great people over the next 10 years, while building the relationships of the last decade too.  And I hope I'll be a much better skydiver by 2020 too!

If you've any tips you'd like to share with your earlier self when you set out as an entrepreneur please share them here.  I'm grateful to Jason Baptiste for the idea of writing a letter to my younger self.

Wednesday 15 September 2010

Climbing the Brabyn family tree

Following our trip to scatter my father's ashes, there has been plenty of activity on Facebook and the Gigrower website as Brabyns from all over the world have got in touch.  Several people are compiling family trees and asking me how the family fits together - and someone has even produced a family coat of arms.

I'm very happy to host the discussion here so we don't have to rely on the Gigrower moderators to put us in touch with each other - please feel free to leave your comments here and we can piece the family history together!

There's talk of a gathering later in the year too, so spread the word if you would like to get everyone together...

Wednesday 8 September 2010

Creating value from data - secrecy, invention and layering

I once knew a vital national security secret for a period of 10 minutes.  I could have sold that secret for a high price during its 10 minutes of importance.  I didn't.  Moments later, the information was no longer vital or secret - and it flowed into the public awareness barely remarked.

Recently I've been studying the ways a number of organisations use data to create value, and I identify 3 broad approaches: secrecy, invention and layering.  My interest is in helping organisations build sustainable value positions, so here I briefly consider the pros and cons of these approaches and how they inform business development.

Secrecy - creating value by trading data

Trading state secrets is tricky, since the market is very imperfect.  Counterparties are unreliable, transaction costs are high and the market is hard to predict.  Quality is notoriously variable and verification difficult.  Penalties are high.  As a result, it's best avoided unless you have deep pockets, ideological convictions, and ideally, a state sponsor.

Commercial, technical and personal secrets also have the potential to command a great premium in the right market - but making and sustaining these markets is tricky.  Networking and transaction costs remain high since security must be tight to protect sources, but the real or perceived value of the information may make these costs acceptable.

The whiff of Martini and intrigue can help canny participants to increase the premiums paid, but trading on secrecy of this kind is ultimately a niche activity since volumes are small, relationships expensive to maintain and pipelines hard to predict.  Most worryingly, secret information can lose its value at any time.  To build sustainable value the information must be protected.

Invention - creating value by creating data

Inventors get to harvest the sustainable value of their information by securing intellectual property rights.  Of course this is only an option for those who can demonstrate that they are the creators or developers who have added a distinct definable intellectual asset.  Once protection is in place then depending on the quality of the asset, it can be developed and delivered.

While this is the basis of many a successful sustainable enterprise, it depends on the creation of proprietary intellectual property.  If you don't have any on the drawing board, you can still create sustainable value from data in other ways.

Layering - creating value by comparing data

The quantity of freely or very cheaply available data continues to grow geometrically, and without the Research and Development costs of invention, or the transaction and protection costs of secret information, it can provide a versatile feedstock for value creation.  It is often a simple task to create value by adding information from different sources, or to discover correlations in unexpected places.

Free information - for example from a mapping service like Google Maps - can be supplemented by time-sensitive information - traffic, weather, fuel price etc, to create premium packages that retain their value but have low marginal costs.

Services like Wonga illustrate the benefits of analysis and iterative learning.  By gathering client data, cross-referring against socio-demographic profiles and credit data it's possible to identify profitable market segments (in Wonga's case for short term loans) which previously went unserved.

At Bmycharity we found correlations in our data that gave insights into donor and consumer behaviour that reached far beyond charitable giving - and guided our strategy as we set out to disrupt the commission-pricing model of the online fundraising market.

Now, with the development of ever-more powerful analytical tools like Hilbert and ever-larger data sets, The Economist notes that some organisations are embarking on ambitious efforts to identify a wide spectrum of targets, from valuable social influencers, to fraudsters and terrorists.

Creating value by layering and analysing data offers the prospect both of sustainable value creation and a ready stock of raw materials.  With the continuous improvement of analytical tools available, this part of the market for creating value from data will grow and grow.