A victory for great coffee

Source: Restaurant Brands NZ Ltd 2014 Annual report

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Are you innovative enough?

I’ve been reading Peter Thiel’s excellent and short book – Zero to One. It’s resonating with a lot of people at the moment, and justifiably so. It reminds me a lot of Peter Drucker’s  Innovation and Entrepreneurship, published originally in 1984 and with very similar messages.

My own take is that the art of business is easy, but the way we talk about it keeps changing, at least superficially. I do recommend reading both of these books.

Thiel differentiates between companies making incremental changes, such as those who create new products in a category or new markets for a product, and companies creating entire new markets. Drucker did as well, saying that entrepreneurs search and take advantage of changes, and “create something new, something different; they change or transmute values.

All this this is aligned with design thinking, which, as we did at Better by Design, preaches that the goal is to capture a global niche – something Thiel also pushes. While Thiel puts end-user centred design in the incremental change bucket, and we can argue either way about that, we can all agree that nobody knows they need a product in a category that does not yet exist. The Walkman used to be the classic example of this – a product created by the strong will of Sony Co-Chairman  Masaru Ibuka, while more recently Steve Jobs was famous for doing similarly at Apple.

While Thiel is not enamoured with incremental companies, that’s not to say there are not great returns possible for founders and investors in those companies. Trade Me shareholders were, no doubt, happy with their status as “the eBay (and other sites) of New Zealand”, even as they outperformed eBay on all the vital per capita metrics.

But the outsized gains for founders and investors, the billions and tens of billions, are reserved for really disruptive companies like Amazon, Microsoft, Thiel’s Paypal, Elon Musk’s Tesla, and Apple. Here in New Zealand we have Xero and Vend, each of which attracted investment from Thiel’s vehicle here – Valar. All of these companies changed or are changing the way business is done, and once they establish a foothold the relentless adoption curve takes over.

All of these companies delivered or will deliver outsized returns to investors, and they all required leaps of faith by founders and investors both. Succeeding isn’t certain, as the acquirers of Paypal (eBay) eventually found, but PayPal still delivered years of outsized growth despite not delivering on the true promise of PayPal. And sometimes investment can be in a product that just isn’t going to take – it’s fair to say the jury is firmly out on Valar’s investment in Booktrack, but nobody can accuse Booktrack of being unambitious.

Thiel tells the dirty little secret that we all know – the ultimate business aim should be to create a sustainable global monopoly, but never to call it that for fear of being regulated. Monopolies can extract economic rent (high margins and profits) while they dominate, and that’s where the huge valuations come from. Don’t expect, for example, Xero’s average revenue per customer to stay as low as it is forever, and be wary of Xero moving horizontally into related products once they do dominate.

Thiel suggests that we can pick the great companies as the ones that can  answer the series of questions below:

  1. The Engineering Question: Can you create breakthrough technology instead of incremental improvements?
  2. The Timing Question: Is now the right time to start your particular business?
  3. The Monopoly Question: Are you starting with a big share of a small market?
  4. The People Question: Do you have the right team? (real technologists wear T-Shirts not suits)
  5. The Distribution Question: Do you have a way to not just create but deliver your product?
  6. The Durability Question: Will your market position be defensible 10 and 20 years into the future?
  7. The Secret Question: Have you identified a unique opportunity that others don’t see?

Let’s put these into my preferred way of looking at companies, which I use for Better by Capital, Punakaiki Fund and consulting work:

End User: Timing, Durability, Secret. Is the target end user well defined, and is the product delivering something distinctive and delightful that changes their life? Is the product in a long-term defensible position, and is there a (generally obvious) future development path?  I’m not so sure that Thiel has covered this fully in his questions, but I wold hope it is taken a a given – the product or service has to be great for its chosen niche.

Customer: Monopoly, Distribution: How do you get money for the product or service? How do you expand sales rapidly and sustainably?  How do you capture a global niche market?

Company: Engineering, People: Do you have the founders, staff and governance to deliver? Do you have the internal knowledge and IP, and a track record of shipping?

Investor: Do you have all of the above, and does the investment get you to the next stage of sustainability? Do the numbers work?

For me there seems to be good overlap, and I generally do cover the points raised in the questions in my own work. But the exact form of the model we use to look at businesses does not really matter – just whether it works for you and the business. I’ll certainly be adding Thiels’ questions to my arsenal, but not to replace my own model. I do commend them for people starting on new businesses or developing products.

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Bonus growth for SaaS exporters

The currency fall has a wonderful effect for exporters, especially those who have most of their costs back here in New Zealand.

As I write this, the NZD versus the USD has fallen about 10% since earlier this year. As an exampled of what this means I’ve made a simple spreadsheet estimating the impact on Xero.

My take is that the fall from the end of May to today would increase their estimated monthly revenue by about 4.3%.

Obviously this is only for revenue received after the exchange rate changes, so don’t expect any surprises when Xero announces their September revenue, although their Annualised Run Rate might have a boost.

But we’ve also heard talk of a desired optimum level of a rate of $.65 US dollars per NZD. If that happened tomorrow (and I am never a fan of fast movements), and if the AUDNZD cross rate stayed the same, then the Xero table would look like this:

That’s would show almost 10% increase in revenue, a lovely bonus for Xero and Xero’s shareholders. Xero does have a lot of staff offshore, but the bulk of their costs would be in NZD, so overall they should see a net increase in profitability, which in their case means little, as they are very well funded and constrained by things other than monthly profitability.

Every other exporter will be facing a similar scenario, but SaaS providers are luckiest because their costs are often largely in NZD, and so they will maximise the benefit.

Punakaiki Fund

Punakaiki Fund invested in three SaaS companies early this year – Timely, InfluxHQ and Mindscape. I’ll use public information to discuss them.

Timely and InfluxHQ are, like Xero and Vend before them, offering their services to the world, but find or found their early growth from NZ and Australia. That’s a natural part of being based here and the relatively high-touch sales and support approach for B2B SaaS businesses. But as they grow at some stage (that’s a bit I’ll leave to the companies to reveal) the dominant parts of their revenue will be from other currencies, so while the short term effect might be relatively small, the long term revenue impact (and the associated value of the companies) is potentially significant in New Zealand dollars.

Mindscape sell developer tools and the error tracking system Raygun.io globally. CEO JD Trask reported that Mindscape exported 95% of their products, and so the exchange rate changes will have an immediate and large effect on revenue. However they also focus their  marketing efforts offshore, so the net effect will be lessened somewhat.

Overall I like businesses that match their inputs and outputs, as we should be investing in and growing businesses that are great businesses, not ones that react one way or the other to currency changes. But that said, a lower currency spells good times for many exporters.

Posted in NZ Business

Sell your house privately in New Zealand – the book.

Over at 200 Square we help people sell their house by using the latest internet tools, and avoiding expensive print and high agent overheads like fancy offices. Our licensed real estate agents  to the wheeling and dealing for clients, and are very successful and selling houses. The upside is that it costs just $4,500 to sell a house, rather than the $18,000 or so average.

But some people don’t want to pay even a $4,500 success fee. So 200 Square founder Grant Wakelin wrote an ebook to cover the basics of selling your house yourself.

Download it directly here: How to Sell Your Home Privately in New Zealand (PDF).

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Time to change: Another Fatality at Lyttelton, Port of Christchurch

On January 6th 2014 I asked When will the next fatality happen at Lyttelton, Port of Christchurch?, after a near miss gave clear evidence that the Port’s safety systems were not in control. It was a prediction that was almost certain to become true if they did not make drastic changes.

The sad answer is that today, August 28, 2014, a person was fatally wounded in a scissor lift accident. That’s a terrifying tragedy for the family and friends of the 40 year old man who died, and my heart goes out to them.

It’s yet another severe indictment on the owners, directors and management of the Port.  

It was clear then, as now, that the safety culture and systems at the site were broken. In January I stated:

Two fatalities and this incident are well beyond any normal signalling required for a site to recognise it is in crisis and for major change to occur.

Here’s what I said in an earlier post, in December 2013. Lyttelton Port of Christchurch this has to stop. 

What should happen?

The Port has faced tremendous challenges following the earthquake, and no doubt the challenges will continue as the rebuild evolves. But challenges to operations should never be a priority over safety.

LPC is a listed company, but 80% is held by Christchurch City Holdings (CCH), who are generally very smart. CCH and the board should be entering crisis management mode, and ensuring that the company responds with appropriate seriousness. At the very least I hope they all understand that this is arguably a lapse in duty of care that could elsewhere remove the site’s “license to operate.”

The board and management team should not rest until they can state unequivocally that the safety systems and culture have changed, and changed for good, and that people on their site can go home unharmed each day.

What would I do?

If this were under my control the port (and any other facility) would be shut down immediately after any fatality, and not reopened until control of fatal risks was regained. I would conduct an all-hands meeting (as suggested by the union) and ask everyone to commit to a tougher set of site safety rules – and enforce them. The rules would include the obligation to stop any observed unsafe work, and I’d hire in external experts to stick around for months to coach everyone through the process. Not everyone will get the new Zero Harm approach, and a small percentage may need to be prohibited from accessing the site.

As an uninformed outsider in any case like this I would stand the CEO down. I would replace him with a new leader with a mandate to place Zero Harm back at the top of the site priorities. I am sure the CEO in this instance is going through hell, and I appreciate that me saying this will not make that better. He may well be superb at his job, but the priorities the board and he agreed to were not correct and an epiphany is required.  So while the CEO may be able to change his approach, he is also somewhat caught in the crossfire here, and in my experience removing the CEO (and at times the management team and/or board as well) is the strongest signal that owners can send to a site that things simply have to change. 

Finding a new CEO who will drive change will not be an easy job, and neither will that person have an easy time of it. He or she will need to work top down and bottom up, and get the support of the Union, employers and all the other players on site to make sure that safety outcomes improve. It’s a challenging job, but one that has been successfully done across a wide range of industries – I’d start by calling recruiters for senior staff in the Australian mining sector.  

The standard is quite simple really – we should all fight to ensure that everyone gets to go home safely at the end of each day. 

 

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The comics of climate change

 

XKCD elegantly sums up what we are facing:

 

 

We really don’t know what that question mark will be, but it’s going to be scary. It won’t be this scary:

But it’s pretty clear that the implications for global warming are very serious for humans – and other land mammals. It’s interesting to look at the chart below and think about the amount of emissions that cattle are responsible for. Do we really want to reduce cattle emissions by reducing the number of animals? Would sheep, goats and elephants be next?

 

 

 

 

However only a tiny percentage of the change in global warming is going into the atmosphere and land. It’s all about the ocean, which is absorbing getting warmer and absorbing more CO2 as a result. But the CO2 absorbed creates a more acidic environment  - so with warmer and more acidic fluid we can expect far more dramatic changes in sea life.

 

 

So what to do. We can wait and see:

Or we can choose to not understand all that complicated science stuff (it’s actually pretty easy):

 

 

Or we can protect our selfish interests by forcing others to avoid the facts:

simpsons-global-warming-is-a-myth-463-2

 

But the best solution by far is to take action, lots of action, and to do it in a way that creates a better society and improves our economy. This is something where each country  really wants to be first, so that their industries can transform faster and then lead the rest of the world.

 

(Click on photos for sources)

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How do we solve the Gender Gap?

The #YesAllWoman Twitter stream is the latest voice about the serious issue of the gender gap. There is a lot of coverage elsewhere, but for my part I want to try to summarise what the #YesAllWomen Twitter stream is saying, then ask ourselves, as men what our right response should be.

Three Themes

I’m going to pick just three themes from the Tweet stream, accepting that this is an insufficient summary.

Women are not safe

Women do not feel safe because many of them are not safe in many situations, and almost all take precautions to maintain their safety. Behind the surface are a torrent of stories from women who have been subjected to everything — including child abuse, ultra violence, rape, theft, threats, stalking, shaming and so on and on.

This lack of safety is due to the behaviour of a significant percentage of males, many of whom seem to have little or no understanding of their effect on others, and a few (but enough) of whom have seriously malicious intent.

Women are not treated as equals in society

Beyond safety, women are at a considerable disadvantage in society, education and work. This varies a lot by city, country, school and employer, but it’s generally a lot worse than it appears to be from the male perspective.

This disadvantage is due to the institutionalised discrimination from arrangements set up and maintained by men. It’s sometimes difficult for men to see how the rules are bad when the rules were made by and for men.

Men are complicit 

While some males may see that these issues are all caused by a minority of other men, all men are still part of the society that tolerates prejudice, violence and worse towards women. That society degrades crime against women, tolerates men who grope, harass or stalk and accepts that male values and behaviour will drive career success. The discrimination makes it far easier for men to succeed than women.

Men, like white people in colonial countries, have a privileged situation in society due to a history of domination and subjugation. It’s difficult for them to even see the advantages that have, at home, work or in society, as they see it all through their own lens. However women, who have to moderate their behaviour to be safe, who live in fear, and who have glass ceilings at work know all too well.

The positive themes

It’s hard to see much positivity in all this, but again let’s pick three.

Some societies are better than others

Some countries, and within some countries, some cities, schools, industries and employers have vastly better female outcomes. As we’d expect the Scandinavian countries are ahead and New Zealand not far behind, and equally unsurprisingly the USA is 23rd on the WEF index.

But even the best country, Iceland, has a WEF gender gap score of 0.87, with 7th placed New Zealand on 0.77 and the USA with 0.7. Now the Global Gender Gap report scores are not meant to be used in this way,* but a crude way to think about it is that women still have a 13-23% disadvantage, even in the most equal countries.

But the index only measures outputs, which are correlated but not necessarily dealing with the issues above. Even in highly-ranked New Zealand we have large percentages of women who live in fear, and sections of society who do not understand the gender-inequality. Our previously much-loved Air New Zealand, for example, seems intent on destroying goodwill with a misogynist swimsuit safety video, and I won’t refer to certain news items, but we have our share of male-to-female crimes too.

Improving poverty, education and inequality will improve behaviour

Improving education, social welfare, inequality, wealth and the multi-cultural mindset will also help improve gender equality. I can’t prove it, but as the World Economic Forum report states:

” The correlation between competitiveness, income and development and gender gaps is evident”

Unfortunately this also means that fixing the issue is not simple — in fact it’s ridiculously difficult to improve societies across all those metrics. And that’s for societies intent on improving - arguably some Western societies are intent on walking backwards.

Talking about it is the start of the cure.

This is not the first time that any of us have heard these stories, the ones about how women are treated in our society. I was lucky to have Rape Crisis, an organisation that started in 1977,  speak to my all-boys class when I was very young. They educated us on how it was, and challenged us on how to behave with women. I was also lucky at university to have patient female friends, and there and countless times afterwards I have heard many stories of child abuse, rape, violence, stalking, misogyny and it has never stopped. Today with social media the streams of fear are never far away, and the #yesallwomen is sadly just the latest.

The stories are good, as understanding what’s going on is the critical first step for men, as it’s only when we know that we can begin to moderate our own and others behaviour. Our societies must teach and we all must learn that being an adult means understanding what is ok, and what is not ok, and maintaining control at all times.

What can we do?

It’s overwhelming, the scale of what needs to be done, and I hazard that it’s multi-generational. But here are three ideas for how we men can each help.

Set the standard

We can monitor and continuously improve our own behaviour to make sure that we are setting the standard. This is a constant joinery, and it means striving to not just be a good person, but to be a defender of other people’s values and not imposing our own.

As well as the obvious large things, it’s also the little things. For example let’s remove gender-infused words from our vocabulary – words that have no power for men when we say them, but can hit women hard.

Let’s help women by providing them with their own space and with security if required. If someone asks for help – we offer assistance to the best of our abilities, while if someone is beyond asking, then we seek the police or other authorities, stump for a cab or otherwise safely solve the issue.  We try also to promote women voices in public forums, especially if we, like me, are louder voices to begin with.

Do not accept poor behaviour from other men

The standard we walk past is the one you accept – so we call out men who are behaving badly.

This firstly means not accepting poor behaviour from our male friends, and it may mean some serious conversations or even choosing to spend less or no time with a friend.

 

It also means we call out people at work and in other relatively safe mild social situations – a gentle nudge in the form of a joke might work, and that can get a bit less subtle if required.

It also means, and this is the hard bit, calling out strangers. We might get smashed in the face, as I once did after making a bad joke to a Perth predator eying up young girls. We might feel we are calling the police for the wrong reasons or that we are annoying your neighbours if we yell “shall I call the cops?” at an arguing couple where the guy is just behaving a little too aggressively. But it’s a worse feeling when we don’t intervene, and we start to wonder what happened to the woman – did she become yet another victim?

Change our organisations 

We can’t do it all at once, but we can influence change in each of the organisations that we are part of. Seek to help change our school, work, society and country.

Let’s ask to see the Equality Policy and put one in place if it doesn’t exist. Let’s challenge existing behaviours, and bring people in to help us learn. Let’s fight for better representation of women at all levels of our companies, from the board and shareholders down, and vote with our feet if the culture is unchangeable.

It’s a long war this, but we are making serious progress. Entire industries are being transformed, countries are being tracked and improving and yet the stories remain. At stake is a significantly better society, not just for the other 50%, but for all of us.

 

*The Gender Gap report looks at gender gaps in various categories, marking out of 1, with 1 deemed as parity. It then averages or otherwise adds up these sub-categories. However in categories where women have an advantage over men, such as in New Zealand where there are far more women than men at university, the category scores truncate at 1, the equality benchmark so the only way a country could exceed the maximum of 1 is if women equalled or out-scored men in every single metric. 

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