Act Local, Think Global

David Parkin dropped in to the office to update us on his new venture http://www.thebusinessdesk.com/. Subscription is free (see my recent post on this subject) and his business model is based on paid-for advertisements. While online offers the potential for currency of news, I guess the other benefits to be exploited are new media based, such as what is the most popular story, ability to comment on articles, see what other articles readers of a story have read, multimedia content, content targetted adverts, automated links based on keywords in content, etc. The geographical focus is also a big selling point, but equally major players are looking at how to localise their offerings, such as ITVlocal. A company that presented at our recent Investment Forum (http://www.towntalk.co.uk/) is seeking to develop an online equivalent to the booklet advertising local services that comes through your letter box each month.

Whether you come from the local side up or the global side down, the bottom line is that you need to connect with a community in a meaningful way and offer them access to something they might want at reasonable cost in terms of time, money and effort. Then seek to replicate the model in as many sensible places as possible! Hopefully what works in one geographic location, hold water elsewhere. That is what equity investors are looking for: a proposition that is scalable!

Putting The Customer First

The process of gaining Customer First accreditation something we have embarked on recently. In a previous post I noted there is a fine balance between having satisfied and happy customers. The key thing is to make sure you are customer focused and there is a real need for the product or service you provide; only then will people be prepared to pay you for it!

The balance between process and performance is often a difficult one for small companies to juggle. A great process (from a quality perspective) is really focused on reproducability and cost. When you are doing something repetitively or seeking to lower the skill level of delivery then it's all about optimising the process in terms of cost and certainty of output. If you are trying to improved the output a methology or framework may facilitate, but you are still taking about a process that is very dependent on the skills and unique insights of the participants.

All young companies should strive to implement replicatable process at the appropriate point of their developement. A key point is where selling a company's product or service is replicatable and a salesperson can be employed effectively. Out FastInvest loan scheme is specifically designed to help companies make this transition. Now that is really what I would call putting the customer (i.e. sales) first!

Proving The Concept: Chicken or Egg

Listening to pitches from University projects at a recent Yorkshire Concept Fund meeting it is clear there are two schools of thought about what proof of concept means. To a scientist it's that the concept works technically; to an investor it's that there is market demand for a working system. Ideally, you would demonstrate market demand before embarking on a technical development (if commercial success is your primary goal). Equally, without something to show it's often hard for potential users to get excited about a lot of hot air and hand waving.

The most extreme of these I've seen is the search for synthetic blood where apparently the US military have a cheque with quite a few zeros on it waiting for someone that can come up with something that meets their spec (one of the Yorkshire Forward Bioscience Fellows projects). Hence the scientists have quite a clear specification of what would constitute success commercially and they can focus on the science in sure and certain knowledge that if they crack it they are onto a commercial winner. The other extreme is what we see occasionally at Connect where the technology is paper thin but (in theory at least) the brilliant insight or innovation will set the world alight. The only problem is then barriers to entry are equally low so IP protection becomes the name of the game.

In reality most propositions fall somewhere between those extremes and there has to be some give and take. The technologists have to get something operational to some degree in order to demonstrate the propotype (or Version 1!) to potential customers before the latter will be able to get their head around exactly how much it's going to benefit their lives. Nomatter how much we might like to get validation of market demand before spending money on development in most situations the egg does have to come before the chicken and technical feasibility has to be proved before serious commercialisation work can begin. However, getting the right balance between technical push and market pull is project specific.

Information Wants To Be Free

According to Wikipedia, this phrase was supposedly first pronounced by Stewart Brand in 1984, citing the fact that the cost of dissemination is getting lower and lower. However, the effort required to generate high-quality information ain't getting any cheaper.

But equally a lot of people view their information as free for dissemination as they make their money in other ways, like IKEA. You could say the likes of Google are parasitic and without information to search they wouldn't be able to sell advertising space, but I would argue it more of a symbiotic relationship. The concept of consolidating freely available information then selling easy access i.e. adding value is as old as the Bible.

With the trend towards Open Source the argument goes that enabling technology like operating systems and other basic building blocks that benefit everyone should be free so that, like Isaac Newton, you can reach greatness by 'standing on the shoulders of giants' rather than reinventing the wheel. I think there is a strong argument that if public money is spent on R&D then the IP should be made freely available. However, those who create valuable information (and whose business model requires payment) deserve to have their copyright and commercial integrity respected.

Convergence: Jack of All Trades or Master of One?

The whole TV/Broadband/Mobile/MP3 world sees to be heading for one point on the sunrise aimed at producing one appliance that is all things to all men: Whether its one box or one handset it has to do it all. This reminds me of the eternal battle ensuing in the software space between ERP systems (get you systems and processes right, then pore concrete on them) versus best-of-bread applications (malleable components linked together using open integration technologies allowing swap and change). It invariably boils down to whether you want something that is 90% good at doing lots of things or many things that are 100% good at doing just one.

In an earlier post, I talked about focus, focus, focus. Think of the last 10% being innovation and the 90% being the existing substance. For some markets the benefits of the innovation offset the complexity of having multiple vendors; for others simplicity and consistency is the name of the game. For most innovators, a market that has developed to this point of maturity is not a good place to be as you will face an uphill battle to see off the entrenched competition who will undoubtedly cover more bases than you do. So you need to find a peripheral market, which is undoubtedly smaller, where your value proposition can hold sway against the entrenched competition. When you are starting out, don't seek to be a jack of all trades, be master of one.