Wednesday, December 23. 2015
Now, we of the Peanut Gallery are told over and over that There Is No Bubble in the Unicorn market, (which we disagree with by the way) but when these apparently not-overvalued companies sell or IPO and find that there is a not-reduction over previous values, it's illustrative to know who gets shafted - an illustration here from the NYT when Good Technology Ltd was sold to Blackberry - first the drop in valuation::
Ms. Wyatt [CEO] introduced BlackBerry’s chief, John S. Chen, who winkingly apologized for how his deal makers had driven Good’s final sale price down to $425 million, less than half of the company’s $1.1 billion private valuation.
The impact became clearer when the deal was described:
In an investor document about the sale that was distributed to shareholders, employees discovered their Good stock was valued at 44 cents a share, down from $4.32 a year earlier. In contrast, preferred stock owned by Good’s venture capitalists was worth almost seven times as much, more than $3 a share.
So the management and board no doubt felt they should take their lumps with the troops, given it was their error, you'd think? Did they heck:
When Good Technology was sold to BlackBerry, not all of its shareholders benefited. The start-up's employees, who own common stock, found their shares were valued far less than that of Good's investors, who owned preferred shares.
We've written before about the Preference Share and Ratchet racket going on with private funding rounds at present, and why it is driving the Unicorns' over-valuations. In essence none of the principals take any risk if (increasingly when) there is a devaluation of the company, its only the ordinary shareholders - mainly the employees - who get scraped. Lawsuits tend to come after the fact, which is too late, the money has flown the coop by then (read the article to get a good view of the futility of trying to claw money back). Thus there is little motivation to stop the practice.
So for all of you toiling away in overvalued Tech Co's (Unicorns or No), look long and hard at this example - there, but for the lack of a sale or IPO of your company yet, are you.
Monday, December 21. 2015
We all know there is supposedly a "War for Talent" - and there are an infinite number of puff pieces proving that Talent is The Right Stuff for business success (oddly enough, many of the people proposing this War usually think the Talent looks a lot like themselves). It's not that often you see work countering this, so it's worth noting when it arises.
Now, having been around the block a few times I know that certain near stand-alone roles can be massively enhanced (design, specialist analysis or craft production for e.g.). But where work is systemic and/or relies on teamwork (by far the majority of roles where the War for Talent" is allegedly rife), I have often wondered if this War is largely a self-promoting scam, and so it was with some interest I read of the emerging evidence that:
Firstly, it appears that most (about 80%) of the impact of CEOs is based on luck (I have seen similar analyses in the past for Entrepreneurs and Investment Fund Managers by the way, which show much the same, and Napoleon deliberately chose lucky men as generals) - HBR
There is a long line of research that attempts to measure the impact of CEOs on the companies they run, and it provides background for these newer studies. Estimates of CEOs’ contribution to companies’ success vary, but one study found that it varies between 2% to 22% depending on the industry, and most estimates I’ve seen fit within that range.
There is some evidence that they are slowly getting better over time (up from c 10% to 20%) of impact but the authors show that in a number of studies looking at a number of factors, what constitutes staying in-job rather than being booted out usually comes down to factors that the CEO cannot possibly influence. But don't shed a tear, all the evidence is that they are massively overcompensated for their impact. (In fact many studies show that the worse their performance, the better the pay - maybe they know that, which is why success is so rare )
Secondly, "Talent" can do far more damage than good, if they are toxic people (see definition of toxic at bottom of part (i) ) - and face it, many of the "talented" are very difficult (see: arseholes) to work with. This argument comes from two angles:
(i) Toxic Employees cause more damage than their benefits, even if they are "top talent" - Harvard Business School*:
Researchers compared estimated savings from firing (or avoiding) a toxic employee to the expected earnings boost produced by an excellent new employee who performs in the top 1% of his or her job. These “savings” don’t take into account the cost of potential regulatory penalties, litigation costs, or productivity drains that might be caused by the problem worker, according to the study, but rather “induced turnover cost”—the expense of replacing good workers who quit because of a toxic colleague.
The paper, which took a close look at the organizational performance of over 50,000 employees at 11 companies, concluded that rooting out a toxic employee can save twice as much money as making a stellar new hire.
For the purpose of the study, the term “toxic” was defined to describe any employee who damages company property (through theft or fraud, for example) or fellow employees (through bullying, sexual harassment, or workplace violence).
(ii) Most organisations are incapable of preventing Sociopaths (aka arseholes) "doing their thing" - La Trobe Grad School, University of Melbourne research:
Organisational tolerance and acceptance for sociopathic managerial behaviour appears to be a consequence of cultural and structural complexity. While this has been known for some time, few authors have posited an adequate range of explanations and solutions to protect stakeholders and prevent the sociopath from exploiting organisational weaknesses.
Now to be sure these are not "joined up" studies, but they are windows into something that all the studies separately notes was an issue - the impact of the poor behaviour of "Arsehole employees" on the (many) people around them is often noted but seldom measured, whereas the individual's own spectacular performance always is.
Afterthought - a chat on Twitter made me think of listing a few (so few...) other nuggets that have appeared:
- Where analytics has been used used (e.g. team sports such as Baseball and Football/Soccer) it is repeatedly shown that systemically you can win with unfancied people. and even that the hottest star is not the optimum performer if the rest of the team can't function at full effectiveness.
- Some years ago HBR noted that "B-Listers" were as critical to performance than the "stars" (The talent) as most businesses are systems relaying on many people) but this is drowned out by "war for talent" articles in HBR
*Hat Tip Twitter for the link
Wednesday, December 16. 2015
For this Season of Giving - Broadstuff Top 10 Tech Predictions;
(it is mandatory to do these in Lists, usually grouped in 10 s, so here is one)
* Oops - did we just point out that The Cloud....
Wednesday, December 2. 2015
The best discussion I have seen with the "Sharing Economy" which is neither sharing, nor an economy) is this piece by US transport regulation expert Hubert Horan in Pando Daily, in response to an earlier Pando daily article.
If you read no other article on the Sharing DisEconomy, read the above by Mr Horan. For the TL;DR crowd, I summarise it below. In essence, the author says Pando didn't push its points hard enough. The key issue are (expurgation is mine):
Point (C) compares 70's/80's deregulation with Uber/Convoy deregulation, useful for context but not the nub of argument about the Sharing DisEconomy, but the last point sums up the issues.
He is scathing about the tech and business' press inability to understand what is going on as well:
It may be useful to ask your readers to consider whether that nasty behavior is critical to the company’s success, and whether that behavior would be possible without quasi-monopolistic levels of industry dominance with huge barriers to future entry. Amazon evaded the sales taxes its competitors paid and has nasty warehouse working conditions, but no one would claim that its growth depended on them, or claims that thousands of independent bookstores would have survived if only those practices had been blocked. On the other hand, if Uber had to meet the same licensing, insurance, training and maintenance requirements as Yellow Cab, wouldn’t outlets like Bloomberg and Fortune have to start every story by wondering how Uber could possibly offer lower fares and cleaner cars? Uber can’t get “independent” drivers to cover the full cost and risk of commercial vehicles, nor exploit the full power of “surge pricing” until it becomes the only game in town for drivers and riders (or leads an oligopoly of companies with similar models).
He also argues that Unicorns are one of the biggest misallocation of capital going:
...the key here is the linkage between unicorn business models and empirical evidence of economic reality. If you totally replace the competitive product/efficiency advantages of an Amazon-type plan with a massive PR program emphasizing how the raw political power of the unicorn investor class will inevitably destroy all existing competitors, then demonstrations of political power (and ruthless marketplace behavior) becomes a key driver of capital markets. Extreme wealth accumulation and corporate power has been historically tolerated because of the perception that the Bezos and Omidyars of the world (like the Carnegies and Rockefellers of the past) created huge public welfare improvements en route to their wealth and power and the (more problematic) perception that the size and power of this class will be constrained by economic reality at the end of the day. Uber-type unicorns are purely exploitative—they create fabulous wealth for a handful, while destroying economic value in aggregate (assets have been shifted from more efficient firms to a less efficient firm, artificial market power is used to exploit drivers, suppliers and consumers, etc.).
He ends by pointing out, as opposed to good old lobbying to protect a business, Uber-type investors need much more political power, and they need to use it as an offensive weapon immediately on start-up. And if anything explains the Unicorn Bubble, this is it:
If the unicorn investing class thinks Uber has proven that tens of billions of private value can be created purely with PR and political strength, then “Unicorn manufacturing” becomes an industry unto itself.
Damn. I wish I'd written this.....
Thursday, November 19. 2015
Nemo's Dory - Boundless optimism, no memory. Essential characteristics for the Bubbletime
Today was Square IPO's, after re-valuing its business from $15 to $9 a share. As of 3 pm on Day 1 its trading at about 40% above $9, and the Silicon Valley press is positively bubbling over in praise
"Hang on" I hear you ask "didn't they just take a massive haircut last week to go out the gate? They were valued at $15+ last round, that's at least 70% above $9?"
You are right, dear reader, but this is Silicon Valley in the Bubbletime, and that de-valuation was so last week. What is important is that an IPO must "pop" up bigtime, so the hype machine can crank up to full volume. Details like the above de-valuation are forgotten, Dory-fish like, in the great game of finding Alpha
Given that most Unicorns are way overvalued (the rest are just overvalued), for the bubbling to continue, first must come the bath. Of course, this screws the employees and later investors without ratchets and preference shares, but hey that's the breaks, right?
Update - Bloomberg reports that everyone made money but for the Series D (late, un-ratcheted) its a close call - and they put in the largest lump of the money (40% +) pre IPO - probably not unique to this Unicorn
Saturday, November 14. 2015
As followers of this blog may know, we have been watching the current Tech Bubble inflate from 2011 (see our Bubblewatch series of posts), yesterday the Grauniad asked us if we thought some of the current high profile de-valuations (Fidelity writing down its Snapchat investment 25% this week, Square's IPO next Monday repriced 30% lower) signalled an end to the current bubble.
It's an interesting question, I made a few rough notes for the chat and thought I may as well turn them into a blog post.
There have been mixed messages about Unicorn pricing for a few months, but that's on the back of a period of extraordinary frothing (Silicon Valley does not like the term bubble ). There were about 10 or so "Unicorns" (venture backed private companies, without real revenue streams or profits) during the dotcom heyday, there are now c 140, an order of magnitude increase . The dollar has devalued in the intervening 15 years, the digital sector has grown, but not to the level where economic fundamentals explain such a profusion of a once-rare creature vs the dotcom number created, if you recall, in the heights of irrational exuberance.
All bubbles are different in detail, but they follow roughly the same path at the meta level (see diagram above), a number of fairly well defined phases:
Stage 1: Displacement - all bubbles start with some basis in reality. A technology shift that creates an advantage, or some other change in "Business as usual". Early adopters and investors are active in this stage
Stage 2: Boom - Once a bubble starts, a convincing narrative gains traction and the narrative becomes self-reinforcing. Fundamental analysis that seeks to establish how underlying values are reflected in prices is put aside, the keys to any bubble is to loosen up lending.
Stage 3: Euphoria - In the euphoria phase, everyone becomes aware that they can make money by buying into certain stocks/companies, early investors have made a lot of money. This is the period where the "This time it's different" trope is wheeled out, with all the fanfare. The details differ each time, but the siren song remains the same. This is also time when the "weird" becomes the new normal, for example:
- We get 140 privately funded companies, privately valued at over $1bn each, and call them "Unicorns" and everything thinks that is normal, and still think it's normal when only a few months later they are talking Decacorns.
And then there are the more prosaic measures one can use, from looking at what has come before:
- The growing total valuation of the Unicorns / Decacorns / Megacorns et al looks suspiciously like a steep vertical rise, a hallmark signal of the Euphoric phase
Stage 4: Crisis - At the transition to the crisis phase, the insiders originally involved start to sell. For example, loads of dot-com insiders dumped their stocks while retail investors piled into companies that (eventually) went bust.
So where are we now?
By our reckoning this market is starting the transition from Euphoria to Crisis, signalled by the "smart money" starting to attempt exit or at least stabilise their positions. But values still keep on going up for a while in the crisis phase (for about a year in the dotcom era), even as the "smart money" is exiting - typically this is because (i) there is huge industry now dedicated to inflating the bubble and it's not going to stop that momentum suddenly, and (ii) "greater fools" (traditionally the small investor - the apocryphal shoe-shine boy giving investment tips) finally get let into the game.
The interesting thing about this time round is that all these companies are still private, which gives three interesting dilemmas for the "smart money" flow.
- These are still essentially illiquid assets.
This also explains the multiplicity of ratchets and preference shares being used in the later-stage Unicorn funding deals by the way, so that if it all goes down the plug those Investors get first dibs on whats left. In fact, arguably this also drove the bubbletime valuation - if you are not going to lose money, who cares what you value it at.....until you find there is no way it will sell to many companies except Google or Facebook, nor can one IPO at those values, and there are no greater fools in sight...(yet - one thing to watch for now is the attempts to find them - watch your 40K fund managers like hawks, folks)
(Update - our apologies, we were behind the curve here in 2 ways
- on October 30 2015 the SEC allowed non-specialist invetors (aka YOU! to buy shares in private companies via crowdfunding)
And don't believe the soothing words about deflating slowly - historically, so far anyway, bubbles have always popped.
As to harbingers of the Crisis, arguably the shoeshine boy this time around is a spotty wannabe entrepreneur with their own startup (you laugh...read here, about 1/3 down below the AOL picture).
But in our observation, there has to be an "insanity event" that triggers the crisis of confidence - something so incredible even by the standards of the bubbletime, that it wakes everyone up from the spell and starts the rush for the exits. In the dotcom crash it was the AOL acquisition of Time Warner, and this hasn't happened yet.
Still, its all for the greater good - if you look at Carlota Perez' theory of bubbles, their purpose is to build a wave of capital that washes away the old so the new can take it's place. In the wake of the wave receding is left the speculative assets are left at bargain basement prices that allow the New Economy to be built on them (the railways, the datacentres and networks after the dotcom era). It marks the transition from the “installation period”, one of exploration and exuberance, to the second, or “deployment”, period - is a much more boring affair as all the quick bucks have been made, so investors prefer to put their money into the real economy.
The transition to Perez's second phase is marked by the bubble popping. The emphasis is no longer on raw technology, but on how to make it easy to use, reliable and secure. Later, this period is also the “golden age” of a technology, which now penetrates all parts of society. The start of this complete value collapse marked by the last phase in Minsky's model :
Stage 5: Revulsion - Where the press used to write only positive stories about the bubble, suddenly journalists notice the fraud, embezzlement, and abuse that was always there and write about it. Investors who have lost money look for scapegoats and blame others rather than themselves for participating in bubbles. Assets fall to irrationally low prices.
The fun now is speculating on what the event that closes out the Unicorn Bubble will be....and what it will be called. The Unibomb?
If it is the Square IPO that is the event, then that's the bubble popping with a whimper, not a bang.
2 day later update - this is interesting - VC Union Square Ventures' Fred Wilson has just noted this on his blog that "It’s interesting and noteworthy that when the private capital markets got the benefit of large pools of capital coming in, that came with increasing transparency. Of course it did. We just didn’t realize that was going to happen"
Friday, November 13. 2015
...the best possible thing, in this best of all possible worlds
I was prompted to write this post after reading Gideon Lichfield's useful article on all the different types of systems jumbled up in the term "Digital Economy" and the muddy thinking about it that results. To summarise Gideon first, these are the different types of systems operating up in this new economy, and the reality behind the hype - the expurgation is mine:
Read Gideon's full article for the satirical asides and pointing out that We Have Seen All This Before notes
But what this summary really made clear to me is that all these "Next Economies" (possibly with the exception of a Bottom Up collaborative system) is that they like to use the impressive (and more neutral) term "Economy" whereas in reality they are just good old Markets - either simple ones flogging something, or two sided markets matching a buyer and a seller via a mediator.
What has apparently changed is a new mediator (the "Digital Platform") has seemingly been invented in the last few years (I know, I know....). Now there is no question that digital technology reduces transaction costs, makes it easier to find buyers and sellers, will allow new entrants, threaten incumbents, shift market power etc etc - but this is hardly "new". Yes, in the chatty social media world, it's far easier for markets to be conversations. And Blockchain woo will hopefully make it easier to pay and harder to be cheated.
But they are all still, at the end of the day, just markets. And this is hardly a new feature of the digital age (I am reminded that many "vertical markets" and "e-market" dotcoms were proto-Unicorns until the dotcom crash, and its hardly as if the last 15 years haven't seen a lot of new digital markets emerge).
In reality, much of the extra benefit of this "New Economy" over the last few years so far seems to have come from new providers arbitraging the regulatory costs of existing labour, financial, safety and consumer protection laws and "capturing the surplus" (aka pocketing the difference), but once everyone is on the same playing field (either via re- or de- regulation) those advantages will be gone - and in many of these markets (taxis, renting spare rooms, delivering food et al) there is precious little barrier to entry - or margins, for that matter.
(An aside here - there is a whole related issue to this "New Economy", about the "Future of Work" - both are driven by the same digital technologies, and there is also a lot of muddling of the two effects, but in my view so far the biggest discernable impact of the New Economy on the Future of Work has been the more efficient exploitation of low paid people (or "peers", to note the Newspeak) but that is for another post - though here is a first shot)
How this simple and millenia old function (the oldest human profession?) has acquired all these various "new economy" terms, never mind a lot of the idealistic hype (see picture at top of article) that surrounds it all, is the mystifying bit. I guess "e-Markets" is a bit passe, and you can't tack on a whole lot of utopian dreams, nor justify the valuations of a crop of Unicorns who are flogging the same old stuff mankind has bought since forever, on old bottle labels.
Time to decant the same old wine into new bottles.....
Monday, November 9. 2015
Twitter has replaced it's "favourite this twt" star icon with a heart - which is odd, as it shows Twitter fundamentally misunderstands how people use the system. Which is also odd, as it wouldn't have taken more than a cursory glance at their own system to work that out, this is not some deeply hidden arcanity. People use "star" to log stuff that looks useful/important/etc, not just because they "love" it.
But the "heart" fiasco points to a deeper malaise, in my view that started when Twitter started a scorched earth policy with its own developer ecosystem a few years back. But then, when you have a management that changes more often than a comic-book Banana Republic government, its not entirely surprising it doesn't really understand how it's service creates value to it's users, nor have a longer strategy to create value apart from trying new ways to flog Ads to people that don't want them.
Speculation is that the main reason for the ongoing silliness is investor pressure to produce more growth - it "only" has 300 m users - nor real profit (it still loses $2 for every $ of revenue) But this is again odd, the point of a bloody big IPO like Twitter had is to give it the runway to sort its business model out without resorting to short term desperation tactics. Twitter is not Facebook, it's eventual business model will not be "Facebook Lite".
Now in recent months its started to be a bit more reasonable in its treatment of its own ecosystem, which is a Good Thing, as nearly all the real innovation on Twitter since the original concept has come from that community. What emerges succesfully from the developer Darwinian Soup is far more likely to help the service grow and expand than any internal brainwaves like replacing a "star" with a "heart".
When Twitter IPO'd, we opined that the service had far more long term potential than Facebook, but Twitter's revolving-door management structure was its weakness, as compared to the ruthless determination of the Facebook team. Now, let's see how fast Twitter can U-turn on this mistake. That will be an acid test of it's ability to succeed going forward.
Update - we tweeted this post, as we always do - and got a few favourites, with stars again. There is hope yet...
Update 24 hours later:
(i) The hearts are there now
(ii) Twitter, after barely 1 week of hearts operation, claims they have a higher uptake with hearts than stars. Bit early I'd think....
Wednesday, October 7. 2015
This is a summary of my more detailed article on the Agile Elephant blog
I was at the IOM Conference in Cologne last week, which is mainly concerned with the "Human" side of the Future of Work that the Digital Transformation will bring. The focus is really on how white collar, mainly fairly knowledge oriented workers, will do their work in future. It's all about improving human potential - expanding knowledge, increasing collaboration, co-ordination, engaging, enthusing, a move from hierarchy to flat organisations and teams. It's an optimistic vision, a Human-centric model. What's not to like?
But here's the rub - The Humanist, People-Centric approach is just one exposition of possible "Futures of Work" currently ongoing. You don't have to go far before you find three other very different futures being created as well as this Human-centric view of the Future of Work:
The people impacted by these worlds are going to have a very different experience from the happy human-centric vision painted in the Human-centric model
But what is interesting - reading all these various sources - is that there is very little intersectioning or consideration of the other models by any one of these models, the pundits & thinkers of each all seem to operate in Silos (Silos being something they all decry in the Current Ways of Working, ironically).
In essence the answer to the question "What is the Future of Work" is "All of them" - but in different combinations depending on industry, location, role and time. I put more detailed analysis in the other post, if anyone wants to look at Value Chain Analysis and Product/Process matrices, but in essence history suggests a hybrid will occur in most cases (just as manufacturing best practice today incorporates offshoring. lean production & worker cells, automation and elements of business process re-engineering).
For the Human-centred fans, there is the second rub - a lot of those impacted will be those people that thought they were slated for the happy, hierarchy-free world of work. How so? Well, if your job can be:
The Future of Work, in short, may not have you (or me) in it. And that is something less often mentioned - the Future of No Work.
The discussion about how the next shift will play out politically, economically socially is also not considered by many enthusiasts, but - for now - a quick look at the Industrial Revolution is instructive in thinking about the next 50 years. During the Revolution, while it is true that the changes created new jobs, better lifestyles and a better world for those countries that went through industrialsiation, it was not an easy transition:
Interesting times, and we are now living in them
Friday, October 2. 2015
The 72 hour brouhaha over Peeple has been fascinating to watch, in that everyone seems to hate the idea of being rated by others online.
And yet most of these selfsame people are being rated, every day and in every way, by a myriad of apps and websights and bots for all sorts of aspects of their online activity - financial, reputational, physical, attitudinal, activities....
Wake up people - Peeple is just the obvious endgame of what is being done already all over, every day.
Update - just had to add this quoute by @fakeBaldur re all the hoo-ha
"The #peeple law: a badly thought out app startup will be indistinguishable from performance art."
More Broad Stuff
Poll of the Week
Will Augmented reality just be a flash in the pan?
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