Corporate Finance North West

Young entrepreneurs business-building in Manchester Metropolitan University's Innospace incubator.

10 Simple Steps To Making Things Better

Posted on April 18, 2012 by Malcolm

There is a current resurgence of interest in manufacturing. Through the clearing fog of why the country almost went bankrupt – and might yet – people can see some factories still standing.

From an Industrial Policy in the 1980s that wrecked our heavy industry, through a naive expectation in the following years that inward investment would save the day, and onwards through another self-delusion that financial and other services were the way forward, we are back to the notion that manufacturing may be good for us.

Of course it is. At the heart of any healthy and major national economy is the central truth that it must make goods and sell them abroad.

Before the realisation that we ignore manufacturing at our peril dissolves into hand-wringing and indecision, here is a raft of core measures that need implementing:

1. Place manufacturing at the heart of economic growth plans, don’t just tag it on as a worthy addition to digital, services, renewable energies, or whatever else seems fashionable at any given moment.

2. Further place exporters at the heart of a growth economy. This means everything from turning over our embassy network to commercial support through to tackling the inefficient bloat and under-performance which characterises UKTI.

3. Provide significant tax relief to exporters – one suggestion is 10p per every £1 exported.

4. Simplify and expand R&D support, making it much more simple and accessible to early and mid-stage companies.

5. Stop wasting money on vacuous “soft supports” which soak up the State enterprise development budget (mentoring, coaching and other low quality advisory smokescreens etc.).

6. Develop clear and effective mechanisms which pump affordable investment much more directly into expanding businesses. This means an end to the slew of bureaucratic “investment initiatives” which continue to cascade out of central and regional government and the creation of German-style industrial investment institutions.

7. Reduce the level of red tape and facile regulatory measures placed on industry. This includes creating a level playing field for the UK around its interpretation relative to its main competitors of the Bribery and Corruption Laws. It also includes a re-appraisal of employment legislation and of environmental constraints. Within basic moral boundaries, set businesses free from the interventionist madness.

8. Reconfigure education so that STEM competency is a core output across all pupils. Develop a stronger focus on technical subjects and industrial production within universities. Extend and strengthen apprenticeship schemes directed towards manufacturing and industry.

9. Business organisations, including Chambers of Commerce and LEPs, across the country to be led by economically relevant memberships around the core agenda of Access to Investment, Export Support, Education to Employment Matching, Opposition to Local Authority Anti-Business Activity, and Reduction of Regulatory Barriers.

10. Challenge and reconfigure the university research funding ethos which is to suck in as much staff funding as possible whilst often only paying lip service to any real focus on IP commercialisation.

- all of the views above are my own but a couple of themes have been made more precise by the recent blogging of Michael Oliver, the Cheshire-based industrialist, who has long been campaigning for an enabling engineering and manufacturing environment.

Posted in Advanced Manufacturing, business funding, Enterprise Support, Manchester Economic Development, North West Economic Development, North West Regional Development, Regional Development | Tagged , | Leave a comment

Bang, Bang – Job Done! – Proximity & What We Can Learn From Prostitution

Posted on February 17, 2012 by Malcolm

A guy called Fred came to see me yesterday and he told me a lovely story about what he would like to see happen but I was not at all sure that it might all work out like that. It wasn’t a fairy story, exactly, but it did contain a considerable amount of wishful thinking and a fair few leaps of faith.

So this is a note on earlier stage business about Proximity.

Let me explain:

Proximity is my term for an assessment of the contingent stages of your offering between value-add and customer.

Let me explain some more:

I once saw a business which was about selling blinds and curtains franchises. The business was based around an existing blinds and curtain outlet in a capital city. But it did not make its product. The blinds orders were fulfilled by a company in the same country, the curtains by a curtain manufacturer in another country.

The idea was that a package of samples and a modicum of design and specification expertise would be promoted to other home furnishing outlets in the country’s regions which did not currently offer made-to-measure blinds and curtains.

Those shopkeepers would present the samples, take measurements and an order, and remit these to the central business, who would then pass them on to their two suppliers for manufacture. The blinds and curtains would then return to the franchisor, be shipped on to the franchisees, and then installed to the end customer, probably by local handymen with some skills in this area because it tends to be a rather fiddly job.

This is an example of proximity at the outer edges of unworkable. What might be capable of being presented as a logical and interlinked series of business process steps was flawed with multiple steps whereby error, misunderstanding, mistake, limited margins and incompetence would almost inevitably compound into chaos which rendered the system unworkable. And so it was. It fell victim to terminal proximity issues.

It’s not difficult to spot looming proximity issues when they are delineated as clearly as they above across geographical and regional boundaries, different products, distinct business processes, various people and skilled fulfilment requirements.

But it can all get beguilingly buried when it comes to early stage propositions within the digital and IT worlds. Don’t get me wrong about Fred – one day he may well be a superstar. He is very clever, skilled and has enough experience that, with guidance, he will hit on a winning proposition before long. I’m going to stay in touch with him through this process – Freds and Fredas are the future.

His current idea, however, committed cardinal proximity sins. In his initial pitch I detected a series of about six uses of “and”, which would have been better articulated as “if”. Each one of these was a “stop-go” matter of technology delivery and/or fresh adoption behaviour by proposed customers. The exponential impact of this extended proximity series is that I had to tell him that the odds were overwhelmingly stacked against any meaningful success.

You get many of these loosely networked notions masquerading as finished business propositions. The situation is compounded by the prevailing there’s-an-entrepreneur-in-everyone and made even worse by an enterprise support industry that is remunerated by the volume of its contacts, not the accuracy and insights of its advice.

And where does prostitution come into this? Ethical issues aside, selling one’s body for instant remuneration is about the ultimate in proximity closeness.

Ethical issues aside once more, banking is pretty close – lender, borrower, commission……tight as it gets in the profitable transactional exchange. It’s bang, bang – product and customer coming together without any impediments or extended chains of intermediaries. Every extra intervening step is a huge extra risk It is not always practical to have no distance at all in the complexity of today’s marketplaces but it is my rule of thumb that I rapidly lose interest in early stage proposals which carry more than one additional stage of proximity between production and consumption.

It is possible for sophisticated and established businesses to experiment and to leverage multi-channel, multi-partner and networked distribution models. But these tend to be more about extending market dominance, not marketplace entry. All this ties to Minimum Viable Product – getting something into someone’s hands quickly and profitably: speculative chains of uncertain routes to market do not work for startups.

It is useful to remember that Microsoft in its glory days of seemingly endless growth was guided by a very decisive sales model – sell to, sell with and sell through. The first activity was about full promixity; the other two stages only allowed for one extra layer in the process.

It all sounds so simple – line up something that people really want, will pay for now, and which is something you can produce within your budget and within a timely period.

But every day I see business plans which demonstrate lack of proven appeal, no established marketplace and a fudge of never extending R&D intentions in place of the crisp delivery of a compelling service or project.

Don’t sell your body and soul to a fractured and unproductive future; make sure you are selling yourself to people who want to pay for you now. It’s the oldest business model in the world – and it’s the one that still works best.

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CTS – Head In The Cloud, Feet On Fast Track To Success

Posted on February 13, 2012 by Malcolm

– second in a series of research notes by Funding Enterprise on the highest potential NW earlier stage prospects for 2012

Cloud Technology Solutions (CTS) migrates organisations’ on-premise collaboration and productivity IT systems to the cloud.

It does so with a sophistication of IT integration capability, business process knowledge and technology leadership that has led to it recently being officially labelled Europe’s fastest growing cloud company.

The cloud is a radical realignment of business IT functionality from internal desktops and servers to remote hosting, whereby software is accessed in its moment of demand, hence the label of Software as a Service (Saas).

The cloud is the most disruptive paradigm shift within business computing since the advent of the PC, representing a much fuller harnessing of the internet than has been achieved to date.

The coming of the cloud is presenting major commercial possibilities. There is a lot of froth, hype and misunderstanding around what the cloud is, where it is going, how to get there and what it can do for companies. Manchester-based CTS is rolling out a compelling and winning pathway into the cloud.

CTS has very rapidly established exponentially growing revenue and is now ramping up rapidly to exploit maximally the vast and recurrent revenue streams on offer.

The company has primed its exceptional velocity with its development of an exceptional technology nugget in the cloud goldrush. It has the best software tool for moving companies into the cloud and its leadership in this key area is widely recognised.

CTS both uses the tool and sells on the tool to other migrators, maximising its presence across the exceptionally fast developing migration marketplace. Major plans are underway to develop further the tool’s capabilities and marketplace range.

Companies which lead the landgrab phase, driving the migration to the cloud, will benefit going forwards not only from the annual subscription base they establish but also from the sales of complementary applications and, should they choose, own product. CTS is gearing up to be a leader in this ongoing enterprise software reconfiguration which is already starting to follow the initial migration phase.

CTS was comically mischaracterised recently by one local VC as “only a reseller”. Many parties do not realise that the cloud is the gateway to a new world of software alignment. Those who move quickly in the right direction can stake out quite amazing territorial advantage for ongoing leverage.

Having worked with CTS on its positioning, strategy and development for some time, we believe it is one of two Manchester IT companies which is amassing really significant IP (the other is CANDDi). Market opportunity and a compelling Eradical model can also create major success, but CTS is blessed with the enviable level of fundamental breakthrough innovation which can enable exceptional success.

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Cranks And Heroes

Posted on February 5, 2012 by Malcolm

The Libralato Engine, Anti-Business Culture & A Country Struggling To Make It

There’s a guy in Manchester who is trying to commercialise a radical type of engine.

Wow – what a crazy thing to be trying to do! Is he a crank?

Well, no, actually he’s not; although most people passionate about invention tend to be labelled cranks until and unless they have a decisive breakthrough – and only then do they become heroes. So, yes, perhaps he is – if that’s what it takes on the road to possibly becoming a hero.

The media is full of stories at the moment about anti-business sentiment, as our excessive hoards of over-paid and largely idle politicians vie to condemn bankers’ bonuses.

It’s an easy diversionary target for our pampered politicos at a time when swathes of their over-governed but under-led constituents experience real hardship.

But it’s the tip of an enterprise-chilling iceberg which goes much deeper, should any other of those of you who may have tried to commercialise a radical engine design recently will have experienced.

An inventor is always a crank until he or she has successfully invented. There is no such thing as an inventor-in-the-making.

That’s just how it is. But what is more disturbing is the way we have almost casually given up on the notion that we are capable of making things.

In the States, Microsoft’s Bill Gates is just one of several high profile investors who have recently backed the OPOC engine project with several tens of millions of dollars of investment. Over there it doesn’t seem remotely odd to back a mission to produce more economical and more efficient engines.

But, oh no, not here in Manchester – the birth place of Rolls-Royce and once the engineering crucible of the world. Seeking to do such a thing here these days seems totally alien.

Hence I didn’t get fabulous initial feedback on local regeneration professional Dan Aris and the Libralato engine project from those who had seen it before. Amongst the promising projects and the no-hopers, you get to see another kind of project once in a while if you are in corporate finance…….and so does everyone else.

They are the living dead; big, ambitious projects which seem to have quite a lot going for them but they don’t quite close off the loose ends, don’t quite resonate with the requisite credibility. They keep doing the rounds but they never get funded.

But I thought I would try and look again with fresh eyes – for goodness sake, I’m the one who’s been shouting from the rooftops recently about this country’s systematic and encultured abandonment of manufacturing.

The project deserves being afforded the airspace to either fly or fail. It would appear to have every bit as good a chance as succeeding – in my opinion more – as the heavily backed U.S. project.

We have a very narrow band of tolerance in the NW around what it is reasonable to try. Despite being far from perfect, there is a natural ambition around IT projects which can at least be partially matched by a cycle of investment support. It seems right to have a go in this realm.

And enterprise support is fashionable in so far as the state and the residual agencies still pump money into an over-supply of physical supports by way of yet more office space and a needless supply of cod psychological support by way of vacuous programmes.

Dan, against all the naysayers, has fought tooth and nail to secure some real support on a different, bigger stage. It’s taken years of hard graft and network building but a £2m European Green Cars research project is now underway. It centrally involves pan-European experts at Loughborough University, Bucharest University, an Italian engineering house, a French automotive house, a German engine control unit supplier and a Turkish mechanical designer. There’s a host of lesser partners in various support roles.

A pre-project trial proved the basic functioning of the engine. It will now go through four generations of prototype project, each being rigorously tested. At stake is the long hoped-for realisation of the full commercial potential of rotary engines.

Simulation software has predicted that the Libralato engine may emerge as the most efficient petrol engine in the world, with the potential to be significantly more efficient than competitors and with comparable power outputs at half the size and weight.

I’m tracking all of this closely and am delighted to be involved, making ready to connect the project with commercialisation finance if the potential is deliverable.

Me, I’m always happy to be labelled alongside the cranks if that’s the way heroes can be made and that’s the way we can build new engines to drive our economy.

Posted in Advanced Manufacturing, Enterprise Support, Manchester Economic Development, North West Regional Development | Tagged , | 1 Comment

CANDDi – The Sweet Taste Of Instant Success

Posted on January 24, 2012 by Malcolm

- first in a series of research notes by Funding Enterprise on the highest potential NW earlier stage prospects for 2012.

CANDDi is one of only two early stage companies in the Manchester area which we believe is currently creating significant and fundamental breakthrough technology within the commercial enterprise.

As such it is part of the new infrastructure, a key part of the jigsaw.

The company has just launched its first commercial offering into a major marketplace hotspot, instantly leveraging its software breakthrough with the raw commercial desire for its product.

Historically the IT quest for any commercial entity reliant on its customers has been control of its internal management processes and control of the sales ordering process. That baseline functionality has for some time been a given.

The emergent clamour is for better understanding and greater control of the potential customer, extending the sales reach way beyond the physical environment of the enterprise itself.

Phase one of this quest has been delivered by the Internet. Phase two – where CANDDi is driving the way – is equipping the internet with new muscle, developing it from a marketing platform into an active sales tool.

It is all about data – data capture, data aggregation, data analysis and data usage. CANDDi’s exceptional technology cleverness is that it can deal with multiple data sources simultaneously and make sense of that data elegantly and usefully in real time.

Data is sourced through a combination of web analytics, CRM systems and personal information search. The output is a transformational richness of profiling, a must-have for the sales and marketing departments of just about any commercial, customer-facing corporation with serious online ambitions.

The sector is prospect analytics. The objective is to increase the generally very low conversion rates from visits to web sites into enquiries and sales. The reward for anyone who can deliver on this dream is phenomenal demand from major web retailers.

CANDDi is delivering. In the few short weeks since first stage product has been available, substantial sales have been booked and doors have been opening at the highest levels of international corporations.

Whilst CANDDi ticks all the boxes in the Funding Enterprise eradical model, it also stakes out compelling claims as a fundamental software play, a real rarity in this country,

Having worked closely with CANDDi for some time, we believe that the company will achieve a spectacular development velocity and emerge as one of the leading UK internet IT successes of its generation.

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Ten Reasons Why We Are Not Jumping Onto The HS2 Bandwagon

Posted on January 15, 2012 by Malcolm

By Malcolm Evans & John Lewis

The business and economic case for HS2 has been in some quarters taken for granted from day one. This last week saw the announcement that an incredibly expensive fast train track from London to Birmingham will open some time quite a long way into the future. At some date even further away than that, it may or may not be extended to Manchester and Leeds.

This, we have been told repeatedly this week, is cause for major joy in Manchester.

We are far from sure that the business and economic case has been established and for the avoidance of doubt we summarise these concerns here. We welcome a similarly clear exposition of the case in support.

These, then, are the main reasons why we feel HS2 is dubious as a value proposition:

1. What goes up is just as likely to go down – in fact more likely: Prof Alan Townsend – eminent economic geographer and national statistics expert – recently pointed out to a New Economy briefing in Manchester that he and his colleagues believe the likely outcome will be a net drain out of the Midlands and the North into the SE.

2. We don’t want it: a majority of businesspeople feel it is a waste of money and that it will do little to improve their prospects. In our extended networks we have detected very little enthusiasm for HS2. That’s a pretty wide sample of sentiment.

3. It’s not how we do things: the internet is the prime channel of business, not hopping on a train to London. Then there’s the telephone and, if you go there, the existing train and flying and driving if you want.

4. The enthusiastic minority: It seems no coincidence that the people who have come out most loudly in support of HS2 are exactly those people who do like popping up and down to London – politicians, the transport sector lobby and public sectorists being the loudest amongst the clamour of support.

5. Who does it serve?: What are the real benefits (if a marginal time saving in the context of an overall journey is really much of a benefit) beyond the termini of the proposed service? How will it include and link-up beneficially to those people not neatly bunched very close to the main stops?

6. Here’s something for the regions: It smacks to us as being as much politically driven as underpinned with potential cost effectiveness. In lean times the main metropolis will enjoy even greater economic leadership over the hard-pressed regions. HS2 looks like an act of generous rebalancing; we don’t think it stacks up as a justifiable proposition.

7. A questionable solution tomorrow to today’s problems: the completion of HS2 is so far off that it will arrive (on time and budget?) into a quite different world. Ultra-high speed internet and related technologies will have transformed communications and radically reduced further the necessity of face to face meetings.

8. Better use of existing resources: existing rail has the capability of being made substantially more efficient at significantly lower costs. Use of the major road network will become much more efficient, with the likes of bumper-to-bumper “roadtrain” technologies.

9. Priorities and value for money: there are many other investment possibilities which would achieve much more for less within the NW. These range from visionary regional infrastructure projects such as Atlantic Gateway, through to the ongoing enabling conditions of access to capital, skills relevance and superior export support.

10. Who’s winning the business?: what steps are being taken, as far as is possible, to ensure that the money spend is re- circulated to maximum benefit within the UK’s economy? What we must not see is the money going straight out to foreign banks, international private equity firms, overseas plant and rolling stock providers (although we have allowed our indigenous rail industry to become very run down), and overseas constructors/operators.

In summary, we really suspect that HS2 may be fundamentally flawed. What makes us really suspicious is that it is the usual suspects who insist that it is wrong to be suspicious (e.g. non-critical public sector organisations, vested transport interests, media – quite understandably – seeking “good news”).

But we don’t believe in jumping onto bandwagons, as bandwagons usually hit the buffers sooner or later.

Please feel free to persuade us that this is going to be absolutely great. We have been bombarded and petitioned relentlessly by the promoters of HS2, much of this marketing effort funded by the public purse.

We shall take silence to our reasoned list by the HS2 zealots (Manchester doubters were dismissed a few days ago as “lingering negativity”) as strengthening the argument that there has been far too much giddy hopping onto bandwagons and far too little sober reasoning.

If a fairy godmother were to grant the scheme free of charge (or for some figure which seemed remotely value for money), if it were to be delivered in a timely period, if it were to coincide with a period of more robust economic health……there might be a case.

But as it stands, until there is some convincing substance behind the hype, we are standing our ground.

What do you think?

- Funding Enterprise, alongside its corporate finance role, is the leading independent and self-funded economic development commentator in the NW.

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Continuous Development – Making 2012 A Better Software Year

Posted on January 1, 2012 by Malcolm

John Lewis has been one of my high-tech sounding boards throughout 2011 in establishing the foundations of a self-supporting and productive software startup hub in the NW. His work is part of Funding Enterprise’s commitment to creating relevant and effective Hi Tech business support in the region.
Here he reviews the chief IT message he takes from 2011:

Looking back at the technologies that I saw in 2011, the one that has been of greatest interest was the development of Google+.

I was a relatively early user of Google+ and immediately liked some of the features such as “circles” and the relative cleanness of the design. I then saw how additional features requested by early users were rapidly developed and released: continuous development – this is how software should be produced!

Continuous development needs a sophisticated set of tools and processes that allow changes to complex software applications to be “made live” in a very short period – much more fundamental than, say, a change to a website.

Google+ in 2011 was a very public demonstration of the power of continuous development.

Outside of the computer industry it is still rare to see continuous development being used in large organisations.
Software developers have had the capability to exploit continuous development since the early 1980s – the Lisp machines that came out of MIT provided that functionality, albeit on a more restricted scale than is now made possible by the cloud. So why, 30 years later do we still have fiascos like the NHS computing project, with both CSC and BT reporting write downs in the order of $1.5bn due to their inability to produce applications that work within any kind of sensible timescale?

The answer comes down to the accountants’ view, shared by (or forced on) many CIOs, that developer cost is all that matters. If you measure productivity by $ per line of code (or equivalent), it is going to be much cheaper to develop code in India – not only are costs lower but working structures mean that each employee generally works many more hours than their western equivalent.

The drive to lower costs has seduced many CFO/CIOs into believing that it is all that matters – wrong and wrong again.
I was recently discussing offshore development with a colleague of mine who, like me, is often used as a troubleshooter to rescue failing projects. He has vast experience of what goes wrong with the offshore model and agrees that it is the old problem of GIGO (garbage in garbage out) – the inability of one person or organisation to adequately specify to another what needs to be done – magnified by communications issues that time zones and different cultures create.

Interestingly, a few months ago I also had a discussion with another person (he built a hugely successful software company) who told me that he had closed his development operation in China – having decided that he wanted the developers for his new business under one roof in California.
The GIGO problem does not just happen with offshore developers – I have recently seen it in a company where the developers sit 20 feet away from the “Business Analysts”. The failure of many outsourcing contracts has the same root cause – plus a few others that I will not go into here.
So, since GIGO has been central to computing for the past 30+ years – I can, with a high degree of confidence, predict that it will continue to be a major cause of the failure of software development projects in 2012 and beyond.

How do we eliminate GIGO? With difficulty – continuous development can be done badly. One problem with incorporating everyone’s suggestions is that not all of them are “a good thing.” I am reminded of Henry Ford’s comment that “If I’d asked my customers what they wanted, they’d have said a faster horse.”

An essential component of effective continuous development therefore is your “super developer” – coders who can interpret the domain, understand what users really need and produce the code. Fortunately, they exist and I know quite a few of them. Google can afford them but most companies do not want to.

Super developers are expensive, some may be considered arrogant, a bit odd and companies need a culture that can accommodate them. Those companies that can get it right; combining good judgement as to what their customers want with continuous development – as Google has done – have a huge advantage over their competitors.

In my space (startups), it means that any company that cannot demonstrate that they have introduced continuous development as a fundamental element of their business model is unlikely to get funded. The reason is simple – vulnerability; if they cannot use continuous development they run the risk that their competitors will steal their business model and leave them by the wayside.

And, if you are the CEO of a company that depends on computer software and you have not embraced and implemented continuous development, 2012 may well be the year in which you are left far behind.

Posted in Innovation, Manchester Economic Development, North West Regional Development | Tagged , , | Leave a comment

Eradicals & An End To Building Better Mousetraps

Posted on December 30, 2011 by Malcolm

It’s pronounced “E-radicals”, not that you were to know – this is the first time it has been written about as a model of superior commercial value creation.

It’s like E-tailer, before that simply became Etailer.

Eradicals are, though, so widespread and so important, that we will move straight to the confidently mature version, without the explanatory internal hyphen. We will describe exactly what they do and what they do so well.

This is a discussion about key areas of value within certain web-driven companies.

There isn’t an easy existing phrase or word for it.

“Web-driven companies” doesn’t do it by itself. I was sitting discussing these things just this morning with my friend and colleague John in a side street cafe in Macclesfield.

He pointed across the way to a little, upmarket kitchenware shop.

“They’re mainly online these days – it’s what’s kept them alive,” he said, offering an instant example of evolution and sustainability in that most generally difficult of environments, smaller scale retailing.

Whether small, or on a grand scale, the term “Etailer” should be merely process descriptive by now. To thinking people it has rightly lost any inherent frisson of excitement merely by reason of the “E”. The web is a channel; a channel is not the business.

In relation to providers of services online, I don’t think anyone is speaking of “Ervicers”, cutting the “s” off “services”, in the way that cutting the “r” off “retailer” has established a universal currency for itself.

It’s probably because it doesn’t work as Ervicer or E-rvicer as an act of smooth pronunciation in either form. It also highlights that “Etailer” continues to flourish as a term more because of the cuteness of its formation, rather than any overwhelming current cachet in the process of sticking goods for sale into a virtual shop, either instead of, or as well as, displaying them behind a glass window to terrestrial viewers.

The point of all of this is that analysis needs to move decisively beyond envisioning the internet as a de facto and novel value creator by itself, into a much more mature conceptualisation of business opportunity. We need to think beyond the rather arbitrary distinction between products and services and turn much more directly to issues of disruption and value.

2010 and 2011 have been slightly odd times in the digital and web worlds. It’s as if there has been, on occasions, an almost perverse and old time infatuation with “internet companies” to take our minds off otherwise generally troubled times.

Two thirds of U.S. social internet, social media and internet-driven companies which floated in 2010 are now underwater from their IPO pricing. Zynga is just the latest of this sorry band.

The UK has seen some quite bizarre throwbacks during this period. At a national level we have seen at least one online retail story of stunning banality insist on emergent superstar status when decisive and convincing performance remains elusive.

As we consider 2012′s coming online and digital stories, we hear a loud clamour on a regional level from another unremarkable retail story big on vision. We look sceptically for substance in other sets of bolted together assets which appear a triumph of debt financing over convincing momentum.

In some respects it is like 1999 all over again. We seem in the thrall of online and digital. We lack clear, challenging models against which to test our hopes for success and to check our natural exuberance at boundless possibilities (boundless, that is, if we don’t look too carefully).

Hence the term “Eradicals” and a fresh method of looking and assessing, which transcends the credulity of an infatuation with the internet but which also probes its latent and untapped possibilities.

At Funding Enterprise. business growth and business angels specialists, we are currently working closely with four Eradicals and are talking to several others.

Here are the key traits:

1. It’s all about disruption – or, rather, it is all about disruption in key parts of the value chain.

2. It’s about disruption within big marketplaces and in ways that instantly connect: it’s an outpouring of good, old fashioned business sense, without the vanity of build it and they will come.

3. It’s about Minimum Viable Product – fast to market, evolving offerings around compelling customer propositions.

4. It’s about bringing together a slew of cutting edge technologies into bespoke platforms, which enable data and communications as disruptive process possibilities and as marketing weapons.

5. And it is very much about the whole Lean Startup credo: ground-up, fast and agile: if you were to put a big consultancy on this and ask them to design something which works, they wouldn’t come within a million miles (or would that be better put as not within a million pounds?).

Here’s an example we have been involved with for some time and which is currently preparing for its first major external funding round: online property rental leader makeurmove.

Makeurmove finds tenants for landlords. It does so for free on the landlord side. It buries a modest margin within the market rate personal referencing fees which are already levied on potential tenants. It does this by creating bulk economies – it is already the leading online free tenant finder.

Alongside this it is building up a database of tens of thousands of landlords to whom additional and necessary services and products are promoted. This it where it makes compelling commercial sense.

Makeurmove operates on relatively slim margins within a vast, sustaining and renewing marketplace. This is a great position to be in: the margins and the necessary relationships are made possible by the sophistication of the IT platform (built incrementally on limited budgets) and razor sharp management control.

Established marketplace; highly disruptive business model; exceptional management capability; leading edge and bespoked technology allowing the company to create and sustain winning advantage. That’s Eradical.

Here is another example (but not one with which we have worked), also from this region, which is further along its development journey. MusicMagpie buys used DVDs and Games. It is in the long-established sector of recycling cheaper end leisure and entertainment goods; indeed, it is the kind of activity which is traditionally conducted on stalls in town centre marketplaces.

The disruption it brings is convenience (and dissolving the distaste of bargaining with low cost items) and that disruption is not so much a function of the internet but of the sophisticated algorithms that drive the pricing.

Furthermore, it doesn’t just enter an existing marketplace, it is also highly disruptive in that it considerably grows that market. It’s an extension of a mass market for these particular products, coupled with a lean, ultra-clever technology platform. As a combination of simplistic traded product, a seemingly unshakeably dull transaction space, yet a radically disruptive re-appraisal thereof, it is the archetypal Eradical.

Eradicals don’t step up behind existing plays and say “Hey, I can do what you are doing a bit better”.

They redefine what is possible and execute quickly, leaving no easy pickings for would-be followers to feast on.

Not for Eradicals the better mousetrap game……..Yes, I know the existing mousetrap is cheap; yes, I know it’s reliable; yes, I know it does the job of catching and killing mice, but our new mousetrap can do all of these things a little bit better….at a price.

The hallmark of an Eradical is that it instantly delivers a level of commercial and transactional logic that seems as if it should already have been there.

An earlier regional NW success was MoneySupermarket.com. A recent national exemplar is LOVEFiLM.

At the leading edge of technology and business model disruption, forerunners of Eradicals have in fact been around for a long time. Back in the mid-80s Peter Wood changed the insurance markets fundamentally with the introduction of the wheeled red telephone of Direct Line. The capabilities of multi-line call centres were novel in those days – this was powerful technology-driven disruption. The disruptive business process genius was to suggest to the consumer that acquiring insurance was in fact a simple act to be driven by themselves on the values of convenience and cost; it was no longer to be a black art controlled by brokers.

Just this week, the Chartered Financial Analysts Society has called for the history of investment fiascos to be part of the fundamental education of investment professionals. The CFA says, “Financial amnesia disarms individuals, the market and the regulator…..It causes risk to be mispriced, bubbles to develop and crises.”

This kind of rigour and perspective urgently needs re-injecting into all things related to the internet and to TMT more broadly. The expanded digital horizon has led to increasing myopia around business fundamentals.

The history of poorly performing and unsustainable industrial conglomerates tells us that merely stitching together disparate series of assets loosely connected under some technology banner is unlikely to create a long-term commercial success.

The history of a whole host of ventures which attempt to prove future massive profitability through continually unprofitable growth suggests that sanity must intrude sooner rather than later.

The history of IPOs which are priced for world domination at the very start of serious adoption insists that the smart money should rest uncommitted.

The history of startups which play follow-my-leader with only vaguely articulated USPs tells us that without disruption there will be little adoption.

As for Funding Enterprise and our role in helping to build great companies in 2012, we will be continuing to work with Eradicals and saying polite no thank yous to the spend-spend-spend brigade, to crusaders without a clearly articulated cause and to the better mousetrap builders.

Posted in Business Angels, Enterprise Support, Innovation, Manchester Economic Development, North West Economic Development | Tagged , , , , | 2 Comments

The WTA Test – Keeping The Dogs At Bay

Posted on November 19, 2011 by Malcolm

They’re creeping back.

In fact, they never really went away.

You might have heard of WTAs – Waggy Tailed Advisers. If you are in start-up or early stage business, there is a strong chance you will have met one, or even a pack of them.

They are business advisers who bear a very strong resemblance to labrador dogs. They stomp around the place, staring up with vacant eyes for any sign of longed-for approbation…..look at me, look at me, I’m a business adviser.

All the while, however, their big, clumsy tails are thrashing around behind them, leaving a trail of mess and often actual damage.

I have had detailed conversations about the role of the public sector in enterprise support provision with a number of senior economic development people in the last couple of weeks, both on a national and a regional basis.

Their general argument is that the state has a need – an obligation indeed – to involve itself in enterprise and business support. I wouldn’t disagree.

I would place that role at the level of an enabling environment: a SMET-facing education system; vigorous access to capital and compelling investment incentives; newly competent academic IP-capture; newly effective export support.

My partners in this debate generally display a psychological barrier around withdrawing from a model based around the public sector providing generalist advisers, or advice intermediaries, which is currently and variously labelled mentoring, coaching, gatekeeping and signposting.

But, I have asked them, if you are looking to buy a car, do you contact Car Link, a vast and shambolic public sector agency which then bizarrely and glacially slowly semi-engages with you in a frustrating and futile process of “signposting” to other equally clueless individuals?

Or, if you are looking to learn to swim, do you contact Swim Link, a vast and shambolic public sector agency which then bizarrely and glacially slowly refers you on to people who may or may not be able to teach you to swim?

Isn’t more usual, when you are seeking to access a product or a service, to go direct to people who manifestly have the experience and competence to deliver – and certainly not to junior generalists?

Business Link was done away with for these very reasons The packs of WTAs were sent howling on their way. Except that a lot of them seem to be sneaking back in again.

I have no time for the “signposting” and “gatekeeping” arguments. Such activity is simply a fundamental and vast waste of money. On a more detailed level, how on earth can there even be such a service if the people administering it have no personal capability of assessing the quality and effectiveness of that to which they are signposting?

In a couple of discussions during the last week, I have distilled my contention into something which I think is highly reasonable. It’s called The WTA Test. It is specifically designed with the NW in mind and tests for a basal level of understanding around an absolutely core set of knowledge in the enterprise support space. I would contend that a good performance in this is a sine qua non of being able to operate within enterprise support. We live in a credentialist society; I cannot understand how anyone cannot sign-up to The WTA Test.

If you are tempted to have anything to do with public sector, or subsidised, enterprise support, then you need to put the people you are dealing with through the following. This test applies to everyone in the chain – advisers, managers and directors; the old, discredited, “signposting” nonsense must be rigorously outed for the conceit and deceit that it is.

Here are the six key questions for Greater Manchester and the North West WTA Test:

1. Discuss the key issues around Access to Finance for business.

2. Discuss the general opportunities and constraints around Advanced Manufacturing.

3. Discuss the issues and possibilities for sustainable value and jobs creation from Digital.

4. Discuss the opportunities within the Cloud for both producers and consumers of its technology.

5. Discuss possible strategies and opportunities within superior Etailing and Internet Services.

6. Discuss the main strategic issues around the spin-out and commercialisation of academic IP.

These are a very basic minimum of perspective that should be possessed by absolutely anyone purporting to involve themselves in enterprise support.

I don’t think I could bear to see new hosts of signposting and gatekeeping emerge.

My purpose is simply to keep the dogs at bay. But I’m probably howling at the moon.

Posted in Enterprise Support, Manchester Economic Development | Tagged , | 2 Comments

Hair Shirts Or Handouts?- How About Good Capitalism Instead?

Posted on November 5, 2011 by Malcolm

- Plan A v. Plan B? No, it’s time for Plan A+ performance

We’re missing the point, I think.

Plan A fetishises austerity. Plan B is a clamour for pump priming through fresh spending.

The argument for the former contends that only through reducing over-spending and the related debt can an environment for stability and growth be recreated.

The argument for the latter counters that is is only a stimulus of demand that can kickstart fresh life out of continued economic flatlining.

And the problem is that both are right – but it is only by transplanting the solution to a fresh, over-arching discourse that progress can be made.

I watched three of my favourite Manchester people getting a bit mired down, I thought, in the Plan A versus Plan B bog yesterday.

Brian Sloan of GM Chamber, economist about town Martin Turner and New Economy’s Baron Frankal, who effortlessly spans global insights and regional pragmatism, more or less ended up agreeing that you can’t keep spending…..but you can’t stop spending.

Which takes us back to my perennial contention – we don’t actually have much conviction or competence when it comes to our professed economic orientation of capitalism.

Here’s an agenda which I think is supra-political (assuming that the mainstream political parties in this country profess to be essentially pro-nation state and pro-capitalist):

1. An ongoing pruning of the State sector, whilst protecting frontline services in the likes of health, education and policing. The overspend in the UK’s public sector remains mind-bogglingly high. Nowhere is this more obvious to a businessperson like myself than in the ongoing and incredible waste on staggeringly ineffective “business support”.

2. An end, thus, to local authority and governmental spending on “business support”: the private sector is perfectly capable of massively superior provision once the incumbent statist blockages are removed.

3. An ongoing and judicious investment in regenerative infrastructure, whilst avoiding politically opportunistic vanity projects and a gratuitous over-supply of new business premises.

4. A root and branch rebalancing of education towards SMET subjects and vocational relevance. Training which is delivered through lean mechanisms by expert trainers.

5. A public and state sector purchasing and procurement system which proceeds on the assumption that supply will be indigenous unless there is an utterly compelling reason why not.

6. A reconfiguration of the tax system which encourages a cascade of investment into enterprise. Compelling and transparent incentives, not tinkerings on the margin.

7. A vigorous rolling-back of disabling red tape surrounding business (whilst avoiding fundamental environment, employment or financial abuse).

8. A frank acceptance that traditional banks are in many respects not the answer to business funding needs and the creation of regionalised and multi-stakeholder investment providers (with business itself taking a strong position).

9. Re-engineering our overseas consular activities towards an overwhelming priority on the expert stimulus and support of exports.

The bottom line is that the debate needs to move from one of economic crisis management to a mindset shift in favour of productive community. Continuing to analyse the situation mainly from an economic perspective will fail to locate or develop solutions of sufficient magnitude and radicalism.

We can’t rebalance our books with reference to only the books. Every managing director understands that the key driver to success is growth itself.

For the UK to thrive, its agency of growth – business – needs to be allowed to step forward and perform. It’s time for the State to accept its limited role, go on a diet, and fall backstage in a limited support role as the agents of production take us past the sterile argument of Plan A v. Plan B.

Only then can we enter into a newly productive world of Plan A+. It’s simply about excellent capitalism.

Posted in Manchester Economic Development, North West Economic Development, North West Regional Development | Tagged , | Leave a comment