Is there a Moore’s Law for business?

Back in the 1965, Gordon Moore predicted that the number of transistors on a chip would through technological advance double every (two) year(s). He made one prediction based on the period of a year, and adjusted the time period a bit later, although as co-founder of Intel he was in a good position to make such a tweak.

Of course, in the case of silicon chips physics does eventually limit this trend. You can’t go on making things smaller for ever, as you’ll eventually be dealing with sub-atomic particles. However, the prediction has stood the test of time and pretty much defined the IT industry as we know it with faster-cheaper-smaller computers year-on-year for the last five decades.

Nature also likes these kinds of exponential relationships, with simple organisms for example doubling their numbers in fixed (often quite short) periods of time as they reproduce. This is why disease can spread quickly and bread dough rises in just a couple of hours.

Sometimes business growth can be exponential; certainly that could be part of the plan in the first few years. A business that doubles its revenues every one or two years is doing very well, and during the initial startup phase this may be an achievable goal. But to keep this up over say just five years is a real struggle; and for decades is almost unheard of.

Google is probably one of the few companies that has bettered Moore’s Law over its lifetime.  Early data for its revenues are hard to come by, but in 2002 (after 3 years from being founded in September 1998) it was reportedly generating revenues of about USD 0.4 bn. The following years were 1.5 bn (much more than double), 3.2 bn (about double), 6.1 bn (just under double), and 10.6 bn (just under double). Fantastic growth continued year-on-year to nearly 75 bn last year in 2015. If Google’s revenues had followed Moore’s Law by doubling every two years it would have reached about USD 35 bn of revenue in 2015. And Google really is an exception because it has a very scalable business leveraging the growth of the Internet (and therefore the industry to which Moore’s Law applies!). However, I don’t think we should use exceptions like this to prove the Law.

Unfortunately, there might well be a Moore’s Law where costs are concerned. Doubling your headcount every one or two years is not unreasonable in early stages, and investment is often needed to sustain this level of growth in overheads as revenues, never mind profits, don’t tend to keep up.

Where manpower increases, so do overheads in general because in addition to salaries, there is also all the support functions that go with it; more computers, more offices, and more infrastructure in general. This explains how an exponential growth in costs can occur which, if unchecked, will put huge pressures on cash flow and bring a business down. Eventually you hope efficiencies and sales out pace the overheads so as to start repaying the investments and increase the profits; and this can only be achieved if you make sure your costs don’t follow Moore’s Law!

But increasing your staff is actually more closely related to Moore’s Law than just its direct impact on headcount or associated costs. Every new member of staff introduces a new node in the organisation; in effect a new interconnected transistor on the silicon wafer. These connections are where information must flow if the business is to function and grow. So, for example, one new member of staff in sales incurs multiple connections with the production team, the marketing team, the management team and so forth. Anyone who has scaled-up a business knows that the growing pains arise through maintaining effective staff communication to the extent that it can sometimes seem a bit like herding cats. Add just one member of staff and management complexity for the business might easily double!

However, don’t be put off, because the same considerations can help a business accelerate on the outside. Every new member of staff, every new partner, every new happy customer creates many more interconnections and links in the real world. This is the ‘network effect’ that will help spread the word and could result in your product or service ‘going viral’. We’re back at that exponential relationship that Nature likes again; and this is where I believe Moore’s Law may well apply more generally to a business startup scenario and therefore really make a difference. Empower the people in and around your business to make contacts, leverage social networking, and spread good news, and year-on-year your enterprise’s influence could easily grow exponentially and outpace Moore’s Law.

MooresLaw

Start to Exit is due to be published in 2017.

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Shedding light on the startup spectrum

Not all businesses are created equal. When an entrepreneur or group of would-be co-founders set out to start a new venture, their business idea and mindset will often define where on the enterprise spectrum their startup will sit.

At one end, we have the lifestyle business. Using the analogy of the visible light spectrum, this will sit at the low energy red/infrared end. The lifestyle business is, after all, supposed to be relatively easy-going; generating income by doing something that is enjoyable and not over-demanding on time.

Next along, in the relatively low energy orange region, is the consultancy / professional services business. I know accountants, solicitors, management consultants, and so on will be up in arms with this verdict, but frankly these businesses are fairly simple. They may demand plenty of continuous professional development on a personal level to stay up-to-date with legislation and sector developments, but from a business perspective things are relatively straight forward.

The UK is often referred to as a nation of shopkeepers, but these type of businesses are a little more complex. Although effectively a reseller, this business needs product knowledge as well as the ability to efficiently monitor stock, deal with logistics, process returns and even offer on-line e-commerce options.  We’ll place the shop business in the yellow region of the spectrum.

Middle of the road, in the green region, is the systems integrator; offering specialist knowledge to create and install systems of products that work well together. All the skills and attributes of the aforementioned businesses apply along with some technical competence to effectively source, deliver and support bespoke options.

Once a business starts to manufacture products, so the complexity really goes up. Sitting squarely in the relatively high energy blue region are, I believe, software companies. Their virtual products don’t require much capital equipment to create, but they do need stage gates to specify, code, support and deliver. This applies equally to web applications, mobile applications, and software as a service (or indeed the older approach of software in a box). This type of business is also highly scaleable and can grow across the globe relatively quickly. Doing so adds complication in customer support, language support, and dealing in different jurisdictions.

Manufacturing physical products (even traditional products like furniture and food) are in the high energy part of the spectrum; shades of blue and indigo. Why? Because the business needs to deal with the bill of materials, a supply chain, the production process, all the associated quality control, warehousing and delivery logistics.  As the enterprise grows, along come warranty returns, export controls and worldwide distribution networks. This is all tricky and demanding stuff requiring diverse skills, fantastic management, facilities of equipment, and plenty of resources.

So, what can possibly be worse and command the violet / ultraviolet end of the spectrum? Well that would be the high technology start-up.  It’s all of the above, with specialist knowledge, R&D unknowns, patents, and early-stage venture capital thrown in for sure.

Before you start your business, look at your plan through a prism and see what colours come through. Understand the nature of what you might be letting yourself in for, and hopefully the pot of gold will be there for the taking at the end of the rainbow!

Startup Spectrum

Start to Exit is due to be published in 2017.

Data data everywhere, time to stop and think

As your startup business grows, you’ll be generating all kinds of data. Probably not Big Data like the big boys, but still enough to swamp you with information such that you can no longer see the wood for the trees.

Firstly you’ll probably be collating statistics about your website, using for example Google Analytics. This service has grown over the years to include a myriad of historical and realtime analysis tools including information about where people are located who visit your site, what kind of device they are using, what search terms brought them to you, and which pages caught their eye for the longest time on your site.

Then, if you have a Facebook page or Twitter account, you can receive information about the number of visits, number of retweets, who’s following, who’s stopped following, how many people you’ve reached, and so forth.

And yet, important (and fascinating) all this data might be, it is rather detached from the nub of the matter; how much money is your business making and how are the sales doing? This financial data is often the bit that is overlooked by the eager entrepreneur, and in many ways the recent years of dotcom web 2.o phenomena have fuelled this trend. Many high profile Internet and technology startups have generated value from eyeballs rather than dollar bills, and so social media data becomes more important than financial data.

But, as a small business owner with limited time and resource, you will need to decide what data to collect, what data to analyse, and most importantly what data to act on. Without care, this task can either be wholeheartedly ignored during the day-to-day firefighting, or an action that occurs sporadically when you happen to log into one of your accounts and stumble across the analytics page.

My advice is to include key data analysis as part of a monthly exercise alongside the review of your management accounts. To some, the suggestion of a monthly review of management accounts might come as a shock, but many entrepreneurs do this almost unconsciously.  You will probably have a fair idea of your bank balance each month, but now is the time to structure this appraisal a bit more methodically.

So, on reviewing a monthly profit and loss, balance sheet, sales forecast and debtors aging list, that is also the time to look at some other key data; how many website visits, where are the visitors from, are the important (sales generating) pages being visited, and what is the conversion (from visit to closure of a sale) rate like.

By making a specific effort like this, on a regular basis, you are (to paraphrase Cliff Stoll) turning data into information, information into knowledge, knowledge into understanding, and maybe in some cases understanding into wisdom. More importantly, you are also being selective about the data you analyse with a goal in mind so that you can drill down into something useful for your business. By doing this regularly, an important aspect is to look back at the earlier data and see if things are improving each month, each quarter or each year, and most significantly try to understand why.

Each business will benefit from studying different kinds of data beyond the financial data. If you make widgets, you’ll want to look at the inventory, order book, manufacturing process data and quality control.  If you run an e-commerce site, you’ll want to focus on your web analytics and conversion rate.  If you run a marketing agency, your social media footprint will be important. And so on.

Finally, it is also beneficial to encourage your colleagues to do the same. As a business owner, you can’t be analysing all the data yourself into the future. Once you have decided what is informative, delegate the analysis to someone appropriate fro example in finance, production or marketing.  This will then free you up to move on to the advanced level of data analysis which is to spot trends across these reports: did the increased marketing effort that led to more Twitter followers result in more website conversions and higher sales, and did that rush cause the mid-month quality control issue because you started a night shift?

In this day and age, your business activities will be generating a lot of data. Some aspects you will be choosing to measure, others will be being collated in the background by default. The key is to step back and think through what you want to do better understand from all that data and put a bit of focused quality time into to studying it. You’ll learn a lot more that way than trying to just amass data or gleefully ignore it.

Start to Exit is due to be published in 2017.

Entrepreneurship: action this day!

One of the things you quickly learn about running a small rapidly growing business is that the sooner you do something, the sooner its impact is felt. Moreover, the ability to do something and then see the result is part of the appeal. Anyone stuck in a Dilbert cartoon in their current place of work will have long forgotten the joys of cause and effect.

It therefore amuses me when I hear some would-be entrepreneurs say they’d like to start their new business when the time is right and that they are just waiting for all the stars to properly align.  In many ways it would be better to just get on with it; action this day!

“Fail fast” (“fail often”, “fail forward”) is the gung-ho American Silicon Valley mantra. Whilst failure itself may not be the best tactic, getting on with it and finding out what works and what doesn’t most certainly is. Entrepreneurs need to make many decisions every day, some of them really quite crucial for their business.  The skill is making the balanced decision rather than vacillating endlessly for fear that it will turn out to be the wrong decision.

And decisions tend to go hand-in-hand with actions as new courses are set. This agility often leaves larger corporations floundering, and is precisely why disruptions in the market place frequently originate from small medium enterprises spotting an opportunity, deciding to pursue it and responding quickly. This is the entrepreneur’s competitive edge.

It is a double-edged sword, as putting the wrong foot forward through an ill-informed decision could of course trip the whole venture up.  The good news is that another quick decision to change course can save the day. And that’s the key; make a choice, do something, review, do some more of the same or do something different all in quick succession with the facts at your fingertips.

The trick is to keep this ethos of fast decision making and rapid response well oiled as your company grows.  When it is just you, perhaps a co-founder and a handful of employees, it is easy.  But as your company expands and you want to empower your managers to be as nimble-minded with their day-to-day operations, you’ll need them to understand the workings of the business and have any past lessons you learnt accessible to them as they move forward.

It generally boils down to good, frequent communication and centralised, accessible information.  And a company structure that promotes this.  If this isn’t already in place in your organisation, simply decide to make the change and roll it out today!

Start to Exit is due to be published in 2017.

Entrepreneurship: Never a dull moment

Being an entrepreneur brings with it an endless succession of challenges. Thankfully most of them are also interesting; even if some can bog you down in bureaucracy because they revolve around government-induced paperwork and compliance. The forced interest in these cases tend to lie in learning how yet another cog in the nation’s commerce machine works.

But the really interesting things are the range of tasks needed to steer the ship; a ship that is continuously taking on more cargo as it progresses and thus becoming less agile after every nautical mile .  At the helm, you’re the one that has to keep an eye on the progress of many tasks as they pass by, hopefully none of them so out of control that they sink the vessel.

One minute you’ll be honing the marketing message on your website, proof reading the brochure going to print, or Tweeting a word of wisdom to your fanbase. The interesting thing is that you now have a basic grasp of website design, typesetting publications, and running a social media campaign.

The next you’ll be studying your cashflow forecast, trying to fathom your P&L and wondering why you need to ring customer X yet again to chase payment. You’ve inadvertently learnt about accruals accounting, balance sheets, and credit control.

And then you’ll turn to procurement to see if you can source things a little cheaper, tighten up on the specs of a critical component, or drop ship something somewhere to speed up delivery. Suddenly you have become a logistics guru that understands at least the basics of supply chain integrity.

That sorted, its time to look at stock and fulfilment whilst trying to determine whether its worth outsourcing this entire operation to free up a bit more time.  Before embarking on all this, you probably knew very little about warehouse management and the vast business of fulfilment centres.

As you take on more staff, you’ll be guiding them on all these tasks and fretting that they can’t benefit from all your experience to date. You’ll be solving issues around project management and how to successfully motivate a team. Suddenly you’ll have an interest in human resources, successful recruitment techniques, and employment law that you never thought possible. And you’ll be trying to find out more about effective communication software packages, enterprise resource planning, and how to delegate rather than micro-manage.

Then, just when you think you have the general hang of day-to-day operations as your venture expands around you, the unexpected one-offs come along. These are where you really have to learn quickly on the job; someone wants to do a joint venture, you need to pitch for for your first tranche of venture capital finance, or a suitor has suggested acquiring all of your company.

As long as you set out willing to expect the unexpected and accept you’ll never know all the answers when you need them, entrepreneurship is an exhilarating experience. Boredom, thankfully, is not on the menu.

And if you can start out with a modicum of organisation and structure, the journey can be even more exciting because you’ll have more time to be circumspect and soak it all in.

Start to Exit is due to be published in 2017.

Wanted: Scale-ups

A report published just over a year ago by Sherry Coutu CBE, non-executive director of the London Stock Exchange, titled “The Scale-up Report on UK Economic Growth” highlighted some of the challenges of ensuring that small medium enterprises are supported sufficiently to provide the desired impact on our economy.

Startups have received a lot of attention in recent years with the promotion of an entrepreneurial culture to encourage would-be entrepreneurs to take a measured risk and start their own business. Initiatives like Startup Britain have been tracking the record number of yearly company incorporations in the UK, highlighting how this pipeline of new companies is boosting economic growth for the nation.

The issue, of course, is that many new companies fail to grow or simply fail outright. The real economic benefit comes not from the sole-trader or micro-enterprise but from the rapidly growing SME.

Sherry defined a Scale-up as “an enterprise with average annualised growth in employees or turnover greater than 20 per cent per annum over a three year period, and with more than 10 employees at the beginning of the observation period.”

This may sound manageable, but in reality if you are the founder on the ground orchestrating this rapid growth, you have numerous balls in the air and a whole host of issues to worry about. As Sherry stated, “In growing from 10 to 100 employees, to 500, 1,000 and so on, companies have specific requirements for capital, management, skills and organisational processes.”

Communication within a rapidly expanding team can be fraught, cashflow can be excruciating, and seeking new customers exhausting. Using an engineering analogy, it is during this period that the company’s foundations, processes and ethos are stress-tested way beyond specification. In short, Scale-ups need all the help they can get if they are to succeed in this fiercely competitive world.

I also believe another key factor in the success of a Scale-up is having the simple, streamlined organisational processes in place from the outset. If the company starts poised for growth, it will find the journey much smoother.  Don’t build your enterprise foundations on sand; underpinning is expensive in both civil engineering terms and enterprise organisation terms.

So this means thinking at the earliest opportunity about how your company might grow. What job functions are you likely to have in the business down the line?  Who will need to know what information?  How will new staff be quickly inducted into the ethos of the company so they can hit the ground running? How will you ensure the right templates, correct price lists, most up-to-date presentations, and so on, are used by all throughout the organisation?  This is some of the nitty gritty of the internal challenges faced in the rapidly growing SME.

So although more Scale-ups are indeed needed, one of the key things that will help them emerge is a pipeline of well organised and spring-loaded startups.

Start to Exit is due to be published in 2017.