Sterling Performance

We’ve heard a lot about which sectors are struggling. But which industries are destined for greatness?

Here are some of the predictions that emerged from a gathering of Silicon Valley and European entrepreneurs at the eighth annual “Silicon Valley Comes to Oxford” event at Said Business School.

Biz Stone, co-founder, Twitter: Real-time products… “And more blimps”.

Saul Klein, partner, Index Ventures and co-founder, Seedcamp: Global Web ventures — there will be a greater recognition of emerging market entrepreneurship.

Gerald Jay Sanders, founder, San Francisco Science: Medical technology — particularly innovations that focus on effective outpatient treatments and non-invasive approaches.

Maria Sendra, Baker & McKenzie: Clean-tech companies and innovations, particularly in China, India and Spain. There’s growing interest from utility companies, which won’t initiate change themselves but are hungry for innovation.

Chris Sacca, venture investor and formerly Google’s head of Special Initiatives: Monetisation hasn’t been solved yet, and there’s potential for integration of old-school CRM with newer systems. It’s sort of thing that can be built by three people with today’s technology.

Also tipped for growth:

Mobile technology still has plenty of promise for investors and innovators alike.

Lead generation. It’s unsexy, but has great cashflow potential.

Services for an ageing population. Boomers are living longer, are more active and have money to spend.

The panel also had this advice. Invest in yourself, which means everything from staying fit and healthy to energetic networking. Someone there also reminded the assembled business students of the importance of just being more mindful of what’s going on around you generally — that might mean changing the watercooler or stepping in to help a colleague who is struggling to complete a project.

(Photo: Audreyjm529,CC2.0)

Is it better to hire people on the basis of their experience or their potential? If you believe experience is preferable, and that age equates with experience, there’s no better time than now.

By 2011 about half UK workforce will be over 40, which means they will have had 20 or so years of work experience.

But experience is not the issue. The question is, experience of what? Is experience as a bank manager a predictor of performance as a customer service manager in a telecoms company? Is a person who has been in a job for five years more experienced that someone who has been in the job for one year, or does five years actually mean one year’s experience five times in a row?

The problem of hiring on the basis of experience gained in a former job is the assumption that it parallels what is needed in the new job. Organisational cultures and situations can and do differ dramatically. There is a litany of highly competent executives like Bob Nardelli, who excelled at GE, but was unable to duplicate that success at Home Depot. Experience is situation-specific.

Experience also tends to equate with baggage. Behaviour is learned. We do what we do on the basis of it having led to success in the past. We’ve all been annoyed by people who insist on telling us how things were done in their last company or last job. There are benefits to learning how other people do things, but the underlying message is that what we’re doing is no good, and that can be demoralising.

So what about hiring on potential? This, too, comes with some small print.

For “potential”, read “lack of directly applicable experience”. That means giving the individual time to learn, which implies training, coaching and the provision of development opportunities.This one of the reasons many companies fall back on what they hope is the quicker-fix solution of hiring so-called experienced people — it takes less effort.

There are a number of companies that have successfully hired for potential though, notably Southwest Airlines, the originator of the discount airline model. Southwest claims it hires for “attitude” — motivation, energy, keenness, and team spirit.

But Southwest doesn’t make the mistake of thinking that’s enough. It follows up with intensive skills and culture training. People learn what behaviour is acceptable and rewarded. Very few organisations make a conscious effort to do this. Instead, people have to learn the hard way.

If you wish to hire people for their potential, you need to define the core competencies for the roles in question. These are things like a demonstrated ability to motivate people, being able to close sales, a record of building effective teams, or being able to make and stand by hard decisions.

Either people have done these things or they haven’t. They can be tested and observed. Assessing potential doesn’t have to be subjective — it manifests itself in observable behaviour.

But as James Callaghan, a former British Prime Minister, once said: “Some people, however long their experience or strong their intellect, are temperamentally incapable of reaching firm decisions.” No amount of experience can change that.

(Photo: Ezioman, CC2.0)

One of the unfortunate consequences of economic turmoil is the uncertainty that it creates among management teams. As the pressure builds, strategy plans are torn up and all options are open again in the pursuit of organisational survival.

In these circumstances, it is only to be expected that many individuals will be asking: “What about me?” We have livelihoods to protect, bills to pay and families to feed. It is unreasonable to expect this to be ignored as the economic crisis turns personal.

Apparently, workplace stress is on the rise. Not surprising, as individuals start actively competing against each other.

At some point people will start to move down the Maslow motivational hierarchy. When this happens, people start to look after number one. This position favours the more Machiavellian characters who know what to do, when to do it and who to demolish.

Before you rush out and buy a copy of The Prince — be assured, you don’t need to betray your integrity.

There are ways that you can diagnose the situation and potential outcomes. You can start to figure out other people’s agendas and how they could impact on you. You can then apply ethical influencing approaches to improve your position and start to reduce your personal risks.

A lot of time and energy is required to think these things through and then to adapt your style and approach to suit the situation, especially if you’re one of those who “doesn’t do politics”. There are no guarantees, but with careful action you can improve the odds of survival.

To take action

1. Look around you carefully and see what is really going on.
2. Consider your organisation and how it is being affected by the economic crisis.
3. What impact could or is this having on your job?
4. Who else could be affected?
5. Think about the evidence of growing opposition to your ideas or work.
6. What could this imply?
7. What are your options?
8. Who could be competing with you and how are they playing it?
9. Determine an action plan to build greater insight and intelligence.
10. Consult constructively with friends about what you can do proactively to reduce your risks.

Remember, you’re not alone at this time. Look for trusted friends and work with them as you figure out what is happening and what you can do — they’ll thank you for your active approach.

(Photo: JC Rojas, CC2.0)

Just shy of its 100th birthday, two main divisions of Woolworths are to go into administration, potentially putting 30,000 people out of work. With debts of £385m, the retailer will shut the doors on over 800 outlets, as well as its Entertainment UK division, a DVD and books wholesaler.

Woolies has had longstanding problems — analysts reckon the rot began with its demerger from Kingfisher in 2001, when Woolworths somehow got saddled with an inflexible and expensive leasing deal and a poor succession plan. In the intervening years, it went from a £350m business to one that closed at £18m. How could a board comprised of experienced retailers from Asda, Littlewoods Shop Direct and a 50-year veteran of Woolworths itself get it so wrong?

It’s been a similar story over at furniture chain MFI — that is, the writing’s been on the wall for a while, with chief executive Gary Favell’s buy-out only buying the 44-year-old business a couple of months before its demise.

If the administrators decide to make a cash-grab by offloading stock, the immediate effect on other retailers — already fighting tooth and nail for Christmas business — could be detrimental, according to Dresdner Kleinwort retail analyst Sanjay Vidyarthi.

Leading Woolworths shareholder Ardeshir Naghshineh, founder of Norfolk-based Targetfollow, which owns London’s Centrepoint, expressed anger at the government’s failure to intervene.

Earlier in the day, it looked as if Peter Mandelson, the business secretary, might step in on the government’s behalf. But how could a bail-out be justified? The UK can hardly afford to prop up failing stores — even those as venerable as Woolworths.

The fightback

Call it desperation, if you like — I prefer creativity. Here’s a short list of how the nation’s shopkeepers are fighting the downturn.

• Seam-work: Arcadia and M&S’s bosses, Sir Philip Green and Sir Stuart Rose, have put aside their differences to show solidarity, according to Retail Week. They are joining Next, New Look and Mosaic Fashions in implementing Chancellor Darling’s VAT reduction, due to take effect on Monday, with 2.13 per cent coming off prices. It’s believed they will save the cost of re-ticketing individual items by taking the discount off at the till.
• VAT’s off: Tesco’s implementing the VAT cut early on its non-food products, so customers can take advantage of it from Friday. DSG International — which owns PC World, Curry’s and Dixons.co.uk — has already passed on the savings.
• Wheel deal: Colchester car-broker Broadspeed.com, perhaps seeing the writing on the wall, offloaded its stock of Dodge Avenger SXT 2.4i, in possibly the first BOGOF (buy one, get one free) ever to be undertaken by a UK car dealer. Initially offered at half price, the two-fer offer was all that was needed to draw 22,000 customers to the site, which temporarily crashed as a result of demand. Managing director Simon Empson is so impressed he plans to do more offers in future.
• Banana breakfast: London’s West End stores are fighting the Westfield effect by opening early and offering free gifts and breakfast. On Friday, West End outlets of Topshop, Brooks Brothers, Wallis, Boots, Jaeger and Mamas & Papas will offer discounts in an Early Bird event, while other retailers are offering other early morning incentives to spend. Grab breakfast at Banana Republic, pop over to Liberty for a glass of champagne and a free cosmetics gift, then pick up a sobering free coffee at M&S from 7am to 9.30am.
• Big Mac attack: “With all the doom and gloom, we wanted to bring a little Christmas cheer,” said Bragster.com founder Bertrand Bodson, explaining his £10,000 giveaway. Bodson projected a massive display of his credit card, with all details visible, onto the side of the Bank of England on Kensington High Street in London. It also provided his address and telephone number and a £10,000 float — with a single shopper blowing £7,200 the Apple Store.

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I thought I knew how to read, until I came across Andrew. We were all sitting in a partner’s office. We thought we were all pretty bright, except for Andrew. If we shone as brightly as a 100 Watt bulb, he was a solitary, spluttering candle. But much to our annoyance, all the staff reckoned that Andrew was the brighter than the rest of us.

One day, I saw Andrew scribbling away. I asked him what he was doing. “I have some associates coming in with a paper to test me,” he said.

I had always thought that was our chance to test them, not the other way around. “They want to see if I can add any value to their draft. So I am making some notes.” He then patiently explained to me how he would pass his associates’ reading test.

He had three rules:

1. “Make a note of my point of view on the paper. They are all smart, and I do not want to get caught up in their internal logic.” That hurt. I was always getting caught up in the internal logic of what I was reading.I would then find it hard to come up with an original insight.
2. “Make a list of all the topics that I expect to see covered. That helps me see the invisible — what they haven’t covered in their paper.” I was starting to see why everyone thought Andrew was so smart.
3. “Outline a few coaching points I can cover, so that they feel they have got something out of me.” Now I started to see why everyone not only thought Andrew was smart, but they liked him as well.

I had discovered that reading for pleasure and reading for business are completely different. Reading for pleasure means reading with an open mind, and enjoying the journey of discovery.

Reading for business means reading with prejudice and with purpose. Eventually, I found that just a couple of minutes’ preparation before seeing a paper or hearing a presentation would make me a much more critical and effective reader and listener.

Some people even started to think I might be smart. Getting to be liked was entirely different challenge….

(Photo: Luis de Bethencourt, CC2.0)

A key reason that organisations are too busy is that they do not know the difference between risk management and risk avoidance. Do you recognise the following scenario?

1. A company has a stretching profit target which is significantly higher than its current projections.
2. An internal project team is set up to identify quickly new areas for profit growth to fill the gap.
3. A new, exciting opportunity for profit growth is identified which, if it delivers its potential, will significantly add to the bottom line.
4. At a business planning session, a fear of not meeting the budget means that the benefits of the initiative are ‘down-dialled’ to something more reasonable.
5. As a result, the investment required to deliver the project is reduced so that its cashflow profile is acceptable.
6. The results fall slightly short of the budget, validating those who argued for a less aggressive benefits case.

The company still wishes to meet its stretching profit goal, so:

1. An internal project team is set up to rapidly identify new profit growth ideas… And so on.

Risk management is focused on identifying and managing contingent and preventative actions that enable an organisation to deliver big benefits.

Risk avoidance is focused on ensuring there is no bad news. The problem with risk avoidance is that there is little chance of there being any good news, either.

I see the cycle of risk avoidance in various guises across many different organisations. As with any downward cycle, the place to intervene is where you can have the single biggest impact. In this case, that place is the business planning process.

By using trials, tests and prototypes and relentlessly ensuring that the initiative has a customer and business model that works, a company can ultimately make bigger leaps. It is a case of less haste, more speed.

Tesco’s Express strategy took over 10 years and a tie-up with Esso to really take off.
I’ve said it before: you can’t chase two hares.

Is your actively managing risks on the way, or is it avoiding risk, hedging its bets, generating excessive work and limiting its progress?

(Photo: Felix,CC2.0)

Chancellor Darling’s Pre-Budget Report took a Robin Hood-approach to the UK’s top earners to which even captains of industry couldn’t disapprove. But there may be unwanted consequences for UK competitiveness as talented workers reassess their options.

In a few years, anyone bringing home over £40,000 — that’s where the top layer of earnings begins in the UK — will be paying an extra £1,000 in taxes, while the super-earners over £150,000 will be stung for 45 per cent tax (a staging post, say some, to an inevitable 50 per cent).

While those at the top end of the earnings pyramid may well be able to afford higher taxes, they may not want to — especially if their talents can be put to use in lower-cost economies.

Matt Ellis, employer services partner at Deloitte, predicts the war for talent will escalate as talented people opt for cheaper places to live, or look to employers to mitigate the high cost of living in Britain. Companies could offer shares to employees (which attract less tax) or advance income ahead of the 2011 change of rate, but it all comes down to higher employment costs.

National Insurance Contributions will rise by 0.5 per cent from 2011. Anyone earning more than £20,000 will be worse off, with the overall cost of £3.8bn in 2011-12, according to KPMG.

Arguably, globetrotting entrepreneurs and, in particular, venture capitalists may look less favourably on the UK as a potential HQ, even though the PBR pushed through several measures to kick start small businesses. Likewise, multinationals, which have been given a break on foreign dividends, may find it more expensive to keep their top talent in Britain.

Entrepreneurs are said to be differently wired and are more willing to take big risks as a result. So what’s maverick budget airline boss Sir Stelios Haji-Ioannou doing trying to restrain the board, hardly known for wild decisions, at EasyJet?

Has he, as some would have it, lost his nerve and fallen prey to the kind of mid-life corporate crisis entrepreneurs are prone if they don’t let go? Is he the “grumpy founder shareholder… barrelling up and down the aisle as the flight gets bumpy”? Or is he showing another trait common among entrepreneurs, a reliable gut?

His travel brands are the best performing of Sir Stelios’s myriad concerns, which include EasyCar, a rental business and EasyInternet Cafes (these likely to see less demand as home broadband is so widespread). And he now has control of over 25 per cent of EasyJet’s holdings, having added his siblings’ 11.3 per cent holdings to his own 15.6 per cent stake, estimated to be worth around £180m.

His public criticism of the board does his shareholding no favours and he would have done better to keep it behind closed doors. And while it’s true that there are doves and hawks in every boardroom, it’s naturally going to be more damaging when the founder refuses to back his board’s business strategy.

On the other hand, Sir Stelios has remained pretty hands off up until now — giving his intervention all the more weight. Maybe that caution’s just what is needed. Aerospace giant Rolls Royce has announced plans to lay off up to 2,000 of its 39,000 employees (60 per cent work of whom are UK-based) because of delays on delivery of some Airbus A380 and Boeing 787 aircraft. Overall, this takes the total announced job cuts in the UK to 24,000 this week. High-street retailers are desperately slashing prices while Woolworth’s contemplates a £1 bid for its 800-outlet chain.

His caution may be uncharacteristic, but maybe Sir Stelios is right to ground EasyJet’s growth plans for now.

What do you think — does the current financial crisis call for a more risk-averse entrepreneur?

(Photo: Redvers, CC2.0)

Social enterprise ventures are taking the brass ring at traditional business awards, with Global Ethics and One Water founder Duncan Goose scooping the top entrepreneur prize at the National Business Awards this week.

Goose — a former board member at media giant WPP — launched the One Water brand, whose returns are reinvested in installing clean-water systems in southern Africa.

Like many traditional entrepreneurs, Goose’s business started out as an evenings-and-weekends project. But unlike for-profit models, he’s less interested in market share than lives changed.

The social enterprise models, though, have wider appeal to employees generally. Earlier this year, the Work Foundation published a report on the importance of meaningful work. And recent research by recruitment site Crone Corkill found that 44 per cent of job candidates believe it’s a priority to find employers who ‘give something back’ to the community.

Supporters also reckon all businesses can include an element of social enterprise in their model. Volans founders Pamela Hartigan and John Elkington outline different business models in their book, The Power of Unreasonable People . In the social business, investors can expect some financial return alongside the social one — it’s just less of a priority.

In a speech earlier this year, Belu Water’s Reed Paget predicted the next dotcom-style boom would “involve businesses that put people and the planet before profits and will end up being more profitable as a result. Whether a capitalist or an environmentalist, sustainability makes sense.”

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Entrepreneur and author Jon Gillespie-Brown suggests that entrepreneurs may want to hold onto their day job if they need a bit of time to incubate their ideas.

In a video interview for the UK’s Enterprise Week, Gillespie-Brown says the prospects for start-ups in cleantech, biotech and IT remain strong in Silicon Valley, but financing may prove tougher to raise over coming months. Those who can ‘boostrap’ or self-fund their fledgling enterprises will be in a good position in the current economy.

Research by the Kauffman Foundation demonstrates that nearly 75 per cent of start-up capital derives from an equal contribution from the owner and a bank or credit card debt. So the tough credit markets will make it tougher on even promising tech start-ups, which tend to be more favourably looked upon as investment prospects.

The silver lining is for bigger businesses, or at least those that can still afford to nurture some of these entrepreneurial ideas or channel wannabe entrepreneurs’ energy to innovate within their current roles.

Nevertheless, Gillespie-Brown’s advice to potential business start-ups remains the same: if you’ve got the idea and the passion, just do it.

Here’s the interview in full. Don’t be offended by the frequent book plugs — proceeds, after all, go to the Grameen Foundation, so it’s all for a good cause.