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- Paul Graham, Y Combinator

Articles tagged 'disruption'

The end. And the beginning.

Re-inventing industries is hard. There is no getting around this. The days are long. There are many uncertainties. There are many challenges to overcome. And yet. Just at those moments when you begin to question yourself, the industry you are trying to disrupt does something so incredibly stupid that your batteries are instantly recharged. Better, if the industry is banking or finance, the incumbent players do this over and over (and over) again. They’re lovely like that.

At the risk of wasting even more time (I’ll try to keep it short), I’d like to give you a wonderful example of this amazing ability these institutions have to shoot themselves in the foot. Not with a pellet gun but with a powerful automatic rifle. This is a story about NatWest, but if you work for one of their traditional competitors, I’m sure your institution is equally dysfunctional. Hubris is a dangerous thing.

We all know that governments and regulators everywhere are focused on tightening up KYC and money laundering rules. Whether to “combat terrorism” or “tax avoidance” or simply in a manic attempt to hold on to sovereignty in a post-sovereign digital world, it matters little. Fair enough. But the big banks, despite having spent billions on technology, have historically been pretty slipshod in ensuring compliance and so are now feeling the heat all the more and – queue giant pendulum – have been panicked into “cracking down” like there is no tomorrow. (Funny that…”no tomorrow”, but I digress…)

So now they increasingly not only make it nearly impossible to open a new account but are starting to do their level best to alienate their existing customers too. I can only imagine that, based on the rearview mirror that seems to be their primary management tool, they figure they have nothing to lose: market shares are static and customers never leave. This paradigm is especially acute in the oligopolistic UK banking industry but is present to some degree in all (developed country) banking markets. Ah but inertia is a powerful thing and they are forgetting the second part: things at rest tend to stay a rest BUT things in motion tend to stay in motion. And they themselves – through hubris? blindness? stupidity? – are ironically the ones now putting in motion the tectonic plates of customer behaviour. The wonderful thing – at least for a disruptor (or true “challenger” as they like to say in the UK) – is that the initial movement is slow, possibly imperceptible from the towering heights of the executive suite, and so gives plenty of time for these newcomers to sneak up and eat the incumbents lunch. (cf. Christensen)

NatWest Business Banking

So here’s the story. After having banked with them for 4 years, NatWest decides that it will refuse to allow our company to continue to instruct transactions unless they have a completely new set of certified documents with regard to the company directors (including me) and just to make it interesting – not sure if this is related – rejects some inbound payments coming from a sister group company (that by the way has been making similar inbound payments for over two years) causing all sorts of pain and anguish.

Just to make it even more stupid, I have been a personal customer of NatWest for well over a decade and they have all my address, identity etc. details. Nevertheless, I had to spend an hour this morning (not to mention the hours spent by our finance team dealing with this mess) going to a notaire to get a certified copy of my passport and 3 copies of 2 different bank or utility statements, in order to comply with their new, rigid, damn-the-consequences KYC policy.

Wait. It gets better. The notaire refuses to certify the statements as they are not “original” – ie they are printed out. Of course this is because banks (and utility companies) – intelligently for once – have spent the best part of the last few years getting rid of “paper” statements and so I don’t have any “original”, printed-by-some-printer-that’s-not-mine-and-put-in-the-post statements that can be notarised! And just to complete the surrealism, one of these statements comes from NatWest who politely, but firmly, “asked” me to stop receiving paper statements a couple years ago. Folks you can’t make this shit up. Hell, Kafka couldn’t make this shit up.

Anyhow I now have some certified, notarised paperwork – at a cost of CHF65 – that I hope NatWest will accept and that will allow our company to continue to be a customer. Oh goody. A customer that only runs positive balances, pays them fees and unless their policies force us otherwise, only uses online banking. A customer they would laugh at if we asked for a working capital line. Basically a one-way relationship in their favour. We can’t change our corporate bank account in a day. We have to suck it up and play their game. But, if it isn’t already obvious, we are shopping for a new bank in the UK. It’s just unfortunate timing as Fidor Bank isn’t in the UK. (Yet…) We’re looking at Silicon Valley Bank and Metro Bank. If others have suggestions, we’re open to considering them. We’re realistic. We know NatWest won’t give a damn if we leave. Even if we grow into a giant, they won’t have any institutional memory and so won’t even have any regrets. And of course maybe we don’t grow into a giant. But their risk isn’t losing one smallish corporate client. Especially one who is knowledgeable enough to push back when they act like muppets. In fact they might be saying “good riddance.”

If you don’t have customers, you don’t have a business.

But if you work in the world of startups, this approach, this cavalier attitude to customer acquisition and retention is nothing short of shocking. Beggaring disbelief. And this is not because startups are special, it’s just because they are closer to the hard reality that if you don’t have customers, you don’t have a business. Yes, Virginia this fundamental truth is lost in the jobworth-ian bureaucracies of too many big, fat, happy incumbents. And that is your opportunity.

Now some of the devil’s advocates out there might be saying: “that’s well and good but rules are rules and big or small, incumbent or startup, all banks need to comply with robust KYC and anti-money laundering regulations.” Indeed. I agree. Only – and especially in the digital age – there are dozens (if not hundreds) of more robust, intelligent, customer-friendly ways of being compliant. Compliant in actually knowing your customer. Compliant in actually combatting money laundering. Not compliant in the six sigma application of an obsolete set of procedures that were designed in a different age to facilitate compliance to the actual rules. Subtle but crucial distinction, completely lost on NatWest and other banks of their ilk.

So goodbye NatWest and thank you for giving me (for the low, low price of just CHF65) a renewed energy and determination to keep working with the amazing people who will build the institutions that nibble by nibble will eat your lunch. Q.E.D.

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I’m a scorpion; it’s my nature.

McKinsey surveyed a bunch of executives and found that:

84 percent of executives say innovation is extremely or very important to their companies’ growth strategy. The results also show that the approach companies use to generate good ideas and turn them into products and services has changed little since before the crisis, and not because executives thought what they were doing worked perfectly. Further, many of the challenges—finding the right talent, encouraging collaboration and risk taking, organizing the innovation process from beginning to end—are remarkably consistent. Indeed, surveys over the past few years suggest that the core barriers to successful innovation haven’t changed, and companies have made little progress in surmounting them.

As I’ve written many times before, I think they are barking up the wrong tree.  They are trying to have their cake and eat it too which in the context of a traditionally organized (read 20th century business school optimal model) large company is like trying to pee in the corner of a round room.  ie Pursuing ‘non-linear’ innovation is not only difficult for these kinds of organisations, it actually requires a framework that is often diametrically opposed to the framework that governs the rest of their business, the business that actually pays the (current) bills.  And so it is entirely unsurprising that companies find it hard / impossible to assimilate this within their structures, culture and reward systems.  Perhaps paradoxically, one could argue that the better managed a large company is for its current/core business, the worse this disconnect;  in poorly managed large companies there is probably more room to roam “off the reservation” so to speak…  But I don’t think anyone – including me – would suggest that it would create overall value to manage poorly just in order to pick up a bit of innovation juice around the edges.

So what’s a big company to do?  Well I think they should look to invest some of their capital outside their walls.  Not corporate venture per se – the corporate antibodies end up killing / ensuring failure of dedicated corporate venture initiatives 9 times out of 10.  (A notable exception to this rule – the one of ten (hundred?) – is Intel Capital.  If you think your company can do this then go for it.  I personally suspect that one of the reasons Intel Capital managed to avoid institutional purgatory is that Intel has a very strong entrepreneurial culture and leadership (deep into the firm not just at the top) that had first hand memories of building businesses from the ground up.  Google Ventures may enjoy similar success for the same reasons…)  For the rest, I would suggest setting aside a certain amount of capital to make passive minority investments either directly or via specialist sector-specific early stage investors (like us if you are a financial institution, yes I’m talking my book) in companies innovating – especially in those using ‘non-linear’/disruptive approaches – in their markets.

Passive – meaning no board seats, no control – because the alternative would result in adverse selection bias or mission dilution/suffocation or both.  Adverse selection, because the best, brightest and most ambitious start-ups in your sector will not take your money if you ask for control and mission dilution / suffocation because if they do take your money and give you some control, your corporate antibodies will do everything they can to assimilate and/or crush what they will correctly see as a threat to the companies core business.

So why bother at all?  Why not just wait to see who emerges as winners and then buy them once the risk is gone?  Principally for two reasons (in order of importance):

  1. Because you have to have a “position” to really harvest the informational value:  this is the trader in me speaking – anyone who has ever traded any asset knows instinctively that the difference between an ‘opinion’ and actually having a ‘position’ is huge.  Indeed any good trader who needs to follow any particular market closely – even if this market isn’t their first order concern and/or they don’t (yet) have any strong conviction – will take a small/nominal position in said market in order to ‘be in the flow’ and truly feel the rhythm of that market.  Put another way, picture the impact of an internal board presentation on top 10 new industry trends and 20 new companies ‘to watch’ vs a presentation of ‘this is how the 20 companies we have invested in are doing’ and tell me honestly that both will have the same impact…
  2. Because you just might not get the chance to buy the winners – either at all (think Google, Facebook, etc.) or it will cost you very very dearly and worse you probably won’t have enough information to truely know / understand what you are buying (the most toxic manifestation of this is what I call the ‘panic buy’ – eg NewsCorp/MySpace.) In other words, the buy later strategy has it’s own set of very real risks.  And even when/if you do ‘buy later’ a company that you haven’t invested in, as a result of (1) above you will almost certainly be able to better mitigate some of these ‘buy later’ risks.

So why don’t more big companies do this?  I’m not sure.  Would be interesting if McKinsey would ask this question (they are more likely to get answers than The Park Paradigm, not sure I have a lot of Fortune500 C-suite readers!)  I suspect it is because the time horizons needed to be successful in such a strategy (5-10 years) far exceed the time horizons of most senior executives.  And related to this, that they are afraid – quite possibly correctly – that “Wall Street”/”the City” will chastise them for spending any money on ‘speculative’ investments,  that it is “not their job” and that they should “focus on their core”.  Funny however how the most successful executives and companies however manage to ignore the peanut gallery and pursue their plans with conviction and diligence.  Perhaps these are the companies who may listen and find value in my suggested approach…

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Next thing you know the Dow’s down 9000 points

I thought I’d play a little markets jeopardy with the headline to this post. The question of course is: “what would happen if Google stopped mucking around and just came out and said it?” Said they were going to take their massive dataset, brilliant algorithms and (hire) all the smartest people in all the lands and offer a free service to “do anything anyone anywhere might conceivably want to do.” That should be enough to cast a pall over even the most profitable or promising companies. Sell everything (else) and buy Google, right?

Many of you are of course thinking no, not right: the premise is far-fetched (not to say ridiculous) and even if you accept it in the spirit of the thought experiment it so obviously is, the conclusion – that they take out every other competitor at the kneecaps – is not a given by any stretch of the imagination. And yet, when Google announced that they were going to launch a free property listing plug-in to enhance their UK maps product, the market reacted pretty much as if Google were indeed Merlin the Magician and just by waving it’s googly wand it could take over any market at will just by unleashing its fierce intellect and sizzling technology on the hapless incumbents. In this particular instance, Rightmove‘s (the leading UK property portal) shares collapsed on the news trading down 10% on the day and c. 15% in all since the story broke. Now to be fair, having traded as low as 156p at the start of the year, RMV shares have had a pretty solid 2009, hitting a high of just over 600p and trading around 550p before the Google ‘news’ hit the market. And since investing (and especially trading) is not about picking the prettiest asset but picking the asset you think most others will find prettiest, I don’t blame any fund manager for selling first and asking questions later. And I have much sympathy for those that think that Rightmove’s market leadership is vulnerable in the medium term; only I don’t harbor much fear that this threat will come from Mountainview. The competitor that Rightmove’s shareholders should be keeping a close eye on isn’t Google, but Zoopla of course. (Reminder: we are investors in Zoopla.) Ah, but Zoopla has a silly name, it can’t be a real threat. Google however…

And it’s not just UK property where I think the mainstream markets and pundits breathlessly get it wrong about Google. In area after area they have proven not to be a very successful or threatening competitor and in other areas their entry has often been a boon for specialist competitors in the segment due to the legitimizing power Google brings to the table. They are able to (implicitly) validate new business models in ways a smaller, more specialist start-up could never dream of, and yet this market validation very often plays right into the hands of folks who, well, know what the hell they are doing.

Don’t believe me? Let’s take just a couple areas where – if you believe the logic in the argument used to justify Rightmove‘s downtrade – Google should be causing wholesale panic and disruption:

  • Financial Information: maybe I’m wrong but I don’t exactly see Thomson Reuters or Bloomberg shaking in their boots, and yet here is a sector that is tailor made for Google’s engineering, distribution and technology assets, and one where they have had years to refine the value proposition; and yet Google Finance remains essentially a working prototype of a back-of-the-napkin sketch of what a Google financial information portal could become. Umair challenged CEO Schmidt to take up this challenge a couple months ago but I’m not convinced it would be as easy as it looks.
  • News aggregators: Google News is all we need right? (Perhaps supplemented with Google Reader…) There’s no reason for sites like Digg or Daylife or the Huffington Post to exist. I mean what are these guys thinking: some of them even started after Google News went into public beta. Crazy. Except they actually work, they have customers willing to use them despite Google News existing. But really, how long can this last?
  • Advertising: I must be joking now. After all advertising is the one market Google owns; the market that gave them their billions that allowed them to hire all the smart (non-evil) people and enter and take any other market at will. Right? Well if you think so, have a look at this recent post from Paul Kedrosky. It’s why vertical search and specialist sites exist. It’s why you (usually) go to Amazon.com if you know you are searching for a book, and not necessarily via Google.

And I could go on. But the point of this post is not to say that Google are useless, yesterday’s game, past their prime. In fact my best Google-fanboy guess would be that they are far from the point of diminishing returns and structural foolishness. My point is rather that they are not – or at least not universally – the ‘destroyers of all economic worlds’; that as they grow to become a company of thousands of employees in dozens of locations they will inevitably have to deal with some of the structural pathologies that this involves, including rising mediocracy and products looking more like camels than horses. Oh yeah and evil too. Yes they are a fierce competitor and certainly there is some risk that they could destroy your business model and take your business with it. But this is far from certain. They are human. They make mistakes. They execute poorly. They don’t always (or even often) win. And best of all, once you’ve proven that you can beat them, they just might buy your company.

Update:
I forgot to send you to a great essay by John Borthwick, thinking about the challenges Google faces going forward and highlighting the structural shortcomings of trying to regulate behavior in the fast moving world of technology, inspired by Ken Auletta’s book Googled: The End of the World As We Know It.
And of course Jeff Jarvis wrote a book about the opening premise of this post (which perhaps Santa will bring me) called What Would Google Do?

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Seeing the future of finance.

I first wrote here about Ken Banks and FrontlineSMS a little over a year ago, after having seen him speak at Supernova in San Francisco where he made a tremendous impression. I remember immediately being excited by the obvious possibility of leveraging the Frontline:SMS platform to provide financial services, not only in developing countries but also in more mature markets. I put ‘try to set up meeting with Ken to discuss’ on my to do list, but it never quite made it to the top as the myriad challenges of setting up our business (and moving house) in the midst of generalized global financial calamity conspired to keep it from becoming an urgent priority. Of course (and thank goodness) the world does not wait for me and an enterprising young man, Ben Lyons, spotted the same opportunity and (much) more importantly has moved to action, teaming up with Ken and FrontlineSMS to create FrontlineSMS:credit:

FrontlineSMS:Credit aims to make every formal financial service available to the entrepreneurial poor in 160 characters or less. By meshing the functionality of FrontlineSMS with local mobile payment systems, implementing institutions will be able to provide a full range of customizable services, from savings and credit to insurance and payroll.

FrontlineSMS:credit

Launching FrontlineSMS:credit a few weeks ago, Ben wrote:

Our mission is simple: leverage the mobile space to extend access to affordable financial services to rural, disconnected and impoverished communities. To achieve this end, we are constructing a series of free and open source financial modules that will allow FrontlineSMS to communicate with mobile payment systems in real time, turning FrontlineSMS in to a microfinance management information system, a payroll center for small & medium enterprises (SMEs), a collection and distribution center for micro-insurance premiums and payouts, and a detailed center for individual credit histories and scores.

Now if this isn’t a massive opportunity, well I don’t know what is. At the risk of sounding churlish, it’s an order of magnitude more substantial and important (socially, financially, economically…) than half the me-too start-ups chasing funding and customers amongst the western digerati. Take another look at Ben’s mission statement:

… leverage the mobile space to extend access to affordable financial services to rural, disconnected and impoverished communities.

I suspect the first time you read that you thought “in Africa”, or perhaps India, or developing countries more generally. But these same under-served communities (alas) exist in every country in the world, and one could even make a case for saying that for those living in a developed economy, the relative disadvantage of not having access to basic financial services is even more damaging. It seems inevitable that the approach taken by FrontlineSMS:credit will become the primary channel through which universal access to basic financial services is delivered in any country or economy. Which leaves the politicians of many European states very little time to figure out what the hell to do with all the postal employees currently cashing cheques and taking payments for utility bills, who will soon need to find more productive work. And I’m not sure how complacent I would be as a shareholder in an incumbent retail banking operation (the top executives I doubt will lose much sleep as the timeline for this kind of transition is probably 10-15 years or so, much longer than their expected tenure…) as this bottom up, platform approach to delivering financial services has the very real potential of blowing a giant hole right in the middle of their business and revenue model.

To further whet your appetite here is an excellent 10 minute introduction to FrontlineSMS:credit by Ben at Africa Gathering in London a couple weeks ago:

Ben Lyon from Africa Gathering on Vimeo.

And on my list to “meet Ken Banks”, I’ve now added “meet Ben Lyons” and hopefully this time I’ll actually make it happen…

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Wonderland.

“I’ve had nothing yet,” Alice replied in an offended tone, “so I can’t take more.”

“You mean you can’t take less,” said the Hatter; “it’s very easy to take more than nothing.”

Mad Hatter

I’m sure it wasn’t his intent, nevertheless I had to smile when I read Umair‘s latest post on “Re-inventing Wall Street from the Bottom Up”, as it is a wonderful endorsement for what we are trying to build here at Nauiokas Park. He writes:

Instead, Wall Street needs to be reinvented from the bottom-up: by a new generation of radical innovators, to create thick value, for an authentically shared prosperity.

Building a disruptively better global financial system is the central challenge —and the largest, richest opportunity — for today’s economic revolutionaries. It’s time for Finance 2.0.

Investors, entrepreneurs, and radical innovators of all stripes: it’s time to It’s time to go big, or go home. You’re happy that social gaming is worth billions. That’s nice. But it’s also chump change. Because the gains that can flow from better capital markets are worth trillions.

Finance — not video games, advertising, cleantech, or social nets — is where 10x+ returns lie for today’s venture investors, and life-changing fortunes lie for entrepreneurs.

Hallelujah. Anyone who knows us knows that this is right out of our pitch book. And yet. It’s not easy. And I’ve been wondering why that might be. How much of it is a ‘turkeys not voting for Christmas’ problem? Or is it a question of ‘Lord, make me chaste. But not yet…’? I don’t know, hard to tell. Anyhow I’m sure we’ll get there in the end, but there is so many exciting opportunities and so much potential sometimes I struggle to understand why we aren’t reduced to beating back hungry investors with a stick. ;) I guess the real answer is that we need to spend more time seeking capital and less time investing it. But I tell you that just doesn’t seem right. It should be the other way round, no?

A wise man (not being sarcastic – he really is wise) once told me of a very large private equity firm where he used to work at one time. He said they had a lot of smart and ambitious people. And a few well, Forrest Gumps. The latter took care of investing, while the former focused on the much more important job of raising more and bigger funds. I thought he was joking. I’m now pretty sure he wasn’t. (Note to self: area no. 697 of financial services ripe for disruption: allocation of capital to private equity managers…)

There has been much recent angst in the venture capital world about funds that are too big, and indeed the same debate flares up from time to time in the hedge fund world where many strategies (although not all) have analogous scaling problems (over-crowded trades, positions too big for the market, opportunities too small to ‘move the needle’ of a big fund.) But investors time and time again prefer to take the safe route and ‘buy IBM’. The classic fail-conventionally-versus-succeed-alone trade. Don’t get me wrong, there are some amazing big funds – where as an investor you get to eat your cake and have it too: ie great returns and the ‘safety’ of a tried and trusted organization – but there are also many many mediocre funds who have grown out of their edge and had their business objectives perverted into raising and keeping ever larger amounts of AUM, rather than having the objective of generating the best possible risk adjusted returns. I guess the fund-of-fund structure was one answer to solving the dilemma of how do you scale allocation of funds into many small and/or new managers, unfortunately more often than not, many of these funds find it easier and safer (reputationally not financially) to slide back into allocating to the same old, same old. (And a few bad apples discredited the whole concept by just putting all their money into a ponzi scheme and taking fees for their trouble!) I’ve thought about this a bit, and I must admit I have yet to come up with a clever mechanism that would solve the problem of efficiently (and safely) getting investment capital out into the ‘long tail’. But I’m sure it exists. Especially with the tools and access to information available today.

We also need to fix the supply-side by taking away the naked incentive for asset managers to blindly pursue AUM growth as a priority. This is easy. It was the first thing I said I’d do differently – three years ago – if i ever managed outside capital. It seemed so bloody obvious: management fees pay the cost of running the business, carry or performance fees are the juice. So set management fees at the level of the operating budget. Simple. You would think investors would love this as it reflects the true cost of managing the investments and aligns interests. Sure, it is a bit more complicated than just multiplying the capital by a fixed percentage, but only a bit: the cost structure of an asset manager is not exactly complex – people, an office, some travel, IT (more or less depending on the strategy) and some professional fees (legal, accounting, etc.) Further if there are economies of scale to be had in the strategy in question, these would be naturally passed on to the investors as the costs as a percentage of assets would naturally decline as assets grow, but the managers would be indifferent to this and so aim for an amount of assets that allowed them to create the best returns net of management fees. Indeed this is exactly what Paul Kedrosky suggested the other day. (Once again perhaps we were too early!) We thought potential investors would love this. The reality (so far) is that most have been at best indifferent and in a few cases outright skeptical – “That sounds too clever, why don’t you just stick to 2% like everyone else…” (I’m not making that up!) ie Don’t rock the boat. And that’s a problem, because we’re all about rocking the boat! And I can’t see how we can be otherwise and remain credible when our value proposition is to identify and invest in disruptive business models… (Sigh.)

Anyhow, Umair don’t lose faith, we’re working on it!

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Urban myths in clouds.

I’m going to keep this short, mainly because I’m not an expert by any stretch of the imagination. So discount this as a layman’s viewpoint as needed.

The most common, almost Pavlovian, stock response I hear from (both IT and senior management) financial services firms with respect to why they don’t see cloud computing as relevant to their high-level business strategy (ie ok around the edges but really just an IT cost/benefit thing..) is:

Of course you know, our business is different, it needs to be secure. The hardware needs to be sitting under my desk.

Ok, fine I made the last bit up, but you know they’re thinking as much. So without digressing into a debate as to just how secure most financial services IT is, the question I always respond with is this: does your organization know how to run a more secure data centre than Amazon or Google (or any other present or future specialist cloud infrastructure supplier)??? Really think about it. Do you make your own hardware? Perhaps you can make banking microchips better than Intel… (From Appirio’s CIO Guide to On-demand: )

On-premise does not equal secure: the biggest driver towards private clouds has been fear, uncertainty, and doubt about security. For many, it just feels more secure to have your data in a data center that you control. But is it? Unless your company spends more money and energy thinking about security than Amazon, Google, and Salesforce, the answer is probably “no.”

And there are technologies – like VPN-Cubed from our portfolio company CohesiveFT – that allow you to run secure applications and data in the cloud from behind your own firewall:

VPN-Cubed® is the first commercial solution that enables customer control in a cloud, across multiple clouds, and between private infrastructure and the clouds.

VPN-Cubed provides an overlay network that allows YOU control of addressing, topology, protocols, and encrypted communications for YOUR devices deployed to virtual infrastructure or cloud computing centers. When using public clouds your corporate assets are going into 3rd party controlled infrastructure. Enterprise checks and balances require you to exhibit control over your computing infrastructure. VPN-Cubed gives you flexibility with control in 3rd party environments.

The other myth to dispell is that no one is suggesting migrating any or all infrastructure to a cloud environment overnight, or even as soon as possible. The decision whether or not to move existing infrastructure to a cloud (private or public) and when is indeed probably more of a ‘routine’ (but big) question for IT (although management should be interested in the answer.) The point I’m trying to make, the point that is relevant for the executive committee is:

How does the nature of my business – what products and services I provide to my customers and how – potentially change because of this new technological substrate?

This is the question that should animate the weekend executive strategy retreat. In order to answer that question, you need to have some understanding of the technology but not how it works so much as what it can do. I don’t need to know how the microchip works in a digital camera to think about how I can use that camera. The question management should be brainstorming is:

If we were to start with a blank page, with the technology that exists today (and will likely exist in the next 5-10 years) how would you best build a company to serve our customers, present and future? What does FaaS (Finance as a Service) look like?

This isn’t going to happen overnight so the suggestion is not to ‘throw the cards up in the air’ and panic. And incumbents have many advantages on their side (customer inertia being the most valuable). But it will happen. And quickly in the geological timescale of large organizations so they need to start moving, start mapping out this future. And – here is a shameless plug for Nauiokas Park – one facet of that should be placing a lot of small bets on emerging, disruptive start-ups that have the luxury of moving more quickly, experimenting more radically, with faster evolutionary cycles. (Like a genomics company experimenting using fruit-flies and mice first to isolate winning adaptations.) While at the same time preparing their supertankers for a significant change in direction.

Maybe we should offer to moderate these strategic retreats. Do you think we would get any takers? If you work in a financial services company, ask your CEO and let us know.

Update:
If you are looking for a good (albeit long) explanation of what VPN-Cubed does and why it really is a “game-changer” read this post from Mark Masterson who sums it up as follows:

So, let’s sum up. Enterprise cloud computing is a type of cloud computing that is suited to the specific requirements of existing companies, and allows them to leverage resources in the Cloud to provide economical ways of adding capacity to their existing environments. First, their existing data centre (or some portion of it) is virtualised. Once this is accomplished, capacity from external cloud providers can be added (and dropped) dynamically, using technologies like VPN-Cubed, allowing enterprises to use the cloud to elastically (and transparently) scale out to the cloud. And because all network traffic is securely encrypted, enterprises can effectively make use of public, cloud infrastructure as if it was part of their internal datacentre — entirely behind the (virtual) firewall. Moreover, the same technology can be leveraged to allow the use of multiple, disparate cloud providers, effectively solving the ‘eggs in one basket’ problem. Different cloud providers can be leveraged to allow for failover redundancy, load balancing, even the leveraging of different providers on a dynamic basis, using metrics such as SLA compliance, or changes in cost. And an enterprise might want to do this not because it will reduce costs, or allow a switch from capital to operating expenditures (although both of those things might be true or not, depending on the context), but because it will increase their overall agility.

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Cloud computing = on-demand business innovation

While in the technology and venture capital world, a mention of cloud computing these days is more likely to elicit yawns than excitement, in 99% of the rest of the business world it is all too often looked upon as ‘just another new technology’, something for IT to think and or worry about. Whenever I’m in this other world I try to make the case that ‘the Cloud’ is as transformational a technology as electrification or the invention of the microchip. In fact, I’m becoming increasingly convinced that it will be the technology that lies at the core of the sixth techno-economic paradigm of the modern era:

Just as Intel’s 4004 microprocessor was the catalyst for a wave of creative destruction in the 70s and 80s, will AWS prove the same for the 00s and 10s? Probably. We’re seeing it already. And it’s going to disrupt the hell out of the mastodons of industry across most sectors of the economy. Why? Because their cultures and leaders are entirely ill-equipped to face such a fundamental paradigm shift. They know how to play by the old rules. The strategic competitive advantages they built up over decades risk suddenly – poof! – to become obsolete.

And yet all too often, I’m met not with disbelief but with apathy, indifference. You can see the thoughts forming in their heads: “I’m a CEO, a business man, a producer! Why is Sean boring me with this technology stuff? Why doesn’t he just talk to the CIO?” Worse, too often when I talk to senior technology managers in big corporations, they also are disdainful, thinking: “Yeah, yeah, that’s all fine for your start-ups and Web2.whatever companies, but this is a real business. Serious. Not some website for teenagers to swap gossip.” Ok I’m exaggerating but a lot less than you think. Sometimes I figure I must not be saying it right. So I’m always on the lookout for good articulations of the potential and importance of cloud computing and its incredible relevance to anyone who is pretending to run a business. Especially a big one.

Peter Fingar has written a great one, a summary of the new book Dot Cloud: The 21st Century Business Platform. He sums it up nicely:

In short, Enterprise IT must extend out to Consumer IT, otherwise those companies simply won’t be able to compete. As we’ll explore, Web 2.0 has changed the landscape with social networks, and companies can ill afford to ignore the shift…

…Cloud computing isn’t just about on-demand IT; it’s about on-demand business innovation…

…Cloud computing isn’t just for small- and medium-sized companies and garage startups. Cloud computing makes it possible to create new business platforms that will allow companies to change their business models and collaborate in powerful new ways that weren’t practical before. What’s important for companies to consider is that cloud computing isn’t about technology, it’s about technology-enabled business models.

So if you know a CEO, or any senior managers (in any business) pass them this article. It will only take 10 minutes to read. And maybe it just might make them reconsider. And maybe they’ll invite me to lunch! ;)

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What he said.

Ok…if you (C-Suite executives of Fortune 1000 financial institutions, commanders of capital and asset allocation, etc.) won’t listen to me, at least please listen to Fred. He’s a legend. He’s a star. He’s got 20k+ Twitter followers. And most importantly, he’s bang on:

[Don't ignore the slides. Go back. Click through the deck. Please.]

What he said.

Oh, and never underestimate the value of looking at the world through a different lens (link to my – now very old – AmazonBay video).