Mark Clare’s Valuecruncher has stepped up several gears. Originally offering a company valuation service to companies not covered by conventional investment analysts (I’ve used it), Valuecruncher now offers its tools free online to the general public. Valuecruncher is creating a community of investors, some of whom will take up its premium services later.

I’ve known Mark Clare for some years and I saw a preview of the new service earlier in the year. You input your own assumptions on key financial parameters for the company in which you’re interested; Valuecruncher’s algorithms then produce a share price projection. You can play with your projection and share it with others, who can comment on your assumptions and results. The user experience has been developed with the help of renowned web guy Rowan Simpson, who is known for his lean, uncluttered approach to website design.

In the words of Merrill J. Fernando from Dilmah Tea, “Do try it”.

Disclosure: I have no financial interest in Valuecruncher.

In The Huffington Post, Henry Blodget offers a crash course on how to be an economist:

1. Analyze what has happened.
2. Conclude that the future might be different…or it might be the same.
3. Pick one!

In Russia, whoever you are, you need a patron, someone who will promote and look after your interests and keep the bureaucracy and the bad guys off your back, in return for loyalty, business favours, partnership profits, etc.. Any foreign company seeking to do business in Russia needs such a patron, whom Russians call the ‘roof’, or krisha. It’s usually legitimate, and the financial arrangements can take many forms. McDonald’s has the Moscow City Corporation as their roof. Aer Rianta (the Irish duty free retail operator) has Aeroflot.

An article on The Spectator business blog was my first introduction to this concept, which I confirmed with my brother, who’s done several stints in Russia. He added that the need for a roof is less important for major companies these days, but it’s probably still a good idea for smaller players. Unfortunately, a roof can also be a local gang demanding payoffs. Make sure you pick the right roof.

There’s a big stink brewing in the beauty business. Dove, with its Campaign for Real Beauty, has a very popular ad which shows how a photograph of a, shall we say, normal-looking woman is transformed into an impossibly beautiful glamour queen. Now it seems that a freelance photography retoucher, working for a photographer, working for an ad agency, working for Unilever, Dove’s owner, boasted to a journalist that he’d retouched some of Dove’s photographs of ordinary women used in their wildly successful promotional campaigns.. The retoucher says his remarks were taken suit of context. The New Yorker magazine is adamant they were not. Dove will have to mount a massive recovery programme to avoid massive damage to its basic proposition. Expect some very public executions.

But the real question for me is why anyone associated with the Dove campaign would even contemplate having photographs retouched, for whatever reason, however well intentioned. It was a monumentally stupid mistake. It also illustrates that everyone working with your brand (staff, suppliers, distributors and subcontractors), everyone must understand what your brand stands for and, by implication, what to do and what not to do.

What damage might some well-intentioned idiot do to your brand?

I was chatting recently with the CEO of a promising technology company. My companion wondered whether to accept an unsolicited offer for his business, or to hold on and invest heavily in a major new product development which could double the value of the business in 2-3 years time, if it succeeds.

I asked for more information: the size of the development investment required (very large), the probability of it delivering a marketable and profitable product (likely but not certain), the likelihood of market success (reasonable but not certain), and the likelihood of someone being willing to buy his business in future (likely but not certain). On balance, the risk and time weghted returns from investing versus selling were broadly similar. Given he has venture capital investors who are desperate for a successful exit sometime soon, and he himself had always planned for a trade sale about now, the answer was obvious.

‘A bird in the hand is worth two in the bush’. Sell.

Arrived in the UK to find the sun shining and the land green. While I’m here, I thought I’d do an occasional series of UK factoids, for the edification of my readers outside the UK (and some in it). These are from yesterday’s BBC business report.

UK factoid 1: 27 degrees Celsius in London yesterday. No business reason for that; I just wanted my Antipodean friends to know, as winter starts to loom large.

UK factoid 2: More than half of the companies in the FTSE 100 (more accurately the FTSE 101) are non-UK companies.

UK factoid 3: 12% of the companies in the FTSE 100 are non-oil mining, yet mining makes up only a tiny fraction of the UK’s economy.

The primary exchange of choice for major non-US companies is now London. Why? The general consensus of the discussions I’ve heard since arriving:

• A desire for global investor credibility, by having to comply with the UK’s stringent corporate governance regime.
• A market more friendly to non-domestic stocks.
• The US exchanges, by contrast, are parochial, with stifling yet ineffective regulation.
• The FTSE 100 is not an indicator of the UK economy anymore, unlike the Dow still is an indicator of the US.

Blogging may be bit slack for the next few days.  I’m in the Koru Lounge at Auckland International, waiting for my flight to London, where I’ll be based for the next  3 months or thereabouts.  Having moved out of our place in Wellington, with all our stuff in storage, we’re of no fixed abode, with just our suitcases, cell phones and laptops. It’s a very strange feeling, almost like bunking off school, but not quite; I’ve got some business to do, in between being chief bag carrier for She-who-must-be-obeyed.  I’ve also signed up for the UK branch of KEA(Kiwi Expats Assn) to check it out for myself (everyone else seemingly is a fan).   Now, just time for one more pinot gris before boarding.

No time to blog - moving out of our current place of abode today. 57 steps up to the road. Ah, the joys of living in Wellington!

In the meantime, check out this excellent analogy of Finnish ski-jumpers and momentum investors, from Rawdon Adams at Capital Chronicle.

Congratulations to my former colleagues at Fronde for quickly bouncing back into profit for the second half of the last financial year. The second half is always tough for an NZ-based professional IT services business, with December and January usually very light, so this is a good signal for ongoing profitability (with the caveat that the IT professional services business is often bumpy, as demonstrated in the first half).

Disclosure: I hold Fronde shares.

Oops (wrong link, sorry) : For those expecting to read something about the Microsoft letter to Yahoo, look here.

Microsoft says it has walked away from its bid for Yahoo, after upping its offer to $33, but Yahoo still asking for $37. Given the scale of the deal, and the potential for a clever play based (as I saw it) on email, I’m surprised. I thought Balmer would go hostile and pursue a proxy fight, which he hinted at. However, Balmer’s withdrawal letter to Yang (worth reading) makes it clear that Yang had more poison pills up his sleeve, and which which he was prepared to use. That, plus the absence of a compelling alternative for Yahoo, puts Yang & Co firmly in the sights of litigious shareholders who now face a major drop in value, most likely to below the pre-bid price of $20.

I’m not the only one surprised. Lance Wiggs shorted Microsoft on the expectation that the deal would go through (and weaken Microsoft as a result). But Lance implies (hopes) that Balmer’s walk-away might just be another negotiating tactic. In the letter to Yang is this hint: “I still believe even today that our offer remains the only alternative put forward that provides your stockholders full and fair value for their shares.”

Update: Rod Drury has written a witty paraphrase of Balmer’s letter to Yang.

To counterpoint my recent missive on where next for tech, you might like this BBC summary of the thoughts of leading tech luminaries.

Every developed nation seems to have a Rich List complied by a respected business magazine or major newspaper. For English speakers, New Zealand has a Rich List; Australia, too. So do the USA, Canada and Britain.  Highly skilled forensic financial analysts (i.e some journo with a minor English Lit degree and 2 years on the business pages) undertake take deep research (a quick skim of public share registries, guesstimates of property values, and wild stabs at private company valuations) to carefully develop (over a long lunch at the Queens Head & Artichoke) a ranking of the top plutocrats among us (while completely missing many with real dough).

Continuing their deeply meaningful exercise of the business journalism profession, The Times Online’s Snakes & Ladders blog has come up with what it takes to make The Sunday Times Rich List (i.e. Britain’s supposedly Richest 2000, or thereabouts):

1. Get yourself a Y chromosone (sic)- there are 1,019 men and just 96 women on the list. (Ed: so what gender are the others?)
2. Celebrate your birthday in Spring - Taurus and Gemini are the most popular star signs in the list.
3. Have a foreign birth certificate - of the top 10 richest people only three are British born.
4. Go to work - 762 of the richest 1,000 people are self-made, only 238 inherited their bank balance.
5. Get a mortgage, or two - land and property is (are) the most popular way(s) of making money.
6. Live in the South East - the majority of rich people live in London and south east England.
7. Keep on making it - if you want to get into the top 50 you will need more than a billion pounds.
8. Invest wisely - property tycoon Vincent Tchenguiz has lost £650 million in the credit crunch, I’m guessing he regrets his decision to invest in supermarket chain Sainsbury’s.
9. You don’t have to (be) glamorous - yes, there are plenty of footballers and pop stars listed, but not all those listed made their money in glamorous industries: James and John Martin made £200 million from their ejector seat business, Alan Murphy made £200 million from loo rolls, Peter Salson has pocketed £175 million from coat hangers and Doreen Lofthouse has made £165 million from cough lozenges.
10. Give it away - the rich list isn’t all about keeping it to yourself. The Sunday Times Giving List gives credit for philantropic (sic) acts. Top spot goes to hedge fund manager Christopher Hohn who has recently donated £235.8 million to Aid/HIV, education and humanitarian causes.

By the way, you need at least £40 million to make the UK’s Rich 2000 list (sigh).

I’m detecting growing themes of pointlessness and concern among tech-business commentators. I summarise these themes as:

• Too many me-too new ventures offering trivial variations and extensions of social networking services, which themselves are over-hyped - ie. social networking won’t save the world.
• Too many ventures hoping to be viable by being “free” i.e. earning a living through advertising, when there is little evidence it works as a business model for anything other than a few special cases.
• Too few new solutions (and therefore too few new ventures) for the major challenges facing the world today.

Jeff Nolan at Sandhill:

… the notion that all online services need to be free and paid for with advertising; there are too many startups that are dependent on a business model that has yet to prove itself for tech companies…

… there are few bold “aha” ideas, lot’s of social “-this or -that”, and mostly a bunch of companies hoping to draft on the perceived success of a few gorillas.

One seismic change that’s only just begun is the take-up of utility computing and subscription-based business applications delivered over the internet; but even that’s at least 10 years overdue and, if we’re really being honest, just a modern version of the old online bureau services model from the 1970s - when I began my IT career!

At Read/Write/Web, Marshall Kirkpatrick answers his own question “What’s the next big thing?” with this list:

• Business models
• Filtering for information overload
• Standards and interoperability
• Outsourcing API services
• Backlash (Backlash is included in our list because there is definitely some push back)

That list looks to me more like fixing bugs and variations on current themes, rather than genuine new ideas. Umair Haque at HarvardOnline is blistering:

I’m vastly disappointed in the moral and strategic bankruptcy of today’s crop of venture investors and so-called revolutionaries.

There are huge shocks rolling across the global economic landscape… It is the obligation of radical innovators to create new value by solving these problems - or cede capital and resources to those who can and who will.

But today’s revolutionaries are sheep in wolves’ clothing. They’re lost in the economically meaningless, in the utterly trivial, in the strategically banal: mostly, they’re cutting deals with one another to try and sell more ads. That is, when they’re not too busy partying.

I’ll close by quoting Jeff Nolan again:

What’s frightening is the inability to answer the basic question “What’s next?” The Valley thrives on “The New New Thing” … and with every turn of a generation, there is an awkward moment where we’re just figuring out where we’ve been but have yet to see where we are going. Right now is that moment.

Berkshire Hathaway and Mars have put together a US$22b deal to acquire Wrigley - yet another example of Warren Buffett’s adage that “the best place to be when the market falls off a cliff is waiting at the bottom with a big bag of cash“. Imagine the market power - effectively owning nearly every bit of space occupied by all that naughty stuff next to the supermarket checkout (which all kids learn is a good place to cause a scene). Cadbury and Hershey will have to move fast to counter this.

I assume (details were unclear when I wrote this) that Mars is the active partner - with BH taking a stake - meaning Mars can integrate and rationalise sales, distribution, merchandising and IT. Sounds like a smart move, and Buffett has a track record of paying good prices (good for buyer and seller) for good businesses.

Rod Oram has written an excellent overview of the challenges facing businesses in developed economies. He’s writing about New Zealand, but it could also apply to many companies in Australia, North America and Western Europe. In a nutshell, he argues that reducing bureaucracy and taxes, while improving infrastructure and education, are not enough, especially in countries with fully deployed labour. In the end, it all boils down to what businesses you invest in, and how those businesses perform and develop.

Oram’s closing paragraph says it all:

Here’s the acid test: what do you need to do in your business so you can reward yourself with at least an 80% increase in pay by 2018? When you achieve that, you will attract all the talent you need - some of it even from Australia.

I don’t think I’ve seen a single business plan or economic development proposal that, as a consequence of success over the next ten years, could afford to pay staff twice what they get today. Most plans assume no change in real terms, while some assume greater internationalisation which reduces average salaries.

If you’re in a business based on labour (no matter how professional), you’ve got a problem. If all you do is pass on someone else’s goods and services, you’ve got a problem. If you make me-too products and services, you’ve got a problem. If you’re creating smart new products and services that aren’t labour intensive, you’ve got a chance. What are you going to do with that opportunity?

It’s interesting how two major tech business developments have been received by the tech cognoscenti. Putting to one side my technical illiteracy, Google’s very limited App Engine is generally received warmly, while Microsoft’s Live Mesh is bagged as overly complex and a weak attempt to bridge the gap between in-house and internet-based applications delivery. While some of the technical arguments may be justified, I suspect a lot of the difference in reaction is as much about brand sentiment as about product excellence.

If App Engine is a success, it will be proclaimed as another blow for freedom, while if Live Mesh is a success, there will be cries that the shackles of oppression have been reforged. Yes, the tech cognoscenti do use such language.

Google is still (on the whole) the fashionable upstart who’s driving a lot of new internet endeavours, while Microsoft, itself once fashionable, is now portrayed as a rapacious corporate gouging its customers with unnecessary desktop software upgrades and poor performance. However, away from the desktop, Microsoft has gone from strength to strength in its enterprise solutions, and has a huge following in customers, product partners and implementation partners. As Live Mesh evolves into a web platform, it could have an enthusiastic uptake, despite its knockers.

Nothwithstanding that, Microsoft has got to do some serious work on rebuilding positive sentiment towards itself, while Google has to avoid its own potential brand-corrosive path.

New Zealand Trade & Enterprise has released the findings of several surveys on how overseas business people perceive NZ businesses, which present a picture of NZ business as ‘high in human values, but low in business acumen.’

The report summary is worth repeating in full:

• Business culture and values vary across countries, however global business values are shared. It is these global business values which the research showed New Zealand businesses are often lacking. This contributes to the general low awareness of New Zealand as a business partner.
• In short, New Zealand has a business culture that is perceived to be high in human values and low in business acumen.
• There is respect and admiration for the strength of New Zealand’s human values. These include:
  • an openness and directness that is unusual in international business, but which makes dealing with New Zealand businesses straightforward and agreeable
    a refreshing honesty which engenders rapid trust (although this can easily extend to naivety on New Zealand’s part)
  • resourcefulness, creativeness and flexibility – all perceived to be due to New Zealand’s geographic isolation, space and limited resources (eg. capital and government support)
  • wider cultural elements such as an harmonious relationship with Maori, respect for the land, environmental awareness, nuclear-free policy, female Prime Minister etc
    the success of the family and quality of life as the benchmark (sometimes at the expense of business success).
• New Zealand businesses can communicate in a business-like way, and there are New Zealand business success stories; but the perception is that many companies lack the hunger to be part of an international business community.
• Areas where New Zealand businesses show a lack of business acumen include:
  • low pro-activity and reluctance to follow up phone calls and/or contacts
    lack of preparation and research into a country’s culture and specific market characteristics eg. a ‘what can we sell’ approach, rather than asking ‘what does the market want?’
  • an overly-relaxed attitude towards business. “Give it a go” and “she’ll be right” are unwelcome and unsuccessful attitudes in global business
  • being unwilling to partner or collaborate to help their business go further
    a transactional approach to business and an unwillingness to establish and maintain relationships. While this issue is particularly strong in China and Japan, all five markets highlighted this as a shortcoming of New Zealand businesses.
• No country showed reluctance to do business with New Zealand, but there is a general feeling that New Zealand businesses need to come up to the mark to be taken seriously as a business partner.
• This does not mean that New Zealand should compromise its human values – they are part of the attraction of New Zealand – however it is essential that New Zealand businesses are able to demonstrate the basics of global business protocols if they are to be taken seriously.

In summary: nice, creative, naive and too laid back. Two words, guys and girls: SHARPEN UP!

(Spotted on NZ Angels)

Businesses sometimes stumble or even fail. It’s a risk of which every real entrepreneur is acutely aware. As I’ve written before: “By all means identify and manage your risks, but don’t be paralysed by them. If you’ve got an idea or a dream, En avant - get going!” But what do you do if you suffer a business failure. Business Pundit has some wise words for when it all goes pear-shaped:

Focus on the Positive Things that Were Accomplished
It doesn’t matter how long you were in business every business has had bright days. It could have been new contacts and partnerships. Patients for products that you know can work. Systems that you developed and implemented. Perhaps, it was the day or week you reached records sales.

Ask The Hard Questions
Why did it fail? Was it poor planning? Was there lack of knowledge of the market? Did it come down to personnel? Maybe it was the wrong sales strategy. Whatever it was, as an entrepreneur asking the hard questions will help get away from the blame game and addresses the facts, both good and bad.

Learn and Move On!
Entrepreneurs can be extremely strong-willed individuals. It’s because of that they experience success and reach their goals. However, the one thing that separates them from others, is that the fail, learn and move on. Often times it’s in the same type of business and same product: just a new approach.

Great advice. I’d add: listen to constructive criticism, and tune out the sneerers and those who demand perfect success every time, but never risk much themselves. They have little of value you need to hear. As the song says, “Pick yourself up, dust yourself off, start all over again.”

While much attention has been paid to the woes of the finance industry in relation to poor quality loans, little reporting has been done on the demise of venture capital. These are the funds that invest in early stage businesses. Many funds are fully invested, but can’t get another funding round taken up by investors, so they can’t invest in new opportunities. Angel funding (friends, family and wealthy individuals) still exists for start-ups, but VC money is drying up. This means problems for two types of company:

• The smart start-up with a great product, a great team, but no money to build the business (the first round of serious venture funding).
• The proven concept, which can’t attract money to scale up (the second round of venture funding).

Apart from Xero (update: and indirectly, Fronde Anywhere), I haven’t made an early stage investment for several years.  It seems I’m not alone. You know something is seriously wrong in the venture capital business when admired global VCs (Apax, 3i and Sequoia) announce they’re shifting to private equity (buying into established businesses). The story is repeated at local levels too. Why?

• Too few successful ventures, too many duds.
• Investor flight to quality.
• The long term shift offshore of manufacturing has eroded the pool of talent for technology start-ups.
• You don’t actually need much money these days to get an online software/service business going (which means low barriers to entry and lousy on-average returns).

This is serious food for thought, if you’re a policy maker, an entrepreneur, an investor, a student, a worker, a unionist, indeed everyone; even more so, when you add in general global uncertainty.

Business Week and Boston Consulting Group have named their 2008 Top 50 Innovative Companies. While it’s easy to quibble with the detail, what’s really interesting for me is the inclusion of companies known for innovation in process, business model and customer experience. Too many people (including some government agencies spending very large sums of money on economic development initiatives) only focus on product innovation. Product innovation is useless without a business to commercialise it, and a great business can buy in product innovation. Which would you rather own shares in - Toyota or Aston Martin? (I own Toyota shares). Actually, Toyota does a lot of product innovation, too - e.g. their hybrid programme.