June 2007 newsletter

DUCKETT

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Hobbyhorse special: open source, car industry, blogs and all.

Forthcoming events

A barbecue for the second week of August in the garden of the Castle House Hotel is looking possible. The Boyscout is trying hard to find a business angle, but with luck he’ll give up. Bring your own waders?

Book of the month

“The Dragon and the Elephant: China, India and the New World Order” by David Smith (economics editor of The Times). As I read his column, I thought I ought to read his book too. Whilst the end of the world is coming, it may take longer than we think. Both countries are very big, but a long way behind. China is investing rapidly, but has to change politically. India still has poor infrastructure and a huge bureaucracy. A story with legs.

Risk & reward

According to economic theory (a contradiction in terms?) risk is the source of profit. There are plenty of definitions of risk, although my favourite is certainly “working for an idiot”. One recent example from South Africa seems to exemplify the idea. They’ve been having trouble with the electric trains running out of juice as enterprising locals have been stripping the live copper wire from the tracks, presumably to sell the copper to the Chinese. Every now and again the charred remains of an entrepreneur are discovered, proving that this is indeed a risky business strategy.

Adam Smith (dead white bloke) said:

“The proposal of any new law or regulation of commerce ought always to be listened to with great precaution. It comes from an order of men who have generally an interest to deceive and even to oppress the public and who accordingly have, on many occasions, both deceived and oppressed it.”

Yep, nothing changes.

Post it slowly

Whilst our office may be at the edge of the known world for telecoms purposes, I thought that the mail would always get through. However, in early April we noticed that letters were taking a week to get to Hereford. The Boyscout duly tested the problem by posting dated letters back to ourselves. He even tried using different post boxes to see if that made a difference. Hereford sorting office denied everything.

Finally, the Boyscout realised that postal rates had gone up on 1st April and we hadn’t noticed. First Class post was being treated as Second, and Second Class was going nowhere. It’s amazing what can go wrong, particularly if you’re looking the wrong way.

Interventions

HMRC had an initiative to write to people to ask them if they really had got their tax return right. Sometimes they even knew the return was slightly incorrect. After 12 months the initiative has been cancelled ­ the tax take was £665k for £1m spent.

Who pays the reaper?

In the last budget, Gordon massaged the headline rates of corporation tax whilst removing allowances so that small(ish) business ends up paying more tax. The bigger question, however, is who ultimately pays CT? Companies have owners, customers and employees. Theoretically, in a global economy, owners/investors can move their capital to wherever gives the best post-tax return for acceptable risk. Company’s customers react in the same way, leaving the employees to bear the brunt of increased CT by way of reduced wages. A recent study on 23,000 European companies reached this conclusion. The choice is therefore whether to reduce CT, or whether to think up a way of taxing owners. Any predictions about what will happen?

The Clinton Factor

Allegedly, Bill Clinton is a superb public speaker ­ so much so that people (David Gillespie) have studied his technique and given lectures to the Institute on the subject www.icaew.com/index.cfm?route=145921

• Tell a good story that flows to a destination
• Generate a series of crisp “now” moments
• Switch between circles of concentration

Watch the presentation - it makes more sense than the bullet points.

Dog yoga

You know I love a good KPI, but they are difficult to identify to assess general economic activity. Governments tend to use GDP/ person, mortgage approvals, that sort of thing. David Smith suggests that the number of skips down his street works for him. It must be something to do with the dark nights, but the Swedes are much more imaginative. They’re using:

• The number of dogs taking yoga classes
• The number of calls required to get through to the Rolex repair shop
• The temperature of beer in financial district bars (waiters are too busy to cool the beer properly)

Incidentally, the Swedish economy is apparently flying along.

Herefordshire equivalents anybody?

Expendable sheep

Another Health & Safety story. One of my clients in the Forest runs a care home and has a steep grass bank to mow. Health & Safety were getting all excited about restraining ropes, protective barriers etc. The obvious solution is to graze sheep on the bank. Furthermore, the residents can eat the workforce at the appropriate interval (on a no-names basis), without breaching any rules.

Blogtastic

I was scrattling around for newsletter material when the following link arrived www.medius.tv/startups.html

It’s a 25 minute presentation by Steve Clayton, one of the senior Microsoft guys in the UK. Whilst the first 15 minutes are OK, the last bit is significant. The gist of it is that search engines (Google) select on the basis of activity. So, if you post a blog on your main site on a once a week basis, you will rise to the top in 6 months or so. Newsletters are so last year.

He also talked about some other useful sites:

Change this

www.changethis.com/

This site is simply a catalogue of bright ideas (short essays) that can be pulled down as acrobat documents. I’ve already had fun with Nicholas Taleb’s Black Swan discussion on randomness and Chris Anderson’s Long Tail theory. You get the overview without wading through the book.

Predict the future

www.powertopredict.com/

Systems generally tell you what has happened. Management is all about what’s going to happen next. Listen to the interview and tell me what the answer means. Or let the Boyscout show you how to use KPIs to predict the future (subject to Black Swans).

Free agent central

www.freeagentcentral.co.uk/

Probably the end of accountancy as we know it? This site is aimed at one man bands ­ all you need to keep all your accounting records on web. I wonder if it will allow you to have hypothetical conversations about possible tax avoidance?

The end of Ford as we know it

Having gone on about the US car industry at great length, concluding with recent articles on the management practices of Toyota & Honda, I was fascinated to listen to a Radio 4 In Business episode devoted to the subject. Allegedly, Ford was all washed up by 1935, but GM kept them in the game by pricing to allow a small level of profitability - just enough to discourage new domestic competitors. Chrysler was there to avoid the anti-trust rules. This whole cosy scene was destroyed by the Japanese in the 80s. Let me know if you want the podcast.

Saas ­ software as a service

5+ years ago I got excited about the asp (application service provider) concept. Clients would be able to keep all their data on your server and log in when they needed to post data etc. This would make it easy to keep an eye on what was happening and result in a truly proactive service. Unfortunately, it’s taken all this time for broadband networks to even reach rural areas and the speeds are still too slow/ service too shaky (leaves on the line) to make this an attractive prospect.

However, the big players are talking about it again, albeit under a different acronym. I still don’t understand how they are going to overcome people’s reluctance to have confidential data on the web, but that’s the deal with Google e.mail, for example.

Red hats and opposable minds

Management theory has now concluded that great leaders are able to embrace opposing business models and thereby create a third way (a bit like the SDP). The human mind tends to look for a right answer, thereby labelling opposing views as wrong. Whether or not this is true, the illustrative story is worth considering, particularly as it involves open source software.

By the mid-1990s, Red Hat, the commercial Linux software company, had achieved sales of $1m pa, but appeared to be going nowhere. It made its money by bundling together the latest (free) upgrades from the open source community and selling them (as a CD) to true believers. By contrast, the big players such as Microsoft, simply sold (high margin) proprietary software and kept the source code a carefully guarded secret. Customers were forced to upgrade pretty well every time a new version of the software was released.

Enter Bob Young with a big idea: if you could combine the open source software with the big player service deal, then the market was wide open. With a few tactical plays, Young achieved this, thereby creating a new corporate market for Linux and making a fortune in the process. By 2000, Linux had captured 25% of the server market with Red Hat holding half of that. The problem with the proprietary model was (and still is) that the supplier had a vested interest in the system falling over. If it did, he could charge you (by the hour) to fix it. The Red Hat model involved Red Hat managing upgrades and improvements on an ongoing basis so that the system didn’t fall over in the first place. Young also changed the old process slightly by actually giving away the software completely free, but made it available as a free download on the internet rather than a cumbersome CD. This tactic also helped Red Hat to break away from the pack of small Linux developers and give the corporate world a brand it could recognise. Easy, really.

Disclaimer

"Never judge a man until you have walked a mile in his shoes. After that, who cares? He's a mile away and you have his shoes."

Presumably, a very old joke?

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