pro manchester CEO

My Apple crashed last week. Had a genius reset. It's a bit like suffering from amnesia and being offered a lobotomy.

 Hi All,  it's Saturday morning and a great time to catch up with a bit of admin and e-mails and so on. Last Saturday I was a little pre occupied, having had a systems crash on the MacBook Pro. As a close friend you recognise something is going wrong with your mate in the run up to the breakdown. Apps are slow to load, worse still they flicker and disappear, in and from, the Apps folder. Eventually, the system only partially loads, nothing happens and a trip to the Apple genius bar beckons.

"Yes there is something wrong," says the genius, "no, we don't know what it is" he asserts. The solution to reset the machine to year zero and wipe all existing apps, folders and documents from memory. It's a bit like suffering from amnesia and being offered a lobotomy. It hurts and requires substantial recovery. 

Back home, thanks to Time Machine and Mobile me, the system is restored but it takes several hours. Only later in following days, like recalling lost pieces after a house theft, you remember files that had eluded a diligent back up. 

That week had been busy with an early board meeting and a late night event on the Thursday as John Leach launched his High Growth Foundation. Friday I was invited to meet the Lords Speaker, Baroness Hayman as a guest of The Greater Manchester Chamber of Commerce. Got a nice bright red House of Lords mouse mat as a souvenir of a very pleasant and charming encounter.

Last week, the highlight was our annual dinner at the Hilton Hotel for five hundred. John Culshaw was the guest speaker, I was the MC. Some great photos on Facebook of the event. He even did an impression of me, which the crowd seemed to find hilarious. Didn't quite recognise it myself. But there you are.

Hope all is well with everyone, things in Manchester are great with a Monday tour of the city planned by Manchester United. City made the rounds last week. One of my more cerebral blog posts, 80 points to win the cup and 40 points to stay up, offered an economists view of the Barclays premiership. "It confirms my worst views of economists" said Michael Taylor of Insider Magazine, a key journalist and Blackburn supporter. I think he liked it. JKA

Each week I like to send a short note to family and friends. This is the note for the 28th May.

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The views expressed are my own and in no way reflect pro.manchester policy. In no way should the comments be considered as investment advice or guidelines or reflect political bias. UK Economics news and analysis : no politics, no dogma, no polemics, just facts. JKA is a visiting professor at MMU Business School, an economist and specialist in Corporate Strategy, educated at LSE, London Business School with a PhD from Manchester Metropolitan University.

Steve Jobs, the iPod and the BCG Growth Share Matrix

Why did Apple choose the iPod in 2001 and what had happened to Sony and the Walkman. Why hadn’t they made a move? These were the key questions which prompted my case study, Apple from the iPod to the iPad. The staggering revelation was that Apple had utilised classic tools of an analysis to identify the product opportunity. Better still at the launch of the iPod, Steve Jobs spoke in classic three dimensional strategic management analysis. The video clip used when presenting the case study tells all. “Why music”, says Jobs, “because it’s a huge market and no one has got the formula right”. It’s two dimensional SM with more to follow. Last week I was lecturing at Salford Business School - great fun.

In 1970, BCG the Boston Consulting Group developed the Growth Share Matrix. It was an two dimensional analytic for portfolio management which quickly became a classic in corporate strategy. Designed for conglomerates with an extensive portfolio of businesses, BCG classified businesses into dogs, cows, stars and question marks. 

Businesses with high market shares in low growth markets were identified as  cash “cows”. Low sector growth meant that demands for capital investment and working capital were low and the profit generated from a high market share could be “milked” within the organisation. Businesses in this quadrant threw off cash into the corporate coffers.

Businesses with high market shares in high growth markets were identified as “stars”. High growth led to demands for investment and working capital which could be met by extensive profit growth as a result of exploitation of market shares. Businesses in this quadrant produced sales and profit growth but demands for cash were high. Stars have a price and cash utilisation is the ticket.

Businesses with low market shares in low growth markets were unattractive generating little growth in sales and profits. They were classified as “dogs” and should be marked for disposal, to a home for dogs or to a milk farm for consolidation presumably.

Business with low market shares in high growth markets were slightly unknown. Growth in profits was usually present but free cash generation was low. An evaluation was required to see if the extension of market share was possible within the near term.

The Growth Share matrix was great. It offered pertinence and simplicity. It still remains valid for any portfolio analysis be it conglomerates or product group analysis. It is based on TWO DIMENSIONAL strategic management analysis, relative market share (RMS) and relative market attraction (RMA).

Two dimensional strategic management analysis captured the imagination. By adding a third dimension of relative financial strength (RFS), a fourth of time, (the economic cycle) and finally a fifth dimension of cash and debt management, (my) recent work on this subject has been able to move the agenda forward extensively.

In 2001 Apple wanted a consumer electronic product for the digital hub strategy. Many were screened in the process but the iPod and “music on the move” was the chosen strategy, it was an attractive market, competition was fragmented and Apple’s financial and brand strength could be brought into play. Three dimensional strategic management analysis evident and in action.

The Apple Case study From the iPod to the iPad can be located here as a free down load. 

*In 1975, Boston Consulting Group produced the report prepared for the Secretary of State for Industry the Strategy Alternatives for the British Motorcycle Industry. Market shares produced volume which led to lower costs along the experience curve. Market share was all. PIMS. “profit improvement through market share was the mantra”. More of this in a later post. 

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The views expressed are my own and in no way reflect pro.manchester policy. In no way should the comments be considered as investment advice or guidelines or reflect political bias. UK Economics news and analysis : no politics, no dogma, no polemics, just facts. JKA is a visiting professor at MMU Business School, an economist and specialist in Corporate Strategy, educated at LSE, London Business School with a PhD from Manchester Metropolitan University. Author of the Apple Case Study from the iPod to the iPad part of which is published in Johnson Scholes Whittington Exploring Strategy 9th edition 2010.

Angel investment in America, the reality, all that glitters .....

Dragons Den has done as much to misrepresent the real structure of angel investment in the UK as “The Apprentice” has done to maim management training and development. The reality of investment both in the UK and the USA is much at odds with the “pitch and ditch” format of the TV show.

A study of angel investment in the USA “Fools Gold : The truth behind angel investment in America” Scott A Shane, provides a much more realistic picture of the investor reality then any prime time business soap. 

To understand what we mean by an angel investor, we define an angel investor as a person who provides capital in the form of debt or equity, from his or her own funds to a private business owned and operated by an individual or group who is neither friend or family.

Not all investors stories in the USA are about two kids in a garage developing the next “LinkBook”, “FacedIn” or Boogle” software package meeting up with a Silicon Valley mogul advancing millions of dollars electronically transferred from a luxury yacht somewhere in San Francisco Bay based on a one page business plan projecting revenues of $100 million dollars by year five.

Angel investors in the USA are predominantly not wealthy people almost 80 per cent of angel investors don’t meet SEC requirements for accredited investors.

Angel investments are much smaller than most people believe, the typical investment is around $10,000 and most deals involve debt rather than equity stakes.

Angel investment is not confined to the formal Business Angels Network Group but is much larger than official data suggests. This is true of the UK and the USA.

Business angels engage in the process for a variety of reasons but not just to make money. For some it is a hobby or an opportunity to learn new things, to “put something back” or to “find a job”. There can be a wide variety of motives.

In the USA the size of the angel investment market is $23 billion about the same size as the venture capital market of which half are from accredited business angels networks.

In 2004, approximately $310 billion was invested in young companies of which 6% was VC investment, $124 billion was from the entrepreneurs themselves and over half $162 billion was from the “informal investor” sector.

However, most of the informal investment was from family and friends. It is estimated that the angel flow of funds amounts to $23 billion with approximately 331,000 angels making investments. 

Angels don’t just finance high tech businesses, they invest in a whole swathe of industries focussing on sectors in which they have worked or have some experience.

Neither are the investments always in seed and start ups, more angels invest in businesses that are cash flow positive rather than early stage investments.

On average angels have no more entrepreneurial experience, make no large investments, have little more experience in start-ups and make no more informal investments than friends and family.

Angels don’t get heavily involved with the companies they finance, spending less than one hour per week with their investments.

Angel investors don’t do as well financially as received wisdom suggests, less than 2% of investments end in a successful IPO.

There is no shortage of angel capital in the USA if anything there is a surplus of capital for investment.

Very few of the factors associated with having a high level of angel investment activity in a region are things that policy makers can easily change. Even taxes explain little of the variation in angel investment activity in the USA. 

Start ups are a risky business over half of businesses have failed by year five and less than 10% will generate revenues of $1million dollars within six years. The gazelles of growth are as rare a species in the USA as in the UK.

Scott Shane’s contribution to the research into innovation and enterprise is important. The more realistic the information provided and the fewer myths are allowed to endure, policy decisions and ambitions of investors and entrepreneurs alike can be more focussed and aligned. JKA

Fool's Gold : The truth behind angel investment in America Scott A Shane. Oxford University Press. 

Sign up today and "subscribe" for e-mail notification of updates. This blog post forms part of the pro.manchester research into Innovation and Enterprise in Greater Manchester. The views expressed are my own and in no way reflect pro.manchester policy. In no way should the comments be considered as investment advice or guidelines. UK Economics news and analysis : no politics, no dogma, no polemics, just facts. 

The Illusions of Entrepreneurship: The Costly Myths of Entrepreneurs, Investors, and Policy Makers.

Much of [US] society believes that start ups are a magic bullet that will transform depressed economic regions, create a lot of jobs, generate innovation and conduct all sorts of other economic wizardry. The reality according to Scott Shane in the Illusions of Entrepreneurship is much different. Start ups create fewer jobs, and generate a lot less growth than most people think. Only a small sliver of new businesses create the new jobs. 

Intervention policies lead people to start marginal businesses, that are likely to fail, have little economic impact and generate little employment. The idea that new firms create more jobs than existing firms is a misconception.

The belief that a typical entrepreneur has special powers or abilities that will lead to the creation of the next Apple, Google, Hewlett Packard, Facebook or Amazon, creating jobs, stimulating economic growth, enhancing innovation and enterprise is a myth.

The typical entrepreneur in the USA is a married man in his forties who attended but did not complete college. He lives in a place like Des Moines or Tampa where he was born and has lived most of his life. His new business is a low tech endeavor like construction or an auto repair shop. An industry in which he has worked for many years. 

He is a sole proprietor, a start up financed with $25,000 of savings or a bank loan which he guarantees personally. The typical entrepreneur has no plans to employ lots of people, or to make lots of money. He just wants to earn a living and to support his family. 

Shane argues, there is a great need to educate would be entrepreneurs about what makes start ups successful. Entrepreneurs need information and advice on finance, marketing administration and controls. They need to be aware that people who have an education, have experience in the industry and have the desire and objective to make money, will have a much better chance of success.

But Shane also argues that a public policy geared simply to increasing the number of start ups in the year is flawed. A policy biased to builders, plasterers, hair dressers and taxi firms is fundamentally flawed. Shane postulates, there is a need to focus on business opportunities that offer innovation with potential to generate real growth, employment and economic value. Only then will the entrepreneurs deliver the economic task.

The illusions of Entrepreneurship: Scott A Shane Yale University Press 2008. Amazon UK.

Scott A. Shane is A. Malachi Mixon III Professor of Entrepreneurial Studies, Weatherhead School of Management, Case Western Reserve University.

Sign up today and "subscribe" for e-mail notification of updates. This blog post forms part of the pro.manchester research into Innovation and Enterprise in Greater Manchester. The views expressed are my own and in no way reflect pro.manchester policy. In no way should the comments be considered as investment advice or guidelines. UK Economics news and analysis : no politics, no dogma, no polemics, just facts. 

Why public efforts to boost entrepreneurship and venture capital have failed. JKA

Boulevard of Broken Dreams is an explanation by Josh Lerner on why public efforts to boost entrepreneurship and venture capital have failed in many countries across the world. Not all attempts have failed but for every success, there are many failed efforts that waste untold dollars of tax payer money is the caution.

It is a good read for those at the macro level in national policy determination. Lerner queries whether or not the public sector should be engaged in the process at all and outlines the common flaws undermining many programs including poor conception, design and implementation. 

Some of the research reinforces some of the early conclusions in the pro.manchester research project. “In the eagerness to get to the fund stuff of handing out money, public leaders forget the importance of creating the right environment”. The right environment includes, education for managers and potential entrepreneurs, idea and technology transfer from campus to corporate, mentoring and the association of ideas process. Key topics for management education should include, competitive strategy, marketing, accounting and finance, to which we would add “sales and the selling process”. 

Research suggests the surest way to be successful as an entrepreneur is to have done it at least once already. Many are ready to share the experience, so let them. Policy objective should be to create the eco system but not to over engineer the genetics by excessive intervention in the dynamic free market process. The market must be left to provide direction and policies should resist the temptation to over engineer the dynamics. 

Formal VC investment in the USA is huge but is a tiny proportion of total business activity. In 2000, a boom year for VC investment in the USA, 2,200 businesses received investment. In 2007 the number had fallen to 1,279. Yet the Small Business Administration estimates that some one million businesses start up each year.

In addition, there is a clear need to avoid fashion and fads and the herd instincts of investor groups. In 2000, 46% of the US funding went into internet related businesses, a total of 92% went into information technology and health care. By 2005 the excitement surrounding Bio Med and human genome sequencing had been mapped out. By 2008, the spotlight had shifted to renewable energy with almost 16% of funding to companies in the “energy and industry” sector.

Compare now the excitement surrounding, Digital Media and Creative and the BioTech, CleanTech, GreenTech and the AnyTech sector in the UK. It is a cautionary note. 

Should the public sector be engaged at all. Innovation is linked to small firms and innovation is thereby linked to growth but according to a recent survey of public sector intervention in Canada, companies backed by public funds were less successful in creating growth and employment than private sector comparisons. Is there a case that public sector intervention in VC activity crowds out or prices out private sector options. This is a subject worthy of more research amongst our HEI’s in Manchester.

Access to finance is important but so is access to advice. Educating entrepreneurs is a critical process. Many have little understanding of the expectations of external investors. What is VC? What is PE? Is my business investor ready? What information will I need? How do I approach an investment house? These are the questions some of which are raised in the book and we are seeking to answer with the research and workshops into Innovation and Enterprise in Greater Manchester.

The book ends with a caveat. Programs to promote entrepreneurship are challenging but governments cannot dictate how a venture market will evolve. Top down efforts are likely to be unsuccessful. Intervention strategies must provide a careful balancing act, an understanding of the catalytic role, but aware of the limits to stimulate the sector. Create the eco system but avoid genetic manipulation appears to be the call.

Boulevard of Broken Dreams. Princetown University Press 2009 Josh Lerner. Amazon UK

Josh Lerner is the Jacob H Schiff professor at Harvard Business School and an expert in innovation, entrepreneurship and venture capital.

Sign up today and "subscribe" for e-mail notification of updates. This blog post forms part of the pro.manchester research into Innovation and Enterprise in Greater Manchester. The views expressed are my own and in no way reflect pro.manchester policy. In no way should the comments be considered as investment advice or guidelines. UK Economics news and analysis : no politics, no dogma, no polemics, just facts.

If chance favours the connected mind - pro.manchester.connects is linking the thinking

Chance favours the connected mind is Steven Johnson summary of “Where good ideas come from” in a five year study into creativity and innovation. In his new book due in early October, he identifies the five key principles to the genesis of great ideas, from the cultivation of hunches to the importance of connectivity and how best to make use of new technologies. 

His conclusion, with today’s tools and environment, radical innovation is extraordinarily accessible to those who know how to cultivate it. By recognizing where and how patterns of creativity occur, whether within a school, a software platform or a social movement, Johnson shows how we can make more of our ideas good ones by developing the connected mind. 

Johnson explains, there are recurring patterns, more often a slow hunch developing over a number of years is more predominant rather than a Eureka breakthrough moment. Good ideas can take a long time to evolve and can remain dormant for a number of years. Tim Berners Lee and his ten year evolution of the concept of the world wide web is a good example.

Final forms are often the collision or collusion of ideas. Ideas in hunch state need to collide and fuse, therefore there is a need to locate systems of connectivity to allow hunches to come together. It’s all about creating a space where ideas can mingle, swap and create new forms. What are the “spaces” that historically have led to unusual rates of creativity and innovation. It may have been the coffee house in the age of enlightenment or the Parisian salon in the age of modernism. Now, the internet has enabled a great increase in connectivity, there are just so many new ways to connect, great ways of discovering new ideas. 

An increase in connectivity has been the primary engine of creativity in innovation and creativity. If the real lesson of Steve Johnson’s book is that chance favours the connected mind, that is why we are so pleased with the idea of pro.manchester.connects. Connecting Innovation and Enterprise to Advice and Finance. pro.manchester.connects - “Linking the thinking”

Where good ideas come from : the natural history of innovation. Steven Johnson is published by Allen Lane on the 7th October. Check out the video clip. Amazon.

Sign up today and "subscribe" for e-mail notification of updates. This blog post forms part of the pro.manchester research into Innovation and Enterprise in Greater Manchester. The views expressed are my own and in no way reflect pro.manchester policy. In no way should the comments be considered as investment advice or guidelines. UK Economics news and analysis : no politics, no dogma, no polemics, just facts. 

Where good ideas come from - chance favours the connected mind,