The beta blog

Showing all posts tagged with Innovation and the future

< The beta blog | Oct 15, 2014

A new way of funding visionaries?

The technology sector has had its ups and downs. With every boom there has been a bust. But tech is still the VC darling. Why?

It’s an important why. Because many chattering techies have been questioning whether the current tech boom/bubble is sustainable.

Tech is having a crisis because the current valuation hike seems to be sustained – to some extent at least - by mega IPOs or trade sales that cause huge ripples right down to seed funding. In short, mega-deal IPOs (like Facebook and Twitter) also result in mega-deal acquisitions, like the eye-watering WhatsApp valuation of £19Bn (by Facebook). In short, the value placed on businesses (that have some desirable IP) by mega-rich corporations, is very different to the valuations we might see in a more normal market. So people are beginning to ask if the market is about to normalise.

The other feature of the current tech market is a relative lack of real innovation – akin to the types of innovation we saw after the launch of various flavours of micro-computer in the 1980s. The three decades after Bill Gates did his DOS-deal with IBM created a phenomenal increase in computing power, a transformation of data storage, the creation of the World Wide Web and the arrival of true, pervasive connected computing with the dawning of the smart phone. The organisations and individuals behind these innovations focused on very difficult tech – requiring new methods of computing, electronics and data transmission. The companies that grew fastest during this period were extraordinarily innovative – companies like Intel, IBM, and Seagate – as evidenced by patent filings and PhDs employed.

However the current big valuation wave is dominated by companies that have, by comparison, less obviously ‘difficult’ intellectual property – companies like Facebook, Twitter, and WhatsApp. Indeed some would argue that these companies’ fixations on user generated content results in companies that are little more than aggregators of trivia. Moreover, they have inspired a sub-generation of entrepreneurs dazzled more by the valuations associated with these firms than by the underlying tech that drives them. Hence we’re seeing absurd valuations again for firms that create ever more niche social networks or ‘communities’. In short, it’s beginning to feel a bit like how it felt before the dot-com bust.

There’s another consequence arising from the current strange valuation wave. The expectation, on the part of some VCs, for quick win exits, has also created a phenomenon known as the A-round crunch. Many of the most prominent Sand Hill Road VCs are more likely, these days, to invest at the seed round rather than at later rounds. There’s an expectation that if a company hasn’t developed a community of tens of millions of users within months of seed-round there’s little hope of a valuable exit. Big social networks need to augment their communities more than they need tech. This mind-set potentially stifles the types of businesses that take time to develop game-changing technologies.

Hence we’re seeing the emergence of a new breed of entrepreneur that relies less on venture capital than on innovation. Indeed, historically, some of the world’s most successful tech companies were boot-strapped – companies like Microsoft and Qualcomm.

In the UK we’re seeing significant growth in alternative funding sources that support these types of entrepreneur who may, indeed, be more technically brilliant, and more focused on creating compelling and sustainable businesses based on intellectual property. PwC works with Funding Circle – a new type of funding market for businesses (and not just technology businesses) that need money but have chosen to take a route other than venture capital. To date, Funding Circle has helped more than 5,500 businesses borrow £370 million through its marketplace. Funding Circle is now the sixth largest net lender to small businesses in the UK. PwC’s My Financepartner will refer small business clients seeking alternative sources of finance to Funding Circle.

These and other alternative funding sources show that venture capital is not the only way. For many business owners the alternatives also represent a means of financing the business that also creates more self-reliance and a greater sense of independence. These are two things that some of the most visionary entrepreneurs need to retain.

This article was written by Suzanne Houghton of My Financepartner – PwC’s new accounting service for growing private companies.

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< The beta blog | Sep 15, 2014

The last private equity value creation lever: digital advantage

Last week I led a meeting with the operating partners at a global private equity firm. The firm in question is a market leader whose portfolio spans industries and geographies, ranging from high-growth businesses to mature ones.

In many ways, this firm represents the epitome of what one expects from a generalist private equity firm: smart individuals investing in and transforming a diverse group of companies.

The operators in the room had more years of experience at the ‘coalface’ of operational improvement than I would care to count, but the discussion we were having was about a value creation lever that most of them had yet to grasp: digital advantage.

The word ‘disruption’ is overused and, frankly, abused. However, there is no denying that the rapid advancement of the Digital Age – the confluence of social media, smart devices, big data and cloud computing – represents both a massive opportunity for value creation in portfolio companies, as well a huge threat to existing value for those who ignore its threats and potential.

We view the advance of digital business as coming in three waves. Operating partners, management and entrepreneurs that understand these three waves will be better equipped to defend and create advantage in the Digital Age.

First digital wave

The first digital wave, that of Digital Commerce, has been with us for some time and is typified by previously offline businesses opening up digital channels alongside existing routes to market. This can be extremely valuable for both cost efficiency and top-line growth. But even if Digital Commerce has been with us for many years now, smart devices and an emerging generation of Digital Natives are changing the dynamics and creating new opportunities.

Non Digital Natives typically look at Digital as a channel on which they can transact, implicitly valuing usability and simplicity. Digital Natives typically look at Digital as some sort of “natural language”, and as an opportunity to engage with their own lives and goals in a visual, interactive and engaging way.

That’s why – for example in the retail sector - Digital Natives value not only bringing the store on an online channel, but also bringing digital into a store. They use great digital experiences as their benchmark; they almost want to walk into a website when they shop in the physical world; they want the option to double tap on things, online or not. So even if a company has been online for many years, it is very likely that a great deal of opportunities exist to create additional performance and advantage.

In our view this first digital wave is all about the Economy of Products and Services.

Second digital wave

If the first digital wave is all about advertising, marketing, selling and supporting products and services, the second digital wave is all about helping people achieve goals they care about. Simple goals can be delivered by well-engineered products (to the extreme the goal of opening a bottle of wine can be perfectly “delivered” by the product called “cork opener”).

But as goals become more valuable and more complex, engineering products and services that deliver these goals becomes increasingly hard. A few examples ? Personal fitness, healthy eating, cleaner home, safer driving, greener/cheaper household heating, listening to music that I really like, etc. These outcomes are not for sale per se, because they are not easy to engineer into a specific product or service.

Why not ? Mainly because in order to achieve these outcomes the customer will need three things that are hard to get:

1.They need understanding their own behaviour better

2.They need some help with their discipline and will power

3.They need their partner/supplier to understand their individual needs and wishes really well.

And that’s exactly what Digital technology can help brands and customers achieve today. Sensor technology (e.g. a Fitbit wristband) can help us see what we do. Social media and peer-to-peer comparison can help us stay focused. Platforms as Spotify can capture the unique way in which we listen to music (what, when, how often, etc.) and use this wealth of consumption data to learn and shape our unique music taste. In-car telematics can give us sharper premiums if we are consistently considerate drivers, and even help us drive in a safer or greener way.

The possibilities are endless. And there is also an additional bonus. In this second digital wave we are not transacting; we are playing a “life videogame” that is fun, interactive, engaging and real, because the goals we are going after are real. .

In our view this second digital wave is all about the Economy of Outcomes.

Third digital wave

The third digital wave, that of Digital Identity, will turn the idea of consumption on its head. Consumers’ data, collected by smartphones, fitness wrist bands, smart gas and electricity meters, car insurance monitors and all manner of other sensor devices, is there to be interrogated by trusted businesses, who can then tailor their offers to the individuals, or broker offers from other players in the ecosystem, like for example a reverse auction.

As a consumer, I will release my energy usage data and receive tailored offers from suppliers. I will release data from my music streaming account and it is up to music streaming suppliers to tailor an offer for me based on how expensive my musical taste is.

Of course there are non-trivial privacy issues, and we are squarely in Big Data territory here. But let’s think about this. The Big Data that the customer fears is a scary entity to which you surrender your data, which will do with your data things you are un-aware of for purposes that you have not approved, and which will give you neither ‘editing’ nor ‘deleting’ rights. We call this the “Selling Big Data”. The “Selling Big Data” does exactly what it says on the tin: it harvests and hoards customer data of all sorts, and crunches this data behind the customer’s back with the objective of selling more things and making more money.

“The Selling Big Data” invokes relevance as an honourable justification, but very often it erodes trust. Relevance or not, the “Selling Big Data” works for the seller.

But there is also another version of the story. We call this the “Buying Big Data”.

In this version of the story the customer does not surrender his/her data, but volunteers it. Why ?

Because it helps the customer achieve valuable goals; because the status of the customer as the legal owner of his/her data is recognised and respected; because the customer has full “editing” and “deleting” rights on this data, no questions asked. In this world of “Buying Big Data” the customer is in control, and his/her data is like a currency. That’s the key: in the digital age personal data is not a product to be sold for a bit of money, but a currency in its own right that can be spent to get to things that money alone can’t buy.

The “Buying Big Data” is where the Digital Economy meets the Trust Economy. The “Buying Big Data” is the 4D image of the customer in this digital world, and it works for the customer.

In our view this third digital wave is all about the Customer’s Digital Identity, and a fundamental enabler of the Economy of Wishes.

Implications for PE firms

For private equity firms, financial engineering has been a diminished part of the toolkit for some time now. The industry today works hard to drive operational improvement within its portfolio companies. For the private equity operating partners with whom I talked through these ideas last week, the value creation opportunity presented by the digital revolution is now undeniable. Efficiencies and opportunities abound from the back office, to the front office all the way into to the customers’ homes.

We anticipate that programmes to optimise portfolio companies’ digital fitness will become as important a value creation lever for private equity firms as programmes to reduce costs, improve working capital management and optimise the supply chain. Private equity firms that can demonstrate a positive digital track record will become more attractive business partners and a more compelling investment prospect.

We have helped a number of private equity firms by assessing digital opportunities across their portfolios and undertaking specific digital interventions, as well as supporting deal sourcing and digital due diligence. If you would like to have an exploratory discussion about the digital fitness opportunities within your portfolio, then please contact me on

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< The beta blog | Sep 12, 2014

Guts and Gigabytes : Capitalising on the art & science in decision making

The growth in use of data analytics in modern businesses is having a profound effect on all aspects of decision making. At all levels in an organisation, managers and leaders have an every increasing wealth of analytics available to inform the decisions which they need to make.

But there is an ongoing tension between those who follow the advice of the data scientists, the analysts and the statisticians and those who prefer to rely on personal options, informed more by experience and advice from colleagues. The difference between the Guts and the Gigabytes.

Jack Welch, the iconic former chief executive officer of GE, said that good decisions are made “straight from the gut”. Since Mr Welch’s retirement in 2001, an era of big data and advanced analysis has been ushered in. Most companies now have lots of data available to them and, increasingly, this big data is being used to provide new insights. So should executives still cleave to Mr Welch’s advice, or has big data changed big decision making into a more scientific process?

An Economist Intelligence Unit's report into the role of data analytics in corporate decision making explores the agenda for big decisions in 2014-15 and the process that business leaders will go through in making these decisions.

This report considers the agenda for big decisions over the next 12 months and examines the role that big data and enhanced data analysis are set to play in guiding the decision making process. The report draws on a global survey of 1,135 senior executives and in-depth interviews with more than 25 senior executives, consultants and academics. Some of the key findings include:

The quality of big decision making is improving. British business leaders are more likely to report an improvement in the quality of decision making in the past two years than the global average, with 83% reporting an improvement and a third (32%) a significant one. Highly data-driven companies are more likely to report improvements in big decision making.

Experience and intuition are the main inputs into the big decision making process. Although all aspects of data and data analysis are rated highly in the UK, data and analysis are only the third most important input into the decision making process, after own experience/intuition and advice/experience of others internally

Concerns about data quality and overload are the main barriers to the greater use of data. Despite the generally positive attitude towards data and analysis, many UK business leaders remain concerned about data quality, alongside data overload. Moreover, more than half of UK respondents (61%) feel that “relying on data analysis has been detrimental to our business in the past”. By contrast, there are few concerns about sufficient talent or skills to make the most of the data that organisations collect.

More people are involved in big decision making at UK organisations than before.The rise in more democratic decision making is not unrelated to the rise in the availability of data, which has encouraged a kind of evidence-driven, and more democratic, approach to big decisions.

Growth is top of the agenda, but cost pressures drive UK businesses to collaborate with competitors.Growing the business is regarded by senior executives in the UK as the single most important area for big decisions in the year ahead. However, because costs and margin pressure are identified as the main strategic motivations for big decisions, executives are looking for more creative ways to build their business without a large monetary investment. More than half of respondents (52%) expect to make big decisions in the next year that involve competitive collaboration, making this a much stronger trend in the UK than elsewhere.

The full report is available here.

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< The beta blog | Sep 10, 2014

Apple has changed payments, how will you react?

For the last three years, I have waxed lyrical about the effect of new mobile technology on retailers, restaurants, banks, brands, and anyone who would listen. During this time we have of course seen a huge rise in mobile commerce, mobile advertising and the growth of tablets. However one area has failed to take off in a meaningful way – and that has been mobile payments and wallets.

There are many reasons why it has failed to take off. In my opinion we have not seen a service that brings together payments, advertising and user experience in a compelling enough way for consumers to adopt en masse.

So the announcement by Apple last night to introduce Apple Pay using NFC (contactless technology) into both the iPhone 6, and the Apple Watch, is likely to be the catalyst we have all been waiting for. I know the initial payment and retail partners are for the US at launch, but I would expect the UK and other markets to be pretty close behind. Bringing payments and retail together is the final piece of the jigsaw that turns our devices into something we used both online and offline, and completely crosses the line between digital and physical channels.

This will mean that we will finally see mass adoption of mobile payments and contactless technology across a range of industries. Let’s face it, Apple do have a talent for really changing the way we live through their products (iPods, iTunes, iPhones, iPads…..need I say more). Of course Apple is not the only service out there, but they are likely to be the ones who will drive market adoption,

The big thing to remember is that this is about much more than just payments. This is about mobile devices continuing to change the way in which we browse, shop and interact with brands and products. Retailers, in particularly, will be able to gain new insights, deliver personalised and contextual communications, and create new shopping experiences.

If you think back to the early naughties, eCommerce really didn't take off until we had payment mechanisms online that we felt were secure and easy to use. With eCommerce those who got it right became winners, and those who did not are simply not around anymore. The same is happening here in mobile.

So my advice would be to take this announcement as a chance to rethink how mobile currently fits into your growth strategy. More importantly, it is not about creating new apps or the mobile web; the implications of this reach into customer experience, analytics, marketing, sales, service and operations.

This is not about digital or mobile strategy, but about creating a strategy which is fit for a mobile digital age.

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< The beta blog | Aug 22, 2014

The rise of multichannel networks in a world in beta

Video viewing habits are evolving rapidly, not just in mature markets, but globally, and especially among younger audiences. The rise of digital video has been nothing short of spectacular, and most of it is attributable to one player: YouTube. The Google-owned firm now attracts 1 billion unique monthly visitors — equal to 40 percent of the online population worldwide — who watch more than 6 billion hours per month.

New ecosystem, new players

The numbers are staggering and have attracted a new kind of player to the media and entertainment industry — so-called multichannel networks (MCNs), which are quickly building a nascent business on top of YouTube’s massive user base.

MCNs are outfits that curate their own video content and partner with video websites like YouTube to syndicate, monetise, and manage content they curate from digital video talent. Now, traditional media companies are trying to get in on the action, by buying stakes in these new networks or acquiring them outright. Some MCNs have also started to produce their own original content as well. The tone, voice, and production style of their short-form videos typically emphasize an unfiltered “authenticity” that appeals to a millennial or even younger-skewing demographic, as can be seen through the videos of MCN-based YouTube stars like teenage fashion sensation Bethany Mota, video-game critic PewDiePie, and Truth Mashup, an online comedy show.

Challenges to traditional media companies

The advent of MCNs has attracted considerable M&A attention from larger media companies looking to expand their participation in digital video, and more deals can be expected going forward. But because they are so new, and because their business models are not yet established, MCNs present real challenges to media companies when it comes to their integration and evolution toward long-term sustainability and value creation. The playbook for the traditional network and pay-TV ecosystem is not the right one for MCNs.

Although traditional companies can leverage their experience and scale in building up their new acquisitions, they must be very careful not to break them in the process. MCNs have succeeded by moving very fast, developing edgy content, and being willing to experiment — not exactly key capabilities among most big media firms.

Through the lens of MCNs, media companies can master the digital video ecosystem, while at the same time using their own capabilities (e.g. in packaging, brand integration, and monetization) to improve the MCN business model. If the companies now buying these MCNs are to help them grow, they must work with them to produce more of their own content, seek out global audiences, and diversify their distribution and revenue streams beyond YouTube.

Most important, they must foster the capabilities that have enabled MCNs to grow as fast as they have so far.

For Strategy&’s full analysis of multichannel networks click here 

Blog post written by:

Christopher Vollmer | +1-212-551-6794 | @chrisvollmerLinkedIn 

Kristina Bennin | +1-212-551-6140 | @kristinavLinkedIn

Sebastian Blum | +1-212-551-6109 | LinkedIn

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< The beta blog | Aug 12, 2014

Beyond the hype: why the sharing economy in our capital is here to stay

Below is a slightly longer version of a piece I wrote for City A.M. on the sharing economy in London. For more insights see PwC's Megatrends.

This was the summer the sharing economy finally hit London. First we had black cabs bring Whitehall to a standstill protesting over the introduction of Uber, an app that allows car owners to become taxi drivers with their smartphone. Then plans were announced to remove laws controlling short-term rentals, opening up the door for Airbnb and co to expand in the capital. And BMW recently announced it would embed JustPark, an app that connects parking spaces of 20,000 people – mostly in London – with visitors and commuters looking for a slot.

But does this wave of sharing start-ups represent a new direction for London’s economy – or is it just another transient tech boom?

Airbnb’s April funding round put its valuation at $10bn – higher than several leading hotel groups – only to be eclipsed by Uber’s $18bn price tag awarded by investors in June. But we’ve seen big valuations come and go before. Remember Myspace? In 2007, the social network was worth similar sums – four years later it sold for $35 million.

But there’s a solid reason to believe that this time can be different. Far from a fashion, or a fad, the sharing economy is the result of long-term megatrends colliding together, showing no signs of retreating any time soon. There are three main driving forces:

  • Technological breakthroughs: the connected digital devicesthatmatch demand and supply are becoming widespread and easier to use than ever before i.e. Uber app replacing ‘The Knowledge’
  • Resource scarcity: there will be increasing pressure through pricing – and our conscience – to adopt more efficient, less wasteful modes of consumption (e.g. car sharing over ownership)
  • Social change: we are getting ever-more comfortable in sourcing trust from a stranger (e.g. using peer-review systems like Tripadvisor)

PwC analysis released this later week, shows that by 2025, these megatrends could spur on the top five sharing economy sectors to generate around $325billion in global revenues, up from $15billion today.

And cities are best placed to generate the lion’s share of that growth. Why? Firstly, us tightly-packed urban folk create the critical mass that ‘sharing’ platforms need to become viable businesses. The average car club takes 17 private cars off the roads, but you wouldn’t set one up in a small rural community. Secondly, whilst we may baulk at talking on the Tube, our proximity to each other actually makes us quite open to trusting one another – and trying something different.

To make the most of potential opportunities, an environment for sharing companies to flourish is needed. The signs are that London is creating just that. Where regulators in New York have begun challenging the sector, No.10 recently brought insurance leaders together to work out how they can better support removing hurdles. The Mayor’s office recently announced the ambition for London to become the car sharing capital of the world by 2020. And with that mind-set, there’s nothing stopping the capital becoming the home of the next sharing business model to hit the headlines. 

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< The beta blog | May 19, 2014

From a nation of shopkeepers to a nation of web entrepreneurs

In my role, I speak to a lot of people who are passionate about working with entrepreneurs, but have been really impressed by the entrepreneurial spirit shown by two members of my team - one who left us last year to start his own business and another who is seriously weighing up the option to join one of his friends in their start up as a key member of the team. If he is reading this, I am sure the former individual would agree that the transition from a large firm to boot-strapping your own business was a huge challenge, but one that he has relished and enjoyed, even when things didn't go quite to plan.

This got me to thinking how widely this must happen in other organisations and in the population as a whole. You often read press stories about City workers who have given up their long hours to do something less fast paced, but running your own Tech company isn't a 9 to 5 job, so the reward clearly comes from other benefits including thriving on overcoming challenges and having more flexibility.

Napoleon famously referred to the UK as a Nation of shopkeepers, but in 2013 that shop is more likely to be an e-commerce portal being run from home, a shared office or a Tech incubator. Recent statistics showed that more new businesses were started in the Silicon Roundabout area in the last year than in any other area of the UK. This is no fluke given the focus, investment and general buzz around East London as a hub of talent and innovation, but it reinforces the message that the country's entrepreneurial spirit is alive and well and the Tech community is at the heart of that.

Add to this the fact that there has been a 105% increase in the number of graduates who left University in the last year and who chose to work for themselves as freelancers or micro business owners, and this makes me feel very positive that the Tech sector in London and the UK is going to thrive and grow even more in the next few years.

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