Tuesday, January 24, 2012

Understanding "Markets" in Economics

What's a Market?

The writer's of Wikipedia state in the first line of their discussion on Markets: "A market is one of many varieties of systems, institutions, procedures, social relations and infrastructures whereby parties engage in exchange. "

Markets are necessary for my line of business (software development).  If I was a thief, I wouldn't need a market.  If I was a government I wouldn't need a market.  But I'm a capitalist, so I need a market.  And my hypothesis is I need a FAIR market for sustained business activities.

I will re-define market for my own purposes here, but I think it's a useful definition (if more specific).

A market is a system of procedures where a buyer transfers stored value to a seller who concurrently (or as concurrently as possible) transfers goods or services to the buyer.  For the market to function well, and all parties to be recurring members, a mutually agreed upon, fair and sustainable exchange rate needs to exist at transaction time.

So what?

When you start a company; known in the lingua franca as a "start-up" (go figure!), you need to find a market.  From my definition, as the seller you need to:

  • find a buyer
  • find a service or good
  • find a fair price
  • find the system of procedures for exchange
These four things make up your Go-To-Market strategy.

There doesn't have to be a lot of buyers.  For example last year Boeing had a handful of buyers, but their price of service and product was fair enough to keep Boeing going and bring more buyers to the table later.  Sometimes the system of procedures for exchange is not well defined.  For example how do you sell home-grown pot to people on the street?

Having this system is a very important go-to-market strategy component.  Can you name some places for desktop/laptop software sales?  How about - Best Buy, Download.com, Amazon.  What about Mobile applications? iTunes, Android, Ovi.

Knowing where the market is the responsibility of the seller and the buyer - but most work to get the word out  is being done these days by sellers.


Let's now apply this to business plans that come across my desk.

  • How many buyers do they have?  How do they define a buyer?
  • How do they offer their service or product?  What benefits are there to the buyer and seller?
  • What's the price of the product?  Is it a market sustaining price?
  • What existing market or procedures are they using?  Are they giving their buyers directions of getting to their market?
I find this the weakest in most of the plans I see.  I can only suggest making friends with a good marketing person here.  This part of the plan becomes the "gray-area", where there is no black or white, plus you need to use the "gray-matter" between your ears to see if this is reasonable. 

Maybe it's weak because engineers can't think in fuzzy grays.

Thursday, January 12, 2012

The OpenText Guy and being a good Drummer Boy

Who should decide my freedom? me.
Who is responsible for my choices? me.
Who should control the federal Innovation Grants? elected officials.
Where should they get policy advice from? experts in the field.
How should I qualify for these grants? only by fulfilling the criteria.
Background: I didn't vote for Stevie Wonder's government in the last election.

Now begins the rant.  Parents, please remove your children from the room.

I haven't been given access to every SR&ED and IRAP claim or the way the money was used in the history of Canada.  However I am going to make a bold statement here: I bet there was abuse.  But, I believe there is (and will be) abuse in every place where money changes hands: in filing taxes, in paying taxes, in collecting refunds, in applying for grants.  And in every department: Agriculture, Natural Resources, Defense, Human Resources, you name it.  If you use the Prone-To-Abuse Trump Card in your argument against innovation credits, you are a POLITICAL ASS, a puppet for the white-bread-eating bogey-man-fearing bean-counting mandarins that provide government services to us (us, BTW, the people that actually build the wealth in Canada - not the bank of Canada, not the department of Finance).  When there is abuse in a department (let's say 5% of employees).  Do you shut down the department or do you change the employee's behaviour?  Do you enact rules so this doesn't happen?  Do you shut down the company for 5%?  When you eat people's bagels in the cafeteria and don't drop in a dollar in the donation box to cover the cost?  Do you commit suicide because of the gross abuse you have committed?

WARNING: Analogy shift here.

Say I'm a farmer, and I know that the expectant lifespan of my fruit trees is 30 years and the economic value years of those trees is the years from 5-20.  So basically every 20 years I need to have a whole new orchard of trees to keep my business afloat.  That means that every year I need to nurture young trees so that they can reach their 5th year so I can gauge if they have any economic value.  It would be pretty stupid not to support trees at this stage and give them a chance to grow.  Because bringing young trees into the orchard is the main way I keep my farming business going.

Shift back here.

What do the following companies have in common: Odesta, NIRV, OnTime, Dimensions, Lava Systems, Bluebird, LeadingSide, Centricity, Gauss, Eloquent, Corechange, IXOS, Vista Plus Suite, Hummingbird Ltd., eMotion LLC, or Spicer Corporation?  These are all smaller companies or products acquired by OpenText.  Awesome strategy huh?  Our trees are getting old, and let's keep the orchard fresh with young trees with a future.

Now if small businesses are the key for big business success, why would someone take-away the SR&ED credit from small companies?  Only an ECONOMIC ASS, would jeopardize the future of small business in Canada.  One employee grows to two, two grow to three.  That's the reality of day-to-day business growth in Canada.  As you get bigger your corporate growth only begins to match the birth-rate, unless you buy smaller companies.   So why, oh why, would anyone propose dropping this credit for small companies?  I know, because there are lots of small companies and they make up the majority of claims.  That's my guess, anyway.  Ok, so it's about saving money.  So let's not drop the funds evenly across the board, let's just cut the small company's portion.  Could it be because they don't have a voice? a political voice?

When I look at companies to invest my time and money in, I look at broad indicators of what they are doing and what the political and legal frameworks are for these companies.  Most WTO and OECD nations have some sort of research refunds/grants/credits/incentives for small business.  Some are directed in only certain areas, some are broad.  I'm going to be less interested in riskier ventures if I know that these innovation credits will be harder to come by in Canada.  I am.  It's because the government is saying "F**K YOU, small business doesn't deserve our help, we all have big companies now and we have no clue.  There's the door, please leave."

So here's the next proposal.  Let's give it to Universities.  Ya.  There's no abuse in those institutions, and they're right on the ball on the economic-feasibility stuff.  (If you have more than a grade 12 education in Canada, you don't need me to explain that last sentence.)

[cut to Andrew, sitting behind the desk, looking somber into the camera, dim lights behind him, put a warm light on his face.]

Starting companies (one of my greatest joys) entails lots of risk. [pause] Life ends in death so these risks are not so bad.  Starting companies requires a good mix of Courage and Stupidity.  I have excelled in both.  Once there were no tax credits. (There was a time of no personal taxes too!) Life will go on. Governments will pay for Canadian flags to be sold in Quebec, for memorials of the war of 1812.  Innovation will be stifled in Canada.  Dollar stores will be the most influential store chains.  These chains will claim to have more and broader clientele than any other stores in Canada.  We will continue to dig up things and trade them for Chinese goods.  And then one day [very dramatic pause] the Chinese will take our land, all because the OpenText Guy didn't have the balls to stand up for the innovative courageous and stupid visionaries that start small businesses but chose to be a good Conservative Drummer Boy.