Wednesday, October 30, 2013

How do We Make New Steve Job Clones ?

Firstly of course we will never be able to recreate Steve Jobs in a clone which would behave as he did and succeed as he did!

However we have some lessons to learn from Apple, Invitrogen, Texas Instruments, Nike, Oracle and so on and so on, the great USA entrepreneurial companies who became corporate giants.

How much of their entrepreneurial spirit they retained is debatable, but they would have had no launch pad to Wall Street without years of being successful, nimble, customer orientated SMEs.

IN the UK and Europe also, many of the  technology companies so successful in the post war period came from the combination of innovation and entrepreneurship : by in large though outside Germany they seem to have waivered and been victims of take overs and mergers such that their soul is lost- the esprit de corps is destroyed, the collective organisational memory slowly erased.

The future of fighting against Samsung and LC, and the loss of manufacturing and design implementation jobs to the far east lies in the educational culture we are building today. Initiatives to expose undergraduates and university researchers to entrepreneurial skills and commericialisation programmes are in place, and the link between research funding and the application in the real world was established almost 30 years ago for the wider range of R&D at universities.

There are some mistakes being made though on both sides of the scale :

To take the last point in the preceding paragraph first - commercially directed research has two fatal flaws - science is a creative, inquisitive phenomenon which may pose some theories but used to follow research by pure interest and intellect: now researchers have to use inordinate energy to tailor the look and content of their work to match potential commercial applications..

Further more many university spin out companies who are IPR capsules are on the one hand an ego trip or rather nerd tourism into capitalism to do more of the research they want to do, just wrapping it up in a further commercial pretty paper. On the other hand they are on a "wing and a prayer" because in fact the analysts who support the investment really don't know enough about the market and the technology to do anything else than really be investing in an emerging "industry" or worse a "buzz word" like proteomics, which investors will buy when clad in graphs and figures.

Industry too has had some major failures in this respect, the biggest I can think of is actually the vast investments made in combinatorial chemistry and high content screening- this all looked great on paper and early lab research however the return on investment was inversely proportional and most companies have moved to a more directed approach in researching disease cause, sites of molecular interaction and "pharmaphore" based chemical entity drug candidates. Then come Pfizer with Viagra and earlier, Leo with Dovonex for psoriasis, both areas poorly provided for in the market and both drugs developed from the side effects of previous entities used as medicines! Alexander Flemming made the greatest discovery of the 20th century in medical science by accident.

On the other hand grandoise  pure research programmes like the human (and other species) genome project have actually destroyed many potential spin out companies by making patenting in some areas harder to achieve by the work being more accessible and more published around.

What is lacking here is the pursuit of excellence as a purely intellectual exercise: in fact being able to define that you are pursuing excellence should actually be an exclusion criteria - basically you are a nerd and you love what you do, and you are good at what you do.

Now we come full circle to who the next great Western hope of Steve Jobs clones will be: well they are nerds who choose to commercialise, and make that decision based upon technology they know customers want not investors, not business models and not in the first instance filing patents.  They will take with them other nerds who cannot do the entrepreneurial bit but can convert the science into commericalisable technologies. The stage away from this is then people who can "productise" these commercialisable prototypes and then those again who can make a profitable production line or contract out to one.

We need to get back to more pure science while at the same time educating people about how their related industry works and how to be entrepreneurs to make trading businesses work.

IT is a particular branch where the industry was previously pretty close to academia and academic research could find commericialisation a rapid route. Biotech, or rather bio-pharma, has always been seen as a long way to trading, but that need not be the case as you can sell your IPR as a service as much as you can as a license from a patent, and thereby add value and retain industrial secrecy around the little bit of magic which earns you a 60% gross margin.

I am going too fast and a little too disjointed for you dear reader: let me close the loop on what I mean here as a good academic spin out environment for technology and start up SMEs:

There are two cultures we need to nurture: the idea of centres of excellence or what you could more innocently call nerd centres where the best, most committed minds gather to do what they find interesting. There needs to be less directive funding of science! More room for creativity and results based on original discovery, scrutiny of others work, theoritisation.

The other stream is to build a culture for entrepreneurialism at all universities: this includes the nerd population as its main source of candidates, not also ran business students: great some business students will get rich on some washing and cleaning, or trite consumer web service but they will never be the next Steve Jobs because they have so little science, so little real technology. Scientists can and do make the greatest entrepreneurs. A nerd with a passion for their subject is maybe immersed in that for nine years at University and given the right social skills to become an entrepreneur they will make a journey into business that the business graduate will never be able to make into leading a technology new enterprise.

I actually would recommend that universities look to what the trade off in having these non trading IPR companies and patent licensing versus getting more funding for the core science and developing a culture where trading companies spin out with their technologist researchers. That is to say avoid making these bubble companies who need feeding with soft capital all the way until they get inevitably bought out or go bust. Also patenting and commercialising can slow down research in a specific area or actually quite a wide area of science if everyone is trying to patent, because that locks away publication and some degree of progress in the field which could have lead to several nearer market, entrepreneurial companies estbalishing themselves in the area as competitors or each with their own niche or particular product or service offering to the industry.

There is the little crux of the matter: entrepreneurs see the near time money, sometimes they need soft capital and eventually VC to get there, but they see the business in terms of customers, selling, income and profit in that order. Commercialising academics see a new source of funding for science, access to a higher or sustained salary and a feather bed of other people's money and other people being in-touch-with-industry.

There is there in a case then for graduates and post docs to work in industry on a sabbatical nature - or part time - in order to be more in touch with technologies and production methods for those, which are the application in practice for their science to supply benefits in the real world -- no matter how esoteric they may seem to you and I for that industry!

Major corporates have centres for entrepreneurship and also in licensing,  A&R departments if you like, and it would be interesting to gauge more about the success of these versus standard R&D and versus buying out SMEs who have run either as trading companies which I prefer or in the established model for IPR based companies to "exit" by being acquired.

The next "Steve Jobs" will be a leader of nerds and not a followers of business gurus that is for sure.

Technology Start Up Companies and SMEs and Working Captial Concepts

I blogged last time about cash flow and being a cash positive business or for that matter household. This last blog touched on technology companies, and in the west more and more of us had better end up working for high tech otherwise we will fall behind into a malaise of false value creation which caused this major recession!

There is an irony in this last statement - it can be argued that it was the over valuation of technology companies, especially internet and bio-pharma, which lead to the scenario where high returns on investment turned away from mere overstating hopes for revenues from technologies to outright distortion and criminality based on property. I don't know if in terms of actual monies if there is such a cause and effect relationship, with the "sub prime" fiasco being offered as a lifeboat to investors or used as a band-aid over mediocre performance of technology stocks I don't know.

One concept the last blog and the preceding paragraphs skirt around then is the true cash-flow technology company - a trading business - versus the technology development company -. the R&D money capsule.

As you will know about me I have little time for the latter: I have given my reasons before and will wander into a rant on why I just don't like R&D money capsules. Essentially there is a key difference in personnel which creates a recipe for failure as follows:

These type of businesses are usually started by a "nerd", of a tech-geek and worse it is usually a wee crowd of them in post doc' type or regus professor positions. Otherwise they are slightly geeky nerds who have worked in commercial technology and been shunned from internal R&D resources.

When VC or even soft capital get involved the company suddenly gains a layer of management who allegedly are a good fit from a tech background. Invariably they have quite different experiences and the key CFO has little sense for the science what so ever.

Now what is missing here? Great ideas and the best, dependable management to spend the cash from the net working capital?  Well the one person who is lacking here is an entrepreneur or a team of entrepreneurial leaders.

The reverse is true of trading businesses - yes they have plenty nerds but they have a super geek leader who knows how to make a deal and how to make profit from selling stuff!

There was a little joke played in VC (venture capital) environments when a viral campaign asked them to review the proposed team for a new IT hardware and OS firm. The curriculum vitaes and CVs were seen as a joke, nothing they would invest money or even more time in. The team being presented to them anonymously were the Apple team from the 1970s.

Now back to the last blog theme on cash flow: In the trading business then positive cash flow in real periods is the life blood, while in the technology bubble cash flow is a paper exercise until it becomes obvious that they will need to spend a way larger amount to make their milestone, or the promises of the technology have proven to be less of an incremental benefit than anticipated in the early market. Worse, the key patent is rejected for the reasons above.

There is actually a third way, a hybrid type company: this actually either from a capsule who decide to raise more cash by selling some of their labour or ideas, or the reverse where by a trading company decides to start an R&D project big enough to change the essence of the main cash sources and outgoings.

I can't say I have met any of the latter, but several of the former spring to mind in biotech and in fact in the oil technology business. Due to tax reasons, the route to developing either a trading wing or a major R&D investment usually results in the separation of the companies into two entities or often three, with a holding company above the two and owning perhaps some assets there in. This is a shame because it will bring in new, non entrepreneurial accountants basically, that being  with high salaries!

There are actually many Steve Jobs in industry who unfortunately felt the heat of becoming a wall street listed company and got out. Invitrogen (life technologies) and a score of other biotech tools companies it eventually eat shared this story, where the entrepreneurial core bailed out. Some companies survive very well, others fail or get taken over rather quickly as they loose their soul if you like.

Steve jobs stayed the course by always knowing that he needed to use money people not the other way around. He was the "apple core" , the nuclear reactor with a driven, domineering yet charismatic and diplomatic personality. He saw along the way people who he though could work with him, not over him or around him. Thus he could continue leading the market oriented technology development and eventually years of sticking to being arrogantly different and subtly stylish paid off with enormous benefits to the company and stock holders.


Tuesday, October 29, 2013

Cash Flow- Discipline for SMEs

Two things I found out - one I had been doing far too much management accounting which  I was not getting paid for, and secondly I had invented my own perfect cash flow forecast and analysis spreadsheet for the minutiae of home economics.

This little video sums it up pretty nicely, and I have been through an hour or so on youtube and really this is the deal anyway! ( the business owner looks and sounds a bit like Scarlett Johansson too)

The most interesting issue is that businesses can actually survive with no profitability far longer than they can without cash flow. When the cash in versus cash out is negative when the last bills come to be paid, then technically the patient is dead: the heart has been deprived of blood and dies: the company is bankrupt.

In fact cash flow analysis and planning will help a profitable company avoid "liquidity" problems or actually going bust, by allowing company to act in the following ways:

1) It is a discipline on actual costs and actual incomes played over a realistic time period, usually quarterly and monthly but also down to bi-weekly.

2) It helps you understand that your gross margin contributions are actually high enough to contribute to positive net working capital, a financial analysis which is really a cash flow analysis plus any saving in cash and assets which could be sold to raise cash in the short term.

3) with one and two in mind, it means that cash reserves can be put aside to
a) stem seasonality in sales income
b) reduce reliance on other "current assets" by making crisis more forseeable or on the radar earlier
c) ensure there is always enough money in the bank to pay bills
d) cover annual or seasonally large "overhead" costs or investment costs

4) taking all into account for a small business or large, it means using analysis tools and planning define and can control the  parameters of when the wave of cash comes in from customers and when it goes out to employees, creditors and suppliers.

Good analysis and planning mean that you as said above, plan to have enough cash in the bank to pay your liabilities for that period, and in a struggling business believe me that period is actually defined by the point in the month when you have to pay your employees and you have to pay your bank, because not paying either will lead to a bigger crisis in confidence and law breaking.

For larger businesses cash flow has impact on financial accounting as well as what we are discussing here, management accounting which is operational: a company must actually prove it was profitable usually by presenting annual accounts which include really a summary of start cash and end cash for the year, and total outgoings and total income.  There is a huge game to play in getting cash in longer before it must go out again and using "virtual profit" or rolling gross margin to fund a business while creditors are paid on a basis which is delayed to achieve a temporary positive cash flow.

Back then to the topic of WHEN to define your period start and end for a small company- a sensible approach is then to have the start period actually as month end last month and the stop of that period being the day before you have to pay your employees and maybe say a week before you have scheduled to pay your bank loans and any overdraught settlements.

It may seem nice and neat to do it month start to month end but then you are getting into a "nice to have and to look at" cash flow analysis which does not diagnose the patient's health until two weeks after it needed to.

So say that we start month end - we expect to get paid in a 31 day month by all 30 day customers billed in the preceeding month and any work on 14 days closing on the 16th of the month. We then maybe have in that some leeway for electronic bank delays (suspicious net positive cash flow skalduggery in the banking sector!) and actual money in: no issue, as long as we know what we SHOULD get in and that this amount plus starting cash in bank or easily accessed reserves will cover our planned outgoings to say week 3 of the next month, the 21st - the day we file payments to employees and assign monies to pay debts.

Now you see the importance of leeway- in another analogy, we have some wriggle-room here for the small business - we actually have three weeks in which to collect all our income or alternatively, reschedule our debt or raise more cash from or towards working capital.

So we have a discipline of getting money and being nervous about there being enough for quite some time maybe, until we realise how nice it would be to spend less time chasing debt over 2 weeks from customers and cover some potential bad debt from their side too by building up net working capital or gross margin on sales so that we can cut back on accounts receivable and pay more sales people....

Also then, we can then look more at the bigger picture and look at that seasonality or to cover potential down turns while we liquidate assets or reduce costs. Furthermore we may want to use a particularly cash positive period to reduce debt or invest in the business and make ourselves more tax efficient relative to ambitions of the company and net capital worth of the company.

Then we can look at using month start-month end and quarterly instruments which use the same basic information, but then we have actually in a year where we operate effectively 49 weeks, 180 days or so, we reduce the stress on the organisation by 60 days if you like: we have 60 days longer to analyse cash while we know we have enough cash on hand- We can then take extraordinary costs and events into account as just that, and go pleading for longer line of credit from suppliers and new loans from our creditors.

Fundamentally though, for many SME's a three week cash flow analysis cycle-projection, and a quarterly statement to the board of directors (excluding extraodinary events) will help you face the facts of whether your break even analysis was correct based on your initial cost-sales calculations, and what you need to do to pricing or volume of sales to increase income, and what you need to do on the other hand to reduce costs.

The three week discipline is very focused on keeping the bank happy, your employees working  and also on just running a tight ship in front of all parties so that you are known as a serious business. It also in fact means that with a reasonably good accounting set up for payable versus receivable and management attention to costs and bills, that if it is delegated away from core entrepreneurial management then the self discipline for the accountants means that they know of the cash flow shortfall by the end of week one of the three weeks, while if the balance is at least made ( banked cash IN equals or exceeds payments out two weeks later), then they can concentrate on those two weeks ahead on final notices to overdue customers and then take the last 2 weeks - ten working days - in collecting accounts receivable to be banked by the start of the next analysis cycle instead of having the two month end tasks collide- ie in week 4 they are preparing an arbitary cash flow from day 1 to day 31 ( or 31 to 31 as some do) at the same time as trying to make it happen.

The period is last working day last month to day of payment, but the analysis point is actually about one week into that three weeks when the balance is reviewed as a health statement to management that this month the heart will at least beat.

In terms of financial reporting to the banks or authorities the cash flow analysis just needs that arbitrary historical data per calendar month which is difference accounts payable cashed to accounts receivable cash. This is then done often quarterly for the board or some authorities and not presented until the data is analysed the in the weeks subsequent to the quarter in the calender being finished.

As you see then, you could easily be lead into arbitrary accounting practices by employing accountants who are too financial accounting oriented- ie counting the beans and calling the score when the game is over, rather than looking at the play on the field at the right times to be able to alert you to a short fall in real ability to pay your people. It is though rather easy to employee people on the right footing to operate in this way in an SME though, or realign an accounting department to be more focused on cash flow.

Really looking at debt ageing and days to payment from receipt goods and so on are academic exercises if you cannot get the lion's share of the money you are owed in on time to pay bills, and use the positive contribution from margin above covering the overhead costs effectively over a longer term to  pay large seasonal liabilities, span seasonal low income or fuel more investment in your business.

Suddenly you can find that you have investment money you did not know you had, but remember that you cannot avoid "death and taxes" if there is not cash later: hwoever you can indeed rob Peter to pay Paul using cash flow. You can gain a lot of investment money by stretching your cash flow out - longer terms for suppliers, shorter terms and cash % of full work on commencement

Take two of the many SME's I have worked with:

1) The effective CEO ( being banned from being a director) in one business services company said openly to we in management that we used suppliers to fund the business- ie we had the net flow of cash in with the gross margin on top, way before we paid them. We would borrow short term from them by either having goof lines of credit, or avoiding paying them and then paying small interest payments on each bill. Further to this, any mistakes we could correct and "sell out" anyway, were disputed such that those outgoings were frozen relative to the actual income we managed to get.

2) In the drinks importer and distributor, we had a good deal of customers on account- that is to say a consolidated month end bill with 30 days to pay. Now, you can believe that the first working days of the new month were hectic, because they would stock up to hell with beer and spirits knowing they had about 55 days to bank the money before they paid us, and then in the mid nineties, they still had " the cheque is in the post love" to reply when challenged beyond 60 days.

On the internal side though, for all those "debtors" we had a CFO meeting every bloody friday afternoon to see who had not paid and who would not receive any more stock until they paid their terms.  This was a discipline also on the "lion's share" of the incoming cash to the cash flow too as larger accounts were confirmed payed or expected each and every week. Now the bar and club sector was run by enough independent wide boys and sharp small chain owners to mean that you had to stop any more sales to some and offer poorer credit as soon as they went over their line of payment and limits were set to many's accounts until they showed they could pay.



As first an account manager and then a project manager and later a specialist consultant in marketing, I was never really that exposed to cash flow until companies were at death's door. I saw it as boring, while being more interested in having enough resources and quality to deliver on time to the customer such that we could bill out on time-. that much  is true! However the topic may be dull, but having a grip on the realities of it will help you be a more respected manager in an SME and of course if you become an entrepreneur, you will have the attitude to be disciplined as hell about positive cash flow and being able to show your financial backers that you have a solvent, viable business running to plan or at least sustainable.

As I mentioned at the start, for my HOME economy, I divised on my own back based on a revenue analysis P/L statement actual start-end cash flows with an idea of potential bank balances at period start and end.

I should have done this on a shorter period that the calender month at some points in time, because it came down to panicing! However luckily income as an employee is 99% predictable for each quarter forward given I get usually 3 months notice in the contract, and bills etc are at predictable time points, with history from several years, and they have a line of credit which allows for some robbing peter to pay paul.

Tuesday, October 22, 2013

How I would Turn Around A Web Company I Worked at Once

A decade or more ago now, I worked at an internet hotshop which was a little anonymous (due to a name change in part) but their capabilities were very well known in the regional internet supply chain  and the company managed some significant quality brands.

I write this aimed at the young  manager as much as the founder/ lead  entrepreneur .  Are you in financial trouble? This is likely to be cash-flow,  maybe some overhead issues, or caused by the nature of losing big clients, expected funding rounds or key employees.

Where do you start to turn your company around ? How can you do this when extra funding, over-draught and loans are not forthcoming?

 I was a project leader and became a shop floor manager for the whole internet show once the first raft of rats left a rocking ship at least, taking a big client with them.

Today I look back and realise I had all the skills actually to have turned around the place, on the internet division at least, I just didn't have the authority and to be honest because of that I wasn't going to beat myself up much more than I needed to. I did the job in front of me to try and fix my end of getting cash in the door not the restructuring.

Was the Company Worth Turning Around ?

Well firstly the company was in a position to be turn around or a lifeboat to a new venture with the old employees could have been created pretty easily. From our side internal strengths,  we had good brands, good experience, and a reputation for innovation and quality.

The company had enjoyed organic growth but needed some restructuring as the group was very top heavy ( it folded with 8 directors and 6 employees in the final dying days!) Also the market was ready both for the back end driven web sites, the tailored web shop solutions coupled to the quality graphic design and creative house with capabilities in traditional media - specialist in outdoor ad's, PR, events and through-the-line campaigns.

The resources side regionally was also very good with many graduates having ASP skills and some taking Cold Fusion themselves ( I actually embarked on using key core code in ASP to replace as much cold fustion as possible as it was too specialist a language) . Further to this,  several trad and start up agencies went bust in 2000 in our region  due to the turmoil and there were account managers with top consumer brand manager networks to be grabbed at what would have been a tiny investment in terms of ROI.

Why Did the Company Fail ?

So the company of theives could have been turned around but they had a major issue with two basic financial elements -the fulcrum effect due to high overhead and loss of a huge source of income  and the resulting cash poor situation which lead to a crisis in cash flow which  killed the company.

So to paraphrase they went into " organic death " !

The company was exposed to the fulcrum effect because they had so many directors on relatively fat salaries and profit sharing, and because they had been spoilt with one big fat client for many years. The internet account for this client was also the lions share of income on our side. The company did have some cash reserves, probably three months trading, but they had to pay off the internet director while also just carrying on pauing themselves the same high salaries for long enough to burn out rather than adjusting that. This is fairly typical in the advertising industry, SME side because they lose a client an just hope to get replacements in the next few months. It can be horrible "lumpy" business with cataclysms.

On the internet division I worked in and took over, we had issues with profitability mainly because of project creep and poor control over client approvals and payment plans. This meant if we just take this as the SBU in mind, that we had a major cash flow issue which were addressed incorrectly: staff who left were not replaced and in effect the company could neither deliver on time or quality without postponing some projects (buying time, which I did) . It all became very painful with a lot of time wasted on reporting the day to day progress on web sites to management who did not understand the programming.   Sound familiar? I guess there were countless super-nova internet agencies who went through the same implosion in 1999-2002.

How would I have turned the company around?

1) Cash is king in this situation

Cash flow is the key factor here: to put it as a stand up business idiot savant has on youtube, your company can live without profitability for a long time, over any horizon you can see, but without positive cash flow it can die tomorrow: cash is the blood for the heart and brain and the legs which do the work in a company, profit is a symptom that the patient is finally fit.

How do you get cash flow working better for you in a web company or in a business services or high tech , high investment, low income company for that matter ?

a) Charge out!

It may seem simple, get your bills out on time and check the customers pay up :   but getting the correct set of agreements to send out invoices is something which can be overlooked - in terms of cash flow this means getting the pay days forward so the cash is banked - every day counts - So internally the product must be "shipped" ie installed and the client has to have signed off.

This cannot be let to muddle around any time at all- project and sales get the sign off to accounts who do the invoice toute suite, even couriering it over to the client.

disagreements on quality or amendments have to be taken quickly so that the majority of the bill can be presented (this , we will of course come back to)

The mistake my company made was invoicing to buy more over draught with the bank - this was a plaster on the gaping sore. Basically they were on the edge of fraud because they told the banks and investors what they planned to invoice out before they knew that the work would be approved.

b) Charge out more often. Divide and conquer

This was a key issue for internet technology companies and still is: very often they did not have any plan about how they would bill clients- some had 50:50 if they could , but mostly there was just all that fluffy lovey internet shit going around at the time that people just presumed it would be high margin, enough investor liquidity in the business,  and the cash flow would take care of itself.

Worse, large sums of money could be withheld on the minutiae of corrections to web site content and graphic design.

To turn round a company from being a "paid later"  you need to go to the clients you know are committed to you and say that you require a payments plan - a lot of work, as was the case, was invested in them already and you would like to bill out over the next two months. Outside organisations in turn have their budgets and related cash flow so may be delighted to do this- use-it-or-loose it periodic budgets can be smoothed out so that a major web investment looks like run-rate marketing spend over four consequetive months!

Other clients will say "show me the work" and then you have to get into the smoke and mirrors: I recommended making HTML "dumb" mock ups of the work flows of several cold-fusion and ASP web sites (PHP was ironically an amateur joke back then!) so that we could wow the customer and make it look like an alpha-test.   We will come back to the vaneer of quality and Gee-Whizz factor in internet companies or technology companies later.

This is where though you have to start negotiating and being to a degree open and  honest with the client about the company requiring cash flow - you can dress it up a little

The next step of this is to manage projects better- avoid project creep and tie the client in to the correct cycle of approvals and link this to payments.

You can approach this by presenting in this case, a final plan to completion- the web site map, the work flow diagrams and the graphics which then seals the client in to a narrow way forward. Now you have them, because you had an original pitch and purchase spec at least, so project creep is stopped dead in its tracks! Now new wishes instead of becoming the wee marketing bitches lever to get more out of you, like her Jane in Breaking Bad, you have a way of billing out more as soon as they want more.

New projects have to be taken then with a site map in this industry, and a functional design spec and a web page template ( one reason many corporate web pages are boring these days! Web programmers want to make a profit, and heavy hits on big graphics costs big up line from the telecoms peeps) . These are taken as a consultancy project if your cash flow is so terminal that you cannot pitch without payback. No problem. There is nothing more pathetic than a whole pile of ill informed but very clever, free consultancy at the pitch stage. Much better to sell in some concepts and then sell in a contract to plan them out. Then bill those out!

The project then also has to have a plan with agreed approval points which are then in turn linked to payments: this can be best managed by for example, leaving the web shop or the intranet to be later sub projects - these days, the iPhone & Android app may be left to a new project if they are not crucial to the client.

2 .  Tighten your Project Management And Avoid "Project Creep"

In the same way as you need to tighten your sales and accounting admin' to get money in the door, you also have to tighten the hell out of project management in terms of managing customer expectations, the payment plans I talk about above, and then managing the internal resources towards near-time cash milestones. Internally the PM should know how to then manage a good enough contribution margin to come in within the key cash flow points in time ahead.

Many technology companies I know make several  fundamental ego mistakes:

i) on the one side they consider that their technical solution is so unique by its nature that it delivers huge value.

ii)  On the other side, the company over-deliver in actually exceeding the spec which was sold to the customer.

iii) They get involved with the customer as an admirer of their technology and allow projects to creep out of spec and out of profitability.

a) In the first instance, you need to have good, tight project management who are technologically savez because they need to examine making a profit and how big the benefit to the customer is. They have to analyse from the customer spec in outse, to what extent they maybe need a Mini instead of a Rolls Royce.

PM's should be involved then, early on when a potential client starts to discuss technical solutions such that cost-benefit expectations can be considered before the price is agreed.

b) Looking at the second presumption, which is basically "showing off" in the Royal Shakespeare Company in a flea pit theater, the same principles of ensuring the customer pays at a profit apply. You may need to go back and present the higher value solution as a variation order request if you like, or a revised pitch - with sales & marketing concentrating on the end benefits to the client.

c) The third point takes us forward from the first two, "  project creep " being caused by either of the above:   and you can read the acronym PC as  profit cutting.

Project creep is nearly always caused  by weakness in sales management or ego at a high level in the company.  Less often will a good project manager let a project creep beyond spec',  unless they are in love with the technology and don't care about the cash flow.  Once commenced a project should be moved away from new sales and owned by Project. If new sales come up with new ideas or the customer shows a potential for a deviation in spec, then PM have to say what the mechanic says "ooh, it is gonna cost you".

In the longer term, given more cash to burn,  it may be considered desirable to build your first Rolls Royce for a customer at a mini price in order for the company to gain the experience in delivery of the technology. I hate this personally - you should right size the offer for your customers budget or find new customers ( don't be afraid! I used to go to the world's biggest players in Biotechnology with new technologies, the doors flew open when the technology was in theory capable of providing enough potential value) . In any case in the current context of a cash strapped business this is the last thing you want to do, committing production and overhead to a major loss!

Tight project management also means creating the realisable work-in-progress stages of partial completions which should be shown to the client and approved: these should be linked to milestone payments but however if the client has refused to do partial payments then do this all anyway if the project can be delivered in a cash flow positive way in the run of the project.

d)It is up to senior management to de-prioritise later paying customer projects: the same mechanism of approvals can be used to stall the work such that internal resources down tools on that and get on with nearer-time money earners.

e) While on this topic of WIP approvals or milestone payments, here it is important all the way for sales and PMs to differentiate between reasonable amendments or corrections and those which are project creep.

f) For loose client specs or additional desires which are on top of a core contract, it is wise to get the client to agree to an hourly rate basis, being billed out every two weeks or at least at month end minus a week if you are strapped for cash.

g) Further to the last point on billing out hours on an open sheet, never be afraid to sell consultancy at any point in the process from initial sale to post installation analysis and tracking.  If anything is asked for by the client which is going to take time or involve intellectual effort and IPR in particular, don't be afraid to back up here  and sell it in as a consultancy project parallel to the current delivery or before or after.  Make this "run rate" business in charging smaller, frequent amounts to the client which are at high contribution margin.

Summary of Section 2 Tighten your Project Management

At the basis of all this above then, is that the company should have a clear specification of what will be delivered, with the customer able to visualise this as much as possible and be in complete agreement to the qualities, functionality and price. In the internet branch this means two things usually- a creative treatment, and a  functional design specification. The art here is to be comprehensive enough in both of these so as to hinder later project creep while also allowing for perhaps several technological solutions.

Secondly to this to any company who has a gap in their cash flow planning, ie no "in" figures for a particular period ahead, then they want to proesent a project plan for approvals of WIP, and alpha / Beta testing which is linked to payments. This is usually then one to two rolling quarters ahead for an internet agency with low run-rate business, while of course an agency in crisis will be looking at month end to month end !

3)  Realise your Liquid Assets and Part Finished Stock Are There In-Front of You

Code, programming graphics people,  quality perception and customers:

a) code, - get the good stuff documented and either protect it or disseminate it round the programmers so everyone can do it and integrate it. In a bigger company I would turn good programmers into technology managers who ensure that code is well bundled and documented such that it can be re-used on other projects- sellling out more, or saving time internally.

b) Programmers can be hire out, so can graphic'ers, conversely they can be hired in and paid just for the hours they work..

C) Back to vaneer- you can hire in qaulity graphics in particular from one man bands or small hot shops: the same goes for other technology areas- there is a whizz kid out there who can do one thing , but has no real access to market yet- you can license in or out source to get a higher quality product for which you can charge more and also charge underway.

Venture Capital often go round with the paranoia of the "fire sale" - what would happen if we closed them and tried to sell their assets, would we get a reasonable proportion of our original stake back? In fact conversely, if we had a fire-sale tommorrow would we raise more money for the fund than if we let the cash burn carry on towards eventual organic income and exit? That happened to a pal of mine, great hot shop, 20 programmers, fire-sale which back fired because the programmers were not tied to any work contract in particular and were in effect in control of the liquid assets! The whole thing dissolved. Burnt to a cinder in the fire.

Certainly that should be at the back of your mind: can you sell off some code, some part of the company, lease out staff to other sites or actually sell some some clients and their projects? The latter is the hardest to pull off, however I would have cast a life boat out with my programmers and the web sites i had left just to then re-establish a quality team and some virtual upselling from hot shops based on the wider client base and reputation. A kind of ashes and phoenix way of doing it.

Sales of departments or "husks" of dying companies take their time, and at the merest whiff of smoke that the company are going under, then competitors want to wait for the bankruptcy and ambulance chase instead. However, back then there were enough medium sized trad' agencies looking to get into the internet and also well funded internet agencies looking to put stuff in their production and their top line,  and grow by acquisition- even in the bubble- people in my area were on a longer term committment to the internet, and the bubble was not nearly so well funded- it was more reliant on organic growth and here you go - cash flow again.

d) Out Hiring! In terms of hiring out, there was a more than healthy market for all that because of this situation in my region- companies had the cash flow to survive but only barely, so hiring in often happened through multiple layers of reselling. We tried it ourselves and it went horribly wrong with some indians coming in having lied their way there and only barely able to programme HTML let alone much ASP or any cold fusion- half of our best code was sent in an e-mail when the guy realised he understood enough about it not to do it!

In a slightly bigger company you also have personnel department who can become a recruitment agency in a pretty short time, or be sacked and out sourced, buying maybe a 60 day delay on that cost down the line.
Access to market and in particular then, Brands, meant that we were probably quite attractive to some of the smaller hot shops as a new channel to income with some cut-and-paste fancy coding to be plumbed into our next round of web site revisions and new sales.

What also happened then was that Clients started buying agencies out due to the uncertainty of the financial foundation the industry was built on, and that the clients had made 7 figure investments in going "e" as it was called then. So there was a case for becoming a one client contractor, perhaps even moving into the premises of the client and awaiting "exit" by acquisition.

Summary  3 Realise your Liquid Assets - from all of this above you can start to see the options for a web company struggeling with negatibe cash flow on a month to month or annual result basis. The principles of billing out on time, tightening project control, selling out higher quality and selling out services to the industry itself are all very parallell with other high tech industries like software and app-ware of course as close cousins, but also biotech and nanotech where companies can often bring milestones in for reward for efforts earlier in the process, or sell services to the industry verticle channel or in related areas- i have been involved with Biotech at this level of decision making when I was on the board and management of a very interesting company in 2004-5.

4)  right size for the near-time money

In the agency I worked in we imploded in when the rats left the sinking ship and we basically could not feed the delivery side enough to meet cash flow requirements- we did not have enough production capacity.

We did outsource and this floated us for a while, but took nearly all our gross margin and in fact fuelled the cash flow crisis. We outsourced the wrong aspect of production- the dearest database integration and advanced programming: this would as I did later, have been better in house using languages and code which more graduates could tackle. We should have outsourced the basic HTML and jobbing graphic design (Illustrator TM work) because that was cheap, and we could down size internally on this, while up sizing on the more complex programming.

We ended up with a couple of good programmers on this and one who could then do "cut and paste" integration of code (database query and report stuff by in large) into other projects, and we tried to do everything in ASP instead of .cfm such that we were a bit future proofed and could scale up again.

So to summarise for your hi tech enterprise: you cannot afford to fire the best people if they are the chips stacked on the biggest money which is likely to come in over the next cash flow period, usually that is before the month end. On the other side of this too, you may need to actually up-source your staffing so that you can secure production of the key qualities you need to deliver: this may be then at the expense of the admin' workers or the workers who have completed their bit of the endeavour at a lower level. They can be laid off with a first refusal basis for re-hiring.

Also as a director you have to make a decision on stoking the fire more battening the hatches, as we will see in a later section on rescheduling debt ( as opposed to raising more investment or other finance, which is a pillow IMHO for many companies who should did themselves organically out of cash flow crises or never learn from that whip crack how important discipline is when they grow again and take even more risk!) 

5)  Remember You Must Deliver Value

While it is great to talk about billing out as early as you can, and getting paid for WIP (work in progress) or milestones of discovery, fundamentally you really have to be sure you can deliver the quality you promised or exceed it within your cost constraints.

All companies and whole countries convert value: they take something and sell something based on that for a higher price for which the value added benefit is worth or exceed that price.

This has an upside in going back to re-evaluating what you can bill out and if the project has crept

6) Plan Creditor Payments, Push Back on Sub Supplier's and Ask for important Rescheduling.

a) This needs to happen: in a crisis you need to reschedule debt payments, and  you need to delay payments to suppliers. This means usually you have to go down to a two week cash flow plan and see if you can ask for short delays on things that are due - often banks can be persuaded or private equity lenders can too, that a two week delay can alleviate a cash flow crisis and secure longer term payments. Investors and banks are very used to this situation.

b) It happens to all enterprises when they grow a little too quickly and come in a "negative liquidity" in their projected finances or actual operations. This is actually a cash flow bankruptcy if they spent what they previously had on their accounts payable ledger for the weeks or months ahead.

c) It has to be handled carefully: it requires planning and documentation of what the company will bill out before  there are some suppliers who you can just ignore, some are terrible at debt collecting and don't check payments are in until month end.

d) Also this is why it is best to not have your commercial bank as your major source of debt-  this is difficult but in start ups you are likely to have actually higher risk loans which are not available from standard banks anyway.

e) Even in healthier businesses you can exploit your supplier to fund your business with actual real cash flow: paying them after you get your cash in is the first trick, and then paying them even later is even better because you have used the positive cash flow more in creating new business and delivering other projects to payment date.

f)  Many companies sail more than close to the wind here, and are very late in paying suppliers or over inflate their sales or margin forecasts in order to reschedule debt or raise more debt.  In fact many companies abuse the difference between financial accounting and management accounting to basically temporarily break the law and then prove they did not later on when they clean up the cases, pay up to creditors, redistribute debt legally and present a clean bill of health in their annual report or a good honest loss for the year as the supreme cash flow period.

Summary of Section 6 - Rescheduling Creditor Payments
In a crisis you are going to have to reschedule what you pay out in order to have enough money in the bank when you do pay out. This comes down to fortnightly cash flow planning believe me, and checking that the planned payments come into the company.

Debtor meetings ie customer payment meetings, were a friday afternoon meeting EACH week in a beer and spirits importer I worked for and that company was cash rich! Based on what was coming in, we chose who we sold to or delayed shipping on the next week and often delayed shipment until they paid.

Generally creditors understand that cash flow varies and all companies can experience a negative projection which needs to be corrected for. As long as you can present a plausable plan for your cash flow to your lenders and you can schedule payments to key suppliers who are banging at the door for money, then you can survice. However if your income does not match your outgoings to theses sources plus your period costs, you have to reconsider the whole viability of the current business model.

Reprise: Turning Around Technology Companies 

Okay you could say "where is your effing strategy Fred Man?" this is all just different options, clutching at straws?

 You have to be realistic - are you just failing to stem-the-tide in a company which cannot earn enough money to ever be profitable  ?

Or do you know that you have enough contribution margin from jobs and enough in your "sales funnel" to this pricing that you will be in positive cash situation later and this is just a temporary cash-drought ?

Well when you are doing almost one week cash flow analysis periods  then yeah, you are clutching at straws and you have to find out which routes are going to work in the time frame you have in front of you. A single route would be high risk, but it may be the one that opens up with the most cash for everyone- the best solution, even if that means in effect the company no longer exists- you get your own personal cash flow maybe for a couple of months longer you can see in front of you, which buys you time to play around with the new owners or bosses and look on the job market.

As a manager in such a company, in these type of periods you want to have a lot of time out of the office in meetings - mot of these will be exploring the options as above, but some of this will be saving your own ass by on the one hand building your personal brand in the industry and on the other, more modest hand, finding out who is hiring or may really benefit from you.

What Actually happened  at the internet company I worked in....

Well, that is what the CEO ended up doing- eventually it came to a firesale, and they all just sat back and let it smoulder until he came offering his services as an employee. He busted his balls with the bank and investors instead of putting up some figures to show the company could organise cash flow by billling out and have a bigger top line within that picture. He burned OPM cash instead of digging organic.

Broader Economic Perspective on Sustainability of High Tech Companies 

Despite different tax balancing mechanisms and the potential for re-financing  the company with new investment, you have to ask if the cash flow negativity is a function of too low a contribution margin, too low a sales ledger top line or too high an overhead ?

I am not a believer in trying to sustain companies which cannot grow organically. Sure there are high value intellectual property companies out there who sell nothing and just burn cash,  but they are vulnerable all the way to fire-sale as soon as they make their greatest achievements - investment milestones.

The reverse actually is what I prefer I believe it is often better for the IPR to be largely owned in another vehicle with a favourable daughter company or university spin off company in licensing agreement. I have worked with several technology companies who actually have the key to the value conversion of patents by having industrial secrets (some may well obliviate the original patent by proving it is not complete to realisation by a "qualified person") Alternatively those companies who don't actually realise that it is their internal endeavour which is driving the value of the patents, not the contrary. Here they  should impose  secrecy  on key points in their value conversion.

Tuesday, September 24, 2013

An Alternative to HS2- Restructuring British Railways

We can argue against the building of HS2 on many fronts: no doubt the infrastuctural investment would mark the turning point from Austerity to Stimulus in the UK , but the investment is largely folly as I discussed in my last blog and many transport, economic and civil engineering experts agree.

One of the key issues that HS2 tries to address is conjestion in the southern end of the west coast main line (WCML) , south of Rugby towards London. This is a function of three main contributing factors, given that current track bed is considered a fixed constant

1) Number of trains (including freight of course)
2) Average speed of trains
3) Capacity at main passenger termini and other "nodes"

HS2 has one main aim and a couple of side effects or co-benefits: the main aim is to decrease passenger travel time on a dedicated high speed route with no other trains that those. The side benefits are that passenger capacity increases and has a new higher ceiling for potential growth, and that freight can grow on the existing WCML.

These are all admirable strategic goals of the Railway, especially as rail freight is becoming more economically attractive in terms of road haulage prices and British businesses competing by scale. However HS2 may be a very expensive way of addressing theses issues and other solutions must be considered. We cannot have a "Gulf War" bull strategy - there must be alternatives considered in a democratic country.

Let us not forget that HS1 took 13 years to build after the channel tunnel itself was complete, and that is only 67 miles (108 km)! It also went over budget and required nationalisation to actually deliver the route. The comparison has always been drawn to France and Germany: The TGV was a typically gaulish, grandoise plan in a country with a long history of strong central government with little respect for landowners. HS2 takes prime real estate in London, the Home Counties and Cheshire plus land from industry, farming and country estates.

So despite "new build" having an allure of green/brown site cost savings, and little or no disruption to the WCML , it will most likely go over budget due to land aquisition costs, unforseen geographical challenges and the inflationary pressure such a capital project will place upon civil engineering supply in the UK and on an EU basis.

Addressing the Issues Differently.

Rather than take a very discursive route further, here are some of my own proposals per issue to solve

Terminii Capacity

1) Build Up, Under and Outwards.

HS2 could well have a new terminus, or use a swathes of London in connecting to the most prefered corridor north through the home counties. This causes massive disruption to all sorts of transport !

So rebuilding in particular Euston on multiple levels with several levels of track being stacked further out of the station. Also some degree of overhead avoiding loops can be built, such that local trains can be as the saying goes, side-lined, in order for expresses to accelerate out of Euston or have a higher average speed on the sections in over. Also these can be used for stacking ECS movements - relieving the carriage depots and platforms.

This is viewed as highly disruptive and highly expensive. However the capacity can be phased in, such that upside capacity like an extension sideways or outward platforms  or an underground element be built at low disruption and then supplements the earlier capacity when other platforms are then demolished to build up and downwards.

2) Dont' take all Capacity into London- Where do People Want to Eventually Arrive ??

Where are all these central london routed passengers going as the end of their destination? In rush hour of course a high proportion of travellers on express trains are on business or actually long distance, "red eye" commuting. However many of those are going to locations in west, north and east London or the business hubs in the home counties.

Here then we have various solutions

a) Stack- Hub- piggy back : here you run some high speed services which terminate at outlying stations which act as hubs for travel to both the centre and then utilise the local services around London from places like Watford gap.  This then decreases the final volume on the route's end, but it does not in itself reduce that much and may contribute to volume conjestion north of these points and also "platform waiting, crew change, points and shunting" congestion at those hubs as the trains have to in most cases, reverse out or find sidings.

Another way of reducing lower speed congestion while using this principle is to piggy-back in commuters on express services. This is done by taking advantage of some "yellow signals" which are in the diagram for an existing or proposed service- where an express encounters a slower train some miles infront of it, before that train enters a side platform, as siding or diverts off the WCML. So in this approach an express train calls at a key commuter station, like Milton Keynes.

A consideration in planning this is also to move people on trains NORTH to places like Milton Keynes in order to meet express services and actually reduce their journey time southbound. This way trains run counter congestion as feeder-hub services.

b) Build More Round London and Improve Inter-Transport Stations

Britain still lags far behind most of Europe on integrated transport. We had a big lead in the earlier metropolitan projects like the London Tube and in the Glasgow Area in particular, but we still lack the joined up writing in getting people swiftly and comfortable over to another transport mode, and having that transport mode have a gauranteed connectivity or good frequency.

There are several lines which run around the North and West of London in particular and some other diagonal corridors which can be expløoited and maybe double-decked or have new transmodal transport stations built at their intersections or have new chords intersecting them from main routes of all public and indeed private transport as in park-and-ride stations.

Also ignoring the London Metropolitan Area Commuter, many travellers are pretty much well forced into the terminii by ticketing or timetabling in order to affect a route out again to places further a field. This should be addressed not only by the hub approach, but by encouraging faster connecting services on other routes south of Birmingham, and more services which cross the main great rail corridors, Western, Oxford, WCML, great central, ECML and great Eastern.

For example for anywhere in Berkshire, Buckinghamshire or East Anglia, you should not need to nor be forced by cheapest ticketing to go through central London Terminii both in commuting times with arrivals before 0930 and through the day. You may have to change trains at a hub in the north, but your overall journey and transfer time should be similar if not reduced.

Number Of Trains

I touched on above that it is not just the number of trains, but the type of train of course, so the next issue, average speed is largely now a function of the slowest train in the "bottle neck".

Volume of traffic is addressed immediately by having longer trains towards maximum legnth possible for the stations on the route, and then of course lengthening stations! This has been an approach taken around London. You can then also hub people into fewer, longer, faster trains as mentioned above and those small 3 to 6 carraige trains get supplemented and replaced by longer or faster express and semi stopper services.

On these longer piggy back services, you then really need to plan and actually lock seating capacity in for those commuters: this can mean ticket management with booked seats to cluster shorter journey travellers, or those leaving at the hubs for new trans-services, into the same coach such that they are emptied for the new commuters ready to board; or closing carriages off for the whole journey: Or merging trains with new ECS at the hubs.

Merging trains is less time consuming that it was before and capacity at "hubs" or other stations or sidings could be made such that also several slower stopper commuter services can merge into a single non stop service to the terminii.

Now we have only so far talked passenger:, what about Freight ?

A key strategy for governments is to react to the end -of-oil time which will be facilitated by global warming if we choose of course to ignore the new-ice-agers sponsored by the main producers. Another issue is grid lock on motorways and finally as above, an economic pressure for more supply for rail freight.

Freight is slow in two ways: average speed and pick up times to peak speed / optimal speed from signal haults. Also freight is getting longer, which is a problem when you consider injecting more signal sections into some parts of routes in order to stack in more short passenger trains. But that is not the issue with length- the main issue is when they leave the main line and have to cross left to right from sidings - they block then double the capacity they use - the old line, the new line, and the line in the opposite direction is affected if the freight crosses to exit the line.

So to .....

Average Speed

Average speed then in general : In theory there is a max capacity, zero speed where all the sections of line are used up- not quite end to end trains but trains with their protection of seperation zones. You can then increase the number of sections and decrease average speed to push more trains along- in other words the queu would at least move. Conversely then to increase average speed for trains capable of high top speed and safe stopping distances, you have to increase the length of each section.

By in large this sectioning of the WCML has evolved over time to a perceived optimum, or at least a compromise between the needs of "compressed" capacity as you reach the terminii and the elastic speed outside.

So in an ideal world the trains move at a reasonable average speed towards the terminii where express and local must share: local accelerate fast enough to the peak speed and then are off on side lines with a level of separation which just slows the express to a lower speed, or are dealt with by a speed limit to make sections work smoothly and with higher safety margins than are really needed.

Throw in freight. It is slower and means that section length has to be managed for the expected legnth of freight and that faster trains behind that have to be able to stop ( which goes without saying actually.) But this reduces capacity at a lower average speed as well as slowing speed up the line due to "yellow" warning signals lasting longer and more red signals being met by expressess with a slow freight, yet still actually moving, infront of them.

A lot of freight even on the electrified WCML is diesel hauled due to this being economic in terms of "rail head" pick up delivery where shunting, or low speed creeping off loading is now most often conducted with use of the delivey locomotive. Diesels are not as reliable as electric locomotives today, with failures being rare but time costly problems. However at key speed ranges diesels can be slower to pick up to maximum speed than electric locos

When you have then a practical number of sections and average planned speeds are known, you eventually reach this capacity issue and have to slow down the whole route to allow in particular, more freight to run. The combination of profitable high revenue freight and more commuter services have in effect negated the advances made in tilting trains that can operate over 120mph, and we are stuck with journey times you could have seen in a 1979 timetable for many services.

An Alternative - Low Speed 2!!!

Among the different proposed routes for HS2 has been a "Marlyebone" corridor north to Aylesbury and through Oxfordshire from Thame possibly . There was existing track bed here and along the Chilterns route which is still in operation. Rather than building much parallell line to existing then, the route could be developed to deliver mostly freight traffic at lower speeds to the NW of London and round the South to Southampton in particular as a major port, and the Channel Tunnel.

There could be new line south of Birmgham connecting to the chiltern line, and some broadening of this line in rural routes to four track. On this then freights of different speeds can pass and all freight can be priortised such that journey time to the outskirts of London are actaully improved over the WCML. Nearer to london then, where space is at more of a premium,  avoiding sidings could be made so that the passenger routes that share this can avoid some of this.

Second to this, a new wide west of London avoiding line should be made, which has the advantage of crossing over several major, radial lines at speed while having junctions onto them as well, while also being then interconnected to the whole SE network south of London more quickly than current progress over London.

High Speed Link Two : HS2 Contra Arguements

High speed two is one of two grandoise Keynsian invesment projects which the last and current UK governments are committed to a certain extent.

That and Trident 2, could both prove to be the biggest waste of money the UK has ever made, lying behind Blue Streak, Trident 1 and the Darian project for that matter. Both are of purely political value- perceptions over actual utility these provide.

HS2 is proposed to solve the issue of conjestion and speed up journey times from London and also connect the north of England with the continent. On the latter, this although being an admirable proposition, in reality we are talking business travellers who will still find the plane quicker and quite possibly cheaper. The anticipated business seats on Eurostar have never reached any forecasted sorry "wishful thinking" levels and that connection is between the world's second largest financial centre and the worlds second most powerful beaurocracy.

The nature of doing business and where people who travel to London regularly live, does not reflect the northern central station approach- business travellers tend to live in the suburbs and desirably near the airport around Manchester, Leeds and Liverpool. These cities are trying to reduce car useage to the city centres, while also metropolitan public transport is being squeezed out of the low occupancy "red eye" commuting times into a marginalised service. The route can of course take airport transfer stations and park and ride stations into planning. These then affect timings, conjestion as we will discuss, and energy use.

In terms of energy use overall, HS2 is also a bit of an environmental failure: trains running at 300km/h use more energy per passenger than a 737 it is argued, and unlike the low cost budget boeing operators, off peak traffic will be run at well under capacity. You can argue that of course by 2030 it will be clean electricity, but so far the politico-economic stream is not going fast enough that way - domestic gas may start to become uneconomic by 2030 meaning a consumer market driven mass conversion to electricity.

But do we actually need to travel at 180mph and 140 mph average journey speeds from the north west of england to London?  HS2 is planned along the TGV solution - straighter new build lines, dedicated to the single use train types. However do we need this reduction in journey time, particularly on the Shorter Manchester and Birmingham to London stretches? Is there a true cost benefit?

We already have train and track which can hold 125mph average speeds over significant stretches of the west-coast-main-line and technology is in place for 140mph over some stretches. However that is given a less conjested WCML. The issue is that there is conjestion, especially at the southern end. More on that in a later blog.

Train times on HS2 could mean a sub one hour to Birmingham south and under two hours to Manchester. Is this not offering a Ferrari for motorway users, paid for by the state, when in fact a Vectra diesel is a more sensible solution totally acceptable to the punter ? Rail already outcompetes road to Manchester at least for business travelling at peak hours due to the unbelievable M6-M5 conjestion. Also rail actually outcompetes flight total travel timings, given you are not doing business at Heathrow itself, because of the connection time from the plane's pier to city centre transport hubs and the slower progress due to heavier security.

Another issue to take here is that these journey times pose a social dilema. HS2 is supposed to aid business travellers in pendling their wares in the SE of England and raising finance there. However their employees, the brightest types, can find that they can suddenly commute to far higher salaried jobs in London and the SE while still maintaining a family life in the North. Also those employees who find themselves working long hours on business trips south and working in addition on the train, may decide to snap the elastic and follow the well trodden path to riches in moving down south.

On the point of "business people travel behaviour" what does the north east offer the central and western business districts of London which become so attractive with HS2? Do we not have indpenedent, Northern traders operating purely on electronic connection to the stock exchange and other financial markets in London ?In my experience business people from the NW are travelling indeed to the SE but are visiting clients in the home counties, with connection and taxi times from proposed HS2 Terminii of well over an hour. The wise money has always been on an evening drive to a Hotel in the shires and a sporadic bombing raid on company HQs and SMEs in the SE in places like Slough, Swindon, Essex and Basingstoke.

Also intra-route: do you not create a generation of job hoppers who jump at the first opportunity on the new Leeds-Manchester-Birmingham route rather than building solid experience in their home cities? Do we not also link thousands more into a bigger environmental footprint than 20 mile commuting by car ?

So far no one has talked about that key element in any private provision, so lacking in the 1990s reail privatisation, and that is competition on the HS2 route. That is because there will not be any. There will be a main operator under license and passenger service requirement contract, and Eurostar. Therefore we will see pricing with strange elasticity: there will be a creaming policy for the volume who are steadily committed to the new route and this is a viscious circle because without competition, there is no incentive to gain volume beyond a certain point of this creaming.

No, HS2 is folly and the money could be far better used elsewhere as I will blogg shortly.

Monday, August 19, 2013

State Monopolised Wine Sales and a Guide to a Happy Country

Rather a greater contradiction and a kind of great white hope for we, the people,  and falling monolyth for all the free marketer fascistae: What does Norway have in common with  the states of Pensylvania and Maine?  Well they all have state controlled liquor sales and in particular they have now or in the past run a monopoly of supply to the public of wine and spirits.

This of course came from the previous non right aligned Christian Temperance movement, resulting in the counter productive disasters of prohibition. Ironic as the Christian Conservative movement has aligned with the devil of Capital and raping the planet in return for political power, that its ideological birthchild , state controlled and thereby limited sales of stronger drink is a shining light for future democratic socialism.

The massive, massive tory PR machine has been convincing us all since the 1980s that private is best and competition naturally leads to the fittest surviving and providing a better solution. What has the UK to show for it? Sky high energy profits and prices and an NHS which is being torn up by propaganda and meaningless reorganisation and trimming privatisation around the edges.

 In fact of course there lies a terrible truth for socialism too: the costs of unionised, cosey public service exacerbates inflation because of counter inflation wage demands and the perceived desire ever better conditions. Even Norway, switzerland and Canada can't afford the NHS in future given the ageing population, internal inflation and the inflationary pressures of the techno-doctors egos and patient lobby groups demanding million dollar cures.

Aside from that though, the counter arguement is what has happened with everything privatised from busses to electricity: the price has gone steadily up way in advance of inflation, while profits and dividends have also gone up. Also in several areas of public sector private provision, there is a virtual monopoly as other actors fail to gain critical mass or just go bankrupt trying to compete.

A matter of quality then, if inflation is driven either on the one side by unions and social standards for public provision, or on the other by greed, virtual monopolisaiton and the stock market.

VIn Monopolet, is the state run wine and spirits (and strong beers over 5%) retailer in Norway. Sweden has the same set up. Now in this state run shop you would expect mushroom coloured walls with cobwebs in the corners, poor choice and little interest in the selection of wares, high prices and surely, resentful and lazy staff. An Orwellian nightmare ripe for the vigour and investment of the private sector. But hold on, not so. The shops are at least as stylish and well presented as the best off licence chains, with select city stores having a spanish wine cellar style alcove for luxury wines. Choice although hardly endless and not of course price promoted, is not just adequate: when you buy a wine for 80 to 120 kr it will at least be pallatable. People complain about prices and go on !"harry tours" to save about 50 krone a liter on wine. In fact relative to average wages, Norway has very reasonable wine prices through its state monopoly, and focuses stocking around average price demand segments.

Now to the staff;: they are certainly a bunch of rather spoilled pseudo proffessionals, but they are most often courteous and at least knowledgable enough about table wine and some of the luxury brands to make a meal time recommendation or suggest something you may like as a similar or quite opposite wine or whisky or liquer to that you last had.   They seem mostly happy actually because they are unionised and have family freindly hours and get well paid for a shop job, with national career opportunities on top of the training in product. A beastly bastion of socialism.

Now I remember an upmarket failed wine chain called Oddbins. It was a little pricier than your run of the mill "Offie" but there were aussie bargains a plenty to be had. It reeked of wine snobbery actually but that is where the illusion often ended; it was a franchise run by petty bourgiouse pricks who aspired to drink chateau wines. The staff were often spotty snobbie students from private schools, it must have been a recruiting policy to have middle class twits. One once told me in a very authoratative voice that he doubted it could be called a cabernet sauvignon, queu nasal schoolboy french accent, since it was an austrailian wine. Suprised he was, and me too at his total pseudpremacy! When oddbins was going down the pan, just before all the shittier offie's succumbed, I went in looking for a really delicious Aussi brut "Angas" : the private school accented chubby mousey type girl informed me that it was delisted: I started on in an Oz Clarke pseud it must be said, about how you could taste the sunshine in the wine and the butter in the biscuit way, which she immediately talked down as "oh do shut up" or whatever. A wine shop employee trying to sell wine, and of course they didnt: they out pseuded themselves with their high prices and pathetic range of beers on the side. I wandered off to Vicky Wines and got a bottle of Moet or a good cava instead.

Saturday, April 13, 2013

Thatcher: The Female-Führer.

Looking back at the rhetoric and actions of Mrs T, one side of me and many respects the tackling of man ills in Britain and the rise of meritocracy she was both a symbol and protagonist for. The other side of me now remembers the bitterness she spoke of many landsmen and the lack of compassion for those once called " the enemy within"

"We had to fight the enemy without in the Falklands. We always have to be aware of the enemy within, which is much more difficult to fight and more dangerous to liberty"

which coupled to her middle-class-bourgeois "kulturkampf" can be easily likened to :

"Those nations who are still opposed to us will some day recognize the greater enemy within"

: from another democratically elected leader, who also chose to demonise an otherwise productive sector of society, Adolf Hitler.

So in remembering her rhetoric and lack of respect for communities which had once paved London streets with golden stock traders salaries, I think of her also then as the Female Führer, with the miners and steel workers as her enemy within, her Jews and gypsies.

A culture of a life and family commitment to the two industries which subsidies or not, had built Britains wealth: the raw supply for value conversion which finds reward on the stock market. Only the investment-. ROI was biased. The industries weren't modernised. The ironies are abundant: we imported subsidised coal from New Zealand and from the then communist Poland during the miners strike. After the planned downsizing, the command economy of reducing world capacity for steel closed one of the most productive mills in the world, Ravenscraig, it took only a few years for there to be a shortage of steel and a protected market in the US conserving its own capacity. That the union jack waving privatisations of Rover, and the stock market freedoms lead to the Germans and Chinese raking out our brands and technologies.

In the same way as Jewish citizens in 1920s Germany were often the most productive and enterprising of peoples, who made many Christian Germans wary and lead to them being an easy target, so the steel and coal workers were a productive backbone from the industrial revolution, through to the war years and into the last great epoch of Britain as an manufacturing giant from the 50s to the early 70s. She demonised this class of workers who were dependent on their pits and mills.

As a prime minister, Margaret Thatcher had two full terms and was then ousted while in her third,  not by the country who had by then voted over 50% of votes cast against her government, but by her own party. A betrayal but just like tackling the overly powerful unions of the late 70s, the overly powerful "female Fuhrer" had to be toppled because she had become an obstacle to policy making and progressive governance.

This is what really points to the symbolic Boadecia she was: a great figure head, great at showing the decisions the back room wanted to make, great at doing what her city advisors asked as long as she understood it in the context of a small british business. When the Frankenstein of education minister to party leader to PM began to show she was coming off her own rails, she was elbowed by the gray non event that was John Major, the only man who ever ran away FROM the circus to live a very dull life indeed.

Her legacy is like a glowing memory for many as we wade in the ashes of a Britain which is now based on funny "fictitious trading" money, power companies who cheat the public, and keynsian circles which help float the British Isles still owned by London.

Put another way, fewer people were on government benefits when in 1979 than when she left office in 1990. Britain entered full recession in the early 80s and it was more private companies who went bust than the public "failures" of mining, steel and car production. Companies which had never been propped up by the government and which had never had large scale industrial relations issues. It was biscuit bakeries, tyre plants and toy factories I remember on the ITN weekly toll and when ever we drove past Drumchapel in west Glasgow.

Just as now that an ambitious, high income, high spending  Labour party get the blame for the ills of an equity trader's construct, the finance crisis, the biggest recession since the 30s, in fact a depression in most of southern europe, so did all this get blamed on the unions. Like the jews in 1920 and 30s Germany they became the scapegoat for the ills of a wider econo-cultural malaise.

Back to more on benefits once she left office: Big Bang and the relaxation of personal consumer credit, was of course going to both inject huge amounts of money into the south eastern economy of England and create a long term monster of paper-card-house building and legalised, neigh encouraged pyramid-selling.  In the period 1980-1983 the UK did not fair well at all, when compared to socialist France and the centre right Germans. As I say, this wasn't because of the terrible public owned industries, it was that the old capitalist ways of unde-rinvesting, under-training, unmodernised and basically mediocre quality production had come to a crashing end as world demand for British products dived. Domestic demand also crashed. Without the Falklands War, Maggie may have lost to a lib-lab pact or at least been ousted. Public spending went UP as a proportion of GDP but the public sector borrowing requirement was addressed by selling off BA and shares in Rolls Royce amongst other tactics to pay off and restructure national debt.

So the Thatcher government set about firstly having to pay the dole bill for hundreds of thousands of workers from failing private industries which had collapsed under their own inertia. Also the government had to fund the Falklands war. First term Thatcher years: High public spending and Keynesian circles floating the country.

Second term: This is when the back room boys from the Adam Smith Inst, and the city got their way. Firstly, big bang would be allowed to go ahead and even accelerated. Also then consumer credit would be liberalised. More debt would be paid by further sales of public shares in "nationalised" companies and  it was clear that GDP would swell from the City getting deregulated and of course yes, by the few strong industries enjoying less strikes, union disruptions and government intervention. Trident was also on the order books of Barrow in Furnace, Rolls Royce and Tarmac amongst many others as the biggest single spend in renewal of "assets" since WWII. Canary Wharf, at least a billion pounds of tax payers money, and more over, ideologically motivated public funds into an empty office block post black monday and the right sizing of the later eighties.

From a purely Nationalist right wing point of view, a UKIP stand point: what did Thatcher actually leave as her legacy? Well all that stock market freedom which helped investment in UK industry, also meant of course that UK brands- the embodiment of wealth creation, the big value-add to the bottom line, could be sold off to the Germans, the japanese and later of course, the Chinese - a crypto capitalist dicatatorship.

Also all that sabre rattling at Europe and the castration of Strasbourg as a potential democratic tool for harmony: She got her way, that strong national interests represented through Brussels and not Strasbourg, would get their way as we see today in 2013, five years into international crisis. So now that monster is eating away at the meaning of the EU: Germany is the strongest caller and the pied piper for now, with little Davey Cameron cocking his hat to that, while in fact a democratic body in Strasbourg with real powers and real accountability may have laid enough in the way of Eurozone to slow the introduction of the Euro, in so many lands, in terms of questions like those...well....those now actually answered - yes it can ruin your health. Strasbourg then could have tempered the ideology and  put in place controls, rather than playing to the big drum beat of the dominant national governments.

Now we stand again on a knife edge and the end of an old epoch, with the old epochers standing there like the Unions of the late 70s, and saying " we need more of the same!! Yes !! More disease is the cure for the disease!!" in otherwords, we need less regulation of financial markets and businesses, we need less democratic accountability and we need more divide between rich and poor by tax breaks to the wealthy and cuts in wages, welfare, schooling and state benefits to the masses.

Like 1979, we stand in need for leaders who will say no, more disease is not the cure, we need a new epoch with some bitter pills for some people to swallow in terms of credit and regulation.

Wednesday, April 10, 2013

Criticisms of Thatcher - My Opinions Are From Experience!

I had one obviously geriatric commentator in a short but interesting queue of those to be read ( usually spam so I ignore or block comments on blogs but not this one)

The patronising old git or Ada, said I didn't know what I was talking (blogging) about in a "young man "tone. I know very much what I was talking about because I lived through the times and those years influenced my life of course. In fact some of "thatcherism" had a positive influence directly, and some had a pretty negative influence.

I paid a lot of attention to the news and the Rhetoric at the time. Back then political fights could be won and losers could be really hit hard. Wars of course too, could still be won. The Argies got rightly kicked out and they should be grateful that the UK precipitated the fall of fascism there. We had a feeling that things could be achieved and that Britain was somewhat transparent or tangeable in power and economics. Not like today with all the "funny money" and diffuse politics and lobbying, not to mention the castration of Strasbourg in favour of the trichotomy of the three biggest powers, with England as the unruly and impertinent would-be actor for reform. (which is maybe not a bad position, but being out of  Europe would be a bad thing IMHO)

I began life in a pretty well to do middle class family, in fact a crossing of the ways of my Father's side which had been some old quite rich and bourgeois family and my Mother's side who had apparently been steel workers in the Clyde valley, landing in Riddrie and then edging up into the Scottish middle classes. My Dad worked in the technical department of the most famous shipyard of them all, John Brown's.

There was nothing hugely egalitarian in me as a primary school child and I was both shy and a bit snobby with some of my rather dull class mates from working class backgrounds.

The first big change in my life was when I developed two best friends over a period who were both working class. Their parents I remember had a rather lackluster view on life and work, but set a price on their kids having friends and thoughtful, expansive hobbies. I had always loved travelling by train and seeing loco hauled trains in particular as a wee laddie. On a school visit to St Rollox railway works I got really hooked on railway engineering of loco's and rolling stock and after dabbeling and getting thoroughly bored with train spotting, travelled instead to experience railway lines across Scotland and eventually further a field in the UK. I was interested in the different diesel electric locomotives and the technology in their "power units" vis a vis engines, and power delivery and control, a life long on-off obsession. In my travels I soon met a band of "super train spotters" who chased favourite locomotive types around to "score" them when they hauled trains. I then became said type of rather ecletic railway buff and wasted many a happy hour on the West Highland Line, the routes north of Inverness and also on forays to Bristol and the Midlands.

Anyway to elongate a long story made long there, i met a lot of people from different backgrounds and young railwaymen, indeed also some women, who were married to the railway more or less. Bus man's holidays for them on  a "Freedom of Scotland" ticket. I learnt a lot of respect for their camaraderie and candor of their banter on their lives outside the hobby.

1984 we middle class peoples saw down our noses at what were portrayed as drunken secondary pickets, clashing with police and trying to stop blacklegs or "scabs" getting into collieries in particular.  I did however become disgusted at the scenes of police on horse back charging miners who seemed to be a bit rowdy and like Scots at Wembley reallyl. It looked like a civil war and that in fact is what it was: the last English Civil War, 1984.

It struck me that Scargil was a nut but he was fighting for his people. Also it was our own experience that the clyde valley in the 1970s had suffered and housing estates had become ghettos of high unemployment following the large scale collapse of several private industries in the late 60s and early 70s, somethign I attribute to chronic under-investment.

I realised that for these communities  in the coal mining areas there would be nothing. I saw the heartlessness of Thatcher aiding and abetting George McGregor at British Steel to close one of the most productive steel mills in Europe in favour of the German capacity, which the UK had so much helped modernise in the early post war years, just 30 years previously.

It was cynical and the press in Scotland knew this: Gartcosh the strip mill plant in the same vale was closed to deny Ravenscraig one route to a profitable market and allow the Consett works to take that. My godmother lived pretty much under the shadow of Ravenscraig by some strange coincidence, she being a very lovely working class nurse with a fruity clyde accent.

That was it: entire communities on the dole having dedicated their lives to these industries with their peculiar skill sets, un wanted in the general labour market. Unemployment  figures were  massaged.

So I became pretty quickly a left winger. As did the whole of Scotland, decimating the number of Tory seats in 1987 election. Also finding my self on one hand moving in social circles of teenagers from really bourgeious families who went to fee paying schools and looked down their nose often or patronised me. I felt no right after all this to be a snob or to be a victim of snobbery! I became very egalitarian in my views, but also I was very much a person who strived for the individual in society and found achievement of many of my goals a real struggle due to my variable concentration, nagging self doubt  and bouts of depression ( like a lot of teenagers only it took me 30 years to grow out of it!!)

So there is where the lines of thought between Thatcherism, and my own view on a kind of spiritual existentialism with reincarnation of the soul. Really what Jesus also meant- live a good life now and you will enter heaven: taken as obey and show homage to the church, rather than live as an individual who carries out kind acts, respects others and spreads the word of this: he was a humanist and an existentialist.

Without Thatcher I may not have got into University actually because she had a round of forcing universities to teach more students and actually expanding access to grants along side that. By that time the son of a widow, I fell into a lucky place of having a full grant and housing benefit which made life really live-able and enabled me to immerse myself in what University should be about: hard work, hard play, intellectual stimulation beyond your course work, social leadership and of course drinking and sex if you are Scottish. I could have been a day commuter actually at a push, but I had a fantastic time courtesay of the Government. Now I doubt I would be able to afford to complete my course of study and I may have chosen a less stimulating, more career oriented course.

Finishing Uni' in 1990, I then fell into the great pit of unemployed and partially unemployable lower middle class graduates in Scotland. We learnt in the early to mid nineties that the old school tie did mean something: the little bourgeois bastards got whangled jobs by their bloody parents.  It really took the internet revolution, a lot of public money, call centres, rising oil prices, the house price boom and high tech industries to actually make Scotland at least prosperous for the skilled working class, their offsrping and the educated middle class.  In the course of the 90s too then, Scotland became far more middle class. I remember many working class students and mostly they and their families had the same work ethic and hopes for their children : some inverted snob commentators like Irvine Welsh (who's dad is an accountant btw) bemoan the vast expansion of the middle class and their value set over the old "Hard" working class in Scotland. In truth it was a process of social mobility which started with scholarships for soldiers after WWII and a generation then who did go to night school to better themselves and keep up with the pace of industry. By the 70s there were many "working class tories" in Scotland, who had a work ethic and ambitions to better themselves, and many lower middle class socialists who had parents who had either risen or fallen to the level and often worked in public service or the more modernised industries or higher tech / skill careers in the traditional industries.

The Scottish Middle Class defied the allure of Thatcherism in 1987  because they,  amongst other things, remember their roots, are often nearer to working class communities and are just plain not as darn snobby as the English.

Now in Scotland we seem to have an expansive home owning lower middle class, a traditional public sector management middle middle class and a bunch of funny money types in Edinbra' and MBA types all over, who earn a heck of a lot more than they deserve and are kind of a coddled elite who live prettty much lives separated from the rest of the Scottish public, trying to mingle with old money, or being from old families who have found new ways to extract more money from property and proffessional services than ever before. In some parts of Edina' you can barely hear anything but that bland accent of fee-paying school ( which now public school types also use so as not to stand out too much with their plumby tongue) Sometimes a wiff of a rolled R or a " wee hamish has got to go in the back of the Range Rover" which maybe connects them to actually being Scottish.

Funny money which has bankrupted the US and Europe by in large, and playing monopoly so everyone struggles to get more than a semi detached or a button ben' despite high education and double incomes makes me sick: a parasitic, inflationary legacy of the old money in Scotland and the back room planning restrictions and cosey builder-councillor relationships. Kind of like the Tory party in London but affecting everyone's lives in Scotland: wake up and free up some of that bloody over subsidised farm land and set standards for building homes which make houses last generations!!

I say this all there partly as a little of the Thatcherite in me, not a jealous socialist: these people are like the old-old school tie crowd who as much as the unions, stagnated the British economy and allowed industry to fall into uncompetitiveness by the early 1970s.  Much of their wealth is being held up by socialist policies: Bank Bail Outs, i say again akin to the BL and UCS subsidies of the 70s. Housing Benefit, a massive loosely controlled subsidy to private landlords with no capping and no link to improvement in housing stock; finally the labour party laws on repossession of homes, which keeps the whole thing on hold when in fact there is a need for an "adjustment" which returns average house prices to a relationship to three or maximum four times household average income. Capital gains on some types of properties or areas is always going to happen, but the restrictions in the planning process and the high value of land which is freed up is a clear obstruction to market mechanisms correcting the housing market to being in this relationship of average income to average house price. The objective really is that the housing stock becomes more diverse and the average house becomes larger and of a higher value.

Market mechanisms: well  you would think Thatcher and Reagan had invented them if you believed David Mellor and Lord Young. The neo socialist condition of the UK was MORE a result of the old money and years of under-investment in industry than the labour parties' doing. The 60s wilson government conducted a regernation plan and did nationalise aluminium and so on, but this was an established way to approach post war modernisation, and to which consequence abroad, Britain was lagging behind.

However I am thanks partly to clause 4 of the Labour party, somewhat due to the Thatcher era, and partly due my own exposure to companies in high and low technology manufacturing and services through my employment career from small start ups to billion dollar stake multi nationals. I am in a way the new, new labour man. A student of history and amateur economist by pure raw experiences and being awake to the rhetoric, the policies and the effects of governance and management, and of people's efforts.