Making predictions is almost as popular as making resolutions in January. Most forecasts tend to be static not dynamic. Thinking about the second order impacts can be revealing. Some of the events likely to happen in 2018 will mean long term change. In Scotland and other small markets this is what matters.
This struck me in force when reading Tom Tunguz predictions for the software market. Tom is one of the smarter guys in this area and his posts often make me think. So I am picking his ideas because they are better thought through than most not because I agree or disagree.
Tom made seven predictions. Here are my thoughts on the second order effects that might follow if his logic holds:
The tax holiday for repatriation creates one of the most active M&A environments of the past ten years
This makes sense from a US perspective. But that cash is being sent back to the US from other places, mainly Europe and Asia. In Europe, US investment dollars have helped. Both the volume and the risk appetite of startup investing have benefited. A reduction in this impetus could be one of the hidden effects of “America First."
The SaaS fundraising market remains ebullient through 2018 as vibrant M&A and an open IPO window trigger substantial liquidity for shareholders
I am with Tom that SaaS funding will continue to be strong. Despite some concerns raised by Clement Vouillon of Point Nine Capital. We may see that the corporate venturer share of this rises as VCs seek higher returns elsewhere.
Events already reinforce the IPO window point. Spotify and Dropbox have taken steps in that direction. I am not so sure. IPOs provide a liquidity event. As Travis Kalanick shows, this is great for founders. What about the VCs and institutions? Once you cash in, what do you with the money. Almost no other asset class looks attractive - see this article from the Wall Street Journal.
So maybe the pressure to exit is not so strong. Suppose SaaS and Technology investment continues to rise. Without a big increase in exits. Then the size of early stage investment as an asset class will go up faster than ever. That creates its own pressures and could lead to more of a flight from seed investing.
Machine learning fades as a buzzword
No doubt this is true. ML will go the way of mobile, VR and many other investing “trends.” Among knowledgeable investors this makes little difference. In many places early stage money comes from two sources. Angels with no tech experience or Government “schemes” in various forms. These sources can be naive.
The risk is that money gets diverted into “hot” sectors. And misses businesses with real potential. I live in Scotland and we need the technology sector to thrive. Its an uncertain business. Making decisions based on PR and buzz not fundamentals turns it into an outright lottery.
Blockchain in the enterprise takes the reign as the buzzword for 2018
The second order effect here is the logical extension of the previous point. I expect to see a lot of fantasy business plans for Blockchain related startups this year. This will be damaging. Blockchain has a future but in the main as an enabler rather than the raison d’être for a business.
Successful blockchains at scale will depend on global network effects. This is very hard for a company from a small market to achieve. Here we need to think about more targeted opportunities. B2B niches or public sector applications where the technology can do some good.
The classic open source strategy of the last fifteen years is abandoned because of the competitive threats from infrastructure-as-a-service (IaaS vendors)
I also agree with this prediction and it scares me. The same naive investing approach above places great store on defined intellectual property. This is false security. Open source is a great boon for innovators with limited access to cash. Placing walls around technology will make life much harder. Smaller or poorer markets will suffer most.
Everyone will lose in the end. Realising the potential of technology means developing applications that deliver real benefits to businesses and consumers. It may be harder to make money without protection. That is the reality of capitalism. Open Source is a bit like free trade. Introduce barriers at your peril.
GDPR becomes an important consideration in most SaaS companies
On a more optimistic note, this could be the start of something great. The right attitude to privacy and security changes the whole business culture. (See Estonia again). Perhaps founders will think more about real sustainable value in future. And less about the sales pitch.
The industry pendulum switches from fragmentation to consolidation in products as well as companies
Another credible prediction. This may offer a good exit for founders across the globe so positive in that sense. In the short term, it may also make life difficult for early stage companies. When size is the prize, startups don’t look so attractive. In time though, such consolidation is a damper on innovation. That will create new opportunities in the future.
The Chairman's View
Tom has produced the shortest and sharpest set of predictions I have seen for 2018. I am not as smart as he is so this article is a bit longer. Most likely neither of us is right but taking time to think about the future makes sense. By nature, entrepreneurs look forward all the time. Don’t limit your horizons to one year or restrict your thinking to the immediate next steps.
The only job of a chairman is to make you a better CEO. My goal for 2018 is to do that job better. I’ll start with one suggestion. When you set your goals, don’t forget your own personal growth.
Simple questions can be deceptive. At a dinner the before Christmas, an entrepreneur I know asked me: “What does a good Chairman do?” I gave a clumsy, vague answer. I find my own brain frustrating about stuff like this sometimes. I have a great memory for facts and I am pretty good at seeing through problems. But I struggle to recall fundamentals when asked on occasions.
On my way home of course, the clear answer returned to me. So Rebecca (CEO of Pick Protection) the simple answer to your question is this: Your Chairman’s only job is to make you a better CEO.
The Economy of Nature
I spent most of my career working in a culture where personal development was embedded deep in the DNA. Every year you had to show that you had made improvements in your skills and capabilities. And you had to have a plan to keep on with personal growth for the next year. Without these things there was no career progression.
This was an example of single mechanism that determined the whole culture of the business. People over complicate culture. It is subtle and nuanced but there are always a small number of rules and practices that regulate the whole system. I saw a similar effect when I was in Estonia last year.
Your business is a little ecosystem of its own. So I look at it as having its own Serengeti Rules. A simple change can regulate the behaviour and health of the whole system. In nature this is a predator. In business, its about how you value your team and how you treat your customers.
The triangle demands three complementary elements
I lived a culture governed by personal development for 29 years. I found some simple frameworks to make it practical and real. This gives me a basis to assess core skills. Analytic skills, management skills and so on. It also covers so called soft skills.
“Soft” in this context just means hard to measure. None of these things are fluffy or spongy in any way. They are the essence of the toughest part of your job - leadership. And there are no KPIs. So much for numbers!
I think about three dimensions.
How do you build relationships and influence key people outside the organisation? This is a wide range. Negotiating skills, social and business communication, listening and pitching. It includes maybe the vaguest thing of all. The shape shifting concept of impact or gravitas.
Can you find and attract the right people? Motivate them to perform. Bind them together into a team which is more than the sum of the parts. And help them realise their potential inside your business and beyond.
This sounds tough and it is. If you get it right you will help talented people achieve amazing things. Intercom wrote about this in the opportunities of growth recently. I would go much further. Growing with your company is the only reason good people will join you. Plus, I have always found this to be the most fun part of leadership.
I always circle back to the start. How have you grown? What have you learnt? What will you achieve next? In the short term this is about leaders growing with the business. Its also a long term thing. Being an entrepreneur can feel all consuming. Yet it is only a stage. Don’t lose sight of your duty to yourself. Who knows where the next 30 years will take you.
The Chairman's Charter
My only job is to make you a better CEO. There are no numbers or metrics or KPIs that track how well its going. You need to bring innovation, passion and commitment to make this work. All the fundamentals of a great entrepreneur in other words.
All I have to offer is experience. I have a simple test to check if I am using it well. The CEOs I work with should be capable of achieving more than I ever could.
Watching people grow into great leaders is the most fun I can have. Feel free to challenge me when I am not doing my best to make this real.
Kenny Fraser is the Director of Sunstone Communication and a personal investor in startups.