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How to balance your management and leadership tasks

Wednesday, April 3rd, 2013

I am back at Cass Business School this week taking a leadership elective as an alumni. It felt really good to be back in the lecture theatre and engaging the academic grey matter.

The first lecture gave us the opportunity to unpack the differences between management and leadership, which I will cover in my next post. During the lecture I realised that getting the balance right between management (operational) and leadership (strategic) tasks is not easy. I have had a few instances over the last few weeks where I have not been in balance one way or the other.

So it was quite timely that I recently found a simple set of questions that helps me keep track of this balance:

Leadership and Management Task Matrix

Operational tasks

Do I have the right balance between operational and strategic tasks?
Have I delegated appropriately?
Are there any tasks that I can defer or remove?
Do my team have the skills to pick up more operational tasks? If not what do I need to do to develop them?

Operational people issues

Am I supporting the individuals in my team to deliver their objectives?
Do I give the right amount of face to face contact?
Are my direct reports managing their teams appropriately (e.g. recruiting, coaching, performance management)?

Strategic tasks

What are the priority activities that will enable me to deliver my business plan?
Do I spend enough time working on these tasks? If not then why not?
Are my team aligned to these activities?
Is my strategy fit for purpose for the future or do I need to revisit it?

Strategic people issues

Have I created the right structure to deliver my strategy?
Do I have the right skills profile to deliver my scorecard objectives?
Am I creating a talent pipeline alongside a robust succession plan?
How close am I to creating a high performance culture?

I generally tend to use this checklist on a Friday evening as I review my working week and ensure that any issues are addressed for the following week. I also find it useful to track the balance between operational and strategic tasks over time.

Tags: leadership, management, people, tasks
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Evolving the business models of photographers

Wednesday, October 31st, 2012

I find it almost impossible to take good photos of my children so I thought I would leave it to the professionals and went to see an independent photographer for the first time. I visited a photographer in North London and it was not an experience I would care to repeat anytime soon; the studio was dirty, the photos were grossly overpriced and the whole process was slow and manual.

I came away thinking that it is high time that photographers evolved their business model to provide better value and service for the customer while at the same time improving their long-term profitability.

As ever when I analyse a business model I am looking for Blue Oceans by analysing value curves and finding gaps in the current offerings.

Developing a new value curve

A high level summary of going to a photographer:

Time consuming. Not only do you have to take time to visit the studio for the photo shoot you have to sit through the viewing after the photos have been edited.
Expensive. Paying £900 for a small canvas that I can purchase independently for £50 seems like a complete rip-off.
Limited. As digital rights are not usually provided I am forced to chose only the products the photographer offers.

To develop a blue ocean and a new value curve I ask myself the four questions on the graphic on the right as a way to stimulate new ideas:

Reduce
- Level of service – clean, efficient and professional but not flashy.
- Range of products – fewer in-house products with the option to utilise 3rd party services to extend product offering.
- Level of pricing – cheaper, more affordable pricing while still at high profit levels.
Raise
- Speed of getting your photos – photos provided within a few hours.
Eliminate
- Cost of the photo shoot – no charge for the photo session.
Create
- Digital access rights – every photo provided to the customer via secure website.

High level value proposition of the new photography model

Using the ideas from the four questions above I can now articulate the proposition for the new blue ocean for photography.

The studios would be clean, crisp and modern but not flashy, this is not a premium offering. Studios would be located in out of town retail outlets in order to negate the high rents associated with high street locations. The reason for this is that going to see a photographer is not an impulse purchase so having clients travel to the studio will not reduce the attractiveness of the offering.

Clients would pay £300 for the photoshoot which would give them full access to the digital rights for all the un-edited photos. This is a big shift from the current model that does not provide digital rights. The customer can then use their photos in whatever way they see fit.

All the photos would be uploaded to a secure website immediately after the photoshoot, so that subject to upload speeds, the photos would be ready for the customer to download when they return home. The photos could be shared with friends of family allowing the photographers brand to be shared virally.

Value-added services would also be provided like existing photographers such as photo editing, printing, canvasses etc. These value-added services would be at lower profit margins that existing photographers in order to encourage a larger number of sales. However third party services would allow customers to extend the use of their photos, for example to create personalised merchandise, websites, specialised printing.

A blue ocean in photography

Using my ideas that were generated from the four questions I have roughly modelled Richard Kerber, Venture Photography and a my proposed new model in the following value curve.

Modelling Photographers On A Value Curve

High level financials

The new model changes the profit profile of photographers. Currently there is a small loss leader fee for the photoshoot and then a huge profit on a small number of customer purchases. However it is very likely that some customers will only buy one photo or some will not buy any.

In the new model there is a large profit even on the base level packages. Up-selling, of prints or other services, will increase profits further.

Assuming that a photographer can see ten clients per day:

Old model = £30 photo shoot fee x 10 = £300

New model = £300 digital rights x 10 = £3,000

Even though the margins on the value added services are higher for the old model the probability of selling them are much lower. These figures show that even with no value added services the new model is making £3,000 per day in revenue.

Tags: blue ocean, business model, photographers
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Recommendations to maximise Internet company value

Thursday, October 18th, 2012

The following recommendations have been drawn from the research targeting a range of stakeholder groups who are involved with publically listed companies.

Management looking to maximise valuation should concentrate on growing revenues not cutting costs.

While cost cutting may have some effect on market value, the data point to revenue as the dominant driver of market value for Internet businesses as a group.
Generating revenue for Internet companies takes time and many firms are heavily loss making until they find ways to monetise their traffic or assets. However by the time a company IPOs it needs to have successfully developed its financial metrics or it will be pressured by the financial markets to do so.

Know your business model and understand its specific drivers.

Whilst revenue is the dominant driver of value across the aggregated population I found that not all business models have the same drivers. With this in mind it is essential that managers understand those value drivers that most impact their business model.

Be aware that drivers change based on the maturity of the company.

The Value Driver Maturity Model suggests that value drivers move from being dominated by non-financial when a company is young, towards financial drivers as the company matures.
As a business reaches its strategic milestones it must assess whether it has moved along the maturity curve. If it has then it needs to change it focus and this should be reflected in its management-reporting dashboard. If a company fails to recognise that it is now being judged more on financial metrics this may negatively impact its share price.

B2B and Ecommerce companies should concentrate on financials.

B2B companies should concentrate on revenue to drive their market value. The data showed the market value of B2B companies is not driven by traffic at all. This is perhaps because the B2B market is smaller and transactions are typically of lower frequency and higher value.
Ecommerce companies are driven by earnings and to a lesser extent revenue, like B2B companies their value drivers are purely financial. Ecommerce companies should focus on improving their profit margins, either through increasing scale or by backward integration along the value chain.

B2C companies should focus on traffic with the long-term focus on revenue.

B2C companies are primarily driven by traffic. Therefore the mentality for new companies in these categories is to grow traffic at the expense of earnings. This means a higher degree of external investment will be required to fund the growth phase. This approach implies that breakeven may be later than for traditional businesses, as a revenue model may not be developed until a critical mass of users is established.

Low barriers to entry mean new businesses should be confident about entering the market.

I found no relationship between market value and age, which dispels the notion of the ‘first mover advantage’ producing long-lasting competitive advantages for Internet companies. The data shows that there is a good chance that new entrants are able to overcome industry barriers to entry. This is perhaps due to the fast pace of change or because customer switching costs are low.

Venture Capitalists (VCs) should look for ‘home runs’ in the Community, Content and Marketplace categories.

Business models vary in their attractiveness with some categories achieving higher median valuations. Most notably Community, Content and Marketplace have the most attractive market values. VC returns have been dominated by a small number of very large winners (Fraser-Sampson, 2010); these home runs can make or break a fund. Therefore VC funds should concentrate on funding companies with the highest-ranking business model to give them the best chance of achieving home runs. However it could be argued that focusing on the most successful categories could potentially mean competing with the most successful companies.

Investors should consider looking at traffic data when analysing opportunities.

Investors who invest in Internet companies should consider trends in traffic data especially for Content and Community categories. Especially in early-stage companies the traffic growth trajectory can be indicative of future revenue, assuming that management have a proven revenue model to convert the traffic into profit. Finding appropriate databases of Internet traffic is not easy and each database has its own advantages and disadvantages. However the benefits of utilising traffic data could give investors an edge in picking the best performing stocks.

Non-US firms might reconsider listing on a US stock exchange.

The data weakly concluded that non-US firms are not priced as favourably when compared with their US counterparts. This loosely suggests that non-US companies might be better off listing in another geography (such as Europe). However there may be other attractions to listing on the US exchanges that are not factored into the price, such as access to capital, the credibility gained from listing in the US or access to lobby or special interest groups.

Tags: mba, thesis, valuation
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Internet value driver maturity model

Tuesday, October 16th, 2012

Maturity models seem to be all the rage at the moment and as I did not want to be left out I have developed my own maturity model to model the relevance of different value drivers as Internet companies mature.

The evidence for this model come from the following trends from my research:

Internet companies are becoming more profitable over time.
For young business models (e.g. Community); non-financial drivers play disproportionate role in valuation in the absence of earnings.
Mature companies (public companies) are judged by whether they meet revenue and earnings targets.

From this evidence I infer that Internet companies go through phases with varying emphasis on value drivers.

Internet Value Driver Maturity Model (Harbott, 2012)

The Internet value driver maturity model shows that younger companies are judged more on traffic, whereas more mature companies are primarily judged on financial metrics.

This suggests why pre-IPO companies can command large valuations without established revenue and furthermore why post-IPO their share price falls if earnings and revenue targets are not met. Post-IPO the market has moved the company along the maturity model and thus changed the criteria on which they are judged.

For example, take Facebook whose IPO market value was high relative to its revenue figures. Since its IPO Facebook’s share price has tumbled around 50% after missing revenue targets. Perhaps becoming a public company is a game-changer in so much as the company is now being judged on its financial performance i.e. it has moved along the Value Driver Maturity Model.

Tags: mba, thesis, value drivers
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Value drivers for Internet business models

Wednesday, October 10th, 2012

Analysing listed Internet companies as one homogenous group there is no doubt that revenue is the strongest predictor for Internet market value. In fact my research showed that the regression between revenue and market value had an R2 as high as 0.93.

However an analysis at the disaggregated business model level reveals another story. In fact almost every Internet business model has a variety of different drivers.

Descriptive statistics summary and interpretation

These results also highlight the usefulness of both financial and non-financial measures in explaining market valuation between different business model categories.

Interestingly some business models have very clear value drivers and others do not.

Categories with a higher proportion of B2C companies focus more on traffic than B2B companies, which seems logical. B2B firms are more transaction orientated and the quality and type of traffic is more important than the volume. In B2B firms the financial metrics were much more important than traffic.

Tags: business model, mba, thesis, value drivers
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Building a new Internet business model classification framework

Wednesday, October 3rd, 2012

After researching the current literature I found no universally accepted method of classifying Internet business models. It was also noted that classification frameworks were out of date and did not accommodate newer business models.

Therefore I developed a new classification with the following criteria:

It needed to accommodate new businesses such as Facebook and cloud services. Many of the classifications were written before these innovations were developed.
It should flexible enough to accommodate emerging business models in the fast moving Internet sector.

In the end I decided to combine and extend Laudon & Traver (2008) with Wirtz et al. (2010) because these were the most up-to-date classifications found.

New Internet business model classifications

The first table shows the new classification that I created with corresponding category traits and common revenue models.

Improved business model classification with characteristics

Classification rationale

The second figure hows how the categories were combined or renamed. Two additional categories, infrastructure and software, were added as they were not listed in the classifications.

Business model classification framework rationale

Tags: business model, classification, mba, thesis
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Classifying Internet business models

Thursday, September 27th, 2012

There are many business model classifications ranging from observed lists with no consistent classification criteria (e.g. Kotzberg 2001; Applegate 2001b; Eisenmann 2002; Laudon and Traver 2003; Rappa 2006), to a more systematic approach which classifies models using as few as two variables (Timmers 1998; Linder and Cantrell 2000) and as many as four variables (Weill and Vitale 2001; Afuah and Tucci 2003) (Lambert, 2006b).

Pateli & Giaglis (2003) stated that business models in the same category usually shared common characteristics, such as pricing or the customer relationship model. They found that category frameworks of business models are based on:

Lambert (2006b) believed that existing business model typologies could be consolidated to create a more comprehensive typology. However creating a ‘master’ typology would require considerable subjective judgment and it may lose its potential to simplify reality.

Lambert (2006a) finds that there is no taxonomy of business models largely because there is no widely agreed upon concept of a business model. This view is echoed by Osterwalder & Pigneur (2005) and Weill et al. (2005) who find no accepted taxonomy of business models.

Hawkins (2002) goes further to say “Attempts to create taxonomies of business models mostly amount to no more than random, unrelated lists of business activities that just happen to occur on Internet platforms”.

Many of the models discussed are simply extensions of a traditional model such as e-shops, where as some of the models have been created because of the openness and connectivity of the Internet (see Table 2 below). In addition early classifications are out of date or do not include newer models such as social networking or cloud services.

For my thesis I reviewed the following classifications and summarised them below.

Summary of business model classifications literature

Tags: business model, classification, mba, thesis
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MBA Thesis – What drives Internet company valuation?

Tuesday, September 25th, 2012

After many months of hard work I have submitted my thesis and can now reflect on the work I have done. My thesis titled What drives Internet company valuation? A business model approach to Internet value drivers was a combination of my passions of business strategy, business models and Internet companies.

I will be publishing key parts of the thesis in an upcoming blog post series.

Abstract

With modest financials Facebook’s IPO market value was greater than industry stalwarts Yahoo, eBay and Dell. Why do some Internet companies have seemingly high market valuations relative to their financial performance?

This research aims to determine what drives market valuations for Internet companies and to discover whether value drivers vary across the different types of business models.

Given the ubiquity of the Internet and the huge growth in online businesses one would assume a large body of research on Internet value drivers. However the literature review found that this is the first study of business model value drivers since 2001 and reinforces the value of this research.

The objectives of the research were threefold:

To identify the value drivers for Internet companies.
To create a collectively exhaustive categorisation of Internet business models.
To determine whether different business models have varying value drivers.

Existing Internet business model classifications were identified from the literature. The most promising classifications were extended to create a new classification of seven Internet business models: Community, Content, Ecommerce, Infrastructure, Marketplace, Service Provider, and Software.

Accepted best practice is to use financial metrics to value companies. However for Internet companies it is also important to include non-financial website traffic variables.

The literature review identified six value drivers for market value divided into two categories:

Non-financial traffic metrics (reach, pageviews, traffic rank)
Financial metrics (revenue, EPS, Price-to-Sales).

Data were collected on the 71 firms in the Nasdaq QNET Internet index and were analysed via descriptive statistics and regression models to determine value drivers.

The aggregated results found revenue is the dominant driver of Internet market value; having the highest correlation with market value and the highest R2 (0.93).

However when the sample was disaggregated into business model categories the results showed that each category had unique value drivers, which were a combination of financial and non-financial drivers.

The data also highlighted that Internet markets seem to go through different phases with traffic drivers playing a disproportionate role in the early stages followed by the progressive importance of financial drivers as the market matures.

The key recommendation is that management should focus on building revenue, not cutting costs, if they want to maximise market value. In addition, management should be aware that each business model has unique drivers and these should be identified, tracked, measured closely.

Keywords: business models, Internet, value drivers, business model classification.

Download the full document: What drives Internet company valuation? A business model approach to Internet value drivers.

The report covers:

Introduction
Literature Review
Research Methodology
Data Analysis
Data Discussion and Interpretation
Conclusions
Recommendations
References
Appendices

Tags: mba, thesis, valuation
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Ten steps to setting up a blog in less than 24 hours

Wednesday, September 19th, 2012

I have recently set up a new blog http://www.reversinginjuries.co.uk/ and the process of setting up a blog was very straight forward once you know what the steps are.

In the past I would have agonised over every detail and only made the site live after many reviews and iterations. However in keeping with the principles of minimum viable product (MVP) a friend of mine gave me a great quote that has stuck with me: “Move fast and break things”. I loved that concept so I decided as an experiement to get my new blog up and live within 24 hours with an outline for 50 posts and a 1 year plan.

Step 1 – Domain name

You need to buy a domain name (which is the address of the website). I bought reversinginjuries.co.uk from UKreg for £5 per year (remember you need to renew it every year). It can sometimes take a while to find a name as many of the good names are already taken.

Step 2 – Logo

Any old logo will do at the start, just a plain text logo if you cannot do anything else. If you do want a designer then sites like oDesk or 99Designs are good places to start. Remember you can always upgrade it later if your idea takes off.

Step 3 – Install WordPress

If you do not have your own hosting or server set up then you can use the hosted WordPress. Hosted means that they handle all of the software and installation for you. I chose to install it on my server to give me more control over the configuration.

Step 4 – Configure WordPress and install plugins

There are some settings in WordPress you may or may not want to change, don’t worry if you skip this step. There are literally hundreds of WordPress plugins available (some free and some paid for) that extend the functionality of the core WordPress software.

The plugins I decided to install were: Jetpack, Google Sitemaps, Twitter Tools, WP Super Cache and Yet Another Related Posts Plugin.

Step 5 – Set up your categories

Set up some different categories for your posts (optional). Every post you write can be assigned to a category for ease of grouping and searching. I decided to set up categories for each treatment type and for each part of the body.

Step 6 – Choose a theme

There are many themes (designs for your site) to chose from. Again some are free and some are paid for. One great option is to use a site like Elegant Themes which give you access to 76 themes for only $39, that way you can change your theme if you want.

I chose to have my own custom theme designed for me by an amazing designer I have worked with for years called Liza Murphy. As I have a computer science background I then built the theme myself. However if you do not have the skills for this then using a pre-built theme is fine.

Step 7 - Write your first 10 blog posts

Now we finally get into the fun part of writing. I gave myself two hours to write 10 blog posts. The time pressure really helped focus the mind and most of the posts I had been thinking about for a while anyway.

The best thing to do is just write and write. Don’t worry about the quality you can always improve them later.

Step 8 – Social media

Set up your social media broadcast tools, sign up for a Twitter, Facebook and any other services you use. You will need to do more than just post content in order to build an audience but for now all you need to do is get set up with social media.

Step 9 – Blog brainstorm bucket list

Keep a list of any blog post idea that pops into your head and make notes when you read other articles. I keep a big list of ideas in Omnifocus (my To Do application) so that when I have some time to write I don’t need to waste time generating ideas.

Step 10 – Start telling people

Start to let people know about your new blog and make sure you contribute to any related community sites. It is very unlikely that you will build an audience quickly (unless you already have a high profile) but if you keep writing good, regular content then people will start to visit. At this stage it is a good idea to set up Google Analytics so that you can track your website visitors.

Final note

All of these steps took me less than 24 hours and I am now up and running with my new site. If you follow the steps outlined in this post the cost of setting up should be less than £5. The only thing you need to pay for is the domain name, the rest you can get for free if you are not fussy.

If you have any questions or if any of the steps do not make sense then please send me a message.

Tags: blog, start up
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Reflections on my final year MBA at Cass business school

Wednesday, September 12th, 2012

Last year I wrote a summary post of the first year of my MBA and all too quickly I have completed my final year at Cass Business School. I had my final elective last month and then an amazing trip to China to learn about their culture and approach to business. China was a fitting end to my MBA experience; and like so much of the MBA it was a voyage into the unknown.

First, the good news

The second year of the MBA was no where near as intense at the first year but it did pose different challenges and experiences. The first year was very structured, lectures twice a week, 12 exams and 14 core electives plus the emerging markets consultancy report, a huge volume of teaching.

The second year had seven electives (most running over a long weekend) and a 15,000 word thesis. Even the content and format of the teaching was different, it was very much about application and consolidating knowledge rather than trying to cram in a huge amount of content like the first year. However only having ad hoc weekend lectures made the periods between lectures harder to carve out time for coursework and preparation for the next elective.

The first year felt like a memory test where as the second year was more about thinking and applying what you have learned.

The content of the two years of MBA

Here is how the course broke down over the two years:

Leadership weekend
14 core electives
12 exams
10 day consultancy trip to Brazil
Emerging markets consultancy report (from Brazil)
8 days of professional development (media training, presentation skills etc)
7 electives
15,000 word thesis

The dreaded thesis

For the last couple of months I have been working on my thesis (which I handed in last week), although a very gruelling process in a funny sort of way I really enjoyed it and I genuinely learnt a lot. The thesis is the culmination of y0ur learning and is a superb way to structure your arguments and research.

Although 15,000 words sounds like a lot it really isn’t and it is very easy to get to 15,000 words. However getting to 15,000 quality words is a whole different matter and takes a lot of crafting.

Here are some of the things I learned from writing my thesis:

Chose a topic you enjoy! You are going to be spending a 100 hours on this project so they might as well be enjoyable.
Pick an advisor that you know and like. My advisor was superb and spent a lot of time with me, other people were not so lucky. I chose one of my lecturers from one of my previous electives so I already had a working relationship with them.
Start early. It is much better to get an early draft that you can hone over time.
Use naive reviewers. My Dad kindly read my thesis for me and it was great to get the perspective of someone who had no context of my paper. If he could understand it then people with knowledge of my topic would too.
Use graphics and design. There is nothing worse than 15,000 words in a row, make sure you use a good designer to add colour or add graphics and images to make it interesting.
Use layered story-telling. The flow of the document should be like an onion as the reader reads more they should uncover more detail at each level.
You are in charge. Don’t rely on others to drive your project it is yours and you are responsible for the output and timings.

I will be posting my whole thesis in a blog post soon.

What I have learned

This is a hard question as it is difficult to be objective about yourself but overall I have learned a process for investigation, research and gaining knowledge.

I have obviously gained a huge amount of knowledge but the experience has given me a superb lesson is how to debate my views, how to communicate my ideas and a structured way to gain and retain knowledge.

Would I do it again?

There were times where I had my doubts but I would definitely do it again if I had the chance. The knowledge I have gained, the skills I have learned and the friends I have made were well worth the investment.

Is it worth the huge financial and emotional cost?

I think it is. I have grown a huge amount in the last two years both intellectually and emotionally. More importantly I was able to secure an amazing job as a direct result of the MBA (see my previous post explaining the job application for Lloyds Future Executives Programme).

If you are thinking about doing an MBA and have any questions at all please send me a note and I will reply to you as best I can.

Thanks Cass Business School and thanks to all the friends I have made and to all the people who have helped me along the way.

Tags: business school, cass, mba
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