Where has all the Venture Capital Gone?

16 June 2008

Venture Capital investments in Canada are down sharply compared with the last few years.  One theory is that the large pension funds, flush with cash from the boomers, were hungry for places to put their money.  Venture funds were a good target.  However, over the years, the performance of the venture funds was below expectations and, as the money invested has come due, the pension funds are not re-investing the money in the VC funds.

Another theory has to do with the reduction in the tax credits the pension funds receive when they invest in VC funds.  The Ontario government reduced this tax credit with the assumption that large foreign investors would remain involved.  However, with the local pension funds pulling out, the foreign investors are reluctant to get involved without significant local investment and are withdrawing from the market as well. 

What ever the reason, the effect is a dramatic reduction in the number of start-up investments in 2008.  I’ll try to gather some stats to strengthen the point.

Leadership Styles

13 June 2008

I’ve been asked a number of times to describe my leadership style.  To be frank, I find this to be a silly question.  It is similar to asking a painter which brush he uses.  The response will likely be “All of them”.

Leadership is a tool and is used in different ways depending on the circumstance.  The trick, as a leader, is to know how to modify your behaviour to match the people you are trying to lead and the situation you are in.   It involves understanding psychology, knowing the skills, knowledge and attitudes of the people you are trying to influence, and having a good idea what needs to be done.  Knowing these things determines whether you bellow like a drill sergeant or quietly lead by example.

Supposedly, there are many “styles” of leadership and you can easily find sites on the Internet that list three, or four or ten.  The differences in the styles varies but most rely on or assume that the followers will cooperate with the leader and recognize the authority in the leader’s position.  This certainly makes leadership somewhat easier.

But if you want a real test of your leadership capabilities, consider democratic leadership – not the pseudo participative styles – but leadership in situations where cooperation is not guaranteed and initially you have no authority.  If you can rise from the crowd and, with nothing more than your wits, get them to follow you, you will have proven yourself as a true leader.    You should also consider a career in politics.


Windows Vista

12 June 2008

You’d think that after using Microsoft software for my whole career, right back to when edlin was considered a good text editor, I’d know a thing or two about Microsoft Word.  Why then am I reading the help files trying to figure out how to do things I used to be able to do easily.  The new Office 2007 programs look awfully sharp but they have changed so drastically from the previous versions that I can barely use them.   Its as if the English language changed overnight – I know there is a way to say what I want to say, and I can probably figure it out but first I have to decode the dictionary.  Even the backwards compatibility features that accept the Office 2003 access keys are hard to use.  While appreciated, I never bothered to remember the key sequences and always looked at the menus to see what the codes were as I typed.  They new version gives me the tantalizing clue that I’ve got it partly right while I rack my brain for the code difference between similar sounding menu items.

Stepping out of my own frustration, I can see that there is some logic in the change.  New users will be able to do some pretty amazing things with little training.  (Be on the lookout for astoundingly pretty presentations that have no content.)  If you are starting from scratch, you will have to figure it out as you go in any case and that is how most of us learn – by trial and error rather than reading the manual.  I just though I had learned that already. 

While we can collectively bemoan Microsoft for making life so easy and difficult all at the same time, product managers take note.  If you have a product that has a life longer than your career, becareful how you “innovate” with it.  People get really attached to the products they use and don’t always appreciate change.  Remember “New” Coke?  New is not always better.  Perhaps, if enough of us complain, Microsoft will release Word Classic and we can all get back to work.

The Importance of Sales Forecasting

10 June 2008

I just got off the phone with a consulting firm that was studying the decision of whether to outsource manufacturing or develop in-house production.  The conversation reminded me of the importance that sales forecasting has to the efficient operations of a manufacturing company.  Many resource planning software packages use a combination of current orders and statistical forecasting algorithms to predict what their future product requirements will be and this may be a valid method if your industry is mature, the seasonal fluctuations are stable and there is no expectation of growth.  But what of cases where growth is expected?  Suppose you have just launched a new product addition to your product portfolio.  You have no orders and no history on which to extrapolate.  What then?

One solution is to use Sales Forecasts.  As I define it, a sales forecast is a single opportunity with an identified customer who is investigating a single existing product.  The forecast is created by the sales staff after the initial contact with a customer and provides the monthly requirement in each of the next 12 months, the price and a probabilbity of closing.  After the initial contact, the probability may only be 2% but as the sales staff work with the customer and support them through the sales cycle, the probability increases.  It hits 100% when the order is received and the opportunity is closed. 

For a single forecast, the estimation of the probability is quite imperfect.  But overall, across a number of sales staff and across all the opportunities out there, the aggregate weighted unit volume and revenue has significant statistical accuracy.  Add to that the orders already on the books and a resonable picture of future volume and revenue can be predicted on a month by month basis.  The expected volume can then be used to justify purchasing the required inventory according to the leadtimes.

The basis for the accuracy of the forecast comes from the experience of the sales staff and the principle that collective wisdom is better than the best guess of the smartest person in the group.  In his book The Wisdom of Crowds, James Surowiecki argues that a crowd, where the members act independently, use their own albeit limited information and best judgement, share information and have a method to aggregate their efforts, can make decisions that outperform the best individual in the group. 

In the case of the sales forecast, the software provides an ideal way for the group to aggregate the decision and arrive at the expected unit volume.  Feedback and performance monitoring also help hone the group’s ability to “hit” the numbers.

Obviously, this approach is best suited to products with long sales cycles where customers are in contact with the sales staff for extended periods prior to ordering and to companies which can identify hundreds or thousands of opportunities:  technical OEM sales, for example.  It works equally well with a distribution channel as it would with direct sales structures. I’m not sure it would work well with web-based e-commerce model since that would require the customer to do the work of tracking the opportunity when all they really want is some product information.  Perhaps there is a way to provide incentives and train customers to do that but I’d rather rely on experienced sales staff who can evaluate the opportunity and can tell if the customer is blowing smoke.

Well here goes nothing.

9 June 2008

Its a good day to start a blog.  Sitting in mild airconditioned bliss after having completed the Rideau Lakes Tour this weekend.  It was hot!  My group took it slowly and we managed to complete the full ride without incident, although several of us had borderline heat-stroke.  With cafeful management of our energy, and frequent breaks to cool off, we made it all together.  I even had enough gas to sprint at the end. 

The tour has grown to some very large numbers in the last few years and the traffic congestion is getting to be a problem.  This year, after a number of complaints and a few bad accidents, the police started to ticket groups that were travelling two-abreast.   Single file may be safer but it takes all the social fun out of the ride. 

Also a comment to the well-meaning people who provide the rest stop support in North Crosby and who provided such nicely decorated cupcakes but who ran out of water and Gatorade – know your market.