Internet Commerce - Weathering the Storm
Bill Warner Saturday, November 29, 2008
At the recent Internet Summit in Research Triangle Park, the kick-off presentation was a sobering look at the business status of internet commerce given by comScore, a global Internet information provider to which leading companies turn for consumer behavior insight that drives their marketing, sales and trading strategies. comScore maintains massive proprietary databases that provide a continuous, real-time measurement of the myriad ways in which the Internet is used and the wide variety of activities that are occurring online, giving them a comprehensive view of consumer behavior. In other words, this is company that is watching your every mouse click and key stroke.
Intuition would tell you that internet commerce is suffering just as much as the rest of the industry in this market downturn. However, your intuition might not tell you the deeper insights that you need to know. Through the 3rd quarter 2008, ecommerce is up 10 percent over 2007. That is less than half the annual growth that has occurred since 2002, but nevertheless is growing. This can be broken down by consumer income segment, observing that spending by people whose income is less than $100,000 per year is actually declining, while those above $100,000 is increasing 14% over 2007. Clearly, the economic downturn is affecting the lower income group the most.
This can mostly be attributed to higher prices, led by the over 30 percent increase in motor fuel, all of which has significantly squeezed discretionary spending. But, fuel prices over the last several weeks has fallen to less than $2.00 per gallon and food prices are starting to drop as well. One might think that ecommerce is going resume its 20 plus percentage growth again, but that is not what is going to happen. When asked what their major issue is now, the concern about rising prices of consumers whose income is greater than $100,000 is being replaced by a significant concern about the financial markets. For consumers whose income is less than $100,000, their concern is about inflation; including prices, jobs and financial markets.
When asked what they thought their spending for the holiday season would be, about 60 percent of consumers whose income is less than $100,000 said they would be spending less than last year, while 43 percent of those greater than $100,000 said the same.
comScore can only tell us what has occurred, not what will occur. So they have no crystal ball. They did ask about the effect of the presidential election showing that over one third of the consumers are either not sure or have less confidence in making near-term expenditures. The Obama effect is a big unknown and the markets are hanging on every word he says or doesn’t say as well as what the administration says about the various bail-outs that are being proposed.
We certainly have not seen the end of the trend setting for consumer spending as the situation is still very volatile with more shoes to fall with the change in administration.
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IBM Director of Research - Bullish on New Opportunities
Bill Warner Tuesday, November 11, 2008
“Invest now, this too will pass,” says Dr. John Kelly, IBM Senior Vice President and Director of Research, while speaking with a small group of executives and entrepreneurs at the Council for Entrepreneurial development in RTP. John was quite bullish on the possibilities for new opportunities for IBM premier offerings in information technology services and products.
He gave a broad perspective of where IBM is today, and contrasted it to a very different profile as little as a decade ago. A $100B company with 10% market share, IBM is predominately an IT services company with 55% of its revenue coming from worldwide services. The remainder is split evenly between software and hardware. They spend about $6B annually in R&D which fuels a broad array of new technologies.
John is quite cognizant of the economic impact we are now feeling with the downturn of the public markets resulting from the credit crisis. He says those with the strongest balance sheets will weather this storm, and views this as a time to grasp new opportunities. He has no crystal ball as to when the recovery will come, but knows that IBM is in a strong position to invest in profitable growth and become much more competitive in the process.
He cited several examples of industry growth areas, such as financial services and healthcare to name a couple. He believes that the future growth will be fueled by the ever increasing use of computer technology to improve efficiency and competitive advantages in all industries. Actually, this is no different than it has been since the dawn of the computer age, but his bullishness to accelerate growth was refreshing.
John reflected with great respect on the transformation that IBM has made since its “near death” experience in the early 90’s. The culture has changed, the company is leaner and meaner, and all said and done has transformed itself into the leading professional services company in the world. IBM has been managed brilliantly, not taking the bait in the late 90’s dot.com boom. It stuck to its guns by achieving business success through a focus on profit growth and earnings growth. Just growing revenue doesn’t cut it, as did many companies in the late 90’s and early 2000’s. Most of them are now gone. IBM remains strong, because it focused on keeping a strong balance sheet. Go look for yourselves.
He is deeply concerned about US competitiveness, and highlighted his disappointment with the lack of congressional action to fund the America Competes Act in 2007, which would have called for significantly increased investment research. He cited several examples of other countries leaping forward in this area and producing large numbers of highly qualified university graduates that will very quickly have a material effect in making those countries, like China, much more competitive.
He was of course asked about the importance of protecting intellectual property (IP). After all, we were talking to the person who manages one of the largest patent portfolios on the face of the earth. His perspective was very balanced, in that IBM certainly makes over $1B annually in licensing fees but also gives away for free the use of patents that could easily make 4-5 times as much for IBM. Their view is that much of their technology will help fuel the growth of industry in general, and as other “boats rise, so will IBM’s.”
Acquisition is still a key strategy for IBM which has recently spent $5-10B on acquiring innovative companies that fill out their product line and broaden them into new markets. This is all driven by the business units within IBM who identify acquisition opportunities as IBM tries to reach further into the IT industry.
Of special note is John’s healthy perspective about people and the fact that business success is really dependent on hiring the best of the best. He spends a lot of time focused on IBM’s hiring practices, the universities they are coming from and the industry expertise they bring. Whether or not they are in research, product development or professional services, IBM still goes after the best people it can find and believes they are the key to their own competitiveness.
He confirmed IBM’s commitment to RTP and was very supportive of the work being done by the IBM team which is now predominately software development and services. Don’t be fooled when you drive by all those buildings that look like manufacturing facilities or warehouses. There is a lot of software development going on in RTP.
During the Q&A period, he speculated on the future of communications devices (like cell phones), saying that speech recognition, including language translation, technologies are the next break-through that we should see. So, those of you who cannot type, you will soon be able to speak into your cell phone and have messages automatically written for you in most any language. Of course, this is one simple example of the endless possibilities that effective speech recognition can bring us.
John’s closing comments called for us all to focus on the global economy, and achieve global reach in our businesses. He left us with a positive view of the economic situation we are in by saying that this is the time to invest in growth opportunities.
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Raising Capital - Bank Loans Are Still Quite Possible
Bill Warner Wednesday, October 29, 2008
I have been talking to some of the local banks, those that serve our region only. Some people might call them community banks. They are the banks that take pride in their independence, provide services to both small businesses and individuals, and act responsibly with good judgment about taking risk.
Despite all the bad news you are reading about the major banks, some of whom are failing, community banks seem to be much better off. Sure, they have some mortgage loan failures, but are well within the bounds of their reserves for such risk. They are not panicking and are still making loans at reasonable interest rates. The stall in the flow in credit is not being felt as significantly as the “Wall Street” institutions. I asked them why this is. The answer I got was that they do not have a substantial portfolio of these bad home mortgages. They did not drink the Kool Aid and buckle under congressional pressure, through organizations like ACORN, to provide loans to people who do not qualify for them.
We are all reading stories about many banks who are taking the bail-out money. The large banks were given an ultimatum, even though a few of them did not want it. Unfortunately, some of these banks are not using the money for loans to small businesses and individuals. I read about one that is actually using the funds to buy another bank. So, the misuse of these funds is already starting. Thank you Mr. Paulson for your oversight and leadership.
Over $100B of the bail-out fund of $700B is being targeted at the smaller banks. Under some mild duress, banks have been notified by the Treasury of the offer to loan them money at reasonable interest rates and payment terms, along with provisions to take warrants in their banks. I am proud to report that many of our community banks are flatly refusing to take the money. They don’t need it and don’t want government intervention in the banking system. They were even told that “it is the patriotic thing to do” to take these funds so that more loans can be made. Many of them countered by saying that the patriotic thing to do is to not take this money and let the free market system work.
This is good news for small businesses that need loans to support their businesses, whether it is for capital purchases, business expansion or simply a line of credit. Target your quest for loan financing at local community banks and you should find a lot more positive response than you will get from the large banking institutions who are struggling to recover from the credit crunch and a boat load of bad loans. Do your homework though. Approach these institutions with well thought out business propositions supported by a solid financial analysis of your needs and how you will back the loan. What is making these banks successful is discipline, so you need to walk in the door with a disciplined approach to your business.
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Businesses Learn About Leadership and Teamwork
Bill Warner Sunday, October 19, 2008
I had the privilege of attending this month’s Business Clubs America meeting at Brier Creek Country Club. This is a premier networking event with members representing all business disciplines and industries.
The event featured a panel discussion lead by the famous sports commentator Billy Packer. On the panel was Leroy Walker, past president of the US Olympic Committee who talked about the importance of sports and how the lessons learned can guide your life. Steve Wojciechowski, former Duke basketball star and now assistant coach talked about how the Olympics can shape your view of business. I thought the most riveting panel member was Tommy Burleson, former NC State basketball player, Olympic basketball team player and NBA star.
As you might recall, Tommy was on the the 1972 Olympic basketball team that lost a very controversial final game to the Russians, after which the entire team refused to accept the silver medal. It was also the Olympic games that were ravaged by a dreadful terrorist attack on the Israeli team, in which Tommy had a very visible and death defying experience. In a heartful and tearful delivery, Tommy said, “It is not about the Olympics. It is not about the medals. It is not about winning or losing. It is about the team!” While holding back his tears, while we held back ours, Tommy stressed that teamwork is what leads to success and lasting relationships. Every business person in the room paid attention and was caught up in Tommy’s passion for his message and his caring for people of the world. He is an example to all Americans, not just business people, who want to have leadership and teamwork put into perspective. To learn more about Tommy, go to his website at www.tommyburleson.com
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CEO Coach - What’s Your Value Proposition
Bill Warner Monday, June 30, 2008
I attended a very enlightening meeting last week of an organization called Men of Significance. It is led, along with others, by Fate Thompson, the CEO of iAdvantage Software in Cary, NC.
They bring to life another aspect of business vision and value proposition. When thinking about these two subjects, most of us think of the obvious observations about market size, customer value, revenue growth, profitability, marketing messages and sales traction. But, we don’t often think about our own fulfillment. That is, what of your own needs have been fulfilled by your business vision and value proposition. Often, the need is really not money or fame. Searching deeply into your own purpose in life, you perhaps will find a more fundemental and significant need that drives you. Entrepreneurs and business executives start businesses for many reasons. When you discuss with them why they are taking this risk, you will often find a deeply seeded and thoughtful reason that really represents their view of their purpose in life. Men of Significance is all about helping business people find that deeper need and to guide them to their significance in life.
This organization adds another dimension to the way we should think about our role in a business endeavor. I invite you to go to their website at www.men-of-significance.org and learn about their organization and the many resources they have available.
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Engage with the North Carolina Sustainable Entrepreneurs
Bill Warner Wednesday, March 19, 2008
Paladin and Associates is a proud co-founder of the North Carolina Sustainable Entrepreneurs Group (NCSEG). We are fostering entrepreneurship in NC by providing guidance to companies that have sustainable technologies. Our organization was founded on the basis that there is tremendous support throughout NC that provide assistance to entrepreneurs. The problem is that entrepreneurs don’t always know how to form their companies and get them launched. We take entrepreneurs under our wings, give them some initial guidance on what they need to do and then get them in touch with the right organizations and resources that they need to take the next step in their company’s formation.
Early this week we had our regular monthly meeting. We are just getting started but here are some of the things that are on our radar screen:
- Supporting the NC Green Fund by guiding companies to their application process
- Engaging in some public forums to make the business community aware of our group
- Having further meetings with successful sustainable companies
- Engaging with university programs and make entrepreneurs award of their services
We encourage all entrepreneurs that have technology that has sustainability characteristics get in touch with us. Perhaps we can help you too. Go to our website at www.ncseg.net to learn more.
