Does Cream Rise To The Top?

The Richard Report has a major theme that brokering 'something' is best achieved by the market deciding who or what is best using the 'wisdom of crowds' rather than the seal of approval of the broker. But is it that simple?. At Connect, a key selling point of our service is that we help put forward the best propositions to investors so they don't waste their time filtering out the 'bad uns'. Can Web technology ensure the cream of the crop rise to the top without the broker being the ultimate discriminator of what is best?

How do you find 'good uns'? If you follow the natural selection approach, you need an innovation ecosystem that encourages mutations and experimentation and let the marketplace decide those that are best i.e. most likely to survive and hence reproduce. As Nobel laureate Linus Pauling said: “have lots of ideas and throw away the bad ones…. You aren't going to have good ideas unless you have lots of ideas and some sort of principle of selection.”

With MyDealMaker we are trying to develop this approach to complement and extend our physical pitching events. Within reason anyone with what they think is a bright idea can put up their profile. We can try to give some quality assessment based on our engagement with the entrepreneur. Have they gone through our Investor Readiness Programme? Have they taken the trouble to fill out a detailed profile etc. But where it gets interesting is if, as Richard's suggests, the portal offers the functionality necessary for the market or software itself to promote the best and demphasise the rest.

But lets not get too carried away with all this. Online screening is just that: its a filtering process that can reduce the many to a few based on something more than a one dimensional view of quality or who you stood next to in the queue for the food at a networking event. But just like you don't buy an house based on its profile on RightMove, entering into a meaningful relationship with a business advisor or investing in what appears to be a bright idea on paper requires a little more interaction than can be done online. Physical engagement is still needed to seal any deal!

So I'm with Doug Richard on this - the brokerage need to provide the marketplace first and foremost and this provision and any signposting ideally should not consume a signicant percentage of the transaction it facilitates. Online brokering portals that match those with a need with those best able to provide it have the potential to change the balance of responsibility between brokers, providers and consumers and more importantly improve the efficiency and effectiveness of the marketplace.

Small but Perfectly Formed

When I was in merger talks with a larger company (OK read takeover!) I commented to their CEO that they had muscles in placed we didn't even have places! When things get big, do they really need to become more complex or does it go with the territory?

When businesses grow to more than eight people, holding company meetings in the rest room is no longer as feasible as it once was. Structure need to be put in place and when a job becomes bigger than one person, departments evolve.

The trick is to align related functions together and put in process orientated 'glue' to make sure the external world doesn't get exposed to (necessary) internal complexity. 'Join up thinking' and 'non-silo mentality' seems to be the in vogue phrases. Trying to have one department doing everything, so no glue is required, is about as bad as having individuals pulling in different directions and having loads of gaffer tape holding them together (which to be fair is what is invariably the end result of any growth phase for a business).

So I am not quite sure how to react to the government target of reducing 3,000 support projects down to 100 by 2010. Don't get me wrong, I am sure this can be done but why stop at 100? I thought 42 was the answer to life the universe and everything. But as Einstein said: Make everything as simple as possible, but no simpler.

First Footing In The North East

The momentum behind the Connect network was given a lift in the North East with an inaugural Investment Conference held in Newcastle. Glenn Collinson, a co-founder of Cambridge Silicon Radio gave a keynote speech. CSR was a spin out from Cambridge Consultants in 1998 and was lucky to raise their seed funding before the technology bubble burst.

He emphasised that they started out with global ambitions and always believed as a team they could win against the likes of Intel by being more fleet of foot and innovative. They benefitted from Bluetooth being a royalty-free open standard and, as such, a great market to go for (and never having less than $30M in the bank having raised a total of $85M in VC funding!).

Glenn commented that being first is not necessarily good. Those that follow learn from your mistakes and the education/development of the market. Market pioneers take most of the arrows!

Creative Finance & Risk

The Creative Industries sector lies at the intersection between business, the arts, and technology. The innovative marriage of technological advances and intellectual capital provides the main source of sustainable wealth creation in this sector. Learning from experimentation and failure are key to achieving success and sustained growth. Many Creative Industries participants are subject to shifting fashion and new technologies pose a constant threat to existing activities introducing a high degree of business uncertainty. At the same time, this inherent dynamism and change is constantly opening new opportunities and threats. As a result, the Creative Industries tend to be viewed by investors as inherently high-risk while potentially offering high rewards.

We are currently undertaking a project to identify the specific risks relating to investing in the Creative Industries and how they can be mitigated. If any creative types (either brave investors or bright entrepreneurs) out there might be interested in participating in this research, please get in touch...

Anarchy vs. Organisation

Mary Walshock, the founder of Connect San Diego, argues that an innovation ecosystem should be more like a rainforest than a plantation. We want to encourage cross fertilisation, experimentation and, yes, endure some failure if we are to find a new species of business that can thrive by doing things and solving problems in new, improved ways.

Can you project manage this activity or plot a linear path towards success? Once something emerges from the 'forest' that works, then the emphasis needs to shift towards control, replication and nurturing with a 'plantation' mentality to leverage value. These stages of a companies development are very different and the people that revelled in the early-stage anarchy may not be best suited to raising things in straight lines to regimented schedule.

Maybe like organising your Outlook folders, falling between these two extremes may be the worst of all worlds. Let me explain: have you every tried searching for an email in Outlook? If you organise your folders you have to search each one in turn. Its much simpler just to put everything in one folder and rely on a global text search a la Google. Being either totally anarchic or amazingly organised is the perfect state in Outlook, but anything either way is less perfect.

My Outlook analogy says putting a plantation grower in charge of cultivating a forest isn't the most productive approach, but isn't this exactly what happens most of the time? Is partial cultivation as much an oxymoron as organised chaos?

Gender-Based Finance

Budget 2008 introduces a package of measures to support small businesses access the finance and resources they need to start up and grow. What caught my eye was the announcement of a new £12.5M capital fund to invest in businesses started by women.

I have trawled the HMRC website to try to find out more about how is that going to work but to no avail. Most businesses are built around a team, not one individual. Can men be part of the management team and have any equity share? What if other outside investors gets involved that have more testosterone (chemical structure shown) than they should?

Plenty of companies relocate to access geographically-constrained finance. Are we now going to see the first sex change to gain funding? Surely there are better ways to encourage female entrepreneurs than this. Creating an ecosystem that nurtures and support people seeking to build a business would be a better use of this money than distorting the market in this way. Investors should be backing bright ideas and good people, not worrying about genetic makeup.

New Beginnings

Seven of Yorkshire's most innovative companies were recognised for their enterprise at the Innovator/08 awards. Former politician Michael Portillo hosted the evening and presented the winners with their awards. Medipex took the Innovation Champion Award sponsored by Connect Yorkshire.

As one of the few people that has successfully made the transition from politics into the media, in his preamble to the prize giving, Mr. Portillio eluded to his 1997 election defeat and subsequent humiliation on a number of occasions, noting that failure offered new beginnings and that people that had only tasted success lack a certain roundness of perspective in their DNA. He also discussed the benefits of teamwork and camaraderie that those at the top might lack exposure to. Some pivotal moments in politics were the result of an isolation leader making fundamental errors of judgement, partly due to this isolation.

This has similar implications in business where the CEO can benefit from a sounding board for ideas and a sanity check on the direction he or she is taking the ship in. Our new Springboard initiative is worth a look with regard to this.