US Bank Bailout Update

In the followup to the US $700 billion bailout for the nation’s banking and financial institutions (Troubled Assets Relief Program) back in October, the Associated Press contacted 21 banks that received at least $1 billion in government money and asked four questions:

1. How much has been spent?

2. What was it spent on?

3. How much is being held in savings, and

4. What’s the plan for the rest?

None of the banks apparently gave specific answers, but these banks did have something to say.  Enjoy and check out the article.

Notable Quotables

JP Morgan Chase, recipient of $25billion of taxpayer funds

“We’ve lent some of it. We’ve not lent some of it. We’ve not given any accounting of, ‘Here’s how we’re doing it’. We have not disclosed that to the public. We’re declining to.”

SunTrust Banks Inc, recipient of $3.5billion of taxpayer funds

“We’re not providing dollar-in, dollar-out tracking.”

Regions Financial Corp., also recipient of $3.5billion of taxpayer funds

“We manage our capital in its aggregate.”

Bank of New York Mellon, recipient of $3.0billion of taxpayer funds

“We’re choosing not to disclose that.” “I just would prefer if you wouldn’t say that we’re not going to discuss those details.”

Comerica Bank, recipient of $2.25billion of taxpayer funds

“We’re not sharing any other details. We’re just not at this time.”

Treasury Secretary Henry Paulson, one of the architects:
“What we’ve been doing here is moving, I think, with lightning speed to put necessary programs in place, to develop them, implement them, and then we need to monitor them while we’re doing this. So we’re building this organization as we’re going.”

Why Germans smoke so much

Here is a cigarette machine strategically placed right next to a candy machine in Munich. Even a two year old can reach high enough to get started on their first pack of smooth tasting Marlboros, or more likely, Marlboro Lights (their baby lungs need to be eased into the lifelong addiction after all).

Boxing day breakfast remnants

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Boxing day breakfast at munich airport

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When is the best time to start a company?

My previous blog post got me thinking about when is the best time to start a company, in terms of when is the best time to start a company that will survive. Is the probability of success higher for companies founded during good times and lower during poor economic times? In thinking about this, inherent in the quotation above “tough time to be at a new startup” is the notion that starting a company in a good time will give you a greater probability of survival.

I only look back to the dot com boom which occurred during a strong economic expansionary period and see that this statement can be turned on its head – if you look statistically at the survival rate of companies that were started in the hey-day boom times of 1998-2000, the failure rate was extremely high, and the losses were spectacular. During these boom times, one can make the case that companies started during good times may be more prone to failure due to the following factors:

• Easy access to capital for unvetted business plans and continued funding of weak ideas
• Strong competition from copycats and other competitors
• Poor management of critical business drivers and lax oversight of costs
• Delayed recognition of poor performance due to a rising tide boosting all ships
• Audience first, monetisation later (or even never) strategy
• Exit by acquisition a higher likelihood

Conversely, companies like ours started in this tougher time have to deal with these factors:

• Tighter funding markets making those projects that do get funding the ones who have the strongest ideas and teams
• Lower competition from existing and new players
• Greater management attention to costs and performance indicators
• Stronger oversight from investors regarding strategy and performance
• The need to execute on a business model that drives cashflow and achieves break even as soon as possible
• The necessity to create a business that can stand on its own two legs for the foreseeable future given the lower likelihood of a white knight coming in to acquire the company

Techcrunch has written an interesting article about how a down time can be an opportunity for startups, and I have to agree wholeheartedly:

This is your time to vault in front of your competition, to earn rapid and sweeping visibility, for a fraction of the time and money that was required to excel during the “good days.” Your rivals are retreating right now, so what are you going to do about it?

The last thing I want to say is that I was watching the leWeb Panel video “Money Talks: Getting Financed in a Recession” and something Eric Archambeau (General Partner, Wellington Partners
) said really made me take notice. In looking at 25 years of startup company data from 1980, there is almost an equal probability of being a successful company no matter what year you were founded – regardless of the cycle, regardless of whether its a recession or a great year, the probability of success was uncorrelated with the year in which you were founded (I wonder if that was the case for companies started in 1998-2000, as per my discussion above). Eric says that the implications for a VC are to not stop investing in a down cycle and that you will have an equal probability of spawning a successful company in a down market. Nice. Other panelists included Fred Wilson and Martin Varsavsky.

(24th minute is where you want to forward to…the remainder involves important VCs telling us how much they enjoy saying “Non” to French entrepreneurs

Forward to the 24 minute mark for this illuminating piece of information!

See my recent blog post from Seth Godin that also addresses this topic:
http://busterblog.wordpress.com/2009/07/21/great-advice-from-seth-godin-how-to-approach-challenges-with-the-correct-mindset/

“Tough time to be starting a company”?? Is it really?

Given the recent economic meltdown, I have had many people (from friends & family to former work colleagues and even strangers) say to me:

“Ah, you started your own company…hmmm….tough time to be at a new startup”.

My early reactions to this statement were to shrug my shoulders, grit my teeth and think to myself – “man, you need to really crush this thing and make Wahanda work!”  I was trading stories with my business partner Lopo last week when he told me that he had a similar conversation the previous evening with an ex-Yahoo! colleague of mine.  Lopo’s wife Sandrine was also party to the conversation, and her reaction after hearing the ex-Yahoo! colleague of mine say the infamous line (“yeah, tough time to be at a startup”), later on privately said to Lopo – “Actually, isn’t it a tougher time to be at Yahoo!?”

Sandrine’s comment firstly made me smile, and then totally put things into focus – having left Yahoo! Search Europe in March 2008, I started Wahanda with Lopo to not only capitalise on what we think is a great idea and an underserved opportunity, but also to control our own destiny and create a company where we wanted to work.  My final two years at Yahoo! were marred with downsizings, cost-cutting, rumours, management departures, poor communication from senior execs, bad hires and questionable executive decisions.  Given that Y! is now undergoing another round of layoffs and uncertainty about its future, and given that Wahanda has started gaining traction and is in a good position funding-wise, when now confronted with the infamous line above, I actually confidently respond, “Actually, its a fantastic time to be at Wahanda!”.  I am surprised it wasn’t something that occurred to me before, but thank you Sandrine!

When is the best time to start a company? (click to read my next post)

English Premier League Football and Technology (or the lack thereof)

As an American sports fan who has been living in the UK over the past 10 years, I have increasingly been amazed at the lack of technology in football (English Premier League) – both in the sport itself, in its reporting and in its statistical analysis.

This is where Arsenal love to draw while charging the highest ticket prices in the Premier League

Can I please see every match live on TV…it is 2008!

Just today, I turned on Sky Sports and watched grown men with headphones on reporting on today’s football matches while watching private direct video feeds of the matches that I as a consumer do not have access to…compared with the US where I can watch ever single baseball match on TV or the internet live, or every NFL game live again on TV or the internet. Yet here in the UK, I can perhaps watch two to four football matches per weekend live (if I am lucky) out of the 10 possible matches that can occur in the Premier League alone.

I understand that there are broadcasting restrictions in place, and that some clubs feel that showing all the matches on TV can have a negative impact on attendance figures, but the spiralling ticket prices and unbelievable year over year increases in both season ticket prices and individual game tickets is not helping attendance either. I think clubs who have waiting lists for seasons ticketholders that number into the tens of thousands feel that there is sufficient inelastic demand to raise prices, but feel that allowing all the matches to be broadcast on TV will erode a fans’ desire to go to a game. However, many of these waiting lists have people who were applied when times were better and prices were lower – surely there is a better way to increase total revenue to clubs through more universal broadcasting and availability of live matches and highlights on TV and the internet, as well as keeping the lucrative gate receipts.

English Training Regime: Pints & Pies

A second area where the lack of the latest technology was apparent, although less so nowadays, is in the training and technology employed by teams. Arsene Wenger is credited with bringing the English Premier League into the modern age in terms of training, diet and player management. When Wenger arrived in the Premier League twelve years ago in 1996, he was derided by the likes of Sir Alex Ferguson of Manchester United, and even by his own players at Arsenal for his “professorial” ways. Its amazing that a league like the Premier League was still stuck in the dark ages, and even its leading managers did not employ better training methods. Its taken the past decade for the Premier League to catch up, but its amazing to think that the poor training and diet habits persisted as long as they did, and that the good ol’ boy tradition of pints, fish & chips and biscuits was the norm amongst supposedly world-class athletes.

This is how I watch football...I watch a grown man telling me what's happening...its like the anti-radio broadcast

‘I don’t need your stinkin’ numbers’

The final area in which English football is behind the times is in statistics. When one watches a US baseball or NFL game, the announcers (and teams) are armed with statistics – everything from situational probabilities (e.g. the probability a team will score when in this portion of the field, the number of steals/tackles won, goal efficiency by player, etc), to matchup facts and head-to-head player records. I have never seen this during an English football broadcast – e.g., if a team or annoucer knew that Arsenal have a 10% probability of conceding a goal on a corner kick, and a 50% probability if it happens to be within 2 minutes of the end of the first half, or which player had the highest probablility of scoring a penalty at night away from home, it would be very helpful in decision making, training, etc. Being armed with situational statistics can help managers & teams be more scientific, and it can be more entertaining for viewers as well.

Anyway, I will wait for Match of the Day tonight to find out what I missed…and perhaps my next company will be a stats company for football.

Google Adwords auto opt-in for iPhones and other mobiles…”Don’t be Evil?”

I recently noticed, by accident, that all of my Google Adwords campaigns had been automatically opted-in so that I was also now (unbeknownest to me) spending my advertising budget on showing ads on iPhones and other mobile devices. The reason I came across this change is that I noticed an increase in my bounce rate on a few of my campaigns – obviously this is a bad thing since it means that more users who were clicking on my ads were not staying on my landing pages on Wahanda, thereby costing me money that I would have preferred not to spend. This also ate away my daily budgets more quickly, preventing other consumers from being able to see my adverts, and potentially also making a purchase.

It was only when I noticed that my top-line metrics had changed that I visited the “Edit Campaign” settings and noticed this new tick mark (see screenshot) for the mobile devices box.

Google decides what's best for me - thanks Adwords!

Now, I know Google has a very widely pubclized “Don’t be Evil”, so I wonder if this mantra guided their decision to:

• automatically opt-in all my campaigns so that I did not have a decision on whether I wanted to spend my advertising budget on mobile devices
• not inform me of this option via an email or even notifications in the site
• not give me the choice of being opted in, but assuming that I would want this
• time this “innovation” just before the Christmas period when every dollar/GBP of budget makes a difference
• not breakout the effectiveness of this medium in the dashboard so you can see the impressions, clickthrough rates and conversions by this channel (why not make this transparent?)

Google’s “Don’t be Evil” code claims “it’s about providing our users unbiased access to information, focusing on their needs and giving them the best products and services that we can. But it’s also about doing the right thing more generally – following the law, acting honorably and treating each other with respect.” Not providing a head’s up, nor providing transparency into the change seems to be at odds with their claims.

I can understand that some advertisers would love for their ads to appear on iPhones and mobile devices, but my general feeling is that users on mobile devices today will be less valuable in these early days for online retail sites.

Showing ads for location based offers, information, etc, maybe even some impulse purchases may have some early traction, but typical e-commerce sites may find what we found – that this change will just eat away at budgets and not deliver the sales and conversions we are typically used to from advertising on Google Search as conducted from desktops and laptops.

DEAD digital production in Soho, London

I wonder if they regret their choice of business name given the current economic cycle
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P&G invests in Ocado – implications for online retailing and supplier conflict

With its latest round of funding totalling £18m which closed in late November 2008, nine-year old online grocery delivery company Ocado has raised more money than any other European internet startup with total equity funds raised of £295.5 million, according to the TimesOnline. (Authors note: I plan to research and post in the near future he top 10 European startups by funds raised)

I like their logo...kind of reminds me of Wahanda

The real thing that caught my eye that one of the investors in this latest round was FMCG giant Procter & Gamble, maker of everything from Pringles and Pantene to Gillette and Ariel. P&G invested £5.0million in exchange for 1.0% of the company, valuing Ocado’s post-money equity at £500m - not bad for an unprofitable company that has lost close to £40m through the year-end September 2008, on sales of £288m.

Founded in November 1999 at the height of the dot com boom, Ocado also has over £100million of net debt on the books, which places a full enterprise value of the company at over £600m, for a trailing valuation multiple of over 2.0x Enterprise Value/Sales. From my investment banking days, this multiple seems on the high side for retailers, online or offline. In fact at the time of this post Amazon.com’s (AMZN) rough enterprise value to sales multiple is around 1.0x, so my initial outsider reaction is that Ocado achieved a fantastic valuation based on their latest historical sales figures.

Aside from the valuation paid by P&G and the other investor who made up the remainder of the round, this apparently marks the first time P&G has made an investment into a retail business. P&G’s rationale for the investment was that an investment in Ocado would be:

“a very fertile testing ground. We think Ocado is a huge research opportunity. They have a unique business and we can learn from it. We have not exactly worked out the research projects we will be looking at, but it will give us a better understanding of how people use the internet.”

In addition to this possibly being a vote of confidence in Ocado and the future of the UK online grocery/home delivery market, (especially in the face of fierce competition from the likes of Tesco, Sainsbury’s and others, including Waitrose who not only use Ocado but also have their owne home delivery business), I think its P&G’s way to fire a warning shot to its supply chain and its retail partners. In the past decade, retail consolidation has significantly increased the purchasing power and leverage that companies such as Wal-Mart/Asda, Carrefour, Tesco and others exercised over FMCGs such as P&G, Unilever and others. These retailers have also introduced high quality white-label products that compete with the big brands, and in some cases like at Marks & Spencer’s, they don’t even carry national brands at all.

Procter & Gamble's Stable of Consumer Brands

Although P&G claims in its quote to be planning on conducting as yet-to-be determined “research projects”, I am sure that the consumer insight and retail data they will gain from Ocado alone will justify the investment they have made.  Companies like P&G used to get scanner data and weekly retail sales data from supermarkets and other retailers, but more and more retailers are following the lead of Wal-Mart and have stopped sharing retail data.  Therefore consumer product companies like P&G have had to resort to other means to improve their point-of-sale intelligence, and have had to accept tightening margins and increased advertising budgets to continue to generate demand pull from consumers (but don;t get me wrong, I am not shedding a tear for P&G!).

Going direct to consumers is one way of cutting out the middleman, but in this case I think its more of a mechanism that P&G will use to keep its retail partners honest and a way to maintain its margin integrity. Without a credible channel, manufacturers like P&G do not have a credible threat against the growing dominance of the large and growing retail chains. It could not be out of the realm of possibility that P&G would open its own direct to consumer store selling all of its goods, much in the same way airlines and hotels starting selling direct to cut out and enforce better terms with its offline and online travel agency partners.

Back to Ocado for a second – their largest investor is John Lewis who owns Waitrose and there was mention that there is also partner conflict here as Ocado is possibly being prevented from working with other retail partners. In response to this, John Lewis has moved its investment in Ocado to its pension fund to allow Ocado to operate more freely, but I wonder now if Ocado will face similar supply & investor conflicts with P&G who surely will want better merchandising and terms over its fierce rivals such as Unilever and the like. The plot thickens!