Facebook and Google are eating the internet

Facebook and Google

Here’s an amazing statistic – last year (2015) Facebook and Google, combined, took an extra $1 billion in advertising revenue from the Australian market.

An extra billion. Not a billion in total, an extra billion, than the year before.

The thing is, the total ad market in Australia only grew by $300 million in 2015, which means every other advertising medium – print, TV, radio cinema, outdoor, online… – collectively took $700 million LESS combined.

This meant that every TV station, radio, cinema, newspaper, magazine and website was competing for a shrinking market, $700 million less than it was the year previously.

Ouch. No wonder we see redundancies in newspaper organisations, TV and radio stations the country over. And of course, this is not a phenomenon unique to Australia. If anything, we’ve been protected from it for a few years, but the impact is now in full force.

If you thought the ad model was a tough one, no stat makes starker reading than this one for Australian media organisations. Imagine a startup trying to make a go of it with an ad revenue model.

This trend of ad dollars to the 2 Silicon Valley organisations is only speeding up.

Recent predictions have Facebook and Google eating up 90% of all digital advertising by the year 2020. This means that as non digital ads continue to decline in size, there is no respite in digital ads, because the 2 internet mega-goths are gobbling that up too.

Now I have nothing against Facebook or Google. Like you, I use them all the time. I rely on Google to get me all the answers to the questions I pose during my day, as well as entertain and inform me on what’s going on. I flick through my FB feed once or twice a day, and it’s entertaining stuff. I deploy FB page at work. In business, most of my promotional budget goes on the 2 of them through Adwords or customised FB posts, and I’m not alone (as the stats above prove).

The question I have is: what kind of world are we hurtling towards, if these trends continue?

I am also a big fan of Uber, Airbnb, Netflix, Twitter, Apple, LinkedIN and the like. All of these are collectively eating away at our industrial and digital base, and employ very few Aussies by comparison to organisations of similar revenue. Very little of the income they earn in our country attracts any tax that remains in our country. They are all US-headquartered yet through various organisational structures manage to conduct their affairs via satellite organisations based in Ireland or Singapore. Although they take huge amounts of Aussie dollars from selling services to Aussies in Australia, they are not contributing as much as similar sized organisations that hold sway over large markets. They are not paying for the roads, schools, hospitals and defence that the government needs to provide. Meanwhile they are attacking up to 25% of our GDP, over the next decade.

I wonder if and when Australia (and other countries) will wake up to this? The answer is not to put bans on them (as the taxis tried to do over Uber), or ignore them (as the newspaper industry did for years until it was too late). The answer is surely to develop our own home-grown digital companies that will compete with them here and perhaps abroad. Companies like Atlassian, Canva and Freelancer. (How many successful Aussie tech companies can you name? Here’s a link to the top 50.)

I am amazed at the local tech talent here, and if we could release more funding, I reckon we’d throw enough darts at the dartboard to see if we can create some bulls eyes. It’s fast becoming a necessity now, not a ‘nice thing to have’. What economy are we going to leave behind for our kids if we don’t?

More reading:

How Facebook is slowly eating the world‘, Washington Post, April 2016

20 Ways Facebook is eating the internet‘, Techcrunch

Mobile ate the world, and Facebook and Google are eating mobile‘, Salesforce, June 2016

Uber disruption

share and share alike

Last week I got the chance to listen to Jerry Hausman, an economics professor from MIT, who spoke on ‘Startups – will their economic models take over?’ – a topic close to my heart.

The 70 year old econometrician started by pouring scorn on Twitter (‘I mean, don’t you have something better to do?’) which I thought was wonderfully ironic, given his audience contained the esteemed business leader and well known Twitter aficionado, Diane Smith-Gander, who was tweeting away live at the time. The point he was making was he was not necessarily a raving fan of these new businesses, despite being an avid user of Uber (‘They are 40% the price of taxis in Boston – in fact you could do away with public transport and give everyone Uber vouchers and it would be far cheaper for government’).

Uber’s valuation of US$62 billion and Airbnb’s of US$30bn defines them as ‘unicorns’ (valued over a billion) and have come from nowhere in less than 10 years. This was simply not possible when Jerry (or most of us) were growing up. ‘Stanford university was a backward country college, not even Ivy League, now people drop everything to get in there.’ Stanford has spawned Yahoo!, Google, Hewlett and Packard, Youtube, LinkedIN, Netflix, Paypal, Cisco and Sun among its alumni and is known as the ‘billionaire factory’.

The poster child of the sharing economy, Uber, has been incredibly disruptive forcing regulatory fights (and invariably, wins) in 68 countries and 450 cities. ‘Uber keeps dropping its prices and driver compensation, yet Uber wants to maximise revenue, so has to drive huge increases in sales.’ argues Hausman, ‘The drivers are earning less and less – in the US they only drive 13 hours week – and they also have to run their own cars paying for maintenance, petrol and depreciation.’ Jerry pondered if the Uber drivers were getting a good deal or not, and thought not.

In the US, cars are only used 4% of the time, and with regulation lagging the fast development of Uber, there is still upside for the company in terms of usage, and savings in costs for users. Imagine if the continued rise of Uber and their ilk meant that cars were used 25% of the time (a 6-fold increase). Many of us may get rid of our second car, or even give up owning a car altogether, as ownership made less and less economic sense. Imagine what would happen when self-driving cars become the norm, that you can hail easily through an app. What would that do to traffic congestion, car accidents, the environment, public funding of new roads, the health system, taxation, the insurance industry, car industry and car park revenues? This would disrupt many sectors, and drive fundamental changes (some for the better, some worse). But it does hinge on the economic model for Uber and their drivers working, and the public’s acceptance of the car sharing economy. Airbnb can do likewise for accommodation. I see many startups trying to be the ‘Uber for the x industry’. It’s the startup ‘model du jour’. We teach our children to be good sharers, might we as adults do likewise?

Jerry is not a fan of regulation, above the minimum, as he sees it crowding out efficiency and entrepreneurship. His favourite phrase was ‘I’m a fan of capitalism between consenting adults.’ Any large industry that has been over regulated over time is ripe for these new models to take hold. ‘How about the real estate industry’?, I asked him, ‘Is anyone, or could anyone uber that?’ Jerry replied, ‘It’s easier to uber your car ride, or your stay in a hotel, as we’ve all given lifts to people in our cars or had people over to stay. But the average person simply does not sell their property very often, so it’s not something they feel comfortable doing on their own. It’s a big ticket item, often their largest financial asset. That’s not to say it can’t happen, ever, but that will be a more difficult one to disrupt.’

I agree, and it’ll probably take some time before the real estate transaction is done directly between buyer and seller, but I also bet some people somewhere are working on this, and over time, even this transaction will be changed irrevocably. My advice to real estate agents, as it is for taxi drivers and hoteliers and anyone in a regulated industry, is to be aware of these creeping changes that can disrupt your entire industry, seemingly from nowhere. Don’t scoff at the technology, have an interested and serious look into it. Stay relevant. Keep your customers close. Don’t assume anything. If you wait until you’re waving placards on the steps of Parliament against some well funded and beautifully designed upstart to get interested in the sharing economy, you’ve already lost.

Set creative content free

Messy desk creative mind

Let us consider the desk of a music teacher. It’s a mess. Scraps of paper. Bits of old instruments. Manuscripts. Old tour programmes. Scrunched up notepad. Yesterday’s lunch remains. A half drunk cup of coffee. A lunky gonk. Some chewed pencils.

A Music teacher’s desk is the desk of a creative mind. It’s a buzz, a whirl, managed maelstrom. But put that same teacher in front of the school orchestra, and somehow magic can happen.

Imagine John Lennon’s mind, Mozart’s, Steve Jobs’.

Imagine what they must have been like to live with. Read Walter Isaacson’s authorised bio of Jobs and you don’t need to imagine anything – he was a pain in the proverbial. Maddening at times, brilliant at others.

Yet he looked at things millions had looked at before and saw how to think different. Looked what he created.  Not once, but twice at Apple, and also at Pixar. The Mac would have been enough for most people. But the out of nowhere he releases the iPod, 1000 songs in your pocket and single handedly saves the entire music industry.

What right did a computer company have in making music playing machines? And before you think “agh, but he controlled creative content, he did not set it free”, he actually did the complete opposite. He set us all free to buy creative content, for $1.29 or $2.19 from iTunes, because he knew that creating a new way to release the content did not mean no one pays for it.

It was FREE in terms of freely available (we can all, now on a whim, download any song to our device in seconds, which was just not possible a few years earlier or when you or I were growing up), but not free in terms of payment.

It was an elegant technological solution to a massive problem (something all startups should look to emulate). He set the content free, and billions of downloads and dollars followed.

Not finished there, Jobs then created the iphone in 2007 and ipad in 2010. What was he doing with phones? Thanks to Jobs, my phone is now my camera, my notepad and my diary. And a hundred other things.

Tablets had been a disaster for Microsoft in the 1980s. Yet whoosh – a mass of new creative content results in apps and the App Store. A whole new industry was created from thin air. And it revolutionised how we consume content. Much of it is (yes literally) free to consume.

Creatives can be a pain to work with, but without them.. you just get more of the same. If you want routine, order, then have control and carry on as before. If you want to create, set it free. Let others co-create, collaborate and fly.

I was the economics teacher. I was ordered. I was on time. I got good results. I dotted the i’s and crossed the t’s, and it worked.

When I went into business, thank goodness I did not do it alone. I met a crazy Steve Jobs’ type on the UWA MBA and it was his idea to set up the world’s first map-based property search web site, aussiehome.com, right here in Perth, way back in 1999. Nick was (and still is) a crazy guy, part genius, part brilliant, part rude, blunt…. We were ying and yang, it worked.

To think the new, means not saying ‘cos we’ve always done it that way’. When we ran aussiehome, we banned this saying. People learnt quite quickly that ‘but we’ve always done it that way’ was NEVER the answer, to ANY question. EVER!

We had ideas some mornings that went live that afternoon. I have since worked in other environments and the simple act of changing one web page was so controlled that nothing happened … for years.

Whatsapp, Snapchat… have little revenues, yet have been set free and are now each worth billions. They have 500m and 150m active monthly users respectively by setting their content free. YouTube, Facebook, Google, Twitter, Linkedin… have all been set up with free content, available to all, everywhere. That does not mean they do not earn money – Facebook earned $18bn in revenue last year, $3.5bn profit. Google revenue $74bn, $5bn net profit & 57,000 employees.

All are pioneering new 21st century biz models.

So, come on everyone, let’s free our better creative internal angels.

Start a blog. Learn to tweet. Take up a musical instrument. Write a book.

You’ll never feel as free as when you are feeling free and creative, doing things that are new and exciting, pushing the envelope.

Oh, and by the way, please feel free to tweet this content for free…  🙂

 

Photo credit: What we talk about messy desks blog

Beware the creeping changes

monsters

Things that creep up on you can be the hardest to recognise and defend against. Whether they be imaginary spooks hiding in the dark to frighten you from your slumbers, or people quietly tip toeing up behind you to shout ‘boo!’ in your ear, if you don’t see it coming, it can be unnerving when it’s already upon you. Of course, you are at your most vulnerable when you have no idea what is about to hit you.

Last week I saw a stat that really summed up all the digital changes that have been happening over the past 15 years or so. Online advertising in Australia surpassed the A$6 billion mark in 2015.

6 big ones.

The growth is not slowing either; since 2010, online ad revenue in this country has been rising at more than 20% a year. Last year it grew 28%. Within this growth, mobile ad revenue grew 80% last year, and video ad income 75%.

Online ad revenue was almost zero in the year 2000. I remember that year well. It was probably the toughest year of my life so far. There were illnesses in the my family, two friends of mine succumbed to cancer, and it was first year of my fledgling tech startup. Our initial seed funding had run out, and we had passed the dotcom crash after which no more investment funds would be forthcoming. I had quite a few sleepless nights, and not a few doubts. We had a few real estate agencies on board, but very few were paying very much, and it was going to take a while for us to get to cash flow positive, let alone profitability.

A few years on, I remember when online ads in Australia went over the $1 billion mark (2003) and then within two years had doubled to A$2 billion. At A$6 billion, it is now the number one advertising medium in the country. Print ads have fallen to A$2.2 billion and set to continue their decline. Movie ads, radio ads, TV ads, are being left in online’s wake.

When I talk to online tech people these days I joke that we had almost 100% market share of the online real estate ad market in Perth in 2000, but unfortunately it was 100% of very, very little. But as the online market grew, we kept ourselves alive long enough (sometimes I wonder how) to take advantage of the creeping change that was occuring all around us. We built a nice little business out of this, with real profits appearing in year 5 and dividends paid to shareholders from then on.

Today, realestate.com.au (ASX: REA) is worth over A$7 billion (share price $55). In 2000, REA Group’s share price was a mere 12c (half its listed price of 3 years earlier). It was touted as yet another dotcom disaster, an example of greed overtaking common business sense. With 3 CEOs in 4 years, it was but a few months away from closing shop altogether. Or so the wise analysts thought. By 2008, it had billion dollar value, and now after another 8 years is seven times that.

We weren’t the only ones to see that real estate search was broken in the last century, and that the new one would herald a new way of finding your next home. Many people knew this was happening, but the incumbents paid lip service to the imminent threat. Very few people are crying for them now. The 2 weekend papers that once had huge real estate (and cars, and jobs, and boats…) sections in them that landed on your doorstep with a loud thud, are now so weak they are having to combine forces to give themselves a few years more life. In an isolated marketplace with little competition (bar online, which they don’t have much share of). They hide their limp real estate sections in among the cartoon section. A tie up that was once thought anti-competitive, is now being hurried through.

I was once in a boardroom of one of the main paper-based media empires during the early 2000s. Accosting me from across the table, one executive jabbed his finger towards me saying: “Why would we turn a $380 million business into a $38 million dollar business?” (the online ad market being much smaller at the time, his reasoning was why would be chase the internet market and so herald our own demise?). Pausing for a while to take in this question, I answered “Because you have to. And if you don’t this year, it will only get more expensive the next year, and the year after that. It will only get harder for you to make the change.” He glared at me like I had lost my mind.

In all of this is a lesson. Never take things for granted. At your peak, be your most worried. When feeling most comfortable, be nervous. Analyse what is happening, what could happen, what you could do to take advantage of things. Some things will lead you down dark alleys, some of it will be wasted time, dead ends, but you’ll be experimenting, learning, feeling your way. No one can predict the future, but the onset of online advertising was certainly something that could have been foreseen, in the same way mobile and video ads are now galloping along.

Get on trend, or be left behind.

The $10 challenge

making the most of your resources

As a team exercise, you are given $10 and told to turn that into as much money as you can in a month. What would you do?

I used to give my management and marketing class (Year 10s) this challenge in their first lesson, and see what they would come up with. They’d be given some basic rules (no gambling, no begging, nothing illegal or immoral) and they’d have to work as a team to come up with a hypothetical solution. I wouldn’t actually give them $10 and they wouldn’t have to go through with it.

I’d sit back and watch. Some formed teams quite well, a natural leader emerged. A few ideas were thrown around, tested and they quite quickly came up with a few that needed further exploring.  Some groups saw it as an easy ‘doss’ lesson, sat back and did little. The noise rose. Other flicked pencils. It was quite different to how they’d been used to be taught, and they probably thought I was a little bit wacko.

I checked in from time to time, circulated around the groups, but other than that pretty much let them get on with it. For a double lesson a week they could work on this, plus some homework, and after 4 weeks they had to prepare their written plan, and a presentation with visual aids. They could decide who did the writing, who did the speaking, who did the visuals. In their other weekly lessons I taught some skills that might be useful, but did not make the link too blatant. The brightest realised I was helping them along, some others thought this was a proper lesson and took notes, but did not apply it to the $10 challenge.

When the day for presentations arrived, the groups that had slacked off relied on bravado and ad libbing to get them through. Their presentations were faulty, minimal, there was little thought and they mainly limbered along to an end, usually well before time. The others that had taken it more seriously went through some of the possible solutions, before building up a case for their best options. I gave a trophy to the best solution.

I did not care which solution they came up with, it was more the process I was interested in. From it, I could see their beginning level on leadership, team work, resourcing, budgetting, planning, risk taking, scenario planning, costs and benefit analysis, culture … pretty much anything relating to business and management really. During the year, the exercise became a rich vein of examples to refer back to. Later, some would tell me, ‘I wish I’d taken that more seriously, Mr G.’ Right.

I was at another one of those innovation breakfasts the other day (it is the topic du jour  after all) and I heard Shaun Gregory (Senior Vice President at Woodside) talk about a similar $10 challenge given to final year Stanford University students. ‘Turn $10 into as much as you can in a month, and come back and tell us how much you made and how.’

One group bought a few bike pumps and pumped up student bikes for money around campus, and had made $100 or so by the time of the presentations. Smart. Industrious. 10x return (less labour costs.)

Another took reservations in popular Silicon Valley restaurants and then sold these off for money to the highest bidders. They did not even spend their $10, but had a few hundred dollars by the end of it. Clever.

The winning group thought quite laterally. They sold off their own presentation spot to the company that wanted to present to the Stanford Uni graduating students. Top Valley companies compete for the best and brightest talent, and pay huge fees to research companies, sign on bonuses and countless internal hours in search. Here was a golden chance to pitch their business to the elite grads. The winning company paid many thousands for the chance.

We don’t even need to teach entrepreneurship to 15 year olds (or even under grads), we just need to give them the opportunity to have a go. We need to tell them it’s OK to have a go, to fail, to set up a company, to try to solve a problem, to look at things differently. We learn by doing. We need to say it’s OK to have the aspiration to be a lawyer or a doctor or a plumber or a singer or a social worker or a teacher, but also an entrepreneur. We need to celebrate entrepreneurship and success. Those that have a go. Those that take a quantified risk.

Here’s a final thought. If the $10 was ‘your life’, how are you going to make the most of it…?

If Brexit happens, what then?

Brexit

The phony war is over, the real war has begun. On Friday, the first official day of campaigning started with those that favour UK leaving or remaining in the European Union making their opening arguments.

Prime Minister Cameron, coming off a difficult week thanks to the Panama Papers and findings around his father’s money, is arguing for the country to remain “in a reformed, modern EU”. His adversary, Boris Johnson, Mayor of London, and fellow Tory, speaks about “a glorious alternative” where Britain takes back control of its own destiny.

The UK referendum is still 2 months away (June 23rd) and polls show it is on a knife edge ~ the latest one showing a tie or there being one point in it. Considered wisdom seems to be that the most likely result is a small majority to remain in the EU, but this is not guaranteed at all, and even if this happens, things will have to change. A ‘leave’ vote could precipitate a change in Prime Minister, and then 2 years of negotiation of hundreds of trade agreements and arrangements.

What is the EU?

12 years after the end of the second world war, the Treaty of Rome was signed by 6 countries (Belgium, France, Italy, Luxembourg, the Netherlands and West Germany) which led to the creation, on 1 January 1958, of the EEC (the European Economic Community). The UK was not a part of this, and requested to join (along with Norway, Ireland and Denamrk) twice during the 1960s, only to be blocked by then French President de Gaulle (who feared growing US influence through a UK admission). With a new President (Pompidou) in France in 1967, the admissions were agreed, but Norway subsequently voted in a referendum not to join. Years of negotiation then took place, and on 1 January 1973 the UK, Denmark and Ireland joined to become 9 countries in the EEC. In 1975, UK held a referendum on whether to stay in, and by a vote of 2 to 1 voted ‘Yes’ to the EEC (or ‘common market’ as it was referred to in UK).

The 70s

I remember the admission to the EEC and that referendum. The choice (for my 10 year old intellect) seemed to be about ‘joining Europe’ in order to ensure peace and friendship with our European allies, along with wider access to goods and services (before this time we only ever had grapes if we were on holidays “on the continent”). After admission, the range of fruit in supermarkets exploded. Good times. I’d only ever known apples and oranges before this.

The 80s

Greece, Portugal and Spain joined in the 1980s, and by then I was at university studying economics. Pretty much everything I read about the EEC was in favour. The massive benefits of open trade, reduced barriers, free movement of labour, closer monetary integration… in a single market of 350 million made sense to me, and I was all for it. Intellectually it made sense, and we were benefiting from a massive market, with free and open access of labour, goods and services.

The 90s

In 1993, the community became known as the EU (European Union) with more developments around monetary union and a single currency (the Euro) which came into effect (virtually) on 1 January 1999. It had always been a goal of European proponents in the 1960s (and even in the 1920s) to a closer and closer economic integration, with a single European wide interest rate and a single currency. The Deutschmark, the Franc, the Lire… 22 currencies in all disappeared in 2002, all rolled into one.

Meanwhile, the UK had started to lag behind all this ‘integration’. Never signing up for economic integration, and never for the Euro, the British pound remained outside the Eurozone. Various sputtering attempts were made to keep in line with the European Monetary System (EMS), with Black Friday and other events demonstrating the difficulties for the Pound (a petro currency) being forced to move the same way as various others. Meanwhile, the centre right Conservative party contained members of parliament vehemently opposed to the growing powers of the EU (the so-called Eurosceptics) and in the early 2000s, a new party, UKIP, was formed to contest elections on an anti-Europe (and often anti-immigrant) hard right platform. By 2014, it had attracted the largest vote in the European elections in the UK. Oh the irony.

Today

Fast forward to 2016.

There are 28 countries in the EU, enjoying the central 4 Fs (freedoms) – freedom of movement of money, products, services and people. The EU now covers 500m people, and a $18tr economy has been struggling. We’ve had periods where Greece, Portugal, Ireland and others have had to be helped to remain in the EU, post the GFC and the repercussions that ensued.

UK industry and the EU are now inextricably linked. 45% of UK exports are to EU.

In the 2015 Conservative manifesto, there was a promise to  hold an “IN OUT” national referendum on the issue of EU, if the Conservatives won the election outright, which they did. This ploy was designed to pull away UKIP supporters, and to some degree it worked. To the amazement of many, including all the polls, Cameron’s party duly won the election outright.

So on June 23rd there is a referendum on this issue. The polls are close. A leave vote gives the UK government the right to negotiate a leave agreement over 2 years. No one the size of the UK has ever left the EU, so this is a unique situation.

Assume UK leave…

The post leave vote position is very uncertain, and solutions would be found, but it would be very complex.

There are alternative models – such as a European Economic Area, which has Norway in it – and the EEA has bilateral agreements with EU but all EU regulations without seat at the table. This is unlikely to be acceptable to UK, having voted to leave mainly because of the subjugation of powers to Brussels.

The EFTA (Euopean Free Trade Area) model with countries like Switzerland exist, but again this open border model is not going to suitable be for UK.

So it would be a new model for UK if they leave.

It has been argued that 40% financial services business would move to EU; as UK is used as a place to get into Europe due to their being in the EU. The City of London has become a global financial services centre as a result.

Large new tariff barriers would be in place (the EU has massive common external tariffs around its borders), and all these need to be reorganized. There would be hundreds to renegotiate. It could be done, but it would take time.

Among the larger countries, UK has the strongest economy in the EU currently, so as the EU is client to UK (UK imports more from EU than it exports) so there would be a compulsion to put in place trade agreements. France and Germany alone make up over 20% of UK exports and imports. A new agreement with China and US and EU would all need rearranging with UK.

The U.K. has Commonwealth, so will not be alone and might increase trade there. The $10tr economy of Commonwealth (53 countries) is predicted to rise, whereas the $18tr EU economy is stagnating presently and has less upside.

Mood for change?

Older people are more for leaving than younger, but apart from that this the question is splitting people in the UK on every level. Everyone has an opinion. It’s not split on north south or rich poor, it is divisive all round.

Conservatives are for staying except for some high profile ministers. Labour are for staying. SNP for staying. The Telegraph and Mail newspapers are for leaving, Guardian for remaining; The Times is undecided. Big businesses are for remaining, smaller business are for leaving.

Referendums don’t often vote for change; most people in Australia want an Aussie head of state, yet when given the opportunity arose in 1999 they firmly voted against it. Same too with day light saving.

Could it be that when the Brits get in the voting booth, they will stick ‘with the devil they know’? As the Scots did in 2014? Is it that the ‘heart says go, but the head says remain’ and in the end the head will prevail? Maybe.

On the EU side, Europeans feel a mixture of dismay, irritation and growing apprehension around Brexit.  If UK leaves, Spain would probably next. If the UK stays, Holland and others may demand the same exceptions that UK has won.

And for Australia, there will be implications. Australia and UK are major trade partners, and Aussie and British firms have subsidiaries in each others’ countries. People move between them, and Australia is a #1 destination for non European emigration from the UK.

Either way, the EU is not going to be the same, and will evolve in some shape or another in the next few years.

Digital disruption and women – opportunities and threats

Last week I delivered a talk to the WA public sector forum for women on the topic of whether digital disruption is delivering opportunities or threats to women in the workplace.

The news is that it’s a mixed bag.

You can view my slides here, (or if the embedding has worked on your device, view them above and click through them.)

Here’s the summary:

  • I’ve been living and breathing digital disruption since 1999, with my own startup, then reiwa.com and now at Business News
  • Great things happen slowly – the overnight fad fades quickly – the changes wrought by digital disruption seem to happen fast, but have probably been building for years. Either get on board and change, or be changed
  • At Business News, our digital advertising has tripled in 3 years; our web traffic has never been higher, despite being behind a pay wall; our subscription renewal rates have never been higher
  • Disruption can happen to anyone, anytime, anywhere
    • 25% of WA GDP under attack over the next decade, from digital businesses like LinkedIN, Uber, AirBnB & Facebook … and who knows who else?
    • Are we getting behind our own tech startups in WA and Australia?
  • The “always on” worker is feeling under attack; never switching off; what kind of parenting is going on? How are we handling stress?
  • Disruption offers new opportunities (to shave costs, gather new revenue) and challenges
  • 61% women are in the workforce (men 77%) yet men earn 18% more (in WA, it’s 25% more)
  • 12% of Board appointments are women, only 3% of CEOs are women … yet women make up 50.8% of population (the majority!)
  • This underutilisation of a key asset is estimated to cost the Australian economy 20% of its GDP every year, or $300bn/year
  • 1.4 million women face physical violence, and many more some kind of domestic violence
  • There are 4,300+ violence restraining orders (Source: WA women, 2015)
  • Only 31.7% of senior executive roles in WA public sector are held by women
  • 59% of law students are women (in WA) … but only 15% of legal partners & barristers are women … and 20-40% judges (Source: Women’s Report Card 2015)
  • Paid parental leave for all … what’s happened to that?
  • Returning to work
    • there should be a need for experienced, mature workers, who’d like to work 9.30am-2.30pm, 3-4 days
    • we need to allow top level execs to be part-time – why not?
  • Most of the jobs to be disrupted over the next decade are more heavily associated with women workers = a threat
  • Look at

Despite some improvements made in recent years, this makes quite startling reading – we have a long way to go to achieve gender equality in WA, and digital disruption offers some opportunities, but also some threats, especially towards female workers.

Let them eat cake

Asking for startup money

Legend has it the wife of King Louis XVI of France, Marie Antionette, uttered the words “let them eat cake” on hearing the starving peasants were in revolt against bread shortages. We’re talking late 18th century, and although the Queen would have probably said the words in French (something like ‘Qu’ils mangent de la brioche‘) there’s no evidence that she actually said this at all. The saying actually predates her birth.

But the attribution persists, and has been used to show how out of touch the nobility were at the time, resulting in the French Revolution, and King Louis losing his head.

The words rung in my head this week as I indulged in a discussion I’d had many times before, relating to Perth’s burgeoning startup sector. The weight of opinion agreed that there’s not enough early stage funding deals going on. As to why, there was a distinct divergence of views.

I’d like to explode a few myths if I can …

Myth 1 – If they were good deals, they’d get funded

I hear this one a lot. If they were good deals, the argument goes, then eventually (or even swiftly) they would get funded, as an investor would see the opportunity was too good to miss. Some may pass, but eventually a good startup business would attract money.

However, this argument rests on the Perth market for startup funding acting perfectly, which (let an old economist like me remind you) only exists where there are a large number of buyers and sellers, such that no one buyer or seller can influence price. Perfect markets also rely on a perfect spread of information, freely available to all, and homogeneous (exactly the same) products.

Perth’s startup sector is no perfect market. While there are a good number of startups to choose from (300 at last count?), there are a very limited number of private investors willing to back them. There is one VC fund (and that’s already fully invested, 2/3rds in biotech) and one angel group which meets 4 times a year and maybe does 5 or 6 deals annually. Meanwhile, there are plenty of potential investors dripping with (business, mining or property) money removed from startupland.

Neither is there a perfect spread of information, with only a privileged few getting in front of the investors, and as they are all very different, each startup investment opportunity needs to be considered individually, one by one, a bit like buying an investment property. It’s time consuming, uneven and sporadic, at best.

I have no idea what makes a good startup investment (well, I have some idea, but I am not arrogant enough to say I know which one will be a unicorn and which will fade to nothing), but I believe there are many more out there worth a $25,000 or $50,000 investment that are currently being funded. I am seeing too many move away from Perth for funding (and securing funds) and too little getting funded here; and yet, Perth has far more high net worth individuals per capita than anywhere in Australia, and is one of the top places in the world for multi-millionaires.

There is a distinct disconnect between those that might have spare money to invest and those that could do with a decent little early stage investment that could give them 6 to 9 months of road, get them to market and revenues to see if there is something viable there.

Myth 2 – They shouldn’t be raising money anyway

This argument goes that startups should forget about raising money anyway (far too many think the capital raise IS the end game, clearly it is not) and should start pitching to customers instead. Get to minimum viable product (MVP), get early clients on board, earn revenues, and maybe they’ll find that they won’t even need investors at all, or if they do, they’d secure a better price, be able to raise more money and give away less equity in the bargain.

Bingo – I agree 100%.

However, most startups are either doing exactly that (out of necessity) or cannot get any further without something else investing upfront. They’ve piled in their own cash, savings, credit card debt, taken money from family and friends, spent months on the idea, with no pay back, giving it their all. They have got somewhere, and now are looking for some extra help.

Some ideas just need money to get off the ground. You have to spend something to build it, you have to get out there to see if it works, and this may take $50k or more beyond the funds available to the founders.

Most successful startups have had early stage money. Very few are profitable or cash flow positive from day one (or after the family and friends money has gone). Often there are dead ends, false starts, wasted attempts, and this is all the cost of learning. If you’re doing something very new, disruptive and game changing (surely what the investors want to see?) then it simply takes some funds upfront. Like buying the investment property.

It also takes time. The successful ones will tell you it took 5 or more years to make money. It certainly took my startup this length of time, and others like realestate.com.au, carsales.com.au and others took 7 or 8 before profits appeared.

Mel and Cliff from Canva understood this. There they are today, smiling out at us from the front page of the local weekend paper. They’ve raised millions and millions of funds  – are they profitable, or cash flow positive yet? They were helped off with a cool $3 million raise a few years ago, which took them away from Perth to Sydney, and have since raised many millions more. Nick and Al from Simply Wall Street could not raise money in Perth, but have successfully raised $750k from angel investors, also in Sydney (why not in Perth?). Talking to their lead angel at a lunch function a few months ago, he told me that in their case, they had an idea so disruptive, “you just had to give it a go to see if it worked.”

Exactly.

Not all startups deserve money, some may not be at the right stage, but somewhere along the line, many do, and the vast majority of these simply aren’t getting the funds they need, despite there being ample in our city. Water water everywhere, nor any drop to drink.

Myth 3 – The entrepreneurs are unrealistic 

Sure, owners of anything are unrealistic about their valuation. I think my property is worth more than it is, and also my car. The price is determined only when someone is willing to pay for it what I am willing to sell it for.

But with a limited number of genuine local startup investors the power is weighted heavily on the buy side, such that in some cases the negotiation is more like staged bullying (running down the efforts of the down trodden entrepreneur, and finding all sorts of reasons not to invest). Meanwhile, the poor startup trudges back to their lean canvas to see if they can eke out another month or two.

Perth investors have grown fat on the ability to exit their investment through an ASX-listed entity. We have seen 60 ‘back door’ listings announced over the last 2 years, as the mining downturn takes hold and now empty shell companies look to evolve into a tech company. This is a highly expensive and dangerous way for a genuine startup to raise funds. While potentially fine for a commercialised organisation with revenues and a clear growth path, it is clearly not suitable for the early stage venture (or only in very rare cases – FMG was in fact a back door listing, but I wouldn’t classify that as a tech startup.)

Sure entrepreneurs are unrealistic, but so are investors. You can’t have it both ways, you can’t have your cake (or bread) and eat it. It’s a punt. It’s a riverboat gamble. It’s like betting on the horses. You will probably not see that money again. Yes, it’s probably illiquid, for years. But if you win, you win big, so it’s best to make a few bets, to cover yourself. The more you make, the more you spread your risk. You may say ‘no’ to 20 before saying ‘yes’ to your first. But you might do 2 or 3 a year.

Myth 4 – It’s good they get money elsewhere & leave

The argument goes that we should not worry about our best and brightest startup ideas leaving our shores to get funded elsewhere. Sometimes they just need to spread their wings, bless them, and once they make their money they will return and help our ecosystem back here.

OK, maybe. But why can perfectly good Perth ideas get funded in Sydney, Singapore or San Francisco and not here? Why should they have to leave to get funded when we have so much money in the hands of private individuals in our fair city (and come July a nice little tax deduction too)? Why should they have to leave our great lifestyle, family and friends… unless they really want to?

To me, this argument is lazy. While it’s perfectly fine for businesses to go wherever they want (fly my darlings fly), it is not fine to have so few early stage funding deals that jobs and income that could have been created here (and stayed here) are exported to other cities or countries. We are competing in a global marketplace, the gloves are off, it’s either get nimble and innovative, disrupt your own market or someone else will do it for you. Where is the post mining diversification we so badly crave? Even during the boom, people were worried about us becoming a one trick pony. Now that pony has well and truly run its race, where are the up and coming industries? They need to be backed. We have no idea what great businesses might flourish and grow unless we give them a helping hand.

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Startup investment is not for the faint hearted. It’s not a slam dunk. It’s not for your nest egg, it’s play money. Many thousands of high net worths in Perth could make two or three $25k to $50k investments a year, and not even notice it. Conservatively, that’s $250 to $500 million of available funds a year, that would make a tiny fraction of a dent in the portfolios of many, yet revolutionise our local economy.

Perth could become a regional tech startup sector, offering a great lifestyle, climate and investment funds to plucky entrepreneurs who want to cash in on a place that just happens to sit in the same time zone as 60% of the world’s population.

It would be almost criminal (and certainly negligible) if we don’t do this.

Why a tech startup? Because the best ones have highly scalable business models. Those guys and gals down at Spacecubed hammering away at their idea on a laptop could have $100 million businesses in a few years (just as Canva does today after a relatively short 4 year journey). This type of growth is hard to do with traditional bricks and mortar businesses.

It’s the most speculative investment these investors will make, but for many of them, it’s the best fun they can have. They can add some value to the startup (sharing hard won advice on commercialisation, open some doors) and it can give them plenty of dinner party conversation.

If we can throw enough darts at the dart board here in Perth, we will hit some bulls eyes. It’s a numbers game. It’s a funders’ game.

So, let them eat bread. Cake will come later. Perhaps.

Photo Credit: Flickr.com, Heather Katsoulis

Encouraging women entrepreneurs

Springboard-panel
It is a sad fact that today in 2016, you are more likely to meet a board chair called “Peter” than a female board chair. Only 22% of Board appointees are women, although this has increased from 9% a few years ago. In Australia, a recent report showed that men in full time jobs were paid 15.4% more than women in full time jobs. In Western Australia, another report showed the gender pay gap is 25.3%, the worst state in Australia.

Achieving equality in the workplace is not just the right thing to do, it makes economic sense. Above and beyond the obvious and outrageous discrimination (systemic, implied, institutional, cultural…) is a case that we are only “fishing in shallow waters” if we ignore and keep down the majority (now 50.8%) of the population – women. The GDP foregone every year in Australia is assessed to be 20%, or around $300 billion.

This week I listened to the former Sex Discrimination Commissioner (and former lawyer and NSW Businesswoman of the Year) Elizabeth Broderick talk on these issues.

“In Australia today,” she says, “there are 1.4 million women suffering physical violence at home.”

1.4 million women. Domestic violence, which also includes exclusion, continual verbal and emoitonal attacks affects an even larger.

One solution? Get the people with the power (men) to act.

Male Champions of Change is an attempt to do just that. Men champion the changes in the home and at work, because this needs to be as much as male movement as a women one…

I also attended the launch of Springboard this week, a US-based accelerator for women entrepreneurs. It’s been going 4 years in Australia, and 3 in WA, and some of the excellent people who have taken part in recent years were interviewed about their experiences since going through the Springboard program (see photo above).

Most have either raised money or are in the process of doing so, and have had their businesses accelerate dramatically since leaving the program. Sharon Grosser from SEQTA and Louise Daw from MiPlan were on the program in 2013, and I remember they graced the cover of Business News along with Wanida from MagnePath, being the first time 3 women made the cover in its 23 year history. I’ve been following their progress with interest every since.

A 3-month accelerator for women in (mainly) tech startups is a great way to get women more actively involved and promoted. All other accelerators I’ve been too have had, by sheer weight of numbers, a preponderance of men, usually single and their 20s and 30s.

At Springboard, only 8 women are selected from across Australia every year (WA has been well represented recently with 5 in the last 2 years alone) and more information on 2016 applications can be found here or here. Applications are now open, and close on March 30th. The Bootcamp itself is run in Sydney and will take place from 16 – 18 May 2016 followed by 8 weeks of mentoring before the accelerator culminates in a pitch night for investors. { If anyone requires more information, they can contact Sheryl Frame  or the CEO in Sydney Elisa-Marie Dumas.}

Whether it’s tech startups, boards or any type of business, we have to do far more to encourage women to reach the upper levels of organisations. My best two managers (by far) over my 30 year career have both been women. Women tend to have less ego, are more nurturing of their teams, but can be as steely and tough as the next man. In study after study, women leaders come out on top. A 2012 Harvard Business Review report showed women are better business leaders than men on pretty much all elements, not just traditionally ‘female’ ones.

It’s time to make some changes.

When I look at my own organisation, I see the top CEO is male (me), but 60% of our executive team are female as are half the managers, half the sales teams, and all the corporate services team.

We can’t lose!

Inside Sales Management

To understand sales, you need some psychology

To understand sales, you need some psychology

There are loads of books out there about sales. I was fortunate last year to have breakfast with the author of the best selling sales book of all time, Jeff Gitomer, who wrote ‘The Little Red Book of Selling‘. Jeff has an awesome ego, as one might expect, and was wonderful company. He cooked me a mean breakfast, and took the mickey out of me because I took milk in my coffee. He was exactly as I had expected, multiplied by six (as Megamind might say.)

Books on how to sell – there are a plenty. But there are few books on how to manage sales people inside a business. The best of these is Mark Wilensky’s 2006 ‘Inside Sales Management‘. Wilensky’s techniques explain how best to manage the sales manager, the team, and how they should respond to clients. Much of it is formed from the study of psychology.

Mark’s main point is that you need to grow your sales team to grow sales. Training in this never stops.

We start with a premise that we have three states – Parent, Adult or Child. We flit between these in nano seconds, and how we respond in various situations is governed (and explained) by which ‘state’ we are in.

  •      Parents say things like ‘you should
  •      Adults say ‘I think’
  •      Children say ‘I feel

You don’t want your sales people to be in the child state. A child can either be rebellious (manipulative, shrewd), natural (wants to play) or adapted (changes behaviour to fit in).

Nurturing parents are liked, but don’t close many sales.

The best sales managers know when to use their ‘critical parent’, ‘adult’, and their ‘nurturing parent’ state. If you want your sales team to grow, stay out of the ‘critical parent’.

Example – a client makes your sales person feel threatened, that sales person may fall into their ‘child’ state. It’s important the sales person stays in the adult, as the child can get stressed, whereas the adult skilfully navigates the otherwise stressful situation. There’s no such thing as a stressful situation, says Wilensky, there are only stressful or non stressful reactions.

The worst sales person blames the outside world (the economy, the competitor, the client…). It’s a childlike response. It’s commonplace. The best sales people realise they can affect change. When talking to a stressed out sales person, make the conversation adult to adult. What do you think? Keep away from emotions (child), stay rational (adult). If they get defensive, they are in their child, so snap them out of it. If they notice you getting critical (parent), then they must stop you!

Giving away discounts too easily smacks of need for approval (nurturing parent). Help them move together. Fear of cold calling is akin to a child’s fear of strangers, so reward them after they have done their cold calling. Take the emotion (fear) away.

Managing your ‘child’ sales people is a matter of identifying who is who. The ‘rebellious child’ is creative and manipulative. You can have fun with them, but there’s a limit. They are after short term wins, and will bend the rules. They could be playing you. It’s the most challenging personality type to manage. But they can get great results, although rarely long term.

Generally, a nurturing parent is better than a critical one, and a rebellious child is better than an adaptive one.

There’s a continuum from being too weak (wimp) in sales and going too far (overly aggressive, putting off clients and sales). On this continuum, you want your sales team to be nudging the ‘going too far‘ end of the spectrum, without going over the line. What seems ‘too far’ today may be perfectly normal tomorrow. Moving to the ‘too far’ end is the direction you should be taking them. Remember what you were doing 5 years ago, and where you were? What about 5 years before that? Could you have imagined 10 years ago where you’d be 5 or 10 years on? You need to keep pushing to get progress, says Wilensky.

The client will always throw things back at your staff, and you can train them to give better answers so they retain their poise when, say, the price is objected to, or the disadvantages of your solution, or the strengths of a competitor or some misinformation about your own services. Spend time in workshops talking these through.

Excuses prevent growth.

Often the client will sell an excuse to the salesperson, who in turn sells it on to the sales manager, who then sells it to top management. Excuses come from the child, not the adult.

Example – the client says they do not have the budget. Your reply is then, ‘Imagine you had the budget, would you then buy the solution?‘. This takes the client out of their child and gets them firmly into adult (thinking). From there it’s a short step to ‘Well yes, of course I’d love to do it, if I had the budget’ and your reply ‘Well, if you see value in our solution, then it’s just a matter of finding the budget and we’re there.’ Reiterate the benefits, get them thinking about the purchase having been made, and the benefits that would accrue, and the growth they would enjoy as a result. Job done.

All growth takes place in the adult state. If you’re a child, you cannot grow. It’s recognising these states, making the change, and then the sale becomes easier. Stop taking excuses, they are outside your control and come from the child. Be firm.

Run through meetings your sales members had with clients. Ask them what they think happened. What went right and what went wrong? Ask why? (how do you know?) Keep them in the adult at all times. Thinking, not critical, no excuses, no judgement. Finish with lessons learned.

Practice this with the team, use role play. How can you deal with tough questions and stay calm? In the adult. Sales people will either show real signs of growth or fade. Poor ones need to be dropped if they can’t change and grow. Medium ones might be worth the investment and time. If the C & D performers can becomes Bs and maybe even As, then morale in the team and whole company improves.

Practice has to be brutal, they have to fail in front of you, almost fall apart, and then be put back together. It will make them better for the tougher questions and clients. Role playing has to be seen as preparing to win. Let’s learn together. It’s OK to be uncomfortable. That’s why we practice. Practice leads to success. (Most will never do this, consistently, so by doing it you are already way ahead of the norm.)

When you are recruiting new salespeople, you need to find someone who can take control, knows the market and product and can prospect. Before you hire, you have to gauge their mindset. They always bring their child with them. You need to find someone who can sell with their intellect (adult), and stays out of their feelings (child). Important characteristics will be poise, strength, can handle rejection, control, dealing with excuses, and is a logical presenter.

Your sales team must has SMART goals (specific, measurable, achievable, realistic, time-framed). These must be tracked, probably within a CRM on dashboards. We can all see them; there are the KPIs around activity (calls, meetings, proposals) and results (closes). If you don’t track or measure it, it won’t get done. Goals are about the future. Forget the past, it’s over!

The most important information you can glean from clients is why they buy from you.

Every time they buy, it’s because there is a gap between where they are now and where they want to be.

When a prospect does not see a gap, they do not buy. Salespeople solve problems, they fill these gaps. So they need to know where the client wants to be, where they are going, or planning, or are wishing to go.

The client has to have a problem (step 1), and they need to be sure that they believe this problem exists (step 2) and want to solve it (step 3).

Too many sales people rush to solve the problem, being the consultant, without establishing that the problem exists and ensuring the client wants to act.

Without steps 1 or 2, your proposal will fall on deaf ears.

Your sales calls and meetings should be all about finding these gaps, and then persuading the client to act to bridge them.

Adult to adult:  (facts)

  • what’s the biggest challenge you face at the moment?
  • what’s your biggest opportunity to grow?
  • who is responsible?

Nurturing parent to adult:   (conversations)

  • how does <this> affect your department?
  • what impact would <this> have on your growth?

Nurturing parent to child:   (feelings)

  • if we implemented <this> how would it affect you?
  • that’s an ambitious target, what happens if you don’t achieve it?

Parent to parent:    (should, ought)

  • how will top management view <this>?
  • if you went for a cheaper option, would you still consider it?

You need to uncover the information in a few of these states, and the sales person does less talking than the client.

Ideally, the client asks for a proposal (you don’t ask to send them one), tells you clearly what their budget is, and when and who will be making the decision.

It’s easy to buy things. Anyone can go out and buy. And when they buy, usually all 3 ego states are used: Parent (we should buy this, it’s the responsible thing to do), Adult (it makes sense for our company) and Child (I like the idea of owning it).

When talking to buyers, it should be a dialogue (50:50 talking each) not a monologue (sales person 80 : 20 client). Often there is a trade off between price, quality and service. It’s unlikely you’ll ever get high quality, the best service and lowest price together. Find out which of these things are most important, so you can trade off the other. If your client says “I guess you get what you pay for” they are there. It’s much better than the salesperson saying it.

Why always drives what. The best salespeople uncovers the client’s why.

Prospecting never ends, and good sales people never stop topping up their pipeline. The rebellious child will put off cold calling, but the adult realises it’s the only way. And it’s not that bad really.

The ‘fear of missing out’ (FOMO) is one of the cold caller’s best lines. People may be busy, they’ve been interrupted, but can they really risk missing out on the information you might impart that could close the gap between where they want to be and where they are now?

Those on the end of line want to know 2 things

  1. What is this about?
  2. Can this benefit me (close any gaps)?

The answers you provide to these will determine whether they will spend the time with you (now or later). Don’t wimp out. Explain the benefits they would miss out on. Hone in on the gaps that will remain if they pass on this opportunity to learn more.

Don’t forget, some of your best prospects might be your existing clients. Have you provided them with all the benefits you can offer? Might there be some gaps here?

Good salespeople who operate from their adult are great at listening, not interrupting, and allow silences for thought. Child salespeople want to talk and talk, and interrupt the adult to get attention. Adult salespeople hear resistance from the client and listen, take it on board, and think. They do not try to score points, they determine what the issue is.

Resistance from prospects means they have either not understood the benefits, or something you’ve said, or are not OK with how you made your point or a combination of these. Good salespeople think ‘how did I allow this to happen?‘ and do not blame the client. They analyse what they said immediately before the objective arose, and their own body language and how they responded.

The worst thing to do is respond with ‘But’ or ‘However’.   Rather than saying, “Yes, our price is high, however…” (which is telling the client they are wrong), you could respond with “Yes, our price is high, and I bet even if price was more in line with your expectations, there would be other reasons that stand in the way, would I be right?”

We’re not trying to prove the client wrong. The client has their own reasons, values and beliefs, which we need to uncover so we can direct our efforts better. The client will resist if you get argumentative, and will feel manipulated. So get on their side, be the nurturing parent in this case. The client may even open up a bit. Once you’ve dug down on the reasons, and answered those in an adult manner, perhaps the price now does not look so bad.

The final point Wilensky makes is that everyone is different, so don’t try the same lines on everyone. Some are more open that others, some are more direct than others.

  1. Bulls (closed/direct) – are domaneering types (critical parents), so keep things concise, on message, demonstrate bottom line results. If you have a 30 minute meeting, take no more than 27. Allow questions, listen. Don’t take any brusqueness personally. Lambs (not great salespeople) can’t sell to Bulls (big ego CEOs and C-suite types).
  2. Owls (closed/indirect) – are cautious and analytical, so be rational, don’t make sweeping generalisations, don’t touch anything on their desk (they’re private), give balance, don’t force a decision, give detail, it’s OK to say you don’t know (but find out the answer and provide it in a timely fashion). Tigers (usual sales types) find Owls (usual technical buyer types) hard to sell to.
  3. Lambs (open/indirect) – are nurturing parents, so listen patiently, empathise, provide solutions that don’t ‘rock the boat’, be soft in closing and indirect (‘your entire company will benefit‘), they may compliment but still not buy, they don’t like to say no. Tell them it’s OK to say no. There are a lot of lambs out there.
  4. Tigers (closed/direct) – are natural extroverts, so make conversation stimulating, they like to talk about themselves, so stories and name dropping works better than analytical reasoning. Allow them the glory of the solution, get them dreaming, but close quickly as their concentration is limited.

So, where are we?

From now on,

  • Consider the psychology of your clients
  • Never present the same way again to all
  • Move people out of their states, as relevant
  • Don’t fall into the wrong state yourself
  • Practice, practice, practice
  • Stop buying excuses
  • Start coaching
  • Set goals
  • Turn sales meetings into psychological workshops
  • Role play constantly, and, most of all
  • Enjoy growing your sales people and your business.