Small Business Labs

The Shrinking Venture Capital Industry

The Wall Street Journal covers the hard times in the VC industry.   Key quote on the number of VCs able to raise new funds:

Last year, 125 venture funds in the U.S. collected $13.6 billion, down from 203 funds that raised $28.7 billion in 2008 and down from 217 funds that raised $40.8 billion in 2007, according to data tracker VentureSource.

The article goes on to say there were 794 active venture capital firms in the US, down from a peak of 1,023 in 2005.  Venture capital returns since the dot com bust have been miserable, so the decline is not at all surprising.  We expect several hundred more to go inactive over the next couple of years. 

The VCs that remain are mostly raising much smaller rounds.  A-list VC Highland Capital is highlighted in the article.  They raised a $400 million fund last year - half the size of a fund they raised in 2006.

Our recent experience helping a client raise venture funding reflects the new realities.  The company has great technology, experienced and super-bright technologists, and is targeted at a huge opportunity.  This is a company that would have quickly attracted multiple VC offers a few years ago. 

After a long and difficult fund raising process, the firm secured several funding offers.  But the terms were unattractive, so the company (which is still in stealth mode) accepted a buy-out offer from a large corporation.   

For the vast majority of small businesses, VC industry troubles are irrelevant.  Even during the boom years, VCs only funded 4000 - 6000 start-ups per year.  This is only about 1% of employer start-ups. 

Great Quote on Seniors Working Past Traditional Retirement Age

The quote comes from an article on outsourcing IT operations to rural U.S. locations instead of overseas.  The quote on working in retirement comes from the head of the Fanin, Georgia Chamber of Commerce.  The small town of Fanin has a lot of retirees:

"Frankly, there’s only so much golf you can play. And the retirement funds that some of these people had have been cut in half. If we had some jobs they could do for four or five hours a day, they would love that. Nobody wants to wilt away. And in some cases, they’re forced to look at their retirement a little differently than they did a few years ago."

Movies - A Barbell Industry

One of the most interesting trends we've tracking for last few years is emergence of barbell industrial structures. 

The barbell exists when an industry consists of a small number of giant corporations, a narrow middle of relatively few mid-sized companies, and a large and growing number of small and personal (one person) businesses.

We've looked at dozens of industries and almost all either already have this industrial structure or are moving towards it.  Examples include the beer, carpet, computer software, shipping, financial service, chicken processing, beverage, fast food and others.   

Because of our research in this area, I was fascinated by the New York Times article Huge Film, Small Film: Big Stakes.  It covers the barbellization of movies.  The article starts with the trend towards mega-movies like the hugely expensive Avatar:

The pattern thrown into relief even before the coming of “Avatar” involves the concentration of more and more revenue in a small number of hugely remunerative releases. Which is to say, the big movies keep getting bigger.  

Covered next is what this means for mid-sized movies:

This consolidation of resources has already begun to affect the supply of medium-budget movies...

The article then discusses the rise of small budget movies and points to the success of this year's best picture winner, The Hurt Locker, as an example.  The article positions this a David versus Goliath battle where only one can win.   

We disagree.  Our research indicates that in many industries both big and small companies can thrive at the same time.  Giant corporations need large markets.  Small firms can thrive in niches too small for the giants.  The giants are also outsourcing more work to third parties, which can benefit small businesses. 

Corporate giants are also increasingly partnering with small businesses to serve niche markets.  Proctor and Gamble, Kraft Foods, IBM, Amazon, Apple and many, many more large corporations have partnership programs focused on working with small businesses.   

The Intuit Future of Small Business report The New Artisan Economy covers the barbell in more detail.

Niche Social Networks

CIO Magazine has a list of 10 of the world's strangest social networks.  The 10 include social networks for mustache lovers, vampires (or fans of vampires) and 8 other niche social networks.

The ability to find and create niche audiences and communities is one of the most powerful features of the Internet.  This ability to reach and aggregate small, dispersed customer groups economically is creating new opportunities for small businesses.

We see many examples of this in the rapidly growing hobbypreneur space.

McKinsey on The Internet of Things

The McKinsey Quarterly's article The Internet of Things (registration required) does an excellent job of summarizing the topic.  For those not familiar with the concepts around the Internet of Things, according to the article:

More objects are becoming embedded with sensors and gaining the ability to communicate.  The resulting information networks promise to create new business models, improve business processes, and reduce costs and risks. 

The term "The Internet of Things" was coined by Kevin Ashton in the late 1990s.  Kevin was the Executive Director of MIT's Auto-ID Center, which was exploring smart objects and sensor technologies.  The concepts go back - at least - to work done in the 1980s around ubiquitous computing.  Like most technologies, smart objects have taken a long to develop. 

As the McKinsey article points out, The Internet of Things is not new news for technology companies and early adopters of RFID, sensors and other smart object technology.  But we are at the point where deployments are entering the mainstream and the technology is starting to impact industry in major ways.

McKinsey lays out 6 emerging application areas of greatest impact.  They are broadly in the categories of information collection and analysis, and process automation and control.   To avoid violating McKinsey's copyrights I'll stop here and suggest you go to the article for more detail.

The Intuit Future of Small Business research report on technology also covers smart objects in detail. 

Point and Click Shopping Finally Happening

A long forecasted technology trend that is finally starting to happen is point and click shopping.  This is the use of a cell phone during shopping to discover information on products and then order and pay. 

The New York Times article CellPhones Let Shoppers Point, Click and Purchase does a good job describing the current status of these technologies.  It covers retailer and manufacturer plans to turn cellphones into information displays and ordering devices. 

One big shift from earlier technology forecasts in this area is the substitution of camera phone applications for RFID chips.  Barcode scanning by consumers via a camera phone is common in Japan.  A user simply points his camera at a barcode and a software application does the reading.  With cameras being close to ubiquitous on cellphones, this approach is cheaper and easier than using RFID chips. 

A few years ago I had the opportunity to meet with Jeff Bezos at Amazon to discuss future technologies.  He said he was looking forward to the day when a customer shopping in a traditional retail store could instantly compare prices with Amazon and buy from Amazon if it was cheaper.  According to the article, that day is here:

Ben Aldern, 20, of Berkeley, Calif., went to Target recently to shop for headphones. “I was ready to spend whatever I needed,” he said, but on a hunch, he fired up RedLaser — and found the same model for less at Amazon, the online merchant.

RedlLaseris an iPhone barcode reader application.