Category: Future

Tech Investing Tricks

Posted on by Steve Sammartino

First off – here’s a link to the very first episode of my new TV show  The Rebound to watch on 9Now. So far the feedback has been amazing. We’ll be doing lots of content on the social channels for it too – all of which are here.

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The Tale of 2 Tech IPO’s

Recent IPO filings in the USA for two tech companies Door Dash & Airbnb are quite revealing for investors. Given that everyone is so in love with technology investments, it seems many players are claiming to be something they are not. It’s important not just from a regulatory perspective, but for anyone who plans to invest in the sector. So today, I’m going to help you get a better at understanding true technology / software plays versus those who, in truth pretend to be something they are not. Today, almost every business relies on software in some way. But those which are hybrid software – human labour businesses faces very different economics from true software pure plays. In short, always be nervous when a company calls itself a tech firm when their service isn’t possible without humans in every customer interaction. This is key. Below I have two examples. In my view one is a terrific technology firm, and the other is a disaster in the making.

DOOR DASH – IPO

DoorDash is a large US based firm specialising in app based food deliveries. Here are some of their key numbers below:

  • Filed to float with a valuation around $13b.
  • Lost $450m last year.
  • Has already raised $1.9 billion from investors
  • Relies on army’s of Gig workers who also happen to be fighting for rights / wages / greater compensation & benefits.

Main issue is that this are not real technology company, because it is really just using software to connect physical labour. The problem is that it has a technology company valuation. No amount of scale will solve their problem of ‘labour’ and if this can be automated via something like ‘Local Drone Delivery’ – then the restaurants can do it themselves and save the 20-30% fee they pay such services. The app delivery sector seems to be falsely propped up by Venture Capital investments so they can expand quickly, even if they lose money. By the way, these VC’s aren’t silly – but they’ll make their money when they exit at the IPO – it is the retail investors who will get caught carrying the can. The reason retail investors buy such stocks is that they falsely believe it will be like Google or Facebook, which too were unprofitable in their expansion phases. The fundamental difference here though, is that they were software pure plays.  The delivery sector has the pesky people and cars problem which won’t just magically be solved.

We can add to this that the sector is highly competitive – with no real competitive moat. It tends to be lots of competitors in different geographies (in Aust we have MenuLog / Deliveroo / Uber Eats) all of which are unprofitable. Eventually restaurants will work out it is cheaper to do their own delivery with staff. If this sector is to survive at all, the future is probably just for a software firm to send orders to places for a single digit percentage fee – and not provide drivers or deliveries.

AIRBNB IPO

Now let’s compare this to internet darling Airbnb. They also filed for IPO, and some of their key numbers are below.

  • Valuation around $30b.
  • Raising $3b in capital at float.
  • Lost almost $700m last year.
  • But, turned a $219 profit this quarter.
  • Sacked 25% of workforce at start of the pandemic – smart rightsizing.

They key difference with this firm is that it doesn’t rely on any physical labour to perform each transaction. It is purely connection via software, and hence deserves a technology company style valuation. It also has the advantage in that real estate is usually a solid margin business with higher price per transaction (Airbnb averages $167 USD per transaction). Compared to low order values of food delivery, it is simply a better business model. It has less running costs, no labour issues, higher value per transaction and it takes a smaller percentage clip (3%) from users. I feel this is a truly global powerhouse in the making with a very strong long term future.

The stories we tell ourselves and our customers (investors in this case) are all important. The narrative itself can make something worth twice the price – just think of luxury handbags. But when it comes to investing, we need to be sure the story matches reality, because eventually the numbers will reflect the truth, and the market will wake up.

Keep Thinking,

Steve.

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2 Things Relationships Are Built On

Posted on by Steve Sammartino

All relationships are built on two things: frequency and proximity. It’s obvious, in hindsight. If you consider the strongest relationships in your life, you’ll find these two elements feature strongly.

Frequency – how often you interact

Proximity – how physically close you are

Your relationship becomes tighter the more frequently you interact and the closer you are physically. Your partner – you share a bed with. Your family – you see each other every day and live in the same house. Colleagues and classmates – we often become close only because there is frequency and proximity. You’ll notice that when there is increased frequency and proximity of interactions with certain people in your life, your relationship with them suddenly deepens.

Now think about some of the people you used to be close to and how your relationship changed after they moved away or you saw them less frequently.

Here’s why it matters. When you’re aware of how this impacts relationships, you can hack it. You can actively manage it to improve the relationship. Especially during times like these, when working from home has become the new COVID-normal.  The key trick is this: if you lose proximity, then you have to upweight frequency as an offset. Likewise, there is a really big impact when you’re trying to connect with people whom you don’t see or speak with frequently. It’s why we so often fly across the country to meet business partners when we really could have a just picked up the phone or connected on Zoom.

This principle applies to business too. If you want to have a better relationship with your industry or the latest technology influencing it, then you need to engage with it frequently. Do it daily. Better still, get close to it by being hands on – increase your proximity to the tools. You’ll end up improving your relationships with what’s happening and what’s next.

Oh and before I forget, the reverse is true for bad relationships you’d rather not be in – stay far away and don’t engage. 

Do this and you’ll be the one with powerful relationships that make both your life and your career better.

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Keep Thinking,

Steve. 

Five Years From Now

Posted on by Steve Sammartino

Every five years or so, I look back and think, “How could I have been so silly?”

I have now come to see gaps in my knowledge and think about how differently I should have approached certain situations. I often feel a little foolish, given the experience I’ve gained in subsequent years.

Recently, I’ve been working on a new TV show about tech that Channel 9 is going to air nationally in Australia. Over the the past few years, I’ve tried to sell three different TV shows on tech to broadcasters. The first show wasn’t succinct enough conceptually – and deservedly didn’t get taken up. The second was, and still is, a killer concept . But we (Tommy and I) made an error in hiring someone with great connections to sell it in on our behalf. He failed to get us the result we wanted. I’ve learned that when it comes to concepts, they buy because of the person selling it – first and foremost – and then the product, second. Turns out it is impossible to buy into someone who isn’t in the room! This is something I knew from my other endeavours, but failed to remember for this new venture. We sold the third concept over a screen via Zoom, with much less development work done. The thing we actually sold was ourselves.

Reminder to self: Even in different industries, the principles rarely change. Those who say, “But it doesn’t work that way in this industry…” are very often protecting their own interest in maintaining the status quo.

Now that I have finally have this project up and running, I can look back and say,” I failed to get those projects up and running simply because of the errors I made”. There would be nothing worse than persevering, trying and not knowing you need to get better, iterate and improve your approach. When it comes to our future, it’s absolutely vital we can look back and think, “Geez, I got that so wrong”. If you can’t say that, then it can only mean one of two things. Either you’re stagnating or you’re too ignorant to know you need to get better.

It doesn’t matter whether these five years’ of hindsight relates to your technical knowledge, career, relationships, health or almost anything else – the principle is the same. It comes down to this: if you can’t look back and laugh at your own folly, then you haven’t grown. The one thing we should wish for is that in five years from now, we can look back at today and wonder how we could have been so silly.

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Keep Thinking,

Steve. 

Graduate to Greatness

Posted on by Steve Sammartino

To make it to the upper echelon in any field, we need to be able to do one thing:

Graduate from competence to confidence.

The foundation of any career is technical capability. You need to prove you are a competent accountant, lawyer, marketer, electrician, whatever. This is your time in the field and getting some metaphorical dirt under your fingernails. It’s when you convert study and training into action. It’s also when you find out that nothing is more valuable than real world experience. At this point in your career, you ARE the factor of production. It’s a vital stage to becoming a leader in any field – people want to know you’ve had your time on the tools. But you can’t stay there. You have to graduate.

The next phase in your career is all about confidence. In fact, you don’t even have to be the greatest ‘technocrat’ to rise above. It’s all about the belief you have in yourself to be more than someone who manages tasks and projects.

This time, there is no graduation ceremony.

You need to decide when you deserve and want to be more – and it is all about attitude. The ironic thing is the people who give you the chance to lead in your field are looking for the signs that you’ve made this internal decision. They are not looking for technical ability. They are looking for vision and leadership. When it comes to decision makers around you and your career, one simple thing is true: they believe what you believe. If you don’t believe in yourself, they’ll be able smell it.

The reason this matters is that you’ll never be able to know everything in your field.  No one does, no one ever will. There’ll always be someone who knows more, and the next generation coming up will have new technical skills and abilities you won’t. Yes, it’s important to be across what’s new and its impact, but going back to study its implementation is a fool’s errand. Leave that to the newbies. If you go there, you simply drag yourself back into the competence pool. You become an undergraduate again.

Don’t think for a second that Steve Jobs was writing code for the new iPhone, Elon Musk is sketching out blueprints for new car batteries or Jeff Bezos is designing his new in-home drones. They have competent people to do that for them. How many times have you seen people who are great technocrats, the best at getting stuff done, who know more than anyone in their field, but never seem to get to the top? It’s because they didn’t graduate. I used to write code, build new technologies and be very hands on – but now, I get other people to do that for me instead. My job is to think, write and speak about technology and economics. I graduated and it was the best thing I ever did in my career. I didn’t ask for permission. I just did it.

Sometimes you might even need to change places to graduate to confidence. For example, you may be overlooked for promotional opportunities in your current organisation. As soon as you are overlooked – move on. If management doesn’t have confidence in you – leave and leave quick. Go somewhere where you can refresh your self confidence and your personal brand. I’ve seen people who were out of favour in one company, change places and go on to become CEO elsewhere or start a successful business. The world’s a big place.

Next week, I’ll lay out the three competencies that great careers are built on, once you graduate from the operational level.

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Keep thinking,

Steve. 

Divided by Algorithms – COVID-19 series

Posted on by Steve Sammartino

Regardless of whether you support Daniel Andrews’s lockdown or want to give him the boot and open up, here’s what I know to be true for both parties. They see what they already believe.

For some context on this week’s technology essay, please invest four short minutes to watch my latest episode of #SteveFeed on Algorithms, or as I like to call them: Weapons of Math Destruction.

OK – thanks for watching, and if you haven’t already, please go back to write a quick comment…and subscribe to my YouTube channel!

What we have now globally, in the middle of the COVID pandemic, is algorithms shaping the discussion. Just like the Australian example above from Twitter, social media wants you to pick a team rather than discuss an issue. The reason for this eventuality is simple. Their business is predicated on engagement, from which they gain social preference data that they then use to sell extremely targeted advertising. Extreme is the key word – the more extreme a view, the more likely it is to get get consumer engagement.

In the Attention Economy Enragement = Engagement.

Based on our scroll and click patterns, we are served more of our existing beliefs. Our internet experience becomes an echo chamber. We seek to validate what we already believe and partake in confirmation bias. While this kind of stuff doesn’t matter when we are tweeting about our favourite football teams, it becomes an issue when we are discussing health and economic policies for which there are real and long-term consequences.

As I wrote early on in the pandemic, there is no economics without health. Health needs to be at the top of the hierarchy in every decision we make in life. But health is a curious thing. There are significant lag effects on short-term decisions. Often negative health externalities arrive long after decisions are made. Studies have shown that for every 1% increase in unemployment in the US, 40,000 people die. There is a similar percentage correlation per population in all developed economies.

What we have right now in Australia, and the world over, is an inability for intelligent discourse. It seems as though all and any discourse is at the opposite end of the spectrum. Those in favour of lockdowns are seen as new age communist crazies, and those in favour of opening up are seen as cold-hearted capitalists who would rather see the bodies pile up rather than take a profit hit. What isn’t being heard is the viewpoints somewhere in the middle. A sensible discussion on scenario planning for not just this pandemic, but the inevitable next one and learning to live with it, while protecting the most vulnerable.

We now have dogma instead of dialogue.

It’s not just with COVID, but on all important socio-political discussions, because the arbiters of knowledge (the social web) have algorithmic bias and their business models are not geared to tempered discourse. The division created by algorithms has the potential to tear apart functioning democratic societies.

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Keep Thinking,

Steve. 

The Worst Advice Ever – COVID-19 series

Posted on by Steve Sammartino

All or nothing is not a good strategy. It ignores probability.

You’ve heard the story about burning your boats, right? Legend has it that in 1519, after the Spanish conquistador Hernán Cortés arrived in the New World with 600 men, he ordered them to burn their ships. There was to be no turning back. They were totally committed to his perilous plan to plunder the riches of the Aztec empire.

Here’s the thing: Hernán was like the Google or Apple of today, with incredible resources at his disposal. And us? Well, we are not Hernán.

We are the people faced with a global health pandemic, with many of us suffering job losses, income insecurity and total economic uncertainty. Those who burned their boats before Covid would be in a very difficult situation. Governments around the world are also having to revert to Plan B or C or even D, as new information on the pandemic arrives.

I’ve undertaken many startups—more than 10. I’ve also been involved with many side projects. Most of them failed financially. Most of all new ventures do – it’s foolish to think you’d be any different. Out of the 10 startups, I’ve had two in which I had an exit and succeeded in selling the business. But I never burned my boats. I always had a boat hidden away under the bushes, near the shore for a quick and painless escape. Once I even joined another army (losing the financial battle in a particular startup, I went back to earning money in a corporate role). I always made sure I had some form of investment to fall back on – a mix of cash, shares and property. I continued to make passive investments even while I was bootstrapping my startups. It was for this reason alone that I could keep on rolling the dice, building another startup, another project and trying again. I’ve got friends and colleagues who went all in, lost, and now they have very little to fall back on. If COVID has taught us anything, Plan Bs are a damn good idea.

Sure, we all approach things in different ways, but for me, risky projects are an infinite game I want to keep playing, so I never burn my boats. Advice to go all in may come from people whose incentives differ to yours or who’ve been one of the fortunate few who succeeded and possibly succumbed to survivorship bias. The overwhelming odds for success in most startups, business ventures and technology projects are very low indeed. But we are so often enthralled by the stories about the rare winners to go all in pursuing success, but it’s a crap shoot not worth taking.

Here’s a better approach. Do what nature does. Be abundant, sow lots of seeds and know that most won’t ever germinate. Treat your new ventures like seeds – see what blossoms and nurture that.

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Keep Thinking,

Steve. 

Don’t Be Evil? – COVID-19 series

Posted on by Steve Sammartino

Don’t be evil…? To your shareholders, at least.

You may have noticed on the homepages of Google and YouTube this week an announcement claiming that the way you search on Google and use YouTube is at risk. The number of alarmed people who forwarded it to me was astounding. If anything, it highlights the importance of Google’s services to our daily lives, how much people love the products, but above all, how powerful Google actually is. Therein lies the problem.

Like everyone, I use their products all day, every day. They are incredible. As far as tech goes, I love it more than most people and have built an entire career around it. In my view, Google is the most powerful organisation in the world by far. Just think about this for a second:

The only thing you never lie to is your search engine.

Really, think about the implications of that for a few moments. It knows all your habits, locations, ideas, proclivities, and your deepest and darkest secrets. I can promise you that none of your searches are anonymous.

Google (owned by Alphabet) is the fabric that holds together modern society. If this power were to be left unchecked, it wouldn’t end well for anyone. Absolute power never does. So you can regard this post as a quasi public service announcement from the Sammatron.

What happened: The ACCC has put forward a new regulation called the News Media Bargaining Code. This code says that Google and Facebook, who collectively control almost 60% of digital advertising revenue in Australia, will have to negotiate and pay news content creators for their contribution. The reasoning behind the mandatory code is to ensure we have a healthy news media sector and that the financial rewards of creating such journalistic content are not redirected towards the gatekeepers.

How Google responded: This week Google put out an Open Letter to all Australians to scare them into believing this proposal would fundamentally change their services for the worse. Which, quite frankly, was propaganda.

The letter: The appeal from Google Australia’s CEO Mel Silva was placed on the homepages of Google services search and YouTube. This reached 95% of Australian internet users. Google has more reach to Australians than any other media organisation, or commercial entity, in our country’s history. Of course, the irony is that the placement of this call to arms was on the homepages of its key services – an archetypal demonstration of their absolute power. The letter claims that the proposal for Google to pay news content creators is unfair!

The letter is incredibly misleading and in my opinion, deceptive conduct – a view echoed by the ACCC.

Here are my rebuttals to verbatim quotes from Google’s open letter:
  • “Dramatically worse search results” –  Not true. A lie. (News is a tiny percentage of search. In fact, only 20% of Google search terms is new, ie never been searched for before by anyone.
  • “Data being handed over to big news business” – Not true. A lie. Nowhere in the proposed regulations states that Google is required to hand over user data. By comparison, Google is now valued at $1.3 trillion (AUD), while Australia’s two biggest news organisations have a combined value of only $13 billion (AUD). They are not even 1% of the size of Google. It turns out Google is the big news company trying to trick people into thinking it is a cute little startup. (See financials below.)
  • “Free services at risk’ – Very unlikely. Google chooses to its own usage policy and decides whether its services are free. Their entire business model is built around data surveillance to sell to advertisers. I’d bet my net worth that this won’t change.
  • “Artificially inflate news rankings” – Well, it’s their search engine. They control the algorithms to decide their rankings. This is a classic red herring.

Since Covid, the power of big technology firms has only increased. Alphabet’s share price is actually up 50% since April. As I’ve said before, opting out isn’t an option any more.

The world is watching: Google fired such a heavy-handed response because the world is watching. What happens here could influence policy around the world and further focus regulatory scrutiny on the behemoth. This is an important global play for Google, as the issue of dematerialising news resources is being raised in every democracy. Rather than caring about the citizens they purport to serve, they’d rather maximise their short-term profits. We should be very suspicious.

Monopoly power: The real issue of course is that the internet is broken. The web we grew up to love and believed would make the world more equal has become very unequal indeed. It’s essentially become five giant websites with screenshots from the other four, each with monopoly powers in their dominant sectors. Not only are they monopolies, they contribute little to our country as corporate citizens. Google has earned more than $5 billion (AUD) revenue from the Australian market place, yet only contributed $40 million to our tax coffers last year. That’s right, not even 1% of their revenue. A reminder here that the corporate tax rate in this country is 30%. At their global gross margins of 19%, its tax bill should’ve been closer to $1 billion (AUD). That would build a few new hospitals and schools.

Is the ACCC code the right action? I am of the view that the ACCC has got it wrong here. If they believe there has been a monopolistic abuse of power, then they should act to prevent that power. The shape of the Australian news ecosystem, while affected by Google’s revenue redirection, shouldn’t be propped up by transferring money from one behemoth to a select number of local news arms. The real solution should be anti-trust action and other forms of data and algorithm regulation.

Digital sovereignty: Australia lacks sovereignty over the most important technology in the modern era – digital infrastructure. If we want to remain a sovereign nation, then we must hold corporations to account, by having a thriving news sector and not permitting monopolies mislead consumers. We need to get better at ensuring all companies pay their fair share of taxes like we residents do.  To go one step further, our country needs to start investing in its own digital infrastructure for key products like search, social, maps and video platforms.

If we don’t own and control the connecting fibre of our modern economy, then we sure as hell should not be afraid of regulating it. If there’s anything this country doesn’t like, it’s a bully – and Google is being one. At times like this, we should never confuse services we like with the behaviour from the companies who provide them. Stand tall and push back. We need you to speak up.

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Keep Thinking,
Steve.