Net Neutrality Friday

Well, this is my year in review in Telecom Regulatory affairs and Net Neutrality.

The biggest news of the year was the imposition of Title II on Broadband Internet Services. If you have read my stuff, you will have seen that I considered this whole episode unfortunate. Early onto the whole Netflix/Comcast debate that catalyzed this issue for the general public, Cogent admitted that they were the cause of the Netflix slowdown. This was ignored and the fact that no ISP had slowed down Netflix was overlooked. Because of this we all decided we had a problem that needed to be fixed. And fix it we did. My issue is that I consider Universal Broadband Service a much higher priority and that will be years in addressing. Even with all the carriers taking Connect America Fund (CAF-II) money, don’t expect 100% coverage for a very long time.

The other big issue here has been consolidation. You are seeing this at the ISP level (Time Warner/Comcast), Equipment level (Nokia/Alcatel-Lucent), and Chip level (Broadcom/Avago). I think this means that the industry is slowly deciding that it needs to act as a commodity business at the network level. I agree with this, but it also means that there will be a lot less innovation in networking. An industry that has acted in a similar way is the Commercial Airline business. So, I expect Mergers and Acquisitions to dominate the corporate landscape for a long time. It also means that you will not see equipment startups that win with a very few exceptions.

On the other hand, services are through the roof right now. The players that consumer think about Google, Facebook, and Twitter are all services companies not ISPs. The same is true on the Business Side with a shift that is progressing to Cloud Services and away from Enterprise applications. I would expect this trend to continue for some time. It takes no where near the kind of investment to make a services startup that it does to make an equipment startup.

The one thing that is not happening is the build-out of new networks. With all due deference to Google Fiber, they simply have not added lots of new cities. If you look at the Google Fiber Map, it is curiously overlapping with AT&T properties. There are a few Centurylink Cities, but Verizon is curiously untouched. This leads me to say that Google is trying to spur on Fiber to the Home (FTTH) deployment. With Verizon having broadly rolled out FiOS there is no need to overbuild. I will predict that Google sells their network within 5 years.

The Wireless front has been tumultuous with attempted buyouts and other actions. However, at the end of the day we are now where we were at the beginning of the year for the most part. T-Mobile’s Uncarrier offerings have impacted the way the consumer buys service, but the other Wireless Providers have nearly matched and not much has actually changed.

Finally, the Over The Top (OTT) video market is starting to get some real broad traction. I would expect to see more cord cutting over the next few years. If I could get a rational sports plan, I would cut today. But I want to see the Warriors and the NBA League Pass would not allow me to do so.

Have a great Holidays and thanks for reading!
Jim Sackman
Focal Point Business Coaching
Business Coaching, Executive Training, Sales Training, Marketing

Change Your Business – Change Your Life!

 

Sonoma County: News and Notes

 

This is my year in review post. Over the next couple of weeks, my posting will slow down dramatically and unless something very interesting comes up locally I will likely focus in other directions.

Well, it has been a good year generally in a macro economic sense in the US. Joblessness is declining and there is enough economic activity that we might actually see a rise in interest rates. There has been more trouble outside the US with all the problems of Greece dominating the first half of the year. China and parts of South America have had a bumpy ride as well. The global economic news has been on a lower tier due to the war in Syria, ISIS and all the terror attacks.

One of the major shifts in the world has been the change in the price of Oil and Energy prices in general. The US became a net Energy exporter a couple of years ago. Now the US is back being the largest Crude Oil producer as well. OPEC (especially Saudi Arabia) has not lowered production and this has led to a dramatic drop in Crude Oil prices. This trend shows no end in the near term. Many countries that depended on Oil revenues are now troubled. Russia, Mexico, and Venezuela are all examples of resource dependent economies. In many ways, this is good news for the US consumer as lower energy prices should mitigate any inflation. The biggest impact will be in alternative and greener energy. As Energy prices decline, it will become harder to economically justify investments in Green Energy.

I want to start my local economic review by a sour note, especially given my posts over the last month or so. The local, larger technology firms are not in the best of shape. I really want to see a diversified economy in the North Bay but if you read over my posts on the tech earnings, the best I can say is that none of them are likely to go out of business anytime soon. They are not really poised for large growth and we have a paucity of local technology startups at the moment.

On a better note, the transportation upgrades are progressing nicely. 2016 ought to see us with both the 101 expansion complete and the SMART Train in action. I am skeptical on the SMART Train, but we shall be able to judge for ourselves in about a year. There is talk about an upgrade to the terminal at the Sonoma County Airport to be able to attract more commercial air travel. We have yet to see the emergence of an East – West flight from the runway expansion. It is possible that upgrades to the Terminal is a gating factor.

It has been raining so I am hopeful for some relief of the drought that has been happening. But it is early in the season and too soon to know. Housing is still very tight and the Lake County fire did not help. It will probably be about a year before those folks have rebuilt and they have to live somewhere. But large scale development in Rohnert Park looks like it might ease the shortage some.

As I did with my November Newsletter, my December Newsletter will be out near the Holidays to give you something to read in your downtime. Have a great day!
Jim Sackman
Focal Point Business Coaching
Business Coaching, Executive Training, Sales Training, Marketing

Change Your Business – Change Your Life!

 

Why People Don’t Create an Annual Plan

No matter how much people like me extol the virtues of Annual Planning many Business Owners that I talk to don’t have one. Last week I tried to address any potential value objection that might be in place for creating a Plan. I hope that everyone understands from that post that having an Annual Plan helps your business provide what you need for it in the upcoming year.

Given that anybody who does not do an Annual Plan is probably avoiding it for one of three reasons. First, they don’t have the knowledge on how to create one. Second, they don’t have the knowledge on how to execute based on a plan. Third, they could have anxiety around the process and the result based on having a plan.

Now, I can’t give you step by step instructions in this medium. But there are people out there like myself that help businesses with their planning. Business Owners often look at these costs and try to avoid them. If they then went on to how to research Annual Plan creation and did it themselves, I would be happy. They don’t. These owners don’t realize how much about their business that they are not in charge of their business and their future. They normally come to me after their business has turned sour and it is a much more difficult and expensive problem to fix. Think of planning as the ounce of prevention.

Plan execution is another problem. People often don’t take time out to think about their metrics and how to measure progress in their business. Because of that, they view the monitoring of the plan as an overhead to the business. Which is why that it is critical that only key metrics be reviewed on a regular basis. If you think about it, you probably should be reviewing these metrics anyway. All that is being suggested is that goals around the metrics be produced. The setting of goals is another problem. People are unclear how to set these goals. There are two simple paths to get started. First, if you meet a goal will you get out of the business what you want. Second, does the goal feel uncomfortable? If the answers to both are yes, then you have probably set a good goal.

Then there is old FUD (Fear, Uncertainty and Doubt) that causes people not to create and execute a plan. In many cases, this is about a fear of failure. If you track a metric and you are not meeting it, you can feel like a failure. The truth is that a failing metric is only a failure when you don’t make a change in response to it. Leading Indicators are intended to be tripwires to warn you about future possible trouble. Trouble detected can become trouble avoided. Imagine if you could fix a revenue gap before it occurred? How much less stress would you have?

So create an Annual Plan and become the master of your business!
Jim Sackman
Focal Point Business Coaching
Business Coaching, Executive Training, Sales Training, Marketing

Change Your Business – Change Your Life!

 

Sonoma County: News and Notes

Its raining here in Sonoma County and that is a wonderful thing. We need the water and this is our time of year to get it. We get so much of the Sun that we need our rain as well.

This week I want to talk about Autodesk’s earnings from last month (just before the Holiday). The company had almost $600M in Revenue and lost almost $44M in Q3. The problem that as I have said before that Autodesk is in a conversion from purchased software to leased software (i.e. a subscription based service). The problem is that we are in the middle of this conversion so comparisons to the past are not reasonable. Nor can we understand how the company is doing until the conversion is complete.

Why is this so hard? Well, when you outright buy something the company generally gets to declare Revenue. Yes there are some exceptions under Sarbanes-Oxley, but I will try to keep it simple. When you sell a subscription you earn that money over time, even if the user buys a year at a time. In that kind of model, generally you would take 1/12th of the annual payment each month. To complicate things further, packages are owned outright when bought by customers. They generally do not buy again until there is a new version with features that they want. They do often get maintenance updates for bugs in the current version (and this is often a paid for service). By converting to a subscription model, customers will pay more over time but the company will need to deliver updates and bug fixes on a regular basis.

So, why does this create a problem? You can not directly translate the number of licenses of each product that Autodesk sells into subscriptions that it will sell. Now from the way I read the questions, it has not provided good guidance around how many subscribers will provide replacement revenue for their existing business. Now it might be possible to calculate this from the store, but the questions indicate that nobody has done so to date. On top of that there are multiple ways that the customers can buy subscriptions. This makes the reporting of Net Adds – the number of customers added subscriptions minus those who left – rather meaningless. If Autodesk wanted to make this easier for analysts it would have to provide information like ARPU and Churn data. ARPU is Average Revenue Per User which is a metric on how much an average customer buys on a monthly basis. Churn is the amount of customer loss on a monthly or quarterly basis. This is how most subscription companies report the kind of information that analysts and investors want.

Until we are through this transition, any investment in Autodesk carries risk in this change in execution. However, Autodesk is a fine company that has been around a long time. They are likely to figure this out, even if they stumble through the transition. For the average investor, I would say be cautious until you here something that you can directly relate to.

Have a great day and stay dry!

Jim Sackman
Focal Point Business Coaching
Business Coaching, Executive Training, Sales Training, Marketing

Change Your Business – Change Your Life!

 

Why Create an Annual Plan?

 

Last week I provided some thoughts about an Annual Planning process. This is not greatly detailed, but should provide some thoughts about how to get started. The thing is that it may not be clear on why you should make such a plan. Yes, I talked about creating your future and controlling how you get there. In many cases, this does not provide enough Clarity on what you get out of it. Creating and maintaining an Annual Plan takes time and effort. Is it one of your better uses of your time?

At least part of the plan should have obvious value. That is the tracking of results and the ability to adjust the business based on the actual financial results. The problem with this that generally this is reactive to things that have already happened in the business. Although this is a necessary component, the return on it is not as great as those forward looking tools that one might want. You will be making changes after things have either gone more right or wrong than you want.

This is why the Leading Indicators are so important. I think these tools have two levels of value and I will deal with the most obvious one first. If these metrics are truly Leading Indicators than changes from plan mean that something is going to happen. It allows the business to change actions to change outcomes. There is nothing better than avoiding missing problems. The stress reduction is tremendous as the Business Owner gets to be in control of the outcomes.

But there is more to Leading Indicators than just what it means about future performance. The idea is that you should be able to understand what drives your business well enough to define the actions that will make your business prosper. The things that you will end up measuring are the things that matter. So not only are you controlling your business, you are defining how to make it perform well.

Let me give you an example of a classic Leading Indicator. This is not for every business, but works for many businesses. This is the percentage of business from New Customers. If you don’t get New Customers, then eventually your business will degrade. On the other hand, it is less expensive to get repeat business than it is to land New Customers. It is likely that a mix of new and repeat business is the right answer. However, if you just look at Revenue then the impact of your Marketing may not be clear.

So, it is time to create an Annual Plan. Do you want to know enough about your business to be able to know what drives it?
Jim Sackman
Focal Point Business Coaching
Business Coaching, Executive Training, Sales Training, Marketing

Change Your Business – Change Your Life!

 

Net Neutrality Friday

As I pick back up my thread on the changes in the Communications Business, I want to talk about ISP consolidation. This is a topic that comes up in the news periodically as one provider buys another. People get concerned about the concentration of power and lack of competition. These are real concerns, but here I want to talk about why it is happening. These companies are not sitting around trying to collude on this topic. It has to do with the business drivers involved.

Let me start by talking about what these companies want out of these buyouts. The answer is simple. They want improved profits. They expect to achieve these profits by accomplishing 3 goals at the same time. The first is that they can increase revenue by selling more to the customers that they have. This is because the ISPs often have some specialty services that they can sell, and they are able to sell them to a broader audience. The second is simply to acquire new customers. The alternative would normally be to build new networks that are parallel to the company that is being bought. It is cheaper to acquire these customers by buying the company. The third and final element is cost saving. This comes in two forms. There are many overlapping organizations when you combine two companies. This creates redundant positions that are then eliminated. The other is that the larger a customer is the better discounts it can ask for. If you read my other material, ISPs are trying to solve for the Cost of Customer Acquisition versus the Life Value of Customer problem. The solution for about the last 15 years has been consolidation and there seems to be no end in sight on that front.

Which leads me to the other concern, why are ISPs not building over each other’s networks? Well, that is really simple. There is not a great business case to do so. Right now in the US, most consumers have at least 2 choices for wireline service and 4 for wireless (not counting Mobile Virtual Network Operators or MVNOs). A new company needs to get significant market share to make the large capital investment of building a new network of any value. Studies have shown that third entrants into these kind of markets end up with only about 10% market share. You can see how this is in the Wireless Network market shares where Verizon and AT&T have over 1/2 the market between the two of them. It becomes difficult to make money at low market shares given the commodity nature of the product.

Commoditization is one of the issues. Being a commodity means that the switching cost is very low, not that the product has a low price. If you think about it, even the 4 wireless carriers are pushing down pricing after the iPhone change (in other words the introduction of Smartphones as we know them today). You hear it in their commercials. They compete primarily on price. Coverage is the only other competitive term that you hear. That means that Wireless Phone service is a commodity. This implies that it is highly unlikely that we will see the building of a 5th National Wireless Carrier. In fact, you are more likely to see it go to 3.

So, the implications are that the Providers we have will continue to build and grow their networks. But we are unlikely to see dramatic changes in what we get and how we get it for some time. The business case is just not there. If it was, someone would try to build it. The last one that tried was Clearwire (now part of Sprint). To me that means consumers and regulators have to get what we want out of the existing ISPs.

There are some alternate carriers and I want to talk about them next time!

Jim Sackman
Focal Point Business Coaching
Business Coaching, Executive Training, Sales Training, Marketing

Change Your Business – Change Your Life!

 

Sonoma County: News and Notes

 

Before the Thanksgiving Holiday, our friends at Keysight reported their earnings. I thought I would talk about Keysight’s results and then add in some thoughts about this kind of company within your portfolio.

To be clear, Keysight was reporting 4th Quarter results. This is because it ends its Fiscal Year at the end of the 3rd Calendar Quarter. The company reported $756M Revenue and $122M of Net Income (both non-GAAP). The company expects to have Revenue around $725M and earnings of around $0.50 per share in Q1. In general, these numbers are flat to slightly down from previous years. Although the company expects it’s total addressable market (TAM) to grow 2% next year and to grow 3% itself. This means it is taking a small amount of market share away from it’s competitors.

The company has been relatively flat since the announcement and the stock has been relatively flat to down over the past year. Keysight spent the vast bulk 1st 1/2 of the last year above $34 per share and the bulk of the 2nd half below that number.

So, here is the thing. Why would you invest in Keysight? The truth is that I have no idea. The company is clearly a technology company. Look at the press releases and you will see many very high technology parts of their portfolio. But from an investor point of view, who cares? When I was at AFC our CFO (Keith Pratt) used to do a class for employees called Investing 101. One of his first comments is that investors don’t care if you make DLC’s or Donuts. Because they are looking for a return on their investment. And that is the problem at Keysight. How an investor will earn an ROI is unclear. There are two possible ways: Keysight’s stock price can go up or Keysight can issue a dividend.

Let’s talk about the first. What would drive Keysight’s stock price up is growth in earnings. The problem is that Keysight is always talking about these things in single digit quantities. We can get that kind of growth from things like Proctor and Gamble or Coca-Cola. It means that Keysight is not going to earn a strong Price to Earnings ration (P/E Ratio – Divide the Stock Price by the Earnings per Share). Right now the P/E ratio hovers at about 10. If Keysight could predict more earnings and long term growth, then the Stock Price would go up. Alternately, the company could use some of its cash to buy back shares. Keysight closed 2 acqusitions. It paid $600M for Anite and an undisclosed sum for Electroservices. Instead of doing that it could have bought Keysight stock. Theoretically by spending the $600M on Keysight stock the price would have gone up 10% and that would have been a better deal for investors.

The second is easy. The company generates signficant cash in the quarter. It needs some to pay down its debt, but it could give much of the rest to shareholders. This kind of dividend would over time give back the money to the investors, since value of the stock is not.

Either way, right now holding Keysight in your investment portfolio is like having cash – except that it might go down in value. It is unclear on why anyone would want to put this in their portfolio until Management announces a plan to build a return to its investors.

Have a great week!
Jim Sackman
Focal Point Business Coaching
Business Coaching, Executive Training, Sales Training, Marketing

Change Your Business – Change Your Life!