Market size and business models

Something that is very obvious and hits you when traveling to a heavily populated city like Singapore, is the size of the market and how the most niche kind of businesses survive at street corners. Singapore has some 5.6 million people living on the small island. That’s more than the population of whole of Finland.

This difference enables a lot of things to take place from a market perspective. I stayed in Singapore for about 3 full days. I had a dozen or so meetings all over the city and commuted to those, with an exception or two, with Uber.

First of all, whenever you open the Uber app – you see about dozen cars rolling around a few blocks from your location. If it’s peak time, you might see less, but they’re still there.

It usually takes a few minutes to secure a ride and they are very cheap. A 5-10 minute ride might cost you 4-8 SGD, which is about 2.6-5.3 euro. Not a lot, but more than a few times I received a reservation from a driver who was still dropping off his previous passenger somewhere close by.

What this basically does to the driver is that the Uber “software” (for the sake of the argument) keeps drivers constantly driving and earning. When the demand is this high, it doesn’t really matter that you only make less than 10 SGD per ride. It adds up and you can make money on it.

This of course is only possible when the market size is great and demand and supply enable opportunities like this.

Kristo Ovaska and Tuomo Riekki from Smartly, a Finnish Facebook advertising company, noted in an interview in Helsingin Sanomat recently that building the company was tough in Finland. Soon they figured most of their business was international and today of their 17 million euro turnover (2015) only 2% comes from Finland.

Another clear example that market size and its dynamics basically make or break the company.

I believe that in the future, more and more businesses will become instantly global to even enable their business model to work.

Psychological distance

Wikipedia states under Construal Level Theory that:

Psychological distance affects the extent to which we think about an event, person, or idea as high or low level, and this will influence how concrete or abstract those thoughts are.

I came across this term in university a long time ago and it has stuck with me since then. I have used it to look at my own view on challenges and really try to understand how psychologically distant they really are – compared to reality. Internationalising a business is a great lens to look at psychological distance.

It took me 12 hours to fly to Singapore with Finnair from Helsinki. That’s a very short period of time in the grander scheme of things and still, it brings you half way round the world. Yet the stereotype with avoiding internationalising a business is usually affiliated with the statement that markets are far away.

This delta, between the 12-hour flight (for example) and something being far away, is all in your head. Improved travel opportunities have brought everything so much closer and further with the Internet, much of business activities can be conducted online.

Be aware of psychological distance the next time you assess risk and reward – opportunities are in many ways really close by and achievable in today’s world, even on a global scale.

Preparing for offline

In the constantly online world – everything is at your fingertips whenever you want to. Technology regarding internet has become so transparent that people only realise how important it is when they don’t have it.

We’re about to board a plane with my colleague to Singapore and we are discussing how to prepare for the 11.5 hours. Netflix now allows movie downloads for offline viewing, which is great. More or less makes the in-flight entertainment systems useless for many travellers – a feat that surely attracted travelers to one airline instead of the other.

Spotify also allows offline music listening, applying the same kind of effect on the music selection of in-flight systems as Netflix. Though I never listen to in-flight music in the entertainment system – the offering looks average to say the least.

My preparation for this long haul is 5-10 episodes of a Netlifx series and a movie or two on my iPad mini. I have a few unfinished books on my Kindle and a few of my favorite playlists prepared on Spotify. Then there’s of course a bit of work to keep me occupied and the fact that the flight leaves midnight – which is a great time to get some sleep.

Keep pushing

The importance of working out and moving is something I’ve found out personally very early on in my career. For me, being active and working out a few times a week is important, because it gives me the energy I need. I seldom have periods of time when I work out to lose weight (start of the year seems to be that time mostly), but the focus is always on being energised.

Some weeks when you’re on the road or the schedule just doesn’t work out (no pun intended), the energy levels are low and I feel like everything requires more effort.

Today was a public holiday in Finland and the day started off quiet. I was at the gym before 8am and got to enjoy it by myself.

I also only workout during the mornings. It’s a routine I’ve picked up many years ago and seems to work quite well with my schedule of mixing up being a father, husband and a CEO. It’s also a great way to get more out of your morning when you’re already super awake when you arrive at the office.

Cold and remote

The cold weather continues and it was more or less around -20°C in the capital region of Finland today. With a little wind, the temperature easily feels like -25°C. This photo above is actually from yesterday and I took it while we were heading for lunch.

Cold weather has become an accepted way of life in Finland and while it does occasionally get really cold like today and yesterday, it does not stop business or life at all. I had half a dozen calls today with people with different backgrounds and many were also working remotely, as was I. Then again, many people are sort of semi working remotely, due to the shorter week given the public holiday tomorrow.

There are many invisible aspects of our lives that we take for granted, but don’t realise how those change our behaviour. It became apparent for me today that where as in some places relatively drastic changes in weather grinds the society to a halt – it never really has been the case in Finland. We grind on, because it’s what we’ve always done.

These have always fascinated me, because many of these are so tightly knit to our culture that we don’t realise how we could benefit (or in some cases obviously be worse off) if we changed our behaviour. It is the same with any company culture – there are a lot of invisible things that are done, because that’s how things are done.

One thing that is clear though – I do spend a lot of time commuting each week and it does feel like a holiday to work a day remotely, but still be reachable and have modern technology and services do the magic.

New year – new push to write

I read on Medium that Loic Le Meur has begun a new writing challenge, something very similar to what I’ve had in mind for quite some time, write something short everyday.

With the iPhone readily available though, I wanted to include some photography in doing so. Photos always make stories more interesting.

My goal is not to write really long posts on a daily basis, but simple observations and thoughts. Despite all the stress with ArcticStartup back in the day, writing was never a source of it and I did enjoy it quite a bit.

The picture above is from our small front yard. It began snowing yesterday and snow kept coming this morning after a small pause over night. The temperature is also about -11°C so getting chilly.

That’s it – here’s to a new push on writing and thinking more about everyday things around me!

What if we’re just building the wrong products and services?

I was thinking about the economy at large today and was wondering about the role of unit costs regarding employment. Finnish politicians are obsessively trying to put together a “society agreement” that would basically state that everyone collectively agrees on a certain set of measures to get Finland back on track.

The basic premise in this agreement is that we should be able to get a 5% bump in productivity. In the beginning it was stated that (quite poorly, to be honest) that people should work slightly longer to achieve this. It has since then turned to discussion about issues related to holiday pay and other benefits that would improve the mathematical output per cost.

The argument behind all this is that Finland’s unit costs have risen the fastest in EU since the last 10 years. This can be seen in the graph below.

2015-finland-unit-costs

It is believed that if we are able to get these unit costs down, we are able to push ourselves back to the growth track.

However, if there’s one thing that I’ve learned in working with UpCloud and previous companies is that there is never really any single reason that is holding back your growth or preventing you from achieving something. It is usually a group of smaller reasons that most likely aren’t obvious in the beginning.

It dawned on me that what if our unit costs doesn’t really matter? Unit costs surely matter on the public sector which has inflated quite a bit in the last 10 years, but keeping those down doesn’t help Finland’s economy grow. We need exports. Exports only happen when there are industries and companies creating products and services the markets demand.

What if the real issue is that we simply aren’t building things that the world wants?

Nor are the products refined to such a scale that the market is willing to pay a decent amount of money for them. Much of Finland’s exports currently are to do with very basic, highly competed industries. Top 5 goods exported, according to Statistics Finland, in 2014 were chemical industry products (23.1% of total exports), forest industry products (20.1%), metal and metal products (14.4%), machinery and equipment (12.8%) and finally – electric and electronics industry products (12%).

To me, these sound awfully low level goods regarding value creation. Forest industry products is certainly something where we can have somewhat of a competitive edge, but the others not so.

Here are the top five industries exporting in the US in 2014; machines, engines, pumps: (13.5% of total exports), electronic equipment (10.6%), oil (9.7%), vehicles (8.4%) and aircraft, spacecraft (7.7%). These top 5 industries account for 49.9% of all exports.

And our dear neighbouring Sweden for 2014: machines, engines, pumps (15.5% of total exports), electronic equipment (10.7%), vehicles (9.8%), oil (8.1%) and paper (6.2%). In total, these 5 industries account for 50.3% of all exports.

The top 5 industries in Finland account for 82.4% of our exports. I think the problem, when looked like this, is pretty clear. Our economy is incredibly skewed towards these large industrial companies.

I believe our problem isn’t high unit costs, but the structure of the economy dominated by only a few industries.

Cutting the Facebook cord (sort of)

At the beginning of my summer holidays I decided to cut cords with some of the most notorious notification pushers – mainly Facebook. I disabled all of my mobile notification from Facebook except for direct messages and a couple of other more personal things. I’m happy to say that it feels like I’ve gotten my life back.

You only notice the difference when you make the “jump” and it’s refreshing. I don’t look at my mobile as often and when I do, it feels more meaningful. Part of this change is also my growing focus towards blogging and reading RSS feeds.

One interesting point of view I’ve picked up when going back to Facebook voluntarily to check out what people have been up to is that it feels like everyone is mostly promoting their own views on news and other events. Very few people share (or at least Facebook doesn’t show me those) what they’ve been up to and use it as a personal blogging platform.

I’ve also built about 15 or so lists based on different criteria and this helps me go back a little more and in little more detail to see what different groups of people are up to.

Since disabling all the notifications, I’ve also gone back to Twitter more and more. It’s so great when nobody is doing the filtering for you and you get the full firehose. Also, it’s been great to spend time with great blogs and read some longer form commentary and views on a multitude of trends.

It almost feels like, while it is built in and in Facebook’s interest, the marginal utility of spending more time with Facebook has long gone negative.

Innovation and regulation

I listened to a really great podcast episode from A16Z (Andreesen Horowitz, the venture capital company) on the role of government and innovation. The guests on the show for this particular episode were Fred Upton and Greg Walden, of the Energy and Commerce Committee including the subcommittee on Communications and Technology. Among a lot of issues, they discuss the Telecommunications Act, originally passed in 1934 and revised in 1996.

What I especially like in this episode is the attitude towards innovation and how they wholeheartedly believe in it being the driver of good for all. I’m sure there is a lot of PR talk as well, but you can really see that these gentlemen are trying to build legislation that enables innovation and doesn’t suffocate it.

There’s a lot that European politicians and public organisations could pick up from this.

via A16Z: Innovation and Regulation — What Happens When Policy Lags Behind Technology?