WatTF? – Jim Murphy

No, I don’t mean that Tony Soprano and family have moved in next door but Tony would be impressed with these guys and love a few points off the top I’m sure but as far as I can tell these enterprising criminals have no interest in cutting anyone new in on action this sweet.So here, the *bidness* as they say: Imagine you have monopoly distribution of a well established product and have maintained this monopoly for over 80 years – uncontested. Two years ago it generated $4.1 billion throwing off $1.4 billion in net income without breaking a sweat. Now when I say this cash machine runs “without breaking a sweat” what I mean is after 80 years of monopoly your “market” doesn’t expect very much in terms of product or service – almost to the point of expecting that abuse is good.  Imagine having customers that enjoy being taken advantage of!  So, the actual operational complexity is really low and any risk or effort is foisted onto your suppliers, even the local ones that are supposed to be one of the prime beneficiaries of this operation’s largesse.Want in?  No, you probably don’t.  You probably couldn’t live with yourself.  I know I couldn’t.  I mean I like making money but there’s got to be a point to it – at least some sense of pride in what your are doing.What I’m referring to is the LCBO and its low life cousin The Beer Store.The anachronistic, prohibition era  Liquor Control Board of Ontario has evolved into an inefficient, cash pig for the Canadian Federal and Ontario Provincial governments.  The really incredible part of the story here is not central government control and excess – that story is found almost every where in Canada and should be expected – but the general acceptance by the people of Ontario to be treated like fools and their willingness to sacrifice the aspiring local wineries and breweries that have struggled over decades to overcome not only the natural climate but also the political one.I don’t get it.  Its like we enjoy having second class or third rate as the only option. We must enjoy the humiliation of risking a boarder run to the US and smuggling back more than our allowed 1  bottle allotment.  And why do our immigration officials care more about what’s in our shopping bags that who we are?  Well silly question: its because to their mind we are stealing from them.Not to pull the good folks at Wine Align into a polemic like this but I was reading yet another post that spends part of its time on topic and part of its time digressing on the utter absurdity of the LCBO or the “The Beer Store”.In this post – an overview of new featured vintages – Mr. Szabo’s disappointment is really what is on display most prominently.  Disappointment because one of the worlds largest purchasers of wine and spirits just isn’t really up to the job.  They are just not all that good at it – surprise!  Imagine the person at the Service Ontario desk where you renew you driver’s license trying to figure out what vintages to buy and feature this month – its not that different.

 Admittedly, most of the best have little interest in dealing with the LCBO. I suppose you too would think twice about selling wine to Ontario and its internationally feared state monopoly. Imagine this business scenario: First, you hold back an allocation for your Ontario agent in the hopes of getting an order. Then comes the expensive shipping of samples for evaluation if the initial tender is accepted. Then you’ll wait months for the order to be confirmed, then a few more months for the order to picked up, then a couple more months for actual shipping. Then you’ll pay $125 per wine type for the mandatory LCBO lab fees (and risk the entire shipment being rejected and returned at your expense, or simply destroyed). And then, you’ll patiently wait another few months for your payment, that’s if, of course, if the shipment sells well. If it doesn’t, the LCBO might arbitrarily put it on sale without telling you or the agent and deduct the difference from your payment. And don’t forget, all the while, you have buyers lining up at your cellar door, cash in hand, to get their allocation. What would you do?On the other hand, large producers with volumes of commercial wine to sell scramble to get an audience with the LCBO. Nothing could be easier then having one large customer take a whacking shipment of your everyday plonk in one go. And, you have a ‘state guarantee’ on your payment! It’s not like the LCBO is going bankrupt anytime soon or will disappear into the shadows like some shady Shanghai dealer.No wonder we see so much average wine. 

Its like we just don’t understand the way world works.  This is not good news for producers, but actually they find other places in the world for their products – and like water, flow where the business is better.  No one is sitting on piles of excellent wine they can’t sell, they are just going to markets that deserve them. Not to Ontario.  Not to you.  You have chosen differently.  You have chosen this model.

To get a sense for how perverse our approach to alcohol sales look no further than The Beer Store.  Again, a regulated monopoly for selling beer in Ontario – retail restaurants – with the most bizarre ownership structure imaginable. Surprising to most people in Ontario, unlike the LCBO, The Beer Store is actually private.  It is owned 49% by Anheuser-Busch (yes, Budweiser), 49% Molson Coors (Molson was bought by Coors in 2005) and 1 % by Sleeman Brewery (bought by Sapporo, Japan).

So say this with me: 

100% of the legislated monopoly in beer distribution and sales in Ontario is owned by 3 foreign corporations.

It’s not that different from legislating WalMart as the only legal distributor of durable home goods.  In fact its identical.

Why in this age of advertising and retail sophistication does The Beer Store look more like a recycling centre?  Because its not a retail store at all.  The Beer Store is not interested in selling *beer*.  That would imply at least passing interest in the product and the needs of customers.  An interest in developing the tastes and appreciation for its products.  Maybe even to opening your mind to new possibilities, featuring interesting new items, or introducing you to new beers you may not know about – even some made by the 25 Ontario Craft Brewers with truly exceptional products despite being structurally segregated from their local market.  This style of business development is anathema to The Beer Store.  what the store is designed for is primarily recycling and ordering one of the top few national beer brands – and lets face it that’s not exactly the good stuff.

As reported by the Toronto Star, in 2007 the Ontario Craft Brewery association (OCB) wanted to either acquire shares in The Beer Store or be permitted to set up their own competing chain. Premier McGuinty responded by saying that his government would not even consider any application to form a competing chain, and that his government would not consider compelling The Beer Store’s shareholders to sell any shares, although some Liberal and Conservative backbenchers have said they would expect The Beer Store to at least negotiate in good faith with craft brewers who made a serious offer. The Beer Store responded by saying that it was not considering and would not consider selling shares at any price…that in the event OCB did get to set up a competing chain, they would refuse to stock their products there.  Ouch.

So to those that travel the world, say to europe, and are impressed by the varieties of local brews remember: we chose this too.  We willfully choose for Ontario to be second class with limited generic selection of over priced products.  Through our actions this is our expressed desire.

Cheers.

Friday April 23rd noon-9pm at the Accelerator Centre in Waterloo we’re hosting the community for live streaming event coverage of the conference happening in San Francisco.

Check out the speaker schedule and Register for free now!

Startup Lessons Learned is the first event designed to unite those interested in what it takes to succeed in building a lean startup. The goal for this event is to give practitioners and students of the lean startup methodology the opportunity to hear insights from leaders in embracing and deploying the core principles of the lean startup methodology. The day-long event will feature a mix of panels and talks focused on the key challenges and issues that technical and market-facing people at startups need to understand in order to succeed in building successful lean startups.

Join the startup community at the Accelerator Centre in Waterloo to share the ideas explored at the conference via the live stream.

Last week, included in the Canadian Federal Budget was an amendment to the tax code eliminating the burden on foreign investors to determine Canadian tax and file Canadian income tax returns when selling Canadian companies – The elimination of Section 116.

This is an incredibly positive step since it frees capital to flow to early stage Canadian startups from US venture capitalists and individual investors.  That’s the win.  Previously, for US VCs all the lawyering and paperwork made doing a deal in Canada burdensome if not downright impossible since the filing requirements extended to the original investors into the VC fund and can number in the hundreds or thousands. Not to mention anything about funds of funds where the complexity compounds. This made the deal count low and pushed the deal size up, way up to a point where most US VCs only considered investing in a much later stage, lower risk and higher placement expansion round. This of course ads insult to injury since most Canadian “early stage” VCs have the risk profile of a pensioner.

Early stage investments in Canadian startups have been coming from from government grants and from individual angels and a growing number or organized angel networks. These groups have been carrying the load for what would be/could be an institutional investment industry here.  I recently watched companies pitch an angel network for million dollar rounds and was left wondering where the VCs were?

The audio for the webinar is available as well.

I have to admit that the victory is somewhat bittersweet.  Sweet because it is progress, bitter because it took so long to fix and there is so much more to be done.  I hope with this one step at least more young companies find the funding they need which will inevitably grow the ecosystem. Canada needs many more startups, more learning and evolution.  The best way I can imagine to learn it is to do it. Hopefully this will help.

I’m talking to some VC friends in Boston this week and I’ll hopefully get their take.  I’ll update when I have.

Thanks to the Waterloo Agile/Lean Peer2Peer group for inviting me to speak in December.  This presentation was intended to introduce the group to the concepts of LeanStartups and how it can put agile in context for start ups.

You often hear people focusing on the internal parts of agile.  Often these are the things the scrum master is supposed to facilitate during a sprint like daily stand-up etiquette, burn down charts, planning poker, retrospective games etc.  These are all useful tools but ignore the elephant in the room if you happen to be a startup: how to you build the backlog?

Even more, how do you build a backlog that will define and evolve a sustaining product in a profitable market before you run out of cash?!  That, my friends is the primary challenge of a startup and so many of the rituals of agile development alone wont hep you with.   I don’t intend to diminish the value of something I’ve spent the last decade learning and practicing, but in the last few years I’ve learned where it belongs relative to other important factors that can’t be ignored. If you’ve ever been the Product Owner I’m sure you’ll agree that it take a hell of a lot of effort to build and maintain a backlog including the efforts of many people.

There has been little in the way of process to address this fundamental challenge in a way that was as compatible with the style of agile development – at least until lately.  This is why LeanStartups and Customer Development resonated so strongly for me.

You read this all the time online – people complaining that their team is doing some weird variant of agile and even that it failed because they didn’t find the mythical “true agile” way.  Add to that the fact that being developers we tend to see things, how shall I say, a little more black and white than most.

Don’t worry about “not doing it right” and instead focus on how you are improving.  Where were you int he past and where are you now? What’s next?  Focus on that.  Too many times people assume that because their agile adoption is imperfect they are missing some critical part or have generally failed.  You may be right!  But, it doesn’t really matter.  In my experience you shouldn’t wait around for the perfect process/team/org adoption to arrive.  Just keep moving and keep improving.  Plan on team cohesion around a workable process taking a year or so.  Most of that year will seem pretty wonky but go with it and don’t fret.  Don’t sweat the fact that after 6 month your velocity is still erratic, or your stories are too open ended, or your product owner doesn’t have a vision (introduce them to Customer Development!), or that you can’t keep your standups focused, or that you don’t pair enough, or that storypoints don’t map to reality, or that you have too many bugs that they trow off your planning, or that you can’t really ship every iteration, or that you can’t test enough, or that you test too much, or…

Take a breath and keep going.

Just another day at the office. Out for lunch, walking to Mai-Thai if memory serves and what would you guess we see coming down King street in Waterloo?  The Google Steetview Car.  I’m sure plenty of folks were wondering what the heck this contraption was but not the dev team at PostRank, no sirree.  We new our moment of geek glory was upon us.  Even the Canadian paper of record shared in our gloriousity.

Is your dev team immortalized on streetview?  I think not!

The funniest thing about agile is how common the problems people have doing it.  Case and point:

He who seeks truth shall find beauty.
He who seeks beauty shall find vanity.
He who seeks order shall find gratification.
He who seeks gratification shall be disappointed.
He who considers himself the servant of his fellow beings shall find the joy of self expression.
He who seeks self expression shall fall into the pit of arrogance.
Arrogance is incompatible with nature.
Through nature, the nature of the universe and the nature of man, we shall seek truth.
If we seek truth we shall find beauty.

-Moshe Safdi

This poem is at the end of the Moshe Safdi’s TED talk video on his approach to architecture over his career.  It stuck in my head ever since.

Rick Segal mentioned his approach to the ailing Canadian venture industry and to the lack of local experienced operators: The Farm Team.  This was in response to some controversial (if mostly damn true) conversations that are all too well known at this point.

I think Rick’s fundamentals are right but the mechanism is wrong.  Scrape together a few bucks to squander on training is a cynics take.   To me what I noticed immediately after moving back to Canada is simply the lack of game.  We don’t need special consideration we need more action. Problem is to get more action you need more VCs playing and more LPs willing to invest.    For cultural, population and scale reasons Canada can’t rely completely on domestic investment – and shouldn’t want to either.  It especially shouldn’t wait around for a few tens of millions to be handed down from the government in ham handed way as the primary LPs to local VC.  Completely wrong headed as well.

What Canada needs more than anything is more capital to work with.  We’re a resource rich country – in more ways than minerals and lumber.  I mean in skilled and talented people.  To scale and deepen the level of skill and experience you need to do it.  You do it by funding more companies and iterating more often.  We don’t have enough oxygen in Canada to do this and will always be chronically underfunding this critical emerging part of our economy.

Stephen Hurwitz recently articulated this much better than I and to a level of detail I’ve been craving ever since moving back from Boston and wondering what the hell was going on with Section 116.  His article titled: Reforming Section 116 – Key to Opening Canadian Borders to Foreign Venture Capital lays out the case:

The notion that Canada makes it simple for investment to flow outward but not encourage the other direction is in my opinion the single largest problem facing Canadian start-up founders (or would-be founders that fail to find investment).

By simply alleviating the administrivia surrounding this issue we can unlock the potential of billions of dollars of investment that is otherwise squandered or leaves for other more favorable places.  In this area I know of what a speak.  I’ve made that choice and met tons of fellow Canadians that did as well.

I’d place  abet that Section 116 is not a rational, thought out position with a purpose but rather a sloppy oversight that has yet to be corrected by people with interests in seeing entrepreneurs flourish in Canada.   If there was one thing we could do, wave a wand and change a single thing this would get my vote.

Steve Blank from Berkley’s Haas School has a great reminder about the (anti) correlation between good grades in school and success in entrepreneurship.  He remarks in The “Good” Student something I’ve been curious about for a while too: Google’s Hiring Practices.  Talking with bright co-ops and new grads and grad students at the University of Waterloo, Google is often lauded as the obvious first choice spot to land a job.  In fact Google often poaches the top talent – measured in terms of grades at least.  I’m always surprised to hear how uniform their hiring profile is, at least for engineers: bookish engineers without much life experience.  Probably too harsh but I liked Steve’s characterization.