Tag Archive for 'measurement'

The most important lesson in business

Over the weekend, I attended a conference (I was even quoted in the press, despite disclaiming before one of my presentations I was scattered from a terrible hangover!). In one of the sessions, where the brilliant guys at Australian start-up company Good Barry shared some of their lessons, an audience member asked the question of when should they get lawyers and accountants to help them out.

I think this was a very good question and one I will answer here. Why can I? Because I am (nearly) a chartered accountant ; an experienced external auditor; and an employee in one of the biggest firms in the world that makes money from guys like me doing services for people like you.

There are four areas accountants help a business:

1) Reporting & compliance. Whether you run a business and want to know what’s happening (ie, measurement on your employees output so you can track how big their bonus will be) – or you need to create some type of reporting to external stakeholders (like investors, banks, shareholders) – accountants have the skills to ensure you create the appropriate reports. Reports can vary from custom internal ones to help assess things, to government mandated ones like financial reports to statutory authority’s or the tax office

2) Tax. It wasn’t until I studied tax, that I realised how valuable tax accountants are. Tax is the biggest expense of anyone – individual or company – and there are plenty of legal tricks to avoid paying. Specialist accountants can help you structure your business in a way, where you minimise this expense. People can spend an entire life understanding just one aspect of the tax code. It’s massive. Trust me, a good tax adviser is worth their weight in gold.

3) Assurance. If you produce financial reports, you need to get audited by special types of accountants, who will verify your numbers to make sure you are not talking crap. However auditors are also very experienced in understanding how businesses should be run (so would you if you visited dozens of companies every year analysing them inside out), so they can also add a lot of value by helping assess your business during the audit and making recommendations on improving how you run. They do this, because during an audit they see everything and often have a more complete view of a business than management. A very useful thing accountants can help with, is by developing your internal control framework. What this means, is helping set up systems so that it runs like a proper business. For example, making sure two people sign a cheque is a ‘control’ – and a very important one, because without it, people can be signing cheques to themselves and running away with your money (it happens more frequently than you think).

4) Decision making. These types of accountants are called management accountants, and they can help analyse the numbers of a business to assist strategic decisions. For example, should you buy a company? A management accountant has the skillset to provide the analysis on whether it will be worth while. Management accountants help interpret information, to make important decisions for the business.

What help does a start-up company need from an accountant

The most important thing you need to know, is CASHFLOW. You need to maximise the amount of working capital – cash you’ve got on hand – at any one time. It’s seems simple enough that you need to make sure you make more money than you spend, but you will be surprised how easily people overlook this. Possibly in the Internet startup culture funded by vulture venture capitalists, people forget that the money they are spending is not real money.

Accountants can help maximise your cashflow. They can help with cash strategies like for example all that money sitting in the bank, why not put it somewhere and earn interest on it? They can help with cash management to maximise your working capital: smart ideas like pay your creditors as late as possible (people you owe); chase your debtors every day (people that owe you). However you don’t need an accountant to watch your cashflow. You just need you to recognise its importance. Get that? Accountants can do a lot. But if you are a startup, cashfow is all you need to know.

Do you need an accountant for fix up your controls? This only matters when you have hundreds of people in an organisation and things get complex. Controls are the difference between a small company run like a family business, and a big business. Matured startups like Atlassian that make $30million a year, need to consider controls. You? No.

Do you need an accountant for your tax strategies? Well hey buddy, if you aren’t making money, you haven’t got any tax to pay, right?

Do you need an accountant to help make management decisions? Sure you do – but if you have common sense, you can to. Accountants can give you a better analysis of your business from your untrained mind, but you need cash to pay them to do that.

Do you need an accountant for financial reporting? In Australia, unless your gross operating revenue is over $10 million a year; and you have over 50 employees or $5 million in assets, you are considered a small private company that is not required to lodge reports. So stop dreaming about your goal to list your company on the stock exchange, and get back to thinking about the cashflow.

So going back to the question of when does a start-up need an accountant. Well look, if you hire me I can whack some sense into you. But if you have half a brain, you will take this lesson in understanding that cashflow in king. Focus on that first, and then you can worry about the rest if the cashflow is there.

Half the problem has been solved with time spent

On Thursday, I attended the internal launch of the Australian Entertainment & Media Outlook for 2007-2011. It was an hour packed with interesting analysis, trends, and statistics across a dozen industry segments. You can leave a comment on my blog if you are interested in purchasing the report and I’ll see if I can arrange it for you.

One valuable thing briefly mentioned, was the irony of online advertising.
Continue reading ‘Half the problem has been solved with time spent’

Thoughts on attention, advertising, and a metric to measure both: keep it simple

Advertising on the Internet is exploding. Assuming you accept my premise that the Internet will be the backbone of the world’s attention economy – then, I am sure you can see the urgency of developing an effective metric for measuring audiences that consume content online. Advertisers are expecting more accountability online and there is increasing demand for an independent third-party to verify results. But you can’t have accountability and there is no value in audits, if one place measures in apples and the other in bananas.

The Attention Economy is seriously lacking an effective measurement system

Ajax broke the pageview model of impressions, the one billion-dollar practice of click-fraud is the dirty big secret of pay-for-performance advertising, and the other major metric of using unique visitors (through cookies) is proving inaccurate.

It sounds crazy, doesn’t it? The Internet has the best potential for targeted advertising, and advertisers are moving onto it in stampedes – and yet, we still can’t work out how to measure audiences effectively. Measurement is broken on the Net.

(Although I am focusing on advertising, this can be applied in other contexts. An advertising metric is simply putting a monetary value on what is really an attention metric.)

Yet when we look at the traditional media, are we being a little harsh on this new media? Is the problem with the web’s measurement systems just that it is more accountable for its errors? After all – radio, television, and print determine their audience through inference which are based on sampling methods and not actually directly measuring an audience. Sampling is about making educated guesses – but a guess is still a guess.

Maybe another way of looking at it is that the old way of doing advertising is no longer effective. Although we can say pageviews are broken due to AJAX, the truth is it was always an ineffective measurement system, as it was based on the traditional media’s premise of how many viewers/subscribers theoretically and potentially could see that ad. As an example of why this is not how it should be: when people visit my blog via Google Images, they hang around for 30 seconds. People that search for business issues on the web that I write about, like stuff you are reading right now – spend 5+ minutes. If both are equal in terms of page views, but the later actually reads the pages and the former only scans the content for an image – why are we treating them equally? My blog is half about travel, and half about the business of the internet, which is why I have two very different audiences. Just because I get high page views from my travel content, doesn’t mean I can justify higher CPM’s for people that want to advertise on internet issues. Not all pageviews are the same – especially when I know the people giving me high pageviews, arn’t really consuming my content

Another issue is that advertisers are so caught up on who can create the most entertaining 30 second ad, that the creativity to get people entertained has ovetaken the reason why advertising happens in the first place: to make sales. The way you do that, is by communicating your product to the people that would want to buy it. If I placed advertising on this blog, from people who want to do web-business related stuff, they should only pay for the peope that read my blog postings for 5+ minutes on the Attention economy, not for the Google images searchers who are looking for porn (my top keywords, and how people find my blog, makes me laugh out loud sometimes!).

When we create a metric that measures attention, lets be sure of one thing: the old way is broken, and the new ways will continue to be broken if we simply copy and paste the old ways. New ways like click-through ads that appear on search results, and account for 40% of internet advertising is not how advertising should be measured. The reason is because it is putting the burden of an effective advertising campaign, on a publisher. Why should a publisher not get paid, with the opportunity cost of not using another ad that would have paid, because of the ineffectiveness of the advertisers campaign strategy at targeting?

When measuring audience attention, lets not overcomplicate it. It should be purely measuring if someone saw it. As an advertiser, I should be able to determine which people from which demograph can see it my ad – and yes, I will pay the premium for that targeting. If it turns into a sale, or if they enjoyed the content – is where your complex web analytic packages come in. But for a simple global measurement system, lets keep it simple.

Concluding thought

If I stood at the toll booths of the Sydney Harbour bridge naked, some people will honk at me and others won’t. If I can guarantee that they can see me naked, that’s all as a publisher I need to do. It’s the advertisers problem if people honk at me or not. (Not enough honks means as a model I should still get my wage. They just need to hire a better looking model next time!)

The attention economy needs a consistent base

Okay, enough naval gazing. The journalist in me (by experience), the accountant in me (by education), and the businessman in me (by occupation) is going to synthesise my understanding of the world and propose a new metric for the attention economy. I don’t know the answer yet, but I am going to use this blog to develop my thinking. I can’t promise a solution, however I am sure breaking the issue down into key requirements, assumptions, and needs of what this magical metric is – will add value somewhere for someone.

So let’s start with the most important assumption of all: what are we measuring? As Herbert Simon coined it, and smart guys like Umair, Scott and Chris have extended (at least for my conceptual understanding) – it is called the attention economy. It is important to note however, that the attention economy is an aspect of the Information Sector (see below). And as I described in a previous posting, the attention economy needs a metric for two reasons: monetisation and feedback.


What incorporates the attention economy?
Well, this is a bit like a related problem I had when I first came to grips with what new media was. A few years back, I did some active research trying to understand how a book, a television, a newspaper, and a search engine – could all somehow be classed as “media”. I found my question answered by Vin Crosbie’s manifesto (read this for a recent summary). Take note of what he considers is the key element of new media (the technology aspect).

I am going to propose one of my key assumptions of the future, which will answer this question. It might not happen for another 5, 10 or even 20 years – but I am convinced this is the future. The Internet will act as infrastructure.

I believe the unifying aspect, and the backbone of the attention economy, will be the Internet. All enterprise software, all consumer software, all (distributed) entertainment, all (distributed) communications and all information – will be delivered digitally over the Internet. I think the people at the US Census bureau?Ç? conceptually have already worked this out by defining the information sector of the economy, which classes the above mentioned and more into this one diverse category. The Internet is the enabler of the Information Age, just like how the production line was for the Industrial Age

I’m not saying we are going to live, sleep, and eat on computers in the future. However just think – anything that runs on electricity, can connect to the Internet. And look at the technologies being developed that enable the Internet to live beyond the computer screen like electronic paper and?Ç? dynamic interfaces. Even more powerfully, is that the Internet has brought entire industries to their knees – like the newspaper and music industries – because it is providing a more efficient way of delivering content. If it’s information, communication or entertainment related – then it probably works better in digital format, over the Internet. (Excluding of course the things like theme parks and the like, which are more about physical entertainment and not distributed entertainment like a television programme).

I think this is an important issue to be recognised, that the Internet will the the backbone of the attention economy. By being the core back-end, it means that no matter the output device – whether it is mobile phone, a computer, or a television – it will be providing a consistent delivery mechanism for digital information. For a measurement system to work, it needs to be consistent. The Internet infrastructure will be that consistency. If you can recognise that, then that is a big step forward to solving the issue.

New measurement systems need a purpose

Chris recently proposed a new measurement system for attention, after yet another call to arms for a new way of measuring metrics. This is a hard issue to gnaw at, because it’s attempting to graple at the emerging business models of a new economy, which we are still at the cross roads at. Chris asked us on the APML workgroup on what we thought of his proposal, which is interesting, but I thought it might be better to take a step back on this one and look at the bigger picture. Issues this big need to be conceptually clear, before you can break into the details.

Television, radio, and newspapers are the corner stone of what we regard as the mainstream media. For decades, they have ruled the media business – with their 30 second advertising spots, and “pageviews” (circulation). Before the information age, they were what the ‘attention economy’ was. None of those flamin’ blogs stealing our attention: content and advertising flowed through to us from one place.

The internet is enabling literally an entire new Age of humanity. A lot of the age-old business models have been replicated, because we don’t know any better, but people are abandoning them because they are realising they can now do so much more. So the key here is not to get too excited on what you can do – rather, we need to think why what we need to do.

Let me explain – advertisers sold their product on a TV/radio commercial, and a newspaper page, because it guaranteed them that a certain amount of people would see it. Advertisers advertise because they want to do one thing: to make money. It’s just how capitalism works – profit is god – so do what you can to make higher profit.

But back then, the traditional mainstream media was the only way they could reach audiences on an effective scale. However advertising on the Sunday night movie is the equivalant to dropping a million pamphlets out of a plane, hoping that the five customers you know that would buy your product, end up catching it. Back then, no one complained – it was the best we could do. It sucked, but we didn’t know any better.

The internet changed that.

Advertisers can now target their advertising to a specific individual. They don’t care anymore about advertising on a mass scale; what they would rather is advertising on a micro scale. Spending $20,000 on 10,000 people you know that want to buy your product, has a much better Return on Investment than $2,000,000 on 1,000,000 people – of which 10% don’t speak the language of your ad, 20% aren’t the target group for your ad; and 30% are probably offended by your ad and will ruin it for the 40% they you were targeting in the first place.

Sound crazy? Well Google making $10 billion dollars doing just that is crazy.

So now that we have cleared that up – let’s get back to the issue. We now know one of the reasons why we need measurement: advertisers want to target their advertising better. Are there any other reasons? Sure- sometimes people want to measure what their audience reads for non-monetary reasons – they could just trying to find out what their readers are interested in, so they can focus on that content. Statistics like that is not narcissism – it’s just being responsive to an audience. Or then again, it could be pure ego.

So when it comes to measuring content, there are two reasons why anyone cares: to make money, or to see how people react to your content. However it’s the first type that is causing us problems in this issue. And that’s because how long someone spends on your content, or how many people view your content, is no longer relevant as it was in the mass media days. What is relevant is WHO is reading your content.

I don’t think you can have a discussion about new ways of measuring the way content is consumed, without separating those two different motives for measurement. I like Chris’s proposal – knowing how long someone spends reading my blog posting is something I would find interesting as a blogger. But that’s pure ego – I just want to know if I have a readership of deep thinkers or random Google visitors that were looking for a picture about shorts skirts. (As an aside – one of my pictures is the number one Google image result for “women in short skirts” – thank God it goes to my Flickr account now, the bandwidth that used to eat up was crazy!)

So before we come up with new measurement systems, lets spend more time determining why we are measuring. Simply saying we are better measuring what consumers are giving their attention to, is only part of the problem. We need to first determine what value we obtain from measuring that attention in the first place.