Who is Farhan Lalji?

The bee (new name for the wife) and I were walking around Hampstead yesterday. We walked into the Body Shop – her choice obviously - and I said “has the body shop changed at all in the last couple of years?” it was obvious that it hadn’t. I started to wonder what if the Body Shop hadn’t been acquired by L’Oreal, would I be saying the same thing? Sure there have been other factors which slowed down innovation, like the death of Anita Roddick, but surely being part of the giant L’Oreal machine has slowed down growth.

This kind of thing is common in the internet industry; every cool company that I’ve liked hasn’t done anything really innovative since being acquired. But I was surprised to see that the same applied to retail.

A lot of entrepreneurs like the idea of pumping and dumping, build something cool, make it valuable, get someone big to pay a pretty penny, sit around while shares vest, and then head off to the next big thing. It’s not just small or medium sized start ups where this happens, a friend who’s in the venture business with whom I was discussing recent events at Y! made the statement

“pretty much all M&A is value destructive for the acquirer. But its great for the target”

I disagree… well sort of. While it’s great financially for the target, I think all M&A sucks for both parties, it handcuffs people, makes it difficult to do anything new and while the companies are busy ironing out the mess left after the transaction the competition pounces. Sad thing is while the entrepreneurs, founders, shareholders and other investors’ pockets get fatter the users/customers/employees suffer.

I hope at some point I’ll dip my toe in the entrepreneurial waters, and if you had asked me a year or so ago how would you feel about the company you built being acquired; I would probably have had a very different answer to today. Then it would have been “show me the money”. Today, it’s more likely to be “show me the plan and how value won’t be destroyed”. Interesting how your perspectives change in a short amount of time.

I’ve been interested in the concept of business ethics for a long time. The idea that business can operate in a “good” way versus operating in an “evil” way has been revolving in my head for sometime. With Google’s “Don’t be evil” internal motto, MSFT’s reputation as the “evil empire” and a bunch of the work by Umair, Fred, and other bloggers fuelling my thoughts, I’ve reached the conclusion that “good and evil” isn’t necessarily the right way to frame the question – at the end of the day all businesses are run by people and people don’t just fall into good and evil camps. I think it’s more about operating with the best interests of the customer versus the best interests of the bottom line.

I’m convinced that long term sustainable success is driven by being totally focused on what’s good for the customer, staff and the community, whereas short term unsustainable success is driven by making an extra dollar / pound / euro / franc / dirham / rupee etc.

The problem, I’ve found, is in large publicly traded companies there’s a responsibility to shareholders and showing that the business is operating with the best intentions for profitability but there’s no impetus to show that the business is delivering to the needs of all their other stakeholders – i.e. customers, staff, the community.

When I was in business school I wrote my dissertation on valuing the social and ethical return of business. Personally, I believe that businesses should be valued on a triple bottom line, how profitable they are, how sustainable/ethical they run their business, and the utility they provide customers. Only then do you get a true value of the company and its ability to be successful over the long term. Unfortunately there is no standard for such a valuation right now – there are way too many ideas for me to list on this blog post. There are so many different thoughts on how to value social returns that no one does it and so we all suffer.

Apple’s Worldwide Developers Conference is kicking off in a couple of minutes. I don’t own a Macbook or an iPhone (yet) but I’m pretty excited. As I mentioned earlier I’m a guy who waits for a couple of product iterations and when the price comes down a bit before I dive in. In addition my phone contract is up later this year and I’ll be relocating in the next couple of months which will mean it’s time for some new toys – hello Apple… or blackberry, it depends on what’s announced later today.

It’s incredible how much excitement is generated from the WWDC, with speculation running rampant from tech blogs to the BBC. Flickr has over 11,000 pictures tagged with the term wwdc. My favourite is this picture that has the covered banner from inside the conference space.

What Apple does really well is create products and get people excited about them. People are so excited that when they release a newer cheaper version a few months’ later people aren’t ticked that they bought the more expensive version, instead their lining up to buy another phone.

It all comes down to innovation, design and execution. Apple does this well, they build innovative products, they ensure the design has a “wow” factor and they execute early, often and iterate like crazy. That’s a great model for tech businesses if you ask me.

Launching quickly in a market you know or eventually in all markets, that is the question? Starbucks is launching free wifi in US branches, partnering with AT&T. No news on when this will happen in other markets yet.

I’m of two minds on this. Part of me is pi**ed off that big US companies almost always seem to launch cool new initiatives or products in the US and then eventually in other markets. Another part of me understands that it’s better to get it out there in a market you know and then establish the presence in other markets.

I just hate significant lags between a US launch and an international launch. Companies that have lags are basically allowing local competitors time to make an imprint on the market with copy cat services until the big US company comes into the market.

In the end no one wins. Not the local market – because they have a poor copy cat, or the big US company, because you end up competing with a local competitor that might not have been there had you launched globally. Guess it depends on how strong a product or service it is your offering. Take the iPhone for example, there was a delay in launching in Canada versus the US, but – as I saw on my trip there last week – a lot of people waited and are now happy costumers. But not every product or service is as kick a** as the iPhone.

Umair’s been spending quite a bit of time talking about good and evil, open and closed, Microsoft and Yahoo, and Facebook and Google. A very basic synopsis would be that open is good, Microsoft, and increasingly Facebook, have bad DNA and this will prevent them from sustaining success in the long run. Whereas Google has being good in it’s DNA and this will enable them to succeed in the long run. It’s a pretty smart analysis and I think its pretty spot on.

However, one company that has kept its doors closed and managed to succeed is Apple. iTunes has to be the most closed bit of software I know. And DRM is just plain evil, very evil. But yet Apple kills in this market and is showing no signs of letting up.

So my theory is that design can trump good and evil in the short term. If you ensure that users have a great experience, and that it’s simple, efficient and effective users and the community in general will overlook the fact that it’s closed, proprietary and evil - how else would you explain DRM? The iPhone is another example of closed and well designed but yet super successful. The fact that Apple was bricking unlocked phones is another great example of evil but well designed.

Is this sustainable? I don’t believe so. I believe if someone comes up with a really useful, easy, super smooth system that has a wide variety of content and is good, open, basically DRM free, then iTunes could go down. And if someone (RIM/Nokia I’m looking at you) comes up with a phone that meets the standards Apple has set for usability for browsing and interacting online on your handheld device and is open as well, well then Apple could go down there too. It’s not easy, because Apple’s set the design bar so high, but it’s not impossible.

During my last job, at a design agency in London, we had a pool table. At 530 everyday, almost like clockwork, 2-4 of us would go and shoot some stick. It was a great semi release, we would end up talking about projects or developments in the world of technology more often then not. When we moved offices and ditched the pool table a large part of me felt that was a mistake, but I couldn’t articulate why.

At Yahoo! we have pool, foosball and ping pong tables and though I rarely get the chance to play these days it’s good to know they’re there. I’ve had some good conversations about life, work, philosophy and politics around these tables. One of the best times I’ve had at Yahoo! has been when we went out to play golf in the middle of Soho, not only was the golf fun but in winning the closest to the pin competition I’ve been inspired to play more golf. There was also some great work-related conversation that evening in a relaxed non-traditional environment.

And then I read about the Google Games (hat tip: Brad Feld) where students from MIT and Harvard came in and played various physical, mental and just plain fun games. Great recruitment technique if you ask me.

Last week I came across an article in the London Business School Business Strategy Review regarding the role of play at work. It’s weird but I’ve always felt that having a playful outlet was important to being able to work effectively. And this article makes that case.

If/When I start my own company I think play will play an important part in recruitment, engagement and strategy. If for no other reason then the fact that its fun and we spend way too much time at work not to have fun there.

Acquisitions and strategy

Web acquisitions are not strategy. Acquisitions are usually financial gymnastics showing value. Personally, I think when a big company buys a smaller innovative company there’s a good chance that innovation in the acquired company dies. Google was guilty of this with its acquisitions of Blogger (nothing new there, Wordpress, six apart innovative), Yahoo’s been guilty as well. And AOL, AOL is probably the guiltiest of the lot.

When I read that AOL had bought Bebo my immediate thought was, well they’ve just handed the social networking industry to Facebook. Facebook’s kept its independence and as a result has been cutting edge. Bebo was showing some fight, but my guess is that this purchase is going to kill any incentive Bebo has to fight and innovate.

Strategy is seeing where there are gaps, filling those gaps with a superior product or service. Strategy means seeing where you can add value and create value and then executing like crazy, it’s not acquiring a company that does a decent job filling it with cash and then watching as its motivation to innovate disappears.

It’s funny how when you’re trying to raise capital for a start up an investor, whether VC or angel or any other investor, will probably want to know how big the opportunity is. How scalable is the business?

To be effective and successful though you have to execute, and to execute you have to provide someone with a great experience. This requires focus.

These two processes seem like opposites to me. So as an entrepreneur you have to simultaneously be thinking about how to execute your operation at a very granular level, but how to scale or ramp up the business effectively in order to raise finance.

I guess the trick is to know when to wear the execution hat (and focus on detail) and when to where the scale hat (and know when to think about scale) and not get mixed up between the two.

I’ve loved 37signals for years. I’ve used their products, and blogged about how great their products are. I’ve followed their story as they got funding, from Jeff Bezos no less. And today I was reminded why I really admire them.

37signals has announced that they are undertaking a series of “workplace experiments”. They are doing these experiments to make their workplaces a more fun and engaging place. They are trying to make their workplace – in their words – “one of the best places in the world to work, learn, and generally be happy”.

So what are they doing? First they’ve introduced shorter work weeks – 4 day weeks, no work on Friday. Second their funding people’s passions (hobbies, interests, curiosities), the examples they’ve given are cooking lessons, learning to fly, woodworking classes. And third they’re giving discretionary spending accounts, with the simple requisite that people are reasonable with their spending.

If you’re asking what’s so great about that? Who are you Scrooge McDuck?

Seriously though, they’re trying to make their workplace, rewarding, engaging, dynamic, and responsible and in a two way dynamic. They’re responsible to their employees and in return I bet their turnover is minuscule. Plus they’ll get some more pub/press about being really cutting edge in how they run their business. I can’t see other organisations picking up this, it’s too risky, doesn’t show financial returns easily, and… well it’s just too good.

But I do know that if/when I do the “start up thing” I’d like to follow their lead. Hopefully, other companies will too, and when businesses that my generation have started are the norm, maybe this will be the norm too.

Is innovation in a big company a paradox? Or does it exist but need to be structured in a certain way to be successful? What is that way?

I’ve been thinking a lot about over the past year as I’ve been working at a big co for the first time.

This is not a new conversation, I always think of Xerox and the GUI and how Xerox isn’t in the conversation anymore.

Should big companies even bother? Or should they invest in start ups that show promise and then acquire?

Reminds me, I need to pick up the Innovators dilemma from the school library.