Why Tyco’s return to Cork may accelerate Start-ups in the City
Why the next big Start-up may already be Big
Big businesses and corporations tend not to be terribly creative. It’s simply not part of their board room DNA. However not evolving is also not an option. Instead they rely on looking down from the top floor and observing and then responding to what’s happening many floors below -at street level.
McDonalds didn’t decide that we might like salads. They responded to the growth of salad bars health food cafes and the changes to their own bottom line. Google didn’t say let’s design a device that gives people tons of viewing options on their TV. Chromecast happened because guys were tuning out of tv and into their laptops and hardwiring them to the otherwise redundant tv.
For them being creative often amounts to eyeing up the start-up scene and buying out a disruptive start-up for a gazillion dollars. Sometimes it works and well sometimes it doesn’t -in horrendous fashion. Start-ups are hot so if we can’t be one and ride that particular pony lets buy one
However some clever guys at the top of some of the words biggest corporations have latched on to another way to stay pertinent, avoid the buy-out minefield and keep the gazillions in the bank.
The internal Start-up. The thinking (in the case of the McDonalds analogy) goes something like this.
CEO: “Guys we’ve had a really great run with this burger and fries gig now for so long its really only a matter of time before some savvy kid with the price of market stall and a copy of The Lean Startup under his arm figures out what we are doing wrong what the next punter really wants and is on to the next big gig”
Frantic COO: “Where is he? Let’s buy the kid -a billion seems fair?”
CEO: “He doesn’t exist yet, but when he does it maybe too late”
Thoughtful CFO: Maybe he does exist and maybe it’s more than just one guy -it would take a team to build something that would really challenge us.
CEO: Yes -and maybe they already work for us.
Collective lightbulb moment for COO and CFO
CEO: And maybe if we got them together and gave them a budget.
CFO: Offered them some shareholdings!
CEO: All the things that make for a lean disruptive start up but without the Billion dollar exit
COO: Brilliant Boss! We could give them a cool work space -How about a Coworking Space to get their creative juices going?*
*Coworking Space owner’s totally unnecessary plug for the industry.
The list of big corporations opting to encourage and nurture start-ups within their business is growing at a rate of knots. Coca-Cola, MetLife, General Electric, IBM, Mondelez International, Cisco, MasterCard, American Express and Tyco International (who as it happens are returning to Cork, taking a substantial part of One Albert Quay) are all feverously running competitions, recruiting external mentors from the ranks of Silicon Valley success stories.
The approach is still very new and it will be interesting to see if a board can learn to embrace VC culture for that is what they are ultimately embarking on. If they do then the potential rewards are enormous.
· They will discover the entrepreneurs amongst their existing cohort of staff that the regular corporate management model would not have thrown up.
· The agile mentality required of start-ups and craved by larger corporations will develop more organically within these corporations.
· Going forward the corporate that is seen to encourage Start-ups will prove more attractive to talented young developers.
· Most critically they succeed in retaining that talent in-house that might otherwise have taken the flaws observed in the Corporates product fix it and become competition.
No one model for achieving this has so far surfaced. A number, like Coca-Cola have followed the model Startup Chile follow and have first brought in a number of external start-ups and collocated them with a number of their own in the hope that some of the start-up magic would cross pollinate.
Tyco appear to have taken a more JDI approach, setting up an investment fund, running competitions and accelerating the best.
We here at Plus 10 sincerely hope that they extend their current philosophy to their new Cork operation and that they might act as a model to some of the cities other employers.
We plan, over the next few months to develop a dual Startup support system with Start-up Ambassadors in every industry in the City. The Ambassador will be that business’ point person for both internal and external Startups. -More on this shortly.
Will the collapse of WeWork spell the end of Coworking?
The high cost of office space in Dublin particularly, but in Ireland generally and the lack of grundged out “The Industrial Era Warehouse” beloved of Coworking enthusiasts, has probably spared Ireland from the relentless advance of WeWork.
And whilst there is evidence to suggest that when the big players like WeWork open they spawn more nimble and affordable local spaces, -missing out on WeWork might be no bad thing for the Coworking movement here.
Whilst WeWork is a Start-up, is a Disrupter, is operating in the Sharing Economy -Space-as-a-Service as they like to call it, and likes to group itself with the likes of Uber, it is basically in the real-estate sector.
WeWork has grown rapidly and has earned eye watering valuations it has done so in something of a virtuous cycle. It started off in the terribly beaten down office market of 2011-13 and secured long leases with low rents and long rent free(or discounted) periods and landlord fit-outs. As the realisation dawned that these optimum leases would not last forever and commercial market picked up, it scrambled to find a new model. For a while it went down the profit sharing with landlords route. That didn’t quite work out WeWork. -You see landlords aren’t VCs or tech investors they know property and know when the sums don’t add-up.
It is now securing some concessions from landlords in its latest spaces by investing heavily in fit-out. Together with the latest $385 million of investors cash in the bank those landlords seem content for now.
To simply stand still WeWork must open new spaces, add new members and increase fees at a faster rate than those legacy leases start to kick into full. It has effectively promised its investors 5000 new members and 7 new spaces every month for the next two years. Yes they are growing but they are also burning through cash, the early (and some later) rent free periods are closing out and the profile of their latest funders is decidedly “late stage”. If you are thinking Pyramid you are probably not alone.
In 2016 the founders issued what amounted to a profit warning dropping expected revenues from $65m down to $14 and sought to rein in day to day spending and shed jobs. How long can you stay on the treadmill in those combined circumstances?
No doubt there will be plenty takers when the IPO happens, which in view of the latest investor profile may be the only remaining source -but that’s all assuming the SEC don’t see through the hocus-pocus. Private companies are not obligated to use GAAP, and the vast majority of startups avoid those rigorous standards until an initial public offering exposes them to SEC oversight.
Coworking cannot make anything like the returns Tech Investors dream of. The Real Estate Industry knows this and The Stock Market will figure it too. When the IPO comes keep your hands firmly in your pockets.