News for the ‘Europe’ Category

Nokia should have known about OODA Loops

If it wasn’t already clear, Nokia is in crisis. While, sales and shipements of smartphones are growing in absolute numbers, they are losing market share fast. Nokia is paying a high price for not paying enough attention to smart phones and the US market which is know the center of the mobile industry.

Nokia’s strategy of producing simple and solid hand sets and being big in Europe and emerging markets, is based on a flawed assumption of adoption curves. It seems to reveal a very linear way of thinking: If we get to be people’s first phone, we will eventually be able to sell them smart phones. However, phone sales are very much driven by carriers and which phones they choose to subsidize and additionally consumers are not particularly brand loyal. This part of Nokia’s business is extremely high volumes and low margins and as their new CEO mentioned in the famous memo, Nokia still haven’t responded successfully to neither Apple or Android products.

Many observers have already called out microsoft as the big winner of the partnership and it remain to be seen whether Microsoft/Nokia can butt heads with Apple, Android and RIM. Nokia has made a very big bet in partnering with Microsoft and essentially letting them control what might be the core to their future competitive advantage.

However, before it ever got so bad for Nokia, they should have known about OODA Loops. I have written about OODA Loops before, and what is puzzling is how Nokia has failed to go through their OODA Loops at a pace anywhere close to their competitors. As the mobile industry increasingly centres on eco-systems of developers and apps and software, Nokia should have realised that making developers happy and giving them and opportunity to succeed should be their first priority. This is a significant shift from being a “hardware-first” company, and clearly Nokia has so far not been able to reorient their strategy according to their customers who are flocking to their competitors.

As Scandinavian and for the sake of the European tech industry I really hope Nokia pulls it off. But their struggles are  an illustrative example of how a lack of agility is deadly to companies, regardless of their size.

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Posted: februar 17th, 2011
Categories: Europe, telecom
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Systemic problems in European VC

Fred Wilson who blogs at AVC has earlier described the venture capital math problem, that there are too many VC funds in the US for them to make good returns. For the record good returns means about returning the fund 3X over 10 years, something that becomes more difficult when there are too many VC firms in the market.

Well as usually with VC, fast forward to Europe for a much bleeker view.

Here the problem is not only that VC is extremely underdeveloped in several parts such as Italy which only saw 20 VC deals close in 2009, but also that returns of VC funds in Europe in general are very bad. Over the past 5 years Europe’s VC firms have returned only 0,7% annually and lost 1,9% annually over 10 years. There are more details in the article here where there is also some more optimistic voices, however if VC funds do not return any money to their institutional investors it’s unlikely they will be able to raise new funds. This is simple natural selection and that funds that lose their investors money have to shut down, however we might have a more serious problem in Europe if there is not only too few VC funds, but the ones that are here are not doing well.

This seems to be a paradox: If entrepreneurs complain that they don’t get funded, a very credible and relevant complaint in e.g. Italy while VC firms might have harder times raising new funds there seems to be a catch-22. More institutional investors and pension funds need to allocate more of their portfolios to the VC asset class and they are not going to to that if they’re not getting any returns.

I think a couple of things are needed to improve this although overall I completely agree with Hussein Kanji’s answer on Quora about what Europe lacks:

  • More early-stage investments
  • Much more interaction. US colleges have the advantage that Computer Science majors can also take classe at the b-school and vice versa. I think more interaction between different disciplines is essential
  • Less bureaucracy and well-meaning states trying to be VCs
  • More of the most successful people from abroad. Just as successful Europeans have become successful in the US and elsewhere, we need some of those to come back to Europe to show how things are done. There’s a lot of pattern recognition in VC and transfer best practices can speed this up
  • More transparency. Of course funds that are not doing well will be against this but then it’ll serve as a way to let the best peformers to share how they are doing
  • More focus on emerging sectors in which Europe may have advantages: sectors like fashion and food come to mind

Another possibility is also that investors are just not very good at their jobs and they have perverse incentives in terms of management fees which reward them hansomely anyway. The few VCs I have met seem genuinely passionate and motivated about creating great companies and I really hope that we will see more VC funds and more successful exits in the near future.

PS. What is considered a disappointing return for a VC might of course be a perfectly acceptable outcome for the entreprenuer (i.e building a sustainable business with a 1-2X return to the VC)

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Posted: oktober 30th, 2010
Categories: Europe, startups, VC
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