Sure, there’s this saying “There’s an App for that”. That may soon be changing into “There’s a Gadget for that”?

Before we had Apps (that’s only 5 years ago), we used to have all those separate devices for each purpose. For example, a camera for taking photos, an alarm clock for waking up and CD-player for playing music. Initially, camera become a feature of the high-end phones. Camera is now one of the key features for the phones. We also use the phone as the alarm clock. And we’re also playing music with our phones. But for how many uses can you actually use your phone? For many yes, but not necessarily at the same time.

Instagram’s camera App (which I originally never really liked) become very popular, a threat for Facebook IPO and Facebook ended up buying it for the famous 1 Billion Dollars. At the same time the traditional camera-makerPolaroid (which Instagram had as a role model) filed for Chapter 11 bankrupt protection. Strange world.

 

 

 

 

 

 

 

 

 

 

 

Now the circle is closing as Instagram is supposedly turning their App into a real camera. In this world where creating and producing hardware is increasingly becoming easier, it’s a smart move. Quite often selling Real Stuff can actually be easier than selling just Apps. Sure, there are many things that are more difficult with the hardware. It just may still be easier to sell something concrete to consumers, something you can pick up from the store shelf and just take into use.

If we take this idea further, which other Apps could become real devices in the future?

An obvious candidate would be for example Spotify. Spotify is already now “embedded” in some devices but selling Cloud-Connected Spotify device would be easy-to-use device giving you access to all music in the world. It would have its own user interface but you could still use your smartphone as a user interface.

Taking this even further we meet the idea ofInternet of Things. Soon we might have various kinds of devices, sensors and accessories at our home, car and elsewhere. Common for all of these would be that they are Single Purpose, Cloud-Connected, Simple-To-Use … and cheap. Your smartphone would probably be a central hub for these, or one of those $100 Android Tablets that are entering the market.

So is the next gold rush to make all possible gadgets for all possible uses? If we take a look of the early adapters at Kickstarter, there for sure is a trend like that. I just hope that somebody will invent also a way to make those battery-operated devices energy efficient. Just imagine what otherwise happens with all those 30 different gadgets at your home and batteries running out every few months. Or even weeks.

This is a summary of the presentation I’ve given couple of this times this year at the Aalto University. My viewpoint is strictly from the viewpoint of a technology entrepreneur in the software business. And as my personal experience in this field is still limited, this may partially illusional. If so, please share your experience!

Why Do Big Companies Buy Small Companies?

Big companies buy small companies because small companies are simply better at innovation than larger companies. Employees of a big company do not want to be seen as trying out a new idea and then abandoning the venture midstream if it does not work. The career of managers wishing to move up the corporate ladder do not want to have failures in their history. Now the world of innovations is such where small companies develop new products and services, gather early customers at high cost, and then sell the business to a large company. These large companies can use their existing distribution and/or manufacturing organization to turn the company bought into a large profitable business.

Employees of a big company do not want to be seen as trying out something and then abandoning the ventures midstream if they are not working out as expected.

Should Your Company Be Valued Based On Financials Or Strategic Value?

Many entrepreneurs view the value of their company as being tied to generating revenue and profit growth, but fail to appreciate how this view limits their ability to fully exploit their company’s potential. The key to the strategic value is having developed a product which has the potential to reach a very high level of sales, if it is given the proper resources. A company can also turn out to be very valuable if it targets the existing customers of a large company, solves a compelling need, and has good sustainable competitive advantages.

You can read more about the subject at Masterclass for Entrepreneurs on Strategic Exits: Insights on how to leverage strategic value to achieve a very high price when selling a business

It’s also worth remembering that in an acquisition process it’s not the buyer who will remind you about the strategic value of your company!

Valuing A Small Company In A Strategic Acquisition

Strategic value of a small company is often biggest part of the purchase price paid by a large company. Quite often it’s the case where:

• The small company has developed a product or a service to a new market segment
• The product contains such Intellectual Property which is hard to work around or takes long time to replicate
• The product is a threat to the acquirer or can boost the sales of the acquirer if bought
• If the product would be bought by a competitor, would cause serious trouble to the acquirer

Four motivations for an acquisition:

Strategic value occurs when a small company creates an asset or capability which large company can exploit over a large customer base. Since the value to the acquirer is based on the revenue which they can make rather than the revenue or profit which the small company has achieved (or could achieve in the future), the acquirer may be willing to pay many times the conventional market value. Just imagine how valuable your company would be if the customer base would suddenly be 50 or 100 times larger.

The value to the acquirer is based on the revenue which they can make rather than the revenue or profit which the small company has achieved (or could achieve in the future)

The best (and only) way for the small company to get this value is by creating some competitive tension between competing acquirers.

It’s Always A Complex Formula…

When you are talking to professional advisors, investment bankers, and business brokers they will often focus their analysis of your business on what profit you are achieving now, and what your likely revenue and profit growth will be in the near-term future.

Most private companies are heavily constrained because of lack of finances, limited capacity, poor access to large distribution channels, or lack of some skills (just to name some obstacles). In the hands of a better resourced and more capable buyer, the underlying potential can be achieved quicker.

Growing Serial Entrepreneurs Makes Sense

So why should you consider the exit anyway? It may not be the most important thing to focus on the early days of a startup, but on the other hand, having no ideas regarding an exit may mean that you’re building something that turns out to be of low value. Worst of all, focusing on some specific segment at the same time as somebody else has already implemented it (copying) is not clever either.

But finally, after you have successfully sold your company, you can either start a new business, buy a stake in someone else’s business, or become a private investor. Serial Entrepreneurs are, after all, those who have started and exited several businesses. Just starting many businesses doesn’t count.

My company AppGyver is part of the delegation of Finnish start-up companies visiting USA on 11-16 March to meet the who’s who of the tech world. The trip led by Alexander Stubb, Minister for European Affairs and Foreign Trade, will raise awareness of Finland as a European hub of start-up companies. Our team flies directly to San Francisco, and therefore I’ll focus here only on the events in Silicon Valley part of the trip.

In Twitter you can follow the trip with the #finnvasionUSA hashtag. Minister Stubb also has his own (active!) Twitter account.

Why Is Silicon Valley So Important For Startups?

Silicon Valley is home to many of the world’s largest technology corporations. It is now generally used as a metonym for the American high-tech sector. Despite the development of other high-tech economic centers throughout the United States and the world, Silicon Valley continues to be the leading hub for high-tech innovation and development, accounting for one-third of all of the venture capital investment in the United States. Geographically it refers to the southern part of the San Francisco Bay Area in Northern California in the United States.

You may ask why does it actually matter whether you’re in the Silicon Valley or somewhere else, we’ve got telephones, email and all other technical means of communication, right? That’s not the point. In order to succeed as a tech startup, everything must go right and be done quicker and quicker. If you’ve got a great idea, you need all kinds of resources to get it done and survive as the winner of the game.

Five Rules Of Silicon Valley Secrets

Rule#1:  “Many great innovations are actually invented almost simultaneously (give or take a few months) in different parts of the world”.

What does it mean for a tech entrepreneur? Your idea is not unique. Somebody got the same idea. And I even don’t mention those who are actually copying somebody’s idea (which can actually be a good business, by the way). What you need is resources to learn faster, fail faster, iterate faster and most importantly, get further on the learning curve (faster) than your competition.

Rule #2: “All investors are emphasizing the importance of the team because in order to succeed you need to learn and iterate really fast”.

That brings us into one of the key points of the essence of Silicon Valley for the Finns (or anybody else, actually). In order to learn, fail and iterate faster than your competition, you need money. Often a LOT of money. There are many, many different kinds of resources also available (often only) in the Silicon Valley but I’ll cover that later.

We may have a really good and unique public funding system in Finland (that’s Tekes), but it’s still more or less based on the assumption that you should “get it right first time”. That typically leaves no space to implement my Rule #2. There’s definitely space for “Finland to Silicon Valley Gateway” to help with this.

Rule#3: “Most of the investors understanding the Rule #2 are in the Silicon Valley”.

You may now understand why Silicon Valley is important for the Finnish startups. The only problem is that all of the “first-time” entrepreneurs are really nobodies in the Silicon Valley. Even most of the Finnish serial entrepreneurs are nobodies in the Silicon Valley. So, how do you tap into that resource pool if you don’t know anybody. Well, many of us don’t.

Rule #4: “In order to succeed in the Silicon Valley, start networking now. You need to know people, the right people”.

That’s why this trip with the minister is so important. It also shows that we have great politicians who are doing great work.

Rule #5: “You still need money. If you don’t have it yourself, get it from people who you know”.

In the ideal world it would be different. But starting from Finland, the truth is that you have to get the initial funding from Finland. However, it’s no longer what some experts will recommend you. Instead of trying to find two angels to invest 2x 100K€ in your company (there are REALLY few of those), you should plan on finding 10-20 people who each invest 10-20K€ and you get the total of 200K€. Some people call it crowdinvesting (there’s a great tool for that, Venture Bonsai), while some people call it syndication. There are of course some differences in those, but you get the point.

What’s On The Agenda?

Pekka Pärnänen, the Head of Finpro Silicon Valley has put together a great agenda for the couple of days we’ll be in the Valley. The companies to be visited include Microsoft, Facebook and Twitter. Companies have also several opportunities to pitch to the investors while visiting Accel Partners as well as in two networking events taking place on Wednesday and Thursday.

Which Startups Are On The Trip?

There are total of 27 startups on the trip. Here are some of the most interesting ones you should follow:

AppGyver makes great mobile apps easy! It’s a complete and easy-to-use mobile app development suite which enables anyone with HTML/Web skills to build great mobile apps. Why does it matter? In the next couple of years every business must offer competitive mobile services, and currently it’s too expensive, slow and difficult. AppGyver will enable that mobile revolution. See also this blog post!

Hitlantis is a revolutionary free new music service for independent artists and music lovers. It has unique and really impressive visual interface, used for data discovery also in other industries. See also this blog post!

Distributed work, refined for your needs. Microtask enables seamless, real-time and scalable on-demand outsourcing.

Transfluent is a service that offers effortless, near real-time professional translation to social media feeds and websites. For example, if you tweet something in English, you can have it professionally translated into other languages in the matters of minutes. Even Angry Birds uses this service.

Go West Young Man, Go West

As somebody said, Finland does not need 1000 Nokias to survive in the future. To get started, we need just 10 “Angry Birds”. Do not take that too literally, but we actually need at least 10 companies who can make it global and bring a lot of tax money to Finland. That’s why initiatives such as tax incentives for the angel investors really make sense. In some countries such as France and the UK they already have this kind of a tax incentive, read more about that in this blog post.

When we founded Akumiitti back in the mid-1990′s it was all different. No VC money, no web browsers as we now know them and no Startup Sauna to boost the university entrepreneurship. In the last 15 years, we’ve seen the appearance of numerous Internet Services written in HTML as well as the rise and decline of Nokia. We’re now about to experience another wave of growth, this time it truly is all about the mobile revolution.

In the early days of the Internet, and when HTML was new, many businesses were first reluctant to create their web site. I can still remember our team selling the idea of getting into the “internet”. It was not that important for many first, it was more important to be in the phone catalog (remember those, anybody?). Gradually numerous companies were building simple or not so simple web sites for their businesses. What once was a bold move by the early adopters quickly became a necessity for every business.

Back to the future.  We live now year of 2012. People have their iPhonesand cellular networks are reasonably fast in most parts of the country. All those great mobile ideas (see for example this) once envisioned more than ten years ago by the pioneers are suddenly feasible. Smartphones are everywhere, 3G networks are fast and most importantly people are actually willing to use the phone for almost anything.

We have the population exceeding 7 billion people, but also more than 1 billion smartphones. People are more and more accessing all the services from the mobile phone instead of going back to their desk and using the “computer”. Makes sense, why not making that purchase, reservation or other transaction right away while you’re on the move.

The problem is that we still don’t have easy mobile access to every business. Many “transactions” you want to do while on the go are still not possible with your phone. Try for example buying a train ticket, ugh.

To make it worse, one thing Apple and iPhone did regarding the mobile services is setting the expectation level higher. People now expect the mobile service to be easy-to-use, responsive and quickly giving the function it was built for. And to make it worse, there are more mobile platforms coming up, Android is already here and Windows Mobile is an aggressive new kid in the block who’s dad got a lot fo money.

The thing is that while most of the businesses haven’t even got into the mobile yet, the game just got more difficult. Not only should they make the mobile services easy-to-use but should also support many mobile platforms – and have actual services available through the mobile phone. There are not enough mobile app developers in the world to make all those apps the way how they are currently done. And it’s only getting more complex all the time.

Enter the new world enabled and enhanced by AppGyver!

AppGyver make building great mobile services easy. Remember all those people who have mastered creating web sites in HTML? The good news is that all of these can now use their existing skills to enter the booming mobile app creation business. You may be wondering what’s the news here, couldn’t they do it anyway? Not really. Creating great mobile apps traditionally required learning platform specific languages,  creating every line of code on their own and doing this separately for each mobile platform. All of this meant that the cost of mobile app projects was way beyond typical cost level acceptable by  the business owners.

At this point you may be wondering what does this have to do with Finland? AppGyver is actually creating the foundation for the next industrial revolution. As we happen to have a lot of technically skilled people available in Finland and huge market pull for great mobile services, it’s actually a great opportunity for those being able to take advantage of this. AppGyver not only makes creating mobile services easy, it’s also made faster with ever increasing variety of ready-made modules. We already have more than 1000 developers from 50+ countries so quite many have already taken a note of this. The number of these developers will soon be tens and tens times higher, it’s a huge business opportunity for anybody paying attention.

So what’s the future going to look like?

Let’s take another look back. The first iPhone was released in January 2007, that’s about five years ago. The Apple App Store opened in July 2008, so that’s actually existed less than four years. In that time more than 25 BILLION (that’s 25.000.000.000) apps have been downloaded. OK, the count does include all the updates to each app but anyway, it’s a lot. But that is not my point. The point is that all this has happened in really short time. And we can for sure count on new phenomenons to change the world.

We can count on the following trends to continue:

1. People want an easy and convenient access to all services they use daily or weekly, with any device, anywhere
2. Mobile phone (smartphone) is one of the devices that will be used to access all those services
3. However, most services are not easily accessible with the mobile phone (currently)
4. There is a huge demand for great mobile services and really very few people can build those currently
5. HTML5 is one of the standards that a lot of people see important in this transition. But it is not enough

What we have done in AppGyver is building a tool that helps all those millions of people with HTML skills to build great mobile apps. Not only can you do everything you need to publish your app with our AppGyver Studio, you can also take advantage of various modules and wizards making your life easier and easier. You still need to be able to program, of course.

Check it out, it’s at appgyver.com.

There’s an interesting instrument being implemented in the UK. It’s called Seed Enterprise Investment Scheme (SEIS).

In the light of the current financial crisis, this kind of tools should definitely be taken into use in Finland as well. It’s not too far-stretched to say that without getting many (really many) start-ups of the ground and really fly, we’re doomed. We should not let Angry Birds fly alone, there space in the sky for the others as well.

This kind of incentives would motivate private investors to invest in early-stage companies which have great difficulties to raise the initial funds to prove their point. Even though there are emerging new funding tools such as venturebonsai.com, it’s not enough. Maybe the best approach would be combining these two approaches: effective deal-flow and process tool together with tax incentives. This would be perfectly doable.

Summary of this proposal is:

• Individuals will benefit from an income tax saving of 50% of amounts invested (up to a maximum of £100,000 per tax year) – regardless of their marginal rate of income tax.
• Capital gains realised on a disposal of a qualifying SEIS investment will be exempt from tax.
• Investors will also benefit from an exemption from tax on disposals of capital assets made within the tax year 2012/2013 where proceeds are re-invested in a qualifying SEIS company in the same year.
• Companies will be able to raise a maximum of £150,000 under the SEIS regime (a total limit, not annual).
• Companies may be either trading or undertaking preparatory work to trading, but will need to use SEIS monies raised in such activities within three years.
• Companies will need to have gross assets of £200,000 or less and fewer than 25 full-time employees at the time of the investment.

We do have organizations like Fiban (Finnish Business Angel Networks) who do lobby proposal like this, but it’s not enough. We need to have more decision makers than Stubb to understand this, and do something about this. There are zillions of reasons (I’m sure) not to do this, but one very good reason to do this: we need to motivate the entrepreneurs to take risks and motivate investors to support that. Quite simply, we need great entrepreneurs to do great things supported by great investors. Are we there yet? No. Should we? Yes.