Thoughts on the Irish Biz Party Conference and what its all about.
By Alan Brogan MD of The Digital Department
Wednesday of this week the 15th April, 2015 I attended the #bizpartyinspires Conference at the Green Isle Hotel outside Dublin. Pulling myself out of bed at 5.30 to drive from Cork wasn’t easy but fair do’s to me I did it and even arrived on time. This was the second biz party conference (my first) and for the most part I thought I was attending another networking event. Another opportunity for us people in business to sniff each other up hoping someone might cock a leg at us.
However at the Biz Party conference there was something else at play, something very real, very raw and from the heart. There were no perfect people from perfect companies with perfect lives. It was ordinary fork trying to figure things out for themselves. The façade of normal networking was thrown out the window and on display were the trials, tribulations, strengths, weakness, successes and failures of life and business. If your boss told you to dress up and don’t come back without 5 deals you’d have sweaty hands after 5 minutes. This was no place for The Wolf of Wall Street or creating false and fleeting euphoria.
I’m originally an economist at least that’s my original qualification and while I do other things now I always try to stay tuned in. Recently, it has been on page 10 of our media the top 1% has now surpassed owing 50% of the world’s wealth. Think about that if it was your housing estate of 100 houses and one person had 50% of everything and the other 99 had to share the other half. People often think of this as the evil 1% have 50% of the world’s cash sitting in their bank accounts but this is not really the way to see it. It is really important this piece of disturbing news is seen for what it is as it goes to the heart of what the Biz Party ‘movement’ and other movements of it kind is all about and the role they can play into the future.
Wealth accumulation is asset accumulation and this can come in many forms cash, shares, property, companies etc the list goes on. When you read The Sunday Times rich list every year to feel bad about yourself, remember The Times didn’t twist the bank teller’s ear to tell them how much Richard Branson has in his bank account they looked at his publicly known asset ownership and totted up the value of each. So the real problem here is unequal asset ownership and the very route of this problem lies in all our collective control.
To explain this it is best use an example. I’m watching House of Cards on Netflix at the moment and I’m just at the part when Frank Underwood looks like he has destroyed Freddy’s chance of selling his humble restaurant to a company that wants to turn it into a franchise. For those who don’t watch House of Cards Freddy is an old guy who has run a small ribs joint for many years and made a humble living out of it. This was his chance to cash in and sit back.
Well lets continue this story as if Frank Underwood didn’t exist. Freddy would have sold his restaurant and the buyers would have built it up to 20-25 maybe even 30 outlets. These buyers may have been great entrepreneurs and really turned the business into what it is, bringing it where Freddy could never have. With 30 outlets open and each one making $200k profit a year the company is making $5m profit a year. This is where the problem starts for all of us.
A venture capitalist fund is looking at where it should put its money. It looks at bonds, interest rates, property and a few other tools and is looking for the best return and potential return into the future. They look at Freddy’s Rib s and see this business is returning $5m a year. So what if they bought it for $30m, letting the owners cash in and now they are making nearly 17% return on their investment more than any bond, share, or property investment is likely to ever pay. Plus they have the option of expanding the business to 50, 80, 100 outlets and beyond. Everyone is a winner here, aren’t they?
So you might say isn’t this a good thing and Gordon Gekko would certainly cheers to that. It’s creating employment and also many of these businesses do get people to spend more which is good for the economy. This is of course true but there is a more profound effect and it goes back to the initial premise of 1% of the population owing 50% of the wealth. This dynamic is at the route of it all.
In all business sectors the pie is only so big. So if Freddy’s Ribs open 100 restaurants well then it is only replacing many others that it may force out of business and in the process concentrating the wealth. Lets just say Freddy’s 100 restaurants force 100 closures then that means the $200k profit made by 100 different owners has now turned into a $20m profit for one entity. This is nothing to celebrate and has profound effects right across society.
The huge profits being made by these companies is also forcing up rental and property prices as these businesses can afford to pay anything asked and the smaller players are being completely shut out of key locations. In many cases big business are even taking locations at huge losses just to use it as a billboard. In Leicester Square in London there is a gigantic M&M store several floors high and I have been reliably told the rent bill is £20m a year. They would need to sell 50 million packets of sweets just to cover the rent if they had too. See how Apple is opening premises in large tourist areas around the world. Do we really think Apple need shops to sell products? These are just posters.
What this dynamic does is it creates inflation up to the point that only the rich can play ball. Then when only the rich are making money then share and property prices go up and the only people who benefit from this are yes you guessed it, the rich. When the US decided to do quantitative easing (which is printing money to increase the supply) when the recession hit the only people to benefit were the rich. It caused the biggest stock market rise since the dot com bubble. So instead of us all benefiting in the increased flow of cash the top 1% merely hovered it all up and used it to blow each others asset values up.
It is this dynamic that is most concentrating the wealth and people need to understand it. How many music stores were there around the world 20 years ago and now the whole industry is controlled by just a few players. This trend is happening across all sectors and it is fuelling so much discontent as the middle class are getting squeezed to the point of being the poor. The corporations are now wielding so much power they are even dictating tax policy to governments. In 1992 the average corporation tax around the world was over 35% and in 2014 it was 17% and don’t worry the race to the bottom will continue. This huge drop in government takings from corporate taxes has to come from somewhere and no prizes for guessing where, you got it ‘the middle class’. And again no prizes for guessing what this does, you got it, it further concentrates the wealth. Recent retail figures coming out of the UK show increased supermarket share for Waitrose and the discounters like Lidl and Aldi. Waitrose being the high end and with the discounters it is the middle class trading down to what they can now afford.
So what can be done and what does the Biz party movement have to do with this. A few years ago, some partners and I opened a restaurant in a shopping centre in Manchester. We had a great product and thought we put things together pretty ok. Our ambition was to build a franchise and improve people’s health with great food at the same time. We believed it was win win for everyone.
On first few days of opening we invited all staff in the centre to eat for half price and after that program we were commonly told by shopping centre staff out of the 30 odd outlets in the centre our food was regarded as the best among the 5000 plus staff in the centre. These are the same staff who worked for many global retail giants and couldn’t afford to eat in the restaurants more than once a month. We were surrounded by the who’s who of the UK restaurant world from McDonalds to Nandos to Pizza Xpress to name but a few and we were regarded as the best. We thought to ourselves we were made.
So you would think in a shopping centre with 36 million people going through it a year we would be making a real solid buck as the number 1 restaurant in the land. However, the opposite was true and people looked past us and only saw brands. We felt invisible. Eventually a Canadian company liked our concept and bought us out but it was a big lesson on the power brands are currently holding over consumers. I have worked for big brands and against them in my career but I completely underestimated this. Previous little victories I’d had were not going to be repeated in the North East of England.
So why did this happen? Many reasons but one key factor was when people entered the shopping centre the brands just put them under a spell. The whole Disney for adults environment takes them over and they just played the game as they had been told to do. This wasn’t about exercising choice it was about compiling to norm.
So back to the concentration of asset ownership and how is this all dealt with. We need to face the reality that our governments neither will or in the majority can’t do anything about it. They can tweak things here and there, make a supportive environment but in the most even they are not in control. Aine Collins in her talk bought up about the tax system for the self employed which is nothing short of a national disgrace and the government know this. However I wouldn’t hold my breath on significant change anytime soon as with the finances the way they are they’re hardly going to take from the PAYE public sector to support it. The penalization of the self employed is here to stay for now.
Our policy as a society is for the most part about consumer choices, the ability of small business to offer alternatives and then consumers buying them. I am not saying consumers should abandon brands and far from it. Many of them have great products and run great businesses. What needs to happen is that consumers listen to the stories of small business and if you like them keep an open mind. If we let large corporates dictate our choices blindly well then we have nothing to give out about.
Everything you buy is now a vote for the type of society you want. The Biz Party movement is more than networking it is a support and encouragement to people who want to make their lives better and if they succeed they will make all our lives better. It is a vehicle for them to get their stories out and convince consumers that they are worth a go.
The Biz Party movement should be a springboard to not just helping business but a movement and way of thinking that can be spread from business owners out into the community. It can be a vehicle of enlightenment for the effects our consumer choices have on our society and in the hope that this can influence people to enjoy the many great products that many great people are offering out there. I worked in the spirits business for 8 years travelling around the world trying to build brands against the might of the big players. In that industry there is no innovation from the big players it all comes from the small guys with the passion and creativity which was in abundance at the Biz Party conference. The best innovation from the big guys these days is a brand or line extension.
At the Conference yesterday The Digital Department ran a competition to win a free mobile app. We put a card on everyone’s seat and asking the question ‘How do you think a mobile app would benefit your business?. I was reading through the answers again this morning and a lot them sum up the hopes, dreams and fears we all have running our businesses. Carol Brill gave a very touching speech and the thing I most liked about it was it didn’t finish with a happy ending. It ended in the real world where life goes on, our businesses go on and the challenges we all face go on. What impressed me most was not just the obvious capabilities she has but she seems to get what Ronan Rooney later described as ‘embracing uncertainty’.
There’s a real story and lesson at the heart of Irish Biz Party and we should all grasp it. The real hope for us into the future as a society is the strength of our small businesses throughout not just Ireland but around the world. If they can get their stories out and people are open to embracing them then the world will be a better and more just place. Aine Collins also mentioned that if the 200,000 SME created just one job it would almost solve the employment problem. Well more than that we could actually transform our society.
Samantha Kelly has done quite a unique thing in galvanizing people the way she has and sometimes it takes someone with her empathy and obvious connection to people to act as a catalyst for change. I am sure with Samantha driving things on the movement has a bright future and will not just help business but the very fabric of society. I believe society is ready to embrace this change and big business know it too as they scramble for authenticity.
This is not the first time in history we have faced this problem but the solution will have to look different this time. This time the solution lies with us and not our masters. It lies in all our shopping baskets.
Author: Alan Brogan MD of The Digital Department.