Creative Destruction

Creative Destruction: Feed In tariffs - are they doing their job?

noreply@blogger.com (Roger Croft) — Thu, 15 Dec 2011 05:38:08 PST

In a new industry such as the solar PV industry initial prices can be high and government incentives such as the Feed in Tariff (FiT) can help an industry grow.

Since April 2010 the FiT for solar PV installations on homes has been 43p per kW. In April 2010 prices of installations were quite high. Quotes being banded about at the time for a 3/4 kW installation were £15-20k.

Today the FiT is 21p and quotes being banded around for the same system are between £7500 and £9000.

Clearly prices have come down. This is due to the knowledge, scale of production, and general competitiveness within the market place improving. There are a variety of companies, all of whom have to select their panels on a basis of price and quality, and there are some good solutions for customers to choose from.

As a potential investor the best time to buy Solar PV was just before the rate came down when prices were at their best. However long term the industry is still supported and its general awareness in the population is growing.

Today there is a challenge to the government over the cut and that 29,000 jobs depend on the subsidy. Is this really the case?

My thoughts are that the subsidy cut was declared at very short notice and implemented immediately. On the ground home owners take time to consider installations and when they book them in it is sometimes some weeks or even a month or two in advance. They had no prior warning of the cut and so when it was announced there were many "jobs in progress" that would fail to meet the 12 December deadline.

This cut is therefore very inconvenient as it did not allow home owners and installers to plan effectively. However the basis of the cut seems to be fair and in line with the quotes that can be offered. Home owners will still get a return on their investment, just not as great as it could have been a few weeks earlier.

How can governments take account of this situation?

Possibly they can review the market on a more regular basis in a light touch way. small and regular adjustments in the tariff that are planned ahead leave time for individuals to act and make reasonable decisions.

Creative Destruction: Branding to be "banned" in the UK

noreply@blogger.com (Roger Croft) — Sun, 06 Mar 2011 06:08:17 PST

Branding and associated packaging, advertising, point of sale literature etc is wasteful and to some extent impossible to police.

The UK government have recently expanded the powers of the Office of Fair Trading to include "the internet". How can they possibly do this in an era of cutting costs?

The only way forward is to ban branding and related advertising.

The branding ban is to start with cigarettes. Cigarettes will in future be plain, no adverts, no logos and no graphics. Further announcements are to be made on Wednesday on "National Non Smoking day". Possibly this will extend to alcohol and other "harmful goods".

Creative Destruction - Business models?

noreply@blogger.com (Roger Croft) — Tue, 07 Dec 2010 03:35:21 PST

As part of the process of creative destruction the market renews itself. Many people imaging that it is the business service, the product that is better, or an innovative advertising campaign. For instance meerkats are now indelibly linked to insurance. Perhaps that is because it is visual, talked about, or just easy to understand.

Within the book market Amazon came up with a business model that drove most sales of books onto the internet. The business model was entirely different to a bookshop on the highstreet.

Within the renewable heating market the advent of the Renewable Heat Incentive means that there will be more wood pellet, log, heat pump and solar heating systems installed in the future. What will be the winning business model in the domestic market?

There are a few online companies that take leads and offer them to heating companies. Established boiler manufacturers like Valiant, Worcester Bosch, and Baxi have traditionally been much larger than the installation companies. Installers have a seemingly higher investment to make to be able to install. They have to become MCS accredited, and in doing so they find themselves in a smaller pool than previously. Other interested parties include architects, energy assessors, and surveyors, who perform part of the function of installation.

At the moment it is difficult to tell where customers will go first. A local installer? A trusted make? A local specialist such as an architect?

Part of the issue for customers is that they do not have good knowledge of the products. Clearly product manufacturers are biased, so where do you get your information from? Some installers may be franchised or licensed by one make of heating system. Again not offering choice to the consumer. Online companies offer ease of access, but little discussion. Local professionals such as surveyors may not have the full information to offer, they are only one step ahead of the consumer.

Key factors to consider in the UK include the development of the market in Europe. For wood pellets the Austrian and Italian markets have developed significantly over the last 5 years whereas the UK market has developed very little. A scant glance at the renewable installed today show the UK at the bottom of the league. The danger for the UK boiler manufacturers is that they loose market share to other manufacturers and therefore dilute a market that has traditionally been 3 or 4 major players. This will decrease their market power and offers more choice to both the consumer and the installer.

In the wood stove market you may think that the shops that have acquired a local base should be able to branch out. The difficulty is that they install using contractors who are probably not accredited to install heating systems. The installer needs to be competent with wood flues, with wet heating systems, and therefore needs a background of both plumbing, probably gas or oil, and wood. This does not give the stove shop the easy access to labour.

The large energy companies are flirting with renewables also. As they are involved with the FiTs, they have found solutions for solar PV. British Gas has taken a stake in a biomass installation company. AS they deal in heat they also do not want to loose market share. British gas especially has a history of installing gas solutions and seemingly this is no different.

For solar and heat pumps, expense aside, you do get a unit that is essentially unbranded. This suits a market that adopts a one size fits all strategy - ie big marketing, big install teams, big processes. It may be that a large company with resources therefore does have the presence of mind to step in and go for growth within the sector.

For wood pellets and log gasification the market is more complex. There are a number of solutions and they do have different characters. The best model has not yet emerged, yet seemingly customers are adopting a range of solutions and all seem to be happy. This suggests a more fragmented market where the consumer will want to explore all the options before choosing one. This is hard for a manufacturer to do, and probably the retailers as well.

Creative Destruction - government support for new markets and innovation

noreply@blogger.com (Roger Croft) — Mon, 29 Nov 2010 02:03:20 PST

Joseph Schumpeter suggested that growth comes from innovation (creative destruction) rather than just capital investment. This innovation is "fundamental", rather than a twist on an existing formulae. Here an innovation is not a scientific breakthrough, but the full innovation process ie customer adoption. This therefore suggests that the goods or services concerned are indeed needed.

The difficulty governments have is how to support innovation or new markets. If they do not other economies will become better in those markets and competitive advantage is lost. Full intervention can be messy, administratively poor, and picking winners eludes even the best of us.

In the UK you can see 3 clear examples at the moment.

Messy - Firstly there is a call from the government for the economy to reduce carbon emissions. The regulator Ofgem was reviewing its procedures as prices have risen in the very confusing retail gas market. This suggests that there is ineffective regulation of the energy industry, especially as the same industry is asking for "subsidy" to invest in low carbon technology. What the government would like is lower prices and sensible research and development.

Administration - Secondly the Government introduced the Climate Change Act in 2007 and became law in 2008. This gave the government powers to intervene in the energy industry and bring on lower carbon technologies and introduce them into the market. Whilst FiT's were introduced last year to introduce regional production of electricity the RHI (Renewable Heat Incentive), is to be introduced in June 2011. This is 4 years of discussions and at the moment the market has not got a clue how much or what the government will support. The announcements were expected in July, then "Autumn", then during the spending review, and now "by the end of the year". If you take into account the research prior to the act you can see that it stretches several parliaments.

Picking Winners - Thirdly for new technologies the government used to support "innovative ideas" in the DTI. Then we had the Regional Development Agencies who "supported" R+D, but did so in a far more competitive way, which meant fewer companies being supported - which inevitably meant less winners. The Technology strategy board now asks for bids for particular technologies that have been identified and the RDA's have been shut down. We seem to have moved towards the governments deciding "what" should be invented and by whom from an original model of encouraging innovation.

At the moment there is a clear gap between the funds available in the market through debt or equity finance. With the demise of "Quango's" franchises like Business Link may not exist in the future, and whilst this may save funds it does not give industry or entrepreneurs clear pathways to move forward.

If you came up with an innovation to save carbon emissions - you might think that you had struck gold. However confidence in investment is low, and unless you match a competition that the Technology Strategy Board have at the moment (and get chosen), your chances of succeeding are lower. There is "support" in word form from the government. They would like growth and to be competitive as an economy. Their first act has been to "reduce" the size of the public sector, but these things take time......

Creative Destruction - is biomass not just for the rich

noreply@blogger.com (Roger Croft) — Tue, 12 Oct 2010 07:44:45 PDT

Various people have suggested that biomass, and in particular wood pellet heating is only for the wealthy. In particular the Renewable Heat Incentive would benefit those who can afford the capital outlay, ie the better off.

The proposed Renewable Heat incentive is an investment. After the capital outlay there would be regular payments for 15 years that estimate a 12 percent return. This would be attractive to landlords who are landlords because they are looking for a good return - perhaps this is attractive. If they do invest the benefits are the tenants who would then get cheaper fuel as a result. Wood pellets are currently cheaper than gas and oil.

Some local councils have teamed up with affordable loan companies to provide loans for sustainable developments. For example Wessex Home improvement loans target the older and less well off and cover a variety of local counties to Wiltshire.

For those who have some equity in their mortgages then this also represents an investment opportunity where the payback on an increased mortgage may be covered by the incentive payments.This is probably the cheapest way of purchasing unless the "green deal" and green investment bank also loans to those wanting renewable technologies.

What is discouraging is that in rural areas the older may well be having their winter fuel allowance cut. Oil prices may well rise. If there is no alternative then they will just have to put up with increased prices.

Whilst distribution of wealth is rarely perfect the Renewable Heat incentive and the Feed in Tariff does give alternatives for all those in accommodation that is appropriate. It is, however, opportunity focussed, ie those people must seek the information and want to do something about their energy needs.

Creative Destruction - Biomass - a big dead end?

noreply@blogger.com (Roger Croft) — Tue, 12 Oct 2010 07:08:52 PDT

Debating, debating, debating..... Much of the heating and building industry is look for crumbs at the moment. Some decide to use their critical prowess to feather their own nest at the expense of others. Large companies use their marketing power to lobby papers like the Telegraph. Vested interests form "power" groups and issue papers that look to have substance on first glance.

The net result is confusion. Somewhere at some point some leadership is needed. This could be from the government or from industry - but at the moment it is not clear in the confusion which direction we are heading in.

Builders (and I include all brands of architects, surveyors, bricklayers etc) want to build and make money. Carbon Neutral houses do not make sense to them. New forms of heating from new industry players also do not make sense to them. The costs of building increase and their commercial nature is threatened. The result is uneducated twoddle that only builders can comment on. Alternatively misinformed comments abound for instance:

"For they argue that growing wood (or other biomass crops) just to burn is really just another form of offsetting. And that, as wood burning releases more CO2 than mains gas (per kWh), pretending biomass is a near zero-carbon fuel is a conceit. And to subsidize wood burning, which is what the Renwable Heat Incentive proposes, is a nonsense."

The Renewable Heat Incentive has not been announced - but the discussion document did not suggest what to do with the wood waste made probably as a bi-product of the construction or paper industry ie not a crop to burn. In that sense the waste is destined for landfill or incineration - why not use it for home heating!!!!!! Wood pellets are not "wood burning" - and subsidising log burning is not on the agenda. I am at a loss to see what the motive is for these sorts of articles - other than it is a "cause" to fight motivated by politics or greed or both.

The problem with articles like the two above - or even from Ryan Air boss - saying that the whole carbon argument is flawed ("please let me burn more fuel") - gets airtime as he has power.

What is really scary is when an article is in the paper it gets jumped on by lots of people - repeated, reblogged, tweeted, and then blogged again.

Unfortunately governments and scientists have the same problems even though they may have "clever people". Most of us do not trust governments and some may not like to admit that they simply have not got the brain to understand what scientists are on about. The whole thing is too difficult - that will either make you think that you should do more research and not make a decision - or take some action as you have a strong gut feeling - or believe something as someone you "like" has said something. Alternatively if you are in business you defend your position for what it is worth.

We think pellet boilers look really nice!

Somewhere in the middle the consumer will get a small percentage of the facts, some of the opinions and have to make their minds up on who is right. Perhaps they could all go to Brighton on the next Bank holiday and have a fight - the modern equivalent of mods and rockers.

The reality is that business has to take a position based on greed - and then fight for position. The right and wrong of it all at this point is irrelevant - its what other people "believe" is what counts.

We believe that biomass boilers made to a high standard and can supply controllable heat to small and large buildings alike. The fuel cost is currently less than gas.

So is biomass a dead end?

At the moment Wessex Installations is getting enquiries, we are doing surveys, and installing. On a micro level it is not a dead end for us. Some support would be nice - and whilst you cannot expect interested parties to drop their baton and take yours - clear leadership in any direction would make our jobs more straightforward.

We would prefer to be discussing whether individuals want fuel stores (at an increased cost) or whether they are happy to pour in the fuel themselves. Austrian boilers like Windhager and Oekofen do provide high quality automated solutions.

Governement incentives such as the Renewable Heat Incentive seem to be supported by the Guardian, the Climate Change Committee, the civil servants at the Department of Energy and Climate Change, the Renewable Energy Association, Friends of the Earth, the Centre of Alternative Technology, most of the companies selling renewables and possibly a few others including a much diminished Labour party.

Those against are the Energy companies, builders, right wing conservatives and their think tanks, anti climate change lobby, the Telegraph, and anyone who thinks their heating bill and/or tax bill will rise as a consequence of the policy (that may be a larger amount of people than I would like).

In the middle are the liberal democrats who both support in principle yet do not come off the fence at the same time.

A sobering thought is that many people have not seen a biomass boiler working. In fact "a survey said " 93%. During a show in the summer I had lots of wood pellets available to look at - and for many who visited the stall - it was the first time they had seen them.

For those that still do not know - a virtual look!

All this argument and many people do not know what they are arguing about.

On the other hand wood pellet producers such as Balcas on a national level or http://Energy2burn.co.uk on a local level have been working to ensure that there is a supply chain of wood pellets nationally. They are also working hard to show people little pellets of wood and explain how it burns.

Boiler manufacturers have ensured that their boilers are saleable through putting them through an arduous accreditation process. Installers have also become accredited. There are therefore a number of people who can supply heat. They are not as big as British Gas - and they do not get the subsidy that the big energy companies get for Nuclear or research and development or Renewables Obligations.

These are people who are taking some action - you can argue whether it is forwards or backwards - but they are largely investing their own cash into their businesses and taking a risk that a growing number of people will like what they do - and I do think it is "like" rather than feel it is "the right thing to do".

I am sure that within the "spin" we will find out what turns people on - whether we should be talking more about remote controls and modems, the cost of the fuel, the design, or the price and availability of oil. Strangely it never seems to be about how "green it is" it is almost as though it is a given.

Meanwhile no doubt British Gas and RWE National Power will continue to argue about who is "greener" despite the evidence. The marketing campaign last year had many rolling in the isles - but perhaps it worked on others. The building industry will squeak at the pressure they have been put under to provide carbon neutral homes and even more about renewable heating. The present UK government will continue to be "the greenest government ever" against little competition this side of the industrial revolution - (although Maggie helped to shut 150 collieries).

Until there is a puff of smoke from the Autumn revue very few of us know what to believe in reality. In the pro biomass camp we take heart from the fact that people still have jobs at DECC and the Renewable Heat Incentive (RHI) is still on their website. The Climate Change committee were appointed to find out "the truth" and they want the RHI. The UK is signed up to meeting carbon targets. 47% of carbon produced in the UK is heat - and the RHI is the only strategy in the melting pot that reduces carbon emissions.

On the "dark side" the lobby power of energy and construction companies is not to be ignored. RWE National Power do refer to electricity as "clean energy". For those of you who have not been to a power station please see Didcot below:

Chris Huhne has said repeatedly that he is a supporter of "renewable heat" and that "they" are investigating the RHI ........ support but no action (as yet).

Creative destruction - "Old typewriter" used to control Earl's Court Tube Station

noreply@blogger.com (Roger Croft) — Thu, 25 Nov 2010 15:31:53 PST

In today's Times there is a report on the London Underground showing a control machine being used at the Earl's Court tube station that is 55 years old.

For more information see

Whilst the article is a deliberate lobby attempt to preserve the upgrade budget for the underground - it is amazing how individuals and organisations hold onto "the old ways" of doing things.

My favourite example is that Vasco de Gama reported the use of citrus fruits to prevent scurvy in 1497. The Royal Navy took until 1790 to finally adopt lemons as a preventative measure. The merchant navy a little longer - The Merchant Shipping Act in 1867 made it law that every service man should be given lime. The UK sailors were called "limeys" thereafter. Also in 1867 Lauchlin Rose patented a method of preserving lime juice without using alcohol. You can purchase Roses Lime Juice today for £1.65 in a large supermarket near you.

Adoption has its hurdles. One of the uses of wood pellets has been as animal bedding and cat litter. I am told reliably that wood pellets are more convenient to store, cheaper, and easier to use than straw or shavings for those that keep horses in stables. Whilst some have changed quickly - especially the commercially driven stables - the market will take some time before it is accepted as a good way forward for all.

Evidence collected by McKinsey consultants at the turn of the century suggested that the rate of creative destruction was increasing. ie people are getting quicker at adopting new solutions to problems and the information is more available. Perhaps Vasco de Gama did not really solve the problem of scurvy elegantly - that was Lauchlin Rose, but that was nearly 400 years later. Today we see replacement items with better specifications coming out every few months - I am not sure that that is really making significant improvements to our quality of lives - and can be termed "creative destruction" - but online shopping has and can be.

Creative Destruction - heating

noreply@blogger.com (Roger Croft) — Wed, 28 Jul 2010 01:38:30 PDT

The government have published their annual energy statement. Action 13 states: "We will set out detailed proposals for taking forward the Government’s commitment to renewable heat through the Spending Review."

They support this statement by their commitment to a 12% target for renewable heat by 2020
Stating "This Government is fully committed to taking action on renewable heat."

From a creative destruction perspective it is interesting to see how the market is responding.

The gas market clearly has most to loose from renewable heat. They are having to import more, prices are rising, and gas heating is by far the most popular form of heating.

"We've cut our boiler and standard installation prices by a third and if you call by the 31st July we'll also give you 12 months boiler and central heating care (2 years if you're a British Gas customer)."

Whilst the existing market is competitive, this seems to be getting commitment from potential customers in advance of any firm announcement.

In the heating market there is a "heating season". Not every boiler is sold during this time, but there are clearly people who turn their system on and find it does not work, or breaks down during Autumn. This makes September to Christmas a really busy time in this market.

Consumers are not well informed at the moment - not because they do not want to be - but because there is lots of conflicting information out there - most of which is wrong or misleading.

The present conservative (is it really a coalition?!) believe in markets. Markets are not just the city financial markets, but the markets that we see all around us. Consumer and business confidence is low at the moment and the job of government is surely to provide some leadership ie direction.

They are making cuts and reducing the size of the public sector purse. They expect that the private sector will "fill the void".

With what?

If you were a business person at the moment - what would you invest in? In the renewable heating market many companies have invested already. They are just sat there waiting. Other markets have been heavily hit by the cuts, or by the recession. e.g. Were you in construction you have had the double burden of the schools programme being cut whilst the housing market looks set to fall again.

Leadership is really important to the renewal process - there seem to be very few people willing to take a lead. Is the consequence further inactivity. Economists are very cautious that the growth estimates for the UK are too optimistic whilst we are in a space where there are cuts, drops in spending, and no leadership.

Creative Destruction - The UK National Renewable Energy Plan 2010

noreply@blogger.com (Roger Croft) — Mon, 05 Jul 2010 03:20:17 PDT

The UK Government are required to submit their National Renewable Energy Plan by the end of June.

The published document is quite hard to find and 160 pages long. It has been published in association with a number of other documents:

"Unlocking investment to secure Britain's low carbon future" an independent report from the Green Investment Bank committee
http://www.theccc.org.uk/reports/progress-reports/2nd-progress-report An independent report from the Climate change committee
Zerocarbonbritain2030 from The Centre of Alternative Technology

I am particularly interested in biomass, and especially the domestic heating market.

Some initial observations:

In the National Renewable Energy Plan (NREP) there is a commitment to 12% of the UK heating being met from renewable sources.

In the plan the government comment that they are starting at a "very low" base with regard to renewable heating. They do have 2 strategies for heating:

1 - A green investment bank

"we are looking into the possibility of a Green Investment Bank (GIB) to help fund the introduction of renewable energy. As part of the creation of this bank, we will create financial products to provide individuals with opportunities to invest in the infrastructure needed to support the new green economy."

I have read this several times. Initially I thought it meant that individuals could get a loan for their biomass boiler and have it linked to the Renewable Heat Incentive. However the words clearly state "financial products" and not loans for heating. It also says infrastructure rather than heating equipment. Reading the Green Investment Committee report - it seems to be more about electricity and not about heat. The Renewable Heat Incentive is not mentioned once. The Renewable Heat target of 12% by 2020 is not mentioned once (other than they mention 12% by 2020. The "drill down" section (it talks about loans for energy efficiency rather than "simply decarbonising the supply chain".

(p32 "As the recent Green Deal recognises, we need to reduce energy demand by improving the energy efficiency of the UK’s housing stock rather than simply decarbonising an ever-increasing energy supply. It is the cheapest way of delivering carbon emission reductions and energy security.")

In section 4 of the NREP it clearly states that the GIB is linked to support "renewable generation" there is no direct reference to heat or the renewable heat incentive.

Summary: The Green Investment Bank may not have any direct link to the Renewable Heat Incentive or Renewable Heat. Whilst they (GIBC) are mandated to consider both electricity and heat they have made up the shortfall in heating requirement with heating from electricity (considerably more expensive for the tax payer in the form of much higher bills at present day prices)

Setting up a bank before the 11 April 2010 - is it realistic?

2 The Renewable Heat Incentive (RHI)

The NREP makes significant mention of the RHI but also mentions that there is sign off needed from ministers.

It is not clear how to fund or administer this - and whilst the GIB may have facilitated - it is not proposed at the moment.

The report from the Climate Change Committee suggests that there needs to be a stronger link between housing efficiency and claiming the RHI. At the moment the monies paid out are "assuming" an efficient house - but it is up to the householder to make the improvements.

The low carbon buildings grant (now closed) was criticised due to the costs of administration often ending up with a low uptake of the grant opportunities. Clearly one of the dangers for the RHI is that it could be expensive to run and put up too many hurdles for the consumer.

Perhaps something is to be said for "responsibility" - the new coalition government's buzz word. Whilst in health they are suggesting that healthy eating is the responsibility of individuals - and not the education programmes that have been in place. Is there a need for one set of measures being about housing efficiency and another about renewable heat?

Creative destruction - Electric heating?!

noreply@blogger.com (Roger Croft) — Wed, 30 Jun 2010 11:11:07 PDT

There is a lot of discussion about carbon reduction and global warming. Some people believe it - some don't.

The reality is that the debate is going on about how we produce electricity and heat - both at home and through national grids.

Other than global warming - there are factors to consider:

Capital cost (if any)
Running costs
Pollution
Access to the supply chain

In 2008 The Energy Savings Trust commissioned a report that investigated both the carbon emissions, costs and performance of over 50 different heating systems in a variety of settings. The carbon emissions will have stayed the same. For fuel these were:
kgCO2/kWh

Natural gas 0.191
LPG 0.234
Oil 0.264
Bio-kerosene 0.212
Wood (pellets, bulk supply) 0.025
Electricity - standard tariff 0.539
Electricity - 7-hour tariff (on-peak) 0.539
Electricity - 7-hour tariff (off-peak) 0.539
Electricity - sold to grid 0.539
Community heating (from biomass boilers) 0.025

Clearly Electricity uses a lot of carbon for heating and hot water - it is not very good - in Sweden and Denmark it has been limited. Most "tests" e.g. SAP propose that electricity uses a lot of carbon.

From a cost perspective electric heating is quite cheap to install - and you can use off peak metering. However a quoted price per kWh is about 13p including off peak tariffs.

Compare this to Gas at 4p or wood pellets at 3.5p or oil at 4.5p - even with large rises in cost - electricity is about three or four times as expensive.

Why focus on Electricity?

In the UK the Green Investment bank commission has issued a report titled "Unlocking investment to secure Britain's low carbon future". In it they have proposed that we move to electricity as the primary form of heating in the UK. See the annex1 for graphs.

Even with reductions in CO2 emissions through increases in nuclear power and wind power generation - our CO2 emissions may be cut - which is a good thing - but they won't be cut by the ratio above ie electricity generation costs 0.539 kgCO2/kWh which is more than 20 times the emissions of biomass. Are they going to reduce carbon emissions by 20 times?

The UK consumer will be left with no option but to purchase significantly more expensive heat that generates more carbon emissions than alternatives.

If I was a venture capitalist - I would consider this to be a pretty poor pitch!

Whilst I can support better generation of electricity through off shore wind power - it does not transfer to heating. (If carbon reduction is the goal)

The average heating bill in the UK is said to be £800 for gas. Looking forward electric heating would be £3200. Over 15 years this would be £48000 rather than £12000 to run. Whilst gas prices may well rise - are there any guarantees that electricity will fall? Is this a winning strategy?

The present government wants to make market forces work - I am not sure that this demonstrates market forces - more bully boy tactics from large companies that are used to making lots of cash. (Have you met a RWE N-Power salesman (or woman)?! I can imagine that it is corporate culture - and rife throughout the organisation.

As a consumer there are choices for the government. If they vote for "electric heating" then some of our bills will rise by a factor of 3 or 4 in the coming years.

The Renewable Heat Incentive has been costed at £104 per person by 2020 - this is a fraction of the electricity cost of £3200. Is there really any alternative?

Unfortunately we have elected a government that believes in markets - even if they deliver a four fold price increase - rather than pay out a penny extra in tax. As a consumer I want the lowest cost alternative.

Creative destruction - project management

noreply@blogger.com (Roger Croft) — Fri, 18 Jun 2010 06:09:09 PDT

Getting a project going for a small company often involves a visit to a potential client or a meeting. Your team inspect the problem, issues, or potential objectives and a discussion ensues.

How do you get started?

In larger companies they start with "top down" estimates that are then confirmed with "bottom up" estimates of the work to do. In a smaller company you may not have the skills or the breadth of team to do this.

Top down approaches are made from experience, intuition, and are broad brush in nature. Builders use rules of thumb to help them, as do many people in the construction field, yet in some way this is flawed in its approach.

To what extent do you solve problems on the broad brush approach?

My observation is that the problem identification is often done, however rather than solve the problem in the most effective way companies put in safety buffers - so that when they do the work - there is room to complete the job and still make profit.

Recently I have seen quotes from "the other side". It is interesting to consider why some companies quote despite being double the price of others.

In today's competitive world - how much of a skill in demand is it to be able to solve problems - and therefore to do the job required - and still make a profit?

Creative destruction - now that's useful!

noreply@blogger.com (Roger Croft) — Mon, 07 Jun 2010 02:14:11 PDT

Aren't flat screens great! PC screens have been replaced, as have a lot of TV's by businesses and consumers alike. It is the simple process of renewal - with one thing being replaced by something that offers more value.

In the same way internet purchasing offers the consumer more facilities, more choice, and often keener on price. As a method it is replacing how we shop.

If you consider a shrinking economy it could have any number of renewal processes going through at any one time. Some of them will represent job losses as old inefficient ways are replaced with better new ones.

In a growing economy you may find supply chains developing as a new process or technology adds to our lives in a significant way. Consider the mobile phone and the infrastructure that surrounded it. Companies spring up all over the place and grew very quickly. In terms of jobs and growth of the economy this was a good thing.

In the UK at the moment there has been a lack of new ideas. If the government cut taxes what would people spend the extra cash on?

They could spend it on Apple products - however the cash would go straight out of the economy. There are very few people employed by Apple in the UK, or any of the spin off industries. You do have to hand it to Apple - they do manage to make products that cost pennies and sell them for lots of money - and make people feel good (well apart from the people who have to make them).

Most of us have fairly flat spending habits without realising it. We have our essentials, we have our luxuries, and we have our mistakes. Extra income is often saved if you have everything you need.

Creative destruction does bring about growth, but only if the renewal process gathers pace and the supply chain is constructed in such a way as the cash is circulated around the economy. Cheekily I think it is also about faster renewal in even a wasteful way. How could you make someone throw away a perfectly functioning PC or Monitor - and we are back to the flat screen argument. Unfortunately for industry flat screens are now very common and a commodity. So what's next?

Creative destruction - do small firms need support?

noreply@blogger.com (Roger Croft) — Mon, 24 May 2010 10:46:08 PDT

We live in an unfair world, but fairness has very little to do with the answer to most problems.

Small companies provide a lot of employment, contribute taxes, and are large providers of innovation and growth.

They did not seem to figure in the recent election - but may well be centre piece to any recovery.

On one hand recent announcements of government funds may have their advantages. These funds may have crowded out many firms from competing fairly. Equally supporting industries or companies in markets that no longer "function" is more of a museum piece than looking after our future. Cuts in largely ineffective grants on small firm training, support, and even the SME adjudicator may be welcome.

That said - Labour stands for unions, Conservatives for big business. There is money in lobbying - if you are big enough. This is surely where the disadvantage lies. SME's do not have the funds or influence to compete.

Perhaps in our new world the Conservatives will pay back the £12m donated to them during the first quarter of 2010. What was it for? It was larger than all the other funds of all the other parties put together (If they were McDonald's they would have had a majority parliament)

Creative Destruction is about new ideas replacing old ones. New methods, new products, new services. Removing everything in its path will enable the process to work more quickly. This means if there is a bonfire of quangos and regulatory authorities (presumably had nothing to do with donations), unless there is a sharper tooled device to stop monopolies from abusing their powers, they will.

Consider the energy market. Among the cuts announced today were the withdrawals of grants to micro renewables. The Carbon Trust has "suspended" the call for research into renewable energy (£22m). Nuclear Power R+D is said to be worth £60m a year (has that been suspended also?).

The question was "do small firms need support?". If you asked a large company the answer would be "no". If you asked a Union - the answer would be "no". Both sets of people are linked to the stock exchange and the long term performance of shares and pensions. Why would they want replacement?

The economic justification for long term growth and the link with entrepreneurs or small companies is only every made when times are really bad. At the moment there seem to be some cuts and some agendas. Not helpful for anyone.

Creative destruction - biofuels and palm oil

noreply@blogger.com (Roger Croft) — Tue, 04 May 2010 06:11:58 PDT

Many people's attention is on the environment, cutting emissions and purchasing "greener" fuels. One of which is palm oil.

Palm oil can be burnt to produce energy. It can be sustainable, in so far as you can grow palm trees in a plantation and harvest them. As the crop is the fruit you can continue to use palm oil and continue to grow fruit.

Difficulties occur when areas of rainforest are cleared to make way for the plantations. The crop does grow best in areas of high rainfall and a rainforest climate. This then reduces the rainforest and oxygen being released into the atmosphere. It also affects animals such as the orang-utan who live in the rainforest.

For instance in The Times recently they reported that Astra Agro Lestari (AAL) is an example of a large Palm oil producer in an area where the amount of orang-utan nests have dwindled significantly. 1500 orang-utans were counted in the 1990's, and 150 have been counted more recently. AAL is a subsidiary of Jardine, based in the UK.

Chairman and directors of Jardine come from the Keswick family, based in Wiltshire. They support the local Conservative party through donations and Tessa Keswick being president of the local branch. Donations from the Keswick family total over £300,000.

This may be at odds with the Conservative party policy of supporting endangered species, and promoting ways of reducing the effects of global warming. Do they investigate every donation? To this level of detail? It is possibly unfair to expect them to do so.

Are Jardine aware of what a subsidiary is doing in another country? Possibly they should be, but are they? Surely they just expect profit.

Equally it is confusing to the average consumer. Palm oil sounds nice. A natural ingredient used in many household products from Mars Bars to Hovis to Flora Margarine. Indeed it can be if grown responsibly, but not always.

Part of the problem for the consumer is understanding the product they are buying and how it is made. Possibly this is too complex an issue if you "pop to the shops". Hence regulation and ethical behaviour standards. Businesses want to make as much money as possible. The Keswick family are worth £1.3bn. Clearly successful. If you buy their products, vote conservative are you unwittingly buying into their behaviour?

Zooming out, the concern has to be about the raft of new products that will be floating our way in the future. The heating and power industries may go through a creative destruction process, with new ways replacing the old. In this process some of the ways presented may be profitable, but come with issues of their own e.g. rainforest deforestation which is counter productive. Is the creative destruction process ethical? No! - it is simply a renewal process. Knowledge is the important ingredient - and it is difficult to see how information can be managed effectively.

Creative destruction - Market projections in the Renewables market

noreply@blogger.com (Roger Croft) — Sat, 01 May 2010 08:58:30 PDT

The (Labour) government has and has further planned interventions in the renewables markets. They expect individuals to purchase renewables for their electricity production and heating. Their reason for doing this is very clear:

They have targets to meet 20-20-20 20% reduction in carbon by 2020.

Of the UK carbon emissions 43% is through our heating. Whilst you can insulate and build energy efficient buildings, you wont reach the target without targeting heating.

RegenSW believe that the scale of the domestic opportunity in the South West is 300,000 installations in the years up to 2020, including 26000 biomass installations.

Nationally (DECC) the scale of installations is 1,500,000 including 300,000 biomass.

Of interest is the critical nature of the need - ie giga Watts of energy.

At the moment there are an expected 786,000 solar PV installations expected nationally. These only produce 1646 gW of energy in the form of electricity. This is 2000 kW per install per annum

The 300,000 biomass installations are expected to produce 5500 gW of energy or 18394 kW per annum

Airsource Heat Pumps 9502 kW per install per annum
Grounds source heat pumps 8823 kW per install per annum

Of the overall energy generated - 11652 gW nearly 50% is through biomass.

There are some issues

The Renewable Heat Incentive is already late, and may not be in place by 2011.
The MCS scheme (installers and boiler manufactures have to "pass" and be accredited) was late, is expensive, and has not delivered enough manufacturers onto the market as yet. This leaves consumers with a small choice.
Existing legislation affects building control allowing wood pellets or in its most efficient form. "Wood", is still considered to be one fuel type and one boiler type. It is therefore not considered to be smokeless and the flues have to be 4.5m high.

Added to which there is a general election. The Conservative manifesto does not mention biomass at all in its documents. Certainly not at a domestic level. They do not like the MCS scheme.

This puts the confidence in the industry at a low point ahead of the election.

As an observation it is strange how the part of the equation that is critical to the sums working ie biomass installations have been the parts of the strategy that have been late. Even the MCS training was not available until late.

Creative Destruction - Observing and listening

noreply@blogger.com (Roger Croft) — Thu, 08 Apr 2010 03:22:35 PDT

I love a good story - how it influences you and helps you think can be quite powerful in quite unexpected ways.

I spent some time with my grandfather at the weekend. He asked me "have you been arrested?" and I replied "not recently", to which he agreed he had not been arrested recently. He had however been arrested when he first started up in business (which I think was just post WWII).

He started up in partnership with a colleague to mend watches in Barnet. At the end of one evening his partner had left early and it was his job to take the watches to somewhere safe. He put the watches into a suitcase and left for the tube station.

He was a little late and so he started running down the street.

He was stopped by a couple of plain clothes policemen who asked him to open his suitcase and he agreed to open it at the station.

Clearly this did not look good - opening a suitcase to find loads of gold watches.

It took him a few hours to get them to verify his details and let him go - with the suitcase.

A vibrant memory for him many years later. What saddened him is that the policeman who arrested him was killed in the line of duty the following week - by another person carrying a suitcase in Barnet.

Creative destruction - Where have all the double glazing salesmen gone?

noreply@blogger.com (Roger Croft) — Tue, 30 Mar 2010 02:16:25 PDT

Double glazing salesmen used to be feared, but I have not seen any for a while. The industry is better regulated and the standards of double glazing (I am told) have improved.

I went to the Ecobuild show this month and found all the double glazing salesmen. They were selling Solar Panels. Whilst I was aware of watchdog reports, and that Solar does not give the returns that other forms of renewable heat gives, but there is "something about it". "Power from the sun" is wonderful for copy writing and images of the sun with sparkly solar panels look really good - you want it all to work properly.

I was drawn to a stall that suggested "60% reduction in energy costs". "Fantastic" I thought. When I looked closer I found that it was actually a 60% reduction in the energy costs of running a pump. Whilst this was not bad, it was not good either. There was no breaking of the law, but I did feel conned.

The renewable's market is newish, it is destined for high growth, barriers to entry are low, there are lots of companies entering at the moment. How will they behave? Clearly one show does not represent the whole market. One day does not give an accurate representation of the whole market. It was however, an interesting experience.

One of my conclusions was that possibly every market in its market forming stage will have as a necessary component a degree of "hard sales" or "Snake oil" sales. The alternative is to give full and honest disclosure on the difficulties facing an individual or company in purchasing a new product.

Creative Destruction suggests that a "special" entrepreneur is able to inform as well as sell in order to make a market. Equilibration theories suggest that entrepreneurs are simply opportunists that can see profit being made in a market. In practice there are a lot of entrepreneurs entering the renewable's market - and in its early stages it is difficult to distinguish between those that are informing and those that are simply just selling.

My fear (as a new market entrant) is that if you lined up 2 companies - one that "solved all the problems" without really saying how, and one that gave a full and frank assessment, would the customer go to the former? If so this suggests that persuasion is more important than information. Whilst the market will change - perhaps the few companies that will win will come from the persuasion camp rather than the information camp.

Taking bets on this is difficult - but you have to take a position. If you simply take the position of what makes you feel most comfortable then there could be issues ahead. Having principles rather than a position is a dangerous game to play.

Creative destruction - the value of information

noreply@blogger.com (Roger Croft) — Thu, 25 Feb 2010 09:39:25 PST

Smaller companies find getting information difficult. Many small firms exist in "survival mode". They have enough income to survive and stay what they are doing, but with little room for error or any spare cash for expansion.

The approach to break out of this "survival mode" takes confidence that you can reach a market that long term will enable growth and profit. This confidence can be gained in a number of different ways:

Fate or good luck giving you a good customer - this helps you identify other "good customers".
You do some research - but make sure that you match the results (potential opportunities) to your capabilities
Trial and error, taking little steps at first and testing your way before developing a formulae for dealing with your market. This will probably involve a number of parameters around your marketing, not just your promotions.

Often it is a mix of all 3.

Research is often thought of as "Lies, damned lies, and statistics". Implying that research bolsters weak arguments artificially. I would agree - you can find as many facts as you like to support an argument. In this situation the person has been subjective, the statistics are subjective and the result is still opinion.

Owning a small business is a highly personal experience. Whilst you are expected to be objective in your decision making, you are effected emotionally as your business is your lively-hood. If you have selective information then you have an emotional person making decisions based on insufficient information.

The majority of businesses do not take positive action for their businesses with respect to marketing systems as they do not have enough information to know that it will work. In the short term they have not got enough cash to risk. The result is stalemate - and a business may stay here for years.

Research studies do say that stable and growing companies have both the ability to form complex marketing systems (ie more than just advertising) to grow and make a decent profit.

One of the key "entrepreneur" abilities is finding dealing with hard to find or ambiguous information (and taking action).

Clearly both these factors are linked and the mixture of collecting, analysing and making decisions is important for any company to make a better than average start.

http://plugintoyourmarket.blogspot.com/ deals with these issues and http://prdpartnership.com/plugged.htm gives details of a service that supports small businesses to make those key decisions.

Creative destruction - Micro Renewables 2010

noreply@blogger.com (Roger Croft) — Wed, 03 Feb 2010 05:37:23 PST

The latest consultation from DECC on the Renewable Heat incentive suggests that there will be subsidies for Micro Renewables based on the deemed heat need (surveyed) and the lifetime of the equipment.

The table below shows the proposed subsidy per kWH

Is 2010 the year that Micro renewables finally takes off in a big way? So that it is "common" in the UK to have a Micro renewable source of fuel. Creative Destruction implies that an industry changes completely and has a significant impact on our lives. How might the energy market change?

Micro renewable is a term that implies use at the household level and technically an output of 45 kWH or less. This could be a biomass boiler or a ground source heat pump.

The government survey on gas and electricity use in 2006/7 shows gas use at between 16000 kWH for smaller houses and 24,000 kwh for larger houses. This does vary by geographic area and by type of house.

An "average" gas bill for a year is said to be about £800. Oil may be higher than this, as will LPG, and again will vary on the sort of house and location. Purchase, Installation and maintenance may increase the cost to £17000 over a 15 year period assuming prices stay the same.

The majority of people have ignored the Micro Renewable market as the capital cost of installation is simply too high. If, for instance the cost of installation and equipment were £5000 higher than Gas or Oil, the payback period, even if the fuel was "free" would be over 6 years.

There are a number of factors that are causing this market to show signs of shifting:

Gas and oil prices are going up significantly and are perceived as coming from politically unstable places.

The public are starting to believe carbon neutral is a good thing

The government in the UK have signed up to reducing CO2 and home heating is a big area

The number of businesses offering a Micro Renewable solution has increased and households are becoming more familiar with what each solution can do.

Planning regulations will come into force in the future that new homes should be carbon neutral

Renewable Heat incentive will be introduced in April 2011 for all "approved" new installations post July 2009 to harmonise the market.

There are therefore 2 key factors:

We want to feel "greener"

We want a good deal

How might this work?

For biomass the subsidy is 9p per Kwh for 15 years. Using the average house consumption of 20500 kWH this equates to about £27,000.

If you paid:

£5000 for your boiler

£2000 for installation

£200 per year for maintenance (£3000)

Between £9000-£14000 for fuel over the lifetime of the boiler (depending on how and where you buy your fuel from and accepting that prices of fuel may rise)

This gives a total of about £20,000 for the average house over 15 years or £1300 a year

It is clearly more expensive than gas. However if the 9p is accepted you will get back £27,000 - and you will gain £7000 over 15 years for having biomass heating rather than gas. This is therefore an investment opportunity.

This scheme is to be introduced by April 2011 and administered by Ofgem. It wont get ratified in parliament before the next election - and it is clear that this 9p rate may change. What is encouraging however is that there is cross party agreement on the approach and the need to do this. Even if the rate were 3p it would mean a £9000 subsidy over the life time of the equipment and would make biomass (wood pellets) cheaper than gas.

Creative destruction - New markets in 2009

noreply@blogger.com (Roger Croft) — Fri, 18 Dec 2009 07:24:22 PST

The idea of creative destruction is that innovation or creativity delivers something to the market place that is taken up and destroys what was there previously - at least in part.

If you look back over the last few years you can see some consumer products having their hour of glory coming up to Christmas - for instance what was the year that everyone bought a digital camera? Satellite navigation? iPods? or if you look back further - your first mobile phone.

2009 did not start well, and by all accounts it is not finishing that well either. In the UK we have had negative growth over the year, with particularly hard hit sectors of the economy being:

Finance and banking

Transport and distribution

Construction

Agriculture

In amongst this we have used less utilities - less oil, gas, electricity and water both commercially and at home.

Small firm liquidations are up 14% (2008 Q3 to 2009 Q3) whilst corporate liquidations are up 51% on the same period. Personal insolvency is also up 35% on the previous year. If you compare with 2005 company liquidations are up from about 3000 per quarter to nearly 5000 per quarter. Individual insolvencies are up from between 12 and 17 thousand per quarter to nearly 35 thousand per quarter.

This volume rise is quite stark

Some clear casualties have been IFA's, Estate agents, Bankers, and Energy sales. This is against a backdrop of global warming, Twitter, flexible working, and grumbling Unions.

Bearing in mind the economy will have shrunk by a single digit when the analysis is done. For instance estimates discuss 5 percent fall for 2009. Bearing in mind the huge drop for some, this might beg the question - how is everyone else doing?

In some respects the government have "propped up" ailing industries such as automotive and banking to soften the impact. They are also supporting renewable technologies especially micro renewables such as biomass, solar, etc.

In theory the government want to reach challenging targets in 2012, 2016, 2020 for use of renewable fuel. At the moment the industry has not got the capacity of stoves, boilers, installers, and possibly even fuel to deliver this.

Whilst insolvencies are increasing corporate redundancies are generating more self employment and start up businesses. There are more people trying to work at home, working in a flexible way, and using the ever increasing set of digital services available to us.

What is clear is that the structure of the way that we live and work has changed quite radically. Some things have been checked by the market as a consequence of that, other changes may be cyclical.

If you are looking for the next big idea - you wont find it here! Picking winners is hazardous and logical presentation sounds good, but consumers and businesses often behave differently.

From a personal perspective I just think we are a little closer to some markets than we were a year ago. Technology for many things has been developed, but the market or the market structure takes time to get right. However if you are an engineer - then the renewables markets may perform better over the next year and the general energy market may have harder times ahead. If you are into business services, then the standards expected will continue to rise. Communications inches forward - a modern phone does a lot of things, but not everyone has one, so newspaper advertising may live a little longer.

I would not have picked a "slanket" to be a winner this year. In fact if someone had approached me with the idea I may have asked them a few challenging questions. It is a winner though - have you got one?

Christmas Wreaths

noreply@blogger.com (Roger Croft) — Tue, 15 Dec 2009 03:07:05 PST

There are a shortage of Christmas trees this year in Wiltshire. Most of the discussion is about trees. There are other seasonal decorations that have not had much airplay. What about Christmas wreaths?

Energy2grow employs is part of a work scheme to help disbled people in Swindon find work. They have made some beautiful wreaths for Christmas.

Further details are available here

Creative Destruction - Orange customer service!

noreply@blogger.com (Roger Croft) — Wed, 05 Aug 2009 00:27:19 PDT

In a previous post I suggested that many business ideas happen to people when they experience poor customer service or a poor product and they think that they can do better themselves. Whilst creative destruction is about making a difference to people's lives. Improving the autoprompt lists in the call centres would just be a different version of the same thing. Coming up with something better (more intelligent?) might be welcomed, at least by consumers.

I have had such a moment today and am straining hard to get over it and move on.

Some issues with Orange:

Responsibility

My HTC phone didn't work properly - the only solutions seems to be to send it back to the maker where they will assess whether its at fault or not. The problem with this is that you have a period of time without a phone without any return date. Orange will insist that its not their issue.

The issues are that no one wants to bear the expense of the fault. The result is the customer spending a long time on the phone for no result.

Broken systems

Having decided to get a new phone rather than repair the old one I phone Orange. Their IVR system asks me for my phone number, then 2 letters of a password. 10 minutes of waiting. The operator asks me for my full name, address DOB, password and account number. Their computer system is broken and both web and phone services don't work. I will have to try later. Am I unlucky or does this happen a lot? The operator said they have problems when it rains in Wales (not sure what they were really saying here) They are unable to process my requests for over 24 hours. Their call centre is apparently filled with people doing nothing! More wasted time. The operative suggests to me that I reduce my contract as I am not using many minutes. I inform him of the broken phone with no responsibility. We move onto the new phone alternative. The operator phones me back to say that he is really embarrassed, and again a day later to process the order.

Delivery

Orange use DPD to deliver new phones and will give you a day to stay in and wait. If your phone is broken Orange will also pass on your broken phone number to DPD even though they take your home number as you have suggested that your Orange phone wont work.

A promised delivery day and I wait in..... No one arrives, no card, no phone call. I phone Orange who say that someone phoned and carded me. I must be in tomorrow. I ask for the delivery company - DPD - which I am given, but they refuse to give me a parcel number. Orange said the company would try again tomorrow.

I phoned DPD they said they needed a consignment number, but would like to resolve the issue.

I phoned Orange again with the name of the DPD supervisor. Reluctantly they gave me a consignment number. I phoned DPD and found out that they had been given the broken phone number and gave them my landline. I also found out that in the days of sat nav being on mobiles - indeed my new mobile will have Orange Maps - DPD provide their workers with a road map and no more - unless these workers want to pay for it themselves!!!!!!!!

I found it a little bizarre that a phone company advertising Orange Maps sends out its phones via a company that cannot find a house with a road map.

Time spent - well over an hour

The Customer Service voice over

The company leave you hanging on the phone for a long time. While they do they tell you over and over again how good they are at customer service. This did inspire me to give them some feedback. I will be inserting a "find the Orange feedback form" into the next treasure hunt in the village. In fact when you do find it - the page does not work (for me at least).

I did have a few frustrated moments - but fortunately I wont be starting another business. Am I alone in my frustrations? It is widely reported that "The deteriorating customer service and increased customer dissatisfaction has coincided with the takeover by France Telecom " Wikepedia

Call centres are flawed. IVR is flawed. There are better ways, and I know people trying to get there. Creative Destruction is not just about making a difference - it is also about coping with the innovation, resourcing and education needed for it to get adopted.

Creative Destruction - my boiler blew up

noreply@blogger.com (Roger Croft) — Sun, 19 Jul 2009 09:42:08 PDT

How can you make the best decision for a new heating system? Every year many of us have to replace our heating systems. Technology is changing, our markets change, and we don't buy heating systems very often. How would you choose if it happened to you?

I would be grateful if you could answer the questions in the survey link below. I will post the answers on this blog in due course.

Click Here to take survey

Creative Destruction - Why are razor blades so expensive?

noreply@blogger.com (Roger Croft) — Wed, 01 Jul 2009 02:04:46 PDT

Creative destruction suggests that if someone comes up with an idea that is a better solution it will "destroy" the existing solution in the market.

The market leader Gillette is owned by Procter and Gamble, and is currently being investigated by the Office of Fair Trading as their blades can be produced for 5p and are sold for up to £2.43 each. http://www.dailymail.co.uk/news/article-1191456/Sharp-practice-The-razor-heads-cost-just-5p-make-sell-2-43-each.html Gillette have a reputed 72% of the world market (2003) worth

Whilst in Sainsbury's the other day I noticed this and also noticed the cheaper alternative made for Sainsbury's and gave them a try. Whilst cheaper the result was both painful and ineffective.

This is the sort of situation that spawns "men in sheds" inventing a better solution. Gillette allegedly spent £680m developing the Mach3 blade. Surely it is possible to develop for cheaper in your shed.

http://www.prdpartnership.com/giraffeinmyshed/ explores the idea that many inventors or would be entrepreneurs get locked into a particular idea. In this situation we would call this an elephant. Why? Well there were a few books written about large companies and elephants a while ago (e.g. Teaching elephants to dance - Rosabeth Kanter), where the elephant was a large lumbering giant. Simply put - if you invent an "elephant" type product or service you should think very carefully before doing battle with the likes of Gillette and Procter and Gamble.

Our simple advice is to think more about Giraffes! Think a little bit differently, and possibly not to go for the centre stage wide part of the market, but for a little bit, possibly that others are not interested in, or cannot make work. Why? Simple risk reduction. Yes your profits and revenue get reigned in - but unless you are that "special" person that Schumpeter said was necessary to harness all the resources necessary to make Creative Destruction happen - then your chances of success may be small.

Consider the razor blades. Why is it that Sainsbury's have a blade that doesn't work very well?

Their R+D team don't shave
They don't want to have repeat customers
A very lazy buying team
They cannot get round the Gillette patent
Proctor and Gamble are bigger than Sainsbury's

Possibly the last 2 have more to do with reality than the first 3.

The first problem therefore is one of protection. The razor blade market is one of the most heavily patented, with over 1000 patents existing. Gillette filled over 100 patents for the Mach3 system. Procter and Gamble also have lawyers. They will protect their territory be it patent, trademark, or even slogan "shave yourself" or "the best a man can get".

Creative destruction challenge: Can you produce something that not only doesn't infringe on an existing patent, but one that is not going to attract attention from the likes of Proctor and Gamble's lawyers. Can you afford to fight them?

The second problem is one of market power. The market was valued at $7.5b in 2003 and 72% of that is worth having. Even if you get round the lawyers - where are going to sell your product?

Creative Destruction challenge - Can you get it on the shelves at Sainsbury's? It would be nice if it was in an obvious place with attention drawn to your branding.

The third problem lies with the consumer. Gillette advertise heavily. when they introduced the Mach3 they spent between $100m and $300m on the launch. In addition there is the business model that Gillette invented back in the very early 20th century of giving the razors away, but making profit on the blades. The razors are propriety, and so will only work with the right blades, protected by patent. This combination gives rise to strong consumer loyalty, and Gillette have had a 10 year head start on the Mach3 and over 100 years head start since they started.

Creative Destruction challenge - how do you get the consumer to change their habits and buy into your system? What resources will you need?

Whilst in a fit of frustration in Sainsbury's the market is in desperate need of competition, there isn't a good cost effective shaving solution out there at the moment, solving the problem is not simply coming up with a new razor. There are many other challenges, each of which requires resources and possibly experience. Whilst there might be a James Dyson out there somewhere who can take on the likes of Hoover and win, it is a daunting and expensive challenge.

Why are razor blades so expensive?

Gillette would say that they have spent a lot of money on advertising and on R+D. In addition they do have a few lawyers. The key fact is that the market is uncompetitive and sewn up by Gillette. We all want to make a little profit, hats off to them for achieving it over such a long time period.

In terms of Creative Destruction, Schumpeter was doing his research in the 1930's and would have been studying companies like Gillette. Born in 1855, King Camp Gillette was standing before his mirror, ready to shave, when he realized that the Star razor in his hand was useless. "It was not only dull," Gillette would write later, according to his biographer Tim Dowling, "but it was beyond the point of successful stropping and it needed honing. As I stood there with the razor in my hand, my eyes resting on it as lightly as a bird settling down on its nest, the Gillette razor was born."

It took him five years to find someone who could provide a machine that would automatically hone thin sheets of steel to the required sharpness, and at first the blades sold for less than they cost to make. Undaunted, Gillette forged ahead and eventually had a second epiphany: He would give away a razor and sell the blades. By 1910 Gillette dominated the razor business, and its founder was a millionaire.

Honest, ethics and marketing

noreply@blogger.com (Roger Croft) — Fri, 26 Jun 2009 02:34:30 PDT

Honesty and ethics are important! One of the issues around creative destruction is the ability of a company to be able to educate the customer to a new offering. If you are an inventor starting off - how would you interpret this? On one hand it is a mistake to love your product too much, and better to focus on benefits to the consumer. In doing that how important is it for your business to behave in an honest and ethical way?

I am sure you cannot forget former directors of the Daily Telegraph taking $32m in unauthorised payments. Alternatively Conrad Black, the then CEO spending $20,000 of shareholders money on a surprise party for his wife. Whislt Black is in jail the Daily Telegraph flourishes on a diet of MP's expenses, ethics and transparency.

The tiny island of Sark had 150 years of feudal rule. The now owners of the Daily Telegraph had been investing £5m a year into the island, they live in a neighbouring castle. In Sark's first democratic elections the people of Sark failed to the Barclay Brother's estate manager and immediately all the investment stopped. I am sure this would not have been a return to feudal rule with the Lord's of the castle employing a sheriff to carry out their duties.......

Links between the Barclays Brother's and UKIP - and an underlying agenda to the MP expenses agenda has been made. Interestingly their response was to get lawyers to make the hosts of the blog where the allegation had been made simply to take it down. (and they did) – So much for transparency and open public debate.

Seemingly the debate is more about power – and this is a lesson for marketing and those businesses that think that honesty and ethics are the way forward.

“Avarice and usury and precaution must be our gods for a little longer still. For only they can lead us out of the tunnel of economic necessity into daylight.” Keynes 1930

The above quote is still apt. Translated into more palatable business language – give the customer what they want without ignoring your need for income (avarice or greed) – make sure you get in a good position to do this (yes, well run systems count, but so does influence) – and don't take unnecessary risks.

As with other successful business men the Barclay Brothers have amassed a fortune and may well have worked out that influence matters as well as giving the customer the stories that they want to hear. Taking down an annoying blog is about risk management.

On a much small note it is my birthday today and I received a “handmade wooden clock” in the shape of a guitar – and very nice it is too. It reminded me of pork sausages. Pork sausages must contain 42% pork meat, of which 30% can be fat and 25% connective tissue. The clock was made out of plywood. Would an ethical marketeer say “handmade plywood clock”? If they did would it result in more or less sales? As I stated earlier – the clock is very nice and fit for purpose.