HOW BUDGETS CAN ENSURE YOUR SURVIVAL AND HELP YOU REACH YOUR VISION

Making a budget, frankly, kind of sucks. It’s not fun to sum up your entire organization to a few in-flows and out-flows of cash. You always feel like you are missing something and you never feel that the document is all that useful when life actually happens.

If this sounds like you, then I share my deepest empathies. I’ve made a few budgets in my time and they’ve almost always been nothing more than an exercise in futility. I make them, they are “looked at seriously” by others in my organization, and then we never speak of them again.

But it doesn’t have to be like that! Done properly, budgets are a great way to visualize your organization. Money is fundamental to keeping the doors open, figuratively and literally, so try out a budgeting approach that resonates with your organization.

What in God’s name is a budget and what is their purpose besides making me feel poor?

There are two primary types of budgets: Full-service budgets (I’ll call these Vision Budgets) and Zero-based budgets (I’ll call these Survival Budgets).

As the names suggest, a Vision budget is all about accounting for everything you could possibly want to achieve your vision. Slack premium for everyone over the free version? Check. A contact email, a help email, and a header email for every “department”? Check and check; thanks, Google. Note that this does not mean frivolous expenses – having premium Slack is great for archiving messages and having additional email names is about looking as professional as possible.

The way I think about Vision Budgets is that with a Vision Budget, all your manual workarounds are covered by paid products. You don’t have to have 3 people monitoring one email account for different types of tickets because you can pay for 3 separate email accounts. That kind of thing.

Survival Budgets are all about spending the bare minimum to achieve your target outcomes. This means that, when faced with the “spend more time vs. spend more money” conundrum, you will often elect to spend more time. Note here that this isn’t about starving yourself or spending 3 weeks on a mission-critical action you needed done in a week; you do need to provide the value your organization aims to (or help those that you are focused on in the way they need to be helped).

Instead, think of Survival Budgets as a factor of capacity. With a Survival Budget, you have the minimum required to continue operating without lowering capacity.

A side note: budgets should be one page. More detail, if needed, can be added on further pages, but you should have a basic understanding of the organization by looking at one page.

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How am I supposed to start this “budgeting” process you speak of?

You might want to start with a Survival Budget. We all need to be realistic here; as much as I’d love to do my business driving in a Mercedes, a Honda will do fine. Now, if I was driving around foreign dignitaries, then a Mercedes might actually be a realistic minimum expense (they’re used to Rolls Royce’s, after all) – but maybe I’ll buy a used Mercedes in my Survival Budget and a new one in my Vision budget. Make sense?

Starting with a Survival Budget also makes it easier to add things on from a value-perspective. You’ll often find that you don’t need to get the super premium version of everything if you have found a legitimate workaround that is cheaper.

Once you have a Survival Budget and need to move to a Vision Budget (or create both for an investor/board meeting), consider these things when you are picking the more expensive versions of something:

  • Does it save you time?
  • Does it make you incredibly more effective at your core organizational objectives?
  • Does it put everything into a central location, making institutional memory saving easier?

The main idea is that a Survival Budget will give you the basics, but a Vision Budget will act as a catapult to achieving your organizational mission. You can still succeed on only a Survival Budget, but realistically your progress will be hampered.

What’s the difference in what goes into a Survival vs. Vision budget?

I’ll just say this up front: neither of these budgets will be 100% accurate or able to predict real life, so always have a Miscellaneous expenses category for expenses you are not sure how to estimate up front. I’ve seen budgets where Misc is 5-20% of the overall budget, usually with some context about why they are not sure how to categorize or estimate the other expenses.

With a Survival Budget, it’s all about identifying the costs that, if you don’t pay, will cause your organization to fail. This failure could be failure to operate (hard to send email campaigns without emails) or failure to achieve your mission (hard to offer financial assistance if you have no finances with which to offer assistance).

Be aware of workarounds as well: What can you do with your time or extra effort in order to save money? When I was starting my first business, I’d willingly walk up to an hour just to save $3.25 on the subway (Uber was out of the question at the time). I would email or have phone meetings – thanks, smartphones – and write down business ideas/read up on the client I was going to meet, but there was an option that allowed me to not spend money so I took it.

In a Survival Budget, workarounds must be used in every available instance to minimize costs without reducing capacity, but be aware of external costs. All that walking, for instance, wore out my shoes pretty quickly.

A Vision Budget is basically a Survival Budget plus all the money you can spend on premium products or services so that you don’t have to do your workarounds. In my case, I estimate I’d take the subway for half my meetings and an Uber for the other half (or perhaps Uber there and subway home, given time constraints). So my Vision Budget would have a much higher transit cost allocated than my Survival Budget.

Vision Budgets do add one more thing that Survival Budgets largely don’t look at: Growth expectations. Right now I’m on the cheapest phone plan – I’d usually keep this plan in both budgets since it has enough data/text/minutes for me to run my business. However, I might be more willing to amp up my estimated mobile spend in my Vision Budget so that I can get a top of the line phone (longer battery, higher quality functions, etc.) and a premium plan that has faster data or more reliable service.

It’s not a workaround, per se, but me thinking ahead to what I need to achieve my vision in the longer term. It certainly doesn’t warrant a 10x on your mobile costs, but it could be justification to go from a $300 mid-range smart phone to a $700 one with double the battery life.

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Once you’ve created your budgets (starting from Survival and expanding to Vision), keep these things in mind

  • Your budgets should be in a similar range: if your Survival Budget is $10k and your Vision Budget is $150k, one or both of your budgets is not accurate
  • Don’t inflate: If a less expensive option completes everything you need it to, don’t add a super fancy version with more features than you’ll ever need for the sake of your “Vision Budget.”
  • Be realistic; your backers will thank you and you’ll thank yourself during hard times
  • Don’t fall into budgeting traps: A budget is meant to be a visual of your organization’s monetary flows. It is NOT:
    • A showpiece made to impress someone
    • A base for organizational decisions – it’s a tool of an organization
    • Written in stone – life happens and it can be adjusted

The budgeting process can be fun, but it needs to be focused on making sure you know precisely what you need to survive and thrive. At it’s best, a budget is a strategic tool to help you understand your organization from a new lens. At worst, it’s a useless document and a waste of time.

Here’s to making the best budgets.

FUTURE OF VENTURE CAPITAL PANEL SAYS GOV’T PACE COULD INHIBIT EFFECTIVENESS OF VCCI

A frequent rallying cry of tech ecosystem across Canada, whether proclaimed by investors, founders, or politicians, is “it’s Canada’s time.” There are many reasons why it’s our time to shine as a global tech innovation hub, and the panelists at DMZ and Goodmans LLP’s The Future of Venture Capital panel in Toronto, hosted at DMZ partner Goodman’s law firm in downtown Toronto, were not shy of bringing up some comforting facts.

The reality remains, though, that the status of VC health in Canada – a core pillar of a strong tech ecosystem – is not as rosy as we’d like to believe.

Where we are crushing it

The panel, comprising of Janet Bannister, general partner of Real Ventures; Bruce Croxon, co-founder of Round 13 Capital and host of BNN’s The Disruptors; John Marshall, assistant deputy minister for scale-ups with the Province of Ontario; and Mike Woollatt, CEO of the Canadian Venture Capital and Private Equity Association (CVCA), discussed a number of reasons why Canada is poised to be the next global leader.

For one, our deal flow is growing, and Canadian VCs have seen, on average, a positive growth rate in the past seven years (where most global VCs had a net loss in the same time period). We’re also starting to see founders who have exited keeping their money in Canada to start their next ventures. Finally, perhaps through a bout of good luck for those north of the 49th parallel, an administration change in the United States has left many global entrepreneurs looking to Canada and put many American companies in the position of making their talent headquarters in Canada, even if their operations remain primarily in the States.

The net result of these changes means a ton more money and nuanced expertise knocking on Canada’s door for the first time (or asking politely to return home).

American money, American whims

The panel kicked off by happily noting that VC deals in Canada recently have surpassed the $2 billion mark. Almost immediately, though, Woollatt jumped in with some segmentation facts.

Nearly 40 percent of Canadian VC deals had an American VC at the table, he started. What’s worse is that 60 percent of the money coming into Canadian VC deals is American, he added.

Simply put, Americans – currently in love with Canada due to our technical talent quality and privileged market status (both because of advantageous exchange rates and government intervention in startups) – see us as a flavour of the month.

“We’re too obsessed with everything being cheap. [To support the Canadian tech ecosystem], the government should look more and more to buy Canadian.”

This is great for short-term growth, and our products are high quality enough to warrant huge American capital injections, but Woollatt warned the audience to not hold too much optimism for the health of the Canadian funding ecosystem. One wrong move from our government, a shift in the global capital markets weakening the US dollar against CAD, or a policy shift from the US government to become more friendly (hey, it could happen), and that US money could largely dry up.

Not to put off potential investors or founders from seeing Canada as a place to do business – there are many great things about Canada, and American money in Canada is still money – but a concerning fact is that Canadian VCs do not yet make up the majority of the money in the Canadian VC ecosystem, says Woollatt.

No sales, no market

Funding woes aside, it’s generally understood that there is money available for Canadian companies, whether through private or public means. However, another challenge looms: Canadian companies don’t develop their sales and marketing talent early enough, or with enough gusto to compete in global markets.

“When Uber and Airbnb started, there were many companies with near identical concepts that were getting funded and had great products,” said Marshall. “These two companies won because they scaled up their marketing and sales talent in order to bring their solutions to market faster and more effectively than their competition. This type of skill development is lacking in Canada.”

Bannister chimed in, noting that Ontario graduates more STEM students than the state of California, but we have a small fraction of sales and marketing talent compared to California and the US in general. It remains to be seen if this comes from the Canadian ethos of not wanting to be too in-your-face, but the situation remains that Canada lacks the same brilliance in bringing tech solutions to market that we have in the ability to create those solutions.

Current plans are focused on massive funds and funds-of-funds, not incentivizing individuals and big corporates to get more engaged.

Without investment in sales and marketing, companies often end up selling out early (a frequently-debated issue in the Canadian startup ecosystem). Companies will take a look at a low-ball acquisition offer and ask themselves if they have the finances or human support systems to grow quickly, Croxon noted. While the Canadian ecosystem is starting to see more money, we still lack American-level investment cheques. Add in a lack of senior, seasoned sales and marketing talent, and many Canadian companies feel forced to take the early buy-out offer.

Some companies are bucking this trend; for example, Kitchener-based Vidyard recently opened up a sales office in Vancouver. These stories, though, are the exception as of now, not the rule.

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Government dependence, government-level bureaucracy

Budget 2017 was a hot topic of conversation. The Venture Capitalist Catalyst Initiative (VCCI), was touted as a juiced up version of the previous Venture Capital Action Plan (VCAP), using government funding and influence to pump money and resources into the tech ecosystem in Canada. While generally met with optimism, the panel noted some deficiencies in the plan when it came to the realities of the government supporting the Canadian startup and tech ecosystem.

Bannister brought up responsiveness as a concern, both in terms of doing business with the government and receiving government investment.

With the Build in Canada Program, the government aims to be many startups’ first customers, but Bannister rightfully questioned the efficacy of a program like this if the government body is not able to move quickly and take massive risks, two things frequently needed when supporting emerging technologies.

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She also called on the private sector to do more to support the startup ecosystem with programs “that taxpayers don’t have to cover.” Not knocking government supported programs, Bannister instead extolled the virtues of having a healthier private sector side of the incubator and accelerator equation, as the public sector-side is well accommodated.

Croxon and Woollatt added to this, noting that current plans are focused on massive funds and funds-of-funds, not incentivizing individuals and big corporates to get more engaged. Marshall agreed to this point, and noted that VCCI is more likely to be “a hybrid” when compared to VCAP, supporting both large funds – which have produced steady returns and are the easiest distribution channel – and individuals or corporations with excess cash or strategic priorities.

Now what?

All the panelists agreed that on the talent side, Canada must now focus on sales and marketing talent as we have done with technical talent in the past. However, the conversation shifted to policy prescriptions for corporations and government.

Bannister brought up the delineation of startups between enablers — startups that help incumbents in the industry do better — and challengers — startups that look to unseat the dominant incumbents.

Collaboration has been called for in the FinTech world, but as banks invest more in the space, Bannister warns that there will be challengers coming that incumbent organizations may not want to support for fear of accidentally funding the technology that takes them down.

Supporting industry-changing emerging technologies is where the government comes in. –
Janet Bannister

Supporting industry-changing emerging technologies is where the government comes in. Bannister noted that supporting horizontal emerging technologies like AI (horizontal meaning they can impact multiple industries) is necessary; Marshall echoed this, saying the government should not influence a specific industry necessarily, instead that, “the government itself is a market. We can put out our problems and call on the private sector to help solve them.”

Woollatt ended with an interesting point that there are two primary schools of thought that drive government spending: buy cheap and buy local. Woollatt pointed out that “Buy American” as a policy in the US immensely helped build the US tech ecosystem, as big risks on technologies like space exploration could be taken knowing that they have direct and privileged access to massive government contracts.

He believes we need something similar in Canada, where the ethos right now is almost entirely focused on “buying cheap.”

“We’re too obsessed with everything being cheap. [If we want to support the Canadian tech ecosystem], the government should look more and more to buy Canadian.”

Written for BetaKit

HOW TECHNOLOGY CAN TACKLE THE GLOBAL PROBLEM OF FINANCIAL INCLUSION

In the tech industry, there is a debate brewing over whether we are solving problems that impact millions across the board, or only impact a certain subset. A few tech influencers have rhetorically posed the question, “Do we really need another laundry or grocery startup?” Now, no offense meant at all to laundry and grocery startups – they are solving a real need that people are willing to pay for, and that’s commendable. It’s just that some people feel the potential of technology is wasted if we don’t tackle global issues.

Financial inclusion is one of these issues.

Financial inclusion is a term used to describe the process of bringing more people into the mainstream banking system. Over 2 billion people globally (including in developed countries like Canada, the UK, and the US) don’t have full access to the mainstream banking system. It’s a troubling statistic when you consider that much of the world – mortgages, access to credit, or simply paying bills on time – are hinged on having access to traditional financial services.

This is where technology comes in, tackling the problem from two angles.

Financial inclusion in the developed world

In countries like the US and Canada, where robust banking systems have been in place for over a century, the primary need for financial inclusion is around ready access to cash or credit. As Canadians are trailing behind in savings rates, we are increasingly reliant on high-interest credit cards just to make ends meet.

For those who cannot get credit cards, whether due to the seasonality of their work making them a “bad risk” for big banks, or their familial circumstances (it’s hard to get into the banking system as a child when your parents weren’t in it themselves), payday loan options are the only other option, and even more high interest.

Many folks who have become trapped in payday loans due to their high interest only started in the system because they needed access to short-term credit.

Many folks who have become trapped in payday loans due to their high interest only started in the system because they needed access to short-term credit, but could not qualify for a credit card. They became trapped due to interest payments too large to wipe off their plate. Compound this with the fact that they are still reliant on once or twice monthly paycheques, and they are stuck in a system where they cannot ever pay all their bills on time, incurring late fees and further interest.

Instant Financial is one company aiming to solve this problem. Their platform offers partial-pay for shift workers and employees, so they are paid for the work they just completed, at the end of each shift. It’s all loaded onto an Instant prepaid debit card, meaning you do not need a traditional bank account to access your funds. You can pay bills when they are due, reducing late fees, and this system eliminates the need for payday loans because you have access to your cash immediately.

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The challenge is not solved yet, as Instant will need to think of the next step; helping users grow their credit scores and rejoin the traditional financial system (or grow Instant to link into that system). However, technologies like Instant have swung the doors wide open to show that there are opportunities to build a business while solving a real problem that often goes unnoticed in larger, developed nations.

Financial inclusion in the developing world

When it comes to the developing world, the challenges are magnified tenfold. Not only are you dealing with huge populations that don’t have bank accounts, they often don’t have any form of government identification and may speak little-known local dialects. With this “trifecta” acting against them, the uphill battles they face are enormous.

Humaniq is one organization addressing this area.

Founded at the end of 2016, the organization has already raised $3 million through an initial coin offering (ICO), a blockchain-based currency offering similar to an IPO on the public markets. This way, says CMO Richard Kastelein, the organization (part for-profit entity, part foundation) can raise millions from concerned citizens and investors alike without having to give up the liquidity that investors are accustomed to.

Blockchain is also the basis of their platform, which uses smartphone biometric security technology, and individuals using the phone only need a picture of themselves as identification. This workaround is necessary in global slums where English speaking populations are low and full literacy in any language is even lower, says Kastelein.

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Despite this lack of literacy, though, mobile penetration is as high as 90 percent in some of these slums, which opened up the Humaniq opportunity.

The platform is entirely decentralized and based on mobile, where smartphones will connect local entrepreneurs to western investors. The smartphones themselves are not that much more expensive than traditional phones in the area, and allow users access to Amazon Turk programming, which offers payments for low level tasks such as image identification.

“Innovators in FinTech can ensure that we deliver products that drive financial literacy and [don’t take advantage of individuals].”

This helps individuals pay off the cost of their phone, and the Humaniq platform empowers them to develop real relationships with their investors through picture and video – unlike some other micro-lenders in the developing world, who act as a centralized intermediary. Decentralization also has the benefit of Humaniq being able to charge lower interest on their loans, as they do not have to maintain local loan-collections infrastructure.

Humaniq will be running its first trials in areas with community leaders that speak English – Rwanda, Kenya, and parts of India – so that they can work out the business side of their technology.

They too face and uphill battle, as cultural norms might prevent women, their core loan recipient demographic, from wanting to take pictures of themselves. Further, the Amazon Turk program is highly susceptible to AI, which could remove the financial support for individuals to purchase the more expensive smartphones in the first place.

However, Kastelein and the team remain optimistic. The ICO raised millions in a matter of days, and there is huge potential to get even more money into the foundation once they show early results from their pilot programs. After that, the sky is the limit.

“We are paving the way for other entrepreneurs [and bringing global attention to this space], and that’s important,” said Kastelein.

Tech, meet social science

Academics have been studying financial inclusion, with prominent Yale professor Fred Wherry leading the modern research wave with his award-winning 2014 study on the effects of lending circles on financial inclusion and UC Berkeley PhD candidate Lindsay Bayham’s 2016 study on the impact of personal relationships in financial inclusion.

The tech industry can learn from the academic field and taking it to the next step, using technology to scale the successes of micro-studies and academic papers.

Humaniq and Instant Financial are two organizations ‘doing well by doing good,’ and the trend is only getting stronger. As the world’s challenges grow ever greater, those in the tech world have the ability to pioneer the next era of global change.

“Given the shrinking costs of electronic transactions and the pervasive availability of smartphones,” says Instant Financial Steve Barha in an email. “Innovators in financial technology can ensure that we deliver products that drive…financial literacy and [don’t take advantage of individuals].”

Photo via The World Bank

Written for BetaKit

RAISING CAPITAL EVENT TALKS ABOUT HOW TO DEAL WITH “LYING” VCS

In a room filled with some of Toronto’s top founders and leaders of post-seed, pre-series A tech companies, The Entrepreneurship Society (TES) hosted an event featuring a panel, a fireside chat, and roundtable discussions.

Hosted at Blake’s Law in downtown Toronto, the theme of the event was fundraising. In particular, conversations focused on the advice that “other founders and VCs wouldn’t publicly tell you,” notes TES founder Billy Hennessey.

Between the panel discussion and the fireside chat, speakers featured were in two categories: entrepreneurs: Liran Belenzon, CEO of BenchSci, and Rasha Katabi, co-founder and CEO of KREDITshare; and investors: Janet Bannister, general partner of Real Ventures; Jamie Rosenblatt, associate at Golden Ventures; Neha Kera, partner at 500 Canada; and Christian Lassonde, founder and managing partner of Impression Ventures.

Stories mean more than financials

“Don’t customize your pitch,” said Belenzon during the first panel. “It’s crucial to know your story and stick with it… You need a good story and momentum more than you need detailed financials if you expect to raise VC money.”

Much of the room nodded in general acceptance to this comment, but some people – including the VCs on the panel – were a tad confused by this statement. For one, it was odd coming from a CEO of a company, but the context is important here.

At the earliest stages of fundraising, your financials are largely guestimates and are subject to change as the business pivots. What won’t change, however, is that early-stage VCs don’t invest in businesses; they invest in growing, coachable teams.

“A company that presents like they are reading a textbook is not going to win investment…because they were unable to engage people in their solution.”

“It’s easier to invest in a movie than a photograph,” chimed in Bannister, explaining that she likes to see the founding team grow their skills, take feedback, implement it, and show that they can affect positive movement in the company. “When we invest, we look for a good business and a good team. Business is about having a well-defined problem with a solid understanding of how painful that problem is to consumers and a clear vision for the solution. Team is all about seeing movement and proving coachability.”

“A company that presents like they are reading a textbook is not going to win investment not because they don’t have a good product, but because they were unable to engage people in their solution and communicate their value proposition,” Rosenblatt added.

After all, added Belenzon, “You’re building a solution, not a business model.”

VCs lie

if you’ve ever tried to raise funds for a company, then you’ve heard some version of this response from investors that you eventually found out was a polite decline: “We love this, it’s just a bit early for us,” “It’s not a sector we usually invest in,” “It’s not the right time for our fund, et cetera.”

Many founders take this as a positive sign – they are interested in you and it’s just a matter of time! For Bannister, the opposite is true. Belenzon calls it outright lying, as VCs skirt the ‘real’ reasons they are not investing in you.

Knowing that VCs can give responses like this, Bannister advises all her startups to believe that “It’s a no until it’s a yes,” a far cry from the sales rhetoric of ‘it’s not a no until it’s a no.’

But are VCs just cold-hearted, horrible liars who enjoy taunting startups with false hope? The VCs in the room would say hopefully not.

Overall, says Kera, “We can’t tell the future. Your company might be a great investment in a few months. That being said, VCs also try to respect the fact that this business is the founder’s livelihood and their passion. Baselessly shooting it down isn’t helpful or respectful.”

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Giving feedback, though, is part of the process and shows respect to both parties, as Rosenblatt mentioned in his answer. Golden Ventures sees itself as having a unique view in the market, meaning that when it turns someone down, they try to give pointed feedback about why they said no and what they would need to see in order to be interested – a philosophy that 500 Canada shares, according to Kera.

However, Golden is not in the business of being prescriptive with feedback and telling founders exactly what to do. They are not mentors to companies they don’t invest in, and further to that, “You’re the founder, and ultimately you have to make the decisions that are right for your company,” says Rosenblatt.

Don’t overspend, because you probably won’t get a Series A

During the first panel, Bannister, Kera, and Rosenblatt outlined a few key metrics that a company will need to be seriously considered for Series A, namely: cost of customer acquisition (CAC), customer acquisition process (CAP), customer lifetime value (LTV), and your monthly recurring revenue (MRR).

The main challenge, however, is that the required MRR to be taken seriously for a Series A has nearly tripled – from about $100k MRR to $250-$300k MRR, says Bannister.

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Why? Series A rounds are getting bigger, more focused (so there are fewer cheques being written overall), and earning $100k MRR is not a high enough number to properly de-risk the bigger investment, says Kera.

When the subject of Series A fundraising came up during the second panel, however, KREDITshare founder Katabi was singing a different tune.

“Don’t overspend your money – founders can waste a lot of money that is unnecessary for growth,” she warned, which seemed to imply that a well-managed company won’t feel the need to run for a Series A, but can look for one when it’s a truly beneficial next step.

This, of course, is not to say that founders should not make strategic investments or take risks to test an assumption. Instead, Katabi was hinting towards frivolous spending that is not necessary for growth, no matter how good it makes the team feel in the short term.

In your fundraising and spending expectations, both the panel and the fireside agreed that the founding team needs to be frugal, not frivolous, and think about fundraising as a business tool.

“Think about what milestone you need to hit and how much cash it will take you to get there,” explained Kera.

Almost never cold call a VC

One of the more interesting debates was whether cold calling VCs was effective. Belenzon did it when he was raising for BenchSci, but Katabi was against anything but warm introductions from networks when it came to fundraising.

Rosenblatt and Lassonde chimed in from the VC side of things, both acknowledging that it’s not a completely shut door, but it’s an incredibly tough sell.

“There’s a 1 in 1,000 chance I will respond to a cold email from a founder asking me for coffee. There is a 100 percent chance that I will take a coffee if it’s based off an introduction from one of my portfolio companies,” Lassonde explained. “So if you [founders] want a coffee with me or any other VC, your best bet is to get to know our portfolio companies, build relationships with them, and when the time is right, ask for an introduction.”

“We did have one deal come through a cold LinkedIn message that led to a huge exit,” added Rosenblatt. “but most of the time we operate on warm intros.”

Written for BetaKit

TD ARTIFICIAL INTELLIGENCE INNOVATION DAY SHOWS HOW AI CAN MAKE BUSINESS MORE HUMAN

Far from the typical startup and tech venues, historic St. James Cathedral Centre in Toronto proved a wonderful setting for TD Bank’s AI Innovation Day. Why? Ironically, because it promoted a different way of thinking.

I know what you’re thinking, and no, the event was not hosted in the nave of the church, but in the historic mansion-cum-conference centre building behind it.

Hearing the term “AI” might conjure up mental images of robots taking over humanity or perhaps that questionable Jude Law movie, but the Summit brought a different tune to the conversation: the power of humans and machines working together for the greater benefit of the human.

As a few speakers even suggested, artificial intelligence actually makes business more human.

The process of AI

The opening keynote, delivered by Nicolas Chapados of Element AI, looked at the history and uses of AI, deep learning, and machine learning. He described how these technologies are fundamentally changing business processes. Far from being fearful, though, Chapados comes with a message of hope, one echoed by Rizwan Khalfan, chief digital officer of TD Bank.

“The past 10 years we thought of business as mobile-first, but now we are moving into business that very well could be AI-first,” Khalfan said following the talks.

The trend of AI creating more human benefit starts with backend processes. Chapados gave the example of the trucking industry, a long-standing example of the massive displacement potential from AI. Instead of being fearful of lost jobs, Chapados encouraged the audience to not only look for gaps in the technology that can be filled by humans, but to rejoice in how AI technology can remove mundane or monotonous tasks from your plate.

“AI has the ability to get large trucks moving just fine on highways without a driver,” Chapados explained. “But where the technology is severely lacking is getting self-driving transport trucks through city roads, turning corners, or navigating through tighter spaces. This is where humans come in.”

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He reasoned that drivers – traditionally away from their families for weeks or months at a time, driving one truck across the continent and back – could now go into a local control centre for their shift and “guide” multiple trucks in remote areas around the world. This not only offers more comfort and stability for the drivers, but can also nearly double asset (truck) utilization, says Chapados.

This sentiment was echoed both by Terry Hickey of IBM and the AI Expert Panel, all of whom talked about the positive employee and customer effects of integrating AI into your backend processes. Hickey talked about AI improving data security. The panel discussed how deep learning, at its core, is a repeatable model that will make humans more effective at their jobs as machines bring up insights and data in a couple of hours that humans could not process in a lifetime.

The culture of AI

The AI expert panel conversation, featuring Cameron Shuler of the Alberta Machine Intelligence Institute (AMII); Sunil Rawat, co-founder and CEO of Omniscience; and SriSatish Ambati, co-founder and CEO of H2O.ai, dove into the framework required for companies to be active in the AI space and how to bring a cultural shift into the organization.

Moderator Marc Chalifoux, VP of FinTech innovation at TD Bank US, kicked off the panel by asking what framework a large company (or anyone new to AI) might need in order to properly understand AI and its applications. Overwhelmingly, the panel talked about the need to frame AI as a business solutions provider.

“Are you going to get more revenues, more profit, higher profit margins, or better customer experiences?” asked Shuler, half-ironically.

“Break down your operations into micro-services,” chimed in Ambati. “and parse out the manual, routine, or boring tasks. It’s likely that AI can take over portions of that so humans can do more.”

This is often where the fear of displacement starts to set in for people on the other side of the coin — those currently working in jobs at risk of automation. I pressed Khalfan for his thoughts on this, and his response was opportunity-focused.

“Just like how many folks thought they’d lose their jobs from the mobile revolution, people fear that with AI. However, the reality is that there are so many other opportunities that become available because of AI.”

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But how do you take the employees from fearful to empowered? Give them opportunities to try new things – a sentiment brought up by Ambati, and echoed by Khalfan later in our conversation.

Khalfan brought up the AI Day itself as one example; it was planned by junior people at the bank who wanted to learn more about the impact of AI in their world.

A “culture of experimentation,” as Ambati puts it, “supported from the top-down,” as Khalfan would later add, enabled those employees to bring their fears and concerns to the table and have an honest discussion about them.

This all leads to better outcomes for customers, as employees can now become the “experts” on new technologies and can share those insights with the outside world.

AI in the community

As companies grow, delivering on AI promises of great customer experiences at scale is a challenge. Luckily, two smart minds are on the case: Einstein and Watson.

Thanks to a partnership between IBM’s Watson AI technology and Salesforce’s Einstein deep learning technology, engaging with community at scale has never been easier.

The best part? It’s about technology making human lives better.

Hickey, during his keynote, talked about how Watson technology first came onto the scene when it famously beat Jeopardy champion Ken Jennings in 2011. From there, says Hickey, Watson’s abilities have grown into something far less trivial – healthcare.

“Watson now does image processing, analyzes millions of data points, and offers a diagnosis to doctors. Beyond stating the diagnosis, however, Watson also cites the articles that led to the conclusion and offers other resources that the doctor may want to look at,” explained Hickey.

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In some trials, says Hickey, Watson even proved more accurate than doctors when it comes to diagnoses. However, this doesn’t mean that Watson will be taking over that infamous website we all look at when we have the sniffles. Hickey remained adamant that Watson – and AI in general – should empower people to do their jobs better, not replace people with technology.

The partnership with Salesforce is no different. Hickey showed a video clip of Salesforce CEO Marc Benioff announcing the partnership, and his excitement was not for how much more sales Watson and Einstein will bring the company. Benioff was excited because this partnership meant Salesforce could better serve customers whenever they need help.

Benioff was particularly excited about… the weather.

Salesforce is used by many insurance companies. With Watson’s integration into the Einstein platform, Benioff gave the example that Salesforce can automatically let customers know to park their car in the garage when a nasty hail storm is coming, reducing the risk of vehicle damage and insurance claims. Insurance companies are happy because they pay out less. Customers enjoy undamaged cars and have the added benefit of feeling cared for by their insurance companies.

Einstein and Watson keep on plugging, none the wiser to the human impact they are making. But Benioff and IBM CEO Ginni Rometty know all too well that the technology they built is making a positive impact for their customers and their customers’ customers.

The robots are coming

As the talks drew to a close, the panel turned to a much-talked about but often-misunderstood topic: the monetization of data.

“Data is a horizontal play,” said Ambati during the panel. “The most effective uses of your data and the best opportunities to monetize don’t come from your own industry.”

Ambati continued by giving an example of airlines. “They [airlines] can estimate and chart population growth in a city better than anyone,” he started, “but the most impactful uses of that data come from other industries [such as urban city planning]. Data cannot be in a silo.”

This opens up a lot of questions about the balance of user privacy versus finding the most impactful ways to use data, but the panel was not concerned, with Rawat stating that “convenience will trump total privacy, and customers will push it forward.”

AI might be less complex than it seems in some areas and more complex in others, but “the robots are coming,” as Hickey mentioned in his talk, and we would do well to not be afraid of them – they’re here to help.

Written for BetaKit

HOW THISOPENSPACE’S FOUNDERS TURNED A SIDE HUSTLE INTO A BUSINESS

Talking to Yashar Nejati, co-founder and CEO of thisopenspace, a short-term rental marketplace for creative types, was truly a lesson in how to follow every good piece of startup advice you’ve ever received.

While some founders leverage their personal stories as a marketing device — but perhaps didn’t live through every challenge they purport to solve — Nejati and his team have walked the walk. The founding of thisopenspace came from stumbling upon a giant opportunity while building a smaller one, and having the wherewithal and gusto to chase the bigger dream.

It’s an inspiring lesson of working through hard times, finding your niche, “dog-fooding” your own services, and taking all those lessons back to create a supercharged culture that gives employees the chance to solve hard problems.

Hard times

“I started a food company (‘Yummus’) back in 2013, and we wanted to do a popup café,” he explained. They thought nothing of the process of finding the space until they started getting attention from other entrepreneurs who wanted short-term rentals, and wondered how Nejati and his team found theirs.

Originally a part-time gig for Nejati while he continued to build Yummus (they exited to a competitor in 2015), he began collecting a network of spaces in his native Vancouver that were rented by startups and other creative types. It was not until Nejati was helping larger brands like Grolsch or Hershel get into retail spaces for popup shops did he realize there was “an opportunity to help hundreds of thousands of people.”

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With any great startup story, though, comes the rough patches. Until January 2016, all of thisopenspace was run via a SquareSpace webpage and “Wizard-of-Oz” background manual work. He recalls evenings spent copy-pasting filled-out form information into emails, so that owners of a property would “automatically” get a notification when someone filled out a form to rent their space.

thisopenspace grew to a full-time business for Nejati when he brought his co-founder Adam Bent on in mid-2015. From that time on until August 2016, the few folks that came through the company ran on fumes; barely being paid market value (or anything, in Nejati and Bent’s cases), cycling through developers who all made their mark, and working out of Nejati’s kitchen table or in a small room they had rented (on thisopenspace) in Vancouver’s Chinatown.

Competitors

Things got a bit easier for the team after they launched their platform in January 2016. The company started to generate more revenue, allowing Nejati to not only pay his team properly, but also hire a part-time graphic designer and a full-time UX designer. They then raised a seed round in August 2016 from prominent investors including Scott Lake, the first CEO of Shopify, allowing them to grow even faster.

What’s interesting about thisopenspace, though, is not about who invested in them or their growth trajectory, but Nejati and team’s laser-focus on only one thing: their customers.

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I asked him about companies who could arguably be his competitors – I’m sure when I say “short term rentals for professionals” you can think of a few yourself – and his response was to say they are not in competition with other companies. Where most real estate startups focus on a use-case (office space, vacations, film shooting, etc.), thisopenspace focuses on allowing individual creativity to flourish.

This has led them to a niche that it says is not served by other real estate startups: non-professional space-renters. This means folks from a company who volunteered to plan their offsite, all the way to a photographer looking for a unique space for their next photoshoot.

By catering to a niche market of the ‘creative class, who work in corporations,’ thisopenspace says it sets itself apart from competitors.

This mentality also guided their expansion, breaking from the real estate startup norm of expanding based on market demographics. Instead of looking for new customers first, thisopenspace expanded as their current customers asked for it. Nejati noted, for instance, many companies that used thisopenspace in Vancouver were looking to do New York City activations, so thisopenspace expanded to NYC as their second major market in late 2015. The company currently has spaces in Toronto, New York, Los Angeles, Ottawa, and Vancouver.

Culture

The company was founded from Nejati “being his own first customer,” so many original features came from him solving his own problem – something he continually does, as thisopenspace owns the café Nejati rented for Yummus and rents it out to other entrepreneurs. Tie in his immigrant story of working to overcome hardships, and the fact that he initially built thisopenspace part-time and had to ruthlessly prioritize, and you have the recipe for thisopenspace’s culture, boiled down to one word: transparency.

“We all know the KPIs and we all know how much money is in the bank, so the motivation is real for our team,” he said.

Far from being a fear tactic to make the team work longer hours on Nejati’s pet projects, this transparency is backed up by everyone on the team’s ability to make suggestions and own the outcome. This empowerment process doesn’t mean everyone gets free reign, but it means each employee is able to, in the realm of their role(s), work in the best interest of the organization.

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“One of our junior engineers came up with our instant-book feature, and he owned the process. Once we all started to see the KPIs rising, it became clear that the feature was working well and we kept it,” he said, noting that a sense of ownership over that result led to incredible engagement not only for the engineer himself, but also the whole team, who now wanted to be part of building the next amazing feature.

As well, openness is backed up by metrics that are customer-focused. “Our number one feedback measure is our Net Promoter Score (NPS),” he explained. “I personally read all the comments that come in and we want to push the number as high as possible.”

By taking a nuanced approach to transparency and work ownership, Nejati strives to build a culture that rings of his own personal experiences of facing intense hardships as an immigrant to Canada; de-centralized decision making, as he learned while building two companies simultaneously; and communicating frequently and honestly about the good and the bad, as he learned from previous business experience.

When we started our conversation, Nejati was telling me all about the two-day team offsite he was in the midst of planning. They do one quarterly, and it’s a time for the whole team to come together to re-align on corporate values, talk practical strategies, brainstorm initiatives, and connect as friends and colleagues.

You wouldn’t expect a scrappy, 12-person startup team to be so cerebral about their work, but Nejati swears by “family time,” as he calls the offsite, as the true secret to the success of thisopenspace.

Feature photo via thisopenspace

Written for BetaKit

WHILE BANKS WIN ON CAPITAL, STARTUPS WIN IN TECHNOLOGY, SAYS #CSMEBF17

If you ever want to feel out of place, try wearing plaid to a banking conference. That’s initially how I felt when I walked into the beautiful conference space at Toronto’s Shangri-La hotel for the RFi Group Canadian SME (Small-Medium Enterprise) Banking Forum.

Looking at the schedule, one might expect to be in a room full of suits and ties talking about the need to be innovative; a conversation met with elation from some and eye rolls from others. While the suit and tie part was mostly true, something emerged from this event that I was not necessarily expecting – genuine curiosity about tech. The panelists were experts in their field, coming from traditional banking and FinTech spaces, and audience members asked tough questions.

In digital we trust

“Digital is a business strategy, not a distribution channel,” proclaimed opening keynote speaker Rob Frohwein, founder of US-based SME lender Kabbage. Referring to the penchant of traditional banks to see digital only as a new channel to reach a customer while keeping all other manual processes intact, Frohwein warned that any outlook that isn’t digital-first will cause businesses to struggle – or fail – in the near future.

Frohwein explained the four cost buckets that a bank has to work with: cost of capital acquisition, cost of customer acquisition, bad debts, and other expenses like office space and furniture.

“Banks globally serve no sector worse than we do small businesses.” – BMO head of commercial banking and partners

He called upon FinTech startups to take heed that a large bank will always win out on cost of capital acquisition; they have access to billions under management and the Bank of Canada, something no FinTech startup has at this point. However, startups can win in this space when they use technology to lower the other three types of costs, in particular, office and employee maintenance expenses like frequent travel and international taxes.

This is the space where digital-first business mindsets pay dividends as companies are able to remain lean and expand into new markets or geographies around the world from a central hub, like Toronto.

Knowing this, it’s no wonder that the IT sector in Canada contains the highest percentage of high-growth companies, which are companies with more than 10 employees and a growth rate of 20 percent over a three-year period, and “Gazelles,” a subset of high growth companies with sustained growth for up to five years, says Anil Arora, chief statistician for Statistics Canada.

In banks we don’t…kind of

From the Toronto Region Board of Trade (ToR BOT) perspective, CEO Janet De Silva is excited for Toronto’s startup ecosystem, but sees a challenge – ready access to funding. “Canada lacks a robust startup funding program,” she said to the audience as she explained the new mission of the ToR BOT, which is to make Toronto a globally competitive and sought-after business hub.

While the numbers from Arora’s earlier presentation might initially contradict this claim, as only 9.2 percent of SME founders reported access to capital as an obstacle to innovation, De Silva was specifically referring to export-ready Canadian companies who need growth capital to access global markets; only five percent of export-ready SMEs have the capital to reach global markets, she says. Given the amount of capital flowing through the Canadian banking system, it’s easy enough to write off this problem as SMEs simply needing to go to their bank and take a loan.

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The reality, to the delight of FinTech founders, is much more complex.

“Banks globally serve no sector worse than we do small businesses,” said Andrew Irvine, head of commercial banking and partners at BMO. Instead, many banks and traditional financial institutions ignore SMEs, as their frameworks are set up to handle complex global transactions or work with high net worth individuals who want – and pay for – high-touch service. This creates an opening for FinTech companies to win the early trust of consumers by offering them a better customer experience or a more intuitive process based in technology.

Better together

VCs, founders, and traditional banks are taking note of the customer-service trend, but it seems that money is now flowing in the direction of FinTech startups and big banks solving the challenge together instead of apart. Shying away from the commonplace tech term of ‘disruption,’ Irvine noted that VCs are investing in FinTech startups whose model is predicated, at least on some level, on partnerships with large financial institutions over the early-FinTech cry of ‘wanting to destroy banks.’

Cato Pastoll, founder and CEO of Lending Loop, a peer-to-peer online lender for SMEs that had to shut down for eight months due to potential OSC violations, cautioned would-be founders from becoming too dependent on partnerships. “You cannot found a company expecting a partnership,” he says, noting that it is far too risky to hinge your entire business on whether an ‘elephant’ will do business with you. “Instead, solve a real problem that will get you going and keep the door open for partnership opportunities.”

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Pastoll also notes that partnerships shouldn’t just be beneficial to organizations, but also customers, a sentiment echoed by Jeff Mitelman, CEO of Thinking Capital. “Typically, partnerships merge a startup’s innovative product with a large bank’s trusted brand or distribution network, both of which make the customer experience greater,” he explained.

Closing out the conversations, a sentiment echoed throughout was the importance of developing new measures of creditworthiness for SMEs, as credit scores and other traditional measures are falling short.

Pastoll noted amazing innovation on the developing world on this subject, where credit scores are unavailable or unreliable. Instead, they use proxy trends like where you go every day (to a workplace?) or your transaction history (do you consistently have money coming in and flowing out?) to judge someone’s creditworthiness. “We’ve been spoiled for data,” Pastoll jokes, a comment seconded by Irvine as he mentioned how traditional banks are treasure troves of data. “We need to develop micro-data points and proxy data points to show someone’s potential.”

From there, the speakers agreed, we can fund significantly more innovative products and businesses that may not have passed traditional screening processes.

Written for BetaKit