Siili’s CEO Seppo Kuula welcomes the team of Avaus.
Tom Jacobsson (CEO of Avaus) on the acquisition of Avaus
“I am excited to share our big news with you: Siili Solutions Oyj has today acquired Avaus Consulting. Together we form the leading service provider for digital service design and development in Finland. With more than 300 experts we will also be the biggest single digital services force in Finland, with strong growth forecasts. (see press release above). The acquisition is the biggest leap Avaus has done so far. And the best.
In our eyes, this new marriage is perfect: Siili and Avaus share many strengths while still complimenting each other in some areas. We share the same values of excellent quality and unbeatable design with a strong business focus. Helping our customers succeed is the number one KPI for us both. Avaus will remain the Innovation Partner we are today, but receive more hands, brains and hearts into our projects. We very much look forward to working with our new colleagues in new projects and areas, as well as to growing our combined skills and benefits into the most attractive offer on the market.
So here we are today, on the edge of a big new wave. Ready to jump on it head first – and enjoy the ride.
(For more information see avaus.fi)
While working with early stage startups, more often than not the founders explain how their venture has some special characteristic. This typically suggests that they do not have to worry about basic constraints that every other start-up has to overcome.
Ultimately, however, after a year or two, the company has either flopped belly-up, or the founders have learned the harsh knowledge that the basic rules of business also apply to them.
Basic Rules of Gravity
It is actually quite simple for a company to succeed. The business needs to have something to sell; it needs to have customers to buy what it sells; and in the long run, the company has to be able to generate more money from sales than it took to produce what the company currently offers.
I call these three conditions presented here: the gravity rules of business—they apply to every company.
Almost all of us agree on the validity of the rules, if they are presented on a general and abstract level. But we — myself included — can sometimes get lost when it comes time to apply these rules in a practical business situation.
There are some very common misconceptions in understanding the rules.
The classical one is the belief that the technology of the company is so great that there is no need to find customers or develop a profitable earning logic.
The reliance on the technology alone has been presented for so long as the main problem of Finnish start-ups that one would expect it not to be a problem anymore. But I am still often facing variations of the symptom. For instance, many gaming companies think that their game concept will be so great that nothing else than completing it is needed for a success story.
Another classical misconception is that the offering concept is so unique that company does not have competition. But, if there is no competition, there are no customers either.
As the importance of customers and sales has become evident for an increasing number of founders, a new misconception field has emerged.
There are nowadays start-ups that think that they can pass the pains of early-stage business easily, because they have secured their first customer or their first big deal. For those companies, it is important to remember: “It is the first million that is the hardest, not the first hundred thousand.”
One or two big customers are seldom sufficient to provide a foundation for a profitable business. And when they are, the customer related risks are usually very high. Often also, the first piloting customer of a start-up does not continue buying from the company after the initial project. It goes to its traditional mainstream supplier to buy the production class version of the thing delivered.
As the importance of financing has gained increasing attention, there are also a group of start-ups believing that securing a quarter of a million or sometimes even a million of external financing secures their success. But money that doesn’t come from buying customers can only keep a business afloat for a little more than a very limited period.
No Secret Formula
There is also a smaller group of companies believing that they can circumvent the basic rules of business by just patenting their invention. However, business models based on licensing patents are very demanding. In practice, license fees are very low, if the licensor does not have significant revenues evidencing the value of the patents.
All in all, in starting up businesses, there is no secret formula to success. You cannot circumvent the rules of gravity. You have to sell, you have to have competitive offering, and you cannot buy your way to the final destination.
We welcome you to our new premises at Mannerheimintie 16, in the center of Helsinki. A new location, with bigger and better facilities, and also easier to find then ever: Just take the ‘Apollo’ entrance, head through the yard and to your right.
Need further directions? No problem, give us a call any time: +358 9 6124 5925.
Building a collaborative foundation to success
Making important decisions about where to build, or house your datacenter can be overwhelming, as this is a very crucial decision for your company. It’s easy to get caught up in the pros and cons of various locations, so we’ll help you to cut through the clutter with some facts about the formula for success we use in Finland. You know your business best, and we know Finland, so let’s build a strong foundation to success together.
Renewable Energy is Finland’s driving force
Finland has always been a home to the energy intensive industry, and today it is home to many of the world’s datacenters. The Finnish Government reports that datacenters account for over 5 MW of the energy intensive industry and is even offering them the same competitive taxation policy as heavy industries.
By combining one of the cheapest energies in Europe with low tax rates, you can easily end up with up to 40% lower energy costs than in other countries.
Depending on the nature of your datacenter, you can gain remarkable savings and create a real competitive edge for your operation in Finland. Energy supply is guaranteed through an extremely reliable nationwide distribution grid, enabling capital cost savings for redundant energy supplies. Finland is also known as the home of green energy. Hydropower, bio energy and wind energy: we’ve got it all. All options are here to make your datacenter thrive. You can even participate in the production of clean energy, if interested.
Sitting right on the fiber highway
Finland holds an extremely strategic location on the fiber backbone connecting Asia, Russia and Europe, which is operated by several Tier 1 carriers. What this means for your business is a premier location to serve a larger customer base.
Although Finland’s population is only 5 million people, the potential end user target market, which can be reached via Finland is about 50 Million people. Not to mention, the distance (latency) to to major European cities is less than 25 ms, and there are numerous physical routes available. Additionally, new undersea fiber optic cables across the Baltic Sea directly to Germany will further decrease the latency and turn Finland into a real hub of global data flows with more than enough capacity. Even better, direct sea cables also limits the number of “agencies” reading your traffic.
Finland is one of the safest countries in the world
Regardless of your approach – building or leasing, Brownfield or Greenfield, you will find several options all over Finland that meet your needs. In the Northern part of Finland, you will find larger site options next to green energy that are well-connected to internet networks thanks to our national connection point in Oulu.
The Southern part of Finland, which includes Helsinki, offers options that conveniently sit directly on top of the “fiber highway” between Europe, Asia and Russia.
If you need your datacenter constructed quickly, don’t worry. In Finland we already have a well established construction, and engineering industry with the infrastructure needed to design, build, and operate your facilities. We even have skilled laborers available at a moderate cost.
Companies like Google and Yandex have built massive datacenters in Finland, and other startups choose to house their datacenters in Finland, as well due to our great location, and low cost.
In fact, the Finns have been building successfully for decades in the paper and pulp industry, as well as with hospitals and power plants. Finland is known for trustworthy people, political transparency and pragmatic performance driven culture.
Finland is one of the safest locations in the world to build your datacenters. We can offer safety and accessibility in a totally other league than other countries. Finland doesn’t have natural disasters like flooding, or hurricanes, which means that your datacenter will stay accessible even under the most extreme conditions. The solid bedrock beneath Finland is one of the oldest in the globe, even so that they plan to store nuclear waste deep into the bedrock for next 50,000 years. We also have a climate that is perfect for free cooling for your datacenter. Finally, Finland is one of the most politically stable countries in the world, meaning that your datacenter is in the safest of hands.
Finland has been said to be innovative and open society with a strong emphasis on support of high tech companies. TV-kaista Oy is a Finnish IT –company set-up by two entrepreneurs around 2006. Their business idea was brilliant: create centralized data storage for all the TV programs, a kind of collective digi-TV box that records all the content of every Finnish TV-channel, and from their services people can watch and download content within one month trailing time window whenever and wherever they may be. Brilliant idea! No need to buy set-top boxes, worry about remembering and setting up correct recording times etc., as TV-kaista provided ALL the programs ALWAYS recorded for later times to watch. Service started 2007 and became very popular very soon, which is not a surprise considering all the benefits it offered to consumers.
But what happened; media companies and national broadcasting company YLE together with Copyright information and Anti-Piracy Centre sued TV-kaista Oy to court for the severe copyright violations. I’m not solely defending TV-kaista’s entrepreneurs as they surely made mistakes and bad decision in defending their business, but the fact is this: Finnish copyright legislation is from the 19th century. It gives all the weapons for the bigger companies to fight against, and eventually kill all a new brilliant Finnish companies in media sector, just to find out that the similar companies from abroad takes that place and operates from where Finnish laws do not reach.
This was result also in this case: TV-kaista Oy filed bankruptcy couple months ago, the services will be shut down soon and the CEO of the company has disappeared. This is a way a innovative entrepreneur becomes a fleeing criminal. Instead of starting to negotiate and co-operate with agreements of sharing schemes, copyright owners sued and killed the company.
All legislation creates steering effects. In this case, steering effect is that all the 2.3 million households is forced to buy set-top boxes and do the recording at their home, instead of using centralized recording service. Ironically, exactly the same media companies and YLE have eventually created their own recording services for their own content. Great, but now we have at least four separate, pretty poorly functioning services instead of one really working leading edge recording service.
Yet, still another aspect: We have the Greens in our Government. Just calculate how many tons of toxic electronic waste 2.3 million set-top boxes created and contributed to our carbon footprint!
Close proximity to Russia benefits SMEs, on both sides of the border, especially in the south-east region of the country where as many as 400 new companies with a Russian background are established each year. Foreign trade from Russia to Finland topped 68 million euros and is expected in increase in 2014. Who is driving the growth?
What do Russian SMEs find in Finland?
Russian SMEs see Finland as a huge learning opportunity where they can take advantage of increased knowledge transfer in the international trade and global networks. Finnish well-established innovation ecosystems and governmental support became increasingly popular amongst Russian start-ups, leading to a strong engagement with entities such as Technopolis and StartupSauna. In the recent years, giants such as Yandex established their datacenters in the country which further strengthened the business relationship between the two borders. A clear example of that is the increased collaboration between the Eastern neighbor’s venture-capital firms and Finnish’s entrepreneurs.
The interest in cross-border collaboration is mutual.
An increasing number of Finnish start-ups looking to raise funding found a helping hand in the form of Russian investment vehicle such as OAO Sberbank and SBT (Walkbase Oy raised 3 million euros in November 2013). Also, Moscow-based OAO Rusnano, a state-controlled technology investor, last year invested 25 million euros in Beneq Oy, a thin-film coating company based in Vantaa.
Finland’s established companies are targeting the Russian market as well: A potential of 143 million customers (compared to Finland’s population of 5.4 million) is too tempting to be ignored. Entering a new market has its challenges, but there are plenty of recent success stories to learn from. Web of Trust, a website-reputation tool from Helsinki-based WOT Services Oy expanded to Russian and reached 100 million downloads in November 2013. According to WOT’s CEO Markus Suomi about a third of their users came from Russia in the past year, during which the service doubled its reach.
Not ready to enter new markets yet? Use it for testing!
The size and diversity of the Russian market makes it an ideal test ground for Finnish enterprises to experiment and try out new ideas. Especially products or services that require a large user base are easier, and more cost effective, to test in Russia than in Finland – where the relatively small number of consumers provides less room to maneuver.
After long decline, service exports started to grow again
The export of services from Finland to Russia has from nearly 1B EUR in 2007 down to 569M EUR in 2011. In 2012, the downwards trend finally stopped and began to reverse, with exports growing +99M EUR in 2012.
The numbers for 2013 are not in yet, but with the uptake in cross-border trade and increase in SME population we expect 2014 to be another year of growth for the Finnish-Russian business relationship.
In October I passed through the geek department at Amsterdam airport and witnessed that the first wave of mass consumer 3D printers had hit the shelves at a price point of around 1500 euros. A quick glance at Google showed multiple companies shipping a 3D printer to your own home for approximately the same price, 1 kg of raw material included.
3D factories are popping up in China using the machinery of the company AFS, sintering plastics, wax, sand – and even metals. China’s commercial-aircraft program will use a 12-meter long 3D printer to print titanium fuselage frames and even the landing-gear of a plane. Printing them directly out of metal will make them free of flaws that the older precast metal designs still suffer from.
The company Shapeways has created a successful marketplace hooking up designers, printing facilities and consumers to provide an endless catalogue of unique design objects ranging from art to jewelry to interior design.
The innovation opportunity is huge
The innovation opportunity is huge, both in B2B and B2C markets. In business, 3D prototypes will shorten production cycles and 3D made parts could actually be better alternatives as our Chinese example shows. In the consumer market, customized high quality 3D design items could kill half of the kitsch IKEA is selling in both price and looks.
The true innovation is not in building the best printer – there will be newer and better ones hitting the world markets every month. Much more critical is the identified value for each customer group; choice for the consumer, speediness and low cost for the enterprise, and the right type of a business model to tickle their respective sweet spots.
Meanwhile back in Finland, politicians and academics are humming to the tune that 3D printing will save the nation. Aside from the headlines, very little is happening. Some printing service here, an old-fashioned printer there. We are haunted by the ghost of our traditional innovation machine, one that’s good at producing hardcore grinders and widgets, but seldom new business models, services or fun things.
Who will be the first to build the iTunes or the Amazon of 3D-printing?
We are not sure yet, but stay tuned for the biggest industrial revolution since the spinning jenny!
After the big changes in managers’ internal decision making, companies are now getting used to use big data in their operations. Now, there’s a big wave of change on the horizon, analytics 3.0, and when it reaches the shore analytical power will be used to create more valuable customer products and services.
Big data was adopted by companies with big expectations. However, to realize the advantages of big data’s possibilities, there are number of requirements need to be incorporated into advanced analytics and/or analytics 3.0. After these requirements are fulfilled, the efficient data gathering and analysis will be used to guide companies’ improvements in operations and their offerings. From the customers’ point of view, the improvements will be seen as an embed data smartness within products and services.
Since the rise of e-commerce, it has been brick & mortar against online. After the advanced analytics are implemented, it will not be the case anymore. Sales associates will become smarter and even store shelves will offer valuable information and experience. New technologies will help physical world to better meet customers’ needs. Advanced analytics can be utilized by combining adaptive computer learning technologies with big data platforms. This will lead to companies pointing out where they are capable in providing customers with shortcuts for decisions making and actions, instead of full load of confusing information.
From the managers’ perspective, creatively combined data and analytically backed processes provides them and the whole organization with tools to respond to “digital smoke signals”. When managers spot meaningful patterns and allocate resources accordingly, the whole company’s recourse planning will produce better outcome. It is only a matter of time before we start seeing how some of the leading companies take advantage of these technologies and create “turbocharged” customer value.
There are many good reasons for companies to buy other businesses. There are always alternatives to pursuing M&A activities however: the company can meet the same strategic goals through internal development efforts.
When should you buy a business instead of acquiring competences through internal development?
Gomes et al. (2011) introduced a model based on four simple questions that can be helpful in determining whether a company should pursue M&A activities or develop the needed competences through internal R&D. As always, theoretical models are simplifications of real life situations but Gomes’s chart provides a good framework for strategy work that companies should consider very carefully. (Especially given the fact that many M&A deals eventually fail to meet their targets).
1 Gomes, Weber, Brown & Tarba – Mergers, acquisitions and strategic alliances – understanding the process (Palgrave, Macmillan, 2011).
This model works best in situations where a company has made the strategic decision to invest in a new business. It has made calculations and forecasts about a business case and decided that it’s worthwhile to set up a new unit that is perhaps not directly attached to its core business.
You might have the resources and competences – but do you have the time?
The model by Gomes et al. is usable also in a sense that it creates a good tool for an outsider to assess the motivations behind some M&A deals. Let’s look at a popular example: Microsoft bought Nokia’s handset business for 5.4 billion euro – what could have been Microsoft’s decision tree path? Here is my suggestion, feel free to disagree:
- Did Microsoft have the resources and competences to get into mobile hardware market? –> NO. It had the resources for sure, but no solid competences in hardware as it has been solely a software company without any strong experience in manufacturing mobile phones.
- Could that competence of mobile phone manufacturing become of critical importance of Microsoft’s future competitive advantage? –> YES. Most likely, because Microsoft is obviously shifting from pure software player to hardware as well (especially in mobile phones and tablets).
- Was there enough time and potential capability to develop mobile phone division internally? –> NO. Potential capability? Maybe, while Microsoft had been already manufacturing some hardware such as keyboards and mice. But time it did not have. If Microsoft had started to build its mobile phones internally, it would have taken probably years to reach the same level of quality and productivity compared to e.g. Samsung and Apple. At that time, Microsoft’s plans to become a leading smart phone provider would have been buried under the heavy competition. Now it still has a (marginal) chance to challenge the top players.
You might find out that urgency is playing a key role in many acquisitions
Feel free to test this model on some other case. You might find out that urgency is playing a key role in many acquisitions especially in innovation and technology driven industries, where internal development is simply be too slow an alternative to bring a product to a dynamic market in time and on budget.
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