Design thinking is not just for hipsters….

Posted on May 24, 2016 by Content in Context

In recent months, I have been exploring design thinking, a practice I first encountered nearly 20 years ago (when it was called user-centred design). Whether we are talking about UX/UI, CX, human-centred design, service design or even “boring” process improvement, it’s important to realise that this is not just the domain of hipsters – everyone can, and needs to understand how these design thinking techniques can build better product and service outcomes in multiple applications. Here are three real-world examples to consider:

Curved Space-Diamond Structure by Peter Pearce, Hakone Open-Air Museum, Japan (Photo © Rory Manchee, all rights reserved)

1. Financial Services – a case of putting the cart before the horse?

A major bank was designing a new FX trading system, to replace a labour-intensive legacy system, and to streamline the customer experience. The goal was to have more of a self-service model, that was also far more timely in terms of order processing, clearing and settlement.

The design team went ahead and scoped the front end first, because they thought that this was most important from a customer perspective (and it was also a shiny and highly visible new toy!). However, when I heard about this focus on the front end, I was prompted to ask, “What will the customer experience be like?” By automating the process from a front end perspective, the proposed design would significantly diminish the need for customer interaction with relationship managers, and it meant they would have less direct contact with the bank. Whereas, part of the bank’s goal was to enhance the value of the customer relationship, especially their priority clients.

Also, by starting with the front-end first, the design did not take into account the actual mechanics and logistics of the middle and back office operations, so there were inevitable disconnects and gaps in the hand-off processes at each stage of the transaction. (This is a common mistake – a colleague who consults in the retail sector told me about the online storefront for a major retail chain that looked really pretty, but revealed no understanding of the established supply chain logistics and back-office order fulfilment processes.)

The bank team had a rethink of the storyboarding and workflow analysis, to make sure that the customer experience was streamlined, but that there were still adequate opportunities for customer touch points between client and relationship manager along the way.

2. Construction industry – inside and looking inwards

Another colleague told me of a specialist supplier in the construction industry, that was undertaking a review of their processes and service design model. From an internal perspective, everything looked fine. The customer orders came in, they went into production, and were then delivered according to the manufacturing schedule.

However, there were two stages in the process, that did not work so well from a customer perspective:

First, customers did not receive any confirmation or acknowledgment that the order had been submitted; so they might be worried that their order had not been received.

Second, once the order had gone into production, there was no further customer communication until it was ready to be delivered. Meanwhile, the client’s own schedule might have slipped, so they might not be ready to take delivery (we’ve all seen those moments on “Grand Designs”). Resulting in the supplier having to hold unpaid for work-in-progress in their warehouse.

For the supplier, it was a simple case of implementing a formal acknowledgment process, and a check in with the client prior to fabrication and a follow-up prior to delivery to make sure schedules were aligned.

3. Energy sector – gaining empathy in the field

A friend of mine ran a local distribution and installation business for an international supplier of energy switching gear. They specialised in remote operating systems, most notably used in indigenous communities. Head office was in Europe, and the clients were in outback Australia – so communications could be challenging. The overseas engineers would not always appreciate how time critical or simply inconvenient power outages or interruptions could be. “We’ll fix the software bugs in the next upgrade,” was usually the response.

Then the local business started inviting their European colleagues to come and work in the field, to get some downstream experience of how customers use their products. It was also a good opportunity to train technical staff on how to handle customers.

One time, a visiting engineer was in a remote community, trying to fix a power operating system. When Europe said they would take care of it in the next upgrade, the engineer pointed out that he was with the client there and then, and that without power, the community could not function properly, and that Head Office had to solve the problem immediately, even if it meant working overnight. The issue was sorted right away.

If nothing else, the visiting engineer, schooled in siloed processes and internal systems at Head Office, had managed to gain empathy from working directly in the field.*

While none of these examples seems to involve cutting edge design thinking, they do reveal some fundamental service design and product development concepts: the need for empathy, the value of prototyping and testing, the role of user scenario and workflow analysis, and the importance of challenging existing processes, even if they seem to be working fine on the inside.

*Footnote: This reminds me of a time many years ago when I was travelling around Beijing in the back of a cab, between client visits, calling my production team in the US, asking them to investigate a problem the local customers were having in accessing our subscriber website. “The Chinese government must be blocking the site”, I was told. Given that most of the clients were state-owned enterprises, or government departments, I thought this was unlikely. Turns out that the IT team in the States had “upgraded” the SSL without informing anyone and without doing multiple site testing first. Some clients had problems logging on from slower internet services, because the connections timed out. Being in the field, and speaking directly after witnessing the client experience for myself enabled me to convince my colleagues of what the cause actually was. Although we had to implement an interim workaround, going forward, every software upgrade or product modification was benchmarked against multiple test sites.

Next week: More on #FinTech, #Bitcoin and #Blockchain in Melbourne

A new co-operative model for equity #crowdfunding

Posted on May 17, 2016 by Content in Context

**Updated with some clarifications** Last week, I attended the launch of a new equity crowdfunding scheme, called The Innovation Co-op (THINC). It’s the latest model I have seen that is trying alternative approaches to startup and SME funding – given that equity crowdfunding still isn’t possible in Australia.* There’s been the venture bank model, straightforward sweat equity, slicing the pie, and of course, the small-scale offering approach. What they are all trying to do is connect three core assets: capital, ideas and expertise.

THINC works on the basis that the Co-operatives National Law allows members to come together for a common benefit. This includes the financial benefit of generating economies of scale via the collective purchase of goods and services, the use of capital for the group’s common interest, and the distribution of profits to members from investment and trading activities. Co-operatives fall outside the Corporations Law (so, are not regulated by ASIC), but are subject to the State-based Consumer Affairs and/or Fair Trading authorities.

Participation in THINC involves three types of membership:

Custodians – the founders of THINC, who form the initial Board of Management and represent the “expertise“, will provide commercial services to the companies that THINC invests in (see #2). As founders, they also control 50% of the equity in THINC itself. Based on a notional valuation of the cash and in-kind contributions they have made in setting up THINC, they calculate that they have provided around $1m in contributed equity.
Pioneers – entrepreneurs, founders and SME owners (the “ideas“) in whose businesses THINC will take an equity stake (initially 10%, but may rise to 50%), in return for which the Pioneers receive help in the form of commercialisation strategies and other support to grow their companies. Pioneers are subject to a number of selection criteria, and are expected to use the shared managed services offered by the Custodians (at discounted rates).
Champions – general members of THINC, who also provide the “capital” as investing members by buying Capital Contribution Units (CCU). Collectively, they hold the other 50% of THINC’s equity (albeit as a different class of share to the Custodians) and will also split any distributions or dividends with the Custodians (the latter can only attract a maximum 12% of any dividends, leaving the rest for distribution to Champions, for operating capital, and for maintaining cash on hand).

I should say upfront, that I have applied for membership of THINC as a Champion, but I haven’t yet decided whether or not to invest via the purchase of the CCU scheme. I am seeking clarification on the legal and financial structure, as it is quite complex, and not as straightforward as buying shares or bonds in a company, purchasing units in a managed fund, or becoming a member of a “traditional” mutual such as a credit union, building society or member-owned community bank, for example. Also, I am not qualified to say if this is a good investment, and anyone interested should seek their own professional advice.

Some advantages of this co-operative model are that, unlike other small-scale offerings limited to “sophisticated” investors (legally defined), anyone can invest, and there is no cap on the number of investors. Each CCU costs $500, and Champions may invest up to $5,000 (any more may breach the maximum individual shareholdings of a co-operative). On the other hand, regardless of how many CCUs a member owns, they only have one vote (whereas with normal equity, voting weight is in proportion to the number of shares). And while the CCUs are tradeable, they can only be sold or transferred to other members.

THINC expects to exit each investment it makes after 5 years. I understand that THINC itself may be dissolved or divested, and the final proceeds distributed to the relevant members in proportion to their CCU holdings.

Whatever else, the organisers behind THINC must be applauded for their ingenuity – innovation comes from pushing the envelope. (There is even a patent pending on the model – generating an additional revenue stream from licensing opportunities?) However, I am somewhat wary of schemes that are largely designed to get around either tax issues or legal impediments. Generally, I would say it is preferable to start with a clear set of goals and objectives, and choose the most appropriate funding vehicle or legal structure to achieve that outcome, rather than identifying a structure and fitting the business model to fit.

* Footnote: Although there’s some draft legislation going through Parliament, it hasn’t been passed by the Senate, and some commentators say that the Bill does not achieve the stated goals of what most people would regard as an equity crowdfunding model.

Next week: Design thinking is not just for hipsters….

#StartupVic showcases the next batch of startup hopefuls

Posted on May 10, 2016 by Content in Context

Startup Victoria‘s monthly pitch event is gaining momentum, and continues to draw a good crowd at inspire9. It can’t just be the beer’n’pizza, can it? April’s event brought together an intriguing mix of startups – from the FinTech, SoMe, health food and enterprise sectors.

If it’s the last Tuesday in the month, it must be Startup Vic’s pitch night at inspire9…. (Photo sourced from Meetup)

Liive

This app-based solution claims to have more than just its finger on the pulse of Melbourne’s nightlife, in the form of a “Teleportation” experience. If you want to check out what’s going on at that club or bar before you leave home, Liive will beam visitor and sponsor sourced content onto your smart phone. It’s sort of a social media cum streaming cum location-based service, which promoters and venues can license and then encourage patrons to share their video grabs (in return for free drinks….).

While the app is free to download and use by individual customers, revenue comes from event and venue promotion, and is pitched as a user experience that enables patrons to “try before they buy”. Liive reckons it has got the CPA down to A$1.68, and is experiencing 20% weekly growth based on user numbers.

Already signing up some significant leisure businesses, Liive seems to be making a splash within a relatively short space of time. In the words of one of the judges, I’m probably not the target demographic, so it’s difficult to relate to this concept. Unsurprisingly, students are a key market, but having spent time this past week facilitating a team of international students, I hope the founders can think of culturally inclusive uses and ways to promote their app.

I was also reflecting on things like privacy, content ownership, and whether this is a solution in search of a need – why not just use other, existing SoMe platforms? But it was good to hear that the content is moderated and subject to take down notices.

Estate Baron

This FinTech business is bringing equity crowdfunding to property development – and is clearly designed to displace banks. With a background in residential mortgage-backed securities (RMBS) the founder has some relevant market experience.

The business model does away with the need for traditional investor syndicates, and is offering an alternative source of funding for property developers. To be clear, investors are taking equity in the entity (usually a special purpose vehicle – SPV) that is launching the development, not the properties themselves – so they do not get any title over individual units or apartments.

Given the need to be fully compliant with AFSL and MIS requirements, Estate Baron has a retail financial services license, and issues full product disclosure statements for each venture. So far, it has raised over $2m in project funding, from over 1100 investors.

The pitch was at pains to explain that Estate Baron holds an RG146 license for general advice only, not individual advice, so potential investors are advised to seek professional financial and investment advice suitable and appropriate to their own needs and circumstances.

Estate Baron charges a capital raising fee, which allows developers who don’t typically hold a financial license to access more investors. Currently, funding is usually done via syndicates, off-line, or via managed property funds etc.

The founders acknowledge that the idea originated overseas, and is part of a global movement. They even mentioned the possibility of using a Blockchain solution for deal origination and management.

Personally, the idea of crowdfunding for property development is appealing, but I’d like to see more market engagement before determining whether this is the right (or only) model.

Athlete’s Gift

Originally launched under the name “The GeneSpark”, this food business is promoting customised menus and recipes based on customers’ individual DNA. I think the recent change of name was prompted by brand confusion, rather than any medical concerns, but I was still left unclear as to what this business actually offers.

If I am understanding correctly, the products are special mixes of super foods, nuts, seeds and berries designed for high-protein, high-energy or recovery – using all-natural, organic and raw ingredients. Customers make their own product selections, and can even develop personal recipes to suit their DNA. But the business does not conduct DNA tests, and I don’t believe there is any verification process to ensure customers are making appropriate or safe choices – which would possibly stray into medical territory?

I sort of understand the business model (3-month subscription packages, distribution via gyms and sports clubs, etc.), and I even applaud the long-term goal of reducing chronic diseases. But I was left with the question: Is this proven science, another food fad or a product placement strategy?

Konnective

Konnective has developed an enterprise solution that brings an employee messaging tool for frontline staff, regardless of their location or whether they have access to a desktop computer.

The tool was originally developed for schools (to replace the paper-based parent communications), but is finding traction within the health care, hospitality, mining, manufacturing and services sectors. To my personal surprise, many workers in these industries do not have corporate e-mail addresses. Based on push technology, it’s cheaper than SMS. The app is free to end users, but businesses pay a tiered price based on the number of employees, at $10 per person per annum.

It’s flexible enough to support mixed content types, and is managed via a back end admin platform. Already, some major public companies are on board, with the founders claiming to have 100+ clients.

To clarify, this app is about broadcasting, not team collaboration or project management. It can be used for two-way communications with employees, but only for structured content such as surveys and polls. It was not clear whether the back-end allows messaging to be targeted by location, function, department, team or even seniority – maybe not everyone in the company will have the same information needs?

I can see an opportunity among organisations that engage large numbers of contractors, freelancers and casual staff who might not have company-based individual e-mail accounts. But part of me thinks that with increased smart phone usage and BYOD (plus the fact that most e-mail clients are easily configurable to mobile devices), what makes Konnective attractive? Clearly it’s doing something right as it took out first place!

Next week: A new co-operative model for equity crowdfunding

#FinTech Melbourne’s latest #pitch event

Posted on May 3, 2016 by Content in Context

The latest FinTech Melbourne meetup event was the second of their pitch nights. Co-hosted by NAB (at their Docklands Arena venue) and Capgemini (who were promoting the World Retail Banking Report 2016), the pitches were preceded by a panel discussion on a regulatory sandbox for Fintech startups.

The list of contenders…. (Photo By Andrew Lai, sourced from Meetup)

The panel was composed of Ben Heap from H2 Ventures, Deborah Ralston from the Australian Centre for Financial Services (who is also the inaugural Chair of ASIC’s Digital Finance Advisory Committee), Sudhir Pai (CTO at Capgemini), and NAB’s Todd Reichmann. This is a topic that FinTech Melbourne has aired before, but it seems despite much industry anticipation and some cautiously positive noises from government, bureaucrats and regulators, there are still, to date, no concrete developments or proposals.

I fully understand the need for formal regulation in financial services, and FinTech in particular, to support investor protection, foster market confidence and maintain industry stability. But the cost or burden of compliance can act as an inhibitor for innovation and entrepreneurship. And of course, regulation and compliance are no guarantees that nothing will ever go wrong, even among our established and highly regulated financial institutions. The debate needs to move on to some practical solutions – such as ring-fencing FinTech startups so that they can trial new products and services in the market, within a limited, defined and narrowly permitted scope and range of activity, under some sort of provisional permit prior to obtaining fully licensed status.

Some members of the panel were in favour of a principles-based regulatory framework (e.g., focus on outcomes and intentions, rather than a reductive model, where nothing is allowed unless it is expressly permitted). The problem with this is that the industry already has to work within a very broad definition of what constitutes “financial advice” that is subject to regulation. So there needs to be a further re-think about what “financial advice” means, especially as between retail, sophisticated and institutional investors; and in turn, I see an opportunity for a more variegated approach to licensing or regulating different advice models: e.g., face-to-face and custom financial planning; scaled and personalised robo-advice; or broader, generalised “class” or “category” advice (by product, platform or service type). (Analagous models to draw on already exist in the areas of therapeutic goods licensing and food labelling measures.)

The panel also thought that partnerships between FinTech startups and established licensees offer one way to navigate the regulatory regime. And I can see that the right type of roboadvice could bring truly independent and objective financial advice on product and brand selection.

There was also a suggestion that the sandbox model could act as an umbrella entity for FinTech innovation. While there may be some merit in the idea (e.g., for regulating the API’s that provide access to customer financial data and credit history – although these should already be adequately covered by data protection and privacy requirements), I am sceptical of regulators’ ability to innovate. Plus, the key retail investor failures during the GFC were about investor ignorance, not just “poor”advice; so the need for financial literacy cannot be overstated.

On to the pitches themselves, which were judged by Ben Heap, Deborah Ralston and Rohen Sood from Reinventure:

Smartbit

Offering an automated finance layer for the Internet of Things, Smartbit has already built a secure, Blockchain-backed price index. The goal is to enable automated, real-time payments, between any two devices connected to the internet. They see themselves as the “Blockchain of Things”, and proceeded to give a cute (if somewhat pointless?) live demo of switching on a LIFX bulb with a Bitcoin payment token.

The judges were curious to know what the actual use case was (apart from turning on light bulbs…). In reply, they were told that Smartbit can deliver real-time settlement (unlike the 15 minutes delay of an US competitor), and is designed to support micropayments. Personally, I think the technology is already proven, but the need less so, at least from a B2C perspective. The fact that so many banks, exchanges and clearing houses are exploring Blockchain solutions means that it’s day will soon come when it is not just a “Bitcoin thing”, but will be an integral part of financial services, data solutions and digital asset management.*

Dragonbill

This is a smart payments platform to reduce cashflow stress. The main benefit is to shorten the time SME’s have to wait before they get paid. It offers both a secured payment facility (escrow), and an express payment option (e.g., a tradie can get paid as soon as they finish a job).

The chosen paths to market are social media, accountants, business advisors and mentors, and (unusually?) sports clubs. But it becomes clearer when you consider that clubs need to manage multiple, small membership payments; and many members of sports clubs are SME owners, independent tradies and sole proprietors. Dragonbill are also setting up a partnership with Xero accounting software.

The main questions from the judges concerned the ability to scale the business, and whether Dragonbill generates interest on amounts in escrow.

Truepillars

Another version of the peer-to-peer lending platform for SME borrowers, the business model is based on an online auction system where, for as little as a $50 bid, investors can bid on specific loan requests, with risk-adjusted interest rates, that are also determined by the number and amount of competing bids.

Access to traditional SME loans under $500k is increasingly limited as banks need to allocate more risk-weighted regulatory capital to cover their SME exposures, making them an inefficient and expensive use of bank capital.

The Truepillars platform offers borrower and investor dashboards for tracking and portfolio reporting, but the panel were worried that it wasn’t a unique proposition. However, unlike some of their competitors, Truepillars offers loan terms out to 5 years. It would also be interesting if investors (lenders) could build proper fixed income portfolios (by loan duration, yield curve, exposure type, recourse/rollover etc.), and if borrowers could cap the number of, and limit their exposure to, individual bids or lenders/borrowers.

Proviso

Claiming to be transforming lending, Proviso work with lenders to streamline the submission of borrowers’ financial data and bank statements in support of their loan applications. The prospective borrower logs into their account and gives permission for the lender to access their banking information, but Proviso does not “see”, hold or store the customer data – it merely acts as a pass-through. The goal is to reduce borrower application abandonment, and the service is already being used by 180 financial institutions – generating 60,000 requests per month. The business is being driven by enhanced customer experience, and ASIC directives on more prudent lending processes. In short, they claim to offer better, faster data.

The judges wanted to know how Proviso compares to Yodlee: “we’re local, and less painful to use” was the response – meaning that proximity offers speed and local market knowledge. Finding a market among non-conforming customers, Proviso is also looking at providing validation services. But in my mind, there is a risk that Proviso could be displaced by an industry-owned or regulatory mandated platform or utility (such as the creation of PEXA for real estate conveyancing and settlement.)

Airwallex

With a tag line, “cross-border payments made easy“, this another solution aiming to transfer money between people, regardless of location, bank, currency, etc. Currently, Airwallex is focussing on Asia Pacific, and is the only Australian holder of a cross-border license to transact in Chinese RMB. It has also integrated with the three largest payment platforms in China – AliPay, WeChatPay and UnionPay, and built an API for e-commerce solutions. Airwallex claims to be faster, cheaper and simpler than the competition, using real-time FX rates.

The panel was naturally curious about how the platform is addressing anti-money laundering concerns and complying with counter-terrorism legislation. In order to offer lower fees than PayPal, and by only taking fees from the FX spreads, Airwallex has to automate the transaction process to achieve mid-market prices – but does the increased automation heighten the risk that the platform can be used for nefarious purposes?

After their deliberations, the judges declared Proviso as the winner – hard to argue with that sort of market traction.

*Note: Declaration of interest – I have recently joined the team at Brave New Coin, a FinTech building market data and infrastructure solutions for Bitcoin and Blockchain.

Next week: #StartupVic showcases the next batch of startup hopefuls

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