Posts Tagged ‘credit crunch’

Saying “sorry” means nothing without a “why”

Wednesday, February 11th, 2009

Great post from Robert Peston on yesterday’s apologies from the bank bosses. You can read it Bank bosses saying sorryhere. The key for me is where he says “Apologies carry weight when they are accompanied by a clear explanation by the miscreants of what they did wrong and why.”

No sign of a “why” yesterday. Mr Peston generously suggests it may be too early for them to fully understand the motivations behind their actions. Maybe it is too early for them to face up to the reality under the harsh light of the cameras.

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Are we running out of money or is this crisis “totally different” to the 1976 IMF bail out

Friday, January 23rd, 2009
IMF Headquarters, Washington, DC.

Image via Wikipedia

In a speech to the Demos think-tank in London yesterday David Cameron suggested that the UK will have to go begging to the IMF because of Gordon Brown‘s borrowing. “If we continue on Labour’s path of fiscal irresponsibility, at some point – and it could be very soon – the money will simply run out.”

Gordon Brown countered on BBC Radio 4′s Today programme this morning that the current crisis was “totally different” to anything seen before, because it was not driven by high inflation and wages.

So, who to believe?

As I said in my previous post at the beginning of the week, the danger is in the ballooning government debt and the eventual risk that the UK can not raise adequate additional funds in the bond market as international markets loose faith in sterling.

The UK may have a much lower national debt as a % of GDP than many other countries, however, the figures exclude the liabilities relating to the government bank guarantees and the fact that the government has effectively stated that it will not let any of the banks go bust. Their liabilities are therefore effectively the government’s liabilities. Much of UK bank debt is international. The falling pound therefore exacerbate the situation.

Gordon Brown says that the situation is very different to 1976 – we are not facing a scenario where high inflation and rising wages cripple the economy. Does that mean everything is OK then?

There is more than one way to run out of money. Having a banking crisis at a time when government finances are already stretched, committing to bail out the banks and losing the confidence of the international financial community is surely another way of ending up at the door of the IMF.

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Freemium and the credit crunch

Sunday, October 12th, 2008

There has been a lot of debate in the blogosphere over the past week about the crunch and its potential effect on startups. A Sequoia presentation has been circulating which is a must read for anyone involved in a startup – you can read it here. The presentation paints a pretty bleak and, in my opinion, realistic picture of the next couple of years and tells startups to focus on preserving capital and getting to profitability.

We have been debating our business model and the merits of having both a free and premium product (dubbed by Fred Wilson as a freemium strategy). The thinking behind a freemium strategy is that the best way for a startup to build a decent size paying customer base is to launch a free version and get viral growth and then convert your top customers to pay for the service by offering premium features.

The counter argument to the freemium strategy that has emerged with the credit crunch and looming recesssion is that start ups need to focus on getting to profitability, so they should not be giving away free product, but focusing on getting paid customers.

I have been personally wrestling with this debate and even left a comment on Fred Wilson’s blog questioning whether Freemium was a suitable strategy for these lean times, particularly the points made on slide 46 of the Sequoia presentation (importance of established revenue model, understanding of market uptake, customers’ ability to pay, profitablity, cash) . He came back to me saying he thought that Freemium is a great way, maybe the best way, to achieve all the suggestions on slide 46.

I guess what he means by this is that you will not get better marketing for your product than initially giving it away (or a version of it). You will get lots and lots of customers using your product that would not have otherwise done so. If your product is any good, they will tell their friends, some of whom will also try your product. The key is then implementing the Freemium strategy so that you can optimise the number of paying customers. If you have a great product and lots of people take it up, even a small percentage of that base would make up a large paying customer base which would have cost a lot of marketing money to acquire.

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