Tikto Tidbits - whatever happened to "Digital Transformation"?
Consumers adopt technologies at increasingly fast rates up to near-total adoption. The same isn't true for businesses. That's where a huge opportunity lies.
The digital transformation that never was
When we hear the words "Digital Transformation" it reminds us of management consultant-speak from the turn of the millennium. It was all the rage at the time.
It's not surprising that, in the meantime, that concept has faded into the background as glitzier, racier, and ultimately more attractive, startups and scaleups have come to dominate public attention and discourse around the place of technology in our lives and places of work.
As consumers we've become experts at adopting technologies, to the point of ubiquity.
The same isn't true for businesses. From our own experiences of investing in and doing due diligence with SMEs we've come across an astonishing amount of manual process from the front to the back office. We've seen companies with sales teams but no CRMs, finance functions and next to no accounting software being used (let alone cloud accounting packages).
It's trope-y to talk about how best practice is rarely common practice and that outside a bubble of more tech-engaged people / businesses that knowledge about systems, systems-thinking and technology is poorly distributed...but I'm going to talk about it anyway. There is immense value to be realised in modernising SMEs from unfancied industries.
Amazon AWS commissioned a report from Public First a few weeks ago which estimated that with increasing usage of digital technology the economy could grow by over £413 billion by 2030. This number is rooted in the poor take up of freely available technologies to SMEs:
42% of businesses don’t use digital tools to track orders or inventory (42%!)
31% don’t yet advertise online
38% are not using social media
48% of business leaders had not heard of cloud computing or did not know what the term “cloud computing” meant
This truly is the Millennium Bug.
Case in point: warehousing opp in our pipeline
We're currently looking at a business in the warehousing space. At the highest level our thinking is: warehousing is a big trend. Increased onshoring + more things bought online/delivered to your door + increasing physical technology within warehouses (robots) means that you have good short and long-term tailwinds. It's a great business too. It's been going for 25 years, is profitable and relatively stable.
Here are the top 5 opportunities that we see (warning: rocket science not included):
The business doesn't know its Key Performance Indicators (KPIs) = mission 1: discover the KPIs, centre the management information and business around them.
The business has no performance management system (and doesn't *know* who the highest performers are = mission 2: use light HR software to focus employees time around new KPIs and reward performance around desired outcomes accordingly.
The business has one main revenue line but 2 other promising sources of more sticky income (non-transactional, service based). These have been spun up on an ad-hoc basis on the request of existing clients = mission 3: these could be key value drivers for the company, investigate, invest or mothball appropriately.
There is a £150k annual marketing budget. There is zero attribution for this spend = mission 4: understand whether this marketing spend is driving any revenue, what is the most effective channel? Reallocate spend to higher performing channels.
The business uses a cloud accounting system though not rigorously = mission 5: get everything into the system so that the business can understand cash position in the moment and be able to forecast effectively.
Everything that I've mentioned here are table stakes for many of the businesses that recipients of this newsletter are familiar with. However we've experienced that absolutely not being the case, and that represents a huge opportunity.
Here's to the second coming of digital transformation. Tikto is going to drive, and be behind some of that £418bn in value that technology will deliver to the UK over the next decade.
Tikto Capital
At Tikto, we purchase majority stakes in EBITDA profitable businesses and follow that up with incremental growth capital. We bring our network of experienced operators to help execute a business plan for the next phase of our portfolio companies' growth.
Get in touch: hello@tiktocapital.com