Why Bitcoin’s demise could be good for Silicon Valley

It’s the end of Bitcoin as we know it, and I feel fine.

My apparent giddiness over this news is not about Bitcoin per se — although my RoseRyan colleagues had tracked its progress and discouraged CFOs from taking on the risk — I wouldn’t wish such big losses on anyone.

But it has created buzz in more ways than one. I don’t think I have had more e-mails and comments from my friends and colleagues in the last few years than I have over the past several weeks regarding the cryptocurrency. The heat was turned up with the recent announcement that Tokyo-based Mt. Gox, one of the largest Bitcoin exchanges, rapidly closed up shop amidst a potential loss of $473 million of its users’ money.

Now the buzz will shift toward the complete revolution happening in the payments business and its effect on Silicon Valley, and this is a change I’m excited about. PayPal, Square, Google, Apple and others are transforming the world of payments, by inserting themselves into a process that has been owned by the banks (full disclosure: I actively use PayPal). Gartner estimates that mobile payments alone will top $720 billion by the year 2017, up from $235 billion last year. The expansion of payment options will mean everyday Americans will hopefully no longer get so nickel-and-dimed on financial transactions.

In regard to the next “big thing” mantra of Silicon Valley, the payments business is already in full frenzy. It is your classic innovators dilemma: Venture capitalists are funding young, innovative startups; midsize players are adopting the changes; and banks — typically slow moving elephants — are running scared. Why? Those teeny-weeny payments add up. There were $15 trillion worth of retail transactions last year. The upside is huge not only because of transaction fees but also the ability to harvest large troves of consumer data. Security concerns will be an issue as players position themselves for the gold rush. This fast-moving train is a tough one for bureaucrats, who try to promote innovation but who must also put in place adequate consumer protections.

With Bitcoin, things did move too fast. The Bitcoin issue reminds me of Napster. Initially, Napster was a site to share music files and was frequented mostly by teenagers who were not willing (or couldn’t afford) to pay for digital music files. Napster caught a lot of heat for allowing a forum of users to access illegally obtained music, and it was subsequently shut down. A result of the Napster shutdown was that Apple came into the same space and built an incredible music delivery engine — iTunes on the iPod, then the iPhone and now the iPad — off the back of 25 billion–plus songs that have been downloaded since 2003.

How does the disruption to the music industry relate to Bitcoin? Stay with me here. Bitcoin’s ubiquitous network has allowed people throughout the world to anonymously transact commerce. It was envisioned to have tremendous ease of use, to be something as simple as email.  Although there are many differences with the PayPal network (and other networks), a key differentiator is that Bitcoin does not take a toll every time a payment is made. Once you have created a digital wallet, it is very simple for you to exchange money pretty much the same way that you would purchase something with cash.

So where is this leading? I expect there to be many issues that will continue to impact Bitcoin (lack of a governing owner, security concerns, and exchanges going out of business are among its many challenges). And I do expect innovative firms to emerge in this digital cryptocurrency space — and perhaps there will be multiple winners. Bitcoin “could, in the long run, give rise to one or several very robust currencies,” writes George Selgin, an economics professor at the University of Georgia in a paper on Bitcoin’s properties. “That’s how competition works generally, with winners and losers but with quality generally improving as the struggle goes on.”

And in an MIT Technology Review article, Tom Simonite notes that “even if interest in Bitcoin fades, it could still have a lasting legacy as an inspiration to better-designed forms of digital money.” It took Apple 10 years to get to 25 billion downloads — perhaps the next cryptocurrency will have 25 billion transactions in 5 years!

Chris Vane is a director at RoseRyan, where he leads the development of the finance and accounting firm’s cleantech and high tech practices. He can be reached at [email protected] or call him at 510.456.3056 x169.

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The 5 key traits of trusted advisors

One of the greatest compliments is when clients consider us a trusted advisor. Recently, some encouraging words came from a client that was just getting used to a new accounting method. After working with this startup for months on an assignment, our consultant made them aware of an approach that would give them a more accurate view of their business. “My encouragement to you is to keep pushing us toward ways of working that would be better for us, not just the way we have always done them,” our client wrote in an email.

Not every client we work with needs to make significant changes to their processes, and we wouldn’t just go in and overhaul a client’s way of doing things (unless we were specifically asked to, of course), but there are times when employees and managers get stuck in their ways. We all do. Or we’re not able to see some strategic choices ahead. We all need trusted advisors who can pull us out of our rut, show us a better way, provide us with a new perspective, or just enlighten us on what others in our field are doing.

Similarly, many of us are in a position to be a trusted advisor. Whether you’re a CFO aiming for a tight relationship with your CEO, or a consultant wanting to be viewed as a business partner – and not merely as a “vendor” –  the term “trusted advisor” is a coveted label. It can take awhile to earn such a status, but once you do, you’ll have a whole new level of respect and a stronger working relationship that can lead to longer and better professional engagements.

Anyone who aims to be a trusted advisor and keep that status needs to have the following traits:

Altruism: Trusted advisors always put the clients’ needs ahead of their own. During RoseRyan engagements, we sometimes observe companies getting bogged down with manual processes that could be automated. We could keep our mouths shut about how the client can work more efficiently – and rack up the extra billable hours that result when things take longer to complete. But that is not what’s best for the client, and won’t earn us their trust and loyalty in the long run. By always viewing ourselves as an extended member of our client’s team, we are more likely to come up with solutions and processes that are in their best interest.

The ability to listen: A trusted advisor listens carefully to what clients say and don’t say. The client may not always know exactly what they need or the right questions to ask.  A trusted advisor is always asking questions, assessing the situation and offering recommendations. Trusted advisors are also listening for cues on the corporate culture so that they don’t overstep their bounds when it comes to how and when to make suggestions or implement changes.

A deep well of experience: Specific knowledge of a topic will get you only so far with a client. You may know the ins and outs of lease accounting rules, for instance, but what will really impress a client is your ability to confidently discuss how the rules have been implemented at other companies and play out in real life. Experience all feeds into my next point, as well; someone who has had practical experience and exposure to various corporate situations knows how to adjust to a client’s unique needs.

Adaptability: No client wants someone coming in from the outside with a big ego or an overbearing attitude who insists on doing things their way. This is especially true when a company is in the midst of a big change, like taking on new accounting software or becoming SOX compliant for the first time. Internal politics can really come to a head during such transitions, and stress levels can be high. A trusted advisor has a knack for understanding the politics, rising above it, and using a diplomatic yet direct approach to keep the client moving down the right path, in an efficient manner.

Candidness: Honesty is the best policy in any partnership, and that’s particularly true between clients and consultants. Being up-front with clients is a value we highly value here at RoseRyan, even when it involves awkward or tough conversations. If we have information that will help a client, we share it, hopefully with the right sense of urgency and diplomacy. For example, we pointed out to a finance leader when the privately held company’s finance department needed additional skills to transition the business to the public markets. We went above and beyond to help draft a new organizational chart, which incorporated the talents the company already had on the team as well as new ones to consider, such as people who had experience with SEC reporting.

Becoming a trusted advisor is a privilege that can easily evaporate if you are not careful. When you keep the qualities I mentioned in mind, you can differentiate yourself and become a respected partner.

The rewards of taking the time and effort to be perceived as a trusted advisor are too good to pass up. It engenders long-term client relationships with loyalty and repeat business. It can also lead to more challenging work, which we welcome wholeheartedly. We’re the type of people who thrive on a good challenge and love to have interesting work to sink our teeth into.

When one of your business partners has evolved into a trusted advisor, hold on to that person or firm and see what else they can do for you. They are not always easy to find.

Kathy Ryan is the CEO and CFO of RoseRyan. Since co-founding the firm in 1993, she has served as interim CFO at more than 50 companies.

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Many Silicon Valley companies lack a ‘share price strategy,’ survey reveals

RoseRyan and Assay Investor Perspectives just released their Share Price Survey Results after meeting individually with more than 20 senior finance leaders and directors and surveying others online. We intended to gain an understanding of what private and public companies are doing to actively manage their valuation and share price over time.

It turns out they are making some efforts but lack the expertise and long-term strategy to pull it off well. After the clever pre-IPO road show presentations and after all the investment bankers have gone home, there’s little thought put into creating a comprehensive “share price strategy.”

It’s a hot topic. Share price and valuation always get attention whenever RoseRyan provides thought leadership papers or events on this topic. That’s not so surprising since we are in Silicon Valley after all, surrounded by all the hoopla that accompanies the latest IPO, merger or acquisition – and all the valuations that go along with them.

The excitement is even greater these days as we are in the midst of a busy IPO market. In 2013, FireEye, Portola Pharmaceuticals, Twitter, Rocket Fuel, Veracyte, Marketo and others kicked it off. And the trend is continuing, with anticipation that Box, KineMed, Dropbox, Asterias Biotherapeutics, Square, Spotify, Airbnb and others will soon file as well.

It is amazing how much effort goes into preparing for an IPO. What comes next involves hard work as well. Companies that let the inevitable “post-IPO hangover” take too much of an effect miss out on critical opportunities. Those hot-shot companies will need to take their singular focus off getting to the IPO bell and spend a little time considering how they will maintain their share price and valuation. But most likely they will not. Too often, newly public companies don’t come up with a strategy for how they are going to not only maintain their lofty valuation but also increase it over time.

What to Do Next
Executives usually have two choices to increase their valuation – grow their income or increase their multiple. What the survey results and our discussions show is that companies really don’t understand what the buy-side analysts are looking for. The buy-side analysts’ focus is usually on the multiple and the levers that will move the multiple directly. Most companies focus on increasing net income, which is what most buy-side analysts don’t focus on.

Why is there such a big disconnect? It is centered on the nature of the people doing the work. Most investor relations representatives have either a communications or a sell-side background, and most buy-side analysts have advanced degrees or PhDs in mathematics. And most company executives have MBAs. These different backgrounds can lead to a mismatch in the way these groups speak to each other and understand each other. Basically, they are speaking different languages.

The results of our executive conversations show that this disconnect is causing issues in long-term valuations. Companies’ lack of a solid understanding of buy-side analysts and what really drives share price can expose them to undervaluation. A depressed (from where it should be) valuation impacts recruiting, brand, motivation and culture.

Senior leaders can reverse this trend by deploying strategies that really drive the multiple and having a focused strategy on communicating those strategies to analysts. This does not preclude companies’ need for focusing on increasing income; it just means if they want to supercharge their valuation, they need to have clear strategies that increase their multiple. Read our report, Share Price Survey Results 2013, for the details.

Chris Vane is a director at RoseRyan, where he leads the development of the finance and accounting firm’s cleantech and high tech practices. He is open to discussing ways to positively impact your company’s share price/valuation. Contact Chris at [email protected] or call him at 510.456.3056 x169.

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