Category Archives: Innovation

Cutbacks Sour Sweet Taste of Success

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Almost everyone agrees that New Zealand needs to produce more high value, knowledge based goods and services to pay its way in the world. But the gestation period from good idea to global superstar can be in the order of five to seven years – and that’s just the ones that survive. Changing the policy settings for research, development and business growth to accommodate political cycles creates uncertainty for long play economic development projects.

In 2004 I made some introductions for a little known Wellington company called Open Cloud. They had a Java based middleware product for telcos that had the potential to go ballistic, given the exploding mobile market. Seven years on the company has a UK office, solid investor backing and mobile telecommunications companies beating its door down. Research and development remains based in New Zealand, a commitment the company made very early on in its evolution. Some forward thinking individuals at New Zealand Trade & Enterprise made sure that doors were opened, even though the company had only a handful of staff at the time.

Waikato company BioVittoria developed a plant based food sweetener that has caught the attention of global markets. Again, this company is a prime example of the kind of enterprises we need to be cultivating in New Zealand. But it too started out small with just its founders and a small number of contractors. The company leveraged research done in New Zealand and diligently built up a supply chain and manufacturing plant in China to process locally grown fruit and distribute the product globally. Even though BioVittoria suspended plans for a share float in 2009, the company instead secured an influential equity partner that will help with growth.

In the face of government funding constraints NZTE recently announced yet another senior management reshuffle and cut the number of direct client-facing roles. They also dumped the Escalator programme, which has been educating small business owners for many years in the art of capital raising. So now that New Zealand Trade & Enterprise has eased itself out of minding small businesses, will there be any support for the next generation of technology and science based ventures that are stepping forward? Intermediaries such as government agencies and consultants do have a role to play in building the networks that small ventures need to scale upwards. We should not rely on economic Darwinism alone to identify winners and losers.

Smart Capital

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Amidst the hand-wringing over Christchurch’s loss of Rugby World Cup games I was once again left wondering why we struggle as a nation to focus on the really important issues that underly our efforts to rekindle economic growth.

In the global scheme of things the fact that a handful of rugby games won’t be played somewhere is hardly world breaking news, especially in comparison to the extraordinary drama unfolding on the other side of the Pacific Ocean. Yet the media spent a good portion of last week hounding politicians on the topic of World Cup venues. It was obvious that McCully and others were stonewalling and already knew the outcome, but there were much meatier issues left untouched. For example, where was the government going to find the $10 billion or more needed for the reconstruction of Christchurch and how will we round up sufficient numbers of skilled trades people to do the work?

Later in the week I attended a closed forum for leaders in the ICT community discussing how we could boost the economic return to the capital city from our industry. It was notable that at least half of the attendees were skilled migrants who, at some time or other, had deliberately chosen Wellington. It really brought home the significance of the contribution made by migrants to our creative industries. Naturally much of the forum conversation was taken up with suggestions around making our city a more engaging place for creative types and telling our story widely and more often.

Disconcertingly however, the topics of identifying external sources of capital and strengthening our entrepreneurial ecosystem were treated superficially. Recently I was reading an article by YCombinator’s Paul Graham talking about what start-ups need to help them stay in a given location. Provide them with financial capital, he says. Accessing creative talent and facilitating cross-pollination of ideas are really important too, but ex-pats don’t have a franchise on these things. Access to smart capital and developing a vibrant entrepreneurial community culture are major growth drivers. These are themes I will continue to be advocating for strongly.

Riding the Wave

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It’s exciting being at the forefront of innovation in your industry and riding a growth wave. But there are dangers lurking in the breakers for service oriented web companies with big goals.

Selling services online front loads a business with customer acquisition costs including infrastructure, marketing and customer support. But if sales are subscription based then cashflow can be lumpy and tends to lag well behind sales conversions. Another reason for this problem is that, for online sales, the payment gateway at your bank holds funds until they are cleared. If you are a new company, the holding period can be up to a month. In the meantime there are bills to pay and mouths to feed.

There are only two ways to get around this problem, bootstrap the business or raise capital. By bootstrapping, the founders are effectively providing the operating capital by contributing their time until the business reaches profitability. This is the approach we took at iWantMyName. Bootstrapping generally leads to slower, more manageable growth and allows founders to retain control. Raising growth capital is a valid strategy as well, but the task itself takes up a great deal of management time and head space that can distract from improving the core business. Ultimately, happy customers are your best source of capital.

Whether or not you go for raising capital, the ultimate goal should be investing time in improving the service offering. This in turn lowers the cost of customer acquisition. By improving the customer experience you should attract more referrals, have fewer support enquiries and enjoy better margins through additional sales of premium services. It seems intuitive, but for us it was a thrill seeing organic growth tick upwards as we gradually improved our site. Happy surfing.

Fantastic Plastic

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Plastic Logic, a company founded to commercialise research from Cambridge University recently secured one of the largest venture capital funding rounds of any company globally. But it has not always been plain sailing for the business which aims to devise and manufacture consumer applications for plastic semi-conductors based on organic polymers.

The US $700 million investment was led by Russian interests who plan to establish a production facility on the outskirts of Moscow. The funding was a lifesaver for Plastic Logic which almost tanked in 2010 due to production delays and intense competition from Apple’s highly successful iPad. Like many technology companies, there will continue to be challenges; but the upside is enormous considering the possible applications of its polymer research such as ultra-thin screens.

Ironically, although research and development was performed in Cambridge, the company initially moved quickly to establish a facility in Germany, in order to capitalise on Euro zone incentives that were unavailable to it in Britain. It makes for an excellent case study into why blue skies science research should receive substantial public funding and why regionally targeted economic development aid should not.

The foundational research behind the company has a New Zealand connection. The research team is directed by Sir Richard Friend a British physicist who currently occupies the Cavendish Professorship in Physics at Cambridge. New Zealander and Nobel laureate Ernest Rutherford occupied the same position from 1919 to 1937. Professor Friend visited on a speaking tour recently at the invitation of the Royal Society of New Zealand and the MacDiarmid Institute for Advanced Materials and Nanotechnology.

Bank You Very Much!

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Over the last year or two I’ve learnt a lot about banks and especially the ways in which they don’t serve their customers. When are we going to build a technology that solves this pain?

Managing an online e-commerce platform means you simply cannot avoid the bureaucracy that is the global banking system. You have to fill out endless forms, pay extortionate fees and generally play their silly game or get cut off. After two years of trading we took the step of opening a foreign currency account for iWantMyName. Six weeks down the track we are finally in a position to accept our first U.S. dollar transfer from our payment gateway. That’s not all. It turns out that I have to actually go into a branch each week to physically transfer money. There is no online banking facility (at least not for small businesses or individuals). It shouldn’t be that hard!

Economists and business commentators have been urging us to participate in the “weightless economy” and go global. Banks on the other hand have no interest in uploading risk by dealing with more small companies. Banks and financial institutions have a vested interest in the status quo and are reluctant to allow a frictionless flow of capital across international borders. Of course if you are a large enterprise, the banks will bend over backwards for you. I’m sure the financial controller at Fonterra doesn’t have to pop down to his local branch to sign a form to transfer a few million Euros in proceeds from the latest global milk auction.

Amazon, PayPal and even TradeMe gave us a taste of what a universal payment system might look like; but these services remain heavily dependent upon the existing banking system because your credit card or bank account is involved at some point. But it’s a starting point at least. Notably, there are increasingly vocal calls for a completely new value system involving the Internet that enables easier payments and that excludes banks altogether. For example, with some services you can perform virtual tasks to earn bartering credits. But that won’t pay my rent or buy me dinner – at least not yet.

Money is a deeply ingrained social institution around which economic commerce has conveniently been constructed. It has no inherent value in itself yet leads to huge inequity in society. Creating a safe, universal online payment system that not only circumvents the banks, but also engenders trust is possibly the greatest challenge facing developers and entrepreneurs today. Let’s do it!

Touch Tech Turntables Triumph

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Ever since the movie Minority Report hit our screens we’ve all been fascinated by the promise of touch screen technology. I think touch tech is going to be big this year, which is one reason why I’m currently working with a young entrepreneur on an interesting project involving tablets. More about that soon. In the meantime, there are other companies in New Zealand that are already well advanced in this field.

North Shore manufacturer Kevin Andreassend grew up dreaming about futuristic multi-media too and he now runs a company called ICE AV that assembles and re-exports tailor made big screen and audio set-ups around the world. The company recently had the opportunity to work a high profile stage equipment provider in London, delivering large screens for a massive DJ gig in the city. The same company also works with other huge touring acts such as U2.

But it will probably be much smaller screens that drive the mainstream adoption of this technology in 2011. Most smart-phones and tablets now have touch screen tech. In fact much of the new technology now driving workplace and personal productivity tools ironically had its origins in the home amongst an earlier generation of electronic games platforms. This will inevitably lead to greater interest amongst the general public in future applications. ICE AV have capitalised on this interest by creating a clever system called Holodesk that integrates a fully interactive touch screen system with a DJ turntable set-up. This creates a new kind of experience for part-goers and has (literally) been receiving “rave” reviews in Europe and the UK.

More Kiwi tech going global – Got an interesting software product or app that you’d like me to review? If it’s made in New Zealand and a little bit left field, please drop me a note.

A Tale of Two SOEs

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Two recent media articles illustrated the different approaches to innovation taken by a pair of high profile state owned enterprises (SOEs) with which I am well acquainted. What these stories have in common are the fact that both businesses were turned around by strong leadership.

Rod Oram’s pre-Christmas cracker about Air New Zealand’s cabin layout innovations was a timely reminder about how (with an injection of taxpayer funded capital) the national carrier went from being a basket case to business success. I love Rod’s work and the fact that he has been for many years a tireless champion for innovation and technology as a way for New Zealand businesses to add value to exports and grow the economy.

The second story was about MetService, my former employer. The NZ Herald article outlines how the company leveraged a stake in a UK company to acquire expertise in the European marketplace. The company executed this strategy under the tutelage of Paul Reid, who is about to move on from the company. Reid inherited a mess when he took over the CEO role several years ago but he forged ahead and infused the senior management with some core competencies that had been somewhat lacking previously. Incredibly for a knowledge based business, the company had limped along for many years until this time without either a human resources manager or a CIO. He also took the time to genuinely listen to any staff member, his door was literally always open.

Being a former Air New Zealand staffer himself and mindful of the highly competitive nature of the industry, Reid actively led MetService away from its traditional aviation market base and into the media and consumer markets of Europe and the Middle East. This has proven to be a good move, although in light of volcanoes and snowstorms and rapid developments in platform technology, aviation still looks like a missed opportunity for the company. Unfortunately, it was very clear to me at the time that it meant a death warrant for the position I was employed in. But now that I’m engaged in a challenging role developing a high growth technology export business that I actually have a stake in, it seems like the best possible outcome all round.

Best wishes for 2011.

W2W Strengthens Entrepreneurial Ecosystem

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Recently Unlimited Potential ran Wellington to the World (W2W), New Zealand’s leading showcase event for early stage web and software ventures. W2W is about building bridges, so we invite technology innovators, entrepreneurs and tech investors to network over beer and pizza and encourage young companies to share what they are working on through either talks or at the demo zone. This was the third year that we have run the event and  I’m personally very proud of what has been achieved so far.

Much of the progress that is being made in promoting technology entrepreneurship in New Zealand is underpinned by communities of interest that are flourishing right now. I shared some remarks about this at the opening of W2W in my capacity as Chairperson at Unlimited Potential. We think it’s important to support developer communities and start-up groups because they nurture the seeds of future ventures and provide a deep pool of knowledge for new entrepreneurs.

If you didn’t make it to the event this year, check out the W2W entrepreneur videos. There is also some images and an event review available.

Thank-you once again Wellington City Council, Grow Wellington, Viclink and Summer of Tech for helping make this event possible.

W2W – Innovators Ready to Roll

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Global Entrepreneurship Week has rolled around already and Unlimited Potential is once again doing it’s bit to promote technology entrepreneurship as a career option. I’ll be working hard this week on a few last minute details for our Wellington to the World (W2W) event on Thursday.

Wellington is alive with tech talent at present and there has been somewhat of a renaissance as geek-preneurs have got cracking launching some great products onto the world stage. In some cases these are second or third generation ventures where there has been an earlier exit. W2W is a showcase event that brings together technology innovators, entrepreneurs and investors to share ideas and celebrate emerging tech ventures from around the region. 

We have a cool new venue this year, so have included a small demo zone adjacent to the bar area in the programme. There will be plenty of opportunity for hands on experience. Some of the companies in the demo zone will also be presenting during the entrepreneur flash talks. The event begins at 4pm on Thursday 18th November with talks by technology researchers from Victoria University. A number of these projects have commercial potential and will be seeking partnerships and investment in the future. Victoria University commercialisation arm Viclink is an event partner, so please support these speakers. 

The event also encapsulates the Summer of Tech launch for 2010/11. Summer of Tech is a great initiative that matches software and engineering companies with students looking for work experience over the summer holidays. It’s an important plank in a strategy to build up capacity and grow employment in hi-tech around the region. This year we are very pleased to have Xero CTO Craig Walker to speak at the launch. There are a small number of places left at the event, so be quick, registration is essential.

Innovation Investment For Tech Minnows Drys Up

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Last year the government signalled its intention to invest heavily in “primary sector innovation”. As an efficient producer of food with a huge and growing consumer market emerging on our back doorstep, it absolutely makes sense to invest in this area, but it should not be treated in isolation. It also sends a disturbing message that high carbon, environmentally damaging industries are the priority.

The official announcement of a $144M investment into the Primary Growth Partnership (PGP) springs from a promise made in 2009 to form a public-private partnership to invest into developing more innovative high value added products and services based upon our existing expertise in farming. But this funding was purloined from an almost identical programme that had already been set up just prior to the demise of the previous government. While the Nats rebranded the package, nothing happened for over a year. In the meantime the global economy tanked and the public’s attention was diverted away from the issue.

The recently announced and much lauded additional $189M in funding for high tech industries also sounds good at first glance, but is worthy of closer inspection. It’s spread over four years and is entirely targeted at larger firms. The problem here is that a lot of the most interesting ideas are being generated in smaller companies that are already being hit hard by the recession. Small companies don’t have a lobby group and tend to be way too busy innovating and simply staying afloat to complain anyway.

Starting-up and growing a tech company has always been a crucible of fire and only the best and brightest will succeed. That is why I’m sometimes a little bit ambivalent about publicly funded handouts. On the other hand, larger firms now have better access to government grants than smaller one, which seems a little unfair. New Zealand is way too reliant on commodity exports and certainly needs to add more value through innovation. But let’s not forget emerging software and high tech manufacturing companies that build and export high value products and services with almost no pollution or carbon attached.

There is a real disconnect between innovation at the coal face within small and enterprises and the resources being made available by government to stimulate these enterprises, some of which will grow to be bigger fish eventually. Under the new system, small companies will self assess their needs and receive training to improve “capability”. That is both laudable and necessary, but it doesn’t help get new products developed and to market faster.

Postscript: In response to my friends at TechNZ. My comments above refer to the new funding. There remain avenues for small firms to access co-funding for small projects from the existing funding pool.