Stop Making Sense

headsA recent article in the Washington Post implored society to stop focusing on tech start-ups and begin encouraging more entrepreneurs to start mainstream businesses, because these have a greater chance of both generating new employment and staying the course.

The logic behind this proposition is based on demographics. As “millenial” entrepreneurs come of age, there’s an opportunity to further empower the founder pipeline with better business education and a stronger emphasis on mentorship. Idealistic young people from this generation have a more diverse view on what kinds of businesses interest them and a more holistic understanding of what the art of entrepreneurship looks like in the context of social and environmental responsibility. An overemphasis on tech sector could therefore be limiting because of its somewhat linear narrative.

Much of the mythology around tech start-ups is media driven and does not necessarily reflect the wider tech industry of course. We generally only hear about the success stories of companies that raised millions in funding or had huge exits. We are rarely informed about the 98% of tech start-ups that never get funded or those that crash and burn within a few months due to lack of product-market fit. Moreover, we do not hear often enough about value creation and social equity as measures of performance.

This is partly why I cringe whenever someone suggests we need to build an entrepreneurial ecosystem just like Silicon Valley. There’s more than one way to grow a company. But much of the prevailing wisdom involves companies “getting offshore”, setting up shop in the Valley and networking madly until they score a round of funding. This is not the only pathway. With iwantmyname we proved that it is entirely possible to bootstrap without capital and grow organically, simply by consistently delighting customers.

Furthermore, the Valley is no longer the centre of gravity it once was. The focus is shifting as increasingly affluent Asia-Pacific economies look outwards for investible opportunities across a wide variety of sectors. Our friends across the Tasman already know this and have become very successful at building bridges and welcoming more productive inflows of capital. The face of business investment is changing and it’s no longer defined by slick, white guys in big suits. Making sense of this involves us being able to adapt to the new environment through clearly articulating our personal values as entrepreneurs and as an entrepreneurial nation.

Paul Spence is a commentator, technology entrepreneur and is a co-founder of iwantmyname, a New Zealand based global Internet venture. You can follow him on Twitter @GeniusNet

A Year Of Global Entrepreneurship?

It’s Global Entrepreneurship Week this week, with a focus on encouraging young entrepreneurs to step up all around the world. Unfortunately GEW seems to have bypassed New Zealand this year – but not to worry – there’s still a great deal happening in the start-up, tech and innovation space.

But lately I’ve become a little less optimistic that we are heading in the right direction in terms of supporting a high tech business start-up culture. Can start-ups really be artificially manufactured and then massaged into life, like characters on a reality TV show? Why are our academic institutions still failing to commercialise publicly funded intellectual property?

Admittedly incubation has had a somewhat chequered history in New Zealand to say the least and the jury is still out on whether intense “accelerator” programmes can work well in a small, distant and (relatively) capital poor market like ours. But who’s calling the shots on public investments in technology these days? Disturbingly, the New Zealand government’s 2015 science investment round still does not even mention a specific category for ICT. This raises questions about priorities, especially given that ICT companies have a demonstrably shorter development cycle than biotech and manufacturing.

The current crop of start-up programmes seem overly focused on creating opportunities for early stage investors, rather than advancing regional economic development. The focus should be in providing local foundations for high value, globally scalable businesses. For example, the most promising of the recent Lightning Lab alumni almost immediately relocated to the United States. But perhaps I’m missing the point? The departure of Lightning Lab itself from Wellington also underlined for me precisely why public servants and executives in suits should never be allowed to meddle with “innovation” initiatives.

Maybe none of that matters, because ultimately it’s the educational and motivational opportunities that are most meaningful. The various initiatives on offer also raise the profile of entrepreneurship as a career option. That’s important because it’s clear that the continuing lazy media obsession with sporting and entertainment “heroes” does little to encourage our young people into business at present.

What is encouraging however, is the fact that techies and start-up fanatics have become a lot more self-organising lately and are just getting on with it. I daresay the majority of interesting tech start-up companies of the future will probably get going in the same old way they have done historically – with a couple of mates bouncing an idea around over a beer and then raising some cash AFTER they get customers on board. Those companies will be thinking global from day one if they are smart. Global entrepreneurship should be the focus all year round.

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Paul Spence is a commentator, technology entrepreneur and is a co-founder of iwantmyname, a New Zealand based global Internet venture. You can follow him on Twitter @GeniusNet

Tech Scene Blossoms In Sunshine State

2013-04-16 16.09.21The annual pilgrimage to the West Island came around a little earlier than usual this year with the opportunity to attend TechConnect, a public conference for tech startups, investors and advisors held in the three main Australian city centres. I attended the Brisbane event and was pleasantly surprised to find a quietly confident and emerging local tech scene with a supportive community backed by real political commitment and publicly funded resourcing. Notably, some of the initiatives also address the opportunity of the national broadband roll-out.

Keynote speaker at TechConnect was Tyler Crowley, co-founder of This Week In Startups, professional pitch coach and advisor to governments looking to develop innovation ecosystems around technology. Crowley’s advice to start-up clusters was simple. Build a tech hub and identify a “documentarian” to champion the cause. He also recommended promoting more tech meetups and nailing down some sponsors to shout a few beers. Seems like we’ve been doing these things already in New Zealand, so it was encouraging to hear this and underlined our commitment at iwantmyname to support our community.

Brisbane’s start-up scene was abuzz during conference week because of recent news that Twitter had bought local company We Are Hunted. The acquisition was essentially a talent grab as Twitter works towards integrating music services into its platform. But such stories will certainly embolden the Aussie start-up scene which has produced a number of shining stars in recent years. Freelancer is a site that leverages the shift towards web-based out-sourcing and which has grown in leaps and bounds. Everyone agreed Freelancer CEO Matt Barrie gave the best talk at the conference and it wasn’t hard to see why the company was forging ahead so well. Barrie is no slouch in the academic area, with several Masters degrees and university lectureships in both network security and new venture development. He was named Australian entrepreneur of the year in 2011.

From taxi drivers to company CEOs, throughout my visit to the Sunshine State I constantly ran into ex-pat Kiwis who’d made the leap across and done well for themselves. A few years back we shared some office space with young upstart Chris Loh who had been working on developing a collective of iOS developer talent. Now he’s based at QUT’s Creative Precinct on the Kelvin Grove campus and just launched a Kickstarter campaign for a cool tablet based gaming system. Tyler Crowley alluded to crowd funding as the next important source of capital for start-up tech firms, mentioning that AngelList recently received SEC approval in the U.S. to offer opportunities to members through a crowd-funding app.

The paucity of start-up capital is a universal conversation topic and Australia is no exception. Venture capital intensity sits at about one eighth of that found in the United States. Odd considering Australia’s $1.5 trillion economy has one of the highest per capita GDPs globally. But why invest in tech, when you can dig wealth straight out of the ground in the Outback? One of the TechConnect speakers had the answer however – “good start-ups always raise capital”, said Jeremy Colless from Artesian Venture Capital, which works with university incubators and tech accelerators. “Generate real value and don’t come looking for investors until you have some customers on board”. That’s good advice.

Paul Spence is a commentator, technology entrepreneur and is a co-founder of iwantmyname, a New Zealand based global Internet venture. You can follow him on Twitter @GeniusNet

It’s Life Jim…

Bernard Hickey’s curious opinion piece in the Herald this week reminded me of a famous quip from Star Trek. “It’s life Jim, but not as we know it.” Normally I enjoy Hickey’s rants, because he frequently questions the boring, unimaginative style of economic management and fiscal policy that we currently have to endure in New Zealand. The new Reserve Bank governor shows little sign of demonstrating any more initiative than the previous incumbent, so it’s important that the media stand up and heckle occasionally. But I’m going to call out Hickey on his stance regarding Auckland’s housing crisis, which sits a world apart from the situation across rest of New Zealand.

Advocating for high rise, in-fill housing in central Auckland is a bit like shooting the goose that laid the golden egg. The lack of housing in the region is because large numbers of  economic migrants have been increasingly attracted to Auckland due to it’s unique lifestyle and are arriving at a faster rate than can be accomodated at a time of low investment in housing. However, if the Auckland CBD is transformed into downtown Kowloon, with row upon row of identical, tasteless concrete apartments, the city will presumably become somewhat less attractive to migrants intent on escaping the very same kind of environment. There is a more obvious solution.

Even us Wellingtonians understand that Auckland is (currently) the economic centre of gravity for New Zealand and we certainly endorse the assistance provided as Christchurch struggles to rebuild. Furthermore, with most of the present government senior cabinet members originating from either Auckland or Christchurch regions, it’s been clear for some time where the chief investment focus lies. In the meantime Wellington is languishing with one of the lowest economic growth rates of any region, despite its diverse economic base.

Business activity here in our region powerfully leverages a creative workforce and increasingly invigorates high value, knowledge based export businesses. Provincial areas such as Northland, Gisborne and Wanganui have mild climates and vast tracts of land available, yet are also struggling. Other areas such as Manawatu and Taranaki have held their own, thanks to the dairy boom. But the economic benefits of those returns are no longer shared throughout the community, because of the increasing trend towards corporate farming and centralised processing. What can be done to redress this imbalance?

Surely, if Auckland is bursting at the seams and Christchurch is still awaiting re-building, would it not make sense to actively redirect economic investment and migration to less favoured provincial areas, where it could do most good? Or is that too obvious to contemplate?

Paul Spence is a commentator, technology entrepreneur and is a co-founder of iwantmyname, a New Zealand based global Internet venture. You can follow him on Twitter @GeniusNet

Attacks On Economic Agency Unfair

Grow Wellington may have failed to trumpet its successes loudly enough, but it doesn’t deserve the criticism that is currently being heaped upon it as the seriously flawed Wellington regional economic strategy (WRS) has undergone review. The economic development agency has done a relatively good job of making a silk purse out of a sow’s ear within a recessionary environment in which the central government focus has been on other parts of the country.

It beggars belief that plans are afoot to abscond with $600K of the agency’s annual budget to fund the WRS office to “administer” the strategy. It’s not clear how creating another layer of bureaucracy will enhance the region’s economic performance however. Past complaints by the Wellington Chamber of Commerce demonstrate a deep ignorance of the outstanding network building and facilitation work that Grow Wellington has undertaken and the cheap attacks look like nothing more than a desperate attempt by the Chamber to remain relevant.

Last year’s Rugby World Cup was a pleasant distraction for some, but an economic fizzer for the region overall, as predicted by every study looking at the long term value of such large scale events. But sound academic research and global best practice has never been the basis for the regional economic strategy, a document that was prepared by local management consultants. At no time did the strategy charge Grow Wellington with researching and advocating on regional infrastructure and accordingly the organisation does not employ researchers or economists. One would have thought this was in fact the Chamber’s role, hence their criticism should be directed inwards.

Wellington needs better public transport, an infusion of entrepreneurial culture plus more and ongoing investment into productive and high value parts of the economy, including facilitating foreign capital. On the other side of the ledger, we also need to preserve the quality of life that we currently enjoy because this is the basis for skilled migrant attraction. Look around – at least half of the technology start-ups in the region have been created by recent arrivals. That is an economic success story that should be told far more often.

You can follow the author on Twitter @GeniusNet

100+ Rewiring The Productive Economy

We live in interesting times. Last month I attended a seminar looking at productivity in the New Zealand economy and how we can improve. The most overwhelming aspect of the event however was that most of the attendees were white, male and aged 50 or older. Furthermore, much of the focus was on making changes to macroeconomic settings, rather than making an attitudinal shift. If we are to address this issue in a meaningful way we need to engage with a far broader church, including politicians, scientists, entrepreneurs and investors from across the spectrum who are committed to change – not just economists.

With our over-dependence on high volume, low value food commodities to generate income and an over-investment in non productive assets such as property, we have seen per capita income dropping rapidly over the last decade. The flow-on effect has been a return to net outwards migration at levels unseen in the last thirty years. New Zealand is close to entering a death spiral, in terms of an inability to pay for social services in the future, if we don’t fix this right now! Within the next thirty years we will reach a tipping point at which a minority of the population is working to support the dependent majority.

Each speaker at the seminar was tasked with presenting a simple, yet radical idea that could move the goalposts on productivity, in an effort to stem the flow of emigrants and ensure we can fund our future. Some of the ideas were downright batty, but at least people were thinking and talking – which is more than successive governments have achieved so far. In fact, perhaps the single biggest issue is leadership inaction in the face of political expediency. It will take more than speeches and a cup of tea to solve these problems. So here’s my ten cents worth.

It seems we can easily find $10 million to build a temporary booze hall for rugby patrons on Auckland’s waterfront, yet we continue to struggle to provide a coordinated approach to identifying and commercialising world class science in New Zealand. If the government lacks the gumption to look beyond a three year electoral cycle, then the private sector must take a stronger leadership position on the matter.

There’s plenty of cash sloshing around in superannuation funds, but if it means accessing foreign capital and connections to get on with the job, so be it. Endeavour capital see the opportunity, why not others? We should aim for 100+ Lanzatech or Endace type companies. That requires making project opportunities transparent and going big, whilst retaining a NZ Inc. stake in the intellectual property. It means identifying top talent to lead commercialisation. It will also require a complete change of mindset in some of the more conservative knowledge silos around the country.

 

 

 

CGT A Setback For Innovation

The Global Innovation Index judges nations’ progress against a basket of parameters including infrastructure, research output plus market stability and institutional strength. In 2010 New Zealand surged ahead to 9th place out of 125 countries after languishing at 27 the previous year. But in 2011 we dropped back a little to 15th place, or more correctly, we were slightly overtaken by our close competitors U.S., U.K., Ireland and Canada. Whilst there’s no need for alarm, we must remain vigilant that government keeps the right settings in place and that businesses continue to take advantage of global opportunities by leveraging our creativity and growing new knowledge. I remain optimistic.

Last week I attended the outstanding Ice Ideas conference presented by the much lauded Icehouse business incubator which has a close relationship with the University of Auckland and has been involved in raising $50 million in funding for high-tech companies in the ten years since its inception. The incubator has now set itself the goal of achieving 3000 new business launches over the next decade. It’s an unashamed grab for more deal flow and a call to action for the community to support the initiative financially, for the betterment of NZ Inc.

Incubation is certainly a valuable aspect of the overall innovation ecosystem and I applaud these efforts. But we must also ensure that other structural features are strengthened, not undermined. Not the least of these is ensuring that the spectre of a capital gains tax (CGT) on business asset sales never sees the light of day. On the other hand, some kind of modest taxation of gains on speculative property transactions certainly has merit, in order to encourage more productive forms of investment. Unfortunately the two issues, although related, tend to become intertwined in the minds of the public as politicians desperately seek to gain a foothold.

A capital gains tax on business sales would discourage investment and accelerate the loss of talent offshore by taking away one of the key competitive advantages that we have over other developed economies. It may also have a negative impact on New Zealand’s standing as an innovative and business investment friendly destination.

Speaker presentations from the Ice Ideas conference are available here.

You can follow the author on Twitter @GeniusNet

Brand Value + Cashflow = Win

Despite some over cooked fund raisings causing a few ripples recently . A couple of high profile trade sales underline the value that a great brand brings to a business.

There’s been a lot of talk recently about whether there’s another tech bubble forming, but I see two separate themes emerging. On the one hand there’s companies like Color and Pandora that raised funding purely on the strength of an idea and a solid team. Neither company has revealed how or when they will generate revenue. There was much hand wringing after Color’s VC round and Pandora’s share price crashed almost immediately post IPO. These are worrying signals in a market where entrepreneurs are being told to go out and raise as much cash as possible, whilst times are still good.

On the other hand, there are solid companies with good revenues and little debt that are cashing up through trade sale opportunities. The Go Daddy transaction was a case in point. This deal had been in the making for some time and looks like a win-win for both the founders and the institutional investors in terms of timing. Obviously it was of great interest to us at iWantMyName because GD are the largest domain registrar on the planet, with around a quarter of the entire global market.

Closer to home, the $139M buyout of listed drinks maker Charlies by Japan’s largest brewer Asahi also looks like a big win. What all of these companies have in common are great brand assets. Where they differ is that some of them not only do not generate profits, but in some cases the value proposition is less than clear. Even a great brand cannot compensate for these failings. Winning companies have recognisable brands, high performing systems or technologies and a means of generating repeating revenues. You’d have to be a right Charlie to invest in a company that didn’t have these attributes.

You can follow the author on Twitter @GeniusNet

Cutbacks Sour Sweet Taste of Success

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

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.