The Day After

On Sunday we woke up to – well pretty much the same flavour of government we had the day before, thanks to voter apathy and one or two quirks of fate. Although Prime Minister Key has predictably adopted the position of “business as usual”, the next three years look anything but usual.

Saturday’s election outcome was fairly consistent with what the polls had been predicting in the week prior. But the returning National government will need to tread warily and not drift too far right. With 48% backing from two thirds of the enrolled electorate meaning only 32% of the adult population has their support. If parties on the Left can better galvanise voters in 2014, the outcome may be very different.

There was some good news in that potentially disruptive, extremist political parties ACT and Mana had their support base obliterated. The one exception was Epsom where greed and stupidity seems to have prevailed. Even the Labour voters in that electorate wasted the opportunity to excise their controversial and divisive former mayor. It may be a moot point, with the ACT party imploding on election night and Banks set to become a National minister in all but name.

The other piece of good news was that the Greens achieved their goal of topping 10% in party votes. An astounding effort after intelligently repositioning themselves over the previous 18 months since the departure of some of their looney fringe elements. The Greens deserved these gains and I hope Key will continue the relationship which has already seen the adoption of some of their more sensible policies. The Greens were also the party that proposed a clean technology fund for New Zealand companies in their manifesto and who have made a commitment to clean up our cow shit infected waterways.

It’s clear that Europe isn’t out of the economic woods yet and China may be on the verge of deflating. A steady hand will be needed on the tiller in the medium term. National would do well to form an inclusive government that sets a cooperative tone for the challenges that lie ahead.

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.

 

 

 

100% Puree

The recent media clamour criticising Tourism New Zealand’s new campaign threw up some intriguing responses from a seemingly random selection of  “marketing experts” who had been canvassed for their views, but who completely missed the real problem with the new approach.

With New Zealand already ranking as third strongest “country brand” for tourism last year, you would think that Tourism New Zealand might think twice about giving up on their successful twelve year old promotional style that focuses on New Zealand’s natural attributes such as landscapes, flora and fauna. 100% Pure New Zealand has evolved into 100% Pure You. I’m not sure if that is a reflection on our increasingly tenuous environmental credentials or the fact that the next generation of global travellers are more self-absorbed. Perhaps both.

The new campaign is obviously a response to the Aussie battle cry “where the bloody hell are you?”. All of the actors in the video clips are youthful, white, middle class, which not only belies the multicultural nature of Australian society to which it is targeted, but also politely ignores the fact that the fastest growing inbound tourist sources are in fact other places like China and India. The new campaign strengthens the message that New Zealand is all about hedonism and short term gratification – a message that resonates with young backpackers.

Unfortunately backpackers have the lowest per diem spend of any segment in the market. Shouldn’t we be focussing on attracting more of the upper end of the market? Don’t get me wrong. I’ve backpacked all over the world myself and it was character building and great fun at the time. I’m not for one minute suggesting we limit access on the basis of disposable income. I’m simply suggesting we revisit where our tax dollars might best be spent for greatest return.

Tourism is a huge part of the New Zealand economy, but it has a considerable environmental footprint and creates little ongoing value. It’s all about extracting short term gains from renting as many seats as possible. Jobs in the tourism service sector are generally amongst the least well paid. Perhaps we need fewer “freedom campers” pooping on our roadsides and more doctors and their families from Bangalore enjoying our sparsely populated geographic beauty. Dare I suggest it, but maybe we could also get them thinking about investing in New Zealand, whilst we have their undivided attention.

Local VC Laments Science Funding Deficit

I enjoyed Fiona Rotherham’s recent article in Unlimited magazine featuring the scientist who is inventing red-fleshed apples. But local venture capital investor Stuart McKenzie’s comments in the same article about the lack of science investment are a chilling reminder that New Zealand continues to underperform in terms of raising capital for technology commercialisation.

Hitching our economic success to agriculture is a sensible strategy in some respects, given our natural assets; but it should not be the only strategy. Agriculture alone cannot improve our economic fortunes; especially since the added value component remains tiny. Considering the deleterious effects of pastoral greenhouses gases and waterway pollution from farm run-off; if we are to enrichen New Zealand with more knowledge intensive businesses there simply must be a diversity of approaches.

Even more troubling is that there is a perfect storm brewing. As local VC funds begin to mature it is not entirely clear where the new funds will emerge from. Existing venture capital funded projects are looking for their next funding rounds to take those businesses to the next level. So, in the current economic climate, investors are naturally more inclined to look after the projects already on their books. It is harder than ever to get a true “start-up” company funded.

The government has set an aspirational goal of catching up to Australia by improving economic productivity, but it has confused business productivity with GDP per capita. Productivity is not the problem. The problem is we need to be exporting knowledge not farm commodities. Securing sufficient capital to commercialise and scale up our portfolio of intellectual property is the only way to achieve this.

Innovate at the Point of Pain

I get a lot of ideas across my desk and I’ve learnt the hard way that you need to question everything before offering to back someone else’s idea with your own reputation. One of the first questions I ask aspiring technology entrepreneurs is – what is the problem you are trying to solve?

This may seem like an obvious question but you would be surprised how many projects are launched on the basis of a good idea rather than upon a soundly researched market. It pays to question the market data as well because, after spending hundreds of hours on development, an enthusiastic technologist will do just about anything to justify their emotional investment in a product.

Many great ventures began as a personal point of pain for the founder. But the ones that survived were those that actually identified a mass market and then went on to execute well. A good idea on its own is not enough and the fact that there is “no competition” is not a selling point either. You need competitors for benchmarking and to validate that a market really exists.

For example at ideegeo we made a conscious decision to build a domain registrar site that rejected traditional norms of presentation because we observed that a lot of people really disliked having to grapple with poor navigation and invasive advertising found on other sites. Although the product caters for a design-centric niche user base, it turned out to be a winner because other companies approached us to help them improve their own offering.

Before you write a line of code or partition off your first protein molecule, ask yourself – where is the point of pain? What is the problem that you are trying to solve and are there a million other consumers out there who are suffering the same pain? If you can answer that question objectively and in the affirmative, you might just have a successful product on your hands.

Seismic Survey Data Decision Rocks

In what amounts to the first substantial new investment by the government in economic development since last year’s election Minister Gerry Brownlee has announced a spend up of $20 million on the acquisition of geophysical data in New Zealand’s offshore petroleum bearing ocean basins.

With a government services spending drought firmly in place one has to admire whatever MED mandarin it was that managed to make the business case for the project. National are claiming it as an election promise delivered, but the reality is that it needed to happen no matter which government was in power and here’s why. In 2006 Crown Minerals went to Court to force petro-giant Exxon Mobil to hand over data that had been generated by the company and its partners but not exploited. About the same time the government began undertaking its own surveys. In 2007 there was another tender round for fresh exploration blocks but the response from major players was muted.

Notwithstanding that legal action by the Crown raises questions about ownership rights and foreign investment; by owning the survey data, the Crown has far greater influence over how it is used. It also mitigates the risk of any further expensive and wasteful Court actions by multi-nationals keen to defend their patch. Exploration companies build survey estimates into their financial reporting data, but will quite happily sit on this information until it suits them to act on it, possibly for decades. The Great South Basin is by far the most promising of New Zealand’s licence areas, but is also the most treacherous. At $55 per barrel small players could not possibly justify the several hundred million dollar invest required to bring a deep water well into production.

Offshore oil exploration is a dirty business and Exxon-Mobil in particular have an appalling environmental track record for which they make few apologies. So the government needs to be careful about how it spreads the financial and environmental risk associated with this game. On the upside, making the survey data available could potentially lead to a multi billion dollar exploration and production investment once the oil price rises again (which it no doubt will). Unfortunately because of the development timeframes involved, it is unlikely to contribute to the economic recovery in the short term.

Can Web 2.0 Save the World?

Last year Umair Haque, a Harvard University technology commentator, vented his annoyance about the fact that the new wave of Web 2.0 start-ups being funded out of Silicon Valley mostly contribute very little towards solving the world’s really big problems. I’m inclined to agree. So are New Zealand’s online ventures providing anything of real social value?

I’m not saying that simply selling stuff and making a profit is not an admirable goal in itself, because it is. Such activities generate taxes and contribute to the fabric of society in a variety of ways. But it would be great to see some more initiatives that have purely social or environmental goals, but with a sustainable business model. So I drew to Haque’s attention a New Zealand venture called Celsias.com. This is a community site that aims to “solve global warming one project at a time”. The site so far has no fewer than 126 global projects listed in which organisations or individuals commit to changing the environment for the better. Celsias also aggregates recent articles on green issues and has a discussion zone where users can initiate conversations on topics of their choosing.

Celsias looks great and makes a tangible contribution to society and probably doesn’t get the attention it fully deserves. Every workplace should have an account on their site. As Ben Milsom CEO of Nexx points out in this well considered blog article, for the most part we haven’t really progressed from simply being online consumers. After all, the sites with the most traffic in NZ are actually Web 1.0, simply replicating real life activities online such as banking and selling consumer goods. As Ferrit discovered, there is not a lot of upside left in this business model. We need more innovative online services that actually solve real problems.

Very few of the most highly trafficked websites offer true interactivity or provide an opportunity to be creative. As a nation, we are possibly not as digitally savvy as we might like to believe. However Ponoko is one site that simply shines because of the way it pools and leverages talent. Ponoko won’t save the world but it does allow its community of users an unusual creative outlet, one that has garnered global interest. It also facilitates collaboration and provides lots of advice and guidance on designing and selling. It is good to see new online business models emerging. Recently launched TribeHQ also takes a fresh approach to online knowledge sharing and, by acknowledging network effects and cluster theory, looks set to redefine white collar recruitment.

But ventures like Nexx, Celsias, Ponoko and TribeHQ can change the world, if for no other reason than that they remind us that the economic order is changing. Unfortunately there is a great deal of inertia out there. The battles with bureaucracy encountered by Nexx and other “social lending” platforms are instructive. The gatekeepers haven’t yet realised that we are in the midst of an economic, technological and social revolution. If a platform like Kiva can be allowed to facilitate micro-financing to clients in developing nations, why can’t we have a peer-to-peer lending platform in New Zealand? If we can get a project like Nexx underway perhaps it would expedite some much needed capital flowing into the technology sector too!

Got any other online ventures that have social, creative or environmental objectives? Let us know.

Almost Free Software – Have Your Cake and Eat It Too

The debate over whether or not software should be made freely available has been around for a long time. Can we afford such idealism? Perhaps there is a middle ground.

There are two different threads when we talk about “free software”. The first involves releasing actual code for public use; the second discussion is about providing free access to an application but without giving away the code. The latter is obviously a lot more manageable these days because of the SaaS model. But why would you bother? If you have to pay for employees, premises and some hosting, you better make sure there is some revenue coming in.

On the other hand, the fact that I can even publish this article here today is a direct result of the “crowd sourcing” approach that has spilled over from the open source community into the development of social media. Also, I’m sure we can all think of plenty of businesses which gave away their software and then built a lucrative consulting revenue stream around it. So there are clearly some tangible benefits to encouraging the open source philosophical movement to flourish and grow.

There was a great discussion thread about the (non)monetisation of Web 2.0 over on Diversity recently. Giving your product away, before you can figure out how to make money out of it, is the quickest way to destroy value in any business argues Ben. I agree. Using venture capital to prop up an ultimately unsustainable business model with over-inflated valuations is an abomination only one step removed from pyramid selling. But, maybe it’s how you go about giving away your software that matters.

We have a couple of products in the pipeline at ideegeo but with two completely different marketing and monetisation strategies planned. The first is a mobile application targetted at a niche audience which we will sell for quite a low margin through an online store. I will be overjoyed if we break even on the time spent developing it. However, it will raise our profile and demonstrate capability. The second product will be given away completely for free through our own website. The hook is that we get paid a small amount every time someone actually uses it (which is often). The clients will happily pay because the application demonstrably drives more business their way. If the application needs improvement, we will also get very rapid feedback.

My point is that the Internet has completely revolutionalised both software development and marketing. If you develop “almost free” software and then make it available to a very large number of users at only a very modest cost, everybody wins.

Next month Unlimited Potential are proudly hosting Richard Stallman as special guest speaker in the lead up to the Geeks, Games and Gadgets ’08 event.

Stallman founded the GNU Project an open source software development project that contributed substantively to the genesis of the Linux operating system. At times controversial, the title of “open source guru” seems quite aptly applied in the context of Stallman’s thought leadership. Social media and especially Wikipedia had not even been conceived of at the time of this 1996 interview, but it illustrates his visionary abilities.

Whatever your position on open source or the debate around competing public licensing systems, this seminar is likely to be a thought provoking one. Registration is highly recommended for what will no doubt be a popular session.

Not in the Spirit of Good Customer Service

I have always been fascinated by things aeronautical and have had a long association with the local aviation industry as both a recreational and commercial pilot. I’m an unashamed plainspotter from way back and I follow developments in the global airline industry quite closely. So it was with some surprise that I read about an appalling incident in which the arrogant CEO of a U.S. airline sent a vitriolic personal email response to a customer that had complained.

I always thought that customers were stakeholders in any business, the oxygen supply that ultimately determines the difference between success or asphyxiation. Apparently not according to Ben Baldanza, CEO of Spirit Airlines in Florida. Spirit is a high growth low cost carrier that primarily serves a niche market between the U.S. and Carribean/Central America. Most of its customers are low to middle income holidaymakers and returning migrants.

Last year Baldanza was forwarded a complaint by a couple who missed a concert because their flight was delayed. The couple wanted a refund for both their flights and concert tickets. In any angry outburst Baldanza “inadvertedly” replied directly to the couple by email instead of forwarding his response to the customer service rep. He basically told them where they could shove their refund claim form. “We owe him nothing…let him tell the world how bad we are.”

That’s exactly what the complainants did, with just about every consumer advocacy and business blog in the U.S. picking up and running with the story. Bad news travels fast. I first read about this incident through an article in Air Transport World appropriately entitled “How Low Can You Go?”. Apparently Spirit Airlines prides itself on the fact that there is no receptionist to greet visitors arriving at their headquarters because this saves 2 cents per customer. It seems like the company has a lot to learn about relationship building and delivering on service.

I mention this episode because it underlines how the Web can be a twin edged sword. Sure it allows aggregation of content and customers and a hefty global reach. But it can also bite back hard when things go wrong. Corporations can no longer rely on anonymity in a connected marketplace. It doesn’t matter that James and Christine only paid 75 buckseach  for their air ticket – they are still valuable customers. Reputational capital is an important part of a company’s intangible asset base.

To be fair, the airline did offer to refund the price of the air tickets only. But why was the CEO even dealing with this complaint in the first place? Clearly not his area of expertise. If your business does not have a quality assurance programme and strategy for dealing with complaints it is fatally flawed. Oh – and by the way, Spirit Airlines made a loss of $US 49 million in 2007.

Research Funding Equity Sought by CRIs

Outspoken AgResearch CEO Andy West has this week raised the volume level over the ongoing debate on the issue of funding uncertainty for Crown Research Institutes (CRIs).

University based research organisations receive public funding based on periodic review of their output performance and through the Marsden Fund. The current arrangements mean that a university PhD project on “Bogan Westies” can theoretically get funding whilst a three year CRI study on bee mites or biofuel feedstock crops might not. The CRIs argue that this is unjust.

The sometimes humourous and occasionally “ACRI-monious” shouting match between Universities and CRIs spills into the public domain periodically. But the debate has a more serious side. It’s bad enough that universities are competing with each other for funding and students but it beggars belief that our national innovation system pits talented researchers against each other in Darwinian fashion. Inevitably some worthy research projects will miss out on resources.

For several reasons I’m entirely in favour of blue skies research that explores social issues or esoteric science which may have no immediate obvious commercial return. Firstly we need to cultivate a pool of intellectual talent across the entire research spectrum and not just in the physical and biological sciences. Secondly, non-commercial research sometimes has unexpected commercial applications and frequently involves building international linkages with agencies and researchers abroad, which can lead to profitable collaborations downstream. Finally supporting a diversity of research is the responsibility of any open and inclusive society.

But as AgResearch point out in their 2020 blueprint for agricultural sciences research in New Zealand, over half of our national income is derived from exporting agricultural produce. Is it fair then that agricultural research organisations feel so hard pressed obtaining secure and long term funding for research that underpins the growth and especially the sustainability of this enterprise?