Esphion Goes Softly into the Night

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I have to admit I was a little surprised and saddened to read news of the Esphion sale. Five mill U.S. seems like a low price to me. In fact by my accounting, the sale price is less than the total amount placed by investors in the company since it was founded in 2002! Something doesn’t add up here. Possibly the NZ Herald article does not relay the full story and there may well be good reasons for such a hasty exit. But touted in 2005 as one of the top 100 leading edge tech companies in Asia by Red Herring and having secured several major product installations; Esphion seemed destined to succeed. 

But it looks horribly like yet another example of a clever Kiwi idea struggling to gain traction in a global market and then getting gobbled up by a more powerful competitor. I thought the idea was to grow these companies from home and build a high tech economy?  Will the taxpayers, who subsidised the firm with grants and seed coinvestment, have an opportunity to realise an economic return? There’s little point in business leaders and scientists pitching for more government support for technology commercialisation if there is no accountability about keeping these businesses local.

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In the meantime scroll down half a page and we read that China Railway Construction, a former operating division of the Communist Red Army, is about to undertake a $4.5 billion market listing in China and Hong Kong. How ironic is that? Perhaps we should simply forget about the technology business and get into construction instead?

What Christmas is Really About

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Being Christmas time it seems oddly appropriate to be sitting here with the woodburner blazing away and the rain pelting on the roof in the midst of summer. In the corner of my lounge is a large pine tree branch that, when propped up, passes as a rudimentary Christmas tree. The most significant aspect to the tree is that my son and I spent an enjoyable hour or so decorating it with all manner of colourful items. It didn’t matter that most of the sweets and crackers had been disposed of before the big day arrived. What mattered was the love that we put into constructing the edifice itself.

When he’s not with me, I can look at that tree and be reminded of what we shared and it fills me with enjoyment and warmth. That is why the tree remains in place long after the presents are opened and the last mince pie has been consumed. In fact every year I take a photo of my son in front of the tree. Those photos form a pictorial history of his growth and development.

Christmas tradition seems stronger than ever. I believe the reasons are twofold. Firstly we remain in the grip of a headlong rush to consumerism that began with new found post-war wealth over fifty years ago. Christmas provides us with the perfect guilt-free reason to shop. Secondly, “Western society” has been rudely awakened to the fact that there are many competing ideologies outside of the Judeo-Christian paradigm. Christmas is seen as an antidote to these strange exogenous forces.

So Christmas remains as popular as ever. But the best part is whenever I come home and open the front door I am immediately assailed by pine scent and reminded of the time that my son and I spent together at Christmas. That is what Christmas is really about.

So this is Christmas

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xmas_tree.jpgI know that it is traditional to offer up rosy summaries of sterling progress achieved during the past year at Christmas time.  But being a contrarian, I’m not going to do that. Unlike previous years, 2007 was neither good nor rosy on the personal or business front. However I did learn a great deal. C’est la Vie.

I learnt that (a few) people don’t keep their promises and that a good idea on its own is worth nothing without skilled political entrepreneurship (ie. who you drink with) and a little luck. I guess 2007 was the year I didn’t get to “start a billion dollar business from the beach”. But I’m sure 2008 will bring new challenges and opportunities.

Of more concern was that with the aid of armed Police and gagging laws, as a nation we lurched a couple more steps closer to authoritarianism (remember Sleeping Dogs?) whilst on the other hand failing to protect innocent members of the public from repeat drunk drivers, child abusers and escaped violent criminals.

On the economic front, New Zealand again did not invest  in research and development at a rate sufficient to improve our poor OECD standing, because (even though we can afford to) it was not a vote winner. The actual rate of inflation for real people (with cars to run, mortgages to pay and mouths to feed) was more like 10-15%. But more of our income got swallowed up due to taxation thresholds that punish middle class families on relatively modest incomes.

In the meantime our kids are being indoctrinated at school into the racist and politically correct myth of “bi-culturalism” instead of learning English, math and science. Cultural awareness is a good thing, socially divisive dogma is not.

So with the rain pissing on my roof on a cold, grey Christmas morning, I’m starting to see why almost 30,000 Kiwis permanently left our shores for Australia in 2007. We need to turn this around!

At least it’s been fun bringing you the GeniusNet Weblog in 2007. Expect more news, info and opinion on technology, innovation and entrepreneurship in New Zealand. Expect to be challenged, don’t expect sycophancy. I like ideas, even imperfect ones, as long as we can knock them into shape together.

Now special thanks must go to those who shared comments and opinions. I look forward to hearing from you again soon. There are lots more issues to canvas in the New Year, especially with an election looming.

Have a cool Yule and a safe and profitable 2008.

Regards,

Paul

Scaling Up Kiwi Tech All About Attitude

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Serial technology entrepreneur Selwyn Pellett makes a strong case for scaling up tech sector businesses in a frank interview posted on M-Net earlier this year.  From humble beginnings as a telco engineer to CEO owner of one of New Zealand’s hottest technology firms, Pellett has lived the dream and survived to tell the story.

Pellett’s company Endace is one of a small handful of high growth firms that have kept faithful to their Kiwi roots whilst building revenues into tens of millions. In fact Pellet has set his eye on $100 million plus in revenue and sees little downside. It’s that kind of focus that makes the difference between enduring a mediocre performance or riding a sky rocket to the moon, says Pellett who wants to see more Kiwi firms reach for the stars.

By setting goals high plus leveraging executive sales expertise in big markets like the U.S., Pellett reckons NZ tech firms can indeed go stellar. But it takes determination, long hours of work and lots of travel, he says. The Endace story revolves around a great piece of technology and some good timing. But it is equally about attitude.

There’s now a new multimedia resource available called the Leadership Pathway that provides videocasts of well known New Zealand technology entrepreneurs as they share their inspirational personal journeys in life and business. Cultivating a highly aspirational mindset amongst the next generation of innovators suddenly seems more important than ever.

ION e-Letter Nov/Dec 2007

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Welcome to the ION e-Letter.

Leadership Resource Goes Live

A new multimedia site is offering personal insights from business leaders prominent in the area of technology commercialisation. Supported by the Royal Society of New Zealand, leadership researchers have captured a rich collection of video clips in which New Zealand innovators and entrepreneurs talk about how they built their careers and their businesses. The aim of the Leadership Pathway project is to to take young people on a journey of reflection that, through the use of role models, emboldens them to consider a future in business or technology as an attractive choice.

http://leadership.rsnz.org

Instinct Exports Wikipedia App

Wellington based Instinct Entertainment scored a coup recently by getting their mobile Wikipedia application onboard at Singapore Telecom, the island nation’s largest telco. Instinct director Dan Millard says Wikipedia were happy to agree to the idea which allows mobile users to interrogate the site and receive an abbreviated query response directly to a mobile handset. The company are still looking for a local provider to host the product in New Zealand.

U.S. Firms Looking to Buy Up Kiwi Tech

ION has been approached by an intermediary acting for U.S. companies seeking to purchase rights to proprietary ICT. The contact is well connected through his writing and lecturing on technology and is willing to act on behalf of any company with technology patents to sell. Email ION for an introductION.

Offshoring Opens Access to China Market

A software developer in China is looking to provide outsourcing services to resource constrained industry peers in New Zealand. The Beijing based firm specialises in Java/PHP and .Net development for mobile and enterprise applications. Run by a young Canadian educated Chinese chap, the firm has a sound project track record with a number of multinational companies. The developer is also offering to assist NZ firms by tailoring existing applications to the China market. Email ION to make the connectION.

Vaulting to Success

Emergent business consultancy Vault is leaping to the defence of businesses with big plans for growth. The firm offers a tailor-made service to small and medium sized businesses dealing with financial, strategic and organisational issues during start-up or periods of high growth.  “It’s much like having an oncall executive cheer leading team of business and financial experts at your fingertips”, says Vault director Marie-Claire Andrews. As a former advisor to an economic development agency, she helped dozens of small businesses take their first steps.

www.vaultconsulting.co.nz

What’s Happening at ION

At the start of 2007 we completed the Immigrants Online project and wrote up a report for the Asia NZ Foundation. The project looked at how recent migrants make use of online communities to form networks and garner information. Assisting migrant entrepreneurs was an important part of the project. Flowing on from this we are currently considering developing a proposal to identify migrant investors and channel them toward local business opportunities.

At the present time ION is essentially unfunded, hence there has been less facilitation on offer to the community this year. However we would like to acknowledge the ongoing support of the University of Auckland Business School who provide hosting for the ION website and forum. Also thanks go to Revera who assist with broadband. Greatly appreciated.

Best wishes for a Happy Christmas and a safe and profitable New Year.

Paul Spence – ION Executive Officer

www.ion.net.nz

contact  [at]  genius . net . nz

Do We Really Need Ubiquitous Broadband Infrastructure?

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The term “build it and they will come” is often quoted in the context of infrastructure investment. But does it really apply in the case of broadband?

Contrary to popular mythology, the phrase did not spring from a recent Kevin Costner film (shame on you Google!). In fact it stems from the economic history around the development of rail infrastructure in 19th Century England. I recently found a most instructive First Monday article on this very topic that explains the analogy between rail and broadband. The theory is essentially that if you build the infrastructure then businesses and consumers will perceive the opportunity and be attracted to it.

It’s a great theory. The emergence of better transport infrastructure was indeed a precursor to economic transformation of post-Industrial Europe and America. But if we are now doing business in the “weightless economy”, then does success neccessarily hinge upon widely dispersed physical infrastructure? After all, clever people have been sharing and selling their ideas well prior to the emergence of the Internet. More importantly do we really need ubiquitous (and expensive) high speed broadband to every home? I think not. You don’t see a bus stop or a train station at every front gate, do you?

A great deal of time was taken up at last week’s Digital Summit conference discussing the various merits of dispensing fibre to node and fibre to the home as a solution to the network speed issue. ICT Minister David Cunliffe also placed a lot of emphasis on this issue in his keynote speech. But if every home has a very high speed connection it simply means easier porn downloads and that our kids spend a whole lot more time indoors honing their gaming skills. I’m not convinced that this is going to lead to “economic transformation”.

Telecom has committed to improving domestic supply and new CEO Paul Reynolds has already won a lot of hearts with his collaborative and open style. A breath of fresh air that should bring change. But the real issue for the New Zealand economy is international connectivity – and that may prove to be a much harder nut to crack.

ICT Minister Pulls out Plum from Pre-Xmas Pudding

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Way back in August I wrote about the difficulties being faced by those charged with developing a unifying industry body for the ICT sector and I predicted that ICT-NZ might continue to struggle to gain traction.

Last week Communications and Information Technology Minister David Cunliffe drove the final nail into the coffin of ICT-NZ by announcing the establishment of an ICT industry super body that will also mop up whatever remains of the Digital Strategy funding pool. No doubt this move will provide fuel for conversation over the tea cups at this week’s Digital Summit. At the very least the industry should feel slightly chastened that the Minister himself has had to intervene to find a solution.

The structure and governance arrangements for the new body will be critical to its success. Without proper buy-in from key industry players it will be doomed to circle like a rudder-less ship on a stormy political sea, just like its predecessor. It will also be neccessary for it to articulate a much clearer value proposition to potential members and partners.

Having the government facilitate and partially fund such a body is a departure from the accepted wisdom generally promoted by the economic development ministry however. The ministry has been opposed to public funding of industry networks for quite some time, although the intellectual rationale behind this thinking has never been made clear.

So the government will certainly want a payback on its investment and the new body is expected to provide sectorial advice, be involved in research and manage the Digital Strategy programme. Precisely how industry growth issues will be tackled has yet to be announced.

On balance this is a good outcome. It creates the opportunity for a fresh start and cements government committment to having ICT as a central plank in economic development. But the proof of the pudding will be in the eating.

Movie Subsidies Need More Analysis

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With the Australian government now offering movie producers a whopping 40% rebate on any local expenditure, New Zealand movie-makers, concerned about an exodus to the west, are looking for parity.But can anyone name another industry that receives such exorbitant handouts?

Peter Jackson and his peers certainly deserve the many accolades they have received for bringing a world class industry to our doorstep, but does that mean we have to heavily subsidise it with public money? The industry already receives a 15% rebate for local spend under the large budget screen production scheme. Post-production work performed in NZ also qualifies.  In addition, the film industry has been the beneficiary of government largesse in the form of large grants towards sound studio facilities in both Waitakere and Wellington. The government funded NZ Film Commission also provides co-funding for selected feature films.

The Film Commission claims that 2 million New Zealanders went to see a locally made production of some sort in the last year, so there is no question that the industry is in good heart. Of course part of the reasoning behind providing this support is that it showcases New Zealand scenery and exports our culture to the rest of the world. But I can’t think of any “large budget” local production that has done this since Lord of the Rings (although there has been several smaller budget projects). Animated productions like Halo or Tintin certainly do not showcase New Zealand, although they do help to maintain the resident skill pool.

The bottom line is that there needs to be a full economic analysis before any increase of public investment in the film industry. I’d love to know how many permanent full-time jobs have actually been created for actors, animators and technical support crews over the last five years. My understanding is that many of the crew positions are sub-contracted to itinerant workers on a part-time basis, some of whom depart the country between gigs. What has been the net increase in the tax base as a result of the growth of this industry? Given the complex nature of foreign controlled licensing and distribution, what is the actual export return from a NZ-made feature film?

Film receives most favoured status because of the perceptions of glitz and glamour and because film producers are very good lobbyists. And what politician could resist an offer of front row seats on opening night?

Callaghan Questions Biotech Focus

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Renowned science commentator, author and physics researcher Prof. Paul Callaghan this month embarks on a nationwide speaking tour, sponsored by the Royal Society of New Zealand. Winner of numerous awards and prizes during his career, Callaghan has a simple message for his audience – we need to build on our investment in research, science and technology if we are to grow a prosperous society.

Callaghan is one of a rare species of boundary spanning scientists both willing and able to communicate to those outside of his field. He understands the importance of encouraging the next generation of scientists as well as connecting researchers to entrepreneurs and investors who can help commercialise new scientific knowledge for economic benefit. He is also part of a growing chorus demanding more science funding and a better process for allocating resources within the national innovation system.

Prof. Callaghan’s passion for science is obvious when he speaks in public and I look forward to attending his Wellington event. He discussed at length the importance of science to the economy in an interview on National Radio’s Sunday morning “Ideas” slot recently and reminded us how improvements in our quality of life have come about through advances in technology. He also said that similar sized nations such as Israel, Finland and Ireland are now enjoying bouyant economic times in part due to substantial past investments in research.

He also alluded to some concerns about where the focus lies in terms of New Zealand’s national innovation framework. Citing a strong track record of commercialisation in the physical sciences and engineering technologies, he suggested there was an unwarranted emphasis on biotechnology, despite its promising global outlook. He says New Zealand has struggled to gain traction in biotech because of the huge capital requirements and long lead times that sometimes overwhelm small firms seeking product accreditation and then sales in distant markets.

Callaghan suggested that we need to keep an open mind about where we invest in research, science and technology because good ideas sometimes spring up from unexpected places. He quoted the example of Peter Jackson and the film and graphics industries that grew around his business. Encumbent government Minister Pete Hodgson stated that he was listening to the views of the science community and he was mindful that New Zealand’s investment, although improving, was still below par. He said that forthcoming changes to the tax treatment of R&D from next year should be of assistance to the sector.

Prof. Paul Callaghan tours the main centres from 13th November.

Research Funding Equity Sought by CRIs

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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?