Paul Wallbank | Paul Wallbank - Communications Professional

A goldmine in your back yard

Accessible capital, a huge market and a collaborative culture are why startup founders are making their way to Silicon Valley and San Francisco

This is the first of four stories I did for The Australian on why entrepreneurs are making their way to the United States’ Bay Area.

A combination of accessible capital, a huge market and a collaborative culture are why startup founders are making their way across the Pacific to Silicon Valley and San Francisco.

Despite their government’s ideas boom and an easier funding climate, Australia’s startups still see San Francisco and Silicon Valley as being the promised land. In this four part series we spoke to Aussie entrepreneurs about why they’ve made the move across the Pacific Ocean.

In a noisy coffee shop just off San Francisco’s Market Street, PixC founder Holly Cardew explains why she moved to the city. “It’s a place you fall in love with straight away – it’s the people and the attitude,” says Cardew. “You can do anything, people don’t look at you as if you’re crazy if you want to do something big.”

Wider horizons

Cardew made the relocation to San Francisco to find funding for Pixc, a photo editing service that in 2014 was one of the first group of startups accepted into Telstra’s Muru-D accelerator program. In moving to the US she found American investors have far wider horizons than Sydney’s business community.

“Investors ask ‘what’s next?’” Cardew enthused, “in Australia, you don’t even think about that. Americans tend to think a lot bigger. Australians aren’t trained to think about it.” Another aspect Cardew highlights about the Bay Area business culture is how individuals are always happy to help out, “people always ask ‘how can I help’ she says.

One of those credited by Cardew and by many of the people interviewed for this is Temando founder Carl Hartmann. In an archetypal open plan shared office in San Francisco’s Financial District Harmann explains why he’s quick to help, “I’m here today because people who were kind enough to pay it forward.”

Being there

Temando, a logistics service founded in Brisbane, was started to address the difficulties retailers had in fulfilling customers orders across Australia. Hartmann moved to the United States at the beginning of 2015 to access North American customers and to tap local capital markets. “When you talk to the SV funds it’s very hard to raise money if you aren’t here,” he says. “In Silicon Valley it’s where the action is. If you’re not here you are out of sight and out of mind.”

“It’s difficult to build those sort of relationships from the other side of the world. When you’re here, things can move along quickly because it’s easy to collaborate on things. It’s easier to work face to face. For us it makes sense to be here,” Hartmann says. “There’s a unique energy where everyone has come from all over the world.”

Jack Gonzales of location mapping service MapJam is an example of how fast things can move for companies in the Bay Area. “Last year we were approached by some of the big players who asked if we had our own map tiles,” he recalls. “We realised we had an opportunity.”

Gonzales was speaking at the somewhat chaotic San Francisco campus of 500 Startups across from the city’s Moscone Convention Center. Mapjam was accepted onto the prestigious startup investment and acceleration program last year.

A goldmine in your backyard

“You have a goldmine in your local backyard and you have to capitalise on that. Sometimes it’s really spontaneous, ‘hey can you guys come in on Friday?’ You can’t do that when you’re overseas,” Gonzales says. “Our main customers are here and I really want to conquer the backyard before I conquer the globe, just within walking distance from here there are thirty major players.”

Australia does have some advantages for startups, particularly in labor costs for skilled developers. “It’s three times more expensive to employ staff in the Bay Area,” says Affinity Live’s Geoff McQueen in explaining why he’s kept the company’s technical team in the firm’s home town of Wollongong

McQueen, who moved to San Francisco in 2011 to seek funding for his venture believes “Australia is a good place to do a minimum viable product or proof of concept” and warns budding entrepreneurs to have more “than just just a PowerPoint pitch” when they decide to make a permanent move.

In McQueen’s view it’s important to at least visit the Bay Area early in the process of developing a business. “Come over as soon as you can – even if you only have a light idea,” he says. “Anchor your visit around a conference, whatever is relevant to your target industry.”

Achieving your aims

Despite not finding gold on San Francisco’s grubby streets, most of the entrepreneurs The Australian interviewed were all happy they’d achieved their aims in moving to the US which vary from easier funding availability, access to bigger markets and a more vibrant ecosystem than those in Sydney, Melbourne or the smaller centres.

Ultimately though everyone mentions the supportive nature of the Bay Area’s startup culture, “people ask what can I help you with,” says Pixc’s Cardew. “You can do anything, people don’t look at you as if you’re crazy if you want to do something big.”

Breaking the small business drought

The small business sector is essential to the broader economy’s health and diversity but in many countries it’s shrinking. How do we reverse the trend?

In most developed countries the small business community is shrinking. What can governments and communities do to grow what should be the most vibrant sectors of their economies?

What happens when a whole industry shuts down overnight? Australia is about to find when its motor industry effectively comes to an end this week.

The fallout for the workers is expected to be dramatic with researchers reporting the soon to be laid off staff being totally unprepared for their predicament.

So worrying is the predicament of those auto workers that Sydney tech incubator Pollenizer is offering small business workshops for laid off workers.

Those workshops will be needed. One of the striking things about the research is just how few of the workers are interested in launching their own ventures despite their poor employment prospects in other industries.

While the auto workers are a group with relatively low levels of education and work experience, their reluctance to starting a business is shared by most Australians with the nation’s Productivity Commission 2015 enquiry on business innovation reporting the number of new enterprises is steadily falling.

Despite Australia’s population increasing twenty percent since 2004, the number of new business is falling. The country is becoming a nation of risk averse employees, something not unsurprising given the nation’s crippling high property prices which puts entrepreneurs at a disadvantage.

Australia’s reluctance to set up new ventures isn’t unique, it’s a worldwide trend with most countries not having recovered since the great financial crisis.

The tragic thing with this small business drought is that it’s never been cheaper or easier to set up a venture as Tech UK and payment service Stripe show in their list the software tools being used by ventures.

The #StartupStack from Stripe

Accessibility of tools or even government taxes and regulation isn’t the barrier in Australia. As the World Bank reports, the country is the eleventh easiest place in the world to start a new venture.

In United States experience shows there’s a range of other factors at work dissuading prospective small business founders – interestingly the United States comes in at a mediocre 47th as a place to start a venture in the World Bank rankings.

A healthy and vibrant small business sector is important to drive growth and diversity in the broader economy. The challenge for governments and communities around the world is to find a way that will spark the small business communities, in a world awash with cheap capital that shouldn’t be impossible but we may have to think differently to the ways we are today.

Tools for new businesses

What are the basic online tools for business? Here’s a quick list on what small and startup businesses can use to get online quickly and cheaply.

What are the basic online tools for business? Here’s a quick list on what small and startup businesses can use to get online quickly and cheaply. This list will be updated regularly and please let us know if there’s anything we should add.

Email

Gmail

Documents

Google Docs

Microsoft Office 365

Open Office

Storage

Google Drive

Dropbox

Box

Websites

Blogger

Wix

WordPress

Accounting

Xero

Saasu

MYOB

Social media

Google My Business

Facebook

Collaboration

Messaging

What’s App

Workplaces @ Facebook

Google Hangouts (being depreciated)

Analytics

Google Analytics

KissMetrics

Tableau

Customer support

Zendesk

Desk.com

Payments

PayPal

Stripe

What Chinese investors are looking for in tech companies

Founders’ attitudes, market position and the opportunity to pivot are what Chinese investment firm CRCM looks for in an investment

What does one of the biggest Chinese backed investment funds look for in prospective companies? During their recent visit to Sydney China Rock Capital Management’s Venture Capital‘s Toby Zhang and Matt Lee spoke about the company’s investment philosophy.

“In general we invest in very early stage investments – we focus on seed to Series A,” says Zhang, one of the company’s partners. “At these stage of development we’re looking at a combination of talent, technology and market.”

“We like to bring these early technology companies to the markets like China and west coast US where we’re familiar, a lot of the companies partner with us because we can help overseas.”

Zhang and Lee were in Sydney for the announcement of their investment into a local VR video capture company, Humense, the fund’s first foray into Australia.

“When we first started CRCM we only invested in Chinese internet companies,” explained Zhang. “While we’re based in Silicon Valley we were looking at what’s going on in mainland China. We’ve launched three additional funds, all three of these are early stage and cross border. We not only invest in China but also in the US, Israel and now in Australia.

Understanding the founders

“We spend more than fifty percent of our time understanding the entrepreneurs and who’s behind the company. When we form a financial partnership it’s kind of like a marriage where getting a divorce is really difficult so you have to really understand the entrepreneurs.”

“Secondly we look for businesses which can easily pivot if they have to. A good example is a company we invested in recently called Music.ly. We were a fifth stage investor in Music.ly while they still in Shanghai, we saw entrepreneurs who we knew from their previous jobs so we knew how talented they were and we were prepared to back them.”

“More importantly though was their business’ focus on social media particularly with the age group that the existing platforms were losing traction with.”

“Finally with technology we’re looking for companies that can create barriers early that allows them to outcompete their competitors.”

Humense’s volumetric capture relies on an array of cheap, commercially available cameras to collect the images, something that appeals to Zhang’s investment philosophy.

Opportunities for Virtual Reality

“We spent a lot of time looking at the VR space, particularly volumetric capture,” says Matt Lee who originally hails from Sydney. “we felt in Australia with the background of special effects and animation so we felt there was a strong talent base we could leverage.”

Toby Zhang sees the fund making more investments into the augmented and virtual reality sectors. “We think AR/VR is a global tech movement,” he says. “Although historically we’ve been mostly investing in Silicon Valley and China, we have been constantly looking for opportunities to get to know start-ups, entrepreneurs, and investors from all around the world.”

It’s notable the Chinese backed fund is now looking around the world for investment opportunities and focusing on VR and AR technologies.

That strategy makes sense as the barriers to entry fall and the tech industry’s focus moves beyond Silicon Valley and into new markets. Where the US investment funds go will be the big pointer of future opportunities.

When government support goes wrong

Government incentives may look enticing for businesses but StartCon’s Melbourne misadventure illustrates the risks

Last year the Sydney startup and business communities were stunned by the SydStart startup conference announcing it was rebranding itself as StartCon and moving to Melbourne after the Victorian government had offered to fund the event.

At the time StartCon’s Matt Barrie and the Victorian government were most certainly in love with Barrie describing how Melbourne was well placed to be Australia’s startup centre and highlighting the lack of support from the City of Sydney and the New South Wales state government.

Sydney’s shame

In Sydney, the announcement caused a great deal of hand wringing as the city startup and tech communities worried that government neglect would see the more proactive Victorian government attract businesses and talent.

Now the friendship with Melbourne is over with Barrie publishing a scathing blogpost on the inertia and duplicity of the Victorian state government.

The tale of StartCon and its falling out of love with Victoria holds a number of lessons for businesses being tempted by the siren call of government incentives and the risks to taxpayers.

What can I announce today?

The announceable culture is endemic in Australian politics. Having announceables is absolutely critical part a ministers’ life and their careers can defined just as much by not having enough good news to announce as being victims of bad press.

In the last NSW Labor government, ministers had hard KPIs they were held to in cabinet which gave rise to Chatswood-Parramatta railway line probably being the most announced infrastructure project in history.

While the current Victorian government may not have those formal measures, Small Business Minister Phillip Daladakis is a very good player of the announceable game. He’s a man with a future in state politics.

The mistake of the StartCon organisers was to agree to public announcement before they had secured the money.

Public service thinking

I’d never heard of Dr Pradeep Phillip prior to his appointment to run LaunchVic but his previous position as secretary of Victoria’s Department of Health and Human Services doesn’t seem to immediately qualify him to run the state’s startup development agency.

His conduct, and that of his staff, in the published correspondence chain are those of classic risk averse public servants. Not a bad thing when you’re dealing hospital procurement practices but when you’re dealing with startups and new businesses it would be nice to have someone with more relevant private sector experience.

A notable part of the Victorian public service’s risk aversion is the language of the convoluted grant agreement where the state government may provide support. This, along with the classic attempt of shifting all responsibility away from the agencies, opens a lot of wriggle room for the government to get out of paying the publicly stated amounts.

Equally the use of registered mail after weeks of ignoring emails smacks of institutional backside covering. This underscores the disconnect between public servants and the business world, particularly with smaller organisations, events and startups.

The futility of government support

For StartCon’s organisers their embarrassing and terrible Melbourne experience underscores the futility of depending upon government incentives to site your business or event.

In choosing where to base a business important factors are the access to markets, labour and capital with affordable office space being another key issue. For event organisers, the access to reasonably priced venues and accomodation for the attendees – two factors where Melbourne has a real advantage over Sydney – are equally critical.

Government incentives are almost irrelevant to those consideration and really only become the deciding factor if the competing locations are equal in the other respects.

Counting the real cost

The real damage though is to StartCon’s credibility – having made the public decision to move to Melbourne with much fanfare the climb down is a humiliation – but, more importantly the event is compromised in the eyes of its Sydney supporters. The chase for government money also draws a scent of hypocrisy among a group known for its Libertarian leanings.

Equally however the Victorian taxpayers should be concerned at how their government is announcing support for businesses and events without real substance. One suspects that a fair proportion of Mr Dalidakis’ announceables have similar backstories.

More importantly Victorian taxpayers should be questioning the nature of support – with the SydStart announcement there was widespread irritation in the Melbourne tech community that a Sydney based event should get such government backing and similarly funding foreign multinationals to setup Australian sales offices in the southern state’s capital is going to do much to build the state’s tech sector.

Australian sovereign risk

Something all Australian taxpayers and businesses should be concerned about is the unreliability of governments of both complexions at state and Federal level. Too frequently promises are broken leaving companies and communities out of pocket.

The shutting down of the COMET scheme under the new Federal Labor government in 2007 and then the incoming Liberal government replacing the ALPs Commercialisation Australia program in 2013 are good examples of sovereign risk where entrepreneurs spent thousands of dollars and hours only to have the grants pulled without notice.

Innovation schemes are only one example, almost every program is at risk when a new minister, let alone government, is appointed. It would be a foolish manager or business owner who would base their financial forecasts on any Australian government policy.

As we saw in the City of Sydney elections, the real key to developing industry is to have an attractive, well serviced location with access to capital, skills and markets. Melbourne may well do that better than Sydney but it won’t be achieved by ministers bearing gifts.

Enshrining business stupidity

A book by two London academics looks at how organisations enshrine stupidity

“In a world where stupidity dominates, looking good is more important than being right,” writes Professor André Spicer of London’s City University in Aeon Magazine.

Spicer and his fellow author Mats Alvesson described their results of studying dozens of organisations for their book The Stupidity Paradox.

What they found is the smartest don’t get ahead in most organisations, but those who conform with the prevailing culture which usually sets a low bar.

We started out thinking it is likely to be the smartest who got ahead. But we discovered this wasn’t the case.

Organisations hire smart people, but then positively encourage them not to use their intelligence. Asking difficult questions or thinking in greater depth is seen as a dangerous waste. Talented employees quickly learn to use their significant intellectual gifts only in the most narrow and myopic ways.

The tragedy is these organisations squander the talent of those working for them. In many respects management is destroying value rather than adding to it.

Probably the most dangerous type of organisation though are those run by managers who want to be leaders.

They see their role as not just running their business but also transforming their followers. They talk about ‘vision’, ‘belief’ and ‘authenticity’ with great verve. All this sounds like our office buildings are brimming with would-be Nelson Mandelas. However, when you take a closer look at what these self-declared leaders spend their days doing, the story is quite different.

Spicer’s article is well worth a read, if only to nod in agreement with many of the organisations and managers you’ve had to deal with in the past.

It’s worth reflecting how organisations are changing in an information rich age. While it’s tempting to think better access to data will improve their collective intelligence, it may be that algorithms only further entrench poor management practices.

Small businesses’ tepid recovery

Since the 2008 financial crisis, most countries are not seeing new small businesses being created.

One of the notable things about the 2008 financial crisis was how people stopped setting up businesses. Faced with economic uncertainty, it seemed most folk decided starting new ventures was just too risky.

The OECD’s Entrepreneurship at a Glance report shows just how dramatic that fall in small business creation since the financial crisis has been with United States’ current new business formation rates at 15% below 2008 levels, Italy’s at 35% and Germany’s at 23%.

Even in Australia, which largely escaped the 2008 crisis, business formations are twenty percent lower. This is despite interest rates being close to zero for the last five years.

Those statistics are telling – despite the talk about tech startups, people are not starting new ventures at the rates they were ten years ago. That’s a worrying aspect for economies and future growth prospects.

Connecting 400 points of voter data

US political parties are showing how organisations can use data in a targeted, sophisticated way

As the 2016 US Presidential race enters its final stages, it’s interesting to see how data is being used by American political candidates and what this means for business.

During last week’s Oracle Open World in San Francisco a panel hosted by the company’s Political Action Committee featured Stephanie Cutter, who worked on Obama’s 2008 and 2012 campaigns, and Mike Murphy, a Republican operative whose most recently worked on Jeb Bush’s primary effort against Donald Trump.

While the discussion mainly focused on the politics – “Crazy times seem to require crazy candidates” says Murphy – it was the technology aspect of modern elections that was notable.

Setting the data standard

The Obama campaign of 2008 set the standard for how modern political campaigns used social media and information, “we revolutionized how data analytics helps predict how people will vote and how they will persuade voters to turn out.” Cutter said.

“We put a big investment into it and Republicans have caught up,” she continued. “The key though was we relied on our own data and nothing that was out in the public domain. We didn’t rely on one piece of data, we had multiple sources. We had an analytics program where we were making 9,000 calls a night where we were predicting the votes.”

Murphy agreed with the political campaigns using data, “the kind of polling you see in the media has kind of vanished in campaigns where they have money to spend on research.” He said, “we don’t do telephone polling any more because we have so much data we can collect.”

Capturing everything

“We capture everything. We have about four hundred data points on the American voter and we’ll have five hundred in the next two years. We’ll be able to build massive data models without phone polling,” Murphy pointed out. “We’re waiting for the tech folk to get ahead on AI so we can predict what voters are going to do in two weeks.”

Despite the amount data collected by US political parties, the real key to success is the candidate’s organisation and management. Cutter made a strong point about the strength of Obama’s campaign team in both the 2008 and 2012 campaigns.

How the US political parties use data points to how businesses will be managing data in the future. Increasingly using information well is going to be the measure of successful organisations in both politics and industry.

Data and the modern movie producer

WETA Digital shows the way on how other businesses will have to manage data in coming years.

Dealing with the massive wave of data flowing into businesses will be one of the defining management issues of the next decade. One company that is already dealing with this is New Zealand’s Weta Digital.

Wellington based Weta that’s best known for its work on Lord of the Rings and is part owned by director Peter Jackson employs 1400 staff for its movie special effects work and has won five visual effects Academy Awards over its 23 years of operations.

Kathy Gruzas, WETA Digital’s CIO, spoke to Decoding the new Economy at the Oracle OpenWorld forum in San Francisco this week about some of the challenges in dealing with the massive amount of data generated by the movie effects industry.

“We have some very heavy loads.” Kathy states. “We push our systems to the limit.”

Applying powerful systems

One challenge is the sheer computing power required, ‘the render frame processes one frame per server until you have four seconds of footage. Sometimes that takes over night or even longer and for that we use a lot of storage,” Kathy says. “The render farm being six thousand servers will write 60 to 100 terabytes of data a day and read a quarter to half a petabyte each day.”

“We need systems that will be very large to handle the volume of data we generate but also be very quick to handle those read and writes.”

“One render could use a thousand computers, sometimes more, and all of those will be reading and writing against the same block of storage so we have our own software layer that directs those loads but we try to minimise the load on our storage but we have the worst work load you can imagine with lots of servers, lots of small reads and writes and many of them random and concurrent with pockets of hot files.”

Despite the automation, the business is still extremely capital intensive. “In visual effects you probably need at least three hundred artists to work on one film, it’s a very labour intensive process to do the artistry and much like a production line.”

Going mobile

The nature of modern movie production means the effects teams are now part of the shoot which adds another level of complexity for Weta. “Although we are visual effects which is largely post-production we do go out with crews when they’re shooting the movie so we can do reference photography,” says Kathy.

“We do 3D scans so if we need to do something digitally and we do motion and facial capture as well,” she says. “There are 240 muscles that we tweak individually to get the expression. That’s a huge amount of data to capture.”

To do this, Weta created their own ‘road case’ that contains everything they need to grab the shots and store the data they need, “you can’t ask the director retake the shot because we missed something.”

Into the forest

“We have to take the case into the forest and into the rain and everywhere. It’s good having that roadcase that has storage, networking and servers in it.” The case, which was self assembled by Weta’s team is “probably the most travelled Oracle system on the planet,” laughs Kathy with “lots of data capture and sub-rendering.”

Weta’s story illustrates just how managing data is becoming a critical issue for companies. While movie special effects is very much a specialised field that’s far ahead of the curve in its technology use than most businesses, they do show the importance of managing and securing their data.

For other businesses, lessons from Weta is understanding your company’s – including staff and customers’ – needs then investing in the right tools to deliver is essential.

One important difference between technology intensive businesses like Weta and most other organisations is the New Zealand company is doing most of its processing and storage in house. Those without the same needs will almost certainly be shifting these tasks onto the cloud.

What’s next for small business – trends in the modern workplace

What are the technology trends affecting businesses of all sizes?

This week’s The Future is now – Trends in the Modern Workplace webinar was an opportunity to look at the trends affecting small and micro businesses.

What’s notable is almost all the topics affecting small business are being felt by their corporate cousins. It shouldn’t be surprising the technology and social trends affecting society are equally being felt

Now the webinar is over, I’ve posted the presentation to Slideshare with the commentary below, we cover established trends like the shift to mobile then ponder the future of business with artificial intelligence and virtual reality.

The presentation ties up with the post I published a few days ago that provides the commentary to the slides.

Seeking salvation in the cloud

In a time of flat markets, companies struggle to find their next growth drivers. Software companies are hoping cloud computing will be their salvation

Oracle CEO Mark Hurd’s keynote at the company’s Open World conference in San Francisco yesterday illustrated a problem facing businesses around the world and its effects on enterprise software vendors like the one he heads.

“Standard and Poor’s top five hundred companies’ revenue growth is at one percent, their earnings growth is five percent.” “It means what? Expenses are going down.”

“This is the problem that the CEO has,” he says. “Why is it hard to grow revenue. All your investors want you to grow earnings and deliver growth. They have little patience for any long story about why it’s so hard.”

“They don’t care about any issues you may have. Grow earnings, grow cash flow, grow stock price. That’s it.”

Growing in a slow market

As a result of that the easiest way to grow earnings is to grow revenues but when global GDP and markets are flat, the only way to grow is to gain market share, Hurd says. “We have to know the customer better, we have to do a better job of marketing and we have to do a better job of aligning our goods and services to what our customers want. We have to improve our products and processes.”

That imperative for companies to cut their operating costs has had a brutal effect on enterprise IT budgets, “over the past five years, the growth in enterprise IT has been flat.” Hurd says, “the growth in spending has been basically zero.”

Customers drive the market

Like many things in the tech industry, the sector’s growth focus has shifted to consumers, “consumer spending on IT has almost quadrupled in the past decade. So while companies are sort of flat, consumers have been spending like crazy.” Hurd observes, “consumers are more sophisticated, more capable, more knowledgeable and expect better services than ever before.”

“Your customer experience is not being defined by your competitors but by technology fuelled consumers. For instance, AirBnB may be defining customer experience for the hospitality industry.”

“People are using a lot of social technologies in their personal lives,” “we expect ease of use, simplicity, clean interfaces are now things we expect in the enterprise side.”

Crimping innovation

In the enterprise IT sector, Hurd believes the flat market means many companies catering to the corporate market are skimping on Research and Development which in turn is crimping innovation, a factor compounded by cloud providers taking an increasingly larger share of the market.

This is underscored by cloud leader Amazon Web Services spending over ten billion dollars a year on R&D. Hurd’s boast that Oracle is spending half of that shows how the legacy players are struggling.

What stands out in Hurd’s keynote is how legacy providers see cloud computing as their salvation. However Amazon’s dominance in that space is a major obstacle for them.

For consumers, big and small, the shift to the cloud has been a good thing in shaking up the existing industry and making new technologies more accessible to smaller customers. For existing businesses like Oracle, there’s a challenge in adapting to a lower margin, commoditized and quickly changing market.

A bigger question though facing all large corporations, not just software companies, is this new normal of low economic growth. Succeeding in that environment is going require a completely different management and investor mind set to that of the last seventy years.