The Last Post

Dear readers Angry has left Australia. Here is his last post.

1- Failed Re-Entry


Dear Friends,

Sorry about the long silence - I have left Australia, before you judge let me tell you at some length why.

Almost a year ago I written this letter to the author of a book extolling Australia's economic successes in certain areas:

Dear Sir,

I had read your book over a year ago, just as I was relocating to Australia after 2 decades mostly spent in the corporate world in both the EU and the US.

My in-the-field observations/experiences of the last year and a half in Australia lead me to a conclusion a bit different from yours, if you happened to have just a bit of time I would like to run these past you if I may.

In a nutshell, my observation and experience is that in terms of innovation, of creation of disruptive IP, Australia is truly world class - the world has nothing on Australia. Universities, think tanks, small companies, and other entities in Australia almost routinely generate world class, disruptive ideas.

However, Australia seems to woefully lack the management skills, the know-how, worse, indeed the very culture itself needed to turn all this created knowledge into wealth.

This email is prompted by my current witnessing of yet another spectacular Australian failure, this time in disruptive biotech.

An Australian biotech venture that could have brought hundreds of millions (not kidding, not inflating) into this country and which because of bad judgment will now probably hit the wall, and be trumped for time and marketability by a likely overseas competitor.

This is the 5th time in just over a year I witness spectacular failures.

I also have witnessed small failures - to qualify as 'spectacular' it must be a multi million dollar failure, and a failure that let the torch pass of a significant technological advance for mankind to someone overseas, although the original idea, IP, etc. were born here.

I talk to the people in charge of commercialization, to the VCs, to the managers/owners, formulate plans drawing upon my hard-earned experience overseas, - in what I think is a non-hard driving, well-buttressed, convincing way - with plans, charts, background facts, analyses, examples from similar business cases, etc., etc. and then ... nothing happens.

And then nothing happens. And it's not somehow because of me: the fact that nothing happens hurts the owners of the IP far more than it does me.

To smooth the way, to try and make things happen, I offer to find venture funds, to not charge or to undercharge, I offer to do this, do that. Most often - all in vain.

And then it's too late (a variety of reasons, each case is individual, but usually it's some US-based organization trumping the Australian outfit for time and occupying the ground, becoming the first past the post (whereas they were actually me-toos), staking out the IP and raising unbeatable venture funds, or some other show-stopping event.

It is so bad that I do not frankly have the heart to witness this yet another time. I will probably leave this country again soon.

Perfectly viable Australian innovations - every single one of them could nay should have turned all of the stakeholders into millionaires (not a figure of speech), every single one would have brought countless millions upon millions into this land, every single one went exactly nowhere.


· A company in the field of innovative interactive TV that could have made countless millions allowed their chief competitor to seize the lead, and raise $US 45 million US, 3 months after I had beseeched them to come to the airport with me, now, to go present their mind-blowing demo and concept to a number of high-powered VCs I know in San Francisco. For no discernible reason whatsover did not act- they're most likely dead (no longer paying their staff), even as their technologically probably inferior competitor goes from strength to strength.

· A VC portfolio company whose Website said, 18 months ago ' under Construction', still says exactly the same thing, even though 18 months ago I could

1- have written up their Website in perfect English, German and French (the 2 latter languages representing a huge potential clientele)

2- Found them repeat huge volume corporate clients in the German automotive industry I know very well . Those clients would have put a task force at their disposal to help with deployment, with smoothing out kinks - that's what large corporates do when they seen a worthy innovation that simplifies their day

3- helped them with going through the requisite accreditation processes in Europe. This company can or could have made millions from its products. It's nowhere. How long till a US or even EU competitor hits upon and develops the same idea? Why all the monies lost or not made in the interim period? What's the point?

· A chemical products company that turned down venture commercialization monies I raised for them in the US for free (USS$750K, A$830 at the time, for a modest 10% equity) in a bid to go it alone. That was almost a year ago. They're still nowhere, and someone else might very well come up with their idea soon and conquer the world with it.

· A Web 2.0 application developed by a University lab, whose government-run commercialization company took their sweet time to respond to my offer to give me the authority to go raise funds for them in the Silicon Valley (because, they said, they were internally restructuring !!!) - and even as they were doing nothing - a 21 year old California student came up with exactly the same concept and raised 5 million dollars from VCs in the valley - exactly the sum I had nominated.

· A Biotech company with a disruptive advance in drug manufacturing, addressing a multi-billion dollar issue in drug manufacturing ... an HR processes company ... a disruptive defense/security products company with the potential to make huge amounts of money upgrading/changing airports the world over ..... and more. All nowhere.

One key problem of Australia, it seems to me (I would never have thought that I would elevate this apparent failure of character or even sin to the level of existential virtue) is the absence of .... greed. The lucky, laid back country.

At considerable cost to myself (I sold my property overseas to fund the launch of my business here) I tried to make a difference to the innovation / IP-generation sector here. I proposed solutions, I accepted to undercharge or even not charge at all, I pled with local 'VCs', I tried to put together creative business constructs. All in vain. I repeatedly saw perfectly viable innovations go exactly nowhere. I saw US concerns come up later with the same concepts and grow them to unbeatable strengths within months, even as the Australian innovators did not make any money from their earlier innovation.

In the meantime, our foreign debt of over half a trillion dollars I keep hearing is 'not an issue' - even as I keep seeing Australian know-how that could bring millions into this land go underutilized.

Australia seems to have many of the traits of social democracies like Sweden - where a few very large companies thrive but where small companies find it difficult to grow and survive, because of a lack of entrepreneurial culture, the lack of a nurturing commercialization ecosystem. With the innovation born here within University think tanks, and countless small organizations across the country, it seems to me that this country needs a smidgen of US type culture - where every last little village seems to have at least one local VC, dedicated to the success of their community.

Sorry about the tirade. This last year and a half has been immensely frustrating ..... Maybe you could have a couple of success stories to share....?



I have now left Australia, again. This was not the plan. Two years before Kevin Rudd's admonition to Australian expats in London to "Come home - Australia Needs You" - I did precisely that, determined to contribute to the business and monetary interests of Australia's vibrant and uncommonly intelligent innovation sector. Two years later, significantly poorer, I have thrown in the towel - this book is the story of why. I did not leave lightly. But leave I did, and, despite our new PM's facile admonition to a million Australians overseas, I did not have a choice.

In Europe, I am now setting up a US-backed global initiative in one of the hot business fields of 2008, an initiative that will let America partake of the success of European business, whilst at the same time feeding back into Europe American ideas and innovations - and, on both counts, vice versa.

Back in Australia, before I left, I of course tried to involve Australian interests in the venture, and make it a European-Australian-American initiative. I had had no difficulties involving Americans, even in this era of economic uncertainty and business overcautiousness. To Australian interests I contacted, in Melbourne, Brisbane, and Adelaide, I offered exceptional conditions to become involved in the venture. No one was interested. As I have come to expect as a matter of course from business people in Australia, they all came up with all kinds of reasons why not, as opposed to reasons why.

Meanwhile, our first steps in Europe are extremely promising, businesses across the European mainland are keen to be part of the initiative. Once again, of their own volition, Australians are missing out on the action, on reaping the benefits and the dollars stemming from a truly global, leading-edge venture. Furthermore, all of the substantial nonlinear advantages that participation would have brought - a technology scouting platform and capability in the capitals of the EU and in the US, whence to observe relevant developments in topical fields; contacts with movers and shakers at the leading edge of international business; further global outlets for Australian business - are largely lost. Efforts to involve Australian interests at minimum risk and extremely favorable conditions were turned down by folks fancying themselves, no doubt, wise and brilliant, no-nonsense hard-nosed businesspeople.

My contention could be, with some justification as we shall see, that Australia's business class betrays the nation - through private interests at variance against the common interest, through do-nothingism and incompetence.

But we are a democracy: our business class is ourselves, too. As I will show here, some of our deepest-ingrained cultural attitudes, some of which evolved for valid reasons at the time when our inauspicious early beginnings shaped our mindsets, now only serve to defeat us in a vastly different world.

It's even worse than that. What thoroughly defeats us in the competitive world of global business today is the combination of a confluence of separate traits that evolved, for at the time valid reasons, some two hundred years ago. We'll look at this in some depth in the following pages. And mindsets are the hardest things to change.

Since I wrote the above lines, our foreign debt - money we owe nonresident foreigners, money that accrues significant interest for as long as it's not repaid in full - has ballooned from an already gigantic $540 billion to now $620 billion, and counting. This is more than the aggregate worth of say, every single vehicle, car, truck, bus, motorcycle in Australia. There are those who say that this level of foreign debt does not matter. I submit that it does, very much so, and a special chapter will examine both views.

Serendipitously, a few days after I arrived in Europe, I received the following invitation from the IPRIA (The intellectual Property Research Institute of Australia ) and the University of Melbourne:


Does Australia have an Innovation Problem?

Book launch and panel discussion

Supported by Melbourne Business School and IPRIA
Senator the Hon. Kim Carr, Minister for Innovation, Industry Science and Resources will launch the new book, " Measured success: Innovation management in Australia " on Wednesday July 16th 2008 at Melbourne Business School .

The book was edited by Dr Peter Cebon of the Melbourne Business School and conducts an in-depth analysis of eleven cases of high-technology innovation in Australia .

While all eleven cases were potential world-beaters, only three or four were truly successful. By contrasting the successful and unsuccessful cases, the book provides insights into the limited success which Australian innovators achieve. The eleven cases are drawn from domains such as software, minerals exploration and smelting, scientific instruments, ship building and biotechnology.

Following the launch a discussion panel will examine the question “Does Australia have an innovation problem?”

The Panellists will be:
Mr Evan Thornley, MLC Parliamentary Secretary to the Premier, National Reform Agenda and Innovation Victoria
Dr Terry Cutler, Chair, National Innovation Review
Mr James Tuckerman Editor-in Chief, Australian Anthill Magazine
Professor Keith Smith, Professor of Innovation, Australian Innovation Research Centre.
The MC will be Ian Harper, Executive Director of MBS Centre for Business and Public Policy

Register online at http://www.ipria.org

You have been sent this information because you are registered as a subscriber to upcoming events. Should you wish to cancel or alter your existing subscription or details, or for any other inquiries, please email info@ipria.org.

The Intellectual Property Research Institute of Australia (IPRIA)
The University of Melbourne
Law School Building
Victoria 3010
Australia
Website: http://www.ipria.org


So, it seems that everybody is saying the same thing. The question why, and the utterly unexpected and hard to redress answer, are the theme of this final entry.

The talk is of 'potential world-beaters' - this I believe effortlessly: I have seen it. World beaters galore, from the many think tanks, R&D labs, incubator parks, SMEs, University skunkworks, lone inventors, etc. of Australia (There is a simple and I believe, convincing theory as to why Australia generates so much great grey matter, but that's another tale.)

In the meantime, the bemoaning of our export performance has become a national good story. In Annex 1, I have reproduced a 2007 article from the Australian, which basically says that it does Australia absolutely no good to continue investing in more R&D and scientific pursuits and research, and that if we're serious about exporting Australia's Intellectual Property we should instead invest in learning the basics of commerce. It certainly is true - but I believe it's more deep-seated and graver than that. I believe that if Australia's business nous is so sorely lacking, it is because of our dominant mindset, of the political and social attitudes prevalent in Australia, rooted in attitudes shaped a long time ago in our history, harking back to the time when Australia was the Fatal Shore, a dumping gound for outcasts. As long as we do not deal with it, we shall continue to fail - as simple and as brutal as that. The choice is ours: keep muddling along undistinguishedly as a struggling, indebted hardscrabble nation of battlers, of bumbling also-rans in the competitive economic steeple chase of the First World, or take at last our place in a leading group of the world nations that shape progress - a position that given the quality of our science and our innovation prowess should rightfully be ours.

It is time for a revolution of the mind in Australia - a profound change in our pet attitudes, our knee-jerk, unthought-through conventional wisdom on a variety of related subjects, our very weltanschauung.

This is the price we must pay to stop being held for suckers.

The purpose of this book is not to just be a long litany of missed opportunities, however we certainly must first take a measure of the extent and the gravity of the problem.

Let us not delude ourselves either in blaming our situation on our being a small country of 21 million people. Israel, a much smaller land with a population of 5 million and a lilliputian land area, performs superbly in generating and exporting Intellectual Property and ideas. Every year, more US patents are granted to Israeli inventors, individuals and companies, than to European inventors - by 'European' is meant from the whole of the European Union, with an aggregate population a hundred times larger than Israel's. And every year, more Israeli companies launch successful IPOs in the US than companies from all of the EU combined.

At the other end of the scale, let us not blame our poor performance on some belated 'African syndrome' either - the curse of certain countries in Africa in the 90's who, when discovering a highly priced resource such as oil or diamonds in their backyards, went on to experience major economic problems brought about by the hitherto unexpected wealth windfall. For one thing, our ore wealth, despite the billions it brings in every year, is dwarfed by our foreign debt - let alone our total debt - and does not even begin to stem the haemorrage of dollars leaving the land into the holdings of non-resident foreigners. For another, real windfall wealth should and can be effectively managed. Witness Norway, a small country where every man, woman and child could easily afford to not work on the strength of the country's gigantic oil reserves and wealth. If that happened, of course, trades and knowledge and know-how and ability to work would be lost by Norwegian society - spelling the disaster cycle to which some African countries had fallen victim to in the '90s. The Norwegian government, of course, has not let that happen through foresight and judicious economic management.

What better way to start than to look at a truly spectacular failure in the making - a slo-mo business train crash?

In all the cases described herein, I have been at pains to disguise cases, names, locations, and to not betray any smoking gun detail, so that no individual particulars can ever be identified.




2- INNOVATIVE BETRAYAL


An Australian Billion Dollar Failure ?

In the process of developing new drugs, the pharmaceutical companies of the world aggregately lose tens of billions of dollars every year, and they are mightily smarting. I have come across a person who has solved the problem, elegantly, surely, safely. He is Australian. To understand, a bit of background is needed:

Genes determine how physical bodies react to medicines, and, for that matter, to any other intake - such as foodstuffs. (Which is the reason why food packages have warnings on their labels, such as 'contains glutens', or 'contains nut products'.)

Unlike foods, however, pharmaceutical drugs today are still developed in a one-size-fits-all, scattershot way, although individual members of the public - i.e. potential consumers - exhibit a very wide variety of genetic makeups, and hence potential responses and compatibility or not to drugs. Is this really a proper way to develop, use and deploy drugs in the 21st century ?

The cost of that undifferentiated, scattershot approach - in terms of money, missed opportunities, halted development, class action suits, and more, is staggering. As if we threw away all the nuts, all the eggs, all the milk in the world because a tiny proportion of the porpulation happens to be allergic to them.

This, simply put, is silly and wasteful.


Well over 99.99 % of potential medicines (technically, potential drug molecules) have adverse or even extremely adverse side-effects to at least a subsegment of the population (oftentimes a tiny subsegment). When such adverse reactions are ascertained, the molecule, and the drug incorporating it, are, today, jettisoned.

This leads to the following consequences:

The cost of developing drugs has skyrocketed, both in terms of dollars (hundreds of millions per drug range) and timeframes (up to 8 years). The vast majority of potentially valid medicines are ditched, which means that medicines that would perfectly work on a sizeable majority of the population are never used.

Even worse, in some cases drug development itself is grinding to a halt. A case in point is antibiotics. It currently costs an average of about 700 million dollars to develop a new antibiotic. In 1946, more than 20 new antibiotics were developed and commercialized worldwide. Over the next five years however, a grand total of only three new antibiotics are expected to be successfully developed and brought to market worldwide.

Whenever only a very tiny subset of the population proves to be incompatible recipients of a new molecule (read drug), this is typically identified late in the drug development cycle - i.e. in the course of the clinical trials phase 3: in 2006 alone, 40 drugs in Phase 3 trials had to be abandoned, leading to an aggregate dead loss to the Pharma industry of 10 billion US dollars (by the time Clinical Trials Phase 3 are engaged, the development costs of the new drug have typically reached $250M)

Even worse, when the subsets of incompatible receivers are so tiny that the possibility of bad recipients within the population has been overlooked during the Phase 3 clinical trials - despite well-honed, proven, reliable, regulatory-vetted protocols - this can give rise to massive and very painful class action lawsuits (cf. the recent Vioxx saga, which led in the first instance to a 4.8 billion dollar class action judgment against Maerckx.)

Not surprisingly law firms eager to cash in on class action initiatives become ever bolder in their proactive search for plaintiffs.

As a case in point, in August 2007 the following bulk email was sent to millions of email addresses in the US, seeking to enrol medication users into a class action suit:

For Leg Cramp Sufferers
Do You Take Medications Containing QUININE?

Important Lawsuit Information

The Food and Drug Administration has ordered pharmaceutical firms
to halt all manufacturing of drug products that contain QUININE
due to potentially Fatal Side Effects.

The Legal Leads Network, Inc.
14545 J. Military Trail #137
Delray Beach , FL 33484



Now - an Australian inventor has found a way and a technology to ascertain quickly, effortlessly and reliably that any particular drug or medicine is always compatible with its user.

In one fell swoop, all of the negative circumstances described above are done away with.

Plus a huge bonus. Through application of the Australian's invention, the scores of medicines that had been abandoned over the years - the treasure troves of past-failed drugs - can now be safely put to use and finally commercialized - saving the pharmaceutical industry billions of dollars in R&D costs.

Because his methodology / system seems superior and faster than any currently conceivable alternative technology, the Australian stands to make hundreds of millions of dollars a year if he licences his system to the big pharmaceutical companies out there.

You would think this projects would have been seized upon by Australia's VCs, entrepreneurs, moneymen.

Think again. Not a single Australian investor wants to hear from him. Every single one he approached turned him down flat.


But if our system, our mindset, were better - this would not be so bad, would it. After all, when no one in Australia would give Andrew Forrester, currently Australia's richest man and a self-made man (meaning his wealth is not inherited) , the time of day - it did not faze him. He went to the US, promptly raised a cool 3 billion dollars for his project (Fortescue Metals), and came back home. Thanks to his wealth, Forrester has been able to do a lot of good within Australia, such as helping native communities in the Northern Territory, amongst many other worthy projects - in addition to helping with Australia's balance of payments.

So you'd think the Australian inventor would simply need to fly over to the US, and present his invention to a handful of selected investors, and come back with a real business in his hands.

And you'd be absolutely right. Of course, some measure of care & caution and knowing where you're going would be called for - you'd want to only talk to carefully pre-screened US investors and VCs (Venture Capitalists), etc.: you don't want to tip off people who would steal your ideas and quickly set up a competitive business. This has been known to happen in the US , so you just want to know where you're stepping into.

Well, this is seldom the way things happen in Australia: imagine: you' d have to pay for a plane ticket to San Francisco ! Out of your own pocket ! Few Australians - with the exception of people like Andrew Forrester - are ready to do that, even, in my experience, those paid hundreds of thousands a year. It is a staggering, gobsmacking, but widespread Australian phenomenon. Paid $200K a year, Marcus Einfeld - a judge! if you please, a man of the law - threw away his reputation, his good name, everything in his life, in a failed bid to escape by any means fair or foul, a paltry $77.- speeding ticket.

Flying to San Francisco, you'd even have to probably pay for a hotel room for a few days, and, peak of horror, might even have to pay a fee to someone who could demonstrably help you with navigating the minefield of the US investment scene there, and provide you with access to the appropriate people - the big boys that are going to instantly spend millions of dollars to turn your idea into a world-beating business if they like it, and if they like you, for a minority equity share of your venture.

But that's not the way our modern Australian mindset works. Numbed by decades of socialism, we have developed a mendicant attitude in this country: the government is in charge of everything. It is not incumbent on - it is not expected that - entrepreneurs and inventors in this country take risks, or assume responsibility for the commercialisation and real world deployment of their ideas and inventions.

We have become thiggers instead of diggers - instead of hard-bitten, rugged self-reliant individuals, we have become handout artists - thiggers, in the Scottish word.

The government of Australia has set up all kinds of 'assistance' programmes, which very often have the exact opposite effect of what they purport to do.

In essence - I will cite several instances of this happening in this book - what happens is as follows: instead of finding ways to commercialize now, to make it happen now (something which in itself would provide further nonlinear advantages, more on that in a minute) , the inventor applies for some kind of export grant or assistance under a variety of extant programmes, be it something called COMET, or something or other managed by Austrade or some other handout scheme perhaps under the aegis of the Federal or of a State government.

The bureaucrats in charge of the grant assessement take their sweet time, the applicant has to go through hurdle after hoop after hurdle after hoop. The whole process can take as little as a few months or as much as 2 years, with a median at the year plus mark.

During that time, another organization somewhere, another outfit, typically in the US but sometimes elsewhere, hits upon the same idea. Raise funds with investors within weeks.

Now here are the things you do as soon as you have raised funds, even if your idea although viable and bright, might not be entirely mature in terms of its execution or readiness to deliver:

Take out patents worldwide, thus shutting out competitors, even those who have been independently working in the same field and developing the same ideas, but who did not take out patents when the window of opportunity was still open, still there to do so - when they still could, and ought to, have.

Create a buzz around the concept or the idea. Become seen as the pioneer, as the go-to person or organization. Be the first past the post. No one ever remembers the number twos, the also-rans, the me-toos: they're too late. Who was it again who also crossed the Atlantic, the second person in history, one week after Lindbergh? How many people failed to successfully launch their Internet bookshop venture, because Amazon beat them to the post - by the way at negligible initial cost?

And here is the full beauty of our slapstick system:

1- Because of the existence of these export assistance grants, the Australian inventor, let's call him Bruce, sits on his haunches waiting for grant moneys to come through, instead of 'hustling' - going to investors, probably in the US, offering minority equity to have them establish him as the leading business in this innovation space.

2- During that interim waiting time, a competitor arises somewhere and seizes and occupies the ground.

3- Bruce's business does not take off . The other fellow is staking out the business space and creating a buzz and taking out all kinds of claims on the intellectual property. If his way of doing things is inferior to Bruce's, that does not matter at all. Visibility, first past the post, and public profile is what counts.

4- The dollars that should have flowed into this country from Bruce's grey matter and ideas flow to the other fellow instead, thus not only not enriching Australia, but actively impoverishing Australia, as becomes apparent from the next point (5).

5- The whole thing above was taxpayer funded: the high taxes levied on the Australian taxpayer also serve to fund the assistance grant. These taxes directly contributed to impoverishing the land, and showed zero return (or rather a negative return in view of what the result would have been in the absence of an assistance scheme.)

6- The cycle continues, and repeats itself.


Abolish Austrade. Abolish most assistance programmes. Abolish all those cushy taxpayer-funded programme administration jobs at Austrade and the sundry other socialistic 'assistance' programs, abolish all the programs, lower the country's tax burden, and watch Australia at last become a contender. Don't believe the analyses that show a supposedly positive return of those programmes: by definition, they measure only the successes - even as per questionable yardsticks - but do not measure an iota of the failures no matter how huge.

Our trade missions overseas - be they State, such as Queensland's, or Federal - are typically housed in luxurious buildings at prestigious addresses, staffed by well paid personnel. In contrast, US trade missions are invariably spartan, with minimal but capable staff largely compensated on results.

Incidentally - there is a further very material reason why you need US venture monies rather than Australian government monies if you're going to make your mark in the world. And if you're going to make a difference to Australia, then you must make a difference in the world: our home market is simply too small.

The following was excerpted from an online blog (at startupnews.blogspot) on Venture Capital. Despite the light-hearted, jocular tone, the message is extremely serious: you need to involve US interests in any disruptive, world-beating innovation. Even if they did not have their devastatingly negative effects, Australian government grants just cannot compete against US interests where it counts: the US and world markets.

Quote

So why give away your company to venture capitalists? It's not about the money. It's about protection. And that's where Sand Hill Road starts to resemble La Cosa Nostra.

I got this idea when I was talking to a young startup founder last night, explaining why people like him give up 5 to 10 percent of their company's equity for money they don't really need. He'd taken enough cash to keep his company going for four years, at his current burn rate.

It's about connections and introductions, he explained. In other words, the venture capitalists make sure you don't fall in with the wrong crowd; just use their lawyers, their accountants, and their bankers, and you'll do fine.

And while the startupper didn't mention this consideration, taking money from a VC also gets you a virtual guarantee that they won't fund a competitor. Like any good Mafia don, a VC takes care of his family. When you need more money, the VC will get together with his friends and take care of it. Sure, the valuation might be usurious, but hasn't he always been there for you?

Where the Valley really starts to behave like the Mafia is when your company starts to hit the big time. Take YouTube, for example, which raised a rumored $25 million last year before its Google buyout. That was enough to pay for two years' worth of bandwidth bills. Did YouTube really need that much cash? Nah. It just needed enough to scare all the other online-video startups, and keep big media companies' lawyers from pushing the startup around.

So there you have it: Forget all the nonsense about providing capital for growth and creating great companies. Today's venture capital is just an elaborate protection racket, making sure no one breaks your startup's virtual kneecaps. And the best part? It's completely legal.


Unquote





3- RETURN


There is still a sports oval at a University in Australia named after my great uncle, an Australian sports hero born in the 1800s. His brother, my grandfather, was gassed by the Germans in World War 1. He came back from that war 'changed', a shuffling shadow of his former self - the very few people still around from that time will tell you that having been gassed with chlorine did that to people. He died a few years after his return, leaving my father and my father's mother in a hand-to-mouth situation and creating, for my father, a difficult childhood.

This in turn led to my father being largely withdrawn and indifferent and, all in all, a bad father. In a roundabout way, I thus paid the price myself for World War 1: a difficult childhood with an absentee, indifferent father.

My father left Australia shortly after his graduation in 1949, and lived all over the world, which is what many University-educated Australians did at the time.

The sins of the fathers being often visited upon the sons, I was also infected by the wanderlust, greener pastures just over the horizon bug - a family version, perhaps, of the old cultural cringe. Although I did spend years in Australia, a steady port of anchorage, I seem to always wind up overseas, and if we use the arbitrary yardstick of having spent at least a year in a place to qualify as having been a resident there, then by that standard I lived in six other countries - Canada, the UK, Belgium, France, Germany, and the US where I cumulatively spent well over half my life.

Life however changed and became serious in 2006 - with the forthcoming birth of our child, I made a decision to return to Australia permanently. Indeed, what better homeland is there for an Australian kid to spend her formative years, and for a by now ageing father to live out his life, contributing whatever skills and efforts he may have to his homeland.

The gist of what I was doing overseas was simple : there are very many innovative enterprises out there. To grow and thrive, these mostly small enterprises need markets. I helped them address markets far bigger than their home & domestic markets.

Innovation - the cutting edge of unfolding and ongoing progress - is in large part driven by small outfits - be they startups, SMEs, small offshoots of larger corporations, or lone individuals. There is probably a reason for this. I have worked in both large and small organizations, and consistently observed that small outfits are leaner, less assured of a future, than their larger counterparts. As such, because necessity is the mother of invention, they are apter to come up with novel ways of thinking, new ways of doing things. Like Avis, because they're not Number One, they try harder. As in the arts, as in e.g. music, security, life comfort, sometimes degrading into happy complacency, is seldom conducive to rocking the boat or thinking differently.

There is another factor at play as well. The rules in place, the relatively rigid ways in which established procedures, hierarchies and policies are enforced within large organizations, lead to the human contributors to the large organization's processes not really caring too much about trying to make a splash outside these established structures. Successful large corporations recognize this (HP, Microsoft) and have created structures to address the issue and remove hindrances against employees' innovative thinking.

In any event my business model - taking knowledge-intensive developments initiated by entities in one territory and finding channels and markets to sell such new developments (embedded as they may be within new solutions or products or services, or slightly adapted to local conditions) into additional, typically larger foreign territories, lent itself beautifully to my planned re-entry into my country.

Indeed - Australia is a hotbed of new innovations, in fields as diverse as biotech, mechanical engineering, sustainable energy, renewable resources, information and communication technologies, disruptive mechanical engineering applications, chemistry, and much more.

By disruptive is meant an invention or a new way of doing things that has the power or the potential to profoundly alter - to disrupt - an existing way of doing things. As a rule of thumb, the more disruptive an invention, the more money it will make, and the more it will change society (A writer in the Anthill Magazine (Australia's magazine devoted to entrepreneurship) aptly described 'disruptive' by using the example of the refrigeartion industry: before the invention of the refrigerator, a whole industry existed to source and ship blocs of ice about. Then someone invented refrigeration - which totally disrupted the existing ice selling industry, and provided great progress.)

Although Australia is a small country, there are proportionately very many Universities, think tanks, incubator parks, lone inventors, and so forth. In a nutshell : a lot of invention, no home market to speak of. A dream environment for what I do.

The thing then, in 2006, is for me to prepare for as smooth a re-entry as possible into Australia.

There is a great way to do this: Look at emerging companies, such as VC portfolio companies, and find some whose products or solutions are easily exportable to the large overseas markets I know.


And then, just like that - I find a fabulous such portfolio company. The first of many, it will turn out.



4- Australian VCs, Business Managers, and Other Anti-Business People

As I read the VC company's Web write-up of this portfolio company, it becomes apparent that what we're talking about here is a disruptive advance in mechanical engineering, with the power to change the way the several industries worldwide work.

The invention is of very wide potential applicability, and if developed successfully would be immediately applicable to begin with in the automotive industry. It would impact the way e.g. cars, as well as any other assembled capital goods such as aircarft, are put together.

The invention was developed by a think tank at an Australian University looking for a way to reduce environmental footprints in industry, who not only achieved their goal in terms of enhancing the ecological friendliness of manufacturing processes, but ended up, as is not seldom the case in engineering, with a number of unforeseen positive side effects, such as speeding up fabrication throughputs and eliminating the necessity of certain time-consuming meta-operations during manufacturing.

In terms of mechanical engineering, it's a killer application. The VC web site however indicates that the structure in charge of deployment of the new thing is still a virtual company, and that the website is 'under construction'.

Two years on - the website stills says 'under construction'. But I'm getting ahead of the story here.

So back in 2006, I call the VC, because I really can help out here.

Really. Some of the largest prospective customers are automotive companies and plants are in Germany, to whom I sold PCB testing solutions years ago. I know them, speak their language, know their hot buttons, how they do business, and why.

My offer to the VC is to spend one week looking at, absorbing their technical documents, then write up their Website with a sales-y orientation in English, German, and French. Then I'll call up a few purchasing managers in Europe - at Mercedes, BMW, Audi-VW, and Renault, fly there, and start the selling process.

The new invention replaces an element in the manufacturing process and costs 11 times more, but a precise cost-benefits analysis (an ROI, return on investment analysis) shows clearly that it is very much in the automotive industry's interest to buy and deploy the Australian invention rather the current, cheaper element.

My talks with the so-called VC do not go well. They do not see the benefits at all of what I'm offering. " You're pushing too hard", whines one of the analysts.

I'm pushing too hard ? Why ? Why don't we just get cracking, move off our haunches? Cannot these guys see the money trains of dollars that this disruptive, brilliant innovation can bring Australia ? Don't they see that this invention will catch up like a wild fire and spread everywhere in the manufacturing world, and relegate the current elements to oblivion?

Over the course of the next few months, I meet with always higher-up people responsible for the do-nothing immobilism - who always come up with all kinds of objections as to why we should not move, as opposed to reasons why we should. If you bear with me, let's look briefly at these objections: they are, essentially, utter piffle.

The first objection that always comes up is 'we're not ready technically, there are some things we must finish up, we have a few parameters to tweak'. This is nonsense, of course. Bill Gates very appropriately comments that if your application, if your gizmo, if your mousetrap is perfect and ready and without any improvable features, then it's already obsolete. Because it by definition has been around too long - the time necessary to make it perfect. Leading edge inventions are always works in progress.

The second stated objection may look good on the surface but, again, crumbles under scrutiny - turns out to be yet one more justification to dawdle, and repair, perhaps, to the ballgame park or the pub: Most of the potential client industries, such as the automotive industry - let alone the aircraft industry - are heavily regulated. As is proper. Any new process component that affects the way a car is put together must go through a rigorous accreditation process - something which, in essence, aims at preventing that a car barreling down the road comes apart in midride, or a plane in midflight.

But Mercedes, BMW and the others would work with us : having recognized that deployment of the new invention is in their material interest, they would set up an internal task force within their company, complete with a dedicated team of engineers, etc. to make it work, and to assist with the accreditation process. You, in a word, would be much better off pursuing the accreditation process with an ally such as Mercedes or BMW or Saab or Renault than on your own, as a small portfolio company in faraway Australia.

Besides, that would also help out with the any 'unresolved technical issues': at almost all large European corporations, there are too many employees, including too many engineers: a consequence of the anti-employer bias of labor laws of the EU. It is well-nigh impossible to retrench people at companies with more than 20 employees in Europe. Over time, it means that by a process of adding but never subtracting there are too many employees in most large EU companies: vendors routinely take advantage of that: A EU corporate client will willingly set up a task force on a vendor's behalf, involving an ad hoc team, co-managed pilot projects, internal help desks, etc.

In turn, this arrangement helps the prospective client understand and look indepth at your solution; they make sure it's adapted to their goals and tweak it if need be. They thus find an exciting project for people who, perhaps, were mildly supernumerary before you came up with a potentially very lucrative project that would involve them. Everyone's a winner here.

I try to explain all this. All in vain.

As I write these lines, it is already two years ago that I tried to get things to move. Two years on, the VC's website incredibly still says 'website under construction' for this particular portfolio company.

Millions of dollars that could have flowed into this country have firmly remained overseas.

The teams at the University who came up with the idea have still not seen a penny from their invention. Although - they just might have received monies from the governmentin the form of grants, although no nett wealth has been created thus far from this invention for Australia. In fact, therefore, this invention has a little bit impoverished Australia so far.

As ever - although I have not looked, I fear that perhaps a foreign outfit may have, or may soon, hit upon the idea. If that foreign outfit - Think tank, R&D, lone inventor …… - does, then they will, as I have observed time and again, capture the patents and the markets and sell everywhere, and eat Australia's lunch.

Who is at fault ?

There is definitely a lack of leadership on the part of VCs in Australia. Australian VCs display all the cultural traits - including miserliness - displayed by the Australian mindset at large, but it is incumbent upon them to show leadership and to counteract the more destrucive traits of the Australian psyche.

Let me here quote this article by Plamaendon published in 2006 in 'The Australian Anthill' - a magazine dedicated to the business of starting up companies, innovating, creating businesses out of Australia's ideas and innovation. Then I recount of the 2005Northern summer, when I took up residence at the GQ Headquarters hotel in downtown San Francisco and proceeded to interact with a number of American VCs.


INSIGHT: Disruptive Innovation
By Jim Plamondon
Microsoft. Amazon. Intel. Federal Express. Google. Due to economies of scale and network effects, these firms are likely to dominate – for decades – the global industries that they created. Australia desperately needs to create new industries as the USA has done and as all other first-world nations are struggling to do. Those nations that succeed will thrive, like the USA ; those that fail will face economic ruin, like Argentina .
A new business theory – “disruptive innovation” – can improve Australia ’s odds in this global struggle, by focusing its investment on small firms with the best chance of becoming tomorrow’s giants. The theory is described in books by Professor Clayton Christensen of the Harvard Business School , first published in 1997.
Understanding this theory has the potential to reduce the risk of early-stage investment and increase returns, because – as Christensen says – commercialising a truly disruptive innovation is “a license to print money, and lots of it.” The theory is now widely accepted overseas, especially in the USA .
However, the theory is almost unknown in Australia . A Google search for the phrase “disruptive innovation” finds only 0.25 percent as many hits in Australia as it does overseas. That’s about 20 times fewer than expected. Alternatively put, in any group of 20 Australians who ought to understand disruptive innovation, 19 don’t.
Without this knowledge, most of Australia ’s early-stage Private Equity (PE) fund managers wouldn’t recognise “the next Google” if they saw it. They might as well choose their investments by flipping a coin.
Apparently, that’s what they’ve been doing. According to AVCAL (the Australian Private Equity & Venture Capital Association Limited), the median Internal Rate of Return (IRR) on Australia ’s PE companies’ early-stage investments (i.e., those investments categorised by AVCAL as “seed, start-up, or other early stage”) has been zero. Even the top quartile has returned only 2.7 percent – less than inflation. Meanwhile, early-stage PE investments in the USA – where disruption theory is known and accepted – have delivered a staggering 41.4 percent IRR over the last decade. At this IRR, Australia ’s early-stage investments would have delivered almost a billion dollars of profit instead of, well... nothing.
Over this period, the USA ’s PE firms invested AU$391.33 per US citizen in early-stage deals, whereas Australian firms invested only AU$65.86 per Australian citizen in such deals. Do Australia ’s PE firms really think that Aussies are only one-sixth as inventive as Americans? Or are Australia ’s young firms, unable to get funding in Australia , moving to the Land of Opportunity , where their disruptive potential is recognised and rewarded?
The USA ’s investment in disruptive firms such as Apple, Intel, Microsoft, Google, and Amazon turned its entire economy around, from a declining manufacturer to the world leader in high tech. As the recent Ajax Fastener fiasco shows, Australia’s manufacturing base is eroding, too. If Australia doesn’t fund its own future giants, then its future could look less like the USA and more like Argentina .
When Argentina ’s boom went bust, it had no new industries to fall back on. Its economic collapse of 2002 wiped out the jobs and pensions of millions of ordinary people.
Ultimately, Australia’s economic future depends on our ability to identify disruptive innovations. It’s the only way we can develop our future giants and share in the heroic profits.
Jim Plamondon



One year before, an early morning of July 2005, I am having a coffee at the the café across San Francisco's famed entrance to Cato Street - the main Chinatown thoroughfare.

The café's already well-thumbed, well-smudged copy of the 'San Francisco Chronicle' shows the picture of a certain Scott Potter on the front page - a Scott Potter who has just started a new VC company in San Francisco called 'San Francisco Equity Partners'.

I have nothing to offer Scott. Nothing. Actually, on second thoughts, I might have something: I might ask him for money. I know of a medical devices company who needs money to fuel its expansion plans in America.

I call Scott from the public phone outside the café. He receives me the next day.

Scott is a so-called big boy. He has real money at his fingertips. He is extremely well connected in the Valley (the Silicon Valley, that is, and the San Francisco-centered VC ecosystem.) One of his school buddies is Yang, one of the two founders of Yahoo!

Back in Australia - I'm calling the guy in charge at the VC that has this mechanical engineering invention. Oh no, he did not invent that thing himself: a tech team at a University did. The reason why he's well paid, why he's a respectable, solid pillar of society, is because he's in charge of commercializing the fruits of other people's, other Australians', innovative, out-of-the-box ideas, formally trained by years of costly scientific education.

I call him. He does not begin to have the same money at his disposal that Scott Potter has: in the world scheme of things, he is a much lesser fish.

He does not return my phone calls.

I send him an email. He does not reply.

Unlike what the case was with Scott Potter who received me the very next day, I have something precious, material, solid and immediate to offer him: I speak German, I speak French, I graduated as an engineer from a well-known Institute, I have spent years in the business rather than the engineering side of corporate life in Europe, I can help him make his portfolio company a huge success story now.

Finally, three weeks later, he responds by email, all of a one liner asking me to make an appointment with a Mr. So-&-So, a lower level analyst. The lower level analyst whinges that I push too hard. Nothing happens.

This is an attitude I have come across time and again in this milieu in Australia: the unjustified vast egos, the attitudes like they're something special and should not be bothered to return calls.

Let's call him John. A few months later, I read an interesting series of quotes by John himself in a major Australian daily, in which he comments how a new generation of Australian business leaders has now come home from overseas, are 'bringing these qualities with them' (without by the way defining further what 'these' qualities were), and how we, the Australian public, could expect much better performance from our startups .

My interpretation of this interview, of course, is not at all face value, and is heavily tinged by what Plamendon commented and my own experiences. Here is, I believe, what John really meant: I have totally screwed up in my previous investments, I have not turned investors' monies into any significant returns, but just wait! It was not my fault, it was because our managers were not good enough, from now on all is going to be much better because the new managers are much better than the previous ones who are responsible for my failures.

Nothing, of course, could be further from the truth. If his particular VC outfit has not returned a profit on investment, it may be in part the fault of the portfolio company managers he hired, but most of the fault may lie with himself. Indeed, if he hired the wrong people, the fault here lies with him too.

People like that, across Australia, should be fired en masse.


But it's getting worse.



In December 2006, as I am in Europe on a short trip, I read in a respected magazine of a groundbreaking Web 2.0 application that has been developed by a post doctoral student at one of Australia's Universities. I call them from Brussels, I tell them that I can find commercialization & development funds for them in the US, of course against a minority equity in the project.

Back in Australia, I meet with everyone - all the Dr this and Dr that who are in charge of commercialization. I have by now looked somewhat in depth at the application itself and I'm convinced it's refreshingly new, disruptive, and attractive: I know exactly the Americans I can get the ear of for a project like that. I'm pretty sure I can raise probably about $5 million - the figure I indicate - to help the application be ported everywhere , and to conquer the world of mobile devices.

In fact, I'm so convinced this one's an easy job that I offer not to charge but to be paid on success fees only: I propose to put together a US "VC-compliant" business plan to present to US investors, and I will go to San Francisco, talk to the people I know there, make the case for investment, and, save for a token help with travel expenses, only charge a success fee. That's how convinced I am that this novel application will fly.

Of course, US investors would want some minority equity, making it an American-Australian venture rather than simply an Australian one: really quite a small price to pay to gain access to the huge US market, to get protection from competition and/or circumvention by other startups, to be, in effect, first past the post and relegate any competitive offering to the status of me-too, also-ran.

My offer is well received, and then nothing happens.

Upon enquiry by email, I receive a very nice response, that basically says 'if it were up to me (the manager writes this) you'd already be in San Francisco, but we're restructuring, so I can't make a decision, you have to wait'.

Hang on. I'm not charging you guys. This is safe. I only get paid if you receive a substantial investment.

But I cannot move without the authority, the permission to do so. I have no right to go to San Francisco to represent an Australian inventor, even for free, unless I am formally authorized to do so.

Because I know that in business time is of the essence - as Bill Gates, him again, once put it, in this world it's no longer the big fish that eats the small fish, but it's the fast fish that eats the slow fish - I try to exert mild, polite pressure to move, like, now. Nothing doing.

And bang, of course what had to happen happens.

Even as I am chafing at the bit, two months after my proposal, a 21-year old California student who had hit on, and had been developing exactly the same idea, raises 5 million dollars from 2 Silicon Valley VCs.

In one fell swoop, the Australian innovator is relegated to the status of a me-too, also-ran, no hoper. From having been a trailblazer.

Rather tellingly, I am reminded here, however on a smaller scale, of the USSR - the monolithic, fossilized, stultifyingly inefficient (and many other unpleasant things beside), now somewhat perhaps inevitably defunct state that used to be called the Union of Soviet Socialist Republics.

In 1988 the Caterpillar Company, makers of earth-moving and construction / public works machines, offered the USSR two of its largest earth-moving vehicles: gigantic earth moving vehicles, whose wheels alone were taller than the ceiling.

It took the Soviet Union 14 months to go through the paperwork to accept, to let into the country, those 2 extremely capable, sorely needed, and absolutely free of charge pieces of equipment. Even though at the time under Gorbachev, the USSR had already begun to thaw, and to build.

Terrible as it was, this story was just the run-up to far worse.

Ten times worse, to be precise.

A few weeks later, I am asked to go attend a demonstration of an advance in interactive TV that an interlocutor says 'will blow my mind'.

He was right. As I'm sitting in a company's crypt somewhere in urban Australia watching the demo, what I see in front of me is nothing less than the future of TV. An intelligent, nonpassive medium, which seamlessly and elegantly blends on the one hand the consumer's need for freedom of choice and for content, and freedom from being imposed programmes and/or commercials he or she is not interested in, and on the other hand the need of advertisers to stop haemorraging money on unproductive ads slotted during toilet breaks or directed at the wrong audience.

In San Francisco, I know exactly whose minds are going to be blown by this. There is no question: indeed, all my questions have been answered intelligently, the business model is impeccable, all the business ducks are in a row.

I am telling the business manager: come to San Francisco with me NOW. Let's go to Tullamarine, board a flight. I will introduce you to someone in this field. He heads up an 8 billion dollar fund, he and I hit it off, on a previous occasion he introduced me to important people in the Valley's VC scene, whose names are not in the tables you can buy for a few hundred dollars over the net at www.vclocator.com

Nothing happens.

I am not charging them.

Come to the airport with me now.

Nothing happens.

Instead of moving, the business manager asks for 'references'. Now - references and background checks are likely indispensable when you're hiring, say, a $300K a year business manager. Your money, your company's reputation and fortunes are on the line.

But - I am not charging anything at all. Whether I'm legit or not will be immediately apparent in San Francisco, by the calibre of the people I introduce and how (and whether) I am received. And I have to believe that my own presentation had been convincing enough. The cost of a ticket to San Francisco is immaterial.

Asking for references in this context, is just bumbling nonsense. It is pretending that one is a good manager without beginning to understand what good management is about. It's the Keystone Kops. It's telling the world - I do not have a clue about managing, but I sure am going to pretend. I read somewhere that I have to ask for references, so I am.

And as ever - we have to move fast.

Against my own better judgment, I provide references, including references from heavy hitters in San Francisco (*), because I believe in this project and would like dearly to see it happen, quickly.

(Footnote (*) You have to be very careful how you entertain such request for references, lest you lose your reputation - your privilege of being seen as a equal. Big boys in the Valley or elsewhere, do not ask you for references - references are seen as a little boy's game and a little boy's need.)

In his own sweet time - weeks - the business manager checks my references. They all come out positive, of course.

In the meantime, the team have asked me how much I think we can raise. This is big. This is disruptive. This has the power to change for ever the most powerful medium on Earth - television, and to please the big ticket advertisers of the world. I say 50 million, Australian. I am told later that they snickered behind my back, deeming me, perhaps, delusional.

As things continue to take their sweet time, as if time itself were caught up in molasses in Australia, as I still for the life of me do not begin to understand what the possible hang up might be, as my questions are not answered clearly - three months later, their main competitor, a US startup who had been the only one they'd deemed worthy of mention during their presentation, whom they had scoffed at on account of their inferior architecture and ideas - effortlessly raises a cool US $45 million in the valley (AUS$ 52M at the time) from a consortium of VCs - one of which happened to be my primary target. Who thus never ever saw the mind blowing Australian demo.

The US competitor is currently going from strength to strength, globally. The Australian outfit, I hear, now has difficulties paying its employees as the investor funds they secured from individual investors dry up.

The reason why things went so slow, I hear - they were reluctant to pay for their, and my, San Francisco airfare. Even though, at the time, they had about half a million dollars in their investment war chest.

Some of the managers had MBAs. Not the first time I am baffled by the sometimes apparently somewhat questionable quality of some of Australia's MBA degrees.

I do not know whether some Australian MBA degree programs are subpar, or whether the programmes are in fact good but their admission criteria far too lenient. The bottom line is: in world arenas, Australian managers will have to compete against US managers trained at Harvard, or Stanford, Wharton, you name it, and they do not always size up.

The weakness of some MBA holders, combined with the wonted, ever-present cultural-related Australian tightfistedness, makes for a deadly business cocktail, that destroys innumerable opportunities that would otherwise serve Australia well. But as we shall see - there's worse.

I later identify another portfolio company, in a human resources related domain perfectly meshing with the current business Zeitgeist in Northern Europe - say principally Germany and Sweden. A disruptive way to approach the HR function.

I am offering the CEO, an MBA holder, to expand his business immediately in Germany where my company maintains offices, and Sweden - we have personnel in Europe who are native Swedish speakers.

He does not seem to grasp the opportunity, for him 'overseas' is New Zealand. Then he offers that I do the work - for free. Despite the scores of pages of documents, material, brochures, web pages, and work materials that have to be translated into at least 2 European languages, I actually agree: I know exactly how to position his product in Northern Europe, and how to sell it.

I agree a commission rate, but of course say that we have to agree on related travel and out of the pocket expenses for the initial European sales campaign: I'm going to have my (all very capable and very qualified) sales teams on the road for a few weeks on his behalf.

The MBA comes back to me and says that no, these expenses have to be borne by my company. Of course, this is thoroughly unacceptable, it is utter nonsense. He was very lucky in the first place to find an organization with our access and delivery capability, without paying upfront for it (conditions which I accepted only because I really want to do something for Australia, and hence am ready to invest. Try for such conditions from a Big 5 consultancy and they'll laugh in your face. However, our team had qualifications on average probably better than anything a Big 5 consultancy could have lined up.)

A US MBA would never have attempted this: he knows - he's been trained that way - that stifling a supplier is the worst policy that you can devise, a surefire business killer all around, the neutron bomb of lucrative business - a lose-lose-lose proposition. Killing the goose that lays the golden eggs, driving your suppliers out of business, is something that Australian businesspeople, even those armed with MBAs, believe is a hallmark of good management. Unbelievable.

Incidentally, as a codicil to the tale, this CEO had raised funds from a VC to quote effect translations and export the solution to Europe unquote. So he was raising funds to on the one hand translate and on the other hand was getting all this for free and demanding more. That that CEO's attitude was crassly incompetent and inexcusable is clear, but perhaps it wasn't even legal in the light of his stated justification for venture funds.

Another thing with some Australian MBAs that has left me agape is their inability to recognize obvious con schemes - swindle schemes - for what they are. Obvious con schemes that an American MBA would pick for what they are within minutes can seemingly take many days to be identified as such in Australia. The flip side of the coin being, terribly so, that perfectly straightforward business propositions are sometimes viewed with curmudgeonly suspicion. We're back in the slapstick.

Business scams are a fact of life, an unavoidable part of business. They however seem to have a disporportionate impact on Australia, both for systemic and mentality-related reasons, so we need to look at what's happening there.

I am hitting the social business circuits. Australia is to some extent an old boys' network country, and of course I can no longer, in 2006-7, draw upon the support or even the remembrance of old boys networks from way back then: its is simply impossible to spend years and years in the USA and in Europe, to acquire difficult languages to the extent that natives believe you're from there, and upkeep your Australian network and hobnob with the movers and shakers at home: it's, so to speak, against the laws of physics. It does not work. But that's what the business establishment seems to be asking of you at times: be a very longstanding part of the local fabric and texture, and know the US and the EU inside out too. Guys: it does not work. Ubiquity is a chimera.

Also, some of my chums from way back then are no longer. We're all not getting any younger.

Yet I feel that I should be part of certain networks to be accepted, to be trusted with business. It's OK - I have reserves, and I worm myself in.

It may be that one of the main elements for the undue cautiousness and wonted immobility of Australia's business community lies in the sheer amount of scams of all kinds that are out there, which muddy the waters, and poison the wells of legitimate business. Hitting the social circuits brought in a lot of opportunities. So many of them attempted scams……

In the US, most scams are really not an existential problem - I have come across incredibly ingenious scams in the US - if implemented in Australia or Europe, they would turn the implementor into a overnight millionaire, they're that good - and the very reason why I shall not describe them here.

But Australia does not seem to have much of a clue as to how to identify scams. So they sometimes blithely, willfully throw away the baby with the bathwater. Astounding.

Because in ascertaining legitimacy, there do exist very reliable resources, a significant portion of which today are online: there are many websites out there that track scams and swindlers.

Furthermore, there are easy ways to determine whether an alleged operation is legit or not, as we shall see. There are also simple ways to check who you are and your profile - if you say you graduated with an MBA from Stanford Business School, well this is the easiest thing to check online.

Another element to ward off scams is simple education and/or knowledge. Most of the scams I have come across in Australia are predicated, on the part of the prospective scammee, on a hoped-for complete ignorance of, for instance, the laws of physics or engineering, and of simple knowledge.

Finally, there is what is called in the courts 'voir dire' . If you say you're a qualified engineer, or a bilingual Mandarin speaker, that is easy to test.

Now here is how a typical scam in Australia works (I have seen several of them based on this same template.)

Incidentally, at the insistence of an Australian MBA graduate who believed that the scam I am about to describe was legit, I came into contact with the people behind the scams: outright, quite dangerous by the way, criminals. In the US, I have come across one con artists who made preparations and provisions to physically eliminate you if they thought you were on to them. I have not seen anything quite that extreme in Australia, although I wonder.

The scam I saw the most up close bears all of the usual traits of most scams in Australia, and it goes as follows.

The first element is a 60 to 70-page very slick Business Plan (also called Memorandum of Information in Australia). It is beautifully made: color coded, with charts, etc. the lot.

The first red flag is the intro: typically, there will be 10-odd pages seeking to make you feel guilty about some topical issue, which the Business Plan, and the scam, purports to fix: for instance, scams pretending to contribute to a solution to global warming are extremely common these days. So the first few pages will rhapsodize about global warming, CO² levels, and do their damnedest to make you feel directly responsible for the issue. What better way to assuage a conscience than to invest into a fix to the problem?

The next ten or twelve pages will be elaborate physics, pages and pages of equations with mucho greek letters in them - and a comment that herein lies the wonderful, hitherto overlooked solution that is going to solve the issue. This is predicated, of course, on the average potential investor not being a trained physicist.

I immediately see that the 12 pages of equations have been lifted whole from several advanced textbooks in theoretical physics by someone who does not even begin to understand it at all. The equations are not wrong but do not bear the slightest relationship to the claims that are made (in essence, the claim is that those guys have devised a quantum mechanical process whereby gasoline can be burnt without producing CO²: A thigh slapping howler) , and furthermore, the separate "physics" chapters bear no relationship to each other either, further attesting to the total lack of understanding of whoever put this together.

In their oral and powerpoint presentation, they claim that the Japanese Government has already invested in a factory (a few slide photos of a factory's opening are shown - a few wholly made-up photos sprinkled in with real photos of the opening of an unrelated plant.)

They have a 'Professor in Physics', head of the Institute for Advanced Billow Physics or such thing, who has devised the whole thing. All very impressive sounding. They only ask for a modest participation of $2 million towards the establishment of 'a second plant' here in Australia.

Upon verification:

1- The Japanese 'Professor' bought his Ph.D. from a diploma mill in the US. He has zero training in Physics, despite his title.

2- The Institute of Advanced Billow Physics (or whatever it is called), was actually not at all " The Institute of Advanced Billow Physics" but " The Institute of Advanced Billow Physics, Ltd" - in other words, it existed: it was a Delaware company, incorporated under that impressive sounding name online, for five hundred bucks or so. You can use whatever words you want when you incorporate a company. Institute, Advanced, whatever. Provided no one else is using it - it's just a company name. It takes 10 minutes online to incorporate.

All the science, all the photos, all the certifications (conveniently in Japanese and Korean, so that, as with the physics, it was hoped that no one would get wise to it), were bogus.

A graduate Australian MBA holder took all this very seriously. This particular con scheme was obvious, from the word go. I have seen far more elaborate scam schemes in the US, that US MBAs identified as such in minutes - I shudder at the thought of what my Australian MBA pal would think of those.

As a codicil - the hoariest, most ridiculous con scheme in the book is 'using water as a fuel'. I had yet another Australian MBA holder holding out for days to try and assure me that the burn-water-instead-of-fuel-in-your-car-tank crowd he wanted to introduce me to were genuine. I just could not believe it. In Annex 2, I have reproduced some of the surreal mails we exchanged on that one.

It is not serious. Australia cannot become a player if our attitudes countenance this sort of baffling incompetence.

Now what this all says is - we must tauten our MBA standards. Everywhere. It may well be that the programmes themselves are good, I simply do not know. If that is the case, then we must significantly raise bars to entry - the criteria for admission to these MBA programmes. Some of our future depends on it.

Perhaps we also really have become far too socialistic, and criteria for excellence are nowadays deemed undemocratic. An email 'joke' to that effect, you might have seen it, was making the rounds recently. Toes curl (see Annex 3.) The thing is - demands for excellence, meritocracy are not undemocratic. We all have roughly the same levels of intelligence. The only real differentiator is the readiness and the willingness to put in the necessary work.

Incidentally - there are basically two philosophies - or end points - as to how to put together MBA programmes, as examplified on the one hand by the Harvard Business School MBA programme, and on the other hand by Stanford University's MBA curriculum.

Most MBA programmes are a bit of a blend of both approaches.

At Harvard, no textbooks of any kind are prescribed during the course: the program consist in putting the student, over the course of the 2 year program, through 800 business case studies (3 case studies a day! ) which will give the Harvard MBA graduate an immense hoard and reserve of 'business experience' by proxy: in other words, the Harvard MBA graduate, regardless of how young he or she may be, comes out of the program a very seasoned executive: a 27 year old student, say, far more experienced than a 55 year old senior executive. That's the idea, and it works.

And the program is exhausting, a considerable physical as well as intellectual and psych effort. A grind.

Now for Stanford. Stanford recognizes that to be predictably successful in business, you must have a very broad command of just about everything across a very wide spectrum: you must not only be able to crunch numbers and use a spreadsheet, but for instance have at least an instinctive grasp of the laws of physics or engineering, so as to be able to recognize at a glance whether a proposed system or solution just might work or not, and hence whether it's appropriate to spend time exploring it; an instinctive grasp of HR, of psychology, of geography, of all the stem-to-stern elements that contribute to business outcomes and enable success or foreordain failure.

So, unlike what Harvard does, Stanford throws at you a vast number of textbooks on all kinds of subjects that you have to read. At the end of the programme, you have acquired immense first-grade theoretical training, so that you can draw in any business situation upon a vast reservoir of related knowledge.

Both approaches work.


But now - not everyone in management has an MBA, and there is no very convincing proof anywhere that MBAs are actually necessary to become a good bottom-line manager.

So what of those managers in Australia who do not hold one? Is the situation there better, or even worse ?

I'm in the car where Mrs. - let's call her Mrs. Peter - is driving me back to the train station from her office. Considering that I just raised for her over $800 thousand Australian dollars in the United States to help her commercialize her company's invention, at exactly zero cost to her (but not to myself), you'd think she could have, just could, have driven me all the way back to my St Kilda Road office out of simple courtesy, but no. Drop you off at the suburban train station is all you're entitled to, Patsy boy.

So I've just raised, at my entire cost, close to a million dollars for the lady, against 10% equity, not even of her company (which turns over a few million dollars) but of the new entity that will be created to commercialize her invention in the US and the world. She had so much complained, during our talks, that 'her kitty was bare', that I just went and raised commercialization monies for her. Her idea is good and has legs. She, I think, will take the world by storm with it.

The US investors agreed.

In the car, she bafflingly asks me 'when she'll have to refund the monies, and at what percent interest.'

The lady is the head of a multi-million dollar company, and she does not understand what venture capital, what investment against equity, means. Later, she will simply turn down the proffered funds flat - because it might possibly cost her something, and also because she's had a bit of hidden agenda - cronyism, I think - all along.

In any event, this point up to another serious problem with some of the managerial class in Australia, at least in the SME space..

A problem that stems from one of our most endearing, most cherishable qualities from way back when, but which, like elephants' tusks which overnight turned from a formidable defense weapon into an existential liability when poachers armed with AK-47s appeared on the scene, now constitutes a severe hindrance on how we do business in a modern, complex and competitive environment.

When we started building the country, self-reliance was everything. On the farm, the ability and willingness to do everything oneself was a huge quality.

This same quality, transposed into the businessworld of today, is killing us.

There is a uniquely Australian belief, rife in the management tiers of our SMEs, that if we are good in one area, then perforce we must be good in all other business areas. In other words - quite uniquely in Australia, managers often mistakenly believe that if they are excellent in one area, it then automatically qualifies them for everything else, and that they can run any one of the separate functions of their organizations.

The exact moral equivalent of, say - hey, you're an interpreter in German, right? so please translate this text into Mandarin Chinese for us, thanks.

I have come across many entrepreneurs and small business owners who have invented a truly innovative and disruptive concept within a given narrow field, and automatically, unquestioningly presumed that this qualified them as captains of industry, as entrepreneurs extraordinaires, and as know-it-alls in all fields, irrespective of their actual massive ignorance within such fields. By 'massive' I mean that they not only do not know the answers: they do not even conceptualize the questions. There is little understanding both of the specialization of knowledge and of its drill-down depth in all fields, not least the fact that business management is a hard discipline unto itself that hardly can be improvised.

These managers almost invariably go on to destroy their companies. By destroy I do not necessarily mean make them bankrupt: I mean keeping them at a hardscrabble level when they could have taken the world by storm.

The lady has turned down the commercialization funds because she wanted to go it alone. I estimate her current success, measured in dollars coming into the country, at less than one percent of where whe would be now had she accepted the funds. As ever - it is the country's loss as well.

One of the more astonishing things is that even some among those who say they fully understand and concur with what I am saying share the same attitudes.

I am reminded here of a CEO with whom I almost did business. He runs a company at the leading edge of an emergent field in medicine. The 25 or so companies in the US who compete in his field - some are divisions of corporate giants like Oracle corporation, some others are ad hoc start-ups - have nothing on him technologically. In a somewhat uncommon display of foresight, he has taken out a score of patents - and counting. Even in areas where his technology is still maturing.

He - Albert - has enough money in the bank to last almost a year at his projected burn rate - quite an enviable position to be in.

Five times he summoned me to discuss his business, ways of moving forward together. I do not know many consultants that would accept to go 5 times to meetings to discuss a business without some form of compensation - but wait.

Then, in an email, Albert sends me an NDA (Non Disclosure Agreement) so that he can put me in the loop of his top management's discussions and deliberations.

I decline, of course, and I am quite surprised that he's offered that. There are real documents to be pored over to offer anything like an intelligent comment or contribution, we're talking real work here. Why should I accept to do this in the absence of a contract and or a business relationship? This seems like unbusinesslike nonsense to me. Is this the way business is done here? Pick for free other people's brains for however long they get away with it ?

Then Albert asks to see me again, and I invite him and his CFO to lunch. He tells me what I'm going to have to do for him - which involves going to the US, doing a lot of professional preparatory work, etc. Back at my office, I put together an offer covering the work. Looking back at the meetings, the work, etc. a Big 4 consultant would have charged a fair amount of money for all the work done.

I am sending Albert of write-up of the preparatory work that needs to be done, a recap of what has been done so far. If, and only if, he accepts the terms formally - which he himself indicated at launch - then he should pay the attached invoice covering all that work. Interestingly, if I were to apply Accenture or McKinsey rates, the bill would cover only past work - so I'm really being reasonable.

I never hear from Albert again. A few months later, I am told in confidence that my recap and modest, conditional bill had been seen as quote financial aggression unquote.
This is the one event that abruptly clinched my decision to leave. If Albert himself is that way - there is just no hope.

Let's make money

Wealth Passed Up, and the Return of the Battery-Bunny Gaberlunzie

And how was your week?

This week has seen stately St Kilda Road swaddled in competing throbbing crashing sheets of noise, screeching tyres from the speeding cars (uncannily the very same sound as the shrill stevens of the swooping vampires in 'Van Helsing'), throbbing chup chup chups from the teeming matchstick dragonfly-choppers above - kind of Ringo Starr letting his hair down on third rate broken bass drums on a wild day - howling displays of astonishing, swivelling, yawing, slueing, side swooping, and random sky-corkscrewing dexterity by our very own Air Force pilots. ...More

Please do not read further!

This post from Angry will offend at least one sixth of the worlds population. Do not read on if you think you will be one of them!

A major Church has just lengthened its list of its 'mortal sins' - whatever that may mean in their canon, no doubt epitomes of intelligence and tolerance. By the way, the original list of seven, now lengthened to fourteen, had first been worked out and decreed by men in robes in the 6th century. More...

Angry Saves the World

Grandstanding all the way to oblivion.

Today is Clean Tech week in Melbourne, so maybe we should take this opportunity to look at what's happening in the economic & political arenas as relates to saving the planet, and us, from ourselves.

It does not look good.

A first general observation is, ecology has all to do with hard numbers, applied within the context of the impacting sciences - first and foremost Physical Chemistry as applied to the environment, but with an added layer of bits and pieces of a wide spectrum of other sciences.

So here goes - a few numbers. More...

Sunday Post - Political Correctness

What a week.

For starters - some of the rants ettled for posting here did not make it.

Died a swift death on the vine.

One dealt with swindling get-rich-quick schemes I have come across over the years, some of which work fast and so incredibly seamlessly well. From hardscrabble gaberlunzie, perhaps, to well-respected socialite millionaire within three-odd months. Fat facile pickings, a snap to emulate. Post such schemes in all their glory here? Nah. More.....

Sunday Post - Advice to a 20-year old: 10 Bullets

Advice to a 20-year old: 10 Bullets

10 - Perception is reality.

Shape it to your advantage.

The only reason why you'll ever make a million dollars is because somebody else will give it to you.

The only reason why you'll get a degree, a job, a promotion, a Nobel prize, or a jail sentence is that someone gives it to you. No man is ever an island.

Hence, you must arm yourself with something that instantly marks you as special, that instantly gets you recognition as someone to be reckoned with ... more

Angry's Top 10 Business Must Reads

And by popular demand - here is Angrys Top Ten Reads for those of us wanting to get ahead in business...

10- Mao, by Chang and Halliday
9- Wahnsinnskarriere (Dream careers) by Schur and Weick
8- Anything, perhaps, by Harvey McKay and/or MarkMcCormac
7- 'Hard Drive' by Wallace
6 -Anything by Michael Lewis
5- The Geography of Thought, by Richard Nisbett.
4- "Ugly Americans" by Ben Mezrich
3- Cell of cells, by Cynthia Fox
2- Financial Independence, by Eddy Solomon
1- Anything by Donald Trump

Read reviews click here

Angry to the rescue!

Great News

Angry is now available for one on one consultations.

If you need business and international empowerment talk to Angry. He has the experience and the connections to get you where you want to be faster - Be it with business advice, raising funds and introductions to VC's ... Shoot me an email (click here) and I'll hook you up.

Angry Politics

Angry, it seems like Obama will win over Clinton - what is your take on the upcoming elections?

Angry says... Ralph Nader, the erstwhile US consumer advocate and now full-time left-wing blowhard, has - again - entered the US presidential race, maybe giving us a reason to look at what's happening politically stateside.

I met Ralph Nader once, in 1983 when he came to Monash University to give a lecture. I mostly recall the arrogance of his entourage. Read more ...

Sunday Post - Talk the Talk

Angry it's time for another Sunday Post - what have you been up too?

Anrgy says,

I attended, yet again, an eager presentation to Venture Capitalists by hopeful innovators yesterday.

These guys discovered something. They could make a difference. Their innovation would contribute something substantially positive to a tired, overpopulated, slightly stuck world. Where all too often the ignorant, the footlers, the snaggled-toothed, the sunken-cheeked, the fiery-eyed, the bumblers and the cheats seem in charge of setting the agenda for the rest of us. Read more