Question: On the issue of the importance of marketing to high tech start-up companies: Was there a message (from you) about the level of awareness in Australian start-up companies of the importance of marketing to the extent that they are less market aware than...?

Answer: Well, I think there was an abstract philosophical awareness and an acceptance that it kind of makes sense that it's important, if you want to build a brand or if you want get a position in the States, that that is largely a marketing issue. And also that's just common sense.

But I think there's less of an experience as to the extraordinary degree, for better or for worse, to which certain dimensions of marketing effectiveness can make a difference. I mean one can have terrific technology and the attitude is "yeah, we know that". To play, you have to have an extraordinary, differentiated, cutting edge, terrific package of technology or a product. That's your entrance.

And then, can you play? You look at some of the brands that are being built, like Amazon and Yahoo, and others. Of necessity, there is an extraordinary amount of added value. It is also necessary to find the right way to plan a product in a medium that is based on the right market research brand strategy and to develop the right package of marketing strategies. Having a great technological strategy or product is not necessarily enough.

Q: Implicit in your (principals.com) business model is an awareness in your clients of both speed of creating companies out of nothing and of the importance of pulling together skills in marketing and in other areas of potential expert service provision. I guess one of the things I'm curious about is the extent to which business models that entrepreneurs in Australia bring to companies they're creating, are different to here. We see much less awareness of the potential of outsourcing of high level skills services right at the outset of a company, much more of an owner-manager mentality. Would you agree?

Answer: Well I think that what's happening here in this area is probably on the pointy edge of change in those types of management structures, organisational structures, ways of resourcing and ways of managing companies. So I think that there are lots of changes happening in the industrial world based on models that have become dysfunctional and ineffective, certainly from a human point of view in terms of how people work. Here in the Bay Area it's just much more accelerated, and with the venture capital that's in the Bay Area there are economic forces at work that are accelerating the process.

So I think it's impossible for companies in Australia, particularly in smaller cities, to have the same dynamic; to feel the same.

So, yeah, I think there is a general theoretical understanding of these things among companies thatI met while I was there. However in the day-to-day workplace in Adelaide or in Perth or to a lesser extent in Sydney, companies there have not yet had to deal with those same dynamics in as dramatic a way as they do here.
 

Q: But in a global market for those companies that are competing in technology markets or information industries, the pace here is the pace they've got to run at, isn't it?

I think so. I think one can move at a slower pace in other markets and not be squashed, whereas here, if you're asleep for six weeks then there could be a major change in the business. I mean a lot of trends and changes simply defy logic. There was a terrific piece in the newspaper this morning that talked about the fact that Amazon.com with a $6 billion capitalisation is worth more than Barnes and Noble and Borders put together. But the more impressive statistic was that Barnes and Noble, which is the largest bookseller in the States, presumably in the world, in the history of the company, they have generated $58 million in profits. And Amazon.com, after a year or two, has a $6 billion capitalisation.

And yet people are paying for that valuation, and Yahoo's another obvious example.

Companies who want to be global players, whether they are headquartered in Atlanta or Adelaide, have to learn how to develop agility and flexibility that will allow them to compete successfully because ultimately they'll be competing against companies who are here, who have learned those lessons.

Q: I guess what is apparent here is the importance of the network of contacts. That plays to the ability of companies to outsource these types of skills when they need them at the beginning. I wonder whether if our companies are, firstly, not quite aware of that dynamic, or aware to the depth that they need to be of that dynamic, and, secondly, aren't engaged in the networks that can supply them those skills when they become aware. I wonder whether they are in fact going to be locking themselves into operating at a lower level of performance than they need to be at.

A: Well, obviously, it would be vulgar for me to do a sales pitch, but I think that's part of the model that we've tried to develop in creating a marketing organisation. I mean, my associate Richard Carter (Princinpals.com partner and founder based in Sydney) worked for Young and Rubicon. I've worked for Ogilivy. There are certain dynamics in those marketing organisations that were very good, if you were buying national broadcast television for Procter & Gamble in 1965. Terrific organisational model.

But now, those models are starting to break down. So in terms of the network of contacts, I think on a financial, technological and marketing level decisions need to be made whether they locate here physically or develop some virtual presence here. The question is, is it possible with travel and technology to access the network effectively without having a six person office in Mountain View. Hopefully there is.

But somehow, during my visits with companies Australia, it seemed to me that those who simply have a great technology or great product and are really excited and proud about that, think "Wait 'til I show that to people in the US". Then they get discouraged to find there are other dimensions to their business; management, marketing, finance - that are just as important.

Q: Are you saying you find that often with Australian companies? That they're just not as sophisticated as they need to be when you first come across them?

A: That is what the last comment was about. There's different levels of awareness from all different companies. It's inevitable that any entrepreneur with a cubicle in the Playford Centre in Adelaide, (it's sort of this incubator there) finds that very exciting. Maybe you're the only employee or maybe you're one of three or four, or sort of part-time working with some people who are involved with the company some how.

If you've spent years and many hundreds of evenings working late, you're excited and your whole world is that "I have this thing that's so terrific, wait til I show it to people." But I think the other issues such as financing and marketing ... unless they find some solutions to those problems they won't become global companies.


Q: But these same type of people are surely here in Silicon Valley as well, producing these technologies that they are in love with. Are our entrepreneurs more suspicious of outsiders than the guys here? You often hear people looking to invest in a technology lamenting that it's another bloody inventor who doesn't want to give up any control but wants our money. And the inventor on the other hand whinging that it's another scumbag with a chequebook who wants my life's work, and I don't want to give it away, but I need his money. Is that more evident in Australia?

A: Here people are as paranoid and as protective. Here non-disclosure agreements are the currency of value somehow. I've got one client now who is paralysing negotiations with contact companies that I'm trying to bring to him because as soon as you ask for a non-disclosure, that has to go through several rounds of lawyers and it raises red flags. And so at a certain point, you keep telling people, it's not going to be a secret very long even if they sign a non-disclosure. After the fourth beer at a conference, everyone they know is going to know about the deal. Don't worry so much!

The other point I was going to make is there is a culture here where the technical or inventor types are just immersed in and enjoy talking about venture capital and burn rates and things that perhaps companies in Australia don't.

Here 26 year old goateed guys are heavily into knowing about stock options and finance things and see the finance aspect as a natural extension and next step to what they are doing technically, and what they are doing technically, for better or worse, doesn't mean anything until it builds a brand and is funded.


Q: You hear people here talking right at the birth of an enterprise about looking for a liquidity event. I wonder whether that mentality actually mandates corporate structures.

A: Oh absolutely. From a purely humanistic point of view, it's a sick way of thinking because ultimately everything in life is driven by liquidity events. I've always been interested in local content. I've done some work with companies wanting to develop local online content and, ultimately now it's all about transactions and e commerce.

If you look at Microsoft Sidewalk, originally some brilliant minds came aboard in New York and San Francisco and elsewhere, and most of them have left because they were disgusted because Microsoft decided they would just emulate the alternative weeklies and do an arts and entertainment thing. So the thing that was supposed to become this great threat to newspapers, which still is from an economic point to some degree, but from a content point of view, there's just no editorial of value on most of these local content services.

So I think it is, first of all a reality and a fact of life that it permeates the thinking here, and I don't think that it permeates the thinking of Australian IT start-ups. But they know the game and they know how to get to liquidity or at least to get into the game. It definitely affects thinking on how products are developed.


Q: It makes sense, if you're producing a company with a view to selling it from the outset, the way you are going to design the company is you'll want to have a node of saleable asset as small as possible and buy as many ancillary services as you can, and maximise your capital gain at the end. From a V.C's point of view as well.

A: Yeah. And so suddenly the American entrepreneurial dream was to start a cafe or a design shop and you own a business, you manage a business, you care for people through their lives as employees, you deliver good service, and maybe you open a second or third shop. Beautiful model, I think.

These days the model's very different. The model's not, hey let's find a way to serve the community by creating this local content service, and over the next 15 or 20 years we'll have a nice little business, won't we? It is just not the way of thinking at all.

In some ways there is an explosion of content. The question is, content itself is a pretty depressing word even. I don't know if Emmanuel Kant thought of what he did as content!

When I was in the cable business, I was the first marketing director for CSpan, and that was a very noble public affairs experiment that's done very well. Our founder CEO was Brian Lamb. When I would come back and talk about the multiple cable operators talking about product, we both really had a problem with that. It's not product. This is a historic public service where people are watching the Government in action! People being able to watch a six hour debate about whether we go to war is not product.

The idea of content, okay, it's a pithy little word, maybe it's useful, but in the end it's just a commodity to some people.

The large companies at least had a philosophical underpinning; there was some ideal. I just don't see that very much at all when you look at AOL Digital Cities or Microsoft Sidewalk.

The ideal is all reduced to transactions and not only having good advertising and sales models, but how to pump up certain figures so that you can gain enough leverage in the marketplace so that that can be spun to another company.


Q: In an environment where companies are being created as commodities for sale, do you think this environment is moving toward a bubble economy? Is there a danger of reaching a point where it's about transactions so much that it's not about technology at all?

A: I don't see that happening because the rate of development of new technology is so extraordinary, unprecedented historically. The people doing the technology might not be as valued. I mean what's happening is so extraordinary, there's so much money behind it. The multi-billion dollar capitalisations happening today are happening to companies that are trying to maintain a competitive edge by pushing the technology.

And maybe also when there's a period of stagnation, there's an opportunity for other national players like Australia or elsewhere to come to the fore.