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An excellent read.

Full of great insights for entrepreneurs

and many timeless examples. As someone who was involved,
I can say that this book rings true about many of the main
players and events.
There are entrepreneurs out there who brainwash the masses
into thinking that risk is the key to success. What they dont
want you to know is that risk is like sexonly those who
engage in it can benefit from it. If you want to be rich, do it
yourself. Theres no other way. Read this book and youll
know what I mean.
Wheres the Loot? is a refreshing look at the positive
contribution made to Australia by its IT entrepreneurs . . .
few are as well qualified to comment as Grant Butler, who
lived vicariously their ups and downs as a journalist and
columnist for the Australian Financial Review. The book is a
must-read for entrepreneurs trying to understand why some
start-ups succeed and others fail.
A fascinating and informed insight into the players, the
highs, the lows and the lessons of the recent technology
investment roller-coaster ride in Australiaa must-read for
all aspiring entrepreneurs and anyone interested in the
entrepreneurial process.
Where's the Loot TEXT PAGES 4/6/01 1:40 PM Page i
For Cassandra and Callan
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the loot?
Who really made the money during the high-tech boom,
how they did it and how you can do the same next time
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First published in 2001
Copyright Grant Butler 2001
All rights reserved. No part of this book may be reproduced or
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publisher. The Australian Copyright Act 1968 (the Act) allows a
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the greater, to be photocopied by any educational institution for
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Copyright Agency Limited (CAL) under the Act.
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Cataloguing-in-Publication entry:
Butler, Grant, 1971 .
Wheres the loot?: who really made the money during the
high-tech boom, how they did it and how you can do
the same next time.
Includes index.
ISBN 1 86508 464 6.
1. Internet industryAustralia. 2. Entrepreneurship
Australia. 3. InvestmentsAustralia. I. Title.
Set in 11.5 pt Apollo by Midland Typesetters, Maryborough, Vic.
Printed by Griffin Press, Adelaide
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Apart from any fair dealing for the purposes of research or private study, or criticism or review, as permitted under the relevant copyright,
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Acknowledgements vi
Introduction vii
one Interesting times 1
two In it to win it 23
three Seeing in the dark 50
four Other peoples money 70
five Case study: Magna Data (Davnet) 103
six Case study: LookSmart 110
seven Case study: One.Tel 118
eight Case study: Macquarie Corporate
Telecommunications 130
nine Case study: Spike Networks 139
ten Lessons from the boom 152
eleven Wheres the loot? 171
epilogue Your next step 179
appendix 1 Opportunities from tax reform 182
appendix 2 Steps in the VC process 185
Notes 187
Index 198
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This book would not have been possible without the direct
contribution of time and effort by many people. Special thanks
to all those who participated in interviews, suggested ideas,
assisted with research and provided invaluable feedback on
early drafts. It was inspiring to find so many business people
and other individuals with a genuine interest in and concern
for Australias future as a prosperous and technologically
advanced nation.
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My definition of success is very simple. He whos
happy is successful. He whos not is unsuccessful.
hen Sean Howard was eleven years old he
spent six months sleeping on a mattress on
the floor because his single mother couldnt afford a bed frame.
When I interviewed him for this book he was in the study of
a $13 million mansion in Neutral Bay, Sydney. According to the
real estate press, Shell Cove is 200 squares, sits on 2,800 square
metres of land and comes with a tennis court, pool, golf putting
green and bunker. Inside, I sat in a deep leather chair below a
bookshelf filled with antique books on Fiji. Howard owns land
there. A friend of Howards laughs when I ask him about the
house, saying that hes lost in the massive place. Hes got this
one car parked in like a twelve-car garage, its crazy, he says.
It turns out that there is method to the madness, however.
There are few homes in Sydney with deepwater frontage and
Howard needed one for the construction of his new yacht.
What on earth happened between 1970 and 2000? How did
a boy go from the floor in blue-collar Melbourne to worrying
about which corner of his garage to park in at night? The short
story is that during the 1980s and early 1990s Howard sold
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shares in Australian Personal Computer magazine to Kerry
Packer for a total of about $8 million. In 1998, he sold his part
of Internet service provider OzEmail to American firm UUNET,
part of MCI WorldCom, for close to $120 million. The long
version is more complicated, involving foresight, creativity,
recklessness, marketing savvy, ruthlessness, luck and the odd
tantrum or two.
This book tells the stories of Howard and other entrepre-
neurs like him. Having spent most of the 1990s as a high-tech
journalist for a range of publications, most recently as IT Editor
at the Australian Financial Review, I had the dubious pleasure
of watching a lot of peoplemainly men, usually in their
twenties and thirtiesbecome very wealthy, very quickly, in
the Internet boom. In 1997, for instance, I worked at a company
called Decisive Publishing, editing a small newsletter with the
then novel masthead on-Line. A copy dated 22 April 1997 now
seems even more dated than Howards antique books. Theres
a story about Roger Allen and Roger Buckeridge from Allen &
Buckeridge trying to raise their first $100 million high-tech
venture-capital fund and the already surpassed prediction that
the number of people with Internet access at work would
increase from 12 per cent at the time to 48 per cent by 2002.
Theres also a breathless story about two companies, AUSNet
and Tetherless Access, that were trying without success to
deliver high-speed Internet access in city centres.
The people who would eventually make their millions by
offering wireless data services around town, among other
things, happened to be our landlord. Decisive Publishing
sub-let an office in Castlereagh Street, Sydney, from the then
obscure Internet service provider Magna Data. They liked the
place for the same reason we did: it felt vaguely anarchic
because the decor was awful and it was over the road from
Telstras colossal Elizabeth Street headquarters. As far as we
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could tell, Magna Data was out of control. Staff bitched, people
said their network didnt work and we waited for the day wed
be evicted because theyd gone broke. What we didnt expect
was that by 1999 the four founders of the companyJason
Ashton, Luke Carruthers, Mark Cramer-Roberts and Vivian
Stewartwould all become multi-millionaires before their
thirtieth birthdays. Magna was bought by the then even less
well known, Melbourne-based Internet company, Davnet, for
$16 million in cash and shares. At the time of writing, Ashton,
who took more shares than cash, had seen his paper worth
reach as high as $47 million. Hed also bought a dark blue
Ferrari Mondeo 360. This was something that we, even as
industry journalists living next door to the guy, hadnt seen
coming. But he had. And when it comes to getting $300,000
sports cars, its foresight that counts.
The central question in this book is why did people like
Sean Howard, the Magna Boys, and others such as David and
Aidan Tudehope, the hundred million sibling co-founders of
Macquarie Corporate Telecommunications, make big money
in the dot-com boom while others failed? To use a surfing
analogy: how early did they see their waves coming? Why
were they ready for them? What risks did they take? How did
they know how to ride once theyd been picked up by the
swell? In short, how did they step into the multi-million dollar
league or even, in the case of Tracey Ellery and Evan Thornley
at LookSmart or One.Tels Jodee Rich, become billionaires in
such a short time?
Scratching the surface of these questions will take the rest
of this book. The good news is that the outlook for Australian
entrepreneurs is improving. The recent reform of the tax
system has created new incentives for people to seek capital
gains instead of salariesowning all or parts of businesses
rather than just working for them. Ongoing advances in
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computing and communications continue to create direct value
but are also having a knock-on effect, enabling accelerated
innovation and opening up opportunities in many other parts
of the economy, such as agriculture, transport, medicine and
There is also a renewed interest in, even public warmth
towards, entrepreneurship itself. A symbolic high point in this
thaw was the release from jail of Alan Bond, the man that did
more than any other to darken the word entrepreneur. Despite
having spent four years in jail for defrauding Bell Resources
of $1.2 billion and other crimes, he had the front to return to
public life by writing a series for the Sunday Telegraph explain-
ing how he would never have been jailed if he had been tried
by a jury of peers. Showing he still had his popular touch,
he also appealed for a new beginning in an extraordinary
TV commercial made by Love, Siimon Reynolds firm, for the
Seek.com.au jobs website. With the dot-com boom in full
swing, the mood was such that it seemed the public might just
grant it to him. Though, at the time of writing, things had well
and truly turned nasty.
The scythes were out for many high-tech business people,
particularly those presiding over newly listed companies with
plummeting share prices. Johnson Wang, the former head of
the Edge Group of computer companies who in 1996 received
a business award from Prime Minister John Howard, was
declared bankrupt in late 2000 after a string of controversies.
Damien Brady, the 32-year-old head of Edges sister company,
Internet-provider Eisa, was under scrutiny after the companys
disastrous attempt to buy OzEmails consumer business for
more than $300 million. If the OzEmail debacle wasnt bad
enough, Brady really hit the rocks when he couldnt validate
claims made in his companys prospectus about his academic
qualifications. Then there was American-born Chris Tyler,
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the former chief executive of accountancy software giant
Solution 6, whose Australian visit came to a rapid end after
revelations in Business Review Weekly that hed been convicted
in the United States fifteen years earlier for owning two garbage
bags of marijuana and had once run a listed Canadian educa-
tional software company into the ground. Greg Fisher, the boss
of Australias first gay Internet and property development
company, The Satellite Group, also felt the cool blades of public
disquiet. In July 2000, the Sydney Morning Herald ran an article
pointing out that the companys shares had performed poorly
since floating and claiming that Fisher too was struggling to
remember where he got his Masters degree.
He quit shortly
after and began fighting to clear his name in a nasty stoush
with the Satellite board.
It was all good fun in a waywe still love a public hanging,
admit itand some of the kicks were well earned. Indeed, small
investors like a friends mum who bought Solution 6 shares at
$17 then watched them rapidly collapse to under $1 would
probably like to land a few directly. Fortunately, such stories
were the exceptions in an overheated market and we can only
hope that the word entrepreneur survives the 2000 correction.
And despite the flameouts, a lasting legacy of the dot-com
boom is the notion that it is feasible to get seriously rich in
ones own lifetime.
The research for this book involved face-to-face interviews
with a number of the tech booms main protagonists, from the
entrepreneurs themselves to lawyers, technologists, merchant
bankers, venture capitalists and others whose fingers can be
found in lots of pies including diversified investor Rodney
Adler, then One.Tel chairman John Greaves and Telstra
chairman Bob Mansfield. Other material was picked up during
my six or so years of reporting on the industry. Indeed, Ive felt
Johnson Wangs gentle handshake, had lunch with both
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Damien Brady and Greg Fisher, and was as impressed as any
journalist when Chris Tyler dragged Solution 6 back from the
brink of insolvency in the late 1990s.
One bit of wisdom I have taken away from all this proximity
to people making (and losing) fast money is that most of the
ones that really made it big began positioning themselves for
success during the recession of the early 1990s, if not before.
At that time, telecommunications and the Internet presented an
obvious high-growth opportunity but few people had the
stomach, technical capacity or financial facilities to pursue it.
Those that did were well placed when the Big Wednesday of
business opportunities came1999s global surge of money
into anything high tech. This was the time for guys like Sean
Howard and David Tudehope (who cant surf, by the way) to
get out their metaphoric big-wave boards and ride for their
lives. Those that arrived late, like Damien Brady at Eisa and
Justin Punch and Alison Harrington at failed e-tailer TheSpot,
were caught inside the break, often pummelled beyond re-
Another question is whether entrepreneurs do the rest of us
any favoursdo these guys and girls really create sustainable
wealth? I dont just mean tipping well at restaurants. Or paying
$3,000 for a $20 print of Dawn Fraser like Daniel Petre, ecorp
president and $100 million-plus father figure to us all, did at a
recent charity event. I think the answer is yes. Its a hit and
miss affair but those that operate in internationally high-value
fields such as computing and medicine are a positive force for
economic renewal. Sure, there are some sharks in the water and
plenty of flotsam, but any Australian that creates a new and
viable enterprise helps to keep the rest of us in the First World.
Yes, Jodee Rich is worth up to $1 billiondepending on the
marketbut he has also helped to create thousands of jobs,
here and overseas. As a nation, we love to hate these people but
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some of them are the young Frank Packers and Frank Lowys of
our time. Without them you can bet that well be riding the
proverbial sheeps back until the Australian dollar reaches
parity with the Mexican peso. One of the main reasons Ive
written this book is the hope that it might encourage at least
some of you to build great companies so that my baby boy,
Callan, might one day work somewhere other than McDonalds.
No one has expressed this need more succinctly than the
taxi driver who took me to Sean Howards house. It was late
summer, 2000. As we wound our way through the narrow and
picturesque streets to the harbour, I asked what he thought
about the Internet entrepreneurs making millions on the stock
market. I expected him to echo right-wing radio, tell me they
were all crooks, but he surprised me. Shouting through his
plastic security screen he said, These blokes that are good
with technology, we need em . . . Country bloody needs em.
Finally, I would like to say in advance that some share prices
and even whole companies cited in this book may have changed
substantially since the time of writing. This was difficult to
avoid in such a volatile sector but I hope it isnt too disori-
enting. Readers may also feel that I have missed some important
figures, such as Craig Winkler, chief executive of software
company MYOB, who has quietly built a paper wealth in the
hundreds of millions. But the goal was to try to draw wider
lessons by concentrating on a small group rather than to
produce a comprehensive history of Australias dot-com boom
or another How to Get e.Rich book. The point is that for most
its too late to get seriously e.Rich. The challenge is to spot the
next wavemaybe Business Week will soon be talking about
the x-rich as the human genome project spawns a new
industry. The result is, I hope, some valuable lessons about
spotting opportunities and succeeding in what the Chinese
might call interesting times.
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e live in interesting times. More was accom-
plished (and destroyed) in the twentieth
century than any previous 100-year period. The human race
is on a roll and things are only going to accelerate in the next
100 years, driven by self-perpetuating gains in technologies
and globalisation. The question is: how will you fare? Will you
embrace the opportunities or become a victim of the threats?
Will these interesting times prove to be your very own Chi-
nese curse or a time of extraordinary success? Can you do
anything about it?
This is a book about doing business and taking risks during
periods of high technological change. The central premise is
that we can learn a lot from the Internet and technology boom
of 19952000. This was a period of extraordinary change. All
sorts of scientific, social and geopolitical trends converged to
create a period of unprecedented opportunity and danger in
business. In particular, the worlds stock markets surged out of
control, enabling a lot of people to make ridiculous amounts
of money in a very short period of time. Others lost vast sums
Take, for example, two university professors, David Skel-
lern and Neil Weste at Macquarie University in Sydney, who
collected a large but undisclosed portion of US$295 million
when United States company Cisco Systems bought their
company, Radiata Communications, in late 2000. Ciscos target
was Radiatas world-class chip that enables high-speed wire-
less communication between computers. Or David, Jon and
Stephen Shein, the South African-born businessmen who in
1987 founded Com Tech Communications, an information
technology sales and training company. By 2000 they had sold
their entire share of the company to global giant Dimension
Data, realising a gain in the hundreds of millions of dollars.
I guess both my brothers and I have done better than we
could have dreamt of, said David Shein, the 40-year-old
chairman of Com Tech who started the business from his car
boot. Thats one of the things about Australiawhen you are
given the opportunities and do a hard days work you will be
On the other hand, investors who backed companies such as
would-be retailers dstore and TheSpot lost millions. dstore, for
instance, had shareholders including LookSmart, ninemsn,
Rebel Sports, the Besen familys Sussan clothing chain, the
Liberman familys JGL Investments and investment group
Hochma, run by Mark Leibler and Michael Naphtali. It was also
chaired by former New South Wales premier Nick Greiner,
previously on the board of the countrys biggest retail group,
Coles Myer. But despite all the big names, it managed to lose
around $20 million before being acquired for around $5 million
by Harris Scarfe.
What was it about the winners that made them successful?
Why them? And who walked away with the loot? The quick
answer is that most of the people that succeeded during
the dot-com boomand I mean really succeeded, not just got
their faces in the paper a few timesworked out where the
world was going early, committed themselves, then acted as
skilled entrepreneurs in seizing the opportunities that arose.
Unfortunately thats not as easy as it sounds.
The highway
I grew up in a place called Hornsby, in Sydney. It had some
schools, banks, a couple of shopping centres, a pool, its own
police station and post office and other features of a medium-
sized, suburban centre. At one point in the 1980s it hosted an
adult bookshop until the conservative locals shooed it away. For
most of my childhood Hornsbys most distinguishing feature
was the Pacific Highwaythe main road connecting Sydney to
northern New South Wales and Queensland. It cut the place in
half, creating the old side and another, more developed, area
that for some reason was never called the new side. The road
was massive and dangerous, delivering a constant stream of cars
and heavy trucks. It was always blocked at peak hour and
around holidays. To most Sydneysiders, Hornsby was a bottle-
neck with a pub (The Blue Gum), two McDonalds restaurants
and a KFC. But to many businesses, from the Repco motor
parts store to Video Ezy, Keith Lords furniture and the petrol
stations, the concentration of traffic made Hornsby a good spot
for passing trade.
In the 1980s, the Roads and Transport Authority built a new
freeway connecting Sydney to Gosford in the north. The road
bypassed Hornsby and when it opened the place was reborn,
suddenly quiet. Areas near the highway were habitable again.
Apartment complexes sprang up along the edges of the once
rancourous road. At least one petrol station and shops like
Keith Lords closed, but the change hasnt killed Hornsbyjust
altered it dramatically.
The tale of Hornsby might be compared to the much larger
construction project going on quietly around us: the creation
of the broadband Internet or, as US former Vice President
Al Gore likes to call it, the information superhighway. Like the
F3 to Gosford, it will deliver great benefits to some but alienate
others. It will make the economy faster and more competitive.
It will also thrust Australia one step further into the fast lane
of the global economy as the protection (not tyranny) of
distance declines.
The flipside to this, as Telstra chairman Bob Mansfield is
quick to point out, is that if anyone does develop anything
in Australia, whether it be a good or a service or software or
anything else, your markets the world. So its a positive and
a negative.
One of the most stunning examples of this small world
principle in action comes from South Africa. In December 1999,
software developer Mark Shuttleworth became one of that
countrys ten richest people when he sold his company, Thawte
Consulting, to American giant Verisign for US$575 million.
What made the deal extraordinary was that Shuttleworth was
25 years old and had started the company in his mothers garage
in Durbanville, Cape Town, in 1995 as a way of reducing tax
on his freelance work. When he sold it, Thawte still only
employed 50 people and Shuttleworth, who had studied
Business Science at the University of Cape Town, owned almost
100 per cent of the company. What made Thawte so valuable
to Verisign (now owned by Network Solutions, the company
that registers dot-com and other Internet addresses) was that it
had about 40 per cent of the global market for digital certifi-
cates. These are used with the Secure Sockets Layer (or SSL)
technology that secures Internet sites for electronic commerce.
Microsoft and Netscape had also embedded Thawtes tech-
nology into their web browsers, effectively making it available
worldwide. In buying the company, Verisign made itself the
undisputed leader in the field.
Beyond the incomprehensible numbers, what I like about the
Thawte story is that it shows what a powerful concentrator and
leveller the Internet can be. The computing technologies that
make up the Internet represent the first truly global standard
for communications and commerce. The telephone network
and, to a lesser extent, the English language, come close but the
Internet is the first truly universal system to be employed by
mankind. You can go anywhere in the world and the Internet
will work the same way. And if you have something central
to that process, like Shuttleworth did in the form of his com-
panys Root Key, or Thawte Certs, then you have something of
potential value to more than six billion people. Get a dollar
from each of them and suddenly youre Kerry Packer.
Also, because the Internet really is universal, it didnt matter
that Shuttleworth was in Cape Town or Silicon Valley. If your
product or service is truly Internet-based, and you have a good
connection to the network, then it quite literally doesnt matter
where you are.
Life in the fast lane
History reveals that those caught up in
revolutionary change rarely understand its
ultimate significance.
Microsoft founder Bill Gates, like Boutros-Ghali above, has
commented that people tend to overestimate the significance of
new technologies in the short term but underestimate their
long-term impact. I believe that the Internet will definitely
conform to this rule. Along with the rest of the media, Ive
published thousands of words about the potential benefits
of the Internet. Ive gushed about the ability to buy your
cornflakes from any corner of the earth and talk dirty with
American housewives. But when it comes to developing a
clear vision of the future, it is important to recognise that
the network is also very, very dangerous to many established
organisations. We are seeing the introduction of big, business-
oriented systems that use Internet technology. While less
glamourous than Amazon.com, even boring, these will have a
profound impact, and not always for the better.
The Internet is a juggernaut fuelled by at least four factors:
the doubling every eighteen months in the power of computers;
the annual doubling of telecommunications capacity; the sheer
usefulness of the Web, electronic mail and other network
applications; and, more generally, globalisation. According to
Australian research group Paul Budde Communications, the
number of people using the network has risen from next to
nothing in the 1980s to about 180 million in 1999 and reached
400 million in 2000.
Notably, many of these people are under
eighteen years of agetomorrows consumers. Canadian author
Don Tapscott has dubbed this group the N-Generation,
(network generation) estimating that in North America and
Canada alone there are 88 million children aged between 2 and
22 who are growing up digital.
The network really is the first truly global system. Holding
it together is a single computer at the Internet Assigned
Numbers Authority, an incredibly powerful academic organi-
sation with a really bad website in Marina del Rey, California.
This holds the master address book for the Internet and
contains numbers like that relate to easy-to-
remember domain names like CNN.com. If a computer isnt in
that address database (which, for security and functionality is
replicated in other parts of the world), it isnt part of the
domain name system and therefore not on the Internet. Two
other things that make the Internet the Internet and not just
another computer network are the use of the Internet Protocol
(IP) for basic data transmission and HTML, the HyperText
Markup Language that makes the World Wide Web possible.
I like to compare the Internet age to the Pax Romana. From
the reign of the Roman emperor Augustus in 27 BC through to
that of Marcus Aurelius up to 180 AD there was a prolonged
period of tranquility known as the Roman Peace. The Romans,
in their wisdom, set rules for and protected the empire as a
whole but allowed each individual province to administer its
own laws as long as they accepted Roman taxation and military
This is a bit like a company that allows groups to dress
down or enter new markets as long as they meet their sales
quotas. To me, the Internet is much the same. Geeks and the
American Government have, like some benign dictatorship,
defined some basic rules that permit the entire system to
function. In turn, individuals and companies worldwide
remain exceptionally free to innovate and create value within
the relative calm that this wider framework provides.
It isnt just the raw growth of the Internet thats interesting.
In fact, the network is, according to Garage.com president Bill
Reichert, being adopted more slowly than radio was.
is powerful is that people are making it an everyday part of
their lives. They are finding information, doing their shopping,
talking to each other, trading shares, getting counselling,
checking bank balances and many other things online. And
because the Internet is an international system, they arent
necessarily doing these things in Australia. Research firm
www.consult estimates that Australians spent $253 million
online in 1998 and $650 million in 1999, and says this sort
of growth can be expected to continue. At the same time,
the average amount spent by online shoppers rose from $355
per annum in 1998 to $630 in 1999. Whats most frightening,
from the point of view of Australias balance of trade, is that
www.consults survey showed that Australian web surfers
spent about half their time on US commerce sites, particularly
I wouldnt go so far as to say that Australian business is
going to be totally wiped out by such net-enabled multi-
nationals. Indeed, many stand-alone Internet players are failing
and seeking the support of traditional bricks and mortar
companies. High profile companies like Buy.com.au, CDNow,
dstore, Living.com and Pets.com have already hit the wall or
been bought out by established players. But every time
someone buys a book from Amazon or books a flight to Europe
through a British website, for instance, theyre spending money
overseas, not here. That hurts. Equally, of course, people from
overseas are buying from Australian websites. Unfortunately
though, it appears certain that more money is leaving the
country through the Internet than coming in.
The opportunities and dangers are even greater at the level
of trade between businesses. The Internet and related electronic
commerce systems make it possible for companies to trade
goods and services with an ease and efficiency approaching
that with which people trade shares on a stock exchange.
Because the system is global, they can do this on an inter-
national scale as easily as they could within a country. These
systems also make it very simple for companies to see how
much other companies are paying for common items, such as
stationery, and also allow them to increase their buying power
by combining their orders.
The promise of these systems is so great that many major
corporations have begun spending millions to develop industry-
specific trading environments. For instance, DaimlerChrysler,
Ford Motor Company, General Motors, Nissan and Renault
have teamed up to form a single electronic marketplace called
Covisint (www.covisint.com). They are seeking to centralise
the buying and selling of common parts and services used by
all players within the auto industry. This totals more than
US$250 billion per year.
In their words, Covisint will harness
the power of Internet technology to create visibility within a
company's supply chaintransforming the linear chain into
a far more productive and efficient networked model.
Australias largest retail group, Coles Myer, has also teamed
up with GlobalNetXchange, a group of massive retailers whose
members buy $350 billion worth of goods and services from
70,000 suppliers per year. The other members include Sears
Roebuck of the US, Carrefour of France and Germanys Metro
Domestically, the biggest initiative is CorProcure, a
proposed purchasing group put forward by fourteen of the
countrys largest companies including AMP, ANZ Bank, BHP,
Coca-Cola Amatil, Coles Myer, Fosters and Telstra. The plan
was to team up on the purchasing of common items such as
stationery, fuel and cleaning supplies.
The goal with all these initiatives is to reduce by billions of
dollars the amount that major companies pay for production
inputs, from petrol to door handles and hops. Where are all
these billions in saving going to come from? Internal efficien-
cies and supplier profit margins. What remains unclear is which
will generate the most savings and the real intent behind the
exchanges. Are they giant purchasing cartels designed to aggre-
gate purchasing with the goal of squeezing suppliers on price?
Why else would archrivals such as Ford and DaimlerChrysler,
for instance, be prepared to cooperate? Or are suppliers
margins already very low and the exchanges will actually help
to reduce waste by getting everyone in the industry to use
identical procurement systems, for instance. As a Covisint
executive has said, The prices are already pretty damn low.
But the waste is still in the system, and the waste can only get
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out if we standardise our communication with our suppliers.
Whatever the truth, its all about reducing friction or, to
put a finer point on it, people. The Internet drives economic
efficiency and efficiency often destroys the value of businesses.
As Warren Buffett, the famous value investor and Americas
second richest man, has commented, [The Internet] will make
American business, in aggregate, worth less than it otherwise
would have been.
Buffetts contention is that the more automated things
become, the less jobs there are for people. An example that may
have sent shivers down his spine is an advertisement published
by Internet auction operator FreeMarkets.com in The Economist
FreeMarkets is an independent e-marketplace
operator with the slogan, Redefining purchasing power for
the Global 1000. The ad said that at 8.30 a.m. a Global 1000
company was being asked to pay US$24 million for an order of
printed circuit boards. Instead of paying, it posted its order on
the FreeMarkets website. Twenty-four hours later it had a
quote of just US$14 million for the same boards.
In one day, the FreeMarkets process reduced prices on
printed circuit boards by 42%, the ad crows, leveraging a
global supply base, and creating savings of $10 million.
This is economy-shattering stuff. Companies will have to be
very large, and have massive economies of scale, to win orders
in the face of such brutal, real-time commoditisation. The
problem for Australia is that, outside natural resources and
agriculture, were not known for scale. While the e-markets
process may open up some opportunities for Australian
suppliers that were previously excluded from major overseas
markets due to distance, we should be nervous. Though, not
half as nervous as countries that are yet to be computerised or
networked and therefore cant access these new virtual market-
places at all.
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The quick or the dead
Australia is, I believe, getting harsher. I have done no empirical
research to prove this but years of economic rationalism,
exposure to international competition, improved reporting
systems within companies and other changes appear to have
left both workers and executives with few places to hide. Our
business and social systems have become much more open
and cutthroat. More American. Such international meritocracy
is good for people who are good at what they do but potentially
dangerous for those whose success depends on dubious fac-
tors such as family connections, schoolmates or government
The US might crow about its economic strength and low
unemployment but median wages have been static or even
declining in the US for about twenty years.
Indeed, one of
the reasons the rich do so well in America is the abundance
of cheap labour. Even in San Francisco, heart of the high-
tech boom, you still get run-down bus stops and beggars on
the street. One of my favourite urban myths is the story of the
World Trade Organisation meeting in downtown New York.
The Americans spent all day brow-beating a group of European
officials about how they should adopt the US free market
system. For the most part, the officials listened, took notes and
nodded. At the end of the day they all went outside and the
European delegation said that they would walk back to their
hotel. The US officials said, No, please, take a car, its not safe
to walk on the streets, to which the Europeans replied, Our
point exactly.
Buried within these statistics, however, is the fact that
educated professionals have been enjoying much stronger
wages growth than their less educated peers. Since 1979,
average weekly earnings of college graduates in the US have
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risen by more than 30 per cent relative to those of high school
graduatesthe widest gap for 60 years.
As First World
economies become more and more information-powered, its
not just the rich that are getting richer, the smart and the
internationally oriented are also doing well. This process is
self-perpetuating as well-educated people are more likely to use
the Internet, which is in turn the most information-rich
environment the world has ever known.
Even TV is getting depressing, and not just because theres
nothing on but repeats of The Benny Hill Show. One night
I watched a union leader who was saying that a couple of
hundred people at an Australian plant that made fridges were
about to lose their jobs. It seemed that the company could save
$5 a unitor about $2 million a yearhaving the wire bits at
the back made somewhere in Asia. These people were stuffed,
basically. Their whole town was stuffed. The item seemed to
follow an endless succession of such stories: canneries, car
factories, clothing manufacturers and farmers. One of these
tales featured an Australian call centre being operated out
of New Delhi. Finance company GE Capital planned to save
money by sacking 70 workers in Sydney and having its calls
routed to a group of English speakers in India. This was now
possible due to the dramatic declines in the cost of international
telecommunications. In what the Sun-Herald described as a
bizarre twist, the foreign workers were expected to use names
reconstructed from the first and last names of the former
Australian staff members.
Hi, this is Dawn Freeman, welcome
to GE . . .
Sad as it sometimes is, this is globalisation in action. Further,
some peopleI wont say the majoritythrive in this flatter,
faster, more efficient and merit-based system. The abolition of
red tape and the introduction of free-market strictures has
made it possible for many of the entrepreneurs in this book to
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achieve quantum leaps in wealth and social standing in their
own lifetimes. The new world is even more democratic in a
perverse sort of way in that it takes only money, rather than
lineage or social standing, to buy votes. Even better, anyone can
make money.
Since this is a book for would-be entrepreneurs rather than
Labor Party policy makers, Im not about to try to propose any
solutions. There is also evidence to suggest that even though
the world is becoming more competitive, there has been a very
real increase in wealth and well being over the past century. US
historian Robert Fogel argues that its untrue to say that the
world is becoming more unequal.
Despite the fact that about
400 people control as much wealth as the bottom 2.5 billion,
there has been stunning material progress in many countries,
particularly the US when measured by spending, time use,
calorie consumption, life expectancy and height.
Whatever the statistical reality, youre only as rich as you
feel. You could be worth $1 million but if everyone else has
$2 million youll feel poor. So I would advise people to be
pragmatic. Powerful forces are at work and unless you get out
of harms way youre in danger of becoming a historical
footnote. I think I started developing this pessimistic view
many years ago in Europe. I was hitchhiking in some pictur-
esque corner of Switzerland, admiring the lush green pastures
leading to snow-capped alps as people zipped by in their small,
unleaded petrol cars. Finally, an aging rockabilly guy pulled
up in a monstrous old Cadillac. It was long and brown and
propelled by a six-litre, lead-belching engine. After a few miles,
I asked him whether he felt irresponsible driving such an
environmental hazard through the pristine surrounds. He said,
No, the world is over, anyway. You think anyone else is really
going to stop wrecking it? No. Im not having kids and Im
driving this car and I feel okay about that.
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The guy was cynical, even selfish, but he had a point. Hes
going to keep driving his Cadillac. The fridge manufacturer will
keep using those factories in Asia. The call centre will probably
remain in India unless bums on call-centre seats become
cheaper in Bhutan.
Another factor is that Australian companies, like most, have
become less loyal to staff, firing people if it will help to achieve
short- or long-term goals. This breeds cynicism and mistrust
which further undermine the ability of companies to hold good
people. I call this the get them before they get you principle.
The result is that talented people are identifying their unique
value and setting up as independent operators or starting
whole new businesses. In turn, this is leaving large companies
full of the leftovers, causing internal weakness and increasing
the motivation to outsource key functions to external indi-
viduals and organisations. A complementary trend is that of
increased specialisation, where companies are focusing more
and more on doing a small number of things well and deliv-
ering their services to a nationally or even internationally
dispersed client base. Notably, the Internet is encouraging all
these trends by dramatically improving the quality of com-
munications between companies and subcontractors, within
countries and internationally.
Again, there is nothing inherently wrong with this process.
Indeed, British economist Adam Smith might have quite liked
the way it promotes the potentially efficient distribution of
work from the people that need things done to the people
most capable of doing it. But it is threatening both to sub-
standard people that are currently protected within large
organisations and even the apparent beneficiaries, external
consultants and other third parties. The danger for the latter is
that in essence outsourcing allows companies to devolve
the risk to their subcontractors. The reason here is that the
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most dangerous situation for a large company is to be caught
with a lot of people, and therefore a big salary bill, during a
business downturn. This is particularly true today where listed
companies are expected to show very steady earnings (profit)
performance, quarter by quarter. By outsourcing key func-
tions, from accounting to public relations and computer
programming, companies may have to pay a premium in the
short term but they can quickly shut down many expenses at
the first sign of trouble. For the external party, however, that
can mean gut-wrenching income fluctuations.
At a geopolitical level, the world might be seen as splitting
into the people that run things and the people that do things.
Much of the pain you see in the First World today comes from
the fact that, as in the fridge assembly example above, the
people that run things are increasingly located in rich countries
like Australia and the US while the people that do things are in
countries like China and Mexico. This means that people in
manufacturing, particularly, are seeing their jobs going offshore
while the salaries earned by people that organise things, like
executives and management consultants, continue to increase
exponentially. The latter group are also becoming part of a
global elite that have more in common with one another
the magazines they read (Business Week, The Economist), the
language they speak (English), banks they deal with (Citibank,
HSBC), and even the places they go on holidays (New York,
France) and so onthan with the working class in their own
countries. Notably, there are pockets of people within even the
poorest countries that are part of this global elite
This is a very simple sketch of a complex situation that has
been dealt with in far more detail by authors such as Thomas
Friedman in The Lexus and the Olive Tree
and Hans Peter-
Martin and Harald Schuman in The Global Trap.
I raise it
simply as a way of introducing this question: to which group
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do you belong? And to which group would you prefer to
belong? If the answer is the latter, then you need to at the
very least think and operate internationally, speak English and
know how to use the Internet. Fortunately, this comes natur-
ally to many Australians, despite our reputation as yobbos
who swim well.
The upshot is that the world is changing fast but presenting
a lot of opportunities for talented, entrepreneurial people
capable of creating new, specialised products and services that
can be delivered across a wide range of locations. It also means
that if youre waiting for your company or government to save
you from globalisationwhatever that really meansthen
youre in trouble. Maybe you should run that Asian fridge
factory or develop technology that makes it easy for companies
like GE to manage remote call-centre staff. Or perhaps you
should start an online counselling service for aging Swiss
nihiliststhat guy in the Cadillac may need some warmth and
encouragement one day.
Finance first
If you want to see where the world is going, look to the
financial markets. There you will find the most potent mix of
money, power and technology. Given the almost complete
autonomy of the financial system from any national govern-
ment, youll also see how all business would behave if there
were no laws. In other words, youll see the future.
Money and the Internet suit each other. One is a virtual
commodity, the other a virtual network. Because money is an
abstract concept it is, in effect, pure intellectual property that
can be shuttled around the world as digital information. Long
before the Internet arrived, the worlds major financial insti-
tutions had taken to exchanging numbers rather than boatloads
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of cash and gold. With the Internet, more and more people are
joining this system, particularly in the area of share trading
where almost anyone can now not only trade shares but also
access related information with almost the same ease as market
professionals. This is in turn changing the system itself.
For instance, the worlds stock exchanges are consolidating.
In 1998, I interviewed the vice president in charge of the New
York Stock Exchanges (NYSE) international and research oper-
ations, Georges Ugeux.
In his palatial offices within the NYSE
at 11 Wall Street, he said that the world really only needed
three stock exchanges: one in the Americas, one in Asia and one
in Europe. This, he said, would be enough to enable 24-hour-
a-day trade in at least large securities such as financial services
giant Citigroup and software maker Microsoft.
British authors Patrick Young and Thomas Theys support
Ugeuxs view. In their terrifying book about the forces at work
in the financial markets, Capital Market Revolution, they say:
In the nineteenth century more than 200 stock exchanges
opened in the USA. The invention of the telegraph permitted
liquidity to flow to a few fixed marketplaces. The telegraph
killed all but a handful of US stock markets. In the Capital
Market Revolution the capacity of digital technology to bring
together all fixed points to another fixed (or indeed floating)
point means that technology of the Internet generation will
decimate the worlds existing stock exchanges. Fewer than five
major stock markets will remain worldwide by 2010. Perhaps
two or three of these will be entirely electronic markets which
have not yet even been created.
In a process that is likely to be repeated in many other parts of
the economy, this consolidation of the worlds stock exchanges
is already underway. Driving the process is the desire to enable
investors to trade any security on any exchange or network, in
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any currency and at any time. Sounds a bit like Amazon.com,
doesnt it? Buy any book, any time, from anywhere.
The challenge for a small country like Australia operating in
a global, electronic marketplace is to maintain relevance.
Despite being the eleventh largest exchange in the world, the
Australian Stock Exchange (ASX) accounts for only about
1 per cent of world stock market capitalisation.
Moreover, a
small number of companies such as AMP, News Corporation
and Telstra make up the bulk of the market. Many of these
companies have assets around the world and could easily
decide to follow industrial conglomerate James Hardie, for
instance, in moving to overseas markets where there is greater
liquidity and better market research.
My big worry is, if you look at a profile of listed companies
in Australia, you find that the top 75 businesses represent 98%
of the total value of the market, ASX chief executive Richard
Humphry has said. My job is to say how do I find a way elec-
tronically to make these people happy so they will stay? And
how do I give them access to whats happening offshore as
Fortunately, the ASX and the Sydney Futures Exchange
(SFE) saw much of this coming and operate two of the most
efficient and well-managed exchanges in the world. Australia
also remains a key centre of expertise for trade in mining and
agricultural stocks so its unlikely to lose its role overnight. But,
given the relative lack of local companies and related analytical
talent, will we remain, or indeed even become, an attractive
place for high technology stocks, for instance?
And as the Internet spreads, will we lose all relevance in
industries where we have no inherent expertise or competi-
tiveness, like manufacturing cars, making watches or producing
clothing? Today we largely have only distributors and resellers
of other peoples goods in these areas. Even in cars, which we
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do manufacture locally, we typically only assemble complex
components made overseas. Tomorrow these companies will
either have to be competitive participants on the global net-
work, like ASX and SFE are trying to become, or go out of
Centre of the world
The catchcry of the financial revolution, and a pun by Young
and Theys on Frances libert, egalit, fraternit, is Liquidity!
Accessibility! Transparency!
Ugeux says that the rationali-
sation of global exchanges would create markets of immense
depth and liquidity.
The obvious implication is that the NYSE,
by far the worlds largest share market, would be one of those,
most likely operating in concert with London and Tokyo to
cover the worlds time zones.
At first glance this would seem indisputable. The NYSE
represents the pinnacle of global capitalism. It is over 200 years
old and home to more than 3,000 listed companies, including
giants such as Exxon, GE and IBM. In 1999 it had a combined
market capitalisation of US$16.8 trillion, easily eclipsing the
next two largest exchanges, National Association of Securities
Dealers Automated Quotation (NASDAQ) and Tokyo, at around
US$5 trillion each. Behind the NYSEs imposing facade of Corin-
thian columns surges the famous trading floor, complete with
its chaotic array of screens, booths and brokers in their brightly
coloured jackets. Upstairs the executive suites are quiet, the
corridors wide and lined with oil paintings of august members.
The wood is dark, the carpets deep.
Even so, the place is under serious threat from more efficient
markets and alternative trading systems. The NYSE is a private
club where all trading is handled by 1,366 members who
have either inherited or bought their membership. Unlike the
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Australian Stock Exchange and other exchanges that have
fully automated their systems using computers, trade on
the NYSE is still handled manually by real, live people who
pass pieces of paper to each other! A tour guide once assured
me that this process results in better treatment of stocks
because the humans on the floor play an important role in
smoothing the rise and fall of share prices.
However this process is as antiquated as the American
affection for imperial measurement. Many companies are instead
opting for faster, cheaper, heavily computerised exchanges with
different trading rules, such as NASDAQ. NASDAQ is Americas
second largest exchange and home to most leading high-
technology stocks. Some of these, such as Internet network
equipment maker Cisco Systems and software leader Microsoft,
are as large as the biggest stocks on the NYSE. Ciscos market
capitalisation on NASDAQ has been around US$500 billion
which was the same as GEs, the largest stock on the NYSE.
The venerable IBM has a capitalisation on the NYSE of about
US$200 billion.
Quality information is now also far more freely available to
ordinary investors. Punters like you and me can find a large
amount of information about listed companies on any exchange
in the world, 24 hours a day, through official stock exchange
websites such as nasdaq.com, nyse.com and asx.com.au.
Indeed, thats where I found the market capitalisations of Cisco
and GE on a Sunday afternoon in Sydney. They can also get
additional official information, news items and outright gossip
through share-trading sites. For a small fee, punters can also
access almost all the same real-time market information and
execution capabilities as professional investors. Moves by news-
papers such as the Australian Financial Review, the Financial
Times and the Wall Street Journal to make their archives
available online have only added to the wealth of information
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that is now available online. Online share trader E*Trade once
described this as, An Investors Dream. A Brokers Nightmare.
Another act of liberation is the move by the Australian Secu-
rities and Investment Commission (ASIC) to stop companies
holding private briefings for market analysts. Instead, ASIC
is urging companies to treat all investors equally by making
statements via the Internet. This is yet another example of the
world becoming more egalitarian with technology. In this case,
entrepreneurial small investors have an opportunity to profit
from better information. At the same time, market professionals
have lost another piece of unfair advantage.
One by-product of all this Internet-enabled awareness is that
amateur investors, particularly the millions of day traders
around the world, are waking up to the fact that they are
second-class citizens in the worlds financial markets. They are
also pushing for change in what might be seen as the twenty-
first century equivalent of the French Revolution.
A key
target is the private trading networks, or electronic communi-
cations networks (ECNs), such as Reuters Instinet. These
enable the worlds financial institutions to trade securities with
each other at any time, even when the stock markets on which
shares are listed are closed. They also now account for around
30 per cent of the business on NASDAQ and the NYSE, for
In other words, theres one market environment for
the institutions, and one for the small investor.
But the punters are rising and Instinet, for one, is in the
process of launching trading services for consumers that would
access this virtual trading floor from their PCs. In fact, it
appears most likely that mergers such as iX, the proposed joint
venture between the London Stock Exchange (LSE) and
Frankfurts Deutsche Boerse, will prove impossible due to
national pride and more mechanical problems such as harmon-
ising share trading laws. Instead, the neutral, global and highly
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efficient ECNs may quickly become the worlds major markets
and even buy out traditional exchanges such as the LSE.
Whats happening in the financial markets is all about
increasing information flow and economic efficiency. In the
absence of international rules, the sector is doing the most
logical thing. Its opening for business at all hours, becoming
global and cutting out intermediaries that do not add value. No
matter how many Living.coms go out of business, the Internet
will, like the telephone network that it runs on, remain very,
very good at delivering information and, in turn, efficiencies.
This is, as Bill Gates likes to say, friction-free capitalism.
Unfortunately, next to regulations, friction from things like
geography and customer loyalty is one of the few elements
protecting many Australian companies from competitors.
For instance, our top four banks hold around one million
credit cards each. How will they compete with Internet-enabled
mega companies like HSBC and Merrill Lynch providing tens
of millions worldwide? Or what if you could get a home loan
from any bank in the world? Would you be patriotic and pay
more to get it from an Australian bank or would you go to a
very large, global institution with the scale to provide lower
rates, fixed for 25 years? The question can easily be extended
to all manner of goods, from airline tickets to books.
But if youre a would-be entrepreneur, you shouldnt be
paralysed by fear. You just need to consider whether you could
be crushed by such shifts or if they represent opportunities.
Yes its a smaller, faster world but if you have a good idea, like
Mark Shuttleworth with his Internet security tools, you can
also benefit enormously. The trick is to work out where value
is being created and where it is being destroyed and move
appropriately. Again, that is no simple task.
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The Entrepreneur is our creative personality
always at its best dealing with the unknown,
prodding the future, creating probabilities out of
possibilities, engineering chaos into harmony.
ne of my favourite books is Burn Rate by US
author and one-time Internet entrepreneur
Michael Wolff. Subtitled How I survived the gold rush years
on the Internet, its a hilarious account of Wolffs transition
from simple journalist and writer to chairman and chief
executive of Wolff New Mediaand back again almost as
quickly. The company published the pioneering NetGuide
and NetBooks series of Internet guides and in the early 1990s
was briefly valued at US$150 million. At one stage, Wolff looked
like entering a deal that would deliver him a paper worth of
US$100 million. His banker suggested, with complete sincerity,
that he give his old university a new building. Its interesting
how seamlessly you can move from being an ordinary middle-
class working person to being a person with Medici level of
wealth, Wolff wrote. It doesnt feel like theres been an error;
it feels, in fact, like theres some logic in the world. If you work
hard, you will succeed.
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Among the legacies of the dot-com boom will be, as outlined
in the introduction, the notion that it is actually possible to get
rich in your own lifetime, or even in a few years. Preceding
decades had sex, drugs and rocknroll. The nineties and
noughties seem to have business itself as a cultural movement,
with all the same delusions regarding risk and the likelihood
of success.
Like most of the great fashions of the post-World War II era,
this idea that doing business is inherently fun and easy, even
cool, has been created in the US and exported worldwide. The
hub of this movement has been Silicon Valley, along with some
other key centres such as Austin, Boston and New York. Maga-
zines that mix entrepreneurship and high tech, such as Industry
Standard, Wired, Fast Company, Business 2.0, Red Herring and
Upside, have not only sidelined yesterdays icons such as
Playboy and Rolling Stone but have also grown so rapidly, and
attracted so much advertising, as to resemble telephone books.
According to The Economist, in the year to March 2000 these
six titles had a combined monthly circulation of 1.6 million
copies and generated collective ad revenues of more than
US$270 million.
At the same time, the top-selling business books on Business
Weeks paperback list centred almost exclusively on personal
wealth, investment or self-improvement. They included: The
7 Habits of Highly Effective People by Stephen Covey, Robert
Kiyosakis Rich Dad, Poor Dad, The Millionaire Next Door
by Thomas Stanley and William Danko, The Roaring 2000s by
Harry Dent, and Eric Tysons Investing for Dummies.
Another indicator that a global trend has arrived is that the
Japanese have gotten into it. It used to take an average of 34
years for a Japanese company to float on the stock exchange.
Buoyed by the hype, Japan has been going through a mini-
boom in initial public share offers (IPOs) as twenty-something
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executives popped their companies onto the Mothers, an
exchange opened by the Tokyo Stock Exchange for new high-
growth companies. In 2000, almost all of the companies on
Mothers were Internet stocks enjoying very silly valuations,
just like their American counterparts on NASDAQ.
Australia has been right into all this. We read the magazines,
bought the books and held parties with names like First Tues-
day, Last Tuesday, Second Monday, Inner Circle and Domain,
where entrepreneurs could mingle with venture capitalists,
service providers, media, and otherwise dig the start-up trip.
Wolff once despaired at what America had unleashed:
There isnt anyone with a modicum of conventional business
experience who doesnt appreciate the weird and comical
precariousness of the new economy, who doesnt understand
that the entire playing field of Internet businesses depends
upon the stock markets willingness to pour good money
after bad.
The defining moment of the dot-com boom was arguably
Tinsheds Kickstart for Startups conference in Sydney in
March 2000. Tinshed was created by Janusz Hooker, the
grandson of real-estate mogul L.J. Hooker and a former
manager at the Asian Infrastructure Fund in Hong Kong, and
Vivian Stewart, one of the founders of Internet company
Magna Data. Their big coup was to win the participation of a
group of wealthy business people and heirs to fortunes in
Australia and Asia, including Rodney Adler, David Greatorex,
David Lowy, James Packer, John Singleton, Norman Smorgon
and Kevin Weldon.
The conference was a copy of the Bootcamp for Startups
operated by American investment group and Tinshed ally
Garage.com. It attracted about 900 delegates who each paid up
to $995 each to hear one of the slickest pieces of financial
Where's the Loot TEXT PAGES 4/6/01 1:40 PM Page 25
marketing this country has ever seen. The organisers flew in
speakers from around the world and even got former Prime
Minister Bob Hawke to address the audiencethough he
decided to speak about foreign policy rather than the art of
schmoozing, as scheduled. I should confess that I also spoke in
one panel about the media. For two days the Lyric Theatre
in Darling Harbour was transformed into a sort of church,
whose god was the pursuit of fast money. Most sessions focused
on how to raise venture capital and there were occasions when
entrepreneurs would have a minute to pitch for money. I
describe it as financial marketing because the subtext was that
to survive you need venture financing, and the coolest money
around was Tinshed money.
The conference party was held in a club called Home.
Tinshed paid for drinks and put on a fashion parade. Older
venture capitalists (VCs) could be found in quiet corners trying
to work out how much money the young Turks were burning.
The moment that sticks in my mind was the sight of the then
28-year-old Jason Ashton walking through the crowd, wearing
a broad silk tie and sharp suit, surrounded by attractive
women. I stopped him to ask if I could interview him for this
book. He smiled downsomehow hed even become taller than
meand said, Sure. As the dance music pulsed through
the room, he asked if I knew what price shares in Davnet, the
company that bought Magna Data and in which he owned
eight million shares, had closed that day. I didnt. Five dollars
ninety, he said. By the time Id done the sums8,000,000
$5.90 = $47,200,000he was halfway across the dance floor,
blondes in tow. He was what everyone wanted to be: suddenly
and inexplicably wealthy.
Ive been trying to think of a theme song for this gener-
ationmy generationthat drinks decaf soy lattes, works
all the time and doesnt dance: some turn of the century
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equivalent to Elvis Blue Suede Shoes or the Doors Light My
Fire. The track that seemed most appropriate was Vonda
Shephards Searching My Soul. This is the theme song to Ally
McBeal, the show featuring quirky but overworked and ulti-
mately unfulfilled lawyers. U2s I Still Havent Found What Im
Looking For might also do for all those people who joined
dot-com startups and traded salaries for stock options.
If it makes you feel better, Davnet shares fell below $1 within
months of the Tinshed event. Then again, Ashton would still
have been worth more than most people in that room. There
was also the irony that Magna Data did not use venture capital,
but I digress.
The game rolls on
These opportunities are like the thickness of a hair.
They are barely definable. Throughout life there
are moments like this when crucial decisions are
made or missed.
Many high-flying Internet and technology stocks have crashed
and the word entrepreneur is once again in danger of becom-
ing a dirty one. However, there are valuable leftovers from all
this irrational exuberance. Smart people should change the
title on their business cards to business builder or something
even more innocuous and get on with creating companies
because the changes in the tax system, business openness and
the Internet still present a once-in-a-lifetime opportunity.
Professor George Foster, an expatriate Australian at Stanford
Universitys elite Graduate School of Business, argues that there
is plenty of genuine entrepreneurship occurring. He teaches on
management systems for startup and entrepreneurial companies
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within the Business Schools Center for Entrepreneurial Studies
in the heart of Silicon Valley, and says:
I actually disagree with a lot of people who say that the dot-com
is sort of the end of entrepreneurship as we used to know it.
I think that it was a period in which there were some pretty
unrealistic expectations in general but there will still be an
ongoing sense that if things really are winners then you can
have a 60 or 70 times return (on investments).
Foster points to the fact that, if nothing else, large amounts
of money were continuing to flow into new Internet and tech-
nology businesses even after the crash of early 2000. According
to PricewaterhouseCoopers, in the third quarter of 2000
2000 1999 1998 1997 1996 1995 1994 1993
90 90
190 190
Fiscal year end 30 June



The amount of venture capital available to Australian
companies has soared since the early 1990s recession.
Source: Venture Economics/Thomson Financial
Amount of venture capital invested in Australia by year
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venture capitalists in the US invested US$17.6 billion in new
or expanding companies. This was even more than double the
US$8.9 billion they committed in the third quarter of 1999,
the height of the dot-com mania, and light-years beyond the
US$1.7 billion invested in the third quarter of 1996, for
In Australia, the amount of money invested by VC funds
and other private equity investors alone increased from
$221 million in 1998 to $405 million in 1999 and $831.9 million
in 2000.
A study by PricewaterhouseCoopers and the Depart-
ment of Industry released in mid-2000 forecast that this strong
growth would continue after a survey revealed that institu-
tional fund managersthe group that supplies around 90 per
cent of VC fundsexpected to increase the amount of money
that they invested through VC funds by 130 per cent over the
following three years.
00 99 98 97 96 95 94 93 92 90 89 88 87 86 85 84
Year of fund formation



The Australian venture capital sector is now an industry
in its own right, boasting more than 40 professional funds
management groups in 2000.
Source: Venture Economics/Thomson Financial
Number of Australian VC funds by year of fund formation
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$ m i l l i o n s
















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Weeds in the street
I once read an article that described Internet companies as like
weeds growing through cracks in the footpath. These gaps
were open anywhere that there was inefficiency, deregulation
or existing companies hadnt exploited new business oppor-
tunities presented by technological change. The mental image
has stuck with me. It seems to capture much of what entre-
preneurship is about: youre always looking for the cracks
in the system. And if youre small and weak, youre unlikely
to survive long on a fast moving freeway. But if theres the
equivalent of an earthquake that causes the traffic to stop long
enough and opens up enough cracks, then you just might be
able to grow through.
As big dot-coms fall from the sky, there is plenty of debate
about whether the Internet really is such a disruptive tech-
nology. Whatever the pundits decide, the network is helping
drive a much wider trend that is opening up significant
opportunities for entrepreneurs. This is the deregulation
and internationalisation of just about everything. That might
sound vague, but its a profound trend. Prodded by the World
Trade Organisation and other forces, national governments
worldwide are opening key sectors of their economies to
competition and trying to reduce red tape. Advances in com-
munications, including the Internet, and the harmonisation of
systems from passport controls to accounting standards, are
greatly simplifying cross-border movements and trade. The
formation of the European Union and the establishment of a
free-trade zone between Australia and New Zealand are just
two examples.
These shifts create cracks in the system. David Tudehope
at Macquarie Corporate Telecommunications might still be
working for Westpac if it wasnt for the deregulation of
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Australias telecommunications system. LookSmarts Tracey
Ellery and Evan Thornley would be nowhere if the Americans
had outlawed foreign ownership of Internet addresses in the
way that a country like China might have. Sean Howard
wouldnt have a big house on the harbour if the Australian
government had forbidden US company UUNET from buying
OzEmail due to foreign investment concerns. Sydneys Spike
Networks could not have launched Spike Radio in Los Angeles
if the US government had restricted online media in the way it
has Internet gambling.
When it comes to sectors experiencing periods of rapid
technological change, a key opportunity may in fact be a lack
of rules. Sometimes you can get away with anything while
society catches up with reality. One group that used this to
great advantage during the Wild West days of the Internet was
cybersquatters. In the absence of related laws, these oppor-
tunists simply registered web addresses such as Rolex.com and
forced the companies to buy them back. A Sydney Internet
industry figure named Brendan Yell, for instance, is rumoured
to have got around $50,000 from AOL for the address
aol.com.au. It seems he may have settled for less when it came
to selling another name in the year 2000, CDNow.com.au,
because the World Intellectual Property Organisation had
finally begun to release rulings that made it easier for com-
panies to win back their names through legal action.
The system matures
An interesting aspect of the Internet boom is the
way it has transformed the idea of the company. A
company used to be a group of people who organized
themselves for fairly well-defined tasks. The U.S.
stock market now indulges a new, looser definition.
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A company is now a group of people who raise
capital to do whatever they want to do.
Michael Lewis wrote the above passage in a column for Bloom-
berg News. He was commenting on NetJ.com, a company that
in early 2000 enjoyed a market capitalisation of US$22.9 million
on NASDAQ but which said, unashamedly, that it conducted
no business. Indeed, it said it didnt even plan to conduct any
business. Cashed up and without operational considerations, it
was, in Lewis words, in a state of pure possibility.
The days when you could float an Internet address or beat
professional investors by using a monkey and a dartboard to
choose net stocks, as Monkeydex.com did, have passed.
However, it is still easier to raise money today than in the
recession of the early 1990s, for instance, because key struc-
tural changes have been made.
At an educational level, there are now courses in entrepre-
neurship at institutions such as Swinburne University in
Melbourne and Murdoch University in Perth. The government
has also been actively seeding innovative sectors of the
economy such as information technology and Internet through
a range of initiatives.
Lobby groups such as the Australian Services Network
(ASN) have also raised awareness in the big end of town. ASN
represents many of Australias leading services companies,
including AMP, IBM and Telstra, and recently published a
report titled The New Entrepreneurialism: Opportunities within
Australias reach.
The reports key message, according to
executive director Judith King, was: We think that now its
absolutely imperative for the services sector to be acting in a
creative, risk taking manner because thats where the busi-
nesses of the future will come from.
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The Australian Stock Exchange also did its part by opening
a sort of secondary, and ultimately temporary, meeting room
for new and high growth companies and investors called Enter-
prise Market. More a matching service than an exchange, this
venture was designed to provide a virtual arena in which
private investors can identify companies seeking investment
of up to around $5 million. In mid-2000, Enterprise Market
boasted that $20 million had been raised through its system in
two months.
The most significant change, however, was the reform of
the tax system by the Howard Coalition government in 2000.
This should substantially increase the capital available to high-
growth businesses in Australia by increasing incentives for
investors and encouraging the growth of the domestic venture
capital industry.
Opportunities in tax reform
The capital gains tax changes are huge. Its going to
encourage people to take a bit more risk because if
you take a bit more risk and you benefit from it, you
pay half the tax. Its a pretty encouraging environ-
ment, compared to what was there.
When it comes to getting rich, the only thing more important
than making money is keeping it. Fortunately, the government
has introduced a range of measures designed to make Aus-
tralias tax environment much friendlier to both business
builders and investors.
As part of the overhaul of the tax system in 2000 which saw
the introduction of the goods and services tax (GST), the
Federal Government introduced six key reforms aimed at
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stimulating investment and improving the lot of entrepreneurs.
These centred on lower company tax rates, reductions in capital
gains taxes and improved incentives for foreign superannuation
funds to invest in Australia (see Appendix 1).
OzEmail founder Sean Howard believes that the new tax
system will help Australian entrepreneurs both to raise money
but also to exit their investments. Since leaving his Internet
company, he has become a director of a company called FTR
Holdings which is chaired by Malcolm Turnbulls wife, Lucy
Turnbull. It is also one of Australias few listed venture capital
funds, a status which Howard argues will make it attractive to
entrepreneurs under the new tax system:
The new tax regime that allows rollover relief provides more
flexibility to the entrepreneur, because if the entrepreneur
is successful in his or her enterprise but is not sufficiently
successful to become public, they are sort of locked into a
private company situation and theyve got no exit.
So, if in ten years they want to take a bit of dough out, theres
no natural exit for them. But having an investment from a
public company they can then roll some or all of their private
shares into a public company, get public company paper and
then sell some or all of those shares in the public company.
Society: open for business
Friendship opens the door, friendship will get you
through the door, friendship wont get the money
into the company. No ones a charity.
My wife, Cassandra, thinks I have a chip on my shoulder about
private school education. I went to a public school, Nor-
manhurst Boys High School in Sydney. It was a nice public
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schoolall boys, strict discipline, prefect system and blazers,
leafy part of a quiet suburbbut an outlying public school all
the same. A science teacher once told us that hed recently
visited a wealthy private school up the road, Knox at Wah-
roonga, and discovered that we had better classroom facilities
for chemistry. We were lucky, he said. We felt good about that
at the time but even then, as teenagers, figured that all the
education in the world wasnt going to help us beat the old
school tie business networks that schools like Knox create and
It has been refreshing to be proved a little wrong in
adulthood. Yes, a lot of the business people featured in this
book came from wealthy backgrounds. Jodee Rich, for instance,
was the son of Traveland founder Steven Rich. Even when he
was down and out after the collapse of the Imagineering
Group in the early 1990s, he lived in the opulent Sydney
suburb of Vaucluse and was worth a couple of million dollars.
He also went to one of Australias most exclusive schools,
Cranbrook in Sydneys eastern suburbs, as did a number of
other figures in this book including James Packer and David
But according to Rodney Adler, also a former classmate of
Richs, family wealth and connections might get you through
the door but after that youre on your own.
Sure, it didnt hurt that Jodee came from a wealthy back-
ground, that he had wealthy friends and well-connected
friends. But thats not a hindrance, it just makes it a little bit
easier, he says, pointing out that people like Malcolm Turnbull
have risen to the top of the tree in Australia without rich or
connected parents.
You dont have to be rich and you dont have to be
connected. You have to work very hard and have a good idea.
The son of high-profile entrepreneur Larry Adler, founder
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of FAI Insurances, Rodney Adler speaks from personal experi-
ence. Indeed, hes living proof that people who inherit wealth
face their own set of challenges as they try to establish inde-
pendent reputations. Now a diversified investor, Adler has
around $100 million invested in a wide range of companies,
from big outfits such as One.Tel to startups like business-
training company Business Thinking Systems and NetX, a web
development firm. Despite being born into a wealthy family
and graduating from Cranbrook, he argues that many eastern
suburbs, son of lord of such-and-such lack the mettle to suc-
ceed and that hed usually put his money on tougher, hungrier
I like the people who are rougher; gutter fighters who have
done it the hard way. Most of the people that Ive invested in,
that Ive done well with, have not been from Cranbrook. Most
of the people Ive backed have been hard yakka, putting in the
hard work, says Adler, naming Stan Sarris, who started as a
McDonalds manager and now runs Adlers exclusive Banc
restaurants, and Brad Cooper, the head of FAI Home Security
who left school at fourteen and started out selling Encyclopaedia
Britannica door-to-door.
Theyre hardworking, honest; they have a vision and they
want to build something and they become friends. I dont care
where theyre born, says Adler.
Staying power
Adler might find an affinity with Tracey Ellery at LookSmart
who comes from the other side of the tracks but agrees with his
views on grit. She spent most of her childhood in the working-
class suburb of Geelong, Melbourne. Her parents together
never earned more than $23,000 a year. Ellerys father was a
fitter and turner and her mother worked as a waitress and
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a receptionist. Her husband, Evan Thornley, also came from a
very, very modest background, being raised by his single
mother in the coastal town of Gosford, near Sydney.
I think that growing up in an environment that is not that
easy actually builds part of the character and the tenacity that
you need later in life to be able to get through difficult times,
says Ellery.
Ive often seen some of my friends who have had
very, very comfortable middle-class backgrounds and I just
dont think the fight is in them.
I happened to speak to Ellery on 19 April 2000. Keen dot-
com watchers will know that this was two days after one of the
nastiest days for Australian tech stocks and that by then
LookSmart had listed its shares on the Australian Stock
Exchange as well as on NASDAQ. Despite LookSmart shares
having just fallen from around $5 to less than $2 on ASX that
month alone, and with no bottom in sight, she seemed calm and
in control.
Change at the top
When youre successful in any environment . . .
youre noticed, and when youre noticed, youre
sought after because success breeds success.
Success has its own momentum, one that is today turning
the tables on the countrys establishment. The landed gentry
and offspring of former politicians are being outclassed, or at
least out-earned, by business people emerging from high-
growth industries such as the Internet and telecommuni-
cations. Even more importantly, these figures are reinvesting
and pulling their friends and associates up with them in an
environment where speed, intellect and technical know-how
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mean a lot more than family connections or your ability to
speak French.
You may be thinking of Alexander Downer, our lacklustre
Foreign Minister who found his way to office via a political
heritage and the South Australia Club. Or perhaps Former
NSW Premier Nick Greiner who thought he was onto a good
thing when he decided to chair online advertising company
BMCMedia.com, gaining options to buy 375,000 shares at
60 cents each. These were briefly worth more than $2 million
but worthless by the time of writing. In early 2000, when
BMCMedias shares were flying like pigs ($6.45), I asked Greiner
whether he thought the stock was overvalued. He was non-
committal but encouraged investors by saying that the company
was trading ahead of prospectus forecasts. The company later
announced a loss of $6.87 million on sales of $2.2 million for six
months to 30 June 2000. The shares closed that day at 63 cents.
My favourite exercise is to compare the dot-com boom ex-
periences of Nick Whitlam, son of former Labor Prime Minister
Gough Whitlam and high-profile former chairman of NRMA
Insurance Group, and the co-founders of Sabela Media, Gour
Lentell and David Turner.
The running men
Gour Lentell, 39, and David Turner, 38, co-founded Sabela
Media in June 1998. The company was created to commercialise
online advertising technology that the pair had originally
created for OzEmail. Lentell and Turner were working at the
Internet service provider in 1996 when chief executive Sean
Howard invited them to the boardroom and suggested they
develop technology for putting ads on websites. This was heresy
at the time as the Internet was still a largely non-commercial
environment. But Howard, with his background in computer
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publishing, was sure that online advertising would eventually
become big business and wanted a seat at the table.
Lentell and Turner had previously worked for the worlds
top database company, Oracle, and had the expertise to com-
plete the task. They came back with an ad-serving technology
that worked, placing them at the cutting edge of the field
internationally alongside US giant DoubleClick Inc. and a
small number of other players. OzEmail took the service to
market through a new company called Web Wide Media, which
shortly entered into an international joint venture with
Softbank and became Softbank Interactive Marketing.
Then came the stroke of luck that would enable Lentell and
Turner to make their fortunes. Softbank Interactive Media was
sold to a US company called Zulu-Tek, renamed Zulumedia
shortly after. Under the terms of the deal, Zulumedia provided
them with exclusive rights to their ad-serving technology in
Asia in exchange for providing technical services to the
company. They also gave the pair non-exclusive worldwide
rights to the technology should Zulumedia go underwhich
it promptly did. This enabled the Australians to regain control
of their system and make it the basis for Sabela Media.
Lentell and Turner began runningbuilding up Sabela,
opening offices in London and New York, and otherwise
getting down to business. They funded the companys growth
through cash flow and by selling OzEmail shares they had
gained. But they soon had more than 50 staff and needed more
money to catch up to the likes of DoubleClick. In April 1999,
they raised US$2 million in funding from their new American
chief executive James Green and Japanese company Tokad in
exchange for 20 per cent of the companys stock. By December
1999, they had pulled together a much larger second funding
round, organising to raise US$14 million from a wider group of
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The week before the funding deal was to be closed, Sabelas
world caved in. DoubleClick, then the largest ad-serving tech-
nology company in the world, was suing it for infringing
patents it held in the United States. The next day it offered to
acquire Sabela, a move that would have given it control of the
only other company in the world with comparable advertising
If Lentell and Turner had been running for two years, they
now had to sprint. Their potential venture capital investors
wouldnt give them the US$14 million while the legal suit hung
over their heads and they otherwise couldnt afford to keep the
company going for more than a few months. Desperate, Lentell
called the OzEmail foursome: Sean Howard, former president
David Spence and key investors Trevor Kennedy and Malcolm
Turnbull. It was a good time to call. The group had just taken
away $237 million by selling OzEmail and agreed to stump up
US$750,000 on the same terms as the earlier US$2 million
investment, giving them 7.5 per cent of Sabela. Two other
investors, Neville Miles and Simon Tripp from MTM Funds
Management in Sydney, who had been involved in organising
the larger capital raising, also chipped in.
Granted a brief reprieve, Lentell and Turner flew to New
York to see about selling the company. Intending to see what
DoubleClick was offering, they then had their second piece
of good luck in as many years. Through a business contact in
New York, another major US Internet advertising company
called 24/7 Media became aware of the situation and made
a counteroffer for Sabela. The company wasnt as high profile
as DoubleClick but had a market capitalisation on NASDAQ
of around US$1 billion. It also lacked its own ad-serving
technology. If 24/7 Media could buy Sabela and its technology
it would be on almost level terms with DoubleClick, which had
both ad sales and technology operations. This would mean a
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continuing role for both the technology and Lentell and Turner.
And it would mean they might have a way out of the headlock
that DoubleClick had put them in with its legal suit.
The Sabela founders spent a manic few days in New York,
meeting DoubleClick while at the same time negotiating secretly
with 24/7 Media. DoubleClicks opening offer was for slightly
more than US$40 million worth of its shares. 24/7 Media was
also offering shares but, after discussions, was prepared to offer
US$70 million in shares. After a few crazy days, the pair did the
24/7 Media deal, walking away with shares worth around
US$25 million each and flew home to see their wives. Proving
just how easily the rich get richer, Howard and the other
investors got seven times their money back in a month.
Lentell and Turner had technical expertise and commercial
acumen but became wealthy by believing in themselves when
the opportunity arose to regain control of their invention. They
also understood their business at a very deep level. Its a shame
they were eventually taken out by the Americans, one way
or another, but they ran the gauntlet better than most and
emerged with their shirts and then some, even if their
24/7 Media shares have since lost significant value. At the time
of writing, they also continued to work within 24/7 Media
Technology Solutions Australia.
No such thing as easy money
I had to do my due diligence, I checked out the
company, and I found it to be in good shape. What
I bring to this company is a large amount of
corporate and administrative knowledge from a
wide variety of companies. I have a PhD in
corporate governance.
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Its artificial to do this, but compare the Sabela story with Nick
Whitlams troubled tryst with that other Internet company,
LibertyOne. Whitlam became chairman of LibertyOne in
November 1999. At the time, the company was expanding
rapidly and was valued by the stock market at more than
$600 million. Management also talked about listing on the
NASDAQ. Making the picture even prettier, LibertyOne had
the rights to market Excite, the US online directory service,
across parts of Asia Pacific and had holdings in web design and
other Internet-related ventures around the region. This should
have made it an easy sell to US investors which were so
desperate to get exposure to the Internet in Asia, the worlds
most populous region, that they were bidding up the price of
shares in US-listed Internet companies such as Chinadotcom to
stratospheric levels. Whitlam decided to join the company,
even though it was already mired in controversy and had lost
two chief executives in a year.
The former prime ministers son was so confident in the
companys prospects that he chipped in and bought a million
shares for a total outlay of about $1.2 million. As the Liberty-
One story fell apart during 2000, the value of these shares
plummeted to less than $100,000. Indeed, less than a year after
Whitlam joined, LibertyOne had made it to what has been
dubbed the 10 per cent club, the group of listed companies
(like Solution 6) with shares trading at less than 10 per cent
of their all-time highs. He then oversaw the resignation of
company founder Graham Bristow and the sale of a controlling
stake in the company for just $2.6 million to Hong Kongs
iReality Group.
What went wrong? As a reporter I followed the company
closely and there was always plenty of controversy surround-
ing it.
At the end of the day, it appears to have failed by biting
off more than it could chew then failing to raise the money
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needed to get over the line. Bristow had a kaleidoscopic vision
that saw the company enter into web design, online auctions
(uBid), search engines (Excite), website creation for celebrities
like Greg Norman, and many other projects and joint ventures.
Ultimately it was a house of cards that blew over in the first chill
wind from the capital markets. But it was also a sexy story and
the volume of media coverage generated in the good times made
the stock a hit with speculative day traders, who had in turn
been liberated by low online brokerage fees. It was a potent,
self-perpetuating mix; a case of the Internet feeding on itself in
an almost beautiful cycle of apparent wealth creation.
Another problem was that LibertyOne only had one business
that had worked: Zivo, the Sydney-based web design firm that
was acquired by the LibertyOne juggernaut, then found itself
providing most of the companys revenue.
LibertyOnes inability to make money became horribly
apparent to investors in late 2000 when it announced a stag-
gering loss of $58 million for the six months to June 2000.
Revenue for the period was $14.6 million, of which Zivo kicked
in $10.2 million. The companys shares closed at 12.5 cents on
the day of the announcement, down from an all-time high
of $2.70. The process was rather the opposite of embour-
geoisementthe gradual shift of the working class into the
middle classwhich Whitlam once claimed to have delivered
through the demutualisation of the NRMA.
Death of the club
Another feature of todays more open and merit-based business
environment is the growing irrelevance of old school tie
networks and Australias traditional clubs such as the Mel-
bourne Club, the Australia Club in Sydney and the South
Australian Club.
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[The old school tie system is] very much close to being all
over, says Bob Mansfield, the ocker 49-year-old chairman of
Telstra who went to school at Barker College, a mid-tier private
school on the upper North Shore of Sydney.
I dont say that critically . . . there was definitely a Mel-
bourne establishment, there was definitely a Sydney establish-
ment when I first started work and they were factors . . . Now,
its totally irrelevant . . . Today, its very open. Its much more
While clubs tend to be old-fashioned, often even sexist, they
do offer privacy and a place for members to retreat while in the
city and mix with the powerful. The Australia, for instance,
counts the Packers as members. In the British tradition, it is
frowned upon to do business in such Australian clubs, placing
them a world away from places like Baby, the new-style club
for dot-commers in Amsterdam.
Not being the right sort of chap, I cant tell you much about
these clubs. However, I was once invited to a luncheon at the
exclusive Union Club in Sydney to hear Bill Ferris, the executive
chairman of Australian Mezzanine Investments, speak about
the funds investment in LookSmart. The club is within a multi-
storey, dark brick building that wraps around the corner of
Bent and Phillip Streets in the heart of Sydneys financial
district. The entrance is so discreet that it doesnt have so much
as a brass sign out the front. The idea is that if you dont know
what it is, you shouldnt. The room featured a lot of wood and
dark leather. Bill, a member, delivered an inspiring speech about
LookSmart and the need to back more high-tech innovation in
Australia. The food, wine and company were splendid.
It wasnt until a few months later that I realised the irony of
the situation. Flicking through a Sunday paper I saw a piece
that said that the Union Clubs members had voted against
providing full membership to women. I wondered what Tracey
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Ellery at LookSmart might think of that. Partly thanks to Ferris,
she now had a paper wealth that would enable her to buy the
Clubs building but wouldnt be allowed in the door as a full
member because she was a woman!
Time to go
Lenny didnt understand how the Valley thinks
about risk and failure. Instead of managing business
risk to minimize or avoid failure, the focus here
is on maximising success. The Valley recognizes
that failure is an unavoidable part of the search
for success.
Bob Mansfield says that he learned one thing above all else
while studying commerce at university: profit is a reward
for risk. Profits a reward for risk, he repeats with intensity.
He really wants people to understand this. This is the key, he
believes, to the whole system. In recounting this exchange
to someone, I found myself paraphrasing Mansfield, saying, If
you dont take a risk, you wont make a profit, so every day
you have to ask yourself, What risk can I take today? Because
Im going nowhere if I stay inside my comfort zone. More
words of advice from Bob:
I often say to people, If you want to join the queue of life, your
turn will probably come up for a promotion, your turn will
probably come up for a certain salary or a certain level and dont
complain if youre just in the queue of life waiting for your turn
to come up. But if you want to take a risk and in trying to jump
the queue you might go back a few places then youll take
another risk and get ahead of them, the guy thats still in the
queue not doing anything shouldnt complain.
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For many people, the risk that theyre itching to take is to tell
the boss to sod off and start their own company. A recent poll
by American firm CareerPath.com found that 40 per cent of
1,400 workers surveyed planned to change jobs within a year.
The advice from the experts seems to be in tune with Nike and
the heavy rock star, Henry Rollins: Just Do It.
If the thought makes you too nervous, theres a good chance
that youre not the right type of person to become an entre-
preneur. Charles Handy, the social philosopher and business
writer, argues that there are entrepreneurs and administrators
and that, to a certain extent, the twain shall never meet. His
advice is to find something you care about and learn through
Learn by jumping in rather than going to school. The alchemist
[entrepreneur] goes to business school to select someone to help
with the business, to keep the accounts, for example. The
paradox is that MBAs want to be entrepreneurs, but if you go to
business school you probably arent an entrepreneur.
Dont panic if you are an MBA though. Australia needs all
the entrepreneurial talent it can get and should even give
management consultants a go. And, as above, the conditions for
entrepreneurs are only getting better. But we also face real
For starters, expenditure on research and development
(R&D)the source of the raw intellectual property behind
many high-tech venturesis declining to dangerously low
levels. The Federal Government has put in place tax rebates
for R&D but official numbers released with the May 2000
federal Budget show that the number of companies using
this facility fell 32 per cent to 2,530 in the year to March 2000,
down from 3,700 in the year to March 1996. The Australian
Bureau of Statistics has found that all business R&D spending
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fell 4 per cent to $4.04 billion in the 1997/98 financial year,
following a 7.4 per cent fall in 1996/97. It was also projecting
a further 10 per cent fall to $3.6 billion in 1998/99.
We also face the problem of brain drain, both at the obvious
level of good people leaving to work overseas and also through
the Internet. During a trip to Silicon Valley in late 2000, I was
shocked at the high calibre of Australian business people I met
there. They were seriously sharp, well-informed and switched
onand not in Australia. Then there is the more subtle form
of brain drain where foreign companies are employing people
based in Australia via the Internet. An article in the Australian
Financial Review, with the memorable title Internet head-
hunters leave bodies behind, describes how two Australian
computer scientists, Paul Mackerras and Andrew Tridgell, quit
as researchers at the Australian National University to work for
the San Francisco-based IT startup, Linux Care. The twist was
that they worked from a new office 200 metres away from the
ANU campus rather than catching a plane to the States. The
author didnt know by how much the pair increased their
salaries in making the move, but noted that Australian
academics often earn less than $60,000 a year while top-class
IT talent in the US might garner $190,000.
An unpleasant fact about the high-technology multi-
nationals with major offices in Australia is that they also
contribute to brain drain. They do this by identifying top
talent through their foreign operations then transferring those
people to their mother ships, usually in the US, to join global
product development teams. As above, these talented indi-
viduals almost always go because they get paid two or three
times, if not more, what they might earn here. They also get
to work with the best people in their fields. Though as figures
such as Daniel Petre, the former chief executive of Microsoft
Australia and now executive chairman of PBL Online, have
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shown, some do return and put their experience back into the
local industry.
The balls in your court
What can you do about it? Become an entrepreneur. Innovate.
Create some wealth. Save my son from a career at McDonalds.
That goes for individuals as well as people within large
companies that have the resources to support such projects. As
the Australian Services Network has said:
Australia can no longer support one of the highest standards of
living in the world on the strength of its natural endowments
of fertile land and natural resources. Nor can it rely upon the
investments of international corporations to build its
infrastructure. Innovation that is driven by entrepreneurship
will increasingly dictate Australias fortunes.
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The blokes like Sean Howard and those guys like
Jodee [Rich] went out and saw what the hell was
going on, picked up the drift of the wind and said,
Bugger it, Im going to have a go . . . If you dont
have awareness, youll never have vision.
he most important attribute you can have in
high change environments is a clear view of the
futureor vision. Vision is research. No short cuts, no secrets,
no transcendental moments. Just hard work and the ability to
read the clues and work out where the worlds going.
Most of the people featured in this book achieve this by
reading widely and talking to a lot of people. Bob Mansfield, for
instance, reads major business magazines such as Business Week
and tracks numerous smaller titles. Sean Howard tries to read
for at least an hour a day, taking in both the major business titles
but also wandering obscure corners of the Internet in his quest
for knowledge. They also build and use business networks.
Mansfields energy, upbeat personality and famous memory for
names make him a master networker. Through his thousands of
business and social contacts here and overseas, he has built an
intelligence network that the CIA would be proud of.
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Whichever method you use, the important thing is to keep
your ear to the ground. Youre waiting for that lurching sound
as a crack in the pavement opens up, allowing you to grow a
new business. Others describe this as finding a vacuum then
filling it.
Whatever your metaphor, the idea is the same. At
any point in time, the valuable parts of the economythose
that provide the staples like food, shelter, transport, communi-
cations, entertainment and sexare pretty much stitched up
by large companies. If youre looking to become a major
company yourself, then you have to either find and exploit a
chink in the armour of an established player or help to create
an entirely new industry. This takes two very different types
of entrepreneur.
The first is like media tycoon Rupert Murdoch or Australian
retail king Gerry Harvey. Both have been able to walk into
established markets and, through exceptional talent, nerve and
sheer brute force, beat the incumbents. Murdoch, for instance,
arrived 40 years late to the US television industry and still
managed to do the impossible: establish a fourth major net-
work. For a feel for how he achieved this, try William
Shawcross biography, Murdoch: The making of a media empire.
At the time of writing, Murdoch had seen his personal wealth
soar as high as $17 billion. He was also the first person that
most interviewees for this book mentioned when asked to name
Australias top entrepreneur.
Gerry Harvey has, through his Harvey Norman retail chain,
carved out a $400 million a year hole in Australias highly
competitive retail sector. He has also seen his personal wealth
rise to the billion dollar mark. Even more impressive is that
Harvey Norman, founded in 1982, is Harveys second big retail
success. The former vacuum cleaner salesman and real estate
agent previously built Norman Ross into a national chain in the
1960s and 1970s.
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There are some people who can move into established mar-
kets and make a bundlethey are the really, really talented
people, says Sean Howard.
But I couldnt do that and most people cant. If you want an
easier path, then focus on the next wave and establish yourself
early and then defend your market position like crazy and youll
find that your market share might not increase but your market
value will.
Its terribly hard, in my mind, to establish and grow a
business in a mature market. The best opportunity youll have to
grow a business is to be there firsttheres the early mover
advantageand then grow with the market as it grows and it
will carry you along.
Spotting the next wave means looking for strong growth
curves. These are the economic equivalent of the swells that roll
into a beach, starting small on the horizon then taking shape
before crashing on the shore. But Howard also adds a note of
Youve got to come up with a product that isnt just clever but
thats going to work in a practical sense, taking into account all
the factors, such as existing players ability to change their spots
slightly and crush you.
Bill Gates has played this game perhaps better than anybody.
Not only did Microsoft correctly guess, then helped to ensure,
that the personal computer would become big business, it also
managed to slip past IBM without getting swatted like a fly.
I wont seek to add to the volumes written about Microsoft but
its a perfect case study in how to spot a new market early
though not invent itthen control its growth so as not to lose
control. This is a very delicate balancing act. Gates does, of
course, have a better spin on this.
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We did start the PC industry, he told the Australian
Financial Review Magazine in 1998. We had a vision that
there could be a thing called the PC and at the time it was a
silly idea. There were no companies thinking about that and
the notion that we would just focus on software was even
crazier . . . Because of timing and our foresight, weve been
lucky enough to be at the centre of this thing.
Blood on the beach
Even if you start a company with a clear vision the waters can
quickly muddy. According to David Tudehope, co-founder of
Macquarie Corporate Telecommunications (MCT), Australias
second largest supplier of telecommunications services to
corporate customers after Telstra, its pretty hard to maintain
an articulate vision when youre fighting in the trenches.
I guess I always had the vision of Macquarie being a great
Australian telecommunications company but it wasnt
articulated in a lot of detail. When youre fleshing out that
vision, in a scene not far different from Omaha Beach in Saving
Private Ryan, the idea of arriving in Berlin is an objective but
the exact vision of how youll arrive in Berlin is somewhat
vague. Youre pretty much ducking and weaving bullets.
Most successful entrepreneurs also have, or develop, a very
high level of understanding about the field they work within.
One of the myths of the dot-com boom was that the entre-
preneurs that made it big were overnight success stories.
The reality is that almost every success story had at least a ten-
year history in their field. Theres a great passage in The Monk
and the Riddle, a book by Randy Komisar, a Silicon Valley
businessman turned venture capitalist and mentor, about
entrepreneurs seeking cash for pet-related Internet sites:
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The disconcerting thing about these pet shop boys, all sharp
go-getters, was that none of them, they confessed when asked,
owned a pet, had ever owned a pet, orso far as I could
tellhad ever wanted to own a pet.
Komisars point is that in that late 1990s, the foyers of Sand
Hill Road venture capital firms at the heart of Silicon Valley
were full of people that wanted to make money quickly, rather
than build businesses that they had any interest in or were
inherently more likely to succeed at. He calls this The Deferred
Life Plan, saying that you can tell when youre following one
if you cant honestly say that youd be happy to do what youre
doing now for the rest of your life. An even better test is
whether youd be prepared to do it for free.
Too many times, unfortunately, I have seen this attitude lead
to a lifetime of successive bets, all heading away from [the
entrepreneurs] original dreams. It is too easy to get lost in the
hype and swallowed up by the casino economics of it all. It
bothered me to see talented young people give up, or defer,
their ideals in the hope of a fast buck that was unlikely ever
to arrive.
It is also risky because without deep knowledge in a field,
or so-called domain experience, youre likely to get creamed
by someone who understands your chosen business much
better than you. In a roundabout way, Komisar is saying the
same thing that many others have before: do something youre
passionate about and good at, otherwise youll fail. Or as your
grandmother might say, stick to your knitting.
The laws of economics might have been suspended during
the dot-com boom, allowing all sorts of consultants with
PowerPoint presentations to get millions of dollars in venture
financing, but youre unlikely to see such blind greed and
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stupidity often. The surfers that get the great waves not only see
them coming on the day, they know what time of year to be at
the beach. They also know what the weather is doing a day or
two out and choose which beach to go to, which board to take,
which wetsuit to wear to avoid being too hot or cold, and the
chances of the place being crowded with other surfers or full
of bluebottles. If surfing can be that complicated, imagine how
much you need to keep in mind to run a successful company.
Right place, right time
The greatest legal creation of wealth in the history
of the planet.
Most success stories seem to involve somebody being in the
right place at the right time. But having just read bucketloads
of success stories and seen a fair few for myself, I would argue
that luck has very little to do with it. Take for example Pierre
Omidyar, the French-born founder of online auction house
eBay. The company seemed to burst out of nowhere, carrying
its founder, his partner Jeff Skoll and many others to seemingly
instant and staggering wealth.
The popular myth is that Omidyar was inspired to start eBay
after thinking of a way to fuel his then girlfriends passion for
collecting Pez dispensers. However, by then he was already
well advanced on the idea of creating a global level playing
field for buyers and sellers of just about anythinga sort of
egalitarian exchange for the little guys. The first manifestation
of the idea was AuctionWeb, an online auction service that
Omidyar operated part time from his apartment in 1995 and
that would become eBay.
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In fact, the story starts even earlier. As David Bunnell
recounts in The eBay Phenomenon,
Omidyar was born in Paris
in 1968 and taken to the US by his parents as a young boy. He
was into computers early and ended up studying computer
science at Tufts University, near Boston. He became a pioneer
of Internet commerce in 1991 when he founded Ink Develop-
ment Corporation, an early online retailer that was later re-
named eShop and sold to Microsoft. In other words, his vision
for an Internet-based people-to-people marketplace followed
at least four years of thinking about online commerce. His
lucky break, if you like, was that his parents took him to
Another person that put himself in the right place at
the right time was American David Perry, the founder of
Chemdex.com, now Ventro Corporation (see www.ventro.com).
Chemdex was founded in 1997 and very quickly became the
worlds largest online marketplace for specialty chemicals, bio-
chemicals and reagents. That might not sound very sexy but
the worldwide market for these products is worth more than
US$4 billion. Specialty chemicals themselves are sold as phys-
ically small but expensive packages, making them suitable for
mail order or courier distribution. The market was also very
inefficient, with more than 300,000 scientists in 28,000 research
institutions and laboratories around the world typically
ordering via catalogues owned by major distributors. Not only
were these printed infrequentlyonce every year or two
they would be several inches thick, filled with microscopic
type and impossible to search quickly. Distributors were also
exploiting weak supplier and buyer market power to mark up
products by 40200 per cent. Finally, as academics and profes-
sional researchers, potential buyers for these goods were
already heavy Internet users.
The Internet may have lost some of its allure when it comes
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to retail sales but it was, and remains, highly suitable for this
sort of industrial application where large numbers of buyers
and sellers want to come together to trade specialised goods.
Chemdex was one of six such industrial vertical markets
operated by Ventro. The company has also raised more than
US$400 million from venture capitalists and the public markets
and seen its value on NASDAQ soar above US$10 billion in the
craziness of March 2000. It was back to about US$100 million
at the time of writing after the company announced a second
quarter net loss of US$119.6 million on revenue of $25.2 million
after a period of aggressive expansion. Ventro had also said it
would close Chemdex, along with other initiatives, and lay off
staff as it shifted its business model. History is proving unkind
to Perry, but there is still a lot to learn from his entrepreneurial
First, why was Perry the person to start this business? Surely
there were plenty of people that understood the specialist
chemicals market and the Internet? Maybe. But in many ways
Perry was unique. As Laurence Katz from Harvard Business
School describes in his paper Chemdex.com, Perry grew up in
Harrison, Arkansas, a town of 8,000 people where his father ran
a business selling crushed limestone and fertiliser. When it
came time to go to university he enrolled in the Air Force
Academy because he couldnt afford a private education.
Forced to leave after sustaining a football injury that cost him
his pilots licence, he transferred to the University of Tulsa and
studied chemical engineering. At the same time, he worked
twenty hours a week as a lab assistant at oil company Dowell
After graduation, he worked as a process engineer at an
Exxon oil refinery near San Francisco. He quickly became
the youngest Refinery Operations Manager in the history of
the plant, supervising a US$200 million operating unit and
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30 people. In 1995, after five years at Exxon and aged only 27,
he quit to study business at Harvard.
The expectation at Exxon was that I would be a career guy.
But if I stayed, the next 30 years of my life were laid out for me
like dominos, Perry told Katz. He later added that he had
always expected to run his own business because his father
In his first year at Harvard Business School, Perry got a part
time job at Booz Allen & Hamilton in the management consul-
tancys energy and chemicals practice in San Francisco. He also
began working with some fellow classmates on a business plan
for a company called Immutech that sold HIV-related antibodies
and antigens to researchers. And he immersed himself in entre-
preneurship, taking every course he could: entrepreneurial
management, entrepreneurial finance, entrepreneurial mar-
keting, venture capital and private equity, and running and
growing a small company.
At Immutech, I was in a unique position as both a supplier
and buyer of specialty chemicals to witness the inefficiencies
of this market, Perry told Katz.
By early 1996, Perry was actively searching for ideas for a
new business. Based on his experience, he came up with an
Internet exchange for the chemicals industry. The idea was
crystallised in the form of a business plan that won second
prize in the First Annual HBS Business Plan Contest. Among
the seven contest judges was Henry McCance, a partner at the
prestigious venture capital firm Greylock. McCances interest
encouraged Perry to try to start Chemdex.
The rest is entrepreneurial history. According to Upside
Perry got US$25,000 in credit by signing up to three
credit cards. He also sought funding from his business school
classmates and professors, eventually getting US$25,000 from
a man in Nebraska hed never met in return for 1.1 per cent
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of the company (eventually worth more than US$5 million).
Finally, he loaded his belongings into his 1987 Nissan Maxima
(with 198,000 miles on the clock) and joined the pilgrimage to
Sand Hill Road where he eventually won investment from
CMGI, Kleiner Perkins Caufield & Byers and other American VC
Lets hope that Perry is still in business when you read this.
With such steep losses and a share price capable of swinging
between US$240 and US$2 in a year, its possible he wont be.
But his is a great story. It illustrates how the people that make
it usually have relevant specialist knowledge that pre-dates the
innovation that enables them to rise above the packin this
case the Internet. Perrys story is also one of cumulative expe-
rience. He was obviously smart enough to pass his chemical
engineering degree and good enough to be put in charge of a
US$200 million business before his 30th birthday. He also kept
a foot in his industry while studying. By quitting Exxon and
running up his credit cards, Perry also freed himself up to take
advantage of any opportunity that presented itself. If this
makes Perry a visionary then so be it.
The only piece of luck I can see in Perrys story is that the
opportunity that came along was the Internetthe engine for
what KPCB partner John Doerr is fond of calling the greatest
legal creation of wealth in the history of the planet. Lets hope
Perry managed to sell some shares before the company started
for the cliffs.
The OzEmail vision
A visionary is someone who sort of creates the idea
for the futureIm very good at nicking it once
theyve created it.
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Sean Howards vision was that people would use electronic
mail to communicate between companies as well as within
them. It seems extraordinary now but when email was first
introduced around 1990 most companies used proprietary
systems such as Lotus cc:Mail. People inside a company could
message each other but they couldnt reach people at other
companies. At that time, Howard was working at Australian
Consolidated Press, managing the computer publications
division which he had founded a decade earlier. He took a
punt, sold his remaining 40 per cent share of Australian
Personal Computer magazine to ACP for around $7 million and
in 1992 founded OzEmail, the company that would ultimately
make him fifteen times richer.
I could see that the world was going to deliver information
electronically, he says. That might sound self-evident today
but at the time email was a new phenomenon and there were
plenty of doubters. I remember very well an editor of one of the
computer magazines . . . saying to me, Why do you think this
business is going to work? Who wants to send email to each
other, between companies? I mean, I can see it working within
a company but who are people going to send email to?
Another doubter was ACP itself which agreed to let Howard
take his email-related research and development work with
him as part of the separation of the two companies. Howard
says he was driven on by the speed with which people at
computer publications had embraced the new electronic
messaging system. He noted that not only did it drive down
telecommunications costs, which would make it a hit with
business, people seemed to prefer it to the phone.
During 1992, OzEmails main activity was to create systems
that enabled companies with different corporate email packages
to exchange messages. This quickly ceased to be necessary as
businesses shifted to using email systems based on the common
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Internet standards used by the worlds academic community.
However, OzEmail stayed in business by embracing open
standards and adding Internet access to its product line.
Notably, Howard wrote some of the key software that gave the
company its competitive advantage at this time. By 1994,
OzEmail had plenty of customers but Howard was rapidly
burning through his ACP nest egg. In two years, hed poured
around $3.5 million into the company and was considering
calling it quits rather than sliding back into poverty after
fourteen years of hard work.
I remember saying to a mate of mine on the golf course one
Saturday, Oh stuff it, Ill close the thing down on Monday. Im
just not going to lose any more dough, says Howard. By
Monday I got cold feet and couldnt bring myself to fire
everyone and close the business.
In retrospect, that looks clever but Howard says that con-
tinuing was an act of blind faith and recklessness. Asked if at
the time he had put money aside, he says, If Id burnt five
[million dollars] on OzEmail and I had the choice of continuing
to burnand hopefully succeedor putting the two million
away, Id do the former. A bit like one of those pathetic gamblers
who are sitting beside the roulette table at three oclock in the
morning having lost almost all their money, determined that the
last few dollars they have in their pocket will recover all of their
Many people in the Internet industry see Howard as
something of a cowboy that got lucky. There are also mutter-
ings around town about sharp deals or broken promises, the
most common being the oft-repeated claim by the owner of
another ISP that he set up OzEmails entire network and was
never paid. Howard is familiar with this story and says its
bullshit. The more you drill into the Howard story, the more
you get a sense of someone that had a good eye for which
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technologies and industry trends had value, the drive and
creativity to act on his instincts, and a clear understanding of
his own limitations.
Im absolutely not visionary. Visionary sounds pretty grand to
me. I suppose if Ive got a talent . . . it is spotting the next wave.
. . . Youve got to say to yourself, Where is the market going
and where are the big opportunities and have confidence in
your decision to go for it. Youve also got to have sufficient guts,
if youre wrong, to call it quits. Thats one of Kerry Packers
great strengths, I thinkknowing when to call it quits.
Asked why he thought he had been successful, Howard
cringed, saying he hated that sort of question, but replied:
A bit of a talent for picking those [ideas] that are going to have
some merit, and throw in a bit of recklessness and preparedness
to spend money that I either have or havent got, and then
thirdly a lot of hard work. I do work very hard.
OzEmail was the first Australian Internet company to list on
the NASDAQ exchange in the US, back in 1996. This was only
one year after Netscape floated and long before the Internet
craze hit Australia. However, Howard also presided over a
number of unsuccessful ventures such as OzEmail Phone and
an online advertising venture called Web Wide Mediathough
the latter would prove to be the starting point for Anthony
Bertini, founder of BMCMedia.com and Gour Lentell and David
Turner, co-founders of Sabela Media, all of whom have become
very wealthy in their own rights. According to David Spence,
the former president of OzEmail and savvy accountant who
kept OzEmails finances straight (Howard admits that even
today he still struggles to read a balance sheet), there were
times when OzEmail tried too many new things. He attributes
this to boredom, conceding they would have probably built a
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better business if theyd just stuck to connecting people to the
Internet access. But they would have had a lot less fun, he
says, with a twinkle in his eye.
Blue sky mining
In times of rapid technological change, vision takes on a value
all of its own, one that can often be realised in the form of very
large amounts of cash. If you type the words Chris OHanlon
and vision into the news database at John Fairfax Publications
you get an extraordinary 38 results. In the Australian Internet
scene at least, he owns the word.
OHanlon, the 45-year-old founder of web design firm
Spike Networks Ltd, understands better than most that in
uncertain and dangerous environments people look for vision-
aries. Like people lost at sea, the public desperately wants
someone to climb a mast and shout I can see land. In one
interview OHanlon said, If you feel strongly driven by your
own vision, the chances are that with a bit of personality
you can compel others to see it with you. And to follow it into
complete darkness on the faith that you see something that
they dont.
This was his genius. Like many of the best entrepreneurs,
OHanlon learned how to sell his vision, or blue sky, to
staff, clients and, ultimately, investors for tens of millions of
dollars. While others were charging basic hourly rates to make
pretty web pages, OHanlon, the son of famous novelist Morris
West, was selling something far more seductive: corporate
transformation. Not glorified desktop publishing but a gate-
way to the untold riches of cyberspace. Big companies like
Toyota paid hundreds and thousands of dollars for web pages
that they could have had done elsewhere for a fraction of
the cost.
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Hes got the art of the gab and the schmooze, industry
analyst Ramin Marzbani says. There was a time when this
industry didnt exist. Chris was the first person to go out there
and say, Give me $400,000 to build a site. No one else had the
balls to do that.
OHanlons vision for Spike as a creative, anarchic environ-
ment also defined its culture. Michael Mesker, one of the
companys earliest web designers, says: This was a time
when you could walk into a meeting at say Hewlett Packard,
or Zurich, or Mercantile Mutual wearing a Nine Inch Nails
T-shirt, tattoos out, ripped jeans and multiple facial piercings,
to advise suit-wearing fifty-somethings on their online strategy
. . . So many big corporate companies wanted so desperately
to flirt with Spikes coolness and perceived edginessand we
brought life and daring to the corporate Internet world.
A key part of the Spike storyone that you can find
repeated, almost word for word, in various press articlesis
the moment of epiphany at OHanlons family home in Palm
Beach, Sydney. OHanlon spent the afternoon with Andrew
Eordogh, a computer technician that first showed him the
Internet in late 1994. A couple of hours quickly turned into a
whole day and OHanlon says his life changed forever.
It was literally like a bolt of lightning hit me. I could see the
connections. I could see where it was going to go. I could see
what it was going to become. It sounds immensely provocative
to say that, but I just totally saw everything that it is now and
more. I was almost choking with the excitement of it.
Spikes first web page featured only a logo. There were no
contact details or sample sites or anything, just a black page
with the word Spike. By helping to explain and define the
Internet and online marketing during the mid to late 1990s, and
Chriss own affinity with journalists, the company gained a
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very high profile. When he was really fired up, OHanlon could
out-spin Shane Warne.
Spike will be the next News Corporation. You are now looking
at a company such as Spike considering acquisitions in
traditional media of a size that would not have been credited
in the past.
We are not deterred by any idea that something is too big or
too complex. There hasnt been a generation even remotely like
this since the Rockefellers and the Morgans were conceiving
skyscrapers and throwing railroads across the United States,
seeing developments far ahead of the pack.
Amidst this sort of hype, Spike floated on the Australian
Stock Exchange in early 1999 at an extraordinary valuation of
$120 million. The high price tag was based largely on the
potential for SpikeRadio to become a global media outlet. By
mid-2000 however, OHanlon had left the company, the radio
operation was haemorrhaging cash, and the services side of
the businesses was being taken over by Hong Kongs Pacific
Century CyberWorks. Nor had Spike made the transition from
being a supplier of corporate production services to being
a media company like News Corporation. Reflecting this and
as a result of its ongoing losses, its shares had fallen as low
as 20 cents, valuing the company at less than $20 million.
OHanlon still owned about a quarter of Spike, or 26 million
shares, worth around $5 milliona fraction of the $100 million
they had once been worth.
While OHanlons vision of the Internet has been proven
remarkably prescientSpikes Internet radio station, Spike-
Radio, was one of the most interesting and cutting-edge sites
on the Internethis business foresight was myopic by com-
parison. He missed all sorts of big, dangerous objects that were
lurking in the dark room that his business had become by early
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2000. The good thing about OHanlon is that he will admit as
much. Asked what hed learned from Spike, he has said, That
I was a great revolutionary leader and a lousy head of state.
Jim Clark
If selling blue sky sounds like your cup of tea, then you should
study at the feet of the master: American serial entrepreneur
Jim Clark. Ive only met Clark once. It was early 2000 and I was
in Auckland for a conference timed to coincide with the
Americas Cup. Along with several other billionaires, Clark was
there as a spectator with his US$50 million yacht Hyperion. If
you have read Michael Lewis The New New Thing,
know that Clark spent a couple of obsessive years building this
tub in a Dutch shipyard. When it hit the water it had the tallest
mast of any sloop in the world at 189 feet, was 157 feet long
and had 25 big computers onboard. The funny thing about
Aucklandto me, at leastwas that not only had some
American shopping mall developer built a taller yacht, hed
parked it next to the Hyperion. Still, for a guy that grew up dirt
poor in regional Texas, Clark had come a long way. He was also
building a bigger yacht.
Clarks entrepreneurial successes are legendary. He made
his first fortune as the founder of the high-end computing
company, Silicon Graphics. He made his first billion when
he floated his second company, Netscape Communications, in
1995. I had this basic instinct that the Internet was going
to be a big opportunity, Clark told a dinner audience in
Auckland, so I bet about a third of my net worth on Netscape.
He won and also changed the rules of high finance. The
Netscape float is taken as the start of the Internet stock market
craze because the company had little revenue and no profits but
was experiencing massive growth. As Lewis puts it:
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In the frenzy that followed, a lot of the old rules of capitalism
were suspended. For instance, it had long been a rule of thumb
with the Silicon Valley venture capitalists that they didnt
peddle a new technology company to the investing public until
it had had at least four consecutive profitable quarters. Netscape
had nothing to show investors but massive losses. But its
fabulous stock market success created a precedent. No longer
did you need to show profits; you needed to show rapid
Before the boom was done, Clark had generated another
multi-billion dollar IPO, creating the health care infomediary
Healtheon. Clarks idea was to position this company at the
centre of the US$1.5 trillion health care industry. By using the
Internet, Healtheon could reduce inefficiencies, Clark argued.
And by taking just a small cut on those savings, the company
would very quickly become a multi-billion dollar enterprise.
Clark sketched this dream out on a piece of paper and it formed
a diamond cornered by Doctors, Payers, Providers and Con-
sumers. He then sold this magic diamond to the investing
public at more than US$1 billion and eventually saw the shares
rise to levels that valued the company at more than US$10
After Healtheon, Clark started yet another company called
myCFO. This idea was even bigger than Healtheon. Clark had
come to realise that one of the downsides to being really rich
is that it becomes tricky to manage your personal finances.
Hed also discovered that 50 per cent of the worlds private
wealth, or about US$25 trillion, was controlled by just 1 per
cent of its population. Enter myCFO.com, a website that would
provide financial services to and, just as importantly, aggregate
purchasing power on behalf of the worlds rich. In its first
six months of full-scale operation to February 2001, myCFO
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claimed to have won 75 clients for its wealth advisory services,
representing US$12 billion in net worth. Its overall client base,
it said, was 310 individuals, worth US$44 billion.
Healtheon had merged with another Internet health company
called WebMD and seen its market value cut back to about
US$2 billion. Netscape had been bought out by AOL but, in
terms of Internet browsers at least, was being obliterated by
Microsoft. Rather than help pick up any of the pieces, Clark
had moved on to the newest thing, biotechnology, and
launched his fifth startup, DNA Sciences.
In a sense, Clark has become something between an entre-
preneur and a venture capitalist, an almost pure creative force
rather than a manager. Clark discovered that he wasnt cut out
for senior administration at Silicon Graphics, which he founded
in 1982 after being a lecturer at Stanford University. Like many
entrepreneurs, he became bored and irritable once the company
had become a large corporation and clashed regularly with
other senior executives. As The Economist has said, Jim Clark
is very rich because he learned what he is bad at, as well as
what he is good at: he can start companies, but he cant run
For all his wit, Lewis portrait of Clark is also harsh. The
New New Thing leaves the reader with the impression of Clark
as difficult, manic and obsessed by wealth. I asked Clark what
he thought about Lewis character sketch. He said that while
the book was largely accurate it was kind of hyberbolic
and narrow. He didnt elaborate but you could tell it was
true; Clark is obviously technically gifted and more complex
than Lewis gives him credit for. He has proven himself to be a
genius at creating big ideas for a market prepared to dream. He
helped to create, then rode, the popular belief that the Internet
would change the world. If nothing else, he has perfected the
art of building to flipcreating concept companies that dont
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necessarily work but are attractive to investors
and gained
a personal wealth of around US$3 billion. Thats not neces-
sarily morally defensible but, like I said, this book is largely
designed to help you improve your station in life, not fix the
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It has forced us to build a business model instead of
an Internet story.
f you want to make serious amounts of money, you
need other peoples money (OPM). Jodee Rich
never really had one-billion dollar coins lying around Craigend,
his $14 million Darling Point home, or his new pad in Paris. No
one showed up to Anthony Bertinis house with a van and
dumped $230 million on his front lawn when shares in his
company, BMCMedia.com, hit $7.75. The public markets give
you inferred wealth only where the suggested value of your
holding in a company is based on the latest price some sucker
paid for a single share. The ability of this system to get out of
whack was amply demonstrated during the Internet boom
when all sorts of suckers paid some really stupid prices for
For a few crazy moments, this gave people like Wayne
Passlow, chief executive of Open Telecommunications, an
inferred wealth of $1 billion. This was enough to get him on the
cover of the Sydney Morning Herald as Australias fastest ever
billionaire. It was also enough for him to get rid of his kids.
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During a post-float media lunch, Passlow, a happy, unassuming
guy who reminds you of Santa Claus, laughed that he couldnt
get his children out of home so hed left them there and bought
another one. He must have had some of that money in cash.
The other, more appropriate, reason to look to the public
markets is that you need capital to grow your business. Some-
times, no matter how hard you work or how effectively you
respond to change, you will find that there is a gap between
the money coming in the door and the amount you need to
spend to develop a product, meet payroll, build a new facility
or otherwise grow. This is most pronounced in high-tech
companies that must conduct months or years of research and
development work to create a product to sell. At this point
and, old-fashioned types would argue, not beforeyou should
consider hitting your family and friends for money, borrowing
from a bank, seeking to sell a share of your company to a
private investor, joining a business incubator, raising venture
capital (VC) or listing on the public share market.
Raising cash
Built to Flip. An intriguing idea: No need to build
a company, much less one with enduring value.
Today, its enough to pull together a good story, to
implement the rough draft of an idea and
presto!instant wealth.
Theres nothing better than a rented car, right? They go faster,
dont need oil and can handle speed humps at 90 kilometres an
hour. Well, money is much the same. There is nothing better
than other peoples money. OPM. Caviar capital. The good stuff.
Yes, whether you get it from your parents, a venture capitalist
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or Joe Public, when youre building a business its almost
always better to spend OPM than your money. Why? Because
you might lose it, and theres only one thing worse than the
fleeting shame and regret associated with losing OPM and that
is the irreversible pain of losing your own money.
Fortunately, lots of people have more money than they need
and like to give it to other people if they think theyll use it
to create even more. One of the revelations that came with
working for the Australian Financial Reviewwas just how many
loaded people there are in Australia. With the exception of the
occasional rogue like Alan Bond, who shouldnt be allowed
near OPM, this system tends to lead to the efficient reallocation
of capital from people who have it to people who know what
to do with it. Venture capitalists, for instance, take money from
massive superannuation funds and channel it into small, poten-
tially high-growth companies. In theory, the money will work
like fertiliser, the small company will become large, and the VC
will return the money plus some profit to the fund.
If youre a new player entering this system then your
challenge is to create a compelling enough story to persuade
people to give you their money. I say story because if youre
trying to raise money to fund something that hasnt yet
happened then you are by definition operating in the realm of
fiction. The trick is to make your sketch of the future more
plausible than the next persons. You should also have some sort
of plan for using that money effectively once you get it. But,
as the dot-com boom illustrated, this is optional.
One of the common myths of the late 1990s was that venture
capitalists and other professional investors, including so-called
angels, would invest in bright ideas alone. I was duped by
this. Believing I had a good idea, I once had a conversation with
top Australian venture capitalist Roger Allen over coffee at a
conference. It went something like this:
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Roger, I opened as he gazed around the room, probably hoping
that I wasnt going to ask him for funding.
Im thinking about leaving the paper to do my own startup.
But Im nervous that if I take on venture capital too early itll
distort the growth of the business and that I wont know how to
handle such large amounts of money.
I wouldnt worry about that, he growled, his neck bent
slightly forward like he spent too much time talking to short
people at functions.
You think Ill be okay then?
No, he muttered, seemingly relieved that we had to make
our way back inside. Its just that no VC is going to give you
money too early.
Between that and a few you should know better than to
believe that Fast Company magazine crap glances, I learned
that VC money was going to be extremely hard to come by.
These guys didnt become rich by being stupid so the chances
of one accidentally giving me money, let alone too much, was
up there with life on Mars.
The reason that investors like to perpetuate the myth that
they supply money freely to very early stage companies is two-
fold. First, it sounds good at parties. Second, it increases the
number of people that might approach them for money and
therefore deal-flow. Even if they think the entrepreneur is not
ready or the business too small, at least theyre on their radar
from the first time they walk into their granite and glass foyer.
But as Paul Davis, the respected technology fund manager
and chief executive at Tech Invest, has said, there is a well-
established and largely immutable feeding chain. In Australia,
this sees people approach friends and family for up to $250,000,
wealthy individuals or angels for $250,000 to $1 million, and
VCs for $1 to $5 million. Beyond that, most entrepreneurs look
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to the public markets, though VCs have been known to invest
tens of millions, particularly when funding management buy-
outs as opposed to early stage companies.
Friends, family (and fools)
The most common source of early capitalthat first $25,000 to
$250,000, depending on your social circleis friends, family
and fools. The Internet service provider Magna Data, for
instance, was started with $100,000 from the fathers of two of
the companys four founders.
The nice thing about friends and family money is that its
normally given as debt rather than equity. In other words,
someone who wants to see you get on gives you the money you
need and asks you to pay them back when you can. This can
save a new company the trouble, and legal expense, of giving
the investor a defined share of the company and preparing an
associated shareholders agreement.
Fools is the term applied to a third party investor that
hands over money without making you sign up to a strict term
sheet or otherwise protecting themselves. Its also known as
dumb money in private capital circles and, in a public setting,
the share market.
Angel investors tend to invest similar amounts as friends and
family but want a share of the company in return for their
money and mentoring. As above, they typically invest between
$250,000 and $1 million in new companies. In return, theyll
usually seek about 30 per cent of its shares.
Angel investing is not new but has become a lot sexier
following the arrival of groups such as Tinshed, the investment
network of rich and powerful business people in Asia Pacific
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brought together by Sydneysiders Janusz Hooker and Vivian
Stewart. Hooker and Stewart, both under 30, act as talent
scouts, reviewing business plans, meeting entrepreneurs and
eventually lining up meetings where entrepreneurs pitch their
ideas to as many of the groups wealthy backers as can attend
a meeting. If these angels, including figures such as James
Packer and Rodney Adler, like what they hear, theyll invest
between $500,000 and $3 million then go back to the polo field
or whatever it is that rich people do. Past investee companies
who have benefitted from Tinsheds services include online
retailer dstore, Internet grocer ShopFast, and media and games
production house Imagination Entertainment.
Another angel network coordination group is Sydneys
Harbour Angels, run by former merchant banker Nick Mount
and Australian-born but Silicon Valley-based entrepreneur
David Doust. Doust is building a company called Software-
markets.com and is one of those frighteningly smart Australian
expatriates. Together, Mount and Doust seek to coordinate
investment into new companies by a group of 40 or so wealthy
friends and associates. In 2000, for instance, they invested
$1.2 million in Digital Media Group, an online share trading
discussion website and technology company.
Groups like Tinshed and Harbour Angels are the tip of a
much larger iceberg. Angel investors are estimated to invest
more than $1 billion each year across all sectors of the economy.
Much of this money is supplied through well-established
networks of private investors that review deals presented by
coordinators such as the Australian Business Angels (ABA), run
by Australian Business (the former NSW Chamber of Commerce)
and VECCI, the angel network run by the Victorian Employers
Chamber of Commerce & Industry.
ABA, for instance, has 600 investors with $200 million in
available capital. The organisation works to bring entrepreneurs
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and investors together at monthly forums. Its services range
from advising entrepreneurs on their business plans to helping
potential investors learn about the process of putting money
into expanding companies. ABA supports its operations by
charging investors an annual subscription but is aimed at
developing the business community as a whole.
From the entrepreneurs point of view, the key challenge is
getting the organisers of these angel groups to consider your
business proposition. If you can persuade them that what you
are offering is valuable, you will have to stand up at one of the
above forums and present your idea to potential investors. But
dont be intimidated. Having been to some of the these sessions,
I can tell you that some very average people with even more
average ideas get as far as presenting. In many cases, they even
got money.
Finally, one of the biggest complaints from people that have
taken angel investment is not that investors try to exert
excessive control over the company but rather that they ignore
it altogether. According to Alex Adamovich, the Australian-
raised head of Equity Partners Asia in Hong Kong and a
Tinshed investor, many angels will kick in money but rarely
speak to an entrepreneur until there is a major issue to deal
with, such as an acquisition or a capital raising. He says that
he tries to do better but the problem is that angels are typically,
and almost by definition, busy and successful people who can
only spend so much time with the companies that they invest
in. Because angel investments tend to be relatively small and
entered into on a personal basis, they are the easiest to neglect.
Heres his advice to entrepreneurs:
The biggest pitfall is having expectations of involvement and
assistance which dont materialise. This is the biggest complaint
I have, that is, once the money is in they arent contacted again
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by angels in any meaningful way. This is an area where I try to
be more active than most.
Often its too late. Therefore in an ideal world expectations
should be clearly expressed. Best of all speak to other investees.
Most dont as they need the money. Also, they should be very
clear on meeting hurdles and budgets. If they dont, investors
generally lose confidence.
Finally, work out what you want from the angels networks
and be sure you will get it.
Incubators and accelerators
Between friends, families, angels and venture capitalists lies
a hybrid group known as business incubators. The term is
said to have originated in the US where some of the first such
facilities were created more than twenty years ago. It also
alludes, of course, to chickens sitting on eggs. After the shine
went off the term incubator during the 2000 tech crash, some
switched to calling themselves accelerators (while unkind
commentators adopted the term incinerators) but the idea is
the same.
The theory is that someone sets up a facility that has lots of
desks, computers, phone lines and other facilities that make
small companies run, such as shared reception desks and coffee
machines. Larger ones might also offer management advice and
connections to accountants, marketing specialists, lawyers,
venture capitalists and other service providers. Really large
ones will maintain such service groups in-house. Incubators
then take in small teams that are starting up new companies and
let them use all this equipment and office space for up to
around eighteen months. After that time they are expected
to have a competent management team in place and be able to
move out to premises of their own. In return they typically take
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cash from the company in the form of rent and fees as well as
demanding an equity stake in the startup.
Notably, the cash is often the incubators own money that
they have given to the startup when it signed up. As one US
analyst has said, Its an interesting scenario. I give you this
money, and basically, over the next six months youre going to
give it all back to me in fees. Youve got to love America.
The advantage of all this to the fledgling company is that it
doesnt have to commit to multi-year commercial leases or take
on other potentially crippling costs such as paying reception-
ists before it has cash flow. With lawyers, public relations
people, web designers and others on tap, they should also be
able to grow quickly. Good incubators also lend credibility to
small companies. This can be very useful both in marketing
as well as getting past the credit rating checks at big legal firms
and other top flight service providers that fret about the ability
of clients to pay their bills.
Universities and government bodies have been running
incubators under various guises for many years. These have
typically been non-profit organisations designed to help grad-
uates or underpin regional development initiatives. Large,
research-driven companies such as Lucent Technologies, owner
of Bell Laboratories, have also had systems for supporting
individuals or small groups that want to spin off and pursue
new projects on a semi-external basis. However, with the
success during the Internet boom of large US Internet industry
incubators like CMGI, idealab! and Internet Capital Group, the
idea has taken on a life of its own. For a time, these companies
achieved multi-billion dollar valuations by taking substantial
stakes in a large number of small high tech and Internet
companies then floating them as soon as possible on a nearby
stock market, usually the NASDAQ.
In the process they came to be seen as alchemists. For a while
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at least, Internet floats delivered pure gold almost every time
and the incubators seemed to have discovered the secret to
creating them. The largest, CMGI, has backed 70 companies
including search engines AltaVista and Lycos, email manage-
ment company Critical Path, and online auctioneers GoFish.com
and uBid. In 2000, CMGI shares changed hands on NASDAQ at
prices that gave it a market valuation of US$48 billion. To put
that in perspective, the highest valuation achieved in the same
year by the Ford Motor Company was US$38 billion.
There were more than 300 such incubators worldwide in
early 2000, about a third of which were located outside of the
Australia was no exception and boasted around twenty
incubators, including ten groups that have received $78 million
in funding under the Federal Governments Building on IT
Strengths Scheme. These are now scattered around the country
and have cool names like Bluefire, ePark and ITem 3.
One privately funded Internet incubator is Powderbox. This
is operated by chief executive Richard Poole in cooperation
with Silverstream Corporate, a financial advisory firm and VC
player. For a chunk of equity, Powderbox provides quality
office space for small companies in downtown Sydney and
offers hands-on management assistance. Its incubatees include
the online womens magazine SheSaid.com.au, a related ad sales
company Tempest Online, a gay portal called Outbiz.com
and the wine e-tailer Winepool.com.au. According to the
entrepreneurs inside Powderbox, the company has a good set
up. While it took around 25 per cent equity stakes in the
companies, they dont have to pay cash for their office space and
other facilities. The companies also share a big open space,
promoting a lot of interaction. Under the stewardship of Poole,
who is a former lawyer and successful company CEO in his
own right, the place is fun and informal. And because he was
playing largely with his own money, Poole could make decisions
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quickly when startups needed assistance. He also kept his
companies out of trouble, checking their legal activities closely
and lending an imposinghes about six foot three, charming
and sharp as a tackpresence at meetings. To me, Powderbox
is what incubators should besmall, intimate and creative. A
place where a successful person mentors a few new companies
but also makes a quid on the side.
Financial institutions such as Macquarie Bank have also
established incubator facilities, backing companies such as
AnnounceTV and Ozestock.com.au. These typically make more
strategic investments in activities close to the banks heart,
such as financial information.
If youre thinking of joining an incubator or dealing with
any outside group, you should find out what direction theyre
coming from. Their motivations will have a big impact on the
way they behave and the type of value they deliver. The key
question, and again this goes for all forms of investment covered
in this chapter, is whether their interests are aligned with
yours. If not, when push comes to shove, something will break
and itll probably be the smaller, weaker entityyou.
A benefit of the incubator system, and more broadly, VC
investment networks, is that new companies would get to work
alongside other new Internet companies, enabling them to
share ideas and resources. Brought together by the guiding
hands of incubator owners such as idealab! founder Bill Gross,
they can also form synergistic alliances. These might be
designed to help drive traffic to one anothers websites, for
instance. Functioning well, this would be known as a keiretsu
a Japanese word coopted by the US venture capital industry
to describe a network of new companies. Morten Hansen and
associates, writing in Harvard Business Review,
have dubbed
these networked incubators, saying they offer young com-
panies the best mix of facilities, entrepreneurial drive and
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industry networking, particularly preferential access to
industry leaders. They hold up US incubators like Campsix,
CMGI, Hotbank and idealab! as examples. However, Hansen
and friends also caution that networked incubators suit some
startups better than others and some simple questions need to
be asked: What other companies are in the incubator portfolio
and is their focus consistent with your own? How strong is the
incubator and its networks of partners and advisors? How do
the companies inside the incubator work together and how
concrete are the links between them?
After the tech stock crash, people have begun to question
whether the commercial incubator model is viable without
a highly irrational stock market buying the end product
typically extremely immature companies with great presen-
tation skills but unproven business models. Groups like CMGI
suddenly began to look like the houses of cards that they were
and saw their valuations slashed to around a quarter of their
historic highs. Some of the most high profile success stories
that made the incubator model so attractive were also strug-
gling to survive in the real world. One of idealab!s prized
graduates was eToys.com. The online toy shop was ramped
very quickly onto the public market at a time when everyone
was convinced that traditional retailers such as Toys R Us
would be wiped out by Internet newcomers. The companys
market valuation soared to more than US$10 billion before
collapsing back to about US$500 million at the time of writing.
This was still a healthy price for a company with a net loss of
US$59.5 million on sales of US$24.9 million for the three
months to 30 June 2000.
Worse still, punters that bought the stock at the top of the
market lost up to US$82 a share. Who collected a healthy part
of the difference? You guessed it, guys like Bill Aw shucks, I
was just giving the kids a leg up Gross and other professional
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investors. The moral of the story, once again, is that the people
who make the money in periods of rapid change and uncer-
tainty are the ones who know when to pass the hot potato.
Entrepreneurs considering entering incubators need to think
long and hard about the credentials of the facility theyre
seeking to enter. As bi-products of the Internet boom, most
commercial incubators are even younger than the companies
theyre planning to support. More than 80 per cent of 350
US incubators surveyed in June 2000 for a Harvard Business
School report were less than one year old.
Most Australian
incubators are even fresher. They were also developing a nasty
reputation for being expensive. Some of the worst incubators
have also been taking a cut on payments made by their
companies to external providers. The question you have to ask
is, if these guys are taking cash for all these services then in
what way are they earning their share of your company?
The value of being put in a facility with a group of other new
companies is also questionable. Yes, youll probably have a lot
of fun because everyones young and wearing black. You may
even get to do some interesting deals. But the situation is
basically one of the blind leading the blind unless there is a
high ratio of good operations or mentors to entrepreneurs.
Entrepreneurs should therefore ask whether they couldnt
acquire all the services they require independently and on
more flexible terms? If you have no revenue, you might be able
to sell a share of your company for some straightforward cash
then buy the services you need. Incubator managers will tell
you that having to look after all these small decisions yourself
will only cause you to waste time. Thats true. However, Rome
wasnt built in a day and there is value in staying independent
because no one cares as much about you and your company as
you do. It may even enable you to move more quickly because
you will be able to sack under-performing service providers, for
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instance. While you might be able to do that while inside an
incubator, you wont be able to sack the facility if it owns part
of your company.
More generally, if you give away too many shares too early,
you will also very quickly lose voting control over your
company. This may in turn leave you paralysed and frustrated
as you spend all your time lobbying shareholders rather than
simply implementing your plans. And if you give up a large
share of your company in your first year then you wont have
much left to play with later when youre trying to attract
additional investment or staff. Venture capitalists in particular
like to see at least 60 to 70 per cent of a company owned by its
founders and employees and often wont invest if first round
investors have taken too much.
The reason is threefold. First,
the angel or incubator will have a lot of power over the
company. Second, there wont be enough stock to provide
future incentives to staff, particularly if they are diluted
even further in subsequent financing rounds or an IPO. Third,
as Howard Anderson, head of US incubator YankeeTek has
commented, no one wants to back someone stupid enough
to give away 50 per cent of their company before theyve
even begun!
Whenever investors tell me that it is necessary to sell a
large share of a company to succeed, I like to think of Rupert
Murdoch. Admittedly he got a running start after inheriting
his first media assets but News Corporation has become
massive and continues to perform in part because Murdoch has
gone to great lengths to maintain control (voting power) and
has never taken his hand off the tiller. Microsoft is the same.
Bill Gates still has enough power to make the lightning-fast
decisions that the company needs to remain successful. So,
dont sell yourself short in your first year if you can see past
the fifth.
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Venture capital
By and large, if you play the US venture capital
game you dont have control. You just have to accept
that. And if that means that you can be taken off
the board or taken off as CEO in two years time
then thats the risk you take.
Dont get me wrong about third party investment in companies.
Its just that the smartest entrepreneurs wait as long as possible
before they take it on. So if you can make it through your first
few years without outside investmentprovided you are still
in business and your market window of opportunity remains
openyoull be in a much stronger position to negotiate with
venture capitalists. But first things first. What is venture
capital, or VC?
The difference between angels and VCs is that the former
are typically rich individuals who invest their own money
while the latter are professionals who invest funds on behalf
of financial institutions and other groups. In other words,
venture capitalists have bosses. This means that they typically
take the conservative approach of putting larger amounts
of money into more mature companies. It also means theyre
more disciplined because they have to show real results or
else they wont get any more money to manage. A bit of gossip
I picked up on a trip to California in late 2000 was that many
VCs were in a deep panic trying to explain why theyd pumped
hundreds of millions of dollars into flimsy Internet companies.
The real answer was that the market was so hot before the
April 2000 correction that they thought theyd be able to float
them and get their cash back before anyone noticed how
flaky they were. You try sitting in a Hawaiian shirt and Birken-
stock sandals and explain that logic to a sober, dark-suited
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institutional investor from New York who just lost several
million dollars.
Fortunately, not all VCs are cowboys. As Australias VC
veteran Bill Ferris has said, [Venture capital] certainly isnt
about quick trading profits in the stock market. At its best, it
is about helping entrepreneurs grow really great companies.
Good venture capitalists take an active role in the day-to-day
management of the companyor, more accurately, in choosing
the people that will manage the company day to day.
There are two schools of thought on VCs, says George Foster
at Stanford University. One is that theyre just sources of
finance. The other is that theyre very effective partners or
architects of businesses and I actually firmly believe in the
According to Foster, who also consults to VC firms, the most
important role a venture capitalist can play is to build a

Entrepreneurs and venture capitalists are different but
dependent breeds. Smart business builders take the time to
learn about and understand the VCs that theyre approaching.
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companys management team. In a lot of ways their skill,
beyond raising and then investing money, is not far removed
from that of recruitment consultants. They identify good
people then place them into their investee companies, often in
place of the founders. If they do their jobs effectively then
theres less need for them on a day-to-day basis, Foster says,
but cautions that professional investors can also take on too
many deals.
Its easy to stretch yourself too thin if youre a VC. Theres also
the problem that the problem companies in the portfolio start to
suck up more time than the good ones do.
The really good VCs work hard, they see a lot of experience
on the other ventures that theyre doingtheyre seeing 20 or
30 companies in a total portfolio of each fund, maybe managing
three or four of them themselvesso, they are people that go
down the learning curve very quickly.
The main thing to remember about VCs is that, more than
any other type of investor they are interested only in short-
term capital gain. They just want to make money, and thats all
they want to do. Its easy to lose sight of that but you really
shouldnt, says one embittered Sydney entrepreneur who was
sacked from his company after it was taken over by a venture
capital firm.
A smart entrepreneur therefore understands what the
venture capitalist needs and exactly what that will mean going
forward. VC fund managers need to be able to see the potential
of being able to make at least ten times their money in about
five years, preferably less. The reason is that they can only
expect about two out of every ten companies that they invest
in to deliver such stellar returns. Another two or three will
break even or deliver a small profit and five will completely
bomb. That receiving venture capital is no guarantee of success
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was starkly illustrated with the failure of companies such
as K*Grind, the erstwhile web design and new media company.
K*Grind raised more than $10 million in venture capital from
funds, including Bill Ferris prestigious Australian Mezza-
nine Investments (AMI) and Macquarie Banks Macquarie
Technology Fund, but still collapsed as a business in 2000 after
spending too much, too quickly on information technology
The only way venture capitalists will get the sort of return
they need is by floating your company on a share market or
selling it to another company for a good price. They wont get
the sort of big bang exit they wantwhere the value of their
minority shareholding is realised in plenty of cold hard cash
by taking a share of your annual profits or letting you repay
money with interest. So, if you take VC you should expect to
eventually either float your company or sell it to somebody.
Theres nothing wrong with this but many entrepreneurs fail
to think it through and later squirm like hell when their VCs
start to look for a way out.
When it comes to getting VC, entrepreneurs must therefore
not only explain why they have a good business but also how
it can deliver rapid capital gain. These are very different things.
The first could be something like a medical practice that
delivers $1 million a year in profit to a couple of doctors. This
is a good business but inseparable from the professionals that
run it. Preferable is a company like McDonalds that is defined
by its systems, intellectual property and brand and can be run
by any pimply fifteen-year-old. These sorts of companies can
be bought and sold and are therefore the only type that interest
financiers like VCs. For a much fuller discussion of building
companies that you can walk away from to play golf, see
Michael Gerbers best-selling book, The E-Myth Revisited.
The second element in rapid capital gain is that it is usually
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to be found in fast-growing markets. This is why the burgeon-
ing Internet was such a hoot for professional investors. I used
to sit in press conferences and be mystified at the way people
always held up charts from analyst firms showing incredibly
strong growth projections for their types of products. After
seeing one that implied that every man, woman and child in
Australia would buy some obscure piece of computer net-
working equipment within five years, I realised that they
were simply a key element in the bullshit process of selling
The reasoning goes like this, People bought $10 million
worth of headless chickens online last year. That was 100 per
cent higher than the year before. If you follow that growth
curve, in five years people will spend $320 million buying
headless chickens via the Internet. Better still, we think we can
cut off 50 per cent of that market. This argument would be
funny if it didnt work so well. Part of the reason that it does
is that most people are basically optimistic and everyone wants
to believe theyve found the inside track to the next big thing.
The pitch starts, Did you fail to buy Microsoft shares in 1988?
Have I got a deal for you . . .
I like to think of VCs as being like the helicopter pilots that
fly extreme skiers into dangerous mountain ranges. They take
more risk than airline pilots and get paid more (when they
dont crash into cliffs), but they stop short of plunging down
steep and fearsome slopes alongside their passengers. In other
words, they have the means to enable risky endeavours but
tend to keep themselves relatively safe. Indeed, some of the best
VCs are former entrepreneurs. Roger Allen at Allen & Buck-
eridge is an example, having previously built the Computer
Power Group into a multinational with 3,000 staff in twelve
countries. His entree to the world of venture capital came in the
mid-1990s when he sold out of the company and pocketed
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around $35 million. Rather than investing in real estate like
most cashed-out Australian entrepreneurs, he decided to
reinvest in the industry that had made him rich, the high-
growth technology industry. Though he admits he does have
some bricks and mortar in his portfolio. Another is George
Kepper, the founder of Datacraft, a computer networking and
services firm that was sold to South African conglomerate
Dimension Data in 1997 for $320 million. Kepper pocketed a
cool $160 million from the deal and now invests through his
private company, KFT Investments.
Figures such as Allen and Kepper, who have done well in the
technology industry then returned to pass on their capital and
experience as investors, are rare in Australia but play a vital
role. Because theyve ridden the treacherous slopes of global
capitalism theyre unlikely to drop you into an avalanche
unlike some newcomers to the VC game. The strength of Silicon
Valley is that its chock-a-block full of former entrepreneurs
that now invest, either informally as angels or as VCs. The hope
is that no matter how insubstantial many of the companies that
made money during Australias dot-com boom, a legacy of the
period might be the presence of more experienced, cashed-up
business players.
Golis rules
One of Australias foremost authorities on venture capital is
Christopher Golis, executive chairman of Nanyang Manage-
ment, a Sydney-based fund with around $80 million under
management for St George Bank and other parties. Companies
that Golis has backed include audio production tool maker
Fairlight ESP, entertainment group Garner MacLennan Group
and point of sale technology provider PEG Technologies which
is now listed on the ASX. In the absence of literature about the
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local VC industry, his book Enterprise and Venture Capital is
something of a bible to Australian entrepreneurs.
to Golis, the entrepreneur/venture capital game has seven rules:
1 A rapidly growing business is always short of cash and the
over-financed company does not exist.
2 Raising cash is done by a series of capital placements which
result in continual dilution of the equity holders and former
investors and founders.
3 The founders play a game of divide and conquer with their
investors. Their objective is to have a mix of investor share-
holdings while their own shareholding is diluted below
50 per cent. What the founders aim at avoiding is having
one shareholder with a greater than 50 per cent holding and
singular control of the company.
4 All shareholders are driven towards the goal of maximising
after-tax profits and an eventual public listing, even though
they know that if they are successful the greater likelihood
(by a factor of four) is a takeover by a multinational.
5 Entrepreneurs who worry a lot about voting control usually
have nothing to worry about.
6 There is no limit on what you can do or how far you can
goif you dont mind who gets the credit.
7 The probability of success of a small company is inversely
proportional to the size of the entrepreneurs office and the
amount he or she spends on their car.
These points are each elaborated upon in Golis book, but 2,
5 and 7 stand out for me.
The name of the VC game is to raise as much of the money
that you need in exchange for as little of your company as
possible. This process is called dilution and, executed well,
follows a fairly logical path.
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Float Round 2 Round 1 Start-up
1 Funds raised in stages
Float Round 2 Round 1 Start-up
2 Dilution of founders equity
Post-float Float Round 2 Round 1 Start-up
3 Increasing value of founders equity
Angel 1
Angel 2
4 Example of a shareholding post listing
The above four figures from Chris Golis Enterprise and
Venture Capital show that venture capital funding is raised
in a series of stages, with the amount of money raised
increasing at each step towards an initial public share offer
(1). Because the companys founders are selling more and
more of their company to raise this money, the percentage
they own steadily declines (2). However, even though they
own a smaller share of the company, that stake is worth more
because the entire company is valued more highly at each
stage (3). The fourth figure shows the typical shareholding in
a venture-backed company after a public listing. While the
founders own a minority of the company, it will typically be
worth many times more than their original shares.
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Using the twin arguments that they add a lot of value and
take a lot of risk, VCs will tend to demand a sizeable chunk of
equity in return for their money. There is no set proportion, but
typically entrepreneurs will hand over about one-third of their
company in return for VC. Some real-life examples come from
Allen & Buckeridges mid-2000 portfolio. At knowledge-
management company 80/20 Software the founders had 36 per
cent and A&B had 16 per cent; at games maker Micro Forte the
founders had 42 per cent and A&B 36 per cent; and at bio-
medical imaging company Torson the founders owned 22 per
cent and A&B 33 per cent.
Equally, however, theres little attraction in losing control
of your company. Spike Networks founder Chris OHanlon,
for instance, sold about three-quarters of the company for
$60 million to private shareholders and then to the public
through a float. He quickly lost control and then interest in
working there as the other shareholders took the company in
a direction he didnt support. Asked in June 2000 whether hed
do things differently if he had another go, he said: No, Im not
against the IPO play, just because I trusted the wrong people
and conceded a lot of the power that was in my hand immedi-
ately before the IPO. That was my naivety, my hubris, if you
like. But if you can find a big pot of funding from private
sources, go for it.
That little story should serve as a counterpoint to Golis
rule number 5, which he attributed to Fred Adler. It says that
if youre obsessed by voting control you probably wont ever
obtain enough funding to achieve your business goals. This
is fair enough and well argued in Golis book. It is also backed
up by the story of LookSmart (see Chapter 6) which demon-
strates the speed with which companies can grow if they
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lie back and think of England, as Spikes venture capitalist
John McGuigan once joked. However, you should expect a VC
to tell you not to worry about equity because, at the end of the
day, their business model is short-term and depends on you
ceding equity while yours, unless youre the get rich then get
out type, is likely to be more long-term and control-centric.
Im also fond of point 7 in Golis rules because it reminds
entrepreneurs that good venture capitalistsones that have
real, hands-on experience building companies rather than
those that have just walked out of the lofty environs of
merchant banks, management consultancies and other places
with nice toiletslike thrift. If you appear to be wasting
money on fancy offices, designer suits, flash cars and glamorous
parties, VCs are unlikely to give you more.
Due process
VC funds typically have strict processes for investing money.
Because they are ultimately accountable to superannuation
funds and other higher investors, they need to have a system
in place that ensures their investments are sound and the
reasons behind them defensible.
Nanyang Managements investment process, for instance,
comprises six structured steps that involve finding deals to
fund, screening potential investees, formal due diligence and
then legal work if the deal goes ahead. Nanyang says it
reviewed 808 business plans in the three and a half years to the
end of 1999. Out of those, only about 2 per cent of potential
deals got to due diligence but 75 per cent of those moved on to
settlement. If all goes well, the entire process takes 1014 weeks
(see Appendix 2: Steps in the VC process).
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The public markets
Over time, the marketplace will crush any model
that does not produce real results.
Nineteen ninety-nine will go down in financial markets history
as among the most bizarre ever. The US market saw 319 initial
public offerings by companies, many of them Internet startups.
When they hit the exchanges their values almost always soared.
Shares in VA Linux, an American company that sold services
around an operating system it didnt even own, Linux, saw its
shares rise nearly seven times during their first day on the
NASDAQ. The next four craziest first-day gains were online
community theglobe.com (606%), data processor Foundry
Networks (525%), and e-marketplace operator FreeMarkets
In Australia, more than 90 companies floated during the
last six months of 1999 alone. Companies like Open Tele-
communications rose four times on their listing day. Wayne
Passlow, the chief executive of Open, went from being worth
about $64 million to $280 million in one day. It was crazy. The
public markets became a form of venture capital for many
untested companies. Real venture capitalists noted that many
of the companies which floated during the period had previ-
ously failed to raise money privately. Proving their point,
shares in almost 60 per cent of the 19992000 floats proved to
be dud investments, finishing the year trading below their
issue prices.
US economist Bruce Greenwald at Columbia University
is unequivocal about share market floats. IPOs are a fraud,
he says. The only side you want to be on is the sell side. The
academic maintains that good companies tend to find private
equity while the public market enables the rest to raise money.
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He says this is the business school notion of adverse selection
and compares the markets to car lots. Car yards hold a dispro-
portionate number of lemons because people tend to hang on
to good cars and pass off low quality ones to car yards. The
uninformed shopper, whether for cars or stocks, finds it hard
to tell the difference.
By this logic, you could have floated a Leyland P76 in late
1999. While it may not be quite so easy to raise money from
the public these days, the ASX and other markets do remain a
good source of expansion capital for established companies or
people trying to test a new idea using other peoples money.
A rule of thumb is that you shouldnt go to the public market
for less than $510 million. The reason is that it will cost you
at least $500,000 to conduct a share market float and up to
several million dollars if you pay a stock broking firm a share
of the raised capital to underwrite the offer. This is a form of
insurance and typically runs at about 5 per cent of the funds
raised, depending on the risk profile of the company that is
seeking to float.
Another reason is that if youre so small or unprofitable
that you need less than $510 million, chances are that
youll be crippled by the costs and time involved in operating
a public company. Even the smallest company will spend up to
$1 million each year dealing with the market, holding annual
and extraordinary general meetings, creating and distributing
annual reports, paying high quality public relations firms to
manage their image, dealing with analysts and all the other
obligations that go with being a public company. These include
the need to use top-shelf legal and accounting firms.
Another reason to avoid the market if youre small is that
your revenue and earnings are likely to be inconsistent. One
bad quarter and you could be dumped by investors and
struggle to recover. Also, if the value of your publicly traded
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shares is less than about $150 million, institutional investors
wont buy your shares because its not worthwhile for them to
analyse their value. This will leave you with a shareholder base
made up of individuals, most of which will have no long-term
loyalty to your company.
Whether youre big or small, youll have to get used to
having to open your books to the whole world, including
your customers. David Tudehope at Macquarie Corporate Tele-
communications says that this was the biggest change he
experienced in going public. Id say that the top five issues for
companies going for a public listing are, number one, public
profile. Its a big change if youre not used to it.
Other key issues included the distraction of staff before the
float and after listing. This included the extra work involved
in floating the company but also questions such as which staff
would receive stock options. The third key issue was the intro-
duction of independent directors to the board, as required
when a company goes public, Tudehope says.
The fourth issue, according to Tudehope, is the cost of the
whole process. Since much of the cost of floating is wrapped up
in paying fees to advisors, you can lose a lot if you dont list
successfully. There are plenty of companies around Australia
that are still licking their wounds after preparing to float in
early 2000. Many in this group paid tens of thousands of dollars
in fees only to find that their underwriters wouldnt support
their floats after the market turned sour. Notably, the definition
of sour is usually agreed in writing in underwriting contracts.
It will usually take the form of a clause saying that the under-
writer reserves the right to cancel the float if the NASDAQ
Composite Index falls below 4,000, for example.
Finally, theres the sheer workload involved in floating a
company. Tudehope says that floating is completely absorbing
for its chief executive, in particular, and takes immense
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stamina. For instance, he conducted 92 investor presentations
in the lead up to Macquaries successful float on 27 September
1999 which raised $135 million.
Number five is the enormous amount of work before the
float, he says. From 1 July to 27 September I worked for
the company for about three or four daysabout a day a
monththe other 30 days were working for the brokers.
Thats the most intense period.
Finally, its worth remembering that despite all the hype
about IPOs, very few companies ever conduct one. Out of the
hundreds and thousands of registered companies in Australia,
only about 1,300 are listed on the Australian Stock Exchange.
Head of chicken, tail of ox
Paul Twomey, former chief executive of the Federal Govern-
ments National Office for the Information Economy, made
an interesting comment before he quit the public service
for private enterprise. We were watching entrepreneurs and
investors mingle at a First Tuesday event in Sydney. I said
entrepreneurs seemed to be finding it hard to swallow handing
over large amounts of equity to the high-tech incubators that
his office had just furnished with $78 million. A former
McKinsey & Co. consultant with a passion for Byzantine his-
tory, he said that our entrepreneurs seemed to be struggling
with the idea that to create large companies you have to cede a
lot of equity and control to financiers. He summed this up with
the Chinese question: Do you want to be head of chicken or tail
of ox?
Its a powerful question. Twomeys point was that many
Australians would rather have control of something small than
part of something big but ultimately beyond their control. This,
he felt, was one of the reasons that we struggled to create large
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corporations. I would add that Australias larrikin tradition and
healthy distrust of authority could be a contributing factor
The big question for you as an entrepreneur is what you
want from investors and just how much control youre prepared
to cede. Is it just cash or are you also seeking guidance or some
form of strategic assistance? Thinking back to Golis third rule,
do you have to get those from the same person? Perhaps most
importantly, can the person youre talking to really deliver and
do you think that you can get on with them in a high pressure
business relationship that is going to last several years?
These are difficult questions. Investors dress it up in differ-
ent ways but money is a commodity. Friends and family will
typically offer pure cash and say, I dont understand what
youre doing but I believe in you so here you go and God bless.
Angels and incubators will say that they can save you from
making a lot of silly mistakes in your formative months or
years. Venture capitalists will also promise to save you from
mistakes but will also talk about their ability to plug you in
to their business networks.
Investors may also offer to help you develop strategy. This
is one to be particularly wary about. The reason is that a profes-
sional investors core competency is usually raising and placing
money, not identifying opportunities and creating businesses.
Andy Rachleff, a general partner at leading US venture fund
Benchmark Capital, put this well in an interview with Red
Herring magazine. Our industry is made up of a bunch of
lemmings. When was the last time you heard an original idea
from a venture capitalist? The articles author, Michael Perkins,
later concluded, While the VCs bring startups useful advice,
contacts, perspectives, and, of course, money, the entrepre-
neurs are the true heroes. Theyre where most of the good ideas
come from.
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Just as important as knowing what you want is considering
what your investor wants. In particular, ask yourself whether
theyre there for the long haul like Bill Ferris, who spent seven
years with Datacraft Asia Ltd and five years backing Austal
Ships, or are they a paper-shuffling shark? Perkins again has a
disturbing observation from the US venture industry:
The trend of VC firms resembling investment banks is reinforced
by the fact that a fair share of people coming into VC firms
today started out as investment bankers, market analysts or
attorneys. And as in investment banking, personal net worth is
becoming more important as an end in itself, rather than as a
lucrative by-product of building solid companies. Industry
insiders readily admit that todays venture industry is
increasingly driven by short term greed and that some
investments are made just to be flipped into the market or sold
to the highest bidder.
Too much water can kill the plant as well as too
I have a licence to ride a motorbike but dont. Apparently this
makes me one of 400,000 Australians who would also be James
Dean. To end up in this situation, I attended some riding
courses, passed a test, then got married and was told my rid-
ing days were over. I was also told that my drinking and many
other types of days were over too, but I wont burden you. The
motorbike exercise did however leave me with a useful analogy
for what too much capital can do to an immature company.
Also sitting my riding test was a guy called Tony. He was
about nineteen and had been forced to get his licence again after
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losing it a year earlier. Hed got his learners permit and gone
out and bought the most powerful 250cc racing bike he could
find. In fact he had it there. It was a black beast of a thing.
I doubt if it was even legal. He was also riding it very carefully
because the steering system was still slightly mangled after
the accident that had cost him his licence. Hed gone flying
around a blind corner in an industrial estate only to meet a low
concrete wall at about 80 kilometres an hour. He hadnt foreseen
that this might happen but Im sure that everyone that knew
this guy expected him to hit something sooner or later. They
didnt give him his licence again.
Money is power, as they say, and too much of it can do more
harm than good. As Randy Komisar says in his book The Monk
and the Riddle, When too much money is pumped too fast into
a startup, theres no room for mistakes. The initial product and
the initial fix on the market have to be right.
Perhaps the best example of this phenomenon was Boo.com,
the would-be pan-European online clothing superstore that
lasted only six months after launching in late 1999. The
company burned through US$120 million in venture backing
in eighteen months. Dragging it down was a salary bill for
300 staff plus first-class air tickets and pricey company flats in
London. The company also failed to get its technology systems
working. Ironically, quickly calling the kettle black was Alison
Harrington at TheSpot who suffered an almost identical fate
one month later after burning through $12 million in one year.
She told the Sydney Morning Herald, [Boo.coms] site launch
was delayed, they had heaps of technical problems and they
had an incredible burn rate. Plus, you need a compelling
offering and Im not sure selling clothes works on the
One factor in building companies in periods of high tech-
nological change is that there is a lot of uncertainty about how
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quickly consumers will adopt innovations, from mobile phones
to genetically modified food. One of the reasons that e-tailers
such as TheSpot collapsed was that they overestimated how
quickly people would take to shopping online. Working from
overly optimistic projections of demand, they spent too much
on advertising and infrastructure too early and were quickly
caught out when sales failed to match expectations. I think we
were spending too much money on marketing, particularly in
the off-line world, Harrington said in late 2000, adding that
management also spent too much time chasing joint venture
A lack of money, on the other hand, ensures that companies
have no choice but to operate profitably and build capacity in
alignment with market demand. In other words, poverty
imposes discipline. This is the opposite of If we build it they
will come and says If they really want it theyll pay me to
build it.
Another sober voice is Richard Foos, president of Rhino
Records in Los Angeles. Rhino offers re-issues of rare record-
ings and was acquired by Warner Music in 1998. In an
interview with Fast Company magazine he said:
Start as small as possible: To achieve 100% success, you need to
grow organically. Pass up outside financing until you know that
you can run the company. Starting with limited financing forces
you to learn every single aspect of a business: how to balance a
ledger, how to collect receivables, how to draw up contracts. If
you dont understand all aspects of your business, youve set
yourself up to fail.
The alternative view is, however, that the world is now so
fast and competitive that you have to get all the money you can,
build fast and hang on to your hat. If you get the timing just
right, like OzEmail did, youll be in the box seat. Vivian Stewart
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believes that it would not be possible to launch Magna Data
again without substantial external finance. Wed never be able
to afford to do that again. The pace of the industry is now so
fast that you cant afford to grow organically, he says.
Ironically perhaps, the history of Magna Data shows just
what can be achieved without formal venture capital if youre
prepared to enter a market very early and work hard.
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If theyd been in any other business they would have
gone broke. They were just lucky to be in a growth
industry with cash flowit covered a multitude
of sins.
n 1993, the Internet was a place that geeks and
academics went to use online bulletin boards,
send simple electronic mail messages and occasionally down-
load text files. The Internet in Australia was basically the
Australian Academic and Research Network (AARNet), owned
and operated by the universities. It was a monochrome world
where you had to know how to use programs with names like
Telnet and Gofer. An understanding of Unix programming also
came in handy when things werent working and the World
Wide Web was yet to be set loose from the labs.
At the same time, four former schoolmates were graduating
from university in Sydney and looking for something to do.
Jason Ashton, Luke Carruthers, Mark Cramer-Roberts and
Vivian Stewart decided to create one of Australias first com-
mercial Internet service providers. Ashton had studied at
Sydney Grammar. Carruthers and Stewart had been to Kings
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and Cramer-Roberts had been to Cranbrook. All of them had
been around computers since they were young. Ashton, for
instance, says he saw one of his first laptops in about 1983. It
was a $15,000 machine from Compaq that his father had
brought home from work and so heavy that it might have
broken his legs if hed put it on his lap.
They drew up a business plan and got a $100,000 soft
loan from Cramer-Roberts and Stewarts fathers, contributed
equally. Their fledgling company was started with a 486 server,
a modem and a router from Cisco Systemsthe three key pieces
of equipment that enable ISPs to connect subscribers to the
Internet. The money tided them over for their first four months
of 1994 by which time theyd started to make money, selling
basic Internet access services for $39 per month, $10 more if
you wanted technical support. By the end of 1994 they were
offering PPP (if anyone can remember that) access to the web
at $49 per month and turning over $250,000 a year.
The Magna boys, as theyd become known, realised they
were on a winner when their revenue surged to $1.25 million
in the year to June 1996 and $4 million the year after. By coinci-
dence, I worked next door to the company during this time.
They sublet space to the small newsletter company at which
I worked. I can tell you first hand that it was anything but a
smooth transition. The companys network was a hastily
constructed mess, held together by the computing equivalent
of Perkins Paste. They didnt have enough modems leading
to frustration among customers who couldnt get online. Their
telephone support was so bad that people used to come in and
sit in their foyer until someone dealt with them. Yet they con-
tinued to expand rapidly, helped in part by the fact that every
Internet provider in town was suffering under the weight
of the same unexpected surge in demand. They were even
winning a majority of the corporate business around Sydney,
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snapping up clients before the behemoth Telstra could work
out how to sell Internet time. Indeed, the first Sydney Morning
Herald website was hosted at Magna Data. And every week
new staff were added to the point where they quickly began to
burst out of their Castlereagh Street offices.
One of the reasons they emerged from this chaos as profitable
and with full control of their company was their policy of
charging three months in advance for all services. This gave
them the cash flow they needed to cover the growth in staff
and the network. And they didnt try to be the ideal provider
for everyone, preferring profitability over perfection. Ashton
concedes that the company took the approach of keeping 80 per
cent of customers happy rather than going broke trying to get
100 per cent customer satisfaction.
Dont build a city if you only need a country town, he
says, adding that they preferred to scramble to meet customer
demand than try to second guess the nascent market and
potentially get it wrong.
The other reason was the management team. The four
founders of the company all played important roles. Carruthers
led the companys technical, marketing and regulatory rela-
tions. The latter role was crucial in the late 1990s as the Internet
gradually passed from academic to commercial hands in a series
of steps, any of which could have proved fatal to Magna Data.
He has since left the company, working as an investor and
business development adviser with Internet startups such as
NetPort Hospitality Systems (now inter-touch). Cramer-Roberts
was the corporate salesman and is today major account services
manager at Davnet, the listed telecommunications company
that bought Magna Data in February 1999. Stewart was also in
sales, marketing and general business development. As above,
he went on to become an investment mediator at Tinshed after
a stint at Intel in Hong Kong.
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However, it is Ashton, who studied physics and mathematics
at the University of Sydney and has a Masters in Commerce
from the University of New South Wales, and Carruthers, who
studied marketing, that people credit most with making Magna
Data a successful business.
Ashtons drive and discipline helped carry the company
through its early years and saw him emerge at age 28 as chief
executive of Davnet Australia, with eight million shares in the
company. When Magna Data started, Ashton knew he still had
a lot to learn about business. Without much family money to
fall back on he also had to earn a living and took a job within
the operations and finance division of the Sydney printing
company Diamond Press. While printing was a long way from
telecommunications, he learned a lot about the basics of busi-
ness from managing director John Spira and Michael Skettos,
the companys chief financial officer. Other helpful figures
were Ashtons father, a computer industry business figure, and
Stewarts father who was also an executive.
After a full day at Diamond Press, Ashton would go in to
Magna Data in the evenings and join Carruthers until the early
hours of the morning. He kept this up for two years, often
working sixteen to eighteen hour days, six or even seven days
a week. Ashton left Diamond after it became clear that Magna
Data needed the other half of his sixteen hour day as well.
We used to work insane hours, says Carruthers. Through
to the early hours of the morning every night of the week. We
never thought of it as working hard though, we were just so
enthusiastic about what we were doing.
We were always very tight with cash, Ashton says, adding
that despite what his former partner Stewart might say, things
arent so different now. Hard work is still a substitute for
lots of money. I know lots of very successful guys building
businesses without VC in the Internet.
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Carruthers maintains a lower public profile than Ashton but
commands a lot of respect within the Internet industry as an
entrepreneur and technological innovator. Given that he took
his $4 million almost entirely in cash and has since actively
reinvested it in other new high-tech ventures such as inter-
touch, he may well be the wealthiest, post-Internet crash, of the
companys founders. Prior to the companys sale to Davnet,
Carruthers was also very much the public face of the company.
He concedes that Magna Datas support was overloaded in the
early years but points out that the company broke a lot of new
In our very early years, Magna was always the innovator in the
marketplace. [OzEmail founder] Sean Howard used to ring me up
and ask things like how we were charging for web space for our
dial-up customers. We would put a price of $750 per month on
unlimited ISDN, and a month later half a dozen others would
release exactly the same pricing . . . Often customers would use
Magna because you just couldnt buy the same product
OzEmail had raised $50 million on the NASDAQ and was
showing just how quickly you can build a company with large
amounts of capital. While OzEmail was eventually sold for
much more money than Magna Data, it never recorded a full
year profit. Magna Data on the other hand was always profit-
able and secured the lions share of corporate customers
through focus, corporate demeanour and the very early intro-
duction of services such as HDSL (high-speed digital subscriber
line)a service that allows big companies to get 12 megabit-
per-second links to the Internet over normal copper phone
lines at a fraction of the prices they would have paid Telstra.
Today Davnet is still outfoxing the giants but the stakes have
risen to much faster gigabit per second systems.
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Magna Data also had a sense of mission that was shared by
the companys young and idealistic founders. They wanted to
make a differencea common factor among many startups that
set off blindly into their chosen areas of a new economy. They
enjoyed running rings around Telstra. Indeed, their office was
directly across the road from the incumbent carrier and they
used to illegally park their cars on Telstras footpath down-
stairs as a sort of convenient taunt.
By the time Davnet paid $16 million in cash and shares for
the company, making each founder a millionaire four times
over before their 30th birthdays, Carruthers and Stewart had
already left. Both took more cash than shares in Davnet, then
a listed but largely unknown player from Melbourne. Cramer-
Roberts was still within Magna Data but also took more cash
than shares. Ashton was the most committed to the company
or the last one standing after a period of tension between the
four founders, depending how you see itand a believer in
Davnet CEO Stephen Moignard who had started the company
in 1997 with $130,000 from his father.
Ashton took eight
million shares in Davnet, then worth about 30 cents each, and
a small amount of cash. This was the move that made him a dot-
com poster boy as Davnet shares climbed as high as $5.90 in the
following year. The most significant was the November 1999
move by Japanese carrier NTT, the worlds biggest telephone
company, to buy just under half of Davnet Telecommunica-
tions for a staggering $119 million.
Philosophically, we would never have sold to Telstra, says
Ashton. If we were going to merge, it was going to have to be
someone small.
Magna Datas decision to merge with Davnet followed a
period of rapid consolidation and increased competition in
the Internet business. The game was now fully commercial
and the giants AAPT, Optus and Telstra had finally worked out
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how to package and sell the slippery and technically compli-
cated commodity of Internet access. Ashton believes that
Magna Data, with its large and established base of corporate
customers, could have held out longer and been bought
for more. OzEmail, for instance, was looking down the same
barrel but waited until December 1999 before selling for
$520 million. However, he says that he and Cramer-Roberts
liked where Davnet was going. The company was also small
enough for them to maintain leading roles.
About that Ferrari. Ashton is unapologetic and says he has
always liked powerful cars. His first car was a 4.1-litre V6 that
he got for $150. Next was a $2,000 V8. At Diamond Press, he
talked them into giving him a new, 5-speed V8 Commodore as
a work car. Testament to the hours he used to work, this dark-
blue Brockmobile was stolen from Telstras footpath at 5 a.m.
one morningAshton had been in the office all night.
Now he drives a Ferrari 360 Mondeo because he can. Id
always been passionate about cars. I just couldnt afford fast
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[Evan Thornley] hasnt just done a professional job.
Its been gutsy. Hes a great role model for what can
be done and how to do it.
ne company that accepted the rules of the
American VC game and won was LookSmart.
Tracey Ellery, co-founder of the Internet directory company,
will admit that her experience with VC hasnt always been a
barrel of laughs. However, it has helped make Ellery and her
husband multi-millionaires.
The idea of LookSmart was hatched in an apartment in New
York City in 1995. Ellery was laid up in bed, pregnant with
twins Max and Ruby. Thornley was working in the new media
division of McKinsey & Co.s New York office. In another
example of domain experience leading to venture success,
Thornley specialised in advising clients about online adver-
tising. Ellery, who had previously managed a small computer
retail chain in Australia and edited a magazine on student
finance, was spending her days surfing the World Wide Web.
Leaning back on the pillows, she realised that people were
going to need a lot of help when it came to navigating the mass
of material on the network.
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Our business model is actually quite simplewe have
developed the worlds premier Internet directory and use it to
provide outsourced search solutions, Thornley says in manage-
ment consultant-speak in the companys 1999 annual report.
While Yahoo! and other online directory and search com-
panies were already operating, Ellery and Thornley believed
that such automated systems were only so useful. To make
directories truly valuable to users, they reasoned, someone
would have to go out and look at websites then organise and rate
them. They also figured that once theyd gone to all the effort
of having their own webrarians review and categorise sites,
they would have a proprietary database of information that
would differentiate them from their competitors. They could
then also license the content contained within the database to
other Internet companies, placing them in the information
syndication business. Akin to Yahoo!, LookSmart also took the
approach of organising its directory according to categories
such as sport rather than centring it on keywords like soccer.
Beyond helping users, this was designed to maximise potential
electronic commerce revenue. Another benefit of manually
organising sites was that LookSmart could exclude some sites,
such as pornographic ones, from its directory. This made it
the first family-friendly Internet directory. The company also
targeted its directory to people aged over 30.
Despite being just about to become parents, Ellery and
Thornley were looking to get into a venture of their own
after having travelled from Australia to Malaysia and now the
US for McKinsey. In October 1995, the pair returned to
Australia and founded HomeBase Directories Pty Ltd. Seeing
that they were on the right track but under resourced and a
long way from the main game, they did a deal with one of
Thornleys former clients, Readers Digest Association. Readers
bought 85 per cent of HomeBase in July 1996 through a new
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Delaware-based company, NetGet Ltd. This was later renamed
LookSmart Ltd in the same year. All this time, Ellery and
Thornley had editors, located mainly in Melbourne, churning
out website reviews using seed money from Readers.
In July 1997, LookSmart moved its headquarters to San
Francisco but its relationship with Readers was souring. Ellery
and Thornley were concerned that the directory was not a
priority for the larger company and felt hampered by its
bureaucracy. In October 1997, they convinced Readers to
allow them to buy back its 85 per cent of the company in
exchange for warrants to buy nine million LookSmart shares,
or 10.5 per cent, and a US$1.5 million promissory notea
form of IOU.
While they were lucky to get out on these terms they found
themselves as the major shareholders in a company that was
losing money fast. Ellery says that they could very easily have
gone bankrupt at this stage. The company had almost 50 people
and 350,000 hits a day on its website but was selling only
US$120,000 per month worth of advertising. Its burn rate, or
loss per month, was running at about US$300,000.
The pair
temporarily moved back to Australia in late 1997 with a lot
of personal debt and potentially large tax liabilities caused by
the change in country. With their credit cards at the limit and
staff cutting them slack on wages, Thornley set out to raise
venture capital. Paul Riley, the partner at Sydney venture
firm Australian Mezzanine Investments (AMI) that saved
LookSmart, says that when he first met Thornley the company
was about two weeks from failing to meet payroll. In a snap
decision, AMI chose to invest US$1.5 million through its
AMWIN fund, a joint venture with the US fund Walden Inter-
national and a recipient of money under the governments
Innovation Investment Fund scheme.
The money was finally committed in March 1998 and
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bought AMWIN 15 per cent of LookSmart. Just two months
later, US cable company Cox Communications invested an
additional US$6 million under a deal that valued LookSmart at
US$15 million. A crucial booster around this time was a
September 1998 licensing deal with Microsoft under which
the company would provide its directory information to the
software giant for US$80 million over five years. According to
George Foster at Stanford, the Microsoft deal was critical:
The really big one was Microsoft . . . Evan had to go up
[to Redmond] and negotiate with people who had been
with Microsoft for fifteen years and they were tough
negotiators, but Evan stood up and was a brilliant negotiator
on that.
But the way I look at it, you had the expertise and the
enthusiasm of Evan but you also had on the other side a group
with fifteen years experience on this space. It was a team, the
putting together of not just one corporation but a partnership.
It was the combination of the two that generated LookSmarts
turbo entry into a different stratosphere.
There was also the companys potentially disastrous decision
in May 1998 to spend the entire US$6 million that it had raised
from Cox on a marketing deal with Netscape. Netscape makes
the Navigator web browser that was then used by a majority
of Internet users. For this reason, its home page was one of the
most hit sites on the Internet and Netscape had been charging
multi-million dollar fees for companies to advertise their
products and services. For its US$6 million, LookSmart would
be featured as a leading search engine on the site, raising it to
the upper echelons of the global Internet industry. Foster
believes that this deal was among those that made LookSmart.
He also says that it illustrated Thornleys speed, flexibility and
powers of persuasion.
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Evan got six million on a US$15 million valuation and that was
all supposed to be for rollout, supposed to be for coders and all
this sort of stuff on the database, and very shortly Evan just
went straight back there and said, By the way, I want to use it
all to buy the Netscape positioning. Cox was a very sizeable,
established media company at that stage and the Cox people just
said, Yeah, do it.
If Evan couldnt have got the six million to go on to Netscape
he would have had much more difficulty in getting traction.
These deals also made it apparent to savvy investors that
LookSmart could be floated and added to its fundraising
momentum. Yahoo!s success on NASDAQ was also reassuring.
Australians that put up money included Australias Macquarie
Bank and Kerry Packers private company Consolidated Press
Holdings. LookSmart also split off about 15 per cent of the
companys shares for staff to ensure that the whole team re-
mained squarely focused on capital growth in the lead up to the
companys now famous NASDAQ float in August 1999. With
just four years of hard work and a total of about US$70 million
in venture capital behind it, LookSmart was taken to mar-
ket at a valuation of US$1.46 billion, raising net proceeds of
US$96.9 million to fund its future growth.
At the time of the IPO, Tracey and Evan owned 21 per
cent of LookSmart or eighteen million shares, worth about
US$290 million. Within two months, the shares had risen more
than 100 per cent and seen the pairs paper wealth brush the
$A1 billion mark. AMWIN, which by the time of the float had
invested a total of $5.4 million, was sitting on a profit of around
$280 million. The return was also a win for the Australian
Federal Government that had put money into AMWIN through
its Innovation Investment Fund scheme that enabled the VC
fund to take the risky, snap decision to invest in LookSmart.
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Beyond the trials of raising moneywhich became Thorn-
leys full-time job from 1997 to 1999 while Ellery, as company
president, oversaw its operationsthe company has also had
plenty of growing pains. Some of the companys US staff be-
came so disaffected with what they described as an oppressive
and uncaring environment at the San Francisco headquarters
that they created a LookSmart survivors discussion group,
dubbed LookStupid. It makes sense that writing website
reviews could be oppressively dull, but Ellery comments that
a challenge of doing business in the US as an Australian has
been that American employees are highly sensitive to criticism.
No doubt there has been some rough and tumble as the com-
pany lurched from financing round to financing round, but its
hard to tell whether LookSmart has unfairly exploited staff or
if its Aussie management simply lacked tact.
In the same way that travel photos fail to convey the height
of a mountain range, its hard to describe in words the scale of
what Ellery and Thornley have achieved. And how quickly.
I remember watching Evan Thornley speak at the Australian
Financial Reviews Internet Awards in Sydney in late 1998. The
company had won a prize and Thornley got up to accept. No
one knew much about the company except that it was run by
Australians and presumed to take on the likes of Yahoo!. It
seemed destined to fail and become yet another example, like
Sabela Media and data networking equipment manufacturer
JNA Telecommunications, of Australian innovation being extin-
guished by American capital. When Thornley announced that
the company was going extremely well and would make its
investors richer than God it sounded like so much hot air.
LookSmart took on the elite of the global Internet industry
and emerged as one of the major players. It has also established
one of the few global Internet brands to come out of Australia.
Beyond the wealthwhich was dwarfed by about a factor of
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ten by the amount made by the founders of Yahoo!the site
has become one of the most popular in the world. LookSmart
also has alliances with the likes of Sony and Time Warner and
has begun building web directories in 30 countries.
By mid-2000 LookSmart was on track to take in annual
revenue of more than US$100 million and was gradually reining
in losses that continued to run at about US$30 million a year.
Asked if their life had changed with all the money, Ellery said
no. Its so unreal for us, she said, adding that about all theyd
done was buy a cara Jaguar, mind youand had started
flying their friends and family to the US for get-togethers. She
also took as much delight in watching the companys staff buy
houses as feathering their own nest. I really think that we
derive an enormous joy and pride from building a great com-
pany. Doing whats almost impossible and continuing to grow
LookSmart watchers will know that the companys stock fell
under pressure in late 2000, dropping to under US$10 per share
on NASDAQ. So have Ellery and Thornley lost the money they
once had on paper? Yes, but not entirely. In a practice that is
more accepted in Silicon Valley than other parts of the world
(where people think it shows a lack of faith), they have been
gradually selling their shares in their company since it floated.
In September 2000, for instance, Thornley sold 380,000 shares,
or about 4 per cent of his own stake in LookSmart, at an average
price of US$16.83, walking away with US$6.4 million in cash.
LookSmart will also help make us a little richer over time.
The success of Thornley and Ellery in Silicon Valley has helped
raise the reputation of all Australian business people both
there and around the world. LookSmart is also a genuine next-
generation business, one that couldnt have existed before
the Internet and the sort of company that our kids will take
for granted. Behind the scenes there is also a small army of
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potential entrepreneurs at work. Indeed, some have already
left LookSmart and a few have even received direct backing
by Thornley, who is now recycling his wealth and experience
as an angel investor. As above, success breeds success and
LookSmarts achievement can be expected to pay subtle divi-
dends for years to come.
However there is also a lesson in the LookSmart story. The
company is a winner but nowhere near as successful as Yahoo!
and the key reason for this is that LookSmart was starved of
capital in its early days after its founders retreated from
San Francisco to Melbourne. Yahoo!, on the other hand, was
fast-tracked through the cream of American venture capital a
couple of years before LookSmart, giving it a head start that
LookSmart could never hope to match. If we are to help create
future Yahoo!s, Australia needs a much more sophisticated
venture capital industry and risk-oriented business culture.
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odney Adler is probably right when he says
that there are a lot of people that grow up in
wealthy families but never win the support of business people
like James Packer and Lachlan Murdoch. But then again, there
are those who do, like John David (Jodee) Rich.
Dollars aside, the One.Tel story is also one about building
a great business, extraordinary ambition and, one suspects,
a certain amount of revenge on the Australian business com-
munity. It starts in 1991 when Rich sold the remains of Imag-
ineering, the computer distribution business he founded in
the 1980s, to Hong Kongs First Pacific. Imagineering lost
$35.4 million in the sixteen months to December 1989 and
another $11.57 million in the six months to 30 June 1990.
companys shares, which had once climbed to around $8, were
worth only about 10 cents when the company was taken
over by Hong Kong group First Pacific in 1991. However, the
company had briefly catapulted Rich into the BRW Rich List
and, as Rodney Adler points out, even though it was sold off
at fire-sale prices, Imagineering never collapsed. Indeed, the
company lives on today in the form of Tech Pacific Australia,
a large and successful operation that still distributes high-tech
products and services in Australia.
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With his business reputation in tatters, but still worth a
couple of million dollars, Rich spent a few years skiing, learning
to fly and studying molecular biology and nanotechnology. He
also did an executive program at Wharton business school in
the US and started a family with his wife Maxine.
That might
sound like fun, but it was a harrowing period for the former
high-flyer. Most galling was a continuing stream of humili-
ating media reports, the worst of which suggested that Rich had
disappointed his father. Even today, he still has enemies in the
business community from his Imagineering days.
In 1995 Rich re-entered Australian business life with a plan
for a new telecommunications company that would resell
mobile phone services provided by Optus, operator of the
countrys second largest digital (GSM) mobile phone network.
Optus had decided to appoint five resellers and invited
companies to pitch for the positions. While others such as
Hutchison Telecoms, now called Orange, said they would target
big-spending business people and others showing an early
interest in mobiles, such as trades people, Rich proposed to
target run-of-the-mill consumerscustomers Optus thought
couldnt be serviced profitably. Rodney Adler, who supported
the development of One.Tel and became a foundation investor
in the company, says:
The original plan for One.Tel was to go to Optus and say, Look
below a certain level its not economic . . . for you to have those
customers because youre so large, youve got certain overheads.
Youre missing a large segment of the market because its not
productive for you. We at One.Tel would like to be your eyes
and ears at the bottom end of the market. Let us be your people
down there. Let us accumulate the market that isnt profitable
for you because we believe we can make it profitable because
our overheads will be very, very low.
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The first Optus knew about Richs plan was when chief
executive Bob Mansfield got a call out of the blue from Rich.
The call was passed on to John Greaves, then Optus finance
director, whose first thought when he and Jodee met was that
he had silly hair. It was sort of up over his ears, pointing up
like little blond pixies.
(If you look at One.Tels mascot, which
was drawn by one of Richs relations, you realise that the Dude
is almost certainly Jodee.) Greaves didnt buy the business
plan, either.
Rich went back to the drawing board for a few months
and, in an example of how high-placed friends can be useful,
spent two or three months developing his proposal in con-
sultation with one of Adlers business analysts from FAI.
According to Adler, FAI then agreed to invest $1.5 million to
buy 20 per cent of the company. Optus also came to the party,
buying 30 per cent. Rich received around 25 per cent of the
stock for having the idea and bought another 20 per cent by
putting in $1.5 million of his own money. Richs former
associate at Imagineering and now joint managing director of
One.Tel, Brad Keeling, was given about a third of Richs shares.
James Packer completed the picture a few months later, buying
5 per cent for the now higher price of several million dollars.
Without the cost of building a phone network, the company
was cash flow positive from the day it started trading in May
1995 and quickly repaid its debts, Adler says.
Asked why he gave Rich a chance at a time when the
rest of corporate Australia was still shunning him, Mansfield
I knew Jodeedidnt know him welland observed the
Imagineering exercise. He didnt enjoy that, nobody enjoyed
that, but he had the guts to get up and go again and what hes
done with One.Tel youve got to say has been gutsy.
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Jodee marched into my office when I was running Optus and
said, Ive got this idea for a different form of distribution for
mobile phones . . . It was a novel idea. We were looking at how
to get into the breadth of the market and he came up with that
low-cost, youth-directed appeal. Its been successful.
I judge people based on where they are today and tomorrow.
You dont disregard what happened yesterday but hell, Jodee
was young enough to get up and go again and he had a good
idea . . . I think its unusual to be as determined and focused to
come back and have another go like Jodee did. We dont all
succeed at everything all the time.
At the time, no one had any idea that Mansfields nod would
set Rich on the path to becoming a billionaire. He would have
been a brave man if he thought he was going to be a billion-
aire from that meeting because I certainly didnt think it would
be that way, Mansfield says today. One unexpected factor
was that from 1995 to 2000 the mobile phone market grew
almost four times more quickly than anyone expected. This was
lucky for One.Tel which rode the wave and was reselling
Optus network services to 285,000 mobile customers by late
2000 and had another 57,000 subscribers on a new GSM
network of its own. Adler believes this was the only thing
One.Tel did right.
When everyone was buying cable and building cable, we built
customers. Now, we believe that the key to success is owning
customers. We have over 1.1 million customers today. We believe
that we can rent cable whenever we want it. We believe that the
gift is to keep and grow customers. We have a four billion
[dollar] market capitalisation because we have customers.
Worldwide, One.Tel has gained more than two million cus-
tomers, 1.2 million of whom are located in Europe and about
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70 per cent of whom use the companys cheap long distance
phone services. We are the only Australian brand, other than
Fosters, you recognise when you get off the plane in London,
Keeling has said.
This was amusingly reinforced in late 2000
when Londons Financial Times incorrectly ran a photo of
Telstra chief executive Ziggy Switkowski, describing him in
the caption as the head of One.Tel, the telecommunications
company that Brits now most readily associate with Australia.
One.Tel achieved this rapid growth in Europe through a
massive consumer marketing blitz, made possible through the
backing of News Corporation which owns Englands largest
tabloid newspaper, the Sun, and many other media assets in
News Corporation became an investor in One.Tel in February
1999, promising half of $700 million alongside Packers Pub-
lishing & Broadcasting Limited. The money had been supplied
in cash and kind (advertising) but One.Tel still unveiled a
stunning loss of $291 million on revenue of $653 million for the
year to mid 2000. Announcement of the loss coincided with
revelations that One.Tel had paid Rich and Keeling $7.5 million
each in the same financial year. The massive cash payouts were
partly the result of their success in raising One.Tels market
capitalisation from $5 million to $4 billion in four years but
that didnt help its shares. Investors dumped One.Tel stock,
driving its share price as low as 55 cents and its market value
to around $1.5 billion. The slump also brought Rich back from
the billionaire club, reducing the value of his holdings to
around $200 million.
As chairman of Telstra, Mansfield finds it awkward to talk
too positively about rival One.Tel, but he tips his cap to Keeling
and Rich, saying that its important for more Australian com-
panies to succeed offshore.
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To take a company that even here Id say is amongst the
speculative category and to jump into a market that is thousands
of miles awaydifferent culture, different countriesand
succeed across the whole spread of that challenge is no mean
feat. Its taken Rupert Murdoch 40 years to do it. But it would
be great if more Australian companies could do it.
But how did they do it? There are two key events that have
made One.Tel what it is today. The first was winning the right
to resell Optus mobile phone services in Australia and focus on
obtaining customers. The second was the companys decision
to spend $9.5 million to buy some leftover blocks of wireless
communications spectrum in Australia in September 1998. This
enabled it to start creating the above mentioned GSM network
on its own and enter into direct competition with the nations
existing GSM network operators: Optus, Telstra and Vodafone.
While contradictory to the companys oft-stated preference for
owning customers rather than infrastructure, the move was
expected to deliver higher profit margins and give One.Tel
more freedom to introduce innovative services. The other point
was the spectrum was dirt cheap and gave an opportunistic
One.Tel an asset against which it could borrow further money
to fund its international expansion. In particular, US giant
Lucent Technologies gave One.Tel a billion-dollar line of credit,
enabling it to build networks now but pay for them later. In
retrospect, it seems like an obvious move. But at the time, the
company ran a very real risk of destroying its relationship
with Optus. Even worse, Adler says, it just didnt have the
Jodee and I went around the market desperate for $10 million.
Im talking desperate. This is straight after the spectrum
auction. We bought the spectrum and we had to pay for it.
People forget. We were desperate. Only because James Packer in
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his own personal right and David Lowy for the Westfield funds
put in $5 million each and only because Jodee and I stood
behind that money and gave them our assurances as individuals,
friends, that we managed to raise that $10 million. Thats like
two years ago when the market cap of the company was
$400 million and everyone thought we were lepers.
Deciding to buy the spectrum was also an agonising process.
Jodee and I and Brad Keeling and James were sitting up in
the FAI boardroom and it really boiled down to this: we were
all undecided whether we should buy it. We didnt have
$9.5 million. James had it, I had it, but One.Tel didnt. We
debated the whole philosophy of changing from being a service
provider and actually competing with our main company, being
Optus. We lived and died on our service agreement. Without
them we were nothing. They could change the access fee here
and there and wed be dead. Everyone agreed to do it but the
risk was this: the key to success if we bought that spectrum,
sure, in the radius of where we bought that spectrum wed have
a good system but what about the rest of Australia? Could we
enter into roaming arrangement agreements with the others?
My view was very clearly that the ACCC would insist that all
the others sign the roaming arrangement with us. Because were
an Australian company and thats the whole definition of
competition. The argument against me was, Why the fuck
would they do it?
Roaming was the key. If mandated by the Australian Com-
petition and Consumer Commission (ACCC), it meant that
Optus, Telstra and Vodafone would be forced to allow One.Tels
customers to use their networks for a reasonable fee. This
meant that even though One.Tel had only bought patches of
communications spectrum in some capital cities, it offered a
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national service from day one. Subscribers wouldnt realise,
but when they left One.Tels direct coverage area, their calls
would be carried by another phone company. In the end,
the ACCC did mandate roaming but the decision could have
gone either way. The existing players had a strong argument
that it would undermine their incentive to invest in future
network infrastructure and degrade the quality of tele-
communications for all Australians. If the ACCC hadnt stuck
to its guns and resisted the lobbying might of Telstra and the
others, One.Tels spectrum investment would have been a write
off. Adler says:
If we were successful then that $9.5 million would have turned
into hundreds and hundreds of millions of value. If we were
unsuccessful then we would have actually wasted nine and a
half million dollars.
A related factor that went One.Tels way was that in 1999 and
2000, wireless spectrum became one of the hottest commodities
on earth. At the height of the global boom in Internet and tele-
communications shares, licences to the same sort of spectrum
sold for more than A$100 billion in the UK and Germany alone.
Just a few months later, a similar auction in Italy for comparable
frequencies netted only half the amount.
However, the increase in the value of spectrum also cost
One.Tel dearly when it sought to augment the $9.5 million
worth of capacity. For all its bravado, the company had only
secured 2.5 megahertz (MHz) of spectrum in most cities but,
according to the Australian Financial Review, needed up to
10MHz in each place to run its wireless networks. By the end
of this second auction in March 2000 it had paid 55 times its
original investment, or $523 million, for licences to 12.5MHz
of spectrum in Sydney and Melbourne and 10MHz in Adelaide,
Brisbane and Perth. The high price was met almost entirely by
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News Corporation and due in large part to aggressive competi-
tion from another carrier, Hutchison Telecoms. The Australian
Financial Review went on to suggest that One.Tel had become
a casualty in a global turf war between the Murdochs at News
and the Li family of Hong Kong, owner of Hutchison Telecoms.
Most reports about One.Tel focus on the big, often frighten-
ing, numbers. But big deals will only get you so far. There are
many other factors that have made One.Tel a real and fast
growing business. The first is Keeling and Richs management
style. The pair were previously together at Imagineering and
work extremely well together. While interchangeable, they
also complement each other. Rich focuses more on high-level
strategy while Keeling is known more for his operating and
marketing expertise. In 2000, for instance, Rich moved to
Europe to continue the companys expansion there while Keel-
ing took over day-to-day management in Australia. Although
both are into yoga and are slightly new age, Rich dreamed up
the idea for One.Tel and remains the companys visionary, while
Keeling has been more focused on the nuts and bolts of making
it a business. Both John Greaves, the companys chairman, and
Rodney Adler say that Keeling is the more cunning of the two.
According to Adler:
I would classify Jodee as the most reluctant billionaire youll
ever meet. He didnt start this business to be a billionaire, he
started this business because he thought it would be a cool
thing to do and he thought it was going to be profitable. In
his wildest dreams, he never thought he was going to be a
billionaire on this company, so soon, so fast. Whereas Brad
Keeling is very different. Brad Keeling wants to be a billionaire,
knows he will be a billionaire and will be a billionaire.
Rich and Keelings closeness has been cloned across the com-
pany in the form of a unique buddy system. Like scuba divers,
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everyone in One.Tel is buddied to another person that could
do their job if required. This is a central element in One.Tels
team-oriented culture. It also means that business can continue
when a person is sick or resigns, which is a major issue with a
large, young and transient staff doing mainly call centre and
sales work. In telecommunications, itd be seen as building a
system with no single point of failure.
Another thing you notice about One.Tel is its open-plan,
colourful offices. Large cut-outs of The Dude mascot and hand-
painted signs adorn every corner. There are also very few
meeting rooms. Instead, staff meet on a loose collection of office
chairs behind palm trees located at one end of each floor. There
are no meeting tables. Even Rich and Keeling dont have offices,
preferring instead to work at two massive antique desks that
look back over one floor of their building. They dont make
exceptions for important visitors either. The day that Lachlan
Murdoch and James Packer met at One.Tel to announce their
joint investment in the company, they were to be found sitting
around Richs desk on standard chairs, not cooped up in a
private conference room. In other words, it couldnt be further
from Optus and Telstra.
A book that has influenced One.Tels management approach
is Ricardo Semlers Maverick.
This inspiring volume, recom-
mended to me by John Greaves, talks about Semlers company
Semco, a Brazilian industrial group that has introduced many
industrial innovations such as allowing factory workers to
organise their own shop floors, paint walls and even decide
their own pay packets.
Its not all laissez-faire at One.Tel though. For instance, and
ironically, you wont hear the sound of ringing phones at the
company. Rich hates it and, in addition to banning staff from
having their mobiles on in the office, has mandated that all
office phones be answered within two rings or automatically
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switched to voicemail. One.Tel is also a heavy user of voicemail,
even using it as a cheap but effective way to broadcast company
The company has also built its own customer management
system, designed from day one to enable it to treat its mobile,
long distance and Internet access subscribers as single cus-
tomers. It is also key to the companys ability to chase up bad
debtors quickly and, despite the warm and fuzzy decor, comes
with a sophisticated system for tracking staff performance.
No longer is [the telecommunication] industry dominated
by ex-Baby Bell executives, Rich once laughed in an interview,
taking a swipe at then Telstra chief executive Frank Blount
and AAPT CEO Larry Williams. Its a dudes world!
If LookSmart was about poor people using venture capital
to get rich, then the One.Tel story is about rich people using
each others moneyventure capital and later public money
to get even richer. By late 2000, the company had raised
$1.25 billion from the Murdochs, Packers and other investors.
It remains to be seen whether this massive injection of capital
leads to the creation of Australias first global telecommunica-
tions player. The alternative is that One.Tel has bitten off more
than it can chew and ends up crippled by a weak balance
sheet. By late 2000, the company was failing to win capacity
at the European spectrum auctions. It was also sending out
confusing messages to analysts and media about its intentions
towards its Australian network and plans to team up with
Spanish carrier Telefonica. There was a feeling that One.Tel was
up on a high wire and that its safety netthe abundance of
cheap capital for telecommunications companieswas shrink-
ing fast.
Whatever happens at One.Tel, at least Keeling and Rich
are giving it a go. Even if the company were to be broken
up and its customers sold offwhich is what the market is
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expectingit has innovated, provided thousands of jobs,
delivered cheaper telecommunications services to millions of
people, and taught a lot of Australian professionals within the
company about doing business at an elite level.
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Once we define ourselves in terms of others, we lose
the freedom to shape our own lives.
f someone offered you and your brother a couple
of hundred million dollars in cold hard cash would
you turn it down? Think about it. Enough money to never
work again. Enough money for your children to never work
again. Or their children for that matter. Aidan and David
Tudehope did.
Crackpots, right? Perhaps.
Macquarie sells telecommunications services to big busi-
nesses in Australia. It was the third major provider in the
telecommunications market after deregulation began in 1991.
The company set up shop before Optus but after AAPT (now
owned by Telecom New Zealand). At the time of writing its
turnover was around $200 million a year and had a market
capitalisation on the Australian Stock Exchange of about
$400 million. That was a drop in the ocean next to market
leader Telstra, with revenues approaching $20 billion and a
market capitalisation of about $50 billion. But it wasnt bad
for an eight-year-old company built by a couple of twenty-
somethingscertainly good enough for large, foreign tele-
Where's the Loot TEXT PAGES 4/6/01 1:40 PM Page 130
communications companies to be interested in buying.
What the Tudehope brothers had built only became clear in
1999 when the company floated on the Australian Stock
Exchange. Prior to then, it was highly secretive. With a focus
on corporate clients, there was no need for it to go out and
advertise on the sides of buses. In 19992000, its $200 million
in revenue was sourced from only 1,300 customers. Indeed, I
was the first journalist to interview David Tudehope for a major
paper. In May 1998, I was called in to meet a young guy in
second-class offices on Bligh Street in Sydney. In a small,
windowless conference room with cheap grey office furniture,
he told me that Macquarie was, next to Telstra, Australias most
profitable provider of telecommunications services to corporate
customers. He also said that it was doubling in revenue every
year and had almost 100 staff.
Having got used to the plush offices at the other major
corporate providers, AAPT and Optus, all this seemed a little
hard to believe. But when Macquarie released its financials
with its prospectus, it showed a history of strong, steady
growth. As a service provider, Macquarie resold services from
other carriers rather than owning its own networks. Its core
business proposition was that it could add enough value in the
form of better billing information and customer service to
attract big customers away from the carriers that did have their
own networks. It also meant that it did not have to sink millions
into building networks then wait years for a payback like
Optus, for instance.
Macquarie first became profitable in 1995, recording sales of
$4 million in that year. By 1997 it had revenue of $51.1 million
and a post-tax profit of $2.7 million. In 19992000, it achieved
sales of $194 million and delivered a post-tax, operating profit
of $9 million.
However, the most surprising piece of information in the
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companys prospectus was that through their private company
Claiward, Aidan and David basically owned the entire com-
pany. The reason for this unusual situation was that, until the
float in 1999, they had never sold a share of the company to
gain venture capital. Instead theyd grown by reinvesting their
profits and operating as leanly as possible.
Macquarie, of all the telecommunications companies, started
the most frugally and today has a culture which is very cost-
conscious, which is a good thing in any business, says David
Tudehope, pointing out that the boardroom table were seated
at was bought from a client that went into receivership.
also has a grubby 15-inch monitor for the computer on his
desk, one of many second-hand machines that the company has
According to David, the brothers started Macquarie with the
savings of normal individuals. In a short time, every dollar
they owned was in the business and they quickly learned to
redefine what it meant to have no money. They also learned
how to run the new business on the smell of an oily rag by
keeping its infrastructure light. However, David says that he
and Aidan never faced financial ruin because they retained an
ability to trim their expenses to near zero when necessary.
Under the initial public offer, Claiward lined up to sell
25 million shares to the public and institutions at $1.80 each.
Macquarie would also issue 50 million new shares, diluting
Claiwards holding in the company down to around 60 per cent
to raise a total of $135 million.
For those that arent lawyers or stockbrokers, this means
that David and Aidan pocketed a tidy $50 million in cash to go
and spend on things like holidays and car stereos. The brothers
also retained about 60 per cent of the company, worth about
$240 million at the time of listing and leaving them firmly in
control of its day-to-day management. In March 2000, the
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companys shares went as high as $3.25, valuing the brothers
shareholding at almost $400 million and easily winning them
places on Business Review Weeklys list of Australias richest
200 people.
But how did they get there?
Like David Perry at Chemdex.com, the Tudehopes had a
unique insight into the industry and, just as importantly,
the guts to do something about it. In 1990, David worked
for Westpacs merchant banking division, Partnership Pacific
Ltd (PPL). At 25 he was part of the team advising the Kalori
Consortium, the group that was competing with Optus for
the government licence to become Australias second tele-
communications carrier. David stresses that it was a minor
advisory role but says it opened his eyes to the world of
telecommunications. Aidan joined the company at 22 after
studying at Harvard Business School. Both brothers had studied
Commerce at the University of New South Wales.
In a fortunate twist of fate, Kalori was unsuccessful, leaving
David free to enter the industry directly without encountering
conflict of interest accusations. I left PPL and could see the
opportunities in the industry but, like a lot of people in
the industry, didnt know how to make it happen, he says.
The first step was to travel to the US in 1991 to learn how
that market had been transformed since deregulation com-
menced in 1984. David found that despite his age and lack of
backers, American service providers were more than happy
to meet and tell him what they could about the industry. He
also witnessed how large companies such as MCI and other
new entrants had grown. Fired up, he returned and founded
Macquarie in 1992 with Aidan. The pair estimates that they put
less than $500,000 into the company over the first couple of
years, either up front or by not drawing full salaries. A key
early executive was Peter Muspratt, a senior banker who joined
Where's the Loot TEXT PAGES 4/6/01 1:40 PM Page 133
in 1993 after having managed Westpacs operations on the west
coast of the US.
In retrospect, it doesnt sound very courageous for David to
have left banking in favour of telecommunications. But this
was 1992. Market liberalisation had made banking hot and PPL
was a leader in the then new industry of mortgage securiti-
sation. Telecoms, on the other hand, meant Telecom and OTC.
It was a government-run utility and about as sexy as water or
electricity. There was no World Wide Web, mobile phones were
bricks and Al Gore was yet to utter the words information
superhighway. Worse still, the country was in a slump.
Its hard to imagine today, but the recession was still going
strongly. Wed watch the TV at night and hear about high levels
of unemployment, and many people said to me at the time that
leaving a secure job doing a relatively exciting thing like
securitisation wasnt the smartest move in a recession. But
sometimes you do have to move against the trend.
Most extraordinary is that Macquarie got off the ground at
all. Beyond Telstra its first two major competitors for corporate
customers were AAPT and Optus. Both had literally millions at
their disposal, flash buildings, nice brochures and large sales
staffs. Yet, like many stories in this book, Macquarie had
technical focus, innovation and hunger on their side. Among
the first and most important was its billing system that enabled
it to tell executives exactly how much they were spending on
their telecommunications, not only down to the day but also by
cost centre within their organisation. By buying Telstra and
Optus carriage services at a wholesale discount, Macquarie was
able to undercut the giants on price. It was also operating in
a green field, meaning that there were plenty of customers to
win and no one had fixed ideas about servicepretty much
anything was better than Telstra.
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Even so, the early days for the company were hard yakka as
the company pushed through the deadly catch-22 of being
unable to win customers because it didnt have customers.
Having a 26-year-old chief executive and a 22-year-old chief
operating officer couldnt have helped either.
Theres no doubt that the toughest period in your business
is getting those first few customers, says David. When they
say, So, who else uses Macquarie? and you say, Nobody,
they dont go, Great, this is the option for me!
David comments that help came from places they least
expectedand not always from the people that they thought
they could rely on. While many of their contacts in the finan-
cial community and elsewhere proved reluctant to try the
young Macquarie, others that theyd only met in passing
stepped up and gave them a go. Interestingly, the recession
helped Macquarie because businesses were hurting and willing
to try anything that might reduce their telephone costs.
David notes that there was also plenty of argy-bargy for
Macquarie to muscle through as Telstra got used to the
idea of competition. Theres been some pretty disappoint-
ing activity by Telstra staff. In the early years there was some
frankly almost illegal activity by Telstra staff which I think
was part of the adjustment from a monopoly to a competitive
Macquarie never let its problems with the incumbent
destabilise its business. The most serious issues for all the new
telecommunications companies in the early days of deregu-
lation centred on billing. Telstra had never sold services on a
wholesale basis to other companies before and now encoun-
tered technical problems that led to disputes over charges.
These werent little disputes either. AAPT, for instance, is
still claiming that Telstra owes it $300 million as a result of
the problems. Other service providers went out of business
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fighting. Since it was their own money they were spending,
Macquarie kept a very tight handle on the quantity of services
it used and quickly spotted any problems with the bills it
received from Telstra. The company was in negotiations months
before any other provider, says Tudehope, and managed to
resolve the problem without having to resort to legal action.
Despite the changes in recent years, Macquarie has also paid
constant attention to its customers. David is the face of
Macquarie and its lead salesman. Despite the extra workload in
running a public company, he says he still tries to see two or
three customers every day.
Youve got to, he says. Theyre the best source of ideas.
Regarding the decision not to take venture capital, David
says that Macquarie had little choice.
The part thats hard to imagine today . . . is that there was
very little venture capital around in 91, 92, 93, 94. Also,
banks werent keen to lend to people without a proven track
record. Maybe if Id known the right individuals that might
have been different, but I didnt.
There was pressure around 1996 and 1997 to take on venture
finance in order to fund the companys growth, however David
says that by that time Macquarie had become culturally con-
ditioned to growing by reinvesting its profits. By 1998 it
became clear that Macquarie would need to invest in its own
network infrastructure if it was to make the transition to data-
centric telecommunications and the Internet. It would also
need to do this to achieve higher profit margins. Needing at
least $10 million to build a new data network, Macquarie
looked both at venture capital and the increasingly hot public
market. As David says:
We looked at all the options, including venture capital, but
theres no doubt that the public became far and away the best
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option very quickly because capital markets were receptive to
telecommunications stocks like never before.
Asked whether his own age has ever proved an obstacle,
David, looking characteristically boyish but intense, says, No,
I think its the way you handle yourself and the approach you
take. If you ask for the single most important factor behind
Macquaries success, hell tell you that its the companys
people. A lot of chief executives say that but you get the feeling
that hes sincere. He also has the numbers to back it up.
Macquarie is a very tight ship and weve worked very hard to
develop a family sort of culture. Weve only ever had less than
half a dozen staff ever leave to a competitor in eight years and
most of those have been pretty junior. Our turnover of staff is
single digit percentages over the eight years.
Despite their own youth, Aidan and David have tended to
hire older staff, particularly former Telstra employees in their
thirties and forties. They spend a long time deciding on each
person and are especially shy of anyone that has seemed to
move through a lot of jobs. If you visit Macquarie, youll notice
that the result is a sober, very business-like company culture
where the word Tudehope almost seems to permeate the air.
Sitting in the foyer one day, I overheard one receptionist say to
another, Make sure you remember to lock the drawer [to the
reception desk] or else Aidan will have a fit. I dont think
youll find too many large companies where the major share-
holders not only run the show but still spend twelve hours a
day in the office and micro-manage down to drawer locks.
Theres a lot to like about the Macquarie story even though
the companys shares plummeted in 2001 after announcing
unexpected losses and other controversies. The first thing is
that you probably havent heard it before.
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Second is that they saw where the telecommunications
industry was going very early and decided to build a new
business around it. They then grew the company the hard way,
using elbow grease in the absence of outside capital. One
positive side-effect of this is that they really understand their
business. People that raise lots of money to grow their busi-
nesses tend to end up as experts in just that: raising money.
David and Aidan Tudehope, on the other hand, had no choice
but to develop a deep understanding of their customers, indus-
try regulations and technology. Finally, Macquarie appears
intent on becoming a standard bearer for Australia in the
regions telecommunications industry, recently completing its
first move offshore with an office in Singapore.
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Every strong entrepreneurial personality has an
extraordinary need for control. Living as he does in
the visionary world of the future, he needs control of
people and events in the present so that he can
concentrate on his dreams.
he biggest challenge when operating in high
growth, capital-fuelled and changeable environ-
ments is keeping control of your company. For every successful
mega company like Microsoft that is still run by its founding
entrepreneurs, there are thousands of others that are controlled
by financiers, have merged with other enterprises, or simply
failed. Few, it seems, manage to ride the big waves all the way
to the beach.
Selling the majority of your company to investors is an
obvious way to lose control. However, nothing is black and
white. Sir Peter Abeles, for instance, owned only about 1 per
cent of transport conglomerate TNT but ruled the company
like a personal fiefdom. There are also many examples of com-
panies in which investors have a large or controlling stake but
rarely find themselves in conflict with founders because their
interests are aligned and there is a healthy mutual respect
Where's the Loot TEXT PAGES 4/6/01 1:40 PM Page 139
between the parties. Another good way to lose control is to
distribute so much equity or influence to partners during
alliances and other deals that you end up hamstrung by
competing interests. Worse still, you could run the whole vessel
aground and collapse into bankruptcy.
There are also other more subtle ways to lose control. You
might end up in a situation where you own the whole box and
dice but find that none of your staff support your decisions. Or
perhaps the company goes through so much change over time
that you just dont want to be in it anymore. Another way to
lose control of your company is to lose control of yourself. One
entrepreneur that lost control of his company on all sorts of
levels was Chris OHanlon, founder of Spike Networks. What-
ever becomes of Spikeand as someone that knows a lot of
people at the company and wishes it wellit wont be what
OHanlon had in mind.
There is no question that Spike would not have the exciting
and dynamic future that it does ahead of it if it had not been
for the drive and vision of Chris, a strained John McGuigan
told Spike Networks shareholders on 8 June 2000.
The executive chairman was addressing an extraordinary
general meeting of shareholders in the light and airy surrounds
of The Atrium restaurant on Castlereagh Street, Sydney. On the
agenda was a vote on a multi-million dollar alliance with Hong
Kong Internet and telecommunications conglomerate, Pacific
Century CyberWorks (PCCW). Wide-screen televisions pro-
claimed that the deal would make Spike CyberWorks Asias
leading e-business services company. But there was nothing
light or airy about the mood at the meeting. That morning
the Sydney Morning Herald had published what McGuigan
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euphemistically described as a rather detailed story about the
departure of the companys founding CEO Chris OHanlon on
17 April. Beginning on page one and titled How Denim Vader
came to a sticky end in the web, the article ran to more than
2,000 words and was highly critical, on both personal and
professional levels, of the noticeably absent OHanlon.
Herald journalist David Higgins wrote that OHanlon was
facing a potential sexual harassment claim from a former US
employee and that his former mistressOHanlon was single
at the time, having earlier separated from his wife Given
Rozellhad allegedly stolen US$53,000 from the company.
Higgins also wrote that OHanlon had overseen an extrava-
gant US$267,000 party in Los Angeles in 1999 to launch
SpikeRadio.com, the companys online radio station. The story
was the result of extensive research as well as input from
disgruntled insiders at the company.
The resulting Herald article said that McGuigan had forced
OHanlon to resign after learning of the harassment issue.
Furious when he heard about the sexual harassment claim,
[McGuigan] immediately suspended Mr OHanlon from all
Spike duties and called a board meeting over the weekend. He
wanted Mr OHanlon out, and the board approved a motion
that Mr OHanlon be asked to resign, the Herald stated.
A follow-up Herald article on 14 July 2000 said that the
company settled the claim privately by paying out US$750,000
to the former Spike DJ, Stefanie King. Neither the company
nor OHanlon would confirm or deny the figure which was
attributed to two unnamed sources. McGuigan, who previ-
ously ran the worlds largest legal firm, Baker & McKenzie, did
go on record as saying that the matter had been settled.
OHanlon maintains that no harassment suit was ever actually
filed and that, despite the settlement, he never admitted any
guilt. He has also denied that there are other suits pending, as
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suggested in some reports. OHanlon has said:
Im no walk in the park, unless that park is Central Park after
midnight or somewhere in Zaire, but I am neither i) a harasser or
ii) someone who is dumb enough to make such an admission to
anyone ahead of a court date.
Whatever happened, it was bleak stuff. Making it worse,
the companys shares were languishing at around $1well
below their issue price of $1.45 when the company raised
$32.6 million from the Australian public in mid 1999. (They
would later go as low as 20 cents). The twenty or so share-
holders at The Atrium meeting were outnumbered by Spike
staff, merchant bankers, accountants and media representa-
tives. The PCCW dealone that could yet see Spike become a
very successful services companywas sullenly passed.
It was also a world away from the sunny Sunday morning in
late summer 1999 when I first met McGuigan at OHanlons
house in exclusive Double Bay, Sydney, to report on the com-
panys upcoming float. In a scene that now seems unreal,
McGuigan bounced in late, fresh from a morning swim and
dressed in a casual, open-necked shirt. He looked every bit the
wealthy, successful lawyer having a bit of fun in the zany new
Internet business. The sun streamed in through the windows
and Chris gushed about Spikes upcoming float in a gravelly,
AmericanAustralian accent and Given served coffee and
muffins. It was the beginning of an outstanding business part-
nership, even friendship, between OHanlon and McGuigan.
Even a year later, in late January 2000 when I first inter-
viewed OHanlon for this book, he was still enthusiastic about
both McGuigan and John Atkinson, McGuigans partner at
Hunter Bay Innovation, the venture firm that owned about
25 per cent of Spike. Speaking by phone on a Sunday morning
from a hotel room in Tokyo, he said, My partnership with
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John McGuigan is a partnership on a number of levels. Same
with John Atkinson. There is a great deal of filial and fraternal
depth to it . . . There is a great deal of fun and laughter and
The trio had gotten to know each other very well, travelling
the world selling Spike in gruelling road shows that would see
them address up to eight, often sceptical, groups of investors
per day. OHanlon described McGuigan and Atkinson as
shrewd and active shareholders and praised them for attract-
ing other heavyweights such as John Greaves from One.Tel
and Timothy Mainprize, the former FAI Insurance Group
director. This momentum also led to Lawrence Maltz, the
former chief operating officer of Starbucks Coffee Company and
a family friend of OHanlons, joining Spikes board in May
1999. With the money in the bag after the April float, the
sky seemed to be the limit. When the company announced the
PCCW deal in December 1999, it seemed that it might just
get there.
In that same January 2000 interview, OHanlon said:
If we had not raised that capital then and achieved the progress
that we have had now, we wouldnt be in the position to be
talking to someone like [PCCW executive chairman] Richard Li.
And that Richard Li relationship is going to turn the company
into a billion dollar company.
As 2000 began Spike had a stellar team and, as a potential
member of the PCCW clan that would later include Telstra,
a big future ahead of it. Yet despite all the money, power and
connections that the team possessed, they just couldnt lift the
companys share price off the floor.
The trouble started the day Spike floated. The company
had the misfortune of listing during a week where Ameri-
can and Australian investors were dumping technology and
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Internet stocks. Despite the success of its capital raising and the
companys super-high profile, once on the market the companys
shares gradually slipped below their issue price. The com-
panys executives blamed the negative market sentiment but the
excuse seemed increasingly weak as other Internet companies
recovered but Spike shares stayed underwater.
The rumour on the street was that Salomon Smith Barney,
the stockbroking company that had backed the float, did not
go out of its way to support Spikes stock in the market after
listing. After such an apparent vote of no confidence from its
own financial institution, Spikes stock languished. Also not
helping was the disdain among conservative brokers and
analysts for Chris OHanlons habit of wearing denim jeans
and T-shirts to meetings, drawing parallels between the
Internet and heroin, and the other colourful antics that his
trendy, young staff adored.
It was like saying fuck you to the market, says one
financial analyst in Sydney.
The heat from the market led to a rapid build-up in tension
and a lot of soul searching. Was Chris upsetting the fund
managers? Should Spike become an e-business company ser-
vicing major corporations or should it stay true to OHanlons
original, more quixotic, vision of becoming a global youth
media company?
The passing of the PCCW deal, an e-business tie-up with
accounting and services giant Arthur Andersen announced
in February 2000, and OHanlons departure shortly after,
signalled that Spike had chosen the corporate option. This was
consistent with McGuigans view, borne no doubt of his success
at Baker & McKenzie, that profit lay in doing fee for service
work. Spike planned to sell the picks and shovels in the
Internet gold rush, he said. That was also sensible, given that
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the company was bleeding cash chasing its dreams for Internet
radio and global presence. In the year to June 2000, Spike lost
$27 million on revenue of $19 million, attributable mainly to
the cost of the Internet radio operation as well as closing the
companys failed US web design group and the creation of new
offices in Australia and Asia.
The problem was that OHanlon, the entrepreneur, still
wanted to chase the gold. He also believed that he was onto a
rich seamthe first group of young people in history that had
grown up with the Internetand had assembled some of
Australias, and to a lesser extent Americas, best creative talent
to deliver media product to them. The most obvious result was
Spike Radio which, despite its lack of viability, looked great.
In an email sent after his resignation, OHanlon wrote:
I do feel as if, somewhere along the way, my vision not only of
the companys future, but the future technological, social and
economic environments in which it would operate was no longer
trusteddespite the fact that it was my vision that had drawn
everyonemy fellow directors, our employees, the press, even
small and institutional shareholdersto the company in the
first place.
In my final months at the company, Im not sure any of my
fellow directors understood what I was talking aboutthough
Id concede my view of the future online as somewhat complex
and necessarily only vaguely defined.
A few days later he added:
We were, in short, being too mindful of the market, rather than
the technological and competitive environment in which we had
been born. Then again, Im talking as the companys founder
a dreamer, an entrepreneur. Im confident the new management
will build an exceptionally successful company. But to do so,
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they need to be supported by those who share their vision. In
the end, I didnt.
I asked OHanlon if he wasnt being naive to think that he
could float Spike on the stock exchange and not expect to
become mindful of the market.
Yes. Totally. But I was naive to concede so willingly the direct
management and supervision of that transition. I was too quick
to rely on the judgement of people whom I credited with having
the same clear, strong vision for the company that I had and
whom I thought were a better judge of the corporate characters
needed to achieve that vision.
However, there was more to the story than falling share
prices and divergent visions. By all reports, including his own,
OHanlon became highly erratic in early 2000. OHanlon has
suffered from bi-polar depression, or manic depression, since
he was ten years old. In early 2000 he pushed himself to the
limit on an international investor road show, during which
Spikes share price briefly recovered and soared to $3.99. Then
his illness hit him like a freight train. While he was still
appearing in upbeat articles such as a 24 hours in the life
of piece published in the Sun-Herald in April,
he was also
ignoring a longstanding personal health regime designed
to stave off his blackest periods. In the first four months of
2000, he made around 30 flights between his home in Tulsa,
Oklahoma and Los Angeles, New York, San Francisco, Hong
Kong, Tokyo, Singapore, Sydney and London, never spending
more than a week in one spot.
He was also becoming aggressive towards staff, many of
whom were already fed up with the cramped, chaotic working
conditions at the companys Double Bay offices.
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I pushed myself particularly hard and having not had a
depressive episode for a number of years, had begun to overlook
many of the personal disciplines that had maintained (literally)
my sanity. I also ignored some of the signs that all was not as
well as I kept telling myself.
The breakdown was not dramatic. I just found I could not
unload the emotional deadness within me, a symptom not
untypical of advanced cases of burn-out. It began to affect my
judgement, my demeanour around my colleagues and
employees, and ultimately, the imaginative talent and drive that
was my greatest contribution to the business.
OHanlon also says that he began trying to resign before
17 April but says he was compelled to continue by the board.
I spent most of my last two weeks at Spike sitting around in my
office, attending only the most necessary meetings. I was
depressed, demotivated, pondering my future: all in all, at the
end of my tether. I twice asked Lawrence Maltz and once asked
John McG. to consider a process and timing for me to step down
as CEO: partly because of my illness, partly because I did not
enjoy the company of most of Spikes senior management
anymore. Nor they mine, I suspect.
Adding to the tension were accusations about who was to
blame for the blow-out in the companys finances. For instance,
OHanlon points out that he was not running the Los Angeles
office of Spike at the time of the companys infamously
expensive $267,000 coming out party in Los Angeles. He says
that he approved a budget of US$100,000 and that was pretty
much the last he had to do with it until he showed up on
the day.
This embattled OHanlon is a world away from the brash,
larger-than-life figure that built one of Australias top web
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design companies. He was also only a shade of the character
that had the wit and charisma to persuade Australias first
generation of super-bright but semi-anarchic Internet special-
ists to build corporate websites rather than hacking into
government networks. He had basically also managed to build
a 24-hour-a-day Internet sweatshop in an exclusive Sydney
suburb, of all places. But many staff loved it. Michael Mesker
was among the first people employed by Spike and remains
a supporter of OHanlon to this day. During my research, he
wrote to describe his first meeting with his new boss in 1996:
The mystique around Chris OHanlon grewId been working
there for almost 3 weeks and I still hadnt seen this guy. I think
he was overseas but the anticipation grew. When the office door
finally did swing open and he walked in, it was still a while
before he actually came up to me. So youre the one whos taken
over all the Mercantile Mutual accounts? You poor fucking
bastard. It was funny, and kinda scary at the same time . . .
Chris OHanlon, I was told in all honesty by the production
manager, was an eccentric, a man who was intensely passionate,
very very intelligent, and who drove his crew hard and
expected the best. I was told he could be tough, but I was also
told that working at Spike would be a wild, fun ride. This was
also back in the days when OHanlon had introduced the
famous 20 days on, 10 days off a month roster.
Employees could nominate which 20 days they wanted to
work a month, and the 10 days they wanted to spend
recuperating. I was entranced and I took the first opening they
hadin the infamous night crewwho worked from 6pm
until often 2 or 3 in the morning.
By the time the venture capitalists and merchant bankers
arrived to take Spike to another plane it had become more of a
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cult than a company. The company that the rest of the industry
loved to hate made up for a woeful lack of business systems
with attitude and a sort of collective willpower. It was, in short,
cool to work for Spike. It was also cool to use Spike, which
kept the dollars rolling in.
Today, OHanlon cherishes the culture and loyalty that he
built. As he recovered in mid 2000 and quietly prepared to
launch what he described as the next next thing, he would
occasionally fax or email articles that he felt explained his
position. The most notable was from the US magazine Talk. It
asked whether the New Economy hadnt really been a new
religion and whether the high priests of dot-com mania hadnt
been quasi-delusional, fanatical visionaries. It also suggested
that while figures like Jim Clark from Netscape, Steve Jobs at
Apple and Michael Saylor from MicroStrategy were manic they
were also valuably creative:
Am I saying, then, that people like Jobs, Clark and Saylor are
crazy and shouldnt be followed? No. I am saying that they may
be crazy but, paradoxically, it might be rational for sane people
to follow them anyway. It might even be argued that manics
serve an important social function: They create new myths and
paradigms and energize their culture.
Making me wonder if OHanlon wasnt waiting for his chance
to make a messianic return to Spike, there was also the
For Jobs, Apple wasnt a business but a religious movement . . .
He persuaded the then CEO of Pepsi-Cola, John Sculley, to
switch to the top spot at Apple with the question: Do you want
to spend the rest of your life selling sugared water or do you
want a chance to change the world? Sculley would eventually
fire Jobs from his own company for his destructive, erratic
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behaviour then drive Apple into the ground by running it like
a normal company.
Its all stirring stuff, enough to make you question whether
you arent missing a bit of spark in your life. Its also a remin-
der that many high-growth companies, operating in periods
of rapid change, are often run by charismatic individuals
more as cultural movements than conventional companies. I
even wrote back, saying that the world certainly did need
more mountain movers. However, the reality remains that
investors have lost millions of dollars on Spike. No one is
more conscious of this than John McGuigan and his partners
at Hunter Bay who, despite receiving some criticism in the
press around the time of OHanlons departure, have been
working very hard in the background to try to save the com-
pany from collapse. The result was a deal in November 2000 that
saw PCCWs stake in Spike CyberWorks (Spikes main revenue
earner) sold to Hong Kong investment company techpacific.com.
Under the agreement, techpacific.com emerged with 51 per
cent of the company, meaning that it has left Australian
I have written at length about the Spike because I think it
shows the extremes of the entrepreneurial experience. The
launch of Spike Radio, the establishment of overseas offices, the
PCCW deal and other events showed just how formidable an
innovative company, working with strong backers and large
amounts of capital can be. But, whatever Chris OHanlons
failings, it also shows what a smoking heap can be left behind
when an entrepreneurs dream gets derailed. For those who
would still follow him down the path of entrepreneurship
and why not, he did make lots of moneyOHanlon offers this
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Do not be too quick to cede control. If you have confidence in
your business model and your ability to pull it off, tread very
carefully in the raising of first and second rounds of capital:
your venture is probably worth more, not less, than you think.
Do not doubt your vision: venture capitalists very often use
one idea to trampoline their imaginations to half a dozen
different ones that they will argue are better. And they may
be, but have faith in your first idea, and be prepared to
evangelise it forcefully, even to doubters.
Do have a clear understanding at the very beginning between
all business partners and first round investors of what each is
expecting personally, from each other, and from the venture.
Ensure you are all on the same page.
Im sure John McGuigan, in particular, could also offer a
few tips about managing volatile chief executives, fickle
personality-driven media, and unrealistic shareholder expec-
tations in high growth markets. However, at the time of writing
he didnt seem to want to talk about it.
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It may be a new economy but it still often pays to
take your money and run.
ne of the more blackly humorous footnotes to
the dot-com boom was the emergence in 2000
of a US website called www.fuckedcompany.com. A play on
Fast Company, the magazine for web-savvy entrepreneurs, this
was Americas own tall poppy cutter. The site was created by
a Philip Kaplan in New York City and profiled failed dot-com
companies, tracking staff layoffs, missed prospectus forecasts
and other events that confirmed that in the latter part of the
twentieth century it was easier to float an Internet company
than actually make money. However, at the time of writing,
reality was returning and many companies were running out
of cash, leading their founders back to business basics like
valuing customers and profits ahead of website traffic and
alliances with other cash-strapped, implausible businesses.
For those that dont want to find themselves lead story on
FuckedCompany, there are a great many books on how to run
companies well. Here I would like to pass on some specific
advice for people trying to do it during periods of rapid tech-
nological change.
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Rule #1Aim to make a profit
If we had known then that wed never be able to
raise another dollar for Garden.com until we
achieved profitability, would we have made different
decisions? Of course.
Readers in established businesses might regard this piece of
advice as mind numbingly obvious, but lately making a profit
has been optional for many new companies. With share mar-
kets running hot worldwide, low interest rates and a popular
appetite for speculative investing meant that people with
a good high-growth story could survive for years without
making a quid. Top online retailer Amazon.com almost made
it a point of pride to lose a cumulative total of more than
US$1 billion in its first few years. That is quite an achievement.
Even if you threw an Australian hundred dollar note into a fire
every second it would still take you 185 days to burn that
much money.
In the end, you must make money, says Rodney Adler. You
can only survive so much by raising equity to pay wages
and to pay the losses. The Amazon.coms of the world have
done an absolutely unbelievable marketing job but in the end,
unless they get their margins up, they wont survive. Theyll
be taken over.
Adler believes that the almost decade-long economic boom
of the 1990s and early 2000 led investors to take many more
risks than they normally would. In turn, all sorts of businesses
were funded and many entered into a mad scramble to win
market share. This was the great Internet land grab, a period
when many potentially lucrative economic positions were
going super cheap to those that realised their value early.
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Take, for instance, the people that first registered Internet
addresses like Business.com and later sold them for millions
of dollars. However, theres no point being first to do some-
thing in business if you cant see a way to make money. As
Adler adds:
People think you have to make a loss if you start a new
business. You dont. I like to invest in businesses that work.
If you plan not to make money, Im sure you wont. If you
plan to make money you may not, but I always plan to make
It is worth noting that most of the very top companies in
the global Internet business have a history of making profits.
These include access provider America Online (now AOL Time
Warner), equipment maker Cisco Systems, online auction
house eBay and directory provider Yahoo!. Sure, they have been
massively overvalued, but at least they are businesses that are
capable of generating profits.
Among the better famous last words Ive read came from
Craig Winn, the (former) chief executive of a one-time high pro-
file online shopping company called Value America that floated
in April 1999, achieving a market valuation of US$3.2 billion.
On 11 August 2000 it filed for bankruptcy. Among Winns
famous comments was that [in the Internet economy] the old
models dont necessarily work.
Maybe they do.
Rule #2Focus
The chief executives of these companies, at least the
successful ones, have the knack of staying absolutely
on top of the nitty-gritty detail of the company
without ever losing track of the bigger picture.
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Successful business people and observers almost always list
focus as a key attribute of successful entrepreneurs. Focus can
mean a lot of things but, for the most part, its about being
single-minded, identifying the most important parts of your
business and ensuring that you get them right. Its also about
avoiding distractions, something which can be particularly
difficult in a high-growth environment where everything looks
like an opportunity but nothing has yet taken on a defined
value. As Bill Ferris says above, its also about being able to keep
your eye on the micro and the macro at the same time or, put
another way, see detail from a distance.
David Tudehope at Macquarie Corporate Telecommuni-
cations says he has made an effort to keep the company focused
on servicing only corporate customers. This move has seen
Macquarie remain smaller in overall revenue terms than its
main rivals, AAPT and Optus, but enabled it to beat them in
this niche. The alternative would have been to enter the retail,
or consumer, market for telecommunications services alongside
companies like One.Tel. Even though the business case often
made sense, Tudehope was afraid to take his eye off the ball.
I compete with guys that have whole office blocks with their
names on them . . . That focus on just one market and one model
to treat that market . . . is the key, rather than trying to be all
things to all people. [For that reason] weve been able to overtake
Optus and AAPT in terms of share in the corporate marketplace.
It means basically giving up some opportunities along the way
to achieve the end result. Weve had some great opportunities
to enter into the residential marketplace and small business
marketplace in terms of alliances with different people and
alliances we could enter into. Some of them were pretty good
opportunities and probably did stack up commercially but the
risk for us is that wed divert our focus away from our market.
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Another factor unique to high growth markets is that, like
the automobile industry in the 1920s, they tend to consolidate
very quickly. Megabrands like Cisco and Yahoo! absorb large
numbers of small companies to form the new Fords and General
Motors. The purchases of OzEmail by American giant UUNET
or advertising technology group Sabela by 24/7 Media were no
exception to this rule. In a rapidly consolidating environment,
you either want to be a megabrand, a specialist worthy of
acquisition or a company that has built a defensible, inde-
pendent position such as Macquarie. The challenge is for
specialists to resist the temptation to build fragile empires,
such as the failed Internet conglomerate LibertyOne, that are
neither attractive acquisition targets or strong enough to
survive in their own rights.
Rule #3Work hard
A lot of pain is associated with success. In the
pursuit of success, time is of no consequence and
effort has no limits. In many ways, being successful
in business is no different from being a successful
sportsman. To get there you need drive, discipline
and determination. You also need to cope with the
pain of maybe not succeeding.
Another fact of life in high growth, unstable industries is that
people work very, very hard. The reason is that there are
usually a small number of very large prizes to be won, such as
becoming the worlds primary online auction house (eBay), the
dominant operating system for small computers (Palm) or
the foremost owner of web browser technology (Microsoft).
As in each of these examples, tech races tend to end up with
one or two winners taking all and everyone else collapsing in
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piles of debt. Take, for example, the rise of Cisco, which now
supplies 80 per cent of the hardware that makes up the Internet,
at the expense of companies like Cabletron Systems, a company
that led the computer networking industry in the 1980s and
early 1990s.
A key buzz phrase aired far too often during the dot-com
boom was first mover advantage. I say too often because there
is sometimes a nasty tendency for the first mover to take all the
risks to establish a new market only to be beaten by a follower
that learns from its mistakes. For instance, Palm entered the
market after behemoths like Apple, Compaq and Microsoft had
introduced, and in some cases even abandoned, handheld
computers. Another factor is that the very increase in economic
speed and innovation enabled by the Internet is undermining
the value of such early victories. In other words, because
business cycles are now so fast, its hard for even first movers
to maintain their lead for long.
Where once the first mover could milk the advantage for
years, if not decadesit took General Motors 20 years to
overhaul Fords first mover advantage in automated car pro-
ductionnow first movers have less time, says Gerard Minack,
an analyst at ABN-AMRO.
John Greaves says that when he was chief financial officer
at Optus during its startup year under Bob Mansfield there was
a running joke that Fridays were great because it meant there
were two more working days before Monday.
Greaves is lucky
hes not at Telstra where Mansfield is now chairman. During an
interview for this book, Mansfield said that business time-
lines were shrinking dramatically thanks to the mobile phone,
Internet and other communications technologies. Six months
aint good enough anymore, he says. It should probably be six
weeks. If it was six weeks previously it probably should be
six days.
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Removed from weekends and fun, entrepreneurs in high-
growth environments tend to be very effective (before they
burn out). The Tudehope brothers win a guernsey in this
category as well, though I dont think theyre about to burn out.
In the absence of venture finance, they raised Macquarie off the
ground through sheer elbow grease. Even today they work
twelve-hour days, at least six days a week. From the way David
Tudehope tends to arrange appointments with people like me
for about 5 p.m. or 6 p.m., his strategy appears to be to see
customers throughout the day then work in the office during
the evenings.
Youve got to say to yourself for the first couple of years, Im
willing to sacrifice not just my working week but my working
nights and, in the early days, my weekends. And not just the
weekends that suit mepossibly every weekend, because you
are the company.
I knew it would be hard work starting the business but
I didnt quite anticipate that nothing happens unless you, or
whoever is working with you, personally do it. If you dont do
that you dont succeed, because you spend half your time being
an admin person rather than getting out there and building
your business.
Everyone you talk to in life says they work long hours,
whatever they do, but nothing matches working for yourself
with limited finance.
Sean Howard adds that, back when he had to, he used to
work at least twelve hours a day establishing OzEmail. Today,
as a professional investor, he says he finds it hard to locate
smart people that are prepared to put in the effort and dedica-
tion required to make new businesses work.
At the moment, there is no shortage of money. There is no
shortage of ideas either, really. The biggest shortage of what
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weve got in the world right now is peoplesmart people.
Theres stacks of money out there. Theres stacks of good ideas.
Its execution thats the hard part. Theres a real shortage of
people who are talented and who are prepared to dedicate
However, Howard cautions that all work and no play doesnt
help either.
If youre a hard worker but you dont have that recklessness
I think youll drop your bundle through your nerves
nervousness will get you because youll get too caught up in
what will happen if this idea doesnt come off.
I saw that in a couple of my competitors in the ISP game.
They just werent prepared to take the big punts . . . We went
out and put in banks and banks of modems in the expectation
that the market would grow and that was, I suppose, a bit
reckless, but when the market did grow we were way in front.
Mansfield goes a step further, saying that its important for
business people to maintain a balance between their work and
personal lives. Without this theyre likely to experience a
breakdown in one or the other. Mansfield has five kids who in
2000 ranged from 8 to 23 years. He says that his personal
strategy is to start each year by blocking out key dates such as
birthdays, Christmas and school holidays. He then writes in
any events that he cant miss or move, such as Telstra board
meetings. Anything else that arises during the year must then
fall within these parameters, but even then he tries to leave
empty spaces in his schedule for opportunities and emergencies.
Rule #4Cherish intellectual property
In industries driven by innovation there is nothing more
valuable than technological know-how, or unique intellectual
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property (IP). Australian researchers and business people are
relatively weak when it comes to IP protection. This has been
particularly prevalent in the Internet industry where we got a
head start on much of the world but failed to capitalise on
many opportunities. One illustrative story here involves shop-
ping and a computer scientist named Ernst Van Oeveren.
Way back in 1994the very dawn of the webVan Oeveren
was working for the National Rural Health Research Institute
and came up with a then very novel idea: the Internet shopping
basket. The idea was to make it easy for people to gather a
group of items for purchase on a website. Later that year, while
working at the web development firm AUSNet, he extended the
metaphor to create one of the worlds first online shopping
trolleys for a website, www.science.com.au.
Around the same time, US company Open Market was
developing a similar system. Van Oeveren believes his trolley
was probably completed first but it was the American group
that spent the tens of thousands of dollars required to patent
it. Our technology pre-dated their application for a patent, he
once told me. But we didnt patent it because we were too busy
trying to make money.
Other US Internet leaders that patented key technologies
include Amazon.com (which has secured the rights to its
1-Click shopping system, recording shoppers credit card
details so that they dont have to re-enter them during the
next visit) and Priceline.com. In a decision that made people
question the thought processes at the US patents office, Price-
line managed to patent the idea of the reverse auctionpeople
posting the price they were willing to pay for something on a
website and vendors of goods and services, like hotel rooms
and air tickets, bidding to match the offers.
At the time of writing, Open Market had gone on to list on
NASDAQ and become a global giant in the online commerce
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and customer relationship management arenas. It had more
than 250 customers in 30 countries, including AOL.com and
Lycos.com, nine offices around the world including Australia
and had been valued at around US$3 billion at the height of
the dot-com boom. Van Oeveren, on the other hand, was still
slogging away in Sydney trying to float the online travel
software group World.net to raise about $5 million. Ernst is
a nice guy and a gifted computer programmer, but his story
emphasises Australias lack of international commercial savvy.
Open Market hasnt built its market cap on shopping trolleys
alone but the aggressive mindset that saw it slap that patent
down in 1994 is the same one that has made it a winner.
Rule #5Keep an open mind
The problem with new industries is that its very hard to know
whats valuable and what isnt. For participants this means
trying to take advantage of opportunities without over-
committing to any one path. Financial market types might call
this hedging and lovers would see it as infidelity. Internet
entrepreneurs call it forming alliances.
Alliances are typically vague agreements for two companies
to work together. The good thing about them in uncertain
environments is that even if the participants dont know what
theyre getting, at least they know who is on their side. I spent
years asking Internet entrepreneurs to tell me what, exactly,
their alliances and strategic partnerships actually entailed.
Were they going to make any money out of them? Get more
customers? Derive any clear benefits?
The response was almost always the verbal equivalent of
junket. One academic that is sceptical about the tendency
of unproven companies forming alliances with each other is Avi
Shama, an academic in Texas. The result of alliances between
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many dot-coms, he argues, has been a self-perpetuating cycle
of hot air where theoretical business A teams up with theor-
etical business B to create hypothetical value C. Worse still, he
says all this activity has distracted the management of such
companies from spending time trying to make any money:
In a vision-driven business with numerous strategic alliances,
which serve to further inflate the vision, why worry about
pricing and the profit built into it.
Having said that, I have to admit that some alliances have
delivered. LookSmart, for instance, has proved very adept at
signing up companies around the world to use its directory on
their websites. These tended to be alliances as much as deals
because LookSmart would often exchange the value of its
database of Internet addresses for a prominent position on a
major website such as those operated by British Telecom.
George Foster at Stanford identifies Evan Thornleys ability to
negotiate such alliances as key to that companys success.
Another aspect of keeping an open mind is being very
flexible. In industries where entire paradigms can shift over-
night, you have to remain hyperaware and light on your feet.
A prime example here is Microsoft which in 1995 reoriented
every one of its products towards the Internet. The turning
point was Bill Gates now mythical six months surfing the
Internet in his study. When he came down from the mountain
he was convinced that the network would dominate personal
and business computing. In an internal company email titled
The Internet tidal wave, he argued that the Internet was the
most important change to the industry since the IBM PC was
introduced in 1981 and proceeded to turn Microsoft on a
dime, as they say in Redmond.
According to Foster, US entrepreneurs are also far more
open-minded when it comes to doing deals that might involve
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their losing control of their companies or merging with other
enterprises. The American entrepreneurs are very, very flexible
and very malleable in terms of being flipped down and rein-
venting themselves and coming up with different cuts at it.
Foster adds that this is something of a function of the large
US market where young companies have a wider number of
potential customers and partners. This also allows them to try
different strategies with different parties and refine their pitch
if things go awry.
Its a much tougher market in Australia to get the ability to
continually refine and revise your ideas at the customer or
the alliance partner level, because theres fewer customers and
fewer alliance partners . . . [Established Australian companies]
also have, to date, less of a history of working with startups.
Rule #6Get famous and use it
I just think its tragic we dont put our deserving
iconswhether it be sport, whether it be society,
whether it be whateveron a higher platform. We
just have that innate ability that when they get there
we just want to kick their guts in to make sure they
dont get any further.
A public profile can be very beneficial to entrepreneurs in
attracting customers, partners, employees, investors and service
providers. This is particularly true when the person has no
track record or reputation. Huy Truong, chief executive of
Wishlist.com.au, for instance, was a refugee to Australia from
Vietnam. Not only have he and his sister, Jardin, built a good
business, they have gained a high profile in the press. In turn,
they have used it to win distribution deals with companies
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like BP and Country Road, and funding from venture capital
firms like J.P. Morgan and Allen & Buckeridge.
Media coverage, in particular, can also add credibility to
implausible blue sky stories and will help get stock market
floats away. I remember writing about a group of guys from
Queensland that had an excellent idea for farming fish. They
even had some good marine biologists and other experts
onboard. However, because the only companies that were able
to raise money in late 1999 seemed to be Internet companies,
they named themselves Seafoodonline.com and came out with
a crazy prospectus saying that they were going to let Chinese
restaurants in Hong Kong watch fish swim around in tanks
via the Internet before buying. The float was fineAustralia
should get into fish farmingbut it was nonsense to dress it
up as an Internet venture. Still, I wrote about it and even ran
a photo of the chairman, Terry Byrne, holding up a dead fish.
Given the subsequent woeful performance of the companys
shares, that now seems appropriate.
The trick to getting media coverage is to understand how
the media works. As a former journalist, I can tell you that the
Australian media is highly concentrated and under-resourced.
This is unfortunate for good business people waiting for a jour-
nalist to accidentally discover them but a boon for people who
know how to play the game. Because journalists are pressed for
time and must churn out several times more words, sounds
and/or images than their overseas counterparts, they typically
have little time to develop an in-depth understanding of their
field or conduct exhaustive research. The result is that the
majority of news stories are fed to the major media organisations
through trusted channels such as the fax machine and public
relations people. Particularly in finance journalism, much of this
is quickly, if begrudgingly, rewritten and published.
When youre a stressed-out journalist you basically have to
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trust people to tell you the truth. If you ever find out they were
lying to you, you then turn on them like wolves. This was part
of the reason why some Internet entrepreneurs met such nasty
ends in the media, but I wont name names.
There are, of course, a lot of simple, sensible and perfectly
honest ways to do yourself a favour when it comes to getting
favourable media coverage. These centre on explaining your-
self clearly, knowing why you are seeking media attention,
understanding what journalists need and working out which
journalists might be interested in your story. Having been
on the other side of the fence, I would advise people to get
professional help when approaching the media because, as with
all power tools, you can do yourself a lot of damage very
quickly, particularly if youre within a listed company.
As a reporter, I regarded Chris OHanlon to be the most
adept at getting media coverage. Indeed, he even had his own
column about online marketing in the Australian Financial
Review when I started there in 1997. A former journalist
himself, he understood the game. Having grown up around a
famous father, he knew how fame worked and actively worked
on being seen as a rock star CEO in the American tradition of
people like Gates and Apple chief executive Steve Jobs.
Its that game, says OHanlon. Its the walk from the private
plane to the limo. You make sure that in that 100 feet, you
stand a little taller . . . Do I do all that consciously? Abso-
However, OHanlon is also aware of the risks involved in
putting your hand up in public:
If you court fame, you encourage public attention at all times,
even when it is unwanted. The movie star that earns $20 million
a movie cannot complain that the press constantly intrudes on
his or her privacy. Its the ugly reality of the late twentieth
century/early twenty-first century cycle of celebrity.
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The trick, as the futurist Watts Wacker points out in his
latest book, The Visionary Handbook: Nine paradoxes that will
shape the future of your business, is to have a clear perspective
and some controlof the legend you create. Thats an essential
task and responsibility of any entrepreneur. It should not be
taken lightly but should be laboured on with as much diligence
as the rest of the business.
Two specific ways that seeking a high profile can cause
problems are if the process becomes a distraction or if it brings
you within cooee of Australias infamous tall poppy syndrome.
Here, you may be cut down for being seen to be too good at
somethingunless its sport. But even then, you should be
modest about it.
The only entrepreneur who declined a direct request for an
interview for this book was Jodee Rich. In the 1980s Rich
founded and ran Imagineering Technology Ltd, a computer
distributor. The company quickly reached sales of around
$300 million a year and Rich, still in his twenties and with a
personal worth of around $85 million, was hailed as one of the
countrys hottest new entrepreneurs. He was the youngest
member ever of the BRW 200 Rich List and reported to have
been bold, brash and supremely confident; an avid self-
promoter who courted media attention and held lavish
But it all came crashing down in the early 1990s
when Imagineering collapsed under the weight of borrow-
ings. Shareholders were left to lick their wounds but the worst
treatment was reserved for Rich himself who discovered just
how quick the media can turn on its favourites when it smells
blood. Overnight, he became a symbol of everything that was
wrong with the debt-driven eighties.
Jodee feels he was treated very badly by the press and thats
the reason he wont talk, Rodney Adler has said. He endured
an absolutely public humiliation after he sold out of Imagi-
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neering which was very unfair. There was one story headlined
The son who let the father down. His whole world just caved
in and he went through an awful period.
Just how sensitive Rich and his joint managing director at
One.Tel, Brad Keeling, remain was shown in an extraordinary
email sent by Keeling to Sydney Morning Herald reporter Kevin
Morrison had asked Keeling who might replace
then departing chairman John Greaves. Keelings response,
which followed weeks of negative pieces about the company
but which Im sure Keeling never expected to see in print, was
I get enough flak from you that I think Ill just keep my head
down, tail up, and work to build an even greater business than
the great business we already have.
If John resigns we wont be in a big hurry to find a
replacement. If someone shows up, fine; if not, so be it. Its not
essential, one day we will find a new chair if we need one . . .
I am a parent of a teenagerif you were a student in her
schoolyard you would be classed as a bully. Were you a bully at
school? Do you ever feel pride in anything anyone else ever
does? Or do you only feel proud when you hurt someone else
and their families? I think I know.
Its not surprising that Rich is now media shy (and, I might
add, debt averse). However, during my time reporting on tele-
coms, he did participate in a number of interviews. The most
notable was on 15 February 1999. Rich and joint managing
director Brad Keeling were joined by Lachlan Murdoch and
James Packer at One.Tels offices in Sydney to announce that
News Corporation and Publishing & Broadcasting Ltd would
invest around $700 million in the company. But even that was
a strange event. If a normal company wanted to announce that
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it had just received hundreds of millions of dollars from two of
the most powerful families in the country, if not the world,
theyd book out the Entertainment Centre. Instead, they invited
only myself on behalf of the Australian Financial Review and
a press photographer from Murdochs Daily Telegraph. And
even after the interviews were done and photos taken, they
wouldnt let me touch a phone or leave their office until their
lawyers rang to say that the deal was done. I was later told that
I was something of a pawn in a wider game but never have been
able to confirm it. In the end I was allowed back to the office
in time to file the story for the next days paper.
Rich has a reputation for being difficult and abrasive.
However, in my experience as a reporter at least, he was softly
spoken and charming. When it came to new communications
technology he was also a well-informed zealot. Even so, the
only direct input from him in this book dates from interviews
conducted while at the paper. You certainly wont find him
offering up handy hints for entrepreneursa word that has
bitten him once already.
Having said that, I will admit to being in two minds about
the tall poppy question. Anyone that knows me personally will
know that I helped found a small magazine called Strewth!. Our
mission statement read that The Strewth! Institute Inc., the
body set up to publish the magazine, was: Dedicated to making
the tall poppy syndrome worlds best practice in time for the
Sydney 2000 Olympics. We were only half joking.
On the one hand, it is unfortunate that the Australian
business environment is unforgiving. That people who make it
clear they want to become richer or smarter or faster than their
peers are often brought back into line through ridicule.
However, my reading is that truly competent and honest people
are not unduly criticised in Australia and most people who
cry tall poppy end up being found to have deserved rough
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treatment. The stellar example from the dot-com boom is Chris
Tyler, chief executive of Solution 6. Tyler, for instance, did a
great job for a few years at the accounting software company
then lost his head during the dot-com boom. He started making
very loose comments (which he later denied) about the outlook
for the companys share price and attempted to enter into
numerous large and complex deals around the world. Before the
ineffectiveness of his acquisition and joint venture activities
became apparent, Business Review Weekly magazine published
an explosive article saying that hed been arrested in the US
fifteen years earlier for handling a large quantity of drugs and
been central to the dramatic failure of a listed Canadian
company called Lessonware. He soon left the country, saying
all sorts of awful things about the Australian media.
Solution 6 got a new CEO in August 2000, Neil Gamble, who
promptly announced a wide-reaching cleanup of the company
and its strategy. Revenues were above $300 million but Tylers
spending spree, which had involved the purchase of eleven
companies, had landed it with an operating loss of $79.5 million
for the year to June 2000. Solution 6 shares, which had once
reached $17, slumped to below a dollar.
On the other hand, no one has ever successfully cut down
Kerry Packer for instance. Or Frank Cicutto, Lindsay Fox, Gerry
Harvey, Janet Holmes Court, Frank Lowy, Rupert Murdoch,
John Singleton or even Bob Mansfield, for that matter. The
upshot is that you can succeed in Australia, you just have to be
Australian about it.
And I dont think things are really all that different in Silicon
Valley. Fuckedcompany.com is, after all, an American website.
Then theres the following quote from Californian investor
Randy Komisar:
Silicon Valley does not punish business failure. It punishes
stupidity, laziness, and dishonesty. Failure is inevitable if you
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are trying to invent the future. The Valley forgives business
failures that arise from natural causes and acts of God . . . The
key question here is why a business failed.
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Who made the money? As a general statement, the
stockbrokers and the solicitorsthey made a lot of
money. The liquidators will catch up pretty soon.
atching the basketball on TV the other night,
I realised that the Internet and the associated
boom really had changed the world. There at the edge of the
court was an ad for OzEmail, the company that had barely
existed five years earlier, now just another mass consumer
brand. People no longer thought twice about sending email
messages or looking on the Internet for phone numbers, soccer
results, books or love. I opened the paper the same day and it
said Sean Howard had bought a resort called Double Island,
near Cairns, for $4.5 million and everything seemed to have
turned full circle. A new technology had made the world anew
and spawned a new elite. As with his house in Sydney, Howard
had bought the island from a member of the previous ruling
class, property developer John Palasty.
Just who did make the money during the dot-com boom?
Who walked away with the loot?
The really big winners have been guys like David and Aidan
Tudehope at Macquarie Corporate Telecommunications, who
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built solid, profitable companies the old-fashioned way but
were lucky enough to realise some gains when the capital
markets went berserkin this case, $50 million in cash and
another $240 million or so on paper. A couple of others from the
telecommunications industry were Barry Roberts-Thompson,
founder of Hutchison Telecoms (now called Orange) in Aus-
tralia, and Phil Cornish, who got 4.5 per cent of Vodafones
Australian operation before anyone had even heard of the
company. They have emerged with fortunes worth in the hun-
dreds of millions. Hopefully the one-time billionaires like Jodee
Rich at One.Tel and Tracey Ellery and Evan Thornley at
LookSmart will eventually be seen as belonging to this group.
At the time of writing, they were yet to show the ability to make
a profit and storm clouds were gathering over their businesses.
The second group are the guys like Sean Howard, who got in
early and chose just the right moment to get out. In his case it
was by selling OzEmail for $520 million (of which he pocketed
$118 million) at the absolute high point of the Internet boom.
Others include Steve Outtrim, the computer software maker
who founded Sausage Software in 1995 at age 23 and walked
away from the company with more than $66 million a turbulent
five years later. There were lots of less high-profile win-
ners too like David Archer, the well-groomed founder of a
small telecommunications company called Spectrum Network
Systems. The company was in the business of reselling long
distance telecommunications services, which was good for a
while until competition undermined profit margins. Archer
saw the writing on the wall and instead of investing in the
infrastructure required to enter the next stage of the telecoms
game, he sold his customer base to newcomer PowerTel for a
personal profit of $12 million. The last I heard of him was that
hed made another $1.6 million from a company called ECAT
Development Capital and Gretel Packer was buying his Sydney
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home, the historic Winston in Bellevue Hill, for $10 million.
A third group that got moderately wealthy in the tech boom
were the ones that hung off the coat-tails of the major entre-
preneurs (and in some cases, such as with Steve Outtrim and
his corporate saviour Wayne Bos, made them). These included
the venture capitalists, minority investors, merchant bankers,
second-tier executives, consultants and even lawyers and
accountants. Bill Ferris, executive chairman of LookSmarts
Australian venture capital financier Australian Mezzanine
Investments, for instance, would have millions even after
distributing most of the spoils of its $200-million plus gain on
LookSmart. Though the fund has also lost money on dud
projects like youth website K*Grind.
Many executives also make bucket loads by getting shares
and stock options in sexy companies. Chris Tyler may have had
a rocky time at Solution 6 but he limped away with more than
a few million dollars in salary and share options. Some, like Don
Hagans, even made big money in resigning. Hagans joined
LibertyOne as chief executive in late 1998 then left abruptly in
early 1999, clutching a payout of $2.2 million. Others, like
Larry Williams, CEO of AAPT, simply found themselves well
paid for a job well done. In Larrys case, that meant about
$1 million a year in salary before any other incentives.
There were also plenty of lawyers, accountants, consultants
and other folks in suits that sucked up hundreds of thousands
of dollars from the companies that floated on the Australian
Stock Exchangeand the even greater number that tried but
never made it. The other group that made a packet were the
administrators and liquidators that came in to clean up the
mess after so many crashed. This group can also be seen kicking
around town in sporty little Mercedes. So too can plenty of
merchant bankers and stock brokers from companies like
Deutsche Bank, Hartley Poynton, Ord Minnett and Salomon
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Smith Barney that soaked up millions in underwriting and
other fees from the float festivities.
A few pundits even built businesses around the growth of
the Internet and, in turn, the speculative frenzy that followed.
The most notable was Ramin Marzbani, founder of Internet
research firm www.consult. Marzbani built his company
throughout the boom then in late 2000 sold it to ACNielsen for
a rumoured $5 million.
Not all the money raised during the boom went to line
peoples pockets. Much of it was appropriately invested in
building new businesses or expanding existing operations. At
the same time, though, some of it was simply stolen. Given
Australias defamation laws, Im not even going to touch
this topic, but many of the deals that went down between
1995 and 2000 would be best classified as white-collar crime.
The once high-flying CEO of software maker Solution 6,
Chris Tyler quit his job in 2000 and left Australia under a
cloud after a past drug conviction and corporate failure
became public. In March 2001 he found himself in a US
court, struggling to remember the details of a $2.8 million-
plus acquisition that left his old university pal Tom
Montgomery not only rich, but also free to compete with
Solution 6.
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The Australian once published an article suggesting that
executives involved in Internet-based businesses were four
times more likely to have dubious or criminal pasts than the
business community at large.
This sort of makes sense. Where
there is fast money to be made, youll also find a lot of crooks.
Or, to put it in surfing terms, storms might bring good waves
but they also flush out lots of sewerage.
Speaking of human waste, some money was simply pissed up
against the wall. The high point here was the decision by Isis
Foundation, the charitable arm of listed Internet and media
company Isis Communications, to spend $5 million sponsoring
a World Reconciliation Day concert featuring Nelson Mandela.
The company had raised $55 million from investors in 1999,
promising to make a profit of $5.6 million in the year to
December 2000. Instead, it lost $29.7 million. Michael Wolffs
comment about entrepreneurs who are given too much money,
too easily, thinking theyve been born into the Medici family
suddenly seemed to ring truer than the bells at St Peters.
But where did all this money come from?
There are two main sources of all the silly money to be
found during the dot-com boom. The first is everyday share
market investors, ranging from naive mums and dads to semi-
professional day traders who, on balance, lost money during
the period. In the 19992000 financial year, for instance, 161
companies floated on the ASX raising $1.54 billion.
a third of these were Internet-related and close to 60 per cent
finished the year below their issue pricesthe amount that
the above entrepreneurs, merchants bankers, brokers, lawyers
and others managed to flog them for when the company floated
(or sank).
However, companies like One.Tel and Solution 6, let alone
Telstra and News Corporation, dont get multi-billion dollar
valuations without support from professional investors. That
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means fund managers at major superannuation funds, which
means your retirement savings. Many of these guys hated
the fundamentalsthe financial data that shows how well a
company is performingof many high-flying Internet and
technology stocks. But they found themselves compelled to
buy because, whether it was rational or not, people were mak-
ing money. This pumped billions, indeed trillions, of dollars
into the global markets, creating the extraordinary bubble that
finally burst in April 2000. The lesson for entrepreneurs,
punters and professionals alike was that you can make a lot
of money quickly during booms but the old rules will apply
The trick is to take riskyouve got to be in it to win it
but treat every day as if its the one in which the rules will
return. Most of the entrepreneurs that lost serious money in
the boom were the ones like TheSpot that spent money they
didnt have in the faith that investors would bail them out.
They raced from funding round to funding round, but when
the music stopped they ended up stranded. Another large
group was people who tried to list on the ASX in early 2000.
They couldnt get their floats away after the market turned
sour but still had to pay up hundreds of thousands of dollars
to merchant bankers, lawyers, accountants, public relations
firms and others.
But the dot-com boom wasnt just about share market excess.
That just proved its still possible to get rich, fast. The boom
was also a period of exciting innovation in which a lot of new
companies were created, particularly in key areas such as com-
puting and telecommunications. I would even argue that
Australia rediscovered entrepreneurialism itself. It also spurred
the Federal Government to introduce wide-ranging tax changes
and other incentives that should make Australia a healthier
place for business builders. Even better, the whole of Australian
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society is becoming a more level playing field for smart people
with good ideas. And all those new multi-millionaires listed are
around and reinvesting not only their money but also their
experience. Even those people who tried to float but failed
now at least know how the process works. Lets hope that
the flameouts of companies like LibertyOne dont eclipse the
learning that Australia has been through and our newfound
passion for innovation. We need people to build great busi-
nesses that create real wealth if we want to maintain our
historically high standard of living. This will always be a hit
and miss process but thats the nature of innovation, as Rodney
Adler explains.
Its just a boom like any other boom but it probably went a
little bit longer and a little bit higher. But there are some great
companies that evolved and made it. Im biased with this first
one, but [take] One.Tel. Okay yes, One.Tels gone from a
$7 billion market cap to a $1.1 billion market cap but its still
at $1.1 billionthats a great success. Weve all done
extraordinarily well at $1.1 billion.
And why didnt the Tudehope brothers take the millions in
cash for their company when they could have? I asked David.
He looked slightly apprehensivelike maybe hed one day look
back and ask himself the same thingbut said they just
couldnt do it. After eight years of personal sacrifice, all the
money in the world couldnt bring him and Aidan to sell out.
Before One.Tel got a foothold in Europe, he often expressed
his disappointment that no Australian carrier has ever built a
successful offshore business. He was particularly critical of the
failure of Telstra, with all its billions, to establish a foothold
even in Asia. He also seems young enough, and idealistic
enough, to try to do something about it. The day in early 2000
that he received an international award in Washington DC
Where's the Loot TEXT PAGES 4/6/01 1:40 PM Page 177
ranking Macquarie as the worlds best provider of business
telecommunications services is obviously among his proudest.
The company also recently opened an office in Singapore, its
first move offshore. The way I look at it, the entrepreneurs that
have to worry about ridiculous questions like Do you want to
keep working every day or can I give you millions of dollars
for your company? are usually the ones that arent driven by
money in the first place.
If youre an entrepreneur operating in a boom, or aspiring to
be one, you have to ask yourself two broad questions. First, are
you the sort of person that could muscle into an established
industry and come out on top, like Gerry Harvey or Rupert
Murdoch? Or are you more like Sean Howard and the Tudehope
brothers, capable of spotting trends and light enough on your
feet to surf your way to wealth?
Either way, what would you do if you made it? Are you the
sort that could sell out of your company and buy an island?
Would that be your objective from day one? Or would you also
knock back the cash if it clashed with your vision? Theres no
wrong or right and this country needs both kinds of people.
But the answer will shape your whole approach to business. If
you dont mind the thought of losing control of your company
then you might look to the world of venture capital and other
external finance. If you would hate to ever find yourself
answerable to outside shareholders, then you might be best to
keep your company private. The risk, of course, is that you
starve yourself of capital and end up having no business to
worry about. There are no black and white answers or even safe
solutionsespecially when just making a dollar each day is
hard enough. Your challenge is to look beyond the day-to-day
and find a path that suits your personality, business situation
and industry. And dont be afraid to be a little reckless along
the way. As Bob Mansfield says, Profits a reward for risk.
Where's the Loot TEXT PAGES 4/6/01 1:40 PM Page 178
know Im cynical but if Id just read this book
I would be asking myself, If this guy knows so
much about being an entrepreneur then why is he writing
books about it rather than doing it? Its a fair question and
the answer is that, with my wife Cassandra and business part-
ner David Crowe, I am giving it a go. In March 2000, I quit my
job as information technology editor at the Australian Financial
Review and started full time at Editor.com Pty Ltd, our own
By the time I left the paper, I had convinced myself, perhaps
misguidedly, that leaving wasnt brave at all. Bravery, I decided,
would have been to stay and take my chances at eventually
winning one of the two or three really big salaries available. I
was also genuinely excited by what I thought we could do
with Editor.com.
Another factor was the belief that it is important to try
to create new companies that exploit the latest innovations.
Sure, we also wanted to make some money but, as Ive discussed
in more detail in this book, there really is a need for constant
economic renewal and that wont happen on its own. A related
theme here is the dilemma of finding what Jim Collins, author
of the now famous, acerbic essay, Built to flip,
might refer
Where's the Loot TEXT PAGES 4/6/01 1:40 PM Page 179
to as meaningful work. He argues that in the materialistic
1980s people simply worked for money. Then with the birth
of the Internet there was a lot of excitement about the
idea of changing the world, of creating companies that did
meaningful things and added real value to humanity. The three
qualities a company should aspire to, he says, are excellence,
contribution and meaning. However, these high ideals were
quickly corrupted by the rush to build enterprises to flip
structures built on legal documents, PowerPoint slides and
rented Formica deskscreated only to be sold to the next
sucker at a higher price. The best that six billion people in an
age of extraordinary technological progress and information
flows could come up with, it seemed, was e-tailing.
What a soulless bummer. We had, Collins believes, gone full
circle from working for money to working for money, albeit
vastly more of the stuff. The question for me was where did
I fit into this cycle? After all, I didnt even do e-tailing, I just
wrote about it. Worse still, as a financial journalist at a respected
business newspaper, I was central to the whole flipping thing.
Indeed, Ive cringed re-reading my old upbeat stories about
companies like LibertyOne, Solution 6 and Spike in the process
of writing this book. Its yet to be seen whether doing my own
thing is any more meaningful or valuable but it seemed worth
a go. Finally, we knew that if we didnt at least try going into
business for ourselves we would have always wondered
whether we coulda been contendas.
Perhaps you are reading this book because youre also con-
sidering doing your own thing. I am in no position to offer
advice, which is why I interviewed so many smarter and more
successful people for this book. What I would say is that if
you have done your research and believe in both yourself
and your idea, then you should go for it. You might prefer to
ask: what will happen if I stay? One technique is to look around
Where's the Loot TEXT PAGES 4/6/01 1:40 PM Page 180
your office, identify the people that run the show and ask
whether you want to end up like them. What have they had
to go through to rise to the top? What sort of people have
they become? Are you naturally that sort of person? Would
you like to become like that? Is there any reason why you
wouldntits obviously the sort of person that succeeds in
your environment? And so on.
I also like the following quote from Mark Beesley, a New
Zealand television director and filmmaker who helped to create
the smash TV series Xena: Warrior Princess:
Its a big lie that you can do anything. Every profession is full of
people who are hopeless at what they do. The people who are
happiest are those who recognise whats within themselves.
Beesley spent a decade as a business journalist before he
mustered the courage to move to writing scripts and directing.
I gather that he is now a much happier man. Its not very upbeat
but its from the heart and encourages you to look in the right
place for answersyourself.
It doesnt matter if youre a doorman or a brain surgeon.
Look around your world. Think about what you know that no
one else knows. Whats changing? How are people behaving?
What new technologies or trends are affecting the land-
scape? What wave can you see coming? Is it a big one? Might
it change the world? Are you in a position to take advantage of
it? Could you be? If the answer is yes, then start paddling.
Where's the Loot TEXT PAGES 4/6/01 1:40 PM Page 181
appendix 1
he changes to Australias tax system introduced
in 2000 by the Federal Government went well
beyond the goods and services tax and included a number of
steps designed to make it more attractive to build companies in
Australia. These steps include those set out below.
Lower company tax rate
The government dropped the company tax rate from 36 per
cent to 34 per cent for the 200001 income year and to 30 per
cent thereafter. This move is designed to bring Australia into
line with other countries within our region and has taken cor-
porate tax rates to substantially below many European nations.
Lower capital gains tax (CGT) for
In a bid to stimulate investment in shares and other assets,
the government now taxes only half the capital gain that
individuals make on their investments. Before this change, if
you made $2,000 by selling some Telstra shares, for instance,
you would have paid up to 48.5 per cent taxthe maximum
personal rateon that whole amount. This would have equalled
Where's the Loot TEXT PAGES 4/6/01 1:40 PM Page 182
$970. Under the new rule, you would now pay capital gains tax
on only half that gain, or $1,000, and face a maximum liability
of $485. Another way of looking at it is that the highest rate of
CGT for individuals is now 24.25 per cent.
Less CGT for small businesses
The government has increased the number of small businesses
eligible for a 50 per cent cut on capital gains tax by expanding
the definition of a small business from companies with net
business assets of up to $2.3 million to $5 million. Larger com-
panies pay CGT at the normal company tax rate of 30 per cent.
The government has also simplified small business rollover and
retirement exemption provisions.
Less CGT for super funds
The government has also effectively reduced the amount of
capital gains tax that superannuation fundsthe massive
repositories of peoples mandatory retirement savingsmust
pay on investments from 15 per cent to 10 per cent. They have
done this by making them pay tax on only two-thirds of their
capital gains or giving them the option of using alternative
techniques to measure capital gains made. Notably, the govern-
ment now allows all three groupsindividuals, funds and
companiesto offset capital losses against capital gains, further
maximising benefits to tax payers.
Foreign super funds exempted from
Foreign super or pension funds have traditionally avoided
Australia because it has been one of the few countries in which
they were asked to pay capital gains tax on their investments.
Where's the Loot TEXT PAGES 4/6/01 1:40 PM Page 183
While it might seem reasonable to make Florida retirees pay tax
on investment wins down under, we have been missing out on
foreign investment flows. In response, the government has
exempted US, British, Japanese, German, French and Canadian
funds from having to pay any CGT on active investments in
companies with assets under $50 million. Here, passive means
investment categories such as real estate.
Scrip for scrip rollover relief
A step that should make it easier for companies to restructure
and expand through mergers and acquisitions will be CGT
relief on deals that involve the exchange of shares but not cash.
Under certain conditions, companies will no longer have to
immediately pay tax on capital gains derived during such scrip
for scrip transactions until ultimate disposal of the replace-
ment asset. This treatment is normal in the US, for instance, so
a secondary aim is to keep companies in Australia.
The best example of the distorting effects of this final rule
was the sale of Internet service provider OzEmail in 1999.
The management of OzEmail, which included Sean Howard
and republican campaigner Malcolm Turnbull, was keen to
sell to Australian telecommunications carrier AAPT. How-
ever, AAPT was offering shares, not cash, which would have
left the OzEmail team with shares that they couldnt sell for a
certain period but a massive tax obligation in the vicinity of
$200 million.
The alternative, which they took, was a $520 million cash
bid from American giant UUNET. They had to pay tax, but
there was no risk. Unfortunately, the company was effectively
taken offshore in the process. In retrospect, AAPT was bought
by Telecom New Zealand so either way, OzEmail would have
gone offshore. Thats globalisation for you.
Where's the Loot TEXT PAGES 4/6/01 1:40 PM Page 184
appendix 2
enture capital firms maintain strict processes
for assessing potential investments. The six
steps below show the process followed by Sydney venture
capital fund Nanyang Management.
Deal flow
Like all VCs, Nanyang beats the bushes looking for worth-
while companies to fund. Its specific criteria are that investees
should be based on Australias east coast, have a significant
domestic market share and export potential, a turnover of
$525 million and already be generating annual profit of
$500,000 to $1.5 million. The company must also be facing
demands or opportunities that cannot be met from existing
financial resources and have a team in placethat is, be past
sole trader stage.
Nanyang then conducts a series of formal tests, including the
Bell-Mason Diagnostic Test. This is a structured group interview
with the potential investees senior managers that can run for
Where's the Loot TEXT PAGES 4/6/01 1:40 PM Page 185
four to five hours and is designed to identify the companys
strengths, weaknesses and stage of development. It also con-
ducts psychological profiling of CEOs. These tests take a total
of about three weeks but are not charged to the management
Due diligence
If the company gets past the screening, the process moves
on to full due diligence where the companys financials and
references are checked.
Here the fund gets down to the nitty gritty of valuations and
deal structure. It will present the potential investee with a
written proposal that has been passed by its own investment
If the fund and entrepreneur/s can agree on terms, a share-
holders agreement is drafted and payment details finalised.
The money changes hands.
Where's the Loot TEXT PAGES 4/6/01 1:40 PM Page 186
1 Rivkin, Rene, Robert Half seminar, Sydney, 29 September, 1999.
2 Verrender, I., Satellite going out of orbit as the sparks fly, Sydney
Morning Herald, 12 July 2000, p. 1.
OneInteresting times
1 Boyd, Tony, At $1.1 billion, one company still Sheins amid the dot
com meltdown, Australian Financial Review, 8 November 2000,
p. 35.
2 Maiden, Malcolm, Picking up a bargain from dstore debacle,
Sydney Morning Herald, 4 December 2000, p. 32.
3 Mansfield, Bob, interview with the author, 2 February 2000.
4 Stockport, G. and Wibberley, S., Thoughts on being a global
player, Business Day (South Africa), 15 July 2000.
5 Boutros-Ghali, Boutros, cited in Peter-Martin, H. and Schuman, H.,
The Global Trap: Globalization and the assault of democracy and
prosperity, Zed Books, London, 1996, p. 28.
6 Paul Budde Communications, Global Internet MarketStatistics
Overviews, www.budde.com.au, 2000.
7 Tapscott, Don, Growing up Digital: The rise of the N-Generation,
McGraw-Hill, New York, 1998.
8 Encyclopedia Britannica online, www.britannica.com.
Where's the Loot TEXT PAGES 4/6/01 1:40 PM Page 187
9 Reichart, Bill, speaking at Tinsheds Kickstart for Startups confer-
ence in Sydney, 29 March 2000.
10 www.consult, Australian Online Shopping Report, JulyDecember
11 Potter, Ben, E-com exchanges worry small players, Australian
Financial Review, 26 June 2000, p. 20.
12 ibid.
13 Kirby, James, Corporate buying group due for testing times,
Business Review Weekly, 21 July 2000.
14 Weiss, Peter, quoted in Lions and tigers and bears and the FTC,
Darwin Magazine, August/September 2000, p. 102.
15 Last laugh of a cowlick, Australian, 1 May 2000, p. 40.
16 The Economist, 22 January 2000, p. 18.
17 Peter-Martin, H. and Schuman, H., The Global Trap: Globalization
and the assault of democracy and prosperity, Zed Books, London,
1996, p. 117.
18 Labour pains, The Economist, 23 September 2000, p. 25.
19 Crittle, Simon, Indian takeaway, Sun-Herald, 21 November 1999,
p. 3.
20 Fogel, Robert, The Fourth Great Awakening and the Future of
Egalitarianism, University of Chicago Press, Chicago, 2000.
21 Peter-Martin and Schuman, op. cit., p. 23.
22 Inequality a myth as poors lot improves, New York Times, cited
in Sydney Morning Herald, 12 August 2000, p. 51.
23 A key academic currently writing on this issue is Dr Naren
Chitty at Macquarie University, Sydney, a former lecturer to the
24 Friedman, Thomas, The Lexus and the Olive Tree, HarperCollins,
London, 1999.
25 Peter-Martin and Schuman, op. cit.
26 Ugeux, Georges, interview with the author at the New York Stock
Exchange, September 1998.
27 Young, Patrick and Theys, Thomas, Capital Market Revolution:
The future of markets in an online world, Pearson Education,
London, 1999, pp. 467.
Where's the Loot TEXT PAGES 4/6/01 1:40 PM Page 188
28 Treadgold, Tim, Electronic gorilla could test the stock exchange,
Business Review Weekly, 28 January 2000, p. 33.
29 ibid.
30 Young and Theys, op. cit.
31 Vgeux, op. cit.
32 E*Trade advertisement published in Business Week, 16 November
1999, p. 42.
33 Thus Young and Theys (op. cit.) play on libert, egalit, fraternit,
Liquidity! Accessibility! Transparency!.
34 Gray, Joanne, New technology redefines the financial packagers,
Australian Financial Review, 7 January 2000, p. 12.
35 Gates, William, Business @ the Speed of Thought, Viking, New
York, 1999, p. 73.
TwoIn it to win it
1 Gerber, Michael E., The E-Myth Revisited, HarperBusiness, New
York, 1995, p. 24.
2 Wolff, Michael, Burn Rate: How I survived the gold rush years on
the Internet, Weidenfeld & Nicolson, London, 1998, p. 91.
3 Heavy reading, The Economist, 6 May 2000. pp. 767.
4 The Business Week best-seller list, Business Week, 6 March 2000,
p. 24.
5 Boomtown, The Economist, 15 January 2000, p. 93.
6 Wolff, Michael, e is for easy, Sydney Morning Herald, Spectrum,
15 January 2000, p. 6s.
7 Margo, Jill, Frank Lowy: Pushing the limits, HarperCollins, Syd-
ney, 2000, p. 303.
8 Foster, Professor George, interview with the author, 21 August
9 PricewaterhouseCoopers, Q3 2000 MoneyTree report results (see
10 Venture Economics/Thomson Financial, Analysis of firms and
funds: Report to the Australian Venture Capital Association Ltd,
January 2001, p. 16.
Where's the Loot TEXT PAGES 4/6/01 1:40 PM Page 189
11 Bivell, Victor, Strong growth forecast for venture capital, Aus-
tralian Venture Capital Journal, August 2000, p. 5.
12 Lewis, Michael, The Internets blank-check business model,
Bloomberg News, 25 January 2000.
13 Uren, David, Rimmer, John and Forman, David at Acuity Con-
sulting for Australian Services Network, The New Entrepre-
neurialism: Opportunities within Australias reach, ASN and
Acuity Consulting, Melbourne, 2000.
14 Enterprise Market statement at www.em.asx.com.au, 4 Septem-
ber 2000.
15 Mansfield, Bob, interview with the author, 2 February 2000.
16 Howard, Sean, interview with the author, 7 February 2000.
17 Adler, Rodney, interview with the author, 19 January 2000.
18 Ellery, Tracey, interview with the author, 19 April 2000.
19 Adler, op. cit.
20 Whitlam, Nick, quoted in iReality denies refusal to fund
LibertyOne, Australian Financial Review, 8 December 2000,
p. 55.
21 See Davidson, John, LibertyOnes complex web, Australian
Financial Review, 20 December 1999, p. 1.
22 Mansfield, op. cit. Subsequent quotes from the same interview.
23 See Lieber, Ron, Free-agent clubhouse, Fast Company, July 2000,
pp. 21124.
24 Komisar, R., The Monk and the Riddle: The education of a Silicon
Valley entrepreneur, Harvard Business School Press, Boston, 2000,
p. 150.
25 Balu, Rekha, Exit strategies, Fast Company, April 2000, p. 352.
26 Handy, Charles, author of The New Alchemists (Hutchison,
London, 1999), quoted in unlimited Magazine, February 2000,
p. 37.
27 Tabakoff, N. and Featherstone, T., The dumbing of Australia,
Business Review Weekly, 2 July 2000, p. 52.
28 Cave, Michael, Internet headhunters leave bodies behind,
Australian Financial Review, 2 December 1999, p. 1.
29 Uren, Rimmer, and Forman, op. cit. p. 10.
Where's the Loot TEXT PAGES 4/6/01 1:40 PM Page 190
ThreeSeeing in the dark
1 Mansfield, Bob, interview with the author, 2 February 2000.
2 Heinecke, William E. with Marsh, Jonathan, The Entrepreneur:
21 golden rules for the global business manager, John Wiley &
Sons, Singapore, 2000, pp. 1725.
3 Shawcross, W., Murdoch: The making of a media empire, Simon &
Schuster, New York, 1997.
4 Howard, Sean, interview with the author, 7 February 2000.
Subsequent quotes from the same interview.
5 Crowe, David, Net worth, The Australian Financial Review
Magazine, 24 April 1998, p. 34.
6 Tudehope, David, interview with the author, 5 January 2000.
7 Komisar, Randy, The Monk and the Riddle: The education of a
Silicon Valley entrepreneur, Harvard Business School Press, Boston,
2000, pp. 823.
8 ibid.
9 Quoted in Wallace, Tim, That vision thing and high net worth,
Australian Financial Review, 20 November 1999.
10 Bunnell, David, with Luecke, Richard A., The eBay Phenomenon,
John Wiley & Sons, New York, 2000.
11 Katz, Laurence E., Chemdex.com, class paper, Harvard Business
School, 22 June 1999.
12 Ince, John F., Ventro aggressively pursues its strategy to build
verticals, UpsideToday, www.upside.com, 18 July 2000.
13 Nicholas, Sean, Wizard of Spike, The Eye, 21 October3 Novem-
ber 1999, pp. 1824.
14 ibid.
15 Mesker, Michael, email to the author, 10 July 2000.
16 OHanlon, Chris, interview with the author, 30 January 2000.
17 Barker, Garry, Locals snare fortunes in webs wild ride, Age,
15 January 2000.
18 Kirby, James, Q&A: Chris OHanlon, Business Review Weekly,
13 October 2000.
19 Lewis, Michael, The New New Thing, Hodder & Stoughton,
London, 1999.
Where's the Loot TEXT PAGES 4/6/01 1:40 PM Page 191
20 ibid., p.81.
21 myCFO company press release, dated 7 February 2001.
22 Know Thyself, The Economist, 30 October 1999, p. 102.
23 The built to flip idea was introduced by Jim Collins in Built to
flip, an article for Fast Company, March 2000, p. 131. Collins is
also co-author of Built to Last: Successful habits of visionary
companies, HarperBusiness, New York, 1994.
FourOther peoples money
1 The Industry Standard, October 2000, p. 41.
2 Collins, Jim, Built to flip, Fast Company, March 2000, p. 132.
3 Davis, Paul, speaking at First Tuesday event at the Australian
Stock Exchange, 6 June 2000.
4 Abernethy, Mark and Heidtman, David S., Business Angels, Allen
& Unwin, Sydney, 1999.
5 Adamovich, Alex, interview with the author, April 2000.
6 Edward Black from Aberdeen Group in Boston, quoted in Inc.
Magazine, July 2000, p. 98.
7 Hatching a new plan, The Economist, 12 August 2000, p. 57.
8 The BITS scheme incubators were: Bluefire Group, NSW ($6.0m);
IT Catalyst, NSW ($7.37m); ITem 3, NSW ($7.37m); Information
City, VIC ($8.0m); Australian Distributed IncubatorEmerge,
multi-state ($7.0m); ePark, NSW and VIC ($5.0m); InQbator, QLD
($9.5m); Perth Ideas Centre of Technology, WA ($10.0m); SA BITS,
SA ($10.0m); and Capital Region Technology Business Centre,
ACT ($8.0m).
9 Hansen, Morten T. et al., Networked Incubators: Hothouses
of the new economy, Harvard Business Review, September
October 2000, pp. 7584.
10 Hatching a new plan, The Economist, 12 August 2000, p. 57.
11 Singer, Thea, Inside an incubator, Inc. Magazine, July 2000.
12 ibid.
13 Foster, Professor George, interview with the author, 21 August
2000. Subsequent quotes from the same interview.
Where's the Loot TEXT PAGES 4/6/01 1:40 PM Page 192
14 Ferris, Bill, speaking at the launch of his book, Nothing Ventured,
Nothing Gained (Allen & Unwin, Sydney, 2000), 14 March 2000.
15 Gerber, Michael E., The E-Myth Revisited, HarperBusiness, New
York, 1995.
16 Golis, Christopher, Enterprise and Venture Capital, 3rd edn, Allen
& Unwin, Sydney, 1998.
17 Allen & Buckeridge, conference proceedings, Allen & Buckeridge
investor seminar, Sydney, 15 August 2000.
18 OHanlon, Chris, email to author, 4 July 2000. All other OHanlon
quotes are from phone or email interviews conducted with the
author in mid 2000, unless otherwise noted.
19 Collins, Jim, Built to flip, Fast Company, March 2000, p. 139.
20 Romei, Stephen, Fools and their money, Australian, 23 Decem-
ber 1999, p. 26.
21 Schiffrin, Anya, The last-chance market, Industry Standard,
2 October 2000, p. 92.
22 Tudehope, David, interview with the author, 2 February 2000.
Subsequent quotes from the same interview.
23 Perkins, Michael, Burn baby burn, Red Herring, June 2000,
p. 424.
24 ibid, p. 414.
25 Cited by Christopher Golis in his personal list of Famous Venture
Capital Sayings, 1999.
26 Komisar, Randy, The Monk and the Riddle: The education of a
Silicon Valley entrepreneur, Harvard Business School Press, Boston,
2000, p. 52.
27 Nicholas, Katrina, Lack of cash squeezes out TheSpot, Sydney
Morning Herald, 29 June 2000, p. 25.
28 Nicholas, Katrina, Boo failure sounds a warning, Sydney Morning
Herald, 20 May 2000, p. 103.
29 Nicholas, Katrina, When the dot com dream goes bung, Sydney
Morning Herald, 31 October 2000, p. 28.
30 Unit of 1: Starting your startup, Fast Company, January
February 2000, p. 106.
31 Stewart, Vivian, interview with the author, 17 January 2000.
Where's the Loot TEXT PAGES 4/6/01 1:40 PM Page 193
FiveMagna Data
1 Conversation with the author, December 2000.
2 Ashton, Jason, interview with the author, 2 May 2000. Subse-
quent quotes from the same interview.
3 Carruthers, Luke, interview with the author, 12 November 2000.
Subsequent quotes from the same interview.
4 Allard, Tom, Hell take the new carbut hold the helicopter,
Sydney Morning Herald, 15 November 1999, p. 18.
1 Ferris, Bill, conversation with the author, February 2000.
2 Ferris, Bill, Nothing Ventured, Nothing Gained: Thrills and spills in
venture capital, Allen & Unwin, Sydney, 2000, pp. 634.
3 ibid, p. 67.
4 Foster, Professor George, interview with the author, 21 August
2000. Subsequent quotes from the same interview.
5 Sinclair, Jenny, LookSmart comes under fire, Age, 8 August
6 Ellery, Tracey, interview with the author, 19 April 2000.
7 You can obtain details on this type of insider trading through
the NASDAQ website at www.nasdaq.com. Select the stock youre
interested in, then Holdings/Insiders.
1 Verrender, Ian, From rich to filthy rich, Sydney Morning Herald,
Spectrum, 29 January 2000, p. 3s.
2 ibid.
3 Adler, Rodney, interview with the author, 19 January 2000.
Subsequent quotes from the same interview.
4 Greaves, John, interview with the author, 13 January 2000.
5 Mansfield, Bob, interview with the author, 2 February 2000.
Subsequent quotes from the same interview.
Where's the Loot TEXT PAGES 4/6/01 1:40 PM Page 194
6 Romei, Stephen, One.Tel poised to explode into profitability:
Keeling, Australian, 13 October 2000.
7 Chenoweth, Neil, One.Tel teeters on the edge of a generation
gap, Australian Financial Review, 13 October 2000, p. 54.
8 Semler, Ricardo, Maverick, Random House, London, 1993.
9 Interview with the author while a reporter at the Australian
Financial Review in 1999.
EightMacquarie Corporate
1 Collins, Jim, Built to flip, Fast Company, March 2000, p. 140.
2 Tudehope, David, interview with the author, 5 January 2000.
Subsequent quotes from the same interview.
NineSpike Networks
1 Gerber, Michael E., The E-Myth Revisited, HarperBusiness, New
York, 1995, p. 24.
2 Higgins, David, Spike founder on sharp end of $1.2m sex harass-
ment payout, Sydney Morning Herald, 14 July 2000, p. 3.
3 OHanlon, Chris, email to the author, 30 November 2000.
4 OHanlon, Chris, interview with the author, 30 January 2000.
5 OHanlon, Chris, emails to the author, MayJune 2000. Subse-
quent quotes from these emails.
6 Sams, Christine, 24 hours: Chris OHanlon, Sun-Herald,
SundayLife!, 2 April 2000, p. 4.
7 Mesker, Michael, email to the author, 10 July 2000.
8 Gartner, J.D., Prophet or loss, Talk Magazine, June/July 2000,
pp. 667.
9 ibid.
TenLessons from the boom
1 Minack, Gerard, ABN-AMRO Overnight report daily newsletter,
24 February 2000, p. 1.
Where's the Loot TEXT PAGES 4/6/01 1:40 PM Page 195
2 Cited in the Australian, Cutting Edge (IT section), 12 December
2000, p. 10.
3 Adler, Rodney, interview with the author, 19 January 2000.
Subsequent quotes from same interview.
4 Hagerty, James, How e-commerce entrepreneur, once flying high,
fell back to earth, Wall Street Journal, 7 January 2000.
5 Ferris, Bill, speaking at the launch of his book, Nothing Ventured,
Nothing Gained (Allen & Unwin, Sydney, 2000), 14 March 2000.
6 Tudehope, David, interview with the author, 5 January 2000.
Subsequent quotes from the same interview.
7 Margo, Jill, Frank Lowy: Pushing the Limits, HarperCollins,
Sydney, 2000, p. 165.
8 Minack, Gerald, ABN-AMRO Overnight report, daily newsletter,
24 February 2000, p. 1.
9 Greaves, John, interview with the author, 13 January 2000.
10 Mansfield, Bob, interview with the author, 2 February 2000.
11 Howard, Sean, interview with the author, 7 February 2000.
Subsequent quotes from the same interview.
12 Van Oeveren, Ernst, interview with the author for Australian
Financial Review, January 2000.
13 Shama, Avi, Forget sales, profit: Downfall of dot coms is a vision
thing, Australian Financial Review, 18 August 2000, p. MW7.
Shama is Dean of the College of Business at the University of
Texas-Pan American at Edinburg, Texas.
14 Gates, William, Business @ the Speed of Thought, Viking, New
York, 1999, p. 171.
15 Foster, Professor George, interview with the author, 21 August
2000. Subsequent quotes from the same interview.
16 Mansfield, Bob, speech to Australian Services Network dinner,
October 1999.
17 OHanlon, Chris, phone interview with the author, 30 January
18 OHanlon, Chris, emails to the author, MayJune 2000.
19 Verrender, Ian, From rich to filthy rich, Sydney Morning Herald,
Spectrum, 29 January 2000, p. 3s.
Where's the Loot TEXT PAGES 4/6/01 1:40 PM Page 196
20 ibid.
21 Askew, Kate, Thoughts of non-chairman Brad, Sydney Morning
Herald, 30 November 2000, p. 31.
22 ibid.
23 Komisar, Randy, The Monk and The Riddle: The education of a
Silicon Valley entrepreneur, Harvard Business School Press, Boston,
2000, p. 150.
ElevenWheres the loot?
1 Adler, Rodney, interview with the author, 19 February 2001.
Subsequent quotes from the same interview.
2 MacDermott, Kathy, OzEmail founder buys island playground,
Australian Financial Review, 3 November 2000, p. 5.
3 Chandler, Matthew, Gretel Packer tipped as $10 million buyer,
Australian Financial Review, 3 March 2000, p. 83.
4 Hayes, Simon, Start-ups attract executive crooks, says investor,
Australian, 7 November 2000, p. 44.
5 Wolff, Michael, Burn Rate: How I survived the gold rush years on
the Internet, Weidenfeld & Nicolson, London, 1998.
6 Hoyle, Simon, Navigating treacherous sea of dud floats, Aus-
tralian Financial Review, 16 September 2000, p. 34.
7 Mansfield, Bob, interview with the author, 2 February 2000.
1 Encarta World English Dictionary, Pan Macmillan, Sydney, 2000.
2 Bryson, Bill, The Mother Tongue: English and how it got that way,
Avon Books, London, 1996.
3 Collins, Jim, Built to flip, Fast Company, March 2000, pp. 13140.
4 Beesley, Mark, quoted in unlimited Magazine, February 2000,
p. 35.
Appendix 1
1 Taxation information taken from the Treasury Department
website at www.treasury.gov.au.
Where's the Loot TEXT PAGES 4/6/01 1:40 PM Page 197
10 per cent club, 43
24/7 Media, 412, 156
80/20 Software, 92
AAPT, 108, 128, 1301, 1345,
155, 173, 1845
Abeles, Sir Peter, 139
ABS see Australian Bureau of
ACCC see Australian
Competition and Consumer
accelerators see incubators
ACNielsen, 174
Adamovich, Alex, 76
Adler, Fred, 92
Adler, Larry, 36, 37
Adler, Rodney, xi, 25, 36, 75,
11821, 1234, 126, 1534,
166, 171, 177
Allen & Buckeridge, viii, 88,
92, 164
Allen, Roger, viii, 723, 889
alliances, 9, 140, 1434, 150,
AltaVista, 79
Amazon.com, 8, 18, 153, 160
America Online see AOL Time
AMP, 9, 18, 33
Anderson, Howard, 83
angel investment, 727, 117
AnnounceTV, 80
ANU see Australian National
ANZ Bank, 9
AOL Time Warner, 32, 68, 154,
Apple, 14950, 157, 165
approval, 187
Archer, David, 172
Arthur Andersen, 144
Ashton, Jason, ix, 26, 1039
Asian Infrastructure Fund, 25
ASIC see Australian Securities
and Investment
Where's the Loot TEXT PAGES 4/6/01 1:40 PM Page 198
ASN see Australian Services
ASX see Australian Stock
Atkinson, John, 1423
AuctionWeb, 55
AUSNet, viii, 160
Austal Ships, 99
Australia Club, 445
Australian Academic and
Research Network
(AARNet), 103
Australian Bureau of Statistics
(ABS), 47
Australian Business (previously
NSW Chamber of
Commerce), 75
Australian Business Angels,
Australian Competition and
Consumer Commission
(ACCC), 1245
Australian Consolidated Press,
Australian Mezzanine
Investments/AMWIN, 45,
87, 112, 114, 173
Australian National University
(ANU), 48
Australian Securities and
Investment Commission
(ASIC), 21
Australian Services Network
(ASN), 33, 49
Australian Stock Exchange
(ASX), 1820, 34, 38, 65, 89,
95, 97, 1301, 173, 1756
Baker & McKenzie, 141, 144
Barker College, 45
Beesley, Mark, 181
Bell Laboratories, 78
Bell Resources, x
Bell-Mason Diagnostic Test,
Benchmark Capital, 98
Bertini, Anthony, 62, 70
Besen family, 2
BHP, 9
Blount, Frank, 128
blue sky investments, 33,
639 passim, 164
Bluefire, 79
BMCMedia, 39, 62, 70
Bond, Alan, x, 72
Boo.com, 100
Bootcamp for Startups
conference, 25
Booz Allen & Hamilton, 58
Bos, Wayne, 173
Boutros-Ghali, Boutros, 5
BP, 164
Brady, Damien, x, xii
brain drain, 1416 passim,
Bristow, Graham, 434
British Telecom, 162
BRW Rich List, 118, 166
Buckeridge, Roger, viii
Buffett, Warren, 10
Where's the Loot TEXT PAGES 4/6/01 1:40 PM Page 199
Building on IT Strengths
scheme, 79
built to flip, 689, 71, 17980
Bunnell, David, 56
burn rate, 1002, 112, 1534
business accelerators see
business risk, 12, 467,
17681 passim
Business Thinking Systems, 37
Business.com, 154
Buy.com.au, 8
Byrne, Terry, 164
Cabletron Systems, 157
Campsix, 81
capital gains tax (CGT), 1824
capital markets, 1622, 701,
CareerPath.com, 47
Carrefour, 9
Carruthers, Luke, ix, 1039
CDNow, 32
CGT see capital gains tax
Chemdex.com, 568, 133
Chinadotcom, 43
Cicutto, Frank, 169
Cisco Systems, 2, 20, 104, 154,
Citibank/Citigroup, 15, 17
Clark, Jim, 669, 149, 17980
clubs, 446
CMGI, 59, 789, 81
Coca-Cola Amatil, 9
Coles Myer, 2, 9
Collins, Jim, 71, 130, 17980
Columbia University, 94
Com Tech Communications, 2
Compaq, 157
Computer Power Group, 88
Consolidated Press Holdings,
Cooper, Brad, 37
Cornish, Phil, 172
CorProcure, 9
Country Road, 164
Covey, Stephen, 24
Covisint, 9
Cox Communications, 1134
Cramer-Roberts, Mark, ix,
Cranbrook (school), 367,
Critical Path, 79
CRM see customer relationship
customer relationship
management (CRM), 1212,
cybersqatters, 32, 154
DaimlerChrysler, 89
Danko, William, 24
Datacraft, 89
Datacraft Asia Ltd, 99
Davis, Paul, 73
Davnet, ix, 267, 1039
deal flow, 73, 186
Decisive Publishing, viii
Department of Industry, 29
Where's the Loot TEXT PAGES 4/6/01 1:40 PM Page 200
deregulation, 312
Deutsche Bank, 173
Deutsche Boerse, 21
Diamond Press, 106, 109
Digital Media Group, 75
dilution of shareholdings,
Dimension Data, 2, 89
disruptive technology, 31
DNA Sciences, 68
Doerr, John, 59
domain experience, 545,
DoubleClick Inc., 402
Doust, David, 75
Dowell Schlumberger, 57
Downer, Alexander, 39
dstore, 2, 75
due diligence, 93, 187
E*Trade, 21
eBay, 565, 154, 156
ECAT Development Capital,
ecorp, xii
Edge Group, x
Editor.com, 179
Eisa, x, xii
electronic communications
networks (ECNs), 21
Ellery, Tracey, ix, 32, 378,
456, 11017, 172
Enterprise Market, 34
entrepreneurialism, vii-xiii, 16,
278, 334, 513, 578, 139,
145, 150, 17181 passim
Eordogh, Andrew, 64
ePark, 79
Equity Partners Asia, 76
eToys.com, 81
excess funding, 99102, 176
Excite, 434
Exxon, 19, 579
FAI, 37, 120, 124, 143
Fairlight ESP, 89
fame, 16370 passim
Ferris, Bill, 45, 85, 87, 99, 155,
financial system revolution,
810, 1622 passim
first mover advantage, 157
First Pacific, 118
First Tuesday, 25, 97
Fisher, Greg, xi, xii
flexibility, 113, 163
focus, 134, 1546
Fogel, Robert, 13
Foos, Richard, 101
Ford Motor Company, 89, 79,
Foster, George, 278, 856,
1134, 1623
Fosters, 9, 122
Foundry Networks, 94
Fox, Lindsay, 169
free trade, 1011
FreeMarkets, 10, 94
friction-free capitalism, 10, 22
Friedman, Thomas, 15
Where's the Loot TEXT PAGES 4/6/01 1:40 PM Page 201
FTR Holdings, 35
FuckedCompany, 152, 169
Gamble, Neil, 169
Garage.com, 7, 25
Garden.com, 153
Garner MacLennan Group, 89
Gates, Bill, 5, 22, 52, 83, 162,
GE Capital, 12, 16, 1920
General Motors, 8, 156, 157
Gerber, Michael, 87
Global 1000, 10
globalisation, 322 passim, 185
GlobalNetXchange, 9
GoFish.com, 79
Golis, Christopher, 8993, 98
goods and services tax (GST),
34, 182
Gore, Al, 4, 134
Greatorex, David, 25
Greaves, John, xi, 120, 1267,
143, 157, 167
Green, James, 40
Greenwald, Bruce, 94
Greiner, Nick, 2, 39
Greylock, 58
Gross, Bill, 801
GST see goods and services tax
Hagans, Don, 173
Handy, Charles, 47
Hansen, Morten, 801
Harbour Angels, 75
Hardie, James, 18
Harrington, Alison, xii, 1001
Harris Scarfe, 2
Hartley Poynton, 173
Harvard Business School, 578,
82, 133
Harvey, Gerry, 51, 169, 178
Harvey Norman, 51
Hawke, Bob, 26
Healtheon, 678
Hewlett Packard, 64
Higgins, David, 141
high growth (managing), 1039,
1269, 150, 1569 passim
Hochma, 2
Holmes Court, Janet, 169
Home nightclub, 26
HomeBase Directories, 111
Hooker, Janusz, 25, 75
Hooker, L.J., 25
Hotbank, 81
Howard, John, x
Howard, Sean, vii, viii, xii,
xiii, 32, 35, 39, 41, 50, 52,
5963, 107, 1589, 1712,
178, 184
HSBC, 15, 22
human resources management,
14, 115, 127-8, 137, 1489
Humphry, Richard, 18
Hunter Bay Innovation, 142
Hutchison Telecoms, 119, 126,
172; see also Orange
IBM, 1920, 33, 52, 162
idealab!, 78, 801
Where's the Loot TEXT PAGES 4/6/01 1:40 PM Page 202
Imagination Entertainment,
Imagineering Group, 36,
11820, 126, 166
Immutech, 58
incubators, 7783
information superhighway, 4,
initial public offers (IPOs), 24,
947 passim, 114, 132,
Ink Development Corporation,
Inner Circle party, 25
Innovation Investment Fund
scheme, 112, 114
Instinet, 21
Intel, 105
intellectual property (IP), 87,
15961; see also patents
Internet Assigned Numbers
Authority, 6
Internet Capital Group, 78
inter-touch, 105, 107
IP see intellectual property
iReality Group, 43
Isis Communications, 175
ITem 3, 79
iX, 21
Japan, 245
JGL Investments, 2
JNA Telecommunications,
Jobs, Steve, 149, 165
John Fairfax Publications, 63
J.P. Morgan, 164
K*Grind, 87, 173
Kalori Consortium, 133
Kaplan, Philip, 152
Katz, Laurence, 578
Keeling, Brad, 120, 1229
keiretsu, 80
Kennedy, Trevor, 41
Kepper, George, 89
KFT Investments, 89
Kickstart for Startups
conference, 25
King, Judith, 33
King, Stefanie, 141
Kings (school), 103
Kiyosaki, Robert, 24
Kleiner Perkins Caufield &
Byers, 59
Knox (school), 36
Komisar, Randy, 534, 100, 169
Labor Party, 13
Leibler, Mark, 2
Lentell, Gour, 3942, 62
Lessonware, 169
Lewis, Michael, 33, 66, 68
Li family, 126
Li, Richard, 143
Liberman family, 2
LibertyOne, 434, 156, 173,
177, 180
Linux, 94
Linux Care, 48
Where's the Loot TEXT PAGES 4/6/01 1:40 PM Page 203
Living.com, 22
London Stock Exchange (LSE),
LookSmart, ix, 2, 32, 378,
456, 92, 11017, 128, 162,
Love, x; see also Reynolds,
Lowy, David, 25, 124
Lowy, Frank, xiii, 27, 169
LSE see London Stock
Lucent Technologies, 78, 123
Lycos, 79, 161
McCance, Henry, 58
McDonalds, xiii, 37, 49, 87
McGuigan, John, 93, 1404,
147, 1501
Mackerras, Paul, 48
McKinsey & Co., 97, 1101
Macquarie Bank, 80, 87, 114
Macquarie Corporate
Telecommunications (MCT),
ix, 31, 53, 967, 1308,
1556, 158, 171, 178
Macquarie Technology Fund,
Macquarie University, 1
Magna Data, viii, ix, 257, 74,
102, 1039
Mainprize, Timothy, 143
Maltz, Lawrence, 143, 147
Mandela, Nelson, 175
Mansfield, Bob, xi, 4, 456, 50,
1202, 157, 159, 163, 169,
Marzbani, Ramin, 64, 174
MCI, viii, 133
Melbourne Club, 44
Mercantile Mutual, 64, 148
Merrill Lynch, 22
Mesker, Michael, 64, 148
Metro group, 9
Micro Forte, 92
Microsoft, 45, 17, 20, 48, 52,
56, 68, 83, 88, 113, 139,
1567, 162, 165
Microsoft Australia, 48
MicroStrategy, 149
Miles, Neville, 41
Minack, Gerard, 157
Moignard, Stephen, 108
Monkeydex.com, 33
Mothers (stock exchange), 25
Mount, Nick, 75
MTM Funds Management, 41
Murdoch family, 126, 128
Murdoch, Lachlan, 118, 1278,
Murdoch, Rupert, 51, 83, 123,
1689, 178
Murdoch University, 33
Muspratt, Peter, 133
myCFO, 67-8
MYOB, xiii
Nanyang Management, 89, 93,
Naphtali, Michael, 2
Where's the Loot TEXT PAGES 4/6/01 1:40 PM Page 204
NASDAQ see National
Association of Securities
Dealers Automated
National Association of
Securities Dealers
Automated Quotation
(NASDAQ), 1921, 25, 33,
38, 41, 43, 57, 62, 789, 94,
96, 107, 114, 116, 160
National Office for the Infor-
mation Economy (NOIE), 97
National Rural Health Research
Institute, 160
NetGear Ltd, 112
NetJ.com, 33
NetPort Hospitality Systems,
Netscape, 4, 62, 66, 68, 1134,
Network Solutions, 4
networking, 256, 50
NetX, 37
new economy, 149
New York Stock Exchange
(NYSE), 17, 1921
News Corporation, 18, 65, 83,
122, 126, 167, 175
N-Generation, 6
Nike, 47
ninemsn, 2
Nissan, 8
NOIE see National Office for
the Information Economy
Norman, Greg, 44
Norman Ross, 51
Normanhurst Boys High
School, 35
NRMA, 39, 44
NSW Chamber of Commerce,
75; see also Australian
NTT, 108
NYSE see New York Stock
OHanlon, Chris, 636, 92,
13951, 165
Oeveren, Ernst Van, 1601
Omidyar, Pierre, 556
One.Tel, ix, xi, 37, 11829,
143, 155, 167, 172, 175, 177
Open Market, 1601
Open Telecommunications, 70,
Optus, 168, 11921, 1234,
127, 1301, 1334, 155, 157
Oracle, 40
Orange, 119, 172; see also
Hutchison Telecoms
Ord Minnett, 173
OTC, 134
other peoples money (OPM),
Outbiz.com, 79
Outtrim, Steve, 1723
OzEmail, viii, x, 32, 35, 3941,
5963, 101, 107, 109, 156,
158, 1712, 1845
OZeStock.com.au, 80
Where's the Loot TEXT PAGES 4/6/01 1:40 PM Page 205
Pacific Century CyberWorks
(PCCW), 65, 140, 1424, 150
Packer family, 45, 128
Packer, Frank, xiii
Packer, Gretel, 172
Packer, James, 25, 36, 75, 118,
120, 1224, 128, 167
Packer, Kerry, viii, 62, 114,
Palasty, John, 171
Palm, 1567
Partnership Pacific Ltd,
Passlow, Wayne, 701, 94
patents, 1601; see also
intellectual property
Paul Budde Communications, 6
PBL Online, 48; see also
Publishing & Broadcasting
PCCW see Pacific Century
PEG Technologies, 89
Pepsi-Cola, 149
Perkins, Michael, 989
Perry, David, 569, 133
Peter-Martin, Hans, 15
Petre, Daniel, xii, 48
Pets.com, 8
Poole, Richard, 7980
Powderbox, 7980
PowerTel, 172
Priceline.com, 160
public relations, 16370
passim; see also fame
Publishing & Broadcasting
Limited (PBL), 122, 167
Punch, Justin, xii
R&D see research and
Rachleff, Andy, 98
Radiata Communications, 2
Readers Digest Association,
Rebel Sports, 2
Redmond, 162
Reichert, Bill, 7
Renault, 8
research and development
(R&D), funding, 478, 71
Reuters, 21
Reynolds, Siimon, x
Rhino Records, 101
Rich, Jodee (John David), ix,
xii, 36, 50, 11829, 1668,
Rich, Maxine, 119
Rich, Stephen, 36
Riley, Paul, 112
Roberts-Thompson, Barry,
rough backgrounds (growing
up poor), 358 passim
Rozell, Given, 1412
Sabela Media, 3943, 62, 115,
Where's the Loot TEXT PAGES 4/6/01 1:40 PM Page 206
Salomon Smith Barney, 144,
Sarris, Stan, 37
Satellite Group, The, xi
Sausage Software, 172
Saylor, Michael, 149
Sculley, John, 149
Seafoodonline.com, 164
Sears Roebuck, 9
Secure Sockets Layer (SSL), 4
Seek.com.au, x
Semco, 127
Semler, Ricardo, 127
SFE see Sydney Futures
Shama, Avi, 161
Shawcross, William, 51
Shein, David, 2
Shein, Jon, 2
Shein, Stephen, 2
SheSaid.com.au, 79
ShopFast, 75
shopping basket/trolley
(Internet), 160
Shuttleworth, Mark, 45, 22
Silicon Graphics, 66, 68
Silverstream Corporate, 79
Singleton, John, 25, 169
Skellern, David, 1
Skettos, Michael, 106
Skoll, Jeff, 55
Smith, Adam, 14
Smorgon, Norman, 25
Softbank Interactive, 40
Software-markets.com, 75
Solution 6, xi, xii, 43, 169, 180,
173, 175
Sony, 116
South Australia Club, 39, 44
Spectrum Network Systems,
Spence, David, 41, 62
Spike Networks, 32, 636, 92,
13951, 180
Spira, John, 106
St George Bank, 89
Stanford University, 278, 68,
85, 113, 162
Stanley, Thomas, 24
Starbucks Coffee Company, 143
Stewart, Vivian, ix, 25, 75, 101,
Strewth!, 168
success, viiix, xiii, 12, 389,
1718 passim
Sussan, 2
Swinburne University, 33
Switkowski, Ziggy, 122
Sydney Futures Exchange
(SFE), 1819
Sydney Grammar (school), 103
tall poppy syndrome, 152,
1668 passim
Tapscott, Don, 6
tax reform, ix, 345, 47, 1767,
Tech Invest, 73
Tech Pacific, 150, 118
Telecom, 134; see also Telstra
Where's the Loot TEXT PAGES 4/6/01 1:40 PM Page 207
Telecom New Zealand, 130,
Telefonica, 128
Telstra, viii, xi, 4, 9, 18, 33,
45, 53, 105, 1079, 1225,
1278, 1301, 1347, 143,
157, 159, 175, 177, 1823
Tempest Online, 79
Tetherless Access, viii
Thawte Consulting, 45
theglobe.com, 94
TheSpot, xii, 2, 1001, 176
Theys, Thomas, 17, 19
Thornley, Evan, ix, 32, 38,
1107, 162, 172
Time Warner, 116
Tinshed, 257, 746, 105
TNT, 139
Tokad, 40
Tokyo Stock Exchange (TSE),
Torson, 92
Toyota, 63
Toys R Us, 81
Traveland, 36
Tridgell, Andrew, 48
Tripp, Simon, 41
Truong, Huy, 163
Truong, Jardin, 163
Tudehope, Aidan, ix, 1308,
171, 1778
Tudehope, David, ix, 31, 36,
53, 967, 1308, 155, 158,
171, 1778
Tufts University, 56
Turnbull, Lucy, 35
Turnbull, Malcolm, 356, 41,
Turner, David, 3942, 62
Twomey, Paul, 97
Tyler, Chris, x, xii, 169, 173
Tyson, Eric, 24
uBid, 44, 79
Ugeux, Georges, 17, 19
Union Club, 45
University of Cape Town, 4
University of New South
Wales, 106, 133
University of Sydney, 106
University of Tulsa, 57
UUNET, viii, 32, 156, 185
VA Linux, 94
Value America, 154
VECCI see Victorian Employers
Chamber of Commerce and
Ventro Corporation, 567
venture capital, viii, xi, 2630,
713, 8493, 97102, 1867
Verisign, 4
Victorian Employers Chamber
of Commerce and Industry
(VECCI), 75
vision, 503, 5963, 126, 145,
14951, 162
Vodafone, 1234, 172
voting control, 717, 83, 903
passim, 979, 13940, 1623
Where's the Loot TEXT PAGES 4/6/01 1:40 PM Page 208
Wacker, Watts, 166
Walden International, 112
Wang, Johnson, x, xi
Warner Music, 101
wealthy backgrounds (growing
up wealthy), xii, 359
passim, 118
Web Wide Media, 40, 62
WebMD, 68
Weldon, Kevin, 25
West, Morris, 63
Weste, Neil, 1
Westfield, 124
Westpac, 31, 133, 134
Wharton (business school), 119
Whitlam, Gough, 39
Whitlam, Nick, 39, 434
Williams, Larry, 128, 173
Winepool.com.au, 79
Winkler, Craig, xiii
Winn, Craig, 154
Wishlist.com.au, 163
Wolff, Michael, 23, 175
Wolff New Media, 23
World Intellectual Property
Organisation, 32
World Trade Organisation, 11,
World.net, 161
www.consult, 78, 174
www.science.com.au, 160
Yahoo!, 111, 11417, 154, 156
YankeeTek, 83
Yell, Brendan, 32
Young, Patrick, 17, 19
Zivo, 44
Zulumedia, 40
Zulu-Tek, 40; see also
Zurich, 64
Where's the Loot TEXT PAGES 4/6/01 1:40 PM Page 209