Voting with your wallet

There is no doubt that consumerism is an economic force that has both positive and negative aspects. As a society we almost certainly consume too much of our resources and with insufficient care. Globally there is unacceptable disparity between rich and poor and it may simply not be possible for the planet to sustain a uniform level of access to resources if the emerging world is to enjoy the same standard of living as the developed world. Both sides of the wealth divide will have to make adjustments – both to expectation and utilisation.

In general, however, I believe that a free market-based approach is the only way to cut across the geographical, cultural and political diversity of our planet. We are all part of a global marketplace and although there are certain areas that warrant certain forms of cooperative international regulation, to ensure that scarcity doesn’t distort (destroy?) the market (clean water, air, an intact food chain, biodiversity), most activity should be fair game and competitive.

My opinion is that a free-market economy (capitalism) is a fairly democratic forum and a forum that everyone can “vote” in. If companies are transparent about their policies on environmental, labour, diversity, etc. then this vote can be knowledge-driven and powerful. Media and online access to information to some extent increasingly ensures this and arguably there is very little place to hide with social media. However, it also involves a social contract that business adheres to the expectations of society, with or without government policy dictating the boundary conditions. Business is not a parallel world or a microcosm with its own set of rules, it has to be something built on top of our broad set of values. This is not without challenges when businesses regionalise and social values adjust, but as a planet we have to be moving towards shared notions of environmental sustainability, gender equality and basic human rights.

In some cases, it should be noted, companies do it better than politicians – and can be part of the solution for creating global standards.

I believe, perhaps somewhat optimistically, that our best companies already do this – they understand that their products and services lose value if they are found to be in violation of our conduct expectations. Moreover, organisations that demonstrate leadership in actively improving the world we live-in, the “triple-bottom line”, ultimately do better than their peers who do not, whether it is their productivity, their performance in the marketplace or internal efficiency (cost) due to things like labour turnover. This is not necessarily intuitive, nor the data absolutely bullet-proof, but there is growing evidence that this is the case.

This means that money has actually two functions. Firstly, it is a means to acquire/transact products and services, and service debt – something most people understand. Secondly it is a vote cast in favour – or dissent – of the conduct of the product or service provider. Too many people look at the bills in their wallet and fail to understand that money is far more than just the ability to procure, it is the secret to changing the world. We no longer have twinkies – because they are unhealthy for our kids and we don’t buy them. Tobacco consumption is on the decline, because understand that smoking causes disease and we are not buying their products (taxation/policy is, of course, an accelerator of this impact). We expect our products and packaging to be more environmentally friendly. Of course, education and transparency are key to unlocking that monetary “vote”.

For example, I drive my wife insane because I refuse to buy chicken and eggs that are not free-range/organic. Not because I really believe that it is healthier (there is plenty of evidence that organic produce has little health benefit compared to the cost) but because I believe that when I vote with my wallet, I both enable the growth of more appropriate animal husbandry practices and I put financial pressure on the battery hen farms that I object to. I realise that not everyone has the luxury of being able to cast that vote, but I also believe that those who can, should – and ultimately if an industry can be “tipped” it will eventually produce a benefit to everyone.

By the way, this is the best answer I can give to the retort that poorer people have fewer monetary votes… and I concede that this is a problem if the interests of the rich do not consider the needs of the poor.

… But there are also smart people thinking about solutions this problem.

I had breakfast ten days ago in NYC with a friend and fellow YGL, Jeremy Balkin, who has started a private equity fund with the goal of “doing good and doing well.” His passionate belief is that the concept of the financial vote should apply even more aggressively to the large pools of capital that really influence market dynamics. Our investment banks, mutual funds, pension funds and sovereign wealth funds need to be the paragon of this concept and should eschew investments that do not conform to the needs of our world, today and tomorrow. They should also be managed by the our brightest people with the highest moral commitment to this mission.

These large funds – that represent our collective wealth – need to be at the forefront about asking tough questions about what is best for the future of everyone…

… And act now.

De-risking a New Venture : The Buddy System

When you go scuba-diving, it would be unthinkable to take the plunge by yourself. Why? Because if something goes wrong, it helps to have a second set of resources available to try and get out of a sticky situation. Probably the most important “redundant” resource is brainpower – in the heat of the moment, it’s vital to have someone else looking at the situation more rationally (and with more oxygen) than you are.

It can save lives.

Start-ups are basically no different and we have lots of ways of achieving some of the same goals. We seek out experienced people who have done it before. We try to attract excellent board members and thought leaders to help improve our decision-making processes and challenge our assumptions. Contract manufacturing and outsourcing defers major CapEx until a product or service trajectory is more robust. We have platforms like incubators and accelerators (however efficacious) – even universities are changing to become a more fundamental part of the technology/tech transfer de-risk process.

The fact is, the early days – and early dollars spent on a new venture – are the riskiest but also the greatest “value inflection” (as the VCs like to call it). The problem is capability v risk – and how much to invest of your modest financial resources to achieve that milestone. That new nanotech start-up shouldn’t spend $5m on a clean room and a lab, they should just want to buy user time on sophisticated capability, not own it. You’d be amazed how many academics launch companies and spend a small fortune of high-cost venture capital replicating the capabilities of the lab. Total waste of money.

Human resources are a challenge too. A new cleantech or materials science company probably wants the world’s greatest chemist – on 40% time – and then ramp that person up to 100% when the next round of funding comes in. Especially if you are outsourcing or using resources on a fee-for-service basis, certain key piece of brainpower may simply not be running at 100% utilization. It’s not easy to obtain fractional ownership of the best people (slicing someone down the middle??!), despite a lot of innovation in the staffing and human resources space.

Like diving, it’s my opinion that one of the smartest things a start-up can do is find a “buddy.” Another company that has some of the same needs, infrastructure requirements, staff skills, etc. and take the dive together. Of course it’s vital that your activities don’t compete and that the leadership of the two organizations have a clear agreement on what the rules of engagement are. It has to be a symbiotic relationship, not a parasitic relationship and there is no doubt that if one “sibling” grows faster than the other, there can be problems.

However, in the last few years I had personal experience of this scenario and I think it can work very well. I led a nanomaterials company called Fibron Technologies (really fantastic conducting polymer technology) and ImaginAb (a biotech company) using exactly this system. They both needed some basic lab space. They both needed some simple analytical equipment. They both needed a few chemists and engineers. They both needed some basic IT, phones, roof… a decent coffee machine.

The two companies lived together for almost 3 years. Today, ImaginAb seems to have a bright future. Fibron, unfortunately, didn’t make it and I wound the company down in 2011.

But I can tell you, it was close and both companies would be assuredly kaput today if it were not for each other. Their financial fortunes fluctuated and changed wildly. Sometimes Fibron could pay the rent, sometimes ImaginAb could. When Fibron had a delay on an industry research contract, ImaginAb picked up the payroll and kept a joint headcount going for a couple of months – ensuring that Fibron’s corporate memory was retained and providing a measure of security for the employee. Initially, Fibron built out the lab. Later, when Fibron was strapped for cash and ImaginAb was starting to make money, it purchased the lab from Fibron, while still allowing Fibron to remain a user on a fee-for-service basis.

A kind of balance sheet and asset register “waggle dance” …

But perhaps most importantly, in good times and in bad times, the two companies shared a roof, pizza and beers after work. When one group was struggling, the other was there to lend a hand and provide some encouragement. Instead of having a few constantly distressed (or elated!) employees, there was always a stronger emotional balance that normalized the atmosphere. It was truly the equivalent of two divers, sharing a regulator and slowly ascending to the sun-dazzled surface from the murky depths below.

Though, as I said, in the end Fibron didn’t make it. It was a pretty dark time for the Fibron team, including me. But I think it was hard on the ImaginAb team as well, they lost a diving buddy. I guess that’s the sad part of it, though it also made people realize that start-ups do often fail – it was a reality check.

It was always my goal – and intent – that both companies succeed, like having two kids that are different but that you love equally. I was not successful with this goal and there were many hard lessons learned, that I will save for another post. However all the way to the end, the symbiosis, the superb relationship between the founders of the two companies, enabled a fairly orderly wind-down of Fibron. Even some of the employees who had been “shared” headcount were able to continue with the surviving firm. But I can also say that without Fibron, there would be no ImaginAb today – and were it not for ImaginAb, Fibron would never have had a shot at a VC term sheet (which it got, but failed to syndicate at the 11th hour).

One company ran out of oxygen but it was the combined momentum that enabled at least one of the companies to surface.

The “buddy system” – worth thinking about it.

My Democratic Duty Discharged

On the weekend I voted in the Australian federal elections.

In the lead up to election day, I experienced a wide range of emotions about the frankly underwhelming quality of political leadership in my beloved country. I am disgusted that our politicians seem to think that making ridiculous fiscal promises, immediately abandoned post-election, somehow implies integrity and vision. I am disappointed that we cannot seem to meaningfully tackle climate change – indeed our politicians seem to have turned their back to anything substantive on environmental policy. I am angry that we cannot welcome refugees to our country without debate as to the merits of basic human rights. I am astounded that in this age, a purported world-class leader would refer to gay marriage as a “fashion of the day.”

Even as a once diehard Labor supporter, I am glad he is where he deserves to be - behind the political equivalent of a chain-link fence...

Even as a once diehard Labor supporter, I am glad he is where he deserves to be – behind the political equivalent of a chain-link fence…

But on the day I voted, I lost my anger. Why? Because it was orderly, fair and peaceful. I queued at my local school – although surely if our medical records and banking information can be accessed online we can surely e-vote as well… but that’s not the point. The point is that green-haired, nose-pierced representatives of minor parties (there are 88) can spruik their wares as you line-up.

And I respect that.

You can get a brochure from Julian Assange’s WikiLeaks party (replete with Assange in a flannie holding an AC/DC mug), or learn about the modern and striking policies of the Australian Sex Party (I’m not joking – those nice people just want to screw, tax churches, smoke dope and be free to kill themselves if they wish to … surely not too much to ask of civil society?). There are a lot of pretty wacky ideas out there about how the country should be run – but then at the end of the day, arguably no crazier than the party that was actually elected into power.

That’s the beauty, we have these voices. They are free to speak. I can even write this blog without TOO much fear of repercussion …

I didn't vote for the WikiLeaks party, but in Julian's honour, I had a QuickiLeak at the end, after standing in a queue for an hour...

I didn’t vote for the WikiLeaks party, but in Julian’s honour, I had a QuickiLeak at the end, after standing in a queue for an hour…

May I say that there was also something delightfully 1950s about the whole affair (even though I wasn’t alive in the ’50s, it’s how I imagine it to be, all wholesome and clean). There was a bake sale. There were some enterprising members of the school selling potted plants. There was a coffee stand with a big chrome espresso machine and an old Italian man working the valves. There was a sausage sizzle and the rancid aroma of low-grade meat and onions… mmmm. Kids were running around, dogs were sniffing each other’s butts. It was a blissful scene of middle-class contentment.

There were no chemical weapons. There were no hurtled rocks or Molotov Cocktails. There were no images of abaya-clad women crouched in a devastated pose over the bloody corpse of a murdered child or bullet-riddled buildings that survived 1000ds of years … until this day.

That is why functioning democracy is beautiful. Not because it is smarter or more enlightened about the best way to live out our lives – indeed it has as much scope for stupidity and pointlessness as any other ideology. Its superiority simply comes from its peacefulness. Moreover, it is truly a right worth dying for and those who struggle every day to obtain it, fight for good cause.