The SaaS Fundraising Death Zone

TL;DR: the ecosystem of early-stage investors (angels, seed and VC) has a structure and set of incentives that creates ideal (or even necessary) points in a SaaS startups life for raising capital. Unfortunately, changes in the ecosystem have created what I call a “Death Zone” between Seed and VC tiers of investors which can seriously affect the ability of a SaaS startup to raise the capital they need to grow, and in some cases, survive. For most SaaS startups, the death zone occurs where they are doing between $50K and $200K in MRR: the startup is too big to raise from Seed funds, but too small to raise from VCs, and because it is counter-intuitive, it is a major risk to SaaS entrepreneurs running successful, growing startups.

saas-fundraising-death-zone

Building a SaaS company is hard but rewarding. After bootstrapping AffinityLive for its first few years (very very difficult), I decided that the time was right for us to engage with investors and raise capital to accelerate our growth further. Fundraising is always hard work, but I didn’t realize until I was well into the process that I’d made the mistake of trying to fundraise at a time in the business’ life that I’ve since come to call the SaaS Fundraising Death Zone.

This post is an attempt to help other SaaS founders out there not repeat my mistakes, because while our outcome has actually been really awesome, the probabilities of success were much lower and the effort required to get a great outcome was a lot higher than it would have been if I’d known this information a couple of years ago. I hope this post is helpful, and feel free to share it with other founders you think could benefit from it (Twitter, Facebook, mailing lists, etc).

Early Stage Investor Types

Before explaining the Death Zone, it makes sense to summarize the different types of early stage investor active in the ecosystem. This is just my experience and perception, but since these observations underpin my lessons learned, it makes sense to spell them out here.

Angels
Angel investors are those early stage folks who mostly write $25K-$150K checks out of their personal funds to back a company early. They’re usually people who’ve had a good exit from the industry or have risen in it enough to qualify as an Accredited Investor – they’ve got their own nose for picking winners and often their main payoff is the emotional satisfaction from investing (paying it forward, giving back, being able to share the excitement of the early stage journey from a front row seat) – early stage companies are so risky most Angels would get better financial returns from playing table games in Vegas. As a very small time angel investor myself (through Startmate) I treat every check I write as a donation in the balance-sheet of my mind.

Seed Funds
Seed Funds are those early stage investors who mostly write $750K-$1MM checks for companies that have shown some promise and have achieved more traction or have a more compelling team/vision/opportunity that allows them to bypass (or combine) angel investors. They tend to raise smaller funds (anywhere from $10MM around $100MM, but they’re raising more too) to invest in startups, and most of the time they’re backing companies based on their belief of their ability to get to a Series A.

Most of the time these Seed Funds are newer and as they prove out their track record they raise larger and larger funds which let them write bigger checks and graduate into “VC Funds” land – you could argue that some of the names below are already there.

Prominent examples of these types of funds are SoftTech VC (2015 fund was $85MM), XSeed (2012 fund was $60MM), 500 Startups ($100MM in 2013), Illuminate Ventures and Costanoa Ventures ($135MM in 2015).

VC Funds
VC Funds are the folks with the big firepower – they raise many hundreds of millions, sometimes into the billions from their investors to then put to work investing in startups. Names like Kleiner Perkins ($525MM fund in 2015), Sequoia ($700MM in 2010), Andreessen Horowitz ($1.5B in 2014), Accel ($475M just for early stage in 2014), Greylock ($1B in 2014) and Benchmark ($425MM in 2013) are prominent in this category.

These funds invest in companies they think can be IPOs and billion dollar exits, and while some of them do seed investing (often writing $500K checks alongside others) they really get into the game and place their bets at the Series A stage (all the partners I’ve spoken to at these firms who do seed investing just to get the inside run on the Series A) and then follow on (or join in someone else’s party) in Series B and later stages.

OK, now we’ve gotten that out of the way, let’s look more closely at SaaS companies, and more specifically, the rule of thumb around how they’re valued.

SaaS Valuations

Valuations are a funny thing – the true answer is that a company is worth what someone will pay for it. In early stage SaaS, however, when there’s a lot of uncertainty but there’s some proof points, a good rule of thumb is to consider the valuation of the business as being 10x annual recurring revenue (ARR). Applying this rule of thumb, if you’re doing $50K in monthly recurring revenues, your current rule of thumb valuation $6MM.

Now, if your SaaS business is growing fast (more than tripling or doing 200% a year in revenue growth), you can expect to see this multiple move up to 15x-20x. If you’ve tapped into something super lucrative and frictionless (Zenefits, Slack) you’ll see these multiples go a lot higher because investors are happy to overpay now if they’re very confident you’ll be worth that higher price very soon. While we all like to obsess about outliers (and aspire to be one), it makes sense to look at the more general case of a successful SaaS business that has solved a real problem and is doubling revenues year on year.

The reason for bringing up valuations is that the process of raising equity funding involves “selling” some of the company to new investors (although mostly by issuing new stock, so the company gets the money, not existing shareholders). You might think that raising $2MM for a company that is valued at $6MM is much the same as raising $2MM for a company valued at $40MM – you’re just selling a smaller percentage of equity – but you’d be wrong because investors have different needs.

Incentives for Early Stage Investors

For everyone in the early stage except the Angels (and sometimes also them), there’s a very strong incentive for an investor to buy 15%-20% of startup when they invest in a funding round. In fact, from talking to dozens of investors and many more entrepreneurs about it, the percentage is actually the fixed aspect in the investing formula – increasing the check size just increases the valuation, but the percentage is the piece that is fixed in place.

The reason for this is that investors know many of their investments are going to be duds and return nothing at all, some will return nicely, and occasionally they’ll get a massive home run which makes almost of the money in the fund. It is known as a power-law, and Peter Thiel and Marc Andreessen do a great job explaining it. The consequence of this arrangement is that investors want to make sure they have a meaningful piece of each company they invest in (they believe each one will be the home run when they invest, otherwise they’d pass) so the returns are great if they’re right. They’re also conscious of their own time in selecting and then working with/helping a startup they invest in – if they only have 5% of a company, they’ll be a lot less excited to work alongside those founders than they would be for a company they own 25% of.

So, if the percentage is the thing that investors doggedly stick to and the valuation rises and falls with the check size (amount they invest in that round), why is there a death zone? Well, it turns out that check size is in many ways defined by the size of the fund and funds aren’t nearly as flexible as we’d like.

Fund Size and Check Size

The early stage business model for a fund (Seed or VC) is pretty similar – the fund raises money from Limited Partners (LPs) who are looking for a return on their investment – usually they’re wealthy family offices, college endowments, pension funds, etc. When the LP invests in a fund, they’re handing over their money for a period of 10 years (roughly). The fund then invests that money in startups, front-loaded often into the first 3 years, and then “follows on” with the successful businesses to keep their percentage as high as possible through future rounds of investment.

Seed Fund Check Sizes

To use a specific example, let’s look at a Seed Fund which has raised $60MM (to keep the math easy). With a $60MM fund, the investor is basically saying they’re going to invest $20MM a year for the first 3 years (leaving the back 7 for the companies to “exit” and return the cash through an IPO or sale). In reality, though, they’re not spending $20MM each year – when they invest they keep funds in reserve for each investment so they can “follow on” in future rounds and maintain their stake. While the ratio of first money to follow on reserve for each fund varies a bit, from the early stage funds I’ve spoken with the ratio tends to be around 1:2, or one third up front, two thirds for follow on.

This means of the $20MM per year they’re trying to commit for the first three years of the fund, they’re actually writing $7MM in new money checks, and keeping $13MM to follow-on with the future rounds of funding for the successful companies.

Dividing this $7MM through, if they’re doing 8 deals a year (two a quarter is a good rule of thumb), they’re writing an average $875K check, meaning they’re probably tapped out writing checks much past $1MM for their first money in.

VC Fund Check Sizes

Now let’s look at a VC fund like Greylock Partners. They have the same fund lifespan (10 years), but they’re working with $1B (which is up from the $500MM fund they raised in 2005). This comes out to $333MM a year in the first three years of the fund’s life. These bigger funds aren’t putting all of their fire-power in at the early stage, but given the big multiple returns happen there it is probably fair to assume they’re putting half of their fund into early stage investments ($166MM a year), and using the 1:2 ratio between first round and follow on reserve, this means they’re needing to put to work $55.5MM a year in early stage deals. Assuming the fund is doing 8 of these Series A deals a year, they’re having to write a check of $6.93MM for each of those deals for the numbers to fall out. Looking at actual data, the average Series A round was $6.9MM in 2014, so this isn’t a bad general guess (and anecdotally prestigious firms like Greylock don’t fit into the average so the thought of them writing $7MM+ checks as part of above-average Series A deals makes a lot of sense).

You might be thinking, “well, these guys have a lot more money to play with – so why wouldn’t they do a deal where they buy 20% of my awesome startup for $3MM, spending half the money they do on average? That makes us a bargain!” In practice, this doesn’t happen much because the VCs know they have limited bandwidth and they really need to shovel this money from their LPs into startups to make it all work. If they were to invest an average of $3MM in a deal, they’d have to work twice as hard for their management fees – and they didn’t buy that place in Jackson Hole to leave it empty for months at a time.

They could of course write the same big check with your startup at a lower valuation, but then they’d be taking 40% of the company – crowding out the other shareholders, especially the ones who need to work their butts off for the next 5-7 years to get the company to an exit, which is why only predatory investors do this in the early stage.

Now, while it isn’t necessary for a Seed or a VC firm to be a slave to these averages (they might keep less in reserve to follow on because they’re on a tear and know they’ll be able to follow on with the next fund they’re out spruiking now), and there are certainly many exceptions that prove the rule, the size of the fund certainly does define the parameters of the partners when they’re writing checks – Jeff at SoftTech isn’t likely to write a $10MM check to a startup he really likes because that means sinking almost 12% of the current fund in one bet.

Looking at the fund size, check size, incentives and SaaS valuations together exposes the SaaS Fundraising Death Zone.

The Death Zone

When a SaaS startup is very early (little product, no revenue, showing promise), Angels will often invest on a convertible note, essentially an IOU which the company converts into investor shares at a future financing round. Commonly these rounds are in the neighborhood of $500K from 10-20 individual investors on a note often capped at $4MM (which gives an implied valuation of $4MM for the startup and means the angels collectively will have 12.5% of the company when they do a priced round).

Once the company has some traction and proof points, they’ll want to go beyond the prototype engineering team and invest money into acquiring customers. To do this, they’ll often raise a round from a Seed fund with more firepower than Angels can provide. Given Seed funds will want to write around a $1MM check, and because they want to target the 15%-20% ownership stake, the pre-money valuation at the Seed stage will likely be not much more than $6MM – which using the 10x ARR principle means the startup will be doing $50K in MRR if they’re doing well, or a lower amount of recurring revenue is their growth rate is awesome.

The company then puts the funds from their Seed round to work and builds the revenues up to $200K in MRR. Using our 10x rule of thumb, this gives them a pre-money valuation of $24MM, and a check of $6MM will give the investor at the Series-A a 20% stake of the business (post money). They then keep on building, raising money on the way as they need, and then either get acquired, go public, or completely screw it up and die.

The problem is the gap between $50K in MRR (where Seed funds top out) and $200K in MRR (where the VCs start to do their Series-A deals) – and it is a gap I’m calling the Fundraising Death Zone.

saas-fundraising-death-zone

Entrepreneurs who try and raise between these two points are at a significant disadvantage – they’ve basically got four difficult options.

  1. You can accept the rules of the game and raise $1MM from a Seed fund at a lower valuation than they’re worth (the $6MM cap which still gives the Seed fund the % ownership they want). A lower value means more dilution (you can only sell equity once), but the Seed fund really can’t write a bigger check and if you need capital, you might have to take what you can get.
  2. You can convince the Seed fund investor to lower their percentage requirements. This isn’t easy at all and involves great salesmanship by the entrepreneur to convince the Seed fund investor that having a smaller percentage of a massive winner for a check size they can write is better than having 0% and missing out on the winner entirely because of their fixation on maintaining a certain percentage.
  3. You can convince the VC investor to give you a valuation your business don’t deserve (now) and raise a big round, which is the more common scenario if you’ve got something great going for you (reputation, team, media buzz, VCs or their portfolio companies use the product themselves, etc). This can however be a poison pill in the medium term because you need to earn the valuation you’ve been prematurely given, and then earn a future higher valuation to ensure you don’t end up with a down-round.
  4. You can convince the VC to write a smaller check, increasing their relative workload. This also requires a lot of salesmanship and the only way to really make this happen is to make it clear you’re coming back for a bigger check in the near future at terms that will be favorable to them (the balance of a check size they want at a not-crazy valuation).

Now, this doesn’t mean fundraising in the Death Zone is impossible – it just gets a lot harder. Professional investors are spoiled for choice in the early stage with lots of companies crossing their path, and when something doesn’t fit their pattern of valuation, stage and check size, it is a lot easier for them to pass and harder for you to build competition in the deal.

The real problem with the Death Zone is that it seems counter-intuitive – surely a company that is doing $120K in MRR can raise money a lot more easily than a company doing $50K in MRR? It is more than twice as successful revenue-wise, has been de-risked more and it is a lot harder to fake $120K in MRR than it is to get to $50K with some clever but unsustainable growth hacking. Investors must be a lot more into a company doing $120K than one doing $50K!?!? While it doesn’t make sense for entrepreneurs, the needs of early stage investors and the limits on the check sizes they will write means often this isn’t the case at all.

This counter-intuitive nature is the big risk for SaaS entrepreneurs. It makes logical sense to think “hey, we’ll hold off from fundraising now until our numbers are better, we’ll get a better valuation from better investors”. But the reality is, if you blow past $50K in MRR, you’re going to want to make sure you’ve got the internal resources to more than 4x the size of the company or else you’re going to face a shitty or much more difficult path to successful fundraising – especially if you need to raise capital in the Death Zone.

I hope this has been helpful – if you’ve had different experiences or have a different perspective, please share them in the comments below!

Cutting your Comcast Bill in Half – Part 1, Internet

Introduction

Comcast’s business model is simple – sell to new customers on a good deal and then rely on their laziness and ignorance to increase average revenue per account to thousands of dollars a year. Over the last month I’ve upgraded the internet at my house, my office and my girlfriends house and saved up to 50% while getting up to 6x faster speeds.

In this blog post I’m going to show you how to do the same.

Loyal Customers Get Screwed

The first thing – and this is the most important thing – to understand is that loyalty is actually punished by companies like Comcast. When you’re an existing customer, a whole slew of plans and options just flat out aren’t available to you – as the South Park creators so successfully showed, when you’re an existing customer, you’re completely taken for granted (or, “their bitch”, thanks South Park).

The good news is, though, that you can overcome a lot of these problems just by being disloyal.

Saving on Internet

Before starting this process a month ago, the three specific monthly bills with Comcast were around $100 including taxes.

Initially, I followed the great advice of people like GE Miller and went through the “account retention” process – where you say you’re going to cancel your account and get immediately escalated to the Account Retention team. These are the people at the carrier who are rewarded and compensated for keeping subscribers, and who have a lot of latitude in what they are able to “include” or discount to keep you as a customer.

The rewards and bonuses must be pretty good, because some of them get pretty crazy.

While this is solid advice, there are still limits to what these people can and will do, and often their lowest price and best upgrade offer is still a much worse deal than you can get if you’re not a customer at all.

The solution, it turns out, is actually pretty simple. You become not a customer. Here’s the four-step process (with a bonus Step 5 to save another $500 a year).

Step 1: Choose a Plan

Providers are always running specials and deals to get new customers on board. I’m not sure what their Customer Acquisition Cost is (CAC) but given the number of advertisements I see it has to be in the realm of $500-$1000. For DirectTV, Selling, General & Administative costs make up more than 50% of its gross profit a few years ago – this is a lot of money.

This also makes business sense; they know through cohort analysis that if they can tempt you in with a good deal they’ll jack up the price and your laziness will keep you where you are.

Since I’m in America, the land of the free market and competition, there is almost no competition in broadband internet access. Being in San Francisco, that means I’m limited to looking at options with Comcast. At the time of writing, they were offering a 105Mbs internet plan for $44.95/month; the options change all the time though, so check out http://www.comcast.com/xfinity-internet-offers and decide on which plan suits you best.

When you look at the terms and conditions of the offer, you’ll note that one of the first conditions is that it is “available for new residential customers only”. That’s cool – you’re about to become a new customer, with some temporary help from a buddy.

Step 2: Enlist a buddy for an hour

Now you know what plan you want, it is time to start the process of becoming a new customer by getting some help from a buddy – it should only take an hour of their time, and you can actually return the favor for them if they want to do it at the same time!

The key is that your buddy is going to be signing up to the new internet plan at your house. They don’t need to live there – there’s no need for proof that they have anything at all to do with your address; all they need is some photo ID and a social security number.

To make it happen, you and your buddy simply show up at your local service center (Comcast ones listed here), and tell them that you’d like to cancel your service. Your buddy, standing next to you, would like to sign up for the “available for new residential customers only” plan you selected in Step 1 above.

You’ll want to bring your cable equipment with you, but you can hold onto it for a couple of weeks if you like (since you’re going to be coming back to do the same process in reverse in Step 3).

There is normally an account setup cost of $30, but if you ask them for a discount they’ll drop it down to $12 without a fight at all.

If you need a modem (and you should really buy your own – see further down this post) they’ll give you one on the spot. You’ll then be able to go home and plug it in (swapping out the one you already have) and once you go through a quick setup process (their phone number, 1-855-OK-BEGIN, works pretty well – just don’t do it on speaker phone because if the computer mishears you you’ll go into a never ending loop) and you’ll be online with your new faster cheaper plan in no time at all.

Step 3: (ab)Use The 30-Day Money Back Guarantee

Now, perhaps your buddy is a housemate or a significant other – if they’re happy to be the one with their name on the bill for the next 12 months then you can probably skip this step. However if they’re genuinely just a buddy doing you a favor who doesn’t want to run the risk that you won’t pay your cable bill and their credit report will be on the hook (or that you’re going to do illegal things online and get them in trouble as the legal account holder), you’ll want to do the process involved in Step 2 in reverse.

The good news is that Comcast has a 30-day money back guarantee, so you can head in after a couple of weeks and have your buddy cancel the service you set up in Step 2. They bring the cable box you got in Step 2 in and they’re done in about 20 minutes.

You, standing next to them, decide you want to become a new customer on the same plan. You sign up for the new plan/service at your own address, and you’re back in business, possibly for half the price.

Step 4: Set a reminder for next year

Most of the plans I’ve seen revert to their “normal” price after 12 months. So, you’ll want to set a reminder to go through this process again in a year.

Step 5: Buy your own cable modem

Comcast are currently charging you $10 per month to rent a cable modem (or wireless router). This comes to $120 a year, or almost $500 for the normal life of a piece of technology like this.

The good news is that you can buy your own from Amazon for around $60 if you don’t need wireless, or $100 if you do, which means you’ll be ahead in financial terms in as little as 6 months.

Savings

Now, some of you reading this will be thinking “hey, my time is valuable – is this really worthwhile?” You’d be right to think this way, but let’s look at specific savings and see how wrong you probably are.

Comcast Business to Xfinity Internet Plus Blast

Until this week we had Comcast Business at my startup. We’re not demanding enough yet to need WebPass or MonkeyBrains, and we were paying $84/month for 16Mbs.

In terms of changing plans, I didn’t even need “a buddy” because Comcast Business and Xfinity are very separate organizations inside Comcast. I simply walked into the Comcast customer service center and signed up for a new Xfinity plan as a new customer, came back to the office, and I was up and running – from walking out the office door to getting back and online – in under 60 minutes with 100Mbs internet for $45/month.

That’s a saving of $500/year – not bad for an hour’s work. If you’re legitimately earning more than $500/hour for every hour you work every week of the year (sure you are), then you might not get cash value in savings, but you’ll also see time savings by having your internet more than 6x faster.

Comcast Speed Test 1

Xfinity for Cable and AT&T for Internet

My girlfriend was running Comcast for TV and Xfinity for internet, due in large part because her apartment building told her she had to use AT&T (or another DSL service?) for internet access. Her total bill was over $100/month. I thought the instructions about using only DSL were a bit off because she was using Comcast for TV, and sure enough, it was possible to move her over to Comcast. Because she was an existing customer, however, she was stuck with paying over $100 to bring it all together – not a great result.

Through making the change to Xfinity for internet and cable box, she’s now paying $39/month. There’s still some frustrations with stepping back to non-HD cable, but we’re working on fixing that (I’ll have an update in a part two post about TV specifically).

So, while it isn’t apples for apples, she’s now paying $50 (when you include Netflix and Hulu) for basic cable, HBO and stacks of other streaming all through a super cheap Chromecast in high quality – a saving of 50% for internet 10x faster internet and all the content you can stream.

Bubbles & Tectonics

My reason for moving San Francisco almost three weeks ago was to pursue investment for AffinityLive, and with that money grow the R&D team in Wollongong as well as establish a sales and marketing team here in the US.

Of course, implicit in this is the assumption that if I can’t raise investment, I’ll move back to Australia. But, the reality is that I’m going to stick it out here and make it work. If I can’t raise VC, it will slow things down and make it harder, but I’m not going to be giving up and coming back to Australia with my tail between my legs.

Unless something extraordinary happens.

There’s a lot of talk at the moment that the tech industry here in Silicon Valley is in a bubble.

I’m actually a bet each way in the financial sense of a bubble – irrational exuberance that leads to unsustainable asset price growth (read: valuations) which keeps expanding rapidly as everyone piles in speculatively until – POP – the bubble bursts, leaving destruction, depressed valuations, shattered dreams and penniless investors in its wake.

But what is 100% true is that Silicon Valley is in an economic bubble.

The wider US economy is about to go into another recession. Unemployment remains high, people are still losing their homes, and the sharemarket is going nuts, with a “correction” of more than 12% in the last month and crazy levels of volatility. But here in Silicon Valley, the good times keep on rolling. Sure, people look out on the markets and the wider economy with concern, but as Marc Andreessen (founder of Netscape) wrote in the Wall Street Journal this week, technology and software world is on the right side of some tectonic shifts; they’re eating the business models of many of the companies on the S&P500, and there’s a strong sense that froth and some foolishness aside, the fundamentals of this industry and this part of the world are strong and will be for decades to come.

There’s really only one thing I see as potentially threatening this situation. And the key word is in the previous paragraph – tectonic.

As almost everyone knows, San Francisco and the “silicon valley” area of California sits on top of one of the most geologically active regions of the world.

The place was pretty much destoyed in 1906, and in 1989 they had another big quake (measuring 6.9) which caused a lot of destruction throughout the Bay area. The picture to the right was taken in the Marina where I’m going to be living (although, mum, don’t worry, I’ve got the liquefaction maps and I won’t be living in a place that is built on landfill).

We had a small quake here – I didn’t feel it – on Tuesday night, and it got me thinking – probably the only thing that would cause the music to stop here would be a big earthquake that bought this place to a halt.

The consequences of a big earthquake would of course be dire for the city and its population, but for our industry it would probably be the equivalent of what 9/11 was for world share markets. It was something no-one could predict, and the destruction, the loss of people and their knowledge proved to have long lived epic consequences for the global financial system.

But if we’re honest, the finance system doesn’t really “create” much, and when they do, we’re reminded that it would be better if they didn’t. They facilitate and enable things, which is why the world economy felt such a shock, but with so many other actors and the big players being truly international, the rebound to “business as usual” (and the run up to the sub-prime fiasco) didn’t take so long.

Thinking about the consequences for the technology sector if there was wanton destruction in San Francisco, I can’t help but think that things would be different. Almost every major tech company in the world has their main presence here, their main people here, their advisers and their partners. The consequences of “the big one” would be epic for our industry, and unlike terrorism, there’s one thing that is for sure – over the long term, you can count on there being another big earthquake down the San Andres fault.

Let’s just hope that is isn’t any time soon.

Solved – apache serving corrupted files via virtualbox vboxfs shares

TL;DR version: the 4.1 version of VirtualBox (or possibly more correctly, the VirtualBoxAdditions that provide the vboxfs) makes it impossible for Apache to correctly do its Kernel hand off, known as EnableSendfile. If you’re experiencing problems with files that are stored on a vboxfs share on your host not being served by Apache in your client, you need to find the EnableSendfile setting in httpd.conf and turn it OFF, and make sure you’ve installed/upgraded the version of the VirtualBox Additions that matches your VirtualBox version.

Virtualbox has to be one of the coolest free products out there for developers. We have a pretty hard core linux-based stack running AffinityLive, and for a full developer environment we need to have just the right setup of OS, libraries, code, apache, mysql, mongo, postfix, etc, etc, etc.

For our developers on Windows and Mac, trying to mirror this inside the O/S directly it almost impossible. While almost all of the constituent parts are there, the differences make it very unpleasant.

In the past we’ve “cheated” and used a shared dev server setup in the office, but it hurts the productivity of our team – every change to any code requires a save, commit with a message, then on the server side an update, and then potentially a Apache kick depending on how deep in the stack the change has been.

Enter Virtualbox. I spent a weekend at one point getting our production environment as cloned as possible into a CentOS client host, and mapped the bits we change a lot – our code – back to the host OS stored codebase, where programs like Eclipse are used to edit things. Now a developer just has to hit save on their local machine, and see the effect in their browser immediately; no more horrible triple handling. It means our staff can be more productive and take bigger risks, knowing if they bugger something up royally, they’re only going to piss themselves off, and not everyone else trying to work off a shared dev platform.

Then, this week, we had a problem. A bunch of the files that the Apache server in VBox hosts, which come from a file share on the host OS, were corrupted. CSS files with wacky binary content. Then, no images whatsoever. Losing our dev environment when things are so busy with the AffinityLive beta wasn’t an option – but unfortunately the solution took me almost a day to sort out, so I’m hoping this will help someone else save that time 😦

Step 1 – Update VirtualBox Additions

Virtualbox is a pretty actively maintained product, and recently they pushed version 4.1. What I didn’t realise every time I was saying “yes” to the upgrades is that I should also have been going through and upgrading the “virtualbox additions” – handy bits of functionality installed into the client OS.

The process for CentOS 5.5 clients on an underlying Windows host is:

  1. Start the client machine, and in the the window that shows you the machine booting/running, go to “Devices”, then “CD/DVD Devices” and then either VBoxGuestAdditions.iso and go to Step 3. If that option doesn’t exist, you’ll need to “Choose a virtual CD/DVD disk file” and continue onto Step 2 below.
  2. The ISO you need to choose will likely be located at “c:program filesoraclevirtualboxVBoxGuestAdditions.iso”. Choose that file, and hit save.
  3. Then, go into the shell of the VirtualBox, either by logging into the console window, or by SSH’ing through Putty, etc.
  4. If you didn’t log in as “root”, you’ll need to change to be the root user by running “sudo su -“
  5. Then run the following: “mount /dev/cdrom /mnt/cdrom”
  6. Then go into that directory – “cd /mnt/cdrom” – and run “./VBoxLinuxAdditions.run”.
  7. This will then go through and update the version of addons that you have running; it may take a few minutes to complete depending on how much memory and CPU you’ve allowed your client machine use.
Doing this was enough to make my CSS files, for example, not corrupted and broken, but then working CSS exposed another problem – images weren’t working.

Step 2 – Turning off Apache’s EnableSendFile handoff

Apache has a cool performance feature when it comes to serving up static content; rather than opening the files it is hosting itself, it passes the process of grabbing and opening the files down to the Kernel, saving double handling essentially.

Unfortunately, it looks like version 4.1 of VirtualBox breaks this, causing plain text files to be delivered down the line in a binary format, and causing binary images to be treated as “not found” because the file delivered doesn’t match the content length. Super frustrating.

The solution is pretty easy to implement – just turn off this feature in Apache.

Edit the httpd.conf file, for example, by running (as root, or prefixed with sudo) “vi /etc/httpd/conf/httpd.conf”

Find the directive where EnableSendFile is set to “on”.

Change the “on” to “off”.

Save the file out, and then restart Apache.

Step 3 – Restart the client machine & test it

This is more a precautionary step, but the Step 1 upgrade of the VBoxAdditions, you should restart your client machine, in this case the Linux box. The easiest way, in the console window, is to go to “Machine” and then “Close” and then “Send the Shutdown Signal”.

Once it shuts down, you can start it again the normal way.

Once it has booted up, you can test by loading up your site in Apache, and seeing if it worked.

Good luck, and if you continue to have problems (or these instructions solve it for you), let me know in the comments.

UOW Occasional Address – It's what you do with it that counts

Introduction

Today is one of the days you’ll remember for the rest of your life.

It might be because you feel proud – it is the culmination of thousands of hours work and study.

It might be because you feel relieved – no more cramming for exams and assignments at the last minute.

It might be because you feel dominant – after countless hours of swearing and rage you’ve managed to beat the compiler and debugger enough to graduate!

It might be because you feel appreciative – for the amount of support you’ve received from teachers, parents and friends over many years, efforts that you might not have appreciated at the time when you were stressed about an exam or an assignment.

It is probably all of these reasons, and more – this is a special day for you all (and sometimes more so for the parents and friends up the back).

Given this is such a special day, when you get a call from the VC and you’re asked to give the Occasional Address, you naturally want to make it to be good.

You think back to the great addresses given at occasions like this by people like Steve Jobs, Theodore Roosevelt and Nelson Mandela.

You naturally think, “Hey, I should try and impart some wisdom and amazing advice,” and then you realize there’s a little problem.

I’m less than 10 years older than the average age of the graduands here. I don’t have enough grey hair yet to have any wisdom to impart.

It gets worse though. I’m an Informatics drop out. I’m never got to sit in your seat as an Informatics graduate.

What legitimacy do I have to fill you full of advice about what to do now you’ve graduated?

Damn, so we’ve got a bit of a problem.

So, rather than vainly try and fill you with wisdom I don’t have, coming from a drop-out without legitimacy, I thought instead it might be more valuable for you to share a few stories and lessons learned, and then I want to do something a little unorthodox – I want to throw thrown down a challenge to each and every one of you.

That’s right. A challenge.

If you only take away one thing from my talk today, I want you to remember this: it isn’t where you’ve been, what you’d done or what you’ve got: it’s what you do with it that counts.

What I want to do today is challenge you in what you do with what you’ve got. I’ve got three stories to share with you today – one that might help see how to work with what you’ve got, one about the perspective you should have, and one that is about why you should do it, rather than talk about it.

Find something you want to work hard, be passionate and get better at

As I mentioned before, I’m a drop out. It was early 2000, and the whole world was crazy. The internet was changing everything, or so they said. I’d been dabbling as a freelance web developer to make some extra money to spend on beer, back in the days when that meant writing code first, and making things pretty and usable second. The minority of Australian households with internet connections all used modems, and frankly, the quality of web design sucked.

So, in early 2000, I dropped out of uni, quit my job at the Novotel, and moved out of home, all in the course of a couple of months. I registered my company, Internetrix on the 10th of April 2000, and within a week, the Nasdaq crashed.

The dot com bubble burst, and I’d just staked my ability to survive on an industry that was just taken around the back of the shed and shot.

As you can imagine, this situation presented a few challenges. So how was I able to grow from Internetrix from a one-man-band into an award winning company, recognised as a partner by companies like Google, with clients in the US, Japan, China and of course here in Australia?

In short, there were three things – work hard, be passionate and never stand still.

Selling thousands of dollars of IT services to businesses when you’re a 20 year old with no track record is bloody hard. When they’re small businesses, it is harder. When they’re small businesses in Wollongong, it is almost impossible.

If keeping a fledgling business going wasn’t hard enough, the government introduced the GST when I was only 3 months in; I had to learn accounting and tax, and quickly, since I couldn’t afford an accountant.

And being young meant I was easy prey for bad actors – between being ripped off and having people threaten to sue me I had to learn quickly how to survive in the jungle.

It was frigging hard work, but thankfully I didn’t have the temptation of a cushy graduate position as an alternative of making it work.

This could have been because I wasn’t a graduate – I’d dropped out. But it wasn’t.

This could have been because the whole industry had just exploded and no one was hiring IT people, especially drop-outs with very little experience.

But it wasn’t.

I pushed through without the temptation to do anything else because I’d been bitten by the startup bug – the freedom and excitement of creating something out of nothing was just too intoxicating for any mere job to ever be enough after that.

I didn’t start Internetrix to get rich. I started Internetrix because I had a believed that the internet was indeed transformative.

I also believed that your average business they had been doing it wrong – they spent money on a website without knowing why, and how the investment was going to pay off.

From the beginning, had a passion for building a startup that helped clients get a positive return on their online investment – this passion put my business on a good footing, and I was able to develop long term relationships with clients that allowed my business to grow.

But this energy for hard work and passion to throw yourself at something isn’t enough – in our industry, you have to have a hunger to keep learning. Things change so incredibly fast. You need to be constantly reading, experimenting, learning, hacking and tinkering.

It is only by being at the top of your game that you can combine your willingness to work hard, with your passion for the field, and know when you stand in front of a client, a colleague and a new hire that you have what it takes. IT is a meritocracy, without the baggage of other professions, so you’ve always got to be willing and able to bring the best to any occasion. Cramming won’t do it. You need to be continually training, and if you’re working in a field that you don’t care about, that you’re not passionate enough to read about in your spare time, do something else.

So, what’s the lessons here? Since what matters from here is what you do with what you’ve got, make sure you’re prepared to work hard, be passionate and stop improving at what you’re doing. If you’re not, you should do something else.

Play on a World Stage

In mid January 2006 I found myself in the Hard Rock Casino in Las Vegas  as a guest of the owners of MySpace, which at the time being was the world’s 4th most trafficked web property. Later that week I was pitching to the world’s most respected venture capital firms, the people who’d make the initial investments in Google, Yahoo, EA, Facebook and many other household names.

I spent three months living at the home of Mike Arrington, the founder and editor of Techcrunch.

This all happened because I co-founded a company, Omnidrive, with a fellow uni dropout, Nik Cubrilovic in mid 2005. If you’ve used Dropbox, you’ve got a good idea of what we were building – cloud based storage with clever sync technology between multiple devices. And while our business failed (and Dropbox just raised a round of capital on a $1B valuation), the crazy roller-coaster experience was one of the most valuable things I’ve ever done.

Thrust into the limelight of Silicon Valley and playing the startup game at the time Facebook was just getting going was an amazing experience, not for what I learned about business, fundraising or the industry, but because of what I learned about myself.

Driving down Highway 101 through the heart of Silicon Valley, you see the headquarters of companies like Oracle, Yahoo and Google. Seeing these buildings, and realizing they were real places, with real people working there, people just like you and I, was paradigm shifting.

When it comes to technology, Silicon Valley is unquestionably the top level the world stage. It is where the best in the world compete and define technology worldwide. One night I was lucky enough to have dinner with Marc Andreessen, the founder of Netscape, because a friend of a friend made an introduction and he was free and keen to find out about what we were doing. It is just that kind of place.

While initially feeling very inadequate and out of my depth, it didn’t take too many meetings with VCs, too many conversations with entrepreneurs at dinners and beers with senior engineers from places like Yahoo and Google at parties to start to realize that I had what it took to go toe to toe at this top tier game.

And it wasn’t anything special about me. I was an average student. To this day, my staff would ban me from all hacking and meddling if they could. And yet, as time went by, I got the sense I wasn’t out of my depth.

I thought about the dozens, if not hundreds of tech people I’d work closely with in Australia over the years, and realized that they could also hold themselves in this, the beating heart of technology globally, and could honestly regard themselves as being world class. The distance between Wollongong and San Francisco might be great, but the difference in calibre of technologist wasn’t nearly as great as I’d imagined.

The University of Wollongong has one of the best IT programs in Australia, and so what I’m saying is that you have what it takes to go toe to toe with the best in the world too.

Two UOW alumni who aren’t that far ahead of you – and one of whom was sitting unemployed on North Wollongong beach in January – have built a startup in the last 6  months. After going to Silicon Valley a couple of months ago, they are now in acquisition discussions with some of the biggest names in technology fighting over them.

These guys are just like you, and if they can do it, so can you. Why shouldn’t you be the next Steve Jobs, Bill Gates or Mark Zuckerberg? Seriously.

So, what’s the lesson here? When it comes to thinking about what you’re doing to do with what you’ve got, make sure you’re mindset is to be world class and play on the world stage.

Be the man in the arena

This last story is not my own, so it is probably the most important of three stories I’m going to tell today.

Theodore Roosevelt was the 26th President of the United States, and when he became President in 1901 at age 42, he was the youngest man ever to do so. Widely regarded as one of the best Presidents in US history, Teddy was invited to give a speech at an occasion like this at Sorbone University in Paris, one of the world’s oldest Universities, established in the 12th Century.

In his speech, he reflected on the temptation among the learned and privileged scholars and academics before him to become commentators, critics and cynics. He cautioned against this, and delivered some of the most stirring words I’ve ever read:

It is not the critic who counts; not the man who points out how the strong man stumbles, or where the doer of deeds could have done them better. The credit belongs to the man who is actually in the arena, whose face is marred by dust and sweat and blood; who strives valiantly; who errs, who comes short again and again, because there is no effort without error and shortcoming; but who does actually strive to do the deeds; who knows great enthusiasms, the great devotions; who spends himself in a worthy cause; who at the best knows in the end the triumph of high achievement, and who at the worst, if he fails, at least fails while daring greatly, so that his place shall never be with those cold and timid souls who neither know victory nor defeat.

There is little use for the being whose tepid soul knows nothing of great and generous emotion, of the high pride, the stern belief, the lofty enthusiasm, of the men who quell the storm and ride the thunder. Well for these men if they succeed; well also, though not so well, if they fail, given only that they have nobly ventured, and have put forth all their heart and strength.

When it comes to rising to the challenge of what we’re all going to do with our education, our skills, our lives, I believe this message is the most important. As President Roosevelt says elsewhere in this same speech, “To you and your kind much has been given, and from you much should be expected”.

As Informatics graduates, you have more power, more opportunity to change the world, than any other group in the history of mankind. I mean that. Think through history, and think about the forces that are going to drive, enable and facilitate the future of our world more than any others. Technology is common to all of them, for good or for evil.

Just take a moment and reflect – today, there are now more than a billion people online, and if you throw in mobile phones there are billions more.

We’ve seen how technology has changed the world in Egypt, Tunisia and other parts of the middle east in the last few months.

Closer to home, the opportunities to change healthcare, education, how we live, how we work, and more are vast. We’re only three or four decades into the information revolution – even if we accept the pace of change now is much faster, compared to previous revolutions – industrial, bronze, etc – we’re surely now in little more than the first early rays of a new dawn.

I believe we all have the power, the opportunity and the responsibility. But, to make a change, to make a difference, you have to be in the arena.

So, how can you get into the arena?

Of course, I have a natural bias towards seeing the arena as being a part of a startup. You put it all on the line, and even if you fail you still learn so much more than you would working for a bank or the government in a graduate role. There has never been a better time to do a technology startup – thanks to cloud services the costs of getting going are lower than they’ve ever been, and with a mature web audience of over a billion people, and app stores and the like making distribution and payments easier than ever before, I’d encourage all of you to keep the idea of doing a startup in the back of your mind.

But, being the man in the arena doesn’t just mean doing a startup. It can mean passionately advocating for change and improvement in a workplace. Or using your technology skills to help a cause you’re passionate about. Whatever you choose, the key is to both avoid the temptation to just throw rocks or criticism and cynicism from the stands, and show the courage to get down into the arena.

So, when answering the challenge of what are you going to do with what you’ve got, make sure whatever your doing, you’re doing it in the arena, for that’s the only place that matters.

Conclusion

From here, you’ll follow many different paths, across careers, across the world.

You should take this time to reflect and look back with pride on what you’ve achieved – enjoy this moment and the sense of achievement that rightly comes with it.

But also realize that from here, it isn’t what you’ve done to get here that matters – it is what you do with it that counts.

When it comes to choosing your challenge, work hard, be passionate and always keep getting better.

When it comes to framing your challenge, be world class and don’t be afraid to play on a world stage.

When it comes to how you tackle your challenge, remember to always be in the arena, fighting to succeed but not afraid to fail.

Good luck and I wish you all the best in rising to the challenge of doing something amazing with what you’ve got.

Wollongong is on a burning platform

Over the last couple of years, I’ve been getting increasingly concerned about the future of our city. Leaving aside the rot exposed through the ICAC investigation, I’ve been mostly worried the future of the city from an economic perspective.

Are we going to be a place where our young people can build careers & families with confidence and a sense of optimistic opportunity?

Or are we going to increasingly be a hollowed out city, with a population that in large part commutes to Sydney for work, or lives off Centrelink, or comes here to to retire?

Are we going to be proud and strong, or are we going to be like Tasmania – a small backwater that everyone looks down upon and only survives because they suck in taxes paid by the rest of Australia living in large part off handouts?

My worries about the future of our city have grown even more acute over the last few months.

Our city has operated with a bit of a handicap in all 31 years I’ve lived here – the downsizing at the steelworks and in the broader manufacturing sector has been playing out since the 1970’s. But while we’ve stoically pushed forward over the years, I’m concerned that rather than just the disappointment of unfulfilled potential that we’ve learned to live with, we’re actually facing some very serious challenges that could threaten the viability of our city.

Our Two Fires – Carbon Pricing & Dutch Disease

In the short to medium term, there are two external forces, more than any others, that are affecting Australia’s entire economy.

The first is the transition to a carbon constrained economy, and while there might be debate around the details and timing of a carbon price, I think most people accept that reducing global dependence on carbon (ie, coal) as an energy source is inevitable.

The second, and much more important and threatening issue in my view, is Dutch Disease, the situation where a high currency value because of exports in one part of the economy – in our case, the mining/resources boom centred around WA – makes it almost impossible for exporters in other parts of the economy to compete.

While Carbon Pricing and Dutch Disease are having a negative economic impact in lots of communities around Australia, there are few, if any, that are threatened as much as our city and region.

In a message to all his staff earlier this year, new Nokia CEO Stephen Elop told a story that I think has strong parallels to the situation our city is currently facing:

There is a pertinent story about a man who was working on an oil platform in the North Sea. He woke up one night from a loud explosion, which suddenly set his entire oil platform on fire. In mere moments, he was surrounded by flames. Through the smoke and heat, he barely made his way out of the chaos to the platform’s edge. When he looked down over the edge, all he could see were the dark, cold, foreboding Atlantic waters.

As the fire approached him, the man had mere seconds to react. He could stand on the platform, and inevitably be consumed by the burning flames. Or, he could plunge 30 meters in to the freezing waters. The man was standing upon a “burning platform,” and he needed to make a choice.

He decided to jump. It was unexpected. In ordinary circumstances, the man would never consider plunging into icy waters. But these were not ordinary times – his platform was on fire. The man survived the fall and the waters. After he was rescued, he noted that a “burning platform” caused a radical change in his behaviour.

We too, are standing on a “burning platform,” and we must decide how we are going to change our behaviour.

I believe our city too is standing on a burning platform.

Examples of our industrial decline

Lets have a look at an example, in the form of Bluescope, the region’s largest employer and also responsible for tens of thousands of related and multiplied jobs.

Bluescipe recorded revenue of $4.75B in their Coated & Industrial Products Division (which is pretty much all of Port Kembla), down over 20% from over $6B in sales two years earlier (2008). And this is just sales – during this period, raw material costs went up, and the Australian dollar increased in value by more than 70% since late 2008. This exchange rate movement – the Dutch Disease in action – has made every person on payroll, every megawatt of electricity and other AUD expenses 72% higher now than their international competitors, assuming no increases in wages, power costs and the like.

Little wonder then that Bluescope experienced a drop in profit of 85% between 2008 and 2010 (and in the GFC and the 2nd half of 2009 they actually made sizable losses). While today’s announcement of an additional $300M in industry assistance for the steel sector (read Bluescope and OneSteel) will make some people in the city feel comfortable (and it isn’t tied to the carbon tax legislation, so the Greens would have to support it – good luck with that), $300M isn’t a lot of money compared to the $1.25B per year in revenue that Port Kembla is down compared to 2008. Even a government, with all the resources of treasury, can’t compete with global market fundamentals – just ask George Soros, the man who broke the Bank of England in September 1992.

BSL.AX - no wonder the share price is down 90%

 

There have been lots of other examples where trade exposed employers in our region have become extinct. We’ll all remember the closing of the Bonds factories in the area last year, the latest in a long line of shutdowns and mass layoffs which in previous years have included brands like Midford, and even more recently, locally owned Poppets. Unfortunately, the ledger is stacked with much more bad news than good on this score.

When it comes to our traditional economic base, our city has been lurching from one crisis to the next, while the rest of the world passes us by. It doesn’t have to be this way.

Recognition, leadership & vision

Facing up to these challenges requires an honest debate, strong leaders and the willingness for our community to come together, face facts, make some tough decisions and put in place a plan to change our economic base.

So, is there a frank debate about these issues at the moment? Are our leaders – both incumbents as well as aspirants – speaking out, being honest, and putting forward a plan? Let’s have a closer look.

Local Government

Our city is going to the polls in just 7 weeks time. I’ve been following the news as more people throw their hat into the ring, and I’ve been really hoping to hear someone out there talk about the elephant in the room.

But, alas, all I’m seeing is an empty and meaningless debate about which group of candidates is going to have better consultation and more inclusive government than the next.

What of debating the big issues, like the future of our city?

On the whole, the candidates have been silent about this, and those that are making noises about anything of substance are currently running on platforms made of platitudes that few would argue with, but which on their own are utterly meaningless.

Sure, you could argue local government is roads, rates and rubbish. I disagree – a strong Mayor and City Hall can act as a very effective leadership and lobbying force with the levels of government that actually have power, not chains – but that raises the question – where are our State and Federal representatives on this?

State & Federal Government

I’m heartened that the State and Federal members I’ve talked to about our burning platform situation are very aware of the issues. My sense from talking to them is that they see the same bleak future if we keep doing what we’re doing. The problem is, changing the nature of an economy isn’t easy, cheap or quick.

Unfortunately, they’re not out in front on the debate, and while I’m disappointed, I can also understand why.

If I was Sharon Bird, Stephen Jones or Ryan Park, I wouldn’t want to come out and scare the horses unless I had a plan to turn fear into hope. To bring up this issue without knowing you can get the support of your caucus and the treasury to make the investments to do something about it would be what Sir Humphrey would call “courageous”.

Sharon, Stephen and Ryan are worldly and smart; while some of the crazier voices in our public life might suggest fixing the exchange rate, putting up tariffs and other failed policies to provide the perception of short-term relief, our members know that going back to the “good old days” isn’t possible without a flux capacitor and a Delorian.

When it comes to bold initiatives and investing in action to transition our regional economy, our members are also hamstrung, even if they have a plan. Our safe seat status at state and federal levels of government means that our members will always struggle to get attention from the party and concessions from Treasury, and the safe seat status owes a lot of the current economic makeup of the city, which doesn’t help create the motivation for change either.

Starting a debate

Our city has been making a gradual transition over the last few decades, but the size and speed of the threats – the intensity of the fire burning under our platform – is stronger than ever before. The Finance and Insurance sector – thanks to the likes of the IMB, Community Alliance Credit Union (formerly Illawarra Credit Union), Oasis Asset Management (now known as a division of ANZ and known as OnePath) – is now the largest employer in the region, and Greg Binskin and the team at Tourism Wollongong have consistently gotten in front and espoused a vision for a strong tourism sector in the region which they’re making a reality with dogged determination.

But, to be honest, what we’ve really got here is a number of disparate actors working to improve the fortunes of the city through their own actions – what we don’t have is any real leadership, debate of vision for the future of the city, which our community can participate in and get behind.

This is a real shame, and while we continue to be mute and complacent, we ensure that by doing what we’ve always been doing, we’re going to keep getting what we’ve always been getting.

Learning from others – a tale of three cities

We’re not the first community in the world to face serious challenges like this – I’ve researched three examples which we can look at as proxies for our situation, so we can learn from their mistakes and successes. There’s a lot we can take away from the way others have faced and overcome the same adversity and threats we’re facing now. Here’s a little information about these three cities below.

  • Sheffield in England suffered for decades as the pain of the loss of their manufacturing and industrial economy in the 1970’s led to widespread unemployment and a contraction in their city and population, and have only just started turning things around.
  • Detroit, a cautionary tale, is still suffering and shows no real sign of improvement on the horizon.
  • Waterloo in Canada, saw the writing on the wall and transitioned their industry very very successfully before they declined, creating a really smooth transition and a great success story.

Sheffield – an industrial twin

The first proxy city to our own is Sheffield. The home of British Steelmaking, Sheffield saw a 10 fold increase in its population in the 1800’s through the industrial revolution, however when international competition on its inefficient sector took its toll from the 1970’s, Sheffield saw its population decline markedly (down over 7% in the 10 years to 1981, and negative each other post-war decade until the last few years).  Anyone who’s seen The Full Monty, set in Sheffield (1997), will have a feel for the bad times that city has seen.

Sheffield has since invested in developing its higher value business services sector, and while accepting the lower job contribution made by the manufacturing sector compared to days gone by, a focus on technology and real innovation has helped to bring prosperity back to manufacturing in this natural cross-roads in the middle of Britain.

None of it would have been possible without a strong, coordinated plan and commitment of various stakeholders – for more information, have a look at this excellent case study on how Sheffield is becoming a knowledge region. For specifics on how their regional governments are working together with detailed plans, check out the “Moving Forward: the Northern Way” website and plans.

Detroit – a cautionary tale

Detroit. Motown. The City of Detroit, which used to be the 5th largest city in the United States, has now shrunk to be 18th, with a population of around three quarters of a million. Only New Orleans has gone backwards further, and Detroit can’t blame a hurricane for its woes – Detroit’s failings are all man made.

The home of the American automotive industry, Detroit has been in decline since the 1980’s. As the Economist details:

Employment has fallen every year since 2000. Even as the carmakers recover, they will not resume their role as guarantors of middle-class prosperity. State leaders have struggled to respond to structural shifts. Unfortunately, rather than reform a collapsing revenue system, they have passed short-term fixes. Attempts to reinvent Michigan have moved fitfully. Grants for college students did little to encourage them to stay after graduation. Tax credits for green manufacturing industries may create too few jobs at too great a cost, according to Don Grimes, an economist at the University of Michigan.

Detroit is what happens when a city faces a series of structural challenges and threats that are as certain as gravity, and then put their head in the sand. The city levies an additional 2.5% income tax on its citizens – this was probably a good idea when the city was prosperous, but now it is a massive disincentive for anyone to live there, especially given its high levels of crime and general decay. Some statistics show their unemployment rates falling, but the reality is, people are leaving the city and its surrounding counties by the hundreds of thousands. Perhaps there is a future for a smaller Detroit, but $50B in Federal bailouts for the 3 big US auto-makers in the GFC seems like it might not have been the best investment that could have been made.

Another American city that I have done a bit of research on is Pittsburgh, the former home of the American steel industry. Pittsburgh has seen a dramatic downturn in its own steel industry, and while their ability to cultivate a high tech and startup sector looks really promising, it is still in many ways early days – the City is still losing around 10% of its population each decade, and has been since the 1960’s. Hopefully, Pittsburgh can achieve the same sort of success as Waterloo, below.

Waterloo – our Canadian doppelgänger

The town of Waterloo, Ontario, has got to be the closest thing Wollongong has to an international twin.

  • Waterloo is around 100KM from the largest city in Canada, Toronto, their equivalent of Sydney. Wollongong is 83KM from Sydney.
  • The population of the City of Waterloo is around 100,000 people and the population of the region Waterloo is centred in is around 492,000 people. Wollongong, Shellharbour and Kiama LGAs combined have around 300,000 people, with another 150,000 if you include Wollondilly and the Shoalhaven LGA’s, giving an Illawarra total of 450,000.
  • Waterloo has a strong and internationally renowned university, the University of Waterloo, which is actively engaged in their city. In addition to being a significant employer in the city, the University of Wollongong is increasingly taking a leadership role in helping to shape the future of our city (such as through the Innovation Campus).
  • Waterloo has historically been an industrial town, with strength in tanning and rubber. In the 1980’s the industry suffered a downturn, related to headwinds in their main downstream market, Detroit, and thousands of jobs were lost. From the 1970’s, the Illawarra region has suffered similar frequent retrenchments and large rounds of layoffs in from industrial sectors.

What sets our two cities apart, however, is what Waterloo did the face of its own structural change. Instead of grinning and bearing its fate, a number of civic leaders got together and decided to try and build a new, emerging industry to take up the slack.

The outcome of this effort, which recognised the opportunities an innovative and engaged University could provide when combined with relatively close proximity to the financial capital of the country, has been nothing short of amazing. The City started focusing on technology, and they managed to grow their industry from a total revenue of C$300M in 1997 to over C$19B (yes, B as in billion!) in 2007. The best known product of Waterloo’s success is undoubtedly Research In Motion, the company behind the successful Blackberry mobile phone.

After spending a week with Tim Ellis, Chief Operating Officer of the Accelerator Centre in Waterloo earlier this year, I’ve gotten a much deeper appreciation of what they’ve been able to do, and I’m firmly of the opinion that we can do something similar here in the Illawarra. The University of Wollongong has signed an MoU with the University of Waterloo – I expect many more beneficial things to come out of these two institutions cooperating.

One part of a vision for our future – creative, high tech & very liveable

I believe our city needs to take strong action to deliberately re-shape our economy if we want to be more than God’s waiting room, a bogan backwater and a place for exhausted commuters to sleep each day.

However, the isn’t a single silver bullet, and there isn’t one industry or sector alone that is going to change everything for us and make for a better, sustainable future.

I do believe, however, that the creative sector, particularly backed by technology, can play a very important part in helping to change the fabric of our city and its economy for the better.

In my recent post on the 5 Pillars of Tech, I reflected on the nature of the IT industry in our city, and put forward a case where a Startup led technology sector could have a massive and positive difference in the future of our city:

A technology Startup is product focused. They’re often developing software, and although hardware is still possibly, it is at least an order of magnitude harder to do, and it requires a lot more capital than you can usually find in Australia. Being software product focused makes you very capital efficient – no need for plant, equipment; just people and ideas and the odd laptop or two.

A technology Startup is globally oriented – they might not be selling internationally, and their first 4 clients might be companies who share the same building as them, but generally speaking, a startup is trying to solve a niche problem in a new way for a global market.

By being product focused, often software-based with a zero marginal cost of production, a technology Startup is also highly scalable. With more than a billion people online now, and the growth in smartphones and their associate app marketplaces, distribution has never been easier or less tied to your geographic location. In this sense, being a city of a quarter of a million, in country with only 22 million (which makes us a flea on the back of a Chihuahua riding on an Frigate – I’ve done the maths, and these are honestly the right ratios) doesn’t have to be a critical disadvantage.

As a foundation investor and mentor in StartMate, and the founder of two technology companies that now employ 16 staff, I’ve seen first hand how powerful and catalytic the Startup sector can be for the wider economy. Also from my 5 Pillars post:

When it comes to the role that Startups can play in contributing to the economy of the region, the best thing about them is that they’re easy to start, they harness the things we have – smart people, lowish costs of living – and their development and cultivation is within our control.

They’re also great job creators – 20 companies with 10 staff creates the same opportunities of one large company imported into the region – and even if these startups fail, the experiences, lessons and skills developed by getting out there and doing it are incredibly valuable, whether the founders choose to do another startup, or join the ranks of the other technology sectors.

I’ve recently come back from spending a month in San Francisco, which for those who don’t know is the “captial” of Silicon Valley. Part of the time I spent there involved talking to investors, and many of them were asking about where we’re based, and whether we’d move the team to Silicon Valley if they invested in us. I told them, no, are you crazy? Why would I do that? They asked for details about what made Wollongong a great place to grow a startup, so I told them the following things:

  • Talent – the University of Wollongong produces 1 in 7 technology graduates in Australia. In Silicon Valley right now you can’t hire an engineer for love nor money – I’ve never seen a war for talent like it. Just telling prospective investors the graduate statistic was enough to get them asking how they might be able to look at helping the companies they’ve already invested in – who can’t hire good technology engineers – to come to Wollongong.
  • Stability – Wollongong is an absolutely beautiful place to live. Knowledge workers can base themselves anywhere now the world is flat – having a team based in Wollongong is great for the team, and great for the business too. I heard from large multi-national employer in the region that they experience staff turnover of 5%, whereas their Sydney office, which in every other way is identical, faces 50% turnover a year. Even without factoring in soft-costs like the cost to the business of losing all that knowledge each year, the hard recruiting and training costs for this kind of turnover they’re seeing in their Sydney office are crippling, and makes Wollongong a much better place to be.
  • Diversity – if the world is flat, it is also now increasingly online. There are billions of internet users, and we’re not far from having more mobile phones than people on the planet. What isn’t changing any time soon though are the needs to speak the language and be connected and comfortable with the culture of your markets, which are increasingly Asian based. Our time zone, our strong cultural diversity and the language skills that that brings us are not insignificant, and I think they’re almost always underrated. My team today includes three people from China, one Canadian, an American, a Kiwi by birth, and doesn’t include the English, Vietnamese, Irish and other cultural heritage we all bring to the table.
  • Proximity – we’re an hour from the commercial capital and largest city in Australia. We’re even closer to our main international airport, and then an easy flight to almost anywhere in the world. We’re on the a growth time zone – Asia – for the first time in our country’s history. But we’re still small enough so that more than half of my staff walk to work each day. Less time commuting to work, markets, investors and clients means more time to spend either building a world-class company, or enjoying life with our family and friends.

For these and a litany of other reasons, I think Wollongong stands a great chance of becoming a technology and startup powerhouse, in much the same way that Waterlook in Canada has become a powerhouse on a global stage and reinvented their economy at the same time.

So, how do we make it happen?

Next Steps

The most important next step for all of us is to start to raise the alarm. Unless our city wakes from its slumber to realise the platform it is dozing on is on fire, we’re going to end up like Detroit – so hollowed out, broken and depressed that things will get better only because they really can’t get any worse. If we waken the community now, and start an honest debate about our future, we might be able to pull off a Waterloo; even if we fail, we won’t be any further behind than we are now.

To facilitate this, I’d love to see something similar to Melbourne’s Wheeler Centre here in Wollongong. Imagine something led by the Mercury, which makes use of our newly refurbished Town Hall, to facilitate the debate.

Let’s give our elected representatives some ammunition to take to Canberra and Macquaire St.

Let’s learn from the successes of others. Action, cooperation and agility is much more important than a big overarching plan.

Let’s encourage the University to keep building its relationship with Waterloo so we can benefit from their experience.

Let’s look at ways to supercharge our new and emerging industries. Tourism, financial services, technology, education. We need to focus on the industries that grow the economic base and bring jobs, income and prosperity into the region. Health and Community services, which have grown a lot of the years deserve our appreciation, but they don’t grow the economic base – they exist only if the economic base can be taxed enough to pay for them. When it comes to technology, the closing comments in my 5 Pillars of Tech article provide a bit of a blueprint; I’m sure Greg Binskin can probably provide his own specific advice for the tourism industry.

Whatever we do though, we need to remember, if we want to keep getting what we’ve been getting, we should keep doing what we’ve been doing. We need to do more. We need to do better.

We’ve got so much potential – to rob our children of the opportunity they deserve to have, and consign ourselves to the fate of a slowly decaying industrial town mired in depression, disadvantage and disappointment for merely a lack of action is just not good enough.

Nexus One dropping back to 2G on Optus

I’m looking at moving my company’s mobile phone services over to Telstra, and I wanted to do some checking of whether my new Nexus One (gift from GoogleIO 2010) was going to work on the NextG network. While some of the frequencies (2100MHz) overlap, my Nexus One uses the 900MHz frequency, whereas Telstra NextG uses the 850MHz frequency.

In the process of sniffing around my phone’s settings, I accidentally screwed something up so that my phone only had 2G access. This blog post is to share the optimal settings for the Nexus One on Optus.

After referring to the really helpful Nexus One Help Forum post I went into the testing menu, and basically screwed something up.

  1. In the phone dial pad… *#*#4636#*#* (This is the testing menu)
  2. Select Phone information (first) option

There are two settings you need to have to work well with Optus:

  1. Towards the bottom under “Set preferred network type:” to “WCDMA Preferred“.
  2. Hit the Menu key > Select radio band > Select AUS as the network > Select OK.

I think I must have selected AUS2 out of curiousity, and in the process screwed up the 3G access on Optus.

Changing back to AUS and fixing WCDMA Preferred, and I got back my 3G.