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Australian startups need growth capital funding to thrive: FSI interim report

7:38AM | Tuesday, 15 July

Medium and small businesses, including startups, need better access to growth capital funding, including venture capital and private equity, the Financial System Inquiry interim report has found.   The report, which was released Tuesday morning, says Australian venture capital funds have not provided investors with adequate compensation for associated risks.   Australian venture capital funds formed between 1985 and 2007 had a pooled internal rate of return -1.4%.   It says barriers to generating significant investor interest include the aforementioned underperformance of VC funds, as well as the fee structures of VC and private equity funds, the tax treatment of venture capital limited partnerships, and scale.   “The Australian market may be too small for some ventures to be viable, particularly when it comes to commercialising a product,” the report says.   “In addition, certain cultures, particularly relating to risk, and extensive networks need to be developed to facilitate a thriving venture capital industry.”   The inquiry notes it received submissions suggesting superannuation funds should be encouraged to invest in securitised SME loans and venture capital funds.   “A mandate requiring superannuation funds to do so may also involve an implicit guarantee by the Government, which the enquiry does not consider to be appropriate,” it says.   “Superannuation funds could consider investing in venture capital funds as part of a broader approach to diversifying their asset portfolios.”   It says changing the research and development tax credit system to a quarterly basis for new ventures, which VC funds argue would help alleviate cash flow constraints, is an issue that should be considered as part of the Tax White Paper process.   In a statement, Australian Private Equity and Venture Capital Association chief executive Yasser El-Ansary says if those barriers are removed, private equity and VC funds could play a more significant role in supporting startups.   “Australian venture capital funds are currently invested in around only 200 startups and early stage ventures,” El-Ansary says.   “There is substantial scope for the industry to play a greater role in building Australian businesses and creating new employment opportunities – especially in new high innovation industries of the future – if the enquiry makes recommendations for changes to some existing policies and regulations later in the year.”   Technology and the financial system The report also highlights the role technology is playing in opening up the financial sector to non-traditional players.   “Incumbents in the Australian payments industry are facing competitive challenges from new market entrants, such as PayPal, POLi, PayMate and Stripe,” it says.   “Closed-loop pre-paid systems operated by companies outside the financial sector outside the financial sector, such as Apple, Skype and Starbucks, are holding growing amounts of customers’ funds.   “Apple has also recently signalled its interest in mobile payments more broadly and recently developed fingerprint biometric authentication for its phones.”   The inquiry received a number of submissions highlighting the potential risks virtual or crypto-currencies like bitcoin present to the current financial system.   Those risks include the safety of the funds stored in such a way, which it says are at risk of system collapse or fraud, the highly speculative nature of virtual currencies which could lead to investor protection issues, their pseudonymity and the money laundering potential that comes with it, and their cross-jurisdictional nature.   “Whether new entrants should be brought within a regulatory perimeter depends on the nature and scale of the risk they present, and who bears the risk,” the report says.   “Government needs to strike a balance that allows the benefits of innovation to flow through the financial system, while maintaining stability.”   The report concludes that government and regulators should take a flexible and technologically neutral approach to regulation, which is not currently the case as some federal and state regulations require the use of certain forms of technology.

Googlers, Beliebers, Magicians, Little Monsters, Droogies or Yahoos: Naming your employees or user base

3:44AM | Friday, 28 March

It seems almost every singer, band, and popstar out there these days comes up with a name for their fans.   For example, Justin Bieber has Beliebers, Lady Gaga has Little Monsters, Katy Perry has Katy-Cats, One Direction has Directioners, and Mariah Carey has Lambs.   Now, Old Taskmaster’s natural instinct in response to this insanity is to yell out: “Kids these days! It didn’t used to be like this in the good old days, Sonny Jim Crockett!” Except even in the days of yore, when music was ever so slightly more tolerable, some artists insisted in employing such shameless marketing tactics.   The classic was the Grateful Dead’s Deadheads, but there were others. For example, Barry Manilow has Fanilows, Jimmy Buffett has Parrotheads, Aerosmith has a Blue Army, KISS has a KISS Army, Phish has Phans and Megadeth has Droogies or Rattleheads, amongst others.   According to the comments on a recent column, there’s even a term for fans of the king of trucker rock, the certainly-not-a-one-hit-wonder who came up with Convoy, CW McCall: Crispy Critters.   (See kids, yours truly does read your comments, so keep ‘em coming!)   Of course, it’s not just musicians inventing collective nouns – many Silicon Valley tech companies have terms for their employees.   For example, Google has Googlers, Atari had Atarians, IBM has IBMers, Yahoo! has Yahoos, Tropo has Tropons, Xerox has Xeroids, Subway has its Sandwich Artists, Disney has Cast Members, and Starbucks has Partners.   Your humble correspondent has it on good authority that the editorial staff of SmartCompany and StartupSmart are known as smarties.   Some of the employee names are admittedly rather witty. For example, General Magic had Magicians, Lockheed Martin apparently has Martians, and Telstra has “future redundancies”.   Now, what about your startup? Do you have a term you’ll use for your current or future employees? Or your user base?   If not, it might be a fun thing to think about as you plan or grow your business.   After all, you couldn’t call yourself a proper Taskapprentice (or StartupSmarter) if you didn’t, now could you?   Get it done – today!

Stanford start-up tutors share the top five myths about scaling tech start-ups

3:35PM | Tuesday, 11 March

By definition, every start-up plans to get global sooner or later. But scaling a business poorly is one of the fastest ways to kill it, according to two Stanford lecturers.   Robert Sutton and Huggy Rao have recently released Scaling up Excellence, which explores how companies from tech superstars to fast food chains have grown and gotten stronger.   “Start-ups need to start thinking about scaling a lot earlier than they do,” Sutton says, who adds you don’t need to a perfect organisation to scale well.   “A lot of times when people think of scaling up, they think they’re going to focus on the great stuff and spread it. But when you look at organisations that have nailed scaling, they’ve gone from bad to great.”   Sutton spoke to StartupSmart from San Francisco about the five biggest myths about scaling and how to overcome them.   Myth 1: Scaling is all rapid growth through fast decisions   While the scaling story of tech superstars Twitter, Google and Facebook can make it sound like every decision was instant and the implementation took only a tiny bit lower, Sutton says all scaling companies slow down to take the time they need to make the decisions where it matters.   “In every case we’ve looked at, including those three, this notion they rushed all the time is just not true. From Google to even Starbucks, all successful global companies go slow sometimes.”   A key time to focus on results rather than execution time is hiring staff.   “From the very beginning, Google was always very picky about hiring. They only hired very technically skilled who also had the leadership skills to grow with the company no matter how badly they needed a warm body in that chair,” Sutton says.   He adds founders shouldn’t shy away from the arrogance these decisions and the corresponding belief the company could become massive requires.   Myth 2: Conflict will kill a company   As companies grow, arguments are inevitable as teams choose what to focus on. Sutton says learning how to argue well is a critical skill for a scaling company.   “To make the best decisions, you need to be clear on how you argue and when you stop arguing. Good teams can have blazing arguments and then move on.”   Sutton says part of the success of many tech superpowers has come down to having founders, and later managers and executives, who are willing to model vigorous arguments followed by a resolution all commit too.   “Firefox’s John Lilly (chief executive 2008 to 2010) oversaw the company’s growth from 12 to 500,” Sutton says. “He told me he started realising at about 80 people that people had begun to act as though they were afraid of their boss. So he just started having arguments with his immediate team whenever he could. He’d be right or wrong but would always end respectfully and move on.”   Sutton says making sure everyone shares an understanding of what medium-term success looks like makes it easier to resolve disagreements and unites a team.   Myth 3: Scaling means building the team as quickly as possible   According to Sutton, one of the most dangerous myths about start-ups is the belief bigger is better when it comes to teams.   “The notion that scaling mandates adding more people is a myth. There is lots of evidence that when you bring on board the wrong people too quickly, it’s deadly.”   The pressure to build the team often comes from investors who are keen to see their money put to work.   “I can’t tell you how many times I’ve seen a start-up still in the product development stage kill itself by hiring sales staff before they’re ready. These guys need to sell, so they sell a product that’s not ready and it’s over,” he says.   Sutton says actions such as Israeli start-up Waze’s hiring freeze after raising $20 million should remind start-ups about the virtues of staying lean, as the company went on to be acquired by Google.   Myth 4: Our culture will suffer and we need to stay small   While cultural death by growth was the fate of Yahoo! and eBay (who later turned it around), Sutton says rapid growth won’t kill a start-up if they’re smart about it.   The key to a culture thriving, as well as smarter working, is to keep teams small.   “One of the mantras at Amazon is you shouldn’t have a team that can’t be fed by two pizzas,” Sutton says. “The difference between a five person team and say an 11 person team is huge. From battlefields to big corporates, all the evidence shows the maximum is seven before it dissolves into interpersonal contests and missed communications.”   Small teams organised in pods is an emerging trend in start-ups. Australian start-up 99designs has used a pod approach for over a year. Sutton adds that scaling can make deeper cultural issues more significant as the organisation widens and effective communications requires more effort.   “When you’re trying to scale an organisation and you have destructive behaviour or people, the first order of business is to nip that in the bud because otherwise it’s impossible to grow well.”   Myth 5: Bureaucracy and hierarchies should be shunned as they stifle innovation and productivity   One of the joys of start-ups is team flexibility. But start-ups need to implement some structure and processes if they want to become global companies.   “Staying entrepreneurial and easy to get things done is admirable, but there is a lot of evidence that shows companies need managers, hierarchy and processes,” Sutton says.   “There is a fine art of adding just enough process or bureaucracy so you can actually get all the work done. I think it’s admirable that entrepreneurs resist adding that stuff, but if you don’t it’ll turn into an unruly, out of control organisation.”   For early stage ventures, Sutton adds it’s essential to work out the leadership structure early or risk confused strategy direction and in-fighting.

Dumb Starbucks: When does parody go too far in regard to copyright?

2:35PM | Sunday, 16 February

This week there is another big test of copyright and how far you can go using someone else’s copyrighted material.   Enter Dumb Starbucks.   A comedian (unconfirmed identity at time of this writing) decided to test just that and set up what looked like a Starbucks coffee shop in Los Angeles. It was called Dumb Starbucks, all menu items were prefaced with ‘dumb’, for example, ‘dumb cappuccino’, ‘dumb espresso’, etc. Even the in-store easy listening CDs got the treatment (‘Dumb Jazz Standards’). And they gave everything away for free!   The comedian claiming responsibility for this ‘new shop’ said he was not breaching copyright laws as he was relying on the ‘fair use’ exception of ‘parody’. Starbucks is suing him anyway. The question is will they succeed?   There are two issues to consider with this copyright case and its potential for success:   Fair use allows parody   This is an exemption to copyright law that you cannot contract out of as a copyright owner. It gives a right for someone to use a person’s copyrighted work in a limited way for ‘comment, critique or parody’ in certain circumstances and without their permission. There are strict requirements to meet and to be able to rely on this exception. The requirements are based on a four factor test which looks at:   the nature of the use of the work and parody,   the amount of the original work used,   the nature of the resulting or derivative work,   and the purpose of the use.     It’s relatively difficult to meet this test and to know if you will pass, so be careful if you are relying on this exemption.   Does parody apply to trademarks?   The second issue is how these exemptions may be applied to trademark registrations. Parody is a protected form of speech for copyright use but there is no clear-cut definition of what and how this may apply to trademark infringement. Trademark infringement cases typically are determined on whether the item or advertisement is likely to confuse consumers about where a company’s goods come from. Further, big companies have often been successful in using their trademark registration and law to shut down the parody with the argument that either customers were confused or that the parody diluted the effect of the original trademark.   This particular Dumb Starbucks case will have to be judged on its merits and facts and will likely form its own precedent. It’s a difficult one to judge, as how can you use parody without bringing up an image or idea of the original trademarked/copyrighted material?   Have they really breached any laws by adding the word ‘dumb’? Are they able to use the same menu, logo and design just because they added ‘dumb’ before everything? Perhaps something we will only know once this goes to court, which Starbucks vowed it will.   In the meantime, Dumb Starbucks has been shut down (temporarily) due to lack of a health licence, maybe to open again pending trial. Free coffee anyone?

Heatwave-hit cafes switch up their offering after insights from collaborated data

1:09AM | Friday, 17 January

With much of Australia gripped by a heatwave this week, many cafes owners were wondering if they were the only ones seeing their coffee orders dry up.   But those in Melbourne using the Rewardle app were able to verify the drop, with many going on to launch a targeted marketing strategy to fill the financial shortfall.   Rewardle is a membership-based points and rewards platform for cafes, currently in operation in Melbourne.   The rewards system drives repeat customers, but the app also enables small businesses to access broader trend information and proactively reach out to customers with new offers.   Rewardle founder and chief executive Ruwan Weerasooriya told StartupSmart they had identified the 17% drop in hot beverage orders and reached out to their subscribers with the opportunity to promote their iced beverage range instead.   “Around 70% of merchants that we communicated with took up the initiative,” Weerasooriya says. “The anecdotal feedback is merchants were making two to three times more cold beverages than they had the previous day.”   He adds one of the exciting aspects of the app is the ability to give start-ups and small businesses access to wider industry information.   “This is typically the type of campaign managed by a sophisticated marketing team for chains like Starbucks. Our aim is to play this role for the little guys out there,” Weerasooriya says.   “By empowering café owners to create a digital connection with their customers through our membership, points and rewards system we were able to help them reach out to customers during the heatwave and entice them in with a highly contextual, targeted offer.”   With Rewardle increasingly attracting new cafes, Weerasooriya and his team are beginning to explore extra functions.   “A number of start-ups have attempted online and mobile pre-ordering without gathering what I would consider commercially viable critical mass. Like all things we do as a lean start-up we’ve been working closely for many months with a group of pilot merchants to develop a solution that adds value for both merchants and members,” he says.

Cracking the Australian market as a newcomer

3:33AM | Friday, 15 March

Stan Gordon’s business mantra is to make money and have fun. And with four well-known food brands under his belt, Gordon is definitely doing both.

Aussie coffee start-up Harris+Hoole under fire over Tesco investment

3:13AM | Friday, 15 March

A trio of London-based Australian entrepreneurs has been forced to defend its coffee shop start-up Harris+Hoole for giving the image of an independent chain while being part-owned by UK retail giant Tesco.

GeoNext Startup Showcase to reward location-based innovations

3:08AM | Monday, 11 March

Start-ups looking to make their mark with location-based technology are being urged to submit their pitch for the GeoNext Startup Showcase, with prizes including a two-hour strategy session on capital raising.

THE NEWS WRAP: Government reference group to look at new tax on multinationals

3:48AM | Monday, 11 March

Multinational companies such as Starbucks, Google and Apple may face a new specific tax amid growing pressure over tax avoidance in Australia and elsewhere.

Start with a business

11:54AM | Thursday, 8 November

I have been thinking long and hard about what the goal of launching a new business should be. And to be honest, I’m not sure if my conclusion is profound or just completely obvious.

Twitter founder: Why scale is crucial for start-ups

9:52AM | Wednesday, 5 September

The founder of Twitter has shared his views on what it takes to create successful new technologies, highlighting the importance for companies to allow room to scale on a global basis.

Starbucks sinks $25 million into Square

8:43AM | Wednesday, 8 August

US-based mobile payment app Square has partnered with coffee chain giant Starbucks, which will invest $25 million in the start-up as well as use its platform to process debit and credit card transactions in-store.

Cafe2U unveils 10-year franchisee hiring spree

7:30AM | Monday, 2 July

Mobile coffee franchise Cafe2U has highlighted opportunities in the US market, after announcing plans to appoint more than 1,000 additional US franchisees within the next 10 years.

Cashing in on social media

5:22AM | Wednesday, 2 May

“Oh God, it’s here! Hooray! Hooray… so… uh… what do we do with it?”

Pie in the sky

9:43PM | Tuesday, 13 September

When customers walk into a Pie Face store, they are greeted with the sight of numerous pies adorned with endearingly childish faces – a smiley face for chicken, a squiggly face for chunky steak and a lip-licking breakfast version.

Twitter to open up promoted tweets to advertisers

6:20AM | Monday, 4 June

Twitter is to place advertisements in the timelines of users who follow a particular brand, but an industry expert says small businesses should be wary of using the network as an advertising platform.

Hard Rock Cafe set for Australian expansion drive

7:49AM | Thursday, 14 July

Hard Rock Australia has outlined franchise expansion plans for Australian cities but an industry expert warns that the revived chain will struggle to resonate with cost conscious consumers.

ANZ declares mobile payments trial with iPhones a success, but wants to wait on NFC

6:03AM | Thursday, 30 June

Mobile payments technology may take longer than expected to reach Australia, with ANZ and credit giant Visa both announcing they will not commit to a timetable for the introduction of Near Field Communication (NFC) technology despite a successful four-week trial of consumers using iPhones to pay for goods.

Pizza Hut, Ben & Jerry’s to add to Australian franchises

4:25AM | Friday, 29 April

US-based brands Pizza Hut and Ben & Jerry’s have unveiled plans to expand their franchised operations in Australia, despite the franchise industry’s continued recruitment problems.

Facebook offers up user content to advertisers

1:34PM | Thursday, 27 January

User-generated Facebook content will soon be turned into advertising, with the social media site announcing a new “sponsored story” option for advertisers.

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