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Something Ventured:
Oct 23

Insight For BC Technology Entrepreneurs

By Brent Holliday

Playing God With BC's Economic Future

"Unless" - Epitaph of the Lorax, Dr. Seuss, The Lorax

Have you ever played Sim City, the computer based game that allows you to play mayor and try to build a successful, thriving city? If not, you'll get the gist, I'm sure.

Last Wednesday, Pricewaterhousecoopers (mercifully referred to as PWC from here on in) held their meetingtohelpBC'stechnonolgysectorgetorganized. It is commendable for PWC to do their part in helping BC become a technology mecca. Everyone in the room that day was certain that technology companies would lead BC toward economic nirvana (OK, maybe some tourism will help, too).

For the purposes of my aforementioned metaphor, let's call the game Sim BC. We have just joined a game previously underway and it's not going well, at all. Now what PWC wants to orchestrate is a collective body that is looking over the shoulder of the apparent boneheads currently playing and annoyingly tell them what to do. If you have ever played Sim City, you know that it is a one-person activity. It can REALLY annoy you when someone is watching you and your sim is not going well. Heck, you might even get up and leave and say, "Fine, you do it, smartypants!"

The PWC event was well organized and well attended. The opening video sequence was brilliant. After watching it, I was ready to wrap myself in the BC flag and yell, "Technology will save the people!" at the top of my lungs. It could have been the coffee. With a few bright spots, it went slightly downhill from there as far as content goes. For those of you that did not attend, here is my summary:

There are four pillars to growth for the technology community:
Education - we need people with employable skills
Industry - we need coordinated and effective communication
Finance - we need money, at all stages of company development
Government - we need less taxes, less red tape, a level playing field with the rest of Canada, less investment in failing pulp mills, less rhetoric, less ignorance, someone with a clue where the world is going

There were no surprises in what people recommended for each of these "pillars". Sure, it is useful to have clear messages emerge from what was repeated over and over again throughout the day. What I was hoping for from the PWC conference was some new insights and some candor. For whatever reason, we didn't get a whole lot of either one.

One useful insight that emerged is that their needs to be a privately funded body that forms the common voice for approaching government and listening to all industry participants. There were two presentations introducing other geographical technology organizations from Waterloo and Silicon Valley. We do not have an organization that operates like this, yet. They have stakeholders from the four "pillars" involved (yes, even government). Their models should be enacted quickly and properly.

As for candor, I can think of only three individuals out of about twenty that actually stuck their neck out to express their opinions. Everyone else was stepping very lightly around the issues in their presentations. If you can't be candid in a room full of your peers, what can you say to the public? Someone told me that the media was there, which might explain the reticence to speak out. You wouldn't know it from the local coverage of the past week. Maybe it's just me, but I appreciate a good debate.

Harry Jaako, from Discovery Capital got up there and laid into the government (federal and provincial) for all matters related to capital. He painted a clear picture of a lack of capital sources, especially given recent downturns in the markets and the currency. The situation has only been made worse by the canceling of investment tax shelters and dramatic decrease in immigrant investment. He probably has more ammo to fire at the actual investors of the capital (VCs, banks, investment banks), but he held back. One of the partners of PWC (which now has more partners than Wilt Chamberlain) took direct aim at the NDP's announced tax cuts. He said "You really have some work left to do when you reduce taxes from the highest level in North America to the second highest in three years". Finally, I have to mention John Anderson, the CEO of Epic Data. He was brilliant in his attack on the government pillar. He is that much more effective because of his Scottish accent and delivery. I would love to see him go toe to toe with Glen Clark.

PWC will release a summary of the event in time for the BC Business Summit in two weeks. In the meantime, I want to draw your attention to a few other news events of the past month:

A technology company called Tecsys in Montreal announced that they would not move 100% of their operations to a US subsidiary location in Illinois. Instead they would remain in Montreal due to the Quebec refundable tax credit program that gives them $25,000 per job created until next June and $15,000 for the next nine years. They will move to a new technology development centre, called Multimedia City, in downtown Montreal.

In an article titled, Shadow of Doubt in the Valley, some interesting figures were given. High tech is the largest manufacturing employer in the U.S. and the country's biggest exporter. Unemployment in the Valley is at 2.7%, half of the national average. Despite market turmoil, slow revenue and profit growth and layoffs numbering in the thousands (seemingly not affecting unemployment as most of these people are snapped up by other firms), there is rampant optimism throughout the industry. Apparently, there is enough of a safety net to ride out any downswing, built through large infrastructure and a culture of innovation and risk taking. I wonder what percentage of the Valley's work force is unionized? My guess is near zero.

The BC Government is "creating a committee" to look at taking over the private medical labs of BC and making them part of the public service. The president of the Health Employees Union said that the private lab services, employing 2,500 workers (not unionized, currently) and making $25 million in profit last year, should be "phased outÖ No one should profit from health care." Needless to say, the owners of the two largest private labs, BC Biomedical and MDS were apoplectic and referred to the story as "another example of the NDP trying to buy votes from the unions."

Red Herring reported that the Seattle area had a 126 percent increase in VC money pour in from 1995 to 1997, resulting in $408 million US invested in companies last year (In comparison, BC had about $150 million US invested in VC money the same year). The local pundits and government types started to wave the flag that the Silicon Valley had moved north, thanks in a large part to the "mothership", Microsoft. The theory was that all of the Microsoft millionaires, often referred to as Baby Bills or Dollar Bills, were an incredible source of angel investment. But this article seems to say otherwise. It appears that the ex- Microsoft employees do not make good entrepreneurs because they are burned out and were "very adept at spending Gates' money but did not know how to manage it." In trying to explain why Seattle hasn't emerged as the clear technology number two to the Silicon Valley (the region is actually 5th largest by most accounts), one of the theories is that Seattle people value lifestyle over hard work (the latte culture sound familiar?).

All of these bits of information, combined with the PWC conference and the current economic outlooks for the world and our region, have helped me conclude that Sim BC may soon say "Game Over". BC is not attractive to any business, let alone high technology these days. We are not even on a level playing field with the Rest of Canada. We lived the false economy of immigrant investment and high commodity prices in the early 90's. Underneath, the socialist tendencies of our government and our citizens have slowly undermined our ability to compete. Just in case you missed it, we live in a free market economy. Like it or not, left wing or right, this is the fundamental truth of the world's economy. It's like there is this giant game of hockey going on with an understood set of rules and BC is sitting on the bench, refusing to play, because it has its own set of rules and it doesn't want to get hurt playing by someone else's.

This is the part where I say, yes, there are some positive things happening, especially within the technology community. Well, sorry. Maybe in another column. This is no time for placating and back patting. It's time to get mad and get action! If I was sitting down to take over Sim BC, here's how I would play:

Delete all barriers to entry to capital and labour flowing into the province.
Create economic incentives for business, start-up and established ones, through blanket corporate tax cuts and property tax incentives.
Make capital abundant through tax incentives.
Encourage better managerial talent for technology and saw mills through lower taxes. If investment capital were cheaper and more abundant and top talent in charge of these companies, would the government ever have to bail them out? They may stumble, but they won't fall.
Reduce the size of government at all levels by half. Then give all of the civil servants a business plan writing clinic and some small business incentives. Gosh you could make a buck selling your services back to the government!
Embrace the global competition and pitch to the world what an incredible bargain BC has become.
Allow a culture of risk taking, acceptance of failure and incentive to learn and do more in order to compete. If were all so buzzed out on caffeine, channel some of the energy into outsmarting the competition!

The attitude has to be "go big or go home". There has to be a fervor created here.

So, if I ran Sim BC, there would be a lot of turmoil and riots in the streets led by special interest groups. I accept that. There would be pain in the short term. But, I'm not a politician looking for votes. I'm playing the game to win. If I could manage to keep Sim BC out of bankruptcy during these changes, I think the optimism of the Silicon Valley (its underemployment) and its rampant success could be mine. Alas, it's just a computer game, right?

Random Thoughts

- A few months ago I talked about better promotion of BC to other provinces, to the US and around the globe. I believe I argued for a smart PR group to craft a targeted strategy to attract technology workers. So, for not heeding my advice, or general common sense, this week's bonehead award goes to the BC Government's Ministry of Advanced Training, Education and Technology. Why? They buy a full page colour advertisement in the brand new Silicon Valley North, BC Edition (that's for circulation in BC) to tell all the readers what a wonderful place BC is for technology. ("Canada's High-Tech Location"). This is me with my face in my hands, slowly shaking it back and forth. Next time, spend the money telling someone else how good we are.

- I attended the Science Council's 20th Awards Dinner last night and two truths hit me. One, via a friend who has had a one-on-one with Andrew Petter, is that Andrew actually gets it. I'm sure he was not responsible directly for placing the ad I referred to in the previous thought. However, if Andrew does indeed "get it", then he has a long road to climb being in the party that he is in currently. The second truth was that we have an inspiring level of scientific research here in BC. I talked to a few people out of the various universtities and the excitement was palpable. They love what they are doing and wouldn't do it anywhere else. Thank God. Keep it up. the Science Council continues to do good things with the taxpayers money.

Response From Last Week's Column:

Hi Brent:

Enjoyed your article. As founding CEO of Simba, I watched superior technology get beat out by better marketing and sales. About 18 months ago, after years of frustration with failed marketing initiatives, Simba brought its PR in house and cut the budget in half. I personally gave PR lots of attention (with the assistance of a terrific external PR strategist and capable staff PR person) and our management team "got religion" about getting our customer's success with our products "out there". Simba just came off its 5th quarter of sharply rising revenue and exceptional profitability. While many things contribute to recent successes, qualified leads generated by focused PR had a lot to do with it. I'm now trying to take that message to the small companies I'm working with. One Seattle company (best left un-named) spent $170K US on an "image building" booth at a big trade show which netted them 6 decent leads. They have done virtually no other PR! Obviously money not well spent. Another client has spent lavishly on engineering for two years but has built no awareness and now finds it must push very hard very fast to counter a major competitor in their space. I hope your article gets some people thinking.

Regards, Mike Satterfield

- I'm glad you and your management team found religion. Smart investment in PR is not something you can read in a column or in a book. Unfortunately, you have to learn from experience.

As a followup to our conversation this morning about recommended PR firms, you asked that I send you a message. As I mentioned, I have been pretty unimpressed with the high-tech acumen of the local PR agencies and am now searching south of the border. Any suggestions you have would be great.

name witheld

- I put this in to illustrate a real perceived need here in BC. Their used to be a couple of really smart technology PR guys here (who are still here in different roles). The larger tech firms had already employed US firms with analyst and press contacts in the US. The smaller firms could not afford to pay them what they were worth. So, they went out of business. I don't mean to say that there is no good PR here. There is a perception of no good technology PR firms. Anyone care to argue that?

What Do You Think? Talk Back To Brent Holliday

Something Ventured
is a bi-weekly column designed to supplement the T-Net British Columbia web site with some timely, relevant and possibly irreverent insight into the industry. I hope to share some of the perspective and trends that I see in my role as a VC. The column is always followed by feedback (if its positive or constructive. I'll keep the flames to myself, thanks).

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