Discover more from Top Three, by Rowan Simpson
3rd April, 2022
🔨 Ooh, look, some nails!
Pond hockey in Minnesota. By Taylor Friehl on Unsplash
Once upon a time this was my standard late January tweet every year:
That maths always seemed incorrect and easily dismissed so soon after New Year.
But, as March turns into April it means 25% of 2022 is behind us. What have we done?
I said in my last post: “writing is a muscle”. I’ll be honest, I don’t miss the self-imposed pressure of publishing this newsletter every week at all. Three months have slipped by since then. But I haven’t stopped writing entirely. I’ve been slowly working through all of the drafts I accumulated last year, polishing them up a bit and adding them to the list of essays on rowansimpson.com. There are links below to some that have been published since my last update. You can also follow along on Twitter if you’d like to read them “hot off the press”.
I know if the only tool you have is a hammer, it’s tempting to treat everything as a nail. And I’m sorry (not really sorry) to constantly reference things I’ve written in the past. But a couple of stories in the media recently have been too tempting, so please humour me while I get out my favourite hammers and bang some nails ...
Can New Zealand be world champions in Ice Hockey?
This might seem a silly question on the surface, but hear me out…
What would it actually take?
Firstly, we would need to have a lot of great players and coaches etc. We don’t currently have many people at all who play the sport, so we would need to focus on this and significantly increase participation.
Perhaps we could import a few quality players from overseas, with whatever dubious links to New Zealand we can find, tempting them with the opportunity to play internationally, where they might not otherwise be selected. But, to be successful in the long run, we would need to develop our own players and coaches here.
Secondly, we would need much better facilities. Again, we current have hardly any indoor ice rinks at all at the moment and those we do have are not exactly world class. So, building and maintaining those would require significant investment.
Thirdly, we would need to create competition. We would need to expand on our domestic league, to create a better pipeline for the national sides (currently there are only six men’s teams). And we would need to start playing much more frequently against the other teams around the world, so that over time we earn the right to play against the best sides in the world - i.e. those that we’d need to beat in order to become world champions. We will never be competitive if we don’t compete (the clue is in the name)
But before any of that we’d need the ambition and desire to win. I would argue this is the primary and biggest constraint to us ever achieving this goal. We just don’t want it.
And that is almost certainly the correct decision. Because achieving something audacious like this would come at a significant opportunity cost. There are lots of other things we wouldn’t be able to do if we were focussed on that pipe-dream outcome, with a very low probability of success. And many of those other things are things we currently love and get a lot of value from immediately.
So would it be worth it? Almost certainly not. Rather than stretching for something that we have no natural advantage in and don’t really value wouldn’t we be better to spend our precious time and resources on things that we do?
Can New Zealand recreate Silicon Valley in the Southern Hemisphere?
This might seem like an equally silly suggestion, and ... actually it really, really is.
But that doesn’t seem to ever stop it popping up again and again as a serious idea.
In a recent Monitor series on Stuff they once again explored this aspiration and some of the potential problems with it:
Whenever I see this suggested I assume somebody is trying to sell something.
And indeed many of those quoted in the article have their own ideas to push - whether on behalf of a government agency or their own venture.
I’ve found very few of those people who genuinely express this ambition have any real understanding of the unique history of the original Silicon Valley (which we will never recreate here, even if we wanted to), and usually struggle to even articulate the specific things they think we’d need to do in an effort to get there.
It’s often just seems like an idea that they like the sound of. Or they are excited about one specific aspect without thinking about it as a joined up whole.
It’s also sometimes a thinly disguised moan from those who are finding their own startup to be hard work and who incorrectly imagine everything would be easier for them if they were in the US.
But that’s no way to choose a goal.
We may as well choose Ice Hockey.
It’s worth noting that by thinking we can recreate Silicon Valley here we join a very long queue of other places around the world with the same aspiration - very few of which have ever gotten close. I’ve never heard anybody here explain why they think we can do it when other places have struggled.
It’s also a great example of our natural tendency to reach for solutions we can import, rather than assessing our own strengths and weaknesses and (something we seem to be particularly poor at) clearly articulating what we actually want.
For example, from the article:
The idea of New Zealand becoming a powerhouse of tech “unicorns” (the title given to privately held companies worth over $1b) is very popular in Wellington and within Government circles.
That’s wonderful. But why? How does having companies with high valuations convert into anything beneficial for those people who would be subsidising them, assuming that those “in government circles” don’t mistakenly imagine we can magic these companies out of thin air with a hand wave? A “unicorn” is an output. But, what inputs are required to get us there. And why do we want this in the first place? What are the shared outcomes that would justify that investment?
We’re just saying words that feel exciting.
Imagine how good it would feel to be World Champions at Ice Hockey!
If there are specific benefits we imagine, then let’s articulate them. Then we can decide if the costs will be worth it.
Let’s pick just one of them: we want more high income earners to live, work and (importantly) pay tax here. This was, in simple terms, the original argument put forward by Paul Callaghan: be the place where talent wants to live and we will all benefit from the improved productivity that would result.
At least this Stuff piece finally moves the conversation on from claiming that capital is the constraint to this and puts the spotlight on the real constraint we’ve had for some time: not enough skilled people to work on these businesses.
I’m not sure that policy makers dreaming about local equivalents of Palo Alto and Sand Hill Road realise how much the goal posts have shifted on this, even in the last couple of years.
Not long ago we would say that New Zealand had a strong competitive advantage in this respect - for example when we were pitching Vend to international investors we would often reference the fact that our team was based in Auckland, where those people loved to live and where the cost of living was much much lower than their equivalents in San Francisco or London or Tokyo.
But is that still true? Not really.
Now New Zealand is now a relatively expensive place to live, compared to those international cities, and what’s more those same designers and engineers etc are now in a global talent pool, increasingly able to work remotely for whoever they choose rather than constrained to working for a local company in order to enjoy the benefits of living here.
So, what is the new competitive advantage for locally based companies? It’s a good question! I’m not sure I have a great answer.
If you want to test your loyalty bias and make your brain melt a little, consider the implications of this new reality on the amount of tax paid by those employees: Is it better or worse for NZ to have them earning a salary from a locally owned company, or an internationally owned company? Does it actually make any difference at all?
Meanwhile we continue to focus on trying to attract people who have already been successful, at the end of their careers and giving them somewhere comfortable to retire.
There are also some significant differences between New Zealand and Silicon Valley that get brushed over.
The lifestyle we aspire to is very different here.
I’ve visited Silicon Valley. I found it an energising place, in short bursts at least. But it’s also brutal. It chews you up and spits you out without any hesitation. It’s a place where you can be very successful. But it takes a pound of flesh. And it’s a harsh place to live if you’re not earning a big tech company salary. It’s difficult enough for many who are!
I did smile at this quote in the Stuff article from Hnry co-founder James Fuller (who is originally from London):
There is an attitude in both the UK and the US that people involved in a startup should be burning themselves out with 12 to 14-hour days, and I don’t want to see that here.
“I don’t think anybody wants to live in that kind of a country either. It’s about finding that balance.”
Meanwhile, in another article in the same series, this quote from Xero co-founder Hamish Edwards:
“I was in a good position to really put the hammer down in my early 30s and work really, really hard. I just put the blinkers on and committed to 12 to 14-hour days every day of the week for three or four years. I think that’s what you need to be, you need to be absolutely completely focused.”
We want the outputs of Silicon Valley, but we don’t really like the inputs that would get us there.
The way we treat winners and losers here is also very different.
The Stuff article finishes by quoting Chelsea Rapp, who is chair of the New Zealand Game Developers Association:
“In the US you are definitely rewarded for standing out, and here [in New Zealand] I’ve had kids tell me stories about how they won’t tell their friends that they get good grades because they don't want to stand out.
“If that view is pervasive ... then of course you’re going to have kids who have these unbelievable ideas that they never act on because they don’t want to stand out.
“I think that’s the thing that makes Silicon Valley what it is, people who aren’t afraid to stand out.”
That’s certainly true. In Silicon Valley the rewards are distributed incredibly unevenly - in the extreme cases are the founders who become billionaires (some of the richest people on the planet), but there are many many more people who have the exact opposite outcomes.
Is that what we want? Is that really the dream?
We want all of the good bits about Silicon Valley without any of the associated bad bits.
It’s like thinking our kids will only inherit our positive traits.
I reckon we can come up with something of our own that is much more aspirational than any of that.
Let’s start by aiming for something that we all actually want.
The benefits of clearly articulating in advance what outcomes we want was one of the recurring themes I wrote about last year. Unless we do that then we have no feedback loop, so it’s difficult to say if we achieved anything or not, meaning we’re likely to repeat the same mistakes over and over again.
I wrote about how that can work for a single venture:
And, also at length about this in relation to the ecosystem as a whole:
That later essay includes a long list of the contradictory things we’d like. As long as that’s true we’re unlikely to make much progress towards any of them.
For example, we say we want to attract international investors but we also want to retain local ownership.
We don’t understand what it means when we take international investment. In that moment we’re selling a portion of ownership. And in return we get the capital we need to compete and grow. Most of our successful local businesses actually have a mixture of local and international owners. Sometimes this is obvious: for example the ownership of Rocket Lab USA Inc should be self-evident from the company name (although its full name isn’t often referenced in media reports); sometimes it’s more opaque: for example, Crimson Consulting, which last year announced a US$8m round lead by Australian-based Heal Partners (their owners now includes individuals and entities based in United States, Singapore, British Virgin Islands, Cayman Islands, Jersey, Belgium, Mauritius, Hong Kong, United Kingdom and Australia as well as NZ). It might actually be less optimal to be 100% Pure NZ owned?
But this blended reality makes it complicated later when a business is acquired, and we get angry or sad about what we’ve “lost” without thinking about what we’ve gained.
When a startup is sold, in part or in full, it is just a trade. As a country that is entirely dependant on trade for our prosperity we should understand this better:
This gets even more complex when we’re spending public money on these businesses, rather than private capital. The onus then is to articulate how everybody benefits, not just individual owners. But, that’s rare. Instead we tend to shoot the arrow, draw a target around where it hits, and then celebrate our fine aim. Who paid for it all is quietly forgotten.
Meanwhile in sports news…
It was announced this week that the next America’s Cup would be hosted in Barcelona, Spain.
Emirates Team New Zealand (ETNZ), representing the Royal Yacht Squadron of New Zealand are the current holders of the “Auld Mug”, having successfully defended it in Auckland last year. That gives them the right to set the rules for the next edition of the cup, including choosing the venue.
Many people has naturally assumed that would be Auckland once again. We’ve been led to believe over multiple iterations of losing and then winning and then losing and then losing again several times (including being on the wrong side of perhaps the greatest come back in sporting history) and then finally winning again, that the real prize in all of this endeavour is the right to host the event in New Zealand and party with billionaires who visit in their big boats and spend up large, giving us a good excuse to develop run down waterfront areas. And, hopefully, we get to rub their noses in it when we still beat them in the race itself despite having a tiny budget (punching above our weight and demonstrating once again how world class we are, at least on a per capita basis etc etc).
But of course it’s not so simple.
What we call Team New Zealand isn’t, and wasn’t ever, really ours, collectively.It’s a private team, financed by multiple people - some are New Zealanders but others are not. Ultimately it’s those owners who together get to decide what happens, and specifically in this case, where they want to park their super yachts for a few months while drinking champagne and watching some racing.
And so this week we minted a whole new team of traitors, 20 years after Russell Coutts and Brad Butterworth (and others whose names don’t roll off my tongue quite as easily these days) accepted the larger pay cheques offered by Swiss billionaire Ernesto Bertarelli to “defect” to Alinghi, a different but also privately owned America’s Cup team (interestingly one which has been treading water on the sidelines for many years, but is now back in the game, with sponsorship from Red Bull amongst others).
From the fans’ perspective ETNZ represents New Zealand. But from the team’s perspective they exist to win.That means developing the fastest boat and racing it successfully against the other challengers. They clearly care much less about where in the world that happens, and much more about how they finance the significant costs associated with doing that. If holding it in Barcelona rather than Auckland means they have a bigger budget to compete with literal billionaires, then that’s probably a good thing, on balance, as far as their chances of being successful are concerned. ETNZ COO Kevin Shoebridge even suggested in media interviews this week that the team might be less distracted over there than they would be here. He’s probably right about that too.
We shouldn’t be angry about any of that, except to be annoyed with ourselves for getting emotionally attached to a private team with diverse ownership that we don’t really influence and who have proven they don’t really care about us.
Note: I’m being careful here to describe it as a private team, rather than a private business. I’ve seen some media reports saying that this decision has exposed the event as “more business than sport”. But let’s be honest, these teams are terrible business to own, on a purely financial basis. This is true of nearly every professional sports team on the planet. They are the equivalent of giant sink holes that rich people pour piles of cash into, for mostly selfish purposes. That’s entirely their right, and as a sports fan I appreciate the collateral benefits I enjoy as a result. But let’s not pretend that many people at all are getting rich from all of this - most of them are already rich and they end up slightly less rich but maybe happier, I dunno (perhaps a topic for an entirely separate post).
The bit that might more reasonably make us all angry is how much public money has been given to the team over the years. But, just as with startups, surely the onus is on us who have given the money to be very clear about the outcomes we wanted to get from that investment, and to ensure those things were delivered. If it wasn’t clear (i.e. “the condition of this funding is that you at least continue to hold this event in New Zealand” seems a simple one) then who is really at fault here?
When we look around the poker table and we can’t tell who the sucker is, it’s probably us!
My Recent Essays
Startup teams often grow suddenly, in bursts. Can we anticipate these points where our ways of working together typically break?
Those without naturally want more. Meanwhile, those who have a lot want less. How do we all decide how much is enough?
How do you create an ecosystem? You plant a seed and let it grow!
How to Pitch
We realised that the most effective investment pitches we receive all start with the same two words…
Rather than trying to copy what others have done, what can we do first?
Four simple but uncommon ideas about investing…
Unit of Progress
Be specific about where we are going and what it will take to get there.
PS: I have 40+ essays published now, and lots more drafts I’m hoping to publish in the coming weeks. I’m looking out for an editor who can help me get these into some sort of order later this year. If you or somebody you know might be interested in that please get in touch.
Since this is supposed to be Top Three…
Top Three used to be a weekly newsletter, now it’s much less frequent. If you’d like to subscribe then you will automatically get every new edition in your inbox as soon as it’s published. I can’t promise when the next one will be …
For example, I was interested to read recently (I thought it was in Dylan Cleaver’s excellent Substack newsletter The Bounce, but I’m struggling to find the link) about changes made in France to incentivise rugby clubs there to develop young local players rather than import foreign stars at the end of their careers, by increasing the salary caps each time a club has a player picked to represent France.
This Stuff article was written by Dileepa Fonseka, who has done some excellent business reporting recently. He did reach out to me in advance of this piece, and I sent him some links to the things I’ve previously written, but none of those ideas made it into the piece. A lot of this post is from my notes to him.
As Nat Torkington so eloquently put it, in one of my favourite tweets of the year so far: “It’s like pouring gasoline onto you car’s roof and hoping some of it ends up in the tank”.
Once you’ve got your head around that, next do “NZ Inc”: