inside enterprise: age of entrepreneurs

www.insideenterprise.org | 1

2 | www.insideenterprise.org www.insideenterprise.org | 3

EDITOR'S MESSAGE

Welcome to the March issue of Inside Enterprise, which celebrates the beginning of another exciting year for discussing and sharing ideas at the forefront of contemporary business.

A major theme for this issue is entrepreneurship – an area which attracts more curiosity, hype and misunderstanding than perhaps any other in business. In entrepreneurship, we find mottos such as "you never fail until you stop trying",

"failure is a sexy word", and the freedom that comes with knowing that there are no rigid rules defining the path to success. We are often beguiled by the glamorised careers of successful entrepreneurs while still remaining in the dark as to how buzzwords like 'innovation' actually translate into strategic advantages in a real world setting. Above all, entrepreneurship retains lasting importance because it is the world's best avenue towards continued economic prosperity.

The articles in this issue seek to provide a holistic and balanced view of entrepreneurship in the global economy, combining informative explorations of various aspects of entrepreneurship with practical anecdotes from successful business-makers. Our interviews illustrate the successes and struggles of enterprising students and veterans who have directed businesses firsthand. We speak to Deloitte CEO Giam Swiegers on how innovation is cultivated in one of the 'big four' accounting firms, and Google employee Shane Treeves about the perks and demands of working for the world's internet giant. We also explore the journey of Rhodes Scholar Nathaniel Ware, whose work in social entrepreneurship attests to how business thinking can be used to make the world a better place.

It is inspiring to see so many writers apply a social lens to their chosen topics. The New Ideas section looks at how social impact bonds and innovations inspired by plastic are solving great societal challenges. The feature articles ask the big questions of how female entrepreneurs are transcending gender prejudices in the tech start-up scene and how social entrepreneurs can stay competitive in a capitalistic market that rewards profiteering without compromising their social mandate. Beyond the glamour of entrepreneurship, these articles highlight the potential of using startups and creative innovation to drive economic and social betterment.

I would like to sincerely thank our corporate sponsors and Board of Advisors for continuing to recognise the value that this publication brings to students across New South Wales. I cannot give enough thanks to our writers, editorial team and executive committee – it is your hard work and incredible passion for this publication that makes each issue possible.

To our readers, thank you for continuing to read and offer your thoughts in writing. As we expand in 2015 into online media and talk events, we seek to engage fresh talents and welcome all writers to apply. Information on how to get involved is available on our website.

Jenny HuangFounder & Editor-in-Chief

Editor-in-chiefJenny Huang

Deputy Editor-in-chiefHowell Sze

General EditorMarina Yang

Branch President Sun-Yong Kim

EditorsAaren Cristini

Ann Yee Lim

Clara Wong

Kevin Gatdula

Peter Kwag

Vanessa Cartwright

DesignersErica Liu

Jenny Huang

Marina Yang

Communications DirectorNicholas Fahy

Publisher Matthew Green

Campus Directors James Pyo

Levi Romanov

Manpreet Singh

Richard Guan

Board of AdvisorsBeau Chase

Heather Robson

Hugh Simpson

Mark Chan

Max Soyref

Michael Allan

COPYRIGHT AND DISCLAIMER© 2015 Inside Enterprise. All rights reserved.The views expressed in Inside Enterprise are those of its contributors alone. Neither Inside Enterprise nor its Board of Advisors take responsibility for any material published. All pictures remain the properties of their respective copyright owners.

For advertising and sponsorship opportunities,

please contact [email protected] your career today, visit Accenture.com/grads for more information on graduate and intern positions at Accenture.


REGULARS

Around the World

Laura Armenian

New Ideas

Plastic innovations, Social impact bonds, Investment banking kiosks, The B team, Brain science educationSun-Yong Kim

Student Story

Nat Ware on the business of social entrepreneursJenny Huang

C O N T E N T S

FEATURES

Mobile Africa

How the mobile phone is driving growth in AfricaManna Mostaghim

The Earnings Game

Picking the winners Ehren Heilman

Social Bang for your Buck

The challenges facing social enterprisesAshley Anderson

Equity Crowdfunding

From Wall Street to Main StreetPeter Kwag

06

INTERVIEWS

Inside Google

An interview with Google employee Shane TreevesAnnie Handmer

Innovation in the Big Four

An interview with Deloitte Australia's CEO Giam SwiegersAndrew Huynh

Andrey Tyshchenko

An interview with the CEO of e-commerce site MyShoppingLevi Romanov

08

12

18

22

26

46

48

STUDENT RO OM

INTERESTS

#Feminext

Female entrepreneurs in fashion and technologyAaren Cristini

What motivates employees?

The contradiction between business practices and proven scienceAlvin Sharma

Debunking the Myths of Entrepreneurship

Major myths that deter young entrepreneursSarah Elsmore

Pay What you Want

A business model that relies on honestySophia Cyna

Student Entrepreneur: MadpawsKevin Gatdula

Event: The Millennial Series

Matthew Green

40K Foundation

Adam James Page

Enactus: BusinessONERichard Guan

Sydney Genesis: Breathe WellMegan Engard

36

40

42

38

50

52

51

For many more articles and to contribute your own, visitwww.insideenterprise.org

Stay connectedwww.facebook.com/insideenterprisejournal

Tweet @IE_online

ONLINE

44

31

53

54


Around the WorldCOMMODITY PRICES AND THE AUSTRALIAN DOLLAR

Since June 2014, Brent oil prices have fallen by 45% to just USD $60/barrel. The catalyst for this fall has been an increased supply from shale oil and gas

producers, together with the refusal of OPEC’s core member, Saudi Arabia to reduce its own production for geo-political reasons. Conversely, net imports have experienced a potential slowdown in energy demand from a key market as economies such as China mature. For net importers, the drop in oil prices act as a tax concession, buoying real wages and leaving households with more disposable income. This has caused three main problems for Australia. First, Australia invested billions of dollars into liquefied natural gas (LNG). Lower oil prices threaten to flow through to LNG prices and derail this investment,

making these projects less profitable. Secondly, the RBA recently stated that further depreciation in the AUD may be required to restore economic

competitiveness and achieve balanced growth in 2015. The decrease in com-modity prices has also filtered through to lower terms of trade, decreasing in the September quarter by 3.1%. However, the weak iron ore and coal spot prices have been offset by falling petroleum prices, which reduces the cost

of business operations. The market has responded, with commodity-related firms tanking in share price. This could potentially pave the way for private equity firms to acquire distressed assets or passive shares (15-20%) in listed ASX companies, plugging the investment gap left by the retreat of Chinese

state-owned enterprises and sovereign wealth funds.

TAx TIME

A US Senate inquiry into several large multinational companies including Apple, Microsoft and Google has revealed transfer pricing schemes – an internal sale from one subsidiary to another to evade tax by shifting profits between jurisdictions. Consequently, there

has been an international consensus towards an information sharing deal between countries to uncover this opportunistic behaviour. The Financial Services Council has lobbied the Treasury to abandon this commitment based on the likely significant costs to members and subsequent increased consumer costs. The effect of such a policy is

two-fold: first, it reduces the attraction of overseas firms doing busi-ness in Australia; second, it increases the number of domestic firms shifting revenue offshore. The latter is most notably evident in PwC engaging their Luxembourg office to cut favourable tax agreements with Australian companies. Tax - once considered a stable revenue generator - has been turned into a volatile area subject to political

discourse.

Laura Armenian

ARGENTINA GOES TO COURT

Argentina is seeking to sue the US in the International Court of Justice over domestic US court rulings that forced

Argentina into default, allegedly violating their state sovereignty. The US court held orders that Argentina has to pay in full a group of creditors led by NML Capital

Ltd, whereas Argentina wishes to pay the restructured bondholders ensuing from

the country’s default in 2001. Argentina is arguing that they cannot pay the creditors before the bondholders due to a restric-tive clause in the bond contract which essentially triggers a repayment of the

bondholders’ principal, worth up to $120 billion dollars, sending the South Ameri-

can region into financial chaos.

CRACKING THE SHELLS

Over the past decade, Europe has seen the resurgence of shell corporations for money laundering and tax evasion schemes. Shell companies serve as vehicles for business transactions, existing only on paper and without any

real employees or offices. Mid-December 2014, the EU unanimously passed legislation that aimed to reduce the prevalence of such activity. The new rules mandate that member States are to establish central registries of companies’ 'beneficial owners' that set out the ownership structures. This information will be accessible to law enforcement and relevant government agencies in-

cluding tax authorities, journalists and NGOs that have a ‘legitimate interest.’ This principle threatens to shatter the underlying purpose of the legislation:

to increase transparency. The limited access could translate into being an expensive endeavour which increases bureaucracy and red tape and denies

meaningful public access.

WALL STREET TOLD TO TRY AGAIN

In the wake of the financial recovery, Wall Street’s biggest banks have submitted contingency plans to the Federal Re-

serve in the event of another financial crisis. Major banks in-cluding Goldman Sachs, Morgan Stanley and JP Morgan have all failed to provide a credible, clear path through bankruptcy without relying on direct or indirect public support. Conse-

quently, the US bank regulators have rejected their bankrupt-cy plans, seeking a rewrite of the ‘living will’ provisions that were first inserted into the Dodd-Frank Act to protect the

financial system. This continues the trend of financial institu-tions circumventing legislative requirements. Earlier this year, the institutions leveraged the Omnibus spending bill to repeal the Dodd Frank Act’s restriction on the volume

of traded financial derivatives that have sourced major profits for these banks.

THE LINKING OF TWO MODERN POWERHOUSES: GERMANY AND

CHINA

China’s foreign direct investment into Germany has continued to increase over the past decade, culminating to EUR €1.4 billion as of 2014. However, the relation contin-

ues to strengthen with Germany being the EU’s largest investor into China with over EUR €45 billion of investment as of late 2014. Combined with Chinese relaxation of outbound investment project regulation, this is likely to shape the expanding bilateral exchange between the two countries. Relations are likely to culminate in a restructured

EU-China investment treaty, which launched in late 2013 and is about to enter its fourth round of negotiations. With an improvement in the legal framework, inves-

tor protection and more reliable market access, investors from both sides are likely to become more active.

NSW GOES PRIVATE

If NSW Premier Mike Baird’s government is elected in March 2015, it will continue its plan of converting the State’s assets into privately run ventures. In 2014, the

government sold the Newcastle, Botany and Kembla ports along with the Sydney Desalination Plant. The assets are all being sold to reallocate capital to fund long-needed

infrastructure that the state is otherwise unable to pay for. The state’s major asset, the $13bn poles and wires electricity infrastructure, is set to be one of the key assets sold in 2015-2016. Primary players for the asset are trade buyers such as Chinese giant State Grid Corporation and Southern Power

Grid, and yield chasers such as AustralianSuper and the Canadian Pension Plan Investment Board. To contextualise

the sale, this would be the largest utility privatisation in recent history, dwarfing the power station sales by the

Victorian government in the late 90s.

ADS THAT DON’T JUST STAY AT HOME

Out of home advertising is forecast to be the fastest growing medium after the internet in the foreseeable future. Not only is it a $30 billion

market, its audience continues to grow as opposed to the other communication formats that continue to contract and fragment. This form of advertising has already been a huge feature of Asian markets, where train stations, airports and TV screens on

taxi seats are some of the most prominent locations for companies to invest their marketing budget

into. Outdoor advertising’s share of global adspend has increased from 4%-6% over the past 25 years, with JCDecaux, the largest global operator, best positioned to capitalise on this trend. As digital

technology continues to improve, this medium is likely to become more visually exciting and engag-

ing and will be a permanent part of the modern city landscape.

TECH DISRUPTION AWAKENS

After months spent collating passwords and mapping IT networks, hackers set off a virus that wiped out Sony’s data, crashed the system

and subsequently revealed over 40GB of the company’s salacious emails between executives, employee salaries and health records. It is presumed that the purpose of the hack was to prevent the release

of a politically controversial film, The Interview, concerning the assassination of North Korea’s leader, Kim Jong Un. Sony has since

scrapped the release, costing them approximately USD $210 million in potential revenue and USD $110 million in sunk costs. Other

major unassessed costs to the firm include the investigation into what happened, computer repair or replacements, steps to mitigate a future attack as well as a loss of goodwill and productivity while operations were disrupted. The Sony hacks are an example of the threats that technological disruption pose to the privacy of governments, large corporations and small businesses. Some financial institutions have taken advantage of this digital age by employing ‘ethical hackers’ to break their own system and find the faults. Businesses are becoming

mindful of the sacrosanctity of confidentiality.

HISTORY REPEATS ITSELF AS TECH BUBBLE IS SET TO BURST

Investors have been eyeing the technology sector as the next emerging area. However, there are concerns that the upcoming ‘tech bubble’ is set to replicate the mistakes of its predecessor, the dotcom bubble, a decade and a half after it wiped $5 trillion

off the market value of companies and dragged the US into recession in 2000. The evidence supporting this conclusion manifests in the $6 billion invested into software firms, a similar figure to that of the 2000 dot com crash and the fact that the number of 2014 venture capital funding deals for technology companies has eclipsed its 1999 peak, albeit falling marginally short of the 2000 crash figure. Janet Yellen, Chair of the Board of Governors of the Federal Reserve, has expressed the senti-ment that analysts are making similar buoyant projections now as they did with the dotcom bubble. Valuation exuberance in the market is catalysed by the huge premiums paid by established players and the cheap cost of capital flowing into early-stage companies, resulting in under-priced risk. For example, in August 2014, Snapchat was valued at $10 billion without declaring its business model or growth strategy and no real cash flow projections. However, for every analyst predicting and betting on the technology bubble bursting, there are others who assert that this time it will be different. More than ever, investors are

cynical and demand to see true revenue growth and business model growth. It is hard to share this view when the percentage of technology companies that have negative earnings filing IPOs with NASDAQ has increased.


Sun-Yong Kim

Plastic Innovations

NEW Ideas

SOME OF SOCIETY'S GREATEST CHALLENGES ARE TODAY BEING SOLVED BY INNOVATIONS INSPIRED BY

PLASTIC

Plastics Roads

After being troubled by the inadequate road and infrastructure quality currently inflicting his native homeland, Ahmed Khan, an Indian entrepreneur, devised a plan to build superior quality roads by mixing bitumen with asphalt. With cor-ruption currently afflicting the domestic infrastructure bidding process in India, Ahmed felt he could not rely on public support to deliver the critical infrastruc-ture that his people needed in the face of rising urbanisation. The idea behind ‘Plastics Roads’ is simple. Mixing plastic with asphalt forms a compound called polymerised bitumen which is capable of withstanding India's prolific monsoon rains far better than the pavements cur-rently in use, owing to plastic's tendency to act as a binding agent and its water re-sistant quality. Plastics Roads are also cost effective. While a road built with plastic

will cost about three per cent more than a conventional road in the short term, in the long run, it will require much less repair and hence compensate for the higher up-front cost.

Additionally, Plastics Roads are more durable than a standard road. By con-servative estimates, plastic roads made by Khan's company last at least two years longer. So far, the company has laid more than 1,200 km of roads using 3,500 tonnes of plastic waste, primarily in Bangalore.

The 3D Plastics Car

American graphical designer Jim Kor has constructed a 3D printed plastic car known as Urbee 2 that conserves half the energy costs of a conventional car and con-stantly reuses natural resources consumed in the process. The idea behind Urbee 2 is relatively simple to comprehend. Using

the Fused Deposition Modelling (FDM) method, thin layers of plastic are com-pressed continuously over an indefinite period until an entire car exterior is simu-lated. Thanks to the product adaptability that is enabled by this production strategy, different thicknesses and textures can be used to strengthen the structure, ensuring that the Urbee 2 is as strong as traditional cars but only a fraction of the weight.

The social value of the Urbee 2 lies in its ability to conserve energy usage in the current Western car culture. The Urbee 2 runs on electricity stored in its batteries which is largely recovered by a regenerative braking system within the cell structure that allows the battery life to be constantly replenished over an indefinite period of time. The Urbee 2 also weighs 553kgs – far lighter than the average car weight of 1500kgs – reducing the stress it places on natural resources.

The introduction of social impact bonds have facilitated the growth of

the social co-investment model of social entrepreneurship. Specifically, social impact bonds are financial instruments that constitute a contract between the in-vestor and the public sector that promises payouts to the investors when desirable social outcomes are achieved. Returns are themselves dependent on the scale of social impact witnessed, ensuring that the social impact bonds have many of the economic characteristics of a floating rate bond.

These social impact bonds have become the preferable tool of finance for many social welfare services where the observa-tions of improved restoration rates for foster children families has been used as the social metric to base investment returns. One specific example of this is the Uniting Care Social Impact Bond which raised $7 million to support the Uniting Care Burnside Foster Care Facility aiming to restore children in foster care to their families. Over the first 6 months of the program, the United Care facility wit-nessed a 60% restoration of foster children back to their original parents, yielding a

7.5% initial coupon rate to investors ac-cording to the terms of the bond issue.

From a public sector perspective, the social impact bond represents an innova-tive way to limit public funds to socially impactful investments, as investor returns are provided only when desirable social outcomes are achieved with public sector funds. This reduces the fiscal strain on public venture organisations such as the Social Ventures Australia (SVA) Social Impact Fund, which now possesses the flexibility to expand investment allocation based on observed social outcomes, in-creasing support for up-and-coming social investments.

From a social perspective, the social impact bond represents a wave of opportu-nity to attract funding for high risk social ventures that have previously experienced difficulty attracting capital, due to issues with the venture's scalability. Issues such as finding a cure for Alzheimers Disease, Behavioural Disorders and Brain Science research have long been neglected areas of science as a result of the capital gap that was manifest in the pre-social impact bond environment. The South Australian Gov-

ernment has recently flagged the concept of a pilot social impact bond where inves-tor returns are tied specifically to increases in bowel or colorectal cancer screening rates. Similarly, Research Australia has also considered the potential viability of a social impact bond funding emergency waiting room services with returns tied to reduced emergency waiting room rates.

As the socially impactful opportunities provided by social impact bonds continue to be explored, it remains very possible that many social ills will begin a gradual descent towards irrelevance.

A NEW TOOL OF FINANCE FOR SOCIAL ENTREPRENEURS

Social Impact Bonds

In an era where the provision of institu-tional financial services worldwide has

become centred around large investment banks such as Goldman Sachs, JP Morgan and Deutsche Bank, it is hard to imag-ine how financial markets would operate without the investment banking industry. After all, investment banks play a critical role as a market maker and a vital provider of structured financial products that com-mercial banks and other financial institu-tions do not provide.

However this investment banking cen-tric financial model may become subject to considerable challenge over the coming future with the recent emergence of invest-ment banking ‘kiosks’ which bring new

competition to the industry. Motivated by an overall declining mergers and acquisi-tion (M&A) deal market and increased regulatory scrutiny since the GFC, senior deal makers such as Simon Robey of Morgan Stanley and Yoel Zaoui of Gold-man Sachs are leaving their lucrative roles to start independent advisory ventures which analysts coin ‘kiosks’.

While many question whether or not these ventures are likely to succeed, the ex-plosive success of former Morgan Stanley executive Paul Taubman’s kiosk, PJT capi-tal, indicates that they may very well take the industry by storm. PJT Capital now occupies 11th spot in the global M&A league table for 2013 with his firm wrest-

ing control of major public deals such as the Verizon-Vodafone and Comcast-Time Warner Cable deals from the traditional investment banks. Overall, Taubman himself accounted for $175 billion worth of deals for the past 3 years, a fact which has fascinated Wall Street bankers. But Taubman isn’t alone.

Two brothers, Michael and Yoël Zaoui, are advising the French cement maker, Lafarge, in its $60 billion merger with another giant cement maker, Holcim, of Switzerland. Robertson Robey Associates, an advisory venture managed by Simon Robey, Simon Warshaw and Simon Rob-ertson advised Grupo Corporativo Ono of Spain in its $10 billion acquisition by

Investment Banking Kiosks

A DISRUPTOR TO THE INVESTMENT BANKING INDUSTRY


Vodafone in March 2014. Another advisory venture, Moelis & Company, has taken the audacious step of listing on the New York Stock Exchange earlier this year.

Assisting the rapid development of these kiosks is the regulatory environment. Kiosks have little or no overhead but are still paid in terms of a percentage of the total cost of a successful deal as clients receive the benefit of the undiluted attention of a top M&A strategist. Taubman’s growth as a significant M&A player has been built upon just two deals – the Vodafone-Verizon deal alone netted him more than $10 million. These lucrative opportunities simply do not exist to the same extent for traditional invest-ment banks, as they are burdened with over-head and bureaucratic processes that limit the deal payout.

However, investment banking kiosks are limited by the resource constraints associ-ated with running a small advisory venture. Lacking the economies of scale afforded to large investment banks, small kiosks such as PJT capital have to adopt a selective pro-cedure with respect to prospective deals – a limitation which ensures that they cannot meet the sheer scale of the M&A deals con-ducted by institutional investment banks. Nonetheless, they have the potential to reshape the investment banking landscape away from the dominant control of large institutional players. Given the increasing regulatory strains and dampening M&A markets, there is a good possibility that the Taubman experience will grow to become the rule as opposed to the exception.

The B Team

LEADERS COMMITTED TO SOCIAL BETTERMENT

An often neglected stakeholder in the discussion of social improve-

ment is the one stakeholder that has the means to make a real difference: Business leaders. It is this reality that forms the philosophical basis of ‘The B Team’, a not-for-profit initiative led by Sir Richard Branson, founder of Virgin Group, aimed at engaging the entrepreneurial minds of perennial business leaders towards devel-oping a socially conscious business model worldwide. Specifically, the ‘B Team’ is a coalition of renowned business leaders led by Sir Richard Branson and Jochin Zeitz, who are setting out to fulfil a set of three ‘challenges’ that will be actioned and implemented by B Team Leaders in their own organisations, and who will also empower businesses around the world to join them in implementing these reforms.

One perfect example of this process is the ‘The Future Bottom Line’ challenge which encourages B Team Leaders to adopt socially inclusive business models by recognising the social and environ-mental costs of industrial action. As part of this challenge, B Team Leaders such as Blake Mycoskie of TOMS Shoes, Guil-herme Leal of Natura and François-Henri Pinault of Kering formed a coalition of companies known as the ‘We Mean Busi-ness Climate Coalition’ – a group willing to commit to environmental accountabil-ity practices recognizing environmental degradation on the company balance sheets. At present, over 100 companies have instituted environmental profit and loss accounts with B Team Leaders taking

initiative through host companies such as Virgin, Kering and Natura.

B Team Leaders have also made it a personal priority to address rampant cor-ruption within the developing goal as part of its ‘The Future of Incentives’ challenge which aims to reverse perverse incentives by corporations to act unethically and inequitably. As part of this challenge, Celtel founder Mo Ibrahim - who set up the Mo Ibrahim Foundation to encourage better governance in Africa - led a project aimed at tackling corruption in business. Specific to this task was the creation of a more balanced corruption index known as the Ibrahim Index of African Govern-ance (IIAG), which incorporates country specific factors in an attempt to universal-ise corruption indexes.

Finally, B Team Leaders are dedicated to raising socially conscious business lead-ers as part of their ‘Future in Leadership’ Challenge. In particular, B team leader Mary Robinson is working with partners such as Celtel and Kerin to drive greater participation from future business leaders in critical global negotiations around climate and the sustainable development goals. The creation of social leadership licenses as a metric of career progression has been adopted by a coalition of busi-nesses worldwide as a means to institute a leadership culture of social sustainability.

Through the fulfilment of various ‘challenges’, the ‘B Team’ has successfully built a bridge between business and social sustainability, adding new perspectives to the social discussion.

It is indisputable that the technological revolution has come to dominate most

aspects of modern life. In recent times, it has filtered towards the education sector in ways that have the potential to fundamen-tally transform the way we teach children. The development of the new field of Con-nectomics, which uses neurological imag-ing and histological techniques to create a neurological map of the human brain, bring the possibility of modifying and adapting teaching strategies in line with new understandings of how the student brain operates.

The basic logic is that creating a map of the brain through neural imaging and histological techniques will allow educa-tors to craft educational strategies directly aimed at increasing the speed, efficiency, and resolution of neural connections in the nervous system, in a way that will

maximise learning speed. If one under-stands the way individual neurons in a human being interact with each other, one would be able to anticipate neurological movements with precision. As the educa-tional process is in effect an exercise of the neurological patterns in our brain, con-nectomics allows us to devise educational strategies that maximise learning speed by anticipating predicted neurological re-sponses to educational exercises. Consider the case of Scientific Learning, a com-pany run by brain scientists in Berkley, Florida. It developed educational strategies through its Fast ForWord program which uses connectomics-informed brain science technology to maximise cognitive skills that enhance critical language and reading skills including vocabulary, comprehen-sion, decoding, working memory, syntax, grammar, and other skills necessary to

become a better reader. Astounding results in case studies in Thailand showed that students achieved 1 year's’ worth of academic achievement in the space of 4 months. Students in Bermuda signifi-cantly improved their early reading skills, improving their expressive language skills from the 13th percentile to the 33th percentile.

At present, the scientific infancy of con-nectomics unfortunately means that wide-spread educational application remains a pipedream for the foreseeable future. However, increased awareness and research funding – including $40 million recently handed out by the National Institutes of Health – provide optimism that realisation of these potential educational benefits lies just around the corner.

Brain Science Education

SCIENCE FOCUSED ON MAxIMISING LEARNING SPEED

Paul Taubman | Source: Bloomberg, Getty Images


Nathaniel Ware

Student Story

On the business of social entrepreneurs | A University of Sydney graduate currently completing his PhD at Oxford, Nathaniel (Nat) Ware is one of the brightest young minds championing innovative business solutions to pressing social problems such as world poverty and hunger. His inspiring story, which has taken him across the world, is a testament to the possibility of combining a successful career with a lifelong passion of making the world a better place.

By Jenny Huang


"If you knew that you could

do anything and you wouldn't

fail, what would you do? If you

forget expectations, what would

you choose? A lot of the time

people make decisions based on

expectations of what others think

they should do."

started I was never intending it to grow into an international organisation. The idea caught on in other parts of the world when in 2008, I attended the Goldman Sachs Global leaders Conference in New York and met students from Mexico and Sweden who took to the idea and wanted to replicate it. We've never really done marketing to try to establish branches. Almost always it's people approaching us and applying."

180 Degrees Consulting is only one prod-uct of an entrepreneurial mind that constant-ly questions accepting the status quo. "I want to do things in a smart way, improve the way we solve problems, get people to challenge the way that things are done. Everyone seems to assume we have to have a seven day week, but that’s very much a human invention. People seem to assume we need four walls to a room, when we don't. By questioning some of these very fundamental things, it forces us to think of alternatives." He adds that another way to arrive at ideas is by “innovat-ing on the verge” – combining existing ideas to form something new. "Recently I’ve been thinking about using roller-shutter doors on trains – you could produce trains where the entire side of the train rolls up to enable passengers to alight more quickly than small doors…I have a lot of ideas. I keep a journal on my bedside table that I record them in – I

think I'm currently up to 170 ideas. I try to add a new idea each day."

With this mindset, Nat has since travelled to some of the most remote parts of the world including Mongolia, Central Russia, Gaza and Myanmar. “I'm onto my third or fourth passport,” Nat says. “I run out of pages too quickly."

When he is not busy acting as CEO of 180 Degrees Consulting, Nat is completing a PhD and training for a full ironman triath-lon. One of the most immediate questions that come to mind is how he manages to accomplish so much in so little time. "People waste a lot of time – you need to be con-scious of how you're using your time and use it in a more productive way,” Nat says. “Even when I'm on the bus, I'll be replying to emails, or if I'm training for cycling on my bike, I'll watch the news.” There is no need to forfeit sleep either- Nat gets a good seven hours a day.

However, for the many students who aspire to a similar whole-hearted pursuit of a career doing something they are passionate about, finding this passion is more often a dream than a reality. Nat advises, “Just ask yourself – if you knew that you could do anything and you wouldn't fail, what would you do? If you forget expectations, what would you choose? A lot of the time people make decisions based

"I want to do things in a smart way, improve the way we solve problems, get people to challenge the

way that things are done. By questioning some of these very fundamental things, it forces us to think

of alternatives."

CEO, entrepreneur, development economist, social impact consult-

ant. There are few LinkedIn profiles that confront the reader with such an impres-sive list of achievements as that of Nat Ware. By the age of 26, Nat has ticked off an enviable amount of bucket-list items: he has delivered two TEDx Talks, studied at Oxford as a Rhodes Scholar behind the likes of Malcolm Turnbull and Bob Hawke, swum the English Channel to raise money for mental health, and founded an inter-national non-profit organisation that exists in 22 countries. Among other things, he is a Goldman Sachs Global Leader, a World University Public Speaking Grand Finalist and the recipient of a host of scholarships for his academic achievements – which include placing first in twelve subjects in his Economics degree at the University of Sydney. But these awards only signal the beginning for Nat, who is committed to improving the way we solve bigger world problems.

In 2013, in the earthquake-frequented town of Celje, Slovenia, Nat gave a TEDx talk on a topic he is passionate about: social entrepreneurship. He had been attending a conference in Slovenia when an audience member who was friends with the organiser of the TEDx event referred him to speak.

An impressed audience member of the TEDx talk then flew Nat out to Florida to speak at another conference. "One thing leads to the next," Nat says. And that is cer-tainly true in describing how this economics student quickly became a respected spokes-person in the field of social innovation.

Nat's interest in social entrepreneur-ship found its roots in his early childhood. Growing up in the Wahroonga/Waitara suburbs of Sydney, Nat recalls that his parents always encouraged him to help others by saving money and giving what he could. "My parents never had much money. I didn't have my first proper haircut untill I was fourteen. We never went on big holi-days and I had never really left New South Wales." But when he was selected as the World Vision Youth Ambassador at the age of sixteen, he suddenly found himself being flown to rural Mozambique visiting village schools and hospitals. This was an eye-opening experience for Nat, who went on to raise over $50,000 to rebuild a school in Mozambique and an orphanage in Thailand following the Boxing Day Tsunami.

He describes that at the end of high school, he felt torn. "On the one hand I wanted to do good, but on the other hand I wanted to be intellectually challenged - and I thought the two was mutually exclusive."

This assumption was dispelled when he was introduced to the concept of social innova-tion and social entrepreneurship. "I realised that by improving the way things work, you can make an ever bigger difference than raising money, and you do so in a way that is intellectually challenging, diverse and interesting." Shortly thereafter in 2007, just after he turned nineteen, Nat started 180 Degrees Consulting, now the world's largest university-based consultancy service, which helps non-profit organisations overcome challenges they face. Nat realised that uni-versity students had more to offer than col-lecting money and raising awareness – they could offer their skills to the non-profits who were in need of thoughtful advice. "I wanted to connect the skills of uni students with the needs of non-profits in a way that was mutually beneficial," he says.

Thanks to 180 Degrees Consulting, students across the world can now receive training by top-tier consulting firms and apply their skills to solving real-world prob-lems. In the seven years since its launch, the organisation has evolved from a small student group run out of library rooms and coffee shops to operating 43 branches in 22 countries, with negotiations now underway over the opening of a new headquarters in New York. Nat explains, "When I first


"Something I've realised in going

to Oxford is that the world is much

smaller and more malleable than

what most people think. I quite

like that idea - that a lot can be

changed and we can challenge the

way a lot is done."

on expectations of what others think they should do. Artificially removing this from the decision-making process can help you may make decisions which are more accu-rate and which you may be more thankful for in the long term."

Nat also adds that university students often shy from taking risks due to a fear of failure. However, an equally important and often neglected is that of regretting not having tried. "If you consider both of those risks and not just the former, it can change your approach and motivate you to start something you might not other-wise start."

In his journey, Nat owes much to his belief in not judging others based on first impressions. "I was in Mombasa going to Mtwapa and I was waiting for a matatu – a minibus. I had been waiting for half an hour and no matatu had come, so I decided to get a taxi. I noticed there was a guy sitting in the dirt on the side of the road who looked kind of homeless and like he had also been waiting. I offered him a free lift. I thought I was just helping out a homeless person. It turns out he

was actually the head of one of the largest microfinance firms in Kenya – and this is the area where I do my work. For the fol-lowing three days he showed me around and introduced me to the right people so I could understand how things worked on the ground. I guess that taught me you shouldn’t judge people based on first im-pressions. You want to treat everyone with respect and kindness, and by assuming the best in people, it may come to benefit you in the future."

As for the future, Nat is considering beginning a for-profit venture in micro-insurance, to prove that it is possible do a lot of good while still having a financial return. "Something I've realised in going to Oxford is that the world is much smaller and more malleable than what most people think. It’s not even a case of six degrees of separation – it's closer to two. In Sydney the world seems quite big, but when I'm in London or New York or Oxford, it seems quite small. I quite like that idea - that a lot can be changed and we can challenge the way a lot is done." ■

AD page


Mobile Africa

The IMF has coined the term ‘Africa Rising’ to describe the story of the continent’s new economic growth. However, many parts of Africa remain stricken with endemic social and political corruption. Urban centres of economy lie far from rural outposts isolated by poor infrastructure. Impoverished communities exist detached from growing international markets. For Africa’s new middle class, it is the mobile phone that is the answer to these issues.

Manna Mostaghim

There is no singular African experi-ence. Rather, Africa is a continent of

contradictions, blessed with unimaginable mineral wealth but beholden to disruptive and crippling forces. The continent has become synonymous with never-ending cycles of poverty, corruption, conflict and illness. Traditionally, Africa’s economic growth was said to be reliant upon external aid and assistance. But the growth of a burgeoning middle class in South Africa,

Tanzania, Nigeria, and Kenya has started to redefine the overall

African experience. External benefactors no longer satisfy the continent’s economic growth. Instead, Africa has begun to cultivate a new elite class, with the requisite skills and wealth to

support indigenous investment.

Ringing out resource waste

The inadequate state of public infra-structure is proportionate to Africa’s

poor investment. Reliance by entrepre-neurs upon public transport and commu-nication technology has led to inconsistent and inefficient results in business. As a result, the experience of the mobile phone in African economies continues to manifest different realities. The mobile phone has generated new sources of wealth in Kenya and Nigeria. But the impact of the mobile phone has also demonstrated the capacity of new technologies to change or entrench endemic problems for a new generation of entrepreneurs.

Grace Wachira, a small business owner in Kenya, told Bloomberg Businessweek that her mobile phone cultivated efficiency in her interactions with the market. Prior to her use of the mobile phone, Wachira was unable to make long-term plans in her immediately local market. She wanted to expand into other local markets but found it impractical. Instead she was forced to physically interact with her clients in actual marketplaces. Products were made on Wachira’s predictions, with the weak hope that they would be purchased.

Wachira, like many other African entre-preneurs, realised that mobile phones elim-inate resource waste by enabling immediate clarification of market needs before the production of goods. They encourage businesses to more effectively expand into other markets and to form business meetings with new clients. The supply and demand of the market is more defined for

the entrepreneur, allowing them to gather information about market interests that can furnish potential investors with greater data. Supply and demand of the market is no longer founded on baseless speculation and hope. Instead, the simple experience of being able to communicate with a client base prior to production enables entre-preneurs to seize greater opportunities for wealth creation with both hands.

Dialling back on tradition and

political hierarchies

Economist Jeffrey Sachs believes that the mobile is a revolutionary tool that will eliminate the isolation and endemic cor-ruption hampering economic growth in Africa’s economies. But isolation and cor-ruption do not remain the only problems for Africa’s rising economies. An unfair dis-tribution of wealth and an unequal access to opportunities remain problematic for cultivating and supporting entrepreneurs. Although the mobile phone allows new op-portunities, it does not fully surmount the obstacles faced by many potential business owners.

Nonetheless, the mobile phone has less-ened the dependency of African entrepre-neurs upon local and social relationships and informal recommendations. Receiv-ing the mobile phone number of a new business contact has become an alternative and sufficient source for business network-ing and future investment opportunities. Business owners can now more easily diversify their market output and widen their market reach, simply by calling other mobile phone users in other markets. This has enabled a divestment from traditional sources of finance that unevenly distrib-uted wealth in local communities. Mobile phones are thus facilitating the emergence of a newer and younger generation of entrepreneurs.

The blocked number: the lack of

investment in telecommunications

infrastructure

Tools like the mobile phone are often laud-ed for the growth they create, without suffi-cient examination of the systems that con-tain them. The mobile phone might have allowed greater access and connectivity, but business people are still beholden to the corruption and poor infrastructure of their states. Businesspeople in Africa who use the mobile phone still depend largely upon the same infrastructure that heretofore defined


akin to a debit card. Although Mobile Money creates a less formal and less tradi-tional relationship than a bank account, it has still signalled to global investors the rising willingness of Africa’s popula-tion to engage with financial institutions. The success of Mobile Money has led to a proliferation of similar services. Mod-elled on Kenya’s M-Pesa Mobile Money services, other banks, financial services and telecommunication providers in Africa have begun to emulate M-Pesa’s incredible profits.

The use of Mobile Money has made the continent’s wealth and prosperity more measurable, and thereby facilitated greater support for entrepreneurs from banks and foreign investors. But the cultivation of mobile phone technology still intersects with recurrent problems in African invest-ment, namely pre-existing disadvantage, the corruption and inefficiency of the state, as well as the failure of private-public partnerships. The Mobile Money system launched by the state-run Nigerian Bank was supposed to ease online transaction and banking for Nigeria’s 510 million people without a banking account. How-ever, the lack of financial literacy within Nigeria’s population and the inefficiency of the state in promoting private services

resulted in the service failing to become a source of growth.

Two years after the government launched Mobile Money, only 0.01% of Nigerians have a Mobile Money account, whilst 37% are unaware of the system’s existence. The Nigerian population’s lack of endorsement of the system characterises the lack of engagement and support of the population with the state. Unlike in Kenya, private and public partnerships were also overlooked in favour of the Nige-rian government monopolising the state’s Mobile Money services. For Airtel Nige-ria’s Director of Regulatory Affairs and

Special Projects, Osondu Nwokoro, this was the defining difference between Kenya and Nigeria’s Mobile Money services.

Mobile Money’s lack of success in Nigeria has compounded the hesitancy of

global investors to participate in Nigeria’s growing economy. Mobile Money can thus be seen as a double-edged sword. On one hand, it can help to confirm Africa’s new middle class, as it has done in Kenya. On the other hand, its lack of endorsement reflects poorly upon pre-existing systems, as it has done in Nigeria.

Africa’s mobile phone future

The unprecedented penetration of the mo-bile phone in Africa has surprised global investors and market analysts. The popula-tion’s acceptance of the mobile phone has led international commentators to laud the new technology’s incredible potential for further social and economic development.

However, while the mobile phone looks like a ‘miracle’ that can solve development problems within the African market, it is a tool, not a solution. The distinct experi-ences of the mobile phone in Kenya and Nigeria demonstrate that a tool is only as good as the people who use it. Ultimately, the mobile phone’s use and successes do not circumvent problems on the African continent. Africa’s future stability cannot be predicated on a single tool like the mobile phone. Instead, it will always re-quire further cultivation of social, political and economic stability. ■

THE MOBILE PHONE MIGHT

HAVE ALLOWED GREATER

ACCESS AND CONNECTIVITY,

BUT BUSINESS PEOPLE ARE

STILL BEHOLDEN TO THE

CORRUPTION AND POOR

INFRASTRUCTURE OF THEIR

STATES

the continent’s business culture. This is because telecommunication companies are still reliant on the public infrastructure that previously inhibited growth. According to a report by the African Economic Outlook, poorer African nations might have a high rate of mobile phone penetration, but the investment in infrastructure has been limited or stayed. The lack of investment inhibits wider connectivity to international markets. Consequently, African nations are being outpaced by rapid advancements in the global community’s telecommunica-tions arms race.

As a result, the experience of Grace Wachira in Kenya might not be similarly emulated in other rapidly growing African economies like Nigeria. Indeed, Foreign Policy analyst Aly-Khan Satchu describes Nigeria as being one of Africa’s ‘orphans’ – nations where growth is stalled or unsus-

tainable. While the IMF’s Africa Rising narrative lauds the rapid economic growth of a group of the continent’s nations, less emphasis is placed on orphan nations.

Although the mobile phone has aided growth in sectors of the Nigerian economy, that wealth continues to be confined to the upper echelons of society. Unlike in Kenya, Nigeria has a less open democratic system and is currently grappling with religious and political extremism in regions throughout the country. Wealth, as a result, is confined to urban centres where stable markets continue to exist.

Africa’s blank cheque

World Bank predictions speculate that Af-rica Rising will contribute to overall global economic growth by five percent. Johan-nesburg’s Ernst & Young office claims that Africa’s middle class and its demand for luxury goods have expanded the notion of the African experience for global investors. But a persistent aggravation against foreign investment derives from the continued hesitation of certain sectors of the African population to engage with banking institu-tions.

Only a quarter of Africa’s population has a bank account. This results in an ignorance of per capita wealth, frustrating

conditions for foreign investment. Instead, foreign investors remain cautiously opti-mistic about Africa’s growth, investing very little in the continent’s markets for luxury goods and services. Consequently, much industry is confined within Africa, limiting the expansion and growth aims of indig-enous entrepreneurs.

Mobile Money

Mobile phones have also been used by Af-rican banks to encourage a greater engage-ment with financial institutions by Africa’s population. While only 25% of Africans have a bank account, 80% have access to a mobile phone. Banks in Africa recog-nise the market penetration of the newly established mobile phone industry and have attempted to use this new technology to entice populations traditionally sceptical about having bank accounts by launching Mobile Money initiatives.

Mobile Money acts as a money-to-money transfer through an individual’s mobile phone. Although the accounts can be attached to bank accounts, they often act instead as a form of mobile phone credit,

THE MOBILE PHONE HAS ALSO DEMONSTRATED THE CAPACITY

OF NEW TECHNOLOGIES TO CHANGE OR ENTRENCH ENDEMIC

PROBLEMS FOR A NEW GENERATION OF ENTREPRENEURS

WHILE ONLY 25% OF AFRICANS

HAVE A BANK ACCOUNT, 80%

HAVE ACCESS TO A MOBILE

PHONE


What matters most when looking

for suitable stocks?

The current equities landscape is flooded with opportunities within a broader macroeconomic scene characterised by a soaring property market, depreciat-ing Australian dollar and low interest rates. Most recently, blue-chip energy stocks have decreased from previous high levels as investors respond to declin-ing commodity prices, while there have been upward moves in transport-related stocks such as Qantas and Toll, which may benefit from lower future fuel costs and higher profit margins. But before examining market opportunities present against this backdrop, certain qualitative and quantitative criteria must be consid-ered for investable businesses. As future stock prices are correlated heavily with future earnings, a company must be in a satisfactory financial condition at the time of purchase to be able to execute reinvest-ment opportunities that will improve the company’s future earnings.

The ideal financial condition is evidenced by large sums of cash on the balance sheet, since cash can quickly be deployed into expansion strategies, acquisitions, or cost-efficiency manoeuvr-ers. Moreover, the company should have manageable debt levels, given debt stifles the ability of the company to generate free cash flows. Although many invest-ment checklists recommend basic criteria like, "long-term debt less than 2x working

capital, or debt-EBITDA ratio less than 5 or only look for companies with a debt/equity ratio below X%," ultimately, each company’s historic debt levels must be compared to their previous operating performance. If a company has generated meaningful operating results despite not satisfying any of these criteria, would this fact alone render the investment a poor one? Certainly not.

Of equal importance to the company’s ability to pursue earnings growth is whether it has a proven plan to expand earnings. In this inquiry, intentions of management for growth must be consid-ered with caution, as promising intentions do not always yield the desired results. Earnings may grow through more com-petitive cost structuring, debt refinanc-ing, new product and service offerings, exploiting untapped pricing power and improving sales. A company must not only have demonstrated such strategies, but any earnings growth must be sustain-able for at least the period of time the investor holds the stock.

Why is this important? The growth profile of any business cannot last forever. Eventually, sales from expansion into new markets slow and there are little room for further cost improvements, or the company cannot fund earnings growth without causing strain to its balance sheet. An example of this is M2 Telecom-munications, whose acquisitive growth model over the last decade has shifted

Ehren HeilmanRegardless of which investment philosophy is adopted, an investor ought to concern themselves primarily with the search for companies whose earnings will be significantly higher in the future.

The Earnings Game: Picking the winners


the withdrawal of mining exploration and Greenfield development, it has produced excellent operating results, doubling earnings per share to 70.2 cents from the previous period, attributed mainly to the heightened demand for processing ore. Its 2014 half-year revenues of $928.4 million have almost matched their total revenues of $1.09 billion from fiscal year 2013. Notwithstanding the lower iron ore prices, many mining companies have boosted production to grow earnings through higher volumes and Mining Resources Limited is positioned well to benefit from this. At the moment, it trades at an attrac-tive P/E ratio of 6.12 and is maintaining a solid 21.38% return on equity.

Elsewhere in the market, Flight Centre currently trades at a P/E ratio of 19.77 and on many fronts may appear to be an attractive proposition. Since topping at $55.57 a share in March of this year, Flight Centre’s stock price now hovers around the $40 dollar mark, representing a drop of 27% in nine months. When-ever there is such a significant drop in the market value of a company, the question for the investor is whether this devaluation can be justified by the company’s funda-mentals. On the one hand, the Ebola crisis and the depreciation of the AUD have diminished investor confidence in Flight Centre’s longer-term prospects. However,

as of June this year, Flight Centre has no debt and over $400 million in cash, generally adding around $200 million of free cash flow every year to be either reinvested, paid as dividends, or used for share repurchases. Examining Flight Cen-tre’s cost structure relative to competitors like WebJet and Wotif, the company has generated returns on equity of 20% over many years, indicating it enjoys at least some competitive protection of its earning power and market position.

In the years following the GFC, Lend Lease was an undervalued company hover-ing around a share price of $6.50-$7.50 for most of 2010-2012. In the most recent financial year ending June 2014, Lend Lease achieved earnings growth of 50%, having a robust, diversified earnings base including construction, settlements in residential operations, and the Investment Management business in Asia. The nature of the property development business and Lend Lease’s large development pipeline is that capital investments today do not generate earnings for the income state-ment until many years down the track. This means that the injection of almost $1 billion of production capital into their pipeline in 2014, into such projects as the Barangaroo South development and the Batman’s Hill redevelopment site in Mel-bourne – with expected end development

value of $1.5 billion – will not generate significant earnings for the company until they are completed.

Until this time of completion, the prudent investor has an opportunity to purchase Lend Lease stock knowing these investments will have a pay-off in the short-medium term. Although it may be suggested these future earnings have al-ready been discounted into the share price, this is countered by Lend Lease's conserva-tive P/E ratio of 10 and 0.6 price-sales ratio. Lend Lease also has a strong balance

sheet, holding cash and equivalents of $1.7 billion and an undrawn capacity of $1.3 billion, thereby conserving enough finan-cial flexibility to fund growth opportuni-ties as they arise. From a qualitative and quantitative perspective, Lend Lease is a company ripe for future share price growth possessing many of the aforementioned characteristics – a strong balance sheet, large investment in income-producing assets, and competent management. ■

THE LESSON TO BE LEARNED

FROM TELSTRA IS ONE THAT

CAUTIONS AGAINST INVESTING

SOLELY ON A DIVIDEND BASIS.

towards a more organic growth model as management directs its focus now to the integration of acquired businesses. The market’s adjustment to this new strategy saw the stock price drop 6% in the six

months to February 2014. Clearly, the stock price of a company can be affected when the market realises it cannot sustain its earnings growth. Similarly, this may be the case where a company has generated higher revenues over the last two years from investment into brand building and marketing. Because this investment in company advertising will yield diminish-ing returns over time, if an investor was to rely solely on this investment as a reason for buying the stock, it may turn out to be a poor decision if the benefits of the investment are already built into the stock price. Hence, it is necessary to always con-

sider not only what the company is doing to increase earnings, but how sustainable the likely earnings growth will be.

How important is the dividend

policy?

As a shareholder in a company, returns derive from both dividends paid and capi-tal gains in the stock price, both of which depend on what happens to earnings over time. Although high dividends may appear alluring, companies paying high dividends out of earnings will cripple their ability to reinvest retained profits into profitable ventures. This has been highlighted by Tel-stra Corporation, which on a capital-gains basis has been a poor investment given the share price has only risen to $5.69 today from its $5.02 close in 2004 – certainly in-sufficient to protect an investor’s purchas-ing power against inflation. The unsatisfac-tory result has largely been explained by Telstra’s stagnant profits, which has been virtually unchanged at $4.3 billion from the 2004 to 2014 fiscal years. It ought to be queried whether a company that continues to divest non-core assets and increase debt to fund little earnings growth can be considered a sound performer in light of the fact it has generated over $23 billion in free cash flows over the last dec-ade. The lesson to be learned from Telstra

is one that cautions against investing solely on a dividend basis.

Compare Telstra to the growing tel-ecommunications leader, M2 Telecommu-nications. Over the same 10-year window, M2’s dividend yield has been noticeably lower than Telstra’s since it has had to retain profits to fund approximately $500 million of acquisitions, including Eftel, Dodo and Primus telecom. This earnings

growth has resulted in the share price moving from $0.26 to over $8 in the last decade, a compounded annual return of over 35%.

The current equities market

How do these qualitative factors apply to the current equities market? In the min-ing sector, Mining Resources Limited is a mining services company which has a core business in assisting companies with crushing and processing ore. Despite other companies in the sector suffering from

A COMPANY MUST BE IN A

SATISFACTORY FINANCIAL

CONDITION AT THE TIME OF

PURCHASE TO BE ABLE TO

ExECUTE REINVESTMENT

OPPORTUNITIES THAT WILL

IMPROVE THE COMPANY'S

FUTURE EARNINGS

ALWAYS CONSIDER NOT ONLY

WHAT THE COMPANY IS DOING

TO INCREASE EARNINGS, BUT

HOW SUSTAINABLE THE LIKELY

EARNINGS GROWTH WILL BE


Ash Anderson

These 'miracle' companies are using the power of the market place to solve the

most pressing societalproblems

There are a staggering 600,000 registered charities in Australia. This equates to one charity for every 40

people in the country. In this highly saturated market, competition for finite donations and government funding is intense. Every dollar of donation received by one charity effectively takes away from competing charities and causes, and the charities that receive the largest slice of the funding pie are ultimately those with the most effective marketing campaigns, rather than those representing causes where money is most needed. While charities like World Vision receive over $100 million annually, smaller charities may collect only $5,000-$10,000.

The rate of charity start-ups is also startling: 10,000 new charities have been established since 2007, representing in-credible spending on operational costs, when much greater efficiency could be achieved through pooling together resources to reduce administrative and technology costs, and less overall competition.

These deep flaws with the charity model have sparked the emergence of 'hybrid' social enterprises: commercially viable businesses dedicated to generating social impact. These 'miracle' companies are using the power of the market place to solve the most pressing societal problems, and are lead by social entrepreneurs: individuals who seek to circumvent the problems faced by charities by apply-ing a business mindset to develop sustainable models for promoting widespread social change.

In the competitive market of not-for-profits, competition for finite donations and government funding is intense. But the increasing prominence of the social enterprise model may prove to be the

ultimate solution to driving lasting social change.

Ashley Anderson

Deep flaws with the charity model have sparked the

emergence of 'hybrid' social enterprises: commercially

viable businesses dedicatedto generating social impact

There are a staggering 600,000 registered charities in Australia. This equates to one charity for every 40

people in the country. In this highly saturated market, competition for finite donations and government funding is intense. Every dollar of donation received by one charity effectively takes away from competing charities and causes, and the charities that receive the largest slice of the funding pie are ultimately those with the most effective marketing campaigns, rather than those representing causes where money is most needed. While charities like World Vision receive over $100 million annually, smaller charities may collect only $5,000-$10,000.

The rate of charity start-ups is also startling: 10,000 new charities have been established since 2007, representing incredible spending on operational costs, when much greater efficiency could be achieved through pooling together resources to reduce administrative and technology costs, and less overall competition.

These deep flaws with the charity model have sparked the emergence of 'hybrid' social enterprises: commercially viable businesses dedicated to generating social impact, lead by social entrepreneurs who seek to circumvent the problems faced by charities by applying a business mindset to develop sustainable models for promoting widespread social change.


Compartamos Banco providing financial education to children in Mexico

concept, it is not without its challenges. Like any other business, a social enterprise faces, foremost, the risk of failing to make profit. A survey published in the Harvard Business Review found that 71% of social enterprises do not make profit. Only 5% manage to break even. Often, decisions that need to be made in order to keep a business afloat – such as reducing staff or salaries – challenge a social enterprise's priorities and values.

Additionally, social enterprises struggle to achieve their social goals. By operat-ing with a business mindset, the social business is susceptible to tunnel vision. It might focus on achieving a goal without a comprehensive understanding of its social impact. Social endeavours run by businesses can often cause more harm than good. American online retailer TOMS Shoes donates shoes to developing countries around the world for every shoe sale it makes. Ostensibly, the shoe dona-tions are to assist in protecting the feet of the disadvantaged and to help them avoid soil-transmitted diseases. Critics have, however, pointed out that dumping large amounts of product into developing mar-kets creates competition that forces local businesses out. According to a 2008 study, used clothing donations to Africa between

1981 and 2000 caused a 50% decrease in employment in relevant clothing indus-tries. Subsequently, the greatest challenge is to meet their double bottom line of both social and financial targets.

Simply measuring social impact is also a challenge. A social enterprise must be able to justify their social value if they seek to leverage thteir contributions to socially-

conscious investors and consumers. While profit and other economic effects are more easily measured, measuring social value is no easy task. How does one quantita-tively measure the value of a child’s access education, or provide an indication as to the value of the employment of an otherwise homeless and jobless individual? While measures such as the Social Return on Investment (SROI) have attempted to monetise the social impact of projects, the lack of available information makes the process tremendously difficult.

Compartamos Banco: Profit at what cost?

Further complexities arise when socially-driven organisations decide to fully embrace the profit-motive and subject themselves to the whims of the market. Compartamos Banco, a Mexican microfi-nance bank founded in 1990 to alleviate poverty, offers an interesting insight into the ability of social enterprises to balance competing social and economic goals. In 2007, the bank's management believed that they could help people more effec-tively by commercialising the bank. Com-partamos Banco was floated with a USD $467 million IPO that listed them on the Bolsa Mexicana de Valores, the Mexican stock exchange. Following the IPO, Com-partamos Banco delivered annual average returns on equity of 53%. These returns were outstanding when considering that in the same year, Mexico’s largest bank BBVA Bancomer achieved a return on equity of only 30.2%. The question posed is, did this transformation overly compro-mise the bank’s social mandate?

The profits were a direct result of money paid by Mexico’s poorest individuals. The bank was heavily criticised for charging its customers interest rates that exceeded 100% on an annualised basis – rates

Social entrepreneurs struggle to stay competitive in a capitalistic market that

rewards profiteering, without compromisingtheir social mandate

A Hybrid Model

The economy's 'third sector' of non-profits is often a fascinating topic because of the diversity of organisations that comprise it. Yet little is known about the scope, dimension and impact of this sector on Australian society. Rapidly and prominently emerging on this scene are the social entrepreneurs: individuals who possess the potential to circumvent the problems faced by charities by applying a business mindset to develop sustainable and scalable models for promoting wide-spread social change. Social enterprises are organisations that operate as for-profit businesses with a social goal at their core.

They may, for example, provide employ-ment for marginalised people, such as the elderly, disabled or mentally ill, as exhibited by The Big Issue which hires disadvantaged women and the homeless to sell its magazines and offers them half the sale price as profit. Every sale of the $6

magazine provides another $3 to a person in need. Change.org supports petition initiatives by deriving advertising revenue through online social platforms. What these social enterprises have in common is the ability to create economic and social value simultaneously – social value is incorporated into their value chains.

Successful social enterprises maximise their revenue by cutting out the cost of fundraising. Compared to charities, fewer resources need to be allocated by social enterprises towards expensive fundrais-ing or donation campaigns. They are able to exist independent of the charity of the citizenry by focusing on generating revenue internally. Although social enter-prises often seek donations, the donations are supplementary to other dominant revenue streams.

Additionally, revenue-generating social enterprises can take advantage of an infi-nitely more vast world of financial capital. Australian charity donations amounted to $2.2 billion in 2011, compared to $500 billion of foreign direct investment in the same year. A successful social enterprise allocated with capital funding can attract high-performing staff and invest in the infrastructure needed to expand into alternative markets. On the contrary, if

the idea is unsustainable and the business model ineffective, the social enterprise would not be allocated capital funding by the market and a more efficient business will survive in its place.

Such businesses tend to fall within three common social enterprise models. The 'profit generator model' involves engaging in a trading activity which itself seeks only a financial return, but the profits cre-ated are effectively used to tachieve social impact. Examples of this include Oxfam shops and 'ethical' bottled water com-panies which give a share of their profits to charitable projects. Second, under the 'trade-off model', the business activity itself has direct social impact, but the business' social impact is reduced when its financial payoff increases. Fair trade businesses and microfinance institutions fall into this model. The third, 'lock-step' model involves the same activity which produces the financial return also creating social impact in direct correlation - such as wind farms and organic food produc-ers.

Challenges facing Social

Enterprises

Despite the seemingly 'win-win' situa-tions promised by the social enterprise

Only 5% manage to break even. Often, decisions that need to be made in order to keep a business afloat - such as reducing

staff or salaries – challenge a socialenterprise's priorities


Corporations and financial markets operate within legal constraints, while statutory provisions and judicial gloss are often expressed with commercial realities in mind. Due to regulations around the world, startup companies have historically offered equity predominantly to accredited or sophisticated investors. However, the growing demand for ordinary participants has led to significant legislative reform. In essence, equity crowdfunding allows individuals to purchase fractional ownership stakes in startups with minimal capital. With the introduction of a new class of investors in what has traditionally been the domain of Wall Street and Silicon Valley, a significant rise in venture capital investment is more than conceivable.

EquityCrowdfundingFrom Wall Street to main Street

Peter KWag

which could easily be interpreted to be exploitative. Muhhamad Yunus, the man generally attributed with the creation of social entrepreneurship and microfinance, stated that the bank’s “priorities were screwed up.” By charging such high in-terest rates, Compartamos Banco seemed to be privileging the economic goals of its shareholders above its social goals. Being accountable to private shareholders placed the bank at risk of losing sight of its goals to help reduce poverty in Mexico.

However, Compartamos Banco was able to use the funds acquired from the private sector to rapidly expand its operations. In 2006 the bank had only 616,000 borrowers. It now provides microfinance opportunities to over 2.5 million people. By channelling the funds into developing and improving Mexico’s level of financial inclusivity, the bank can

now justify its high interest rates. Only by converting its financial model was Compartamos Banco able to place itself in a position from which it could unlock access to international capital markets and expand its service provision to a greater number of people.

Commercialisation also has a notable impact on competition in the market-place. If microfinance banks like Com-partamos Banco are able to prove their profitability, they are likely to attract further competition. In turn, this would drive down prices, forcing banks to com-pete with each other by lowering inter-est rates. In the long term, there is the potential to dramatically reduce financing costs and lift access to microfinance for everyone.

Survival of the Fittest

The lessons learnt from Compartamos Banco pose difficult questions. How can social entrepreneurs stay competitive in a capitalistic market that rewards profiteer-ing, without compromising their social mandate? How do microfinance banks avoid embodying the very loan sharks they had sought to replace? The im-minent transition from predominantly charity models to social enterprise models doubtlessly promises both incredible ben-efits and new challenges. In embracing many tenets of the private sector, social endeavours can operate with efficiency and an unprecedented access to resources. What emerges as the key challenge now is ensuring that social enterprises remain focused on delivering the social value at the forefront of their operations. ■

Simply measuring social impact is also a challenge. A social enterprise must be able to justify their social value if they seek to leverage their contributions to socially-conscious investors and consumers. While profit and other economic effects are more easily measured, measuring social value is no easy task. How does one quantitatively measure the value of a child’s access education, or provide an indication as to the value of the

employment of an otherwise homeless and jobless individual?


Disruption in Traditional Funding

Models

Primary and secondary capital markets facilitate the voluntary reallocation of resources based on marginal utility, thereby promoting efficiency within a given econo-my. Entrepreneurs seeking to launch or ex-pand their businesses rely on these channels for funding and support. These enterprises, in turn, lead to technological and scientific innovation, employment opportunities and economic growth.

Based on composite indicators derived from studies of corporations and sole

proprietorships, the United States, United Kingdom, Canada, Australia and New Zealand are among the countries with the lowest regulatory burdens imposed on new businesses. Aggregate venture capital investment in the United States in 2012

and 2013 were USD $27.4 billion and $29.7 billion, respectively, according to the National Venture Capital Association. There were 4,016 transactions in 2013 alone, with much of the funding allocated to the software and biotechnology sectors. Despite comprising more than half of the world’s total population and economic output, the Asia-Pacific region is responsi-ble for a relatively minor portion of invest-ment activity in the venture capital space both nominally and as a percentage of gross domestic product.

Venture capital is considered to be a subset of private equity, with a primary focus on companies in the early stages of the corporate life cycle. Venture capital and private equity firms rely on banks, pension funds, wealthy university endowments and other limited partners for their capital base. General partners also contribute to funds under management. Crowdfunding forgoes these traditional sources of capital, relying directly on members of the public for support. This funding model is becom-ing increasingly popular within the global startup community.

Currently, there are a number of suc-cessful crowdfunding platforms that are based on donations or alternative rewards. Debt crowdfunding, also referred to as

peer-to-peer lending, is of limited relevance to startup companies due to its reliance on creditworthiness and the strain placed on cash flow. Equity crowdfunding, in contrast to the other variants, gives partial ownership of the enterprise to groups of investors. Due to this primary distinction, equity crowdfunding continues to attract significant debate and controversy.

Legal and Regulatory Challenges

The underlying instrument in equity crowdfunding falls under the definition of an ‘investment contract’ based on the ‘Howey test’ established by the Supreme Court of the United States in 1946. Due to this classification and applicable federal laws, equity investment in startup com-panies has traditionally been limited to accredited investors. Under the United States Securities Act of 1933, individuals and other entities are accredited pursuant to the provisions in rule 501 of regulation D. Accredited investors include, among others, banks, insurance companies, regis-tered investment companies and business development companies.

For an individual to be classified as an accredited investor, a personal or joint net worth of USD $1 million is required at the time of the investment, excluding primary

AS A RESULT OF THEIR

INTEGRATED RELATIONSHIP,

LEGAL FRAMEWORKS AND THE

COMMERCIAL TRANSACTIONS

WITHIN FREqUENTLY SHIFT

OVER TIME TO ACCOMMODATE

DEVELOPMENTS IN ONE

ANOTHER

residence value. Alternatively, personal or joint gross income in each of the two preceding years must have exceeded USD $200,000 or $300,000, respectively, with a reasonable expectation of a similar figure in the current year.

In Australia, a financial product is broad-ly defined by section 763A of the Corpora-tions Act 2001 as a ‘facility’ used to make a financial investment, manage financial risk or make non-cash payments. The financial instrument required for equity crowdfunding would clearly fall within the scope of this provision, which relies largely on function rather than form. Therefore, equity crowdfunding would face similar regulatory obstacles within Australia.

Startup companies in Australia have, to date, only been permitted to solicit equity investments from sophisticated investors within the public, facing a host of regula-tory hurdles otherwise. Under section 708 of the Corporations Act 2001 and regulation 6D.2.03 of the Corporations Regulations 2001, an investor would need at least AUD $2.5 million in net assets or a gross income of at least AUD $250,000 in each of the two preceding years. Further constraining entrepreneurs, the section 113 provision restricting proprietary compa-nies to 50 non-employee shareholders has

also precluded broad crowdfunding as an option.

Reforms around the World

As a result of their integrated relation-ship, legal frameworks and the commercial transactions within frequently shift over time to accommodate developments in one another. There are legitimate reasons non-accredited investors may seek equity rather than alternative rewards in ex-change for their investment, and startup companies may similarly benefit from this additional source of capital. Responding to this demand within the market, title III of the Jumpstart Our Business Startups Act of 2012, augmented by the correspond-ing rules put forth by the Securities and Exchange Commission, addresses equity crowdfunding for non-accredited inves-tors in the United States. In Australia, a similar sentiment was first expressed by the

Corporations and Markets Advisory Com-mittee in its June 2014 report.

Equity crowdfunding is becoming increasingly prevalent around the world, with varying degrees of reception with regard to ordinary, non-accredited inves-tors. In the United Kingdom, the Financial Conduct Authority permits non-accredited investors to participate in equity crowd-funding, provided that they limit their investment to 10% of net assets in any particular year. In Canada, securities regulation is subject to regional provisions due to its strongly decentralised system. The respective legislative and regulatory bodies of several provinces have expressed support for equity crowdfunding involving non-accredited investors, with a number of proposals or enactments to that end.

In any jurisdiction mulling over whether to allow ordinary investors to participate, there will invariably be certain limitations imposed on a transactional or annual basis to reduce exposure. There are also con-straints on the aggregate amount of capital an individual startup may raise through this avenue. While investment caps and disclosure requirements are laced with strong political overtones, with free market advocates favouring higher investment allowances and less stringent standards, the

NOTWITHSTANDING THE

IMPERATIVE OF PROTECTING

ORDINARY INVESTORS,

ExCESSIVE REGULATION

INHIBITS MARKET DYNAMICS

AND SHOULD BE AVOIDED AS A

MATTER OF POLICY


overarching goal of stimulating innova-tion and economic progress remains at the forefront.

Commercial Implications

A legislative emphasis on value creation and free market principles would best promote the transfer of funds from those with excess resources to entrepreneurs in need. Enabling the participation of non-accredited investors in equity crowdfund-ing provides access to potentially lucrative returns, while greatly expanding the pool of available capital. This must be tempered by a number of other considerations, how-ever, not the least of which is the vulner-ability of individuals lacking the business acumen necessary to accurately evaluate investment opportunities. Notwithstand-ing the imperative of protecting ordinary investors, excessive regulation inhibits market dynamics and should be avoided as a matter of policy.

The stark contrast between accredited and non-accredited investors has several key implications. As a matter of course, accredited investors conduct extensive due

diligence on investment candidates and ensure that only the most viable startups receive funding. They generally spend a significant amount of time scrutinising financial statements, industry trends and the competitive landscape prior to putting their capital at risk. Non-accredited inves-tors may be more vulnerable to manipula-tion, incapable of properly discounting the often wildly optimistic valuations of budding entrepreneurs.

Furthermore, the considerable resources and strategic guidance offered by accred-ited investors maximise the likelihood of the success of portfolio companies. Venture capital firms and angel inves-tors provide support with a specific exit strategy in mind, often in the form of an acquisition or an initial public offering. This type of oversight can be invaluable in circumstances where an entrepreneur has only a limited grasp of market and busi-ness concepts. In equity crowdfunding, the ordinary members contributing funds will be minority shareholders without the capacity to influence the strategic trajec-tory of the startup.

Another anticipated pitfall of equity crowdfunding for non-accredited inves-tors involves the potentially lower quality of businesses incapable of attracting the ‘smart money’ described above. Those unable to secure the required capital through this option may view non-accredited investors as the only available recourse. This could ultimately raise the risk level of companies requesting contri-butions from the ordinary investor com-munity, the members of which may have a risk tolerance significantly lower than that of accredited investors with other means of diversification.

Erosion of Market Boundaries

As the world becomes increasingly glo-balised, traditional barriers between capital and labour markets, geographic or other-wise, are becoming less relevant. How-ever, economic, political and regulatory structures within the international com-munity fall across a wide spectrum. While common law countries have a shared history stemming from English precedent and preserved by way of reception statutes upon independence or self-governance, there has been substantial divergence in the various jurisdictions’ approaches to securities regulation.

These barriers present a challenge to nas-cent enterprises appealing for funds from residents in a jurisdiction outside their own. International microfinance organisa-tions like Kiva Mictrofunds, Hope Inter-national and Opportunity International circumvent such obstacles by precluding the possibility of the ultimate bearers of risk making any profit. The flow of funds from industrialised to developing nations fosters economic expansion, providing entrepreneurs with access to otherwise unavailable capital.

In contrast, the inherently profit-driven character of equity crowdfunding leads to more stringent regulatory provisions. Therefore, additional cooperation and reform would best facilitate the efficient movement of capital across the inter-national community of non-accredited investors and prospective entrepreneurs. This would be a welcome development for businesses operating in countries associ-ated with lower levels of venture capital investment relative to economic output, as well as a step forward in global market integration. ■

AS THE WORLD BECOMES INCREASINGLY GLOBALISED,

TRADITIONAL BARRIERS BETWEEN CAPITAL AND LABOUR

MARKETS, GEOGRAPHIC OR OTHERWISE, ARE BECOMING LESS

RELEVANT


Aaren Cristini

#FemiNExT: Female entrepreneurs in fashion and technology

Women spend 30%-50% more time online than men. The majority

of online purchases are completed by women- in the United States, they account for 80% of online consumer spending. However, their online astuteness has not transferred evenly throughout the private sector. Recent statistics indicate that women only hold 10%-20% of technol-ogy positions in global technology firms including Google, Facebook and Twit-ter, despite the fact that they constitute 60-70% of active users on these platforms. The underrepresentation of women in technology professions suggests a possible gap between the corporate understand-ing of women and their preferences as consumers. However, fashion and beauty start-ups founded by female entrepreneurs are transcending enduring prejudices, by leveraging their intuitive vision toward the most enthusiastic online users.

The significant Other: Paying money but not raising money

Women are typically mentioned in the same breath as the family unit, population growth and other socio-cultural variables, but their importance to the economy is often overlooked.

Though the United States is home to the largest venture capital market in the world, a mere 11% of venture capital investors are women. Angel investors, known to

provide capital to start-ups during earlier stages, are inclined to select projects run by entrepreneurs harnessing attributes they identify within themselves. As the major-ity of angel investors are men, there is an immediate obstacle to female entrepre-neurs when it comes to finding common ground. This is not suggesting all male investors deliberately discriminate against women, but venture capital is a field that prefers familiarity when building relation-ships. The minority status of women in venture capital may arouse an unconscious prejudice as a result. Certainly women receive only 16% of loans – constitut-ing 4% of the total value of debt granted to start-ups, despite the fact that 30% are founded by women. Unsurprisingly, the funding gap has led to a diminishing trend for the number of women becoming entrepreneurs.

Faced with this predicament, some singularly important implications arise. Babson University extrapolates that if female entrepreneurs received equal seed funding to their male counterparts, in five years there would be six million new jobs. Empowering women in the workforce, especially in the superseding, rapidly grow-ing technology industry, would undoubt-edly drive economic growth- after all, they make up half the population. As such, barriers that deprive women of the same opportunities to contribute and maximise

their potential through the creation of jobs or access to capital also deprive the economy itself from realising its potential.

Exceptions to the rule: when being

cliché is being different

While numerous female entrepreneurs have overcome the funding disadvantage, many have had to persevere through the stereotypes and gender biases in order to receive the respect that they deserve. One of them is Jennifer Hyman, co-founder of e-commerce start-up, Rent The Runway, an online rental service for high-end, designer outfits. Hyman mentions in an interview with Forbes that one of the first venture capital investors she approached interrupted and rejected her proposal with the comment, “You are just too cute. You get this big closet and get to play with all these dresses and can wear whatever you want. This must be so much fun!” Five years later, her firm enjoys a forecasted valuation of over US$750 million. This demonstrates the aforementioned gap in understanding between women and the mentality of some male investors and employers, who perceive women pursuing feminine concepts as pet projects rather than serious businesses.

Poshly is a market insights firm that offers the opportunity to win beauty products in return for responses to unique, ‘hyper-personal’ survey questions about

“FASHION HAS TO DO WITH IDEAS, THE WAY WE LIVE, WHAT IS HAPPENING.”

– CoCo Chanel

their beauty habits. The aggregation of its user-provided data has proven to provide valuable and reliable market research for sale to other businesses, generating the start-up’s main revenue stream. Since being established, Poshly has raised over US$2 million and formed major partner-ships with brands that include L’Oreal and Unilever. Its success derives from recognising the worth of extracting data from women for brands focused on female consumers. Co-founder Doreen Bloch acknowledges that the technology industry can be alienating for women, but adds, “Honestly, there isn’t time to focus on gender when you’re running a company – I just focus on doing the best job I can.” Prior to founding the business, Bloch had interned at Yahoo! and other startups. She credits the exposure these opportuni-ties provided her within the technology industry with enabling her to realise her ambitions and cultivate her passions.

Bridging the gap between Mars

and Venus: the marriage of

technology and fashion

As Karl Lagerfeld recognised, “fashion is not only about clothes – it’s about all kinds of change.” With firms like Rent the Runway and Poshly seeking alterna-tive perspectives in their pursuit of market leadership, these words ring true. Both exemplify how the development of a symbiotic relationship between technology and fashion is successfully breaking down gender biases, stereotypes and other barri-ers to women’s participation. Their start-ups illustrate the success of women who target other women by using their mutual needs as a way to identify lucrative, un-tapped market segments. This foregrounds not only the benefits of diversity and equal opportunity through encouraging fresh perspectives, but also underlines the potential of women to bring unique ap-proaches and intellectual capital that can later be adapted for application to other

business concepts, especially within the rapidly expanding e-commerce sector.

A welcome influx of female involvement in the technology industry has been char-acterised by the continued coalescence of fashion and technology. Former Burberry CEO Angela Ahrendts and Yves Saint Laurent European President Catherine Monier were both recently poached by Apple for high-level executive positions. Products such as the Apple Watch and Intel’s MICA signal the advent of wearable technology as an everyday reality.

Ralph Lauren famously said, “I don’t design clothes. I design dreams.” With technology firms seeking fashion advice, hopefully it will soon become stylish for technology firms and venture capital-ists alike to fulfil the dreams that women design themselves too – because fashion is what you’re offered, style is what you choose.■


What motivates employees? The contradiction between business practices and

proven science

The encounter between intrinsic and extrinsic motivation epitomises

the battle of the giants in the study of employee motivation. The former refers to performing behaviour for its own sake, whereas the latter is concerned with behaviour driven by external factors such as rewards and punishments. Australian businesses, especially in white-collar arenas such as the health and education sectors, tend to favour the latter and implement contingent extrinsic ‘pay-for-performance’ motivators such as bonuses and commis-sions as these enable managers to distrib-ute pay in a way which reflects different levels of productivity. However, empirical research indicates that these are ineffec-tive motivators that easily result in the impairment of organisational efficiency. As Wall Street Journal author, Dan Pink notes, “the solution is not to do more of the wrong things, to entice people with a sweeter carrot, or threaten them with a sharper stick.” Instead, an intrinsically-focused approach to pay-for-performance incentives can be remarkably effective.

Generally, intrinsically-focused models centre the spotlight on harvesting mo-tivation by convincing employees that motivation is not contingent, but instead derived from internal will. The intrinsical-ly-focused approach has been developed to

rectify the pitfalls of pay-for-performance incentives on the premise that conscious goals affect action. As the work of Terence Mitchell and Denise Daniels indicates, there is a linear relationship between goal difficulty and performance. The higher the difficulty of goal-attainment, the higher the performance motivation level that will be extracted from employees. This holds true at both the level of the individual and the group. Organisations need to replace contingent incentives with intrinsically-fo-cused incentives – their more economically efficient cousin when it comes to setting

challenging but attainable goals.Studies have identified that difficult

goals lead to significant improvements in productivity and cost improvement. Gary Latham’s 1975 experiment tested this with unionised truck drivers by initially providing a general ‘do your best’ goal and later a specific hard target in relation to loading logs on trucks. When provided with the latter target, the drivers were able to substantially increase the number of logs loaded onto their trucks, from 60% to 90% of the legal allowable amount. This boost in productivity saved Weyerhaeuser

Ltd $250,000 in nine months. Latham’s study is no abnormality. In

fact, studies like this and their results have been replicated for many years through tests with loggers, word-processing opera-tors and other white-collar occupations such as scientists and engineers. But why do individuals work with higher levels of enthusiasm and effectiveness in cor-respondence with difficult goals? This appears to contradict the logic that facing difficult tasks will negatively affect motiva-tion levels

The answer is in the way that goal mechanisms operate to affect employee motivation and behaviour. In 2002, Lathan and Edwin Locke found that goals elicit the arousal of task-relevant knowl-edge and skills, while providing direc-tion and effort towards goal-attainment activities and away from irrelevant tasks. Harder goals lead to superior, prolonged effort and persistence more than easier goals. Simple ‘do your best’ goals, are not as compelling because they do not provide sufficient direction and employees are left with a broad passage into which task-relevant activities become blurred.

To motivate employees, managers should step clear of contingent incentives and lay down specific and challenging goals in order to provide a foundation of direction, effort and persistence of work behaviour.

However, that is not to say that pay-

for-performance incentives should be discarded. Research by leading behavioural scientist Sam Glucksberg has indicated that contingent rewards work well when used to motivate employees tasked with roles that are mechanistic and routine-based. Rewards concentrate and narrow an individual’s focus towards objectives that

are easily attainable. By giving employees clear and accessible goals, and continu-ous feedback mechanisms, pay-for-per-formance incentives bolster persistence and effort by groups. Accordingly, when objectives are vague, broad, and require enhanced cognitive ability, this narrowed focus constrains the drive to search for other possible paths to goal attainment.

Understanding this relationship between task type and motivation used is vital in ensuring that businesses employ the most effective and constructive motivation strategies, especially in Australia’s white-collar economy where employees are doing less routine-based tasks and more con-ceptual ‘outside the box’ type work. This is particularly so in a modern era where businesses are overwhelmingly inclined to utilise ineffective contingent motivators and place ‘if-then’ rewards at the forefront of their practices. Consequently, if they are to effectively increase employee motivation and enhance performance, managers must change their business philosophy and drive forward the use of intrinsic motiva-tors. ■

TO MOTIVATE EMPLOYEES,

MANAGERS SHOULD STEP

CLEAR OF CONTINGENT

INCENTIVES AND LAY DOWN

SPECIFIC AND CHALLENGING

GOALS IN ORDER TO PROVIDE

A FOUNDATION OF DIRECTION,

EFFORT AND PERSISTENCE OF

WORK BEHAVIOUR

Alvin Sharma


Debunking the Myths of Entrepreneurship

The Global Entrepreneurship Moni-tor defines entrepreneurship as “any

attempt at new business or new venture creation, by an individual, a team of individuals, or an established business”. The United Nations highlights the critical nature of entrepreneurship as a propeller of economic growth, a driver of innovation and a contributor to structural change. So what does being an entrepreneur actually mean? Do you need to be the next Richard Branson or Steve Jobs to call yourself an entrepreneur?

The answer is no. Entrepreneurship en-compasses a wide range of businesses, from Nick Palumbo’s highly successful Gelato Messina in Sydney to the heavyweight champions of Silicon Valley. Behind all of these hugely successful start-ups stood young, ambitious and driven entrepre-neurs who dared to break convention and disrupt the norm.

Australia's environment ranks within the top five most favourable for entrepre-neurial activity among the G20 countries. Yet, following the ‘Roaring 90s’, rates of entrepreneurship have plateaued in developed countries. Nonetheless, a new wave of entrepreneurs in Generation Y are changing the rules of the game in Australia and turning traditional entrepreneurship on its head. Research shows that millen-nials worldwide perceive themselves, on average, to be more innovative than older generations. According to PWC, last year alone there were 15,300 new companies registered in Australia, with the majority

owned by entrepreneurs aged 25 to 34 – equating to an 8.5% increase in Australian Gen Y business ventures.

What then, is stopping many young Australians from beginning a business venture? The answer may be linked with the common myths surrounding entre-preneurship which obscure the exciting opportunities it can offer. Myth #1 | Innovation means hi-tech

The first myth to tackle is that innova-tion means technology. This is a common misconception. While innovative tech-nologies such as the internet, smartphone and unmanned drones disrupted whole industries, they were disruptive because they fulfilled an area of unmet need. eBay’s original business model, for example, simply involved connecting consumers with small businesses over the Internet. In today’s market, this seems expected, but at its launch the model was ground-breaking, and has resulted in eBay becoming a nota-ble success story of the dot-com bubble.

In essence, an innovative solution to an unmet need can take on a multitude of forms – from an innovative technology to an innovative business model. eBay’s founder, Pierre Omidyar, noticed an area of unmet need and developed an inno-vative solution to close the gap in the market. eBay has continued innovating, resulting in a multi-billion dollar business with operations in over thirty countries. Its business model has evolved to respond to increasing areas of unmet needs – such

as the acquisition of PayPal to connect customers on the transaction side of retail purchases. Myth #2 | Success is relative to fundingRecent research by Ernst & Young found that young entrepreneurs were particu-larly vulnerable to funding issues when venturing into a start-up, with 44% of Australian entrepreneurs under forty reporting that access to funding was a

limiting factor. Contrary to popular belief, success is not relative to funding but rather to persistence and learning from mistakes. Richard Branson, for example, launched Virgin Records from the crypt of a church where he also ran The Student magazine. Using the money he had earned from his record store, he then launched the record label and subsequent business ventures. Funding is only a starting point and a great boost, but there are ways to work around it.

New alternatives to traditional fund-ing sources offer immense opportunity.

Sarah Elsmore

How Generation Y is redefining what it means to be an entrepreneur, and the major myths that are preventing young entrepreneurs from taking the plunge

WHILE INNOVATIVE

TECHNOLOGIES SUCH AS

THE INTERNET, SMARTPHONE

AND UNMANNED DRONES

DISRUPTED WHOLE

INDUSTRIES, THEY WERE

DISRUPTIVE BECAUSE THEY

FULFILLED AN AREA OF

UNMET NEED

Crowdfunding is a prominent alternative growing rapidly in Australia, with 40% of local Australian entrepreneurs stating that access to crowdfunding has improved in the last three years. There are many ben-efits to crowdsourcing including no-cost set-up, hedging risk, providing a platform for marketing and PR, and creating the opportunity for pre-selling. As testament to the sense of unbridled possibility pro-vided within this new environment, Zack Brown, who set out to crowdsource $10 on Kickstarter to fund potato salad ingre-dients, managed to draw global attention and raised upwards of $55,000 dollars for his cause. Myth #3 | Long-term experience is requiredExperience is not a prerequisite for success, but having an understanding of the market you wish to venture into is absolutely cru-cial. It is for this reason that Isabella Rose Taylor, a thirteen-year-old entrepreneur, debuted her clothing line successfully at New York Fashion Week 2014. Isabella’s artistic career started at a young age, and although she has limited experience in comparison to her seniors in the industry, she found an area of unmet need in which she interacts every day. As Business Insider explained, Taylor “sought to fill a void

with her designs”, after “having struggled to find clothes that spoke to her sensibili-ties as a tween.” In most cases, learning as you go, especially learning from mistakes, is a viable path to take.

Furthermore, extensive formal educa-tion does not guarantee your skills as an entrepreneur. Michael Dell is just one of many entrepreneurs without a tertiary ed-ucation, having dropped out of college to start Dell computers in 1984, at the young age of twenty-one. In 2013, Dell was the third largest PC vendor in the world after Lenovo and HP, and the company is currently the number one shipper of PC monitors in the world.

But this is not to discourage the value of education. Rather, having a deep understanding of the industry, devising an innovative idea, and being prepared to continually and rapidly test and validate ideas and learn from failure is just as essen-tial to eventual success. This is emphasised by entrepreneurship becoming a more

accepted conscious career path for many in Gen Y. Myth #4 | Failure is the endThere is no denying that starting a busi-ness is a risk and that the risk of failure is always prevalent. The issue for most en-trepreneurs is thinking that failure means the end when, in fact, failure presents the opportunity to learn and grow from mistakes.

Thomas White, CEO of The C-Suite Network, insists that the foundation of success is learning from failure. Accord-ing to him, “our greatest lessons come from our mistakes and failures. In fact, if someone says he or she is a very successful entrepreneur and has never failed, you know they are lying.” A great example is Evan Williams, who before co-founding the social media giant Twitter, founded a podcasting platform called Odeo. Soon after its launch, Apple announced that the iTunes store would include a podcasting platform, rendering Odeo obsolete. Aspir-ing entrepreneurs should recognise that failures are guiding posts toward the next experiment.

As Thomas Edison famously said, “I have not failed. I’ve just found 10,000 ways that won’t work.” ■

AS THOMAS EDISON

FAMOUSLY SAID, “I HAVE NOT

FAILED. I’VE JUST FOUND

10,000 WAYS THAT WON’T

WORK.”


Pay-What-You-Want

Lentil as Anything, a newly-opened restaurant located on King Street,

Newtown, allows customers to determine how much to pay for their meals. Superfi-cially, these pay-what-you-want (PWYW) businesses may appear to be every ‘stingy’ student’s dream of paying whatever they have in their pocket and bagging a bargain. Yet, there may be unexpected merits to such a business model, where a firm’s liveli-hood depends entirely on the generosity of its customer base. At the forefront of a room filled with customers eating on shared tables, a large wooden crate resides for customers to slip in what they are willing to pay for what they have con-sumed. A sign provides guidelines, with suggestions starting from $5, which would cover the cost of ingredients. At $12 rent and staff wages are covered. Customers are also encouraged to volunteer to help cover overhead, or pay a higher amount to subsidise those who cannot afford to pay their fair share.

Shanaka Fernando, self-proclaimed “social challenger” and 2007 recipient of the Australian of the Year Local Hero Award, dreamed up Lentil as Anything as a restaurant where all would have access to a meal regardless of their ability to pay. While the Newtown branch opened only in May 2014, the chain has been oper-

ating since 2000, with four more restau-rants flourishing in Melbourne. Clearly, the chain is doing something right. The pay-what-you-want pricing strategy is a prime example of how businesses and their customers do not have to behave in a way that is purely in their own interests. While the common practice of tipping illustrates consumers’ willingness to pay more than is absolutely necessary, it takes a greater leap of faith in humanity to completely rely on people’s generosity to keep a business afloat.

As novel as the idea of pay-what-you-want sounds, Lentil as Anything is

certainly not alone. Other restaurants have been inspired by a similar business model. These include Annalakshmi, a restaurant on the Swan River in Perth, several more in the United States such as SAME Café in Denver and JBJ Soul Kitchen in New Jersey, and in Europe with the likes of Der Wiener Deewan in Vienna and De Culi-

Sophia Cyna

A business model that relies on honesty

THE PAY-WHAT-YOU-WANT

PRICING STRATEGY IS A PRIME

ExAMPLE OF HOW BUSINESSES

AND THEIR CUSTOMERS DO

NOT HAVE TO BEHAVE IN A WAY

THAT IS PURELY IN THEIR OWN

INTERESTS IT TAKES A GREATER LEAP

OF FAITH IN HUMANITY

TO COMPLETELY RELY ON

PEOPLE’S GENEROSITY TO

KEEP A BUSINESS AFLOAT

naire Werkplaats in Amsterdam. PWYW restaurants are naturally difficult

businesses to run. Just Around the Corner, a PWYW restaurant in London, could not withstand the economic downturn in 2009 and was forced to close its doors after running profitably for 25 years. During this time, its owner also ran 3 fixed-price restaurants and cited higher profit margins at the pay-what-you-want location.

PWYW pricing strategy has experi-enced success in other industries as well. Radiohead allowed fans to pay whatever they wished for their album In Rainbows. Though 60% of fans didn’t pay anything for the album itself, the strategy sig-nificantly boosted concert sales, which accounts for most of Radiohead’s revenue.

Some companies use PWYW pricing as a small component of their overall business – for example, Zest Business Consulting allows customers to choose what they want to pay for the first two hour consultation session. This allows individuals to benefit from services they otherwise can’t afford, while allowing potential future clients to test the service risk-free. 30% of those who tried Zest Business Consulting’s PWYW business service went on to become stan-dard customers paying the prescribed fees.

It is worth noting that many PWYW restaurants, like Lentil as Anything, are not-for-profit. Lentil as Anything is one of them, though this wasn’t always the

case. Its St Kilda branch ran profitably from 2000 until 2006. However, when the tax department came to close its doors, a charity strongly inspired by the concept raised the money necessary to cover its debts. After that, Lentil as Anything was registered as a not-for-profit organization, breaking even with the help of the well-de-

served tax breaks that come with being registered in the not-for-profit sector.

The connection between the pay-what-you-want concept and charity is a poi-gnant one, as indicated by two particularly thought-provoking studies conducted by prominent social consumerism researcher Ayelet Gneezy. In one study, consumers who were told the product was worth $15 were more likely to buy it if it were sold at $5 than if they could choose the price (even though they could choose a price lower than $5 if they wished). It appears that people prefer to not buy the product at all rather than face the shame of choos-ing to pay too little.

In another study, two groups of con-

sumers were given a fixed price for the product of $12.95. One group was then told that half of the money would go to charity. Two other groups of consumers were allowed to pay what they wished and again, one group was told that half of the money they gave would go to charity. Interestingly, the highest sales and profit were obtained when consumers were allowed to choose the price and when they believed that half of the proceeds were going to charity.

It thus follows logically that staff from both Lentil as Anything and Annalakshmi emphasise the importance of taking the time to explain to customers the inspiring reasoning behind the concept. As people understand the charitable philosophy behind a business, so too are they more likely to show more generosity. Sometimes people give more and sometimes less, and every now and then someone will be so inspired they might pay a grand for their meal – as one man did at Annalakshmi.

While it is easy to be sceptical of the pay-what-you-want pricing strategy, there are businesses that have successfully imple-mented it. As Generation Y increasingly realises that there is more to business than the bottom line, and consumers become conscious that they are not only buying, but investing, in a product, greater oppor-tunities are born for realising profitable PWYW strategies.■

PEOPLE PREFER TO NOT BUY

THE PRODUCT AT ALL RATHER

THAN FACE THE SHAME OF

CHOOSING TO PAY TOO LITTLE


Inside an interview with Shane Treeves

By Annie Handmer

At 21, Sydney University Commerce (Hons) graduate Shane Treeves secured a coveted

position in Google and within two years had become a Senior Communications Associate

for Google across Australia and New Zealand. Annie Handmer interviews Shane about what it

means to work at Google.

It’s easy to see why Google has a reputation for being a great place to work. Employees

can determine their own working hours. The Sydney office contains cafes and restaurants providing unlimited food and drink, games rooms, a piano, a room full of hammocks. Scooters are available at strategic locations for faster transit from office to office.

Shane and I meet for coffee in the ‘beach themed’ café on the top level. From what I can see, Google’s 70 offices worldwide are the antithesis of Propst’s still popular 1960s cubicle design.

As a spokesperson specialising in public relations and media communications around the launch of new products, Shane’s role is to “translate techy, complex product launches from the engineering world and explain them so they make sense to everyday people watch-ing TV.”

For Shane, Google is a young person’s playground where innovation and creativity are rewarded. “It’s an exciting place where

things happen very quickly,” he says. “For instance, yesterday I only found out at 10 a.m. that we were going to launch New Zealand 3D Aerial Imagery at 11 a.m.”

Shane is currently working on wear-able technology, described by Deloitte as “mobile computing’s next frontier”. Earlier this year, LG and Samsung both released watches that connect to mobiles with an Android operating system, and Apple’s recent announcement that they will be releasing an ‘Apple Watch’ in early 2015 is good news for iPhone users. Shane shows me his watch, his latest toy. He can use voice command to run Google searches, and it connects to his phone to give him updates of weather, notifications, and texts.

“Good wearable technology should make your life easier, and you should be able to very quickly acknowledge information that comes to you in a non-intrusive way,” Shane says. “If you have a watch, you can have a quick look without interrupting a conversation by pulling out a phone and unlocking it.”

Looking beyond the décor and unusual office fittings, Shane cites his colleagues as the best part of his job. “We have massages and sleep pods and games rooms, and it’s cool to have that flexibility,” he says. “But most of all, the people here are fantastic. If you’ve got the right kind of people and they’re excited about their jobs, they will work well. There’s a level of trust that you will manage your time effectively.” In some ways it’s also a diverse place, where the only requirement to fit in is ‘Googlyness.’ What makes a person Googly? “One of the guys working here holds the record for long distance unicycling,” says Shane. “That’s very Googly.”

With the aim of “making Google a workplace for everyone”, Google tries to

be accessible to a wide range of employ-ees. Their website specifically mentions special assistance for every minority from ‘Gayglers’ to ‘Greyglers.’ However, despite having women’s bathrooms unusually well stocked with feminine hygiene products, an area in which Google still needs improve-ment is the proportion of female employ-ees. Currently only 30% of employees are female overall, which is roughly on par with Apple and Facebook, who released their first employee diversity report in June this year. However, only 17% of the Tech department is comprised of women, more than Facebook’s 15%, but fewer than the 20% at Apple. Only 21% of the people in positions of leadership at Google are women, compared to Apple’s 28%.

How did Shane acquire such a coveted job? He credits his drive to make himself stand out from the crowd as his ‘Googly-ness’. Good marks alone are not enough. While studying Commerce at University of Sydney, Shane debated, performed as an actor and singer, directed musicals, and became involved in 180 Degrees Consult-ing, a student-run service which aims to improve the effectiveness of non-profits around the world. He was then part of the team that expanded 180 Degrees Consult-ing internationally.

“If you’ve got a good idea, take it as far as you can before you apply to Google. Learn to code or find someone who can and have a go, or just do something creative and quirky,” Shane says. “It doesn’t matter if it fails, but it’ll give you a story to tell, and make you an exciting person for Google to hire.”

Since the internet revolutionised the speed at which we can send and receive information and the uses to which that information may be put, recruiters at tech

companies seek graduates who are comfort-able with change and able to process large chunks of incoming information at high speed and accuracy. Those graduates are ‘Millennial’ employees who want, according to Business Insider Australia, feedback and recognition, freedom, balance, and growth. Studies conducted by Joseph Folkman, a behavioural statistician, indicate that unlike

older generations, “Gen Y really does want corrective feedback and even critiques, but they are most receptive when it is aligned with ample praise, recognition, listening and assurance as well.”

Google appears to recognise that produc-tivity will be at its greatest when employees are looked after and encouraged to experi-ment. Other companies such as EY have begun changing the ‘office-scape’, trialling new office layouts, implementing work stations and encouraging mobility through hot desking.

While it remains to be seen whether these audacious approaches will result in better outcomes for employers and employees, it seems that, at least for the moment, Google is not only creating the technology of the future, but driving the creation of workplaces, attitudes, and teams of young professionals to go with it. ■

If you’ve got a good idea, take it as far as you can before you apply to Google. Learn to code or find

someone who can and have a go, or just do something creative and

quirky

Described as the company's 'Mr Fix-it', Giam Swiegers has been the CEO

of Deloitte Australia since 2003. With an Honours in Accounting, he began his career as an auditor with the firm in South Africa, before working for Deloitte in the USA and other global offices until finally taking the office of its highest position in Australia. As CEO, he led the Australian practice to achieve the CFO Magazine 2006 and 2008 ‘Accountancy Firm of the Year’ awards and the 2008 Deloitte Global ‘Standard of Excellence Award’ for in-

novation management. Yet, for one of the most influential people on the Australian business scene, Giam’s office is a humbling environment boasting no stunning vistas or signs of extravagance.

I was fortunate enough to interview him on the very day that the firm had planned to celebrate having achieved its long-term vision of growth, becoming the second largest professional services firm in Aus-tralia. Arriving at this vision had, as Giam explained, required the cultivation of an innovative culture while retaining a careful

balance between realism and optimism. “I grew up in South Africa, at a time

when the country was going through a lot of trouble and a lot of difficulties,” he says. “If you were just being realistic, you would give up hope. But if you were optimistic, and you had the belief that you could do things to make it better, you might be will-ing to give it a go.”

Giam’s optimism has been the driving force behind the direction he has taken with Deloitte. “The likelihood of things working your way if you are optimistic

From 2003 - 2014, Giam Swiegers was the CEO of Deloitte Australia, one of the "Big Four" professional services

firms offering services including audit, assurance, tax, consulting, advisory, corporate finance and legal services. He offers us insight into what it means to be an innovative market leader.

“It’s hiring the right people at the right time for the right role."

"I get concerned if someone tells me they have never failed, because I think that means they haven’t pushed themselves. My mantra is to fail quickly, fail cheaply."

The reason we grow the fastest

is because we have the most

relevant and current services. To make sure all our energy is spent on taking better services to our

clients, we run a Dumbest Thing

campaign where we ask 6000

people what the dumb things we do are, and by fixing them we

build a better Deloitte.”

is just a lot higher than when you don’t expect it.” he says. “Very few people and very few organisations exceed their own expectations of themselves.”

This attitude may be why some of Deloitte’s Thought Leadership Series is prefaced by the jovial ‘Building the Lucky Country’ motto introduced in 2011 under Giam’s tenure. At the same time, Giam tempers this optimism with real-ism. “Within a realistic context, I can’t let

myself be a blind dreamer.” he says. “In a way, I encourage failure. I get concerned if someone tells me they have never failed, because I think that means they haven’t pushed themselves. My mantra is to fail quickly, fail cheaply.”

This mantra arose from Giam’s own experience of advancing his career. “No career goes in a straight line.” he says. “You have highs and they are fantastic, and you

have incredible lows and they are bloody awful. Everyone at Deloitte has had serious setbacks somewhere along the line. All bounced back.”

Innovation

Deloitte distinguishes itself by fostering a flexible mentality. Half of the firm’s workforce is being trained in 'design thinking' – a method that teaches its users to ask questions and investigate unconven-tional means of solving problems. It aims to innovate 30% of its service lines every two years. This drive for innovation has resulted in the creation of the firm’s design and development practice in Deloitte Digital, which has helped traditional and new-start businesses gain a footing in the changing technological environment and reshaped the boundaries of conventional competition.

“We recognise that the market is chang-ing,” Giam says. “The reason we grow the fastest is because we have the most relevant and current services. To make sure all our energy is spent on taking better services to our clients, we run a Dumbest Thing campaign where we ask 6000 people what the dumb things we do are, and by fixing them we build a better Deloitte.”

He admits that, “In fairness, we have never managed to get to our big 30% goal, but we keep on trying. It always makes money because we are disciplined about it.”

When it comes to university students aspiring to become entrepreneurs, Giam recommends that they nurture their intel-lectual curiosity to go outside the frame-work. “Do things others are not doing or go after markets others find unattractive,” he says. “It’s all about being agile.”

Leading an organisation

Giam sees businesses as bodies of people – organisms that need to be kept satisfied in order to function properly.

“Our aspiration is that every person that works here will have at least one time where they can say ‘Only at Deloitte’,” he says. “Our goal is when you leave here, you have got to say that Deloitte changed your capacity to act.”

While Giam’s assertiveness makes him a candidate for a strong leader, it is how he deals with unpopular decisions that define him as a likeable person within the firm and an empathetic leader as well. “I believe in talking to a lot of people, but that doesn’t mean I will procrastinate. I try not to reach conclusions in isolation.”

To Giam, the skills a competent leader needs extend beyond active listening and precisely-timed decision making. “It is a leader’s job not to take people where they want to go,” he says. “but to take people where they ought to go, and you’ve got to make that journey seem as attractive as possible.” ■

Giam SwiegersAndrew Huynh Tell us something most people do not know about

you

I grew up in a different country, spoke a different language, and am now working and communicating a lot in a language I am still struggling to master.

Do you have a life motto that you follow?

Mine is just about balance. I want to do things at work that I enjoy. I’ve always used the saying 'are you having fun today?'. The day I stop having fun while I’m at work will be sad. I don’t want to go looking for my fun after hours.

How do you want to be remembered when you

leave? I think I’d like to be remembered as someone who cared deeply about people but lived by my motto of soft on people but

tough on performance.

You say every successful person has had mentor(s).

Who is the most inspirational person you looked up

to?

When I first came to Australia, Matthew Broadford was my boss. I think his role in my success was just enormous. Later on, I became his boss and that was a much better position to be in, but he still played a big role as my mentor.

What motivates you to get out of bed every morn-

ing? The fact that people on Sky Business and in the newspapers called us the baby of the profession and I was determined that we will be number 2 and never referred to like that again before I leave.



Andrey Tyshchenko is the founder and managing director of MyShopping, a

virtual shopping centre and search engine that filters and compares products based on price features or other relevant consumer criteria. It provides an aggregation service: by creating one online location where shoppers can compare similar or identical products, it assists decision-making about which actual retailer to purchase the product from. Such services are usually provided without a cost to users and derive their revenue from merchants who are listed on the website. Depending on the specific nature of the online comparison business, the retailer may be charged a fee for each user that clicks through to the website of the shop, registers to a newsletter, or any variety of other actions that suggests the comparison shopping site has promoted awareness of a retailer or facilitated a purchase.

How did you move from being the

managing director of a software

development company and a

computer and electronics retail

business, to starting an e-business? When I first came to Australia, my goal was to start a business. I was working in software programming and had experience in the retail industry, so it was beneficial for me to choose a venture where I could use my existing knowl-edge.

My approach was unconventional and more grounded in logic than the typical entrepre-neurial story. I constructed a matrix of possible business ideas and structures. I approached the idea very technically by conducting market research in order to identify what kinds of businesses had strong tendencies for growth, and which lacked intensive existing rivalry in Australia but had reached success and profitabil-ity internationally.

What are important skills for

entrepreneurs starting in these rapid-

growth industries?

During the initial development of a business, it is difficult to predict what kind of personality traits, skills and characteristics your employ-ees need to be value-adding. Initially, I made mistakes either hiring professionals who were too technical and did not take on enough initia-tive or the other way around. Now, I allocate significantly more time to human resources. A rule I now live by is that it is better not to hire anyone than to hire someone who doesn’t fit the

Andr

ey T

yshc

henk

om

ysho

ppin

g.co

m.a

u By Levi Romanov

needs and culture of your organisation. It is important to actively seek and manage value adding employees. Of course, you will probably be the most motivated and determined person in your business, but it will never be enough unless you have others who are reliable and capable of executing tasks you designate. Moreover, if you foster an environment where those you work with share your passion and vision, it will lead them to innovate and grow your business on their own initiative.

It's important also to be focused - but don’t overdo it. Getting distracted is often associated with ‘not doing enough’ to further your goal. However, if you try to do too much you will lose focus from the core-business. Do not take on additional responsibilities for business development while the core-business is developing unless you are sure that both you and the business can handle it. Many prominent businesses have suffered from expansions that were pursued before they were ripe.

What advice would you give

to entrepreneurial university

students?Actively read business news and seek out educational resources. I would particularly recommend material related to human resources, accounting and learning how to gather meaningful information from vari-ous statements. As an entrepreneur of a small to medium-sized organisation, your role will always have a variety of aspects – most importantly you need to understand why the business generates the numbers it does and how to manage the people in your organisation to create the most value.

The next thing is to just start some-thing. Try and create a small enterprise in the near future. It doesn’t matter if it is a lemonade stand, a university society or a business. Set a goal for yourself, and try to reach it. The experience you will gain no matter the result will be invaluable; you will learn to make decisions, plan for the future and get familiar with what being in

the driver’s seat feels like.You should look for opportunities everywhere. People and organisations will always have needs that are either not been catered for or where competition is weak. When you notice that there is such a need, think to yourself “Is there potential for profit? If yes, how can I enter or create this market?” One of my habits is that every time I walk into a shop I analyse it from a business perspective. I ask myself, “How do they make their money? How do they attract their customers?” At the end of this quick game I think about what I could implement in my own hypothetical store to create a competitive advantage and beat the competition.

Of course, projects often don't succeed, but this doesn't mean that you should fear failure. If something doesn’t work, treat it as a lesson and never make the same mistake again. ■

"Most importantly you need to understand why the business generates the numbers it does and how to manage the people in your organisation to create the most value."


Student Entrepreneur

MadPaws Kevin Gatdula

Student Room

Alex Soulopoulos is 24. He holds a Bachelor of Business Administration from Belgium and graduated from a masters

degree at the University of Sydney in 2013. Recently, he launched MadPaws, a startup dedicated to connecting two groups of people: absent pet owners who don’t want to put their pets into kennels, and people who love pets and are happy to look after them.

What’s your inspiration behind MadPaws?

My parents were entrepreneurs, which meant that we were moving all the time. I wanted a dog but couldn’t have one, because we wanted to give the dog some consistency. Later, when I was in Sydney, my friend Shay wanted someone to look after his dog but he didn’t want to take her to the kennel. So I went to his house, took care of Honey – a Labrador – and loved walking her around Bondi. I knew there were a lot of people like me, who love to look after animals, and wouldn’t mind making a bit of cash on the side.

What differentiates MadPaws from listing site like

Gumtree?

Our site is targeted towards pet sitting. We provide liability in-surance and customer support and offer a platform for people to leave feedback – a sort of ‘community review’. Trust is a very important part of the sharing economy, so we ensure the quali-ty of our sitters in two ways: First, we vet all the sitters on the platform and extensively review their profiles. Then there is a community review where owners give a rating from 1-5 stars and provide a detailed review of the sitter. We started up in August, and now in October we have almost 100 sitters on the website.

There are many ‘incubation’ programs that provide

funding and mentorship to startups like yours. Where

did you source the cash and expertise to get this ven-

ture off the ground?

At uni, I joined the CEMS club: a global network between 29 uni-versities and companies worldwide. The CEMS club is a student body that organizes social and sustainable corporate networking opportunities. There I met Jan Pacas, the managing director of Hilti Australia, who had been playing with similar ideas. I also met Bjorn Behrendt, the general manager of Mint Wireless, who has developed a range of start-ups. He builds consumer-focused businesses. You can call Jan and Bjorn ‘active angels’ – they have their full-time obli-gations, but they still help me with strategy, networks and resources. You have all the social media outlets covered: Twitter,

Facebook, a fledgling YouTube presence. Have you had any other sorts of exposure in other forms of media?

It’s very interesting for us to get help from consumers to help us build the brand. As part of our community building, we’re doing ‘Dogs of Sydney’ – one dog, one story each day. And while we’re doing this, we’re learning about our customers. We even did a story on the dog of FBi radio. We’re in this sharing econ-omy business model – that means giving power to consumers. At our recent launch, we asked people to brainstorm marketing slogans and tweet them live on Twitter. So now if you look on our Twitter @madpawsau, you’ll find them all there. The winner was “Don’t fret about your pet while you’re in Phuket.” At the same time, we got influential people to get MadPaws out there.

How is MadPaws structured?

We have our advisory board. As CEO, I make the decisions and perform operations, but they have so much experience in the con-sumer business and they have extensive networks. Because it’s such a fast growing start up. I have five interns who are also studying their masters from the CEMS: from Dubai, Russia, two Aussies, and a German. I’m also very keen to hire some more Sydney stu-dents, and I’m looking for people with an affinity with pets. I think this is important if we’re going to offer a quality service.

What does a typical day look like for you?

I start at 9 a.m. and I leave when the work is done. I spend the day vetting the website, and making sure the sitter service goes from great to excellent. A lot of this includes going over the sitters with a

fine tooth comb. I want users to be able to trust all the sitters. You don’t want any uncertainty when you’re leaving your fifth family member with someone else. We’re continually working on the web-site to make it easier to read. Currently we’re building two commu-nities: a pet sitter community and a pet owner community. We’re also doing new marketing campaigns, but whenever the phone rings or we get an email about a customer that has something that needs taken care of, that immediately gets our full attention.

Event: The Millennial SeriesMatthew Green

In July 2014, the University of Sydney Business School welcomed its young alumni to the inaugural Millennial Series discussion

panel. The series was developed to provide a unique opportunity for the Business School’s most recent graduates to share opinions, gain valuable insights, and listen to industry experts talk about their successes, mistakes, and lessons learned from creating excep-tional businesses.

Panellists included Matt Symons, Chief Executive Officer and co-founder of SocietyOne; Brendan Burwood, co-founder and Managing Director of ipac Financial Care; Darren Williams, Chief Technology Officer of Freelancer.com; and Charlie Caruso, a digi-tal media and social entrepreneur.

The discussion began with anecdotes about the leap from big business into the start-up environment. For Brendan, this involved

leaving behind a stable corporate job at Sony Music so that he could chase down his dream. "I realised I had hit a point where it just wasn’t enough. I still had this itch that I had to have something that I owned." Having just recently married and with a child on the way, this was not a decision that was lightly made. "The thing that pushed me out the door was that it was something that I really wanted, and I knew the industry well. I had done cash flow analyses on this thing beyond an inch of its life. I was confident that I knew what I was doing."

For Matt, who started his career as a lawyer, the transition was borne out of his dissatisfaction with having his success measured by the number of seven-minute time blocks charged to a matter number. "I just figured, 'I’m not sure what the answer is, but it’s probably not this.' I had a few friends who had a start-up in a


Internships, casual jobs and volunteering are conventional av-enues for business students seeking to build both a resume and

a set of meaningful experiences that will distinguish them from the peers. However, there is a niche in the market for a course that allows student apply their business acumen to something they genuinely care about. The 40K Foundation’s Globe Programme intelligently capitalises on this.

In January 2014, I travelled to a rural village in India called Kanuur to participate in the programme. The programme re-quired my team to develop an idea for a sustainable ‘Social Impact Project’ and then travel to a location in Bangalore for a month to put our business plan into action. The profits made by our pro-ject were put towards 40K’s village learning centres, which teach literacy and numeracy to local children. Our hope was to support the education of the children to the extent that they can find work outside of the dangerous granite mines that surround Bangalore, and thus avoid a life of poverty and gruelling manual labour.

All participants are challenged to improve sustainable devel-opment in an environment where frequent blackouts and poor Internet access impede progress. My team worked on creating a tour company that delivers an informative and engaging tour experience that justifies the premium price needed to subsidise 40K’s educational activities, which often run at a loss in order to remain affordable. Each of us taught the children for two hours every day, so we could directly see the benefits they received from the education. Crafting a tour that could stand on its own and justify its price was a struggle - but also a hard-won goal.

The Globe Programme led 40K’s transition from a charity into a social business model that aims to create social value for the

locals while also turning a profit. “40K wanted to give people tools to work with, to make the impact that we found students were already looking to make,” says Antony Tow, the first gener-al manager of the programme. Over 200 students from various universities such as University of Sydney, University of Technolo-gy Sydney, and University of New South Wales made the trip to Bangalore during the summer of 2014-2015.

Social entrepreneurship programmes like the Globe Programme are gradually building a generation of confident, proven, social-lyconscious businesspeople who will bring value – both financial and social – to the activities of their future employers. We need more programmes that offer these opportunities. Instead of being a cog in a machine driving numbers up, students deserve the op-portunity to engage with commerce as an engine of social change.

40K FoundationAdam James Page

garage in Richmond. It was all unstructured, it was wonderful, and it was addictive. I discovered that, for me, an unstructured environ-ment where I could learn quickly and find ways to create value was really compelling."

The discussion then moved to stories of the form-ative mistakes each of them made in the first few years of their ventures. Darren described his fun-damental mistake as giving up control of his com-pany’s own destiny. "We thought we could sell our product to other people and that they could build it into their own products. We ended up in a situation where their product cycles were three to five years long, our product cycles didn’t match, and we had no ability to control or fix the situation. We should have built the entire product ourselves. It wouldn’t have been that hard, and we would have been able to manage things much more effectively."

Charlie spoke of the long process of realisation as she navigated her way through the early years of founding Puggle FM, a radio station with content tailored to parents. "My mistake was having

a lot of passion and drive and having a product that was right, but not really understanding the target market and what they wanted. "Over time, I realised that while I had originally thought I was sell-ing to parents, I was actually selling to advertisers. They were my

market. I had to create value for them." The night ended with a discussion of the chal-

lenges of growth, and the measures each had taken to scale their businesses and ensure long-term sur-vival.

For Freelancer.com, Darren’s advice was about finding the right team. "We began with a stay-at-home mum doing customer support from the Philippines and two guys doing technical design in Ukraine. As the business grew, we sought out smart young people, and we learned to recognise and promote the talented ones. Now we have 100 people in Australia, and offices in the Philippines,

London and Vancouver."The Business Alumni Network plans to host similar future events

in the Millennial Series.

It was all unstructured, it was wonderful,

and it was addictive. I discovered that, for me, an unstructured environment where I

could learn quickly and find ways to create value

was really compelling

In an era where governmental ineptitude and the social disengage-ment of the private sector have left many pressing social issues un-

answered, society has gradually begun to turn to social enterprises as the vehicle of social progress. It is this belief in the pivotal role that social enterprises play in maximising human and environmental wellbeing that underpins Enactus UNSW’s BusinessONE Program.

Founded by Enactus UNSW in 2009, the BusinessONE Pro-gram provides a student based pro bono consulting service to start-up social enterprises needing business expertise, advice and manpower to convert their innovative solutions into tangible busi-ness models marketable to the world around them. Given that more that 60% of social enterprises fail in their first year, the support that the BusinessONE Program provides is critical for the survival of the social start-ups.

An appropriate example highlighting the value that the BusinessONE Program offers to social enterprises and wider society is the 30 Seconds Change Project. 30 Seconds Change is a fund-raising platform which enables participants to raise money for their favourite charities simply by watching 30 seconds of video on their phones.

Whilst consulting for the founder Andrew Wilkinson, the BusinessONE team led by Andy Chu and Manpreet Singh sug-gested a series of action steps that assisted Andrew in creating this social fundraising platform. This included the video cam-paign featuring testimonials and tangible merchandise to increase the market exposure of 30 Seconds Change. “As our team was placed within the target market for the product, we were able to use our experience to deliver suggestions on how to improve their marketing campaigns,” says team leader Manpreet Singh.

Similar social value was generated in the myCVconsultant project, which is a web-based recruitment consulting business providing tailored resumes, interview preparation and career de-velopment. MyCVconsultant was born when its founder, Lena Kueskens, realized that there was no web-based equivalent for re-

cruitment based services. The BusinessONE team lead by Nina Ma and Johnathan Mok analysed this service gap in the market to craft an effective course of action for Lena. “By uniquely positioning the client within her preferred market, our team was able to help Lena differentiate herself,” says team member Diana. “We have also integrated social media into our client’s marketing campaign and even opened up a new market opportunity for her business, there-by helping her to launch her company with broader horizons.”

The BusinessONE Program has not been without its struggles. The UTS Beds on Wheels project is a vivid example of this reality.

As a preliminary idea that gained traction after a presentation at the 2014 Enactus National Con-ference, the Beds on Wheels proposal by Enactus UTS to convert used train carriages into afford-able housing dwellings was plagued with a mis-match of skills between the BusinessONE team and the primary focus of Enactus UTS to build prototypes. “The immediate challenge with the project was the dichotomy between the proto-type Enactus UTS desperately required and the technical inability of my team to deliver this,” says team leader Sun-Yong Kim. “However this

was resolved by agreeing to limit the scope of my team’s work to non-design miscellaneous tasks which is where our expertise lay.”

After the strategic change in direction, Sun-Yong’s BusinessONE team delivered to the client a two tiered ambassadorship strategy, sponsorship class structures, a broadening of the Beds on Wheels target market, designs for a corporate sleepover and product launch events, and unconventional sources of funding such as PAFs.

If the BusinessONE experience has proven anything, it is that social entrepreneurship is challenging and multifaceted. If social entrepreneurs lack the technical ability to bring their vision to life, projects are doomed to failure. In this light, the BusinessONE Program provides an alternative approach to the direct engagement typical of Enactus projects – by helping other social entrepreneurs improve their own chances of success.

BusinessONE: A Social Pathway to the FutureRichard Guan

Our team was able to help Lena differentiate herself. We have also integrated

social media into our client’s marketing campaign and

even opened up a new market opportunity

Diana Xiao


Sean Pollock was a participant of the Sydney Gene-

sis program during the first semester of 2014 and was one of the finalist teams to pitch their ideas before a panel of industry experts at the Final Pitch Event

in May. He is a current University of Sydney student

who completed his Masters in Medical Physics in

June, 2012 and is now working on his PhD in Med-

icine. Sean and his PhD supervisor Prof. Paul Keall

have created a start-up company around a medical

device at the centre of their research called Breathe

Well, which provides breathing guidance for cancer

patients for better quality imaging and radiotherapy.

How did you come up with your idea?

The technology behind Breathe Well was actually developed by my PhD supervisor, Paul Keall, while he was working in the United States in 2003. I first became involved in the project while working on my masters here at USYD when I received an email inviting students to volunteer for an imaging study that was investigating the Breathe Well device. That was my first contact with the project and eventually led me to join the project as part of my masters’ research before continuing on with a PhD. The business is now run by Paul Keall as the company director, myself as co-founder, two software developers and a company secretary.

What prompted you to get involved with Sydney

Genesis?

Back when we started, my advisor and I were both coming from the research side of things. We had a research device and we had spoken to a few colleagues about commercialising it, but we had no real business model. We first reached out to ATP Innovations about possibly working on the business plan and they directed us to Sydney Genesis as a starting point. Genesis was great for us because we hadn’t really thought about things from the perspective of customers. We had a research point of view, which was simply “We’ve researched it, we have a great product and you should want it, too.” Going through the Gen-esis program really helped us understand the other point of view and how to create a business around your buyer’s needs.

What is your business model?

We have created two possible revenue streams with Breathe Well. The first comes from a larger prototype device we have

developed, which would be sold to hospitals. We have also de-veloped a smaller, compact version of the device that would go to patients to practice on before using the larger device with their doctors. A prototype of the smaller tablet sized device is what we used during our Genesis Final Pitch to the panel of judges. After doing quite a bit of research into the competitive landscape we have set a price of $30,000 for the direct pur-chase of the device as well as an additional 20% per year service charge which covers systems upgrades, maintenance, breakages, etc. Existing devices on the market monitor patient breath-ing but don’t provide feedback to the patient, and cost between $40,000 and $50,000. Our first market would most likely be Australia, though we have looked at the United States as well.

What are some of the biggest challenges you’ve

faced?

For us, the biggest challenges were around learning the important business skills that were very different to our research mentality. The Genesis workshops were great for this because they are run by people who are leaders in their field. To be able to pick their brains during the workshop sessions and get their feedback on our ideas was incredible. Another challenge for us was to create a more streamlined version for the product we had going in. We wanted to be able to offer this to clinicians, and luckily we started with a bit of wiggle room so we were able to make the adjustments we needed.

Where to now?

After finishing the Genesis program we applied to work with INCUBATE and we are now in their winter program. INCU-BATE is a great follow up from Genesis; it is more intensive. While Genesis was more of a learning experience, INCUBATE provides more of a push to get things done towards regular set milestones. We formed a private company at the start of INCU-BATE called Respiratory Innovations and are looking at recruit-ing the first patient in one of our largest clinical trials in the next few weeks, so things are very exciting at the moment. We are aiming to have our first sale in the next twelve months. That time frame allows us time for regulatory approval, clinical trials, etc. After Genesis, I am much more aware of the many opportunities on the business side of things so there are a lot of possibilities for what I can do next. I’ve been involved with Breathe Well for almost three years now, so I’d love to see it taken to the next level.

Sydney Genesis is the longest running entrepreneurship program at the University of Sydney. The program is founded on the idea that when innovative new businesses, technology start-ups, and social entrepreneurs work side by side, a truly unique exchange of knowledge and inspiration flourishes. Each year Genesis opens its doors

to students and alumni from any background who are passionate about their ideas in business, technology or social entrepreneurship. Over the course of the program participants are encouraged to bring their ideas to life

with the assistance of workshops, mentoring, networking, funding and prizes.

Sydney Genesis: Breathe WellMegan Engard

56 | www.insideenterprise.org

Join the

conver-

sation

www.insi- deenter- prise.org

@IE_on- line

I AM HELPING ENSURE OUR CUSTOMERS’ FUTURES

CB

A34

35 2

0121

3

commbank.com.au/graduate

wE ARE COMMbANk.

OPEN TO IdEAS. OPEN TO GROwTH. dISCOvER OUR GRAdUATE ANd SUMMER INTERN OPPORTUNITIES.

I AM HELPING ENSURE OUR CUSTOMERS’ FUTURES

CB

A34

35 2

0121

3

commbank.com.au/graduate

wE ARE COMMbANk.

OPEN TO IdEAS. OPEN TO GROwTH. dISCOvER OUR GRAdUATE ANd SUMMER INTERN OPPORTUNITIES.

inside enterprise: age of entrepreneurs

Documents