A new hope?

29 Jan 2009

On 8 January 2009, Dell announced that 1,900 manufacturing jobs would go at its Limerick plant.

Not only are we in an economic downturn, but now we have to wake up to the fact that manufacturing Ireland’s dead and gone, it’s with O’Leary in the grave.

This has been a long time coming for the policy-makers, the universities, the multinationals located here and the investors, but there are organisations that have been focusing on turning Ireland into a high-skill workforce.

More importantly, there is hope for a vibrant and successful technology industry built on the back of funding and encouraging start-ups, while facilitating collaboration between them and the big guys, but there are obstacles.

Before a healthy technology industry can be realised, it is important to understand how we got here in the first place.

How did it come to pass that the devastating job losses at Dell were such a shock to the Government?

“Being surprised by a decision to stop manufacturing in Ireland betrays how limited the commitment has been to working with a major investor in Ireland,” said Eamonn Kennedy, practice leader with IT analyst firm Ovum.

“To be fair, I don’t think there are many official obstacles in the way of people who want to be innovative or create a start-up in Ireland.

“From listening to the political reaction to the Dell announcement, a far greater obstacle is attitudinal — the prevailing sense that Ireland or Limerick or the south-west is somehow owed jobs by large multinationals. This is delusional and displays a poverty of thinking,” said Kennedy.

By comparison, he said he saw “relatively little support given to the people who were trying to work with Dell to take over the Limerick facility and act as an outsourcer to Dell and others that was innovative and entrepreneurial.”

“Where were all those talking heads when their support, encouragement and sponsorship was required? I suspect they were busy concocting a response that would be soothing to their electorate, rather than engaging in the more difficult, but rewarding, job of promoting Ireland at a time of adversity,” Kennedy added.

Both the small companies and start-ups in the technology space in Ireland, and their facilitators, have a solid awareness of this situation: “Manufacturing work is now a commodity, a race to the bottom where the winner is the market with the cheapest labour. That’s really not where Ireland wants to be,” said Eoghan McCabe, CEO of the young, but successful, web-design and development firm Contrast.

“Smart, young Irish graduates, especially tech graduates, need to know that that running their own business is a viable option; I started my business straight out of college.

“They need to be handed the free start-up service vouchers and be told to ‘give it a shot’. For any twentysomething fresh from college, the very worst that can happen is that it doesn’t work, but they gain a massive amount of experience in the real business world and then get a ‘safe job’.”

The answer to whether start-ups can re-invigorate the economy is both yes and no, according to Anton Mannering, project manager of the Digital Media Forum.

“Realistically, we have a very immature start-up economy here at the moment, but it’s growing and gaining momentum fast.

“If we had been concentrating on trying to direct private investment into these early- stage businesses that actually create real value and returns, instead of on the essentially limited value creation assoc-iated with a property bubble, then there is no doubt our economy would be in a rosier situation right now,” said Mannering.

Investment in indigenous technology-based, export- focused business is really the only way to ensure the long term stability of our economy, he explained.

Conor O’Riordan, founder of Tradefacilitate, an Irish company that supports paperless global trading for SMEs, said — looking to the EU — government policies are in place to encourage start-ups and small companies in Ireland to get off the ground and find a global market.

O’Riordan said the onus, however, has now been put on the private sector to make this happen.

“The EU implemented policies at the request of politicians to turn the EU into a more competitive environment, but what they washed their hands of were the deliveries.

“Then they turned around and said: ‘there are pots of money available through the 7th framework, but we expect the private sector to lead’,” he explained.

To boot, there are a lot of small to medium-sized enterprises (SMEs) out there that need information, funding, partnerships and access to a global market in order to thrive – and SMEs account for 98pc of global trade – working within EU policy is paramount.

However, in light of Ireland not faring so well on pulling down funding from the EU 6th framework programme on research and technology development that ran from 2002 to 2006, O’Riordan said organisations such as Forfás have been working to increase the odds with the 7th and latest framework funding.

Mannering from the Digital Media Forum felt that the Government’s role in encouraging start-ups should be as little as possible: “The Government’s role needs to be as an enabler.

“Real, significant tax breaks for private investors and start-ups, coupled with a streamlined process of accessing them, would go a long way to encouraging investment in companies.

“The current ideas around Government-administered funds have the issue that the person essentially managing the investment has no motivation to maximise the investment (at least not the motivation a private investor has), and often doesn’t have the skill set or experience to really help the businesses along,” he added.

And what of funding already available in Ireland? Despite future challenges, young companies like Contrast felt that Government bodies such as Enterprise Ireland (EI) are doing a good job.

“EI funding is there for the taking if your business is worth investing in. Most moaning entrepreneurs I’ve heard complaining about EI don’t have such a business,” said McCabe.

Government funding aside, another important element of the start-up community is venture capital (VC), but the availability of VC funding is very, very poor at the moment for many reasons, said Brian Caulfield, venture capitalist and former entrepreneur.

While the economic downturn has meant that the availability of business expansion scheme funding has almost completely dried up, Caulfield said another factor is that the Irish VC market has effectively lost two of its major players.

“Trinity Venture Capital has changed strategy and become a private equity holding company (and has withdrawn from technology investing),” he explained.

On top of this, said Caulfield, potential new entrants to the VC market cannot raise new funds due the current economic crisis.

Existing VCs who do have funds in place are being encouraged not to invest by their own investors. This is either because these limited partners are struggling financially themselves or because they fear that company valuations will continue to fall and  will subsequently represent even better value for VC investors in the future.

“Because of the general shortage of capital, VC investors have a lot of choices: they are finding that they can make relatively low-risk investments (that might previously have been debt or public market funded) on what are (for them) very attractive VC terms. As such, they are shying away from early-stage technology deals,” he said.

There is hope. “We already have a healthy, vibrant start-up environment here in Ireland, and many positives relative to some competitors, but there are lots of challenges,” explained Caulfield.

Kennedy from Ovum argued that the solution is to work as a proper partner with large multinationals.

“This requires long-term thinking and long-term budgetary commitment to ensure Ireland can provide what they need as their businesses change.

“For example, the jobs that Dell continues to provide in Ireland require certain technical expertise, language fluency and professional qualifications. Dell could have located those jobs anywhere, but Ireland was in a position to secure them — I’m sure financial incentives helped, but that is only part of the investment justification.

“Staying with the example of Dell, Ireland has not – yet – benefited to a great extent from the new business areas in which Dell is investing.”

Do the relevant authorities understand the future direction of companies such as Dell? he asked.

In the same vein, Caulfield said that there is still a major shortage of higher-level company development skills – sales management, product management, product marketing and so on.

“These are the skills req-uired to rapidly scale businesses. I would like to see more emphasis both on organically growing those skills through programmes such as EI’s Leadership 4 Growth, and support for companies to recruit and pay for those skills wherever they can in the world,” he offered.

Given the needs of start-ups, the initiatives of the Government and operations of multinationals, one could argue that there is a fundamental difference in thinking amongst all involved that – if remedied – could lead to greater innovation.

O’Riordan of TradeFacilitate explained that SMEs think in minutes; multinationals think in quarters; and governments think in five-year plans. Investors work in yet another timeframe, countered Caulfield.

It would be good if investors such as EI moved more quickly, explained Caulfield, but looking at it from an investor’s point of view the only thing that will make them move quickly is some external pressure such as competition for a good deal or a time-limited opportunity.

“Under normal circumstances, a VC investor thinks ‘tomorrow I will have more information than I do today to base my decision on’. That makes life very difficult for small, early-stage companies.

“On the other hand, many entrepreneurs think funding should be easy. It shouldn’t be, because whether we are investing our money, taxpayers’ money, or other people’s money as professional investors, we need to be ruthless about selecting only the best opportunities, and then back them heavily,” he said.

 At the end of the day, however, for many technology businesses and web-based businesses VC or government funding need not factor

into getting started.

“VC and government funding is not critical and often not necessary at all, especially for web software businesses,” said McCabe of Contrast.

“Contrast is self-funded by our web software development services. We developed our product, Exceptional, while working for Irish and international clients. It’s now the market leader in its space and is known right around the world in the Ruby on Rails software industry.

“Most technology busin-esses can be bootstrapped, taking them to a stage where investment will be much easier to attain, if required,” he added.

If EU framework is there to support exports, and a second-hand laptop can mean the start of a promising business, then what are the missing ingredients?

“One of the biggest issues ahead is connecting like-minded people and generating networks that help people find the skill sets they need, the services they need and generate real business,” said Mannering.

Venture capitalist Caulfield said the extreme focus on protection of intellectual property using taxpayers’ money was ill-advised: “We need to continue to reform the technology-transfer capability of the universities with an aggressive focus on commercialisation instead.

“There needs to be much more recognition that commercialisation should be the primary objective because protection without commercialisation is just a (further) waste of taxpayers’ money,” he explained.

McCabe from Contrast believed current support networks are wasteful and out-of-date: “In the Hothouse programme, for example, offices are supplied to every participant on the programme. But I know most are left empty and unused.”

“(We need to) create a culture of modern entrepreneurship: of starting something, of failing, of winning business from foreign competitors, of global confidence and ambition, he concluded.

By Marie Boran

Undoing the damage of a departure

The energies mustered by the anger and betrayal felt by the 1,900 employees of Dell in Limerick could be channelled into a raft of new start-up companies in a similar fashion to what occurred in Galway following the departure of Digital Equipment Corporation in 1993 writes John Kennedy.

The Digital closure in Galway in 1993, with the loss of 800 jobs, was considered economically devastating for the region at the time.

However, talented former executives mustered their energies and unleashed a wave of new technology start-ups, particularly in the areas of software, hardware and medical devices.

Companies such as hardware firm Multis and medical tech firm Embricon owe their origins to their management’s redundancy from Digital.

Dell’s news was not only devastating for its 1,900 workers, but also the additional 2,000 people who work for companies supplying the manufacturing operation that has been in the region for nearly two decades.

However, Tipperary-based entrepreneur Evert Bopp has said that Limerick Open Coffee Club, the local spin-off of the global Open Coffee Club movement (www.opencoffee.org) is throwing its weight about who will become redundant over the next 12 months.

Its monthly Open Coffee Club meetings in Limerick’s Absolute Hotel are informal gatherings of entrepreneurs, start-ups, investors and anybody with an interest in business and technology.

During these meetings, experienced entrepreneurs share their experiences with people new to the entrepreneurial world. The meetings are a fertile breeding ground for new business.

Bopp confirmed to siliconrepublic.com that it is hoped the Limerick Open Coffee Club meetings would attract representatives of venture

capital companies as well as angel investors and state agencies such as Enterprise Ireland (EI) and the county and city enterprise boards (CEBs).

“While state development agencies such as the CEBs, EI, the IDA etc have a role to play here, I am convinced that the Open Coffee Club can play a valuable part in this process,” he explained.

Bopp, who runs his own wireless tech firm AirAppz suggests that support could take lots of different forms; advice and mentoring is one, but another option is the creation of high-benefit, low-bureaucracy start-up centres.

“Take some of the many vacant office buildings and create an environment where a start-up or entrepreneur can concentrate on what they need to do: getting their business of the ground.

“It is time that we stopped looking at the Government to turn around the current economic downturn. The economy can only be improved by stimulating homegrown industry.

“SMEs will, as usual, grab the country by the scruff of the neck and drag it out of the recession,” Bopp reasoned.

By John Kennedy