Digital 21 – Entrepreneurship: Cultivating the art of the start

27 Aug 2009

The time has come for Ireland’s indigenous companies to stand up and lead the nation to economic recovery.

Ireland’s export performance is a key factor in the nation’s ability to remain afloat in these turbulent times, thanks to the efforts of knowledge industries such as ICT, medical devices and the bio-pharmaceutical sector.

But the reality is the majority of these players are multinationals. The time has come for Ireland’s indigenous companies to stand up and lead the nation to economic recovery.

Ireland needs to create businesses and industries of scale that will be world players in the emerging digital, energy and healthcare industries. Is it unrealistic to believe that Ireland could one day produce its own global companies to the scale of Nokia, Intel or Microsoft?

The sad truth is Ireland’s fatal obsession with property distracted not only the funds that could have been invested in scalable start-ups but also the entrepreneurial talent to lead them.

It is 2009 and it is time to write a new chapter in the economic history of Ireland. It’s time to start up.

IN 2002 Ireland was at a crossroads. It could have focused its energies on creating a vibrant, innovation-driven economy led by well-funded entrepreneurs driving scalable export-oriented businesses that would generate employment in parishes across the land. Or it could have focused on the then burgeoning construction industry, which saw opportunities in the housing boom.

We opted for the latter route, more Irish money went into the commercial UK property market than local businesses and the rest – including €90bn of financial debt which NAMA will have to absorb – is history.

But it could have been different. It still can be different.

Despite the recession, Ireland’s exports are still performing well. These are largely bolstered by a multinational ICT, bio-pharma and medical devices community that is the envy of the world. But what needs to change is the proportion of exports that should come from indigenous home-grown enterprises.

Now that we have realised the false economy that comes with selling houses to one another, the nation is in a fight for economic survival and amongst the 430,000 people now on the live register there are surely entrepreneurs who can be encouraged to establish their own businesses.

But small businesses, which are the lifeblood of the Irish economy, are battling against a situation whereby the banks that their own Government has bailed out are refusing credit. This does not bode well for entrepreneurs who need to access start-up capital. So creative means must be identified as a matter of urgency to ensure that access to seed capital and supports to enter overseas markets exist.

That support opportunity is the digital infrastructure this country needs to enable start-ups to locate in any part of the country, whether it’s Dingle in Kerry or Glenties in Donegal, and compete for business on an equal footing with businesses elsewhere in the world.

In the 19th century, trade followed sea ports and railway lines. In the 20th century, trade followed transport hubs and airports. In the 21st century, trade will flow through digital highways. It is imperative that these highways link up every town and village in the country to enable local entrepreneurs build global businesses.

Enterprise Ireland forecasts that by 2020, 70pc of all exports will be services. You can be guaranteed that 100pc of those services will be via digital avenues. The ability for entrepreneurs to trade digitally from the regions has been ably demonstrated by Jerry Kennelly, who turned a local photography business in Tralee into a global internet image business called Stockbyte that was acquired by Getty Images in 2006 for €135m.

To enable others to emulate this success the digital infrastructure must be deployed. The Government’s Metropolitan Area Network (MAN) strategy that has 27 towns already connected to fibre networks – with a further 67 due to go live in the coming year – is integral to this, but this investment will be wasted unless these fibre rings are connected to backhaul. The first 27 towns to get MANs grew their share of foreign direct investment from 24pc to 90c in the first four years. It would be an interesting exercise to see what the availability of this infrastructure would do for entrepreneurs.

Enabling entrepreneurs

Another obstacle that must be overcome is Ireland’s attitudes to entrepreneurs. As a nation we are not tolerant of failure. A failed businessperson would be shunned in Ireland whereas in Silicon Valley that person would be regarded as an ‘experienced entrepreneur’ and encouraged to keep trying. They invariably do and mostly succeed with their third business venture.

Leading ICT employers such as Jim O’Hara of Intel, Martin Murphy of HP and Paul Rellis of Microsoft have remarked on the quality of entrepreneurs that are emerging at a time of national need. More than ever, our attitudes need to change and we should encourage people to keep trying.

Professor John Hughes, president of National University of Ireland, Maynooth believes that universities need to play a greater role in encouraging entrepreneurship and has called on the universities of Ireland to create their own venture capital fund. He is also a seasoned entrepreneur in his own right, having started two technology companies in the last 10 years. One failed and the other, successful e-learning firm Synergy, is still in business.

“The reason why Silicon Valley is such a successful entrepreneurial environment is three dimensional. You have people with good ideas unafraid of failure, you have innovative universities and you have a venture capital community. Few people realise that Silicon Valley was actually kick-started by a recession in the Fifties. Military R&D budgets were cut and you had a lot of out-of-work scientists who needed to do something,” he says.

Another obstacle that Ireland needs to overcome is supporting younger and younger start-ups. Great companies like Apple were started by teenagers tinkering in a garage, Microsoft was started by a college drop-out called Bill Gates and Facebook was started in 2004 by a then 20 year-old Mark Zuckerberg on Harvard’s campus.

Last year, Limerick brothers Patrick (19) and John (18) Collison sought investment in their software company, Auctomatic, and were ignored locally in Ireland. They relocated the business to California, entered the venture capital firm Y Combinator’s boot camp for start-ups and within months the business was acquired by Canadian firm Live Current Media for €3m.

“If a 19 year old like Patrick Collison can build and then sell a company for around €3m then we need to champion another 100 like him,” says Telefónica O2 Ireland CEO Danuta Gray. She is absolutely right. A culture of entrepreneurialism should transcend all generations, from the person with a mortgage right down to secondary-school students who should be encouraged to think about starting up their own companies.

The digitisation of Ireland should not be thought of as enabling teenagers to simply download YouTube videos at a faster speed, but as the economic regeneration of entire regions. Entrepreneurship underpinned by digital infrastructure should be at the core of a nation that wants to emerge and meet the upturn.

“There’s so much fear being generated right now in this economy because of the sheer balls that’s been made of it,” says Dylan Collins, founder and CEO of Jolt Online Games, an internet games firm that has partnered with Playboy, Activision and FIFA. “But when you’re young, you have all these opportunities and when so many people are scared the opportunity is going to be greater because you have so much less competition.”

Collins should know. In 2002 while studying at Trinity College Dublin, he and Sean Blanchfield set up a software company called DemonWare which focused on the growing console games market. By 2006, they had sold the company to the world’s No 1 games company, Activision, for US$15m.

Collins argues passionately about why Ireland needs to be providing greater support for its young technology entrepreneurs and he believes we need to create swarms of start-up companies and allow entrepreneurs to fail until they get it right.

“If Ireland wants to achieve this knowledge economy, it should be prepared to invest at low seed levels. Enterprise Ireland could make 200 or 300 grants available every year at €50,000 a pop for entrepreneurs to build an online product and go to market. For €50,000 you can get three or four guys in a room for three or four months and they will build a product and go to market. If we had 300 of these groups every year, you would create a digital ecosystem.

“In the US, groups like Y Combinator are funding businesses at low levels and, in Europe, The Founders Fund is doing this. There are venture capitalists in the US waiting to bet on young businesses. It’s remarkable this hasn’t happened in Ireland yet.

“We should be supporting our young right now, instead of scaring them to death.

“For €10m a year, you could have 200 companies a year and 5pc of them could emerge as Ireland’s answer to Microsoft or Nokia,” says Collins.

One potential answer to creating a Microsoft or Nokia from these shores is Limerick-based semiconductor maker Powervation, which is backed by an A-list of venture capital firms, including Intel Capital. The company has derived a new chip that has allows manufacturers to achieve energy-efficiency gains of up to 30pc and in two years could grow from 35 people today to 150 people.

Powervation was formed in 2006 and has so far raised US$20m in investment and has customers among the top five network-equipment manufacturers in the world.

Antoin Russell, CEO of Powervation, says there is an urgent need to drive research activities in Ireland in the direction of applied research, recoup science investment and create thriving businesses.

“The problem with the science infrastructure in Ireland is that research outputs are just published by the PhDs; there doesn’t appear to be any goal to demonstrate the product in real application.

“There’s an obvious gap in funding, knowledge and skill sets to drive technology or science from research to a real commercial environment.”

He says that gap could typically be a vital two-year period between when founders invest in the company themselves and access venture capital or their first commer- cial win.

From bitter experience Russell also points to a culture of red tape that is in danger of killing early stage start-ups before they have a chance. “If you are venture capital funded you are no longer eligible for R&D grants from Enterprise Ireland. You are considered high risk, can you believe that? Yet, if I’m a stock market listed company from overseas I will get a grant from the IDA to invest in R&D. There is an anomaly here.”

Going for growth

The speed at which Ireland is producing start-ups, especially in the internet space, also needs to be increased and a number of successful internet entrepreneurs, including Dylan Collins, Ray Nolan and Colm Lyon, have banded together to form the Internet Growth Alliance.

The Alliance is a new initiative aimed at helping Irish internet start-ups navigate the unfortunate red-tape of Irish business and go global fast.

They have enlisted the support of organisations that include Enterprise Ireland, the Irish Software Association, the Irish Internet Association and the Institute of International and European Affairs to devise a training programme aimed at fast-tracking entrepreneurs’ international business efforts.

Lyon is one of Ireland’s most successful internet entrepreneurs – his company Realex Payments processes €6bn in e-commerce transactions a year. He says he got the inspiration to create the Internet Growth Alliance from his own experience attending an Irish Software Association/Enterprise Ireland-sponsored Leadership

for Growth course at Stanford University.

He adds that if it weren’t for the latter programme, he wouldn’t be leading Realex on its current internationalisation strategy that will see the company create 25 jobs this year as it pushes into UK and mainland European markets.

Lyon hints at the ‘can do’ spirit that is dormant in Irish people and which needs to be ignited. “That programme gave me a sense of ‘there’s no reason why you can’t do this’, and I think that’s what Irish businesses need.”

Lyon adds that with the internet, today’s innovation is tomorrow’s commodity, and Irish firms need to learn how to develop newer products in quick succession.

“You have to keep researching back into your product. As well as trying to scale geographically, you have to reinvent your product strategy and introduce new products to market the whole time.”

The software economy

In recent weeks the Tánaiste Mary Coughlan TD launched Enterprise Ireland’s latest strategy for the Irish software sector, ‘The New Software Economy’, which focuses on new models emerging from cloud computing that could grow the local sector to €2.5bn in revenues by 2013.

The strategy document recognises the growth potential of the indigenous industry, which employs close to 10,000 people and has annual revenues of €1.6bn. Exports from the sector represent 73pc of sales, above average compared to other industries in Ireland which typically export 45pc of sales. In terms of start-ups, the sector is creating 28 new businesses a year and Enterprise Ireland’s software client base consists of 500 companies, 20 of which are on the road to significantly scaling up their businesses.

‘The New Software Economy’ plan aims to capitalise on new delivery models such as cloud computing, make strong use of the presence of some of the world’s largest ICT firms, including Microsoft, Oracle, Intel, HP, IBM, Google and Dell to leverage growth as well as make use of the strong diaspora of well-connected Irish executives around the world.

“We’ve revised our strategy for the Irish software industry to ensure that it is fit-for-purpose for the new software economy,” explains Jennifer Condon, manager of Enterprise Ireland’s software division. “We believe the sector has the ability to come out of this recession stronger than ever, but only if we react to strategic issues such as software-as-a-service and the shift from the licenced model, grow our companies to scale and make good use of our market connections from multinationals in Ireland to well-placed Irish people overseas.”

I put it to the Tánaiste that, because of the nature of the internet cloud and the software as a service model, there is a need to ensure digital infrastructure is available to companies whether they are based in Killarney or Glenties to build viable businesses.

“It is important to us that the companies across the sector have access to the best connectivity, it is fundamental to operating in the new economy. We have examples of the companies that are already trading globally in this fashion – Realex, Globogift, EZtop and CarTrawler – that have emerged in recent years.

“Yes, the infrastructure is important. I am working with the Department of Communications to make sure that access is available to companies, irrespective of where they are based. The opportunity is to scale these companies up to operate outside of Ireland,” Minister Coughlan says.

Today, Ireland is in a fight for survival. We have learned that false economies don’t work. The new economies and industries of the future will rely on digital highways and it is our duty to ensure this infrastructure is in place.

There are people today on the live register who could be tomorrow’s industrial leaders. More than hope, they need encouragement.

And so, fundamentally our attitude to entrepreneurship, starting up businesses, tolerating failure and cultivating a ‘can do’ spirit is essential to winning that fight for survival.

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John Kennedy is a journalist who served as editor of Silicon Republic for 17 years