Welcoming the Abolition of Commercialisation Australia
The Abbott Government has handed down the budget that they have been conditioning us for since the turn of the year. Joe Hockey has implemented many of the recommendations by the Commission of Audit and abolished several grant programs in the hope of simplifying the Australian grant system while simultaneously putting the boot into the ‘Age of Entitlement’. One of programs given the last rites was Commercialisation Australia.
I have mixed feelings about this as I advise, and have advised, several technology companies that have devoted effort and expense into this process. I sincerely hope that the Federal Government are able to transition current applicants into new programs so their time is not entirely wasted. I also implore the government that business owners that are creating valuable intellectual property for the benefit of the country should not be considered ‘Entitled’. However, I am glad that the government has finally used the bullet that has it has been threatening to use for the past nine months so every stakeholder from company through to investor has clarity around the program and its demise.
Commercialisation Australia has effectively been on gardening leave since the change of government. No new grants have been issued in 2014 with around $20M only issued since July 1. I won’t delve into moral or legal issues around this inaction as founders were led to believe that the program was still active with some committing up to six months to complete an application for a grant that in effect was not available. This should be considered unacceptable by anyone with a modicum of business sense and/or sanity.
My focus is on why founders should in fact be relieved that Commercialisation Australia is no longer there to muddy the waters of their enterprise. For me there were enough issues with the program that would give me second thoughts if I were a tech founder:
Time needed allocated by founders
It was recommended that a single person manage the application process from within the company. On a good run, this person will have to allocate 60 hours to adequately complete a POC or Early Stage Commercialisation Grant. Anecdotally, this could be double. This time could be spent on finding investors, commercializing the technology, finding customers, securing the supply chain or one of many other things that a founder could be doing to create long term value in the company.
Opportunity cost of completing the application
From commencement of the Stage 1 application through to contract agreement and the first tranche of funding was 6-8 months. Given the application process is relatively rigid in terms of projects, spending and outcomes, a company may be hemmed in and unavailable to capitalize on opportunities that arise. Especially opportunities around generating sustainable revenues quickly.
Invalidation of companies with revenue
Rightly or wrongly, one of the key criteria for the grant was for the company to be pre-revenue. It is understandable why this criteria is in place as the grant is meant to facilitate to commercialization. However, as the process takes six months plus you are in a position where you need to fund the costs of the project, plus a valley of death until the project commences. In many cases the cost of this would be comparable to the amount sought in the grant.
Requirement to recruit locally
Only 10% of the project funding by CA was able go to overseas recruiting. With POC grants maxing out at $500K, only $50K can go overseas. It is understandable that the government wants to create local jobs but many of the programming jobs required have now been commoditized. A company should be reticent to get a grant for $200K to fund the employment of two programmers locally when it can probably get the same job done for $50K overseas. The creation of jobs should be on highly skilled labour and commodity roles should be completed for the lowest price possible. This creates a false project budget as the government/investors financing a project that could be considerably cheaper.
Format of projects
The format of the grant creates the need to generate suitable projects that ideally fit the merit criteria in order to win the grant. Often, the ideal project is not sought as it would make the application less competitive or worse still invalidate it. The projects were meant to create a new benchmark that allows the company to pass to revenue but the reality is the market situation is too fluid and dynamic for these projects to have any significant validity.
Limits investors
Personally, a big issue (which is a big plus in many people’s eyes) is that it provides leverage to investors. This is not an issue by itself but investors were progressively seeking projects that were CA co-funded. I know of several who would only invest exclusively if CA were involved. There are many technology companies that are seeking capital, were not eligible for CA and therefore these investors would not consider them for investment. CA’s abolition creates a level playing field.
For the issues above I think that the abolition of Commercialisation Australia will prove to enhance the prospects of startups and technology companies over the long term. If a project cannot be funded through investors alone either the project (no matter its scope) doesn’t have enough merit, the valuation is incorrectly priced, the team doesn’t have the ability to present their case properly, or the investors don’t believe in the ability of the team, or the distribution of their deal is limited.
Instead of funding a limited amount of projects, initiatives like the R&D Tax Incentive and trade missions through AusTrade scratch the surface of what government can do. A total review of the way Employee Share Schemes are handled and taxed would also create value by incentivizing people to participate in innovative projects without penalizing them unnecessarily.
Government is also in the position to facilitate project generation and creation as well as set up apparatus to ensure an unlimited number of entrepreneurs can use resources to facilitate the launch of their business, technology based or otherwise. It has been announced that $485 million over five years will be allocated to establish an entrepreneurs infrastructure program and this is a step in the right direction though we need to see some further detail before we crack the champagne open.
A 39 degree day saw over 300 people congregate in Richmond for the first Lean Startup Melbourne of 2014. An interesting topic first up with Susan Wu, Brendan Lewis and Leni Mayo on a panel providing insights into the startup ecosystems of San Francisco, London and Melbourne.
As endemic for the set-up and the timeframe, the insights were limited to giving novices a broad overview of the landscape and provided some guidance as to how it can be improved locally. Importantly though, it made much of audience consider their environment, their position in it and how they could be best capitalize on the available structures.
Personally, it provoked thought on the startup environments in general and what would be the best components to facilitate a startup culture in Melbourne. Broadly, my thoughts took in three areas:
Defining the parameters of the ecosystem to best identify who the participants are and how we recognize success.
The general ingredients that may constitute a successful startup ecosystem
The assets particular to Melbourne that can make it standout globally
Defining the Parameters of the Ecosystem
Who are the participants?
My view of the Melbourne startup scene is that much of its focus on building consumer applications. This is capitalizing on the obvious market opportunity created by the emergence of mobile, shift to cloud computing, and move from enterprise to SaaS based business models. However, this creates a situation where to be defined as successful you will need to be bought by a narrow selection of companies – typically consumer technology (Google, Microsoft, Facebook, Yahoo! or similar), or media (News Limited, Fairfax) companies. Most of visible acquisitions of the last 3 years have occured here and shouldn’t be ignored.
By casting the net wider though and recognizing hardware companies, big data, high technologies, advanced materials, biotech, medical devices, and a whole host of other categories, as well as industry specific opportunities, this opens up the potential for many notable acquisitions from other companies in other industries. This creates the opportunities for more wins to occur, and be recognized under the startup ecosystem.
Defining wins and winners
By widening the lens and seeing more types of companies and categories we create more opportunities of startup success. But what is success?
In my view, the majority of stories that have defined success in Australia have been exits. Companies that have been acquired and made money (hopefully). The issue I have with this is that it creates (rightly or wrongly) a star system where there is a perception (and reality) of very few winners. All other participants are then considered average so group attributes such as kudos, power, respected opinion and many more, become concentrated to a few.
I’d argue that winning should have a broader definition. As a company why sell out if you grow to a point you become a buyer. Your company become the acquirer. In my experience, startups celebrate the seller but not the buyer. Why not? Other definitions of wins could be reaching a $1M or $10M in revenue. Getting 1,000 or 10,000 clients (excuse my rampant decimalization). Wins can include grants and tenders won.
By increasing the opportunity for wins we create more winners. This is turn creates more participants in the ecosystem with real success stories that they can impart of the ecosystem, or to their new startup.
There seems to be a bashful approach where failure is recognized and used as a product for learning. That too has merit but it shouldn’t necessarily be more important than reporting how success was attained.
The Ingredients of a Successful Startup Ecosystem
Advocacy/PR: With participants and winners defined an advocacy group or association such as Startup Victoria can have the responsibility of promoting this success. It should contain a steady stream of success stories and as it is a third party should be recognized by the online and mainstream media as carrying more weight. In addition, if a single organization does the promoting it can be seen as indicative of the strength of the scene. When looking at other successful ecosystem’s PR is crucial. This can be funded by a small subscription as most associations are. (Did he just infer a type of unionization? He certainly did).
Infrastructure: We are kidding ourselves if we think we can create world class technologies without world class infrastructure. Any tech hub must emerge from an NBN-enabled site or next gen fibre location that can support development at scale. This would also include investment into local infrastructure such as co-working spaces, openlabs, modular servers and so on.
Aggregated Learning: Startups are short of cash and time so they don’t want to spend lots of either getting up to speed on the basics. There is merit is creating a wiki (under a shared or creative commons license) where all key information can be found. At the moment there are single websites that do this but there should be a dynamic version that can be updateable by anyone in the ecosystem so they can share learning, tips, documentation and more.
Connectivity: As an extension of the above, there needs to be a conversation between participants at all levels in order to succeed. This can only be done by creating channels that foster dialogue. At moment we have a hub and spoke approach where 300+ people come to a startup event, where you may or may not participate, a meetup forum where you participate or lurk. Either way it is a freestyle approach with a loose structured. It is the best we have at the moment, but creating formal channels to facilitate connectivity are essential. Maybe a form of Crunchbase specific to Melbourne.
Investment: I’ve put investment last as I believe it is a means to an end. I had a fascinating discussion at #lsmelb about this with a chap named Michael where we discussed bootstrapping as essential to other industries. With film you make the best film you can with the funds you have. JK Rowling wrote Harry Potter as an unemployed mum in cafes over many months. I’m not advocating the breadline business approach but investment is the aspect most out of a founder’s control. That all said the UK has a great approach with 100% tax write off for failures and CGT tax holidays on success. Australia will probably not adopt this as it trialled a 150% tax offset with film in the 80’s and saw the system rorted, shafted and decimated. The current ESVCLP structure in Australia is OK but is dependent on investors grouping funds with a manager. There should be tax effective opportunities for direct angel investors.
Particulars for the Melbourne Ecosystem
There was much discussion at #lsmelb about recognising the strengths of Melbourne to enhance its startup ecosystem. This could be an exhaustive list but I have limited it to the top three (in my opinion).
Agility: Every startup has the ability to rapidly respond to trends but my focus is on agility from potential customers. Australia is well known as an early adopter of technologies and new products – the quick yes! This may be down to factors such as higher disposable income but countries such as Korea (South obviously) and Japan are similar. In my experience, the US and UK are not like this. On the whole they are very conservative buying markets. This approach can be used to identify international trends in advance so a company can be prepared when they become popularised.
Global focus: As mentioned by Leni in the panel, our isolation from the rest of world provides an immediate demand for a global focus. This should be factored in from day one in terms of infrastructure, IP, personnel and so on. By sharing the approach through the ecosystem, each company will be armed for the future correctly (and hopefully inexpensively).
Leisure: As is well known companies such as Google devote resources to creating an ideal work environment to retain key personnel. Start-ups don’t have the cash to emulate this but fortunately we live in one of the most liveable cities on earth (as mentioned by each member of the panel). Access to live music, sport, the countryside and other aspects promotes creativity and the ability to view things outside the square. These are underutilised assets in any business.
Ultimately, the above is a work-in-progress and any thoughts from the binary ether known as the internet would be gratefully welcomed.
At the end of October I’ll be winging my way to Brisbane as my company Alphastation will be exhibiting at the annual AusBiotech Conference. Biotech is a high concept industry with an individual and collective requirement for intelligence, knowledge, creativity, perseverance, and finance. From my perspective, it is essential that the activities in this industry are fostered, incubated and accelerated for the betterment of our society, and I encourage anyone who has an interest in the sector to have the courage to participate.
For those unfamiliar, here are the salient points. The biotech industry uses biologic processes to make products such as drugs, diagnostic tests and vaccines, as well as applications in crop improvement, animal health, industrial processing and environmental protection. The industry is relatively young with $6.4bn in revenue in Australia in 2012, but is scheduled to grow considerably as both federal and state governments are committed to promoting Australia as a world centre for biotechnology.
This is not a pipe dream as the level of expertise in research and development is staggering but there is a requirement to supplement the scientific skill set with entrepreneurial ability. In short, selling the outcome of this scientific activity.
An anecdote – The balance between science and communication
I’ll draw you to an example at a Wholesale Investor event where emerging companies pitch to a busy room over 10 minutes in the hope of drawing expressions of interest.
A biotech company was up next and a silver haired gentlemen, both CEO and Technical Expert, with an air of security and a texture of granite, was about to commence. A minute down the opening slide was still onscreen - Company Name. The presenter meandered through his opening gambit which amounted to a clearing of the throat. Next slide – Company Overview. Established in 2005, 3 Directors, based just outside Sydney. Again, each point was drawn out as if it had significance when for the investors in the room it was just background. We were moving slowly.
Halfway through the presentation there was a palpable change. The Wholesale Investor organisers held up the 5 minute card to indicate the remaining time and the gentlemen’s tenor changed. He had just reached his first meaningful slide - an elaborate table with barely legible text. Agitated, he began to point to certain areas without providing context and skipped to the next slide. This began a cascade, skipping through of a blur of slides. The gentlemen was feeling jostled and exposed as he tried to mentally sort the most important information - “No time for that now, ah yes!”. Granite was softening to jelly.
The organisers held the 1 minute to go card. There was no pretence of communication. Skip, skip, skip. He furnished this movement by just uttering the top line of each slide. “Development Strategy. There! Milestones. Yes!” By the end, he stood with his composure destroyed, out of breath, pointing to his contact details. He tried to cram in 30 slides (an hour’s presentation) into 10 minutes. The equivalent of a slide every 20 seconds. Only manageable if you are ruthless with your content. After, I discussed the presentation with him and he agreed that they needed some guidance, but he was very guarded about his content. They had been working on it for seven years after all. This has been typical of the industry.
What to do with the detail
Biotech companies create, gather and process masses of data, and are painstakingly familiar with the nuances of each perspective. The difficulty is in striking the balance between scientific detail and be sufficiently interesting. This becomes the bugbear of the company when seeking financing.
A bow I like to draw is with music. If I play the last minute of Tchaikovsky’s 1812 Overture, you understand the pace, meaning, emotion and purpose. However, if I show you the sheet music of 20 of these seconds, it is complete nonsense except to the experts.
The same work communicates on two distinct and separate levels depending on how you approach the material. Overview and Detail. This is the basic approach I take when communicating biotech proposition to investors and to government.
The main issue is the scientific professional is so entrenched in the music they don’t know how it sounds to the novice. There is too much interference and noise that a novice is befuddled then switches off. The process of reduction is essential so the key messages are brought out and communicated effectively. The key is to have the detail to hand, so if an expert wants to find out more they can. The essence of this approach is “Know Your Audience” and to tailor your communication to them correctly. When your audience is the investment community there are specific touchpoints that need to be addressed. Typically around the pillars of Risk and Value.
Biotech and Investors - Gambling or Calculated Risks?
Big financial wins have driven the rising interest in biotech and is likely to draw greater amounts of investment. However, the vast majority of biotech companies operate on the promise of future rewards once pipeline products commercialise. As the Economist noted:
“Biotechnology companies are pharmaceutical companies without sales”
Since revenue is nil and as economies are viewed through the prism of the division of resources, then how does biotechnology fit in? Rewards for investors and society as a whole can be great but the downside risk is equally significant. Significant in that time, effort and funding can end with a nil result. This potential reversion to zero gives potential entrants the outside perception the industry is akin to gambling. The biotech company’s inside reality is ‘calculated risk’. This disconnect is what needs to be bridged to effectively pitch.
Outsider’s View to Uncertainty in Biotech
Using Schmidt’s Model of Uncertainty, it can be determined what kind of uncertainty exists, determine the impact of it, and how it can be mitigated.
Biotech firms compete in an industry characterised by rapid technology change and depend on the creation of new knowledge. In industries with very high rates of technology change, technologies can be introduced that create new market segments, obsolesce existing product lines, and create substantial competitors from previously little known firms. As the companies create new paradigms they are also subject to the mercies of emerging paradigms as competition. This creates a base of Structural Uncertainty.
That it is not to say it is not a risky industry but the risk is mitigated due to the pooling of talent and knowledge to optimise the results of product development. Product development itself is a long and risky process.
Discovery can take two to ten years. Once a target is identified, drug candidates are tested for activity against that target. Thousands of candidates may be tested before finding a lead candidate. Once a lead candidate is selected, it may be chemically or biologically altered to increase the potency and reduce side effects. This is Initial Uncertainty.
An optimized drug candidate is moved to preclinical testing in the laboratory and animals. These experiments evaluate the pharmacology (how the drug behaves in the body), toxicity, effectiveness, dosage, and method of action. Preclinical testing of a compound takes about two to three years. Of 1,000 compounds that enter preclinical testing, one might advance to clinical trials (human testing).
Researchers are in essence wandering in a dimly lit room searching for the light switch so they can move to the next room. The industry is characterised by the effort of hundreds of researchers in various rooms. Some may reach an exit. Many can spend their entire working life in the first room.
At this stage, the development has travelled sufficiently that it shows up on the radar of potential buyers. This outsourcing of development ensures that major pharma can substantially derisk and back winners. However, even at this late stage there is only a 50-60% success rate in Phase 3 studies over the last several years, and 60-70% positive actions on applications for new products or indications. This is Scenario Uncertainty.
By demonstrating it is not a 100% risk and that risks are mitigated. Some investors are comfortable with a 65% uncertainty.
Schmidt Model of Relative Uncertainty in Biotech
Understanding value drivers (aka How does a theory turn into a billion dollar company?)
There are a number of items that need to be communicated to defend the company’s position. For early stage companies, the qualitative assessment of key factors can be helpful in evaluating the company fundamentals, and can be divided into four main categories…
As is evident, clinical development is the most critical element to determining whether a candidate is viable, but there are many other drivers that support the value story and need to be communicated effectively.
As an example, the global market for AIDS therapeutics exceeds $7.7 billion. By contrast it is estimated the sales for Leukaemia treatments to be about $2 billion.
Does the fact that one market seem to be 3 times the size affect the potential value of the company? Yes.
Does the fact that Leukaemia market being smaller make the development have less merit? No.
The issue arises is that many biotech companies tend to look at the headline figure only and don’t benchmark against other treatments. The companies forget that they are competing for dollar against all treatments, not just others in their specific segment.
So, is an investor going to invest in the potential of a $7.7BN market or a $2BN market? The way the 2BN market can rise above is by detailing the competitive landscape and how its own technology can compete. As mentioned earlier:
“Technologies can be introduced that create new market segments, obsolesce existing product lines, and create substantial competitors”
If the Leukaemia drug can make its competitors obsolete then it has a much better chance of capturing a larger slice of its small market, than an AIDS drug that has a moderate chance of capturing the equivalent size of its larger market. This is only one of the many threads a company needs to present to investors and stakeholders.
The outcome - better results for biotech
My view is that biotech companies and its participants have to work together to attain the best commercial outcomes as an industry. The eco-system currently supports scientific development, but there is an intrinisic dependence on entrepreneurism and business development that is mostly ignored.
I am unsure if it is because the companies can't find the right connections to facilitate this but the AusBiotech Association has taken steps to build the knowledgebase of participants to ensure the industry gains as a consequence. To that end everybody wins, especially society.
One afternoon in late July I was called at the customary time by Neil Graham, an inspiring and agreeable chap, the compelling blend of equal parts entrepreneur and engineer, to discuss his current project. This was the latest in a series of phone calls where we incrementally moved towards a point of discovery. Our journey included many discussions regarding his new technology, its potential and how it should be positioned to the world. On this call the subject turned to philosophy. How do we explain the enormity of the opportunity?
“Dominic, this story is too big. How do we get somebody to understand this? How is an investor to understand the scale of this undertaking if we are unsure of it ourselves?”
This is truly a philosophical question as we are caught between the truth, our expectation of a future truth, the yawning chasm in between, and the tap dance that needs to occur that elevates us over this chasm. My approach to this is The Big Big Picture.
The first step is to explore the thinking behind the initial approach – The Big Picture. The subsequent step is to use their newly discovered understanding as a platform to envelop this new reality with a concept so new and innovative that if we pitched it to them first, it would be utterly incomprehensible. This is the thesis behind The Big Big Picture.
In essence, the approach assumes that a reader only understands their immediate frame of reference, and that they have no basis in understanding what they are about to read. This approach ensures that the worst someone will feel about what they are reading is mild inconvenience for reading something they know already, but more likely a sense of wellbeing because of confirmation biases at play. If we aim too high at the beginning then the reader is lost.
Big Picture Prologue - Irritable Dragons
My initial comments with Neil were to identify both the key messages and the medium, or instrument in which to communicate our story to investors. I learned very early on in my career that what piques the interest for a consumer is not the same as what piques the interest for an institutional investor.
Towards the end of the last millennium I was holed up at Peterborough Court, head office of Goldman Sachs International. Leading the boards on IPOs, M&A, funds raised or any other metric you could imagine, we stood at the pinnacle. But as any number one can attest too there is little time for laps of honour or glory, it is a fight to retain that position.
One meeting in particular was instructive. Our big fish were the large private equity firms KKR, TPG and Carlyle. We were pitching them on everything imaginable with their deep pockets, access to cheap capital and a thirst for risk, over 200 proposals were made in their direction in six months about potential plays of interest.
I’ll walk you through a typical process. Two analysts would research and prepare data around a number of targets that would have a strategic fit for a deal. This would incorporate infinitesimal detail around the company, the people involved, the market they operated in, financial metrics that would govern the deal, possible regulatory considerations and risk factors. This was a long process that would occupy these analysts time from 8am to midnight, six days a week, through drafting to iteration and reiteration. This direction was provided by an Associate who had seniority over the analysts who then provided the results to a Vice President. The various VPs within a department would congregate with the department Directors and assess the various proposals. Consider each VP may have 4 Associates, and each Associate may have 6 Analysts. With each VP tabling up to 12 proposals these meetings could get fraught.
This particular meeting was aimed at getting a Darwinian result between proposals so the MDs could comfortably go into a meeting with KKR and say “This is the Big Picture and these companies are positioned best to capitalise on the opportunities”.
The MD sat in the middle of large oak desk with VPs presenting and various minions (me included) flitting in and out as necessary. The proposals were all solid, meticulously researched with assumptions that would stand up to scrutiny (even those of the dotcom ilk, precariously placed on shifting sands). Every so often the MD widened his eyes, held his hand in the air, looking at no-one in particular, and said two words:
“So What!”
This wasn’t him being impertinent, though he had the license to be impertinent due to the fact he probably spent 3 years as an analyst working 16 hours a day, then 4 years as an associate working 14 hours a day, then 5 years as a VP working 12 hours a day to get to his position at the table.
“Look, KKR have seen companies like this before. All your stories tell the same story – profit, serviceability etc. This doesn’t get us anywhere. EBITDA means nothing because the tech run has made multiples meaningless. Debt ratios are run out as WACC is practically down to zero. Every proposal tells the same financial story. But WHY these guys? What’s the big story?”
The room stayed in silence for a few moments in deference to this observation. Some of the less senior members glowed in awe, anything for a competitive edge. Then it was business as usual.
Limitation One - Sizzle versus Steak
Looking back at those documents we had to agree. The result of this meeting had us thinking about the limitations of our approach and why The Big Picture was difficult to get across.
The main issue, intrinsic to financial transactions, is the limitation of what you can say and how you can say it. You have to balance the Big Picture with the detail and unfortunately there are numerous negative outcomes with no logical upside. This is neatly summarised in the Sizzle/Steak index:
Fundamentally, we felt we were ‘forced’ to eliminate as much Sizzle as possible but if you do that then your only results are Boring or Boring & Risky. Neither is exciting and outlines exactly why we couldn’t overcome the issues around the oak boardroom table at Goldman. We were conditioned, rightly, to have a financial perspective but that removed the juice behind the motivation to invest. We dined out on Steak but the prospective customer was sick of Steak.
In modern society the Big Picture view is fundamentally inhibited by the constant interplay between Risk and Reward that has become the lens that all action is now viewed. This attitude leads to a series of piecemeal approaches that creates a patchwork quilt equating to the sum total of human activity.
From my perspective, the most dangerous idea in society today is to take a blank piece of paper and take the Square One approach. If everything was designed holistically in an interconnected world what would our world look like? And how can we make this happen? Vastly different to our reality which is predicated the following:
There isn’t an appetite for risk that exceeds the potential for reward
Money is the overriding factor in decision making
The time impact of implementation makes people reluctant to make a decision that may have a consequence beyond a time frame they are comfortable with
But by recognising these inhibitors we can create a framework that addresses these factors in turn so any proposal can focus on:
Manageable risk appetite with potential for excess rewards
Cost neutrality
Rapid implementation
In every project I target the Top Right Box on the Sizzle/Steak index – High Concept + High Foundation leading to an Exciting Project with Reduced Risk. This was the working behind the approach I undertook with Neil on his project:
Redefine the paradigm with a Square One approach (High Concept)
Identify the Enablers that could facilitate the project’s success
Position the Enablers with a Risk Reduced approach (High Foundation eg managed risk, cost neutral, rapid implementation)
Sell The Big Big Picture
Limitation Two – Telling The Right Story
In the KKR pitches our approach was very staid, linear, vanilla. The main structural limitation is narrative. Typical, linear writing structure doesn’t support the telling of a big story. To overcome these structural issues writers tend to fall into rhetoric and grand style to paper over any issues. This linear narrative, telling a story from point to point, is hard to convey ‘sizzle’ as pacing is affected by content.
The main structure I use and encourage is a frame narrative. It is a device that arcs over a number of smaller narratives to inform the frame story to succinctly convey the whole.
In fiction, a leading exponent of this is Salman Rushdie. It is no coincidence that his novels fall under the category of Magic Realism. This mirrors my experience of the world of corporate and financial predictions perfectly. I often state that half of my working day is nitpicking over a world that doesn’t exist yet, and provide justifications, probabilistic or otherwise that support my position.
The benefit of using this paradigm is that you can present the prevailing and countervailing forces in a story together with the other, numerous disparate elements a true story typically features, especially if the structure doesn’t lend itself well to a linear story. As an example, this entry has been written with a frame narrative.
Limitation Three - The Reader’s Role
The final limitation we needed to overcome was managing the role of the reader. This sounds basic as most believe a reader just reads. This was true before the advent of The New Criticism movement that began in the 80’s. Which in turn led to Post-Modernist and Deconstructionist approaches.
Before the New Criticism the public trusted its information structures. Scholarly knowledge imparted by experts was accepted by the reader as they were not qualified to respond. Decision making was made based on information taken on face value.
This changed as The New Criticism gave the public tools in which to participate through close investigation and assessment. Their goal was to ‘interpret’ the text. Interpretation was seen as the goal of the reader. This is a muddy situation that any writer wants to avoid for five main reasons.
First, the reader instinctively believes that as they live in a time of unprecedented information that gives them the inherent capability to absorb this information and is equipped to judge it on its merits. The opposite is true as the reader sits in a cocoon of noise believing it to be orderly signal.
Second, the reader cannot entirely escape their surroundings, society, and circumstances so has a number of biases that are negotiated in the decision making process. The reader’s experience is governed by this together with other cognitive tools that make each human’s experience as unique as their DNA.
Thirdly, a text is not self-contained and a reader benchmarks this against other texts of a similar nature.
Fourthly, the reader has a preference towards certainty therefore looks for purpose, meaning and a definitive explanation of the text.
Lastly, people attempt to absorb text without a conceptual framework for doing so. The madness behind this is that people revert back to their biases through the prism of interpretation. Instead of understanding what the text is saying, there is a ‘belief’ of what the text ‘means’.
So how do we overcome this?
Instead of fighting the reader, the writer must create an instrument that can co-exist in this eco-system. The principal weapons are:
Clarity being central to effective communication so no misinterpretation can occur
Benchmarking against other texts
Utilising biases and heuristics to nudge people into interpreting a certain way
Ensure the dynamism of the text is presented as ‘floating’ within the readers’ eco-system.
Its sense of urgency dictates whether the text is accepted in the eco system or whether it has been tentatively handled (or worse, discarded).
Understanding who the intended audience is to mitigate against the possible risks.
These guiding principles, and others, were used to complete Neil’s project forming the basis for my equivalent of the MCC Coaching Manual. A conceptual framework for conveying the story in a way the reader is driven to understand the text, derive the correct meaning, and make a positive decision.
We can harness these principles by establishing the facts targeting a near term hypothesis, then expanding the logical process to reach into a longer term hypothesis. The aim is to bridge the facts to the various hypotheses with a series of sound, intuitive steps that change the dynamic from a ‘leap of faith’ to a Big Big Picture plan that is viable and compelling.
The Big Big Picture
It is self-evident that if I went into a meeting and stated categorically that I have a technology that can create new markets and its usage would encourage nations to change their behaviour, driving universal usage of the technology and lead to such a drop in carbon use that nations would seek to ratify Kyoto, I would be politely ushered out of the room. However, if I present a logical story using the facts as axioms, with a series of steps to confirm the viability (almost certainty) of a near term hypothesis, then we created a platform for The Big Big Picture. A High Concept Idea with High Foundation to elevate an exciting story with reduced risk.
In the image above it is only the two steps that are presented. The reality is that there are numerous threads that need to be specified that together creates a binding network effect where the platforms can be created. The most appropriate way to convey all this is through a frame narrative. My experience has shown this method combining a scientific approach to addressing uncertainty and reframing the debate has been proven time and again. The difference between a million dollar company and a billion dollar company.
As the MD for Goldman considered a new round of proposals he held his head in hands, hushed for several minutes. He then picked one up and said:
The Colossus of Rhodes (On the Ascent of Tony Abbott)
The election of Tony Abbott has been polarising to the nation with the blue side of the country waving flags in triumph after years dealing with an ‘illegitimate’ government, and the red side marinated in disbelief over the election of the most malevolently objectionable prime minister in living memory.
Personally, I am unmoved by the current political culture of personality, polls and photo calls as it promotes both extremism and homogenisation at the expense of holistic policy development. However, I am interested in the ascent of Abbott as it has been instructive for a number of reasons. Due to the demonstrated combination of endurance, fortitude and tactical nous in the field of battle, these parallels can be drawn into the spheres of business, philosophy and life.
Leadership over Personality (plus the not-so-invisible hand of the media)
In 2007, Abbott’s leadership tilt lasted only a few hours against Brendon Nelson and Malcolm Turnbull. He was the object of derision in the press as the majority of commentators thought the Mad Monk was unsuitable for high office. In the context of the time, Tony Blair and Nicholas Sarkozy with their presidential approach of PR-glossed personality was favoured in this media-juiced world. Labor found their prodigal son with Kevin Rudd. Tony Abbott didn’t have any of these presidential qualities and found himself in political purgatory.
This was confounding as personality was never a mandatory requirement to leadership as John Button famously said to Bill Hayden:
“You said to me that you could not stand down for a ‘bastard’ like Bob Hawke. In my experience in the Labor Party the fact that someone is a bastard (of one kind or another) has never been a disqualification for leadership of the party. It is a disability from which we all suffer in various degrees.”
The Rudd experiment came to a calamitous end. Over-promising, under-delivering, and excessive micro-management ensured that he competed with Whitlam and Fraser as the largest squanderer of political capital in modern memory. Abbott rebounded into the frame as a striking counterpoint to the flailing Rudd.
For me, the great Australian PMs since WWII – Chifley, Menzies, Hawke and Keating had an eye towards reform, the confidence to consult with their cabinet and the conviction to carry out their ideologies without worrying about public opinion. Personality was infused into their politics but it didn’t dominate proceedings. It was the group as government that gave them the gravitas to believe that their policy could lead to the betterment of the nation. The public didn’t know what they wanted because they hadn’t conceived the notion of what they wanted. The public may contend that certain policies were ‘obvious’ but at the time it required political thinking “outside the box”. What people forget is that as soon as we venture past the boundary, the box is immediately redrawn so all thinking is inside the box again. It still takes the will and the creativity to venture beyond the known.
In opposition, Abbott hasn’t demonstrated that he is a policy giant by any stretch of the imagination, but he has corralled his troops to present a united team with the capacity to lead. This demonstration on the merits of leadership presents a powerful case to the public fed a daily dose of Labor infighting that neutralised any good work they had to show on the economy. The approach actually reminded me of a swarm of bees (with similar potency) where the individuals meld together to give the appearance of one. They hover together as a mass without clashing and give people the impression greater than the sum of their parts. In Labor’s case, the individuals and factions failed to present a united front. In this case, the power of their sting often left Labor reeling.
This said, the keen apiarist knows the swarm can be easily directed. What seems to be the organic action of the group is led by the invisible hand of a master (or caretaker). In the case of Abbott, it cannot be overstated the role of the media to over-emphasis his leadership credentials contrasted with the lack of leadership demonstrated from the government. This wasn’t covert nudge psychology but blatant shove tactics as the public was treated with demeaning contempt by the press.
In communication, the art of persuasion is about hidden, almost subliminal messaging that conveys the direction you want to present. Shades of gray is typically the colour of politics but this was ignored in favour of a one-colour palette. The approach of the press was so heavy-handed many readers have been resistant or inured to the blue-tinted overtures.
Stephen Bush - The Caretaker
Reframing the debate
Perhaps the most instructive aspect of the last years was the ability of Abbott to reframe the debate around his own ideas of what was occurring in the country. Through will (and the assistance of the press doing work a PR company would be proud of) he managed to paint a picture of Australia as a failing desolate wasteland that needed saving. This position is patently false but through repetition and the passing of time the sentiment became truth. Is it as simple as this?
A parallel which can be drawn is through the conceptual artwork of Marcel Duchamp. In 1917 he created Fountain, a mass-produced urinal inscribed with a painterly signature. Fountain fundamentally questioned what art could be, and ascribed a meaning that people hadn’t considered, or thought ludicrous.
Marcel Duchamp - Fountain
By designating this urinal as art the value of it had changed. This single concept interrogated the notion of aesthetics as a criteria for art and was the foundation of the contemporary art movement. If anything could be designated art by the sheer volition of the artist then what differentiates art from any other object? The idea itself together with the amenability of the audience to be swayed by this position is key. The art critics that originally demeaned the piece considered the sentiment behind it as genius, then re-assigned its value. From rubbish to the most important art piece of the 20th century using only a manipulation of the beholder’s eye.
This idea of reassigning the story in the face of obvious visual cues is crucial to understanding how Abbott succeeded. There are numerous instances where this reframing turned negative points for the Liberals into positives. First, claiming that the public wanted politics of substance, by painting Rudd as an insubstantial populist deflecting the reality of the lightweight nature of his own front-bench. Second, by painting both Rudd and Gillard as flip-floppers on asylum seekers policy he glossed over the fact their position was more or less identical. And, the many sentiments of totality from “the worst prime minister ever”, “to the worst government ever” or “the biggest waste under any government ever.”
With Abbott as a Rhodes Scholar and reading PPE at Oxford (with its own alumni of prime ministers), it is highly unlikely he believed these statements to be true but the force of the rhetoric was sufficient to alter public perception among swing voters.
This approach has proven time and again that reframing the debate ensures the conversation takes place on your terms, settles the audience around a concept they can understand, and takes away oxygen from competitors.
Control is an illusion
The common thought around Abbott’s approach is “give nothing, control everything”. This is why there is the perception that he has taken an obstructionist approach to opposition. This is only partly true. For me this is only a means to an end. The main aspect to consider is that press is the gatekeeper to the voter. The press requires topical content to live and covets information with respect to its potential for public interest:
High value news = Scandal / major news > high public interest
Medium value news = New information > moderate public interest
Low value news = Repeat information > low public interest
In Abbott’s case, he took advantage of this knowledge by only raising his head over the parapet by releasing news of medium or low value. Enough to generate a consistent hum but nothing to ruin their chances. Unfortunately for Labor, this doesn’t sell newspapers so the press scoured for high value news and due to their leadership and policy situation there were many angles that were of higher interest.
A common principle in chess is the idea of controlling the centre of the board. However, it is a fallacy to believe that occupying of the centre is the same as controlling it. In fact, occupying the centre of the board opens you up to be targeted. Labor felt this first hand.
The Seventh Seal - Playing chess with death to stay alive
By why would the press give the Liberals any oxygen knowing that its news was of low value? In David Marr’s peerless essay on Tony Abbott, Political Animal, he mentions the endless single message pressers. By the end the author realises how ludicrous these trips across the country are. However, for a journalist the risk of not going is larger as it is a cardinal sin to allow the media opposition access to an Exclusive that you could have garnered yourself. The journalist has an obligation to participate in the game.
So instead of:
“Give nothing, control everything”
The real transaction is:
“Recognise the enablers, target what drives them, give some things, let them control everything”
When Tony Abbott goes to a manufacturing plant in Blacktown to state how the Carbon Tax will ruin it, the press has to decide what to do with this information. The likelihood is the story may occupy a small box on Page 6 of the Age, but the reason for doing it is that it forces the press to generate more salacious news for the front pages that Labor is serving up. The Abbott story has a secondary function of serving as a contrast – strength, stability, trust us.
Prime Minister-elect Tony Abbott
And trust him the public did. The public chose by a majority of 53% to 47% that leadership in all weathers was favourable to the politics of personality. That being united was favourable over the infighting of factions. By reframing the debate and using rhetoric to their advantage, the public took the message at face value. The press should pat itself on the back for the victory but they would strongly argue that Labor did all the damage themselves. Well, at least they weren’t boring were they?
