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2014 JJC Bradfield Lecture - post-lecture Q&A Transcript

QUESTIONER:

Thank you Scott for one of the most inspiring presentations I’ve heard for some time. My first question, quickly, is a flippant one to you, and then a more serious one to Paul. How quickly would you see lawyers being replaced …and Paul how quickly can you get a copy of this presentation to your Cabinet colleagues? 

SCOTT FARQUHAR:

Unfortunately, it’s weird, I think that doctors are going to be replaced before gardeners are, because there’s so much money in getting that particular thing right and then, you know in a medical centre, before it is worthwhile to get your lawn fixed up. By that same value equation maybe lawyers would be down the list with things that we wouldn’t bother eliminating.

PAUL FLETCHER:

I’ll certainly be circulating this within the Government, don’t worry.

QUESTIONER:

Who does the government talk to in regards to curriculum about software and software development, does it talk to you? 

SCOTT FARQUHAR:

I haven’t personally been involved in the curriculum development. I did see what came out recently and I am personally somewhat disappointed from my quick skim of it over the last twenty-four hours.  They agreed that computer science and technology is something that is very important and should be taught across all levels, but it shouldn’t be mandatory, and they sort of said that it’s difficult for teachers to teach it so we shouldn’t do it; it was a bit in the too-hard basket. I think it also points to a poor lobbying effort that we as an industry do with government. I did look at the quotes from the Australian Computer Society and others in the submission, and then I scrolled down to the next one after that, which was the arts, and the lobbyists for the Arts Society had a much more compelling argument as to why arts should be taught in a primary or high school level, as a mandatory subject, and we didn’t do a very good job of articulating our case. So I think partly it’s our problem in articulating how important it is for us to deal with technology and part of it is us an industry we need to help them solve the “too hard basket” even if they want to do it.

QUESTIONER:

In an ATO decision, I’m actually in front of the GAAR Panel because I don’t run an enterprise, and because I made a comment that I don’t intend to make a profit until 2020. We spent $78 million last year and my comment was: we intend to invest every cent we make back into growing our company. According to the ATO, that means we’re not actually an enterprise.

SCOTT FARQUHAR:

Can you give us some context on the company and what you do?

QUESTIONER:

We have high-tech financial products.

SCOTT FARQUHAR:

I’m not sure I’m qualified to comment on the ATO’s individual decision on your tax at all.  Maybe Paul is a bit more qualified.

PAUL FLETCHER:

No, I’m going to resort to the Tony Jones formulation, “we’ll take that as a comment”, but thank you.  What I should ask actually, and I neglected to ask this before, if you’re asking a question you might just start with name and affiliation if you’ve got one.

NICK ABRAHAMS

Director – Integrated Research

On the question of creating a start-up hub: I love the idea of Sydney or Melbourne as a start-up hub.  So, Chris Strode created Invoice2Go from the Central Coast and he created a $100 million company in a place where we wouldn’t have ever thought it could be done.  Just wondering if you’ve got any thoughts around the opportunities for software in regional Australia?

SCOTT FARQUHAR:

Yes, I think that it goes to the point I made earlier that great companies can be built anywhere in the world. I’m an investor in a small company called Safety Culture which is actually located out of Townsville. I’m also involved in Blackbird Ventures capital investment. Safety Culture has a couple dozen people and they’re doing extremely well. But, the problem they’re facing is, how do they then find, as they reach a certain size, a Head of Engineering, there’s no one in Townsville that has that experience. At a certain size they’re going to need to have a Head of Product or a Head of Marketing, there’s not going to be anyone in Townsville who has that experience, so they will have to move somewhere. The choices they have at the moment are, they can move to Asia, where there’s an availability of talent and a cheaper workforce in many cases than in Australia. Or, they can move to the US where there is an abundance of people, at a much higher cost. Or, they can move to Sydney and you know, in all honesty, I’m not saying Sydney is anywhere near the top of the list that they should be considering because there isn’t yet that density. So, I think it’s easy for a seed to germinate almost anywhere; there are plenty of conditions for that to happen. There are fewer conditions for that to turn into a huge oak tree, you’d need some pretty special conditions and you do need that concentration of talent. So, I argue that whether it’s Sydney or Melbourne, or anywhere that the State, Federal, and even Local government, might say; “we are going to create a local economy around technology and we’re going to make sure that we put all the efforts into that area to create a critical mass”. Once you get the critical mass, this is not like supporting the automotive industry with hundreds of millions of dollars every year to keep them afloat forever, this is more to create a firewall effect. Once you have that tech-hub you attract people from around the world. They do have high paying jobs that pay large amounts of tax, and if we’re successful we pay a lot of that tax back to the government. In California, a lot of the funding for the California government actually comes from tech start-ups and the tech industry. So, I do believe that once we have a self-sustaining model, it will positively generate tax for the benefit of everyone.

THERESE CATANZARITI, Barrister – 13 Wentworth Selborne Chambers:

One of the issues that we’ve raised today is the success stories, but of course, for every success story there’s always going to be companies who fail and one of the challenges I saw in a report in The Economist about the great value of California is their much more generous bankruptcy laws. Whereas in Australia we have insolvent trading, we have a director’s guarantee on their overdrafts or business loans, you yourself probably were personally liable for your credit card debt and we also then have the problems that when a company goes down you have to pay employee leave entitlements, and you incur directors’ penalty notices. So, it’s really a risk when you personally go for a company in Australia that you are personally liable for these debts and once you can become bankrupt then you have all the penalties that go with bankruptcy, like forfeiting your passport and not being able to be a director for five years. So, to what extent, first of all, did you feel that risk and feel that fear when you started, and also then to Paul, to what extent is the government looking at ways of making directors’ personal liability less of a risk so that there is that entrepreneurship and you can go for it without personal liability?

SCOTT FARQUHAR:

I think I was lucky when we started at the age of twenty-two and right out of college. I think if we were bankrupt they’d have come for my Converse shoes but there wouldn’t be much more than that they could’ve got from me. I guess I was lucky to have not been in that situation. There’s always been a lot of personal risk with start-ups, that’s par for the course. If you want the upsides, there will always be some downsides. I don’t know specific details but I don’t know of any software start-ups, that I’ve been involved with, that has gone under, where any of that has been an issue; that is, where director fees and other things have been an issue. I’m sure if you get to a much larger stage they are, but at a larger stage you should be more aware of your responsibilities in employee leave, entitlements and other things. The ATO is really lenient as a general thing around start-up companies in terms of tax, timing and other things. No one I know has ever been prosecuted on those things. People do use the amount they owe the government as a rolling loan, in many cases, get their software company off the ground. I think it’s a really good thing because the amount of money is inconsequential to the Australian economy, but hugely important to the chance of a software company succeeding. So, I think generally we do a pretty good job and I haven’t seen it effect the really small start-ups, and at a certain size and scale I think you should be responsible for employee entitlements and other things because I think that allows us to attract people and maintain our quality and standard of living. 

PAUL FLETCHER:

And just in terms of, is that something that’s on the government’s policy agenda? It’s not been a point that has been raised very strongly in terms of start-up policy, to be honest with you. So I’ve not seen any suggestion that that’s an issue that is a major constraint in terms of start-ups. A lot of issues seem to be on the list ahead of that.

PETER BLACKMORE, Managing Director – ADVEC Audio Visual Consultants:

Incidentally, most major projects we work on use ADVEC so, great Australian product, and I’m proud to tell my colleagues overseas that it’s an Aussie product. Loved your speech. I’m going to deflect the question via you, Scott, to Paul, and it’s the thing about superannuation. We know that we have an innovative agricultural industry, and they cannot get finance in Australia, so all our agricultural industries get bought out overseas. Developing, and taking a little bit out of the $2 trillion trough seems to be a good idea in terms of trying to develop the software industry, but how do we that – Paul?

SCOTT FARQUHAR:

My first experience – solar. We did a great job at UNSW of having a solar thing, and now it’s largely developed out of China and other places. We developed wi-fi, and although it’s the great Australian success story, most of the benefits accrue overseas. So we do germinate a lot of these things, whether it’s in agribusiness or software or other industries, and I do think we need to get to the stage where there is a global venture capital community that can fund these things through. And it also requires, as I said, a tech community and enough people to keep it in Australia, because even if you have the funding, you need to make sure you have the critical mass. I don’t think we need to have critical mass in every single industry. I’m arguing that software as an industry is so crucial, or at least as a discipline is so crucial to every industry. So it’s not just software start-ups. Software start-ups will breed an incredibly well-trained software industry which will help Westpac and banks and everyone else to compete on the global stage as well. So I think software, in my mind, is a little bit different from specific verticals, because it does enable so many other things. As a country I’d fully argue that we should specialise in certain areas because we can’t be good at everything. And if I look through the government announcements, I guess the leak to the AFR this morning, around some of the claims they want to make, agribusiness was one of the areas that was, I think, the top 5, where the government felt we had some existing kind of competitive advantage, and was looked more favourably in terms of the things that they want to do. So I think that specific industry, and as a general thing, we should pick some winners.

PAUL FLETCHER:

And just on how you would make changes to superannuation. I’d be very clear on something you shouldn’t do, and something I would not support, which is any change to the general principle that the first duty, the sole duty, of the trustees of superannuation funds is to invest in the interests of members with a view to maximising their retirement. That is the policy purpose of superannuation. That being said, one argument that I’ve heard made by a visiting US venture capitalist is, he was surprised that there was no sort of mid-market fund, there was no vehicle that super funds could invest in, that gave a diversified exposure to start-ups. One of the points being, if you’re a big super fund, you probably don’t have the capacity to kick the tyres on individual start-ups, and nor does it make sense as a percentage of your overall funds under management. So his observation was there seems to be a gap in the middle. It seemed to me to make some sense. It’s not entirely clear, though, whether that’s something government can do anything about, or whether that’s an opportunity that’s waiting for the right entrepreneur to come along.

JODY FASSINA, Head of Public Affairs – SenateSHJ:

In terms of your observation about a lack of people going into study IT, computer engineering and the like, given that you said the market is exploding in terms of the employment market, yet the enrolments are declining. Why do you think that is the case, when you think basic supply and demand, and kids looking at the end of year 12 ‘what am I going to do?’ and they’re very savvy as you well know; and to point to that I’d say my own son, who’s nearly 14, and it’s that tech-savvy generation, and the conversations we have – and your point – it amazes me, we grew up watching free-to-air TV, his is YouTube. But in doing that, what he’s also picked up – and he said to me, ‘I talked to my friend’s dad, and we played Minecraft and all those things, although we want to build our own because we don’t like the mod they’re playing.’ And I just wonder whether that generation is four or five years away because of the environment they’ve been brought up with, where it’s been natural progression for them to say, ‘If I want to build a better game to play, I want to be a computer engineer or a software developer.’

SCOTT FARQUHAR:

So the lesson for everyone in the audience is let your kids play computer games, and they’ll grow up to be high paid well. There’s a couple of things there. It does go in ebbs and flows. So when we started Atlassian, when we first joined our university course, enrolments were at an all-time high because the original dot-com boom was on, and everyone saw they were making quick riches in the US, and suddenly every parent wanted their kid to do computing. And then the dot-com crash happened and then those instantly halved. Over a two-year period enrolments dropped down. So it’s very cyclical, in terms of fads that people go through. I think it’s the parents that have a huge influence, and role models as well. I’d like to think in some way Atlassian’s helped inspire some school-aged children to study ICT at a university level. The second thing is actually gender. If women were represented the same ratio that men were, we would almost not have a problem. It is that significant. There’s been a reduction over the last couple of years of women going in. Now we have to work out why that is, and I don’t have the exact numbers at hand, but it is so stark that if we just got women in the same ratios, we would almost have doubling the number of people in ICT. I don’t know whether that stems from, is it from schools, is it from role models, I don’t know where, but that’s one thing to look at.

KEVIN CULLEN, UNSW:

If you were running UNSW, what would you change to increase the university’s contribution to the start-up community?

SCOTT FARQUHAR:

Very good question. Is that an invite? I think that UNSW already does a pretty good job. There’s a program there, a scholarship program, that I was a part of, a co-op scholarship program, that brings industry together with university and students, and that allows them to have work experience. So I think there’s things like that that do an incredibly good job of attracting students, and they’re doing a good job now of having more and more software scholarships. So that’s one area that you guys really excel at. If I could give one idea: I think it’s really selling to school children. School children look at a whole bunch of factors that they go into. Some of it’s just pure TER or UAI or whatever’s called these days, based. It’s like oh, I got into 99.9, I’m going to do medicine, just because it’s the highest amount, or I know doctors and other things. So I think role models and things we can do at a high school level around education would be the biggest thing that we could do. And then, I think, celebrating alumni and other success stories to help inspire. But I’ll give it some more thought, I’ll be there on Monday.

PAUL GREENBERG, Head of National Online Retailers Association:

We spoke a bit about school and we spoke about university. Just a quick comment, and I know we’re short on time, on TAFE. One of my disappointments in this role was how far Certificate IIIs and IVs in retail have fallen behind. A shout-out to the new CEO of Service Skills Australia, Yasmin King, who’s got it by the neck, and I think she’s going to do stuff quickly. How do you see TAFE fitting in between school and university, and what part does it have to play in technology? Actually my son also goes to the Bradfield TAFE, in software, he’s a year 10 student, so there’s good work happening in Bradfield.

SCOTT FARQUHAR:

To be honest I couldn’t speak to TAFE at all. I don’t think we’ve hired too many people from TAFE into software developers at the moment. I think we’re so sure on university that we haven’t seen TAFE people come through, so I couldn’t really speak with any authority on that.