The Okanagan Never Has Been, And Never Will Be, Silicon Valley: A Lesson From New Zealand

UPDATE: This post from February 21, 2016, is being republished in the light of the announcement that Club Penguin is closing its doors in March. No amount of PR spin, arm waving, or equivocation can make the bitter truth of this post go away.  I note that Lane Merrifeld and Accelerate Okanagan have been conspicuously silent.  Before that, it was Silicon Valley company Packeteer, that morphed into Vineyard Networks when Packeteer pulled the plug and was eventually “parked” with Procera in Silicon Valley, which benefited very few in the Okanagan.  There is a long legacy of this that need not continue.

Kelowna Innovation Centre

British Columbia and New Zealand share many economic similarities, except that New Zealand has way more sheep, is way better at rugby and has much better sailors.  Both economies are focused on natural resource exploitation, tourism, wine, and horticulture. The motion picture industry has been a major factor in both economies, but both are highly vulnerable to foreign exchange fluctuations. Both economies have similar populations though we have more space and are not isolated in the South Pacific.   Both economies have made efforts to diversify into high tech, pouring millions into development of startups. Both economies have had modestly successful companies in high tech, which seemingly have mostly been bought out, moved out and any benefit to the local economy lost.  The crucial difference may be New Zealand’s pragmatism about how to deal with this economic reality.  British Columbia could learn from New Zealand.

Andy Hamilton, the long-time Director of Auckland, New Zealand’s Ice House high-tech incubator shared the following article from New Zealand’s NATIONAL BUSINESS REVIEW.  I first met Andy when I headed up New Zealand’s “Beachhead” incubator facility in Silicon Valley some years ago. The article has significant relevance to our situation in the Okanagan and British Columbia as a whole.  The Okanagan has seen high-profile startups like Club Penguin, Vineyard Networks, and Immersive Media bought by much larger foreign buyers, essentially leaving little benefit to the local economy. The founder of perhaps the most successful startup in BC, Ryan Holmes of Hootsuite, admitted that he did not base the company in the Okanagan (he is from Vernon) because he knew he could not attract the necessary talent here. It is well-known that many if not most UBC Okanagan graduates do not stay here.  While Vancouver has D-Wave and General Fusion, it has also seen Recon Instruments bought by Intel.  New Zealand has dealt with the same reality.  Forget the names of the Kiwi companies in the following editorial piece and substitute any Okanagan or BC startup company you feel is comparable. With Kelowna now tarred with the reputation as the worst job market in Canada, it would serve the local Okanagan establishment to give serious thought to the editorial below.

New Zealand: We’re not, and never will be, Silicon Valley

NATIONAL BUSINESS REVIEW (NEW ZEALAND)

MONDAY FEBRUARY 22, 2016

OPINION

BEN KEPES

New Zealand’s Diligent Corporation chief executive Brian Stafford

John Donne famously wrote that no man is an island entire of itself. The same is true for countries, and especially those countries situated in the middle of nowhere and with a relatively tiny population. At the same time, the old adage of not wanting to throw out the baby with the bathwater springs to mind.

All this mixing of metaphors seems timely given the current debate over Diligent Corporation [NZX: DIL] and its likely sale and exit from New Zealand. People on one side of the debate bemoan foreign sales and suggest this is why we should stick to our primary production knitting. Those on the other side suggest  offshore sales are fine since the money reenters into the economy via the oft-quoted “rinse and repeat” cycle.

To be honest, both sides simplify things with their arguments and I think it’s time for New Zealand to think a bit more deeply about what we want our economy to look like.

We’re not, and never will be, Silicon Valley.

It frustrates me when people glibly suggest that New Zealand should create a mini-Silicon Valley down here in the South Pacific. Silicon Valley only exists in one place and is a unique creation of a number of factors including a university that was founded on the idea of entrepreneurship. Leland Stanford created the university as a memorial to his 15-year-old son who died of typhoid. The university was to be co-educational (a rare thing at that time) and, above all, designed to produce practical members of society. This wasn’t about research for research’s sake, Leland Stanford, a railroad magnate, wanted to produce research which was focused on commercial possibilities.

Add to that a hub of military research, significant funding streams for startups, a cultural focus on technology generally, and entrepreneurship specifically, and you have a unique place. Silicon Valley the product is very much a product of the crucible of Silicon Valley the place. We’d be advised to remember this.

But there are more reasons beyond viability to not want to recreate Silicon Valley in Auckland, Wellington or Christchurch. I’m lucky enough to spend a huge amount of time in “The Valley” and while I’d be the first to suggest that it is an exciting and bustling place, I’d also hate to live there. Unaffordable housing that makes Auckland look easy by comparison, ridiculous traffic issues (don’t even bother trying to drive the 101 on a weekday). A slightly weird culture in which 20-year-old entrepreneurs trying to reinvent laundry services or lawn care are seen as more heroic than doctors, firefighters or teachers.

Silicon Valley has something of a culture of “viva la revolution”. Ride-sharing service Uber’s founder, Travis Kalanick, is almost religious in his fervor for making transportation undergo a rapid revolution. Ultimately, he sees drivers as an impediment to this and is actively investing in driverless car technology in an effort to get rid of the very individuals who are currently making his service viable.

Perhaps this is the very reason that we shouldn’t try and recreate Silicon Valley in New Zealand. We have a society that, to some extent, at least, looks out for everyone. We were the first country in the world to give women the vote. We have a social welfare system that provides a safety net for people. When we’re sick in New Zealand we take it for granted that (hospital waiting lists notwithstanding) we’ll get treatment. The Silicon Valley focus on “automation and efficiency above all” forgoes all of this and, while creating a society where we can get our floors vacuumed by robots, our lawns mown as-a-service and even our meals prepared with synthetic meat by robot chefs, also helps create a dystopian world where anyone who isn’t a computer programmer, a robot engineer or independently wealthy falls by the wayside as an “unfortunate side effect of productivity enhancing tools and technological change.”

A final note on this point. Rod Drury, the chief executive of Xero [NZX: XRO], famously chooses to live in Hawke’s Bay where he can enjoy all that the region has to offer. Rod has seized this idea of balance in his working life and has found a way to build a business while not forgoing all possible quality of life. Indeed, this is a theme that Xero has used often when trying to attract talent. Let’s never forget these aspects in the desire to create GDP growth.

Do these technology exits really feed our economy?

All of this talk of quick technology exits funding lots of $100,000 plus software developer jobs here in New Zealand is a nice sound-bite but it arrogantly sidesteps the questions about what all those people who are left disenfranchised by those technologies are going to do. While TradeMe’s exit certainly helped to create companies like Vend, we need to be thinking, as a nation, about what is going to happen to all of those people who actually do things – tradespeople, manufacturing staff etc – once this ultimate in globalized efficiency is achieved.

If we look at the money that has been brought back to New Zealand from the sale of companies like TradeMe, how much has really gone into the economy? Yes, I’m well aware that TradeMe money has gone on to fund Vend, Xero, SLI Systems and a host of other companies. But while these are all interesting companies, doing good things and with (hopefully) a chance of a good outcome, they’re not particularly big employers and hence I’d be keen to see some empirical data about how much the so-called “trickle down effect” from exits like TradeMe actually exists.

True, both Sam Morgan and Rowan Simpson have built big houses that have kept a few tradesmen busy for a while – it would be helpful for some independent economists to really nut out the continuing value from this model. Often this argument is one which is had from a perspective of dogma – we need to really get some clarity as to the economic impacts of the technology industry in New Zealand.

Notwithstanding the economic benefits of these offshore sales, or otherwise, the fact is there is little option for our technology companies. Again, in this respect, Xero remaining, at least to some extent a New Zealand company is very much an outlier.

This talk of the problems caused by companies like Navman, The Hyperfactory, and NextWindow, that have grown, been sold offshore and all the jobs (along with the tax revenue) lost to NZ Inc is simplistic as well. We live in a tiny market, one which makes a domestic focus pretty much impossible for all but the most niche of players. To achieve growth, these companies need to look to customers overseas. In this technology space, the norm is very much to follow a rapid merger and acquisition path.

The very model of the technology industry is for there to exist a myriad of startups, all of whom sprint in order to get ahead of the others. The prize for being at the front of the bunch is generally (with only a handful of exceptions) a quick acquisition by one of the titans of the industry. After which, and other than a general couple of years spent in purgatory working for said vendor, the founders head back and do it all again. Hopefully.

Is there a third way?

Now I’m not suggesting that we shroud ourselves in an isolationist mist. The last person to do that was Robert Muldoon and it was a disaster. But to suggest, as many do, that technology will replace the need for any of our traditional businesses is simplistic. Similarly, the view that it is best to follow these models of building fast-growth software companies to be quickly flicked off to the highest bidder is unhelpful.

So maybe there is a third way. Maybe we can look at what we naturally do well – things like growing grass and turning it into milk and meat, horticulture and agriculture generally, and the technologies that help those industries to be more efficient, ideas that need a unique combination of practicality and DIY-mentality (Gallagher’s fences anyone?) – and apply technology to those things. With the utmost respect to Xero, a company that is a terrific success story for New Zealand, there is nothing about accounting software that we fundamentally have a point of difference with. Xero could have been created out of Bangalore, Silicon Valley or London. The fact that it has been successful out of New Zealand is down to good luck, good timing and some unique factors. Xero is an outlier – a great one – but an outlier nonetheless. It would be a dangerous bet to make to assume that we can create enough Xeros to fund our big, expensive economy.

Ever greater extension of dairy farming isn’t, of course, an option. Our rivers and lakes are already enough of an abomination without more nitrate runoff. But how about celebrating those companies that are attempting to add value to primary production – Lewis Road Creamery is one that springs to mind. But there is a host of exciting new startups in the agricultural technology space as well.

We need a diverse economy, one in which we have small companies making added-value products alongside companies that will grow rapidly and be sold off. If I look at the companies I’m involved with, I certainly invest in the “high-growth and sell offshore” model. Appsecute, a company I was an early backer of, sold a couple of years ago to a Canadian company which, in turn, sold to Hewlett-Packard last year. Companies like MEA mobile, Raygun, ThisData and Wipster will, potentially, follow this model. But other technology companies have a domestic focus or one which favors remaining independent and growing from New Zealand – PropertyPlot, CommonLedger, and Publons are examples. And finally, companies that are involved in real physical products. While it may be totally unsexy to actually make anything in New Zealand anymore, I’m proud to be involved in Cactus Equipment, a company that not only makes awesome products but keeps scores of people employed here in New Zealand – people who are unlikely to become software developers any time soon.

Focus on a diverse NZ Inc

When Sam Morgan suggested that a focus on NZ Inc was unhelpful for companies and would get them killed, he was referring to technology companies specifically. I believe that, as an economy, we should look more broadly at what we do and celebrate both the meteoric risers of the industry, but also the bit players – those who aren’t gunning for a US exit, those who are able to make a living in the traditional economy and those who are trying to add extra value to what we do well.

Christchurch entrepreneur and cloud computing commentator Ben Kepes blogs at Diversity.net.nz.

Want to listen to the day’s hottest stories, plus interviews and panel discussions? Stream NBR Radio’s latest free 40-minute podcast from iHeartRadio, TuneIn, or iTunes.

Read more from Ben Kepes

Email Ben: ben@diversity.net.nz

What High Tech Industry in Kelowna?

Kelowna’s tech industry growth stunted by shallow talent pool

There is a lot of hubris and fantasy here in the Okanagan that no amount of reality can kill. Contrasted with that is a political faction that wishes for nothing more than the status quo. In yet another example of Kelowna’s long-standing poor employment market, and bizarre claims of being a technology industry hub, high tech employment in the Okanagan is being curtailed by the mass exodus of qualified graduates to employers outside the Okanagan. This is not new news as it has been happening for years. The employment and economic development crises are now so severe that it may take a decade or more to reverse.  A recent claim that the Okanagan high-tech industry produces $1 Billion in revenue, now seems particularly preposterous.  This situation underscores the challenges facing Raghwa Gopal, as the new Director of Accelerate Okanagan.  I see that Gopal has so far won a host of community awards and contributed to a local food drive, which leaves me asking which job he is running for, and which job he holds now?

Raghwa Gopal, Director of Accelerate Okanagan

FROM KELOWNA NOW:

A lack of skilled programmers is hampering Kelowna’s ability to establish itself as a technology hub.

According to Barry Ward, the president of Bardel Entertainment, tech companies across the city are desperate for skilled employees, but there just aren’t enough of them to meet demand.

“Everybody’s feeling the pinch for talent,” Ward says. “You’re looking around town for someone with 5-10 years experience and they’re just not there.”

Bardel, the animation company Ward co-founded, has offices in both Kelowna and Vancouver. The company opened its Kelowna office three years ago, looking to expand out of a crowded Vancouver market.

Photo credit: Bardel Entertainment

Vancouver is the undisputed centre of technology in British Columbia but, according to Ward, the overcrowded market there has left an opening for another B.C. city to establish itself as a tech-industry hub.

He believes Kelowna is the perfect city to do that, but says that won’t happen “without an available talent pool” in Kelowna.

Dr. Raymon Lawrence knows that all too well.

Lawrence is an associate professor of computer science at the University of British Columbia in the Okanagan, where computer science programs are essentially at maximum capacity.

Lawrence says the university’s computer science department is on track to graduate 30-40 students next year, but that many of the graduates will be scooped up by tech giants like Google and Microsoft.

Photo credit: KelownNow

“Pretty much if any grad wants a job they can get a job within three months,” Lawrence says.With so much lucrative work outside the province, and relatively few skilled workers graduating every year, Lawrence says “there’s a real problem in Kelowna.”

Both Ward and Lawrence say the solution is simple: more people trained right here in Kelowna.

Ward was one of 18 tech industry “leaders” who wrote an open letter to Premier Christy Clark earlier this month asking for more funding and support for technology-related post-secondary programs.

They asked the premier to invest $100 million to grow post-secondary programs in the province, specifically in places like Kelowna.

Early this year, Clark did announce plans to introduce computer coding to B.C. school curriculum, and in 2015 the provincial government created a $100 million venture fund to finance tech startups.

Lawrence says provincial funding aimed directly at post-secondary programs would likely be the only thing capable of spurring growth in UBCO’s computer science programs.

“Unless there’s some money provided to us, we won’t grow,” he said.

The Okanagan Never Has Been, And Never Will Be, Silicon Valley: A Lesson From New Zealand

Kelowna Innovation Centre

British Columbia and New Zealand share many economic similarities, except that New Zealand has way more sheep, is way better at rugby and has much better sailors.  Both economies are focused on natural resource exploitation, tourism, wine, and horticulture.  The motion picture industry has been a major factor in both economies, but both are highly vulnerable to foreign exchange fluctuations. Both economies have similar populations though we have more space and are not isolated in the South Pacific.  Both economies have made efforts to diversify into high tech, pouring millions into development of startups. Both economies have had modestly successful companies in high tech, which seemingly have mostly been bought out, moved out and any benefit to the local economy lost.  The crucial difference may be New Zealand’s pragmatism about how to deal with this economic reality.  British Columbia could learn from New Zealand.

Andy Hamilton, the long-time Director of Auckland, New Zealand’s Ice House high-tech incubator shared the following article from New Zealand’s NATIONAL BUSINESS REVIEW.  I first met Andy when I headed up New Zealand’s “Beachhead” incubator facility in Silicon Valley some years ago. The article has significant relevance to our situation in the Okanagan and British Columbia as a whole.  The Okanagan has seen high-profile startups like Club Penguin, Vineyard Networks, and Immersive Media bought by much larger foreign buyers, essentially leaving little benefit to the local economy. The founder of perhaps the most successful startup in BC, Ryan Holmes of Hootsuite, admitted that he did not base the company in the Okanagan (he is from Vernon) because he knew he could not attract the necessary talent here. It is well-known that many if not most UBC Okanagan graduates do not stay here.  While Vancouver has D-Wave and General Fusion, it has also seen Recon Instruments bought by Intel.  New Zealand has dealt with the same reality.  Forget the names of the Kiwi companies in the following editorial piece and substitute any Okanagan or BC startup company you feel is comparable. With Kelowna now tarred with the reputation as the worst job market in Canada, it would serve the local Okanagan establishment to give serious thought to the editorial below.

New Zealand: We’re not, and never will be, Silicon Valley

NATIONAL BUSINESS REVIEW (NEW ZEALAND)

MONDAY FEBRUARY 22, 2016

OPINION

BEN KEPES

New Zealand’s Diligent Corporation chief executive Brian Stafford

John Donne famously wrote that no man is an island entire of itself. The same is true for countries, and especially those countries situated in the middle of nowhere and with a relatively tiny population. At the same time, the old adage of not wanting to throw out the baby with the bathwater springs to mind.

All this mixing of metaphors seems timely given the current debate over Diligent Corporation [NZX: DIL] and its likely sale and exit from New Zealand. People on one side of the debate bemoan foreign sales and suggest this is why we should stick to our primary production knitting. Those on the other side suggest  offshore sales are fine since the money reenters into the economy via the oft-quoted “rinse and repeat” cycle.

To be honest, both sides simplify things with their arguments and I think it’s time for New Zealand to think a bit more deeply about what we want our economy to look like.

We’re not, and never will be, Silicon Valley.

It frustrates me when people glibly suggest that New Zealand should create a mini-Silicon Valley down here in the South Pacific. Silicon Valley only exists in one place and is a unique creation of a number of factors including a university that was founded on the idea of entrepreneurship. Leland Stanford created the university as a memorial to his 15-year-old son who died of typhoid. The university was to be co-educational (a rare thing at that time) and, above all, designed to produce practical members of society. This wasn’t about research for research’s sake, Leland Stanford, a railroad magnate, wanted to produce research which was focused on commercial possibilities.

Add to that a hub of military research, significant funding streams for startups, a cultural focus on technology generally, and entrepreneurship specifically, and you have a unique place. Silicon Valley the product is very much a product of the crucible of Silicon Valley the place. We’d be advised to remember this.

But there are more reasons beyond viability to not want to recreate Silicon Valley in Auckland, Wellington or Christchurch. I’m lucky enough to spend a huge amount of time in “The Valley” and while I’d be the first to suggest that it is an exciting and bustling place, I’d also hate to live there. Unaffordable housing that makes Auckland look easy by comparison, ridiculous traffic issues (don’t even bother trying to drive the 101 on a weekday). A slightly weird culture in which 20-year-old entrepreneurs trying to reinvent laundry services or lawn care are seen as more heroic than doctors, firefighters or teachers.

Silicon Valley has something of a culture of “viva la revolution”. Ride-sharing service Uber’s founder, Travis Kalanick, is almost religious in his fervor for making transportation undergo a rapid revolution. Ultimately, he sees drivers as an impediment to this and is actively investing in driverless car technology in an effort to get rid of the very individuals who are currently making his service viable.

Perhaps this is the very reason that we shouldn’t try and recreate Silicon Valley in New Zealand. We have a society that, to some extent, at least, looks out for everyone. We were the first country in the world to give women the vote. We have a social welfare system that provides a safety net for people. When we’re sick in New Zealand we take it for granted that (hospital waiting lists notwithstanding) we’ll get treatment. The Silicon Valley focus on “automation and efficiency above all” forgoes all of this and, while creating a society where we can get our floors vacuumed by robots, our lawns mown as-a-service and even our meals prepared with synthetic meat by robot chefs, also helps create a dystopian world where anyone who isn’t a computer programmer, a robot engineer or independently wealthy falls by the wayside as an “unfortunate side effect of productivity enhancing tools and technological change.”

A final note on this point. Rod Drury, the chief executive of Xero [NZX: XRO], famously chooses to live in Hawke’s Bay where he can enjoy all that the region has to offer. Rod has seized this idea of balance in his working life and has found a way to build a business while not forgoing all possible quality of life. Indeed, this is a theme that Xero has used often when trying to attract talent. Let’s never forget these aspects in the desire to create GDP growth.

Do these technology exits really feed our economy?

All of this talk of quick technology exits funding lots of $100,000 plus software developer jobs here in New Zealand is a nice sound-bite but it arrogantly sidesteps the questions about what all those people who are left disenfranchised by those technologies are going to do. While TradeMe’s exit certainly helped to create companies like Vend, we need to be thinking, as a nation, about what is going to happen to all of those people who actually do things – tradespeople, manufacturing staff etc – once this ultimate in globalized efficiency is achieved.

If we look at the money that has been brought back to New Zealand from the sale of companies like TradeMe, how much has really gone into the economy? Yes, I’m well aware that TradeMe money has gone on to fund Vend, Xero, SLI Systems and a host of other companies. But while these are all interesting companies, doing good things and with (hopefully) a chance of a good outcome, they’re not particularly big employers and hence I’d be keen to see some empirical data about how much the so-called “trickle down effect” from exits like TradeMe actually exists.

True, both Sam Morgan and Rowan Simpson have built big houses that have kept a few tradesmen busy for a while – it would be helpful for some independent economists to really nut out the continuing value from this model. Often this argument is one which is had from a perspective of dogma – we need to really get some clarity as to the economic impacts of the technology industry in New Zealand.

Notwithstanding the economic benefits of these offshore sales, or otherwise, the fact is there is little option for our technology companies. Again, in this respect, Xero remaining, at least to some extent a New Zealand company is very much an outlier.

This talk of the problems caused by companies like Navman, The Hyperfactory, and NextWindow, that have grown, been sold offshore and all the jobs (along with the tax revenue) lost to NZ Inc is simplistic as well. We live in a tiny market, one which makes a domestic focus pretty much impossible for all but the most niche of players. To achieve growth, these companies need to look to customers overseas. In this technology space, the norm is very much to follow a rapid merger and acquisition path.

The very model of the technology industry is for there to exist a myriad of startups, all of whom sprint in order to get ahead of the others. The prize for being at the front of the bunch is generally (with only a handful of exceptions) a quick acquisition by one of the titans of the industry. After which, and other than a general couple of years spent in purgatory working for said vendor, the founders head back and do it all again. Hopefully.

Is there a third way?

Now I’m not suggesting that we shroud ourselves in an isolationist mist. The last person to do that was Robert Muldoon and it was a disaster. But to suggest, as many do, that technology will replace the need for any of our traditional businesses is simplistic. Similarly, the view that it is best to follow these models of building fast-growth software companies to be quickly flicked off to the highest bidder is unhelpful.

So maybe there is a third way. Maybe we can look at what we naturally do well – things like growing grass and turning it into milk and meat, horticulture and agriculture generally, and the technologies that help those industries to be more efficient, ideas that need a unique combination of practicality and DIY-mentality (Gallagher’s fences anyone?) – and apply technology to those things. With the utmost respect to Xero, a company that is a terrific success story for New Zealand, there is nothing about accounting software that we fundamentally have a point of difference with. Xero could have been created out of Bangalore, Silicon Valley or London. The fact that it has been successful out of New Zealand is down to good luck, good timing and some unique factors. Xero is an outlier – a great one – but an outlier nonetheless. It would be a dangerous bet to make to assume that we can create enough Xeros to fund our big, expensive economy.

Ever greater extension of dairy farming isn’t, of course, an option. Our rivers and lakes are already enough of an abomination without more nitrate runoff. But how about celebrating those companies that are attempting to add value to primary production – Lewis Road Creamery is one that springs to mind. But there is a host of exciting new startups in the agricultural technology space as well.

We need a diverse economy, one in which we have small companies making added-value products alongside companies that will grow rapidly and be sold off. If I look at the companies I’m involved with, I certainly invest in the “high-growth and sell offshore” model. Appsecute, a company I was an early backer of, sold a couple of years ago to a Canadian company which, in turn, sold to Hewlett-Packard last year. Companies like MEA mobile, Raygun, ThisData and Wipster will, potentially, follow this model. But other technology companies have a domestic focus or one which favors remaining independent and growing from New Zealand – PropertyPlot, CommonLedger, and Publons are examples. And finally, companies that are involved in real physical products. While it may be totally unsexy to actually make anything in New Zealand anymore, I’m proud to be involved in Cactus Equipment, a company that not only makes awesome products but keeps scores of people employed here in New Zealand – people who are unlikely to become software developers any time soon.

Focus on a diverse NZ Inc

When Sam Morgan suggested that a focus on NZ Inc was unhelpful for companies and would get them killed, he was referring to technology companies specifically. I believe that, as an economy, we should look more broadly at what we do and celebrate both the meteoric risers of the industry, but also the bit players – those who aren’t gunning for a US exit, those who are able to make a living in the traditional economy and those who are trying to add extra value to what we do well.

Christchurch entrepreneur and cloud computing commentator Ben Kepes blogs at Diversity.net.nz.

Want to listen to the day’s hottest stories, plus interviews and panel discussions? Stream NBR Radio’s latest free 40-minute podcast from iHeartRadio, TuneIn, or iTunes.

Read more from Ben Kepes

Email Ben: ben@diversity.net.nz

To See The Future Of The Western Canadian Economy Look To Texas

UPDATE: May 21, 2015.  Goldman Sachs has just released an oil price forecast suggesting that North Sea Brent crude will still be $55 in 2020, five years from now.  As Alberta’s Western Canadian Select (WCS) bitumen is valued lower on commodity markets this is extremely bad news for Canada. Further, the well-known Canadian economic forecasting firm, Enform is predicting that job losses across all of western Canada, not only Alberta, could reach 180,000. 

UPDATE: January 15, 2015. Target announced today that it will be closing all 133 stores in Canada, including the Vernon and Kelowna stores. eliminating at least a couple of hundred local $10/hr jobs and a handful of slightly better paid management jobs. The Wall Street Journal is reporting that Target’s 17,000 + Canadian layoffs of low-income workers will be the largest in Canadian history.

To Understand Alberta’s Future, Look to Texas

Brace yourself. I haven’t gotten the sense that the coming economic bust in western Canada has yet sunk in with all Canadians. The problem is centered in Alberta, but radiates throughout western Canada, and even well beyond in complex ways. If you want to get a credible sense of what we are facing, you need only look to journals like The Wall Street Journal, CNN Money, Bloomberg and many others to get the evidence you may seek.  Kelowna Now‘s recent story on jobs in Kelowna noted a key issue locally: many of the employed in Kelowna work up north in the oil patch. Then there is the matter of the Nova Scotia workers in Fort MacMurray and their future. Closer to home than Texas, we should also consider the radiant job loss effect in places like North Dakota and Wyoming.  SF Gate has also reported 700 layoffs by a Canadian oil company in Bakersfield, California.  The “pollyanna’s” who are denying that this is happening are “whistling in the graveyard.”

Reblogged from The Wall Street Journal Blog:

Plunging Oil Prices Test Texas’ Economic Boom

Downturn Has Many Wondering How Lone Star State Will Weather a Bust

Oil tankers are loaded with crude in Corpus Christi, Texas, in December. The area has prospered in recent years due to the energy boom in the Eagle Ford shale formation, but falling prices could test that.

Retired Southwest Airlines co-founder Herb Kelleher remembers a Texas bumper sticker from the late 1980s, when falling energy prices triggered an ugly regional downturn: “Dear Lord, give me another boom and I promise I won’t screw it up.”

Texas got its wish with another energy-driven boom, and now plunging oil prices are testing whether the state has held up its end of the bargain.

The Lone Star State’s economy has been a national growth engine since the recession ended, expanding at a rate of 4.4% annually between 2009 and 2013, twice the pace of the U.S. as a whole.

The downturn in energy prices now has triggered a debate over whether Texas simply got lucky in recent years, thanks to a hydraulic-fracturing oil-and-gas boom, or whether it hit on an economic playbook that other states, and the country as a whole, could emulate.

One in seven jobs created nationally during the 50-month expansion has been created in Texas, where the unemployment rate, at 4.9%, is nearly a percentage point lower than the national average.

But a big dose of the state’s good fortune comes from the oil-and-gas sector. Midland, which sits atop the oil-rich Permian Basin, had the fastest weekly wage growth in the country among large countries: 9% in the 12 months ending June 2014.

Now that oil prices have plunged nearly 51% from their June peak to $52.69 a barrel, some Texans sobered by memories of past energy busts are bracing for a fall. The argument among economists and business leaders isn’t whether the state will be hurt, but how badly.

Mr. Kelleher is among the Texans predicting this won’t be a replay of the 1980s oil bust and banking crisis, which drove the state unemployment rate to 9.3%. As evidence, he and others cite a more cautious banking sector, a tax and regulatory environment favorable to business, and a state economy less dependent on energy and other resources.

“Texas has become a well-rounded state,” Mr. Kelleher said. “People did remember not to overextend themselves.”

Michael Feroli, a New York-based economist at J.P. Morgan Chase & Co., is one of the skeptics of the “this-time-is-different” camp. Although the oil-and-gas industry today makes up a smaller share of Texas’ workforce than it did in the mid-1980s, it accounts for roughly the same share of its economic output, he said. So a decline in oil prices similar to the plunge of more than 50% seen in the mid-1980s, he said, could have a similar result: recession.

“If oil prices stay where they are, Texas is going to face a more difficult economic reality,” Mr. Feroli said.

Oil exploration companies already are scaling back drilling plans for next year. Oil-field-service companies that provide labor and machinery, such as Halliburton Co. andSchlumberger Ltd. , are laying off workers. The number of oil and gas rigs in Texas, which had grown 80% since the start of 2010, has been dropping over the past few weeks. The rig count in the state stood at 851 at the end of December, down from 905 in mid-November, according to oil-field-services firm Baker Hughes Inc., which compiles the data. Meanwhile, yields on junk bonds tied to energy companies have soared as investors brace for financial fallout from the oil-price bust.

Yet Dallas Fed President Richard Fisher likens the J.P. Morgan report to bull droppings. He noted that sectors including trade and transportation, leisure and hospitality, education and construction all have produced more new jobs in recent years than energy. Houston has experienced fast growth in the medical sector, Austin in technology.

“This is a test,” Mr. Fisher said. “Is Texas indeed as diversified as people like me say it is?”

ENLARGE

Analysts at the Federal Reserve Bank of Dallas estimate that a 45% decline in the price of oil—from $100 a barrel to near $55—will reduce Texas payrolls by 125,000, all else being equal. Payrolls were up 447,900 in November from a year earlier, or 3.9%. The Dallas Fed estimate implies growth of more than 300,000, or nearly 3%, even with a lower oil price, still faster than the national average of 2%.

Pia Orrenius, a Dallas Fed regional economist, sees the price bust washing through the Texas economy in both positive and negative ways. It could help the booming petrochemicals sector and manufacturing by lowering costs. A construction boom centered on petrochemical plants is already under way along the Gulf Coast, a source of blue-collar jobs. Yet the price bust will hurt sectors like construction, transportation and business services that have expanded to serve the oil industry, and consumer spending more broadly as workers lose their jobs.

“We will see significant spillovers,” Ms. Orrenius said.

Nowhere is the evolution of the Texas economy more apparent than in Houston, the nation’s fourth-largest city, with 2.2 million people.

After oil-and-gas prices crashed in the mid-1980s, energy companies in the city laid off thousands of petroleum engineers and other well-paid industry workers, and the real-estate market crumbled, helping trigger a regional-banking collapse. One in six homes and apartments in Houston stood vacant at the beginning of 1987, and the county tax rolls dropped by $8 billion, according to a history of the bust by the Federal Deposit Insurance Corp. That prompted civic leaders to push for an expanded medical sector and more diversified economy.

Today, the Texas Medical Center is the world’s largest medical complex, with more than 20 hospitals, three medical schools and six nursing schools, employing 106,000 people. Health-care and social-services companies made up 10.4% of jobs in the greater Houston area in 2013, compared with 5.9% in 1985, according to Labor Department data. Roughly 4.3% of jobs in the county were in the oil-and-gas industry last year, down from 5.9% in 1985.

Still, most of the 26 Fortune 500 companies based in Houston are in energy, includingPhillips 66 , Halliburton and Anadarko Petroleum Corp. , and energy employees flush with cash recently spurred a run-up in real-estate prices in the region that has raised red flags among some economists. Fitch Ratings recently declared that Houston home prices were the second-most overvalued in the country, behind Austin, when compared with historical averages, and that current prices may be unsustainable, citing the current oil-price drop.

The energy boom has strengthened the state’s budget. Revenues are expected to take a hit with falling levies on oil and natural gas production, but less than previously. The levies accounted for 9.4% of state tax revenue in 2013 compared with 20.2% in 1985, according to data from the Texas state comptroller’s office.

Texas banks also appear to be in better shape to handle a shock than they were in the 1980s. Between 1986 and 1990, more than 700 Texas banks and thrifts failed. During the worst of the last financial crisis in 2008 and 2009, seven Texas banks failed, according to the FDIC. Fewer than 1% of state banks have high measures of nonperforming loans now, compared with 20% in the late 1980s, according to the Dallas Fed.

Texas is the only state that limits home-equity borrowing to 80% of a home’s value, a provision enshrined in its state constitution. The rule helped keep Texas homeowners from piling up debt against their homes during the national real-estate boom of the 2000s. Only 10% of nonprime mortgages were underwater in 2011 in Texas, compared with 54% in the rest of the U.S., according to the Dallas Fed.

“Even though we saw our banking brethren in other states doing these crazy deals, we refused to do so because we remembered the ’80s,” said Pat Hickman, chief executive of Happy State Bank, a community bank in the Texas Panhandle. “We learned lessons.”

Texas has something else going for it: A bounty of resources other than oil and natural gas, most notably, land and people.

The state’s population grew 29% between 2000 and 2014, more than twice as fast as the U.S. as a whole, according to the Census Bureau. The median age in Texas was 34 last year, 3 1/2 years younger than the nation overall. Growth has come from a combination of migration from other states, immigration and a higher birthrate than the national average.

The U.S. economy has been restrained in recent years by slow labor-force growth. Texas, on the other hand, has more young people entering their prime working years and fewer elderly residents, as a percentage of the population, than does the nation overall. That has given its economy a solid foundation of available workers.

Workforce and land were two factors that drew Firefly Space Systems, a manufacturer of low-orbit rockets, to the Austin area earlier this year. The firm needed a place to launch test rockets and chose Texas over Los Angeles for an expansion. It found a supply of tech-savvy workers in the Austin area and plentiful land.

“It was the geography, and it was making sure our employees were comfortable there,” said Maureen Gannon, the firm’s vice president for business development. The firm plans to hire 200 people in coming years.

Why I Hate Dragon’s Den

 

A local journal today glowingly reported that not one, but two local companies had won investment on the Dragon’s Den Canadian “reality” television show. What struck me about the two, apparently best  “winning ideas” from our community, was how utterly mundane they were: an “empty beer bottle handling system” and “illuminated party clothing.”  As an entrepreneur myself, I first need to give respect to the two entrepreneurs who achieved this success with the likes of Kevin O’Leary and the other investors. It is no mean feat and they should be acknowledged and congratulated for it. On the other hand, these are not the kind of ideas that are going to make a major dent in the local or Canadian economy. Meanwhile in Vancouver, two startups, D-Wave and General Fusion are working on Big Ideas that could change our lives.

Dragon’s Den is nothing more than artificially concocted alleged “reality” TV entertainment. In many cases, the “entertainment value” comes at the expense of the entrepreneurs themselves, some of whom should never have been put on television in the first place. IMHO, this is what is fundamentally wrong with Dragon’s Den. It is pure Fantasyland.  My own UBC entrepreneurship students have also developed similar, and very worthy “small business” ideas.  But as worthy on a small-scale as they may be, these ideas do not further any vision or goal of entrepreneurship’s importance to the Canadian economy.   I judged a graduate student entrepreneurship competition this week which was dominated by Web apps. This is happening in the face of overwhelming evidence that there is very little opportunity or investor interest left in Web apps. Someone recently estimated that there will soon be a Billion Web apps out there. Curiously, Dragon’s Den seems to cull out Web apps entirely, though they must see a lot of them, and prefer to broadcast the eccentric entrepreneurs with really wacky ideas because of their entertainment value.

“Entrepreneurship” has become the current fad, garnering TV viewers and advertiser dollars, and simultaneously conveniently ignoring the bigger issues for the Canadian economy.  Large sums of government dollars are being doled out without adequate oversight as to the return on the investment.  I was recently advised by someone to “follow the government dollars” being  thrown at entrepreneurial incubators.  There seems to be no consideration of the importance of Big Ideas, and solving Big Problems.  Just entertainment for entertainment’s sake, viewer ratings and advertising dollars.

Coming from Silicon Valley, the current Canadian entrepreneurship landscape looks to me like a confused overheated and over invested mess to me.  If I were Kevin O’Leary, I would not be able to live with myself on Dragon’s Den. as if giving a shit only for making his own money equates to some greater economic purpose for Canadians. I prefer to chase Big Ideas.

 

Winfield Man Latest to Do a Deal on Dragons’ Den

Another Okanagan businessman has made a deal in the Dragon’s Den.

Winfield’s Casey Binkley received four offers from the Dragons for his product FastRack that he pitched along with his partner Mitchell Lesbirel.

Casey Binkley (left) and partner Mitchell Lesbirel pitch to the Dragons

The product was invented by Lesbirel to solve the problem that many bars and restaurants have with collecting and clearing their empty bottles after a busy night. Emptying bottles that spill and cause cardboard boxes to tear as the bottles fall out everywhere is a hassle that many in the industry and beyond are familiar with. Lesbirel found a way to solve that problem with a simple plastic rack that allows for draining, easy organization and transfer to cardboard boxes with no mess.

As part of their pitch, the two men ran a fun race that the Dragons participated in as a part of their demonstration of how the product works.

Photo Credit: Facebook

The partners asked the Dragons for $50,000 for 10% of their business and eventually settled on a deal with Jim Treliving. Along with his expertise in the restaurant industry, Treliving offered $50,000 for 5%, 9 months with no royalty, dropping down to 3% after he gained his capital back.

Binkley and FastRack are the second Okanagan company to make a deal with the Dragons in recent weeks, after Kelowna’s Fur Glory appeared on the showwith their special illuminated party clothing.

You can learn more about FastRack on their website and check out their pitch in the video below.

 

 

Water Potability And Turbidity Issues In The Okanagan: Time To Get Serious

The Partnership for Water Sustainability in BC

We have a major water problem in the Okanagan that will take decades to address.  It is also a clear opportunity for local economic development effort.  There are local people focused on this, and I commend them. But it will take much greater effort than currently.

Why aren’t we more aggressively focusing our local resources and capabilities to address this problem?  The Israeli’s currently lead the World in this area.

When I first arrived in the Okanagan in the late summer of 2005, we were surprised to find that the tap water had a very distinct yellow and brownish coloration. The drinking water was “turbid.”   This turbid discoloration is also noticeable in the water supply to the UBC Okanagan campus. The university regularly flushes its system because of the turbidity. But the problem is at the source, not with the university.

In April 2007, shortly after forming the Okanagan Environmental Industry Alliance, I arranged with my other Directors to meet with Richard Neufeld, at the time BC Minister of Energy, Mines and Petroleum in his offices in Victoria.  During the course of our meeting, I politely asked Minister Neufeld his views on the rising concerns in the Province about diminishing water resources and climate change.  Minister Neufeld replied that there was no water problem in BC, and that BC (quote) “need not worry about water for at least another 100 years” (unquote).   Clearly, Minister Neufeld did not share the concern of a growing number of experts in the Province.

The Okanagan Valley is the northernmost extension of the Great Basin that extends from northern Nevada, through eastern Oregon and eastern Washington, all in the shadows of the coastal mountain ranges, and with precipitation levels that require that we apply water conservation technology matched only by the Israeli’s. Stated bluntly, it is very dry here and will likely only get worse.

Turbidity is a scientific measurement of the clarity of a water source.   In the United States there is a federal standard for turbidity in drinking water, but it would seem that whatever turbidity standard may exist here is not as stringent. The importance of turbidity is that there are strong established scientific links between turbidity and human disease.  Our local turbidity is caused largely by decaying timber in the local reservoir system. The coloration occurs from micron size impurities so small that they are nearly impossible to remove. It was explained to us that it is also possible for dangerous pathogens to attach to the micron size particles causing the discoloration.  Hence, we received a boil water notice soon after we arrived and have had numerous other boil water advisories.  As I traveled about the region, I learned that Summerland also had a similar turbidity problem.  Drinking water quality throughout the Okanagan has given rise to a huge market for bottled pure water in every supermarket, and a number of private companies selling “pure” water services and systems.  The cost of this kind of delivery of potable water is astronomical.

What is going on here in a community of extremely expensive homes on Okanagan Lake?

We came from a coastal community in northern California, Moss Beach, part of the Coastside Community Water District.  We paid the highest monthly water service charges in the state of California. The water was in short supply and very high in mineral content. Some homes had no connection to the municipal system whatsoever because the California Public Utilities Commission declared a moratorium on any new connections. The system was max’ed out.  Domestic water wells produced very poor quality turbid water in quantities that failed to meet minimum government requirements for public health, much less human consumption. The local authorities turned a blind eye, and property development was a much higher priority ($$$) than public health.  My next door neighbor, with two young daughters, had no municipal connection, so I agreed that my neighbor could connect his home to my garden hose when his well failed.

Is this the future of the Okanagan?  Is it a glass half empty or a glass half full of opportunity to use our local resources and capabilities to change our course?

Waterbucket from Water Bucket on Vimeo.

Read more: Okanagan Water | Okanagan Water « WaterBucket.ca.

Enactus Launches Chapter with UBC Okanagan Faculty of Management

Human progress depends on our ability to tap into the entrepreneurial spirit that lives within each of us and channel the unique talents, passions and ideas we each possess toward creating good in the world.

en•act•us

A community of student, academic and business leaders committed to using the power of entrepreneurial action to transform lives and shape a better more sustainable world.

entrepreneurial—having the perspective to see an opportunity and the talent to create value from that opportunity;

action—the willingness to do something and the commitment to see it through even when the outcome is not guaranteed;

us—a group of people who see themselves connected in some important way; individuals that are part of a greater whole.

Deputy Speaker of the House Videoconference – Parliamentary Procedures and Practice

Assistant Deputy Speaker of the Canadian House of Commons, MP Bruce Stanton, and Deputy Chair of the Committee of the Whole, will participate in a video conference with University of British Columbia Management students, Wednesday, November 28th, at 2PM in the EME 050 Lecture Hall.  Local MP Ron Cannan, representing Kelowna and Lake Country has been instrumental in making this event a reality.  All Faculty of Management students are welcome to attend, listen and learn.

This live video conference event will be held Wednesday, November 28th, at 2PM in the EME 050 Lecture Hall on the UBC Okanagan campus

How Many Next Silicon Valleys Are There?

We have a great opportunity in the Central Okanagan to build this economy, if only we could seize it.

http://www.slate.com/articles/technology/future_tense/2012/10

/next_silicon_valley_map_of_emerging_technology_centers_.html

Kelowna Not Yet Middle Earth

I parachuted into Kelowna after years of working in Silicon Valley traveling the globe for some of the best companies and VC‘s, and most recently running a high tech incubator in Silicon Valley for the government of New Zealand.  What struck me immediately about Kelowna was the aura of unreality of many locals about the situation here.  Club Penguin only made the unreality worse. There were a number of reasons for this. First, apparently, as I understand it, was the failure of the Okanagan Partnership in 2003, well before I arrived. It was a well-intentioned , but excessively ambitious effort that ultimately failed.

We have not realistically come to terms with the area’s “resources and capabilities,” or with our competitive opportunities.  Until we do so, we are doomed to repeat our failures.  The view of some that we should focus on creating another Club Penguin is complete nonsense.   Many other communities near us in both Canada, and in Washington state have done a much better job of dealing with their reality.  Dare I mention Penticton or Walla Walla, Washington?

I have the deja vu of already doing this for New Zealand.  NZ has a lot to teach us about our local economy. In fact, the Okanagan economy is in many ways a mirror image of New Zealand’s (horticulture, forestry, tourism and wine).  New Zealand has done a much better job at addressing their situation than we have with ours.  The rise of Peter Jackson and the production of LOTR in New Zealand, has led the country to focus on its setting for film production, as did Vancouver and Toronto.  It also spawned WETA, an animation studio in Wellington, among other spin offs.  More importantly, the government has also focused on marketing itself and technologies based on its inherent traditional expertise.

NZ gave up on being Middle Earth Silicon Valley a long time ago.  The Okanagan needs to do the same: realistically focus on local resources and capabilities and exploiting them.