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

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

Bank of Canada & OECD See Ever Widening Economic Impact of Oil Collapse

The Bank of Canada’s Spring 2015 Business Outlook Survey (link to complete report below) released this week, gives more reason for serious concern regarding the economic prospects for all Canada, and the widening impact of Canada’s “natural resource curse”: it’s fossil fuel based economy. The report points to a significant increase in business pessimism about the economy as a whole, well beyond the oil economy, which is causing business to significantly reduce plans for capital spending and hiring. As I pointed out previously, the impact of the oil economy collapse is likely to reverberate throughout the Okanagan. The BofC report suggests that the impacts will be even deeper and more diverse. The report also looks to greater macroeconomic impacts: longer term weakness and volatility of the loonie. With Canadian interest rates at an all time low there is even the prospect of deflation. The report’s optimistic expectations for some upside from a robust U.S. economy have vanished this week, with projections of zero growth in the U.S. economy in 2015.

Bank of Canada survey shows oil dimming business confidence

Read the complete Bank of Canada Report here: Business Outlook Survery – Spring 2015

Read about OECD Composite of Leading Indicators: OECD marks slowdown in Canada, even as other economies recover

Hiring intentions drop to lowest since 2009 in central bank’s quarterly scan of big companies

REBLOGGED from the CBC:  Pete Evans, CBC News Posted: Apr 06, 2015 11:46 AM ET Last Updated: Apr 06, 2015 9:29 PM ET

The Bank of Canada says cheaper oil prices are hurting sales forecasts and starting to hit confidence in industries far beyond the energy sector.

In its quarterly Business Outlook Survey, the central bank surveyed 100 representative companies across various Canadian industries and found that broadly speaking, cheaper oil has reduced sales expectations and cut into confidence in doing things like investing in new equipment and machinery, and possibly hiring new staff.

“More businesses than in previous surveys anticipate an outright decline in sales volumes,” the report said.

The survey interviewed business owners between the middle of February and the middle of March. The ongoing slump in oil prices had been underway for several months at that point, but it’s worth noting that Monday’s report is the first such survey since the central bank surprised markets with a rate cut at the end of January.

‘The oil price collapse is taking a toll’– TD Bank’s Leslie Preston

The survey “showed that firms are quite pessimistic about expanding their capacity over the next year,” TD economist Leslie Preston said. “The oil price collapse is taking a toll on Canada’s economy.”

The Bank of Canada’s quarterly survey suggests that gloom in the oil patch is starting to spread into different parts of the overall economy, potentially affecting hiring and purchases of new equipment. (Todd Korol/Reuters)

Although it remains in a range the bank calls “positive,” the outlook for hiring has dropped to its lowest level since 2009, when the world economy was in recession just about everywhere following the credit crisis.

Forty of the companies surveyed said they expect to hire more people in the next 12 months than they did in the previous 12. Another 40 said they expect to hire the same amount, with the remaining 20 saying they expect to hire less.

Good news?

If there’s a source of strength, it’s that the bank’s report suggests companies with strong ties to the U.S. economy are more upbeat. The U.S. is benefiting more from cheap oil than most economies, because it is the most diverse economy on earth and cheaper energy is good news for virtually every other sector.

“Firms’ outlook for the U.S. economy is generally strong, with the majority expecting this strength to support their future sales,” the report says. Cheaper oil has also hurt the loonie, which exporters to the U.S. cited as another reason for cautious optimism about sales from here on out.

Several firms reported foreign demand had increased thanks to the weakened Canadian dollar, but “while many firms outside the energy sector characterize the effects of lower oil prices and the weaker Canadian dollar as favourable for their business outlook, they expect some of the benefits to unfold only gradually in the future,” the report says.

Plummeting Oil Prices Set To Continue As Canada Cringes

 

 

Regrettably, this week’s events in the oil market, provide further evidence of the dire consequences ahead for the Canadian oil economy.  Oil industry bulls who have been betting on a quick rebound in oil prices are likely to get severely burned, and the prospects for the local tourism based economy are only worsening.

In the same week that local gasoline prices mysteriously spiked up nine cents per liter, blamed on the weakening Canadian dollar, and a refinery fire in Los Angeles (of all places), the Wall Street Journal reported that the global oil glut has consumed more than 80% of the available storage capacity. The WSJ report went on to state that with production levels still not likely to decline, oil supply would continue to grow well beyond demand, driving prices into another sharp decline, perhaps as low at CitiBank‘s forecast of $20 per bbl.   Now the International Energy Agency has corroborated the WSJ forecast with its own dire oil market forecast. Both do not see any early end in sight. Crude prices plunged Friday on this news, to below $45 per bbl.

 

Oil Prices Tumble After IEA Warning
Energy watchdog warns that recent rebound in prices may not last

REBLOGGED from the WSJ

By TIMOTHY PUKO And BENOÎT FAUCON
Updated March 13, 2015 5:09 p.m. ET

The benchmark U.S. oil price tumbled to a six-week low Friday, thwarting hopes for a sustained recovery after an influential energy watchdog said U.S. production growth is defying expectations and setting the stage for another bout of price weakness.

Investors and oil producers should brace for further declines in oil prices, the International Energy Agency said in a monthly report. Prices haven’t fallen far enough yet to cut supply, and some signs of rising demand are just temporary—bargain buyers using cheap oil to fill up stockpiles, the agency said.

That outlook weighed on sentiment in the oil-futures market, which has stabilized in recent weeks following a seven-month selloff that saw the benchmark price on the New York Mercantile Exchange plunge 59%. Behind the selloff, which by some measures was the steepest in decades, was a global glut of crude spurred by rising production in the U.S. and Libya.

“This IEA report today confirmed a lot of things bears had been talking about,” said Todd Garner, who manages $100 million in energy commodity investments at hedge fund Protec Energy Partners LLC based in Boca Raton, Fla. “It is a big deal.” His fund is slowly adding to a bet the growing supply will keep bringing down gasoline futures, he said.

The IEA’s report echoed growing concerns in the market that the amount of available oil storage is dwindling, which potentially could weigh further on prices if output continues unabated.

Many barrels are building up in U.S. storage tanks and behind drilled but idled wells. That overhang can flood the market any time prices rise, acting as a cap on prices, Mr. Garner and others said.

Light, sweet crude for April delivery fell $2.21, or 4.7%, to $44.84 a barrel on the New York Mercantile Exchange. The contract closed within 40 cents of the 6-year low closing price of $44.45 a barrel set on Jan. 28.

Brent, the global benchmark, fell $2.41 a barrel, or 4.2%, to $54.67 a barrel on ICE Futures Europe. Both Brent and U.S. oil had their biggest one-day percentage losses in about two weeks.

Oil prices fell sharply Friday. Late last year, workers on a Texas drilling rig grappled with equipment.
Financial markets have been closely watching oil prices, which had recovered to more than $60 a barrel for Brent crude. Oil prices had traded in a fairly narrow range for about a month, raising the question of whether the market had stabilized after a historic collapse.

Rig counts, one closely watched metric, fell for a 14th straight week, Baker Hughes said Friday. The U.S. oil-rig count fell by 56 to 866 in the latest week.

That is down 46% from a peak of 1,609 in October, but hasn’t led to a commensurate cut in production because producers are still completing previously drilled wells and focusing on the highest producing areas to trim costs. Rig counts in the country’s biggest three shale oil fields, the Bakken, Eagle Ford and Permian, haven’t fallen nearly as fast, according to Citigroup Inc.

Today’s oil industry compares to the natural-gas bust of 2011 and 2012 when a dramatic price collapse led to massive cuts in rig activity, but no slowdown production, the bank said in a note this week. Producers got more efficient and left a backlog of wells to connect later. Prices fell by half and took more than a year to fully rebound. Citi expects U.S. oil production this year to grow by 700,000 barrels in 2015 under almost any scenario, it said.

“If you don’t complete wells now, that just means you have more later,” Citi analyst Anthony Yuen said. “When the price is supposed to get high, it will just get dampened” when the uncompleted wells get tapped.

The IEA said U.S. oil production was up 115,000 barrels a day in February, some of it going into bulging storage inventories whose capacity may soon be tested. “That would inevitably lead to renewed price weakness,” the report said. The IEA called the appearance of stability a “facade.”

“Production’s through the roof,” said Tim Rudderow, who oversees $1.6 billion at Mount Lucas Management in suburban Philadelphia. “You’re going to fill up every jar and bottle from here to Europe.”

As oil prices consolidated in recent weeks, Mr. Rudderow bought options that would pay off if June futures fell back to a range between $43 and $50 a barrel, he said. He has about 15% of a $600 million fund on oil bets and might add to it if oil keeps falling, potentially setting off a panic, he added.

Another oil-market contraction could spell good news for motorists, who had begun feeling rising crude prices in higher costs at the pump in the past two months. The average retail cost of a gallon of gasoline in the U.S. was $2.49 this week, compared with $2.04 on Jan. 26, according to the U.S. Energy Information Administration.

Front-month gasoline futures closed down 2.6% to $1.7623 a gallon. Diesel futures closed down 3.7% to $1.7130 a gallon.

Others on Friday echoed the IEA’s view, saying that, in the short term, the oil market is fundamentally weak. “U.S. production growth has not yet slowed enough to balance the oil market,” Goldman Sachs said in a note to investors.

Investors did take heed in the week ended Tuesday, pulling back on a bullish bet on oil prices, according to the U.S. Commodity Futures Trading Commission. Hedge funds, pension funds and others added to their short positions, or bets on lower prices, by 4,763 and added to their long positions, or bets on rising prices, by just 731. It pulled back the net bullish position by 2.5% to 160,278.

Okanagan Economy And Jobs Market Likely To Worsen Next Year

Alberta Oil Economy Crash Reverberates in B.C.

2015 Seasonal Okanagan Economy Likely To Suffer:

Apparently all we need are more Temporary Foreign Workers

BC Business low ranking of Kelowna jobs market only adds to the problem

Future Shop, The Sequel

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.

Just this week, Kelowna Now reported that B.C. Business ranked Kelowna 17th in B.C. for the quality of its jobs market. Seven key economic indicators were used to help reflect the health of a city’s job market including: income growth, average household income, population growth, unemployment, labour participation, the percentage of people with degrees and taking transit.  This came as no surprise to many. As if to underscore the issue, the comments on Kelowna Now’s Facebook page were in overwhelming agreement with the poor ranking, sprinkled with scathing criticism of the local jobs market, local government, and the local establishment, who seem not to be interested in the local economy.

In a jaw dropping display of callous indifference to the local economy and jobs market, local Kelowna community leaders, including UBCO Deputy Vice Chancellor, Deborah Buszard, met to discuss local employment. Coming on the heels of the B.C. Business report, Kelowna Now reported the discussion at the meeting. The main theme in this reported discussion was how can Kelowna get more cheap TFW labour for tourism. Apparently there was no higher level discussion about the recent B.C. Business ranking of Kelowna at 17th in jobs. No discussion of the local Target closures, or the lack of economic development, and denial of impending oil economy crash. This is why Kelowna is going nowhere fast.

READ MORE: Kelowna Business Community Calls For More Temporary Foreign Workers

As if to make matters worse, the plummeting price of Western Canadian Select, essentially Alberta refined bitumen, and dire global oil economy forecasts, have cast a dark cloud over the Okanagan economy’s prospects in 2015. Our largely seasonal tourism and service industry economies are likely to suffer serious shocks from Alberta’s problems.  The sightings of those red numbered license plates are likely to decline next summer. Both The Wall Street Journal and CNN Money are forecasting a recession in Texas in 2015, which mirrors the situation in Alberta, and is a wake up call to Kelownan’s.  At the same time, CBC’s The National has been broadcasting a discussion series this week on The Politics of Oil, and how Canada has bet the entire economy on oil rather than diversifying and investing in the future.

Read more: Kelowna’s Low Jobs Ranking

Read more: WSJ: Texas Heading for Oil Recession

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.

 

 

A Very Warm Summer Day: Reminiscent of Provence

Not much to say here, only that this is one of those special days when you can imagine the Okanagan morphing into a very warm summer day in Provence. My preference would be a villa on the small lake near Isabelle’s home village.  Salade Nicoise seems perfect for a day like this. That’s it!

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.

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.