The Report That Changed Blogging.
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By Yaro Starak
Stephen Baxter is becoming a bit of an icon in my hometown of Brisbane.
He’s put in his own time and money to foster the start up scene with his River City Labs co-working space. He is helping a select few start ups with advice and seed funding, plus he has the reputation of a tech entrepreneur who has exited from some big deals, the biggest being the $373 million sale of PIPE networks.
Although we were a little bit tight for time with this interview, Steve did manage to share a lot of the inside story behind his first success, SEnet, an ISP started in the late 1990s, and then PIPE networks, a player in the fibre networks industry in Australia.
The interview covers his younger days leaving school early and then joining the army, were he indulged his fascination with tech, in this case “army toys”, and then later computers when he began studies at university.
Steve explains how he started his ISP from a rented house with six telephone lines (back in the dial-up days) and grew it to the 7th largest ISP in Australia at the time. His company was acquired by Ozemail just before the dot com bust of the early 2000s.
Steve then took time off, bought himself a boat and went fishing. He was gone from business for almost a year, before he was lured back in to partner on PIPE Networks, a company that helped reduce bandwidth costs by connecting often competing companies together to share bandwidth.
Eventaually PIPE Networks floated on the stock market to help fund the roll out of cable infrastructure, resulting in a $14 million capitalisation. Steve later left the company’s day-to-day operations to work at Google in California, where he lasted for a year, before returning to Australia to help finalize the $373 sale of PIPE Networks.
Today Steve is the founder of the not-for-profit co-working space, River City Labs, a large office space where start ups can rent a table office, share resources and connect with similar entrepreneurs in Brisbane.
If you’re looking for a big multi-million dollar success story, this is an interview to listen to. Thanks to Steve for sharing and please leave any questions you have as comments to this post.
YARO: Hello, this is Yaro Starak and welcome to another Entrepreneurs’ Journey interview. Today, I’m very excited to have a special guest from my hometown in Brisbane, Stephen Baxter.
This is going to be a little bit of a different call to perhaps what you might normally get from the Entrepreneurs’ Journey podcasts because Steve is an entrepreneur on a big scale so, we’re not talking about your niche websites, selling a few eBooks. This is a bit of a bigger sized companies but, we have may stories to go through.
So, Steve first, thank you for joining me today.
STEPHEN: Yes, no worries Yaro. Thank you very much.
YARO: So, first thing. I got to find out, are you actually from Brisbane? Originally born and raised?
STEPHEN: No, I’m actually born in Cloncurry in Northern Queensland and I was raised and grew in the Barron Basin and we came into Central Queensland.
YARO: So, that makes you a country boy?
STEPHEN: Well, I guess it makes me a Queenslander [laughs]. I left or I came to when I was quite young. I actually joined during the Army Services at age 15, a regular soldier and served them worth nine years and three years in Victoria, a couple of years in Brisbane and then, three other years in Adelaide.
YARO: Okay, so just to put this in perspective, already that’s a bit strange compared to what you are known for. You’re on this call because you sold an ISP or a tech company here in Australia. You’re in partnership with, I’ve done a little bit of research on that. That was a $370 million dollar sale to another tech company and you had an ISP before that. So, how did the army fit into this? You just didn’t know what you wanted to do or…
STEPHEN: Oh, probably when I was a kid, dreams of serving the country and all that sort of things, all those worldly visions you have when you’re fourteen or fifteen years old, that led me to enlisting in the apprenticeship program in January 1987. You’re really curious when you have a 25th reunion. I had that just recently and that was a lot of fun. You know you’re old when you go to a 25th reunion of anything especially when it’s a bunch of army guys who still think they are 21. That was a great weekend up in Townsville.
But, through the Army, I ended up in Adelaide. In the army I was responsible for repairing of certain types of electronic equipment and pretty well anything in the army that was in radio or radar, was in the electronics phase.
So, we did a lot of optical equipment, night vision equipment, standard optical binoculars. I did equipment courses for the… the RBS70, the … defense missile. I did radiation protection courses for industrial radiation issues, and things like x-ray equipments so, it was a very, very wide all encompassing field.
YARO: You must have been technical and from the beginning, you had an interest in that sort of area.
STEPHEN: Yes, I did and when I was there, I started doing… So, I left school at grade eleven so, I didn’t quite finish high school. I did a couple of part-time years at University because I wanted to, I felt obviously, I didn’t have a full education to say the least and I felt I was missing something there. I got into computing which was interesting.
Then, in 1993, I had this weird subject to do called UNIX and one of my instructors sent me a couple of floppy disc of UNIX effectively, and it didn’t work.
I had end up walking back to the MS system which is that’s good. Ask me about the… later on because there’s a fantastic end to that story, as well.
STEPHEN: And, downloading like 100 and something floppy disks of the original soft landing system. It was a 0.99 kernel. After many weeks of frustration, as an experiment, I tapped some dumb terminals to the serial port. I had a little fun with it and then, sort of realized that, “My god, if you actually went from dumb terminals to modems, then you can sort of be an ISP and that grew into taking a home loan deposit at that time which was $11,000 and installing sixteen fine lines into [04:29] and starting an ISP, pretty well.
YARO: Okay, so how old were you then?
STEPHEN: I would have been, it was in 1994 so, I was born in ‘71 so I was 23 I suppose. Yes, 23.
YARO: Okay, so early 20s, you borrowed $11,000 or you saved up $11,000?
STEPHEN: We had saved $11,000 as a home loan deposit.
YARO: Right, and you just basically started an ISP back then. You had to put a bunch of phone lines into a property and I’m assuming set all the software up and away you go.
STEPHEN: Yes, very much so. I’ll tell the story, the true story, when I realized this a couple of years ago sort of stagging me, I’d only actually seen a web browser, either someone showed before executing this.
It was actually seeing that early version of, it wasn’t Skype then. It was called Mosaic. It was bought out by the National Center for… NCSA Mosaic. I was actually seeing that and saying it was just when the CGI, Common Gateway Interface specification was released and I realized you can really interact with these computers, and that’s when I knew Internet was going to be big.
The scariest time it was I talk to my fiancee at that time. We weren’t married at that point. We were engaged. It’s fully, talking about this crazy idea I had and fully expecting her to say no. Then, she said yes. That was a pretty scary moment.
YARO: I’m assuming, the idea was to make a living off this ISP company you were going to start.
STEPHEN: Very much.
YARO: And, how did that go? This is a while ago now in terms of the, especially in Internet years, to start an Internet company and get customers using it, and thinking, what it was AOL who probably was the biggest player coming up around that time.
STEPHEN: Yes, in Australia, OzEmail would have been the biggest player and OzEmail were the ones who eventually caught us. So, I had that going in the suburban house so, I took a year off leave without pay in May 1995 and to fully work on the business because obviously, I was still sort of serving and the business just went off. Spending time on that was just–
YARO: How come?
STEPHEN: Well, I managed to get there and actually, while the Internet was getting very popular as well and getting more popular on the adoption curve, I managed to get out and my promotional strategy was basically dropping flyers into computer shops.
YARO: Yes, right.
STEPHEN: And, that was it, just getting around and talking to computer store owners and giving them deals and signing up for free and doing the promotion. And so, being able to concentrate on that was good.
YARO: Wow. That’s quite a simple marketing strategy for nowadays [laughs].
STEPHEN: That’s social media in 1995.
YARO: [Laughs] Exactly. This shows how getting on the crest of the wave is about to crash, how, I won’t say, “easy” but I guess how fluid the process can be. You don’t have to worry too much. People are just hungry for what you’re providing and you’re in the right place at the right time.
STEPHEN: Yes, that’s true. There were plenty of Internet service providers who didn’t last a month, or didn’t probably last six months or twelve months.
YARO: So, what made you different?
STEPHEN: Though I was not the thinker, I knew how to custom provide a service and I made sure I charged more.
STEPHEN: They’re very common. I mean, you had people signing up for … internet services. So, you had people at the, sort of providing at a cost. We knew the cost are provided and when people sell it cheap, you know that can’t last long. Unfortunately, they have the impact of just stalling the market in the meantime.
We went through that. We ended up moving out of the house or actually, when I just… from the Army, I had to move out of the house. So, what am I going to do?
So, I didn’t have the cashflow to be able to move the telephone lines that I’ve installed and so, believe it or not, the house next door came up for sale so, we actually bought that house next door.
The only reason I bought that, if it was on the left hand side, it was at the right hand side, I wouldn’t have bought it because I couldn’t have actually literally dug up the telephone lines and really like having it next door because it was closer to the exchange.
As that’s what I did. I actually physically relocated lines. I was actually… from a knee reconstruction, a knee surgery at that time. I actually got it there with a medic [and a pick?]. I re-trenched it and put it in.
STEPHEN: Put red treehouse downtime from that exercise. That wasn’t too bad at all.
YARO: Wow, you talk about being hands-on. That’s about as hands-on as it gets.
STEPHEN: It’s as cheap as it gets too, isn’t it?
YARO: [Laughs] I guess so, yes. That’s the benefit of being hands-on.
I’d really love to get to the next business. How did this one wind up in the sense that you did get acquired by OzEmail which back then was the largest ISP. Back then, that would have been a Malcolm Turnbull company too, I believe.
STEPHEN: Yes. I didn’t actually met Malcolm at the time. I met Sean Howard and David Spence but Malcolm was involved…
YARO: Just for the people listening who are not familiar with Australian politics, that was a once leader of the opposition party here and a very well-known politician who is probably one of the most wealthy politicians from selling OzEmail, too. So, obviously, that was a ton of consolidation for ISPs and you were one of them.
STEPHEN: I’ve heard the consolidations to where it was peace and efforts for fifteen years and it’s still happening. So, I don’t believe consolidation stories.
I took a new business partner in October or November, I think of 1995. We moved into the, so Chris had 45%. I had 55% and Chris, and still a really good friend, Chris Wood. He’s a lovely bloke down in South Australia.
We then moved into the city so, we actually relocated the business and really attacked the consumer market and went gangbusters, just went crazy. We sold that to OzEmail in 1999 and 2000. And, end of 2000, we relocated to Brisbane which was always our desire.
YARO: So, that was five years there of really growing that business.
YARO: Right. How big did it get? Like when you eventually sold it, how many employees?
STEPHEN: We had about 65, I think it was about 58 or something, 68 or 65 all together employees, full time equivalent 58. So, when I left the business, we had 34,000 users. We were about the seventh largest ISP in Australia at the time and we only had a point of presence in Adelaide. So, that was pretty cool.
YARO: How did that happen, Steve? Is this word of mouth because it can’t be just flyers just been dropped into computer shops.
STEPHEN: No. So, eventually, we graduated to having a $500 dollar ad in the Saturdays advertised in the local newspaper in Adelaide, the computer section, and that got us a little bit of business start. This is the weird effect of advertising.
After a while, we’ve realized that it wasn’t really getting us paying back, that word of mouth was really what was doing it for us. So, if I’d pull that ad out of that newspaper, our business got 70 phone calls asking if we were about to grow broke because the sort of timeline for us was they got some money from somewhere, they’d get out there with this… process and plans, with these big ads in the said day, advertised in the computer section. They knew when they’re going broke because the ads disappear. So, these people would ring up and say, “Oh my God! You’re going broke!”
No, we’re not.
So, we kept the ad in just to keep the customers happy. They got us really very little work but, word of mouth. So, customer support, customer support, customer support. We had a simple philosophy. When the customer rang up, we should actually know what services are purchased from us. Nothing more frustrates me when you ring up a service organization and you have to tell the person on the other end of the phone what you are buying from them so they can start to help you.
So, we put systems in place that allowed our staff to take in full of the conversation with the customer in a very positive forward way. Our tech support staff were instructed to keep our customers happy that if they’d ring up and they’re having problems with Microsoft Word, you fix the Microsoft Word. If they want to be sung a lullaby before they go to bed, they sung a lullaby.
It was all worth every last bit of it.
Other things as well having extremely robust system. So, going from analog modems to digital modems was huge. We went from a very unreliable technology to quite a reliable technology to like a 7% connection value to a 1% connection value.
So, what that does for your perception of qualities is massive but, that was a big investment.
YARO: There are some great lessons right there, isn’t it? A quality product and quality customer service is almost all the marketing you need. Thanks to word of mouth. That’s fantastic.
Now, I’d love to talk more about this, Steve but you have a deadline to get to. So, let’s move forward.
So, you sold to OzEmail. Can you tell us how that went out?
STEPHEN: I was possibly terrified by Telstra. So, I’d launched Big Pond while I did the initial telephone services called on Australia, it was partner with Microsoft and that came out in Big Pond. They were doing a lot of advertising and Telstra would, I honestly feel that if it got the UNIX, that would process overnight.
They had done several things by mistake, honest accidents with respect to technical configurations and various bits and pieces that really were almost devastating to us.
So, at one stage, they mis-configured the equipment in our premises and so, pretty well known, you can barely connect to the feed if you are on a 36 cable, any more of any good luck at 21 or 718 K connect which people really look at in those days because you want to get half speed all of a sudden and you’ll really noticed it and we had no control of that. It probably took Telstra six weeks to fix. That was… So not dropping office, people not dialing in and that was a hell of a lottery.
For that, I got a settlement over that one, too to be honest because it was a shocker but, if they really wanted to turn me off, they could.
YARO: We should point out to overseas listeners, Telstra is the largest telco in Australia. They own the hardware here, the infrastructure and that’s why you were so susceptible to them because they own the wiring.
STEPHEN: Oh, very much so. I mean, I know a bit that [Telstra?] never did that. We had a very strong competition regulator here so, that never really came. Telstra never made it easy for people but, they never deliberately hunted them down like I feel that they may one day. I think when South Korea came back in ‘05, that might have changed a bit now. They’ve got a lot more of issues.
The apocalypse that I foresaw never happened but we took money off the table in ‘99 or 2000. It wasn’t a bad time to do it considering what happened a year later.
YARO: Okay so, did you just go looking for a buyer or did they come to you?
STEPHEN: We had a few come to us. I went on a trip to the US. That’s first time I went and I’ve been going ever since. I quite enjoy getting over to Silicon Valley. I felt sort of fell in love with the area in that first trip.
We spoke to a few crazy yanks over there. They really don’t understand things they can’t draw up to.
STEPHEN: That was a bit tough and it was a realization I was going over too with that as a goal in mind that took some of our competitors talking to us and in respect to acquisition.
YARO: And, did it go smoothly? Did someone knock on your door and say, “I want to give you this much money and done deal,” or…
STEPHEN: Did it go smoothly? Yes, well I mean, the transaction was smooth. There were no issues with the transaction. There was a lot of… about the price we sold it for. It was a lot less than, it was all cash. I was that upfront and it was a lot less than a lot of the script deals we were going for at the time, probably about a quarter to some of the script deals to be honest but, the script deals were also escrowed for two and three years which when we first did the deal, it didn’t get the capital, we didn’t get the relief with respect to the role I really… See, I had to actually pay capital gains in the script even that was escrowed. So, that was a massive problem. But, tell me the second tranche that wasn’t an issue but, the first tranche definitely said to me, script was never an option there for the process I always laid because people had less cash.
But, eight or nine months, or after the deal, that was not a bad price because they were an internal script. We left with luck with one cent a dollar.
STEPHEN: And, I feel sorry for them but, to me at that time, I couldn’t understand how you keep script work with the writings from… in Australia.
YARO: Well, I want to ask you exactly what you sold it for but, I’m assuming you were set, well, I won’t say set for life but, you were pretty set at that point after selling out. Was it a case of I want to go on a holiday now, or let’s jump into a new business?
STEPHEN: It was sort of like, on discharging from the Army Services and working in that business and selling it, I would have averaged six and a half days a week and the full days were probably plus 40 nowadays.
At that point, I’ve had an absolute gut-full of… My fitness deteriorated to the point that it was probably dangerous so, everything does come with a price. Potentially, I didn’t manage the growth of that company with respect to, personally as well as I could have. So, I was very happy to move back to Queensland and do some fishing which I did, bought a boat and had a good time doing some fishing.
YARO: How long?
STEPHEN: Oh yes, so we came back in late 2000 and well, we came back in late 2000 and late 2000 is when we restarted so, you could tell that I got pretty bored with it pretty fast.
YARO: Yes. So, you got less than a year and you wanted to get back into running a business.
STEPHEN: Yes, I still just turned 30, you know so I was still pretty keen. So, we started well, Pipe officially was registered as a company in November 2001 and we really opened the doors in late 2002. Once we’d sort of acquired the premises and built a little bit of infrastructure in order to kick it off.
YARO: Okay, so Pipe is… what was the starting vision for it?
STEPHEN: So, Pipe started as, it was called, so Pipe actually stood for Public IP (Interchange Peering) Exchange. So, it was all about a way to get internet service providers and telcos interconnecting more rationally than they were at the time and probably still are.
So,… my company in Adelaide… seen it. I co-founded something called the South Australian Internet Exchange which was an Internet Exchange that got basically competitors working together because at that time, we were paying $16,000 with the equivalent rights of like I think it came down to, by the time I left, it came down to about $16,000 and they gave the second per month down from effectively sixty but, based on a pretty big model.
So, if we can change traffic locally and not pay Telstra, that massive amount of money from the privilege, that was a good idea. So, I spent a lot of time getting my competitors to cooperate. So, that was pretty well the business model of Pipe to do that arbitrage arrangement in the middle.
YARO: You must have been selling tranche in the telecommunications and the ISP market of Australia to even think that you could jump in and get a bunch of large companies to start talking together in that way.
STEPHEN: Well, I don’t think I’ve ever had eyes on large companies. Obviously, my business partner at that time was Bevan Slattery, and he was the guy who came to me with that idea knowing that I’d done what I’ve done with SAIX.
I wasn’t, at the time he came to me, it was probably March or April 2001 and at that stage, it wasn’t nowhere near to get back in the business. And so, but I go from hands on doing some virtually some freebie consulting because it’s not like going to be fun to sort of pitch it towards various venture capitalists and whatever and not a lot of good time to do it, mid-2001, the world was falling off on a plate when it came the dot com.
So, in September or October 2001, we said that’s we threw $70,000 bucks each into the hat and we went off and started part. We changed the business plan radically because it wasn’t, the form that was being proposed, the VCs, it was never going to work, not that we tell the VCs there. But, it would never have worked. It would have been dead on day one.
So, we changed the business plan. Not greatly but, enough and we went out into independent capital cities with fiber with them and that sort of thing. And, that wasn’t really actually… It was a pre-requisite for it to work.
YARO: Tell me what actually did work for Pipe, especially the early days maybe at that point when you said, “Okay, we actually have a going concern here and it’s doing something that makes it profitable.”
STEPHEN: Well, what did actually work? So, the initial part or business model was very simple. It was finding certain buildings in each of the mainland cities of high telco and ISP concentrations and there was typically two or three in each city that was putting an ethernet switch and putting infrastructure which is essentially an ethernet switch in each of those buildings interconnecting those buildings in the cities so, each city was an island but, you have to get behind them between these building and getting carries and ISPs to interconnect with that and those the real seeker source and I think a lot of people don’t quite realize was the actual contract that everyone by default signed on to with each other, and without realizing it, they signed on to Pipe. But, we applied the same rules across the entire customer base.
So, it was a set of rules that [...] interconnecting interchange traffic. We set up a little bit of infrastructure to arbiter the routing between them to make sure that there was no routing mistakes, sort of the board crashing down, a little bit of software that I initially wrote called [23:06], which, thank God, someone took off my hands later on and made fast and secure because I’m really good at record prototyping stuff but you don’t look want to look at my code with a security. It’s terrible.
Then, we started Brisbane and then, went to sort of Sydney, Melbourne, Adelaide, Hobart, believe it or not, eventually Perth. It was such an inexpensive infrastructure to maintain. We had customers who had a high resistance to connecting. We could decide, just plug in for a month and try it.
We don’t need to prove this to you. You just plug in. Give it a go. No one ever unplugged.
YARO: Could you clarify for those of us who may be not quite grasping the technicalities here. What you’re basically doing is making the local networks work together to speed it up and make it more cost effective, basically get rid of the latency in the network. Is that kind of the link–
STEPHEN: Yes, that’s it. So you imagine a world where you have three ISPs for example and each one of those connect to Telstra or connect to one single incumbent carrier for the Internet access. Any traffic that’s exchanged between them has to go up to Telstra and then, back down to their competitor.
We become an arbiter at the middle where each one of those connect to us for a fixed fee, not a user device fee. Then, you can send your traffic, the routing that were picked the cheapest and best part effectively bypassed Telstra and you interchanged traffic without sending it though the expensive and also new typically highly lighting path through the carrier.
YARO: So, you provide the intelligence behind that working.
STEPHEN: Oh yes, telecoms was easy but, the more of it was we were the neutral party. We did not have an ISP business. We did not compete. This is such an important aspect to it. We did not compete with our customers. That is the single most important thing that any intermediary can do.
STEPHEN: That was hard not to do at times because there was opportunity coming left, right, center, and to sort of… and say, we’re not going to compete with our customers.
So, in doing that though, we built into the farthest places so, I mentioned we had these buildings in each city and we connected them initially. We connected them, we’ve managed … from certain carriers.
Very quickly, we realized this wasn’t going to scale. We always knew it was going to scale. It was just what was about all the time and then, so we started deploying our own fiber optic, … farther between these buildings.
That introduced a little bit of competition to some of our customers but, no one really did that far. Everyone built far within and sold the many service. We sold at least to define the people. We really did.
YARO: You’re like the United Nations of ISPs.
YARO: Connecting the countries together and making sure they trust you but, not each other.
STEPHEN: That’s not a bad description to be honest.
YARO: It doesn’t make you sound very altruistic as well [laughs].
STEPHEN: No, it’s not. There’s plenty of profit involved. Don’t worry about that.
YARO: So, how does this become a company that you can sell for $370 M?
STEPHEN: In ‘04 or probably early ‘04, I suppose, we were close to that. This is going really well. We were rolling considerable amounts of fiber. We probably had 10 – 15 kilometers in the ground at that time. Fiber optic, you can probably make more money than fiber by selling drugs.
STEPHEN: It’s got just a fantastically high margin. What we used to do is we used to is we used to go out and convince a customer who wanted high speed capacity between two points. We used to go out to them and actually said, “Right, it’s going to cost us,” and we’d get a quite good process, let’s say $50,000 or $60,000 to build fiber between point A and point B. We go to the customer and say, “Look, here it is. It’s going to cost you $50,000 to $60,000 to build this. We’ll going to rent it to you after that for $2000 per month.”
Believe it or not, this was fantastic. I can remember the time that Telstra… we’re trying to charge $16,000 a month for the same service more so for set up. So, we had a market.
We’d have a build cost covered. We’d install like 144 core cable of fiber. For $2000 a month, we’d sell the customers two course or rent the customers two course per month. So, we had 142 left over to sell to other people.
So, every second customer we got was probably 80% to 90% gross margin.
YARO: Wow. And give you so much space to get more customers and without having the… It’s a one-off infrastructure cost but, you can keep selling.
STEPHEN: Yes exactly. But, we did have some problems and there were some certain core runs and core rings that we wanted to build to allow us to access more customers. If it’s only 50 or 60, that’s quite easy. If it’s 150,000, you have to phone a different class of customer. That might be a good deal for them but, I still have trouble finding $150,000 bucks once up in their budget despite how much I might have sold them for 12 or 24 months.
So, we needed to raise capital. We actually looked at selling the peering business to a competitor and we got fairly on a track with that until I sort of pulled this 50 on the… just ignored [...press?] and just thought we were joking about it so, out of that, we needed to raise capital so, we explored listing.
We always ran off highly structured company. We were very, I suppose, a quality company from the respects of quality procedures internally. So, we had a high degree of certainty of contrast, with a high degree of certainty of the… of the company that made listing actually really quite not an easy process but, I wouldn’t call it a chaotic process. It was measured. It was controlled and so therefore, we pursued the listing path.
YARO: And, that went successfully. I think you had a, was it a $14 million capitalization is what I saw somewhere in some research I did.
STEPHEN: Yes, $14 million, completely sure it was three and a half… from Pipe. I think it was three and a half million we raised, Malcolm? Yes, three and half, he’s nodding, that’s correct.
STEPHEN: Three and a half million dollars in post market post list was 14 mil, 40 cents a share. The proceeds of that went to build up more fiber in Brisbane and Melbourne and a little bit in Sydney, I’m pretty sure.
We didn’t really look back from there. We geared up quite substantially. Once again, huge fan of repeatable quality systems. The biggest thing we did in the fiber space was understand where our fiber was installed which might sound like it’s, “Well, duh, you do that anyway.” But, the number of businesses out there who didn’t do it and still don’t do it.
So, when I installed a piece of fiber in the ground, they institute a knowledge of where that actually is, what manhole you have to lift up to get access to it and because there’s a 144, and on the bigger counts, a thousand fiber and a cable, you have to know exactly which ones to pick out and cut to bring a new customer on because if you cut the wrong ones, then you’ve actually taken yet another customer.
So, losing access to the information and more importantly, the ability to efficiently access or re-access, moving and changing information are so important and what allowed us to actually… That was a pivot point to take us forward to just a really, really nice fiber business.
YARO: I can imagine, this is not you anymore digging a trench in your front lawn. You got a team of engineers, well, not just engineers but, people who are out there doing physical infrastructure installation. So, it’s a totally different business to an ISP in some regard then, right? Or, small time ISP versus I guess, someone who owns their network.
STEPHEN: Well, yes. So, we never actually had people who built network for us. We always contracted that.
STEPHEN: So, we typically had two or three contractors in every city [31:06] to keep them on it. We have very good project managers and a very good project management team, and a very good GS spatial information team who basically built the network that the sales team wanted us to built.
So, it was very much a project management task more than a construction task.
YARO: It sounds like a huge company again, Steven. I’d love to dive more into it but, you got like five minutes left here. So…
STEPHEN: Oh, I’ll give you ten.
YARO: It sounds like though you got yourself in a situation where you have a big business with lots of employees, were you stressed out again and that’s what led to the sale?
STEPHEN: No, no. I left Pipe as a full-time executive in early 2008. I was supposed to have left in mid 2008 but, I didn’t until after February.
YARO: You went to Google, didn’t you, if I read right.
STEPHEN: Yes, if there’s any one job left from the company for me to get that was CEO, and my business partner, Baven wasn’t about to let that go and he would probably, you know, on the balance would have been a better CEO than I would have been. Not that I would have been a bad one. He just would have been a better one or was a better one, I suppose… And, yes a little bit bored. And, always had a desire, as I mentioned before, I’ve always dreamed about Silicon Valley so, I sort of, you know, it was boring working over there.
I was sitting on a Google recruiting email from probably 4 years previous. I’ve never bothered to respond to, and I said, “Nothing ventured, nothing gained.” Hit reply. The person still worked there. And, I had an interview and they got me working in Mountain View with Google in the Valley.
YARO: Doing what?
STEPHEN: I was like technical program manager building the high speed networks between their secret data sense. So, Google had quite vast quantity, it has acquired, it’s quite open and the first fast quantities of fiber optic cable across the country and my job was to build out the infrastructure on top of that to provide terrabits.
They call them terrabits because they are terrifyingly large, terrabit links between the data sense.
YARO: Your reputation for being good at cable, laying cable or at least controlling that, that’s what qualified you for this?
STEPHEN: I think that’s what attracted me to it, very much what attracted them to me. So, different environment. I went from working in a small company to working in a road-free large Silicon Valley based company that really doesn’t have productivity as its main driving force.
I found that adjustment quite difficult.
YARO: How long did you last?
STEPHEN: A year, one year one day. Nothing too special to that to the actual one year one day. We just have hand down the end so, I really had to return or had to leave California in the end because we received the offer to take every part. If I stayed in California, I would have exposed myself to substantial California Capital Gains Tax. And so, I really had to get the hell out of dodge.
I was already delayed due that I had enough. The project that was unchanged due to various issues, we sort of changed type at what I was doing at Google. We had fundamentally changed a few things, how to manage information internally and on the fiber side, more on the GS spatial stuff again. And, I’ve gotten a feed, I think achieved in that respect.
Also, I did not have the political skills required to maneuver an organization of 35,000 to 40,000 people. I was a little too blunt for that. I don’t suffer fools gladly so, I really had to get out of there.
YARO: Okay, so you got your call back. I’m assuming the offer and the negotiation process was happening in Australia while you’re in America during that time.
STEPHEN: Yes, very much. I was still a non-exec director. I was still on the board, still attend the board meetings, or meet them virtually, or through telephone. So yes, that was going through TPG, made enough… I want to say officially in November or October 2009 under scheme of arrangement which is quite a lengthy court-based process that closed in April 2010.
YARO: And, you walked away, I’m assuming, an even more wealthy man in the first sale of your business. So, was it time to get back on your boat?
STEPHEN: [Laughs] Board another boat!
YARO: [Laughs] Okay.
STEPHEN: We love the US, as well. I’ve got my pilot’s license so, I’m a private pilot and I came back to Australia and converted that to an Australian pilot license because for some reason, the air over here is more rarefied than in US and we had extra loss of flying aircraft.
So, I’ve got a couple of planes, well flying planes is one of my hobbies. I quite enjoy that. I do a little bit of charity flying for people like Angel flight as well. So, I’ve done fair bit of fishing. I ended up buying a lovely place up in the Whitsundays actually on Shute Harbour fields so, we fly up, land in Shute Harbour which is quite, it’s just near a beach and then, park the plane under the house which is quite nice, yes.
YARO: So, last few minutes, Steve. Your current projects are obviously…
STEPHEN: River City Labs.
YARO: Yes. Tell us about that. That’s how I actually first found out about you.
STEPHEN: All righty so, it’s an early stage instead of co-working space for mobile and internet companies. We like to sort of say, you can come and grab some disk space here. If your business needs an IP address, you’re in. If you’re business also have an IP address…
So, we’re really about providing a place that’s inexpensive for people to test IDs. Some people would call it inexpensive to file, probably true. But, you know, get out there. Try your crazy idea. We’ll charge $350 ex GST a month for a desk that comes with an Internet, access to all shared resources.
So, it’s really styled effectively. We have mentors, and as you know, Yaro, you’ve been to our events. We have events that we try and bring the company together, the whole thing, and this is not a non-for profit venture that I fund with an interest-free loan. I sort of call it an interest-free loan because my wife [can sell it?] back one day which I doubt will.
But, it’s about me trying to do my little part to bring this community business early stage mobile, in its early stage and start up community together, put a physical… for a place that we can house this community, have the congeal around it.
YARO: So, that’s RiverCityLabs.net for those interested. It is a Brisbane-based location obviously.
STEPHEN: It is.
YARO: It’s an–
STEPHEN: It’s in the valley.
YARO: So, this is for Australian entrepreneurs listening in. I think for me–
STEPHEN: Just not Silicon Valley. More like Heroine Valley.
YARO: Yes well, I like the Silicone Beach label we’re getting more than anything, I think. Not that we’re on a beach but, we do have South Bank. I think the biggest point with co-working spaces is also the social aspect. That’s what’s certainly missing during my early years starting what I did, very not social– underwear, in the computer next to my bed — depressing.
So, the social part, I think, is definitely what’s highlighting of a place like River City Labs and I think it’s great that you start that in Brisbane. We didn’t really have a lot of support for entrepreneurs. This seems to be ballooning this year but, River City Labs is certainly paving the path. That’s fantastic, Steve.
Before I let you go, just one question. For those people listening in to this, you’re probably one of the only interviewees I can really ask, if you want to go big like this multimillion dollar companies, there’s pros and cons to going that large but, some people out there really, really want to. Is there something one tip you can give that makes a difference to get that big?
STEPHEN: If you want to go big, you want one tip.
YARO: Yes, because you only have two minutes.
STEPHEN: All right. Understand what it costs and sell it for more.
STEPHEN: I cannot over-emphasize that enough. It seems there are many people who lose money gleefully. I don’t understand that, I just don’t.
YARO: Okay. Simple one.
STEPHEN: Simple one. See?
YARO: I was expecting, “Think big. Don’t think small,” or something along those lines but, no we can work with that. Thanks, Steve.
STEPHEN: No worries at all. Thanks Yaro.
YARO: RiverCityLabs.net for everyone listening in and thanks for joining the call.
And, of course, for everyone who wants to grab this interview and all other interviews with me, just Google my name, YARO or head to entrepreneurs-journey.com. You can download all the other podcasts. Thanks again for listening and I’ll talk to you again very soon.
About Yaro Starak
Yaro Starak is the author of the Blog Profits Blueprint, a report you can download instantly to learn how to make $10,000 a month, from only blogging 2 hours per day. You can find Yaro on Facebook, Twitter and Google+.
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