Select Committee on European Union Minutes of Evidence

Examination of Witness (Questions 79 - 99)




  79. Good afternoon, Mr Browning. We are very grateful to you for coming along at relatively short notice to give us evidence and also for putting in a paper which came this morning. I think you have seen the terms of reference of the inquiry. I would like to give you the opportunity if you would like to take it of saying a few words about yourself and the organisation you represent and then we will have a question and answer session.

  (Mr Browning) Would it be helpful for me to go over some of the material in the papers such as what First Tuesday is, what experiences we can speak to, what we have learned from them and then we can go into more detail from there?

  80. Yes.

  A. I am not going to read this paper because then everyone will go to sleep but I am going to cover much of the same material and explain how First Tuesday first came about. Four of my colleagues—Nick Denton, Adam Gould, Julie Myer and Mark Davies—who were sitting in London thinking, "There are a lot of people doing interesting things on the Internet. None of them knows each other. Let us have a cocktail party." So First Tuesday sprang from a cocktail party held in October 1998 in a bar in Soho. It caught a moment. It brought together two things: a community of people who all of a sudden seemed to see together that the world was changing, and it created a bunch of opportunities to create new sorts of businesses using the technology of the Internet and the Worldwide Web. It also became a market place because, as they were creating these businesses, they needed a way to find the resources that they needed to build them, the people, the money, ideas, professional services. Because these were new sorts of businesses creating new sorts of opportunities there was no established meeting place, no established networks in Europe in quite the same way that there are in Silicon Valley. And First Tuesday's network grew. It grew by word of e-mail. Friends invited friends to the next one held on the first Tuesday of the month. Friends invited business contacts to the next one, and today we are holding events in 36 European cities on the first Tuesday of every month. We have eight more cities spread elsewhere across the world, and interestingly, because we have been very successful in Madrid we have been dragged into South America via the Spanish language over the Internet. These local organisations, these local events, were organised by groups of organisers who have taken our brand under licence. They have mimicked what we are doing in the events in London, and as we turned First Tuesday into a formal business to get it the revenues, to get it the means to keep going and capture some of the value it is creating, they share in the ownership structure through options in the business. What has been astonishing is the way that, even as we have had 30,000 people on our mailing list, the brand and the events were the same in all these cities. I was in Madrid three weeks ago. I do not speak Spanish and I could not understand a lot of what was being said, but the atmosphere was palpably the same as at the events in London. Deals were being done, and young companies were being formed. We hear the success stories about Jorge Mata, who is a Spanish entrepreneur with a Spanish company called My Alert who is finding his finance here at First Tuesday, or PeopleSound, which is a young Web music business which is expanding across Europe, and is hiring a lot of its European managing directors by coming to First Tuesday. As we expand, what we are trying to do is build out this community and market place at two levels. We want to go into more cities. So far we have grown entirely on demand by people asking us to hold First Tuesday events in their city. At first we were a bit shocked that people would send an e-mail and say, "We want your permission to hold a cocktail party where we live." This seemed like, "Why are you asking us?" It is clear that somehow being part of a network, somehow having a frame of reference to work from as to what is happening in these rooms helps people make it a success and helps replicate the experience. We are also creating a regional and indeed global network of entrepreneurs which is founded on the website. As we get bigger we try to create more specialised services for them. For example, we are having matchmaking events in which we bring together entrepreneurs and selected venture capitalists and try not just to put them in a room and hope that putting that in motion will somehow create a deal but actually try to introduce people who we think will be of interest to each other. On the Web we are still very much in construction on our website but we are building out a range of services that use the power of the Web to hop across borders in order to extend the reach and scope of the sorts of things that happen at our events. We have job mailing lists where people post an e-mail to say, "I am looking for a job" or "I need a job", and we are getting 50 or 60 postings a day on that and it is growing dramatically. We have got a discussion list where people share resources and ideas: "Does anybody know a Web developer in Lisbon?", "Can anybody tell me how to structure option schemes to work across these three European countries?", and some who are quite frankly naive: "I have an idea. I think it is really good. What do I do next?" Again, we are building out and we are looking to create deeper databases of services so that we can provide a resource that will enable entrepreneurs to search for the resources they need and find them more easily. We are looking to build a broader range of communities and we are also looking in general to try to make ourselves an indispensable resource for entrepreneurs looking to build their businesses. So far I do not think any of us, looking back to October 1998, was thinking, "Gee, we are going to have a cocktail party and then we are going to build a global business." This was clearly not a rational expectation. This has been what my colleagues call an accidental company. It was an opportunity that seemed to be both economically very attractive and valuable, but also socially making the world a better place. My own background is in journalism and consultancy. I worked for The Economist for 12 years and then split my time between journalism and working for people like McKinsey, a monitoring company, strategy consultants trying to work with companies doing what used to be called technology strategy but what rapidly became Internet strategy. It is astonishing to me the extent to which, having written about and tried to use words to talk about entrepreneurship in Europe and make it happen, the moment is now here. It is happening despite what anyone would have said. I feel particularly fortunate to have just landed in the right cocktail party at the right time to be part of this vast snowball rolling down the hill. We have learned some lessons that I will put at a very high level from the surprising existence of First Tuesday. After we put those up quickly we can talk in more detail about them and go into the chunkier policy stuff if you are interested. First, I think Europeans really are passionate entrepreneurs. There is a conventional pessimism that says they are defeatist, they do not really want to take risks, they just want to sit around and moan. It is not true. We would send out an e-mail in London and we would get 1,500 people in a room who wanted to build new companies. Yes, it is fashionable now; yes, there is a lot of money on the table. But what I like most of all is that if you talk to the people in the room they feel that building a company empowers them to provide the sorts of services they want to buy and that they want to use, which to me is one of the hallmarks of a good entrepreneur. Government's role in this is not really seen as relevant, if I can put it that way. It is not that it is particularly out of touch. It is just that the resources that the entrepreneurs need are coming from the community. There is money there, there is talent there, there are ideas there, there are professional services there. The worlds do not really touch right now. When entrepreneurs do encounter government by and large it is as an obstacle and I am going to get into that. A couple of key examples of that are the next two points. Scale is critical to entrepreneurial success in Europe right now. The Web is creating global markets and creating at least regional, if not global, companies very young. This is very important in terms of getting first mover advantage in all of those markets and also in terms of getting the sheer scale needed to go for it with what is going to be inevitable American competition because they do build up big companies with a big domestic market. Harmonisation has not been everything that it was promised to be. I do not think even anyone on the Commission would say that it has been entirely successful but certainly for small companies who are trying to spread themselves very thin they are being hampered and their life is being made harder by differences in everything from the laws of company formation to taxation and consumer regulation across the board. Similarly, speed is critical to success in entrepreneurship on Internet markets. By and large when entrepreneurs encounter governments they complain that they are slow in everything from granting licences to granting approvals and also not using the technology itself. Entrepreneurs are often working among themselves, particularly on the Internet, and in that world they can achieve a good deal of speed by using the technology. It is quite effective, you can share documents via the Web. With the noble exception of Patrick and this Committee, with whom I have dealt entirely by e-mail which I thought was very good, I have to say that by and large when you are dealing with government you are dealing on paper. You are not even dealing by fax; you are dealing by mail. It is slow. That is the least of it. In Spain I am told it can take two years to form a company if you are unlucky in not getting the right window at the right time. Even Esprit, which is trying very hard to create grants to help European companies, has an application process which was speeded up to six months, which is death for any entrepreneur. That is half a technology life cycle. Finally, there are a number of specific regulations which, with the best of intentions, have yet to catch up with some of the new realities of the new economy. Stock options are critical for forming companies whose only assets are people. That is what binds them together. It is not working on the assembly line. It is having a common reward structure. Stock options are not by and large very well treated in a lot of European tax regimes. Financial regulations are by and large geared towards publishing on paper. As everyone in the world, including the SEC, is discovering, which is not surprising as the Financial Securities Act was passed in 1986, those regulations often act to keep information out of the market rather than put it in. Getting more information out is particularly important at the level of small companies where there is not a lot of information to start with. Consumer protection regulation in conflicting regimes across Europe makes it hard to do a lot of the consumer start-ups, even at the detailed level such as, for example, in Germany I am told that it is illegal to say, "Buy one, get one free" because this is of course a 50 per cent off sale. Those are the points that I wanted to cover by way of introduction. I hope I have not put you all to sleep yet. I just want to sum up by referring to and thanking some more colleagues, Reed Foss and Gerhard Miller (who is here with me) and all the other people who are building First Tuesday, our city organisers, and to repeat that we are all astonishingly optimistic. We think this is a world of overwhelming opportunity, that that opportunity is being distributed across the whole of Europe at a great rate and we look forward to the community working to build a better future.

  81. What do you think is driving this growth?

  A. In First Tuesday or in the market place?

  82. In the market place.

  A. A combination of two things. One is the technology itself, the opportunities being created to create new ways of doing business with the Internet, of creating new customer relationships, changing the supply chain at the back end of a lot of traditional industrial relationships. Combine that with the unification of European markets and there is a pretty powerful force for creating new business markets and new sorts of companies. Let me give you a couple of little examples to make that a bit more concrete. I could waffle on for much longer but I will try to give an example instead of blabbering. PeopleSound: a little company that started up and puts music out on the Web. Putting music out on the Web is easy to do, but the nice thing that they have done is this. The music companies have a problem in figuring out what is going to sell because they never can really tell until they have invested half a million pounds or dollars or whatever in printing up a bunch of albums and distributing them through the stores, and then they sit there because nobody is buying them. Can we choose a cheaper mechanism to get earlier market feedback and then start by producing what customers like by building on our own market response and thereby not wasting quite so much money just shooting albums in the dark? The Web is a great tool for doing that, not to mention reducing the distribution costs of doing it.

  83. You mentioned Silicon Valley and bringing in your experience from there. Was it limited to Silicon Valley, the building up of the networks, or has it spread from there right across the whole of the States, which has given the States the lead which it has?

  A. The building up of the networks is going to be true of any centre of entrepreneurship, and there is a lot of work from people like Michael Porter about clusters which looks at networks in a variety of industries from Italian leather goods to semiconductors or whatever. In hi-tech the key networks are in Silicon Valley which has become largely technology oriented. They make the things that make the Web and the Net work. New York is going to come in with its new media credentials being the centre of broadcasting and advertising. Boston sits somewhere between the two. Boston Texas has a fairly strong software network. My home town, Salt Lake City, Utah, has got not a bad Mormon-cum-software network centred around Provo Novel.

Baroness O'Cathain

  84. In genealogy.

  A. In genealogy software, exactly, the world's largest genealogy. By and large the cities that First Tuesday is in are cities that are often quite explicitly saying, "We do not have a history of entrepreneurship. We do not have these established networks. We see these opportunities and we need help in grasping them because we need the networks of partnerships and relationships and we need the human talent to make these companies work." That is what we provide. We had a call from Detroit; again: "Detroit, why are you calling us?" I do not know anybody in Detroit, but there is someone on the phone saying, "Can I do First Tuesday in Detroit?" I called his number back and said, "But why Detroit?" and he said, "Because we are like you. There is a lot of opportunity here, none of us knows each other. We think First Tuesday would help, putting up a big flag in the ground and saying, `Gather round. Let's work together.'" It has happened. He had an event and it was very successful.

Lord Paul

  85. What you say is very fascinating, but tell me: with all the discussions which you have had amongst your colleagues do you think that every now and then, if we had regulations about this, life would be much easier, or do you generally feel that if we did not have regulations that would be the only way to really make progress, or somewhere in between?

  A. Unlike a lot of my friends in Silicon Valley I am not an anarchist. I do not want to do away with government, but it struck me, because I never articulated it until I was writing this up, that government does not figure in the focus of what is going on at First Tuesday. It is hard to see how to make it figure in it and it is hard to see how to connect. That puzzled me and it is something I would love to discuss with you. I had an interesting set of discussions recently in a couple of places. As somebody who has spent at least part of his life waving his hands and talking about ideas and change and the future, I occasionally sit down with civil servants to talk about the future. I recently did a lunch organised by the ICA where some senior British civil servants were talking about technology and how to use it and they posed the following thought problem: nobody knows what the universal service for the Internet is. We are all making experiments. You can see that certain communities will benefit from this and certain communities will benefit from that, but it is all risky and failure prone and quite targeted. If you are a civil servant, is it a good thing if you can take this technology and better serve a limited constituency of, say, tax filing over the Net for those that have PCs at home or at their office, and use the savings in order to try to help others more in conventional ways? Or is it a bad thing because as a civil servant you are bound to treat everybody fairly and Max Faber says that bureaucracy is following the rules? What was intriguing to me was that this split the table down the middle, 50 per cent arguing heatedly in either direction. I recently had dinner in Madrid with people from the embassy there. One of the people in the British Embassy had had a similar conversation with Spanish civil servants: same reaction. Until government engages in the medium and starts to speak with entrepreneurs over the medium and it becomes part of the world, for lack of a better phrase, there is this sense of distance, there is this sense that it is somewhere off there, and no, it is not that we want the police to go away or anything like that. It is just not immediately relevant to this pressing set of problems that we have now.

Baroness O'Cathain

  86. In other words, just to paraphrase it, lack of vision or lack of the ability to have vision, because they are so prescribed.

  A. Lack of vision and to some extent lack of flexibility. It is a genuine dilemma.

  87. The ability to have vision because they are so prescribed. That is not really what I was wanting to say. I have been absolutely fascinated by what you say. It is really a sort of technological networking and networking has been around for a long time. I noticed just now another point, that so many of these things, which tend to give me quite a frisson of "We are not too old-fashioned anyway", have been around for a long time. I realise that clusters have also been around for a very long time, for example, the Midlands motor industry. You would not say that that was at the leading edge of technology but all the component suppliers are built up around the assembly plants and so on. You have had the benefit of an agile brain, being young, seeing your home market place as being the world rather than these islands or the continent of America. Therefore you must have put your mind to what you would see as the ideal environment, bearing in mind you say you are not an anarchist, to make sure that people are not hurt by this, and I do not only mean in a social sense. I also mean in terms of businesses going down the plughole, in terms of rules for business, in terms of rules for the orderly arrangement of the economic functions or economic systems in the 21st century. You must have thought of this and, if so, would you like to share some of those thoughts with us, particularly with reference to this great globalisation or at least unification, if you like, of the European Union, because that is what we are dealing with?

  A. I have thought of it a lot. I am not going to be able to give you a terribly coherent answer because it is such a good question, but let me give you a quick reaction and then a couple of themes. I had an interesting experience about a year and a half ago visiting a few friends in Silicon Valley, sitting in an office—very Silicon Valley mode; we were in Mill Valley, we were by the pool, the sun was setting over the bay, there was a percussion band playing there, they were serving food, there were venture capitalists and entrepreneurs, mostly entrepreneurs. It was my friend's birthday party. I looked round the tables at these people that I knew. People were looking very well: children in school, nice houses, presumably big mortgages because nothing costs less than $2.4 million in the Valley any more, and I realised that none of their companies had more than six months' cash in the bank and that they were just driving these trains up against these walls and either the train was going to go through or the wall was going to move or something was going to happen, but life would go on for them. Some of the companies have failed, some of the companies have been re-financed, and they are fine. They are living in a very disorderly environment. They are continually in the churn of change. As individuals they are moving through that market place, in part because there is simply so much change that goes on and the networks are good enough that talent, which is a scarce resource, survives. My reaction was that I am not sure that the future is that orderly. I can again make a Warren Strach argument about how economies based on information will of necessity change more than those based on production, if only because people learn and because if you are dealing with new information you want the change so much more quickly. What are some of the things that would help people be safe and predictable and not be challenged by that world? Let us start with the least privileged. Let us start with people on welfare, people who are not now supporting themselves, people who for some reason need a safety net. One of the issues that I am hearing anecdotally and through reading about it in the papers is that the existing welfare system is binary. You either have a job or you do not. Particularly in a lot of the new industries where you are dealing with people who are just finding new talents and new skills, work is part time. It is very hard when you are in a system that is saying, "You either have your council flat or not" and there are big hurdles where you either take a job or you do not take a job in a world which is not offering you a full time job. It would be nice if the welfare system was working in shades of grey as well in order to encourage them. Education is going to be critical, as is transparent consumer regulation and financial regulation, and it must be fast-moving. I do not think there is, in particular in an electronic age, any essential contradiction between fast moving and regulation in order to put company information on the books, say, in Companies House, to make it more available to more people, and again I stress this simple ability to interact with government electronically in order to have that part of companies' lives that are governed by regulation be less of a burden, no matter what the level of regulation is. And so that information can be got to more people more quickly.

  Baroness O'Cathain: You are saying that you would use e-commerce and electronic technology to make more efficient what we have got rather than completely change what we have got in terms of regulation, in terms of taxation, in terms of overview etc. I do not think it is going to be like that. I was just wondering if you had any views on that. However, I cannot hog this.

Lord Chadlington

  88. I wonder if I could follow part of that because Lady O'Cathain's question was very close to what my question was going to be. Let me try to come at this a slightly way round. I am confused about this. Here you are, Mr Browning, an intelligent, obviously very bright fellow. You are obviously concerned about downside risks of this hugely exciting opportunity. I want to take one aspect of it and ask you a question. If I were able, for example, to set up a company which was going to sell medicine over the Net, medicine which was not legally available through pharmacies in the United Kingdom, I could do that relatively straightforwardly and it exists already. I could make it available to everybody in Britain at reduced prices without them having to go through medical tests to obtain it. If you were in a position whereby you could regulate to stop that happening, what would you actually do?

  A. The first point is that nobody is in a position to regulate to stop that happening. That is one of the new realities.

Baroness O'Cathain

  89. But somebody has to.

  A. But nobody can. I think it has to be a practicality. We are running head into head here. You cannot draw the circle unless you set up a global government and give it global enforcement powers; you cannot do it. It is back to the notion when these debates first came over censorship, over the simple passage of information. To some extent you have to rephrase the problem and say, if you sincerely believe that this is damaging to people, and I think there are a lot of instances, such as beef on the bone—oops! Did I say beef on the bone?—where sometimes the government goes too far in regulation, and then education becomes a significantly more important tool. You have to tell people why they should not do it if they are going to be masters of their own fate for better or for worse.


  90. What do you think will happen in China?

  A. China is fascinating because China does not share our western faith in letting the people free and they are going to try and keep a lid on it as best they can. Having lived through the Cultural Revolution, they do not believe in bottom-up democracy any more, and quite rightly. I did Chinese history and philosophy at university, not as a major but just as a couple of courses. It taught me that China is a culture that I cannot begin to understand, so I cannot begin to predict what they will do.

  91. There may be ways of controlling them.

  A. There may be ways of controlling them but I would have to say that as time goes by and as they want to join the western economy they are going to create a middle class. That middle class is going to be composed of decision makers who want to have new ideas, create new initiatives, to innovate. Economic success will to some extent be tied to greater democratisation as they have already found, and the Net will play a part in that in terms of getting information out, in terms of creating something that looks more like a democratic dialogue, but they are a long way off.

Lord Faulkner of Worcester

  92. Forgive me for not having heard of First Tuesday before this afternoon and I am conscious that I am coming at this from a position of huge ignorance. Can you tell me a bit about the structure and the composition and the motivation for setting it up in the beginning? Was it just a group of friends thinking, "This is a good idea"?

  A. The motivation was to have a cocktail party, quite honestly. That was why it was set up. It kept going because we all realised that it caught a moment, that this was helping businesses get born.

  93. Are you now a company with shareholders?

  A. We are now a company. We became a business for two reasons. One was that it got to be too big to keep going without a business. It was demanding too much time, it was too complicated. The other was that we thought that because the community we served is an economic one and we were creating a lot of value for the entrepreneurs it made sense to start to grab some of that value.

  94. You have full time employees?

  A. We have full time employees.

  95. In each company where you operate?

  A. In the countries where we operate right now we have licensees. Those licensees have share options in the business and so they are rewarded by our growth.

  96. Are there loads of First Tuesdays run by other people, different sorts of clubs?

  A. We own it. There are a variety of networking clubs of all shapes and sizes. Some are non-profit, some are groups of friends, some are for profit, some are conference businesses. The difference between us and most of the others is that they are ultimately gathering entrepreneurs together in order to sell a specific service to them, usually money. Some of the incubators do a lot of networking so that they can get the deal float for their investments. Some of the software suppliers and technology suppliers do networking events in order to bring in customers for their technology. We are saying, "We are on your side, Mr Entrepreneur. To the extent that we create value for you we would like to share some of that but we are really tied to creating value."

  97. Do you have a membership that pays a fee to be members?

  A. Right now we are supported by sponsorship. We may well introduce membership fees in the future. To be honest, we just do not have the mechanism for charging fees.

Lord Skelmersdale

  98. Going back to Lord Chadlington's point, one of the ways that you can drive inappropriate sales opportunities or partially inappropriate sales opportunities on the Web and the Internet is surely by licensing either search engines or the service providers?

  A. In which case you are effectively setting yourself as a global censor, which I think would be highly politically controversial.

  99. You cannot do that because we are operating in the context of the EC and the EC can regulate it if it decides to, can it not, and indeed there is a bill before Parliament at the moment to license service providers.

  A. There are a variety of Bills continually to license service providers. My own view is very strongly that politically that is a nightmare for government to put itself in that position because the distinction between broadcasting (where the four TV channels were traditionally regulated because band width was scarce and the whole public sees them and it is intrusive in the home) and private conversation is not a clear one on the Web. What is important is a mailing list like a magazine, at five members, at 10 members, at 50,000 members. When is private speech becoming public speech? That is one issue which is very hard to regulate. Another is the global nature of it. Singapore has tried to license service providers.

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