Examination of Witness (Questions 79 -
WEDNESDAY 9 FEBRUARY 2000
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?
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 colleaguesNick Denton, Adam Gould, Julie Myer
and Mark Davieswho 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.
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
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.
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 officevery 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
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.
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
A. The first point is that nobody is in a position
to regulate to stop that happening. That is one of the new realities.
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
boneoops! 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
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
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
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
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.
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
A. In which case you are effectively setting
yourself as a global censor, which I think would be highly politically
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.