Canva’s AI Crisis, Karl Stefanovic’s Podcast Genius, Labor’s CGT Shambles, and Claude Design Changes Everything

24:13Sadly, retired recently. So we unfortunately can't use him anymore. But he recruited basically all my boards and all my LT over the last sort of decade. I'm not a big user of search firms generally or exec firms. There's some really good ones out there in fairness. So not that I like, we have an internal team, but for really senior and for directors, I just don't have that background and knowledge that Darren had for directors. So we did a pretty wide search. We've had some really great, we had a guy called Michael Anderson on our board at one point who used to run Austereo during its golden era.

24:48He was a fantastic guy. We had Penny Wynn, who's an incredible director, who used to be really senior executive at Woolworths. He was also fantastic. That was when we were a product business. So we sort of changed sort of the nation board. When we didn't go public, those three incredible directors, they were public company figures. So they understandably didn't want anyone to hang around a private company board. So they – and Pat had too much other stuff on and same with Michael and Penny. So we couldn't keep them at our sort of private scale. We were a much smaller business back then. How big were you?

25:18How big were you then? Oh, earnings in the low teens maybe. It was a pretty clean ever done number. There was no real sort of capex back then. Revenue probably mid-twos. I'm kind of guessing here. I can't exactly remember. We should say EBITDA earnings before interest tax depreciation and amortization. And that's a mouthful. And the revenue was mostly coming from selling travel services already? Well, yes, but we had a diversified e-commerce business on a monolith platform, which was a disaster. So we had a fashion business called Brands Exclusive, which is essentially like a satire. We had a homewares business which competed directly with Temple and Webster.

25:59To that credit, they absolutely demolished us. We obviously had our experiences businesses, Scoupon, Kudo, Deals.com, and we had the jewel in the crown, which was Luxury Escapes. And the feedback we got from pretty much every smart investor we spoke to, I remember Dion Hirschen, who's a great investor, telling me at the time, you guys just need to go travel only, come back in a couple of years, and he was spot on. So we ended up essentially doing that. We did a deal with Gavin Hesse a couple of years later, to spin off our product business, separate off our experiences. It's become pure play travel.

26:26Obviously, we still haven't listed. What happened to that scoop? I can't believe I've forgotten this. What happened to that scoop on slash et cetera business? It's owned by Luxury Escape. So we run that site still. So you bought all of that in there, except when I go to those, those sites don't exist anymore or they do? It's got a lot of Luxury Escape's inventory and it's got exclusive. It's a bit of a more, that's a budget, it's not the right word, but it's a bit more sort of middle Australia site. So the stuff that appears on LotteryScapes might not appear on Scoop and vice versa, but there's a lot of similarities as well.

26:55So we've got a lot of rusted on customers. And people are still going? Yeah, it does. Oh, people are still using it? It probably makes a couple million bucks a year. It's still, yeah, decent business. It's got a pretty small team that runs it. A lot of the technology is mirrored, same back end, all that kind of stuff. I'll tell you what I'll buy off those platforms, okay? This is one of the things I would buy. I would buy discount tickets to Sydney Lunar Park. They're the kinds of things I think about when I think about those platforms or discount entry to SeaWorld, for example. And so when I go to Luxury Escapes, I know this is not on your, I mean, presumably it's not on the run sheet talking about this stuff, but I think it's super, because people don't get to hear behind the scenes of this stuff.

27:36So when I go to Luxury Escapes and I search for, what do you call them, like the events that I can do? Experiences. Are you sharing that inventory between multiple platforms? Yes. Yeah, exactly. So essentially the principle is audiences tend to stay loyal to a brand they know and trust, especially if you've bought from it multiple times. So Scoupon's got an audience of a million plus people or whatever it is who love Scoupon and have been using it for potentially 15 years. They don't want to sign up to this new luxury escapes thing. They always want to stick with Scoupon, which is completely fair enough.

28:04So we want to still service that customer base. Our rule of thumb is every time you sort of merge your customer base into another one. So let's say we brought Kudo into Scoupon or Kudo into luxury escapes, you lose 50 % of the audience literally overnight. So we've learned that the hard way probably 10 times. We think, oh, this time it'll be different, the five most dangerous words in the English language, and it never is. So you always lose 50%. So it's got to the point where we always thought these businesses would sort of asymptote to zero and we'd just shut it down. They haven't. They just keep sort of ticking along.

28:34They don't grow, they don't shrink, and we don't really spend money marketing and they kind of just tick along. And how do you feel about, because you and I are both very big fans of brand as a power, a Hamilton Helmer power, albeit Hamilton Helmer undersold how much brand is a power. But we very much believe in that. And building a brand, that's expensive and it requires a long-term commitment. And when you have more than one brand to build, like how do you feel about having to run brand building marketing and have teams dedicated to building multiple different brands that are often sharing inventory?

29:13Like is that worthwhile? Yeah, that's why. We only focus on luxury escapes. So the other brands have a sort of maintenance mode. It's not as if we don't have any focus on them, but like 99.9 % of our focus is luxury escapes and 0.5 % might be the other stuff. That's not to say we're not shutting them for a reason because they have this legacy brand that people trust. The email comes into their inbox or the SMS comes into their SMS inbox and they'll respond to it. So as long as customers keep responding and keep purchasing. And amazingly, we've only had a little uptick in the last couple of years on Scoop on Kuro.

29:47So it somehow survives with, again, virtually zero marketing spend compared to$50 million we spent on Luxury Escape. So it's very different life cycles of business, but businesses survive longer than you expect. People have long memories and they trust brands, they like a certain brand, and who are we to tell people what they should and shouldn't do? And this last question about that, and I'll tell you something about businesses survive for longer than you think, like the other side of that. So if I'm using ScoopOn and then I want to contact customer support, am I effectively contacting the Luxury Escapes customer support team who puts on their ScoopOn T-shirt when they're responding to me, basically?

30:24They put on their ScoopOn voice, exactly. It's exactly the same thing. Yeah, okay. So this is what I want to say about businesses to survive for longer than you think. Again, one of the common questions that people might ask me is a question that pertains to a competitor. What should we do about this competitor? We want to crush this competitor. I'm all in favour of that. Or we want to – we're scared about something a competitor's just done that's making us nervous. And my view on this – tell me what you think of this. My view is over time has formed as such. It's virtually impossible to destroy a competitor legally no matter what you do.

31:03And on the flip side, it's virtually impossible for a competitor to destroy you. and almost all business failure, really I would say all business failure, is suicide, not homicide is how I would describe it. Do you agree with that? 99 % of the time, yeah. There is the 1 % of exceptions where Facebook puts out a marketplace and you've got a marketplace and you get killed, but that's absolutely not the rule. It's the gross exception. And I hate when people spend too much time focusing on competitors. I think you can look at a competitor and say, have they done anything that's good that we can potentially adopt?

31:35So nothing wrong with admiring a competitor, but I think the notion that you want to kill them, I think having competitors is actually really healthy in almost all cases. It drives you to be better. We were certainly driven to be better. Gabby and Hesse running a scoop on made us be so much better than we are. We look at Booking.com now as a contemporary and flight centre. We look at what are these guys doing really well? What can we do that they're doing really well? So I don't look at competitors as being enemies at all. I think in many cases we're friends with our inverted commas competitors.

32:03I love speaking to Screw and other inverted commas competitors even though we're arguably competing for a similar audience, there's plenty of TAM or addressable market in Australia for multiple businesses. I think we can learn a lot from our competitors and become better businesses. And screw his Graham Turner, Flight Centre, co-founder CEO's nickname, just for those that don't know. Well, I totally agree. I mean, like, it's so easy to fixate on competitors and people spend so much time doing that. But really, that is generally, generally you will live or die based on your own execution. I mean, strategy is important as a framework, but businesses largely live or die based on their ability to execute on that strategy.

32:46I mean, if your strategy is terrible, that's a whole other story. But, you know, you have these stories where all these companies that the hyperscalers bought, when you read the stories in a crazy number of cases, at some point in the conversation, there was a dialogue that went something like, Like either we can buy you or we'll crush you. That's a dialogue, right? We're going to go into your space and we're going to crush you because look how big we are and how strong we are. So you can sell to us now or you can be crushed by us. And I always say to people that are involved in transactions, like selling their business, which is a lot of people listen to this podcast.

33:23If you're selling to a competitor or a company threatening to be a competitor and they tell you they're going to crush you if you don't sell to them, that's them being fearful. Don't be scared of that. They're the ones that are worried. If they really thought they were crushing you, what are they paying for you for? Yeah, exactly. They don't want the goodwill on their balance sheet from that transaction. It's a nightmare. Like it's an accounting nightmare. I think if you hear someone who's involved in an acquisition on the other side of your deal telling you they're going to crush you if you don't sell, you should ask for more.

33:56That is a good sign for you, I think. We had a competitor of sorts who told our chairman, actually, this is probably five, six years ago, that they were a much bigger business than at the time, but you can tell they were on the downturn and we were on the upturn, and they said the exact thing, we'll either sell to us or we'll destroy you, and this business has just continued to sort of fade away. They're still going and they still make money, but they certainly aren't, the market cap's dropped off and they haven't got much sort of market respect, but that was exactly what happened, and we've obviously grown a lot since then.

34:28You've got to pick your audience. Someone's saying to you we're going to crush you. I mean, that's not going to – I mean, it's only going to do one thing to you. The chances of you selling then becomes zero. And however motivated you were before, somehow it just went up at that point in time. So I think that's terrible. Since we're talking about this, I've got a couple of things I think you'll find interesting. One is, you know, we haven't really spoken about the World Cup. Obviously, I love the World Cup because Catapult is so deeply ingrained in the World Cup. And I also love that Australia keeps qualifying for the World Cup and keeps getting through to the knockout phase.

34:58and hopefully... Albeit the knockout phase is now 32 teams which used to be within the entire World Cup. So that is a empiric victory. But we're playing Belgium in the knockout and they're pretty good actually. But, you know, I think it'll be an interesting game. But I wanted to say something not about the matches but about leadership. I think there's a really interesting leadership lesson in the Australian approach to this which I think people missed in the commentary that I read and that is this. You know the guy that is the coach of Australia, Tony Popovich. And so in the second game, do you remember what he did with the team?

35:31He stuffed it up. Okay. So you would say he stuffed it up. But if he would have made the exact same choices and won 2-0 instead of losing 2-0, you would not say he stuffed it up. Of course. Because he wouldn't have stuffed it up in that case. But that did not happen. Nobody would. So the challenge is this. You've got a guy here who is running a team, coaching a team, that is not one of the 20 best teams in the world, probably. And the US is. That's who they were playing. And the US is actually, without going into all the boring sports stuff, the US has now figured out a way to play that is unbelievably exciting and completely different to the way that they used to play.

36:12And they've become a very competitive team. Really good. And so you've got Popovich and he's thinking, what am I going to do about this? And there's this very famous quote from one of the founders of Hewlett Packard. that said the price of innovation is a tolerance for failure. That's a great quote because everybody wants the, oh, that was so innovative and you did great things, but actually often ends in failure. And so I'm not going to say, do I think Popovich did the right thing or the wrong thing? Because I actually don't know, okay? But what I know is everybody judged him based on the output metric.

36:42What was the score at the end of the game? Nobody talked about the input metric, which is why did he go for, or very few people, why did he go for this approach? What might have been the upside of but et cetera. And the next game, he chooses a different line-up. They draw nil-nil. He went back to the line-up that most people thought he should have gone in the second game. He very much went against almost what everybody wanted to do in the second game. The thing is, we don't know. By the way, I'm not saying he did the right thing. What I'm saying about leadership is that he was up against a team where clearly he felt if he played the game that he played in the first match, And the first match was a very particular kind of game, which was Australia would defend heavily and then try and get the ball forward quickly and counterattack.

37:26Because, again, they were playing a team that was better than them. And it worked really well, right? And I think he just felt like it was totally transparent and they would be able to adapt to it. And they're just too good and too fast and too strong. And so we don't know the canon narrative, which is if he would have listened to everyone and run the same team, we might have lost 5-0. Who knows, right? And the goal difference mattered. And so my point is less about was that the right decision? And it's more about this. When you want a business, there's a sports team in a business, a professional sports team has got unbelievably similar dynamics to a company often from what I've seen.

38:00And so if you want to have an organization, let's call it, that is innovative and always striving to be better and striving for victory, then some of the decisions that you make, they're going to go really badly. And because those decisions are going to be contrarian, innovative, whatever the word is, they're going to look very different and very non-standard. And when they go badly, you'll look like an idiot because you did something non-standard. And whether or not his choice was right, I certainly think trying something different and trying to innovate was the right decision. And I would just encourage people involved in high-performance organizations to focus left on a single set of output metrics for one game, one quarter of a business cycle and focus more on, is our decision-making process right to innovate?

38:55And if so, trust the process. I agree with half of what you say and disagree with half of what you say. So where I totally agree is as a leader, whether you're a founder, whether you're a hired CEO, you've got to be able to take chances and you've got to take risks that clearly won't all pay off. And if you're taking risks that 100 % of them pay off, then you're not taking enough risks and the risks are too conservative. And businesses succeed through asymmetric bets. So you've got to take a bet that pays off 100 to 1 and the loss is 1. So 100 % agree they need to push the boundaries and take risks and make mistakes.

39:29That I agree with. Where I disagree with is putting every wrong decision in that bucket because sometimes people just get stuff wrong. And you also need to be able to retrospectively say, this is actually a stupid decision. This wasn't a calculated risk. It was actually something that was dumb. And sometimes people do dumb things. And I've done dumb things and lots of people do dumb things. Oh, we all do. Then we've got to recognize. And I think this Popovich one, it looks like he clearly went back in the third game to very much more than what he did in the first game. And that also, to his credit, is a great result.

40:01But I'm also cognizant. You just don't want to be able to just make random, do stupid things that aren't well thought through, that aren't based on data, that really have no justification, say, oh, we've got to try stuff because that's also wrong. So I think there is a fine line where you want to be pushing the envelope but based on data-driven metrics and stuff that gives you a good chance of succeeding. You don't just be flipping coins. Well, I totally agree with what you just said. And so let me say the last bit of what I would say to founders or CEOs in this. I say when you're going to do something, an acquisition or just have a go with some tactic that's got risk attached to it, before you do it, write down all the things that you believe are going to happen, like the good things.

40:46This is why I'm doing it. I'm doing it because I think when I do this, this is going to happen and this is going to happen and this and this. And you have to write it down before you take the first step or do the first thing along that road. And then at the end of it, you can go back to that piece of paper and you can assess honestly, how did things turn out the way I expected and how did they not turn out and why? And I think that you're right. You're 100 % right. Like it can't be dumb decisions producing dumb outcomes is not the same as smart decisions that didn't play out the way you expected because you got an assumption wrong or the market wasn't what you thought it was or competitors reacted differently.

41:24Like those, I totally agree. Those two are not the same things. I totally agree. Well, I want to move on to the biggest story in Australia this week, which was the shock parting of ways between the king of Breakfast TV, Karl Stefanovich, and of course, the Nine Network, who were our former partners, now a part of Tapped, obviously, which has been sold by Nine. Karl, of course, published and retracted an interview with UK firebrand Tommy Robinson, real name Stephen Yaxley-Lennon. Shortly after it was removed, the video was uploaded by Pauline Hanson's YouTube account and promptly got 167 ,000 downloads.

41:56Apparently, one of Robinson's biggest crimes was calling outgoing British PM Keir Starmer Awanka, which appears to be the sentiment of about 98 % of Britain. So I'm not sure that was in itself a great reason. After the separation deal was announced, Stefanovic filmed an interview for his fans, appears to be from the UK or somewhere in Europe, where he noted the public deserves to hear perspectives, freedom of speech here and around the world is what this show is about. You don't have to listen to my show, you have the power, you are smart enough to make up your own mind. Stefanovic clearly sensed the shifting winds of the Australian political spectrum.

42:28He's interviewed Pauline Hanson three times, Barnaby Joyce four times, and of course, Kyle Sandelins, as well as other right-wing figures, Holly Valance and Pete Evans. But he also conducted a friendly interview with, of course, left-wing Prime Minister Anthony Albanese. Kyle's podcast has gotten huge downloads. It is actually, I think, the number one podcast in Australia. If it wasn't yesterday, it certainly is today. The download, the media, the free, we would call earned media, he's gotten last week has been literally incredible. Interesting, Stefanovic historically has been relatively progressive politically.

43:02He loudly advocated for Indigenous rights. He once famously wore the same suit for a year to show the double standard between men and women hosts. And a former Today Show producer told the AFR that he thinks Carl was simply motivated by money. He's a chameleon. I reckon he thinks the quickest way home is to be right wing. And one small tidbit, you may have seen Re-Windo reported that Stefanovich only owns 45 % of the venture. The remainder is held by a guy called Jason Ibrahim, whose wife is a good friend of Carl's wife, Jasmine, and celebrity accountant Anthony Bell, who's done Carl's sort of business management, is 10 % holder.

43:41So this is a huge story idea. Obviously, web podcast is not quite the same league as Carl, but what are your views on all this mess? So I find the whole thing, it's a sign of the times, right, which is, so I think these are the two most interesting parts of the story. I was trying to think about which bits of these are interesting because, like, this has been, you know, turned over 150 different ways by the media, but these are the two interesting bits. One is, why did Carl do it? And two, the question is, why did Nine do it? Because I think there's deeper things going on here than meet the eye.

44:23Would you agree it was completely, I wouldn't say predictable, but likely? Carl would have understood if he does this interview, there's a decent chance that it's going to cause upheaval at nine. Because he interviewed Pauline Hanson, and he's obviously close to Pauline Hanson in some way, but she's a mainstream Australian political figure now. Tommy Robinson, and I know less than you about Tommy Robinson. And also it seems to me, without going into too much detail about him, he's been on a bit of a journey from a particular extreme right guy to a different kind of far right guy now. I'm not sure he's far right anymore.

45:00I think he's probably mid-right now. There's a lot more further up. Yeah, so I haven't looked into it a lot. But there's some weird stuff about him that doesn't quite fit into what you might consider like these far right racist Nazis, let's call them. Well, he's certainly a friend of the Jews now, so I think calling him a Nazi is wrong. I mean, it's so weird. So I don't want to defend him because a lot of people message me very unhappy about the interview, and also I don't really know what I'm talking about because I don't spend a lot of time reading about this guy. So I don't want to defend or attack or whatever, but I want to say this.

45:35Do you think Carl would have realised there's a pretty good chance there's going to be some drama at night if I do this interview? Yes or no? I don't think he expected the reaction it got. I think that was a surprise. I think, but sort of, and you had two questions there. I think inevitably this is the nature of broadcast television in the last decade, that it simply makes less money than it used to. And we saw, and this is obviously radio, but we saw the Kyle and Jackie O. Exactly. In really similar fashion, obviously settled now. It's half settled, right? Yeah, half settled. And Jackie O hasn't.

46:07But I think the problem is some of these really highly, and Kyle wasn't in the Kyle league. Kyle was, I think, has been speculated beyond three million a year. I think that was actually why I was. I think Kyle was on probably more like 1.5. So it was a much lower salary than Kyle. But it was still quite a large salary. And I think what's happening is all the TV stations, all the linear broadcasters, radio, TV, have been cutting star salaries, which is a weird concept. Imagine if you enter your CTO and said, you know what, it's been a tough year, I'm going to cut your salary. You'd be laughed out of the building.

46:38No one else can get around cutting salaries other than these media entertainment businesses, which is in itself a big deal. You would say also that Carl did not have the audience pull that Kyle has. Like the thing about Kyle is Kyle is like the equivalent to putting an A-lister in a movie and then bringing their audience with them. A lot more people hate Kyle and hate most A-list celebrities, but he did have this very big audience pull. I don't know how big it is still now. I actually don't know, but that he dragged with him. Carl was more of a everyone knows him, but I think if he would have just done a podcast more akin to his breakfast show personality, it may not have been a massive podcast at all.

47:21No, it wouldn't have been at all. And don't forget, Nine's been smashed by Sunrise for the last decade or more in the morning. So I think your sort of diagnosis feels right. So my thinking is Carl was on sort of 1.5 going down, this is going to drop again, Nine. And I think it was a lot more amicable than potentially the press has indicated. I agree with you. His contract was coming to an end, by the way. Everyone agreed this was the last year of his contract. So ultimately, Carl had simply got paid out when he would have been paid anyway. It's a great result. He's got this millions and millions of dollars of free publicity.

47:56But this is literally$10 million to$20 million of free publicity he's had. Money can buy it, but money wouldn't buy it because it'd be too expensive. You can't buy this kind of publicity. He's got the number one podcast in the country. No, I'm not sure money can buy this publicity. Like money can buy you talking about your own stuff. It can't buy other people talking about your own stuff because they think it's good for them to talk about it, right? So I think, look, to the point for the anonymous person who said Carl's just a chameleon, I think Carl has really smartly picked up on that rightward trend, the over-to-windows shifted.

48:31You can see the One Nation support is off the charts now. It's the number one party, the most popular party in the country. and Carl's just I think it's just a really savvy guy who's picked this up and he's created the number one podcast in Australia in the space of four months and this is a and I'd say listening he was on let's say he was on a million and a half a year going to potentially a million or zero because it was always going to end soon he's got a podcast business probably worth 20 30 million bucks today could be worth 100 million bucks like this is I think this is a genius business move by him I think he's played it absolutely whether it was intended or not he's played it brilliantly I I think Nine have probably gotten away with it pretty well as well.

49:05This is, to me, a great win-win. And, like, the actual substance, the whole Tommy Robertson interview, I didn't find it overly controversial at all. Like, he's interviewed Pauline and Barnaby and all these other guys, Holly, who's probably just as controversial. She's an Australian as well. Like, I find it a bit strange. There was the vaccine stuff that I think he probably offended a few people on when he had Pete Evans on the show. I read about that, but I didn't hear it. This is what I read that he said, which I didn't, by the way, I didn't like what I read. I just want to be, so I'm going to give you a bit of the more negative view than you've expressed.

49:41But what I read is that he said that he regretted pushing the vaccines on people so hard during COVID. I didn't listen to it. I mean, you know, I don't, I don't like people that say it's all about the context, but I feel like that might all be about the context and the tone. And I don't know what the context was in the tone of him saying those things. I regret that. I regret we offered a promotion at Luxury Escapes with News Corp. And I think both us and News Corp regret being so pro-vaccine with what we know now. I think we know now that what we know is that vaccine has probably killed people because now people are much more vaccine sceptical when they should be taking vaccines.

50:21So that's probably the biggest downturn, downfall of that COVID vaccine is that it's damaged people taking, whether it's measles, bumps, rubella, whether it's the ovarian cancer vaccine, which people 100 % should be taking because it saves lives. This vaccine that no one on the age of 60 really needed has damaged the vaccine brand is the problem. So I think that's how it should be expressed. I agree with you about the damage of the brand. But I just want to say this about your advocacy at the time. You should not feel bad about that at all because you were not in the wrong. You were in the right saying to people, the evidence at the time is it will slow the spread of this disease at least.

50:57You were not the one in the wrong. The people that were in the wrong were scientists and doctors who misrepresented what they actually knew, which was much more limited, and said that this vaccine was as good as other vaccines like the MMR vaccine that you just spoke about, which effectively means when you take those vaccines, you don't get the disease. and we do not know that about this vaccine and it was portrayed as if that was the case. I think it was right to advocate for it. I think it was wrong to misrepresent it without the knowledge at the time as if we knew that this was a silver bullet drug.

51:35So anyway, that's a bit of a digression. And that's why I say to you, I think it really depends on the context in which he says these things. I'll say this, I'm not a Pauline Hanson supporter, okay? Like she has not convinced me. I definitely don't think she would be a good Prime Minister of Australia. She has not convinced me. Better or worse than the current Prime Minister? I think if you would have asked me this six months ago, I would have said you can't compare. Like I might disagree with this government, but they're still a trustworthy government. I think this government is totally untrustworthy today and you can't believe a word that they say.

52:14and I think at heart they might have enough people in there who are real socialists, not capitalists, that it would be dangerous if they got re-elected. But I didn't feel that six months ago at all. No, I think most people thought the same and that's why they were voting in a landslide. I just wanted to get rid of the Minister for Antisemitism, Peg Wong. I wanted to get rid of her because of those issues that were going on, but I didn't think this was a dangerous government at all. and I'm not sure I'd still call them dangerous given some of the other stuff that's going on globally but yeah, like the gap between who you trust to run the country has narrowed dramatically in the last few months not just because of the policy but because of the way in which the policy was run and the dismissive nature that the politicians have had to people that disagree with them and also the hypocrisy to me is overwhelming.

53:09Like I want to bring Tony Burke onto the podcast just to ask him one question, which is, will you commit on this podcast to not claiming negative gearing on your six investment properties, given you stopped young people with no properties from ever being able to use it? Because if you believe it's right to wipe out negative gearing, then walk the talk and you should not claim negative gearing on your properties. I'm going to suggest there's probably not a huge chance he's going to come on, but we'll try. It's not a great pitch for him to come on, right? His media team, if they listen to this podcast, which feels unlikely because I think this would not be within the echo chamber that they came on.

53:48Like, you never know. That's true. But after hearing my pitch there, I think his media advisors would be, it's not the greatest. Basically, we would give him a very fair run here, but also we would ask him, you know, some pretty pointed questions in a polite way. So I want to say the negative on Carl because he said all these positives. But I do agree with you. Like whatever he's done with his podcast is a genius move. And I agree with this part of what you're saying, which is essentially he's got one year where he can go and leverage the megaphone of channel nine to go and build his podcast. And so he's gone hell for leather to take advantage of it.

54:23That's a very smart move. My point is this. I don't really know what he believes. Does he believe the Pauline Hanson view of the world? I hope so because then that would mean that at least he is morally and ethically consistent with his own beliefs. And maybe I could disagree with him on some of those points, but I would respect him for having clear views that he was prepared to stand by, which is quite rare now. I don't, and I think that whereas on the flip side, if the reason he's doing this is just to ride a wave and he just wants to milk it, then I think that that's no different to an influencer, to be perfectly honest with you.

55:03And I've got much less respect for that. I hope he believes the things that he's advocating. And I think that he basically felt that he had to use Nine's microphone, megaphone, as much as possible. And there was a pretty decent chance at some point he might park up ways with them earlier. But there was not really any downside risk for him on that. And I think Nine, like ARN, would have been pretty happy to get rid of a future liability that was going to be just too expensive for them. I'm much less bothered by the first point you make, whether he's an influencer, whether he's a true believer. I think, but I think, Carl, I was probably, I think both of us were very, but I think both of us and a lot of Australians, probably over the, probably from the Abbott government onwards, when you had robo-debt and then you had the COVID debacle, probably drifted leftwards.

55:50And I think that's why Labor government came, was so successful in those two elections. and I think a lot of people in reaction, and it's not that CJT is part of it, but there's a whole lot of stuff that Labor governments have done, both in Victoria and federally, not so much in places like South Australia and New South Wales where there have been pretty good Labor governments, but in Victoria especially and federally where they've really repeatedly lied to the electorate and been effectively, certainly Victoria has been completely corrupt and you argue federal has been largely incompetent. So I think Carl's really a weather bane for a lot of people's views in middle Australia who have had a gut for this government and want to change.

56:29I'm not sure Paul Winsley answer either, but she's certainly a change. Yeah, I understand why she's getting a protest vote. The question is, if people had this moment where they thought, wow, One Nation might actually get voted into government, would that change people's votes? That's the question, and that's my open question, and it's why I think... less and less i think like initially i think everybody thought that remember donald trump um maloney in in italy we've got in the uk it's quite possible that farage might win that whenever the next election is this is not just an australian phenomenon this is a western gurdwild has actually won in the netherlands he just didn't become leader marine le pen would have won in um france like they ganged up against her and then they banned her from and so these are not people i support i just want to be super clear about that but like Like there is a theme going on, which is the left took the ball so far to the far left that there's a reactionary force pushing people to the far right.

57:34I think I can speak for you to this sense. You can speak for yourself as well, but I support the party close to the centre, whoever that is. And that was the Labor Party for probably 10 years, 2015 to 2025, 2024, and it's certainly not the Labor Party anymore. Labor Party is effectively in coalition with the Greens, And we saw that last week with the CGT being passed and then the IS being pushed back, the one policy that Labor begrudgingly, belatedly has done a good job on and now they've pushed it back. So you've got effectively the Greens calling the shots, the ultra-far-left Greens, the socialist, potentially communist Greens, calling the shots in this coalition government with Labor.

58:10That's really disappointing because I certainly didn't vote for a far-left government. You don't think it's the one policy that was good in the budget. That was one. And the other one you think is good policy, just terrible execution is negative gearing. You don't oppose the winding back of negative gearing. Well, it wasn't done properly. It was half done. They should have done it properly with everyone. It was shambolic, right? It was shambolic. The thing, I think two things. One, they should have removed it for everyone. But two, they should have given people warning and maybe given a phasing period of three or four years.

58:37You may have ever seen someone who literally a month ago bought a house that's now 20 % under water. They could have worked super hard. They could have been a nurse or a doctor or a nurse or a teacher or a garbage guy or a taxi driver who works super hard to buy a place because that's what the Labor government and the Liberal government said that you should do with the tax settings. And then without any warning, in fact, the opposite, said they wouldn't do it, flicked it over. So I think it should have been a two-, three-, four-year run-up to it and it should have been for everybody, not grandfathering an older, richer people.

59:05So, yeah, the core of the policy was right. They executed it so badly that you can't possibly give them a positive mark for it, which is absolutely bungled. And I want to say bluntly, I think the Liberal Party has been very poor in the last four or five weeks at tearing shreds off this government. The lies and the, you know, they almost text widows at the moment that their husband died. Like, it's crazy stuff. Is that liberal incompetence or is that just not getting media time? They just can't get the right exposure. I can't answer that. I can't answer that. I don't know the answer to that question.

59:42We'll go to a super quick break. That was a great discussion. We've got some cracking stories just in a moment.

59:56We went back and I did. What did you want to talk about? So we haven't spoken about Canva for a little while. We have not. I had it on the run sheet. I actually took it off because we just didn't get to it a couple weeks ago. No one would be less aware of that than I am. okay so have you used have you used um claude's design tool very briefly okay i've used it quite extensively okay um it is revolutionary wow revolutionary what have you done with it so i wanted to um demonstrate an entire front end of a data analytics package and how i feel it should look, I gave it access to one screenshot of the existing package.

1:00:41So that's the only data it's had is whatever was on that one screenshot. And I then just wrote maybe five lines of prompts. Can you give the audience an example of the kind of stuff here without not the exact text, but what we used to tell it, what we broadly? Oh, I can be very specific. You know, I do this thing with the great Steve Ford, who you know well and use for work. You know, Steve and I have been building this tool to analyze brand equity for a while and I think we're all it's almost perfected I presume we'll get a free road test this tool when when it's up and up and running you will definitely I'm actually literally as we speak uh I just created so I started off creating versions for um direct to consumer e-commerce and then other types of e-commerce and then I created a version for sports betting for a particular reason and so I'll create a version for this the travel industry it's minor tweaks to um like peer-reviewed tested question statements basically so yes i'll do i'm very keen on your input so i decided it it was actually too complicated my problem in life is i build everything like super complicated and mathematical because i want heavy data and then people look at it like i don't know where to start and so um and so i had to simplify the feedback i got is this is amazing you got to simplify the front end so i wanted to simplify it to make it more digestible to marketing leaders.

1:01:58And I knew kind of how I wanted to do that, but not exactly. And so I got a screenshot of the existing platform and I put it into Claude Design, which is a specific part of Claude. And I don't think you can access it from the main Claude app. I think you have to go to a different website to access it, but I might be wrong. And I put the settings always to like the opus high, you know, of thinking like the highest model because it really makes a big difference because I'm thinking through complex stuff here and um and then I said that in there and I spent probably five or six lines explaining what I was thinking about how I wanted to present this information and what my issues were with the way it was currently being presented then it goes away and spends some time by time it probably spent four or five minutes crafting stuff it basically crafted the um ...

1:02:52And 80 % of what I thought I wanted without me even realizing that's precisely how I wanted it to look with multiple tabs in HTML that I could go and send to Steve and give him access to and say let's and then I could just say tweak this tweak that. And then it says, oh, you want to change the way that this particular background looks? Oh, we've got – there's this thing built into Claude Design where you can just move a slider and press buttons and adjust stuff yourself. And instead of me having to mess around with stuff and drag stuff and do any design, I just write prompts or use the stuff that it pops up in front of me to choose from.

1:03:33You know the way if you're talking to Claude normally now and you're asking questions, sometimes it will say, before I get into this, I'm just going to do a little quick survey of you, and it asks you some questions and tells you to choose some selections. It's just getting better and better at getting input from you. I then sent it to Steve. I mean, he built it. Steve's a master, so he built it super quickly. I think it's like a week away from deployment kind of thing. And do you reckon, so you're saying that Claude Design did a better job than you could have done yourself using Figma or Adobe?

1:04:04Well, that bar is so low, it's basically at the same level as dirt, okay? So you literally can't trip over how low that bar is. Okay, let me ask the question differently. Let's say you had some design skills, which I don't have either, but you were a designer like Amanda, our fantastic designer, who can do a great job designing stuff, and she uses Claude a lot, I should add but if you had some design chops would you think Claude Design would do a better job than Figma or Canva or Adobe could do yeah so not my answer one is to that is yes that's my feeling but two is this is what I think is kind of more exciting I think she could do a better job than me using Claude Design like it's not just uh like I'm not as good with the tools as she will be and so like my designs she would probably look at them and say oh that's like a six out of ten What you're going to build is a six out of ten.

1:04:56It's good enough. It communicates it. It looks fine. And also, you want to make it not look like – it's very obvious what comes out of Claude now when people just say, Claude, go and analyze this data. So you don't want it to look like that. But I think she would be better. That's the other big strength of this is that people that are more capable, I think, produce better stuff. But what's really amazing about this is – so I wanted to build a personal website just to – because I do talking, speaking engagements and other things. So basically I just did that with no code, just in Claude Design.

1:05:28It built that for me. So you designed – this is just a pure text site essentially you did. There was no – No, there's images as well. There's images and icons. It built me icons like it was really – and so I started building it before Claude Design existed and then I said to regular Claude, I'll call it, is there any advantage in dumping this across in Claude Design or should I just keep doing it in this part of it? And it's like they hate each other, these two different iterations. So regular client said, no, don't use Claude Design. You don't need it. So then I dumped it into Claude Design. It's like, oh, my God.

1:05:58There are so many formatting issues with this. This HTML isn't even going to run properly. And when it fixed all the HTML, it's actually crazy. The real revolution is for product managers. So you would have product managers inside your business, and they're conceiving ideas, and they have to find some way to communicate their magic of how they think the product should look for the customer to a design team and then ultimately to a developer. and then what they have with this now is they can go into Claude Design and just tell Claude Design what they want this thing to look like and in a couple of, I don't know, probably half an hour to an hour, they can either get something that's very close to a final output that they can just show already for final output.

1:06:42I think it is an amazing, empowering tool for product managers inside organizations. My bigger issue is this. I started off by saying we haven't spoken about Canva for a while. Before we go to Canva, can I pick on that point? I think it's 100 % right. I think certainly like if you look at Amanda and her design team, they're also able to whip up working prototypes. Rather than having us showing a Figma thing, so I think Figma's in all sorts of trouble there because you can just actually go one step further. And I remember I asked Amanda a month ago, I said, how did you do this? This is like a working website.

1:07:16She goes, oh, I've just whipped it up in AI in like five minutes. So it's incredible for really good designers. I was at a TDM dinner a couple of nights ago, and Ed does these incredible dinners with some superstars from across Australian tech and global tech and non-tech. And there was a few really interesting, most of the discussion was about AI and a few really interesting points. And one point, I can't remember who made it, it was Shatham House anyway, but someone made the point that they basically got rid of most of their engineers and they basically said, we've merged the product and engineering function.

1:07:49And I said, oh, who won? Product or engineering? They go, product. And in fairness, we haven't had that experience. So product managers have done a lot more stuff, but we certainly haven't lost any engineers in terms of total scale of the business. But certainly other businesses have done exactly what you said, that product managers are becoming these unicorns that do design, design, dev, and product. And if you're a really technical product manager, you can probably do that. So I have a theory about how this plays out, and I'm going to tell you what someone I trust most in this space said to me.

1:08:22I won't say who it is. And then we'll talk about Canva. My theory is pretty simple. Coding is manual labor. I don't know if I've said this to you before. Coding is manual labor. Manual labor, over time, gets replaced by automation. So we had this computer revolution that came, and then software revolution, and you had to write code. And when I first started writing code, it was a language called basic. Couldn't summarize it better. Like it was, you know, you just typed syntax into it with line numbers. And if you made a mistake, it just said, there's a syntax error. It didn't even tell you what the nature of the error was or where it was.

1:09:03Like it was super basic. That's about, that's digging trenches, okay? That's how manual that is. And over time, the tools have progressively improved for coders to the point where now when you type into a lot of languages, it's color coded based on the nature of each part of the syntax. And it will show you exactly where mistakes are happening pretty much when you type, like when you're entering it. So the tools have gotten better and better. And so what that is, is like basically manual labor, but like maybe instead of digging the trench myself, I can use one of those like bobcats to dig the trench, right?

1:09:33And now with AI, what's happened is that we've basically figured out how to get robots to do the manual labor. And so now robots are doing the manual labor. And so I think that all human endeavor tends away from human beings doing manual labor. From the first time that people said, instead of me plowing the field, I'll just strap something to an ox and get the ox plowing the field. And then I'll use a tractor and then I'll use an automated tractor. Exactly. And so this to me is just developers moving away from the manual labor part of their job. And now the question is, which ones are going to have skills beyond manual labor, where these tools make them stars.

1:10:09That's where I think it's going. And that's why I'm much less scared about it than other people. This is what the person I trust most has said to me. I'm going to paraphrase a bit because I didn't ask him if I could say it, but I'm just saying it. He said his portfolio is generally taking 15 % to 30 % of cost out of product and tech this year. In part, that offsets the token cost pricing. That's been a real problem. and I said like how are you doing this and he's like by cost I mean people and I said okay but what people and he said mostly it's like a lot of mid-level engineers designers and managers so it's a mix okay and he said my first 10 % always comes from just taking out the people that either won't or can't use AI tools yeah that's the easy stuff yeah there's nothing and so there's nowhere in my business for those people.

1:11:01And then he basically says that is where, that is the direction. And so it might not be 30 % in a business, it might be 10 % of cost reduction, 15%, but the direction of travel is away from manual labor and towards people that can utilize tools. And where it's become so stark is we had this period, 2021, obviously they caught the COVID tech boom where developers were just massively in demand and all these sort of tech businesses were way over hiring, way over paying, bidding up unnecessarily. So we had this golden era for developers where you could write your own ticket pretty much. You could leave.

1:11:39We had people who we hired for a hundred grand, we promoted to 120 to 150. And then someone come off on them like 300 grand. They're like a 23 year old. It was just crazy. They weren't that good. So we had this like insane era well twitter would come along and say oh you get paid 150 aud we'll pay you like 250 usd and you can room at work remotely it was just this crazy era and like everything over corrects and now i've gone gone so these tech workers who had the world at their feet getting these crazy amounts of money that many of them didn't deserve now they suddenly find actually you know with people don't need them at all because they are can just do it more effectively So it's sort of gone from, it's not as if it was a straight line, it was a massive boom and boom, it dropped off below where it started from.

1:12:21So that's, and I know you've got that whole Jervin's paradox, or whatever it's called, that they will hire more developers. That doesn't seem to be happening. Like what we've been able to do is output more with the same. So I think there's a lot of companies doing that. There's a lot of companies who are getting rid of people and there's obviously the AI washers as well, but there's definitely a lot of companies who are saying, well, actually, like you said, my product manager can do the job of two developers. I'll just get one great product manager on 200K a year instead of three developers on 250K a year, and I'm going to save a fortune.

1:12:49So there's definitely a switch to those technical product people, but I think good developers are still always really valuable, but you've got to be able to be willing to adapt. I agree. And so then we can't, and no one knows what this is going to be in five years. Like anyone that tells you they do, like that's the futurist world. Like the person to believe least about the future is a futurist in my opinion. And so then we moved to Canva. So I said some time ago, I know you agreed with this, there's golden windows to sell, and I think they might have missed their golden window because their whole job as a product, if we really simplify it, is beautiful design is really hard.

1:13:28We make it much easier. And Claude Design, what do they say? Good design slash turning it into code is still really hard. we make it much easier. And their easier is easier than Canva's easier. And what we see is Canva trying to pivot to being an AI company. And my cynicism about that was, can a company that's not an AI company with vastly fewer resources compete in real time with an AI native, yeah, frontier model that with unlimited money? Yeah, and with the best, the smartest people in the world. Like there's some really smart people at Canva, but they're not the people at Anthropic. Like it's a different level.

1:14:07Anthropic is literally paying people$100 million a year or a contract for$100 million. Not a year, but a contract for$100 million. I mean, that's what's going on, right? And so I think that my increasing view is that I was right about this and it's going to be very hard for Canva to compete. Interestingly, did you see the stuff that came out this week from Bill Tai? Is that his name? Yes, it was last week. Yeah, and Bill Tai was saying that it made that point that Dobie's made a number of offers for Canva. They'd knocked them all back. Obviously, they were lower offers. Which might not have been a bad decision, by the way.

1:14:39Well, in the other side, it could turn out to be a bad decision. I'm not sure Canva can get this away at anything near the$60 billion price they've talked about now. So Canva absolutely should not IPO. You heard it hot off the, what's, I don't know, the vocal version of the prices. Well, I'm not sure they can IPO, which is more of the issue. Well, they shouldn't even. I think that Canva should basically go to their bank. Yeah, they should go to their bankers and say, we want to be bought by Anthropic or OpenAI. it can be an all stock deal but the stock has to be non-escrowed and we sell it into their IPO as much as we can because I know they wanted to make this a generational company it's very hard to build a generational company today with this level of tech change if you want to build a generational company build leather handbags that maybe can build a generational company but it's very hard in tech right I think I've tried to use canvas AI products like a few weeks Like it was just, and you say Adam, there's my bad prompting or whatever, but ultimately I'm the customer.

1:15:39I used to use Canva's product and I don't really use it anymore, really ever. I used to my board packs in Canva now, all my investor packs. Now I do it in, I actually use Notebook LM, which is Nano Banana, which is an incredible product as well. Like that's the leader at the moment for sure in that, like way ahead of Claude in terms of taking text to graphics, as in sort of business graphics. and campus comes just nowhere. It's like it's – people still use this little bit of legacy there and it's not going to die. Well, they're still growing like a rocket. Well, we don't know because they're really scant with how much data they – we're still a year out.

1:16:17We're a year behind in their financial data. They still haven't reached 20. Oh, that's a good point. So we don't know, which also gives me very little confidence. Like if they were doing really well, they'd be – Probably. Like they'd be disclosing their data as it happens. The fact that it's so slow really doesn't give me great confidence. that anything, like they could still be an amazing$15 billion, $20 billion business, they could be wrong, or even$30, who knows. But are they the 60? Like it's just hard to see it's anywhere near that. Well, we should also say our number one, like the horse that we would like to back number one in this race is Canva because it's a great Aussie story.

1:16:51And we love them and they're great people and all that. But, you know, we're talking about a business where we're debating $60 billion, which is an enormous amount of money that somehow feels like nothing because Anthropik is a trillion dollars or whatever it is, right? And so I just think they have gone from being the giant killer to being, I think, at risk of being killed by a giant. I think it's sell time. Like, that's my honest view. It's time to go and find someone to give them money. Your golden window analogy is perfect for this company. You couldn't get a better analogy because they've had the goldenest of golden windows.

1:17:27They could have sold it for$20,$30,$40,$50 billion, whatever it was. And from all reports, Mel and Cliff aren't even that motivated by money anyway, so it probably doesn't hold them that much. But they've had huge chances, and I just think the product's not there. I think that's the problem. I think your point on Claude design is really accurate. Like your firsthand experience. My experience at Canva is not good, and your experience at Claude is just well beyond your expectations. And product in this business tells us product wins. One of the most amazing things is that Anthropic is this good because they're not one of the hyperscalers.

1:18:01Like we know why Alphabet has got this great nano banana because they're a hyperscaler with unlimited money and so they're great and Microsoft, like they're surprisingly bad. Like I think they would be much better, wouldn't you? Because they're like a very capable hyperscaler. But they're really amazing things. So I think Google has demonstrated that they're in a league of their own, like Alphabet, in this AI era. Amazon has got some smart ideas as well that they're executing, less on the consumer-facing stuff and more on the actual back-end stuff. Yeah. Yeah. But the real surprise packet is Anthropic.

1:18:38And, like, the fact that GPT and OpenAI is still floating around and competitive is also astonishing. Like, it's early days. We haven't had the crash yet. but like it is pretty amazing that they have managed to keep up with these hyperscalers in such an impressive way. So yeah, I hope, you know, Canva goes, well, you know what you said about them not being interested in money. I agree with you but they are very interested in philanthropy and last I checked that does need a lot of money and I will say also without going into too much detail, I was involved with some founders that really didn't care about money and they weren't motivated by money.

1:19:15I think they were just motivated by just, turning the wheels of their business. And guess what? They blew up their chance for generational wealth and it's never coming back. So yeah, you can say I'm not motivated by money, but then blowing up generational wealth is not great. Now these people are not going to do that, but I think they've got problems. Yeah. Can we move on? We talked about the CGT changes last week because obviously there was the backflip, the reverse ferret, whatever you want to call it. And we weren't 100 % cognizant of what the backflip exactly was because there'd been so little data about it, but I just spent a bit of time going through it.

1:19:50I thought it's worth just rounding back on last week's conversation and talking through certainly what I've been able to glean from the changes, and hopefully it's informative to our listeners. I think a lot of our listeners, this really impacts them a lot. It's probably been the biggest issue in Australia in the last three months. So as we know, the CGT changes were rushed through last week in the Senate by Labor and the Greens in their secret coalition, and the rushed legislation has been roundly criticised as being a killer of hope and aspiration. Of course, we chatted last week on the carve-out.

1:20:21So let me just go through the carve-out. So there really is two very separate carve-outs. I want to talk about them one by one just to explain to our listeners exactly what they are and to you, of course. So as you remember, under the original current rules that apply for another, well, apply until now or sort of for another year, if you're a small business, so let's take a step back. Everybody can claim what's called a 50 % CGT discount if you held the asset more than a year. So let's say you had a company, sold it for a million bucks, your cost base was zero. Of that profit, of that million dollar profit, you cut in half and you tax that half.

1:20:59So instead of paying 470 grand tax, I'm just rounding it, you pay, call it$235 ,000 in tax. Round numbers. There was a second exemption called the small business exemption. And if you are under 2 million turnover or had net assets of less than 6 million, a pretty small business, you could get an extra, call it a bonus 50 % discount. So it took your tax rate down another 50%. So instead of paying$235 ,000 tax, you pay$117 ,000 tax or whatever that was. So it was a second kicker that only applied to certain businesses. And it wasn't super well known, but it was kind of there. And if you're an accountant, you probably knew about it.

1:21:35And by the way, if you got what was left of your gain, you could actually put it into super and pay no tax at all, basically. There was also a bunch of other exemptions if you're close to retirement, which will get you down to zero. So I won't even go into those because they're a bit confusing. I once helped someone get, I mean, I'm not an accountant, but I once helped someone get access to that small business tax concession. They got CGT discount, small business tax concession, and then superannuation rollover or whatever it was called, and effectively they paid no tax. There's also a bit of that money where you can say, I commit to investing this money in another business within the next two years, I think, and you don't pay tax on that either.

1:22:21Like there were all these great ways to – That's like the role over thing, yeah. Yeah, you want to – it was just all these great ways to try and help people keep their money and ideally reinvest it in the economy. Reinvest it. And I think the role over thing was great because you're reinvesting and creating more jobs. So I think it was a system that you can argue was unfair, but it was also really positive for jobs across the economy. So what happened last? Everything's unfair. It's unfair. I want to be the best player in the world at tennis. That's unfair that I can't be. Why can't I be the best player?

1:22:50I think that's totally unfair. Like when we start crying about unfair, where do we start? Where do we stop, right? Both of us are healthy. There's lots of people who are kids. Their kids are not healthy. Like that's totally unfair. Like I just, you know, the unfair argument is a long, endless piece of strength. Obviously what the government did, what the Chalmers and Albanese did about a month ago with the budget was basically said that 50 % discount, gone. If you were under the$2 million, you'd still keep the$2 million. You'd lose the second stacked discount, but you'd still get 50 % off. And there was obviously an outcry.

1:23:20So what they've done now is they increased that small business limit to$10 million, so as in$10 million turnover. over. And also, and this is interesting, that's after indexation. So the owner, so let's go back to our proof example. Let's say you make a million bucks. Let's say you had a cost, if you had cost base of zero, it's irrelevant because you have indexing zero. Let's say you had a cost base of $200 ,000 and you held the asset for 12 years, you indexed that$200 ,000 up to caught$500 ,000 and you're taxed on that$500 ,000 gain at 50%. So 250 grand tax. So notionally a good result, but, and there's this big but, and I didn't know this, and this is where the labor boosters really have been dishonest, is the 30 % minimum tax rate still applies for all this now.

1:24:07So previously, you used to be able to stack these two discounts. Now, you can't stack it, you can index it, but you have this minimum 30 % tax rate as well. So this so-called$10 million thing really isn't that generous, especially if you've got a low cost base. Minimum, 30 % minimum rate on the post-indexation gain, not on the whole value, on the post-indexation gain. So the way I think about indexation is over – well, the way it works is if inflation is about 4%, let's presume it's coming, I can't get it down, over 10 years you can add roughly 50 % to the cost as part of indexation, roughly. And that only helps if you've got a cost base.

1:24:50If you've got no cost base, which is a lot of businesses have no cost base, not just tech businesses. Like you start a florist, you've got basically no cost base. Oh, no. If you start a hairdresser, if you start a cafe, I mean, a cafe will have a bit of cost base, but they might not because they might have borrowed the money financed the equipment, right? That's not a cost base. So like we can go on and on and on about every business. A person that goes out on their own starts a plumber or a carpentry business or a cabinetmaker or all of that is zero cost. Basically what we're saying is people that start their own businesses, they have sweat equity by virtue of the work they do and no cost space.

1:25:24That's the group with no cost space. Stealth started, motivated job creators in society have no cost space. They're the backbone of Australian society, all these small businesses. They're the backbone of everyone's jobs apart from the public service. And if you want anything done, if you want your hair cut, if you want your toilet fix, you need someone like this. So that's who, and the 30 % minimum tax really smashes these great, honest, hardworking Australians. So that first so-called exemption, lie. So the government that's been lying to us non-stop for the last six months have lied again well i wouldn't say because there are lies like the thing with this government is you need to be clear about lies because the whole implementation of these taxes is a 100 total lie this we would more say is um a half truth or a quarter truth it's not a complete lie because no i think this is a lie Like, they've told people that, oh, no, no, we're going to, under$10 million, you're fine, you're not paying much tax.

1:26:21When you've got this 30 % minimum, when they were like a fraction of that before. So, it absolutely is a lie. Like, that's the high watermark, right? I think they're equal. I think they're equal. In a way, this is almost a more nefarious lie. At least the first lie was an honest lie. At least they admitted they were lying. Here, they're trying to claim, oh, we're going to help you guys. They're not really helping. They've got the 30 % secret, 30 % minimum that if they neglect to tell people about. And raise it to a 10 mil turnover. which, by the way, is still well and truly a small business. Not 10 mil profit, 10 mil turnover.

1:26:52Yeah, exactly. Well, I tell you the problem with turnover. And you can have 10 mil turnover and make no money and have a low valuation as well. Essentially. The problem is this. A consulting business selling its time that keeps all of the money builds turnover much more slowly than a furniture business bringing furniture in and selling somebody else's stuff and making or a business selling shoes that makes a 15 % margin or something. You know, like revenue is such a dumb way to measure businesses. Yeah, so dumb. We had$10 million revenue in like three months at deals.com and we were making no money.

1:27:34It wasn't worth anything. So like it's the whole – that first so-called exemption, chuck in the bin, trash, as you would say, worthless. So then you've got the second carve out. And this is what one thing I want to talk about. We tried to get Tim Dahl on the show. He wrote an AFR article. It was an interesting article, obviously one of the great Australian entrepreneurs, Tim. And he really sort of gave the government a big boost because of this second carve-out called the Innovative Company Carve-Out. So let's go into a bit of detail because this is really complex. And I want to spend a bit of time talking about exactly what we talked about a bit last week, but I didn't understand it fully.

1:28:07So this was the so-called cave into the tech sector where founders, early investors and early employees get to opt out of the dreaded indexation model and actually choose a flat 50 % discount up to a$10 million lifetime cap. So we talked about this last year. So let's go into the requirements to do. So this sounds all right. So the lifetime cap is not what's left. The lifetime cap is the total gain over your life, the$10 million. You can effectively discount up to that much. the total non-indexed lifetime gain because you've opted out of indexation. Yeah, index nothing to do with this. Forget indexation.

1:28:45This is keeping the current system in a sense. So this sounds good. Okay, and Tim said this is great. We know what founders shouldn't be complaining. No one should be complaining because Labor's fixed all, anybody with a low cost base. And we think that after, and the argument is, so if you do a 10 mil gain, you're going to pay two and a half mil of tax on that. You're keeping seven and a half mil. After your first seven and a half mil, don't complain. You've got tons of money. We're going to tax everything else at 45 % because sweat equity, right? And I guess the rationale that Tim and Co were saying there is seven and a half mil is a lot.

1:29:19How dare you complain most people never earn seven and a half? There's some merit there. I'm not saying that's completely without merit. I think that is a very politically sound argument. Maybe we can say it like that. And let's be honest, most people never have seven and a half million dollars in their lifetime. So 99 % of people don't have it. So you argue, well, how can we protect the 1 %? Let's go into a bit more detail, shall we? Yeah, that's the beauty. The beauty of that argument is I feel like it's a very low number, and so do you, but we can't say that because we're going to look totally out of touch with society and people are going to throw rocks through our windows.

1:29:56But let's forget the low number for now because let's just say who can actually get this. This is the kicker. Like, let's assuming that it's a fair number. I'm not going to say it's fair or not. I think there's a real argument that it is fair in terms of that level. How much money does one person need? I think seven and a half is a lot of money. But let's go. But let's say, can regular person be an employee? And Tim was saying, this is great. Employees can get this. So how can we complain? Because we need to protect employees. Let's go through what you need to do to achieve this. So there's a bunch of different stuff.

1:30:26And I'll go through number one. One is$50 million turnover cap. So if you turn over$50 million and one cent, can't get it. Well, you know I love Tim, but let's be honest. That's all of Eucalyptus' employees excluded. Of course, yeah. 100 % of them. Eucalyptus fails every one of these tests. So not just this one. Eucalyptus doesn't pass on any of them. So we'll get to Eucalyptus in a second. And I know, and I want to say this. By the way, I'm sure Tim will come on this podcast. I really like him. So the thing about what he has said, because I do feel like I want to say this, because the Australian wrote an article that pretty much said, implied, the reason he came out with these comments is because he used to do some work for the Labor Party.

1:31:09He's very open about having done that work. I think it's just that. That is a red herring. I'm sure you agree. It's like, that's irrelevant. Basically, I think he came out and said these things honestly. I just, what you're saying, which I largely agree with, is it's not the shiny, rosy situation that people in favour of it sometimes make it sound like. Well, let me finish exactly how hard this is to get, and then we can make the call on whether that view was fair. So$50 million cap, 0.1. So this is not just founders. We're talking about employees. So you can be a$50 million and one cent business, and we were that within two years of our business.

1:31:44We were a valueless business then, or almost, because we had a big turnover. But we had virtually no profit and nobody was valuing as much. So we had really risk-taking early-stage employees who would absolutely – and we're just one out of thousands and thousands of companies. But there are lots of companies that could be turning over more than$50 million who are high risk, who need to pay their staff in equity and whose staff are taking a risk. So the$50 million cap is way too low. That's problem number one. Also, when you are – under this system, if you say to someone, I'm going to give you an ESOP, an employee share options plan, as part of your salary, what's the first question the employee is now going to ask you?

1:32:21Am I qualifying? How high is your – yeah, how high is your turnover? How high is your turnover? No, they're going to ask a different question. I'll get to the question they'll ask if you're smart. But yes, but even this question, like how is a private company going to want to answer the question about what their revenue is on day – This is the least problematic part. Okay. So at least this is simple. So then you've got number two, which is the 10-year age limit. So a company has to be less than 10 years old. I don't know why there's – and 15 years, why? I don't know why there's this random number, whatever.

1:32:49It is what it is. But if you're 11 years old, you're going to be a smallish business, you can't qualify. Like that seems weird. Okay. Number three. So if you bleed for 15 years, barely make a profit, but you've been employing people the whole time and finally sell, nobody gets access to this. Yeah. Number three is you can't be listed. You've got to be unlisted, an independent corporate entity. Okay, that's fine. This is probably the harder one. The business has to – Well, by the way, number three – I just want to tell you what number three means. Number three means that part of the IPO process for these businesses will be significantly restructuring everybody's equity with a sell-down.

1:33:32Yeah, exactly. But not many companies are going to qualify that IPO anyway because 50 mil cap and whatever. less than 10 years old. But if they do, yeah, you're going to have to restructure the cap table ahead of an IPO. Yeah, yeah. The biggest one is you've got to satisfy the criteria for early stage innovation company, e-sick framework. Is it? That's the fourth one. And I'm going to go into what this is because this makes it basically impossible. But before that. This is the one I say as disadvantages women, by the way. Yeah, exactly. I wasn't sure they'd committed to using the e-sick criteria.

1:34:05Yeah. I was worried they would use them because they wouldn't think it through carefully enough. It turns out I massively overestimated them. They didn't think it through at all. They just chucked it straight in. This is bad news. I'm just going to talk about e-sick in a second. Before we get to e-sick, you've also got this five-year lock. So the employees also have to hold the shares for a minimum of five years before selling. So that's another sort of blocker that makes it almost impossible for lots of businesses because you've got this massive holding lock. Can I say why that's a blocker as well?

1:34:31Yeah. Because if I've worked for a company for three years and it's going to be fully acquired, there is no way the acquirer is going to let me as an employee hold those shares for another two years no way it's beyond my control my shares are going to be compulsorily acquired as part of a drag provision which means the buyer can force me to sell and the buyer will be forcing me to relinquish tax benefits exactly so let's go back to the innovation the e6 stuff so i just want to say this is um because i don't often use these words but this is idiocy this is actually you You can say it's inner-city.

1:35:06I'd say it's genius because Labor don't want people getting this discount. They've put this fake$10 million thing on there to make it look like, so Tim can go and trump out some article saying, look how greedy these founders are and we've got to protect employees and this helps employees. And I suspect Tim just didn't read the fine print here. But this is not Tim's legislature. Tim's going on the AFR defending it and saying how dare us founders attack this policy and we're greedy. But his bigger picture is more. It'll be interesting to know if he is across this level of detail, but his argument is more.

1:35:42I suspect he's not. It's not a good, yeah. Like I suspect no one is. I just want to say I was not until. This is all a learning experience for me. So I like this podcast. Even I learned something. So let's go through. Let's go through kickers. No, but I don't want you to impugn Tim though because like basically Tim's argument at its core, forget the detail, His argument at the core is it's not a good look with rich founders complaining that they can't be even richer because they're not getting tax discounts. And I happen to agree that that has been counterproductive in prosecuting this argument against government.

1:36:16One thing I really agree with Tim on, Tim made actually a really good comment in this article. And I'll just mention it here because it was a great comment. And he said Australia has a productivity problem. The Treasurer describes it as the defining challenge of the decade. You do not fix it by taxing the few people willing to build the productive economy at the same rate as the speculator who sits on it. The government has at least started to draw a line and it should hold the line before a hard-won concession for workers and productivity is rebadged as protection for founders who shout out the loudest.

1:36:45So we're kind of all saying the same thing, except Tim never read the detail. So that's the problem. He supported this policy that doesn't help people who build well. So we actually agree, but where we don't agree is where the rubber hits the road. So let's talk about the innovative principles. So not only do you need to do that 50 million turnover, the 10-year age limit, the listing independence rule. Yeah, talk about the EC. So this is the five. So number one, you've got to be developing a new or significantly improved innovation. So it's like proprietary software, a new medical device, something unique.

1:37:14You can't be building an e-commerce business, a gym chain, or a mobile app. You certainly can't be building eucalyptus, which is simply an e-commerce thing selling a commodity, i.e. GLP-1. So bang. Well, this is, you know, I don't want to divert your whole discussion. So I'll say this very briefly. This eucalyptus, I'm almost sure, would talk about the unique nature of the platform they are building as a new innovation. And every software business is well and truly well-versed in this game because to get the R &D tax incentive, you're making similar arguments. This country has got a tax system around software that pretty much says make a self-assessment about whether you think you are building something new and innovative.

1:38:04And periodically, the ATO will pluck some fish out of the bed and kind of skin them to decide if they are or they're not. This is a hallmark of the lack of clarity around the Australian tax incentive system for software businesses. Yeah. You also need high growth potential, scalability as an operating level. So we're going to say objective or subjective. Number one, subjective. Yeah. Number two, high scalability. High growth potential. Potential for high scalability. High growth potential. Subjective. High growth potential. Subjective. Scalability. Three. Subjective. Subjective. Broader than local market opportunity.

1:38:36A bit more objective, but a degree of subjectivity. Seven out of ten, subjective. And then sustainable competitive advantage. Obviously, highly subjective. Well, no one is starting a business as a founder and saying, I'm not, I, we might not have sustainable competitive advantage. Remember, what people don't know about ESIC I suspect is this, because the actual ESIC rules have got some other, you have to get points to be able to get this ESIC and the ESIC to be crystal clear, before I say the points is, it is a benefit for investors, not founders or employees, it's a benefit for investors to get preferential tax treatment on their investment.

1:39:18And so the thing about that is, the reason I say the ESIC system is inadvertently disadvantageous to women comparatively is that there are just far fewer women founders, female founders, building funded startups. And so if you make something that skews towards, and so that would be if it was for founders, it's not. The ESIC also lets you get points. And one of the things is, and I suspect they're going to build this in as well, which is if you're part of an accelerator that is linked to a VC on our books, then you tick the box. If you've got these things, you tick. So all of the ESIC stuff has been deliberately structured for funded startups.

1:39:57And if they go and layer those characteristics on top of this innovation stuff, I really think that will be disadvantageous for female founders of business. And that's for Jane Lou, who's a great female founder, said the same thing. So the bigger problem with all this, and it's confusing and subjective, But so to get this mythical opting out of the indexation model is you've either got to self-assess, but you run the risk. The ATO comes back five years later and says, actually, no, you were wrong. You don't get any of this stuff and then you're staffed. Which is the current ESIC risk on self-assessment.

1:40:28So an investor can say, because it's up to the investor to decide if the investment qualifies. The startup cannot issue any kind of certificate. It's up to the investor. And so the ATO can go back to the investor five years later and say, actually, we don't think that quantifies. What you can do, what you'd have to do is you can get what's called a private binding ruling, a private ruling from the ATO. So the company has to trudge off to the tax office. You've got to pay a fortune to accountants and lawyers, get this private ruling where the ATO basically locks you in as innovative, and then you're clear and you go back to the current system, which we've had for 25 years and everybody loves.

1:41:02So this is completely unworkable. If you're a startup, you've got no money, you can't be spending$100 ,000 on accountants and lawyers to get this private ruling on the basis that maybe one day you'll be successful enough to trigger this capital gains thing. Like, it's just unworkable. It's just so ridiculous. This whole thing is another lie. Like, these are two exemptions. They're fake exemptions. They're lie exemptions to this lie of a policy. This is such a disgrace. So I tell you what the good news is. No ambitious start-up will ever spend any time bothering with this because every one of them will assume they're going to pass the$50 million revenue threshold.

1:41:39Yeah. And so it's all going to be irrelevant to them anyway. Yeah. And so I just want to say I think that if you do all of these as independent sets in a Venn diagram, all of these rules, and you say who would be in the middle intersection of all of these sets, I think it might be a null set of zero because how could you say, I'm going to be less, how could you be less than 50 mil of revenue, less than 11, 10 years old. So basically you've, but you fulfilled those ESIC criteria, which were, I'm building something super amazing and new and I'm going to have this big market opportunity, et cetera, et cetera.

1:42:19So the only companies, what were your other ones? So there was a couple of others I've missed there. Just remind me. There's the initial four rules and the fourth rule is the five more rules. So It was really like nine rules. Yeah, but the initial four, one of them was less than 10 years. One of them was less than 50 mil of revenue. It can't be listed. It can't be listed. That's fine. And you've got to qualify for ESIC essentially. They're the four. No, but there was one. Oh, they're the four. Okay. So you've got these. So let's think about this. This is the company that fits into the intersection, okay, in this set.

1:42:50You have to be less than 10 years old, revenue less than 50 mil. If you're an employer, you have to have held your shares for five years. but on the flip side, you have to have been a company with mega potential. Yeah. We're going to set the world on fire building something new. And so that company with all that. And who's going off to the ATO to get a private ruling and can afford to spend all his money on a private ruling? But let's say you're not going to do that. Let's say you just do it as your own discretion. You take the risk, which is a huge risk. So do you want me to tell you the way that you could characterize a company with all of that amazing potential up front, but then sold in less than 10 years with a revenue of under 50 mil, we could call that company a failure.

1:43:30That's a failure, that company. Failed to achieve it. That is the company whose founders get the discount. Failed. More importantly, the employees. Because it's really, this is meant to be, as Tim said, this is to protect employees. We want to allow employees to add the building blocks. I get that. That's even more perverse. Listen to that story. It's a fraud. It's an absolute fraud. So the employee story is I joined this business at year two. It's little. It ticks those e-cig boxes, which I probably don't even – I'm not capable of assessing anyway as an employee. Because, by the way, if the company says they tick the boxes and the employee then claims the tax benefit, then the ATS says the company didn't tick the boxes.

1:44:17Yeah, that's the problem. Does the employee suffer the consequences of that? Of course it does. Of course it does. Absolutely it does. That's the point. In the ESIC world, it's all up to the investor. Is this all going to be up to the actual employee to make an assessment if it qualifies? It's idiocy. And by the way, I want to tell you the perversity of this beyond that. This is actually crazy, these things. So basically, now I've worked for the company for five years, okay? I've got my shares. Do you have to have all – is every share that you sell has to be held for five years? Or yes, it must be.

1:44:45So they vest periodically. How else can you sell it, I guess? Well, I want to tell you this. if my shares vest over five years, then unless I joined on day one, the last year tranche cannot ever qualify. It can't qualify because I can't have held that tranche for more than five years. And often what you get is rolling. So like a lot of your shares won't qualify. No one's giving up front. No one's giving up front. It vests over time. And so, but let's say I don't, let's say by some miracle, I joined in year two. I had three years of vesting. Now I'm at year five. you know I have to sell those shares.

1:45:21Like the day that I hold them for five years, I've got to get the hell out of that company. By the way, the man of power that now gets – because, you know, this is a Labor government, do they realize how much power they've just given the company? If I have an employee and the employee is at year four of their holding, do you know how much power I've got in firing them? They not only lose their job but they miss out on the tax benefits. Yes. And I'm very worked up about this, but you've introduced me to a whole new way of hating this legislation. Like, this is terrible. The only thing that is, this is still effectively in consultation phase.

1:45:54They kind of rushed it out. It may very well change. I think what we do need to note, though, is this is how it currently sits. Hopefully, it does change. But to pretend this is something that we've just carved out employees and employees. Oh, it's terrible. I think the 50 million thing. We've been more than 50 million turnover since, like, year two or year 16 now. So, none of our team would ever qualify for this. Like, it's so preposterous. But they will have the indexation because they'll have a cost base on their shares. But a very low cost base, if anything. Yeah, that's true. A tiny cost base.

1:46:24So like it's employee – and what we're going to do is we want employees at scale-ups to be able to benefit from taking the risk. And no scale-up is qualified. So this is just a fake. It's just a complete rort and it's just so disappointing. And if I do manage to come as an early employee and if I do manage to get my five years vesting, then actually I have to find a way to sell those shares ASAP because I'm going to lose qualification when they pass 10 years as a company. And does the company have an obligation? Because companies don't like to make employee shares available to buy and sell because companies don't want to mess with their cap table.

1:46:57And so how much pressure is going to be on the company by these employees to try to force a transaction? What would happen is the company would have to buy them back. They have to. The company would have to buy back, so that's the only way to do it. But they maybe can't afford it if it's – Well, it can't be that successful because it's got less than 50 million. And also what you want, what companies want is you want the employees to be holding shares for as long as possible and remain that alignment. So if a company has to buy back shares, one thing buying back a few shares, but you want employees aligned the whole way through and benefiting from the compounding increase in value of the business.

1:47:24So it just doesn't work. It's unworkable. It doesn't help a single employee. I've got, like, my blood pressure is really good. Like, I don't have to take any medication. It's excellent. But you've just ruined it with this conversation. You're off to a cardiologist. I'm so angry about this. I've got this amazing shredder that you can put like 100 sheets in and it just feeds them through. The government should give me this legislation. I know exactly where to put it. This is unfixable. You work at Arthur Anderson from Enron Days or something. This legislation is unfixable. Do you agree with that?

1:47:57You can't fix this. We need to send you off to the beach on the luxury escapes to Bali or something just unstressed after this conversation. I think we have to wrap it up. It's too stressed and I'm worried about your health. I think so are our listeners. It's great that you did the research on this because I think essentially almost no one that is not a deep specialist in this area is going to be familiar with this detail. And I think what we should be expecting is if you are a founder or if you are an employee getting an employee share options plan. Not just founders. if you are a founder if you are an employee you are going to be paying the full hit of tax on anything that you sell but if you're an investor so who's richer on day one than a founder or an employee the investor don't worry investor good news this government they're about generational equity so if you're an older richer person we'll take care of you that's the perversity you've got generation you've got grandfather you've got indexation what about startups You can invest in the startup with the ESIC benefit, so we'll make that good for you.

1:49:04Or you can invest in an ESV CLP, the Early Stage Venture Capital Limited Partnerships, where you'll never pay any tax except in a very few circumstances. So if you're a rich investor investing in startups, we got your back, super or mechanisms. But if you're a first-time, second-time, third-time founder that hasn't made it or an employee, we're going to tax you at the full price. And the worst part is the employees, so if they're a founder and you're probably a founder who makes 30, 40 million bucks and you're paying a high rate of tax, there's less sympathy for these founders. I don't agree with it, but I acknowledge there's less sympathy.

1:49:43But if you're an employee making a million dollars and have worked under market rate for a number of years and taken a huge risk, you're the one getting slammed at 45%. And even worse, because it's worse than the pre-99 because you can't do the averaging thing. So this is like such a – and this is why the young people have absolutely revolted against this. Like young people hate this policy because it's targeting them. And Labor can jump up and down all they want saying we're targeting rich people, we're hitting rich wealthy founders, we're protecting employees, nothing of a sort. In fact, to channel Donald Trump, I think – you tell me if it's unfair, this statement, okay?

1:50:17Nobody has done more to increase the benefit of the wealthy versus the not wealthy than this Labor-left government and their latest budget. You agree with that or not? I agree with that. Yes. Unintentionally, but that's what's happened. I think it's rebounded on them. Where's the Liberal Party? Like this, like, all right, it takes, we went on a bit of a journey to get here, but my gosh, they should be ripping the arms and legs off this government. This is meant to be a Labour-left government, and they are substantially advantaging the wealthy over the non-wealthy. I think on that note, I've got to go pick up the kids.

1:50:53This has been a great episode. Great to see you, I dear. I'll be off overseas next week. I'm going to go meditate. Zen-like. Obviously, even though I'm overseas, we certainly won't be doing an episode. We're back next Saturday for our Ask Us Anything, and, of course, on Tuesday for our big episode. Thank you, everyone, and we'll see you next week.

1:51:14Thank you.